Chairman's Foreword
We present the 2010-12 Statement of Intent (SOI) for Public Trust.
Business Transformation
Public Trust recognises that a fundamental transformation is required to ensure the long term sustainability and viability of the organisation.
In response to the need for transformation Public Trust initiated a five year change programme in 2007 to become a customer centric organisation offering a significantly enhanced customer experience. The improved customer experience resulting from the change programme will provide the key to building stronger relationships with customers. The enhanced customer experience combined with a focus on operating efficiency will enable Public Trust to achieve a level of performance that meets shareholders' requirements.
Tangible benefits are now being realised from the change programme. Customer satisfaction levels are high and fee revenue from core trustee services is forecast to increase by 5% in 2008/09, a significant uplift from the performance of recent years, especially considering the economic climate. Further increases in fee revenues are planned from a continued focus on core trustee services.
In 2009/10 the change programme will be focused on delivering the following outcomes:
- Reducing risk in the Common Fund through changes to investment and lending policies and focusing on core trustee customers.
- Increasing revenue through better meeting the needs of customers.
- Productivity gains achieved by process improvements and investing in developing our people capability.
- Meeting the changing legislative requirements; Non Bank Deposit Taker Regime, Financial Adviser & Service Provider Acts and Anti Money Laundering Act.
The current financial performance has also driven urgency into creating and executing short term initiatives focused on containing costs and improving revenue.
Public Trust provides non commercial protective fiduciary services to the Ministry of Justice, including the provision of free Wills. Provision of these services is being reviewed to confirm the range and extent of non commercial services the Crown wishes to purchase.
Longer term Public Trust will continue the change programme by building organisational capability and developing a commercial culture that supports change.
Performance
Financial performance has been dominated by substantial losses on Common Fund investments. Extremely adverse conditions in property and investment markets have resulted in significant mortgage provisions and mark to market losses on interest bearing and mortgage backed securities, for a second financial year. The magnitude of these losses has resulted in a forecast of negative equity at 30 June 2009. Cabinet has approved a capital contribution of $30 million to be paid in the first quarter of 2009/10 to ensure that Public Trust can continue to provide independent and reliable trustee services, whilst the change programme is implemented to deliver sustainable financial performance. Customer funds held in the Common Fund retain the protection of the statutory Crown guarantee.
The investment losses have arisen from the revaluation of interest bearing and mortgage backed securities over the past two years, $49 million of which are unrealised. We expect most of the losses on interest bearing securities will reverse to profit by maturity date. However, reversal of the losses on mortgage backed securities is less certain and will depend on the future performance of the underlying assets.
The ongoing volatility in property and investment markets continues to create a higher than usual degree of uncertainty for forecast financial performance. Downside risks exist from further mortgage provisions and revaluation losses on mortgage backed securities, where there is no active market.
The Board and management are extremely concerned at the magnitude of the losses. We are taking all possible actions to ensure that impacts are minimised. A range of measures have been implemented including changes to investment and lending policies and practices, which will result in a significant reduction in the risk profile of the Common Fund, and further changes are being implemented.
The Board appreciates the continued support provided by Ministers in these difficult conditions.
Outlook
Despite our financial performance and the economic environment, we remain confident that the strategy Public Trust has adopted will provide enhanced value.
Public Trust is actively implementing the substantial transformational change required to become a customer centric organisation and achieve commercial sustainability. The change is affecting all parts of the organisation and whilst challenging, represents a significant opportunity to enhance Public Trust's long tradition of serving New Zealanders and to grow value for the Crown as owner.
The planned benefits from the change programme and reduced Common Fund risk profile provides a sound basis for sustainable financial performance in future years.
We look forward to ensuring New Zealanders continue to have the opportunity to build and protect their assets and interests, now and for generations ahead.
On behalf of the Board.
Robin Hill, Deputy Chair
30 June 2009