scf annual report, year ended june 30, 2009

SOUTH CANTERBURY FINANCE LTD(Established 1926)

ANNUAL REPORT

FOR THE YEAR ENDED 30 JUNE 2009

SOUTH CANTERBURY FINANCE LTD

INDEX

PAGE NUMBER

1 :: COMPANY DIRECTORY

2 AUDITORS REPORT

3 INCOME STATEMENT

4 :: STATEMENT OF CHANGES IN EQUITY

5 :: BALANCE SHEET

6 :: CASH FLOW STATEMENT

7 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS


COMPANY DIRECTORY

DIRECTORSAllan James Hubbard (Chairman)

Edward Oral SullivanRobert Alexander White (Resigned 27 August 2009)

Stuart John Nattrass (Resigned 27 August 2009)

CHIEF EXECUTIVE OFFICERLachie John McLeod

REGISTERED OFFICE39 George Street

Timaru

BANKERSBank of New Zealand

Timaru

SOLICITORSBradley, West

TimaruRaymond Sullivan McGlashan

Timaru

AUDITORSWoodnorth Myers

Chartered AccountantsTimaru/Ashburton

SHAREHOLDERSSouthbury Group Ltd 130,000,000

Total Ordinary Shares 130,000,000Perpetual Preference Shares 120,000,000

Total Shares Issued 250,000,000

COMPANY INCORPORATION NUMBER IRD NUMBER121022 11-554-288

Page 1

\ M WOODNORTH MYERS & CoAUDITORS' REPORT TO THE SHAREHOLDERS OF

SOUTH CANTERBURY FINANCE LIMITED AND SUBSIDIARIES [THE GROUP)

We have audited the financial report on pages 3 to 32 for the year ended 30 June 2009. The financial report provides informationabout the past financial performance and financial position of the group as at 30 June 2009. This information is stated in accordancewith the accounting policies set out on pages 7 to 10.

Board of Directors ' ResponsibilitiesThe Board of Directors is responsible for the preparation of a financial report which gives a true and fair view of the financialposition of the company as at 30 June 2009 and the results of operations and cash flows for the year ended on that date.

Auditor's ResponsibilitiesIt is our responsibility to express to you an independent opinion on the financial report presented by the directors.

Basis of OpinionAn audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial report. It alsoincludes assessing:

• the significant estimates and judgments made by the directors in the preparation of the financial report; and• whether the accounting policies are appropriate to the group's 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 obtainall the information and explanations which we considered necessary in order to provide us with sufficient evidence to obtainreasonable 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.

Associates of the auditors receive other income from South Canterbury Finance Limited on normal terms within the ordinary courseof trading activities. The firm has no other interests in the company or any of its subsidiaries.

Fundamental uncertainty - Going concernIn forming our unqualified opinion we have considered the adequacy of the disclosures made in note 2 B concerning thedowngrading of South Canterbury Finance's credit rating and the related impact on the USPP funding stated at $153m in note 16.Future debenture funding also depends on the group successfully registering a new prospectus. As set out in note 2 B, the Directorsbelieve that the group has a range of options available to it, and consider that these matters will be satisfactorily resolved. Thevalidity of the going concern assumption on which the financial statements are prepared may depend on the successful conclusionof these matters. If the matters were unable to be satisfactorily resolved, this could have a significant impact on the liquidity of thegroup, and the recoverable amount of certain assets.

Unqualified OpinionWe have obtained all 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 3 to 32

- comply with generally accepted accounting practice in New Zealand;- comply with International Financial Reporting Standards; and- gives a true and fair view of the financial position of the group as at 30 June 2009 and the results of its operations

and cash flows for the year ended on that date.

Our audit was completed on 30 September 2009 and our unqualified opinion is expressed as at that date.

C) c ,

Woodnorth Myers & Co.Chartered AccountantsTimaru

2

100-104 Sophia Street - PO 8ox 329 - Timaru - Phone 03 684 3079 - Facsimile 03 688 4623

SOUTH CANTERBURY FINANCE LTDINCOME STATEMENT


12 Months to 12 Months to30 June 30 June

2009 2008$000's $000's

NoteInterest Received 4 220,202 199,086Fee Income 10,500 12,454Leased Asset Charges 18,230 20,298Dividends Received 2,266 1,820Net Gain on Sales of Investments 7,471 44,551Depreciation Recovery: Lease Receivables 1,800 3,894Depreciation Recovery: Property Plant and Equipmen 8 189Fair value gain (loss) on financial assets held for trading 39,679Forex gain (loss) - 1,008Other income 5,342 1,776Total Income 305,678 284,887

Less ExpensesInterest Paid 180,281 135,200Audit Fee 517 495Bad Debts Written Off 7 9,783 10,355Allowance for Impairment: Advances 7 57,655 8,595Impairment on Investments 11,438 3,074Property Revaluation Joint Venture 3,246Fair value gain (loss) on financial assets held for trading 9,046Forex gain (loss) 19,548Directors Fees and Expenses 27 308 315Donations 15 300Brokerage and Debenture Expenses 4,772Rent Paid 924 1,065Depreciation: Lease Receivables 4,496Depreciation: Property Plant and Equipment 8 5,508 11,751Loss on Disposal: Property Plant and Equipment (Recognised) 563 317Loss on Investments (Recognised) 13 35,000Loss on Property Held for Resale (Recognised) 464Write Off Intangible Assets 12 5,807Other Expenses 27,817 30,699

368,142 211,212Share of Profit in Associates (998)

369,140 211,212Net Profit Before Taxation (63,462 ) 73,675Subvention Payment 35 (4,008)Provision for Taxation 35 13,893 (8,884)Net Profit After Taxation (49,569 ) 60,783Share of Profit Attributed to Minority Interests 860 983Net Profit Attributed to Parent Company Shareholders $(50,429 ) $ 59,799

Page 3

SOUTH CANTERBURY FINANCE LTDSTATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 30 JUNE 2009

12 Months to 12 Months to30 June 30 June

2009 2008$000's $000's

NoteEquity at Beginning of the Period 243,569 204,516

Net Profit After Taxation (50,429) 59,799Minority Interests Share of Equity 500Minority Interests Share of Profit 860 983Movement in Revaluation Taken to Income 2,471Fair Value Adjustment 3,844 (7,035)

(45,725) 56,719Contribution from OwnersOrdinary Shares Issued 60,000 25,000Distribution to Owners:Preference Share Dividends Paid 19 (7,894) (8,666)Ordinary Share Dividends Paid 19 (24,027) (34,000)Movements in Equity for the Period (17,647) 39,052

Equity at End of the Period 17 $225 ,922 $243,569

Comprising:Parent Company Interest 222,170 240,677Minority Interest 3,752 2,891

$225,922 $243,569

Page 4

SOUTH CANTERBURY FINANCE LTDBALANCE SHEET

AS AT 30 JUNE 2009

30 June 30 June2009 2008

$000's $000'sAssets NoteCash and Cash Equivalents 5 123,276 402,771Other Short Term Deposits 5 287 253Receivables 5 25,061 9,698Property Held for Resale 5 52,381 5,920Taxation 35 38,416 34,567Deferred Taxation 35 24,326 8,231Advances 5,7 1,631,786 1,458,241Financial assets at fair value throughprofit and loss held for trading 20 36,833Property, Plant and Equipment 8 104,577 45,092NZ Government Stock 5 1,018 1,009Shares in Associated Companies 15 83,525 18,484Shares and investments 13 233,405 41,629Goodwill on Consolidation 12 3,476Total Assets 2,354, 890 2 ,029,371

LiabilitiesCreditors 6 21,465 22,831Financial assets at fair value throughprofit and loss held for trading 20 4,491Borrowings 6,16 2,107,503 1,758,480Total Liabilities 2,128 , 968 1 ,785,802

Total Net Assets $225,922 $243569

EquityTotal Shareholders Equity 17 $225,922 $243,569

Signed this 30th day of September 2009 for and on behalf of the Directors

C--L tl yk Director11

ALLAN JAMES HUBBARDDirector

EDWARD ORAL SULLIVAN

Page 5

SOUTH CANTERBURY FINANCE LTDCASH FLOW STATEMENT


Cashf[ows from Operating ActivitiesCash was received from:

Interest ReceivedLeased Asset ChargesDividends ReceivedOther Receipts

Cash was applied to:Interest PaidOperating Expenses & OverheadsTaxation Paid

Net Cashflow from ( used in) Operating Activities (Note 3)

Cashflows from Investing ActivitiesCash was Received from:Sale of Shares and InvestmentsProperty Held for ResaleSale of Lease AssetsSale of Fixed Assets

Cash was applied to:Increase in AdvancesPurchase of Shares and InvestmentsProperty Held for ResalePurchase of Lease AssetsPurchase of Fixed AssetsIncrease in Goodwill

Net Cashflow from ( used in) Investing Activities

Cashflows from Financing ActivitiesCash was received from:

Increase in CapitalIncrease in Borrowings

Cash was applied to:Dividends PaidDecrease in Prior Charges

Net Cashflow from Financing Activities

Net Increase ( Decrease) in Cash Held

ReconciliationCash Held at Start of PeriodExchange Gain (Loss)Cash Held at End of PeriodNet Increase (Decrease ) in Cash Held

12 Months to 12 Months to30.06 .09 30.06.08$000's $000's

177,799 150,05818,751 21,5673,169 917

16,932 18,392216,650 190,935

136,665 93,10858,639 61,7268,653 29,659

203,957 184,49312,694 6,441

46,127 127,5995,4568,597 9,2792,195 11,975

62,375 148,853

213,726 121,688331,918 43,574

52,381 5,92034 1,343

69,901 605228

667,960 173,358(605,585) (24,506)

60,000 25,000285,318 299,369345,318 324,369

31,921 42,666- 454

31,921 43,120313,396 281,249

(279 , 495 ) $263 , 185

402,771 139,586

123,276 402,771$(279,495) $263,185

Page 6

SOUTH CANTERBURY FINANCE LTDNOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS


1 COMPANY ACTIVITYSouth Canterbury Finance Ltd (the company) is a profit orientated entity incorporated in New Zealand and registeredunder the Companies Act 1993.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESA REPORTING ENTITY

South Canterbury Finance Ltd is registered under the Companies Act 1993. The consolidated financial statementsreport on the groups activities and have been prepared in accordance with the requirements of the Companies Act1993, the Securities Regulations 1983 and the Financial Reporting Act 1993.

B BASIS OF PREPARATIONThe financial statements have been prepared in accordance with New Zealand generally accepted accountingpractice (NZGAAP). They comply with the New Zealand Equivalents to International Financial Reporting Standards(NZ IFRS) and other interpretations as appropriate for profit orientated entities. The financial statements complywith the International Financial Reporting Standards (IFRS). Reliance is placed on the company continuing as agoing concern.The financial information is presented in New Zealand dollars and unless stated otherwise amounts have beenrounded to the nearest thousand dollars.Going ConcernThe financial statements have been prepared on a going concern basis. The Company has considered its fundingand liquidity position, including the following events.Following the credit rating downgrade all new investments and existing depositors reinvestments have been placedin a trust account under the control of Trustees Executors Ltd pending a registration of a Memorandum ofAmendments to the registered prospectus which would reflect the above events. On 17 September the companyelected to withdraw its prospectus pending registration of a new prospectus incorporating the June 2009 auditedaccounts. A delay in the registration of the prospectus could have a significant impact on the company's liquidity.On 13 August 2009 the company's credit rating was downgraded by Standard and Poors to BB+ and on 19September this was placed on negative watch. The downgrade gives rise of an event of review for both the bankingfacility and the USPP funding. The banking facility has been placed on a stop draw. This facility may be withdrawn ifevents leading to the review cannot be addressed satisfactorily. US investors may request repayment of funds andthe company is currently in discussion with those investors.The company is currently looking at a major restructuring. This would see new capital being introduced and theappointment of new independent directors. An announcement is expected in relation to this in mid October.

C SPECIFIC ACCOUNTING POLICIESBasis of ConsolidationThe subsidiary companies, both charging and non-charging, as detailed in note 23 have been consolidated withinthese financial statements.The associated companies detailed in note 23 have been equity accounted within these financial statements. Theassociated company accounts are unauditedThe joint ventures detailed in note 23 have been accounted for on a proportionate basis. The joint venture financialstatements are unaudited.The normal principles of consolidation as required by the New Zealand International Financial Reporting Standardshave been adhered to.Interest Income and ExpenseInterest income and expense are recognised in the income statement as they accrue using the effective interestrate method.The effective interest rate method calculates the amortised cost of a financial asset or financial liability and allocatesthe interest income or expense, including any fees and directly related transaction costs that are an integral part ofthe effective interest rate, over the expected life of the financial asset or liability. The application of the method hasthe effect of recognising income and expense on the financial asset or liability evenly in proportion to the amountoutstanding over the period of maturity or repayment.

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Operating LeasesIncome from operating leases is apportioned over the term of the lease on a straight line basis.Other IncomeDividend income is recognised in the income statement when the shareholder's right to receive payment becomesunconditional.Fee income integral to the effective yield of the financial asset is accrued over the term of the loan using theeffective interest method. Other fee income is recognised on an accruals basis when the service has been provided.

Income TaxThe income tax expense recognised in the accounts is based on the accounting surplus adjusted for certaintemporary differences between accounting and taxation rules. Following the liability method for tax calculation, theCompany has adopted the comprehensive basis for the calculation of deferred tax. Future income tax benefitsattributable to temporary differences are recognised in the financial statements to the extent that it is probable therewill be future taxable profit to utilise these differences.Goods and Service Tax (GST)All revenue and expenditure amounts are shown in the Financial Statements net of GST. GST paid, net of anyrefunds collected or due, is shown as a separate expense item.Property Held for ResaleProperties intended for resale are recognised at the lower of cost or estimated net realisable value. Depreciation isnot charged on these properties.Financial InstrumentsFinancial instruments are initially recognised at fair value on the date they originated. These instruments areclassified in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and assets available for resale. The classification depends on the purpose for which thefinancial instruments were acquired. Management determines the classification of its instruments at initialrecognition and re-evaluates this designation at each reporting date.Financial assets at fair value through profit or lossThis category has two sub-categories: financial assets held for trading, and those designated at fair value throughprofit or loss on initial recognition. A financial instrument is classified in this category if acquired principally for thepurpose of selling in the short term or if so designated by management due to accounting mismatches orassets/liabilities are managed at fair value. Derivatives are also categorised as held for trading unless they aredesignated as hedges.Assets Available for resaleAssets available for resale are other financial instruments not included above. These may include shares held inother companies for which an active market exists (note 13). Such investments are valued in accordance with theabove policy "Valuation of Shares and Investments"Held-to-maturity investmentsHeld-to-maturity investments are non-derivative financial instruments with fixed or determinable payments and fixedmaturities that management has the positive intention and ability to hold to maturity. Held to maturity investmentscan include NZ Government Stock and investments not being shares in other companies (note 13). Held to maturityinvestments are valued at amortised cost using the effective interest method.Loans and receivablesLoans and receivables are non derivative financial assets with fixed or determinable payments that are not quotedin an active market. They arise when money, goods or services are provided directly to a debtor with no intention oftrading the receivable. Advances as shown on the face of the balance sheet meet this definition. Advances areshown at amortised cost after making due allowance for impairment.Property, Plant and EquipmentProperty, Plant and Equipment has been shown at cost less depreciation less any impairment loss. Depreciationhas been provided for on a straight fine basis as follows: Buildings 2.5%; Leasehold Improvements 6.5% to 28.8%;Plant and Equipment 6.5% to 60%; Motor Vehicles 10% to 36%. Operating lease assets are depreciated on astraight line basis to the residual value over the term of the contract.

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If an asset's carrying amount is greater than its estimated recoverable amount its carrying amount is written downimmediately to its recoverable amount by recording an impairment loss in the income statement.Intangible AssetsGoodwill on consolidation represents the excess of the costs of investments in subsidiaries and associates over thebook value of the equity acquired. Goodwill is tested annually for impairment.Valuation of Shares and InvestmentsInvestments that are listed on the New Zealand Stock Exchange (NZX) or otherwise have a readily determinablemarket value are recorded at fair value to reflect the listed price or determinable value that prevails at balance date.The fair value of such shares and investments are reviewed for any gains or impairment. Adjustments to fair valueare taken to an equity reserve. If the fair value adjustment is significant or prolonged an impairment is recognisedand taken to the Income Statement. Subsequent disposals of investments are recognised in the Income Statement.

Shares in unlisted companies and other investments for which an active market does not exist are recorded at theirinitial fair value. Initial fair value, has been determined using trade date accounting. At reporting date theseinvestments are assessed for impairment or change in fair value. The movement in valuation from initial fair value istreated in the same manner as listed equities.Foreign Currency TransactionsTransactions in foreign currencies, not subject to a hedging arrangement, are converted into New Zealand dollarsusing the exchange rate ruling at the date of the transaction. At balance date, foreign monetary assets and liabilitiesare translated at the exchange rate prevailing at balance date, and exchange variations arising from thesetranslations are recognised in the Income Statement.DerivativesThe Company enters into a variety of derivative financial instruments to manage its exposure to interest rate andforeign exchange rate risk, including forward foreign exchange contracts, cross currency interest rate swaps andinterest rate swaptions. Further details of derivative financial instruments are disclosed in note 20.Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequentlyremeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in the incomestatement immediatelyBad Debts and ImpairmentsBad Debt Write OffsAll known losses are written off against income in the period in which they become evident. Any subsequentrecovery of an amount previously written off is taken to the income statement.Allowance for ImpairmentThe allowance for impairment is deducted from net advances in the balance sheet and the movement in theallowance is reflected in the income statement as "Allowance for Impairment".Credit AssessmentRestructured Assets: Assets on which original terms have been changed due to borrowers' difficulty in complying,and on which interest continues to be accrued at a rate of interest which is equal to or greater than the averagecost of funds at the date of restructuring. The revised terms are not comparable with the terms of new facilities withcomparable risks.Assets acquired through enforcement of securi : These are assets acquired through the enforcement of securitieswhich satisfy part or full repayment of the loan due. Generally the company will not take legal ownership of theseassets. The company will appoint an agent to recover the secured asset and arrange for its disposal. Proceeds fromthe sale of these assets are applied to the repayment of the outstanding debt. Any surplus remaining is returned tothe borrower. Any shortfall is written off as a bad debt. Where the company takes legal ownership of an assetacquired through enforcement the asset is classed as property held for resale at its fair value. The loan secured bythat property is reduced by the amount of the fair value attributed to the asset and any remaining balance is writtenoff as a bad debt.Other Impaired Assets: An asset for which an impairment loss is required in accordance with NZ IAS 39 paragraphs58 to 62, but is not a restructured asset or an asset acquired through the enforcement of security.

Page 9



Past Due Assets: A financial asset is past due when a counterparty has failed to make a payment whencontractually due. Past due assets are not impaired assets.Impairment of Non -financial AssetsAssets that have indefinite useful lives or are not yet available for use are tested annually for impairment. Assetsthat are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicatethe carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the assetscarrying amount exceeds its recoverable amount. The recoverable amount of an asset is the higher of its fair valueless costs to sell and value in use.DerecognitionThe Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, orit transfers the rights to receive the contractual cash flows on the financial asset in a transaction in whichsubstantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferredfinancial assets that is created or retained by the Company is recognised as a separate asset or liability. Thecompany derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.

BorrowingsBorrowings are initially recognised at fair value and subsequently measured at amortised cost using the effectiveinterest method.Cashflow StatementThe Cashflow Statement has been prepared using the direct approach. Cash comprises cash on hand and demanddeposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amountsof cash and which are subject to an insignificant risk of change in value. Cashflows relating to advances andborrowings have been shown on a net basis in order to show a more meaningful disclosure. The high volume oftransactions involved reflects the activities of customers rather than those of the company.Standards , interpretations and amendments to published standards that are not yet effectiveCertain new standards, amendments and interpretations to existing standards have been published that aremandatory for the Company's accounting periods beginning on or after 1 January 2008 or later periods but whichthe Company has not early adopted:NZ IAS 1 (revised) and NZ IFRS 8 are new or amended standards that have been issued but are not yet effective,that may have a material disclosure impact on future financial statements.NZ [AS 1 requires changes to the presentation of income in the primary statements.NZ IFRS 8, Operating Segments (effective from annual periods beginning on or after 1 January 2009). NZ IFRS 8requires segments to be identified on the basis of reporting to the chief decision maker of the organisation andrequires information provided to the chief decision makers to be presented in the financial statements. NZ IFRS 8 isnot expected to have a material impact on the Company.

D CHANGES IN ACCOUNTING POLICIESAll policies have been applied on basis consistent with those used in the previous year. When necessary thecomparative figures have been reclassified so the information corresponds to the classification presented in thecurrent period. Investments at note 13 have been reclassified in line with the definitions provided in the reportingstandards. On initial adoption of NZ IFRS certain held for resale investments were incorrectly classified as held tomaturity. The total value of investments has not been affected.

E CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTSThe preparation of the financial statements requires the use of management judgements, estimates andassumptions that affect the reported amounts and the application of policies.Estimates and judgements are continually evaluated and are based on historical experience and other factors,including expectations of future events that are believed to be reasonable under the circumstances.The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, bydefinition, seldom equal the related actual results. The estimates and assumptions that have a significant risk ofcausing a material adjustment to the carrying amounts of assets and liabilities within the next financial year arediscussed below.

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Impairment Losses on Loans and AdvancesThe Company reviews its loan portfolios to assess impairment on a monthly basis. In determining whether animpairment loss should be recorded in the income statement, the Company makes judgements as to whether thereis any observable indication that there is a measurable decrease in the estimated future cashflows from individualloans within a loan portfolio. This evidence may include an adverse change in the payment status of borrowers.Management uses its knowledge gained from historical loss experience for assets with credit risk characteristicsand objective evidence of impairment when scheduling its future cash flows. The methodology and assumptionsused for estimating both the amount and timing of future cashflows are reviewed regularly to reduce any differencesbetween loss estimates and actual loss experience. The assessment of the level of impairment could potentially beunderstated or overstated if factors affecting the judgements made change.In compliance with NZ IAS 39 clause 63 the company is required to calculate, for those impaired assets asdescribed in clause 63, a provision based on the Net Present Value (NPV) of future cashflows net of anticipatedholding and realisation costs. This calculation is based on estimates. The company is required to estimate the valueit anticipates to realise from these assets, when the cashflows will be received and the expected holding and sellingcosts. Changes in market conditions could result in an increase or decrease in the estimated NPV provision whichwould impact the company's financial results.Residual Value of Lease AssetsThe Company calculates the residual value of lease assets at the start of the lease term based on the estimatedmarket value at the end of the lease. Management reviews the residual value for each class of asset on a regularbasis. Changes to the second hand vehicle market may impact the gain or loss on the subsequent disposal of theseassets.Determination of Fair Value of Derivative Financial InstrumentsThe Group enters into derivative financial instruments to hedge its interest rate risk, foreign exchange risk and otherexposures relating to AUD advances and the USPP debt. The derivative financial instruments used to hedge theGroup's exposures include:

• Forward foreign exchange contracts• Cross currency interest rate swaps• Swaptions

All derivative financial instruments are measured at fair value, with any fair value changes recognised in the IncomeStatement.The fair value of derivative financial instruments is based on discounted cash flow models, yield curves and optionpricing models using observable market data.Determination of fair value of Investments for which do not have a readily determinable market valueThe Group assess the value of investments which do not have a readily determinable market value on the basis onthe underlying assets in the investment or on recent off market trades. There is no certainty that future trades willreflect these valuations and according the fair value of those investments could be materially over or under stated.

F PRIOR PERIOD ADJUSTMENTSAt 30 June 2008 the fair value of the CCIRS was assumed to equal the foreign exchange loss on translating theUSPP into NZD. This did not account for the impact of US and NZ interest rates on the fair value calculation. Thishad the effect of overstating the 2008 profit by $9.046m.

30.06 .09 30.06.08Restated As previously

reportedBalance SheetFinancial liabilities at fair value through profit andloss held for trading (2,834) -Fair value adjustment offset against borrowings 6,213Borrowings 1,758,480 1,752,267Advances 1,458,241 1,456,584

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Income StatementFair value loss on financial assets held for trading 9,046 -Trading Profit $73,675 $82,721

Statement of Changes in EquityEquity at Beginning of the Period 204,516 204,516Net Profit After Taxation 59,799 68,845Minority Interests Share of Profit 500 500Minority Interests Share of Equity 983 983Movement in Revaluation Taken to Income 2,471 2,471Fair Value Adjustment (7,035) (7,035)

56,719 65,764Contribution from Owners:Ordinary Shares Issued 25,000 25,000Distribution to Owners: -Dividends Paid (42,666) (42,666)

$243,569 $252,614

3 RECONCILIATION OF REPORTED PROFIT WITH CASHFLOWS FROM OPERATING ACTIVITIES12 Months to 12 Months to

30.06 .09 30.06.08$000's $000's

Net profit after taxation (50,429) 59,799Add non cash itemsDepreciation 8,578 8,174Allowance for impairment 57,655 8,595Loss on Investments 35,000 -Impairment on Investments 11,438 3,074Minority shareholders interest 860 983Property revaluation 3,246Forex gain (loss) 19,548Gain on Sale of Shares (7,471) (44,551)Fair value gain (loss) on financial assets held for trading (39,679) 9,046Compound Interest in Deposits 39,774 36,077Capitalised Interest in Loans (43,047) (45,442)Share of profits in associates 998 -

86,900 (24,044)36,471 35,756

Movements in Other Working Capital Items:(increase) Decrease in Operating Debtors (4,042) (9,454)Increase (Decrease) in Operating Creditors (3,199) (6,359)(Increase) Decrease in Provision for Taxation (16,537) (13,502)

(23,777) 29,314Net Cashflow From Operating Activities $12,693 $6,441

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4 INTEREST RECEIVED 30.06.09 30.06.08$000's $000's

Advances 171,363 183,356Impaired Assets:

Restructured Assets 7,327 199Assets Acquired Through Enforcement - 23Other Impaired Assets 17,655 699

Bank Deposits and Investments 23,857 14,809$220,202 $199,086

5 AGGREGATE CURRENT ASSETS 30.06 . 09 30.06.08$000's $000's

Cash and Cash Equivalents 123,276 402,771Other Current Assets 78 , 746 16,880Net Advances 943,028 582,449

$1,145,050 $1 . 002.100The estimated fair value of property held for resale is not significantly different from the cost price. Movements inproperty held for resale is set out in the table below.

30.06 .09 30.06.08$000's $000's

Opening balance 5,920 -Additions 8,008 5,920Acquired on business combinations 40,534 -Sales (2,081)___ -Closing Balance $52,381 $5,920

6 AGGREGATE CURRENT LIABILITIES 30.06 .09 30.06.08$000's $000's

Employee Entitlements 577 693Other Current Liabilities 20,888 22,138Creditors 21,465 22,832Sundry Deposits and Secured Debentures 919,247 830,834

$940,712 $853.665

7 ADVANCES 30.06 .09 30.06.08$000's $000's

Net AdvancesAdvances 1,716,559 1,491,219Provision for unearned interest (8,349) (24,873)Deferred fee income (3,750) (4,375)Allowance for impairment (79,151) (21,496)

1,625,309 1,440,475Lease Receivables 6,477 17,766

$1,631.786 $1,458,241

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Net advances are summarised as follows:Neither past due nor impaired 1,270,652 1,405,943Past due 140,704 23,569Impaired individually -

Restructured 364 -Security Enforced 61,343 38Other Impaired 243,496 61,669

Gross 1,716,559 1,491,219Less : Allowance for impairment individually (55,949) (21,496)

Allowance for collective impairment (7,625)NPV Impairment Allowance (15,576) -

Gross Advances less Allowance for Impairment $1,637,409 $1,469,723

Impaired and Past Due Assets ($000's)The table below shows a reconciliation of the movement in net advances which are individually determined tobe impaired.

Opening Additions Write Offs Deletions ClosingBalance Balance

30 June 2009

30 June 2008

$61.707 $276 ,888 $(9 ,305) $(24,086) $305,204

$29,860 $85 ,854 $(10,355) $(43,652) $61,707

The table below shows a reconciliation of the movement in net advances which are past due ($000's)Opening Additions Write Offs Deletions ClosingBalance Balance

30 June 2009 $23,569 $144,075 $(477) $(26,462) $140,704

30 June 2008 $22,512 $23,466 $- $(22,409) $23,569

Following is an analysis of the age of financial assets that are past due ($000's)0-30 days 31 -89 days >90 days Total

30 June 2009

30 June 2008

$93,072 $34 ,299 $13 ,334 $140,704

$6,222 $17,347 $23,569

Carrying Value and Estimated Fair Value of Collateral and Security Held by Class of Asset ($000's)Impaired Estimated fair Allowance for

individually at value of impairmentcarrying value collateral and

security held

30 June 2009Assets Acquired Through Enforcement 364 318 46Restructured Assets 61,343 59,012 2,331Other Impaired Assets 243,496 189,925 53,572

$305,204 $249,254 $55,94930 June 2008Assets Acquired Through Enforcement 1,908 360 1,548Restructured Assets 226 55 172Other Impaired Assets 59,573 39,796 19,777

$61,707 $40,211 $21,496

Page 14



Movements of Impairment by Class of Asset ($000's)Opening Additions Write Offs Deletions ClosingBalance Balance

30 June 2009Specific ImpairmentAssets Acquired Through Enforcement 1,548 101 (512) (1,091) 46Restructured Assets 172 3,198 (984) (54) 2,331Other Impaired Assets 19,777 51,940 (11,685) (6,460) 53,572Collective Impairment 7,625 7,625NPV Impairment Allowance 15,576 15,576

$21,496 $78,441 $(13,181) $(7,605) $79,15130 June 2008Specific ImpairmentAssets Acquired Through Enforcement 895Restructured Assets 737Other Impaired Assets 11,269

2,00256

17,398$12,901 $19,456

No collective impairment was provided for the 2008 year.

(982) (368) 1,548(446) (175) 172

(6,349 ) (2,541) 19,777$(7,777) $(3,084) $21,496

In June 2009 the Group entered into an underwrite deed with an entity controlled by the company's Chairman tounderwrite credit losses on certain of the Group's impaired finance receivables. The underwrite deed is capped at $25mand the Group's benefit under the underwrite deed was valued at the full amount and offset against impaired loans inthe current financial year.This includes amounts in arrears. The proportion thereof with repayments in arrears in excess of 3 months at balancedate represents 2.30% of total receivables due (30 June 2008 - 3.00%).Amounts owing by the six largest borrowers amounted to 13.93% of total amounts receivable (30 June 2008 - 10.06%).Related Party transactions are disclosed in note 25.

8 PROPERTY, PLANT & EQUIPMENTLand & Plant & Office Motor Vehicles Leasehold Leased Plant Total

Buildings Equipment Improvements$000's $000's $000's $000's $000's $000's

1 July 2008Cost 16,602 4,238 48 985 35,616 57,488Accumulated Depreciation (1,183) (3,141) (32) (400) (7,543) (12,299)Carrying Amount $15,419 $1,097 $15 $584 $28,073 $45,189

Period ended 30 June 2009Opening Carrying AmountAcquisitions through businesscombinations

15,419 1,097 15 584 28,073 45,189

940 12 952Additions 2,452 301 4 326 66,675 69,758Disposals (357) (213) (7) (1,618) (2,194)Revaluations (3,246) (3,246)Net Depreciation (95) (489) (8) (78) (5,212) (5,882)Closing Carrying Amount $15,113 $708 $4 $833 $87,918 $104,577

30 June 2009Cost 16,211 4,213 24 1,175 100,052 121,674Accumulated Depreciation (1,097) (3,505) (19) (342) (12,134) (17,097)Carrying Amount $15,113 $708 $4 $833 $87,918 $104,577

Page 15



1 July 2007Cost 14,678 3,641 85 793 45,097 64,294Accumulated Depreciation (718) (2,899) (69) (270) (6,754) (10,711)Carrying Amount $13,959 $742 $15 $523 $38,343 $53,583

Period ended 30 June 2008Opening Carrying Amount 13,959 742 15 523 38,343 53,583Additions 1,657 732 12 158 5,126 7,685Disposals (4) (5) (31) (14,729) (14,769)Net Depreciation (197) (373) (7) (66) (667) (1,310)Closing Carrying Amount $ 15 ,419 1 097 $15 $584 $28,073 $45,189

30 June 2008Cost 16,602 4,238 48 985 35,616 57,488Accumulated Depreciation (1,183) (3,141) (32) (400) (7,543) (12,299)Carrying Amount $15,419 $1,097 $15 $584 $28,073 $45,189

9 VEHICLE LEASEThe Company has entered into lease agreements for the hire of its motor vehicles. These contracts expire betweenNovember 2009 and December 2012 and have no early termination penalties. It is the intention of the Directors to retainthe vehicles for the full term of their lease.

10 BUILDING LEASEThe company, through its wholly owned subsidiary Hornchurch Ltd, owns properties in Timaru, Invercargill, Ashburtonand Hamilton from which the company operates. Offices at other locations are leased from independent third parties.The lease commitments in respect of those properties are set out below.

LEASE COMMITMENTS 30.06 .09 30.06.08$000's $000's

Due within 1 year 758 708Due within 2 years 727 684Due within 2-5 years 1,524 1,548Due beyond 5 years 439 982

$3,448 $3,923

11 LEASED ASSETSIncome from leased assets is expected on the following basis:

30.06 .09 30.06.08$000's $000's

Due within 1 year 6,066 5,401Due within 2 years 5,777 5,401Due within 2-5 years 11,555 1,319Due beyond 5 years 19,715

$43,113 $12,121

Page 16



12 GOODWILLFollowing the amalgamation of the finance companies all acquired goodwill has been eliminated.Movement in Goodwill 30.06.09 30.06.08

$000's $000's

Opening balance 3,475 3,475Additions 2,332 -Deletions (5,807) -Closing balance $- $3.475

13 SHARES AND INVESTMENTS 30.06 .09 30.06.08$000's $000's

Assets Available for Resale 233,405 41,629Total Investments $233,405 $41,629During the year the company wrote off an investment held in an property trust which had interests in New Zealand andoffshore resulting in a $35m loss on investments.

14 JOINT VENTURES 30.06 . 09 30.06.08$000's $000's

Non Operating Revenue - -Current Assets 8 6Long Term Assets 8 ,595 11,487Current Liabilities (4,269) (3,002)Long Term Liabilities - -Joint Venture Investment $4,334 $8,490

15 SHARES IN ASSOCIATED COMPANIES 30.06 . 09 30.06.08$000's $OO0's

Opening Balance 18,484 19,834Additions 87,733 150Impairment (4,010)Adjustment for share of current period trading results (998) -Deletions - (1,000)Sales (17,684) (500)Closing Balance $83,525 $18,484Shares in associated companies are carried at cost less any allowance for impairmentDETAILS OF ASSOCIATES30 June 2009 $000's

% held Assets Liabilities Revenue Profit CarryingCommtest Instruments Ltd 40.20% 14,526 21,363 7,047 (2,482) 6,992Dairy Holdings Ltd 33.59% 665,614 407,762 56,309 (66,136) 75,733Financial Synergy Ltd 50% 10,789 9,189 728 - 800

$83.52530 June 2008 $000's

% held Assets Liabilities Revenue Profit CarryingNZ Wool Services International 44% 179,707 2,390 17,684Financial Synergy Ltd 50% 8,951 7,572 1,208 208 800

$18,484

Page 17



At 30 June 2008 shares in the listed company NZ Wool Services International Ltd were trading at $0.40 for a totalmarket value of $12,236,980. In July 2008, in accordance with the terms agreed with the Takeovers Panel, the shares inNZ Wool Services International Ltd were sold to Southbury Group Ltd at $17,683,682, the same price South CanterburyFinance paid to acquire the shares.

16 BORROWINGS 30.06.09 30.06.08$000's $000's

Secured Debentures 1,552,295 1,338,4855 Year Secured Bonds (15112112) 125,000 125,0003 Year Secured Bond Issue (15106111) 125,000 125,000Secured Bond Issue Maturing 12 October 2010 100,000 -Deferred Bond and Bond Issue Expenses (9,809) (10,065)US Private Placement Funds 153,704 131,447Deferred Issue costs USPP (983) (1,153)Unsecured Deposits 28,173 38,742Secured Prior Charges 34,123 11,023

$2,107,503 $1,758,480

Due within 1 year 919,247 830,834Due after 1 year 1,188,256 927,646

$2,107,503 $1,758,480

NON CURRENT LIABILITIES 30.06 .09 30.06.08$000's $000's

Debenture Stock 672,536 542,126USPP 152,722 124,082Bond Issue 340 ,191 243,748Prior Charges 13,702 8,023Secured Liabilities 1,179,151 917,979Deposits 9 ,106 9,667Total Unsecured Liabilities 9 ,106 9,667Total non Current Liabilities $1 .188,256 $927,646

NON CURRENT LIABILITIES MATURITY 30.06 . 09 30.06.08$000's $000's

1-2 years 609,637 385,1082-3 years 218,343 126,7063-4 years 267,586 24,2304-5 years 46,232 266,0795+ years 46,458 125,524

$ 1 , 188 , 256 $ 927 , 646

Standard and Poors downgrade of the company's credit rating to BB+ in August 2009, has resulted in an event of reviewby the US investors. The investors may within three months of this event request an accelerated repayment of theabove USPP funds. The company is in discussion with these investors. The above maturity profile reflects the originalmaturity dates for these funds with ultimate maturity dates ranging from 2013 to 2015. However this profile will differ ifearly repayment is requested.

Page 18



17 EQUITY

Ordinary SharesOpening BalanceAdditional Shares IssuedClosing Balance (130 million ordinary shares)Perpetual Preference SharesShare Issue ExpensesAsset Revaluation ReserveRetained Earnings

30.06 . 09 30.06.08$000's $000's

70,00060 ,000

130,000120,000

(1,979)2,071

(27,922 )222,170

Equity Attributable to Minority Interests 3,752Total Shareholders Equity $225,922

45,00025,00070,000

120,000(1,979)(1,773)54,429

240,6772,891

$243 , 569South Canterbury Finance Ltd and certain of its subsidiaries as identified in note 23 have their assets charged under theTrust Deed entered into between South Canterbury Finance Ltd and its Trustee, Trustees Executors Ltd. The TrustDeed provides that total liabilities of the charging group shall not exceed 12 times shareholders funds. This equates toan equity ratio of 7.7%. The Directors of South Canterbury Finance aim to maintain a minimum equity ration of 10%although in some circumstances the ratio may drop below this level.Ordinary SharesAll Ordinary Shares have been issued and fully paid. The shares have no par valueThe holder of the Ordinary Shares is entitled to receive dividends as declared from time to time.Shareholders are entitled to vote at the meetings of the Company.Perpetual Preference SharesDividends on Perpetual Preference Shares are set annually using the Benchmark Rate, prescribed in the share issueprospectus, as at 1 October plus 230 basis points. Current dividend rate is 9.42% inclusive of imputation credits.

Perpetual Preference Shares have no voting rights and no fixed date for redemption.In a winding up all Perpetual Preference Shares (120million) are redeemable at the issue price of $1.

18 ASSET REVALUATION RESERVEFinancial assets that have an active market have been revalued to reflect the fair value at balance date. The assetrevaluation reserve reflects the movement in value between original fair value and fair value of those financial assets atthe date of this report.

30.06 . 09 30.06.08$000's $000's

Opening Balance (1,773) 2,792Movement 3,844 (4,564)Closing Balance $2,071 $(1,773)

19 RETAINED EARNINGS 30.06 .09 30.06.08$000's $000's

Balance at beginning of period 54,429 37,296Net surplus attributable to company shareholders (50,429) 59,799Distributions to owners (31,921) (42,666)Balance at end of period $(27,922) 54 429Dividend (cents per share)Ordinary Shares $0.18 $0.49Perpetual Preference Shares $0.07 $0.07

Page 19



20 FINANCIAL INSTRUMENTS 30.06 . 09 30.06.08$000's $000's

Categories of Financial AssetsLoans and ReceivablesCash and Cash Equivalents 123,276 402,771Other Short Term Deposits 287 253Debtors and Prepayments 25,061 9,698Advances 1,631,786 1,458,241Investments in associatesShares in Associates 83,525 18,484Available for Sale AssetsShares and Investments 233,405 41,629Held to MaturityNZ Government Stock 1,018 1,009Held for TradingFinancial Assets 36,833 -

Categories of Financial LiabilitiesFinancial Liabilities at Amortised CostCreditors 21,465 22,831Borrowings 2,107,503 1,758,480Held for TradingFinancial Liabilities - 4,491

FAIR VALUESThe directors consider that the carrying amounts of all financial assets and financial liabilities approximate their fairvaluesFair value of financial instrumentsThe fair value of financial assets and financial liabilities are determined as follows:

* The fair value of financial assets and financial liabilities with standard terms and conditions and traded in activeliquid markets is determined with reference to quoted market prices;

* The fair value of other financial assets and financial liabilities (excluding derivative instruments) is determined inaccordance with generally accepted pricing models based on discounted cashflow analysis using prices fromobservable current market transactions and dealer quotes for similar transactions;

* The fair value of derivative instruments is calculated using quoted prices. Where such prices are not available, useis made of discounted cashflow analysis using the applicable yield curve for the duration of the instruments for non-optional derivatives, and option pricing models for optional derivatives; and

* The fair value of financial guarantee contracts is determined using option pricing models where the mainassumptions are the probability of default by the specified counterparty extrapolated from the market-based creditinformation and the amount of loss, given the default.

Quoted pricesFinancial assets in this category include listed equities and capital notes.DerivativesForward foreign exchange contracts are measured using quoted forward exchange rates and yield curves derived fromquoted interest rates matching maturities of the contracts.Cross currency interest rate swaps and swaptions are measured at the present value of future cashflows estimated anddiscounted based on the applicable yield curves derived from quoted interest rates.

Page 20



Management of capitalSouth Canterbury Finance Ltd, in accordance with the terms and conditions of its Trust Deed raises operating capital byway of secured debentures and unsecured deposits through the issue of a debt prospectus, by way of bonds issued fora fixed term and through the US private placement market. The secured debentures, bonds and USPP funds all rankequally. Trustees Executors Ltd is the Trustee for the company. The Trust Deed provides certain financial covenantsthat South Canterbury Finance Ltd and its Charging Subsidiaries must operate within. One of the key covenantsprovides that total liabilities of the charging group must not exceed 12 times shareholders funds.

Financial risk management objectivesThe Company manages the financial risks relating to the operations of the Group through internal risk analysis. Theserisks include market risk (including foreign currency exchange risk, fair value interest rate risk, cash flow interest raterisk and price risk), credit risk and liquidity risk.The Group seeks to minimise the effects of interest rate and foreign currency exchange risks by using derivativefinancial instruments to hedge these risk exposures. The use of financial derivatives is governed by the Group's policiesapproved by the Board of Directors, which provide written principles on foreign currency exchange risk, interest rate risk,credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excessliquidity. Compliance with policies and exposure limits is reviewed by management and the Board of Directors on acontinuous basis.Market riskThe Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates andinterest rates. The Group enters into a variety of derivative financial instruments to manage its exposure to interest rateand foreign currency exchange risk.Market risk exposures are measured using sensitivity analysis.There has been no change during the year to the Group's exposure to market risks or the manner in which it managesand measures the risk.Foreign currency risk managementCurrency risk is the risk that the company may suffer a loss through an adverse movement in the exchange rate. SouthCanterbury Finance has an exposure to currency risk through the USPP funding and loans advanced to parties inAustralia.The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange ratefluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising forward foreignexchange contracts and cross currency interest rate swaps.The carrying amounts of the foreign currency denominated monetary assets and monetary liabilities at the reportingdate are as follows:

US Dollars

Assets Liabilities2009 2008 2009 2008

$000s $000s $000s $000s

153,704 131,447AU Dollars 50,568 49,762 -

It is the policy of the group to enter into forward foreign exchange contracts to cover specific foreign currency receipts inrelation to advances made in AUD and cross currency interest rate swaps with respect to the USPP foreign currencyinterest costs and principal payments to be made in USD on the USPP debt.Hedge accounting has not been adopted for these derivative financial instruments.The following forward foreign currency contracts and cross currency interest rate swaps were outstanding at balancedate:

Page 21



AverageExchange Rate Foreign Currency Contract Value

$OOOs $000s

30.06.09USD Contracts (Buy) 0.7985USD Contracts (Buy) 0,7985AUD Contracts (Sell) 0.8055Swaptions (see below)

30.06.08USD Contracts (Buy) 0.7985USD Contracts (Buy) 0.7985AUD Contracts (Sell) 0.7900

Fair Value$000s

70,000 87,664 26,137 Due within 2-5 years30,000 37,570 11,059 Due beyond 5 years40,783 48,484 (869) Due within 0-6 months

50636,833

70,000 87,664 (2,006) Due within 2-5 years30,000 37,570 (828) Due beyond 5 years39,787 45,151 (1,657) Due within 0-6 months

(4,491)The fair value of the cross currency interest rate swap includes the impact of both foreign exchange rate and interestrate componentsForeign Currency SensitivityA 1% increase or decrease in the exchange rate exposure will not impact on the company's profitability. All foreigncurrency assets and liabilities are subject to foreign currency contracts and accordingly any movement in exchange ratewill be offset by an equal and opposite change in the swap instrument.Interest Rate Risk ManagementThe Company and Group are exposed to interest rate risk as entities in the Group borrow funds at both fixed andfloating interest rates. The risk is managed by the Group by maintaining an appropriate mix between fixed and floatingrate borrowings and by the use of certain derivative financial instruments (such as swaptions).Hedge accounting has not been adopted for these.The Company and Group's exposures to interest rates on non-derivative financial assets and financial liabilities aredetailed in the liquidity tables below.Cross Currency Interest Rate Swap Contracts (CCIRS)Under cross currency interest rate swap contracts, the Group agrees to exchange the difference between fixed andfloating rate interest amounts calculated on agreed notional principal amounts. The fair value of cross currency interestrate swaps at the reporting date is determined by discounting the future cash flows using the curves at reporting dateand the credit risk inherent in the contract.The interest rate swaps settle on a quarterly basis. The floating rate on the interest rate swaps is the local interbank rateof New Zealand. The Group will settle the difference between the fixed and floating interest rate on a net basis.SwaptionsThe company has entered into swaptions for the interest payable on NZD30m borrowed on the USPP debt. Theswaptions, entered into in April 2009, allow the company, at its sole discretion, to exercise the swap rate on or beforeApril 2010. The company has not yet exercised this right. No hedging has been provided in respect of the balance offunds borrowed on the USPP.

Average contracted fixed interest rate Notional principal amount Fair value

2009 2008 2009 2008 2009 2008

$000s $000s $000s $000s $000s $000s

4.9% 30,000 506

Outstanding CCIRS contracts have been disclosed under foreign currency risk management tables above.

Page 22



Interest Rate SensitivityBy managing interest rate risk the company aims to moderate the impact of short term fluctuations in interest rates. Overlonger periods, due to the ability to influence the rate at which loans are issued, movements in interest rates will haveminimal impact on profit. It is estimated that a one percent increase in average interest rates would increase profits by$4,987,673 (30 June 2008 $3.39m). Such assumptions are based on the company's ability to adjust its borrowing rateand variable lending rates. The one percent increase would have an adverse effect only in respect of those loans whichhave a fixed interest rate. There would be no material change on the company's reported profit arising from a 1%decrease in the cost of funds.A 1 % increase or decrease in the interest rate associated with the USPP funding could have an $1.25m impact on profit.This assumes a constant NZD/USD exchange rateRepricingThe company cannot unilaterally amend the interest rate on funds raised through debentures, deposits and bonds.These rates are fixed for the term of the deposit. Interest rates offered on new issues may vary from those being paid onthe existing funds. A variation in the rates will affect the company's average cost of funds, however it will take time forany significant impact to be effected. The company does have the option, at its discretion, to alter the interest ratecharged on customers loans. The ability to reprice is not date sensitive. This enables the company to amend the interestrate for lending to match changes in the average cost funding.Liquidity Risk ManagementLiquidity risk is the risk that the Group will encounter difficulty in meeting commitments associated with its financialliabilities.Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriateliquidity risk management framework for the management of the Group's short, medium and long term funding andliquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, bankingfacilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows and matching thematurity profiles of financial assets and liabilities. Note 22 includes details of an undrawn bank facility.Contractual Maturity Liquidity Profile (000,s)The following tables detail the Company and Group's remaining contractual maturity for its non-derivative financialassets and liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities basedon the earliest date on which the Group can be required to pay. The table includes both interest and principal cashflows.

Weighted 0 to 6 monthsAverageInterestRate

7 to 12 1 to 2 years 3 to 5 years Beyond S Totalmonths years

30.06.09Financial AssetsCash* 4.47% 123,276 123,276Short Term Deposit 287 287Receivables 25,061 25,061Shares in Associates 83,525 83,525Investments 159,795 1,680 3,360 85,370 250,205Advances** 11.23% 1,067,338 312,932 432,128 469,244 - 2,281,641

1,375,756 314,612 435,488 554,614 83,525 2,763,994

Financial LiabilitiesLiabilities 21,465 21,465Borrowings 8.92% 442,727 506,933 666,883 617,555 46,990 2,281,087

464,192 506,933 666,883 617,555 46,990 2,302,552

Page 23



30 June 2008Financial AssetsCash* 8.58% 402,771 402,771Short Term Deposit 253 1,009 1,262Receivables 9,698 9,698Shares in Associates 17,684 800 18,484Investments 16,318 15,861 9,450 41,629Advances- 13.25% 345,501 236,948 404,589 469,546 1,456,584

$792,225 $236,948 $421,459 $478,996 $800 $1,930,428

Financial LiabilitiesLiabilities 22,832 22,832Borrowings 9.49% 455,943 368,678 385,108 417,014 125,524 1,752,267

$478,775 $368,678 $385,108 $417,014 $125,524 1$ .775,09.9*Cash includes cash and cash equivalents** Advances profile reflect the current interest rate charges. These rates may be varied from time to timeStandard and Poors downgrade of the company's credit rating to BB+ in August 2009, has resulted in an event of reviewby the US investors. The investors may within three months of this event request an accelerated repayment of theUSPP funds, totalling $125m. The company is in discussion with these investors. The above liquidity profile reflects thecurrent contractual payments for these funds. However this profile may differ if early repayment is requested.

The company manages liquidity risk for all financial instruments other than advances on the basis of the contractualmaturity rather than expected maturity dates. The effective cashflow for advances is set out below. For the 2008 incomeyear all cashflows were managed on a contractual basis.Listed equities are included in the "0 to 6 month" maturity column above. There is an active market for theseinvestments however management may elect to hold them beyond the 6 month period. Other investments held forresale are include in the 7-12 month maturity period but these also may be held beyond that period.Borrowings in the "0 - 6 month" maturity column include on call deposits of $109,880,905 (last year $334,038,865)Effective cashflow

0 to 6 months 7 to 12 1 to 2 years 3 to 5 years Beyond 5 Total30 June 2009 months yearsFinancial AssetsAdvances*k 1,050,213 307,871 428,874 467,613 - 2,254,570

Credit RiskConcentration of FundingThe Company's activities are funded by way of funds raised through the issue of a prospectus, drawing on investorsthroughout New Zealand.Funds raised by way of debentures and deposits have been provided by:

30.06 .09 30.06.08$000's $000's

New Zealand residents $1 ,547,862 $1,349,016Non-residents $32,606 $28,212

Additional funding has been raised as follows:$125m through a 5 year bond issue , maturing 15 December 2012, listed on the NZDX.$125m through a 3 year bond issue , maturing 15 June 2011, listed on the NZDX.$100m through an 18 month bond issue , maturing 12 October 2010, listed on the NZDX$125.2m (USD100m) on the US private placement market, USD 70m fixed to April 2013 and USD30m fixed to April2015. Standard and Poors has downgraded the company' s credit rating to BB+ . This has given rise to an event ofreview. The company is currently in discussions with the US investors regarding the terms of this facility.

Page 24



Concentration of Credit RiskFinancial instruments that potentially subject the Company to concentrations of credit risk principally consist of cash,short term investments and advances. Cash and short term investments are placed with recognised leading bankinginstitutions. Credit risk associated with advances is limited due to the large number of individual contracts held. Atbalance date NZD61.2 million had been advanced to parties in Australia in the New South Wales and Queenslandregions. (30 June 2008 - NZD45.1 million). All other material loans and investments are held within New Zealand.Exchange rate swaps have been entered into with a registered bank for loans advanced in Australia.Geographic Concentrations

30.06.09

Auckland 15.67%Wellington 7.37%Other North Island 16.64%Christchurch 20.66%Other South Island 35.15%Australia 3.73%Fiji 0.79%

1 00 . 00 %

Exposure to Credit Risk by Internal Risk Rating30.06.09$000's

Grade 1 123,276Grade 2 954,422Grade 3 381,657Grade 4 78,014Grade 5 15,149Grade 6 84,361Grade 7 202,956

$ 1, 839 , 835

Exposures to credit risk are graded by an internal risk grade mechanism where grade 1 represents the lowest assessedrisk level. Grade 1 exposures relate to funds held in Government Stock and with registered banks. The potential for lossincreases as the grade increases. Grades 2 to 4 are collectively impaired while grades 5 to 7 are all individuallyimpaired. Comparative figures are not available. This grading system and classification of loans was introduced in thecurrent year.Concentrations of Cred it Exposure 30.06 .09 30.06.08

$000's $000's

Agriculture, Forestry, Fishing and Mining 235,394 163,973Manufacturing 62,880 63,718Construction 33,256 35,646Wholesale and Retail Trade 117,307 92,987Hotels, Motels and Restaurants 74,913 71,302Transport, Storage and Communication 242,705 232,018Finance and Insurance 117,055 109,344Property and Business Services 641,392 579,243Personal Services and Housing 106,883 110,010

$1,631,786 $1,458.241Industry categories have been identified using the Australian and New Zealand Standard Industrial Classification(ANZSIC) codes.

Page 25



Counterparty ConcentrationsThe following table details individual counterparties or groups of closely held counterparties to which the Company hasa credit exposure in excess of 10% of its equity and in increasing bands of 10%.

30.06 .09 30.06.0810-20% 7 320-30% 240-50% 170-80% 1

All exposures to individual or closely held group counterparties exceeding 20% of Shareholders Equity (Last year 20%)are to registered banks or to the groups parent company and its subsidiaries.Allowance for ImpairmentLoans and advances are regularly reviewed for impairment loss. Impairment provisions are raised for exposures that areknown to be impaired. Impaired assets include "restructured loans ", "assets acquired through enforcement of security"and "other impaired assets". Loans are impaired and impairment losses are incurred if there is objective evidence ofimpairment as a result of one or more loss events occurring after the initial recognition of the loan and prior to thereporting date, and the loss event has had a reliably measurable impact on the estimated future cash flows of theindividual loan. A specific impairment is assessed on a counterparty by counterparty basis . A full offset of any securityheld has been recognised in the calculation of this provision.Individually significant loans and advances are reviewed for impairment and the net present values of the estimatedfuture cashflows, based on management's best estimates of future repayments and proceeds from security held, isdiscounted at the current market rate. All relevant considerations that have a bearing on future cashflows are taken intoaccount. The calculation reflects the cashflows that may result from an orderly realisation of the underlying security lessthe holding and selling costs. The current specific impairment allowance has been has been deducted from the NPVcalculation. Subjective judgements used in determining this provision can change with time as new information comes tohand or new exit plans are developed. This may require a revision of the calculated provision which could have amaterial impact on the financial statements.A collective provision is made in respect of past due and performing loans and does not include individual loans forwhich specific impairment has already been provided. The collective provision is calculated based on the company'sexperience of risk associated with industry sector groups and historical loss data.The future credit quality of these industry groups is subject to uncertainties that could cause actual credit losses to differmaterially from the collective provision allowed. Uncertainties can relate to external economic environmentalcircumstances over which the company has no control.No provision has been applied to newly written loans or those loans that are performing within their contractual termsunless the company becomes aware of events that may alter its view on the risk associated with loan exposures tospecific group or class of loans.Off Balance Sheet RiskIn the normal course of business the Group enters into transactions whereby it guarantees the performance ofcustomers and issues guarantees to third parties. The maximum credit risk not recorded in the Statement of FinancialPosition in respect of these instruments at 30 June 2009 was $9,343,816 (30 June 2008 - $19,697,734). The Directorsdo not envisage any likelihood of these guarantees being called upon.

21 SECURITY FOR BORROWINGSSecurity has been granted for the provision of certain facilities and borrowings, on funds not raised through theDebenture and Deposit issue, secured by debenture or specific charge as disclosed in the following note.

22 CHARGE OF ASSETSa) All rights and interest in the assets of the Company are charged in favour of the Trustee, Trustees Executors Ltd, in

terms of the Amending and Supplemental Trust Deed dated 30 June 1995.b) The ASB holds a first mortgage over the property owned by the charging subsidiaries, Belfast Park Ltd and Tyrone

Estates Ltd. At 30 June the total owing under this charge was $17.1m. The secured property had a valuation of$31 M

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c) Westpac Bank holds a first mortgage over the property owned by the charging subsidiary, Braebrook Properties Ltd.At 30 June 2009 the mortgage of $3.3m was secured against the property with a value of $10.4m

d) A committed $100million bank facility has been provided by a banking syndicate. This facility will rank equally withthe secured debentures. The Company is in breach of the interest coverage covenants under this facility and iscurrently unable to draw under the facilities as a result of the breach. No request has been made of the bankingsyndicate nor has any commitment to provide ongoing facilities been made by any syndicate member. TheCompany has not drawn down any funds under these facilities since they were first entered into by the Company.

e) Trustees Executors Ltd has a prior charge over the assets of Ashburton Finance Ltd and Southland Finance Ltd inrespect of the debentures and deposits issued under their respective Trust Deeds. At balance date these totalled$3,401,701 (30 June 2008 $611,375). Both these companies have now amalgamated with South CanterburyFinance Ltd and no longer take in investment funds under their own Trust Deeds.

23 SUBSIDIARY COMPANIES AND ASSOCIATED COMPANIESAll subsidiary and associated companies are incorporated in New Zealand. The partners in the joint venture partnershipand the activities of that partnership are based in New Zealand.

Interest Principal Activity30.06.09 30.06.08

Charging SubsidiariesAshburton Finance LtdAuckland Finance LtdBelfast Park LtdBraebrook Properties LtdCanterbury Finance LtdFace Finance LtdFairfield Finance LtdFlexi Lease LtdGalway Park LtdHelicopter Nominees LtdHornchurch LtdOtago Finance LtdPalmerston North Finance LtdRental Cars LtdSCFG Systems LtdSophia Investments LtdSouthbury Insurance LtdTasman Bay Finance LtdTyrone Estates LtdWaikato Finance LtdWellington Finance LtdNon-Charging SubsidiariesFairfield Finance LtdKelt Finance LtdSouthland Finance LtdNon-Charging AssociatesCommtest Instruments LtdDairy Holdings LtdFinancial Synergy LtdNew Zealand Wool Services LtdJoint VentureIslington Park Partnership

100% Financial Services100% Financial Services

100% Property Investment100% Property Investment

100% Financial Services75% 75% Financial Services100% Financial Services100% 100% Vehicle Leasing100% 100% Property investment100% 100% Helicopter Leasing100% 100% Investment Activities

100% Financial Services100% Financial Services

100% 100% Vehicle Leasing100% 100% Computer Services100% 100% Non Trading100% 100% Insurance Company

100%100% Financial Services

Property Investment100% Financial Services100% Financial Services

100% Financial Services75% 75% Financial Services

100% Financial Services

40.8% Manufacturing33.7% Primary Sector50% 50% Premium Funding

44% Primary Sector

50% 50% Rental Property

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AmalgamationOn 1 October 2008 Ashburton Finance Ltd, Auckland Finance Ltd, Canterbury Finance Ltd, Otago Finance Ltd,Palmerston North Finance Ltd, Tasman Bay Finance Ltd, Waikato Finance Ltd, Wellington Finance Ltd and SouthlandFinance Ltd amalgamated with South Canterbury Finance Ltd

24 BUSINESS ACQUISITIONSOn 30 June 2009 South Canterbury Finance acquired an interest in the following companies. The consolidated accountsincorporate assets and liabilities at fair value as set out below. As the acquisition was made on the last day of thefinancial year, no trading profit or loss from these companies have been included in the consolidated accountsA 100% interest in Belfast Park Ltd and its wholly owned subsidiary Tyrone Estates Ltd

AssetsCash and Cash Equivalents 88Receivables 79Property Plant and Equipment 31,034Total Assets 31,201LiabilitiesCreditors 474Borrowings 17,533 EquityOther Financial Liabilities 10,101 Share Capital 1Total Liabilities 28 ,107 Retained Earnings 3,093Total Net Assets $3,094 Total Equity $3,094

A 100% interest in Braebrook Properties LtdAssetsCash and Cash Equivalents 56Receivables 165Deposit SCF 2,100Property Plant and Equipment 10,451Total Assets 12,772Liabilities EquityCreditors 100 Share Capital 2,304Borrowings 3,299 Reserves 9,144Total Liabilities 3,399 Retained Earnings (2,074)Total Net Assets $ 9,373 Total Equity $9,373

Had the acquisitions occurred at the beginning of the financial year the consolidated revenue would have increased by$6.929m and there would be a reduction in the consolidated loss of $2.130m

25 RELATED PARTY TRANSACTIONSAll transactions were in the normal course of business, are fully secured and, except for four loans to key managementpersonnel, are at rates not less than the company's cost of funds. No related party loans have been written off orforgiven during the current period.

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Loan Balances30.06 . 09 30.06.08 30 .06.09 30.06.08$000's $000 's $000 's $000's

Interest Received

Parent company $8,758 $4,602 $85,050 $-Non charging subsidiaries $2,125 $706 $39,149 $11,887Associated companies $1,653 $1,193 $13,007 $2,130Key management personnel $2,327 $1,815 $39,490 $21,530Ability to exercise significant influence $6,921 $5,328 $53,618 $28,639

$21,783 $13,645 $230,315 $64,185Ability to exercise significant influence includes entities related by directorships, over whom directors are able toexercise significant influence and entities related to the ultimate parent company.

Interest Paid Deposit Balances30.06 .09 30 .06.08 30 .06.09 30-06.08$000's $000 's $000's $000's

Deposits received from related partiesOther related parties $1,059 $1,292 $139 $61

By 30 September 2009 the parent company exposure had reduced by $10m.Southbury Group Ltd, for the year ended 30 June 2009, received a management fee of $625,000 (30 June 2008$1,250,000) and insurance payments of $4,000,000 (30 June 2008 $4.8m).A security sharing agreement with the parent company has seen the parent company acquire loans with a carryingvalue of $89.6m. This agreement was subsequently extended by a further $9.5m. South Canterbury Finance hasderecognised these loans. All risks and benefits associated with these loans have been transferred to the parentcompany in consideration of a transfer of assets for full value. The security held by the parent company ranks behindthat held by South Canterbury Finance Ltd.Hornchurch Ltd, a wholly owned subsidiary of South Canterbury Finance, purchased shares in Scales Corporation Ltdand Commtest Instruments Ltd from its parent company at market value ($22.5m). Helicopters (NZ) Ltd, a subsidiary ofthe parent company, issued 20m preference shares, at $1 a share, to Hornchurch Ltd. Shares held in Syft TechnologiesLtd were sold by Hornchurch at their original cost price of $96k to a party under the control of a company director. Thewholly owned subsidiaries, Alford investments Ltd, Dunbarton Investments Ltd and Glamorgan investments were sold toSouthbury Group Ltd at the groups net carrying value of $7.03m.South Canterbury Finance Ltd purchased capital notes issued by a listed entity at their face value of $13.38m fromentities controlled by a company director. These notes had a market value of $13.09m. At 30 June 2009 the marketvalue exceeded the price South Canterbury Finance paid to acquire these notes.South Canterbury Finance Ltd acquired from its parent company a 100% interest in Braebrook Properties Ltd for$6,095,000 and Belfast Park Ltd and its wholly owned subsidiary, Tyrone Estates Ltd for $3,271,929.South Island Farm Holdings Ltd, a company which is under the control of a company director, has issued 67.2mpreference shares at $1 per share, to South Canterbury Finance Ltd. On 1 July 2009 6.8m ordinary shares at $1 pershare were acquired by South Canterbury Finance.South Canterbury Finance Ltd acquired a 33.6% interest in Dairy Holdings Ltd in June 2009 from Southbury Group Ltdfor $75.7m. This transaction exceeds 1% of the company's total assets. In accordance with the terms of the CrownGuarantee, an independent expert, approved by Treasury, reviewed the transaction and determined the considerationpaid was on the basis of an arms length transaction.

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26 KEY MANAGEMENT PERSONNEL COMPENSATION 30.06 . 09 30.06.08$000's $000's

Key Management Personnel CompensationSalaries and short-term employee benefits 2,121 1,416Long term benefits - -Total Compensation to key management personnel $2,121 $1,416

Loans to key management personnel $20,983 $21.530

Interest paid by key management personnel $1,284 $1.815

Deposits from key management personnel $1,557 $784

Loans made to and borrowings held by key management personnel (including personally related parties) are made inthe ordinary course of business on normal commercial terms and conditions on no more favourable than those given toother employees or customers, with the exception of those loans referred to in note 25.No provision for credit impairment has been recognised for loans made to key management personnelKey management personnel is defined as those persons having authority and responsibility for planning, directing andcontrolling the activities of the entity, including directors. Directors include those deemed directors as defined by theCompanies Act 1993 Part 8 Section 126.

27 DIRECTORS REMUNERATION AND EXPENSESThe following Directors' Fees and Expenses were paid to Directors of the Company

30.06 .09 30.06.08$000's $000's

Allan J Hubbard (Chairman ) 123 141Edward 0 Sullivan 82 72Robert A White (Resigned 27 August 2009) 52 52Stuart J Nattrass ( Resigned 27 August 2009) 52 52

$308 $315

28 DIRECTORS INTERESTSDuring the period South Canterbury Finance Ltd conducted normal business transactions with organisations in whichindividual Directors have an interest. In all instances no individual advantage was received in their capacity as Directors.The Directors' interest in these transactions have been declared and noted. Transactions in which Directors' interestshave been noted are:Mr A J Hubbard is in an accounting practice supplying secretarial and accounting services to the company. Chargestotalling $429,242 are on a time-fee basis and are calculated at or below standard commercial rates. The practice alsoreceived brokerage of $249,367 on client funds introduced, together with a share of brokerages earned by its associatedsharebroking partnership Munro Hubbard and Co. Brokerages paid and payable are on no more favourable terms thanthose paid to unrelated brokers.Mr E 0 Sullivan is a partner in a firm of solicitors who provide periodic legal services to the Company. Fees paid,totalling $45,217, are at normal arms-length rates for work of a similar type. The firm also received brokerage of $16,538on client funds introduced. Brokerages paid and payable are on no more favourable terms than those paid to unrelatedbrokers.Mr A J Hubbard is a director of Helicopters (NZ) Ltd. Cancellable operating lease agreements generating income for theperiod of $2.96m have been entered into with Helicopters (NZ) Ltd and one of the charging subsidiary companies. Theterms and conditions of the leases are on the basis of normal arms-length transactions.

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29 INDEMNITY AND INSURANCE OF DIRECTORS AND OFFICERSSouth Canterbury Finance Ltd has made arrangements for the insurance of the company's Directors and executives inaccordance with Section 162 of the Companies Act 1993 and the constitution of the company. This indemnifies andinsures directors and executives against liability and costs for actions undertaken by them in the course of their duties tothe extent permitted by Section 162.

30 FIXED CAPITAL COMMITMENTS AND CONTINGENT LIABILITIESThe company has committed to pay management fees of up to $150,000 pa for the three years from 2008 in relation toa loan advanced in Wellington. Apart from these matters and the guarantees referred to in note 20, no other capitalcommitments or contingent liabilities existed at balance date.

31 DONATIONSDonations made during the current financial period totalled $14,978 (30 June 2008 - $300,000).

32 PARENT COMPANYThe ultimate parent, Southbury Group Ltd holds all the ordinary shares issued by South Canterbury Finance Ltd.

33 SEGMENTAL REPORTINGThe company operates in the New Zealand market in the financial services industry.

34 IMPUTATION CREDIT ACCOUNT 30.06 . 09 30.06.08$000's $000's

Opening balance (debit) (3,971) (8,361)Credits acquired 6,647 25,307Credits allocated (3,383) (20,916)Closing balance (debit) $(707) $(3,971)

South Canterbury Finance has a group imputation registration with its parent company, Southbury Group Ltd. SouthburyGroup Ltd maintains the imputation credit account on behalf of the group.

35 TAXATION STATEMENT 30.06 .09 30.06.08$000's $000's

Taxable profit has been calculated as:Net Profit before Taxation (63,462) 82,721Add Non Deductible Expenses 14,684 -Add (Less) Allowance for Impairment 57,655 (26,769)

8,877 55,952Less Non Assessable Income (1,413) -Less Adjustment for Depreciation to Taxation Rates (1,804) -Less Taxable Profit on Subsidiary Company (6,276) -Subvention Payment - (4,008)Loss Offsets - (8,138)

(617) 43,805Movement in Deferred Income (47,807) (16,883)Taxable Income $(48,424) $26,922

Taxation as per Income Statement $(13,893) $8,884

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Consisting ofCurrent Taxation Payable 1,883 14,456Credit (Debit) to Deferred Tax (15,776) (5,572)

$(13,893) $8,884Tax PaidOpening Balance 34,567 26,637Less Current Tax Payable (1,539) (14,456)Add Tax Paid 5,388 22,386Tax Paid per Balance Sheet $38,416 $34,567

Deferred TaxationOpening Balance 8,231 1,744Acquired on Acquisition of Subsidiary Company 905 916Impact of change in tax rates (586)Increase (decrease) in deferred tax 15,776 5,572Closing Balance $24,326 $8,231

Deferred tax comprises the following temporary differences:Provision for Credit Impairment 22,590 8,725Property, Plant and Equipment (1,767) (2,093)Asset Revaluation 3,855 1,893Other (353) (294)

$24,326 $8,231

36 SUBSEQUENT EVENTSOn 13 August 2009, SCF's credit rating was downgraded by Standard & Poors to BB+ (Outlook Negative).The downgrade to the company's credit rating has resulted in an event of review for the purposes of the company'sexisting USPP funds currently shown at a value of $153.7m in borrowings (See note 16)On 17 September 2009, the company elected to withdraw its prospectus pending registration of a new prospectus toincorporate its audited financial statements for the year ended 30 June 2009. As a consequence the company hasplaced all subsequent new investments and depositor reinvestments in a trust account under the control of its Trustees,Trustee Executors Ltd.On 19 September 2009, the company's credit rating was placed on "negative watch" by Standard & Poors.A market update from the company on 16 September announced that "Work related to the Company's restructuring andcapital raising initiatives continues and the Company intends making a further announcement on these matters incoming weeks."

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SOUTH CANTERBURY FINANCE LTD(Established 1926)

ANNUAL REPORT



INDEX

PAGE NUMBER

1 COMPANY DIRECTORY

2 :: AUDITORS REPORT

3 :: INCOME STATEMENT

4 :: STATEMENT OF CHANGES IN EQUITY

5 :: BALANCE SHEET

6 :: CASH FLOW STATEMENT

7 :: NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

scf annual report, year ended june 30, 2009

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