Chairsman's Foreword

We present the 2011/12 Statement of Intent for Public Trust.

Business Transformation in a Changing Environment

Public Trust is part way through an extensive change programme targeted at achieving financial sustainability and ensuring the organisation's on-going relevance to New Zealanders.

Central to the transformation is a focus on significantly enhancing the customer experience and improving operating capability and efficiency levels as we build a stronger business. While requiring significant investment, the change programme is delivering tangible results including year-on-year growth in core fee revenue, high customer satisfaction levels and increases in market share in key market segments. These measures all indicate that that we are on the right path to deliver enhanced value for both our customers and the Crown.

A high level of regulatory change continues, bringing both challenges and opportunities. Public Trust has undertaken substantial work to respond to regulatory changes in a way that ensures compliance and improves competitive positioning. We are focused on training employees to ensure full compliance with the Financial Advisers Act 2008 by July 2011. There is also a programme of work underway to meet the requirements of the Anti-Money Laundering and Counter Financing of Terrorism Act 2009 ahead of its implementation in 2012. We are implementing changes in light of the Securities Trustees and Statutory Supervisors Act 2011 and are monitoring the progress of The Financial Markets (Regulators and KiwiSaver) Bill, the Securities Law review and the Law Commission's review of trusts.

Public Trust is compliant with the risk management and credit rating requirements for non-bank deposit takers (NBDT) under the Reserve Bank of New Zealand Act 1989 (RBNZ Act) and was granted a three-year period to progressively meet the capital ratio requirements of the NBDT regime. The Board remains committed to building capital to ensure Public Trust maintains an appropriate and fully compliant capital structure.

The organisation is working to introduce new products and services to meet customers' life stage needs. This includes implementing a new customer investment product range and an enhanced customer feedback channel. We are focused on improving service quality and efficiency through an ongoing programme of process redesign. Some of these initiatives have been impacted by the need to re-establish our business operations, including new premises following the 22 February earthquake in Christchurch.

In 2011/12, the Change Programme will focus on delivering the following outcomes:

• The continued development of a highly engaged and productive workforce with improved people capability;
• Capturing productivity gains from implementing effective and efficient operational management systems and process improvements;
• Enhancing the customer experience to better meet their needs and build stronger relationships to grow customer loyalty and value;
• Improving operating performance by focusing on core trustee revenue growth while tightly managing costs; and
• Leveraging continued change in the regulatory environment to enhance competitive positioning and business opportunities through the introduction of new product and service offerings that meet customer needs. 

Public Trust has contractual arrangements in place with the Ministry of Justice to provide non-commercial protective fiduciary services. The Crown has confirmed its requirement for Public Trust to continue to provide services, including the provision of a free Wills service, the administration of small estates, trusts and personal property protective rights.  Public Trust continues to work closely with the Ministry of Justice to review these services and implement public policy requirements. 

Performance

During the 2009/10 financial year, Public Trust reported an improved financial position with a net profit of $4.8 million compared to a loss of $47.5 million in 2008/09.  The result was principally driven by the continued reversal of unrealised investment losses, with lower mortgage provisions and an increase in operating surplus also contributing.

Public Trust reported a $0.4 million profit after tax for the six months to December 2010, $0.9 million ahead of budget for the period.  The result reflected an increase in operating surplus before change costs against budget, but was lower than the same period in 2009/10.  This was primarily due to the expected reduction in Common Fund income as a result of the change in investment risk position and increased competition for retail deposits.

In line with our strategy of focusing on enhancing products and customer service, fee and commission revenue grew as a percentage of total revenue for the first half of the 2010/11 financial year.  Productivity levels improved with a 3.2% increase in revenue per customer servicing employee.  Costs are being contained as a result of controls over personnel and other operating costs. There has also been a reduction in mortgage impairments as the value of the mortgage book declines and the mix changes towards high quality residential lending.

Public Trust's overall equity position has improved over the period, increasing by $2.2 million to $22.3 million.

Public Trust has extensive business operations in Christchurch and a significant programme of work to support our people, and customers and fully restore capability following the earthquakes is underway. This includes the establishment of new premises. The full restoration of services will not be completed until part way through the 2011/12 financial year. This has had a material effect on the 2010/11 forecast with the reduction in revenue estimated at $1.7 million and a cost of $1.8 million before insurance recoveries.

The planning period sees continued improvements in core operating performance, ongoing investment in the Change Programme and the expected reversal of unrealised mark-to-market investment losses.  Continued growth in core trustee revenues and a strong focus on the ongoing management of operating costs is offset in the short-term by the planned decline in Common Fund margin.  2011/12 performance will  be impacted by declining Common Fund revenues, the revenue and cost impact of on-going regulatory change, offset by the improvement in customer investment solution and Corporate Trustee Services revenue.

Outlook

The impacts of the Global Financial Crisis have continued throughout 2010/11.  While there are signs of a gradual, albeit sporadic, recovery in New Zealand, there remains general economic uncertainty.  This has been heightened by significant natural disasters in Christchurch in 2010 and 2011 and in Japan in March 2011.  Public confidence in aspects of the finance sector continues to be low due to the failure of finance companies, questions over the quality of investment advice provided by financial planners and a subdued property market.

Public Trust faces a number of significant challenges, including the magnitude of organisational change being undertaken and the need to grow core fee revenues while effectively responding to external factors such as the impact of the Christchurch earthquakes and the high level of regulatory change underway.

The organisation, while making good progress towards its goal of becoming financially sustainable, is still dependant on the reversal of investment losses, particularly over the period of this Statement of Intent to generate a surplus after tax.

We remain confident however, that Public Trust can improve its financial position and reinforce its role as Trustee for all New Zealanders as we deliver an enhanced customer experience.

On behalf of the Board,

Trevor D Janes, Chair
Robin Hill, Deputy Chair

30 June 2011