Chairman's Foreword
We present the 2010/11 Statement of Intent (SOI) for Public Trust.
Business Transformation in a Changing Environment
Public Trust has recognised that a fundamental transformation is required to ensure the financial sustainability of the organisation, and is part way through a Change Programme which commenced in 2007.
Our goal is to build a stronger business that engages with New Zealanders to better meet their trustee needs. To achieve this goal, we need to significantly enhance the customer experience and improve operating capability and efficiency levels.
Whilst requiring significant investment, the Change Programme has improved organisational capability and is delivering tangible results including year-on-year growth in core fee revenue. High customer satisfaction levels are being sustained and increasing sales volumes realised as a result of the Programme, indicating that we are on the right path to deliver enhanced value for both the Crown and our customers.
The regulatory environment in which Public Trust operates is undergoing significant change. Public Trust is required to comply with most aspects of the Non Bank Deposit Takers (NBDT) regime and a programme of work is well underway. Similarly, a programme of work is progressing to ensure that Public Trust meets the requirements of the Financial Advisers Act 2008 (FAA) and the Financial Service Providers (Registration and Dispute Resolution) Act 2008 within the required timeframe of July 2011. The organisation is implementing a new advice offering, together with a redesigned sales process, to better meet our customers' estate and financial planning needs.
The regulatory changes represent a significant opportunity for Public Trust to leverage current capabilities and further enhance the customer experience and product choice. Embracing regulatory change will also create the opportunity to improve overall competitive positioning.
In 2010/11, the Change Programme will be focused on delivering the following outcomes:
- A continuing improvement in people capability;
- Productivity gains from process improvements;
- Enhancing the customer experience to better meet their needs and build stronger relationships;
- Improving operating performance by focusing on core trustee revenue increases and tightly managing costs; and
- Leveraging regulatory requirements to gain competitive advantage through the introduction of new product and service offerings to meet customer needs.
Public Trust has contractual arrangements in place with the Ministry of Justice to provide non-commercial protective fiduciary services, including free wills. A review of these arrangements is nearing completion and will confirm the range and extent of non-commercial services the Crown wishes to purchase from Public Trust. The outputs in the Statement of Forecast Service Performance reflect the services purchased by the Crown.
Performance
Financial performance for the 2007/08 and 2008/09 years was dominated by substantial Common Fund investment losses which occurred as a result of the impact of the global economic crisis. Principal areas of loss have arisen from mortgage write-downs and mark-to-market valuation changes on interest bearing and mortgage-backed securities.
During the 2009/10 financial year, there has been an improvement in financial performance, with a net profit of $3.7 million reported for the six months to December 2009 compared with an $11.3 million deficit for the same period in 2008/09. The improvement resulted primarily from the reversal of previously recorded unrealised investment losses.
Notwithstanding this, Public Trust's strategy of focusing on enhancing products and customer service has resulted in an increase in core fee revenue during the first half of the 2009/10 financial year. Year-on-year productivity gains of around 10% have been achieved by our customer servicing employees. Costs are being contained as a result of controls over personnel and other operating costs and there has been a reduction in mortgage impairments.
Public Trust's overall equity position has been somewhat restored over the period as a result of the $30 million of additional capital provided by the Crown in August 2009 and improved financial results. The Board remains committed to continuing to build capital to ensure that Public Trust has an appropriate capital structure and complies with the NBDT regime requirements.
The planning period sees a continued improvement in core operating performance, investment in the Change Programme and the expected reversal of unrealised mark-to-market investment losses. A strong growth in core trustee revenues and the ongoing management of operating costs is offset in the short-term by an expected continued decline in Common Fund margin.
The decrease in Common Fund margin is due to both market conditions and the implementation of a strategy to reduce investment risks. The 2010/11 performance is impacted by a continued decline in Common Fund revenues, the revenue and cost impact of FAA implementation and a reduction in Investment Gains over the 2009/10 year offset by the continued improvement in fee revenues.
Outlook
Indicators show there are signs of a modest recovery globally and in New Zealand. A large proportion of the continued risks and uncertainties around the economic outlook for New Zealand are associated with global economic trends, especially in relation to financial markets. Ongoing volatility in property and investment markets will continue to create uncertainty during 2010/11.
Public Trust faces a number of significant challenges in the magnitude of the organisational change required and in effectively responding to external factors such as the high level of regulatory change underway.
We are confident that Public Trust can make positive progress to better meet New Zealanders' trustee needs.
On behalf of the Board,
Trevor D Janes, Chair
Robin Hill, Deputy Chair
30 June 2010