South Canterbury confirms in new investment statement that group credit manager left in early December

South Canterbury confirms in new investment statement that group credit manager left in early December
Timaru-based South Canterbury Finance has released an updated investment statement following an announcement to the stock market last week in which it foreshadowed a loss in the half year to December, and said it would have to restate its financial statements for the year ended June 30, 2009. Included in the memorandum of amendments to the investment statement was confirmation Group Credit Manager Peter Bosworth resigned on December 3, following CEO Lachie McLeod's resignation in late November. It has already been reported that Chief Financial Officer Graeme Brown resigned on December 18, although had signaled his intention to resign several months earlier. The full memorandum of amendments and new investment statement are reproduced below. We welcome your views and insight on the documents: South Canterbury also commented further on its relationship with South Island Farm Holdings and the restating of its June financial statements:
Note 25 on page 72 of the Prospectus refers to the security sharing arrangement entered into by South Canterbury Finance. The Company wishes to add, in relation to that disclosure, that the consideration for the acquisition of the loans under the security sharing agreement comprised 67.2m preference shares issued by South Island Farm Holdings Ltd ("SIFHL") at an issue price of $1 per share (which rank ahead of the SIFHL ordinary shares), $12m for a 40% interest in Commtest Instruments Ltd and $10.5m for 5.25m shares in Scales Corporation Ltd. The fair value of $67.2m attributed to the SIFHL preference shares (being the aggregate issue price of the shares) was agreed by the Board of South Canterbury Finance, after taking into account an assessment by a qualified farm valuer (who is an employee of South Canterbury Finance), based on a sample review of the underlying farming assets of SIFHL. As at 9 February 2010, the Company has recently become aware that it did not comply with the applicable financial reporting standard when valuing its investment in the 67.2 million SIFHL preference shares in its 30 June 2009 financial statements. In particular the methodology used is inconsistent with the fair value methodology for such an investment as set out in Note 20 to the financial statements for the year ended 30 June 2009. The methodology used to assess fair value of the SIFHL preference shares has been assessed by the Company's current auditors, Ernst & Young, who have indicated that the fair value assessment should have used techniques such a discounted cash flow model and taking account of the returns from a similar instrument. The fair value using such techniques may have been less than the value attributed to the SIFHL preference shares by the Company in its 30 June 2009 financial statements. South Canterbury Finance has instructed an independent valuer to value the SIFHL preference shares in accordance with the correct methodology. South Canterbury Finance has subsequently sold the 6.8 million SIFHL ordinary shares that were held by it to an independent third party for $6.8 million (being the price initially paid by it for those shares) while the 67.2 million SIFHL preference shares held by it have all been redeemed for $67.2 million and South Canterbury Finance has made an advance of that amount to SIFHL. A material difference between the $67.2m value attributed by the Company to the SIFHL preference shares and the fair value that is determined following independent advice on the matter may result in a prior period adjustment being required in respect of the year ended 30 June 2009. It is noted that any difference arising from a revaluation of the SIFHL preference shares will fully reverse in the financial year ending 30 June 2010. The value attributed to the Commtest Instruments shares was agreed by the Board of South Canterbury Finance, after taking into account an assessment by an accountant in public practice at a firm of chartered accountants (in which the Chairman of South Canterbury Finance was formerly a partner). The value attributed to the Scales Corporation shares was assessed by the Board at $10.5 million and reflected prevailing market share price and value.
SCF Memorandum of Amendments Feb 2010 SCF Investment Statement 10 Feb 2010

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