Pyne Gould : PGC - Annual Report 2015

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Pyne Gould Corporation Limited

ANNUAL REPORT AND

CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 30 June 2015

PYNE GOULD CORPORATION LIMITED Contents For the year ended 30 June 2015

Company Report 4-7

Board of Directors 8

Corporate Governance 9-11

Directors' Responsibility Statement 12

Consolidated Financial Statements

Consolidated Statement of Comprehensive Income 13

Consolidated Statement of Changes in Equity 14-15

Consolidated Statement of Financial Position 16

Consolidated Statement of Cash Flows 17

Notes to the Consolidated Financial Statements 18-62

Independent Auditor's Report 63-64

Statutory Disclosures 65-69

Shareholder Information 69-70

Directory 71-72

PYNE GOULD CORPORATION LIMITED

COMPANY REPORT

Directors' Report

The Pyne Gould Corporation Limited ("PGC" or the "Company") financial results for the 2015 fiscal year saw Net Tangible Assets ("NTA") end at £55.2 million (from GBP71.1 million last year ) or NZD128.4 million (NZD138.6 million last year). On a per share basis this was down in GBP terms 33.51p per share to 26.61p per share and in NZD terms

66.60 cents per share to 61.90 cents per share).

The NTA impact was non cash and predominately due to the impact of non cash foreign exchange translation reserve arising from a weak New Zealand Dollar ("NZD") and strong British Pound Sterling ("GBP") and the impact of consolidating the RCL Group into PGC for part of the year.

The Group has an investment in TFLP which with effect from 30 September 2014 is accounted for as a subsidiary. The investment is held through the Company's subsidiary Torchlight Group Limited.

Whilst the Company has previously announced that TFLP would be treated as a subsidiary for the 2016 financial year, the Company entered into conditional agreements on 30 September 2014 which gave rise to future potential voting rights in TFLP. The company has historically treated TFLP as an associate, however, it has since been determined that the hypothetical ability to gain control of TFLP arising from the future potential voting rights resulted, under IFRS 10, in the Company gaining control of TFLP on 30 September 2014.

Long Term Focus

PGC is very confident in its long run plan. To understand why it is worth reviewing our history.

PGC headed into 2009 with a market capitalisation of NZD400 million and as New Zealand's oldest investment company it was in its 90th year. The accounts revealed very large property loan losses sustained by its finance subsidiary Marac. Like many of its peers PGC faced imminent bankruptcy. South Canterbury Finance, Hanover, Lombard, Strategic, Nationwide and Equitable are just a handful of the over 50 finance company failures of that period.

Uniquely, PGC moved to take advantage of the situation, led by newly appointed non executive director George Kerr and newly appointed Managing Director Jeff Greenslade, PGC embarked on a successful NZD272 million 6:1 rights issue to recapitalise Marac and create a registered bank. The old PGC board was largely immediately replaced. They had developed and executed a flawed strategy that resulted in enormous losses in Marac and decimation for shareholders. The market capitalisation had fallen to NZD40 million by the time of the rights issue. PGC, free from the past, moved quickly to execute its strategy. Of the NZD272 million rights issue PGC paid off debt and costs and used NZD220 million to recapitalise Marac. This effectively created two businesses. Marac became "good bank" which ultimately became Heartland. The Marac bad book became "bad bank" which ultimately became Torchlight.

PGC then merged Marac with CBS and Southern Cross and inspecied its 216 million shares in what is now Heartland Bank. PGC shareholders who have retained their shares have enjoyed dividends and capital growth from the shares which at now represent a market capitalisation of NZD285 million.

On in specie of Heartland, PGC was left with NTA of NZD100 million and 216 million shares on issue as at 30 June 2012. NTA was NZD 43 cents per share. The asset mix was diverse. A start up distressed asset manager Torchlight together with bad loans from Marac and a struggling trustee company. PGC also held securities in EPIC, Heartland and PGW but it also held substantial debt that needed to be paid off.

After divesting liquid securities to repay bank debt PGC advised in August 2012 it would divest non-core assets. Proceeds from real estate and other residual assets would be reinvested in the growth of Torchlight. Proceeds from the sale of Perpetual Trust would be returned to shareholders.

The PGC NTA is now up 44% in NZD terms since 30 June 2012. Since that time, NTA has grown from NZD43 cents per share to NZD62 cents per share. As at 30 June 2015, PGC has a net Statement of Financial Position of GBP55.2m or 26.61 pence per share. This is equivalent to NZD128 million or NZD61.90 cents per share.

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