pyne gould corporation limited interim report interim report to... · • interim report to 31...

Pyne Gould CorPoration limited

INTERIM REpoRTTo 31 DECEMBER 2010

• I nter im Repor t to 31 December 2010

1

Half-Year Summary 2

Chairman and Chief Executive Officer’s Report 3

Directors’ Responsibility Statement 7

Interim Financial Statements 8

Notes to the Interim Financial Statements 13

Independent Auditor’s Review Report 28

Directory 29

CONTENTS

2


HALF-YEAR SUMMARY

MILEStonES• Deliveryofthestrategic‘Heartland’mergerbetweenPGC’swhollyownedsubsidiaryMARAC,and

CBSCanterburyandSouthernCrossBuildingSociety,toformCombinedBuildingSociety.

• An‘investmentgrade’creditratingobtainedforthemergedHeartlandentity.

• AproposedsolutionforPGC’sPGGWrightsonholding.

• SoundunderlyingperformancefromMARAC.

• Paymentduringtheperiodofaspecialdividendof1.5cpersharerelatingtotheprioryear’sresult.

• PGC restructured toprepare it for thenext stageof its evolution into two listed companies: onefocusedonbanking1services(BuildingSocietyHoldingsLimitedor“BSHL”);andtheotheronwealthandcapitalmanagement(“PerpetualGroup”).

kEY FInAncIAL RESULtS

This Period Corresponding Period

Netoperatingprofit/(loss) ($7.4m) $12.6m

Netprofit/(loss)aftertax ($37.2m) $10.1m

Total assets $1,486.0m $1,554.3m

Shareholders’ funds $430.9m $454.4m

1 NoneofPGC,BSHL,CombinedBuildingSocietyorMARACarearegisteredbank.

3

the six months to 31 December 2010 was a period of progress for Pyne Gould corporation (“PGc”) in delivering on its strategic goals and restructuring the company to prepare it for the next stage of its evolution into two listed companies: one focused on banking1 services (Building Society Holdings Limited or “BSHL”); and the other on wealth and capital management (“Perpetual Group”). Achievements included delivery of the strategic ‘Heartland’ merger, obtaining an ‘investment grade’ credit rating for the merged Heartland entity (combined Building Society) and finding a solution for the PGG Wrightson (“PGW”) holding. Also notable was the sound underlying performance from MARAc along with the payment during the period of a special dividend of 1.5c per share relating to the prior year’s result.

InTerIm FInanCIal PerFormanCe

In the six month period under review PGC reported netoperatingincomeof$43.2million,downfrom$49.5millioninthecorrespondingperiodin2009.Theunderlyingoperatingincomewasbroadlyinlinewiththecorrespondingperiodin2009whenaccountingforone-offincomeof$5.1millionfromthesalein2009ofpropertyandafeefromAgria(Singapore)Pte(“Agria”)fortheterminationoftheshareholdersagreementwithRuralPortfolioInvestments.

The operating income was underpinned by a solidperformancefromMARAC,reportinganetoperatingincomeof $31.3million which was in line with the correspondingperiod in 2009 of $32.2 million. Encouragingly, MARAC’soperatingincomewasachievedfromhigherqualityearningsfromitscoreconsumerandcommerciallendingactivitiesasitexitedthehigher-yielding,yetriskier,commercialpropertylendingmarket.

A series of one-off costs relating to the restructuring andrepositioning of PGC saw it report a net loss after tax of $37.2million for theperiodunder review.Thiscompares toanetprofit after taxof $10.1million for the correspondingperiodin2009.

The principal contributor to the loss was the previously foreshadowed $30.3million non-cashwrite down of PGC’s18.3% holding in PGW, after PGC agreed to accept Agria’spartial takeoveroffer in respectof allof itsholding inPGW(thatofferbeingat60cpershare).PGChadpreviouslyequityaccounted this investment at 82c per share as it has been (untilrecently)alongtermstrategicinvestmentforPGC.

The other contributing factors to the bottom line lossincluded:

• Anincreaseincostsof$9.1million($33.5millioncomparedto $24.4 million in the corresponding period in 2009).Thiswasmainlyduetoanadditional$5.1millionoflegaland professional fees for the merger and restructuringacrossthegroup, increasedpropertymanagementcostsof$1.0million for thePropertyManagementgroup,andinvestmentinstaffof$0.7million.

• Anincreaseintotalimpairmentsof$4.4million($17.0millioncomparedto$12.6millioninthecorrespondingperiodin2009). Included within the $17.0 million were propertyimpairments totalling $12.7million (up from$6.9millioninthecorrespondingperiodin2009)reflectingcontinuingpressure in the sector. MARAC total impairments were $6.1millionandRECLtotalimpairmentswere$10.9million.

• A $1.8 million fall ($1.1 million loss compared to $0.7millionprofitinthecorrespondingperiodin2009)inPGC’sshareofequityaccountedearningsfromPGW.

Whilst the transition to prepare the Company for the nextstage of its evolution has been painful, particularly froman accounting point of view, PGC is now well positionedto return substantial value to shareholders and grow theremainingbusiness.

merger oF maraC

Ahighlightwas the complex but highly successfulmergerof PGC’s wholly owned subsidiary MARAC, with CBSCanterbury and Southern Cross Building Society, to form

cHAIRMAn AnD cHIEF EXEcUtIVE oFFIcER’S REPoRt


Bruce Irvine Jeff GreensladeChairman Chief Executive Officer

4


CombinedBuildingSociety,theHeartlandstrategy.Thiswasa transaction which on completion in early January 2011 saw Standard&Poor’sassignaninvestmentgradecreditratingtothatmergedentity.Giventhe importanceofMARACtotheCompany’s business, the successful delivery of thismergerwas a key strategic outcome. Combined Building Society,which now includes MARAC, is well positioned to drivegrowth through servicing thebanking1 needs of Heartland NewZealanders.

ThemergerhasresultedinPGCowninga72%shareholdinginthenewmergedentity’sparentholdingcompany,BSHL,whichlistedontheNZXunderthetickerBSH,on1February2011. ItremainstheintentiontodistributetheshareholdinginBSHLtoPGCshareholdersshouldtheAgriaofferproceedsothatyouwillbecomedirectownersofBSHL.

Itisalsoimportanttonotethatacriticalpartofthismergerprocess was the deliberate decision to transfer a material portion of the residual real estate exposure of theMARACbooktoPGCthroughaspecialpurposepropertyvehicle(RealEstateCreditLimitedor“RECL”)toimprovetheassetmixandqualityoftheassetsthatnowformpartofCombinedBuildingSociety.PGChastheappropriateskillsandresourcestorealisevaluefromtheseimpairedassets,leavingCombinedBuildingSocietytofocusonpositivegrowthopportunitiesinitslong-termcoremarkets.

DIvIDenD

Payment of a special 1.5c per share dividendwasmade inDecember 2010 relating to the prior financial year ending 30June2010.

oPeraTIonal resulTs

MARAC

MARAC delivered a performance that was in line with thesame period a year ago, reporting a net profit after tax of $5.1million.Thisresultalsoincludedone-offmergercostsof$2.2millionandanincreaseincostsassociatedwithextendedparticipationintheCrownGuaranteeSchemeof$1.0million.

At theoperating level,MARAC’scorebusinessofconsumerandcommerciallendingperformedwell.Whilsttheconsumerdivision tracked ahead of the prior period on the back of increased market share in motor vehicles, the commercialdivisionremainedsteadyinwhatwasasubduedmarket.

Netoperatingincomefortheperiodwas$31.4millionwhichwasinlinewiththecorrespondingperiodin2009.Pleasingly,a$2.2million improvement intheconsumerbookoverthecorresponding period in 2009 was recorded, which offsettheimpactofadropinincomefromhigh-yieldingpropertylendingasthecompanymanageddownitsexposuretothismoreriskysector.

Total impairments were $6.1 million after receiving a $7.6millionbenefitfromtheRECLManagementAgreement.

The period under reviewwas a significant transitional onefor MARAC,maintaining operational performance whilst atthe same time successfully executing amergerwhich PGCbelieveswillbenefitallstakeholdersinthebusiness.

ThisisthelasttimeMARAC’sresultswillbereportedseparatelyaspartofthePGCgroup.InthefutureMARAC’sresultswillbereportedaspartofCombinedBuildingSociety.

Perpetual and Torchlight

Thisdivisioniscomprisedof:

• Perpetual (including Perpetual Portfolio Management,PerpetualAssetManagementandPerpetualTrust),whichoffers integrated wealth management, trust and estateservices to mainstream clients across the New Zealand market.

• Torchlight,whichfocusesonprovidingproprietaryfundsmanagementtohighnetworthinvestorsandinstitutionsacrossAustralasia.

• Property group (including Real Estate Credit Limited),which owns (and is managing and realising) the ex-MARAC property portfolio transferred to it in 2009; andundertheRECLManagementAgreementisresponsibleformanagingtheremainingMARACpropertyloanportfolio.

For the period under review, the result for the combinedbusinessesisanaftertaxlossof$7.7million(comparedtoanaftertaxprofitof$2.4millionforthecorrespondingperiodin2009).The$10.1million turnaround isprincipallya resultoftheimpactoftheRECLManagementAgreement(discussedbelow)andone-offcostsassociatedwith restructuring.Themajorityoftheturnaroundincludes(pretax):

• Recognition of $1.0 million property asset impairmentexpenditurebyRECLontheex-MARACpropertyportfoliopreviouslytransferredtoit.

• $7.6 million impairment for RECL under the RECLManagementAgreementwithMARAC.

• Recognitionofapproximately$1.0millionpropertyassetmanagementandoperatingexpenditurebyRECL.

• One-offrestructuringcostsofapproximately$2.5millionas part of a large investment in people and systems tobuild the platform for future growth by Perpetual andTorchlight.

Inthesixmonthperiodended31December2010Perpetualalso acquired $105 million of funds under advice andestablishedninenewfunds.Perpetualnowhas$587millionineitherfundsunderadviceormanagement.

Perpetual recorded an after tax loss of $0.4million for theperiod.

Torchlight, comprising the Torchlight Fund and EquityPartners Infrastructure Company (“EPIC”), contributed $2.9millionofannuityandtransactionfeeincomeduringtheperiod.


5

The Property Group will manage out and realise legacyimpaired assets from the ex-MARAC property loan book.Consistentwithafocusonstrongcapitalmanagement,thesesurplus assets will be realised over time to maximise cash proceeds,andit is intendedthattheresultingproceedswillbeinvestedintothebusinessorreturnedtoPGCshareholderstaxefficiently.

It is prudent in the current environment to continue to impair all interest incomewhich accrueson the ex-MARACimpaired property portfolio transferred to it. Accordingly,approximately $2.3 million pre tax of interest impairmentshave been recorded. In addition, underlying principal andpropertyrevaluationimpairmentsof$1.0millionpretaxhavebeenmade.

On 5 January 2011 RECL, which is within the PropertyGroup, entered into an arrangement with MARAC (theRECL Management Agreement) to manage the remaining non-corepropertyloansofMARAC(thatwerenotpreviouslytransferredtoRECL)foraperiodofupto5years,andsubjecttothelimitedrecoursearrangementsassumeriskoflossonthoseloansforthatperiod.Seepage6forfurtherdetails.

PGG Wrightson

PGC expected the contribution to its earnings from itsinvestmentinPGWtobeflatatthehalfyear,however,givenPGW’s earnings downgrade on 17 December 2010, PGC’sshareofPGW’slosswas$1.1million.

PgC BusIness goIng ForwarD

Asmentioned above, it remains the intention to distributethe 72% shareholding in BSHL to PGC shareholders shouldtheAgriaofferproceedsothatyouwillbecomedirectownersofBSHL.OncethesharesaredistributedtoPGCshareholdersitisexpectedthatBSHLwillqualifyforNZX50indexationandwillthereforeattractabroaderrangeofinvestors.Informationaboutthiswillbesenttoyouinduecourse.

Following theabovedistribution,MARACwill no longerbepartofthePGCgroup.

TheintentionisalsotodisposeoftheholdinginPGW.

Once these processes have been completed the residual future focus of PGC (the“Perpetual Group”) will be on thethreeactivitiesreferredtoaboveunderPerpetual,TorchlightandthePropertyGroup.

The completion of the distribution of BSHL shares anddisposaloftheholdinginPGWwillalsosignalachangeintheboardofPGC–withBruceIrvineandJeffGreensladesteppingdown from their respective positions as Chairman (in the case of Bruce Irvine) and ExecutiveDirector andChief ExecutiveOfficer (in thecaseof JeffGreenslade).BryanMogridgewilltakeoverasChairmanofPGCwiththeotherboardmembersconsisting of George Kerr, and further directors to beappointed(includinganindependentboardmember).

In addition, should the Agria offer proceed, based on anofferpriceof60cpershare,PGCwillreceiveacapitalreturnofaminimumofapproximately$32million(ifallotherPGWshareholdersaccepttheoffer,withtheresultthatthenumberof shares acquired from PGC are scaled) or amaximum of$83.2million (if all of the shares held by PGC are sold intoa successfuloffer).PGC’s intentionwith respect to thecashproceeds fromtheoffer (togetherwithany remainingPGWshares,shouldscalingapply)isto:

• fundrepaymentofthePromisoryNoteowingtoMARAC;

• provide working capital and expenses for the ongoingPGCbusinesses;and

• the balance will be distributed to PGC shareholders orusedtoprovideequityassistancetoBSHL,ifrequired.

InconclusionPGChasmadesignificantstridesindeliveringonthegoalsitsetwhenitwenttoshareholderstoraisecapitalat the end of 2009. The ambition to develop a banking1 operation to serve Heartland New Zealanders is now well developedwith themerger betweenMARAC and the twobuilding societies completed to form Combined BuildingSociety.Thisledtothemergedentitybeingpromptlygrantedaninvestmentgradecreditrating,whichisapre-requisiteforbanking1registration–anapplicationtotheReserveBankisintended tobebymadeCombinedBuildingSociety in thesecondhalfof2011.

CanTerBury earThquake

Atthetimeofwritingthisreport,Christchurchwasstruckbythedevastatingearthquake.Tragically,welostfourCombinedBuilding Society staff (from the MARAC division) in thecollapseofthePGCbuildingonCambridgeTerraceandtenstaff fromPerpetualTrust.AnumberofotherPGCstaffalsoworkinginthisbuildingwereseriouslyinjured.OurthoughtsandcondolencesarewithaffectedstaffandtheirfamiliesandthepeopleofChristchurch.Ourpriorityhasbeensupportingandhelpingour staffand their families, andour customerswhohavebeenaffectedbythistragedy.

Fromanoperationalperspective,theearthquakehascreatedchallenges,however fullback-upsystemsand recordswereinplace,andweareoperatingbusinessasnormalwiththesupportofourotherofficeslocatednationwide.

Thank you

Finally,wewouldliketothankyou,ourshareholders,foryoursupportthroughthisperiod,andallofourstaff,forallthehardworkthattheyhaveputintorestructuringPGCsothat it iswellpositionedtogeneratefuturevalueforshareholders.

Bruce Irvine Jeff GreensladeChairman Chief Executive Officer


6


RECL Management Agreement

PropertyGroup(which includesRealEstateCreditLimitedor“RECL”)ownstheex-MARACpropertyportfoliotransferredto itin2009.UndertheRECLManagementAgreement,RECLisalsoresponsibleformanagingandrealisingtheremainingMARACpropertyloanportfolio.

TheRECLManagementAgreementwithMARACwasenteredintoon5January2011.Keypointsare:

• RECLmanagestheremainingnon-corepropertyloansofMARACfor5years;

• RECLassumesriskoflossonthoseloanswithpaymentforlossattheendofthat5years(withlimitedrightsonthepartofMARACtoearlierpayment);

• RECL’spaymentobligationsare“limitedinrecourse”tosecurityprovided(whichincludesan$11million5yearzerocouponbond,and$22millioninsecurityvalueofotherassets(initiallyrealestateorrealestateloans);

• PGCisobligedtotopupthesecuritypoolifthereisashortfallinthe$22millionofsecurityvalueofotherassets;

• AnupfrontfeewaspaidbyMARACtoRECLof$11million(tobeamortisedover5years);

• Theannualmanagementfeeis$200k;and

• $7.6million of impairmentswere recognisedby RECL under the RECLManagementAgreement in theDecember 2010financialstatements.

7

DIREctoRS’ RESPonSIBILItY StAtEMEntThedirectorsareresponsibleforensuringthattheinterimfinancialstatementsgiveatrueandfairviewofthefinancialpositionoftheGroupasat31December2010andthefinancialperformanceandcashflowsfortheperiodendedonthatdate.

ThedirectorsconsiderthattheinterimfinancialstatementsoftheGrouphavebeenpreparedusingappropriateaccountingpolicies consistently applied and supported by reasonable judgements and estimates, and that all the relevant financialreportingandaccountingstandardshavebeenfollowed.

Thedirectorsbelievethatproperaccountingrecordshavebeenkeptwhichenable,withreasonableaccuracy,thedeterminationofthefinancialpositionoftheGroupandfacilitatecomplianceoftheinterimfinancialstatementswiththeFinancialReportingAct1993.

TheBoardofDirectorsofPyneGouldCorporationLimitedauthorisedtheinterimfinancialstatementssetoutonpages8to27forissueon25February2011.

ForandonbehalfoftheBoard.

B R Irvine B W MogridgeDirector Director

25February2011

8 PyneGouldCorporat ion • I nter im Repor t to 31 December 2010

IntERIM StAtEMEnt oF coMPREHEnSIVE IncoMEFor the period ended 31 December 2010

Note

Unaudited 6 months Dec 2010

$000


$000

Audited 12 months

Jun 2010 $000

Interest income 68,118 79,194 152,135Interest expense 40,501 50,507 89,763Net interest income 27,617 28,687 62,372

Operatingleaseincome 9,225 8,187 16,617Operatingleaseexpenses 5,755 5,379 10,037Net operating lease income 3,470 2,808 6,580

Dividend income - 341 1,365Fee and other income 12,098 17,685 35,033Net operating income 43,185 49,521 105,350

Sellingandadministrationexpenses 5 33,524 24,382 50,218Impaired asset expense 6 17,011 12,584 31,830Operating (loss) / profit (7,350) 12,555 23,302

Write-downinvestmentinassociates-assetheldforsale (30,308) - - Shareofequityaccountedinvestees’(loss)/profit (1,046) 737 4,382(Loss) / profit before income tax (38,704) 13,292 27,684

Incometax(benefit)/expense (1,535) 3,189 5,678(Loss) / profit for the period (37,169) 10,103 22,006

Other comprehensive incomeCashflowhedges:Effectiveportionofchangesinfairvalue,beforetax 657 4,763 6,011Incometaxexpenseontheeffectiveportionofchangesinfairvalue 197 1,429 1,803Effective portion of change in fair value, net of income tax 460 3,334 4,208

Shareofassociates’othercomprehensiveincome,aftertax 11 1,014 (1,279) (1,818)Total comprehensive (loss) / income for the period (35,695) 12,158 24,396

All comprehensive income for the period is attributable toownersoftheCompany.

Earnings per share from continuing operationsBasicearningspershare 8 -5c 3c 4cDilutedearningspershare 8 -5c 3c 4c

Thenotesonpages13to27areanintegralpartofthesefinancialstatements.

PyneGouldCorporat ion • I nter im Repor t to 31 December 2010 9

IntERIM StAtEMEnt oF cHAnGES In EQUItYFor the period ended 31 December 2010

Note

Share Capital

$000

Hedging Reserve

$000

Retained Earnings

$000

Total Equity

$000

December 2010 – UnauditedBalance at 1 July 2010 345,189 (1,990) 123,422 466,621

Total comprehensive income for the periodLossfortheperiod - - (37,169) (37,169)

Other comprehensive incomeShareofassociates’othercomprehensiveincome,aftertax 11 - - 1,014 1,014Effectiveportionofchangesinfairvalueofcashflowhedges,netofincometax - 460 - 460Total other comprehensive income - 460 1,014 1,474

Total comprehensive income for the period - 460 (36,155) (35,695)

Transactions with owners, recorded directly in equityDividends to shareholders - - (11,316) (11,316)DividendReinvestmentPlan 9 11,316 - - 11,316Total transactions with owners 11,316 - (11,316) -

Balance at 31 December 2010 356,505 (1,530) 75,951 430,926

December 2009 – UnauditedBalance at 1 July 2009 87,225 (6,198) 103,234 184,261

Total comprehensive income for the periodProfitfortheperiod - - 10,103 10,103

Other comprehensive incomeShareofassociates’othercomprehensiveincome,aftertax - - (1,279) (1,279)Effectiveportionofchangesinfairvalueofcashflowhedges,netofincometax - 3,334 - 3,334Total other comprehensive income - 3,334 (1,279) 2,055

Total comprehensive income for the period - 3,334 8,824 12,158

Transactions with owners, recorded directly in equityCapitalraisingproceeds 272,531 - - 272,531Transactioncostsassociatedwithcapitalraising (14,567) - - (14,567)Total transactions with owners 257,964 - - 257,964

Balance at 31 December 2009 345,189 (2,864) 112,058 454,383



Note

Share Capital

$000

Hedging Reserve

$000

Retained Earnings

$000

Total Equity

$000

June 2010 – AuditedBalance at 1 July 2009 87,225 (6,198) 103,234 184,261

Total comprehensive income for the periodProfitfortheperiod - - 22,006 22,006

Other comprehensive incomeShareofassociates’othercomprehensiveincome,aftertax 11 - - (1,818) (1,818)Effectiveportionofchangesinfairvalueofcashflowhedges,netofincometax - 4,208 - 4,208Total other comprehensive income - 4,208 (1,818) 2,390

Total comprehensive income for the period - 4,208 20,188 24,396

Contributions by and distributions to ownersCapitalraisingproceeds 272,531 - - 272,531Transactioncostsassociatedwithcapitalraising (14,567) - - (14,567)Total transactions with owners 257,964 - - 257,964

Balance at 30 June 2010 345,189 (1,990) 123,422 466,621

IntERIM StAtEMEnt oF cHAnGES In EQUItYFor the period ended 31 December 2010



IntERIM StAtEMEnt oF FInAncIAL PoSItIonAs at 31 December 2010


Note

Unaudited Dec 2010

$000

Unaudited Dec 2009

$000

Audited Jun 2010

$000

AssetsCashandcashequivalents 85,145 102,657 98,610Finance receivables 10 1,094,366 1,203,100 1,140,035Operatingleasevehicles 38,005 37,878 42,895Investment property 65,256 - 41,838Other assets 21,295 20,367 25,977Investments 30,250 16,541 30,250Deferred tax asset 20,828 27,769 23,978Investment in associates 11 5,957 110,689 118,541Asset held for sale 12 83,296 - - Investment in joint venture 2,217 - 2,124Intangibleassets 13 39,344 35,283 37,039Total assets 1,485,959 1,554,284 1,561,287

LiabilitiesBorrowings 14 1,016,843 1,054,595 983,679Other liabilities 38,190 45,306 110,987Total liabilities 1,055,033 1,099,901 1,094,666

EquityShare capital 9 356,505 345,189 345,189Retainedearningsandreserves 74,421 109,194 121,432Total equity 430,926 454,383 466,621

Total equity and liabilities 1,485,959 1,554,284 1,561,287


IntERIM StAtEMEnt oF cASH FLoWSFor the period ended 31 December 2010


Note


$000


$000

Audited 12 months

Jun 2010 $000

Cash flows from operating activities

Interest and dividends received 61,680 68,003 135,391Operatingleaseincomereceived 7,377 7,491 14,604Proceedsfromsaleofoperatingleasevehicles 9,621 5,996 12,377Fees and other income received 18,698 13,926 14,467Total cash provided from operating activities 97,376 95,416 176,839

Paymentstosuppliersandemployees 30,079 23,250 39,264Interest paid 39,739 51,613 91,084Purchaseofoperatingleasevehicles 14,869 11,913 20,014Taxation paid - - 2,800Total cash applied to operating activities 84,687 86,776 153,162

Net cash flows from operating activities 7 12,689 8,640 23,677

Cash flows from investing activities

Proceedsfromsaleofproperty - 7,775 7,775Net decrease in finance receivables - 6,008 80,201Total cash provided from investing activities - 13,783 87,976

Increase in investment in associates 1,115 33,074 36,096Purchaseofsubsidiary - - 18,169Net increase in finance receivables 54,434 - - Net increase in investments - 15,499 20,199Advancetostaffsharepurchaseschemes - - 5Purchaseofproperty,plant,equipmentandintangibleassets 3,859 8,746 1,374Total cash applied to investing activities 59,408 57,319 75,843

Net cash flows (applied to)/ from investing activities (59,408) (43,536) 12,133

Cash flows from financing activities

Netincreaseinborrowings 33,254 - - Increase in share capital 6,694 272,531 272,531Total cash provided from financing activities 39,948 272,531 272,531

Transactioncostsassociatedwithcapitalraising - 14,567 14,567Dividends paid 6,694 - - Netdecreaseinborrowings - 182,753 257,421Total cash applied to financing activities 6,694 197,320 271,988

Net cash flows from financing activities 33,254 75,211 543

Net increase in cash held (13,465) 40,315 36,353 Openingcashandcashequivalentsbalance 98,610 62,342 62,342Cash balance on deconsolidation of subsidiary - - (85)Closing cash and cash equivalents balance 85,145 102,657 98,610


1 Reporting entity

The interim financial statements presented are the consolidated interim financial statements comprising PyneGouldCorporationLimited(CompanyorHoldingCompany)anditssubsidiaries,jointventuresandassociates(Group).

AllentitieswithintheGroupofferfinancialservices.TheGroupoperatesandispredominantlydomiciledinNewZealand.Theregisteredofficeaddressis233CambridgeTerrace,Christchurch.

2 Basis of preparation

Thefinancialstatementspresentedhereareforthefollowingperiods:At 31 December 2010:6-monthperiod-unauditedAt 31 December 2009:6-monthperiod-unauditedAt 30 June 2010: 12-month period - audited

(a) Statement of compliance

The condensed interim financial statements have been prepared in accordancewith generally accepted accountingpracticeinNewZealandandNZIAS34InterimFinancialStatements.Theydonotincludealloftheinformationrequiredforfullannualfinancialstatements,andshouldbereadinconjunctionwiththefinancialstatementsoftheGroupasatandfortheyearended30June2010.BycomplyingwithNZIAS34theGroupisalsoincompliancewithIAS34.

TheCompanyandallentitieswithin theGroupareprofit-orientedentities. TheCompany isa reportingentityandanissuerforthepurposesoftheFinancialReportingAct1993anditsfinancialstatementscomplywiththatAct.Theinterimfinancial statements have been prepared in accordance with the requirements of the Companies Act 1993 and theSecuritiesRegulations2009.

(b) Basis of measurement

Theseinterimfinancialstatementshavebeenpreparedonthebasisofhistoricalcost,unlessstatedotherwise.

(c) Functional and presentation currency

TheseinterimfinancialstatementsarepresentedinNewZealanddollars,whichistheGroup’sfunctionalcurrency.Unlessotherwiseindicated,amountsareroundedtothenearestthousand.

(d) Estimates and judgements

Thepreparationof financial statements requires theuseofmanagement judgement, estimatesandassumptions thataffectreportedamounts.Actualresultsmaydifferfromthesejudgements.

(e) Going concern

The interim financial statementshavebeenpreparedon agoing concernbasis after considering theCompany’s andGroup’sfundingandliquidityposition.

3 Significant accounting policies

(a) Investments in associates and jointly controlled entities

AssociatesarethoseentitiesinwhichtheGrouphassignificantinfluence,butnotcontrol,overthefinancialandoperatingpolicies. Jointventuresare thoseentitiesoverwhoseactivities theGrouphas jointcontrol,establishedbycontractualagreementandrequiringunanimousconsentforstrategicfinancialandoperatingdecisions.

InvestmentsinassociatesandjointlycontrolledentitiesareaccountedforbytheGroupusingtheequitymethod(equityaccounted investees) and are recognised initially at cost. The consolidated interim financial statements include theGroup’s shareof the incomeandexpensesandequitymovementsofequityaccounted investees, fromthedate thatsignificantinfluenceorjointcontrolcommencesuntilthedatethatsignificantinfluenceofjointcontrolceases.Dividendsreceivedfromassociatesandjointlycontrolledentitiesarerecordedinprofitorloss.TheCompanyaccountsforassociatesatcostwithdividendsreceivedrecordedinprofitorloss.

(b) Investments in subsidiary companies

Subsidiaries are entities controlled by the Group. Investments in subsidiary companies are recorded at cost by theCompany.The financialstatementsofsubsidiariesare included in theconsolidated financialstatements fromthedatethatcontrolcommencesuntilthedatethatcontrolceases.

notES to tHE IntERIM FInAncIAL StAtEMEntSFor the period ended 31 December 2010


3 Significant accounting policies (continued)

(c) Interest

Interestincomeandexpensearerecognisedusingtheeffectiveinterestmethodinprofitorloss.Theeffectiveinterestrate is established on initial recognition of the financial assets and liabilities, and is not revised subsequently. Thecalculation of the effective interest rate includes all yield-related fees and commissions paid or received that are an integralpartoftheeffectiveinterestrate.

Interestontheeffectiveportionofaderivativedesignatedasacashflowhedge is initially recognised inthehedgingreserve.Itisreleasedtoprofitorlossatthesametimeasthehedgeditem,orifthehedgerelationshipissubsequentlydeemedtobeineffective.

(d) Operating lease income and expense

Incomefromoperatingleasevehiclesisapportionedoverthetermoftheoperatingleaseonastraightlinebasis.

Operating leasevehiclesaredepreciatedonastraight linebasisovertheirexpected lifeafterallowingforanyresidualvalues.Theestimatedlivesofoperatingleasevehiclesvaryuptofiveyears.Vehiclesheldforsalearenotdepreciatedbutaretestedforimpairment.

(e) Fee and commission income

Feeincomethatisintegraltotheeffectiveinterestrateofafinancialassetorliabilityisincludedinthemeasurementoftheeffectiveinterestrate.Otherfeeincomeisrecognisedastherelatedservicesarerendered.

Performancemanagementfeesarerecognisedwhenit isprobablethattheywillbereceivedandtheycanbereliablymeasured.

(f) Property, plant, equipment and depreciation

Landandbuildingsarerecordedatcost lessaccumulateddepreciation.Plantandequipmentarerecordedatcost lessaccumulateddepreciation.

Property,plantandequipmentotherthanlandaredepreciatedonastraightlinebasis,atrateswhichwillwriteoffcostlessestimatedresidualvaluesovertheirestimatedeconomiclivesasfollows:

Buildings 50yearsPlantandequipment 1-13years

(g) Cash and cash equivalents

Cashandcashequivalentsconsistofcashandliquidassetsusedintheday-to-daycashmanagementoftheGroup.CashandcashequivalentsarecarriedatamortisedcostintheInterimStatementofFinancialPosition.

(h) Tax

Incometaxexpensefortheperiodcomprisescurrentanddeferredtax.Incometaxexpenseisrecognisedinprofitorlossexcept to the extent that it relates to items recognised directly in other comprehensive income, in which case it isrecognisedinothercomprehensiveincome.

Currenttaxistheexpectedtaxpayableonthetaxableincomefortheperiod,usingtaxratesenactedorsubstantivelyenactedatthebalancesheetdate,andanyadjustmenttotaxpayableinrespectofpreviousperiods.

Deferredtaxisrecognisedinrespectoftemporarydifferencesbetweenthefinancialreportingcarryingamountofassetsandliabilitiesandtheamountsusedfortaxpurposes.Deferredtaxismeasuredatthetaxratesthatareexpectedtobeappliedtothetemporarydifferenceswhentheyreverse.

Adeferredtaxassetisonlyrecognisedtotheextentthatitisprobablethatfuturetaxableprofitswillbeavailableagainstwhichtheassetcanbeutilised.




(i) Derivative financial instruments

Derivative financial instruments are contracts entered into to reduce the exposure to fluctuations in interest rates on variablerateborrowings.Thefinancialinstrumentsaresubjecttotheriskthatmarketvaluesmaychangesubsequenttotheir acquisition;however suchchangeswouldbeoffsetbycorresponding,butopposite, effectson thevariable rateborrowingsbeinghedged.Derivatives are initially valuedat fair valueand subsequently remeasuredat fair value. Fairvaluemovementsofderivativesthatarenotdesignatedinaqualifyinghedgerelationship,arerecognisedinprofitorloss.

Fair value movements of the effective portion of a qualifying hedge derivative, are recognised directly in othercomprehensive incomeandheld in thehedging reserve inequity. Theamount recognised inequity is transferred toprofitorlossinthesameperiodasthehedgedcashflowaffectsprofitorloss,disclosedinthesamelineasthehedgeditem.Anyineffectiveportionofchangesinfairvalueofthederivativearerecognisedimmediately inprofitor loss.Fairvaluemovementsofaderivativedesignatedasafairvaluehedgearerecogniseddirectlyinprofitorlosstogetherwiththehedgeditem.

(j) Investment property

Investmentpropertieshavebeenacquiredthroughtheenforcementofsecurityoverfinancereceivablesandareheldtoearnrental incomeorforcapitalappreciation(orboth). Investmentpropertyis initiallyrecognisedat itsfairvalue,withsubsequentchangesinfairvaluerecognisedinprofitorloss.

Fairvaluesaresupportedbyindependentvaluationsorothersimilarexternalevidence,adjustedforchangesinmarketconditionsandthetimesincethelastvaluation.

(k) Finance receivables

Financereceivablesare initially recognisedat fairvalueplus incrementaldirecttransactioncostsandaresubsequentlymeasuredatamortisedcostusingtheeffectiveinterestmethod,lessanyimpairmentloss.

(l) Investments

Investmentsconsistofequityinvestmentsthatdonothaveaquotedmarketpriceinanactivemarket.

Investmentsarecarriedatfairvalue,withfairvaluechangesrecognisedinothercomprehensiveincome,unlesstheGrouphasdeterminedthatthefairvaluecannotbereliablydetermined.

If the fair value cannot be reliably determined, the investments are carried at cost. TheGroupwill considerwhetherobjectiveevidenceexiststhatanimpairmentlosshasbeenincurredontheseassets,andprovideforimpairmentlossesinprofitorlossasnecessary.

(m) Assets held for sale

Non-current assets that are expected tobe recoveredprimarily through sale rather than throughcontinuinguse, areclassifiedasheldforsale.Immediatelybeforeclassificationasheldforsale,theassetsareremeasuredinaccordancewiththeGroup’saccountingpolicies.Thereafter,generallytheassetsaremeasuredattheloweroftheircarryingamountandfairvalue lesscost tosell. Impairment losseson initialclassificationasheld forsaleandsubsequentgainsor lossesonremeasurementarerecognisedinprofitorloss.Gainsarenotrecognisedinexcessofanycumulativeimpairmentloss.

(n) Financial assets and liabilities

Classification

Financialassetsandliabilitiesareclassifiedinthefollowingaccountingcategories:

Financial assets/liabilities Accounting categoryFinancereceivables LoansandreceivablesOther investments Available for saleOtherfinancialassets LoansandreceivablesBorrowings OtherliabilitiesatamortisedcostOther financial liabilities Other liabilities at amortised costDerivatives Heldfortrading(orqualifyinghedgesasdescribedaboveinNote3(i))




(n) Financial assets and liabilities (continued)

Recognition

TheGroupinitiallyrecognisesloansandadvances,deposits,debtsecuritiesissuedandsubordinatedliabilitiesonthedatethat theyareoriginated.Allother financialassetsand liabilities (includingassetsand liabilitiesdesignatedat fairvaluethroughprofitorloss)areinitiallyrecognisedonthetradedateatwhichtheGroupbecomesapartytothecontractualprovisionsoftheinstrument.

Derecognition

TheGroupderecognisesafinancialassetwhenthecontractualrightstothecashflowsfromtheassetexpire,orittransferstherightstoreceivethecontractualcashflowsonthefinancialassetinatransactioninwhichsubstantiallyalltherisksandrewardsofownershipofthefinancialassetaretransferred.AnyinterestintransferredfinancialassetsthatiscreatedorretainedbytheGroupisrecognisedasaseparateassetorliability.

TheGroupderecognisesafinancialliabilitywhenitscontractualobligationsaredischargedorcancelledorexpire.

TheGroup enters into transactionswhereby it transfers assets recognised on its Statement of Financial Position, butretainseitherallrisksandrewardsofthetransferredassetsoraportionofthem.Ifallorsubstantiallyallrisksandrewardsareretained,thenthetransferredassetsarenotderecognisedfromtheStatementofFinancialPosition.Transfersofassetswith the retention of all or substantially all risks and rewards include, for example, securitised assets and repurchasetransactions.

(o) Intangible assets

Goodwill

GoodwillarisesontheacquisitionofsubsidiariesandrepresentstheexcessofthecostoftheacquisitionovertheGroup’sinterestinthefairvalueoftheidentifiablenetassetsandcontingentliabilitiesofthesubsidiary.Whenthefairvalueoftheidentifiablenetassetsandcontingent liabilitiesexceedsthecostofanacquisition,theresultingdiscount isrecognisedimmediately in profit for the period. Goodwill is tested for impairment at least annually, and is carried at cost lessaccumulatedimpairmentlosses.

Identifiable intangible assets

Identifiable intangibleassets includesoftware,brands, licences,managementcontractsandadvisorbooks. Identifiableintangibleassetsarerecognisedonlywheretheyhavebeenacquiredfromathirdparty(eitherseparatelyoraspartofabusinesscombination).Theyareinitiallyrecognisedatcost,andsubsequentlytestedforimpairmentandamortisedovertheirusefullives.TheestimatedusefullivesoftheGroup’sintangibleassetshavebeenassessedasfollows:

Software 3-4yearsLicences 5yearsStatutoryrightandbrand IndefiniteusefullifeManagementcontracts 30yearsAdvisor books 10 years

(p) Operating lease vehicles

Operatingleasevehiclesarestatedatcostlessaccumulateddepreciation.Profitsonthesaleofoperatingleasevehiclesare included as part of operating lease income. Current year depreciation and losses on the sale of operating leasevehiclesareincludedaspartofoperatingleaseexpenses.Depreciationisonastraightlinebasis,atrateswhichwillwritethevehiclesdowntoresidualvalueovertheireconomiclivesofuptofiveyears.

(q) Impaired assets and past due assets

ImpairedassetsarethoseloansforwhichtheGrouphasevidencethatitwillincuralossandwillbeunabletocollectallprincipalandinterestdue,accordingtothecontractualtermsoftheloan.

Theterm ‘collectively impairedasset’ refers toanassetwhereaneventhasoccurredwhichpasthistory indicates thatthereisanincreasedpossibilitythattheGroupwillnotcollectallitsprincipalandinterestasitfallsdue.Nolosseshaveyetbeenidentifiedontheseindividualloanswithinthecollectivelyimpairedassetgrouping,andhistorywouldindicatethatonlyasmallportionoftheseloanswilleventuallynotberecovered.TheGroupprovidesfullyforitsexpectedlosses.




(q) Impaired assets and past due assets (continued)

RestructuredassetsareassetswheretheGroupexpectstorecoverallamountsowingalthoughtheoriginaltermshavebeenchangedduetothecounterparty’sdifficultyincomplyingwiththeoriginaltermsofthecontract,andtheamendedtermsarenotcomparablewithsimilarnewlending.Inordertobeclassifiedasarestructuredasset,followingrestructuring,thereturnundertherevisedtermsisexpectedtobeequaltoorgreaterthantheGroup’saveragecostoffunds,oralossisnototherwiseexpectedtobeincurred.

PastduebutnotimpairedassetsareanyassetswhichhavenotbeenoperatedbythecounterpartywithintheirkeytermsbutarenotconsideredtobeimpairedbytheGroup.

Baddebtsprovidedforarewrittenoffagainstindividualorcollectiveprovisions.Amountsrequiredtobringtheprovisionstotheirassessedlevelsarerecognisedinprofitorloss.Anyfuturerecoveriesofamountsprovidedforaretakentoprofitorloss.

(r) Employee benefits

Annualleaveentitlementsareaccruedatamountsexpectedtobepaid.Long-serviceleaveisaccruedbycalculatingtheprobablevalueoffutureentitlements.Obligationstodefinedcontributionsuperannuationschemesarerecognisedasanexpensewhenthecontributionispaid.

(s) Share schemes

The Company and the Group provide benefits to staff in the form of share-based payments, whereby staff provideservicesinexchangeforshares.Currentlythefollowingschemesareinplace.

General staff share purchase scheme

UnderthisschemetheCompanymakesavailableaninterest-freeloantoallstafftoenablethemtopurchaseCompanyshares,withtheloanrepayableoverthreeyears.ThesharesareissuedatapriceagreedbytheDirectorsandheldintrustuntil theendof the loan termand the loan is repaid.As the fair valueof the sharesapproximates the issueprice,noexpenseisrecognised.

Discretionary share schemes

UndertheseschemestheCompanyundertakestotransferaspecificnumberofsharestovariouskeystaffoftheGroupata specified futuredateon that staffmemberachievingcertaincriteria.Thesharesare issuedatapriceagreedby theDirectorsandheldintrustuntilalltheconditionsaresatisfied.Theexpectedbenefit isexpensedovertheperiodoverwhichanyconditionsarerequiredtobemet.

(t) Provisions

Aprovisionisrecognisedif,asaresultofapastevent,theGrouphasapresentlegalorconstructiveobligationthatcanbeestimatedreliably,anditisprobablethatanoutflowofeconomicbenefitswillberequiredtosettletheobligation.

(u) Borrowings

Bankborrowingsanddebenturestockareinitiallyrecognisedatfairvalueincludingincrementaldirecttransactioncosts.Theyaresubsequentlymeasuredatamortisedcostusingtheeffectiveinterestmethod.

(v) Financial guarantees

Financialguarantees(underwrites)writtenareaccountedforasinsurancecontracts.Theguaranteepaymentreceivedisinitially capitalised and is subsequently amortised on a straight line basis over the life of the guarantee. A liability isrecognisedwhenapaymentundertheguaranteebecomespayable.

(w) GST

As the Group is predominantly involved in providing financial services, only a proportion of GST paid on inputs isrecoverable.Thenon-recoverableproportionofGSTistreatedasanexpense.




(x) Statement of cash flows

TheInterimStatementofCashFlowshasbeenpreparedusingthedirectmethodmodifiedbythenettingofcertaincashflows,inordertoprovidemoremeaningfuldisclosure.Cashandcashequivalentsconsistofcashandliquidassetsusedintheday-to-daycashmanagementoftheGroup.

(y) Business combinations

Businesscombinationsareaccountedforusingtheacquisitionmethod.Theacquisitionmethodofaccountinginvolvesrecognisingatacquisitiondate,separatelyfromgoodwill,theidentifiableassetsacquired,theliabilitiesassumedandanynon-controllinginterestintheacquiree.Theidentifiableassetsacquiredandtheliabilitiesassumedaremeasuredattheiracquisitiondatefairvalues.

Thedifferencebetween the above items and the fair valueof the consideration (including the fair valueof anypre-existinginvestmentintheacquiree)isgoodwilloragainfromabargainpurchase.

Theconsiderationtransferredinabusinesscombinationismeasuredatfairvalue,whichiscalculatedasthesumoftheacquisitiondatefairvaluesoftheassetstransferredbytheacquirer,theliabilitiesincurredbytheacquirertoformerownersoftheacquireeandtheequityissuedbytheacquirer,andtheamountofanynon-controllinginterestintheacquiree.Foreachbusinesscombination,theacquirermeasuresthenon-controllinginterestintheacquireeeitheratfairvalueorattheproportionateshareoftheacquiree’sidentifiablenetassets.

WhentheGroupacquiresabusiness,itassessesthefinancialassetsandliabilitiesassumedforappropriateclassificationanddesignation inaccordancewiththecontractual terms,economicconditions, theGroup’soperatingoraccountingpoliciesandotherpertinentconditionsasattheacquisitiondate.Thisincludestheseparationofembeddedderivativesinhostcontractsbytheacquiree.

Ifthebusinesscombinationisachievedinstages,theacquisitiondatefairvalueoftheacquirer’spreviouslyheldequityinterestintheacquireeisremeasuredatfairvalueasattheacquisitiondatethroughprofitorloss.

Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date.Subsequentchangestothefairvalueofthecontingentconsiderationwhichisdeemedtobeanassetorliabilitywillberecognisedeitherinprofitorlossorinothercomprehensiveincome.Ifthecontingentconsiderationisclassifiedasequity,itshallnotberemeasured.

(z) Comparative balances

Wherenecessarycomparativeamountshavebeenreclassifiedsothattheinformationcorrespondstotheclassificationpresentedforthecurrentperiod.

(aa) Changes in accounting policies

Therehavebeennomaterialchangesinaccountingpoliciesinthecurrentperiod.




(ab) New standards and interpretations not yet adopted

Anumberofnewstandards,amendmentstostandardsandinterpretationshavebeenissuedbutarenotyeteffectivefortheperiodended31December2010,andhavenotbeenappliedinpreparingtheseinterimfinancialstatements.ThenewstandardsidentifiedwhichmayhaveaneffectonthefinancialstatementsoftheGroupgoingforwardare:

Standard and description

Effective for annual periods

beginning on or after

Expected to be initially applied

in year ending

NZIAS1PresentationofFinancialStatements,whichclarifiesthatdisaggregationofchangesineachcomponentofequityarisingfromtransactionsrecognisedinothercomprehensiveincomeisalsorequiredtobepresented,eitherinthestatementofchangesinequityorinthenotes.

1 Jan 2011 30 June 2012

NZIAS34InterimFinancialReporting,whichaddsexamplestothelistofeventsortransactionsthatrequiredisclosureunderNZIAS34,andremovesreferencestomateriality.

1 Jan 2011 30 June 2012

NZIFRS7FinancialInstruments:Disclosures,whichaddsanexplicitstatementthatqualitativedisclosureshouldbemadeinthecontextofthequantitativedisclosurestobetterenableuserstoevaluateanentity’sexposuretorisksarisingfromfinancialinstruments.

1 Jan 2011 30 June 2012

NZIAS12IncomeTaxes,whichintroducesapresumptionthataninvestmentpropertyisrecoveredentirelythroughsale.

1 Jan 2012 30 June 2013

NZIFRS7FinancialInstruments:Disclosures,whichaddsadditionaldisclosuresaboutthetransferoffinancialassets.

1 July 2011 30 June 2012

NZIFRS9FinancialInstruments,whichspecifieshowanentityshouldclassifyandmeasurefinancialassets.

1 Jan 2013 30June2014

These standards are not expected to have a significant impact on the financial statements of theGroup. TheGroupcurrentlyhasnoplanstoearlyadoptthesestandards.

4 Segmental analysis

SegmentinformationispresentedinrespectoftheGroup’soperatingsegments,whicharethoseusedfortheGroup’smanagementandinternalreportingstructure.

Operating segments

TheGroupoperatespredominantlywithinNewZealandandcomprisesthefollowingmainoperatingsegments:

Financial services Motor vehicle, commercial plant, equipment and business, rural, marine and leisurefinancing,andinsuranceservices.

Trustee services Perpetual Wealth Management comprising advice, asset management and theprovisionoftrusteeservices.

Portfolio asset management TorchlightInvestmentGroup,aspecialistopportunityandsituationsmanagerincludingrealestateandloanassetsrecovery.

Rural services Rural and horticultural supplies, livestock sales, irrigation and pumping, seeds andnutrition,realestate,fundsmanagementandruralfinance.



4 Segmental analysis (continued)

GROUPDec 2010

$000Dec 2009

$000Jun 2010

$000

(Loss) / profit for the periodFinancial services 3,687 5,112 12,923Trustee services (398) 1,267 2,577Portfolioassetmanagement (7,340) 1,105 1,978Rural services (31,389) 377 3,898Unallocated (1,729) 2,242 630Total Group (loss) / profit for the period (37,169) 10,103 22,006

Net operating income and share of equity accounted profitFinancial services 29,440 31,500 67,174Trustee services 8,129 7,711 15,834Portfolioassetmanagement 5,604 5,241 16,777Rural services (1,081) 377 4,258Unallocated 47 5,429 5,689Total Group net operating income and equity accounted profit 42,139 50,258 109,732

Total impaired asset expenseFinancial services 6,094 10,850 23,916Portfolioassetmanagement 10,917 1,734 7,914Total Group impaired asset expense 17,011 12,584 31,830

Total assetsFinancial services 1,245,636 1,274,229 1,275,351Trustee services 4,708 3,435 4,515Portfolioassetmanagement 125,766 131,085 137,512Rural services 83,296 110,689 111,231Unallocated 26,553 34,846 32,678Total Group assets 1,485,959 1,554,284 1,561,287

5 Selling and administration expenses

GROUPDec 2010

$000Dec 2009

$000Jun 2010

$000

Personnelexpenses 15,144 13,506 26,658Superannuation 185 232 384Directors’ fees 350 322 677Audit fees 118 141 491Audit-related fees 116 44 330 Depreciation - property - 49 49Depreciation-plantandequipment 309 185 667Amortisation expense 718 430 903 Lossondisposalofassets - 3 3 Operatingleaseexpenseasalessee 1,027 668 1,824Legalandprofessionalfees 7,263 2,165 4,696Otheroperatingexpenses 8,294 6,637 13,536Total selling and administration expenses 33,524 24,382 50,218

Audit-related fees includeprofessional fees in connectionwith trustee reporting,duediligence, reviewofprospectusdocumentationforaccountingadviceandreviewworkcompleted.



6 Impaired asset expense

GROUPDec 2010

$000Dec 2009

$000Jun 2010

$000

Propertyfinancereceivablesindividualimpairment 13,296 1,227 16,947Propertyfinancereceivablescollectiveimpairment (945) 5,747 4,532Other assets individually assessed for impairment 4,378 3,657 6,662Assets assessed for impairment on a collective basis 282 1,953 3,689Total impaired asset expense 17,011 12,584 31,830

7 Reconciliation of (loss) / profit after tax to net cash flows from operating activities

GROUPDec 2010

$000Dec 2009

$000Jun 2010

$000

(Loss) / profit for the period (37,169) 10,103 22,006

Add/(less)non-cashitems:Depreciation expense 309 234 716Amortisation expense 718 430 903 Impaired asset expense 17,011 12,584 31,830Net write-down of investment in associates 30,308 - 360Shareofequityaccountedinvestees’loss/(profit) 1,046 (737) (4,382)Deferred tax 3,150 93 6,284Accruals,capitalisedinterestandprepaiditems (6,323) (7,285) (23,971)Total non-cash items 46,219 5,319 11,740

Add/(less)movementsinworkingcapitalitems:Operatingleasevehicles 4,885 (1,669) (6,686)Other assets 5,192 (6,584) (3,834)Current tax (4,217) 2,615 1,724Other liabilities (2,221) 2,953 2,880Total movements in working capital items 3,639 (2,685) (5,916)

Add/(less)itemsclassifiedasinvestingactivities:Gainonsaleofassetsandinvestments - (4,097) (4,153)Total items classified as investing activities - (4,097) (4,153)

Net cash flows from operating activities 12,689 8,640 23,677

8 Earnings per share

The calculation of basic and diluted earnings per share at 31 December 2010 is based on the loss for the period of$37,169,000(December2009:profitof$10,103,000;June2010:profitof$22,006,000),andaweightedaveragenumberofsharesonissueof780,308,062(December2009:323,602,000;June2010:547,946,000).

Theearningspersharecalculatedbasedontheclosingnumberofshares(refernote9)ratherthantheweightedaveragenumberofshares,resultsinbasicanddilutedearningspershareof-5cat31December2010(December2009:1c;June2010:3c).




9 Share capital

GROUPDec 2010

000Dec 2009

000Jun 2010

000

Number of issued sharesOpeningbalance 773,522 98,597 98,597Sharesissuedduringtheperiod - 674,925 674,925DividendReinvestmentPlan 30,419 - - Closing balance 803,941 773,522 773,522

Theshareshaveequalvotingrightsandrightstodividendsanddistributionsanddonothaveaparvalue.

Duringtheperiodended31December2010,theCompanyissued30,418,732newsharesat37.2centspershareaspartoftheDividendReinvestmentPlan.

DuringtheperiodendedDecember2009,theCompanyissued591,577,740newsharesat40centspersharetoexistingshareholders,placed69,627,907newsharesat43centspersharetoinstitutionsandinvestors,andissued13,719,904sharesat43centspersharetoexistingshareholdersunderaSharePurchasePlan.Thetotalnewcapitalraisedwas$272,531,000.

10 Finance receivables

GROUP

NotesDec 2010

$000Dec 2009

$000Jun 2010

$000

Grossfinancereceivables 1,132,131 1,223,436 1,173,915Lessallowanceforimpairment 6 (37,765) (20,336) (33,880)Total finance receivables 1,094,366 1,203,100 1,140,035

11 Investment in associates

GROUP

NotesDec 2010

$000Dec 2009

$000Jun 2010

$000

Carryingamountatbeginningofperiod 118,541 78,517 78,517Additional investment in associates 1,115 33,074 38,004Decrease in investment in associates - (360) (360)Equityaccountedearningsofassociatesbeforetax (1,023) 697 6,166Shareofassociates’incometaxbenefit/(expense) (116) 40 (1,908)Share of associates’ other comprehensive income 1,014 (1,279) (1,818)Foreigncurrencytranslation 30 - (60)Reclassify to asset held for sale 12 (113,604) - - Carrying amount at end of period 5,957 110,689 118,541

Goodwillincludedincarryingamountofassociates 5,233 49,977 54,069Total assets of associates 4,800 1,590,125 1,531,491Total liabilities of associates 2,514 993,812 893,581Total income of associates 650,965 583,252 1,151,082Totalnetprofit/(loss)aftertaxofassociates (6,076) 4,059 23,304

Van Eyk Research Limited

InMay2010,theGrouppurchaseda31.9%shareholdinginVanEykResearchLimited,aninvestmentresearchandfundsmanagement company based in Australia. A further 6.2% was purchased in September 2010 increasing the totalinvestment to 38.1%, for a cost of AUD$850,000 (NZD $1,089,000). The purchase price included AUD$1.6 million (NZD$1.8million)which ispayableover18monthsandhasbeenincludedinother liabilities.Thebalanceincludedinotherliabilitiesat31December2010is$1.4m.


11 Investment in associates (continued)

PGG Wrightson Limited (PGGW)

On23December2010, theCompanysignedaLock-UpDeedwithAgria (Singapore)PteLimited(Agria),bywhichtheCompanyagreed(subjecttotheconditionsdetailedintheLock-UpDeed)tosellitssharesintoapartialtakeoverofferproposedtobemadebyAgriafortheacquisitionofanadditional38.3%ofthesharesinPGGWat60centspershare.Astheoffer isa ‘partialtakeoveroffer’,theacceptanceoftheCompany’ssharesundertheofferwillbesubjecttoscaling,whichmayresultintheCompanycontinuingtoownsomesharesfollowingtheclosingoftheoffer.

GiventheCompany’sintentiontosellitsPGGWsharesasat31December2010,thisinvestmenthasbeenclassifiedasheldforsaleandwrittendownto60centspershare.

Duringtheyearended30June2010,theCompanyparticipatedinthePGGWcapitalraising,contributing$33.1millionofnewcapital.TheassociatealsomadeaprivateplacementwhichresultedintheCompany’sinvestmentbeingdilutedto18.3%(lossondilution$360,000).

12 Asset held for sale

ThecarryingvalueoftheCompany’sinvestmentinPGGWwas$113.6millionasat31December2010,basedonequityaccounted earnings. However upon initial classification as held for sale, this investment has been written down to $83.3millionbeingtheCompany’sbestestimateof the fairvalue lesscosts tosell.Thishas resulted ina$30.3millionimpairmentchargewhichisrecognisedinprofitorlossfortheperiod.

13 Intangible assets

GROUPDec 2010

$000Dec 2009

$000Jun 2010

$000

Licence 1,700 - 1,900Computer software 1,433 810 901 Statutoryright&brands 12,901 12,901 12,901Goodwill 13,547 13,547 13,547Advisor books 2,108 - - Managementcontracts 7,655 8,025 7,790Total intangible assets net book value 39,344 35,283 37,039

Duringtheperiodended31December2010,PerpetualPortfolioManagementLimitedacquiredtwoadvisorbooksfor$2.1million.

Impairment of intangible assets

Statutory right and brands are considered to have an indefinite life. The statutory right and brands of $3.4million isallocatedtoPerpetualTrustLimited,whichisincludedintheTrusteeservicessegment.Brandsof$9.5millionareallocatedtoMARAC Financial Services Limited (MFSL) consolidated groupwhich is included in the Financial services segment.DuringtheperiodboththestatutoryrightandthebrandshavecontinuedtobeusedintheGroup’sbusinessandtheGroupinvestedfurtherinthemtomaintaintheirvalue.

Goodwill of $2.4millionwas allocated to PerpetualGroup Limited (PGL) and $11.1millionwas allocated to theMFSLconsolidatedgroup.Eachofthesesubsidiariesisconsideredtobeacash-generatingunitforthepurposeofimpairmenttesting.TheoperationsofMFSLareincludedintheFinancialServicessegmentandPGLisincludedinthePortfolioassetmanagementsegment.

Impairmenttestingofgoodwillandthestatutoryrightandbrandswereperformedbycomparingtherecoverablevalueofthecash-generatingunittowhichtheintangibleassetisallocated,withthecurrentcarryingamountofitsnetassets,includingintangibleassets.

Therecoverableamountwasdeterminedbasedonitsvalueinuse.Noimpairmentlosseswererecognisedagainstthecarryingamountofthestatutoryright,brandsorgoodwillfortheperiodended31December2010(December2009:nil;June2010:nil).



14 Borrowings

GROUPDec 2010

$000Dec 2009

$000Jun 2010

$000

BankborrowingssourcedfromNewZealand 12,187 8,300 5,000Debenture stock sourced from New Zealand 826,868 864,905 796,435Debenture stock sourced from overseas 28,510 32,077 32,946SecuritisedborrowingssourcedfromNewZealand 149,278 149,313 149,298Total borrowings 1,016,843 1,054,595 983,679

TheGrouphasbankfacilitiestotalling$408.3million(December2009:$352.5million;June2010:$353.3million).ThereisnosignificantconcentrationofdebenturefundingtoanyparticularregionwithinNewZealand.

MARACFinanceLimited’sbankborrowingsanddebenturestockborrowings(whichincludesecuredbonds)rankequallyandaresecuredoverMARACFinanceLimited’snon-securitisedassetsintermsofitsTrustDeeddated9March1984infavourofTheNewZealandGuardianTrustCompanyLimitedastrusteeforthestockholders.OtherbankborrowingsaresecuredbyageneralsecurityinterestovertheassetsoftheHoldingCompanyandspecificsubsidiarycompanies.

InvestorsinMARACABCPTrust1rankequallywitheachotherandaresecuredoverthesecuritisedassetsoftheTrust.

15 Special purpose entities

MARAC PIE Fund and MARAC Retirement Bonds Superannuation Fund

TheGroupcontrolstheoperationsofMARACPIEFund,aportfolioinvestmentfundthatinvestsinMARACFinanceLimiteddebenture stock. The Group controlled the operations of MARAC Retirement Bonds Superannuation Fund, asuperannuationschemethatinvestedinMARACFinanceLimiteddebenturestock.TheGroupwounduptheRetirementBondsSuperannuationFundwitheffectfrom31October2010.

Investmentsbythesefundsarerepresentedindebenturestockborrowingsasfollows.

GROUPDec 2010

$000Dec 2009

$000Jun 2010

$000

MARACRetirementBondsSuperannuationFund - 9,857 5,922MARACPIEFund 8,148 11,870 8,763

MARAC ABCP Trust 1 Securitisation

TheGrouphassecuritisedapoolofreceivablescomprisingcommercial,motorvehicleandmarineloanstotheTrust.TheGroupsubstantiallyretainsthecreditrisksandrewardsassociatedwiththesecuritisedassets,andcontinuestorecognisetheseassetsandassociatedborrowingsontheStatementofFinancialPosition.Despitethispresentationinthefinancialstatements,theloanssoldtotheTrustaresetasideforthebenefitofinvestorsintheTrust.

GROUPDec 2010

$000Dec 2009

$000Jun 2010

$000

Bank balance - Securitised 4,487 6,624 3,608Finance receivables - Securitised 161,255 157,946 160,853Borrowings-Securitised (149,278) (149,313) (149,298)



16 Related party transactions

(a) Transactions with related parties

Includedwithinfinancereceivablesisa$673,000(December2009:nil;June2010:$633,000)loantoarelatedparty,PGGWrightsonSeedsLimited.

TheGroupprovidedadministrativeassistancetoMARACInsuranceLimited,receiving$39,000(December2009:nil;June2010:nil) inmanagement fee incomeandreceived insurancecommission fromMARAC InsuranceLimitedof$262,000(December2009:$235,000,June2010:$524,000).

Asat31December2010,MARACInsuranceLimitedhad$2,596,000(December2009:nil;June2010:$2,524,000)investedintheGroup’sdebenturestock;thisbalanceisincludedinotherliabilities.Interestexpenseof$262,000waspaidtoMARACInsuranceLimitedduringtheperiod.

Alltransactionswereconductedonnormalcommercialtermsandconditions.

(b) Transactions with key management personnel

Keymanagementpersonnel,beingdirectorsoftheGroupandstaffreportingdirectlytotheManagingDirector,andtheimmediaterelativesofkeymanagementpersonneltransactedwiththeGroupduringtheperiodasfollows.

GROUPDec 2010

$000Dec 2009

$000Jun 2010

$000

Debenture investing:Maximumbalance 872 3,510 5,096Closingbalance 787 2,511 721

Key management personnel compensation:Short-term employee benefits 2,312 2,037 5,618Share-based payments 37 36 157Total 2,349 2,073 5,775

17 Staff share ownership arrangements

General staff share purchase scheme

DuringtheperiodtherewerenosharestransferredbytheTrusteestotheTrustinrespectofthegeneralstaffsharescheme(December2009:3,600;June2010:3,600).At31December2010theTrusteesheld22,215fullypaidupshares(December2009:22,215;June2010:22,215).Thefairvalueofthesesharesis$8,664(December2009:$10,663;June2010:$8,886).

Discretionary staff share schemes

DuringtheperiodtheTrusteestransferred36,436sharestoparticipantsonthemachievingtheconditionsandwasissuedwith3,073sharesfromparticipatingintheCompany’sDividendReinvestmentPlan.At31December2010theTrusteesheld103,082sharesonbehalfofstaff(December2009:285,460;June2010:136,445).

Directors’ retirement share scheme

Duringtheperiod,theTrusteespaidforanadditional7,170newsharesandwereissuedwith8,251sharesfromparticipatingin the Company’s Dividend Reinvestment Plan At 31 December 2010 the Trustees held 229,215 shares on behalf ofDirectors(December2009:352,968;June2010:213,794).

18 Contingent liabilities

GROUPDec 2010

$000Dec 2009

$000Jun 2010

$000

Lettersofcredit,guaranteesandperformancebonds 2,743 3,296 6,772Commitments to further investment 750 - 750Capital commitments - - 227 Total contingent liabilities 3,493 3,296 7,749



19 Subsequent events

Business acquisition

On5January2011:

• MARACFinancialServicesLimited,awhollyownedsubsidiaryofPGC,exchanged its shareholding inMARACand itsinvestment in MARAC JV Holdings for further shares in Building Society Holdings Limited (BSHL). The agreedconsiderationof$206,769,000convertedtotheissueof3.94fullypaidsharesinBSHLinexchangeforeachMARACshare.

• CombinedBuildingSociety,awhollyownedsubsidiaryofBSHL,acquiredalloftheassetsandengagementsofSCBSandCBSforthetotalagreedconsiderationof$79,574,000.

• CombinedBuildingSocietyacquiredallofthesharesinMARACthroughBSHLtransferringitsshareholdinginMARACtoCombinedBuildingSociety(throughBSHLNo.1Limitedasintermediateholder).

Fair value of consideration transferred at acquisition date GROUP05 Jan 11

$000

Sharesissued,atfairvalue 79,574Consideration transferred 79,574

Identifiable assets acquired and liabilities assumed GROUPFair value 05 Jan 11

$000

AssetsCashandcashequivalents 207,126Investments 21,540Finance receivables 669,689Other assets 12,075Intangibleassets 155Total assets 910,585

LiabilitiesBorrowings 841,335Other liabilities 9,817Contingentliabilities - Total liabilities 851,152

Total net identifiable assets 59,433

Total consideration transferred 79,574Fair value of identifiable net assets 59,433Goodwill 20,141

Goodwillonacquisitionof$20.1millionhasarisenduetoexpectedbenefitsofthenewlyformedfinancialservicesgroup.CombinedBuildingSocietyhasthebenefitsofscaleandscopeandisexpectedtobevalueenhancingforallshareholdersandoffersabetteroutcomethancouldbeexpectedasstandaloneentities.

Goodwillof$20.1millionhasnotbeenallocatedtoindividualcash-generatingunitsasat5January2011astheadjustmentsinrespectoftheacquisitionhaveonlybeenprovisionallydeterminedasatthebalancesheetdate.TheGroupexpectstocompletetheallocationduringthe2011calendaryear.



19 Subsequent events (continued)

Impact of merger

Asaresultofthemerger,theCompanywillrecognisethedisposalof27.79%ofitscarryingvalueofMARAC,inexchangefor72.21%ofthemarketvalueofCBSandSCBS.IfthecarryingvalueoftheMARACshareholdingdisposedofishigherthanthefairvalueofassetsacquired,thiswillresultinaloss.Theamountofanylossisdependentonanassessmentofthefair valueamounts,whichhavenotyetbeen finalised.Events subsequent tobalancedate (suchas further trading,or in-specieofPGC shareholding)will likelygive furtherevidenceas to the fair valueof the stock. TheCompany retainscontrolofMARAC,thereforeanylossondisposalwillberecognisedasamovementinequity.

Subsequenttothis,theCompanyintendstodistributedirectlytotheCompany’sshareholdersitsentire72.21%stakeinBuildingSocietyHoldingsLimited.Thevalueofthein-speciedistributionwillbemeasuredatfairvalue.AstheCompanylosescontrolofMARAC,anydifferencebetweenthecarryingvalueandfairvalueoftheBuildingSocietyHoldingsLimitedsharesredistributedwillberecordedthroughprofitorloss.

Transfer of borrowings

On 5 January 2011, debenture stock held by MARAC was transferred into Combined Building Society deposits. TheCombinedBuildingSocietydepositsareissuedintermsofaMasterTrustDeed,SupplementalTrustDeed(Accounts)andSupplementalTrustDeed(Bonds),eachdated29October2010,andaSupplementalTrustDeeddated14December2010,allwithTrusteeExecutorsLimitedastrusteeinrespectofdeposits.

Credit rating

On5January2011,CombinedBuildingSocietyreceivedacreditratingofBBB-(OutlookStable)fromStandard&Poor’s.



AUDIt REPoRt

Independent Auditor’s Review ReportTo the Shareholders of Pyne Gould Corporation LimitedWe have reviewed the accompanying interim financial statements in accordance with the Review Engagement Standards issued by the Institute of Chartered Accountants of New Zealand. The interim financial statements provide information about the past financial performance of Pyne Gould Corporation Limited (“the Company and Group”) and its financial position as at 31 December 2010.

Directors’ responsibilitiesThe Directors are responsible for the preparation of interim financial statements which give a true and fair view of the financial position of the Group as at 31 December 2010 and the results of its operations and cash flows for the six month period ended on that date.

Reviewer’s responsibilitiesIt is our responsibility to express an independent opinion on the interim financial statements presented by the Directors and report our opinion to you.

Basis of opinionA review is limited primarily to enquiries of the Company and Group personnel and analytical review procedures applied to the financial data and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.Our firm has also provided other services in relation to general accounting and tax advice to the Group. Partners and employees of our firm may also deal with the Group on normal terms within the ordinary course of trading activities of the Group. There are however, certain restrictions on borrowings which the partners and employees of our firm can have with the Group. These matters have not impaired our independence as auditor of the Group. The firm has no other relationship with, or interest in, the Company and Group or any of its subsidiaries.

Review OpinionBased on our review, nothing has come to our attention that causes us to believe that the attached interim financial statements do not give a true and fair view of the financial position of the Group as at 31 December 2010 and the results of its operations and cash flows for the period ended on that date in accordance with NZ IAS 34 Interim Financial Reporting.Our review was completed on 25 February 2011 and our opinion is expressed as at that date.

KPMGAuckland


Pyne Gould Corporation Ltd

Bruce Irvine ChairmanJeffGreenslade ManagingDirectorGeorgeKerr DirectorBryanMogridge DirectorGeorgeGould* Director

ExecutivesJeffGreenslade ChiefExecutiveOfficerSeanKam ChiefFinancialOfficerCraigStephen ChiefInvestmentOfficerMichaelJonas GeneralCounselColin Hair Company Secretary

Registered OfficePyneGouldCorporationHouse233CambridgeTerrace,Christchurch8013POBox167,Christchurch8140T 033650000F 033798616E [email protected] www.pgc.co.nz

Auditors

KPMGKPMGCentre 18ViaductHarbour Auckland1140 T 093675800

Solicitors

Bell GullyLevel22,VeroCentre 48ShortlandStreet,Auckland1140 T 099168800

Lane Neave119ArmaghStreet Christchurch 8011 T 03 379 3720

Bankers

Bank of New ZealandBNZ Tower 125QueenStreet Auckland 1010 T 093751300

Share Registry

Link Market Services LtdPOBox384,Ashburton7740T 03 308 8887F 03 308 1311E [email protected] www.linkmarketservices.com

DIREctoRY

*Resigned31January2011

www.pgc.co.nz

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