Trusts see gaming funds as community dividends

Friday 21st September 2001

The performance of Trust House Ltd, a combination of licensing trusts and a charitable trust with interests ranging from Hastings to Wellington, belies the idea that community-owned businesses are somehow inferior to totally private sector-owned operations.

Trust House had a consolidated net profit of $3.75 million for the year ended March 31, an increase of 10.4% over the $3.39 million earned in 2000 and 88.3% ahead of 1999's $1.99 million.

There was a catch in the reported figures, because the company and its constituent members got qualified audit opinions from the Audit Office, acting for the controller and auditor-general.

The controversies were related to treatment of charitable and gaming machine transactions in the various financial statements.

According to Trust House chairman Brian Bourke, the auditor took the view that charitable distributions should not be recorded in the statement of movements in equity, as the trust did, but rather in the statement of financial performance (an expense).

The auditor's justification was that charitable distributions were an expense of operations instead of a funds distribution.

Mr Bourke said the directors believed the argument was "fundamentally flawed."

"The owners of each of the licensing trusts, the charitable trusts and Trust House are the community.

"Where distributions are made to the community they are exactly that, a dividend back to the owners.

"Thus the treatment we have shown is consistent with the normal presentation of any distribution/dividend to the owners."

Mr Bourke said the treatment of ownership of gaming funds was "entirely consistent" with previous years and was believed to be correct.

"On this issue, the auditor has taken a new view that gaming funds are 'owned' by the body that holds the licence and owns the machines."

After explaining the company's views that the particular communities owned and operated the licensed premises and also owned the funds, Mr Bourke said "were we not to present the income and the assets in this way, we would be significantly mispresenting a true and fair view."

"Thus the substance of the argument, rather than the form is, we believe, reflected in the presentation of the accounts."

"Again we emphasise that the treatment is similar to previous years and has been that way since 1989."

The consolidated Trust House comprises Trust House Charitable Trust, Masterton Licensing Trust (its business dating from 1947, when the then recently adopted liquor licencing trust legislation allowed Masterton to go from "dry" to "wet"), Masterton Licensing (Charitable Trust), Flaxmere Licensing Trust (Hastings), Rimutaka Licensing Trust (Upper Hutt and points north) and the Tararua Foundation (a charitable trust getting grants from the Trust House Charitable Trust for distribution to community-based organisations from south Wairarapa through to Dannevirke and across to Feilding.

The Trust House organisation has diversified from the tavern/hotel/liquor industries to ownership of supermarkets, housing (540 rented houses in the Wairarapa and southern Hawke's Bay from Featherston to Dannevirke) and the Landsdowne Court hospital/rest home in Masterton.

Return on equity for the year ended March 31 was 21.8%, compared with 23.5% in the previous year, both figures accepting the group's view of profit, as opposed to the auditor's argument about gaming machines and charitable distributions. They were technical accounting matters, as well as a change in the Audit Office's approach.

Trust House has business advantages other than solid administration, the latter including people with high qualifications in a sector well known for attracting local politicians attempting to build their records for potential higher office.

The Wairarapa plains from Featherston north have attracted several profitable enterprises, particularly in the wine industry and other aspects of horticulture.

A comparable situation is seen in Marlborough, although both regions can be subject to droughts in bad years.

Conversely, floods often hit the Wairarapa when the weather turns the other way.

Trust House's attitude to community-based business organisations was summarised in chief executive Bernard Teahan's operational review: "There is a view that community-owned trading enterprises cannot perform as well as their privately owned counterparts. But the evidence supporting this is far from certain and there is ample evidence that identifies that community and public ownership can and does out-perform private enterprise."

"There is a view, too, that any attempt to marry social and community goals with those of a commercial enterprise will, in most cases, lead to failure and yet private enterprise is increasingly recognising that they must harmonise their objectives with the community and cannot work in isolation of environmental and social impact."

The constituent trusts of the Trust House group distributed 1.33 million to their respective communities.

Masterton Licensing Trust handed out the most, at $581,588, divided as to 43% for arts, culture and history, 24% to sports and recreation, 14% for health, 2% to education and 17% for community promotion and development.

Several licencing trusts have folded over the years but the Trust House group has flourished recently, although it also it had some difficult times in the past.

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