ALLIED FARMERS LIMITED ANNUAL REPORT 07

ALLIED FARMERS LIMITED ANNUAL REPORT 07

II

ALLIED FARMERS ANNUAL REPORT 2007

1

Letter from the Chairman and Group Chief Executive Officer 2

Operations Review 4

Livestock 6

Merchandise 8

Real Estate 10

Allied Farmers Wools Limited 12

Allied Nationwide Finance Limited 14

Five-Year Financial Summary 16

Directors and Executive Team 18

Disclosures 21

Governance 27

Statement of Financial Performance 37

Statement of Movements in Equity 37

Statement of Financial Position 38

Statement of Cash Flows 39

Statement of Accounting Policies 40

Notes to the Financial Statements 48

Auditors’ Report 64

Company Directory 65

CONTENTS

1

2


DEAR ShAREhOLDER,

The continuing companies had a good year, with profit before interest and tax being a combined $5.7 million. The total pre-tax Group loss of $3.9 million arises from the operation and closure of the sawmill ($4.0m) and finance company integration costs ($1.4m). Accordingly no final dividend was paid.

Because the profit hurdle has not been met, the Directors did not take the increase in fees as approved by the shareholders on a contingent basis.

The decision to close the sawmill was painful. The Board, after a lot of work and discussion, came to the conclusion that our Company was not a natural owner of a sawmill. Given this, plus the decline in lumber prices, the unfavourable exchange rates, and continuing losses, the decision to close was inevitable.

Since balance date, the world’s finance markets have been beset by the US ‘sub prime’ loans debacle. This in turn has caused a decline in public confidence in the retail debentures offered by the New Zealand finance companies. Matters have been made worse by the number of finance company failures. By and large these have resulted from bad loan decisions, lack of liquidity, and a mismatch between the debenture repayment and the loan recovery.

Your Board is confident that the finance company has sufficient liquidity – even assuming minimal reinvestment or new money invested – to meet its debts as they fall due, including all interest and principal repayments on debenture stock. There are great synergies between the rural services operation and the finance company that will be realised in the next financial year.

The rural services operation will benefit from the increased milk payout. Already our livestock operation has had a great start to the year. By the time of the annual general meeting, we will be offering a new livestock website. This will allow our customers to buy and sell livestock online. The final sale details will be handled by our staff in the normal manner. This is the first of a number of innovations that will be delivered to our farming customers in the new financial year.

Finally, both the rural and finance operations are about our relationship with people. On behalf of the Company we would like to thank our customers and staff for the support and great effort that goes into making your Company a trusted supplier.

We look forward to a profitable year from all our operations.

Yours faithfully

John J Loughlin David W Bale Chairman Group Chief Executive Officer

LETTER FROM ThE ChAIRMAN AND GROUP ChIEF ExECUTIvE OFFICER

33

4


The Group made a pre-tax loss of $3.9 million for the year under review, which was brought about by a $4.0 million operating loss and costs on closure of the Allied Pine Sawmill and a $1.4 million one-time cost incurred in integrating the finance companies after acquisition. The continuing operating companies made earnings before interest and tax of $5.7 million, compared with $3.5 million in 2006. Operating revenue for the continuing activities of the Group grew from $79.2 million in 2006 to $103.2 million this year.

The 2006/07 year has been a period of great change for us. Your Board decided to purchase Prime Finance Limited in June 2006. This cost us $28 million, being $16 million in cash and a further $12 million for the disposal of impaired assets. Then in February 2007 the Board recognised that, with the consolidation and the upcoming government regulation of the finance sector, our finance company needed to have a $400 million book to be successful. Accordingly it successfully tendered for Nationwide Finance at a cost of $29.9 million. These two

acquisitions have been merged into our wholly owned subsidiary Allied Nationwide Finance, and we see potential for great synergy between our rural operation and our finance arm.

Your Board took the painful decision to cease operations at the Wanganui-based Allied Pine Sawmill. Despite making significant operating improvements, this business had made a loss for every year the Group owned it. With the appreciation of the New Zealand dollar, the rise in shipping costs, and the changes in the international commodity market for lumber, it was clear that unless we spent many millions on rebuilding the mill it could never return a sustainable profit. The closure has had a $4.0 million negative impact on the Group’s result.

Rural services (livestock, merchandise, real estate, and Allied Farmers Wools) had a mixed year, although profit was steady and revenue grew. In the rural merchandising sector, margins decreased because of competitive pressure. The unusual spring also affected farmers’ buying patterns and this had a further impact on revenue and profit. Livestock sales and veal meat processing had a very good year and we will continue to grow this side of our operation.

Finally your board took the decision to employ a Group Chief Executive Officer, a Chief Executive for Allied Nationwide Finance, a Group Chief Financial Officer and a Group Marketing Manager. The addition of a senior executive team has brought management skills and knowledge that already is contributing to future shareholder value.

OPERATIONS REvIEw

ThE CONTINUING OPERATING COMPANIES MADE EARNINGS bEFORE INTEREST

AND TAx OF $5.7 MILLION, COMPARED wITh $3.5 MILLION IN 2006.

TOTAL GROUP OPERATING REvENUE ($M)

YEAR

CONTINUING OPERATING ACTIvITIES PRE-TAx PRE-INTEREST EARNINGS ($M)

YEAR

CONTI

NUIN

G O

PERAT

ING A

CTIV

ITIE

S

PRE-

TAX

PRE-

INTE

RES

T EA

RNIN

GS

($M

) 6

5

4

3

2

1

0

2004 2005 2006 20072003

120

100

80

60

40

0

2004 2005 2006 20072003

70.374.7

84.6 85.2

107.8

TOTA

L GRO

UP

OPE

RAT

ING R

EVEN

UE

($M

)

3.2

4.54.8

3.5

5.7

55

6


Revenue from our livestock trading operation was 2.5% less than in the record-breaking

2005/06 year. The business mix, however, was different. There was a reduced number of

and value for sheep; but store cattle and dairy cattle numbers traded increased by 8.8%.

Net profit was down, affected by increased expenses and by a larger

than normal number of trades being outside the Company’s network.

The Rongotea stockyards achieved a 25% increase in revenue

compared with 2006. Waikato and King Country divisions were

slightly down on revenue, and Taranaki was almost the same

as in 2006.

We are maintaining our large share of the dairy herd sales to the South Island. We also

continue to have a significant share of dairy herd sales across the country, and are regarded

as having specialist knowledge in this market. To make the most of this expertise, the Company

will open a livestock office in Canterbury in the next financial year.

By the time of the annual general meeting, Allied Farmers will be offering a new livestock

website. This will allow our customers to buy and sell online, with the Company’s staff

handling the contractual and logistical areas (as they do for paddock sales). As in the past,

both the Company and its customers were well served by our loyal and expert livestock staff.

The prospects for the next financial year are very good: at the time of writing, the livestock

team is managing to source livestock in a short market and has achieved dairy herd sales

for our vendor customers of $1,600-$2,150 per head with the record to date being $2,650.

Although our bobby calf operation is not part of livestock, it makes sense to report on

it here. This year we processed and marketed, through third parties, an increased tonnage

of veal and by-products. The packed meat was sold into the US through a third party, using

the Company’s beef quota. This operation was again successful and we expect to increase

numbers in the 2007/08 year.

LIvESTOCK

wE CONTINUE TO hAvE A SIGNIFICANT ShARE OF DAIRy hERD SALES ACROSS ThE COUNTRy

AND ARE REGARDED AS hAvING SPECIALIST KNOwLEDGE IN ThIS MARKET.

AvERAGE COw PRICE vS MILK SOLIDS PAyOUT COW PRICE $ MILK SOLIDS PAYOUT $F = FORECAST

2000

1800

1600

1400

1200

1000

800

600

400

200

0

1990

1999

2000

2008

F

2007

2006

2005

2004

2003

2002

2001

1998

1997

1996

1995

1994

1993

1992

1991

7

6

5

4

3

2

1

AVER

AGE

COW

PRIC

E ($

)

PAYO

UT

($)

YEAR

7

8


MERChANDISE

This was the first full year of trading for the Taranaki Farmers Mitre 10 store in Hawera. It has proved more difficult than first thought to run this large retail store at a profit. The store has proved very popular with customers – but unexpected costs, a decline in gross profit and increased local competition has meant the store has traded at a loss for this year.

A rethink on how the store is staffed, along with better cost and inventory control, should see this store return to profit in the next financial year. We have already had

an expert M10 store operator work with our staff for three months; customers will have noticed the reorganisation of the store and the improved stocking of the products.

The rest of our merchandise is traditional rural farm supply. The net profit on this rose 1.4% on the previous year, in spite of a very strange spring and considerable price competition as new suppliers entered Taranaki. This area of merchandise faces continuing pressure from direct suppliers and increased

debtor balances. Our sheep farming customers’ low return was felt in revenue and profit by a number of our stores.

With the change in exchange rates and the predicted increased Fonterra payout, merchandise will have a much better year in 2007/08.

MERChANDISE CUSTOMER PROFILE

wITh ThE ChANGE IN ExChANGE RATES AND ThE PREDICTED INCREASED FONTERRA PAyOUT, MERChANDISE wILL hAvE A MUCh

bETTER yEAR IN 2007/08

ACCOUNT OPERATIONAL (YEARS)

60

50

40

30

20

10

0

<1 1-2 2-4 4-6 6-8 8-10 >10

8.66.2

10.1 8.55.9 4.7

55.9

PERC

ENTA

GE

OF

ACTI

VE

CUST

OM

ERS

9

10


REAL ESTATE

This year real estate made a loss. This was, however, several magnitudes less than in the previous year. Revenue was above budget, but advertising and increased selling commissions eroded the gross profit.

The urban real estate market is extremely competitive. Across Taranaki, the actual numbers of houses sold have dropped month on month and the number of days a property takes to sell has expanded significantly. These factors, plus increased advertising rates, do not give a picture of future growth. It is clear that the four-year boom in house prices and in the number of properties being sold in the province has come to an end.

On a happier note, we continue our high profile in rural sales and have on average sold over one farm per week – which is good for both the Company and its farming clients. During the year we sold the Feilding branch and undertook branch restructuring in an attempt to generate net profit. More work along these lines is in train for the new financial year.

REAL ESTATE REvENUE 2006/07

RESIDENTIAL PROPERTY

LIFESTYLE PROPERTY

RURAL PROPERTY

PROPERTY MANAGEMENT

wE CONTINUE OUR hIGh PROFILE IN RURAL SALES AND hAvE ON AvERAGE SOLD OvER ONE FARM PER wEEK – whICh IS GOOD FOR bOTh

ThE COMPANy AND ITS FARMING CLIENTS.

36%

12%

48%

4%

11

12


ALLIED FARMERS wOOLS LIMITED

Our wool business had a great year for net profit. Volumes of bales sold were down on the previous year, but this was more than made up by the storage revenue we received. Next year, however, revenues will be down because of the loss of a significant third-party processing contract. Looking further ahead, your Board is keeping itself up with the play on the various suggested changes to the New Zealand wool market.

wOOL PRICES JULy 06 - JUNE 07 35M FLEECE 37M SHEARS COMBING LBS

435

415

395

375

355

335

315

295

WOOL

PRIC

E

(CEN

TS P

ER K

G, CL

EAN)

7 JU

L

15 JUN

4 AU

G

18 A

UG

1 SE

PT

15 S

EPT

29 S

EPT

13 O

CT

27 O

CT

10 N

OV

24 N

OV

8 DEC

9 FE

B

23 F

EB

9 M

AR

23 M

AR

6 APR

20 A

PR

4 M

AY

18 M

AY

1 JU

N

21 JUL

WEEK

13

14


ALLIED NATIONwIDE FINANCE LIMITED

There was significant change in the finance business over the year, with two amalgamations and the successful acquisition of Nationwide Finance in May 2007. Allied Nationwide Finance was created in June 2007 through the amalgamation of Allied Prime Finance and Nationwide Finance.

The finance business contributed total earnings before tax of $3.1 million to the Group in the 2006/07 year, which was up on its $1.0 million contribution for the previous year. The Nationwide Finance contribution to the Group result was only for the two-month post-acquisition period (from 1 May 2007 to 30 June 2007). Over the full financial year, Allied Prime Finance and Nationwide Finance achieved a total net profit before tax of $6.65 million.

Allied Nationwide had total assets of $302 million as at 30 June 2007, including $45 million cash and a $250 million loan book that was diversified across rural, property, capital equipment, business, and consumer finance. It had shareholder equity of $35 million and debenture stock of $261 million on issue to around 13,000 investors.

The business was restructured during the second half of the year, with the appointment of a new management team, changes to operating structure, implementation of a new IT system, and a complete exit from large-scale motor vehicle lending. These changes will deliver significant benefits over the 2007/08 financial year.

The future focus of Allied Nationwide is the provision of rural, property and commercial finance throughout New Zealand. Operating from offices in Auckland, Wellington and Christchurch, it has a management team with significant experience in the finance sector and a total staff of 40.

A key strategy of Allied Nationwide is to be a leading provider of non-bank finance to the rural sector. It will continue to leverage off the Allied Farmers rural servicing business and extensive client base to drive growth in rural finance. It is also working on a number of new initiatives, including the provision of livestock leasing to the dairy sector.

At present, the finance sector is being challenged by the pressures on the global credit market and the flow-on impact of these on the New Zealand market and finance companies. With the changes made to its finance business over the last 12 months and its strong liquidity, Allied Nationwide is well positioned to weather the changing fortunes in the New Zealand finance market.

Allied Nationwide is committed to delivering on its strategy of prudent long-term growth and the establishment of its position as a top-tier New Zealand finance company. With this in view, it is working towards achieving a credit rating with an international agency in the first half of 2008. It would prefer to be rated sooner, but it must have six months of audited accounts as a starting point. Allied Nationwide already has in place – and will be enhancing – all the necessary IT systems, procedures and controls that the rating agency will review.

A KEy STRATEGy OF ALLIED NATIONwIDE IS TO bE A LEADING PROvIDER OF NON-bANK

FINANCE TO ThE RURAL SECTOR

CREDIT ExPOSURE by SECTOR

PROPERTY DEVELOPMENT & INVESTMENT

RETAIL & CONSUMER

FINANCE & INSURANCE

RURAL

TRANSPORT, STORAGE & AVIATION

OTHER SERVICES (PROFESSIONAL BUSINESS, HEALTH, EDUCATION)

WHOLESALE SERVICES

CONSTRUCTION

MANUFACTURING

ACCOMMODATION & TOURISM

17%

16%

16%12%

8%

8%

7%

7%

5%4%

15

16


FIvE yEAR FINANCIAL SUMMARy ALLIED FARMERS LIMITED AND SUBSIDIARIES

PROFIT SUMMARYJUNE 07

$000JUNE 06

$000JUNE 05

$000JUNE 04

$000JUNE 03

$000

Total operating revenue 107,823 85,173 84,600 74,719 70,332

Depreciation and amortisation 3,154 2,263 1,855 1,581 1,275 Interest expense 16,149 2,959 2,109 1,890 2,626 Other expenses 92,475 77,970 77,168 66,764 63,223

Net surplus (deficit) before tax (3,955) 1,981 3,468 4,484 3,208 Tax 604 (749) (388) (1,601) (1,049)

Net surplus (deficit) after tax (3,351) 1,232 3,080 2,883 2,159Minority interests - 102 88 49 -

Net surplus (deficit) after tax and minorities (3,351) 1,334 3,168 2,932 2,159 Dividend paid 958 2,391 1,590 1,114 1,590

SuRPLuS (DEFiCiT) RETAiNED iN ThE GROuP (4,309) (1,057) 1,578 1,818 569

STATEMENT OF FINANCIAL POSITION SUMMARY

Shareholders equity 24,328 23,013 24,172 20,313 18,409

Non current liabilities 140,627 61,723 15,881 10,187 8,241

Current liabilities 179,072 119,425 36,884 34,436 26,359

Total liabilities 319,699 181,148 52,765 44,623 34,600

EquiTY AND LiAbiLiTiES 344,027 204,161 76,937 64,936 53,009

Current assets 220,047 118,449 43,608 41,334 32,298 Fixed assets 14,788 14,643 12,970 10,123 8,197 Non current assets 84,211 63,215 19,186 12,189 11,243 Investments 315 132 33 10 10 Total tangible assets 319,361 196,439 75,797 63,656 51,748Intangibles 24,666 7,722 1,140 1,280 1,261

TOTAL ASSETS 344,027 204,161 76,937 64,936 53,009

CASH FLOW SUMMARY

Operating cash flow 5,800 2,988 1,024 3,161 4,394 Investing cash flow 25,705 (10,130) (8,206) (4,363) (6,930)Financing cash flow (3,085) 17,864 7,549 2,082 (1,418)

NET ChANGE iN CASh 28,420 10,722 367 880 (3,954)

The amounts shown in this Five Year Financial Summary have been extracted from the audited financial statements of Allied Farmers Limited and subsidiaries for the respective years.

vALUE OF INvESTMENT ($000) VALUE OF $10,000 INVESTMENT*

COST OF THE SHAREHOLDING**

TOTAL TANGIbLE ASSETS ($M)

YEAR

350

300

250

200

150

100

50

0

2004 2005 2006 20072003

ShAREhOLDER EQUITy ($M)

YEAR

SHAREH

OLD

ER E

QUIT

Y ($

M)

30

25

20

15

10

5

0

2004 2005 2006 20072003

TOTA

L TA

NGIB

LE A

SSET

S ($

M)

51.763.7

75.8

196.4

319.4

18.420.3

24.2 24.323.0

80

70

60

50

40

30

20

10

0

VALU

E OF

INVES

TMEN

T ($

000)

DEC

01

SEP

02

JUN 0

3

MAR 0

4

DEC

04

SEP

05

JUN 0

6

MAR 0

2

DEC

02

SEP

03

JUN 0

4

MAR 0

5

DEC

05

SEP

06

JUN 0

7

JUN 0

2

MAR 0

3

DEC

03

SEP

04

JUN 0

5

MAR 0

6

DEC

06

MAR 0

7

YEAR

* INCORPORATES ANY BONUS SHARE ISSUE ** ASSUMES TAKE-UP OF RIGHTS ISSUE ENTITLEMENT

17


DIRECTORS AND ExECUTIvE TEAM

DiRECTORS

Mr John J. Loughlin – Chairman

Mr Loughlin is Chairman of Allied Farmers Limited and each of its subsidiaries, and has been a Director since March 2004. He resides in Havelock North in Hawke’s Bay, and is the owner of Askerne Winery. He currently holds directorships with Toll NZ Limited, Zespri Group Limited, Metlifecare Limited, Centralines Limited, Prism Group Holdings Limited, Lean Meats Limited, Kermedec Property Fund Limited, and Taupo Motorsport Park Limited. He previously held the position of Chief Executive Officer of Richmond Limited and executive positions in the finance sector. He is also an issuer appointee of NZX Discipline and a Ministerial appointee to the Representatives Committee of the Animal Health Board. Mr Loughlin has the following qualifications: MBA, BCA, CA, FCSAP, ACIS, FAII, FNZIM.

Mr Peter L. Cook – Deputy Chairman

Mr Cook was appointed a Director of Allied Farmers Limited in March 1987 and was appointed a Director of its finance company subsidiary in October 1993. He is a cattle and sheep farmer from Huinga and is a past director of AFFCO NZ Ltd. Under the NZX listing rule 3.3.1B(a) Mr Cook is classified as an independent Director of Allied Farmers Limited. He has the following qualification: DipAg.

Mr Garry C. bluett

Mr Bluett was appointed a Director of Allied Farmers Limited and its finance company subsidiary in October 2004. He has been finance director of a major New Zealand retail group and has broad experience in the finance company and corporate finance sectors. He currently has an ownership interest in a large dairy operation in the Waikato. Under the NZX listing rule 3.3.1B(a) Mr Bluett is classified as an independent Director of Allied Farmers Limited. He has the following qualifications: BMS, CA.

Mr Ross J.C. Dunlop

Mr Dunlop was appointed a Director of Allied Farmers Limited and its finance company subsidiary in October 1999. He is a dairy, sheep and beef farmer and has interests in farm forestry. He is a Councillor of the South Taranaki District Council and is a Justice of the Peace. Under the NZX listing rule 3.3.1B(a) Mr Dunlop is classified as an independent Director of Allied Farmers Limited. He has the following qualification: DipMgmt.

Pictured from left to right: Garry C. Bluett

Andrew McDouall Ross J.C Dunlop John J. Loughlin

Peter L. Cook Philip C. Luscombe

18

Mr Philip C. Luscombe

Mr Luscombe was appointed a Director of Allied Farmers Limited and its finance company subsidiary in December 2005. He is an experienced farmer with interests in dairy farms in Taranaki and Otago, and in farm forestry. He is a director of Dairy InSight, NZAEL Limited, PKW Farms Limited, and a number of private companies. He is a trustee of the Massey-Lincoln and Agricultural Industry Trust, a former trustee of the Massey University Agricultural Research Foundation, and a member of the Fonterra Farms Advisory Board. He is a former director of Kiwi Cooperative Dairies Limited, Kiwi Milk Products Limited, and industry research company Dexcel. Under the NZX listing rule 3.3.1B(a) Mr Luscombe is classified as an independent director of Allied Farmers Limited. He has the following qualification: BAgSci(Hons).

Mr G. Andrew McDouall

Mr McDouall was appointed a Director of Allied Farmers Limited and its finance company subsidiary in October 1999. He is Managing Director of the sharebroking and investment banking group McDouall Stuart Group Limited, as well as being a director of Tolhurst Group Limited (an ASX-listed Australian sharebroking firm) and of a number of private companies. Mr McDouall is a NZX stockbroker and a member of the Institute of Directors. He has the following qualifications: BCA, DipNZX.

ExECuTivE TEAM

Mr David W. bale – Group Chief Executive Officer

David Bale was appointed Group Chief Executive Officer in 2006. Before joining the Group, he worked as a self-employed consultant and professional director undertaking strategic assignments for a number of major New Zealand and overseas companies. Prior to that he was Chief Executive of the New Zealand Lotteries Commission; and he has also held a number of senior roles including Managing Director of Inprint Limited and chairman of other subsidiary companies within the Independent Newspapers Limited/News Limited group of companies. Mr Bale has been a board member of Mitsubishi Motors (NZ) Limited and is presently a trustee of the Westpac Stadium Trust. He holds an MBA, has attended the New Zealand Staff College and Stanford University’s Executive Management Program, and has completed the Advanced Management Program (AMP) at Templeton College, Oxford.

Pictured from left to right: Tony HoodJohn D. Mallon William L. Giesbers David W. Bale Trevor J. Harrop Philip H. Anstey Andrew N. Quayle

19


Mr William L. Giesbers CA, FCiS, AFNZiM, CTP – Group Chief Financial Officer

William Giesbers was appointed Group Chief Financial Officer in December 2006. He brings an extensive background of corporate and public-company financial management and expertise to this role – as well as wide experience in business integration, technology development and implementation, and internal control and risk analysis.

Mr Giesbers started his career with the ANZ Banking Group NZ Ltd. In more recent years he has been Chief Manager Finance, Technology and Operations, Institutional Banking (and Treasury) with Westpac; Finance Director and Chief Information Officer with Contact Energy; and Group Chief Financial Officer of Tower Limited.

Mr Trevor J. harrop bCom, CA – Group Company Secretary

Trevor Harrop joined the Company in 1982 as Financial Controller and became Company Secretary in 1986. He has a financial background, holds a Bachelor of Commerce degree from Canterbury University, and is a member of the Institute of Chartered Accountants of New Zealand.

Mr Andrew N. quayle – Group Marketing Manager

Andrew Quayle joined Allied Farmers in January 2007. He previously held senior marketing roles within New Zealand Post and the New Zealand Lotteries Commission, and brings a breadth of consumer and business marketing experience to the Company. He holds a Bachelor of Business Studies from Massey University where he has also undertaken post-graduate study.

Mr Tony hood – Group Chief information Officer

Tony Hood joined Allied Farmers in June 2007, bringing extensive experience from the finance and technology sectors. He has been involved in various facets of management and technology – including strategic planning and general management – in Europe, Australia and New Zealand. His previous positions include Chief Manager Systems and Services for Westpac Banking Corporation NZ Ltd, and CEO and Managing Director of Databank Systems Limited (later EDS NZ Ltd).

Mr Philip h. Anstey – General Manager Rural Services

Philip Anstey joined the Company in May 2004. He qualified DipAgr and BCom from Lincoln and Otago universities before working abroad for a number of years with large international companies. Back in New Zealand he worked at senior management levels in the fishing industry, the wool export company John Marshall, Skellerup International, the meat industry, and Pyne Gould Guinness. He has a background in marketing and management, with particular relevance to Allied’s core rural business.

Mr John D. Mallon – Chief Executive Officer, Allied Nationwide Finance Limited

John Mallon joined the Allied Group in January 2007 from St Laurence Limited, where he had been CEO of the NZX-listed St Laurence Property & Finance Limited and General Manager Funds & Asset Management. He has enjoyed a very successful career in the finance industry and has had previous management roles with Perpetual Trust Limited and BNZ Finance Limited.

Mr Mallon, who is a chartered accountant, brings extensive finance sector experience to the Group.

20

DISCLOSURES

iNTERESTS REGiSTER

The following particulars are taken from the Interests Register as at 30 June 2007.

Disclosure of interest

NAME ENTITY RELATIONSHIP

Garry C Bluett Arcos Investments Limited DirectorAylesbury Farms Limited DirectorBostonian Group Limited Director

Peter L Cook Farming Partnership PartnerAllied Farmers Limited Employee Share Purchase Scheme TrusteeAllied Farmers Limited Superannuation Scheme Trustee

Ross J C Dunlop South Taranaki District Council CouncillorArarata Farm Limited DirectorFarming Partnership PartnerAllied Farmers Limited Employee Share Purchase Scheme TrusteeAllied Farmers Limited Superannuation Scheme TrusteeEynsford Trust TrusteeJames Winks Trust TrusteeRJC and JM Dunlop Trust TrusteeSouth Seas Traders Charitable Trust Trustee

John J Loughlin Askerne Estate Winery Limited ChairmanCPG (NZ) Limited ChairmanLoughlin Viticulture and Consulting Limited ChairmanPrism Group Holdings Limited ChairmanCentralines Limited DirectorKermedec Property Fund Limited DirectorLean Meats Limited DirectorLoughlin Gibbs Limited DirectorMetlifecare Limited DirectorTaupo Motorsport Park Limited DirectorToll NZ Limited DirectorZespri Group Limited DirectorNZX Discipline (issuer appointee) MemberAnimal Health Board Representatives Committee

Ministerial Representative

Allied Farmers Limited Employee Share Purchase Scheme TrusteeAllied Farmers Limited Superannuation Scheme Trustee

21


NAME ENTITY RELATIONSHIP

Philip C Luscombe Hinemoa Farms Limited ChairmanDairy Insight Limited DirectorHendham Farm Co. DirectorKingfisher Escape Limited DirectorKoki South Farms Limited DirectorMairangi Investments Limited DirectorNZAEL Limited DirectorOcean Ohope Limited DirectorPKW Farms Limited DirectorFonterra Farms Advisory Board MemberLuscombe Partnership PartnerHendham Trust Limited TrusteeMassey-Lincoln and Agricultural Industry Trust TrusteePharm Trust Limited Trustee

G Andrew McDouall Balgreggan Financial Investments Limited DirectorTartan Securities Limited DirectorTolhurst Group Limited DirectorMcDouall Stuart Group Limited and Subsidiaries Managing Director

Directors’ Shareholdings

DIRECTOR 2007 2006

G C Bluett 12,000 10,000P L Cook 120,606 100,505R J C Dunlop (b) 162,000 135,000R J C Dunlop 11,594 9,662J J Loughlin 2,400 2,000P C Luscombe (b) 13,572 1,310G A McDouall (b) 873,784 621,119

(b) denotes beneficial interest as opposed to direct ownership

Directors’ Remuneration

DIRECTOR 2007 FEES 2006 FEES

G C Bluett 28,000 28,000P L Cook 28,000 28,000R J C Dunlop 28,000 28,000J J Loughlin (Chairman) 50,000 42,667P C Luscombe 28,000 18,667G A McDouall 28,000 28,000

TOTAL 190,000 173,334

Fees paid to J J Loughlin and P C Luscombe in 2007 are for the full year, whereas the 2006 payments reflect part-year appointment.

In addition B A Train retired in December 2005 and received fees of $16,666 and a retirement allowance of $150,000 in the 2006 year as allowed under the Company’s constitution. Mr Train remained a director of Allied Pine Limited and received fees of $12,000 during 2007.

22

PARTiCuLAR DiSCLOSuRES

McDouall Stuart, a company in which Mr G A McDouall has a beneficial interest, carried out advisory and consultancy work for the Company on an arms-length commercial fee basis in respect of:

Lead Manager for Allied Farmers Limited Capital Notes Issue; and

Lead Manager and underwriter for Allied Farmers Limited Rights Issue.

Apart from the above, no Director has entered into any transaction with the Company or its subsidiaries other than in the normal course of business, on the Company’s normal terms of trade, and on an arms-length basis.

No Director issued a notice requesting to use Group information received in their capacity as a Director which would not otherwise have been available to them.

During the year the Company paid premiums on contracts insuring directors and officers in respect of liability and costs permitted to be insured against in accordance with Section 162 of the Companies Act 1993 and the Company’s constitution.

EMPLOYEE REMuNERATiON

The number of employees whose remuneration and benefits were over $100,000 are within the specified bands as follows:

NUMBER OF EMPLOYEESREMUNERATION RANGE $ 2007 2006

100,000 – 110,000 5 3110,001 – 120,000 3 3120,001 – 130,000 3 4130,001 – 140,000 5 4140,001 – 150,000 5 3150,001 – 160,000 2 1160,001 – 170,000 4 3170,001 – 180,000 3 2180,001 – 190,000 - 2190,001 – 200,000 3 1200,001 – 210,000 1 -210,001 – 220,000 1 1220,001 – 230,000 1 -240,001 – 250,000 1 -260,001 – 270,000 - 2330,001 – 340,000 1 -400,001 – 410,000 - 1440,001 – 450,000 1 -

The remuneration figures shown in the above table include all monetary payments actually paid, plus the cost of all benefits provided, during the year.

The 2007 year includes 25 livestock and real estate staff who are remunerated on a commission basis (2006: 27).

These remuneration levels fluctuate significantly from year to year.

23


SubSTANTiAL SECuRiTY hOLDERS

According to notices given under the Securities Markets Act 1988, the following were substantial security holders in Allied Farmers Limited as at 10 August 2007:

John Revell Hynds: 1,325,542

The total number of issued voting securities of Allied Farmers Limited as at 10 August 2007 was 19,083,368.

NZx WAivERS

The Company received a waiver from NZX on 5 March 2007 in relation to capital note holders being restricted to a minimum holding of $5,000 and to transfers in multiples of $1,000. The waiver related to NZX listing rule 11.1.1 which prevents any issuer from imposing restrictions on the right of a holder of a quoted security to transfer that security, or any restriction upon registration of a properly completed transfer of quoted securities.

The Company received a waiver from NZX on 1 May 2007 in relation to the underwrite by McDouall Stuart Group Limited of its rights issue. The waiver related to listing rule 9.2.1 which prevents issuers from entering into a transaction where they are, or are likely to become, a related party as either a direct or indirect party to the transaction, unless that transaction is approved by ordinary resolution of the shareholders of the issuer.

SubSiDiARY COMPANiES

Directors of subsidiary companies as at 30 June 2007 were as follows:

Allied Farmers Finance Limited (non trading) J J Loughlin, G A McDouall.

Allied Farmers Wools Limited J J Loughlin, G C Bluett, P L Cook R J C Dunlop, P C Luscombe G A McDouall, D W Bale.

Allied Farmers (New Zealand) Limited P L Cook, R J C Dunlop, D W Bale. (non trading)

Allied Farmers Option Scheme Limited J J Loughlin, P L Cook.

Allied Nationwide Finance Limited J J Loughlin, G C Bluett, P L Cook R J C Dunlop, P C Luscombe G A McDouall, D W Bale.

Allied Pine Limited J J Loughlin, G C Bluett, P L Cook R J C Dunlop, P C Luscombe G A McDouall, B A Train, D W Bale.

brixton Solutions Limited (non trading) P C Luscombe.

Prime Finance Limited (non trading) J J Loughlin, G A McDouall.

Taranaki Farmers Co-operative Limited P L Cook, R J C Dunlop, D W Bale. (non trading)

The West Coast Mortgage and Deposit P L Cook, R J C Dunlop, D W Bale. Company Limited (holding company)

POLiTiCAL DONATiONS

The Company made no donations to any political party during the year.

24

ShAREhOLDER iNFORMATiON

The ordinary shares of Allied Farmers Limited are listed on the NZX Market. The NZX share code is ‘ALF’.

The shareholder information in the following disclosures have been taken from the Company’s share register at 10 August 2007.

Rights attaching to Shares

The Company’s ordinary shares carry a right to vote on any resolution on a poll at a meeting of shareholders. Holders of ordinary shares may vote at a meeting in person or by proxy, representative, or attorney. Voting may be conducted by voice, show of hands, or poll.

Rights issue

Following a one-for-five rights issue to all shareholders, the Company issued 3,180,561 new ordinary shares on 22 June 2007 making a total of ordinary shares on issue of 19,083,368.

Twenty Largest Registered Shareholders

HOLDER NAME HOLDING %

J R Hynds 1,325,542 6.95NZ Central Securities Depository Ltd 1,000,501 5.24Nessock Custodians Ltd (053 Account) 885,924 4.64Tartan Securities Ltd 873,784 4.58G F and V J Webster and K C Ewington 552,000 2.89Hubbard Churcher Trust Management Ltd 519,400 2.72Integra Investments Ltd 512,437 2.69Nessock Custodians Ltd (228354 Account) 405,876 2.13Woodhams Ltd 200,000 1.05J I Urquart 200,000 1 .05R J and J M Dunlop 162,000 0.85Forty Traders Ltd 128,442 0.67P L Cook 120,606 0.63M E Habershon 106,000 0.56R A Geary 104,302 0.55G H Beirne 80,000 0.42J L Sarfati 79,198 0.42I M McKinnon 79,000 0.41J M Lithgow 67,500 0.35Brian Green Properties Ltd 62,312 0.33

TOTALS 7,464,824 39.12

Analysis of Shareholdings

RANGE HOLDERS QUANTITY %

1 to 1,000 2,608 1,199,363 6.291,001 to 5,000 2,065 4,772,839 25.015,001 to 10,000 393 2,694,849 14.1210,001 to 100,000 169 3,321,605 17.41100,001 and over 15 7,094,712 37.18

TOTAL 5,250 19,083,368

25


Shareholder Enquiries

Shareholders should send changes of address, dividend queries, and instructions and shareholding information requests to Link Market Services Limited, which acts as the Company’s share registrar. These notifications and requests should be by signed letter.

Annual Meeting of Shareholders

Allied Farmers Limited’s annual meeting of shareholders will be held in the Community Centre Lounge, Albion Street, Hawera, on Tuesday 30 October 2007 at 10.30 am. A Notice of Annual Meeting and Proxy Form are circulated to shareholders with this annual report.

Representatives from the external auditors PricewaterhouseCoopers will be available at the annual meeting to answer shareholder questions about the conduct of the audit and content of the external Auditors’ Report.

Registered Office

The registered office of Allied Farmers Limited is:

74 Princes Street P O Box 423 Hawera 4640 Ph: 06 278 0800

Group Company Secretary

Trevor J Harrop

Corporate Office

The corporate office of Allied Farmers Limited is:

Level 15 142 Lambton Quay PO Box 252 Wellington 6140 Ph: 04 472 0784

Group Chief Executive Officer

David W Bale

Dividends Paid

The following is a summary of all dividends paid by Allied Farmers Limited since listing on NZX on 9 May 2002.

PAYMENT DATE NZ CENTS PER SHARE

16 May 2002 7.011 October 2002 9.028 March 2003 6.03 October 2003 5.026 March 2004 5.52 April 2004 (taxable bonus issue) 50.01 October 2004 5.024 March 2005 5.030 September 2005 10.024 March 2006 5.029 September 2006 2.023 March 2007 4.0

26

GOvERNANCE

The Board and management are committed to ensuring that the Group maintains best-practice governance structures and adheres to the highest ethical standards. The Board regularly reviews and assesses the Company’s governance structures and processes to ensure that they are consistent with best practice, both in form and substance.

APPROACh TO CORPORATE GOvERNANCE

As a result of the Company’s stock exchange listing, it is subject to the governance requirements of the New Zealand Exchange Limited’s (NZX) listing rules and Corporate Governance Best Practice Code and the New Zealand Securities Commission’s report ‘Corporate Governance in New Zealand, Principles and Guidelines’.

To ensure the Company continues to maintain the most appropriate standards of governance, the Board will continue to monitor developments in the governance area and review and update its governance practices.

COMPLiANCE WiTh NZx bEST PRACTiCE CODE

The NZX listing rules require the Company to include in each annual report a statement disclosing the extent to which it has followed the NZX Corporate Governance Best Practice Code for the reporting period. The Company considers its governance practices have complied with the Code for the year to 30 June 2007.

ThE bOARD OF DiRECTORS

Role of the board and Responsibility

The Board of Directors is elected by shareholders to govern the Company in the interests of shareholders, and to protect and enhance the value of the assets of the Company in the interests of the Company and its shareholders. The Board is the overall and final body responsible for all decision making within the Company. In carrying out its role, the Board has the responsibility of working to enhance the value of the Company in the interests of the Company and its shareholders. The Board Charter describes the Board’s role and responsibilities and regulates internal Board procedure. The Board has also delegated a number of its responsibilities to its committees. The role of the committees is described below.

To enhance efficiency, the Board has delegated to the Group Chief Executive Officer the day-to-day leadership and management of the Company. The Group Chief Executive Officer has, in some cases, formally delegated certain authorities to those who directly report to him and has established a formal delegated authority framework for those delegatees to sub-delegate certain authorities.

board Membership, Size and Composition

As at 30 June the Board comprised six Directors – a non-executive Chairman and five non-executive Directors. The Board has a broad range of financial, banking, farming, and business skills as well as other relevant experience and expertise required to meet its objectives.

The Board reviews the criteria for the selection of Directors to ensure the Board comprises the right mix of skills and experience to meet the needs of the Company.

27


Selection and Role of Chairman

The Chairman is elected by the Board from the non-executive Directors on an annual basis. The Board supports the separation of the role of Chairman and Group Chief Executive Officer. The Chairman’s role is to manage and provide leadership to the Board and to facilitate the Board’s interface with the Group Chief Executive Officer. The current Chairman, John Loughlin, is a non-executive Director. He is a member of each of the Board committees and is also Chair of the Remuneration Committee.

The Board also appoints a Deputy Chairman on an annual basis. The current Deputy Chairman, Peter Cook, is a non-executive Director. As Deputy Chairman, Mr Cook has taken the Chair during any meetings when Mr Loughlin has been temporarily absent.

Director independence

The Board is committed to having a majority of Directors who are judged by the Board to be independent.

To be considered independent in terms of the NZX listing rules, a director must be non-executive, must hold less than 5% of the shares on issue, and must not have a relationship with the company whereby a substantial portion of the director’s annual revenue is derived from the company in any year.

The Board considers all the Company’s Director relationships on a case-by-case basis and, as a general policy, follows the NZX listing rules’ definition.

The Board considers that Andrew McDouall’s beneficial shareholding in the Company could preclude him from being reasonably perceived as independent. All other Directors of the Company are considered independent.

The Board will review any determination it makes on a Director’s independence on a regular basis and on becoming aware of any information that indicates the Director may have a relevant material relationship with the Company. For this purpose, Directors are required to ensure that they immediately advise of any new or changed relationships so the Board can consider and determine how material the relationship is to a Director’s independence.

Conflicts of interest

The Board is conscious of its obligations to ensure that Directors avoid conflicts of interest (both real and apparent) between their duty to the Company and their own interests. Where conflicts of interest do exist at law then the Director must disclose their interest, excuse themselves from any Board discussions, not receive any Board papers in respect of those interests, and in accordance with the relevant stock exchange listing rules not exercise their right to vote in respect of such matters.

Nominations and Appointment of New Directors

Procedures for the appointment and removal of Directors are ultimately governed by the Company’s constitution.

Recommendations for nominations of new Directors are made by the Directors individually and considered by the Board as a whole. External consultants may be used to access a wide base of potential candidates and to review the suitability of candidates for appointment based on pre-established criteria. When recommending candidates to act as Director, the Board takes into account such factors it deems appropriate. These factors include their background, experience, professional skills and personal qualities, whether their skills and experience will augment the existing Board, and their availability to commit themselves to the role.

If the Board appoints a new Director during the year, that person will stand for election by shareholders at the next annual meeting. Shareholders are provided with relevant information on the candidates for election.

28

Director Education

All Directors are regularly updated on relevant industry and Company issues, which include visits to the Company’s operations. There are ongoing presentations to the Board by business units as deemed appropriate. The Board expects all Directors to undertake continuous education so that they may appropriately and effectively perform their duties.

board’s Performance Review

The Chairman conducts an annual performance review of the Board in which he assesses the performance of individual Directors. The Board also reviews its own performance as a whole against the Board Charter. This process includes one-on-one meetings between the Chairman and each Director, as well as regular Board discussion on governance and performance issues.

In addition, a comprehensive Board-evaluation survey is undertaken to seek Director feedback on a range of matters relating to Board performance including its role and composition, procedures, practices, and administration. The Chairman reports the collective results of this evaluation to the Board.

Group Chief Executive Officer’s Performance Review

The Board annually reviews the performance of the Group Chief Executive Officer. The formal annual review process is conducted in respect of the immediately preceding income year. This evaluation is undertaken using criteria set by the Board that include the performance of the business, the accomplishment of strategic and operational objectives, and other non-quantitative objectives agreed at the beginning of each year. The Board is responsible for the evaluation of the Group Chief Executive Officer against key performance objectives, and periodically reviews these to ensure they are an appropriate measure of the Group Chief Executive Officer’s performance.

Retirement and Re-election of Directors

NZX rule 3.3.8 requires at least one third of the Directors to retire from office at the annual meeting each year, but they are eligible for re-election at that meeting.

Peter Cook and Garry Bluett are standing for re-election at this year’s annual meeting.

board Access to information and Advice

Group Chief Financial Officer William Giesbers and Group Company Secretary Trevor Harrop are responsible for supporting the effectiveness of the Board by ensuring that policies and procedures are followed. They are also responsible for coordinating the completion and dispatch of the Board agenda and papers.

All Directors have access to executives, including the Group Chief Financial Officer and Group Company Secretary, to discuss issues or obtain information on specific areas or items to be considered at the Board meeting or other areas they consider appropriate. Further, Directors have unrestricted access to Company records and information.

The Board, the Board committees and each Director have the right, subject to the approval of the Chairman, to seek independent professional advice at the Company’s expense to assist them in carrying out their responsibilities. Further, the Board and Board committees have the authority to secure the attendance at meetings of outsiders with relevant experience and expertise.

Directors’ Share Ownership

As a matter of Board policy, Directors’ disclosures of their shareholdings pursuant to section 148 of the Companies Act 1993 and NZX listing rule 10.5.3 are shown in the Disclosures section of this annual report.

Directors are required to comply with the Company’s Insider Trading Policy and Rules in undertaking any trading in Allied Farmers Limited shares.

29


indemnities and insurance

As permitted by the Company’s constitution, deeds of indemnity have been given to Directors for potential liabilities and costs they may incur for acts or omissions in their capacity as Directors. In addition, deeds of indemnity have been given to certain senior staff for potential liabilities and costs they may incur for acts or omissions in their capacities as employees of the Company or as Directors of Company subsidiaries.

During the year the Directors and Officers liability insurance was renewed to cover risks normally covered by such policies arising out of acts or omissions of Directors and Officers in their capacity as such. Insurance is not provided for dishonest, fraudulent, malicious, or wilful acts or omissions.

Meetings of the board and Conduct of Meetings

The Board has a minimum of ten scheduled meetings each year. In addition, it meets whenever necessary between the scheduled meetings (such as to discuss key strategic issues or urgent business).

The Chairman and the Group Chief Executive Officer establish meeting agendas to ensure adequate coverage of key issues during the year.

The Directors generally receive material for Board meetings five days in advance, except in the case of special meetings for which the time period may be shorter because of the urgency of the matter to be considered.

Executives and other senior management regularly attend Board meetings and are also available to be contacted by Directors between meetings.

The Board meets regularly in executive session, without the Group Chief Executive Officer or other management present. Such sessions deal in particular with management performance and remuneration issues, Board performance evaluation issues, and discussions with the Group Internal Audit Manager and external auditors to promote a robust independent audit process.

Attendance at board Meetings for the Year July 2006 – 30 June 2007

Board Meetings

The full Board held twelve formal meetings during the year ended June 2007. The table below shows Director attendance at these Board meetings.

DIRECTORS MEETINGS ATTENDED

G C Bluett 12P L Cook 12R J C Dunlop 12J J Loughlin 12P C Luscombe 12G A McDouall 11

Board Committees

Three Board committees assist in the execution of the Board’s responsibilities: the Audit Committee, the Remuneration Committee, and the Treasury Committee. The committees have a number of scheduled meetings each year to coincide with the timing of the various responsibilities of each particular committee. Other committees may be established to consider matters of special importance or to exercise the delegated authority of the Board, as required.

Committee Terms of Reference

Each committee has terms of reference, which set out its authority, objectives and responsibilities.

30

Each committee undertakes an annual self-review of its performance against the terms of reference.

Committee Composition

The Board is responsible for appointing committee members according to the skills, experience and other qualities they bring to a committee. Committee sizes vary from three to four directors, with the Chairman being an ex-officio member of all committees.

Committee Roles and Operations

All Directors are entitled to receive all committee papers and can attend all committee meetings. As soon as possible after each committee meeting the Board is given a verbal report by the Chair of the committee on the outcomes of the meeting.

The structure, membership and responsibilities of the Board’s committees are summarised below.

Audit Committee

The Audit Committee includes members who have appropriate financial experience and an understanding for the industry in which the Company operates. All Audit Committee members are independent and all are financially literate. The Chairman of the Audit Committee, Garry Bluett, is a chartered accountant (CA).

The industry knowledge and financial experience of other members of the Audit Committee are set out in the biographies of the Directors.

Responsibilities Provide an open avenue of communication between the internal auditor, the external

auditors and the Board.

Recommend to the Board the nomination, terms of engagement and remuneration of the external auditors.

Review and participate in the process of appointment, replacement, reassignment, or dismissal of the internal auditor.

Confirm and assure the independence of the internal and external auditors.

Inquire of management, the internal auditor and the external auditor about significant risks or exposures to the Company.

Review the audit scope and plan to assure completeness of coverage, reduction of redundant effort, and the effective use of audit resources.

Consider and review with auditors the adequacy of the Company’s internal controls and compliance with the Company’s policies and delegated authorities.

Review at the completion of the annual audit the Company’s Financial Statements and Notes, the auditors’ report, and any recommendations; and recommend to the full Board that these be accepted.

Members of the Audit Committee as at 30 June 2007 were: Garry Bluett (Chair), Ross Dunlop, Philip Luscombe, Peter Cook.

Remuneration Committee

Responsibilities Consider and recommend to the Board the remuneration arrangements for the Group

Chief Executive Officer and any appropriate variations to his employment contract.

Consider recommendations from the Group Chief Executive Officer on matters of policy in the areas of human resources and staff remuneration where there may be a conflict of interest.

31


Consider recommendations from the Group Chief Executive Officer on the remuneration arrangements for executive management staff who report directly to him.

Consider and recommend to the Board any share-option or incentive schemes.

Consider and recommend to the Board any changes to the Company’s superannuation scheme.

Consider and recommend to the Board the remuneration arrangements and retirement allowances for non-executive Directors.

Members of the Remuneration Committee as at 30 June 2007 were: John Loughlin (Chair), Peter Cook, Andrew McDouall.

Treasury Committee

Responsibilities Receive and consider reports from management on the current and optimal financing

of the Company’s business and financial structures, having regard to shareholder value creation and financial risk.

Receive and consider reports from management on the financial risks in the different parts of the Company and in aggregate.

Receive and consider reports from management on financial markets, innovations, etc. that the Company may wish to adopt and recommend any new concepts to the Board as appropriate.

Review treasury policies within the Company and recommend any changes to the Board.

Members of the Treasury Committee as at 30 June 2007 were: Philip Luscombe (Chair), Garry Bluett, Andrew McDouall, David Bale.

CONTROLLiNG AND MANAGiNG RiSkS

Approach to Risk Management

The Company identifies, assesses and manages risks which affect its business.

Risk management is monitored through business processes such as business planning, investment analysis, project management, and operations management.

The Company’s various business units:

Identify and record risks that relate to the achievement of their business objectives.

Assess those risks and determine if they are acceptable under existing controls or whether additional treatment is required.

Respond appropriately to the risks, based on that assessment.

Monitor and report on the current status of risks and the effectiveness of their controls.

Incidents in respect to injury or accidents are reported monthly to the Board.

In managing financial risk around treasury transactions, the Board has approved principles and policies that specify who may authorise transactions under delegated authority and also the segregation of duties of those carrying out such transactions.

External and internal audit reports to the Audit Committee comment on the adequacy and effectiveness of the Company’s internal controls. The Audit Committee in turn reports this information to the Board.

32

Assurance from the Group Chief Executive Officer and Group Chief Financial Officer

The Group Chief Executive Officer and Group Chief Financial Officer have stated to the Board in writing that, in respect of the year ended 30 June 2007 and to the best of their knowledge and belief, a sound system of risk management and internal compliance and control that implements the policies of the Board of Directors is in place to provide assurance that the Company financial statements give a true and fair view of the matters to which they relate and are in accordance with New Zealand generally accepted accounting practice.

External Audit independence

The Audit Committee is responsible for making recommendations to the Board concerning the appointment of the Company’s external and internal auditors and their terms of engagement. In August 2006 the Board approved the re-appointment of PricewaterhouseCoopers as auditors for the year ended 30 June 2007. At the annual meeting in October 2006, shareholders approved the Board setting the remuneration of the auditors.

The Company is committed to auditor independence. The Audit Committee reviews the independence and objectivity of the external auditors. For this reason the work of PricewaterhouseCoopers is limited to audit, related assurance, and taxation; and the Audit Committee or its Chair is required to pre-approve all audit and related assurance services. The External Audit Independence Policy requires rotation of audit partners every five years.

The external auditors review all Board minutes and attend Audit Committee meetings. The Audit Committee also meets with the external auditors without management present and meets with management without the external auditors being present. Committee members may contact the external auditors directly at any time.

internal Audit

The Company has appointed Audit Link to carry out the internal audit function. Audit Link is the auditing unit of Naylor Laurence & Associates, a chartered accountancy firm based in Palmerston North, which carries out internal auditing assignments as approved by the Audit Committee. Whilst no assignments were carried out in the year under review, the Board has approved the following internal audits for the forthcoming year:

Review business processes and internal control environment in respect of monetary transactions at two randomly selected real estate branches.

Review the sales processes and documentation of livestock transactions to assess the adequacy of systems and internal controls.

Review accounts receivable to ensure that adequate internal control processes and procedures are in place.

Review inventory control to ensure that adequate controls are in place to manage inventory levels, transfers and security.

Review cash handling procedures to ensure processes are in place for the complete, accurate, and timely recording and banking of funds.

Review business processes and the internal control environment in respect of monetary transactions in the wool broking business.

Review credit policy compliance and loan approval processes in Allied Nationwide Finance Limited.

33


Promoting Ethical and Responsible behaviour

The Company expects all its employees and Directors to maintain the highest ethical standards. The Company’s employees are expected to conduct their professional lives by facilitating behaviour and decision making that meets the Company’s business goals and also is consistent with the values, policies, and legal obligations of the Company.

internal Policies and Procedures

All staff are responsible for ensuring that the Company carries out its business activities in a way that gives due consideration to all applicable legal requirements, minimises the cost of legal risk, and maximises business opportunities. Managers are responsible for making sure their staff understand what compliance means in their particular areas, by ensuring appropriate training and compliance information is available.

insider Trading and Trading in Company Shares

Directors and employees are subject to ‘insider trading’ restrictions under the law relating to dealing in securities and other related derivatives if they are in possession of inside information. Inside information is information that is not generally available to the public and, if it were generally available, would be expected by a reasonable person to have a material effect on the price or value of those securities.

To ensure compliance with these legal requirements the Company specifies that Directors, executives and certain other groups of employees within the Company may buy or sell Allied Farmers Limited shares during the period between the announcement of annual results and 30 November and during the period between the announcement of the half-year results and 30 April. Insider trading information may further restrict this trading window.

Within the framework of New Zealand’s insider trading laws, the Board has resolved that prior consent of such transactions must be granted by the Group Company Secretary.

The completion of any such transaction must also be notified to the Group Company Secretary.

Compliance with the Insider Trading Rules is monitored through education and daily checks across the Company share register. Any breach of the Insider Trading Policy would be regarded very seriously. All trading by those persons subject to the Insider Trading Rules is reported to the Board.

In addition, as required by the Securities Markets Act 1988 and the Securities Markets (Disclosure of Relevant Interests by Directors and Officers) Regulations 2003, all trading by Directors and senior management is reported to NZX.

Market Disclosure and Shareholder Communications

The Company is committed to providing comprehensive continuous disclosure to shareholders and other stakeholders, and complying with the NZX listing rules.

The Company requires certain senior management (the Group Chief Executive Officer, Group Chief Financial Officer, Group Company Secretary) and in some cases the Chairman, to discuss whether information is material prior to its release.

The Group Company Secretary is responsible for ensuring that all material information is lodged as soon as practicable with NZX.

The Group Company Secretary ensures that such information is published on the Company’s website where appropriate, with further dissemination through broadcast emails to news agencies and other market commentators.

The Company has appointed the Chairman and the Group Chief Executive Officer as authorised spokespeople who are required to ensure that all proposed public comments

34

either contain information already in the public domain or are not material. Management is responsible for ensuring compliance with this policy.

The Company’s website contains media releases, financial information since 1998, current and past annual reports, dividend histories, notices of meeting, and other information about the Company.

Full participation of shareholders at the annual meeting is encouraged.

Shareholders will have the opportunity to ask questions of the Chairman, Directors and auditors.

Remuneration of Employees

The Remuneration Committee is responsible for reviewing remuneration and human resources strategy, structure, policy, and practices. It seeks external expert advice on best-practice remuneration structures and market trends, to ensure that the remuneration strategy of the Company contributes to effective performance and value creation.

The Remuneration Committee recognises the vital role people play in the achievement of the Company’s short-term and long-term objectives as a key source of competitive advantage.

To grow and be successful, the Company must be able to attract, retain and motivate capable employees.

The key principles determined by the Remuneration Committee as underpinning the Company’s remuneration policies are:

Rewards are market competitive, to attract and retain talented people.

Remuneration is linked to performance, so that high levels of performance attract higher rewards.

The overall cost of remuneration is managed and linked to the ability of the Company to pay to senior management rewards that are aligned to those of shareholders.

These principles are achieved through a remuneration structure with both a fixed and a variable component. Supporting each key principle are appropriate policies and practices with clear and established accountabilities and processes.

The overall remuneration structure is designed to deliver rewards that are competitive in the labour markets in which the Company competes for people.

The Company accesses market remuneration information by sourcing a number of New Zealand remuneration surveys. This provides comprehensive market information such as remuneration trends and data, and performance-based reward structures and pay levels (including benefits and incentive components for different positions in various industries). These are used to ascertain the Company’s competitive stance and to ensure that the Company’s rewards are sufficiently competitive.

Remuneration ranges are reviewed annually to reflect movement in market remuneration.

Individual plans, established each year, clarify performance expectations against which individual achievement is assessed.

Individual performance is a key input into the annual remuneration review decision, along with the current market relativity of that individual’s remuneration package.

Individuals receive remuneration increases based on performance.

The variable remuneration component is ‘at risk’ and entirely performance based. This component includes a number of schemes. Each scheme has desired performance outcomes with appropriate rewards.

35

36


Rewards to senior management are aligned to those of shareholders. The Remuneration Committee makes recommendations to the Board on senior management incentive remuneration plans, share options, and share ownership plans. Senior management remuneration packages comprise a fixed portion and an at-risk portion that is only paid when performance objectives are met.

Executive Share Option Scheme

The shareholder-approved Executive Share Option Scheme was introduced this year, allocating 1,300,000 Allied Farmers Limited share options to eligible senior executives. Only 1,239,541 share options were issued at balance date.

The exercise period for these options commences on 13 March 2010 and ceases on 13 March 2013.

The exercise price will be $2.25.

The eligible executive may exercise options only if the performance hurdle has been satisfied.

Performance Hurdle

An option cannot be exercised unless the average volume-weighted price of one Allied Farmers ordinary share on the NZX market in NZ$ is either:

for the 90 days preceding the date that the exercise period commences, equal to or greater than $2.75; or

for the 90 days following the date of an announcement of Allied Farmers annual or half-year results during the exercise period, equal to or greater than that sum calculated by taking the sum of $2.75 increased by 15% per annum for each whole year and for each part year on a proportionate basis, compounded annually from the date that the exercise period commences (less an adjustment for distributions and dividends) to the relevant date of calculation.

NOTE

GROUP JUNE 2007

$000

GROUP JUNE 2006

$000

PARENT JUNE 2007

$000

PARENT JUNE 2006

$000

Operating revenue 2 107,823 85,173 85,528 72,955 Operating expenses 3 (111,778) (83,192) (89,972) (72,089)

Operating surplus (deficit) before tax (3,955) 1,981 (4,444) 866 Taxation 4 604 (749) 3,372 (244)

Net surplus (deficit) after tax (3,351) 1,232 (1,072) 622

Net deficit attributable to minority interest - 102 - -

NET SuRPLuS (DEFiCiT) ATTRibuTAbLE TO PARENT ShAREhOLDERS (3,351) 1,334 (1,072) 622

STATEMENT OF FINANCIAL PERFORMANCEALLIED FARMERS LIMITED AND SUBSIDIARIES FOR THE YEAR ENDED 30 JUNE 2007

NOTE

GROUP JUNE 2007

$000

GROUP JUNE 2006

$000

PARENT JUNE 2007

$000

PARENT JUNE 2006

$000

NET SURPLUS (DEFICIT) FOR THE YEAR, COMPRISINGParent shareholders interest (3,351) 1,334 (1,072) 622 Minority interest - (102) - -

Total recognised revenue and expenses (3,351) 1,232 (1,072) 622

Distributions to owners (958) (2,391) (958) (2,392)Issue of ordinary shares 5,566 - 5,566 - Acquisition of minority interest 58 - - -

Movement in equity for the year 1,315 (1,159) 3,536 (1,770)

EQUITY AT BEGINNING OF YEAR, COMPRISINGParent shareholders’ interest 23,071 24,128 19,519 21,289 Minority interest (58) 44 - -

23,013 24,172 19,519 21,289

EQUITY AT END OF YEAR, COMPRISINGParent shareholders’ interest 24,328 23,071 23,055 19,519 Minority interest 22 - (58) - -

24,328 23,013 23,055 19,519

STATEMENT OF MOvEMENTS IN EQUITyALLIED FARMERS LIMITED AND SUBSIDIARIES FOR THE YEAR ENDED 30 JUNE 2007

37

38


STATEMENT OF FINANCIAL POSITIONALLIED FARMERS LIMITED AND SUBSIDIARIES AS AT 30 JUNE 2007

NOTE

GROUP JUNE 2007

$000

GROUP JUNE 2006

$000

PARENT JUNE 2007

$000

PARENT JUNE 2006

$000

EQUITYShare capital 7 12,917 7,351 12,917 7,351 Reserves 8 11,411 15,720 10,138 12,168

24,328 23,071 23,055 19,519

Minority interest 22 - (58) - -

Total equity 24,328 23,013 23,055 19,519

NON CURRENT LIABILITIESTerm liabilities 9 140,627 61,723 34,520 -

CURRENT LIABILITIESClients’ credit balances 2,093 3,754 2,093 3,754 Accounts payable and accruals 15,868 12,833 9,039 9,210 Employee entitlements 2,881 2,955 2,092 2,541 Subsidiary company advances (net) - - 13,149 4,143 Current portion of term liabilities 9 158,230 99,883 3,500 16,000

Total current liabilities 179,072 119,425 29,873 35,648

TOTAL LiAbiLiTiES AND ShAREhOLDER’S EquiTY 344,027 204,161 87,448 55,167

NON CURRENT ASSETSProperty, plant and equipment 13 14,788 14,643 10,060 11,133 Intangible assets 14/16 24,666 7,722 950 1,176 Subsidiary companies (cost) 16 - - 58,321 22,686 Loans, advances and finance leases (term) 12 80,511 59,775 - 5,764 Other Investments 10 315 132 211 37 Deferred taxation 4 3,700 3,440 1,509 1,765

123,980 85,712 71,051 42,561

CURRENT ASSETSCash and bank balances 45,658 17,238 571 2,726 Accounts receivable & prepayments 11/12 162,506 92,399 5,141 3,202 Taxation 4 2,025 1,153 1,173 358 Deferred taxation 4 3,360 - 3,360 - Inventory 15 6,498 7,659 6,152 6,320

220,047 118,449 16,397 12,606

TOTAL ASSETS 344,027 204,161 87,448 55,167

The Board of Directors of Allied Farmers Limited authorised these financial statements for issue on 23 August 2007.

R J C Dunlop G C Bluett Director Director

STATEMENT OF CASh FLOwSALLIED FARMERS LIMITED AND SUBSIDIARIES FOR THE YEAR ENDED 30 JUNE 2007

NOTE

GROUP JUNE 2007

$000

GROUP JUNE 2006

$000

PARENT JUNE 2007

$000

PARENT JUNE 2006

$000

CASH FLOWS FROM OPERATING ACTIVITIES CASH WAS PROVIDED FROM:Receipts from customers 84,099 92,586 69,546 73,681 Interest received 23,997 3,685 1,879 2,171 Dividends received 10 - 9,970 408

108,106 96,271 81,395 76,260

CASH WAS APPLIED TO:Payments to suppliers and employees (88,045) (88,951) (68,624) (77,924)Interest paid (12,859) (3,432) (5,322) (2,038)Tax paid (1,402) (900) (362) (839)

(102,306) (93,283) (74,308) (80,801)

Net cash flows from operating activities 19 5,800 2,988 7,087 (4,541)

CASH FLOWS FROM INVESTING ACTIVITIES CASH WAS PROVIDED FROM:Asset sales 941 193 888 168 Investments other 134 - 134 1 Net advances from / (to) subsidiaries - - 1,871 6,281 Net decrease / (increase) in Loans and Advances 19,400 (5,092) 704 -

20,475 (4,899) 3,597 6,450

CASH WAS APPLIED TO:Investments other (120) (175) (120) (175)Acquisition of subsidiary net of cash acquired 6,826 (1,339) (31,490) (16,065)Assets purchased (1,476) (3,717) (1,201) (2,827)

5,230 (5,231) (32,811) (19,067)

Net cash flows from investing activities 25,705 (10,130) (29,214) (12,617)

CASH FLOWS FROM FINANCING ACTIVITIES CASH WAS PROVIDED FROM:Issue of ordinary shares 5,566 - 5,566 - Term Loan / Capital Notes 17,025 16,000 17,025 16,000 Net (decrease) / increase in deposits (24,718) 4,256 (1,661) -

(2,127) 20,256 20,930 16,000

CASH WAS APPLIED TO:Dividend paid (958) (2,392) (958) (2,392)

(958) (2,392) (958) (2,392)

Net cash flows from financing activities (3,085) 17,864 19,972 13,608

Net increase in cash held 28,420 10,722 (2,155) (3,550)Add opening cash brought forward 17,238 6,516 2,726 6,276

ENDiNG CASh CARRiED FORWARD 45,658 17,238 571 2,726

CASH CONSISTS OF:CASh AND bANk bALANCES iN STATEMENT OF FiNANCiAL POSiTiON 45,658 17,238 571 2,726

39

40


ENTiTiES REPORTiNG

The financial statements for the “Parent” are for Allied Farmers Limited as a separate legal entity.

The consolidated financial statements for the “Group” are for the economic entity comprising Allied Farmers Limited, its subsidiaries and associates.

STATuTORY bASE

Allied Farmers Limited is a company registered under the Companies Act 1993 and is an issuer in terms of the Securities Act 1978.

The financial statements have been prepared in accordance with the requirements of the Financial Reporting Act 1993 and the Companies Act 1993.

MEASuREMENT bASE

The financial statements have been prepared on the historical cost basis, as modified by the revaluation of certain assets as identified in specific accounting policies below.

ACCOuNTiNG POLiCiES

The financial statements are prepared in accordance with New Zealand generally accepted accounting practice. The accounting policies that materially affect the measurement of financial performance, financial position and cash flows are set out below.

GROuP FiNANCiAL STATEMENTS

The Group financial statements consolidate the financial statements of subsidiaries using the purchase method, and include the results of associates using the equity method.

Subsidiaries are entities that are controlled, either directly or indirectly, by the Parent.

Associates are entities in which the Parent, either directly or indirectly, has a significant but not controlling interest.

All material transactions between subsidiaries or between the Parent and subsidiaries are eliminated on consolidation.

The results of subsidiaries or associates acquired or disposed of during the year are included in the consolidated statement of financial performance from the date of acquisition or up to the date of disposal.

GOODWiLL

Goodwill represents the excess of purchase consideration over the fair value of net assets acquired at the time of acqusition of shares in a subsidiary or associate. Goodwill is amortised on a systematic basis over the period benefits are expected to arise. Amortisation periods range from 10 to 20 years.

The unamortised balance of goodwill is reviewed annually, and to the extent that it is no longer probable of being recovered from the future economic benefits of the investment it is recognised immediately as an expense.

REvENuE

Revenue comprises the amounts received and receivable for goods and services supplied to customers in the ordinary course of business.

STATEMENT OF ACCOUNTING POLICIESALLIED FARMERS LIMITED AND SUBSIDIARIES FOR THE YEAR ENDED 30 JUNE 2007

iNTEREST iNCOME AND ExPENSE

Interest income on term loans is recognised in the statement of financial performance over the term of the loan, using the actuarial method. Interest income on revolving credit facilities and interest expense are recognised in the statement of financial performance on an accrual basis. Interest income on fixed income securities is recognised in the statement of financial performance on an accrual basis using a constant yield.

FEE iNCOME

Yield related fees are deferred and recognised as income on a straight line basis over the period of the loan, advance or finance lease. Yield related fees include facility, establishment and extension fees.

Non-yield related fees are recognised as income no later than when the loan is disbursed or the commitment to lend expires. Non-yield related fees include commitment fees and commission income.

OPERATiNG LEASE iNCOME

Operating lease income is recognised in the statement of financial performance in equal instalments over the term of the lease.

COMMiSSiON iNCOME

The Group acts as an agent for livestock transactions, for which the commission is recognised in the statement of financial performance as it is earned.

MANAGEMENT FEES

Management fees are recognised in the statement of financial performance on an accrual basis.

bROkERAGE

Brokerage is expensed in the statement of financial performance on a straight line basis over the term of the deposit or loan, advance or finance lease to which it relates.

DEPRECiATiON

Depreciation of property, plant and equipment, other than freehold land, is calculated on a straight line basis so as to expense the cost of the assets, or the revalued amounts, to their residual values over their useful lives as follows:

ESTIMATED USEFUL LIFE

Buildings 13 – 100 yearsPlant and Machinery 3 – 55 yearsVehicles 5 – 15 yearsOffice Equipment and Fittings 3 – 15 years

iNCOME TAx

The income tax expense recognised for the year is based on the accounting surplus, adjusted for permanent differences between accounting and tax rules.

The impact of all timing differences between accounting and taxable income is recognised as a deferred tax liability or asset. This is the comprehensive basis for the calculation of deferred tax under the liability method.

A deferred tax asset, or the effect of losses carried forward that exceed the deferred tax liability, is recognised in the financial statements only where there is virtual certainty that the benefit of the timing differences, or losses, will be utilised.

41

42


GOODS AND SERviCES TAx (GST)

The operations of the Group comprise taxable, exempt and zero-rated supplies. All balances in the statement of financial position are stated net of GST with the exception of receivables and creditors which are shown inclusive of GST, and fixed assets which may be shown inclusive or exclusive of GST depending on whether or not the GST was recoverable at time of purchase.

Where goods and services are purchased that relate to exempt supplies, the non-recoverable GST is recognised as an expense in the statement of financial performance, or as an asset where the underlying goods and services are capitalised. All other expenses are shown in the statement of financial performance exclusive of GST.

FiNANCE RECEivAbLES

Loans, advances and finance leases, including those that are past due assets or impaired assets, are recognised in the statement of financial position at the amount of the principal outstanding plus deferred lending brokerage and interest accrued at balance date, less deferred fee income and provisions raised in accordance with the Group’s accounting policy. Bad debts are provided for during the period in which they are identified.

Revolving Credit receivables are recognised initially at the amount of the advance. Interest income is recognised as earned.

LEASES

As Lessor

Finance leases

Lease receivables are stated at the net investment in the lease. When an asset is sold under a finance lease the gross amount of the lease payments is recognised as a receivable. The difference between the gross receivable and the cost of the asset is recognised as unearned interest income.

Operating lease assets

Items of equipment leased to clients under operating leases are included as fixed assets in the statement of financial position and are depreciated over their expected useful lives, allowing for any expected residual values. Rental income is recognised in the statement of financial performance in equal instalments over the term of the lease.

As lessee

Operating leases

Operating lease payments, where the lessor effectively retains all the risks and benefits of ownership of the leased assets, are recognised as an expense in the statement of financial performance in the periods when the rentals are payable.

FOREiGN CuRRENCiES

Foreign currency transactions are recorded at the exchange rates in effect at the date of the transaction. Foreign currency balances outstanding at year end are converted to New Zealand dollars at the rate of exchange prevailing at that date. All exchange differences arising are recognised in the Statement of Financial Performance for the year.

PROPERTY, PLANT AND EquiPMENT

Initial recording

The cost of purchased property, plant and equipment is the value of the consideration given to acquire the assets and the value of the directly attributable costs which


have been incurred in bringing the assets to the location and condition necessary for their intended service.

Property, plant and equipment leased by way of operating leases are valued at cost less their accumulated depreciation.

Revaluations

Land and buildings are revalued by an independent registered valuer on the basis of open market for highest and best use, with a willing but not anxious buyer and a willing but not anxious seller. The revaluations are conducted on a systematic basis across the Group so that each asset is revalued every three years.

iNvENTORiES

Inventory is recorded on a weighted average cost basis and at the lower of cost and net realisable value. Provision has been made for obsolescence where applicable.

TRADE RECEivAbLES

Trade receivables are carried at estimated realisable value after providing against debts where collection is doubtful.

iMPAiRED AND PAST DuE ASSETS

Loans, advances and finance leases considered non-performing are classified and recognised as follows:

Past due assets

Loans, advances and finance leases that have not been operated by the counterparty within their key terms for at least 90 days, and which are not impaired assets.

impaired assets

Non accrual assets: Loans, advances and finance leases where a default event has occurred, or appears likely to occur, and where all amounts owing by the counterparty may not be recoverable in full due to there being insufficient security to cover such amounts.

Restructured assets: Loans, advances and finance leases where counterparties have had difficulty in complying with the original terms of the contract. Concessional terms have been granted and the loans, advances and finance leases are expected to be repaid in full, but over a longer period of time than specified in the original contract and on revised terms which are not comparable with the terms of new loans, advances or finance leases with comparable risks.

Assets acquired through enforcement of security: Any asset acquired and legally owned by the Group as a result of enforcing security.

income recognition on impaired assets

Where a loan, advance or finance lease is classified as non accrual, interest income is suspended in the statement of financial performance. All cash received is applied against costs, outstanding interest, and then the principal amount of the asset.

bAD AND DOubTFuL DEbTS

Receivables are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment losses on an individual basis are determined by an evaluation of each individual exposure to determine the risk of loss, taking into account the value of security held. All individual exposures that are considered significant are subject to this approach.

43

44


Receivables that are not individually significant or which are not individually known to be impaired are collectively assessed on a portfolio basis.

Specific provisions are made for impaired assets reviewed individually where full recovery of principal and interest is not considered probable. If there is likely to be a shortfall between the value of the security and the amount owing, then the carrying value of the asset is reduced by raising a specific provision for the shortfall.

Collective provisions made are assessed using arrears statistics and taking into account historical loss experience in portfolios with similar risk characteristics.

Bad debts previously specifically provided for are written off against specific provisions. Amounts required to bring provisions for impairment to their assessed levels are recognised in the statement of financial performance. Any future recoveries of amounts provided for are also recognised in the statement of financial performance.

iNvESTMENTS

Investments have been recorded at the lower of cost or market value.

SECuRED DEPOSiTS

Secured depositors have a first ranking charge over all the assets of Allied Nationwide Finance Limited subject to Prior Charges. This charge is given under the Trust Deed that governs Secured Deposits between Allied Nationwide Finance Limited and The New Zealand Guardian Trust Company Limited. The Trustee holds this charge on behalf of the holders of Secured Deposits. Deposits are recognised in the statement of financial position at the amount of principal outstanding plus interest accrued to balance date, less deferred brokerage expense incurred in deposit raising activities. Interest is accrued from the date of deposit and is either paid or compounded quarterly on the last day of March, June, September and December.

SubORDiNATED DEPOSiTS

Subordinated Deposits are unsecured deposits. Subordinated Deposits are recognised initially at the original amount of the deposit. Interest is accrued from the date of deposit and is either paid or compounded quarterly on the last day of March, June, September and December.

FiNANCiAL iNSTRuMENTS

Financial instruments recognised in the statement of financial position include cash and cash equivalents, receivables and prepayments, loans, advances and finance leases, investments, creditors and other current liabilities, and deposits. These financial assets and financial liabilities are carried at their historical cost, except for fixed income securities which are carried at market value.

The Group does not engage in any speculative transactions or hold derivative financial instruments for trading purposes.

STATEMENT OF CASh FLOWS

The following are the definitions of the terms used in the statement of cash flows:

(a) Operating activities include all transactions and other events that are not investing or financing activities.

(b) Investing activities are those activities relating to the acquisition, holding and disposal of fixed assets, and of investments (including advances to customers). Investments can include securities not falling within the definition of cash.


(c) Financing activities are those activities that result in changes in the size and composition of the capital structure. This includes both equity, debentures and debt not falling within the definition of cash. Dividends paid in relation to the capital structure are included in financing activities.

(d) Cash is considered to be cash on hand and current accounts in banks, net of bank overdrafts.

ChANGES iN ACCOuNTiNG POLiCY

The Group changed its accounting policies for the treatment of certain classes of fee income and brokerage expense with effect from 1 July 2006.

Fee income

Previously only certain fees were deemed to be yield related fees, and deferred and recognised as income on a straight line basis over the period of the loan. Documentation and assignment fees were deemed to be non-yield related fees and were recognised as income no later than when the loan was disbursed or the commitment to lend expired. These fees are now deemed to be yield related fees and are deferred and recognised on a straight line basis over the period of the loan.

The directors are of the opinion that the recognition of all fees over the period of the underlying loans more accurately represents the nature of these fees.

The change in accounting policy has resulted in $547,016 of fee income being deferred into future periods, thereby reducing this period’s operating surplus before tax by this amount. Fee income which has been deferred will be recognised as income in future periods.

Brokerage expense

Previously, all brokerage was recognised as an expense as and when incurred. Under the new policy, brokerage expense on both financial assets and financial liabilities is deferred and recognised as an operating expense in the statement of financial performance on a straight line basis over the period of either the underlying financial asset or financial liability.

The directors are of the opinion that the recognition of brokerage expense over the period of the underlying financial assets and financial liabilities more accurately represents the nature of this charge.

The change in accounting policy has resulted in $710,221 of brokerage expense being deferred into future periods, thereby increasing this period’s operating surplus before tax by this amount. Brokerage expense which has been deferred will be recognised as an expense in future periods.

Comparative information

Certain comparative information has been restated so as to provide consistency with the current years disclosure.

All remaining accounting policies have been applied on a basis consistent with those of the previous year.

iNTERNATiONAL FiNANCiAL REPORTiNG STANDARDS

In December 2002, the New Zealand Accounting Standards Review Board announced that New Zealand accounting standards which comply with International Financial Reporting Standards will apply to New Zealand entities for periods commencing on or after 1 January 2007.

45

46


The Group will report for the first time under International Financial Reporting Standards (“NZ IFRS”) for the year ended 30 June 2008, including comparative financial information for the year ended 30 June 2007.

The following key differences between the existing accounting policies of the Group and the treatment under NZ IFRS have been identified. Where the likely extent of the change has been quantified, the impact has been noted below.

Loan provisioning

Under NZ IAS 39 – Financial Instruments: Recognition and Measurement (“NZ IAS 39”), impairment is only recognised when objective evidence is available that a loss event has occurred. Losses expected as a result of future events, no matter how likely, are not recognised. The estimated cash flows on these impaired loans are then discounted to their present value to determine the present value of the recoverable amount, and the associated provision that is necessary.

A collective impairment provision may be allowed where impairment events have occurred but these events cannot be attributed to individual exposures at balance date. A collective provision is based upon assets with similar risk profiles using objective evidence, based on historical experience adjusted for current conditions at each balance date.

The adoption of NZ IAS 39 will mean that the current collective provision may be modified by provisions based on groups of assets. Specific provisions will remain, but will be measured based on NZ IFRS requirements. The changes may lead to greater volatility in provisioning levels and earnings in the future.

Recognition of fee income

Under NZ IAS 18 – Revenue (“NZ IAS 18”), yield related fee income will be required to be deferred and recognised as income on an effective interest rate basis over the life of the loan, advance or finance lease in line with the recognition of interest revenue on the underlying loan, advance or finance lease.

Under the current accounting policy, yield related fee income is deferred and recognised as income on a straight line basis over the period of the loan.

Whilst some revenue classification changes may arise, where the level of business remains constant, the adoption of NZ IAS 18 is not expected to materially affect annual fee income recognition.

Recognition of directly attributable costs

Under NZ IAS 39, any directly attributable costs associated with the origination of a financial asset or financial liability, such as brokerage, must be deferred and recognised as an adjustment to the effective interest rate earned or paid over the life of the product. Currently the Group defers and recognises brokerage expense on a straight line basis over the term of the financial asset or financial liability.

The adoption of NZ IAS 39 is not expected to materially affect annual brokerage expense recognition.

Taxation

Under NZ IAS 12 – Income Taxes, deferred tax is provided using the balance sheet approach rather than the income statement approach currently applied. The balance sheet approach provides for all temporary differences between the carrying amount of assets and liabilities


for accounting and tax purposes. Deferred tax will be recognised in the income statement except to the extent that it relates to items recognised directly in equity or as part of a business combination.

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities. Any deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

It is expected that there will be some differences in the levels of deferred tax assets and liabilities. No material change in the income statement or retained earnings is expected.

Derivative financial instruments

NZ IFRS requires all derivative financial instruments, whether used as hedging instruments or otherwise,to be carried at fair value in the balance sheet. Fair value and cash flow hedging can only be applied when all the hedge accounting criteria are met including the requirement that the hedge is highly effective. Where a derivative financial instrument does not qualify for hedge accounting, changes in the fair value are to be included in the income statement.

Goodwill

Under NZ Financial Reporting Standards (“NZ FRS”) goodwill is amortised over a period not exceeding 20 years. Under NZ IFRS goodwill is not amortised, but is instead subject to an impairment test at least annually. The Group’s goodwill relates to recent business acquisitions and upon adoption of NZIFRS the Group will cease amortising goodwill, which will prima facie increase reported earnings accordingly. However, if subsequent impairment testing identifies that there is an impairment, this will be recognised immediately in earnings.

Share based payments

Under NZ IFRS, the fair value, at grant date, of the shares granted is recognised as an expense over the vesting period.

Long service leave

The Group’s current accounting policy for long service leave is to recognise the liability on qualifying date. Under NZ IFRS, the cost of long service leave is recognised as an expense over the qualifying service period.

Future adoption of NZ IFRS

The areas identified above are based on management’s current interpretation of NZ IFRS released to date. There is potential for the significance of these impacts to materially change when the Group prepares its first financial statements under NZ IFRS as a result of changes in the standards, changes in business practice, and changes in the regulatory environment.

All the financial information in these financial statements has been prepared in accordance with current NZ FRS. The accounting policy differences between current NZ FRS and NZ IFRS identified above may have a significant impact on financial position and performance. The areas identified above should not be taken as an exhaustive list of all the differences between NZ FRS and NZ IFRS. The full impact of the adoption of NZ IFRS on the Goup’s financial performance and position has not yet been finalised.

47

48


1. FiNANCiAL iNFORMATiON ON SiGNiFiCANT SEGMENTS OF ThE buSiNESS

TURNOVER OPERATING SURPLUS BEFORE TAX ASSETS EMPLOYED

GROUP 2007 $000

GROUP 2006 $000

GROUP 2007 $000

GROUP 2006 $000

GROUP 2007 $000

GROUP 2006 $000

OPERATING ACTIVITIESRural services 75,061 74,089 2,528 2,495 53,874 42,976 Financial services 28,105 5,166 3,132 999 302,214 164,418

103,166 79,255 5,660 3,494 356,088 207,394

CORPORATE AND FUNDING COSTSCorporate expenses - - (2,323) - - -Corporate funding costs - - (2,024) - - -Intragroup adjustments (3,429) (1,480) (1,246) - (13,257) (7,628)

(3,429) (1,480) (5,593) - (13,257) (7,628)

Total continuing activities 99,737 77,775 67 3,494 342,831 199,766

DISCONTINUED ACTIVITESTimber processing 8,086 7,398 (4,022) (1,513) 1,196 4,395

107,823 85,173 (3,955) 1,981 344,027 204,161

Rural Services comprises Livestock, Merchandise and Real Estate operations. The Group’s Rural Services activities are carried out in Taranaki, Waikato, King Country and Manawatu. The Group’s Financial Services activities are carried out by Allied Nationwide Finance Limited in Auckland, Wellington and Christchurch. Corporate and funding costs comprise the corporate activities of the Group. Timber processing comprises the Group’s discontinued sawmilling operations.

On 31 May 2007, the Group announced that it was closing the sawmill operation of Allied Pine Limited in Wanganui, and as at balance date the business is in the process of being wound up. The fixed assets of Allied Pine Limited have been written down to their estimated net realisable value, and estimated costs to complete the closedown have been accrued. The net loss before tax attributable to the operation for 2007 was $4,022,388 (2006: $1,513,000).

2. OPERATiNG REvENuE

GROUP 2007 $000

GROUP 2006 $000

PARENT 2007 $000

PARENT 2006 $000

CONTINUING ACTIVITIESSales 75,619 71,719 71,418 69,641 Interest received 23,997 5,894 1,879 2,746 Dividends received from other companies 10 2 12,160 408 Share of surpluses of associate 142 - 142 - Foreign currency gains / (loss) (31) 160 (71) 160

99,737 77,775 85,528 72,955

DISCONTINUED ACTIVITIESSales 8,046 7,363 - - Foreign currency gains 40 35 - -

8,086 7,398 - -

TOTAL OPERATiNG REvENuE 107,823 85,173 85,528 72,955

NOTES TO ThE FINANCIAL STATEMENTSALLIED FARMERS LIMITED AND SUBSIDIARIES FOR THE YEAR ENDED 30 JUNE 2007

3. OPERATiNG ExPENSES

GROUP 2007 $000

GROUP 2006 $000

PARENT 2007 $000

PARENT 2006 $000

OPERATING EXPENSES INCLUDE:Audit fees paid to principal auditors 229 107 91 73 Audit fees paid to other auditors - 23 - 18 Other fees paid to principal auditors 137 43 83 43 Amortisation of goodwill 902 142 154 142Impairment of investments/plant and equipment 1,626 - 1,726 -Bad Debt Write off 1,449 139 9,322 34 Recoveries (563) (34) (15) (25) Bad debt provision additions 102 372 3,012 905Depreciation Buildings 201 189 182 181 Plant and machinery 785 835 590 625 Vehicles 629 832 540 779 Office equipment and fittings 501 232 296 155 Operating lease assets 136 33 - -(Gain)/Loss on sale of fixed assets (159) (28) (131) (40)(Gain)/Loss on sale of investments 27 - 27 - Directors’ fees 202 190 175 175 Director retirement allowances - 206 - 206 Interest 16,149 2,959 5,670 2,373 Lease and rental expenses 1,015 403 540 308

4. TAxATiON

GROUP 2007 $000

GROUP 2006 $000

PARENT 2007 $000

PARENT 2006 $000

Net operating surplus (loss) before taxation (3,955) 1,981 (4,444) 866

Taxation at 33% (1,305) 654 (1,467) 286

PLUS/(LESS) TAXATION EFFECT OF:Non-taxable income (103) - (4,017) (134)Non-deductible expenditure 622 47 1,867 48 Loss offset not paid for - - 57 - Change in tax rate 180 - 184 - Prior year and other adjustments 2 48 4 44

Taxation expense (credit) (604) 749 (3,372) 244

REPRESENTED BY:Current tax - 531 - 499 Deferred tax (604) 218 (3,372) (255)

(604) 749 (3,372) 244

Following the budget announcement in May 2007, the income tax rate has been reduced to 30% with effect from 1 April 2008. Deferred tax items that are not expected to reverse in the next financial year have been adjusted for the 3% tax rate differential, resulting in an increase in tax expense and a corresponding decrease in deferred tax.

49

50


GROUP 2007 $000

GROUP 2006 $000

PARENT 2007 $000

PARENT 2006 $000

Current Tax balances 2,025 1,153 1,173 358

DEFERRED TAX BALANCESCurrent 3,360 - 3,360 - Non-current 3,700 3,440 1,509 1,765

7,060 3,440 4,869 1,765

9,085 4,593 6,042 2,123

DEFERRED TAX ACCOUNTOpening balance 3,440 1,141 1,765 999 Prior year adjustment (2) - (4) - Current year deferred tax charge to profit and loss 606 (218) 3,376 255 Fair value adjustments on assets acquired 2,993 926 - 511 Group loss offset - - (268) - Deferred tax balance acquired during the year (86) 1,591 - - Other deferred tax movement 109 - - -

CLOSiNG bALANCE 7,060 3,440 4,869 1,765

The deferred tax asset consists of tax losses of $13,523,000 (Group and Parent) with a tax effect of $4,279,000 (2006: nil) and other timing differences in the Group of $8,412,000 with a tax effect of $2,781,000 (2006: $3,440,000) and in the Parent of $1,806,000 with a tax effect of $590,000 (2006: $1,765,000). The other timing differences include bad debt provisions of $6,838,000 (Group) and $249,000 (Parent).

The tax losses are available to be offset against the future taxable profits of the Group, subject to the shareholder continuity requirements of the tax legislation being met.

PARENT 2007 $000

PARENT 2006 $000

IMPUTATION CREDIT ACCOUNT Balance as at 1 July 31 303Imputation credits attached to dividends received during the year 320 200Imputation credits attaching to dividends paid in the year (470) (1,175)Income tax payments during the year 627 703

balance as at 30 June 508 31

AT BALANCE DATE THE IMPUTATION CREDITS AVAILABLE TO THE SHAREHOLDERS OF THE PARENT COMPANY WERE:Through direct shareholding in the Parent Company 508 31Through indirect interests in subsidiaries and in-substance subsidiaries 1,899 1,146

2,407 1,177


5. ASSET quALiTY

PAST DUE ASSETS

GROUP 2007 $000

GROUP 2006 $000

PARENT 2007 $000

PARENT 2006 $000

Opening balance 5,805 710 - -Assets acquired 524 3,570 - - Additions 10,228 2,686 - - Repayments and write backs (4,048) (1,161) - - Write-offs (154) - - -

CLOSiNG bALANCE 12,355 5,805 - -

IMPAIRED ASSETS

NON ACCRUAL ASSETSOpening balance 6,398 569 5,764 - Assets acquired 1,632 11,017 4,011 8,625 Additions 9,234 213 - - Repayments and write backs (1,647) (2,315) (704) (61)Write-offs (9,459) (3,086) (9,071) (2,800)

CLOSiNG bALANCE 6,158 6,398 - 5,764

As part of the acquisition of Prime Finance Limited, Allied Farmers Limited (the Parent) purchased (15 June 2006) from Prime Finance Limited a finance receivables ledger (tranche one) comprised of non-performing motor vehicle receivables with residual balances which are subject to repossession procedures. The ledger was purchased for the “face value” of $9.275m less $650,000 and was satisfied by a revolving credit loan from Prime Finance Limited with an interest rate of 12.95% per annum.

A second ledger was purchased 22 December 2006 for the “face value” of $4.011m, and was satisfied by a revolving credit loan from Allied Prime Finance Limited with an interest rate of 12.95% per annum. Prior to balance date both tranches were written off in full in the Parent, but reversed on consolidation as a fair value adjustment with a corresponding increase in Goodwill.

RESTRUCTURED ASSETS

GROUP 2007 $000

GROUP 2006 $000

PARENT 2007 $000

PARENT 2006 $000

Opening balance 738 - - - Assets acquired 1,281 14 - -Additions 515 724 - - Repayments and write backs (658) - - -

CLOSiNG bALANCE 1,876 738 - -

6. DOubTFuL DEbT PROviSiON

The amounts shown as provision for doubtful debts consists of:

COLLECTIVE PROVISION FOR DOUBTFUL DEBTS

GROUP 2007 $000

GROUP 2006 $000

PARENT 2007 $000

PARENT 2006 $000

Opening balance 6,357 180 2,800 -Provision acquired 592 6,220 - -Movement in provision (3,255) (43) (2,800) 2,800

CLOSiNG bALANCE 3,694 6,357 - 2,800

51

52


SPECIFIC PROVISION FOR DOUBTFUL DEBTS

GROUP 2007 $000

GROUP 2006 $000

PARENT 2007 $000

PARENT 2006 $000

Opening balance 2,010 295 237 220 Provision acquired 879 1,300 - - Movement in provision 254 415 3,012 17

CLOSiNG bALANCE 3,143 2,010 3,249 237

7. ShARE CAPiTAL

ORDINARY SHARES

GROUP 2007 $000

GROUP 2006 $000

PARENT 2007 $000

PARENT 2006 $000

ORDINARY SHARES (FULLY PAID)Balance at beginning of year 7,351 7,351 7,351 7,351Issue of ordinary shares 5,566 - 5,566 -

bALANCE AT END OF YEAR 12,917 7,351 12,917 7,351

The Parent raised $5,565,982 of share capital following a rights issue on 15 June 2007 (3,180,561 shares issued at $1.75 each). As at 30 June 2007 there were 19,083,368 shares issued and fully paid (2006: 15,902,807).

All ordinary shares rank equally with one vote attached to each fully paid ordinary share.

Employee Share Purchase Scheme

The Employee Share Purchase Scheme was established by Trust Deed on 23 October 2001 to assist employees to become shareholders in the Parent. This is an approved scheme under section DF 7 of the Income Act 1994 and is open to all employees.

A maximum of 1,293 shares were issued to each participating employee at a price of $1.81, this being 90% of the average weighted price based on the last sale price on each of the 20 business days prior to the issue date of 7 December 2001. Total shares issued were 22,478.

The shares are funded by way of a 5 year interest free loan with a restrictive period of 3 years, participating employees being eligible to receive all dividends and bonus issues during the restrictive period but voting rights remain with the Trustees. All loans were fully repaid at balance date. The Trustees appointed by the Board of Directors are J J Loughlin, P L Cook and R J C Dunlop.

Executive Share Option Scheme

In March 2007, Shareholders approved the adoption by the Parent of an Executive Share Option Scheme pursuant to which certain senior executives in the Group have been issued, in aggregate, 1,239,541 options to subscribe for shares in the Parent at a subscription price of $2.25, but only after certain performance hurdles have been met, including that the 90 day volume weighted share price must have reached $2.75 within the first three years of the plan. The options are exerciseable from 13 March 2010 and expire on 13 March 2013.

No compensation expense was recognised with respect to the options granted during the year because the exercise price was not less than the market value of the shares on the date that the options were granted.


8. RESERvES

GROUP 2007 $000

GROUP 2006 $000

PARENT 2007 $000

PARENT 2006 $000

REVALUATION RESERVESBalance at beginning of year 2,724 2,724 2,228 2,228 Transfer to retained earnings (220) - (220) -

balance at end of year 2,504 2,724 2,008 2,228

COMPRISINGLand revaluation reserve 2,378 2,637 1,946 2,205 Building revaluation reserve 126 87 62 23

2,504 2,724 2,008 2,228

RETAINED EARNINGSBalance at beginning of year 12,996 14,053 9,940 11,710 Transfer from revaluation reserves 220 - 220 - Net surplus (deficit) for the year (3,351) 1,334 (1,072) 622 Dividends paid (958) (2,391) (958) (2,392)

balance at end of year 8,907 12,996 8,130 9,940

TOTAL RESERvES 11,411 15,720 10,138 12,168

Dividends paid includes 2006 final dividend of 2 cents per share ($319,777), and an interim dividend of 4 cents per share ($638,338) for the 2007 year.

9. bORROWiNGS

GROUP 2007 $000

GROUP 2006 $000

PARENT 2007 $000

PARENT 2006 $000

Secured call deposits 3,290 3,917 - - Secured term deposits 256,963 136,221 - -

Secured deposits 260,253 140,138 - -Subordinated deposits 584 5,468 - -

260,837 145,606 - -Other loans 38,020 16,000 38,020 16,000

298,857 161,606 38,020 16,000

CLASSIFIED AS:Current 158,230 99,883 3,500 16,000 Non-current 140,627 61,723 34,520 -

298,857 161,606 38,020 16,000

Secured deposits constitute secured first ranking debenture stock (subject to prior charges, if any) issued by Allied Nationwide Finance Limited pursuant to the terms of the Trust Deed dated 18 November 1997 between Allied Nationwide Finance Limited and The New Zealand Guardian Trust Company Limited as amended by Deeds of Amendment dated 29 November 2002 and 18 June 2003 respectively. Subordinated deposits constitute unsecured obligations.

Other loans

Other loans comprise a term loan from Westpac Banking Corporation of $20,000,000 (2006: $16,000,000), a short term money market facility of $1,000,000 from Westpac Banking Corporation, capital notes of $12,025,102, and a loan (including interest payable) from Hanover Financial Services Limited of $4,995,000.

53

54


Geographical concentration of deposits

GROUP 2007 $000

GROUP 2006 $000

PARENT 2007 $000

PARENT 2006 $000

Auckland and Northland 63,922 20,385 - - Waikato and Bay of Plenty 36,531 8,736 - - Wellington and Wairarapa 46,660 34,945 - - Rest of North Island 51,365 32,033 - - Canterbury and West Coast 30,266 24,753 - - Otago and Southland 15,208 16,017 - - Rest of South Island 6,190 2,912 - - Overseas 10,695 5,825 - -

260,837 145,606 - -

Funding is predominantly sourced from individuals.

Maturity and weighted effective interest rates of borrowings

DEPOSITS

GROUP 2007 $000

GROUP 2006 $000

Repayable between 0-1 years 154,730 8.86% 83,884 8.66%Repayable between 1-2 years 89,247 9.15% 40,083 8.88%Repayable between 2-5 years 16,860 9.21% 21,639 8.85%

260,837 145,606

OTHER LOANS

Repayable between 0-1 years 3,500 9.32% 16,000 9.15%Repayable between 1-2 years 2,495 9.60% - -Repayable between 2-5 years 32,025 9.63% - -

38,020 16,000

10. OThER iNvESTMENTS

GROUP 2007 $000

GROUP 2006 $000

PARENT 2007 $000

PARENT 2006 $000

Investments in associates 142 - 142 -Shares in other companies 69 37 69 37Other investments 104 95 - -

315 132 211 37

Shares in other companies are shares in unlisted companies.

Investments in associates comprise the following:

INTEREST HELD BY GROUPPRINCIPAL ACTIVITY 2007 2006

Associated Auctioneers – Frankton Saleyard operators 50% 50%Associated Auctioneers – Morrinsville Saleyard operators 25% 25%Associated Auctioneers – Stratford Saleyard operators 50% 50%


11. ACCOuNTS RECEivAbLE

NOTE

GROUP 2007 $000

GROUP 2006 $000

PARENT 2007 $000

PARENT 2006 $000

Current portion of loans, advances and finance leases

12 156,838 86,081 - -

Net trade receivables 5,599 5,870 5,072 3,141Prepayments 69 448 69 61

162,506 92,399 5,141 3,202

Trade receivables (net of provision) 5,599 5,870 21,715 18,234Debts factored to subsidiary 21 - - (16,643) (15,093)

NET TRADE RECEivAbLES 5,599 5,870 5,072 3,141

12. LOANS, ADvANCES AND FiNANCE LEASES

GROUP 2007 $000

GROUP 2006 $000

PARENT 2007 $000

PARENT 2006 $000

LOANS AND ADVANCESGross loans and advances 166,750 135,775 - 8,564 Revolving credit facilities 71,286 32,736 - - Less unearned interest income (21,926) (18,355) - -Less deferred fee income (1,083) - - - Deferred lending brokerage 819 - - -

215,846 150,156 - 8,564

Specific and collective provisions for doubtful debts (5,672) (7,784) - (2,800)

Net loans and advances 210,174 142,372 - 5,764

FINANCE LEASESGross finance leases 33,332 4,332 - - Less unearned interest income (5,220) (827) - - Less deferred fee income (297) - - - Deferred lending brokerage 276 - - -

28,091 3,505 - -

Specific and collective provisions for doubtful debts (916) (21) - -

Net finance leases 27,175 3,484 - -

NET LOANS, ADvANCES AND FiNANCE LEASES 237,349 145,856 - 5,764

CLASSIFIED ASCurrent 156,838 86,081 - - Non-current 80,511 59,775 - 5,764

237,349 145,856 - 5,764

55

56


13. FixED ASSETS

GROUP

2007 COST/ VALN $000

2007 ACC

DEPN $000

2007 BOOK VALUE $000

2006 COST/ VALN $000

2006 ACC

DEPN $000

2006 BOOK VALUE $000

Freehold landAt cost 157 - 157 177 - 177At valuation 3,252 - 3,252 3,511 - 3,511

Total freehold land 3,409 - 3,409 3,688 - 3,688

BuildingsAt cost 669 (90) 579 1,226 (144) 1,082 At valuation 3,317 (542) 2,775 4,001 (659) 3,342

Total buildings 3,986 (632) 3,354 5,227 (803) 4,424

OtherOperating lease assets 3,844 (1,260) 2,584 - - - Vehicles 3,561 (1,920) 1,641 3,408 (1,554) 1,854 Plant and equipment 10,952 (7,152) 3,800 11,104 (6,427) 4,677

Total other 18,357 (10,332) 8,025 14,512 (7,981) 6,531

25,752 (10,964) 14,788 23,427 (8,784) 14,643

PARENT

Freehold landAt cost 157 - 157 177 - 177 At valuation 2,827 - 2,827 3,086 - 3,086

Total freehold land 2,984 - 2,984 3,263 - 3,263

BuildingsAt cost 656 (90) 566 616 (72) 544 At valuation 3,009 (432) 2,577 3,581 (443) 3,138

Total buildings 3,665 (522) 3,143 4,197 (515) 3,682

OtherVehicles 2,969 (1,628) 1,341 2,871 (1,235) 1,636 Plant and equipment 7,944 (5,352) 2,592 7,457 (4,905) 2,552

Total other 10,913 (6,980) 3,933 10,328 (6,140) 4,188

17,562 (7,502) 10,060 17,788 (6,655) 11,133

valuation informationIn accordance with Accounting Policy, that assets are revalued every three years, all land and buildings (except Allied Pine Limited) were revalued to fair value of $9,507,000 (Group) and $6,392,000 (Parent) at 30 June 2005. The values were determined by independent registered valuers, Telfer Young New Plymouth, on the basis of open market value for the highest and best use for the properties. Lessees additions remain at cost less accumulated depreciation. The fixed assets of Allied Pine Limited have been written down to their estimated net realisable value.


14. iNTANGibLE ASSETS

NOTE

GROUP 2007 $000

GROUP 2006 $000

PARENT 2007 $000

PARENT 2006 $000

GOODWILLGoodwill (gross) at beginning of year 8,092 1,368 1,546 1,368Accumulated amortisation at beginning of year (370) (228) (370) (228)

unamortised balance at beginning of year 7,722 1,140 1,176 1,140

Goodwill arising on acquisitions of subsidiaries 16 11,690 6,546 - -Goodwill arising on other acquisitions 120 178 120 178Goodwill arising on fair value adjustment on assets acquired 5 6,228 - - -Current year amortisation (902) (142) (154) (142)Goodwill (gross) on disposals (223) - (223) - Amortisation on disposals 31 - 31 -

16,944 6,582 (226) 36

Goodwill (gross) at end of year 25,907 8,092 1,443 1,546 Accumulated amortisation at end of year (1,241) (370) (493) (370)

uNAMORTiSED bALANCE AT END OF YEAR 24,666 7,722 950 1,176

15. iNvENTORY

GROUP 2007 $000

GROUP 2006 $000

PARENT 2007 $000

PARENT 2006 $000

Raw materials 298 277 - - Work in progress - 470 - - Finished goods 6,200 6,912 6,152 6,320

6,498 7,659 6,152 6,320

16. iNvESTMENT iN SubSiDiARiES

The Parent and Group investment in subsidiaries comprises shares at cost.

INTEREST HELD BY GROUPSUBSIDIARIES OF THE PARENT PRINCIPAL ACTIVITY 2007 2006

Allied Nationwide Finance Limited Financial Services 100% 0%Allied Farmers Wools Limited Wool Broker 100% 100%Allied Pine Limited Milling

(discontinued)100% 90%

The West Coast Mortgage and Deposit Company Limited Holding company 100% 100%Allied Farmers Option Scheme Limited Non-trading 100% 0%Brixton Solutions Limited Non-trading 100% 0%

SUBSIDIARIES OF THE WEST COAST MORTGAGE AND DEPOSIT COMPANY LIMITED

Allied Farmers (New Zealand) Limited Non-trading 100% 100%Taranaki Farmers Co-operative Limited Non-trading 100% 100%Allied Farmers Finance Limited* Non-trading 100% 0%Prime Finance Limited* Non-trading 100% 0%

*Non-trading companies formed subsequent to amalgamation of original companies.

All companies within the Group have a balance date of 30 June.57

58


Acquisition of subsidiary

On 16 June 2006, Allied Farmers Limited (the Group) purchased 100% of the share capital of Prime Finance Limited for consideration of $15.6m. Prime Finance Limited was a finance company operating in the Wellington, Auckland and Bay of Plenty areas.

On 2 October 2006 Allied Farmers Finance Limited and Prime Finance Limited amalgamated to become Prime Finance Limited, which then changed its name on amalgamation to Allied Prime Finance Limited.

On 1 May 2007, Allied Farmers Limited (the Group, via a wholly owned subsidiary company Allied Nationwide Finance Limited) purchased 100% of the share capital of Nationwide Finance Limited for consideration of $29.9m. Nationwide Finance Limited was a finance company operating throughout New Zealand.

On 29 June 2007, Allied Nationwide Finance Limited, Nationwide Finance Limited and Allied Prime Finance Limited were amalgamated, with Nationwide Finance Limited being the continuing entity. Nationwide Finance Limited subsequently changed its name to Allied Nationwide Finance Limited.

Summary of the effect of acquisition of subsidiary

$000

Cash at bank 32,396Finance receivables (net of provisions) 118,628Fixed assets 346Other assets 4,904Secured deposits (135,326)Deferred tax (86)Other liabilities (2,230)

Net assets acquired 18,632

Cost of acquisition settled in cash 25,000Cost of acquisition deferred 4,922

Total consideration 29,922

Acquisition costs 400

Total cost 30,322

GOODWiLL ARiSiNG ON ACquiSiTiON 11,690

17. CONTiNGENT LiAbiLiTiES

There are no contingent liabilities outstanding at 30 June 2007 for the Group and Parent (2006: nil).

18. COMMiTMENTS

The following amounts have been committed by the Group or Parent, but not recognised in the financial statements:

OPERATING LEASE COMMITMENTS

GROUP 2007 $000

GROUP 2006 $000

PARENT 2007 $000

PARENT 2006 $000

LEASE COMMITMENTS UNDER NON-CANCELLABLE OPERATING LEASES:Not later than one year 829 933 412 425Later than one year and not later than two years 581 767 298 312Later than two years and not later than five years 1,506 1,429 889 724Later than five years 938 1,031 938 946


The Group lease premises, plant and equipment and motor vehicles. Operating leases held over properties give the Group the right to renew the lease subject to a redetermination of the lease rental by the lessor. There are no renewal options or options to purchase in respect of plant and equipment held under operating leases. There are options to purchase in respect of motor vehicles.

GROUP 2007 $000

GROUP 2006 $000

PARENT 2007 $000

PARENT 2006 $000

LETTER OF CREDIT WITH BANKSNot later than one year 1,500 1,093 - -

REVOLVING CREDIT UNDRAWN AMOUNTNot later than one year 6,500 3,907 - -

8,000 5,000 - -

The letters of credit are issued under a $1,500,000 bank facility secured by bank stock. A further $6,500,000 is available from the ANZ National Bank Limited and ASB Bank Limited for a standby line of credit, also secured by bank stock.

The Group and Parent have no capital commitments at balance date (2006: $nil).

19. RECONCiLiATiON OF NET SuRPLuS FOR ThE YEAR WiTh CASh iNFLOW FROM OPERATiNG ACTiviTiES

GROUP 2007 $000

GROUP 2006 $000

PARENT 2007 $000

PARENT 2006 $000

Net surplus / (deficit) for the year (3,351) 1,232 (1,072) 622

ADD / (LESS) NON CASH ITEMSBad debt expense and provisions 1,551 370 12,334 938 Investment amortisation / impairment 2,528 142 1,880 142 Dividends - - (2,190) -Deferred tax (604) 216 (3,372) (767)Depreciation 2,252 2,121 1,608 1,460

2,376 4,081 9,188 2,395

ITEMS SHOWN AS INVESTING ACTIVITIES(Profit) / loss on asset sales (159) (27) (131) (40)

2,217 4,054 9,057 2,355

MOVEMENT IN WORKING CAPITALDecrease / (increase) in receivables 259 (273) (1,943) (5,132)(Increase) / decrease in tax receivable (872) (487) (815) (594)Increase / (decrease) in payables 3,035 775 620 215 Decrease / (increase) in inventory 1,161 (1,081) 168 (1,385)

NET CASh iNFLOWS FROM OPERATiNG ACTiviTiES 5,800 2,988 7,087 (4,541)

20. FiNANCiAL iNSTRuMENTS

Credit risk

Credit risk is the risk that a counterparty to a transaction with the Group will fail to discharge its obligations, causing the Group to incur a financial loss. Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents, receivables and prepayments, loans, advances and finance leases.

59

60


Cash and cash equivalents

The Group places its cash deposits with New Zealand registered banks. The maximum credit risk is the face value of its cash deposits.

Loans, advances, receivables and finance leases

Loans, advances and finance leases are secured with securities including first and second mortgages, livestock securities, hire purchase agreements (over specific assets), general and specific securities, and guarantees. The Group performs credit evaluations on all customers requiring credit and requires collateral where deemed necessary for normal accounts receivable balances.

The Group has a credit policy, which is used to manage its exposure to credit risk. As part of this policy, limits on exposure have been set, lending is subject to defined criteria, and loans are monitored on a regular basis. Maximum exposures are net of any recognised provisions. The maximum credit risk is the face value of the loans, advances, receivables and finance leases net of any recognised provisions.

OTHER MAXIMUM CREDIT RISKS

GROUP 2007 $000

GROUP 2006 $000

PARENT 2007 $000

PARENT 2006 $000

Financial Guarantees - 550 - -Lending facilities committed but not drawn 17,256 8,773 - -

Concentrations of exposure to individual counterparties

The Group operates throughout New Zealand. All credit risk is within this area. The concentrations consist of finance receivables and short term deposits. The number of individual counterparties where the year end aggregate actual credit exposure (net of specific provisions, equalled or exceeded 10% of the Group’s Shareholder equity (share capital plus retained earnings) as at balance date are:

PERCENTAGE OF EQUITY NUMBER NUMBER NUMBER NUMBER

10%-20% 6* 1 - 121%-30% 2 - - -31%-40% - - - -41%-50% 1* 1 - -51%-60% - - - -61%-70% - - - -71% to 80% 1* - - -

* Includes deposits and fixed income securities held with New Zealand registered banks.

Concentration of credit exposure by the debtors who owe the six largest amounts total 9.7%.

Concentration of funding

The Group’s primary source of funding is from secured debentures issued to the public in New Zealand amounting to $260,253,000 (2006: $140,138,000). In addition the Parent and Group hold unsecured deposits from customers amounting to $2,677,000 (2006: $9,222,432). The Parent has a term loan facility with Westpac Banking Corporation amounting to $20,000,000 (2006: $16,000,000). The Group also has bill line facility arrangements with the two main banks up to $8.0 million, of this funding $nil (2006:$3,097,159) was drawn down at year end.

interest rate risk

Interest rate risk arises as a result of mismatches between the re-pricing dates of interest bearing assest and liabilities. Movements in interest rates may impact upon the Group’s financial results by affecting interest margins as a result of such mismatches.


Liabilities

The treasury committee monitors the level of interest rates on an ongoing basis and maintains rates in line with market rates. The interest rates on the Group debentures, capital notes and unsecured deposits, except for those at call, are fixed for their term at the date of issue. The rates range from 0.00% to 9.75%. Other creditors are not interest rate sensitive.

Assets

The treasury committee monitors the level of interest rates on an ongoing basis and maintains rates in line with market rates. The effective interest rates applicable to bank funds and finance receivables range from 0.00% to 21.40%.

Repricing and maturity analysis

The maturity and repricing analysis of financial assets and liabilities has been prepared on the basis of contracted maturity.

GROUP 2007EFFECTIVE

INTEREST RATETOTAL$000

< 1 YEAR$000

1 - 2 YEARS$000

2 - 5 YEARS$000

> 5 YEARS$000

FINANCIAL ASSETSCash and cash equivalents 7.62%* 45,658 45,658 - - - Receivables and prepayments 0-21.40% 5,668 5,668 - - -Loans, advances and finance leases 13.98%* 237,349 156,838 37,792 42,030 689Investments 0.00% 315 315 - - -

Total financial assets 288,990 208,479 37,792 42,030 689

FINANCIAL LIABILITIESCreditors and other current liabilities 0-7.50% 20,842 20,842 - - - Deposits 8.97%* 260,837 154,730 89,247 16,860 -Other borrowings 8.50-9.65% 38,020 3,500 2,495 32,025 -

TOTAL FiNANCiAL LiAbiLiTiES 319,699 179,072 91,742 48,885 -

GROUP 2006

FINANCIAL ASSETSCash and cash equivalents 0-7.50% 17,238 17,238 - - - Receivables and prepayments 0-21.40% 6,318 6,318 - - - Loans, advances and finance leases 16.42%* 145,856 94,777 28,262 20,177 2,640 Investments 0.00% 132 132 - - -

Total financial assets 169,544 118,465 28,262 20,177 2,640

FINANCIAL LIABILITIESCreditors and other current liabilities 0-7.50% 19,542 19,542 - - - Deposits 8.74%* 145,606 83,884 40,083 20,203 1,436 Other borrowings 9.15% 16,000 16,000 - - -

TOTAL FiNANCiAL LiAbiLiTiES 181,148 119,426 40,083 20,203 1,436

*Weighted average interest rates

61

62


PARENT 2007EFFECTIVE

INTEREST RATETOTAL$000

< 1 YEAR$000

1 - 2 YEARS$000

2 - 5 YEARS$000

> 5 YEARS$000

FINANCIAL ASSETSCash and cash equivalents 0-7.45% 571 571 - - - Receivables and prepayments 0-21.40% 5,141 5,141 - - - Investments 0.00% 58,532 58,532 - - -

Total financial assets 64,244 64,244 - - -

FINANCIAL LIABILITIESCreditors and other current liabilities 0-7.50% 13,224 13,224 - - - Deposits 0-12.95% 13,149 13,149 - - - Other borrowings 8.50-9.65% 38,020 3,500 2,495 32,025 -

TOTAL FiNANCiAL LiAbiLiTiES 64,393 29,873 2,495 32,025 -

PARENT 2006

FINANCIAL ASSETSCash and cash equivalents 0-5.40% 2,726 2,726 - - - Receivables and prepayments 0-21.40% 3,202 3,202 - - - Loans, advances and finance leases 0.00% 5,764 5,764 - - - Investments 0.00% 22,723 22,723 - - -

Total financial assets 34,415 34,415 - - -

FINANCIAL LIABILITIESCreditors and other current liabilities 0-7.50% 15,505 15,505 - - - Subsidiary advances 0-12.95% 4,143 4,143 - - -Other borrowings 9.15% 16,000 16,000 - - -

TOTAL FiNANCiAL ASSETS 35,648 35,648 - - -

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in raising funds at short notice to meet commitments associated with financial instruments. The Group maintains sufficient liquid funds to meet its commitments based on historical and forecasted cash flow requirements. Liquidity risk is reviewed on an ongoing basis including daily procedures and monthly reporting.

The Group’s maturity and repricing profiles are the same except for loans, advances and finance leases which can be repriced prior to maturity as they are subject to variable rates.

Currency risk

During the normal course of business the Group exports some product. As a result of these transactions exposure to foreign currency exchange rates arise. The Group primarily deals in United States Dollars. It is group policy to partially hedge these transactions through the use of forward contracts. Group exposure to foreign currency risk is for short periods and at any date the amount is not considered material to the Group.

Foreign exchange contracts

Recognised

Foreign exchange contracts entered into as hedges of past transactions are recognised on the same basis as the underlying hedged item.


Unrecognised

Foreign exchange contracts entered into as hedges of future sales are not recognised on the Statement of Financial Position. Foreign exchange contracts held at 30 June 2007 amounted to US$nil (2006: US$nil).

Fair values

The estimated fair value of bank balances, accounts receivables, finance receivables, investments, deposits by customers, accounts payable and debentures is not materially different from the carrying value shown in the financial statements.

21. RELATED PARTY TRANSACTiONS

Inter-group transactions take place on normal trading terms and on an arms length basis.

Certain directors of Allied Farmers Limited have trading transactions with the Group. These transactions take place on normal trading terms and are on an arms length basis.

The Parent has vehicle lease payables on normal commercial terms to Allied Nationwide Finance Limited, and relate to vehicles used within the Allied Farmers Limited group. At 30 June 2007 the net book value of such vehicles and the balance owing was $1,077,366 and $1,166,605 respectively (2006: $1,354,431 and $1,433,553 respectively).

The Parent has sold debts owed to it by external borrowers under ongoing factoring arrangements to Allied Nationwide Finance Limited. The factored debtors balance as at 30 June 2007 was $16,643,110 (2006: $15,093,193). Allied Farmers Wools Limited ($905,049) and Allied Pine Limited ($1,748,049) have also entered into factoring arrangements with Allied Nationwide Finance Limited as at balance date. The primary obligation for repayment of these advances rests with the external borrower. As additional security, should it be required, Allied Nationwide Finance Limited has full recourse against the group company that has factored the debt if the amount due is not repaid within thirty days of due date. The rate of interest attaching to these debts are set on normal commercial terms and from 1 July 2007 will be between 12.25% and 12.95%.

The Parent has advances to / (from) subsidiary companies as at 30 June 2007 of ($13,148,982) (2006: $4,143,265). Included in these advances is an amount owed to Allied Nationwide Finance Limited of $11,930,657 (2006: $8,539,096) under a revolving credit facility which was used to purchase ledgers from Prime Finance Limited. It is on normal commercial terms and carries an interest rate of 12.95%.

Interest bearing deposits made by the Parent with Allied Nationwide Finance Limited as at 30 June 2007 amounted to $nil (2006: $2,100,000).

No amounts owed by related parties have been written off or forgiven during the year.

22. MiNORiTY iNTERESTS

GROUP 2007 $000

GROUP 2006 $000

Balance at beginning of year (58) 44Movement during year 58 (102)

bALANCE AT END OF YEAR - (58)

During the year the Parent acquired the minority interest in Allied Pine Limited.

23. EvENTS SubSEquENT TO bALANCE DATE

The Directors are not aware of any matter or circumstance since the end of the financial year, not otherwise dealt with in this report or financial statements, that has significantly affected or may significantly affect the operations of the Group, the results of these operations or the state of affairs of the Group. 63

64


AuDiTORS’ REPORTTO THE SHAREHOLDERS OF ALLIED FARMERS LIMITED

We have audited the financial statements on pages 37 to 63. The financial statements provide information about the past financial performance and cash flows of the Company and Group for the year ended 30 June 2007 and their financial position as at that date. This information is stated in accordance with the accounting policies set out on pages 40 to 45.

Directors’ Responsibilities

The Company’s Directors are responsible for the preparation and presentation of the financial statements which give a true and fair view of the financial position of the Company and Group as at 30 June 2007 and their financial performance and cash flows for the year ended on that date.

Auditors’ Responsibilities

We are responsible for expressing an independent opinion on the financial statements presented by the Directors and reporting our opinion to you.

basis of Opinion

An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial statements. It also includes assessing:

(a) the significant estimates and judgements made by the Directors in the preparation of the financial statements; and

(b) whether the accounting policies are appropriate to the circumstances of the Company and Group, consistently applied and adequately disclosed.

We conducted our audit in accordance with generally accepted auditing standards in New Zealand. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

We have no relationship with or interests in the Company or any of its subsidiaries other than in our capacities as auditors, tax advisers and providers of other assurance services.

unqualified Opinion

We have obtained all the information and explanations we have required.

In our opinion:

(a) proper accounting records have been kept by the Company as far as appears from our examination of those records; and

(b) the financial statements on pages 37 to 63:

(i) comply with generally accepted accounting practice in New Zealand; and

(ii) give a true and fair view of the financial position of the Company and Group as at 30 June 2007 and their financial performance and cash flows for the year ended on that date.

Our audit was completed on 23 August 2007 and our unqualified opinion is expressed as at that date.

Chartered Accountants Wellington

COMPANy DIRECTORy

ThE DiRECTORS OF ThE COMPANY

John J. Loughlin MbA, bCA, CA,

FCSAP, ACiS, FAii, FNZiM (Chairman)

267 Te Mata Mangateretere Road Havelock North, Hawkes Bay

Peter L. Cook DipAg (Deputy Chairman)

642 Raupuha Road RD 22, Stratford

Garry C. bluett bMS, CA

8 St Leonards Road Takapuna, Auckland

Ross J.C. Dunlop DipMgmt, JP

8 Ohawe Road, Hawera

Philip C. Luscombe bAgSci(hons)

199 Palmer Road, Kapuni

G. Andrew McDouall bCA, DipNZx

5 Fancourt Street, Karori, Wellington

REGiSTERED OFFiCE OF ThE COMPANY

74 Princes Street, Hawera

CORPORATE OFFiCE

Level 15, 142 Lambton Quay, Wellington

WEbSiTE

www.alliedfarmers.co.nz

SOLiCiTORS

Welsh McCarthy

46 High Street, P.O. Box 434, Hawera

horsley & Christie

Equity House, 14 Victoria Avenue P.O. Box 655, Wanganui

Morrison Daly

Level 14, 45 Johnston Street P.O. Box 10341, Wellington

quigg Partners

Level 7, 28 Brandon Street P.O. Box 3035, Wellington

ExECuTivES OF ThE COMPANY

David W. bale MbA

Group Chief Executive Officer

William L. Giesbers CA, FCiS, AFNZiM, CTP

Group Chief Financial Officer

Trevor J. harrop bCom, CA

Group Company Secretary

Philip h. Anstey bCom, DipAg

General Manager Rural Services

John D. Mallon CA

Chief Executive, Allied Nationwide Finance Limited

Andrew N. quayle bbS

Group Marketing Manager

Tony hood bSc

Group Chief Information Officer

POSTAL ADDRESS OF ThE COMPANY

P.O. Box 423, Hawera Ph: 06 278 0800 Fax: 06 278 0380

AuDiTORS

PricewaterhouseCoopers

113-119 The Terrace P.O. Box 243 Wellington

ShARE REGiSTRAR

Link Market Services Limited

138 Tancred Street P.O. Box 384, Ashburton

ShAREhOLDER ENquiRiES

Link Market Services Limited

Ph: 03 308 8887 Email: [email protected] 138 Tancred Street P.O. Box 384, Ashburton

ALLiED FARMERS LiMiTEDTRADING AS

Taranaki Farmers

King Country Farmers

Waikato Farmers

Manawatu Farmers

Allied Farmers Wools Limited

Allied Nationwide Finance Limited

Taranaki Farmers First National (New Plymouth, Stratford, Urenui and Hawera)

Wanganui First National Rural

Manawatu First National (Palmerston North)

Documents

ALLIED FARMERS LIMITED ANNUAL REPORT 07