Annual Report 2007 D O M I N I O N FINANCE HOLDINGS LIMITED Plaza Level, Parnell Towers, 308 Parnell Road, Auckland PO BOX 37 076, Parnell, Auckland, New Zealand TELEPHONE 0800 366 346 or 09 306 0400 FACSIMILE 09 306 0404 EMAIL [email protected] WEBSITE www.dominionfinance.co.nz

LISTED

Funded by Dominion Finance Group

Gallery: 13 storey building with18 luxury apartments nearing completion in central Christchurch.

Experience really does count

Funded by Dominion Finance Group

Newly redeveloped entertainment district including restaurants, bars and nightclubs in Tuam St, Christchurch.



DOMINION FINANCE HOLDINGS LIMITED

Contents Highlights

4

Chairman’s Report

6

Chief Executive Officer’s Report 10 Board of Directors 14 Corporate Governance Statement 14 Financial Statements 18 - 36 Audit Report Statutory Report of Directors

37 38 - 39

Other Disclosures

40

Statutory Disclosure in Relation to Shareholders

42

Directory

43



making experience count

Funded by Dominion Finance Group

The Rees: Development has continued on this very large Queenstown site with 21 luxury lakefront apartments and 89 superior apartments.



DOMINION FINANCE HOLDINGS LIMITED

Highlights

Net Profit After Tax

Total Dividend Increased to

$17.11 13.31 cents million per share

Total Assets

$484.27 million



making experience count

Successful Integration of

Bonus Issue

Equity

One for Ten

$51.58 North million South Finance Limited

Funded by North South Finance

Luxury townhouses with a park outlook in Parnell, Auckland.



DOMINION FINANCE HOLDINGS LIMITED

Chairman’s Report Our history and reputation continues to attract investments and the business has a strong level of lending opportunities. Individual investments are now in excess of 16,000 and as at 31 March we had $355 million in debentures. Loan Receivables as at 31 March were $428 million.

On behalf of the Board of Directors of Dominion Finance Holdings Limited I am pleased to report another successful year with an excellent financial performance for the twelve months ended 31 March 2007 for its operating subsidiaries.

At last year’s Annual General Meeting it was announced that Terry Butler, who had managed the business for the last twenty years, was going to move to the role of Deputy Chairman with the primary focus of appraising acquisitions and growth opportunities. The Board had secured a successor, Paul Cropp, who joined the business in October 2006. The careful planning by the Board has ensured the businesses have had continuity and the transition of Chief Executives has been a smooth one.

Financial Highlights

Last Year

This Year

Increase

Operating Revenue $m

30.67

70.20

+129%

Net Profit After Tax $m

8.96

17.11

+91%

Dividend (cents per share)

7.60

13.30

+75%

374.60

484.27

+29%

38.90

51.58

+33%

Total Assets $m Equity $m

The increase in financial performance over the previous year reflects another solid result from Dominion Finance Group Limited which increased Net Profit After Tax to $12.86 million and the integration of North South Finance Limited which was purchased on 31 March 2006, and made a strong contribution of $7.38m.

North South Finance Integration The integration of North South has been a success. We are pleased to say that we have achieved good operating efficiencies and we are arguably one of the most efficient in our market segment.

Bonus Issue and Dividends Being mindful of the loyal support of our shareholders and wanting to maximise the utilisation of imputation credits, the Directors unanimously agreed that a bonus issue be made. The one for ten bonus issue was announced on 20 March and allotted on 13 April 2007. The Directors declared a total fully imputed dividend of 13.31 cents per share, which is an increase on the 7.6 cents per share paid last year. An interim dividend of 4.83 cents per share was paid on 17 November and a final dividend of 8.48 cents per share was paid on 1 June 2007. Our People A very good year like we have had, is a tribute to our people. We have a skilled, talented and experienced team. On behalf of the Directors, I would like to thank them for their commitment to the business. Community Involvement Since 2004, we have been a major sponsor of Mazda Artworks at the Hilton which has been well received by our shareholders and clients. This year we were delighted to become the major sponsor of the National Basketball League. With both sponsorships we have endeavoured to achieve a wide range of community involvement and participation from all ages.



making experience count

Funded by Dominion Finance Group

Above: 99 studio apartment development in Queenstown to cater for short-term worker accommodation. Below: Dominion Finance Holdings continued its sponsorship of Mazda Artworks at the Hilton.

$100m $75m

+129%

$50m $25m $0m

2006

2007

DFH Operating Revenue



DOMINION FINANCE HOLDINGS LIMITED

Below: Dominion Finance Holdings has sponsored the National Basketball League competition for 2007 and 2008.

Outlook We do not waiver in our careful approach to prudent lending. Governance and transparency remain a core fundamental practice of the Directors and management. We continue to look for acquisitions that will produce shareholder value.

The recent interest rate volatility will probably be experienced for some months to come. However, lending inquiry remains strong and we continue to attract good investments and grow our investors. On behalf of the Directors, I thank the investing public for their support and look forward to the year ahead.

Rick G. Bettle



making experience count

Funded by Dominion Finance Group

Above: Ex-Workingmens Club conversion into three luxury apartments on New Plymouth’s waterfront. Below: 46 unit development in Browns Bay, Auckland providing mixed product including houses, units and apartments with sea views.

$20m

+91%

$15m $10m $5m $0m

2006

2007

DFH Net Profit After Tax



DOMINION FINANCE HOLDINGS LIMITED

Chief Executive Officer’s Report

It is my pleasure to make my first report as the Chief Executive Officer on the operations of Dominion Finance Holdings Limited and its two operating subsidiaries Dominion Finance Group Limited and North South Finance Limited. Terry Butler passed the reigns over in October last year and the transition has been as good as one can could ask for. The acumen of Terry as Deputy Chairman and Rick Bettle as Chairman, along with the skilled and experienced team of Directors, greatly assists the strategic development of the business. Their combined high levels of ethics

and standards provides the business with a strength and depth not easily matched in the industry. Dominion Finance Group Limited Another record year was achieved with an increase of the Net Profit After Tax by 38% to $12.86 million. This was achieved off good asset growth of 38% to $314 million. The interest margin was maintained and following on from a very good fee income year in 2006, we achieved a similar figure in 2007. Good investor support was received

10

making experience count

DFG Net Profit After Tax

$20m $15m

+38% $10m $5m $0m

2006

Funded by North South Finance Funded by Dominion Finance Group

2007

Above: Five high-end apartments currently under construction with sweeping views of the Tauranga Harbour. Below: The Rees will be a significant addition to Queenstown’s tourism infrastructure.

with Debentures growing by 26% to $245 million. We carefully manage our liquidity profile which sees the average investment term of 24 months and loan term of about 14 months as at 31 March 2007. North South Finance Limited We settled this acquisition on 31 March 2006 and integrated the business into the Dominion Finance Holdings premises seeking to achieve scales of economies and create a strong working relationship.

Financial Highlights $12m $9m

+97% $6m $3m $0m

2006

2007

NSF Net Profit After Tax

This acquisition has been successful with a very strong contribution of a 11

DOMINION FINANCE HOLDINGS LIMITED

Net Profit After Tax of $7.38 million which was up 97% on the previous year. This was achieved from a steady growth of 23% in Total Assets which were $140 million as at 31 March 2007. There was a resounding increase in the interest income margin and strong fee income. Debenture growth of 10% was achieved and as at 31 March the total amount of Debentures was $110 million. Like Dominion Finance Group, we carefully manage our liquidity position and this business has an average Debenture term of 26 months and Lending term of about

12 months as at 31 March 2007. A standard business practice for Dominion Finance Holdings Limited is a focus on expenditure and, including the acquisition of North South Finance Limited, our cost to income ratio continues to be one of the lowest in the industry. The Year Ahead The outlook for the year ahead remains very positive. We believe we have sound strategies established to maintain careful and considered growth. Our fundamental business model is unchanged. We expect

further compliance requirements and at this time our clients have adjusted to the likelihood of a period of interest rate volatility. We continue to invest in the company’s infrastructure and our most important asset, our people, and remain committed to retaining and attracting the best for the business.

Paul Cropp

12

making experience count

DFG Total Assets

$400m

+38%

$300m $200m $100m $0m

2006

Funded by Dominion Finance Group

2007

Above: Workstation 55: Stage one of a multi-stage development including the refurbishment of older buildings into modern commercial offices in Christchurch. Below: Whisper Cove: Hauraki Gulf views and outstanding quality.

$160m

+24% $120m $80m $40m $0m

2006

2007

NSF Total Assets

13

DOMINION FINANCE HOLDINGS LIMITED

Board of Directors

Richard (Rick) Gilbert Bettle MBA, Dip Bus Admin, AF Inst D, GAICD (Non-Executive/Independent Chairman of Directors)

Terence (Terry) Maxwell Butler J.P., A.B.I.N.Z. Director (Non-Executive/ Deputy Chairman of Directors)

Vance Eric Arkinstall A.C.A. Director (Non-Executive/Independent)

Paul Winstone Forsyth C.A., M Inst D Director (Non-Executive)

Corporate Governance Statement The Board of Directors (“Board”) of Dominion Finance Holdings Limited (“Dominion”, “the Company”) is responsible for the overall corporate governance of the Group and for determining its strategic direction according to the Charter which has been established. This includes the setting of goals and budgets, monitoring financial and management performance and ensuring business risks have been identified and adequate strategies, controls and reporting are in place. The governance principles adopted by the Board are designed to meet best practice. Generally Dominion Finance Holdings Limited follows the New Zealand Stock Exchange Corporate Governance Best Practice Code, except that there is no nominations committee. The Company’s Corporate Governance policy has been implemented into North South Finance Limited since the acquisition of that company on 31 March 2006. Board of Directors

Ann Kathleen Butler T.Dip.T, T.Dip.PS, LTCL Director (Non-Executive)

Robert Barry Whale (Barry) B.Com, LLB, M.Tax.S (Hons), Notary Public Director (Non-Executive)

The Board is currently made up of six Directors, all of whom are considered non-executive. Profiles of the Directors can be found on this page. The Board elects a chairman whose primary responsibility is to ensure the Board functions efficiently. The Board meets on a monthly basis and receives detailed monthly reports from the CEO, CFO and Group Investment Manager prior to each meeting. The Board is kept informed of key risks on a continuing basis and if required can meet between scheduled meetings to deal with specific matters.

14

making experience count

Funded by Dominion Finance Group Funded by North South Finance

Above: New retail precinct as part of the wider Tuam St redevelopment. Below: 50 section subdivision in Whiritoa on the Coromandel Coast where demand continues strongly.

20c 15c

+75%

10c 5c 0c

2006

2007

DFH Dividend (Cents Per Share)

15

DOMINION FINANCE HOLDINGS LIMITED

The Directors’ primary objective is to increase shareholder value within an appropriate framework that protects the rights and enhances the interests of shareholders and ensures that the Group is properly managed. The function of the Board includes responsibility for: • approval of corporate strategies and the annual budget; • monitoring of financial performance including approval of the annual and half year financial reports, and liaison with the Group’s auditors; • ensuring effective management of the Group’s assets; • appointment of and assessment of the Group’s Chief Executive Officer; • monitoring managerial performance; and • ensuring the business risks facing the Group have been identified and that adequate control, monitoring and reporting mechanisms are in place. Audit Committee The Audit Committee comprises independent Directors Vance Arkinstall (Chair) and Rick Bettle and non-executive Director Ann Butler. The committee operates under the Audit Committee Charter. It has been established to focus on audit and risk management and specifically addresses responsibilities relative to financial reporting and regulatory conformance. The Audit Committee is also accountable for ensuring the performance and independence of the external auditors. Remuneration Committee The Remuneration Committee comprises independent Directors

Vance Arkinstall and Rick Bettle and non-executive Director Terry Butler (Chair). It is governed by the Remuneration Committee Charter. The Remuneration Committee reviews the Group’s remuneration strategy, structure and policy. Ethical Conduct The Board has adopted a Code of Ethics which sets out its desire to practice the highest standards of ethical conduct and to provide Directors and representatives with clear guidelines of conduct and behaviour that it expects of its Directors, executives and staff. The purpose of the Code is to protect and improve the Group’s values by promoting ethical and responsible conduct. In doing this, the Group enhances its own and its representatives’ reputation and integrity, and increases investor confidence. The Share Trading Protocol details the procedure whereby Dominion Directors, Executives and Employees may trade in shares of Dominion Finance Holdings Limited and details the process to be adopted for identifying conflicts of interest and the actions that are to be taken. The Company’s Continuous Disclosure Obligations Policy details the circumstances under which disclosure is required. The Company maintains an interests register in which the particulars of certain transactions and matters involving Directors must be recorded. Details of all matters entered into the register by individual Directors are outlined on pages 38 and 39.

16

making experience count

Below: DFG and NSF Lending Managers monitor every project.

DFH Total Assets

$600m

+29%

$450m $300m $150m $0m

2006

Funded by North South Finance

2007

Above: Visitor accommodation to cater for the growing number of tourists visiting Central Otago nestled in the Cadrona Valley next to the Cardrona pub and skifield entrance.

Funded by Dominion Finance Group

Below: Workstation 55: Christchurch’s new and re-developed commercial space will house up to 2000 people.

$60m

+33%

$45m $30m $15m $0m

2006

2007

DFH Equity

17

DOMINION FINANCE HOLDINGS LIMITED

Financial Statements

Statement of Financial Position 20 Statement of Financial Performance 21 Statement of Movements in Equity 21 Statement of Cash Flows 22 Notes to the Financial Statements 23 - 36 Auditor’s Report

37

18

making experience count

Funded by Dominion Finance Group

Whisper Cove: Stage one of a five stage development at Snells Beach, North Auckland includes a diverse range of highly specified townhouses overlooking Kawau Island.

19

DOMINION FINANCE HOLDINGS LIMITED

DOMINION FINANCE HOLDINGS LIMITED

Financial Statements

For the Year Ended 31 March 2007

Statement of Financial Position Note

Group Group Parent Parent 31 March 2007 31 March 2006 31 March 2007 31 March 2006 $000’s $000’s $000’s $000’s

Paid in Capital (3) Retained Earnings

15,529 36,053

13,989 24,914

64,529 218

62,989 (365)

Total Equity 51,582

38,903

64,747

62,624

Non-Current Liabilities Secured Debenture Stock Unsecured Capital Notes

159,834 38,743

- 39,016

38,743

221,864 198,577

39,016

38,743

- 134,628 2,496 1

- - 813 -

343 1

(4) 210,823 137,125

813

344

(4) (4)

182,848 39,016

Current Liabilities Bank Funding (4) Secured Debenture Stock (4) Accounts Payable (5) Taxation Payable Total Current Liabilities

35,000 171,997 3,826 -

Total Liabilities

432,687

335,702

39,829

39,087

$484,269

$374,605

$104,576

$101,711

26,085 334 15,345 3

26,605 377 27,104 3

- - - 100,900

93,600

Total Non-Current Assets

41,767 54,089 100,900

93,600

Current Assets Cash at Bank and On Hand Prepayments and Other Debtors Loan to ESOP (12) Taxation Paid in Advance Finance Receivables

25,885 1,896 1,903 287 412,531

43,153 979 452 212 275,720

186 5 1,903 1,582 -

7,454 25 452 180 -

442,502

320,516

3,676

8,111

$484,269

$374,605

$104,576

$101,711

Total Funds Employed



Represented by: Non-Current Assets Intangibles Fixed Assets Finance Receivables Investments

Total Current Assets

(9) (7) (4) (8)

(4)

Total Assets

The accompanying notes are to be read in conjunction with these financial statements.

20

Statement of Financial Performance Note

Group Group Parent Parent Year to Year to Year to Year to 31 March 2007 31 March 2006 31 March 2007 31 March 2006 $000’s $000’s $000’s $000’s

Interest Received Other Income (10)

54,959 15,248

23,063 7,612

154 9,400

51 4,113

70,207

30,675

9,554

4,164

Operating Surplus Before Tax 25,408 13,184 5,153

3,565

Total Operating Revenues

After Charging: Fees Paid to Auditors - Audit Fees - Other Fees Bad and Doubtful Debts (11) Depreciation Directors Fees Interest Loss on Disposal of Asset Rental and Lease Costs Goodwill Amortisation

88 20 3 126 152 36,428 17 344 520

66 - 874 46 93 12,912 2 277 -

- - - - 152 3,760 - - -

374 -

Less Taxation

8,297

4,223

(1,402)

(181)

$17,111

$8,961

$6,555

$3,746

(6)

Operating Surplus After Tax

Statement of Movements in Equity

Group Group Parent Parent Year to Year to Year to Year to 31 March 2007 31 March 2006 31 March 2007 31 March 2006 $000’s $000’s $000’s $000’s

Net Surplus for the Period Shares Issued Dividends Paid Equity at Start of Year

17,111 1,540 (5,972) 12,679 38,903

8,961 8,128 (4,113) 12,976 25,927

6,555 1,540 (5,972) 2,123 62,624

3,746 8,128 (4,113) 7,761 54,863

Equity at End of Year

$51,582

$38,903

$64,747

$62,624

For and on behalf of the Board

R G Bettle, Chairman 22 June 2007

P W Forsyth, Director 22 June 2007

The accompanying notes are to be read in conjunction with these financial statements.

21

DOMINION FINANCE HOLDINGS LIMITED

DOMINION FINANCE HOLDINGS LIMITED

Financial Statements

For the Year Ended 31 March 2007

Statement of Cash Flows Note

Cash Flows from Operating Activities Cash was provided from: Interest Income Dividend Income Other Income Cash was disbursed to: Payments to Suppliers and Employees Interest Paid Taxation Paid

Group Group Parent Parent Year to Year to Year to Year to 31 March 2007 31 March 2006 31 March 2007 31 March 2006 $000’s $000’s $000’s $000’s

54,959 - 15,176 70,135

23,064 - 7,792 30,856

154 9,400 - 9,554

51 4,113 4,164

(6,979) (36,428) (8,373) (51,780)

(4,715) (12,912) (4,357) (21,984)

121 (3,760) (1) (3,640)

(1,923) (104) (2,027)

Net Cash Inflow from Operating Activities (18) 18,355 Cash Flows from Investing Activities Cash was provided from: Sale of Fixed Assets Repayment of Loan Cash was disbursed to: Net Increase in Finance Receivables Loan to ESOP Purchase of Fixed Assets Purchase of Equity Investment Net Cash Flows from Investing Activities

- 90 90

8,872 5,914 2,137

2 37 39

- 90 90

37 37

(125,056) (1,540) (69) - (126,665)

(64,404) - (70) (30,614) (95,088)

- (1,540) - (7,300) (8,840)

(30,610) (30,610)

(126,575)

(95,049)

(8,750)

(30,573)

1,540 - 60,384 61,924

- 40,000 76,482 116,482

1,540 - - 1,540

40,000 40,000

(5,972) (5,972)

(4,113) (4,113)

(5,972) (5,972)

(4,113) (4,113)

Net Cash Flows from Financing Activities 55,952 112,369

(4,432)

35,887

Cash Flows from Financing Activities Cash was provided from: Issue of Shares Issue of Capital Notes Net Increase in Debenture Stock Cash was disbursed to: Dividends Paid

Net Increase (Decrease) in Cash Held Cash Acquired Through Acquisition of Subsidiary Add Opening Cash Brought Forward

(52,268) - 43,153

26,192 23,411 (6,450)

(7,268) - 7,454

7,451 3

Closing Cash Carried Forward

($9,115)

$43,153

$186

$7,454

Closing Cash Comprises Cash at Bank and On Hand Bank Overdraft

25,885 (35,000)

43,153 -

186 -

7,454 -



($9,115)

$43,153

$186

$7,454

The accompanying notes are to be read in conjunction with these financial statements.

22

Notes to the Financial Statements For the Year Ended 31 March 2007 NOTE 1 - STATEMENT OF ACCOUNTING POLICIES Reporting Entity Dominion Finance Holdings Limited (‘the Company’) is a company which was registered under the Companies Act 1993 on 2 October 2003. The Group consists of Dominion Finance Holdings Limited and its subsidiaries. Dominion Finance Holdings Limited is an issuer for the purposes of the Financial Reporting Act 1993. Statutory Base These financial statements are presented in accordance with the Securities Regulations 1983, the Companies Act 1993, and have been prepared in accordance with the Financial Reporting Act 1993. Measurement Base The measurement base adopted is that of historical cost. Specific Accounting Policies Basis of Consolidation Subsidiaries are those entities controlled, directly or indirectly, by the Company. Where subsidiaries have been acquired by way of a group reconstruction, as defined by Financial Reporting Standard No. 36 ‘Accounting for Acquisitions’ (‘FRS36’), the financial statements have been consolidated as follows: the purchase consideration is adjusted to reflect the carrying value of the shareholders’ equity acquired and no fair value adjustments are made to the subsidiary’s assets or liabilities. All inter-company transactions are eliminated on consolidation.

Goodwill

Goodwill arising on the acquisition of a subsidiary represents the excess of the purchase consideration over the fair value of the identifiable net assets acquired. Goodwill is amortised to the Statement of Financial Performance on a straight line basis over the period during which the benefits are expected to derive.

Brand

The fair value of the brand acquired by the Company has been recognised where earnings of the brand can be separately identified, where title to it is clear and where the brand achieves earnings in excess of those achieved by non-premium brands. The Brand is considered not to have a predeterminate finite economic life and has not been amortised. The carrying value of the brand is subject to annual review and any provision for diminution in the value of the brand will be recognised in the Statement of Financial Performance. Recognition of Revenue The basis for the recognition of interest revenue on advances is that interest is charged to the client on a daily basis and income is brought to account as charged. Advisory and management fees are recognised when charged and are not spread over the life of the loan. Recognition of Expenses Interest expense and other costs associated with borrowings are recognised as incurred. Borrowing costs such as origination fees and brokerage in respect of Prospectus issues are recognised in the period to which they relate. Finance Receivables Finance receivables are stated at their net estimated realisable value after providing for doubtful debts. All known losses are written off to earnings in the period in which it becomes apparent that the debts are not collectable. Debenture Stock Debenture Stock is stated at face value. Investments Investments in subsidiary companies are carried at cost less any provision for impairment.

23

DOMINION FINANCE HOLDINGS LIMITED

DOMINION FINANCE HOLDINGS LIMITED

Financial Statements

Notes to the Financial Statements For the Year Ended 31 March 2007 Fixed Assets and Depreciation Fixed assets are stated at cost less aggregate depreciation. Depreciation is calculated on a diminishing balance basis using the following depreciation rates.

Year to 31/3/2007 Year to 31/3/2006

Plant and Equipment 14.0% - 60.0% 14.0% - 60.0% Furniture and Fittings 11.0% - 40.0% 11.0% - 40.0% Premises Refit Motor Vehicles

9.0% - 39.6% 9.0% - 39.6% 31.2%

31.2%

Taxation The Group follows the liability method of accounting for deferred taxation in that amounts provided are calculated at the rate of company taxation applicable for the current year. Tax effect accounting is applied on the partial basis to all timing differences. Net future taxation benefits are not recognised in the Statement of Financial Performance until the Group is reasonably certain that the benefits will crystallise in the foreseeable future. Goods and Services Tax Dominion Finance Group Limited and North South Finance Limited have elected to be zero rated under the Taxation (GST, Trans-Tasman Imputation and Miscellaneous Provisions) Act 2003. This results in the Group being able to claim the majority of its GST inputs and that majority is excluded from the Financial Statements. Impaired and Past Due Assets Impaired assets include non-accrual loans, restructured loans and assets acquired through the enforcement of security. Non-accrual loans are those loans where the accrual of interest has ceased due to doubt as to full recovery of all amounts owing. Restructured loans are any loans which are not non-accrual loans where the original terms of the contract have been modified to grant the counterparty concessional terms. These are disclosed in Note 17. Past due assets are any loans that have not been operated by the counterparty within its key terms for at least 90 days, and which are not impaired assets. These are disclosed in Note 17. Impaired Assets and Past Due Assets are valued at their net-realisable values. When the Directors determine that a loan’s recovery is doubtful, the principal amount and accrued interest are written down to estimated net realisable value and interest and charges are no longer included in the Statement of Financial Performance while their payment is considered to be unlikely. Bad and Doubtful Debts A general provision is maintained to cover bad debts which are inherent in the loan portfolio but which are not yet identified. The level of the general provision is determined having regard to economic conditions, the level of security held, prior experience, and other general risk factors. The amount necessary to bring the provisions to their assessed levels is charged/credited to the Statement of Financial Performance. Provisions for doubtful debts are deducted from loans and advances in the Statement of Financial Position. All bad debt write-offs are made in the Statement of Financial Performance rather than against the doubtful debt provision as the Group has no specific provisions. Leases Lease payments under operating leases are charged as expenses in the periods in which they are incurred. Recognition of Financial Instruments All on-Statement of Financial Position assets and liabilities other than fixed assets are financial instruments and have been recognised in the Statement of Financial Position. The only off-Statement of Financial Position financial instruments are borrowing facilities which have been disclosed in Note 4 (6) and (7). All financial instruments are valued at their estimated realisable value or settlement value.

24

Statement of Cash Flows Cash is considered to be cash on hand and current accounts in bank, net of bank overdrafts and credit facilities. Investing activities are those activities relating to acquisition, holding and disposal of fixed assets and of investments. Investments can include securities not falling within the definition of cash. Financing activities are those activities which result in changes in size and composition of the capital structure of the Group. This includes both equity and debt not falling within the definition of cash. Any dividends paid in relation to the capital structure are included in financing activities. Operating activities include all transactions and other events that are not investing or financing activities. Changes in Accounting Policies There have been no changes in the accounting policies during the period. All policies have been applied on a basis consistent with those used in previous years, with the exception that the Group now recognises the value of acquired brands, the impact of which is disclosed in Note 9. NOTE 2 - NATURE OF BUSINESS The business of the Group is the provision of financial services through the raising of Debenture Stock.

NOTE 3 - SHARE CAPITAL Paid In Share Capital Group

No. 000’s

As at 31/03/2006 $000’s

13,989 1,540

55,500 5,318

5,861 8,128

61,918

$15,529

60,818

$13,989

Parent

No. 000’s

As at 31/03/2007 $000’s

No. 000’s

As at 31/03/2006 $000’s

Balance at Beginning of the Year Ordinary Shares Issued

60,818 1,100

62,989 1,540

55,500 5,318

54,861 8,128

Balance at End of the Year

61,918

$64,529

60,818

$62,989



No. 000’s

Balance at Beginning of the Year Ordinary Shares Issued

60,818 1,100

Balance at End of the Year

As at 31/03/2007 $000’s

On 31 March 2006, the Company issued 5,318,100 shares at $1.5284 each as partial consideration for the purchase of 100% of the shares in North South Finance Limited (See Note 8). During the year ended 31 March 2007 Dominion Finance Holdings Limited issued 1,100,000 shares at $1.40 each. All ordinary shares have equal rights. As a result of an historic group reconstruction, as defined by FRS 36, the value of the shares issued at that time by the parent company were valued at net equity of the former Group in the consolidated accounts.

25

DOMINION FINANCE HOLDINGS LIMITED

DOMINION FINANCE HOLDINGS LIMITED

Financial Statements

Notes to the Financial Statements For the Year Ended 31 March 2007 NOTE 4 - MATURITIES OF MONETARY ASSETS, RECEIVABLES AND LIABILITIES Assets Note

Group as at 31/3/2007 $000’s

Group as at 31/3/2006 $000’s

368,533 74,115 442,648 (146) 442,502

241,697 81,335 323,032 (2,516) 320,516

3,676 - 3,676 - 3,676

8,111 8,111 8,111

Non-Current 13 - 24 Months 25 - 60 Months Over 60 Months Non-Current Sub-Totals

14,357 988 - 15,345

16,244 10,860 - 27,104

- - - -

-

Totals

$457,847

$347,620

$3,676

$8,111

Group as at 31/3/2007 $000’s

Group as at 31/3/2006 $000’s

Parent as at 31/3/2007 $000’s

Parent as at 31/3/2006 $000’s

Current 00 - 06 Months 07 - 12 Months Current Sub-Totals Provision for Doubtful Debts (11) Current Sub-Totals

Parent as at 31/3/2007 $000’s

Parent as at 31/3/2006 $000’s

Liabilities

Average Interest Cost %

Current 00 - 06 Months 8.87% 07 - 12 Months 9.10% Current Sub-Totals

122,209 88,614 210,823

67,925 69,200 137,125

813 - 813

344 344

Non-Current 13 - 24 months 9.23% 25 - 60 months 9.19% Over 60 months Non-Current Sub-Totals

145,600 76,264 - 221,864

121,999 76,578 - 198,577

- 39,016 - 39,016

38,743 38,743

$432,687

$335,702

Totals

9.09%

$39,829

$39,087

Notes: (1) At 31 March 2007 Finance Receivables owing by the six largest borrowers amounted to 21.7% of the total amounts receivable (March 2006: 23.85%). (2) The weighted average interest rate on Finance Receivables is 13.35% (March 2006: 13.1%). (3) The primary security for the Finance Receivables is either a First or Second Mortgage and in many cases additional security is also taken such as Guarantees or registered charges over additional assets. In all cases documentation is prepared by the Group’s solicitor. (4) All Dominion Finance Group Limited Debenture Stock is secured under a Trust Deed dated 14 May 1993, amended on 17 April 1997, and made between Dominion Finance Group Limited and Perpetual Trust Limited. The Charge created by this Trust Deed is a floating charge over all the assets of Dominion Finance Group Limited. (5) North South Finance Limited Debenture Stock is secured under a Trust Deed dated 10 August 2001 and made between North South Finance Limited and Covenant Trustee Company Limited. The charge created by this Trust Deed is a floating charge over all the assets of North South Finance Limited. (6) Dominion Finance Group Limited has arranged committed credit facilities totalling $55,000,000 (March 2006: $18,050,000) secured by Stock Security Certificates which rank equally with Debenture Stock. As at 31 March 2007 $25,000,000 was drawn down (March 2006: $Nil was drawn down). (7) North South Finance Limited has arranged committed credit facilities totalling $35,000,000 (March 2006: $15,000,000) secured by Stock Security Certificates which rank equally with Debenture Stock. As at 31 March 2007 $10,000,000 was drawn down (March 2006: $Nil was drawn down). (8) Dominion Finance Holdings Limited issued $40,000,000 of unsecured Capital Notes paying a fixed rate of interest of 9.4% per annum in March 2006. The Capital Notes will mature on 15 October 2010. At the election of the company, the notes may be renewed or redeemed for cash or shares in the company before the maturity date. If no election is made, the notes convert into ordinary shares.

26

NOTE 5 - ACCOUNTS PAYABLE



Group as at 31/3/2007 $000’s

Group as at 31/3/2006 $000’s

Parent as at 31/3/2007 $000’s

Parent as at 31/3/2006 $000’s

Employee Entitlements Other Creditors and Accruals Deferred Income RWT Payable GST Payable

457 1,483 - 1,706 180

351 608 25 1,275 237

- 813 - - -

343 -

Total Accounts Payable

$3,826

$2,496

$813

$343



Group Year to 31/3/2007 $000’s

Group Year to 31/3/2006 $000’s

Parent Year to 31/3/2007 $000’s

Parent Year to 31/3/2006 $000’s

Operating Surplus Before Tax Plus Non-deductible Items Plus (Less) Deferred Tax Not Recognised Less Tax Losses Not Previously Recognised Less Exempt Income

25,408 564 (830) - -

13,184 17 455 (859) -

Taxable Income

$25,142

Taxation at Ruling Rate

NOTE 6 - TAXATION

5,153 (1) - - (9,400)

3,565 - - (4,113)

$12,797

$(4,248)

$(548)

8,297

4,223

(1,402)

(181)

Imputation Credit Account Balance Bought Forward Tax Paid for Year Imputation Credits Attached to Dividends

5,533 8,372 (2,942)

3,203 4,356 (2,026)

- - -

-

Balance Carried Forward

$10,963

$ 5,533

-

-



There is an unrecognised Deferred Tax Asset of $561,000 relating to timing differences (March 2006: $945,450). NOTE 7 - FIXED ASSETS - GROUP

As at 31/3/2007 Accumulated Net Book Cost Depreciation Value $000’s $000’s $000’s

Furniture and Fittings Motor Vehicles Plant and Equipment Premises Refit

108 117 267 172

63 42 141 84

45 75 126 88

Total Fixed Assets

$664

$330

$334

As at 31/3/2006 Accumulated Net Book Cost Depreciation Value $000’s $000’s $000’s Furniture and Fittings Motor Vehicles Plant and Equipment Premises Refit

121 188 330 145

64 44 222 77

57 144 108 68

Total Fixed Assets

$784

$407

$377

27

DOMINION FINANCE HOLDINGS LIMITED

DOMINION FINANCE HOLDINGS LIMITED

Financial Statements

Notes to the Financial Statements For the Year Ended 31 March 2007 NOTE 8 - INVESTMENTS - SUBSIDIARIES Details of the Company’s investment in subsidiary companies at balance date are: Principal Subsidiary Business

Dominion Finance Group Limited Dominion Leveraged Equities Limited Dominion Mortgage Securities Limited North South Finance Limited Dominion Investment Fund Limited

Financier Dormant Dormant Financier Investment

Percentage Held March 2007

100% 100% 100% 100% 100%

Percentage Held March 2006

100% 100% 100% 100% -

Balance Date

31 March 31 March 31 March 31 March 31 March

During the year ended 31 March 2007 the company incorporated Dominion Investment Fund Limited by subscribing $1,800,000 for share capital on initial subscription. On 31 March 2006 the Company acquired North South Finance Limited. The assets and liabilities acquired were:



$000’s

Sundry Debtors Finance Receivables Fixed Assets Taxation Paid in Advance Secured Debenture Stock Accounts Payable

16 89,285 197 12 (100,100) (687)

Cash at Bank and On Hand and Bank Funding Acquired Brand Net Assets Acquired Issue of Shares as Consideration Cash Paid Goodwill

23,411 16,215 28,349 (8,128) (30,611) 10,390

During the year ended 31 March 2007 the Company subscribed to 4,500,000 shares in Dominion Finance Group Limited for $4,500,000 and 1,000,000 shares in North South Finance Limited for $1,000,000.

28

NOTE 9 - INTANGIBLES Note

Goodwill Balance at Beginning of Year Additions During the Year (8) Less: Amortisation Balance at End of Year Brand Balance at Beginning of Year Additions During the Year (8) Balance at End of Year

Group As at 31/3/2007 $000’s

Group As at 31/3/2006 $000’s

Parent As at 31/3/2007 $000’s

Parent As at 31/3/2006 $000’s

10,390 - (520)

- 10,390 -

- - -

-

$9,870

$10,390

16,215 -

- 16,215

$16,215

$16,215

$

-

$

-

- - $

-

$

-

Under FRS 36 Accounting for Acquisitions, Goodwill is required to be amortised to the Statement of Financial Performance on a straight-line basis over the period during which the benefits are expected to derive - the Directors have deemed this to be a period of 20 years. Statement by Directors pursuant to the Financial Reporting Act 2003 Section 11(2). The Group is required to comply with NZGAAP in compiling the 2007 annual accounts. This results in the application of FRS 36 Accounting for Acquisitions which requires that Goodwill be amortised. 2007 is the first and only year that the Group will apply NZGAAP to Goodwill. The Group is required to prepare accounts under NZIFRS from 1 April 2007. Under IFRS 38 Intangible Assets, Goodwill is subject to an impairment test. The Group’s trading to date indicates no impairment of Goodwill. IFRS 38 requires the Group to add back the 2007 Goodwill amortisation if there is no impairment. In the Directors’ opinion this creates a Goodwill amortisation expense which does not produce a true and fair view of the 2007 profit. The brand acquired on acquisition of North South Finance Limited has been valued by the Directors, is not considered to have a predeterminate finite life, and therefore it is not being amortised. NOTE 10 - OTHER INCOME

Group Year to 31/3/2007 $000’s

Group Year to 31/3/2006 $000’s

Parent Year to 31/3/2007 $000’s

Parent Year to 31/3/2006 $000’s

Advisory and Management Fees Bad Debts Recovered Miscellaneous Income Dividend Received

15,191 - 57 -

7,578 25 9 -

- - - 9,400

4,113



$15,248

$7,612

$9,400

$4,113



29

DOMINION FINANCE HOLDINGS LIMITED

DOMINION FINANCE HOLDINGS LIMITED

Financial Statements

Notes to the Financial Statements For the Year Ended 31 March 2007 NOTE 11 - BAD AND DOUBTFUL DEBTS

Group As at 31/3/2007 $000’s

Group As at 31/3/2006 $000’s

Parent As at 31/3/2007 $000’s

Parent As at 31/3/2006 $000’s

2,516 (2,370) -

1,197 417 902

- - -

-

Total Doubtful Debts Provision

$146

$2,516

-

-

Bad Debts Written Off Increase (Decrease) in Provision for Doubtful Debts

2,373 (2,370)

457 417

- -

-

Bad and Doubtful Debts

$3

$874

-

-

Doubtful Debts Provision Opening Balance Increase (Decrease) in General Doubtful Debts Provision Balance Acquired on Acquisition of Subsidiary

NOTE 12 - RELATED PARTY TRANSACTIONS During the year ended 31 March 2007 the Group paid $215,832 (March 2006: $248,003) in rental and lease payments to Negotiable Partnership, the representative for the majority shareholders of the Company. At the period end the Group has lease commitments as disclosed in Note 16 to the Negotiable Partnership. Secured Debenture Stock is on issue to Directors and close family members to a total of $4,717,027 (March 2006: $4,543,294). Dominion Finance Holdings Limited has provided an interest free loan of $2,040,000 (of which $1,902,500 (March 2006: $452,500) is outstanding as at 31 March 2007) to DFH Trustee Limited for the purchase of ordinary shares in Dominion Finance Holdings Limited. There are no specified repayment terms. DFH Trustee Limited is trustee of the Dominion Finance Holdings Limited Employee Share Ownership Plan and holds 1,590,000 (2.57%) shares in Dominion Finance Holdings Limited for the benefit of existing and prospective employees and Directors of the Company. As at 31 March 2007, 1,435,000 (March 2006: 410,000) shares had been allocated at the share price on the open market at the date of allocation. Employees have the option at the expiry of two years from issue date to repay the loan and to have the shares transferred into their name. Employees are entitled to receive the dividend on the shares, with any such amounts received, being applied to reducing their respective loans. Voting rights on the shares are exercised by DFH Trustee Limited on behalf of the employees. The shares in DFH Trustee Limited are held by Terry Butler, and Terry and Ann Butler are the Directors. Dominion Finance Holdings Limited has no additional rights to acquire these shares over and above the provisions contained within the Companies Act 1993. Robert Barry Whale, a Director of Dominion Finance Holdings Limited, is a partner in the law firm Jones Young. During the year ended 31 March 2007 professional fees of $29,703 (March 2006: $166,421) were paid by the Group to Jones Young. Paul Winstone Forsyth, a Director of Dominion Finance Holdings Limited, was a partner in the accounting firm Harts until 31 December 2006. During the year ended 31 March 2007, professional fees of $97,693 (March 2006 $73,660) were paid by the Group to Harts. No debts with related parties have been written off or forgiven during the year. NOTE 13 - COMMITMENTS AND CONTINGENT LIABILITIES The Group has committed loan facilities totalling $104,670,587 to borrowers which are undrawn as at 31 March 2007 (March 2006: $63,722,126). These are due to be drawn down over the next twelve months. The Group has capital commitments totalling $500,000 (March 2006: Nil) for leasehold improvements/building fit out of its premises at 308 Parnell Road.

30

NOTE 14 - INDUSTRY SEGMENTS AND CONCENTRATION OF LENDING AND FUNDING Lending Geographical As at As at Sector As at As at 31 March 31 March 31 March 31 March 2007 2006 2007 2006

Northland North Shore Auckland Auckland City Fringe East Auckland West Auckland South Auckland Waikato/Bay of Plenty Central North Island Wellington Canterbury/Marlborough Otago/Southland Australia

7.4% 12.8% 10.5% 9.8% 1.5% 6.5% 12.4% 6.2% 8.0% 8.2% 15.8% 0.9%

2.9% 9.6% 15.0% 12.8% 4.4% 10.0% 10.4% 7.0% 4.3% 4.2% 17.3% 2.1%

Subdivisions Urban Subdivisions Rural Development Residential Development Commercial Other Segments: Commercial Loans Residential Loans Tourism Farming Retail Service Other

13.3% 13.2% 25.4% 7.6%

17.4% 10.3% 30.2% 4.8%

8.0% 21.7% 2.8% 2.6% 0% 2.2% 3.2%

9.5% 16.4% 0.2% 1.2% 0% 5.5% 4.5%

100.0% 100.0% 100.0% 100.0% Funding Geographical As at As at 31 March 31 March 2007 2006

Northland North Shore Auckland Auckland City Fringe East Auckland West Auckland South Auckland Waikato/Bay of Plenty Central North Island Wellington Canterbury/Marlborough Otago/Southland Australia Rest of World

5.3% 4.9% 13.1% 4.5% 1.6% 3.8% 12.2% 7.6% 16.3% 17.1% 11.0% 0.7% 1.9%

5.6% 7.3% 8.2% 7.3% 3.2% 7.0% 10.9% 8.1% 12.3% 14.9% 13.3% 0.8% 1.1%

100.0% 100.0%



NOTE 15 - FINANCIAL INSTRUMENTS Fair Value As at 31 March 2007 the carrying amounts and fair value of cash and bank, finance receivables, other receivables, borrowings and other liabilities were equivalent. Credit Risk The Group incurs credit risk in the normal course of its business providing finance to customers. The Group has a credit policy which is used to manage its exposure to credit risk. As part of this policy credit evaluations are performed on all prospective borrowers, limits on exposures have been set, lending is subject to defined criteria and is monitored and controlled by prudent credit measures. Security for the finance receivables is supported by signed contracts which take a charge over the assets financed. Loans involving land are supported by registered first or second Mortgages and in addition other collateral such as Guarantees and other registered securities are taken as considered prudent on a loan by loan basis.

31

DOMINION FINANCE HOLDINGS LIMITED

DOMINION FINANCE HOLDINGS LIMITED

Financial Statements

Notes to the Financial Statements For the Year Ended 31 March 2007 Maximum credit risk exposures at 31 March 2007 comprise the Group’s finance and trade receivables which total $426,276,496 (March 2006: $305,339,583). The Group’s large customer base of finance receivables from various industries reduces its credit risk exposure. Loan advances which are predominately property market generated are spread throughout the country and are in different sectors of commercial and residential. The Group’s credit risk is concentrated primarily within New Zealand in the northern segment of the North Island. As at 31 March 2007 the number of individuals or groups of closely related counterparties to whom the Group has a credit exposure which equals or exceeds 10% of equity were as follows:



As at 31/3/2007 $000’s No.

$5,210 - $10,420 $10,421 - $15,630 $15,631 - $20,840 $20,841 - $26,050

17 3 3 1

As at 31/3/2006 $000’s No.

$ 3,890 - $ 7,960 $ 7,961 - $11,670 $11,671 - $15,560 $15,561 - $19,450

21 3 2 1

Liquidity Risk The Group monitors its liquidity cash position on a continuous basis and plans its operating activities to ensure a balanced liquidity position. The liquidity profiles detailed in Note 4 provide the basis for cashflow planning, however a significant proportion of the Group’s Debenture Stock is reinvested at maturity and therefore does not have a cashflow impact. As at 31 March 2007, the six largest debenture stock holders represented 3.71% of total Debenture Stock (March 2006: 3.58%). It is Group policy where possible to structure large investments with varying maturity dates. To meet expected and unexpected fluctuations in operating cashflows the Group has arranged credit facilities with its bankers, which are detailed in Note 4 (6) and (7). Interest Rate Risk The Group is exposed to interest rate risk in respect of borrowings from and advances to customers. Interest rates for debenture stock borrowings and finance receivable loans are set by the Board and are subject to market influences. It is the policy of management to monitor constantly the finance portfolio in order to ensure that the maturity profile of finance borrowings match those of finance receivables and that interest rate margins are maintained. The finance portfolio is further reviewed by the Board at regular intervals. Cash and bank balances, finance receivables, leased assets and borrowings subject to interest rate risk were as follows: Interest Rate Weighted Average Rate As at 31/3/2007 Review Period

Interest Receivable Cash On Hand 0% Call Deposits with Banks 7.5% Receivables 13.35%

Floating Fixed for Term of Agreement

Interest Payable Debenture Stock 9.04% Fixed for Term of Agreement Capital Notes 9.40% Fixed for Term of Agreement Bank Funding 9.55% Floating

Continuity of Supply The Group is in the business of lending money that has been deposited with it by way of secured debentures issued by way of Prospectus offerings and other funds that it has access and facilities to lend. Some of these secured debenture funds are received via a number of financial intermediaries. The ability of the Group to lend relies upon the support for these funds. If for any reason the continuing support of a number of advisors and financial intermediaries, or the investing public does not continue or were to

32



significantly reduce, then the Group may not have the funds available to on-lend to prospective borrowers. This event may adversely impact upon the growth and continuing financial performance of the Group. The Directors believe that the Group has a sufficiently wide range of investors, including their own direct investor base that they can successfully mitigate this prospective risk. Foreign Exchange Risk The Group has no financial instruments denominated in overseas currencies. On occasion security is taken which if exercised would result in an overseas financial instrument becoming present. The Directors monitor the effects of movements in the underlying securities currency when assessing the security during the course of the loan and take appropriate action where necessary. NOTE 16 - LEASE COMMITMENTS The Group has motor vehicle and premises lease commitments of:

As at 31/3/2007 $000’s

As at 31/3/2006 $000’s

0 - 1 year 1 - 2 years 2 - 5 years

97 34 29

302 104 2



Group 31/3/2007 $000’s

Group 31/3/2006 $000’s

Non-Accrual Loans: Opening Balance Less Accounts Paid in Full Less Amounts Written Off Plus Additions to Impaired Assets Balance Acquired on Acquisition of Subsidiary

396 - (396) 1,273 -

3,153 (2,333) (451) 27 -

Closing Balance

$1,273

$396



Group 31/3/2007 $000’s

Group 31/3/2006 $000’s

Opening Balance Additions to Past Due Assets Less Amounts Paid Less Amounts Written Off Balance Acquired on Acquisition of Subsidiary

1,213 2,764 (1,213) - -

17 (8) (9) 1,213

$2,764

$1,213

NOTE 17 - IMPAIRED AND PAST DUE ASSETS Impaired Assets

The Group has no assets acquired through the enforcement of securities or restructured loans. Past Due Assets

Closing Balance



The above figures show the total increase (decrease) as at balance date. The total Past Due Assets amount to 0.65% of Gross Receivables (March 2006: 0.4%). Past Due Asset figures and percentages do not include restructured loans, impaired assets or assets acquired through the enforcement of security.

33

DOMINION FINANCE HOLDINGS LIMITED

DOMINION FINANCE HOLDINGS LIMITED

Financial Statements

Notes to the Financial Statements For the Year Ended 31 March 2007 NOTE 18 - RECONCILIATION OF CASH FLOW Operating surplus after tax reconciled with net cash flow from operating activities

Group Year ended 31/03/2007 $000’s

Group Year ended 31/03/2006 $000’s

Parent Year ended 31/03/2007 $000’s

Parent Year ended 31/03/2006 $000’s

Operating Surplus After Taxation Add Non-Cash Items: Bad and Doubtful Debts Depreciation Goodwill Amortisation Capital Notes Expense Amortisation

17,111

8,961

6,555

3,746

3 126 520 273 18,033

874 46 - - 9,881

- - - 273 6,828

3,746

(72) (77) (942) 1,396 305

214 (134) 716 (1,806) (1,010)

- (1,402) 18 470 (914)

(181) (147) (1,281) (1,609)

Less: Item Classified as Investing Activity: Net Loss on Sale of Fixed Asset

17

1

-

-

Net Cashflow from Operating Activities

$18,355

$8,872

$5,914

$2,137

Add (deduct) Movements in Other Working Capital Items: Change in Net GST Change in Tax Payable Change in Other Receivables Change in Other Payables

NOTE 19 - SUBSEQUENT EVENTS TO 31 MARCH 2007 Dominion Finance Holdings Limited made a 1 for 10 pro-rata non-taxable bonus issue of shares on 13 April 2007. After rounding down fractions of share ownership, 6,191,796 ordinary shares were issued, each fully paid. The total number of shares in existence after the issue is 68,109,896. Dominion Finance Holdings Limited paid a fully imputed dividend of 8.48 cents per share on 1 June 2007 for the year ended 31 March 2007.

NOTE 20 - INTERNATIONAL FINANCIAL REPORTING STANDARDS Dominion Finance Holdings Limited and its subsidiaries will be adopting New Zealand Equivalents to International Financial Reporting Standards (IFRS) in the year ending 31 March 2008 including comparative information for the year ended 31 March 2007. In preparation for the transition, the opening balances at 1 April 2006 for the comparative year ended 31 March 2007 have been converted to NZIFRS in accordance with NZIFRS 1, “First Time Adoption of New Zealand International Financial Reporting Standards.” Set out below are management’s current estimate of the quantitative impact of the changes on equity of the consolidated group as at 1 April 2006, changes in equity as at 31 March 2007 and reconciliation of profit and loss for the year ended 31 March 2007. The adoption of NZIFRS has no impact on the accounts of the parent company Dominion Finance Holdings Limited. Management’s best estimates of the quantitative impact of these changes at the preparation date of the annual report for the year ended 31 March 2007 may differ from the figures in the first annual report under IFRS due to ongoing analysis by the project group, potential amendments to NZIFRS and accepted practice in the interpretation and application of NZIFRS.

34

Current GAAP IFRS Impact NZIFRS Note 2007 2007 2007 $000’s $000’s $000’s

Statement of Financial Performance Interest Received Other Income (1)

54,959 15,248 (1,648)

54,959 13,600

Total Operating Revenues



$70,207

($1,648)

$68,559

Operating Surplus Before Tax



$25,408

($3,500)

$21,908

After Charging: Audit Fees 108 Bad and Doubtful Debts (2) 3 2,370 Depreciation 126 Goodwill Amortisation (3) 520 (520) Directors Fees 152 Interest 36,428 Loss on Disposal of Asset 17 Rental and Lease Costs 344

108 2,373 126 152 36,428 17 344

Less Taxation



(4)

Operating Surplus After Tax



$8,297

($1,072)

$17,111

($2,428)

$7,225 $14,683

Current GAAP IFRS Impact NZIFRS Current GAAP IFRS Impact NZIFRS 2007 2007 2007 2006 2006 2006 $000’s $000’s $000’s $000’s $000’s $000’s

Statement of Financial Position Paid in Capital Retained Earnings

15,529 36,053 (2,532)

15,529 33,521

13,989 24,914 (104)

13,989 24,810

Total Equity $51,582 $(2,532) $49,050 $38,903 $(104) $38,799 Non-Current Liabilities Secured Debenture Stock 182,848 182,848 159,834 159,834 Unsecured Capital Notes 39,016 39,016 38,743 38,743 $221,864 - $221,864 $198,577 - $198,577 Current Liabilities Bank Funding 35,000 35,000 - Secured Debenture Stock 171,997 171,997 134,628 134,628 Accounts Payable 3,826 3,826 2,496 2,496 Deferred Income (1) 6,072 6,072 4,417 4,417 Taxation Payable - - 1 - 1 Total Current Liabilities

$210,823

$6,072 $216,895

$137,125

$4,417 $141,542

Total Liabilities

$432,687

$6,072 $438,759

$335,702

$4,417 $340,119

Total Funds Employed

$484,269

$3,540 $487,809

$374,605

$4,313 $378,918

Represented by: Non-Current Assets Intangibles (3) 26,085 520 26,605 26,605 Fixed Assets 334 334 377 Finance Receivables 15,345 15,345 27,104 Investments 3 3 3 Total Non-Current Assets



$41,767

$520 $42,287

$54,089

26,605 377 27,104 3

- $54,089

35

DOMINION FINANCE HOLDINGS LIMITED

DOMINION FINANCE HOLDINGS LIMITED

Financial Statements

Notes to the Financial Statements For the Year Ended 31 March 2007

Note Current GAAP IFRS Impact NZIFRS Current GAAP IFRS Impact NZIFRS 2007 2007 2007 2006 2006 2006 $000’s $000’s $000’s $000’s $000’s $000’s

Current Assets Cash at Bank and On Hand 25,885 25,885 43,153 Prepayments and Other Debtors (4) 1,896 488 2,384 979 1,467 Loan to ESOP 1,903 1,903 452 Taxation Paid in Advance (5) 287 2,363 2,650 212 1,298 Deferred Tax Asset (5) 22 22 12 Finance Receivables 412,531 147 412,678 275,720 2,515

43,153 488 452 1,510 12 278,235

Total Current Assets



$442,502

$3,020 $445,522

$320,516

$4,313 $324,829

Total Assets



$484,269

$3,540 $487,809

$374,605

$4,313 $378,918

Notes to the Reconciliation 1. Timing of Recognition of Loan Revenue Advisory and management fee income is currently recognised when charged. NZIAS 18 Revenue requires advisory and management fee revenue to be recognised over the term of the loan. At 31 March 2007 the Group had deferred establishment fee revenue of $6,072,280 (March 2006: $4,417,430). 2. Provision for Doubtful Debts The Group maintains a general provision for doubtful debts to cover bad debts which are inherent in the loan portfolio but which are not yet identified. Under NZIAS 39 Impairment of Assets, an impairment loss is only determined if there is an objective impairment of the financial asset as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cashflows of the asset or group of assets that can be reliably estimated. Losses expected as a result of future events no matter how likely are not recognised. Therefore under NZIAS 39 there will be no general provisions for doubtful debts. At 31 March 2007 there was a general doubtful debts provision of $145,906 (March 2006: $2,515,513). Under NZ GAAP this reduction of $2,369,607 was credited to profit. Under IAS 39 this reduction needs to be reversed. 3. Goodwill Under NZGAAP the Group is required to amortise Goodwill on a straight-line basis over the period during which the benefits are expected to derive, currently 20 years. Under NZIAS 38 Intangible Assets, the carrying value of Goodwill is reviewed for impairment at each reporting period and where the review results in the carrying value of Goodwill exceeding the expected future benefits, the difference is charged to the income statement. The Directors do not believe there has been an impairment and therefore the Goodwill amortised at 31 March 2007 under NZGAAP is reversed on adoption of NZIFRS. 4. Timing of Recognition of Brokerage Expense NZIAS 39 requires brokerage fee expense to be recognised over the term of the loan. At 31 March 2007 the Group had deferred brokerage expense of $432,448 (March 2006: $488,249) 5. Income Tax Currently the Group follows the liability method of accounting for deferred taxation in that amounts provided are calculated at the rate of company taxation applicable for the current year. Tax effect accounting is applied on the partial basis to all timing differences. NZIAS 12 Income Taxes requires the company to adopt a balance sheet approach under which temporary differences are identified for each asset and liability rather than the effects of the timing and permanent differences between taxable income and accounting profit.

36

Global Reports LLC

BDO Spicers Chartered Accountants & Advisers

Aud i t R e p o r t t o t h e S h a r e h o l d e r s of Dominion Finance Holdings Limited

We have audited the financial report on pages 20 to 36. The financial report provides information about the past financial performance and cash flows of the company and group for the year ended 31 March 2007 and their financial position as at that date. This information is stated in accordance with the accounting policies described in Note 1 to the financial report. Board of Directors’ Responsibilities The Board of Directors are responsible for the preparation of a financial report which gives a true and fair view of the financial position of the company and group as at 31 March 2007 and the results of operations and cash flows for the year ended on that date. Auditors’ Responsibilities It is our responsibility to express an independent opinion on the financial report presented by the Directors and report 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 report. It also includes assessing: • the significant estimates and judgements made by the Directors in the preparation of the financial report; and • whether the accounting policies are appropriate to the company and group circumstances, consistently applied and adequately disclosed. We conducted our audit in accordance with New Zealand Auditing Standards. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to obtain reasonable assurance that the financial report is 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 report. Other than in our capacity as auditor we have no relationship with or interests in the company or any of its subsidiaries. Unqualified Opinion We have obtained all of the information and explanations we have required. In our opinion: • Proper accounting records have been kept by the company as far as appears from our examination of those records; and • The financial report on pages 20 to 36: - complies with generally accepted accounting practice in New Zealand; and - gives a true and fair view of the financial position of the company and group as at 31 March 2007 and the results of operations and cash flows for the year ended on that date. Our audit was completed on 22 June 2007 and our unqualified opinion is expressed as at that date.

BDO Spicers Auckland

37

Statutory Report of Directors Principal Activities

Directors’ Remuneration

The principal activity of the Company is as the holding company for its wholly owned trading subsidiaries Dominion Finance Group Limited and North South Finance Limited and investment vehicle Dominion Investment Fund Limited. Both Dominion Finance Group Limited and North South Finance Limited accept Debenture Stock investments and apply them (in conjunction with its own funds) towards the provision of certain loans and other financial accommodation.

Directors’ remuneration and other benefits required to be disclosed pursuant to section 211(1) (f) of the Companies Act 1993, for the year ended 31 March 2007 were:

Consolidated Financial Results This financial year the Group attained earnings before tax of $25,407,790 (2006: $13,183,511) with total operating revenues reaching $70,207,036 (2006: $30,675,153). Shareholders equity at 31 March 2007 totalled $51,582,120 (2005: $38,903,435). This included the issuing of $1,100,000 additional shares. Total assets increased by 29% to $484,269,742 (2006: $374,605,462).

Dividend An interim dividend of $2,989,558 was paid on 17 November 2006. A final dividend of $5,775,719 was paid on 1 June 2007.

Dominion Finance Holdings Limited and its Subsidiaries – as below R G Bettle

$28,374

Directors Fees

V E Arkinstall

$23,790

Directors Fees

A K Butler

$26,519

Directors Fees

P W Forsyth

$23,790

Directors Fees

R B Whale

$23,790

Directors Fees

T M Butler

$8,750

Directors Fees

P W Forsyth

$97,693

Professional Fees paid to Accountants Harts

R B Whale

$29,703

Professional Fees paid to Lawyers Jones Young

T M Butler

$513,995

T M and A K Butler $215,832

Salary Rental and Lease payments

Directors are reimbursed for travel and accommodation expenses and any other costs properly incurred by them in connection with the business of the Company. Directors’ Interests Shareholdings of Directors held as at 31 March 2007 were: Name Shareholding V E Arkinstall

Shares Held in Trust Total Interest (1)

35,000

100,000

135,000

R G Bettle

0

100,000

100,000

T M Butler

40,000,000

1,590,000 (2)

41,590,000

A K Butler

32,000,000

1,590,000 (2)

33,590,000

H S Butler

5,600,000

50,000 (3)

5,650,000

P W Forsyth

8,030,000

100,000

8,130,000

32,010,000

90,000

32,100,000

R B Whale

Note 1: Shares held in trust by DFH Trustee Limited as trustee for Dominion Finance Holdings Limited’s Employee Share Ownership Plan. Note 2: T M and A K Butler hold beneficially 50,000 shares each held in trust by DFH Trustee Limited and an interest in shares as Directors of DFH Trustee Limited. Note 3: H S Butler is an alternate director for T M Butler and A K Butler. The above Directors hold these shares both personally and/or as Trustees for other parties.

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Directors’ Share Dealings Share dealings by Directors during the period were: No. of Shares No. of Shares

Acquired

Disposed

Consideration Paid/Received

Date

V E Arkinstall 50,000 $70,000 11/09/2006 (Acquisition of shares held in trust by DFH Trustee Ltd) R G Bettle 50,000 $70,000 11/09/2006 (Acquisition of shares held in trust by DFH Trustee Ltd) A K Butler 1,100,000 (as Director for DFH Trustee Ltd)

$1,540,000 11/09/2006

T M Butler 1,100,000 (as Director for DFH Trustee Ltd)

$1,540,000 11/09/2006

H S Butler 25,000 (Acquisition of shares held in trust by DFH Trustee Ltd)

$35,000 11/09/2006

P W Forsyth 30,000 (as Trustee for Richard David Romer)

$40,500 21/07/2006

P W Forsyth 50,000 (Acquisition of shares held in trust by DFH Trustee Ltd)

$70,000 11/09/2006

The aforementioned Debenture Stock and Capital Notes are issued on terms no better than those available to other investors. Use of Company Information by Directors Pursuant to Section 145 of the Companies Act 1993, there were no recorded notices from Directors requesting to use Company information received in their capacity as Directors that would not otherwise have been available to them. Directors’ Loans There were no loans by the Group to any Directors. Directors’ Interest in Transactions

R B Whale 50,000 $73,000 03/05/2006 Directors have declared no interests in (as Trustee for Joanne Whale No. 3 Trust) & 03/08/2006 transactions with the Company during R B Whale 10,000 $14,500 03/08/2006 the financial period, other than the (as Trustee for Nicola Swain Family Trust) general disclosures made. R B Whale 50,000 (Acquisition of shares held in trust by DFH Trustee Ltd)

$70,000 11/09/2006

R B Whale 10,000 (as Trustee for Nicola Swain Family Trust)

$20,000 16/03/2007

Disclosures of Interests by Directors The following are particulars of general disclosures of interest given by the Directors of the Company pursuant to Section 140(2) of the Companies Act 1993 during the financial period: T M and A K Butler have Debenture Stock in Dominion Finance Group Limited totalling $4,532,685.

Indemnification and Insurance of Directors and Officers As permitted by the Company’s constitution and Section 162 of the Companies Act 1993, Dominion Finance Holdings Limited has given indemnities to its Directors and has effected insurance for its Directors. The total annual cost is $46,727.

T M and A K Butler have Debenture Stock in North South Finance Limited totalling $258,185. V E Arkinstall in his capacity as Trustee has an interest in Dominion Finance Group Limited Debenture Stock totalling $93,269. V E Arkinstall in his capacity as Trustee has an interest in Dominion Finance Holdings Limited Capital Notes totalling $25,000. P W Forsyth in his capacity as Trustee has an interest in Dominion Finance Group Limited Debenture Stock totalling $431,619. H S Butler in his capacity as Trustee has an interest in Dominion Finance Group Limited Debenture Stock totalling $12,685. H S Butler in his capacity as Trustee has an interest in North South Finance Limited Debenture Stock totalling $154,426. 39

DOMINION FINANCE HOLDINGS LIMITED

Employee Disclosures

Other Disclosures

Dominion Finance Holdings Limited has no employees.

Directors

Remuneration paid to employees of Dominion Finance Group Limited and North South Finance Limited in excess of $100,000 for the year ended 31 March 2007 was:

The following Directors are Independent Directors of Dominion Finance Holdings Limited, Dominion Finance Group Limited, Dominion Investment Fund Limited and North South Finance Limited:

$170,001 - $180,000

1

$180,001 - $190,000

0

$190,001 - $200,000

1

$200,001 - $210,000

3

$210,001 - $220,000

3

$220,001 - $230,000

0

$230,001 - $240,000

1

$240,001 - $250,000

1

$510,001 - $520,000

1

In addition DFH Trustee Limited holds shares on behalf of eligible employees and Directors. The Trust holds 1,590,000 shares. There was a two year lock-up period (expiring 14 July 2006) before the shares could be distributed and upon distribution any balance owing by beneficiaries for the purchase of the shares must be paid in full. As at 31 March 2007, 1,435,000 shares had been allocated at the share price on the open market at the date of allocation. Auditors In accordance with Section 200 of the Companies Act 1993, the auditors, BDO Spicers, continue in office. During the year BDO Spicers were paid $107,960 in audit and other fees.

Richard Gilbert Bettle, Independent Director (Chairman) Vance Eric Arkinstall, Independent Director (Appointed Director of North South Finance Limited on 12 April 2006). The following Directors are not Independent Directors of Dominion Finance Holdings Limited, Dominion Finance Group Limited, Dominion Investment Fund Limited and North South Finance Limited: Ann Kathleen Butler, Non-Executive Director Paul Winstone Forsyth, Non-Executive Director Robert Barry Whale, Non-Executive Director Terence Maxwell Butler, Non-Executive Director Issued Voting Securities As at 31 March 2007, the total number of issued voting securities of the Company was 61,918,100. Donations During the financial period the Company made no material donations. For and on behalf of the Board

R G Bettle, Chairman, 22 June 2007

P W Forsyth, Director, 22 June 2007 40

making experience count

Funded by North South Finance

Above: Benbrae: Village style family and group accommodation in the Cardrona Valley. Below: Parkview Estate: Soon to be finished, high quality 100 unit gated retirement community in Pukekohe.

41

DOMINION FINANCE HOLDINGS LIMITED

Statutory Disclosure in Relation to Shareholders Twenty Largest Shareholders as at 7 June 2007 No. of Shares

Terence Maxwell Butler and Robert Barry Whale Ann Kathleen Butler and Robert Barry Whale Terence Maxwell Butler and Paul Winstone Forsyth Terence Maxwell Butler and Paul Winstone Forsyth South Canterbury Finance Limited New Zealand Central Securities Depository Limited Hubbard Churcher Trust Management Limited Terence Maxwell Butler and Ann Kathleen Butler and Robert Barry Whale DFH Trustee Limited Betty Marland Lornie and Ross Thomas Lornie and Brett Frank Lornie Mark Alexander Auld and Alan Jay Reichelmann Stephen Thomas Wright and Janice Alison Wright and Kiah Chye Heng Woodhams Limited Gulf Trustee Limited Garth Barfoot FNZ Custodians Limited Darryl Raymond Keith Eastgate and Karen Marie Eastgate Paul Alexander Fincham and Theresa Armanda Fincham Gregory John Kerr and Catherine Maria Kerr and Michelle Joy Burton Michele Marie Jamed

16,720,000 16,720,000 4,400,000 4,400,000 3,761,260 2,289,705 2,040,970 1,760,000 1,721,500 1,072,387 1,022,650 550,000 500,000 487,982 275,000 231,058 212,722 136,000 128,040 121,000

Percentage of Total

24.55 24.55 6.46 6.46 5.52 3.36 3.00 2.58 2.53 1.57 1.50 0.81 0.73 0.72 0.40 0.34 0.31 0.20 0.19 0.18

Shareholdings by Holdings as at 7 June 2007 No. of Shares

No. of Investors

Shares

%

32 262 270 303 24 891

17,836 758,413 1,718,962 6,629,411 58,985,274 68,109,896

0.03 1.11 2.52 9.74 86.60 100.00

Substantial Security Holders

No. of Shares Held

%

Terence Maxwell Butler and Robert Barry Whale Ann Kathleen Butler and Robert Barry Whale Terence Maxwell Butler and Paul Winstone Forsyth Terence Maxwell Butler and Paul Winstone Forsyth South Canterbury Finance Limited

16,720,000 16,720,000 4,400,000 4,400,000 3,761,260

24.55 24.55 6.46 6.46 5.52

1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Substantial Security Holders as at 7 June 2007

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Directory Directors

Shareholder Enquiries

Richard Gilbert Bettle, Independent Director (Chairman) Terence Maxwell Butler, Executive Director Vance Eric Arkinstall, Independent Director Ann Kathleen Butler, Non-Executive Director Paul Winstone Forsyth, Non-Executive Director Robert Barry Whale, Non-Executive Director

Shareholders with enquiries about share transactions, changes of address or dividend payments should contact the Share Registrar.

Company Secretary Bruce Philip Waddel

Auditors BDO Spicers Level 8 120 Albert Street, Auckland Solicitors

Audit and Remuneration Committee Vance Eric Arkinstall, Chairman Richard Gilbert Bettle Ann Kathleen Butler

Jones Young Level 14 ASB Bank Centre 135 Albert Street, Auckland

Registered Office

Bankers

Plaza Level Parnell Towers 308 Parnell Road, Parnell, Auckland

ASB Bank Limited BOS International (Australia) Limited

Share Registrar Link Market Services Limited 138 Tancred Street PO Box 384, Ashburton Telephone 03 308 8887

Funded by Dominion Finance Group

Website www.dominionfinance.co.nz

Eight highly specified apartments at Pilot Bay have set the new standard for quality in Mt Maunganui.

43

DOMINION FINANCE HOLDINGS LIMITED

Global Reports LLC

Funded by Dominion Finance Group

Gallery: 13 storey building with18 luxury apartments nearing completion in central Christchurch.

Annual Report 2007 D O M I N I O N FINANCE HOLDINGS LIMITED Plaza Level, Parnell Towers, 308 Parnell Road, Auckland PO BOX 37 076, Parnell, Auckland, New Zealand TELEPHONE 0800 366 346 or 09 306 0400 FACSIMILE 09 306 0404 EMAIL [email protected] WEBSITE www.dominionfinance.co.nz

LISTED