Report. of the Armed Forces Canteen Council. For the year ended 31 March. Presented to the House of. Representatives Pursuant to

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1 Report of the Armed Forces Canteen Council Presented to the House of Representatives Pursuant to Section 13 of the Armed Forces Canteens Act 1948 For the year ended 31 March 2005

2 Contents Page Number Directory 3 Introduction 5 Highlights of the Year 6 Results at a Glance 6 Report on Operations 7 Financial Review 9 Human Resources and Training 10 Distribution of Surplus 10 Appreciation 10 Five Year Summary 11 Financial Statements Statement of Responsibility 12 Statement of Accounting Policies 13 Statement of Financial Performance 15 Statement of Movements in Equity 15 Statement of Financial Position 16 Statement of Cash Flows 17 Notes to the Financial Statements 18 Audit Report 22 2

3 Directory Council Minister of Defence (Chairman) Hon. Mark Burton. Chief of Defence Force (Deputy Chairman) Air Marshal BR Ferguson. OBE AFC Chief of Navy Rear Admiral DI Ledson ONZM Chief of Army Major General J Mateparae, ONZM Chief of Air Force Air Vice Marshal JHS Hamilton, ONZM MVO Vice Chief of Defence Force Air Vice Marshal DA Bamfield ONZM Financial and Commercial Adviser Mr P Nankivell, BCA, CA, Chartered Accountant, Public Practitioner. Chief Executive Brigadier (Retired) RR Ottaway MBE Board of Management Vice Chief of Defence Force (Chairman) Air Vice Marshal DA Bamfield ONZM Deputy Chief of Navy Commodore D Anson ADC Deputy Chief of Army Brigadier PS Southwell (To December 2004) Brigadier JB Vryenhoek (From January 2005) Deputy Chief of Air Force Air Commodore PJ Stockwell AFC ADC Financial and Commercial Adviser Mr P Nankivell, BCA, CA, Chartered Accountant, Public Practitioner. Chief Executive Brigadier (Retired) RR Ottaway MBE 3

4 Directory continued Head Office Solicitors Auditors Bankers Tourism and Travel House (Level 11) 79 Boulcott Street PO Box Wellington Telephone: (04) Fax: (04) Luke, Cunningham & Clere, Wellington Audit New Zealand, Wellington Bank of New Zealand, 50 Manners Street, Wellington 4

5 Introduction Mission The mission of the Armed Forces Canteen Council (AFCC) is; To provide a first class Canteen Service to meet the needs of the people of the New Zealand Defence Force Vision To be the first choice provider of Quality Canteen Services to the New Zealand Defence Force History Following the outbreak of the Second World War, it became apparent some form of canteen service was required to cater for the large intake of troops. The Canteen Board was set up under the Defence Canteen Emergency Regulations on 15 November At the end of the war, the Government decided the Defence Canteen Emergency Regulations should remain in force and on 26 November 1948, Parliament passed the Armed Forces Canteens Act The initial funding was 106,833 pounds, an 11.6 percent share of the assets of the Canteen Board. The size of the fund and the distribution of profits to the Services have increased over the years. This is a consequence of the expansion of canteen and shop facilities at Service establishments and sound financial management. The equity is currently $7.26m. Over the years, the AFCC has provided a full range of commercial services to anticipate and keep pace with new demands. Trading outlets include grocery supermarkets, variety and duty free stores, cafeterias, canteens for field exercises and a wholesale service for military groups. The erosion of the commercial infrastructure at military establishments in more recent times has led to the AFCC providing an extended range of services. The AFCC has trading outlets at camps and bases throughout New Zealand operating under the generic name Canteen Service. The stores and cafeterias are progressively being upgraded and are being re-branded as Hot Shots. The AFCC continues to provide Canteen Services to personnel of the NZDF and Antarctica New Zealand serving at Scott Base, Antarctica. Consultants reviewed the roles, functions and organisational structure of the AFCC during As a result of that review, the management arrangements were streamlined by delegating routine oversight from the Council to a Board of Management. Trading Locations The Council has trading outlets at all of the major New Zealand Defence Force camps and bases from Auckland to Burnham and seasonally, at New Zealand s southern-most store located at Scott Base Antarctica. Support is also provided for field exercises. 5

6 Highlights of the Year Sales maintained at $15.67m over the last year despite the continued reduction in prices of imported goods due to the strength of the New Zealand currency and widespread price cuts and margin reductions on high value products. Slightly improved the gross profit margin to percent of sales (previously percent) as well as continuing to offer competitively priced goods. Continued with the refurbishment of trading locations to the HOTSHOTS format. Work completed at the Whenuapai Store and the Woodbourne cafeteria Completed the installation of a new Point of Sale (POS) information and sales management system throughout the AFCC Produced an Annual Surplus of $542,535 and provided for an annual distribution of $325,500 of this surplus to New Zealand Defence Force welfare funds Results at a Glance KEY INDICATORS Equity $7.26m $7.04m Total Assets $8.69m $8.53m Working Capital ratio 1: Quick Assets ratio 1: Gross Profit % Overheads to Sales % Sales per Head AFCC Staff $149,222 $146,162 Sales per Head Regular Force and Civilians. $1,537 $1,496 Number of Pay Plan Accounts 4,736 5,142 Value of Pay Plan Accounts $2.75m $2.94m Distribution of Surplus $0.325m $0.307m 6

7 Performance Comparisons Turnover $15.67m $15.93m Cash $8.36m $8.62m Pay Plan $4.35m $4.37m Wholesale $2.96m $2.94m Gross Profit $3.69m $3.74m Other Income $0.52m $0.52m Wages $2.04m $2.04m Staff Costs $0.52m $0.52m Property Charges $0.60m $0.66m Interest $0.01m $0.01m Other $0.50m $0.52m Net Surplus $0.54m $0.51m Business Plan Initiatives 2004/05 Report on Operations The Business Plan for the year to 31 March 2005 listed the main initiatives for the year as; The development of a Strategic Plan for the AFCC * Development completed To be implemented in 2005/06 In conjunction with NZDF, upgrade the cafeteria at RNZAF Woodbourne and the Burnham Camp Shop and Cafeteria to the Hotshots brand. * Woodbourne completed, Burnham deferred until 2005/06. Whenuapai also refurbished. Complete the installation of new POS technology across the AFCC. * Completed Finalise relationship arrangements with Antarctica NZ for the provision of canteen services at Scott Base. * Service Level Agreement completed and implemented Enhance the level of support provided to field exercises *Field Facility established in the Waiouru Training Area Market the services provided by AFCC to capture a wider customer base within the NZDF. * Ongoing 7

8 Business Objectives 2004/05 Financial performance for the year was to be measured against the following objectives; a. Achieve sales of $16.65m. b. Achieve a Gross Profit Margin of 23.8 percent c. Reduce the loss in café trading with the intent to break even d. Contain wage and salary costs to 16 percent of sales e. Gain interest income of $440k. f. After meeting overheads and expenses produce a net surplus of $615k. Sales Turnover for the twelve months to 31 March 2005 dropped by $0.26m to $15.67m. Whilst it had been hoped to lift sales to $16.65m a number of factors mitigated against achieving this result. The continuing strength of the New Zealand dollar has had a significant effect on sales. Whilst the volume of sales has increased, cheaper wholesale product prices have affected the gross value of those sales. The retail price of high technology consumer goods continues to fall. Computers, audio-visual items, cameras and household appliances have all reduced in price over the past twelve months. Gross Profit Since the introduction of Point of Sale some 5 years ago, the Gross Profit margin has steadily increased. In these accounts the Gross Profit has increased marginally to percent from the 2004 level of percent. This percentage level of Gross Profit is yet again a new record level for the AFCC but still a little short of the target set. The trend towards higher gross profitability has been maintained by astute buying and selling of more profitable merchandise. Wholesale liquor which is sold to messes and clubs at low mark-up continues to diminish in the sales mix while appliance and dry goods retailing has been established as a significant business activity for the AFCC. The stock management capabilities of POS have also contributed to attaining a better rate of Gross Profit. Cafeteria Trading The objective to have Cafeteria trading break even was not achieved. However the loss of $104k experienced in the previous year was reduced by $62k to $42k. This was achieved by evaluating and refining opening hours, rationalising staff and reducing operating expenditure. Wage & Salary Costs Wage and Salary costs increased by only $5,548 over the previous year to $2.56m (16.3 percent). Variety shop wages totalled $1.53m (10.97 percent of sales) whereas the cafeterias which are open for extended hours as a service to personnel cost $495k (29.02 percent of sales). AFCC wage worker pay rates were increased by 2.25 percent in May 2004 and salaried employees also received similar increases. Managers are also able to earn an additional 10 percent of salary by achieving pre-determined target for sales, gross profit, net surplus and inventory levels. 8

9 Interest Income Income derived from interest on Hire Purchase sales and investments totalled $406k. This was $34k less than anticipated. The shortfall can be attributed to the reduction in prices for whiteware and brownware products and the need to more frequently offer interest free terms in order to be competitive with the open market. Net Surplus Although there was a decrease in the level of sales and Gross Profit percentage increased only marginally the Net Surplus of $542,535 (3.46 percent) is $30,298 more than last year. This bottom line surplus would not have been possible without tight control over operating costs. Shop trading generated a net surplus of $584,824 and subsidised the cafeterias which incurred a loss of $42,289. Steady progress is being made in upgrading and re-branding the stores and cafeterias with the Hot Shots brand. The upgrades are seen as a vital re-investment in the business. The upgrade of the Point of Sale technology completed this year provides an enhanced ability to more closely monitor the performance of operations. Inventory Over recent years considerable effort has been made to more effectively manage inventory levels in order to reduce the level of capital invested in stock. The Point of Sale technology has been fundamental to achieving this goal. A conscious effort was made this year to pay close attention to managing aged stock levels. At the end of the trading year stock levels had been decreased by $0.22m to $2.53m from last years holding of $2.75m. A comprehensive programmed series of rolling stock takes enables the investigation of variances to be completed in a timely manner and to closely monitor stock movement times. Cash Flow The cash flow during the year was strong with operating activities having a net inflow of $964k. The net outflows from investing activities totalled $271k resulting in a net increase in cash held of $693k. The balance of funds held at 31 March 2005 was made up of cash on hand totalling $64,224, term deposits of $1,150,000 less the overdraft of $190,399 making a net cash balance of $1,023,825. Financial Review The AFCC improved its financial position this year, with the Equity increasing by $217,035 to $7.26m. Cash carried forward at the close of the year totalled $1,023,825. Liquidity was helped by the reduction in Accounts Receivable which includes Pay Plans. These fell by $241k to $3.54m and Inventory was reduced by $218k to$2.53m. This was offset by a reduction in Accounts Payable of $189k to $1.08m. Investment continues to be made in shop and cafe upgrades and the provision of new plant and equipment. This is reflected in Fixed Assets with a book value of $1.35m. Investments which are shares and deposits in grocery and appliance buying groups increased from $39,092 to $58,601. 9

10 Human Resources and Training Following the death of Mr Kevin Smith in late 2003 Mr Arvin Jina, the Financial Controller acted as Chief Executive until the appointment of Brigadier (Retired) Rick Ottaway on 18 August One of the great strengths of the AFCC is having an experienced and highly motivated management team and workforce. Training opportunities through the Retailers Association and the Retail Industry Training Organisation are taken to assist in developing the expertise of AFCC staff and provide them with recognisable NZQA qualifications. Tony Karon of Burnham was selected as the Manager of the Year at the annual manager s conference. Tony has completed over 30 years of service to the AFCC. A number of management changes were made during 2004/2005 year. New managers were appointed at Ohakea, Linton, Trentham and Woodbourne. At 31 March 2005 the AFCC had 105 employees, 58 of whom are employed part-time. Distribution of Surplus An interim distribution of $157,500 was paid in mid-year. Provision has been made for a final distribution of $168,000, making the total for the year $325,500 (60 percent of the surplus). This represents a small increase of $18,000 over last year. The AFCC has retained $217,035 (40 percent of the surplus) to continue with the programmed upgrade of trading facilities, undertake a programme of capital investment and to take advantage of business opportunities. The distributions are made to Service Welfare Funds and they provide amenities and benefits which facilitate recruitment, retention and morale. The payment of a distribution of surplus is in keeping with the role of the AFCC and is seen as a tangible reward for NZDF personnel who shop with the organisation. Appreciation It would not have been possible to achieve such a sound result without the dedicated effort and commitment of the staff of the AFCC. The success of the organisation can also be attributed to the guidance and governance provided by the Council and the Board of Management and the support it receives from NZDF personnel. Phil Goff Minister of Defence Chairman Armed Forces Canteen Council 10

11 Five Year Summary Year Ended 31 March $000 $000 $000 $000 $000 Sales 15,668 15,932 15,445 16,517 16,221 Cash 8,360 8,624 8,312 8,834 8,400 Wholesale 2,959 2,939 2,575 2,716 3,042 Pay Plan 4,349 4,369 4,558 4,967 4,939 Gross Profit 3,695 3,738 3,624 3,790 3,588 Wages 2,045 2,041 1,883 1,893 1,922 Net Surplus Equity 7,260 7,043 6,838 6,536 6,183 Distribution

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Appendix B: Formulae Used for Calculation of Hospital Performance Measures

Appendix B: Formulae Used for Calculation of Hospital Performance Measures ADJUSTMENTS Adjustment Factor Case Mix Adjustment Wage Index Adjustment Gross Patient Revenue / Gross Inpatient Acute Care Revenue