LTFT Annual Report 2020 - 2021

LAKE TAUPŌ FOREST TRUST

Annual Report

2020–2021 2020–21 Annual Report

i

Whāia te iti kahurangi ki tōna tauranga, kia pupū ake ai ko ngā painga katoa, ki a rātou e whai painga ana ki tēnei ngahere.

Pursue the items of value to their destination so that benefits and goodness arise for the beneficiaries of this forest.

Contents

iv Vision, Mission and Strategy 2 He Maumahara 4 Chairman’s Report 6 About the Trust 7 Trustees and Staff 9 Owners’ Report 12 Commercial Subsidiary — Tupu Angitu Ltd 15 Lake Taupō Charitable Trust 21 Forestry Report 39 Financial Report 45 Investment Report 53 Summarised Financial Statements

62 Group Directory

63 The Trust Order

64 Land Blocks

OUR VISION

Kia ū ki te whenua Tū tangata ki te ao To be a diversified and sustainable global land and asset manager centred in Aotearoa, while being a responsible investor for the wellbeing of our people

Pou Whenua

The way we do things is led by our Tūwharetoa tikanga

We are enabling sustainable land use that is consistent with our tikanga

STRATEGY

Pou Tikanga

iv

We will understand our tikanga We will live by our tikanga

Lake Taupō Forest Trust

Knowing our natural taonga Pursuing excellence in land management Being active kaitiaki

OUR MISSION

Ki te hoe tonu i te waka moemoeā o rātou kua ngaro, kia whai hua hoki ngā wawata o ngā uri whenua To realise the dreams of those who have gone before us by fulfilling their expectations to build a competitive business, respect their customary values, and protect their lands and assets in order to deliver real benefits to their descendants

Pou Tahua

Enabling meaningful benefits for our people

We are an organisation that is fit for purpose and has a team to enable the business to grow

Engagement with our people Delivery of benefits Knowing our people

Investment Our teams Our culture

2 0 1 8—23

Pou Tangata

Manaakitanga

2020–21 Annual Report

1

He Maumahara ~ Kelly Te Heuheu 24 SEPTEMBER 1955—27 NOVEMBER 2021

Tēnā ki te ui mai ki ahau, ‘Tēnā, ki ōu whakaaro, ko wai tētehi wahine e mau ana ki te mana?’

Māku hei whakautu, ‘Me titiro ki te take o Rangitoto e tūtei ana i te ahu tapu ko Te Māhurehure.

Ki reira noho te wahine i tāngia tōna kauwae hei tohu mō tana kaha ki te taupatu kōrero mō ngā tikanga e pā ana ki ō tātou whenua.

Koinei te mihi atu ki a Kelly. He wahine toa, he wahine māia, he wahine manawanui.

Kāore e kore ka rongo ki tō reo e pāorooro ana i ngā hui mō Ngā Kaitiaki mō Ngā Ngahere o Taupō Moana Whai atu ki a rātou kua mene atu ki te pō ki te huinga nui i Hawaiki Wairua.

Moe mai e kui. Okioki atu ki runga i te urunga o Te Ruahine Tapu.

Ko te tapu o te mate I horoi ki runga Pūeaea Ka whanga ki te rongo Ki te tangi o te pūtaratara.

E tau ana.

Chairman’s Report

For the Lake Taupō Forest Trust, the last year has brought us new challenges, new opportunities and a fresh chance to take on board new ideas.

On 30 June 2021, the Crown’s 52-year lease of the Lake Taupō Forest came to an end. The Crown has been a good partner for the Lake Taupō Forest Trust over this period. In the early days, they were pretty tough, but over the years, they did become more accommodating to help us achieve our vision.

Fortunately, the Crown has agreed to leave 300,000 m3 of their wood in the forest to be harvested over the next year or two. This allows the Trust to maintain a high harvest volume and therefore high returns through the transition while letting our second rotation trees get a bit older and add a bit more value before we have to harvest them.

The last year has also seen us establish Tupu Angitu Ltd – the commercial arm of the Lake Taupō Forest Trust.

We have appointed four directors – Temuera Hall, Jonathan Cameron, Tracey Hook and Geoff Thorp, and in turn, the company has engaged Mawae Morton as General Manager.

Mr Morton is also one of the owners in Lake Taupō Forest Trust.

The new company reports to the Trustees and is responsible for the Trust’s existing and future commercial investments in forestry and nonforestry opportunities and ensuring they align with the Trust’s cultural, social and environmental values. One of its first projects is to conclude our intended acquisition of New Zealand Forest Managers, our current forest management company.

The Trust is well positioned for the future with equity in the Trust Group now valued at $514 million as at 30 June 2021, an increase of 16.5 per cent. In the 2020–21 financial year, the Trust generated an operating profit before tax and revaluations of $12.1 million from revenue of $24.7 million. The Trust also declared a gross taxable distribution to owners of $7 million, which was the highest declared distribution since the start of the Trust. This was paid to owners in April 2021.

COVID-19 has continued creating uncertainty for all of us over the year. We have all had to put up with

4

Lake Taupō Forest Trust

significant disruption to our lives and made a lot of sacrifices. Accordingly, we encourage continued vigilance and taking all safety precautions to minimise any risk to our people, particularly our kaumātua.

After almost 21 years’ service to the Trust, we bid farewell to Betty Tarita Kingi-Rihari, one of our longestserving staff members, who retired during the recent COVID-19 Delta outbreak. Betty began working with the Trust in December 2000 in the Trust’s finance team and continued in that finance role carrying out a range of tasks for Lake Taupō Forest Trust, Lake Rotoaira Forest Trust and the Lake Rotoaira Trust. Her laughter and daily updates about her tamariki and mokopuna will be missed. We wish her all the very best in her retirement years.

As always, there are several people I would like to acknowledge. Without their dedication, loyalty and support, delivering our long-term vision would be impossible. Firstly, I acknowledge the hard work and support of my fellow Trustees and their unwavering commitment to ensuring we stay focused on the kaupapa ahead.

Thanks to our Chief Executive Officer, John Bishara, Group Manager, Amy Walker, and their team of administrators for their professionalism and dedication.

Thanks also to Lake Rotoaira Forest Trustees for their support as well as Lake Taupō Forest Management Ltd and New Zealand Forest Managers Ltd for helping us achieve our vision.

And thank you to you, the owners, for your continued support and encouragement.

Finally, I would also like to acknowledge the passing of two other Trustees during the year.

Mikaere Pitiroi, in September 2020, and Hemi Biddle, in May 2021.

Although they were only with the Trust for a relatively short time, we valued their advice and commitment.

E ngā Rangatira, moe mai, moe mai, moe mai ra.

BINKY ELLIS Chairman

He hōnore he korōria ki te Atua He maungārongo ki te mata o te whenua He whakaaro pai ki ngā tāngata katoa E ngā iwi, arā, koutou katoa e whai pānga ana ki te ngahere o Taupō Moana Arā koutou katoa kua tae mai nei ki te whakarongo ki ngā mahi kua oti nei i tēnei tau, tēnā koutou katoa E maumahara ana ki ō tātou mate Arā, rātou kua huri atu ki tua o te ārai Haere, moe mai i runga i te rangimārie Moe mai i roto i te Ariki Nō reira, Kia ora tātou katoa.

2020–21 Annual Report

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About the Trust The Lake Taupō Forest Trust (LTFT) was established by Māori Land Court Order in December 1968 to represent the interests of the owners of 58 separate Māori land titles on the eastern shores of Lake Taupō. The Trust now acts on behalf of 13,800 beneficial owners who retain their shares in the lands.

The Trust now administers 68 blocks of Māori freehold land and 13 blocks of general freehold land.

The blocks were leased to the Crown and planted in forest, with the stumpage shared between the Trust and the Crown at harvest. The lease is being surrendered progressively by the Crown so that at the end of first rotation harvesting the Trust will own all of the forest.

Education grants and Marae grants started in 1994, and distributions of income have been paid to the beneficial owners of the Trust lands since 1996.

The Trust has established subsidiary companies to deal with specific areas of the Trust’s activities. It also established and funds the Lake Taupō Charitable Trust to organise community-purposes funding for education, kaumātua assistance and other projects to benefit owners. The structure of the Trust and its subsidiaries is shown below.

Beneficial Owners

Lake Taupō Forest Trust (11 T R U S T E E S)

Taupō Moana Investments Ltd T R A D I N G A S I W I I N V E S TO R LT D

Lake Taupō Charitable Trust (LTCT) Tūwharetoa Nominees Ltd

Tupu Angitu Ltd E S TA B L I S H E D 19 D E C 201 9

The Weighbridge Company Ltd

Lake Taupō Forest Management Ltd

LTFT Land Holdings Ltd

Old Forest Lumber Co. Ltd (Te Ngahere Ataahua)

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Lake Taupō Forest Trust

Hautū Rangipō Ltd Partnership 60.5% LTFT/LRFT

Our Trustees

Chairperson

Trustee

Trustee

Trustee

Trustee

CLINTON ‘BINKY’ ELLIS

HEEMI JAMES BIDDLE

J U DY H A R R I S

TA N G O N U I K I N G I

D AV I D O ’ R O U R K E

Deputy Chairperson

Trustee

Trustee

Trustee

Pou Tikanga

TINA POROU

J O H N T U PA R A

N G A H E R E WA L L

D A N I C A S E A R A N C K E-

T E K A N AWA P I T I R O I

TIPENE

Our People

Chief Executive Officer

Group Manager

Accountant

JOHN BISHARA

A M Y WA L K E R

MAUREEN SMITH

Team Leader Administration and Grants S H A N Y N WA R E N A

Executive Assistant to the CEO

Assistant Accountant

Assistant Accountant

Administrator

S A N DY G I B B I S O N

J A R E D M AT U A U TO

TA R I TA K I N G I - R I H A R I

RAUKURA DUNSTER

Administrator

Managing Director LTFM

Assistant Forest Manager LTFM

Researcher LTFM

LO G A N D AV I S

GEOFF THORP

PAT R I C K N E P I A

L A N I A H O LT

2020–21 Annual Report

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Owners’ Report

Owners’ Statistics

14,441

total number of owners at 30 June 2021

57%

are registered Most owners are resident in New Zealand, but around

4%

are living overseas, mostly in Australia

FIGURE 1.

Registered and Unregistered Owners 16000 14000 12000 10000 8000 6000 4000 2000 0

2018–19 Total number of owners

10

Lake Taupō Forest Trust

2019–20 Registered owners

2020–21 Unregistered owners

2021 Annual Distribution

Unclaimed Distributions

As reported in the Finance Report, the Trust declared a

Owners are reminded to contact us each time they change their address or change their bank account details.

distribution of $7 million. This was a taxable distribution. If you did not provide the Trust with your IRD number, then the Trust was obliged to deduct tax at 39 per cent.

Approximately 55 per cent of the distribution was paid to 4,485 Lake Taupō Forest Trust owners. The unpaid portion of the distribution is left in the Trust’s Lake Taupō Income Fund (LTI), more commonly known as the unclaimed distributions fund, until the details of the rightful owners are identified, and the funds are distributed. The interest earned on the LTI is used to fund the Trust’s charitable arm, Lake Taupō Charitable Trust, which is responsible for distributing charitable grants to kaumātua and establishing charitable programmes.

As is the call each year, we are interested in identifying, locating and registering all owners who hold interests in Lake Taupō Forest Trust blocks so that they receive the benefits they are entitled to, and we can pay outstanding distributions that are held in our unclaimed distributions fund.

We are particularly interested in identifying the owners listed in the table below. The Trust holds substantial funds, and in some cases more than $30,000, on behalf of these owners. If you know any of these people or their descendants, please have them contact this office so we can arrange registration and payment.

Owners of Significant Unclaimed Funds P I K I H U I A PA K A U

R I R I A TA K I R I

H A R E H O H E PA

HIRIA TE POKE

K A N A R A H A U M I H I ATA

MARIANA NGAHUIA

K ATO N G A I R O

TA K I H I T E M ATA R I N A

H A R A I TA U N A H A

TA U R I TO KO A H U

PEKAMU TUROA

T I R I PA T E P U

R I H I P E T I T E WA R E N A

ERUINI AMOROA

R AW I N I A T E W H A K A R ATO

H A R E M AT E N G A

TE ROU HARETE

K E R E H I A K I TA R A

W I R E W I TA K E R E I

TE ARAROA TUKINO

T E R A I M A W I TA U T E K A

P I R I H I TA N G AWA K A

M A R E WA E R O M E N E

A N AT I PA TA I H A KO A

P O I H A E R E T E WA R E N A

K A PA R A T E H E U H E U

MARY JACKSON

TE WHARENUI TE ROHU

The Trust has a list of all owners for whom unclaimed monies are held. Visit our website www.ltft.co.nz for further details or contact this office.

Putea Aroha Grants In 2000, the Trust established the Tangihanga Fund. The purpose of the fund is to allow for Tangihanga grants to be paid to whānau of registered owners who have died. The grant is worth $2,000 and is normally paid to the person who has been nominated by the owner to uplift the grant or to the person responsible for paying the funeral expenses.

This year, the Trust paid $252,000 to 126 whānau of deceased owners.

We encourage owners to register with the Trust and to complete a nomination form. This helps to administer the grant in a timely and less complicated manner.

2020–21 Annual Report

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COMMERCIAL SUBSIDIARY

Tupu Angitu Ltd

Over the last year, Lake Taupō Forest Trust has established a commercial subsidiary – Tupu Angitu Ltd – responsible for the Trust’s commercial interactions and businesses. The new company reports to the Trustees and is responsible for the Trust’s existing commercial initiatives (including forestry) and future investments in forestry and non-forestry opportunities, provided they align with the Trust’s cultural and social values such as tikanga, employment and the environment.

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The Trust has appointed four Tupu Angitu directors – Temuera Hall, Jonathan Cameron, Tracey Hook and Geoff Thorp. The company has in turn engaged Mawae Morton as General Manager. Mr Morton has extensive international experience in both the public and private sectors, and he is also an owner in Lake Taupō Forest Trust.

He recently returned from Hawai‘i where he has resided since 2003, most recently working as CEO for Cyanotech Corporation, a world leader in microalgae technology, and before that as CEO of HBE Biorefinery Co, a Hawai‘i-based forestry and bioenergy development company.

Lake Taupō Forest Trust has provided clear guidelines and expectations for Tupu Angitu, which will regularly report back to the Trustees on its performance. A key matter being worked through is how the Trust’s future income is divided between the amount reserved for distribution to owners and the amount to re-invest and grow the business. With the departure of the Crown allowing the Trust to receive 100 per cent of stumpage income from the second rotation, the forecasts indicate there are likely to be healthy surpluses to allow both to be adequately funded.

Tupu Angitu has been in an establishment phase during the 2020–21 year and will start operating more fully in the 2021–22 year. The Trust, now assisted by Tupu Angitu, continues to monitor the NZU outlook to determine how best to generate returns from the approximately 1.1 million NZUs it still holds.

The LTFT Trustees will remain responsible for the social and cultural aspects of the Trust’s activities, including administration, distributions and grants, policy and communications. Trustees are holding strategy sessions to determine how best to approach these roles.

Lake Taupō Forest Trust

2020–21 Annual Report

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Activity 2021

Lake Taupō Charitable Trust

50,000

$

ANNUAL GRANT

1,000 OVER

TO KO T Ū W H A R E TO A

A P P L I C AT I O N S A P P R O V E D

T E I W I C H A R I TA B L E T R U S T

A N D PA I D

Annual Paramountcy Grant

Kaumātua Assistance Grants

The Lake Taupō Charitable Trust continues to provide an annual grant of $50,000 to Ko Tūwharetoa te Iwi Charitable Trust.

This is the administration trust for Te Ariki Tumu Te Heuheu to support his leadership role for Ngāti Tūwharetoa at national and international level.

Each year, the Lake Taupō Charitable Trust provides an annual Kaumātua Assistance Grant to all registered owners aged 70 years and over. Application forms are automatically generated and distributed to all eligible individuals.

In 2021, over 1,000 application forms were approved and paid.

Tertiary Education Grants The following 43 recipients were awarded an education grant from the Lake Taupō Charitable Trust in 2021.

Recipients must be studying in one of the following fields relating directly to the forestry industry: forestry, finance, business management, law, science, engineering, environmental, information technology, GIS mapping or marketing.

A B E TA H A U

D E N I S E D O C TO R

TAY L A M O K E-A N D E R S O N

MAXIMUS DUNSTER

S E O N A H E A L E Y- F O R D E

J A C K P OTA K A

AHERA CARLSON

D U S K Y- R O S E TAW H A I

T E H E R E N G A TA H E R E-W I L L I A M S

N U M I A KO R E W H A AIRON REWETI-CLARK P U N A W H A K A ATA M A N I A P OTO - LO V E A K U H ATA B A I L E Y-W I N I ATA

SHAUN MCNEIL ERIN FILER SKYE WEHIPEIHANA GRACE O'ROURKE

JESSICA NORTHCROFT T E R A U M AW H I T U LO LO H E A K ATA R I N A W H A K AT I H I T E R E H I N A H E P I -T E H U I A

SONNY VERCOE Q U I N C Y- J A Z Z E L L I S CANDACE TE RANGI R AW I N I A C O O P E R D E L A H OYA ( H E TA ) G R A H A M

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Lake Taupō Forest Trust

HAUKAPUANUI VERCOE STEVEE RIHIA H U I A R A U S T E WA R T TA M A H A U I T I P OTA K A

KIARA DUKE T H O M A S B OY L E L A N A PA R K E R- H AY WA I TA P U B E E C H

R O S E M A R Y BY L E S

H U R I A N A K E E PA- H A M I O R A

L I LY R AW I R I

DELISE PUHI

TA M A R A R A N S O M

W I L L I A M ( B I L LY J O) H U N I A

S A S K I A W H I S TO N

INDIGO PHILLIPS

M A R K R E W I TA

Forest Tertiary Scholarships The following recipients were successful in receiving a 2021 Forest Tertiary Scholarship to the value of $10,000 each.

COLE GRACE

L A N A PA R K E R

M I TC H E L L J O N E S

Bachelor of Forestry Science

Bachelor of Forestry Science

Bachelor of Forest Engineering

T E R A U M AW H I T U LO LO H E A

AIRON REWETI-CLARK

New Zealand Diploma in Forest Management

New Zealand Diploma in Forest Management

Forest Internship Placements The following recipients have been awarded internship opportunities with New Zealand Forest Managers for a 10-week period from November 2021.

COLE GRACE

T E R A U M AW H I T U LO LO H E A

AIRON REWETI-CLARK

Bachelor of Forestry Science

New Zealand Diploma in Forest Management

New Zealand Diploma in Forest Management

Tūrangi Christmas in the Park Sponsorship The Lake Taupō Charitable Trust is proud to be a part of this community day. December 2020 marked the tenth Tūrangi Christmas in the Park event, delivering a fantastic local community initiative. This event witnessed a number of locals attend and participate and engage in the wonderful activities provided free of charge.

2020–21 Annual Report

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InZone Careers Kiosk Sponsorship The Lake Taupō Charitable Trust has committed to a 12-month InZone Careers Kiosk Sponsorship Initiative for three kiosks to be placed in three local secondary schools – Ruapehu College, Tongariro School and Taupō-nui-a-Tia College – to provide inspirational career material and industry opportunities assisting students to make informed and practical decisions.

As part of this agreement, a ‘He Māhuri Toa’ forest industry promotion video was developed and uploaded to InZone careers kiosks throughout New Zealand.

University of Canterbury Visit On Friday, 6 August 2021, Trustees Judy Harris and John Tupara visited the University of Canterbury in Christchurch to meet with all students affiliated to Ngāti Tūwharetoa. A meet and greet was held with pupils from a range of faculties, proving an invaluable experience for whānau to connect. Trustees provided an overview of He Māhuri Toa Forest Management Programme and noted what grants and scholarships were available.

Also attending were Trust General Manager Amy Walker, Team Leader Administration and Grants Shanyn Warena and aspiring Forestry student Raumati Piwari.

Left to right: Shanyn Warena, Raumati Piwari, Judy Harris, Lana Parker, Jeanette Allen (University of Canterbury), Cole Grace, Amy Walker and John Tupara. (Absent: Mitchell Jones).

Toi Ohomai Institute of Technology Forestry School Visit On Monday, 10 May 2021, the Lake Taupō Charitable Trust supported a meet and greet lunch for students from the Toi Ohomai Institute of Technology Forestry School in Rotorua (New Zealand Diploma in Forest Management – Level 6 Programme and Certificate in Forest Harvesting – Level 3 Programme).

The lunch followed a tour of the Lake Taupō and Lake Rotoaira forests (facilitated by NZ Forest Managers) with Trustees presenting an overview of He Māhuri Toa Forest Management Programme and grant opportunities available to eligible students.

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Lake Taupō Forest Trust

Forestry Report

Crown Lease Expires

T R U S T A N D C R O W N A G R E E TO PRODUCTION EXTENSION

The Lake Taupō Forest Trust controls an area of 33,733 hectares, including 30,804 hectares (93 per cent) originally leased to the Crown for forestry and a further 2,929 hectares of land that was never part of the Crown lease. The land comprises 68 Māori land blocks and 15 blocks owned freehold by the Trust.

Of this area, 25,091 hectares (74 per cent) is afforested, almost all in Pinus radiata. The high proportion of unplanted area (26 per cent) reflects the conservation and environmental protection objectives of both the Trust and the Crown at the time of the original lease (1969). Further information on the Trust and its lands can be found at www.ltft.co.nz.

In 2000, the Crown and Trust agreed to change the terms of the lease from a 70-year, two-rotation arrangement to a one-rotation lease. As a result, leased land is returned to the Trust following the harvest of the first rotation crop. Through this process, the Trust now owns 24,830 hectares of plantation (including harvested lands waiting to be replanted), comprising 23,015 hectares of ex-lease (second rotation) forest and 1,815 hectares planted on its other blocks.

The Crown lease expired on 30 June 2021, but in the lead up to that, the Trust and Crown agreed an arrangement where the Crown would delay its final departure by up to two years. As discussed in last year’s report, the Crown agreed to still have 300,000 m3 of their wood in the forest at 30 June 2021, which they will harvest mainly in the 2021–22 year, with a small portion potentially in the 2022–23 year.

This arrangement helps the Trust by allowing our second rotation trees get just a bit older before we harvest. It also helps maintain a high harvest volume through the transition.

The 52-year lease with the Crown has been a successful one for the Trust and, we understand, the Crown. When it was formed, the Trust had the land but not the funds to develop it into plantation forest.

In today’s terms, it costs around $6 million/year to develop and manage the forest, and this was well beyond the means of the Trust. The Crown came in as our funding partner, and the Trustees wisely elected to take a share of eventual harvesting profits (a ‘share of stumpage’) rather than being paid an annual rent. Although this meant that there was very little money available until harvesting commenced in the 1990s, it also meant that when the income did start flowing there was sufficient to replant the land and also to pay a dividend to the owners – something that has been happening now for over 20 years.

F I G U R E 2.

Lake Taupō Forest – Areas by Age Class J U N E 20 21 1600 1400

Area (ha)

1200 1000 800 600 400 200 0

1

3

5

7

9

11

13

15

17

19

21

23

25

Age at June 2021 Trust-owned trees

22

Lake Taupō Forest Trust

Crown-owned trees

27

29

31

33

35

37

From having land and no money in 1969, by the end of the lease in June 2021 the Trust had:

Received

230,000,000

$

in stumpage income Invested

94,000,000

$

in growing the second rotation forest A forest now valued at

374,000,000

$

Distributed

89,000,000

$

to owners

(including various grants) Invested in a range of other assets, including

land and forests together valued at

30,000,000

$

Almost

ZERO DEBT 2020–21 Annual Report

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All that was achieved while in a fully commercial relationship with our partner the Crown – initially represented through the New Zealand Forest Service and latterly through Crown Forestry Ltd, a subsidiary of the Ministry of Primary Industries (MPI). The Crown has earned over $400 million in stumpage from Lake Taupō Forest, and over the duration, it has worked positively and cooperatively with the Trust on a range of matters.

The Trust continues to have a good relationship with its

As described earlier, the Crown remains in the forest for up to two years under a different arrangement (a ‘Forestry Right’) while it harvests the last of its stands, after which the direct relationship will cease. The Crown will, however, continue to have a lease arrangement with our whanaunga in the Lake Rotoaira Forest Trust until mid-2026.

strict operational practices around wahi tapu also give

Managing the Second Rotation Forest The Trust’s forest is managed under contract by New Zealand Forest Managers Ltd, whose work is audited on behalf of the Trust by Lake Taupō Forest Management Ltd. The establishment and management of the second rotation crop is progressing well, and early signs are that this crop will produce considerably higher volumes than the first.

This is largely due to the improved quality of planting stock used and also due to advances in forest management learnt by the industry over the last 30 years.

Around 70 per cent of the second rotation crop is managed under a clearwood (pruning) regime, entailing two pruning operations, typically between ages five and nine years. We continue to analyse what level of pruning investment is right for us. Several of the larger forest growers in the Central North Island region have stopped pruning altogether, but we do not think this is appropriate for our forest. This is not only because of economic reasons, but also because it provides more employment opportunities and enables us to offer year-round work. Companies that do not prune struggle to find workers to do their planting over the fourmonth winter planting season, whereas our pruning crews simply switch to planting work over this period.

The Trust spent $7.7 million on developing and managing its forests during the year – the highest on record by about $300,000 – largely as a result of the need to catch up on work delayed by COVID-19 in the previous year. Areas treated in the 2020–21 year are shown below.

Lake Taupō Forest Trust

(NZFM). This company has a strong and stable workforce.

It frequently goes beyond the terms of its contract with the Trust to ensure that our interests are recognised, including protecting the health and safety of both the workforce and the recreational land users and lobbying on such things as regional and district plans. NZFM’s respect for and confidence to the Trustees. Many of its staff have a long history of working in the forest, which proves very useful in both bigger picture matters and in specific issues that require institutional memory.

Harvest Update The logs harvested in Lake Taupō Forest come from the Crown lease parts of the forest. The Trust started harvesting its own trees in August 2021 (a few months after this reporting period), though it did have to salvage a fair volume of windthrow in its stands in 2019 and 2020.

New Zealand Forest Managers are responsible for the sales and marketing of the harvested logs.

Log sales from the Crown’s forest in the year to June 2021 totalled 606,350 m3 – about 10 per cent over the initially budgeted 550,000 m3. The long-term sustainable harvest has been around 510,000 m3/year, but more was scheduled for harvest this year to make up for the COVID-19-impacted 2020 year when only 476,000 m3 were harvested. Harvesting was generally concentrated in the northern portion of the forest.

The total stumpage income from the harvesting in the Crown lease part of Lake Taupō Forest in the 2020–21 year was $46.2 million. As prescribed in the lease, the Lake Taupō Forest Trust received a 35 per cent share of this income, and received $16.2 million.

This was a great result, and the second highest on record after the $16.4 million from 2018. The strong return not only reflects the high sales volume but also strong log prices – the fourth consecutive year our average log sales price (delivered to a mill or port) has been over $120/m3.

Planting

First prune

Second prune

Thinning

913 H E C TA R E S

801 H E C TA R E S

722 H E C TA R E S

1,290 H E C TA R E S

650 hectares in the winter of 2020 and 263 hectares in the winter of 2021

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forest managers, New Zealand Forest Managers Ltd

F I G U R E 3.

Lake Taupō Forest Trust – Stumpage Income 20 18 16

($ million)

14 12 10 8 6 4 2 0

2001

2003

2005

2007

2009

Crown lease harvest

A series of wind events in late 2019 and early 2020, and their impact on the forest, were described in some detail in the last report. Around 300 hectares of Trust-owned forest were written off, and a further 150 hectares had to be felled in the squaring-up exercise (to create sensible replanting boundaries). The vast majority of the damage was in forest on the old Te Rangiita Farm – land that came into the Trust in 1996 and was mainly planted in 1996 and 1997 (so were 22 and 23 years old).

Most of the salvage and squaring-up operations were completed in 2019–20, but the final 16,701 m3 was sold in the 2020–21 year, bringing in an additional $593,000 of stumpage for the Trust.

Harvesting in Lake Taupō and Lake Rotoaira forests is done by a contingent of seven harvesting gangs, five of which are run by owners in the forest. The actual work is contracted out by New Zealand Forest Managers, who in turn are contracted by the Crown to harvest its (first rotation) trees.

The Trusts have no direct role in the harvesting of the first rotation crop but are obviously responsible for the harvest of their own second rotation trees. The Trust tries to ensure owner-contractors are involved as much as possible.

Harvesting work is steadily becoming more mechanised, which improves both productivity and health and safety.

Today, most trees are felled by a machine rather than a person with a chainsaw, and much of the log-making (cutting the full stems into individual log grades for sale) is also done this way.

Strong Log Markets The COVID-19 disruptions of 2019–20 introduced considerable uncertainty into most aspects of business, and forestry was no different. However, we are pleased to report that demand and prices for most log grades rebounded

2011

2013

2015

2017

2019

2021

Trust-owned forest harvest

very strongly after the 2020 lockdown and remained that way throughout 2020–21.

Ultimately, our net harvesting returns (stumpage) – at around

76/m3,

$

were high by historic standards.

Again, it has been China that has dominated the market demand for New Zealand radiata. Nearly half of New Zealand’s 34,000,000 m3 annual harvest is exported in log form to China. While the Trust sells very few logs into China (only some Douglas fir, which is very much a minor species for us), the prices paid by Chinese customers largely dictated the prices paid in other markets, including the domestic New Zealand market, for most unpruned log grades (which comprise around 65 per cent of our logs).

New Zealand continues to be the largest single exporter of softwood logs to China. Demand for our logs increased further when a 2020 trade dispute between China and Australia effectively stopped Australia’s 3,000,000 m3/year log exports to China.

The main export markets for logs from Lake Taupō Forest are South Korea, Japan and India. Demand in South Korea and Japan was steady through the year, but exports to India were significantly reduced due to ongoing COVID-19 lockdowns in that country.

The domestic market has been very strong, largely based on high house building and renovation activity. This looks set to continue although the overall building market is being affected by supply chain disruptions for many building products, which can have a flow-on impact on the demand for wood products here.

2020–21 Annual Report

25

Around 41 per cent of the logs sold from Lake Taupō Forest in 2020–21 were exported, which is at the top end of our normal 35–40 per cent range. The high export volume was influenced by the high volume of Douglas fir harvested, for which there are limited domestic sales options, and domestic mills were unable to absorb the volumes that local forest owners were pushing to sell after the COVID-19 lockdown.

However, despite 60 per cent of our logs being sold domestically, the prices we receive are largely determined by international market factors. This reflects the fact that logs are an international commodity, and although some distance away from our main competitors, we are certainly not operating in isolation from their influence. Further, most of the product sold to New Zealand sawmills will eventually end up being exported in one form or another and so must also compete on the international market.

Figure 4 presents the average price received for all Lake Taupō Forest log sales (domestic and export) since 2002, with the 2020–21 year shown in the orange band. Note the graph does not include the windthrow logs, which were younger and sold at an average $15/m3 discount compared with those from the main harvest.

COVID-19 is continuing to impact life both in New Zealand and around the world, and the uncertainties this causes in the wood markets have not disappeared despite a strong 2020–21 year. As this is being written, in late 2021, there are signs that demand for New Zealand logs in China is softening, and prices there have fallen to approximately 10-year average levels. Returns for New Zealand growers are also impacted by very high ocean freight costs and by delays in shipping, meaning per cubic metre returns in the 2021–22 year are unlikely to be as high as in the previous four years.

Another factor that will start to impact on log export returns is the impending restrictions on the use of a common fumigant used on exports – methyl bromide. This chemical is applied at New Zealand ports to some logs, particularly exports to India and China, to kill any bugs living in the bark.

However, it is an ozone-depleting chemical, and from early 2022 it will in effect be banned from use in New Zealand.

For our forests, this may mean an end to log exports to India, though there remains a chance that India will change their rules on this. Equally important is the wider impact on demand and prices – other exporters may push harder to get their logs into our main markets of South Korea and Japan (which do not require fumigation), and this could lead to reduced prices.

Another key factor influencing our returns is our own production costs. Harvesting the northern parts of Lake Taupō Forest presents a mixture of easy and steep terrain, while the old age of the stands being harvested (an average of around 34 years) is resulting in large trees that are relatively efficient to harvest. Overall production costs have been held fairly flat for seven years now. This has been assisted by increased mechanisation and a shorter cart distance to most of our markets compared to areas in the middle or southern end of the forest.

Wood from Lake Taupō Forest must also compete with other growers in the Central North Island region. While we have no concerns about competing on quality – indeed our wood has a very good reputation in this regard – the sheer volume of wood in the region makes competition strong.

Over the last few decades, the region’s increase in annual harvest volume has been larger than its increase in wood processing capacity, which has, in turn, led to increased log exports.

FIGURE 4.

Average Mill Door Log Price J U LY 20 0 2– J U LY 20 21

Three-month rolling average sales price – all logs 150

140 130 120

($/m3)

110 100 90 80 70 60

26

2003

Lake Taupō Forest Trust

2005

2007

2009

2011

2013

2015

2017

2019

2021

Auckland City Mission’s new 10-storey wooden building – New Zealand’s tallest

Red Stag Mill, Rotorua

The Trust is continually trying to encourage new players to enter the processing industry in this region. While there have not been any new mills built recently, we are aware of a few proposals being considered, and there have also been a few significant upgrades underway or completed, including a new cross-laminated timber plant at the Red Stag Mill in Rotorua and a major expansion at Carter Holt Harvey in Kawerau.

Like the other major forest owners, we like to maintain some tension between the export and domestic markets, as we see this as the best way to maximise returns for our logs. If either market dominated too heavily, then forest growers such as the Trust would be in a weak position when negotiating log sales prices.

The significant drop in harvest in many Asian countries coupled with the steady increase in wealth (and wood consumption) of those countries are very positive signals for our future markets. The responsible and sustainable management of forests such as Lake Taupō Forest is increasingly being recognised as an important factor in the marketability of our produce, with more and more buyers demanding Forest Stewardship Council (FSC) certified wood. Similarly, there is a gradual recognition of the environmentally friendly characteristics of wood as a building material compared with most alternatives, such as concrete and steel. This is leading to increased interest in building multi-storey buildings from wood, mainly using engineered wood products such as cross-laminated timber, and this was further boosted recently when the government agreed a wood-first policy for its own building

projects. These are all very positive signals for the forest industry, albeit they are medium- to long-term trend outlooks and unlikely to lead to dramatic increases in prices in the short term.

Of course, not all signs are positive. The competition from plantations in South America will continue to influence our markets, particularly in North America, while the supply into Asia of beetle-damaged wood from Europe may also influence prices for the next five years or longer. Gradual increases in all sorts of regulation in New Zealand impact on our costs, and our whole production and supply chain is quite sensitive to oil prices.

Climate change introduces more uncertainty. Increased temperatures and more frequent rainfall may actually improve our growth rates in the Central North Island, but potentially countering this may be the negative impacts of more storms and higher fire risk.

As always, the business of forestry remains somewhat an act of faith and one that requires a long-term outlook. Land needs to be committed and money spent around 30 years before the time of sale. It is impossible to predict accurately how markets will look at such a time. The Trustees continue to look closely at the current situation and appraise future signals, and we remain confident both that the long-term outlook for forestry is positive and that plantations are the best use for most of the Trust lands. Overall, plantation forestry as practised by LTFT is considered to be a safe and steady investment that will produce good returns for its owners.

2020–21 Annual Report

27

Forest Valuation The Trust is required to assess the value of its forest each year. This year’s valuation was again undertaken by Indufor Asia Pacific Ltd, an international forest consulting company with an office in Auckland. The valuation modelled the long-term management and harvesting plans to determine future cash flows and extracted from that the current value of the Trust’s share of the Crown lease forest and the value of the Trust’s wholly owned forest.

These forest values are required for accounting purposes only (book values); more important to the Trust’s business is the annual cash flow, which mainly depends on the state of the log markets during any given year. The valuation represents the amount an independent buyer would pay to purchase our forests – not a situation that we envisage happening.

The valuation methodology for the forest generally remained the same as in the previous year, though the discount rate applied to the future cash flows reduced from 7.5 per cent to 7.0 per cent. This was done primarily in recognition of the strong demand and high prices being paid in the market for forests in recent years.

Total planted area of

24,830 hectares at 30 June 2021

The Trust’s wholly-owned forest, with a total planted area of 24,830 hectares, was valued at $374 million at 30 June 2021.

This was an $81 million (28 per cent) increase on the value at June 2020. The rise in value was primarily a result of the lower discount rate and the proof that the trees are growing faster than previously estimated. NZFM have undertaken a detailed update of the growth rate forecasts, and these show that the previous yield tables were under-predicting how fast most stands are growing. Also influencing the value was that the area of wholly owned forest increased by 680 hectares, being the area replanted during the winter of 2020. The rest of the forest grew one year older, thus one year closer to harvest, and this also increases its value. The considerable sum spent on the forest this year also contributed to its higher value.

The value of the Trust’s share of the remaining Crown lease forest at 30 June 2021 was $5.4 million, some $13.5 million (71 per cent) lower than at 30 June 2020. We expect this value to decrease each year as the remaining lease forest is steadily harvested. By the end of the current 2021–22 year, it will be close to zero as nearly all will have been harvested.

The combined value of the Trust’s Lake Taupō Forest assets at 30 June 2021 is $380 million – up $68 million (22 per cent) on a year earlier. This value excludes the value of the land on which the trees are growing.

680 = hectares

The value of the Trust’s share of the remaining Crown lease forest is

5,400,000 =

$

at 30 June 2021

The combined value of the Trust’s Lake Taupō Forest assets is

380,000,000 =

$

at 30 June 2021

28

Lake Taupō Forest Trust

An increase of

from 30 June 2020

A decrease of

71%

($13.5 million) from 30 June 2020

An increase of

22%

($68 million) in value from 30 June 2020

F I G U R E 5.

Recreational Permits Issued for Lake Taupō Forest 20 0 4– 20 21 3500 3000 2500 2000 1500 1000 500 0 2004

2006

2008

2010

2012

Total number of owner permits issued

Recreational Use of Trust Lands A total of 1,647 permits were issued to owners or descendants of owners during the 2020–21 year, which was a decrease of about 1,000 on last year. This reflects that all permits in the year had a term of six months whereas in the previous year some were of two months’ duration. Despite these changes, the number of permits is still considerably higher than in pre-2017 years, and this is a consequence of the new access policy and the introduction of fob keys for access.

Owner access permits to Lake Taupō Forest lands were obtained by 985 different people during the year, which is the most on record. Around 50 per cent of these people obtained only one permit during the year, and a further 40 per cent got two. A small proportion got more, often as a result of the need to update fob keys or other irregularities.

Pig and deer hunting continues to be the most common activity for which owners request permits. The Trustees are pleased to see that access onto the lands continues to be important to so many owners and that strong connections with the whenua are being maintained. Trustees are also pleased that the move to six-month permits reduces the hurdles faced by our owners in getting access to their lands.

The collection of firewood also remains a common use.

Owners are reminded that firewood may only be taken from the forest’s designated firewood yard located at the corner of Kiko Road and Waimarino Road. The Trust has also been delivering firewood logs to a number of marae in the area, and some owners may prefer to get their firewood from these.

You are reminded that those eligible for permits are owners, descendants of owners and spouses of owners.

To obtain a permit you must first register with the Trust office, where you will be required to provide various details from which your eligibility for access will be ascertained.

2014

2016

2018

2020

Number of owners who got at least one permit

Once that has been done, you are able to get permits at any time from the Trust office, our forest manager’s office (New Zealand Forest Managers Ltd – Atirau Road, Tūrangi) or the Tūwharetoa Māori Trust Board office (81 Horomatangi Street, Taupō). Electronic fob keys are available at the New Zealand Forest Managers and Tūwharetoa Māori Trust Board outlets only – though if you are getting a fob for the very first time you will need to go to the New Zealand Forest Managers’ office so you can be appropriately registered onto the fob system.

Environmental Protection While the Trust is responsible for significant commercial forestry activities on our lands, there is also a strong recognition of the need to protect and enhance the taonga tuku iho, and indeed the Trust Order and the Crown lease also emphasise these imperatives. The Trustees want to ensure that the land, and everything on it, including those who work and play on it, are managed in a sustainable way consistent with the principles of kaitiakitanga. Like much of the country, our land and forests are impacted by pests, particularly possums, stoats and rats – and invasive weed species. The Trust is working to reduce the damage caused by these, and some of these initiatives are outlined below.

Lake Taupō and Lake Rotoaira forests received FSC certification in 2002. This is a voluntary initiative under which independent auditors assess our forests and their management against a set of environmental, economic, social and cultural criteria. As well as providing independent confirmation that our forest and lands are being managed in a sustainable manner, FSC certification is increasingly being requested in the markets where wood products made from our logs are ultimately sold, particularly in the United States and Europe. FSC certified wood is increasingly being demanded in Asia also, generally because it will be used to make products that are then re-exported to the United States and Europe.

2020–21 Annual Report

29

30

Lake Taupō Forest Trust

2020–21 Annual Report

31

Several initiatives are being undertaken to better understand, protect and enhance our environment, and information on our forest and associated ecosystems is steadily building. Together, these all help to ascertain and confirm the sustainability of our land, forest and ecosystem management. Many of these initiatives started prior to FSC certification, and many are also simply part of the dayto-day management of the forest, so it is difficult to be definitive on whether the work is specifically a result of our being FSC certified. Work over the last year has included the following initiatives.

WAT E R Q U A L I T Y M O N I TO R I N G

NZFM carry out a regular water quality monitoring programme within Lake Taupō Forest. The objective of this study is to assess whether forest harvesting operations are affecting the water quality of two waterways within Lake Taupō Forest, the Waimarino River and the Mangakowhitiwhiti Stream, both of which drain into Lake Taupō. The catchment areas for the Waimarino River and Mangakowhitiwhiti Stream are 8,477 hectares and 2,452 hectares respectively. The headwaters of each catchment are in indigenous forest, and approximately 39 per cent and 56 per cent respectively of each catchment is planted in Pinus radiata forest.

160

2020

Workforce Survey

River monitoring commenced in 1994 for the Waimarino River and 1996 for the Mangakowhitiwhiti Stream. The potential impacts of harvesting are determined by measuring suspended sediment, nitrogen and phosphorus concentrations and water clarity at three sites. The monitoring sites cover the native forest catchment only (upstream of plantation forest), the mid-point in the plantation forest, and as the stream exits the plantation forest. Rainfall and stream flow data are also collected.

NZFM ANNUAL WORKFORCE SURVEY

The NZFM workforce survey is completed annually by the workforce within Lake Taupō and Rotoaira forests. Data is collected on a number of topics and various trends are analysed, such as local employment rates, crew turnover rates, the number of dependants supported from the forest, other uses of the forest, training courses completed and qualifications held.

The Trust is happy with the picture shown in most categories, though we are always keen to get an even greater proportion of our own working in the forests. The high proportion of workers aged over 50 years is a concern, and in response to this, the Trust is working to encourage more rangatahi to get involved in the business at all levels, including by providing scholarships and offering internships to owners who want to study forestry at the University of Canterbury or Toi Ohomai.

Key statistics from the 2020 workforce survey are outlined below.

75%

Māori/part Māori

33%

49%

beneficial ownership rights Lake Taupō Forest Trust

Operations in the catchments in the 2020 year were 4 hectares of harvesting, 51 hectares of replanting, 300 metres of road upgrades and construction of one harvest landing. The 2020 report shows that water quality in both catchments was high. Water temperature, total oxidised nitrogen (an indicator of nitrates) and total phosphorous were all ranked as excellent (the highest ranking) across all seven sampling sites. Total nitrogen was excellent in six of the sites and satisfactory at the other site (in the lower reaches of the Mangakowhitiwhiti catchment).

workers surveyed

workers with

32

Harvesting and replanting occurred in the three catchments at various times in the 1990s and early 2000s, with more area in the Waimarino catchment harvested in 2017.

in the workforce

workers who

affiliate to Ngāti Tūwharetoa

WA I M A R I N O R I V E R W H I O P R OT E C T I O N P R O J E C T

The primary objective of this project is to restore whio to the lower Waimarino River within Lake Taupō Forest, mainly through predator trapping and by release of juvenile ducks. The project is supported by Lake Taupō Forest Trust, Crown Forestry and NZFM. Several Lake Taupō Forest Trustees have witnessed the local extinction of whio from the lower reaches of the Waimarino River during their lives, and they are keen to see them return.

fluctuating annual breeding success and can be affected by factors including predation rates, weather patterns (spring floods impacting nests), food availability and human disturbance. Twelve fledged ducklings were observed during the 2020–21 breeding season, which was lower than average and considered to have been impacted by the weather patterns.

One of the positive findings of this year’s assessment, however, was that four pairs of whio were found below

Whio numbers on the Waimarino River have been monitored since 2011, and a five-year project to protect whio on the river ran from 2014–19. Many gains were made over that period, and the work has continued through ongoing management of the trap lines adjacent to the river and through population assessments.

the (trout barrier) waterfall, and two of the pairs had

The 2020–21 report shows that over the nine years of monitoring, the number of whio on the river has doubled to 16 pairs, while the length of the river occupied by the whio has also increased. Blue ducks are known to have

numbers disproportionately, it is strongly indicative of

42%

workers with

more than 20 years’ experience in the forest industry

31%

workers who have been with their employer

more than 10 years

broods of ducklings. This showed that successful breeding had occurred in the presence of trout as potential food competitors. This had not been observed before.

Another positive report is that the male to female ratio is almost equal. When male numbers outweigh female predation impacts on females during nest incubation phases. The close ratio reflects the success of the predator control measures.

50+

years old is the most common age bracket, making up 26% of workers

<25

years old make up 23% of workers

265

children/dependants supported by the workforce

2020–21 Annual Report

33

F R O S T F L AT I N D I G E N O U S V E G E TAT I O N H A B I TAT

In 2019, NZFM engaged Wildlands to undertake the annual assessment of the frost flat areas in Lake Taupō Forest and develop a 10-year management plan for these areas. Five main areas of frost flats were identified, all along Lake Taupō Forest’s eastern boundary close to the Kaimanawa Forest Park, with more area identified as potential frost flat habitat. A population of the rare and endangered Pittosporum turnerii was also found during the original assessment, and further assessment of this population is planned for 2021–22.

Ongoing monitoring has involved the use of aerial imagery, establishment of photo points and the establishment of permanent sample plots. These are being periodically re-visited and re-photographed to monitor change and assess the risk of disturbance.

Wildlands is confident that the management plan will ensure the long-term protection of the frost flat habitats.

The combination of monitoring and the management of threats, such as pest plants, and specific threatened plant management will ensure that these critically threatened habitats are maintained and enhanced in the future.

2021 F S C S U R V E I L L A N C E

The NZFM FSC surveillance for 2021 took place from 6–8 April, with two auditors visiting the forest, visiting crews and scrutinising all aspects of forest management.

The assessment was passed with no significant issues, though four minor Corrective Action Requests (CARs) were issued. These related to an incorrect banner at a harvesting site, better training for crews on identification of rare, threatened and endangered species, better mapping of these species, and more health monitoring of contractors who are exposed to chemicals. All these CARs are being, or have been, addressed.

New Zealand is in the process of changing from being measured against FSC’s international standards and criteria to a New Zealand-specific criteria (the NZ FSC Standard). This standard has been finalised after long negotiation between FSC and a range of New Zealand stakeholders, including environmental and cultural groups as well as New Zealand forest owners. The New Zealand standard is largely similar to the international one, but it has more emphasis on some New Zealand–specific matters in our operating environment and in the way we generally manage our forests. Next year’s assessment will be fully against this standard.

As mentioned, many of the environmental initiatives are managed by our managers and a large part of the certification workload falls on them. Their web-site http:// www.nzfm.co.nz outlines all NZFM operations and is useful to check progress on our FSC initiatives.

Hautū Rangipō Lands Investment It is now six years since the two forest trusts invested in Hautū Rangipō Whenua Ltd (HRWL), the company that purchased the Corrections lands near Tūrangi and the neighbouring Mangamawhitiwhiti Farm. The Lake Taupō Forest Trust has a 42.3 per cent share of HRWL, and the Lake Rotoaira Forest Trust has 18.2 per cent. These two shareholdings are managed through the two Trusts’ subsidiary company, Lake Taupō Forest Management Ltd (LTFM). The other HRWL shareholders are the Tūwharetoa Settlement Trust (19.7 per cent), and three farm trusts, Waihī Pukawa, Puketapu 3A and Oraukura 3 with 6.6 per cent each. The purchase secured the lands back into Tūwharetoa ownership, and this was a key consideration for all the investors.

504,000

$

received in distributions from HRWL $

1,200,000

invested on developing Kaimanawa Forest in the 2020–21 year

7,710,000

$

value of Kaimanawa Forest at 30 June 2021

34

Lake Taupō Forest Trust

In addition, the purchase will in time increase the scale and efficiency of the Trusts’ forestry businesses, and it also opens up the ability to take advantage of other synergies between the two Trusts.

HRWL continues to operate successfully, adhering to the general approach of being a passive landowner that leases the lands out to other users. Of the total approximately 9,000 hectare estate:

As part of the purchase, HRWL inherited four very rundown 60-bed prison units, plus associated buildings. We have not been able to identify any productive or viable use for these but have split up three of the units and relocated the cells, at cost, to hapū members.

The Lake Taupō and Lake Rotoaira forest trusts effectively have two components to their investment: •

–

Farmland 750 H E C TA R E S

•

750 hectares, mainly farmland, are under a permanent lease to the Corrections Department, which continues to operate a prison and farm in the northern (Hautū) part of the land;

Leased to New Forests 3,200 H E C TA R E S

•

3,200 hectares of forested land are leased to forestry investor New Forests, which, through its local offshoot Taupō Estates Ltd, has a one-rotation lease and will gradually harvest the trees over 30 years;

Leased to Tuatahi Farming 900 H E C TA R E S

•

900 hectares of farmland are leased to Tuatahi Farming, which is a subsidiary company of Puketapu 3A and Oraukura 3;

Leased to LTFM 2,250 H E C TA R E S

•

2,250 hectares are leased to LTFM, which initially planted some of the pasture land as part of HRWL’s arrangement to reduce nitrogen emissions and is now replanting land after New Forests does its harvesting.

The remaining lands are non-productive, though they do generate income through bee-keeping leases.

their combined 60.5 per cent shareholding in HRWL, from which they will get an ongoing share of annual distributions:

•

LTFM received $720,000 in distributions from HRWL in 2020–21. Lake Taupō Forest Trust receives a 70 per cent share of this ($504,000), and Lake Rotoaira Forest Trust receives the remaining 30 per cent share; and

the lease by the Trusts’ subsidiary LTFM of land for forestry. The forest that is being created through this process is called Kaimanawa Forest, and it is discussed further below.

With agreement from local hapū, the HRWL Board allows teams to access the land to hunt for kai for tangihanga.

This arrangement requires case-by-case requests from relevant marae. These arrangements are working well, with access being required, on average, once every two or three weeks, and the teams report good hunting success.

Kaimanawa Forest Kaimanawa Forest is the name given to the forest that LTFM, on behalf of its parent entities Lake Taupō Forest Trust and Lake Rotoaira Forest Trust, is creating on the Hautū Rangipō Whenua Ltd land. The investment is funded 70 per cent by Lake Taupō Forest Trust and 30 per cent

by Lake Rotoaira Forest Trust and is formalised through a Forestry Right Agreement held by LTFM. LTFM pays an annual rental to HRWL for the use of the land for this forest.

Though of course through their ownership of a significant shareholding in HRWL, the forest trusts effectively get a good portion of this rent back.

At present, Kaimanawa Forest has a planted area of 2,255 hectares, comprising around 1,440 hectares of land that was previously in pasture but which has now been afforested plus around 815 hectares of forest harvested by previous owner New Forests Ltd and since replanted by LTFM. The 1,440 hectare planting into pasture programme was completed in the winter of 2018, while the replanting of the existing forest will take around 30 years to complete and will then total around 4,100 hectares. The eventual area of Kaimanawa Forest will be around 5,500 hectares, which will add around 17 per cent to the combined Lake Rotoaira Forest Trust and Lake Taupō Forest Trust forest area.

The two trusts invested $1.2 million (including rent) on developing Kaimanawa Forest in 2020–21. Lake Taupō Forest Trust’s share of these costs was around $841,000.

Kaimanawa Forest was valued at $7.71 million at 30 June 2021. Lake Taupō Forest Trust’s 70 per cent share of this value is around $5.40 million.

2020–21 Annual Report

35

687,000

$

invested in Opepe Forest in the 2020–21 year

Harvesting scheduled for

2038—45 $11,060,000

value of Opepe Forest at 30 June 2021

Forest Investment on Opepe Farm Trust Lands

the Tūwharetoa Settlement Trust (TST) replanted around 1,700 hectares, following their harvest by the previous owner of the trees.

The joint forestry investment on Opepe Farm Trust lands by the Lake Taupō and Lake Rotoaira forest trusts is progressing well. This investment is funded 70 per cent by Lake Taupō Forest Trust and 30 per cent by Lake Rotoaira Forest Trust and is formalised through a Forestry Right Agreement held

by LTFM.

After discussion with the Tūwharetoa Settlement Trust, and with the forest hapū clusters who have mana whenua over the lands, all parties approved the proposal that the forest trusts, though LTFM, would purchase the plantations, which ensured ownership remained within Tūwharetoa.

The project commenced in 2012 and has involved the forest trusts purchasing 250 hectares of young trees from Opepe Farm Trust and, over the next three years, replanting 650 hectares of harvested forest and undertaking new planting of around 500 hectares of pasture land. The forest has a total area of around 1,400 hectares.

LTFM entered into a one-rotation forestry right (effectively a lease) over the lands. We do not control owner access to these lands; this matter continues to be negotiated by the forest hapū clusters and CNI Iwi Holdings Ltd. We pay rent annually to CNI Iwi Holdings Ltd, and this is passed back via the Tūwharetoa Settlement Trust to the forest hapū clusters.

During 2020–21, LTFM invested a total of $687,000 in Opepe Forest, mainly on pruning, thinning and rent. Lake Taupō Forest Trust’s share of these costs was $481,000. Harvesting is scheduled to start in 2038 and should be complete by around 2045.

Since purchasing the trees, LTFM has replanted around 390 hectares of land in Pureora South Forest, while a further 800 hectares of first rotation crop, owned by an off-shore forestry company, remains across the three forests. LTFM will replant these as and when they are harvested.

The Opepe Forest was valued at $11.06 million at 30 June 2021. Lake Taupō Forest Trust’s 70 per cent share of this value is around $7.74 million.

During 2020–21, LTFM invested a total of $599,000 in these three forests, mainly on general maintenance, Dothistroma control, rent, and, in Pureora South Forest, land preparation and planting. Lake Taupō Forest Trust’s share of these costs was around $419,000. All the stands in these forests are aged eight years or younger, so harvesting is not scheduled to commence until around 2040.

Investment in Taurewa, Waituhi and Pureora South Forests It is now three years since the Trusts purchased the second rotation stands in Taurewa, Waituhi and Pureora South Forests. The land under these forests came back in the Central North Island Iwi Treaty Claim 2012 and since then

36

Lake Taupō Forest Trust

The three Tūwharetoa Settlement Trust forests were valued at $9.91 million at 30 June 2021. Lake Taupō Forest Trust’s 70 per cent share of this value is around $6.94 million.

Emissions Trading Scheme The Emissions Trading Scheme (ETS) is the government’s response to global climate change. It is a scheme under which industries that emit greenhouse gases, such as those producing oil and power, have to offset their emissions by buying carbon credits. Forests absorb greenhouse gases from the atmosphere and help reduce the impact of climate change. The world wants more forests, leading our government to introduce rules that ensure that forest area is not reduced and encourage more forests to be established.

The ETS as it relates to plantation forestry divides plantations into two categories – pre-1990 forests and post-1989 forests. Most of Lake Taupō Forest was established before 1990 and qualifies as pre-1990 forests, though it also has 510 hectares of post-1989 forest registered.

The ETS locks pre-1990 forest land into forestry by requiring payment of a deforestation tax if the land is not replanted after harvest. As partial compensation, owners of these lands were awarded carbon credits, which they can sell to industries that emit greenhouse gases. The Trust has around 23,700 hectares of pre-1990 forest registered under the ETS, and in return, the Trust received 1,430,000 carbon credits (known as New Zealand Units or NZUs).

The allocation of NZUs to the Trust’s pre-1990 forests was a one-off event. They can be sold only once, so when and how many to sell are key decisions. After a period of low prices, a strengthening of the government’s commitment to fighting climate change saw NZUs values return to over $20 in late 2018. Prices have risen considerably during 2021, getting to around $46/NZU by the end of the financial year and up to $65/NZU in November, as this report is being written.

In 2018, the Trustees undertook in-depth strategising on what to do with their NZUs, including getting advice from a number of experts in the field. The outcome was a decision to sell a portion of the NZU holdings, and by 30 June 2020, the Trust had sold 460,000 NZUs (30 per cent of its holdings). The Trust received $11.9 million (an average of $25.79/NZU) from these sales. The buyers for these units are entities that have large emissions they are required to offset, such as power and oil companies. No further NZU sales were undertaken in 2020–21.

The Trust also has around 510 hectares of post-1989 forest, mainly in Te Rangiita part of the forest. We have claimed 112,000 NZUs against the growth in these forests, but, unfortunately, much of it blew over in the 2019–20 windthrow. As a result, the volume of carbon on the site has reduced, and we will have to return the 112,000 NZUs. Further, our modelling indicates any future carbon we claim against these forests will have to be surrendered upon harvest, so we plan to simply deregister the area from the ETS. Many commentators believe that the value of NZUs will continue to climb in forthcoming years. We recognise though, that the government has some level of influence over that price through its ETS policies, which are periodically reviewed. Looking ahead, there are uncertainties about the market, both in our government’s domestic trading rules and internationally, in terms of whether and which international carbon credit units may be allowed to be traded here. Despite these uncertainties, the general consensus is that prices are likely to rise further.

The Trust, now assisted by its commercial subsidiary, Tupu Angitu, continues to monitor the NZU outlook to determine how best to generate returns from the approximately 1.1 million NZUs it still holds.

599,000

$

invested in Taurewa, Waituhi and Pureora South Forests in the 2020–21 year

Harvesting scheduled from

2040 $9,910,000

value of Tūwharetoa Settlement Trust Forests at 30 June 2021

2020–21 Annual Report

37

Financial Report

F I G U R E 6.

2021 Revenue

$24.7 million Stumpage

73%

Unrealised gains/losses

12%

Administration and management income

8%

Investment income

6%

Other income

1%

F I G U R E 7.

Expenditure

$12.6 million

40

Lake Taupō Forest Trust

Forest costs

61%

Administration and other expenses

23%

Personnel costs

12%

Depreciation and amortisation

3%

Interest expense

1%

The Trust’s financial performance for the year ended 30 June 2021 is provided in the summarised financial statements on page 53.

The Trust generated an operating profit before tax and revaluations of $12.1 million from revenue of $24.7 million less expenses of $12.6 million dollars.

Revenue The 2020–21 operating revenue for the Lake Taupō Forest Trust Group at $24.7 million is down by 18 per cent against the prior year. However, this reflects the extraordinary early harvest of the Trust-owned land at Te Rangiita block in 2020 due to windthrow. The actual stumpage and harvest sales for 2021 are the second highest on record for the Trust, with the next highest being in 2018.

Figure 6 shows the largest income is from stumpage/harvest sales. Full details are provided in the Forestry Report.

Investment income from dividends, interest and changes in market valuation generated $1.4 million in income to the Trust which was slightly down compared to 2021; however, strong returns were received from external investments in Oriens and Ranginui Dairy. This is closely monitored by our investment advisors at Iwi Investor.

The Weighbridge Company Limited is jointly owned with Lake Rotoaira Forest Trust and commenced operations in April 2005. Lake Taupō Forest Trust owns a 75 per cent share in the Weighbridge Company.

This year, the Weighbridge Company generated $0.113 million of profit and paid a dividend of two years’ share of profits of $0.11 million to the Trust in June 2021.

Expenditure Total operating expenses this year were $12.6 million and were down 39 per cent on the prior year. This year, forest costs returned to a normal level following the prior year of windthrow at Te Rangiita. The forest costs in 2021 amount to 61 per cent of all expenses, with the balance of 39 per cent relating to Trust operating costs. An overview of the forest costs and performance is provided in the Forestry Report.

Net Surplus after Tax The Trust finished the 2021 financial year with a net after tax profit of $71 million, following the increase of forest valuation of $75 million less $16 million tax expense. This year has seen another profitable year for the Trust, and this is reflected in the valuation and improved profit. The forest valuation was undertaken

by Indufor Asia Pacific Ltd.

Distributions and Grants The Trust declared a gross taxable distribution to owners of $7 million, the highest declared since the start of the Trust. This was paid to owners in April 2021.

GRANTS

For the year ended June 2021 Pūtea Aroha (Tangihanga) grant payments of $0.252 million were made to owners. See full details in the Owners’ Report.

A total of $0.17 million was paid as Marae grants to the 10 Marae listed in the Third Schedule of the Trust Order.

The community purposes grant of $0.18 million was paid to the Lake Taupō Charitable Trust to help achieve its strategic objectives for beneficiaries of Lake Taupō Forest Trust. See the Lake Taupō Charitable Trust report for further information on their grants this year.

2020–21 Annual Report

41

Trust Assets The Trust Group's total assets were valued at $612 million at 30 June 2021. The 16.5 per cent increase relates mainly to the increase in the forest valuation and strong prices for the NZU carbon recognition this year.

The forest crop makes up the most significant portion of the Trust’s asset valuations at 67 per cent.

Property, plant and equipment include the value of the land and buildings and the carbon intangible asset and make up 25 per cent of total Trust assets at 30 June 2021. The Forestry Report contains a thorough breakdown of the Emissions Trading Scheme and the carbon credit entitlement that the Trust has accumulated.

Investment Portfolios The Trust's investment portfolios are managed by Iwi Investor and are made up of four portfolios: the Lake Taupō Growth Fund (LTG), LTG Managed Cash (LTGMC), the Lake Taupō Income Fund (LTI) and a new fund in 2020, NZU, being the income received from the sale of NZUs. The LTG fund (also referred to as the forest contingency fund) has a long-term focus and is designed to offset forestry risk. During the year, the only withdrawal was to pay the annual distribution to owners of $7 million and Marae grants of $0.17 million. The Growth Fund was valued at $14.25 million at 30 June 2021. The LTGMC fund holds the shorter-term money market deposits in order to facilitate the annual distribution to owners. The value of the LTGMC is $0.006 million. The NZU Fund contains the income from the sales of NZUs under the Emissions Trading Scheme and was valued at $12 million.

The Trust holds unclaimed distributions in the Lake Taupō Income Fund. This fund was valued at $21.8 million at 30 June 2021. LTI is a low risk defensive fund designed to generate income. The income from this fund is then used to fund the Lake Taupō Charitable Trust. The combined balance of the four funds (LTI, LTG, LTGMC and NZU) at 30 June was $48.2 million (2020: $43.3 million).

Trust Equity This year, equity in the Trust Group increased by 20 per cent from $441 million to $514 million. The change in equity reflects the increase in forest and carbon valuation, a moderate profit resulting from our strong forestry income and reduced expenses.

Figure 9 shows the movements in equity since 2017. Details of the Trust's equity and the distribution to owners for the year ended 30 June 2021 are shown in the Statement of Changes in Equity in the Summarised Financial Statements.

42

Lake Taupō Forest Trust

FIGURE 8.

Trust Assets

$612 million Forest crop

67%

Property/plant equipment

22%

Investment portfolios

8%

Current assets

3%

F I G U R E 9.

Equity

$514 million 550

$514m

500 450 $441m

400

$ million

350

$364m

300 250

$295m $260m

200 150 100 50 0

2017

2018

2019

2020

2021

2020–21 Annual Report

43

Investment Report

Lake Taupō Forest Trust – Investment Portfolios: Lake Taupō Forest Trust has four investment accounts that have distinctly different objectives. The Growth portfolio is required to cover operating costs and replanting in the event of reduced income from forestry operations. The Income portfolio purpose is to hold unclaimed dividends and provide income to support the activities of the Charitable Trust. There are two cash portfolios: one supports the cash flow requirements of the Trust as well as building up cash for the annual dividend payment, and the second holds the proceeds from the sale of New Zealand Units (NZUs, also referred to as carbon credits) for potential reinvestment. The cash accounts have the benefit of lower fees and access to wholesale term deposit rates.

Lake Taupō Forest Trust Statement of Investment Parameters and Objectives (SIPO) for the Growth and Income Portfolios have identified your strategies within your accepted risk tolerance and capacity.

The IWIinvestor Investment Committee and management team ensure that your portfolios contain quality investment funds. These portfolios are diversified across equities and fixed interest as well as domestic and offshore, enabling steady gains and minimising risk.

Portfolio Review Summary GROWTH PORTFOLIO

The Growth portfolio has a conservative risk profile. Its primary function is long-term growth while mitigating any forestry risk. A review of this portfolio is scheduled for the 2021–22 year. In terms of performance, the portfolio showed a return on investment of 8.9 per cent after fees and taxes for the 2020–21 financial year. The portfolio has averaged 5.5 per cent net per year since inception.

The following represents the Lake Taupō Forest Trust’s Growth portfolio metrics versus the expected results of a Conservative portfolio since inception.

PORTFOLIO METRICS

LTG P O R T F O L I O

C O N S E R VAT I V E P O R T F O L I O

Worst result (net)

-9.7%

-7.3%

Best result (net)

21.2%

5.9%

Negative returns once every

7.7 years

5.4 years

Total number of years

23.0

20.0

Average annual gross return

5.5%

5.2%

Note: LTG results are based on June year data and the expected Conservative results are the 95 per cent confidence level.

INCOME PORTFOLIO

The primary function of the Income portfolio is to protect the unclaimed distributions, have sufficient liquid funds for distribution claims and provide income for the Charitable Trust. A Review Paper presented to the Board in July 2020 highlighted the increased growth of the unclaimed distributions (increasing over 10 years from 23 per cent to 44 per cent of the annual distribution amount) and the reduced claims on the portfolio (down over last 10 years from 14 per cent to 4 per cent of the annual distribution amount). This combined with low interest rates and longevity of the portfolio supported an increase in the risk profile to Growth. The Board approved the recommendation to move from Defensive High Yield to Growth in October 2020.

The portfolio showed a return on investment of 15 per cent after fees and taxes for the 2020–21 financial year. The portfolio has averaged 6.8 per cent net per year since inception.

46

Lake Taupō Forest Trust

F I G U R E 10 .

Lake Taupō Forest Trust – Growth

Global fixed interest

45%

NZ fixed interest

21%

DM equities

17%

Property

6%

EM equities 5% NZ & AU equities 5% Cash 1%

F I G U R E 11.

Lake Taupō Forest Trust – Income

DM equities

38%

Global fixed interest

23%

NZ fixed interest

11%

EM equities 10% NZ & AU equities 10% Property

5%

Cash 3%

2020–21 Annual Report

47

F I G U R E 12.

Growth Portfolio Asset Class

Value

Actual

Target

$80,968

1%

2%

NZ fixed interest

$2,987,637

21%

23%

Global fixed interest

$6,410,056

45%

46%

67%

70%

$776,301

5%

5%

DM equities

$2,484,751

17%

16%

EM equities

$669,049

5%

4%

Property

$836,610

6%

5%

33%

30%

100.0%

100.0%

Cash

Defensive Assets NZ & AU equities

Growth Assets Total Assets

$14,245,372

F I G U R E 13.

Income Portfolio Asset Class

Value

Actual

Target

Cash

$683,568

3%

1%

NZ fixed interest

$2,422,121

11%

11%

Global fixed interest

$4,944,311

23%

23%

37%

35%

Defensive Assets NZ & AU equities

$2,234,038

10%

12%

DM equities

$8,352,783

38%

38%

EM equities

$2,106,092

10%

10%

Property

$1,075,237

5%

5%

63%

65%

100.0%

100.0%

Growth Assets Total Assets

$21,818,150

F I G U R E 14.

F I G U R E 15.

MC Cash Portfolio

NZU Cash Portfolio

TOTA L A S S E T S : $6 8 , 8 31

TOTA L A S S E T S : $ 1 2,0 8 3 , 4 61

97% NZ Money Market $11,743,430

100% Cash $68,831 3% Cash $340,031 FIGURE 16.

Total Assets Invested TOTA L A S S E T S : $ 4 8 , 21 5 , 8 1 4

30% Growth $14,245,372

45% Income $21,818,150

25% NZU Cash $12,083,461 0% MC Cash $68,831

48

Lake Taupō Forest Trust

The following represents the Lake Taupō Forest Trust’s Income portfolio metrics versus the expected results of a defensive high yield portfolio as the new growth risk profile has only been in place since October 2020.

PORTFOLIO METRICS

LT I P O R T F O L I O

DEFENSIVE HIGH YIELD PORTFOLIO

Worst result (net)

1.9%

-6.2%

Best result (net)

15.0%

15.4%

Negative returns once every

no negative returns

6.1 years

Total number of years

22.8

20

Average annual gross return

6.8%

5.3%

Note: LTI results are based on June year data and the expected defensive high yield results are the 95 per cent confidence level.

I N V E S T M E N T O U T LO O K

With New Zealand’s economic recovery well established and global growth on steroids, focus has shifted to rising costs and inflation. The big question is whether the surge in commodity, freight, construction and a range of other costs seen this year will be temporary or permanent. Survey measures of business and households suggests that risks point to the latter, with inflation expectation measures running at multi-year highs.

In this environment, it is unsurprising that central banks have begun to change their tune. No central banker wants to win the economic battle with COVID-19 only to fight an inflationary war.

In July, our Reserve Bank recognised that the economy no longer needed the stimulation of its loose monetary policy and abruptly ceased the bond buying programme (this added liquidity into the economy). This was followed by a lift in the Official Cash Rate in October from 0.25 per cent to 0.5 per cent, and further increases are likely, based on economic conditions, over at least the next 12 months. Other major central banks have also responded to the inflationary risk by lifting their cash rate or reducing the level of bond buying programme. Inflation is now the major risk to the investment markets given its consequences on the economy.

With higher vaccination rates, most governments have largely abandoned their fight against COVID-19 with a view to restoring citizen freedom and the economy. Recent outcomes in the northern hemisphere suggest that the fight is not over. However, the opening of the economy with the continuation of the vaccination programme should lift the economy. A more open economy should gradually alleviate some of the inflationary pressure caused by excess consumer demand and supply chain constraints (production and goods movement curtailed by closures, labour shortage).

We anticipate interest rates will rise but remain low relative to the past and that a stronger economy should favour the share markets, but gains will be limited by their high valuation. Inflation risk and COVID-19 will ensure the markets will remain volatile.

IWIinvestor maintains a long-term focus despite the inevitable volatility that will continue to persist in an uncertain political and investment landscape. Our investment philosophy is to remain fully invested, consistent with your risk profile.

2020–21 Annual Report

49

50

Lake Taupō Forest Trust

Actuals

Gross 90 day

Growth

350%

300%

0%

Jun-16

Jun-15

Jun-14

Jun-13

Jun-12

Jun-11

Jun-10

Jun-09

Jun-08

Jun-21

Jun-20

COVID-19

Jun-21

Jun-20

COVID-19

US/China trade war

250%

Jun-19

Europe debt crisis

Sub-prime crisis

300%

Jun-19

Jun-18

400%

US/China trade war

LTI Portfolio Cumulative Returns since Inception

Jun-18

F I G U R E 18 .

Jun-17

Gross 90 day

Jun-17

Jun-16

Jun-15

Jun-14

Jun-13

Jun-12

Jun-11

250%

Europe debt crisis

Actuals

Jun-10

Jun-09

200%

Jun-08

Jun-07

Jun-06

Conservative

Dot-com burst

150%

Sub-prime crisis

Defensive HY

Jun-05

Jun-04

Jun-03

Jun-02

Jun-01

Jun-00

Moderate

200%

Jun-07

Jun-06

Jun-05

Jun-04

Jun-03

Jun-02

Jun-01

50%

Dot-com burst

150%

Jun-00

100%

Jun-99

Jun-98

50%

Defensive

Cumulative Returns 100%

Jun-99

Jun-98

Cumulative Returns

F I G U R E 17.

LTG Portfolio Cumulative Returns since Inception

0%

52

Lake Taupō Forest Trust

Lake Taupō Forest Trust and Subsidiaries

Summarised Financial Statements

Contents

56 Summarised Statement of Comprehensive Income 57 Summarised Statement of Changes in Equity 58 Summarised Balance Sheet 58 Summarised Statement of Cash Flows 59 Notes to the Financial Statements

The Trustees are pleased to present the Summarised Financial Statements of the Lake Taupō Forest Trust for the 12 months ended 30 June 2021.

Authorised for and on behalf of the Board of Trustees on 9 November 2021.

54

Lake Taupō Forest Trust

Chairperson

Deputy Chairperson

BINKY ELLIS

J U DY H A R R I S

Report of the independent auditor on the summarised financial statements TO T H E T R U S T E E S O F L A K E TA U P Ō F O R E S T T R U S T

The accompanying summarised consolidated financial statements on pages 53 to 61, which comprise the summarised consolidated statement of financial position as at 30 June 2021, the summarised consolidated statement of comprehensive revenue and expenses, summarised consolidated statement of changes in net assets and consolidated statement of cashflows for the year then ended, and related notes, are derived from the audited financial statements of Lake Taupō Forest Trust and its subsidiaries; for the year ended 30 June 2021.

We expressed a qualified opinion over Group’s land and land improvements being stated at the most recent Government Valuations, on those financial statements in our report dated the 30 June 2021. Those financial statements, and the summarised financial statements, do not reflect the effects of events that occurred subsequent to the date of our report on those financial statements.

The summarised financial statements do not contain all the disclosures required for full financial statements under generally accepted accounting practice in New Zealand. Reading the summarised consolidated financial statements, therefore, is not a substitute for reading the audited financial statements of Lake Taupō Forest Trust.

THE TRUSTEE’S RESPONSIBILITIES

The Trustees are responsible for the preparation of a summary of the audited financial statements in accordance with FRS-43: Summary Financial Statements.

A U D I TO R ’ S R E S P O N S I B I L I T I E S

Our responsibility is to express an opinion on the summary financial statements based on our procedures, which were conducted in accordance with International Standard on Auditing (New Zealand) (ISA (NZ)) 810, “engagements to report on Summary Financial Statements”. Other than in our capacity as auditors we have no relationship with, or interests in the Lake Taupō Forest Trust and its subsidiaries.

OPINION

In our opinion, the summarised financial statements derived from the audited consolidated financial statements of Lake Taupō Forest Trust for the year ended 30 June 2021 are consistent, in all material respects, with those financial statements, in accordance with FRS-43.

Silk Audit Chartered Accountants Whanganui, New Zealand 09 November 2021 2020–21 Annual Report

55

Summarised Statement of Comprehensive Income F O R T H E Y E A R E N D E D 30 J U N E 2021

Group 2021 $ Revenue Total operating revenue Other income Interest expense

Group 2020 $

21,641,636

29,853,712

21,646,636

29,853,712

3,071,313

262,445

(85,986)

(363,404)

Other expenses

(12,527,407)

(18,265,855)

Total operating expenses

(12,613,393)

(18,629,259)

12,099,556

11,486,898

Profit before forest crop revaluation and taxation Forest crop revaluation

75,974,159

54,858,804

Profit before income tax

88,073,715

66,345,702

Income tax expense

(16,171,930)

(10,376,905)

Net profit for the period

71,901,785

55,968,797

8,821,198

14,054,110

–

12,212,106

Other comprehensive income Intangible carbon asset revaluation Land revaluation Financial assets at fair value through other comprehensive income Other comprehensive income for the period Total comprehensive income for the period

125,902

(13,534)

8,947,100

26,252,682

80,848,885

82,221,479

2,903,989

863,901

Profit for the period is attributable to: Non-controlling interest Owners of the Parent

68,997,796

55,104,896

71,901,785

55,968,797

2,903,989

1,138,863

Total comprehensive income for the period is attributable to: Non-controlling interest Owners of the Parent

77,944,896

81,082,616

80,848,885

82,221,479

The above summarised statement of comprehensive income should be read in conjunction with the accompanying notes.

56

Lake Taupō Forest Trust

Summarised Statement of Changes in Equity F O R T H E Y E A R E N D E D 30 J U N E 2021

Land Carbon Financial revaluation revaluation assets at fair reserve reserve value reserve $ $ $ Balance at 1 July 2020

Owners of the Parent $

Noncontrolling interest $

Total $

356,445,921 426,872,268

13,889,861

440,762,129

Retained earnings $

20,747,148

49,644,402

34,797

Profit for the period

–

–

–

68,997,796

68,997,796

2,903,989

71,901,785

Other comprehensive income

–

8,821,198

125,902

–

8,947,100

–

8,947,100

Total comprehensive income for the period

–

8,821,198

125,902

68,997,796

77,944,896

2,903,989

80,848,885

Distributions

–

–

–

(7,112,695)

(7,112,695)

(665,620)

(7,778,315)

Balance at 30 June 2021

20,747,148

58,465,600

160,699

418,331,022

497,704,469

16,128,230

513,832,699

Retained earnings $

Owners of the Parent $

Noncontrolling interest $

Total $

306,341,025 350,789,652

13,046,252

363,835,904

Transactions with owners

Land Carbon Financial revaluation revaluation assets at fair reserve reserve value reserve $ $ $ Balance at 1 July 2019

8,810,004

35,590,292

48,331

–

–

–

55,104,896

55,104,896

863,901

55,968,797

Other comprehensive 11,937,144 income

14,054,110

(13,534)

–

25,977,720

274,962

26,252,682

Total comprehensive 11,937,144 income for the period

14,054,110

(13,534)

55,104,896

81,082,616

1,138,863

82,221,479

(5,000,000)

(5,000,000)

(295,254)

(5,295,254)

13,889,861

440,762,129

Profit for the period

Transactions with owners Distributions

–

–

–

Balance at 30 June 2020

20,747,148

49,644,402

34,797

356,445,921 426,872,268

The above summarised statement of changes in equity should be read in conjunction with the accompanying notes.

2020–21 Annual Report

57

Summarised Balance Sheet A S AT 30 J U N E 2021

Group 2021 $ Current assets Current liabilities

Group 2020 $

18,668,664

22,035,059

(22,885,212)

(22,722,225)

Net current assets/(liabilities)

(4,216,548)

(687,166)

Non-current assets

593,006,139

503,420,690

Non-current liabilities

(74,956,892)

(61,971,395)

Total net assets

513,832,699

440,762,129

418,331,022

356,445,921

FUNDS ATTRIBUTABLE TO BENEFICIARIES Retained earnings Financial assets at fair value reserve

160,699

34,797

20,747,148

20,747,148

58,465,600

49,644,402

497,704,469

426,872,268

16,128,230

13,889,861

513,832,699

440,762,129

Land revaluation reserve Carbon revaluation reserve Beneficiaries’ interests Non-controlling interests TOTAL EQUITY

For and on behalf of the Board of Trustees, who authorised the issue of these summarised financial statements on 9 November 2021. The summarised group financial statements have been extracted from the full audited group financial statements of the Trust for the year to 30 June 2021.

BINKY ELLIS

GREG STEBBING

Chairman 9 November 2021

Chairperson Audit Committee 9 November 2021

The above summarised balance sheet should be read in conjunction with the accompanying notes.

Summarised Statement of Cash Flows F O R T H E Y E A R E N D E D 30 J U N E 2021

Group 2021 $

Group 2020 $

Cash flows from operating activities Net cash inflow from operating activities

9,086,328

13,364,323

(4,590,911)

(4,564,570)

Net cash outflow applied to financing activities

(6,288,747)

(4,528,739)

Net increase/(decrease) in cash held

Cash flows from investing activities Net cash outflow applied to investing activities Cash flows from financing activities

(1,793,330)

4,271,014

Balance 1 July

7,556,439

3,285,425

Balance as at 30 June

5,763,109

7,556,439

The above summarised statement of cash flows should be read in conjunction with the accompanying notes.

58

Lake Taupō Forest Trust

Notes to the Financial Statements 1. Statement of Compliance and Basis of Preparation The summary financial statements of Lake Taupō Forest Trust and its subsidiaries (the ‘Group’) have been prepared in accordance with Financial Reporting Standard 43: Summary Financial Statements. The full financial statements comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable Financial Reporting Standards, as appropriate for profit-oriented entities except for the Group’s land and land improvements with a carrying value of $84.8 million are stated at the most recent Government Valuations, which are values based on vacant possession of the land. This is a departure from New Zealand Equivalent to International Accounting Standard 16 (NZ IAS 16) which, when property, plant and equipment assets are subject to revaluations, requires such assets to be revalued to fair value.

For the purposes of complying with NZ GAAP, the Group is eligible to apply Tier 2 For-Profit Accounting Standards (New Zealand equivalents to International Financial Reporting Standards – Reduced Disclosure Regime (NZ IFRS RDR)) on the basis that it does not have public accountability and is not a large for-profit public sector entity. The Group has elected to report in accordance with NZ IFRS RDR and has applied disclosure concessions.

The full financial statements comply with NZ IFRS RDR except that land leased to the Ministry for Primary Industries and other land (primarily related to Trust land used in the Trust’s own forestry operation) is carried at Government Valuation rather than fair value as required by NZ IAS 16. The Group has not made an explicit and unreserved statement of compliance with IFRS in its full financial statements.

2. Summary Financial Statements The full financial statements, which were authorised for issue on 9 November 2021, have been subject to audit by Silks Audit Chartered Accountants Limited and a qualified audit report was issued dated 9 November 2021. The summary financial statements have been examined by the auditor for consistency with the full financial statements.

The audit report qualification relating to the full financial statements was in respect of non-compliance with NZ IAS 16, whereby land owned by the Trust is included in the financial statements at Government Valuation which is not fair value as required by NZ IAS 16.

The summary financial statements cannot be expected to provide as complete an understanding as that provided by the full financial statements.

The full financial statements can be obtained from the office of Lake Taupō Forest Trust, Box 102, Turangi on request.

3. Carbon Intangible Assets The Trust has registered its 23,774 hectares of pre-1990 forest land and has received its full allocation of 1.376 million carbon credits relating to that land. During 2013–14 the Trust deregistered approximately 600 hectares of post-1989 forests from the Ministry for Primary Industries Emissions Trading Scheme. Through this deregistration process, the Trust secured net 106,186 carbon credits.

The fair value of the Group’s carbon intangible assets recognised as at 30 June 2021 is $46.6 million (2020: $37.8 million).

The summary financial statements are presented in New Zealand dollars and all values are rounded to the nearest dollar. The summary financial statements are prepared on the historical cost basis, except for forestry assets, intangible carbon assets and certain financial assets which are carried at fair value. The specific disclosures included in these summary financial statements have been extracted from the full financial statements. No information extracted from the full financial statements has been restated or reclassified.

2020–21 Annual Report

59

4. Forestry Asset Group 2021 $

Group 2020 $

Forest crop – Trust’s share of joint venture forest Asset at 1 July

18,905,000

24,337,700

Harvest

(16,158,010)

(12,182,804)

Current year increase in valuation

2,655,860

6,750,104

Forest market value at 30 June

5,402,850

18,905,000

312,360,581

249,878,903

(1,797,494)

(12,960,816)

90,456,634

73,252,320

2,435,938

2,190,174

403,455,659

312,360,581

408,858,509

331,265,581

Forest crop – Trust’s forest Asset at 1 July Harvest Current year increase in valuation Capitalised costs Forest market value at 30 June Current year increase in valuation Total forest crop market value at 30 June 2021 The Group holds the forestry asset for the purpose of harvest.

Lake Taupō Forest Trust and the Ministry for Primary Industries have a joint venture agreement whereby land harvested each year is surrendered from the lease and returned to full Trust control. In 2020, the Crown and Trust agreed that while the lease will expire in June 2021, the Trust will grant a forestry right to the Crown to have the arrangement extend to 2023. At 30 June 2021, the Trust had full control of 100.0 per cent (2020: 93.9 per cent) of the initial Crown lease component of the forest.

Indufor Asia Pacific Limited (an independent valuer) has calculated the Trust’s share of value of the remaining hectares of joint forest crop as at 30 June 2021 at $5,402,850 (2020: $18,905,000). The valuation is based on the pre-tax net present value (NPV) of the future stumpage receipts, of which 35 per cent goes to Lake Taupō Forest Trust and 65 per cent to the Crown. In calculating the value, Indufor applied a 7.0 per cent (2020: 7.5 per cent) discount rate to the future cash flows.

Valuation at 30 June

Group 2021 $

Group 2020 $

5,402,850

18,905,000

The trees in the joint venture forest are all aged over 27 years. Sales of trees harvested during the current reporting period totalled 606,000 m3 (2020: 476,000 m3). The fair value of this harvested product was $46,200,000 (2020: $34,766,000) of which Lake Taupō Forest Trust received a 35 per cent share.

The Trust’s own forest has a total stocked area of 23,566 hectares (2020: 22,623), ranging in age from 1 to 23 years. Indufor Asia Pacific Limited has valued these at 30 June 2021 at $403,455,659 (2020: $312,360,581). This value includes a share of a plantation investment with the Lake Rotoaira Forest Trust owning the other share on Opepe Forest Trust lands. Indufor Asia Pacific Limited has valued the Trust’s share of this forest at 30 June 2021 at $7,742,000 (2020: $5,327,529). Also included is a plantation investment with the Lake Rotoaira Forest Trust owning the other share on Hautū Rangipō Whenua Lands called Kaimanawa Forest. Indufor Asia Pacific Limited has valued the Trust’s share of this forest at 30 June 2021 at $5,397,000 (2020: $3,187,881). As a part of the original purchase a biological asset for a forest crop of $361,258 was recognised.

Also included, is a share of a plantation investment with the Lake Rotoaira Forest Trust owning the other share on Tūwharetoa Settlement Trust lands being Taurewa, Waituhi and Pureora South Forests. These were purchased at 30 June 2018 at their fair value of $3,300,000. At June 2021 these forests are valued at $6,937,000 (2020: $4,569,737).

Valuation at 30 June

60

Lake Taupō Forest Trust

Group 2021 $

Group 2020 $

403,455,659

312,360,581

The inputs applied in the valuation of the Trust’s forest crop have been categorised as level 3 in the fair value hierarchy.

The Group is exposed to financial risks in respect of agricultural activity. The agricultural activity of the Group consists of the management of forests to produce logs. The primary financial risk associated with this activity occurs due to the length of time between expending cash on the purchase or planting and maintenance of trees and on harvesting trees, and ultimately receiving cash from the sale of logs to third parties. The Group’s strategy to manage this financial risk is to actively review and manage its working capital requirements. In addition, the Group maintains credit facilities at a level enough to fund the Group’s working capital during the period between cash expenditure and cash inflow. The Group’s investment strategy includes a Growth portfolio of investments called the Forestry Reserve Fund, which is available to support any cash flow or financial risk from forestry. Currently this is valued at $14.25 million (2020: $14.7 million).

5. Leases NZ IFRS 16 Leases is effective for annual reporting periods beginning on or after 1 January 2020. LTFT group applies NZ IFRS 16 from 1 July 2019 for the first time.

The Group has entered into forestry leases that have a duration of 35 years, with 29 years remaining from 30 June 2021.

The forestry leases will be depreciated on a straight line basis across the remaining useful life.

In 2021, the lease asset was remeasured as a result of a previously recorded internal lease between Lake Taupō Forest Management and Hautū-Rangipō Limited Partnership, both of which are wholly consolidated into the group accounts.

The net of this adjustment has no significant impact on opening or closing equity.

The Group has a right of use asset lease liability outstanding with Opepe Farm Trust, which has shared trustee membership with the Group.

Set out below are the carrying amounts of the right of use assets and lease liabilities recognised and the movements during the period: Group 2021 $

Group 2020 $

7,014,837

–

Right-of-use Asset – Forestry Rights Opening carrying amount Addition Remeasurement Depreciation Closing carrying amount

–

7,267,225

(3,144,892)

–

(50,871)

(252,388)

3,819,074

7,014,837

Set out below are the carrying amounts of lease liabilities recognised and the movements during the period: Lease Liability Opening carrying amount

6,932,599

Remeasurement

(2,807,076)

–

Interest expense

20,080

252,712

Lease payments

(234,479)

(391,120)

Closing carrying amount

3,911,124

6,932,599

Current Non-current

7,071,007

132,654

181,469

3,778,470

6,751,130

3,911,124

6,932,599

6. COVID-19 On 11 March 2020 the World Health Organisation declared the outbreak of COVID-19 a global pandemic. Eighteen months later, the influence of COVID-19 on business continues. COVID-19 has impacted the price of timber and financial markets across the globe. COVID-19 may continue to affect timber prices and the investment market going forward. In 2021, the New Zealand Government announced a COVID-19 nationwide lockdown on 17 August, and on 7 September 2021 the restrictions were reduced to COVID-19 level 2 (Auckland region remaining at level 4). Governance has not yet had an opportunity to determine the full financial impact of the COVID-19 pandemic that may affect the Lake Taupō Forest Trust Group.

2020–21 Annual Report

61

Group Directory Lake Taupō Forest Trust

Tupu Angitu Ltd

Chief Executive Officer

Directors

JOHN BISHARA

T E M U E R A H A L L , J O N AT H A N C A M E R O N ,

Group Manager A M Y WA L K E R

Accountant MAUREEN SMITH

TRACEY HOOK, GEOFF THORP

General Manager M AWA E M O R TO N

The Weighbridge Company Limited

Team Leader Administration and Grants

Director

S H A N Y N WA R E N A

J U DY H A R R I S

Executive Assistant to the CEO

Director and Operations Manager

S A N DY G I B B I S O N

GEOFF THORP

Assistant Accountants J A R E D M AT U A U TO, TA R I TA K I N G I - R I H A R I

LTFT Land Holdings Limited

Administrators

C L I N TO N E L L I S , J U DY H A R R I S

Directors

LO G A N D AV I S , R A U K U R A D U N S T E R

Lake Taupō Charitable Trust Kaitiaki J U DY H A R R I S , J O H N T U PA R A

PO Box 219, Tūrangi 3353 Phone: 07 386 0389 Fax: 07 386 0390 Email: info@tdltd.co.nz Website: www.ltct.co.nz

Lake Taupō Forest Management Limited Directors B I L L L I L E Y, J O H N VA N D E R L E D E N , C L I N TO N E L L I S

Managing Director GEOFF THORP

Assistant Forest Manager PAT R I C K N E P I A

62

Taupō Moana Investments Limited Trading as IWIinvestor Directors D E B R A B I R C H (C H A I R ), J O H N B I S H A R A , S T E P H E N N A P I E R , N AT VA R VA L L A B H

General Manager and Adviser LINDA MASTNY

Investment Operations Manager/Client Services ARIANA DAIS

Office Manager LISA TE HEUHEU

Compliance Manager N I C O L E PA S K

Taupō Office 72 Totara Street, PO Box 688, Taupō 3351 Phone: 07 378 7644 Fax: 07 378 7647

Researcher

Email: info@iwiinvestor.co.nz

L A N I A H O LT

Website: www.iwiinvestor.co.nz

Lake Taupō Forest Trust

The Trust Order Governance of the Trust is carried out in accordance with the Trust Order issued by the Māori Land Court and with Te Ture Whenua Māori Act 1993 and the Trustee Act 1956. For the Trustees and owners, the Trust Order is their constitution. It provides for: •

power to carry out the Trust business;

•

financial management;

•

election of Trustees;

•

owners’ meetings.

The Trustees’ duties and powers are set out in the Trust Order. Their work and the work carried out by the Trust’s management and staff must comply with the Order. The Order sets out the process for the appointment of Trustees, including an election every three years by postal ballot. In 2016, the Trust changed to a rotation policy whereby five Trustees (the longest serving) retire, and the remaining six continue for a further three-year term. Those retiring may seek re-election.

Financial All authorities for payments from the Trust’s funds originate in the Trust Order. Among other details, it sets out: •

provision for capital reserves for future forestry developments;

•

the formulae for allocation of community purposes funding, including the annual Marae grants, the Charitable Trust’s projects and grants and Pūtea Aroha;

•

the formula for distributions to owners;

•

provision for Trustees’ fees and expenses;

•

the requirements for annual financial reporting and audit.

In 2019, the Trust Order was amended to allow for a reduction in the number of Trustees from 11 to 7. This change will take effect at the next election in late 2022.

While the Trust Order allows for other business and development opportunities, hence the establishment of Tupu Angitu Ltd, the core business remains forestry.

The Order allows for the operations of subsidiaries, and these subsidiaries are used for the forestry, investment, and commercial arms of the Trust’s business (see the Lake Taupō Trust structure in the section About the Trust).

It also allows for community-purposes funding to be administered through the Lake Taupō Charitable Trust (see the Charitable Trust report).

2020–21 Annual Report

63

Land Blocks The land blocks vested in the Trust by the Māori Land Court are listed in the schedule to the Trust Order. The original Trust Order included 58 land blocks in the Trust. Over the years, the Trust has acquired further lands so that it now holds 68 Māori land blocks under its Trust Order and 13 general land blocks.

1

Hautū 1A1

25 Opawa Rangitoto 1A

49 Tauranga Taupō 1B2B2

2

Hautū 1A2

26 Opawa Rangitoto 1B

50 Tauranga Taupō 2A1

69 Lot DP 480856

3

Hautū 1A3

27 Opawa Rangitoto 1C

51

70 Lot DP 489535

4

Hautū 1A4

28 Opawa Rangitoto 1D

52 Tauranga Taupō 2B1A

5

Hautū 1A5

29 Opawa Rangitoto 2B

53 Tauranga Taupō 2B1B

6

Hautū 1A6

30 Opawa Rangitoto 2D2

54 Tauranga Taupō 2B1C

7

Hautū 1A7

31

55 Tauranga Taupō 2B1D

8

Hautū 1A8

9

Hautū 1B1B2A1

10

Hautū 1B1B2A2

11

Hautū 1B1B2B1E1

12

Hautū 1B1B2B1E1A-C & Hautū 1B1B2B1F

32 Opawa Rangitoto 2G 33 Opawa Rangitoto 3 34 Opawa Rangitoto 4 35 Opawa Rangitoto 5 36 Pahikohuru 2

13

Hautū 1B1B2B3

37 Pahikohuru 3

14

Hautū 1B1B2B4

38 Pahikohuru 4

15

Hautū 1B1B2B5B1

39 Pahikohuru 5

16

Hautū 1B3

40 Pahikohuru 6

17

Hautū 2B1B2D2

41

18

Hautū A1

19

Hautū A2

20 Hautū A3 21

Hautū A4

22 Hautū A5 23 Hautū C 24 Hautū D

64

Opawa Rangitoto 2D3B2

Lake Taupō Forest Trust

Tauhara Middle 4A2B2C

Tauranga Taupō 2A2

71

T R E M A I N E B LO C K

72 Te Whakao 1

57 Tauranga Taupō 2B2M1

LT F T O F F I C E

58 Tauranga Taupō 2B2M5 73 Lot 1 Deposited Plan 60862

59 Tauranga Taupō 3B1B 60 Tauranga Taupō D2 61

Tauranga Taupō Y

62 Te Kopiha 63 Te Whakao 2 64 Te Whakao 3 65 Te Whataroa 66 Turutururoa 67 Hautū 1B1B1A

43 Tauhara South B2

68 Hautū 2B1B2B

E N C L AV E S

74 Section 1 SO 32019 75 Section 1 SO 30614 76 Sections 2–3 SO 356127 77 Section 3 SO 36628 78 Section 3 SO 33327(a) 79 Section 3 Block XIII Waitahanui Survey District

80 Section 4 Block XIII Waitahanui Survey District

45 Tauranga Taupō 1A2 46 Tauranga Taupō 1B1B2 47 Tauranga Taupō 1B1C 48 Tauranga Taupō 1B1D

Lot DP 480856

56 Tauranga Taupō 2B1E

42 Tauhara South B1 44 Tauranga Taupō 1A1

T E W H E N U A B LO C K S

81

Part Tauranga Taupō 2A