for the year ended 30 June 2016Rural Funds GroupAnnual ReportIssued on: 25 August 2016Rural Funds Group Annual Report for the year ended 30 June 2016Rural Funds Group (ASX: RFF) stapled group comprising:Rural Funds Trust ARSN 112 951 578 andRF Active ARSN 168 740 805Responsible Entity: Rural Funds Management Limited ACN 077 492 838 AFSL 226701 Contents
Letter from the Managing Director ....................................................................................2
Corporate governance statement ......................................................................................5
ASX additional information .................................................................................................... 22
Financial statements ....................................................................................................................24
Letter from the Managing Director
Dear Unitholder
We are pleased to present the financial accounts for the Rural Funds Group (ASX: RFF) for the
financial year 2015-2016 (FY16).
RFF at 30 June 2016
You are part of a group of around 4,000 investors that at the end of the financial year owned assets
worth $407m which includes over 65,000 megalitres of water entitlements. Your fund’s agricultural
property assets are diversified across almond orchards, poultry farms, vineyards, macadamia
orchards, and associated water entitlements. These assets are leased to experienced tenants
operating the properties on long lease terms. The portfolio had a weighted average lease expiry of
13.8 years at 30 June 2016.
RFF provided total returns of 54% over the financial year, the highest return of any ASX-listed Real
Estate Investment Trust (REIT). A number of factors have contributed to this result, including higher
awareness of the fund, inclusion in the S&P ASX300 Index, earnings accretive acquisitions and
significant increases in the market value of our assets. While we do not expect such outperformance
every year, the returns received by unitholders in FY16 are nonetheless very pleasing.
Review of financial year 2016
Consumer demand has maintained almond processors’ desire to secure further supply through new
almond plantings. RFF raised $35m of equity in October 2015 to fund the purchase of the Kerarbury
property near Darlington Point, New South Wales. Olam Orchards Australia have leased Kerarbury
until 2038 and are developing a 1,500 ha almond orchard on the property.
RFM released a climate discussion paper in June 2016 designed to articulate the benefits of
diversifying RFF’s agricultural property portfolio into geographically dispersed climatic regions. This
is available on the RFM website under ‘key documents’ and I urge you to read it as it relates to the
strategy behind the acquisitions outlined below.
In February 2016, RFF made its first acquisition in Western Australia (WA), with a $5m investment for
a 9% stake in Perth Markets Limited, which is expected to be earnings accretive and provides an
introduction to the WA agricultural sector.
The fund took an initial step into the macadamia industry in March 2016 with the $9m acquisition of
three orchards outside Bundaberg, Queensland. This provides exposure to a new commodity and a
new climatic zone at a more northern latitude than RFF’s existing assets.
A rental increase for an almond orchard tenant following a scheduled rent review in May 2016 led to
the announcement of a forecast FY17 distribution increase of 8%. Beyond this one-off increase, the
distribution growth rate is expected to return to the previous forecast of 4%. This demonstrates how
indexation and rent review mechanisms underpin growth in distributions to RFF unitholders.
Although the transaction occurred outside of the FY16 period, it is worth mentioning that in July
2016, RFF completed a $61.0m equity raising to fund acquisitions in three sectors. Funds are being
deployed to purchase three cattle properties in northern and central Queensland, fund an additional
1,000 ha of almond orchard development on Kerarbury and fund the three Queensland macadamia
orchards, which were initially debt funded.
2
The cattle sector in particular provides a positive outlook with growing export market demand for
Australian beef and potential for capital growth as cattle property prices are yet to reflect the record
high beef prices experienced in the last 18 months. The Kerarbury almond investment significantly
grows the RFF development pipeline.
Looking ahead to FY17
The RFF payout ratio is measured as distributions per unit (DPU) divided by adjusted funds from
operations per unit (AFFO). Since listing in 2014, RFF has maintained a payout ratio around 95%. In
FY17 we are forecasting DPU of 9.64 cents funded from AFFO of 12.42 cents, which represents a
lowering of the payout ratio to 78%.
Using retained earnings to fund investment provides the advantage of lower transaction costs,
allowing the fund to continue making investments with flexibility and efficiency. This lower payout
ratio creates more retained earnings which are a key part of the funding of the ongoing Kerarbury
almond orchard development, as well as providing scope to pursue new investments. However, RFM
continues to investigate opportunities that may be funded by an expansion of the fund’s equity base.
It is expected that RFF will invest a further $51m on its almond orchards in FY17. Of this amount, $13m
relates to the purchase of water entitlements, with the balance being infrastructure and development
costs. The following table has been included to highlight the substantial near-term growth in RFF
almond assets. It shows the forecast capital expenditure through to completion for each of the
orchards under development. At completion, RFF will own a total of 4,900 hectares of almond
orchards, which, based on valuations of around $80,000 per hectare would have a market value of
approximately $390m.
RFF almond development pipeline FY17-FY20
ALMOND DEVELOPMENTS
FY17
FY18
FY19
FY20
TOTAL
Kerarbury
$43.9m
$37.3m
$18.3m
$9.4m
$108.9m
Tocabil, Yilgah & Mooral
$6.7m
$5.5m
$4.5m
$0.3m
$17.1m
TOTAL DEVELOPMENT
$50.6m
$42.8m
$22.8m
$9.7m
$126m
The table shows that the RFF has a $126m development pipeline without the need to raise further
equity, while maintaining a desired gearing target of 35%, plus or minus five percentage points.
Should the opportunities arise, RFM will continue to pursue new investments that will benefit RFF.
Further expansion in the Queensland cattle sector is possible dependent on securing suitable
counterparts, while expansion in the macadamia sector will be investigated. Activities in these sectors
are in line with the strategy of climatic diversification.
Looking beyond the assets of RFF into the wider world, it is worth observing that RFF, like all REITs,
is benefiting from the present unprecedented low interest environment in a number of ways. Low
interest rates have reduced the cost of RFF’s debt and made the distributions paid to unitholders
more attractive. The latter observation has probably increased the market price of RFF units, causing
the yield compression that is common across all assets globally.
Economists and central bankers around the world are stating that economic growth, inflation
and interest rates are likely to remain low for a long time. If this is correct, there will be profound
consequences for investors – such as the owners of RFF - just as there will be consequences for RFF.
3
Rural Funds Group Annual Report 2016 In theory we should see farm values rise as investors and farmers acquire them on lower projected
rates of return, and we should see lease rental rates reduce as lessees demand lower rents. While
these movements have already been observed in the residential and commercial property sectors,
this has not been our observation in the agricultural sector.
Farm values rose rapidly in the previous decade, driven by an increase in bank lending into the sector.
Following the Global Financial Crisis (GFC), farm values declined marginally as a consequence of the
collapse and therefore withdrawal of the companies that operated Managed Investment Schemes and
as banks reduced the loan to value ratios at which they would lend to farmers. Since then farm values
have recovered and in most sectors, values would now exceed those prior to the GFC.
During this period, agricultural commodity values and farm productivity (mainly crop yields) have also
increased. As a consequence, the operating return that can be achieved by farmers, including RFF’s
lessees, has either remained constant or actually increased marginally. For this reason, we do not
believe that there has been a general compression in farm operating returns as a consequence of the
prevailing or prospective low interest rate environment.
These observations of the current favourable economic environment for farm ownership present both
opportunity and cause for caution. It is still possible to acquire farms and lease them at satisfactory
rates of return because the returns being achieved from farming operations are supportive. However,
it is possible that over time farm values, particularly for the larger farms sought by institutional
investors, will increase as continued low interest rates fuel more debt or more foreign investment.
For this reason, we must continue to seek assets with attractive lease rentals supported by the
productivity of their farming operations and the ability of both your manager and RFF’s lessees, to
increase productivity through capital improvements and good management.
Yours faithfully
David Bryant
Managing Director
Rural Funds Management Limited
4
Corporate governance statement
Definitions
ASIC
ASX
Australian Securities and Investments Commission
Australian Securities Exchange or ASX Limited
Corporations Act
Corporations Act 2001
The Rural Funds Group (the Fund) is listed on the ASX and comprises Rural Funds Trust and RF Active, both
registered managed investment schemes under the Corporations Act. Units in Rural Funds Trust are stapled to
units in RF Active. Rural Funds Management Limited (the Responsible Entity) is the Responsible Entity for the
Fund and has established and oversees the corporate governance of the Fund. The Responsible Entity holds an
Australian Financial Services Licence authorising it to operate the Fund. It has a duty to act in the best interest
of unitholders of the Fund. The Fund has a compliance plan that has been lodged with ASIC and a copy of the
compliance plan can be obtained from ASIC or by contacting the Responsible Entity. The Responsible Entity
publishes a number of its corporate governance related policies on its website at:
http://ruralfunds.com.au/rural-funds-group/about/corporate-governance/
The Board takes its corporate governance responsibilities seriously. The Board is comprised of three directors
and has a mix of the experience and skills necessary to oversee the corporate governance requirements of
the Responsible Entity. This ensures the Responsible Entity operates with integrity, is accountable and acts
in a professional and ethical manner. The Board works together and their collective ability facilitates effective
decision making to lead a viable, profitable and efficient business.
To the extent that they are applicable and appropriate for the Fund, the Responsible Entity has adopted
and complies with the ASX Corporate Governance Council’s Corporate Governance Principles and
Recommendations 3rd Edition. In accordance with the ASX Listing Rule 4.10.3, set out below are the ASX
Corporate Governance Council’s eight principles of good corporate governance, and the extent to which there
is compliance with the recommendations for each. The statement has been approved by the Board of the
Responsible Entity and applies to the period 1 July 2015 to 30 June 2016 (“Statement Period”).
There have been no material changes to the corporate governance policies and practices between
30 June 2016 and the time of printing this statement.
5
Rural Funds Group Annual Report 2016 PRINCIPLE 1:
Lay solid foundations for
management and oversight
A listed entity should establish and disclose the respective
roles and responsibilities of its board and management and
how their performance is monitored and evaluated.
RECOMMENDATION FUND’S RESPONSE
ASX
1.1 The business of the Fund is managed under the direction of the Board of the
Responsible Entity comprising:
• Chair: Guy Paynter (independent non-executive director)
• Managing Director: David Bryant
• Non-Executive Director: Michael Carroll (independent non-executive director)
The conduct of the Board is governed by the Constitution of the Fund and the
Corporations Act. The broad functions and responsibilities of the Board are
set out in sections 3.3 – 3.4 of the Corporate Governance Charter. The specific
responsibilities are set out in section 3.5.
The Board has delegated responsibility for the day-to-day management of the
Fund to the Managing Director of the Responsible Entity. The delegations are
outlined in the Corporate Governance Charter. The Managing Director, David
Bryant, is responsible for financial; continuous disclosure and compliance
oversight; media and analyst briefings and responses to member questions; and
ensuring the Board is provided with information to make fully informed decisions.
The constitution of the Fund is available by contacting the Responsible Entity. The
Corporate Governance Charter is available on the Responsible Entity’s website.
1.2 As an externally managed scheme, recommendation 1.2 does not apply to the Fund.
1.3 All directors of the Responsible Entity receive letters of appointment setting out
the key terms and conditions of their appointment.
All executives of the Responsible Entity enter into an employment agreement
setting out the key terms and conditions of their employment including a position
description, duties, rights, responsibilities, remuneration and entitlements on
termination.
1.4 The Company Secretary of the Responsible Entity is accountable to the Board,
through the Chair, on all matters to do with the proper functioning of the Board.
As stated in the Corporate Governance Charter, the Company Secretary reports
directly to the Managing Director.
6
1.5 The Responsible Entity has a diversity policy. The policy provides the framework
by which the Responsible Entity actively manages and encourages diversity and
inclusion. It recognises that its employees are one of its greatest assets and it
has a range of employees with skills and capabilities that ensure the ongoing
strength, continuity and stability of the Responsible Entity. Due to the size of
the Responsible Entity’s Board and its senior management team, combined
with the limited turnover of personnel at this level, it does not set quantitative
gender diversity objectives. The Responsible Entity will endeavour to maintain,
or improve its current level of gender diversity as senior management vacancies
arise. A copy of the policy is available on the Responsible Entity’s website.
The Responsible Entity’s senior executive team includes one female executive
(out of a total of three executives). Of the 70 staff, 23 or 33% are female.
1.6 The performance of the Board, its committees and individual directors is outlined
in the Corporate Governance Charter.
The performance of individual Board members is reviewed annually in
accordance with the timelines outlined in the Responsible Entity’s Performance
Management Policy.
1.7 The performance of senior executives is reviewed annually in accordance with
the timelines outlined in the Responsible Entity’s Performance Management
Policy. The annual process reviews each individual’s past performance, their
achievement of key performance indicators over the previous 12 months, sets
key performance indicators for the coming 12 months, and identifies training and
development opportunities. The formal process provides an opportunity for the
senior executive and the Managing Director to focus solely on performance and
development.
7
Rural Funds Group Annual Report 2016 PRINCIPLE 2:
Structure the board
to add value
A listed entity should have a board of an appropriate size,
composition, skills and commitment to enable it to discharge
its duties effectively.
RECOMMENDATION FUND’S RESPONSE
ASX
2.1 As an externally managed scheme, recommendation 2.1 does not apply to the
Fund. Additionally, due to the small size of the Responsible Entity’s Board, it is
usual that all of the Board members are involved in the full spectrum of discussion
and decisions on matters. As a result, they bring the full complement of skills and
experience available to address matters. If and when gaps are identified, external
advice is sought from senior consultants such as specialist tax, legal or business
advisers to address any skills gaps.
2.2 As an externally managed scheme, recommendation 2.2 does not apply to the Fund.
2.3 The Responsible Entity Board comprises three members, two of whom are
independent non-executive directors.
Director
Commencement
Independent
David Bryant
17 February 1997
Guy Paynter
15 April 2010
Michael Carroll
15 April 2010
No
Yes
Yes
Independent director, Guy Paynter,
holds the role of Chair of the Board.
Guy Paynter is a former director of broking firm JB
Were and brings to the Responsible Entity more than
30 years of experience in corporate finance. Guy is a
former member of the ASX and a former associate of
the Securities Institute of Australia (now known as the
Financial Services Institute of Australasia). Today, Guy is Chair of Bill Peach Group
Limited (previously known as Aircruising Australia Limited).
Guy’s agricultural interests include cattle breeding in the Upper Hunter region in
New South Wales.
Guy holds a Bachelor of Laws from the University of Melbourne.
8
David Bryant holds the role of Managing
Director.
David Bryant holds 79.68% of shares on issue in the
Responsible Entity. David established the Responsible
Entity in February 1997. Since then, David has led the
organisation with a team that has acquired over $460
million in agricultural assets across eight Australian
agricultural regions. This has included negotiating the acquisition of more than 35
properties and over 79,000 megalitres of water entitlements.
On a day-to-day level, David is responsible for leading the executive team,
maintaining key commercial relationships and sourcing new business
opportunities. David holds a Diploma of Financial Planning from the Royal
Melbourne Institute of Technology University and a Master of Agribusiness from
the University of Melbourne.
Michael Carroll is a non-executive
director and is the Chair of the Audit
Committee.
Michael Carroll serves a range of food and agricultural
businesses in a Board and advisory capacity. Michael is on
the Boards of Tassal Group Ltd, Select Harvests Limited,
Paraway Pastoral Company, Sunny Queen Ltd and the
Gardiner Dairy Foundation. Former Board positions include the Australian Farm Institute,
Warrnambool Cheese & Butter Factory Company Holdings Limited, Meat & Livestock
Australia, Queensland Sugar Limited and Rural Finance Corporation of Victoria.
Michael has senior executive experience in a range of companies, including establishing
and leading the National Australia Bank Agribusiness division.
Michael holds a Bachelor of Agricultural Science from La Trobe University and a Master
of Business Administration from the University of Melbourne’s Melbourne Business
School. Michael has completed the Advanced Management Program at Harvard
Business School, Boston, and is a Fellow of the Australian Institute of Company
Directors.
Further information on the composition of the Responsible Entity’s Board, executive
management and asset and business management profiles, and the skills, knowledge
and experience of the individual members can be found on the Responsible Entity’s
website.
The independence of the non-executive directors has been ascertained in compliance
with the Corporations Act and the ASX Listing Rules and there are no other factors
which might reasonably be seen as undermining their independence. All directors must
declare actual or potential conflicts of interest and excuse themselves from discussions
on issues where an actual or potential conflict of interest arises. The directors’ interests
and any subsequent changes have been disclosed to the ASX. The Responsible
Entity directors are subject to director rotation consistent with the Responsible Entity’s
constitution.
9
Rural Funds Group Annual Report 2016 2.4 As an externally managed scheme, recommendation 2.4 does not apply to the
Fund; however, as outlined in 2.3, the Responsible Entity’s Board is comprised of
a majority of independent directors.
2.5 As an externally managed scheme, recommendation 2.5 does not apply to the
Fund; however, independent non-executive director, Guy Paynter, holds the role of
Chair of the Responsible Entity.
2.6 As an externally managed scheme, recommendation 2.6 does not apply to the
Fund; however, any new directors would be provided with an induction relevant
to the Responsible Entity and the Fund. Additionally, directors are provided with
opportunities to develop and maintain their skills and knowledge through both
formal and informal training and networking opportunities.
10
PRINCIPLE 3:
Act ethically
and responsibly
A listed entity should act ethically and responsibly.
RECOMMENDATION FUND’S RESPONSE
ASX
3.1 The Responsible Entity has adopted a Directors’ Code of Conduct (the Code)
that sets out the minimum acceptable standards of behaviour. The code seeks
to give directors guidance on how best to perform their duties, meet their
obligations and understand the company’s corporate governance practices.
The code focuses on directors’ obligations to comply with codes and law,
their general duties, their application of business judgement, the application
of independent and sound decision making, confidentiality, improper use
of information, cooperation, personal interests and conflicts, conduct and
complaints.
In addition to the Directors’ Code of Conduct, the Responsible Entity has a
general Code of Conduct that is applicable to directors and all staff including
executive managers. The Corporate Governance Charter (which includes
the Directors’ Code of Conduct) and the Code of Conduct is available on the
Responsible Entity’s website.
Both codes are reviewed annually to ensure that they remain current and relevant.
11
Rural Funds Group Annual Report 2016 PRINCIPLE 4:
Safeguard integrity in
corporate reporting
A listed entity should have formal and rigorous processes
that independently verify and safeguard the integrity of its
corporate reporting.
RECOMMENDATION FUND’S RESPONSE
ASX
4.1 The Board of Directors of the Responsible Entity has established an audit
committee. The purpose of the Audit Committee is to assist the Board in
overseeing the integrity of financial reporting, financial controls and procedures in
respect of the Fund as well as the independence of the Fund’s external auditors.
The Audit Committee is comprised of two members, both of whom are non-
executive independent directors. An independent director, who is not the Chair
of the Board of the Responsible Entity, is Chair of the Committee. The relevant
qualifications and experience of the members is available on the Responsible
Entity’s website.
The Audit Committee will routinely invite other individuals to attend meetings,
including executive management and management members of the Responsible
Entity and the Auditor of the Fund. The Audit Committee and invitees will review
the financial reports and provide commentary to the Board as required.
Two meetings of the Audit Committee were held in relation to the accounts during
the Statement Period. The Audit Committee ordinarily holds two meetings per
year, or more if required.
The Audit Committee has a formal charter that details the roles and
responsibilities of the Audit Committee and its obligations to report to the Board.
The charter sets out the powers of the Audit Committee, the meeting procedure
framework, the process for selection of external auditors and audit planning.
The Audit Committee charter can be found in Schedule 2 of the Corporate
Governance Charter on the Responsible Entity’s website.
12
4.2 The Board has received a declaration from the Managing Director and the Chief
Operating Officer that, in their opinion:
• the financial records of the Fund have been properly maintained in
accordance with section 286; and
• that the financial statements and notes referred to in paragraph 295(3)(b) for
the financial year comply with the accounting standards; and
• the financial statements and notes give a true and fair view of the financial
position and performance of the entity; and
• that the opinion has been formed on the basis of a sound system of risk
management and internal control which is operating effectively.
4.3 As an externally managed scheme, recommendation 4.3 does not apply to the Fund.
The Fund has not held an Annual General Meeting during the Statement Period.
13
Rural Funds Group Annual Report 2016 PRINCIPLE 5:
Make timely
and balanced disclosure
A listed entity should make timely and balanced disclosure of all
matters concerning it that a reasonable person would expect to
have a material effect on the price or value of its securities.
RECOMMENDATION FUND’S RESPONSE
ASX
5.1 The Responsible Entity has adopted a Continuous Disclosure Policy that applies
to all directors and employees of the Responsible Entity. The policy is available
on the Responsible Entity’s website.
The policy reflects the desire to promote a fair market in the Fund’s units, honest
management and timely, full and fair disclosure. It complies with the disclosure
requirements of the ASX and explains the Fund’s disclosure obligations, the
types of information that need to be disclosed, and identifies who is responsible
for disclosure, and explains how employees of the Responsible Entity can
contribute.
The policy underlines the Board’s commitment to ensuring that unitholders are
provided with accurate and timely information about the Fund’s activities.
14
15
Rural Funds Group Annual Report 2016 PRINCIPLE 6:
Respect the rights
of security holders
A listed entity should respect the rights of its security holders
by providing them with appropriate information and facilities to
allow them to exercise those rights effectively.
RECOMMENDATION FUND’S RESPONSE
ASX
6.1 The Responsible Entity is a boutique fund and asset manager specialising in the
rural property sector. The Responsible Entity was established in 1997 to provide
retail investors with an opportunity to invest in Australian rural assets.
The management team includes specialist fund managers, finance professionals,
horticulturists, livestock managers and agronomists. This team provides the
Responsible Entity with the specialised skills and experience required to manage
the agricultural assets.
The Responsible Entity also utilises the best available consultants and supporting
resources to achieve desired outcomes and has a substantial network available
to ensure that, where appropriate, tasks can be outsourced.
The Responsible Entity has the primary responsibility for managing the Fund on
behalf of unitholders.
Information about the Responsible Entity and the Fund is available on the
Responsible Entity’s website.
Information about the corporate governance practices and policies of the
Responsible Entity is available on the Responsible Entity’s website.
16
6.2 The Responsible Entity’s website has information available to unitholders
to facilitate two-way communication. The investment products tab on the
website provides a link to the Fund’s website which provides a Fund overview,
sector, asset and lease information, strategy and investment process, financial
information, key documents, news and announcements and details about how to
contact the Responsible Entity and the Registry.
In addition, unitholders are encouraged to contact the Responsible Entity using
any of the following methods:
Email: investorservices@ruralfunds.com.au
Website: http://www.ruralfunds.com.au/contact/
Phone: 1800 026 665
Fax: 1800 625 518
By visiting the Responsible Entity’s office:
Level 2, 2 King St, Deakin ACT 2600
From time to time, the Responsible Entity arranges tours of the assets of the
Fund. Unitholders are invited to attend these tours. Additionally, unitholders
are welcome to make their own arrangements to visit the assets by contacting
investor services by any of the methods mentioned above.
6.3 As an externally managed scheme that does not hold periodic meetings,
recommendation 6.3 does not apply to the Fund. However, if the Responsible
Entity was required to hold a Unitholder meeting, it could use a web-conferencing
and/or teleconferencing facility for remote Unitholders along with an online
polling system provided by the Registry, enabling Unitholders to vote online at
any meeting.
6.4 The Responsible Entity encourages all investors to communicate with it and
with the Fund’s Registry (Boardroom Pty Limited) electronically; however, the
Responsible Entity continues to communicate with any investor via traditional
methods (mail and phone) when appropriate.
17
Rural Funds Group Annual Report 2016 PRINCIPLE 7:
Recognise and
manage risk
A listed entity should establish a sound risk management
framework and periodically review the effectiveness of that
framework.
RECOMMENDATION FUND’S RESPONSE
ASX
7.1 The Responsible Entity has not established a risk committee. Due to the size
of the Board and the nature of the business, the Board has determined that
risk oversight should be managed by the full Board. The Board has ultimate
responsibility for overseeing the risk management framework and for approving
and monitoring compliance with the framework. The Board receives monthly
reports on all material business risks in relation to the Fund, including a report
on all risks rated extreme or high. The ongoing management of identified risks is
undertaken by the relevant executive and/or asset managers of each business
area, who report to the Board on the effectiveness of control measures.
The Responsible Entity has established a Risk Management Policy based on
standards set out in the Australian/New Zealand Standard ISO 31000:2009,
which documents the Responsible Entity’s policy for the oversight and
management of material business risks. The Risk Management Policy ensures
that risks are identified and assessed, and that measures to monitor and manage
each of the material risks are implemented.
The Risk Management Policy is available on the Responsible Entity’s website.
7.2 The Responsible Entity’s risk management framework is reviewed annually or
more often if there has been a change in the relevant legislation or in business
requirements. An annual risk review was performed during the Statement Period.
The annual risk review requires each risk owner to review each risk and assess
whether the existing risk rating is appropriate. This results in all risks being
re-evaluated. In some cases, the risks may be re-rated and the residual risk
amended depending on changes in the likelihood of the risk occurring, the
consequence if the risk did occur, and the effectiveness of control measures in
place.
18
7.3 The Responsible Entity has an internal compliance committee that provides
assistance to the Board in evaluating the risk management framework and
material business risks on an ongoing basis. Whilst not an internal audit
committee, this committee reports to the Board quarterly and may make
recommendations to the Board for changes to processes and systems to ensure
compliance with legal and regulatory requirements.
The Internal Compliance Committee was comprised of:
• Executive Manager Funds Management
• Manager Corporate Services
• Financial Controller
• Client Services Manager (until 10 February 2016)
• Client Services Supervisor (from 10 February 2016)
• Compliance Officer
• Business Manager – Rural Funds Group, Almond and Macadamia
Projects (invitee)
• Business Manager – StockBank, RFM Poultry and Cattle JV (invitee)
This broad representation of roles on the committee ensures the committee is
fully informed of matters, and there is sufficient skills and experience among its
members to make decisions as necessary.
19
Rural Funds Group Annual Report 2016 7.4 The Responsible Entity is committed to undertaking the Fund’s business
activities in a responsible and ethical manner and ensuring that it remains
sustainable. Environmental, social and governance issues are embedded in many
of our policies and procedures and are considered when making investment
decisions.
The nature of the Fund is such that its activities, such as the leasing of agricultural
land and infrastructure, are largely passive in nature. Lessees are required to
adopt practices which retain the environmental integrity of the Fund’s properties.
The table below identifies material risk exposures, some of which fall into more
than one category:
Risk type
Identified risk
Economic
• Counterpart lease default
• Contracts management
• Interest rate risk, hedging and gearing
• Business Strategy
• Reduction in water entitlements
• Suspension events
• Future distributions or reduction in distributions
• Fund performance
• Competition
• Failure to make acquisitions
• Asset Valuations
• Insurance
• Changes in political and regulatory environment
including taxation changes
• Changes in economic conditions
• Conflict of interest and related party transactions
• Inflation
• Reliance on RFM skills
• Property illiquidity
• Lack of liquidity
• Litigation
• Takeover
Environmental
• Destruction or damage of property
• Reduction in water entitlements
• Climate change
Social
• Litigation
• Reputation
The Responsible Entity manages the above risks in accordance with its Risk
Management Policy available on the Responsible Entity’s website.
20
PRINCIPLE 8:
Remunerate fairly
and responsibly
An externally managed listed entity should clearly disclose the
terms governing the remuneration of the Responsible Entity.
RECOMMENDATION FUND’S RESPONSE
ASX
8.1 The Responsible Entity has adopted the ASX’s alternative recommendations
for externally managed entities and provides the following details governing the
remuneration to the Responsible Manager:
• Fund Management Fee – up to 1.0% p.a. of the gross asset value of the Fund
• Asset Management Fee – up to 1.0% p.a. of the gross asset value of
the Fund
• Termination Fee – 1.5% of the gross asset value of the Fund.
The fees listed above represent the maximum allowed under the Fund’s
Constitution.
At present the Responsible Entity charges total fees (fund management and
asset management fees) of 1.05% of the gross asset value of the Fund.
8.2 Refer to 8.1
8.3 Refer to 8.1
21
Rural Funds Group Annual Report 2016
ASX additional information
Additional information required by the ASX Limited Listing Rules and not disclosed elsewhere in this report is set
out below. This information is effective as at 11 August 2016.
(a) Distribution of Equity Securities
HOLDING SIZE
UNITHOLDERS
CLASS
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
336
829
784
2,476
187
Ordinary fully stapled securities
Ordinary fully stapled securities
Ordinary fully stapled securities
Ordinary fully stapled securities
Ordinary fully stapled securities
(b) Substantial unitholders
The number of substantial unitholders and their associates are set out below:
UNITHOLDER
J P Morgan Nominees Australia Limited
Netwealth Investments Limited
NUMBER OF UNITS %
30,975,444
14,153,320
14.969%
6.840%
(c) Holders of less than marketable parcels
The number of holders of less than marketable parcels, being $500 based on the ASX unit closing price of
$1.655 as at 11 August 2016 is set out below:
NUMBER OF UNITHOLDERS
NUMBER OF UNITS
117
3,622
(d) Voting rights
The voting rights attaching to the ordinary units, set out in Section 253C of the Corporations Act 2001, are:
i.
on a show of hands, each member of a registered scheme has 1 vote; and
ii. on a poll, each member of the scheme has 1 vote for each dollar of the value
of the total interests they have in the scheme.
22
(e) Twenty largest unitholders at 11 August 2016
UNITHOLDER
NUMBER OF UNITS %
J P Morgan Nominees Australia Limited
Netwealth investments Limited
Citicorp Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited
Rural Funds Management Ltd
Netwealth Investments Limited
Argo Investments Limited
Myer Family Investments P/L
National Nominees Limited
Bryant Family Services Pty Ltd
Bond Street Custodians Ltd
BNP Paribas Noms Pty Ltd
CS Fourth Nominees Pty Limited
WF Super Pty Ltd
One Managed Investment Funds Limited
Folkestone Maxim A-Reit Securities A/C Level 11
Boskenna Pty Ltd
Citicorp Nominees Pty Limited
Karen Mitchell Nominees P/L
Avanteos Investments Limited <1259738 Parsons A/C>
SCA Ft Pty Ltd
30,975,444
14,153,320
7,916,946
7,654,574
7,062,888
4,548,532
4,237,729
2,670,110
2,277,603
2,151,404
1,791,958
1,636,776
958,096
892,566
700,000
666,570
647,365
589,784
585,000
550,915
14.969%
6.840%
3.826%
3.699%
3.413%
2.198%
2.048%
1.290%
1.101%
1.040%
0.866%
0.791%
0.463%
0.431%
0.338%
0.322%
0.313%
0.285%
0.283%
0.266%
(f) On-market buy-back
As at 11 August 2016, RFF confirms there is no on-market buy-back facility in operation.
Securities exchange
The Trust is listed on ASX Limited (ASX). ASX reserves the right (but without limiting its absolute discretion) to
remove Rural Funds Trust (RFT), or RF Active (RFA) from the official list if any of their securities cease to be
“stapled” together, or any securities are issued by RFA which are not stapled to equivalent securities in RFT, or
any securities are issued by RFT which are not stapled to equivalent securities in RFA.
23
Rural Funds Group Annual Report 2016 Financial statements
for the year ended
30 June 2016
Rural Funds Group (ASX: RFF)
stapled group comprising:
Rural Funds Trust ARSN 112 951 578 and
RF Active ARSN 168 740 805
Responsible Entity: Rural Funds Management Limited
ACN 077 492 838 AFSL 226701
24
Rural Funds Group
Corporate Directory
Registered Office
Responsible Entity
Directors
Company Secretaries
Custodian
Auditors
Share Registry
Bankers
Stock Exchange Listing
Level 2, 2 King Street
DEAKIN ACT 2600
Rural Funds Management Limited
ABN 65 077 492 838
AFSL 226701
Level 2, 2 King Street
DEAKIN ACT 2600
Ph: 1800 026 665
Guy Paynter
David Bryant
Michael Carroll
Andrea Lemmon
Stuart Waight
Australian Executor Trustees Limited
ABN 84 007 869 794
Level 22, 207 Kent Street
SYDNEY NSW 2000
PricewaterhouseCoopers
Darling Park
201 Sussex Street
SYDNEY NSW 2000
Boardroom Pty Limited
Level 12, 225 George Street
SYDNEY NSW 2000
Ph: 1300 737 760
Australia and New Zealand Banking Group Limited (ANZ)
242 Pitt Street
SYDNEY NSW 2000
Rural Funds Group units (Rural Funds Trust and RF Active form a
stapled investment vehicle) are listed on the Australian Securities
Exchange (ASX)
ASX Code
RFF
25
1
Rural Funds Group Annual Report 2016 Rural Funds Group
Directors’ Report
30 June 2016
Rural Funds Group (RFF or the Group) comprises the stapled units in two Trusts, Rural Funds Trust (RFT) (ARSN
112 951 578) and RF Active (RFA) (ARSN 168 740 805) (collectively, the Trusts). The Directors of Rural Funds
Management Limited (RFM) (ACN 077 492 838, AFSL 226701), the responsible entity of Rural Funds Group
present their report on the Group for the year ended 30 June 2016.
In accordance with AASB 3 Business Combinations, the stapling arrangement referred to above is regarded as a
business combination and Rural Funds Trust has been identified as the parent for the purpose of preparing the
consolidated financial report.
The Directors’ report is a combined report that covers both Trusts. The financial information for the Group is taken
from the Consolidated Financial Statements and notes.
Directors
The following persons held office as Directors of the responsible entity during the year and up to the date of this
report:
Guy Paynter
David Bryant
Michael Carroll
Non-Executive Chairman
Managing Director
Non-Executive Director
Principal activities and significant changes in nature of activities
The principal activity of the Group during the year was the leasing of agricultural properties and equipment. The
Group is a lessor of agricultural property with revenue derived from leasing almond orchards, macadamia orchards,
poultry property and infrastructure, vineyards, agricultural plant and equipment, and water rights.
The following activities of the Group changed during the year:
The Group purchased the Kerarbury and Kamelda properties (collectively referred to as Kerarbury), located
near Darlington Point, NSW, to develop a 2,500 hectare almond orchard (including an additional 1,000
hectares announced in July 2016) to be leased by Olam Orchards Australia Pty Limited (Olam);
Through the acquisition of three macadamia orchards near Bundaberg, QLD, the Group has taken its first
measured step into this industry; and,
The Group invested $5,275,000 in Perth Markets Limited (PML), the owner of the Market City site near Canning
Vale, WA.
Operating results
The consolidated net profit after income tax of the Group for the year ended 30 June 2016 amounted to $34,788,000
(2015: $10,153,000).
The Group holds investment property, biological assets and derivatives at fair value. After adjusting for the effects
of fair value adjustments, depreciation, impairments and one-off transaction costs during the year the profit before
tax would have been $14,342,000 (2015: $11,014,000).
26
Rural Funds Group
Directors’ Report
30 June 2016
Adjusted funds from operations (AFFO)
Net profit before income tax
Change in fair value of investment property
Change in fair value of biological assets
Change in fair value of interest rate swaps
Reversal of impairment of intangible assets
Depreciation and impairments
(Gain)/loss on sale of assets
One-off transaction costs
AFFO
AFFO cents per unit
2016
$'000
35,963
(3,343)
(26,495)
7,116
-
939
(290)
452
14,342
9.26
2015
$'000
9,441
4,824
(1,835)
734
(2,645)
490
5
-
11,014
9.09
Having eliminated fair value adjustments and one-off transaction costs, the adjusted funds from operations (AFFO)
effectively represents funds from operations from the property rental business.
Financial position
The net assets of the consolidated Group have increased to $207,864,000 at 30 June 2016 from $151,940,000 at
30 June 2015.
At 30 June 2016 the Group had total assets of $379,039,000 (2015: $252,663,000).
At 30 June 2016, the Group held total water entitlements (including investments in Barossa Infrastructure Limited
(BIL) and Coleambally Irrigation Co-operative Limited (CICL)) at a book value of $69,534,000 (2015: $29,485,000).
Independent valuations as at 30 June 2016 were received on the established almond orchards and associated
properties and poultry property and infrastructure that attribute a value to the water entitlements held by the Group.
The Directors consider that these valuations remain reasonable estimates of the fair value at 30 June 2016 and on
this basis the fair value of water entitlements at 30 June 2016 was $97,949,000 (2015: $39,060,000). The value of
water entitlements is illustrated in the table below:
Intangible assets (water entitlements)
Investment in BIL
Investment in CICL
Total book value of water entitlements
Revaluation of intangible assets per valuation
Adjusted total water entitlements
Adjusted net asset value
2016
$'000
59,691
509
9,334
69,534
28,415
97,949
2015
$'000
28,965
520
-
29,485
9,575
39,060
The following depicts the net assets of the Group following the revaluation of intangible assets per these valuations.
Net assets per Consolidated Statement of Financial Position
Revaluation of intangible assets per valuation
Adjusted net assets
Adjusted NAV per unit
2016
$'000
207,864
28,415
236,279
1.43
2015
$'000
151,940
9,575
161,515
1.22
27
Rural Funds Group Annual Report 2016
Rural Funds Group
Directors’ Report
30 June 2016
Significant changes in state of affairs
On 9 October 2015 the Group acquired Kerarbury, located near Darlington Point, NSW. In September 2015 a lease
for 22 years and 9 months was executed with Olam to develop an initial 1,500 hectare almond orchard on
Kerarbury. To fund this development, a placement of $12,596,000 (11.451 million fully paid stapled securities) and
a non-renounceable rights issue of $22,381,000 (2 new units for every 13 existing units) were completed in October
2015.
On 15 March 2016 the Group acquired three macadamia orchards located near Bundaberg, QLD. Two of these
properties are leased to the 2007 Macgrove Project (M07 or the Project) and the third property is leased to RFM.
RFM was appointed responsible entity of M07 at a Grower’s meeting in February 2016. The Group leases a total
of 259 hectares of planted area: 234 hectares to the Project and 25 hectares to RFM.
In January 2016 RFF invested $5,275,000 in Perth Markets Limited (PML). PML owns the Market City site located
at Canning Vale, WA. PML is an industry-based consortium of wholesalers, growers, Market City tenants and state-
based market operators. RFF’s investment represents an interest of approximately 8.96% in PML.
In the opinion of the Directors, there were no other significant changes in the state of affairs of the Group during
the year.
Property leasing
At 30 June 2016 the Group held 31 properties as follows:
17 poultry farms (303,216 square metres);
3 almond orchards (2,414 planted hectares);
1 almond orchard under development (2,500 planted hectares at completion);
7 vineyards (666 planted hectares);
3 macadamia orchards (259 planted hectares).
During the year ended 30 June 2016, the properties held by the Group recorded a fair value of investment
properties increment of $3,343,000 (2015: $4,824,000 decrement) and a change in fair value of biological assets
increment of $26,495,000 (2015: $1,835,000).
Almond orchards
Established almond orchards and associated water licences are located near Hillston, NSW and are leased to
tenants who make regular rental payments. On these properties, 2,414 hectares (2015: 1,814 hectares) are applied
to almond growing: 1,006 hectares (2015: 1,006) at Yilgah, 808 hectares (2015: 808) at Mooral and 600 hectares
at Tocabil (2015: nil). The full almond area is under lease to the following tenants:
Select Harvests Limited (SHV) 1,221 hectares (2015: 1,221);
RFM Almond Fund 2006 (AF06) 272 hectares (2015: 272);
RFM Almond Fund 2007 (AF07) 73 hectares (2015: 73);
RFM Almond Fund 2008 (AF08) 206 hectares (2015: 206);
Olam Orchards Australia Pty Limited (Olam) 600 hectares (2015: nil);
Rural Funds Management Limited (RFM) 42 hectares (2015: 42).
The Group underwent a rent review for the properties leased to Select Harvests Limited during the year. The rent
review is effective from 1 July 2016.
The Group had two almond orchards under development during the year, both of which are under lease to Olam.
Tocabil was leased to Olam in March 2015. As stated above, the full 600 hectares of almond orchard at Tocabil is
now established and fully leased. The Kerarbury property was leased to Olam from September 2015. A 2,500
hectare almond orchard is being developed in accordance with the lease of this property, including an additional
1,000 hectares announced in July 2016.
28
Rural Funds Group
Directors’ Report
30 June 2016
Property leasing (continued)
Almond orchards (continued)
For its almond orchards the Group owns water entitlements of 59,985ML (2015: 33,219ML). During the year, a
total of 26,766ML of water entitlements were purchased. Deposits were paid for an additional 6,591 ML of water
entitlements.
For its almond orchards the Group also owns 21,430ML of delivery entitlements (2015: nil).
Poultry property
The poultry property and infrastructure held by the Group includes 17 poultry growing farms located in Griffith,
NSW and Lethbridge, VIC and 1,432ML of water entitlements (2015: 1,432ML). Leases are in place with RFM
Poultry, a scheme managed by RFM, for 100% (2015: 100%) of the poultry property and infrastructure, with
remaining lease terms between 8 and 20 years. The poultry growing operations are performed by RFM Poultry.
Vineyards
The vineyard properties held by the Group include seven vineyards, with six located in South Australia, in the
Barossa Valley, Adelaide Hills and Coonawarra regions, and one located in the Grampians in Victoria. For its
vineyards, the Group owns 936ML of water entitlements (2015: 936ML). All vineyards produce premium quality
grapes and are leased to Treasury Wine Estates Limited until June 2022.
Macadamia orchards
Established macadamia orchards and associated water licences were acquired during the year and are located
near Bundaberg, QLD. Orchards are leased to tenants who make regular rental payments. On these properties,
259 hectares are applied to macadamia growing: 130 hectares at Swan Ridge, 104 hectares at Moore Park and
25 hectares at Bonmac. The full planted area is under lease to the following tenants:
2007 Macgrove Project (M07) 234 hectares;
Rural Funds Management Limited (RFM) 25 hectares.
Other activities
The Group owns a 33.50% stake in RFM StockBank (2015: 33.52%), a scheme managed by RFM, which operates
a livestock leasing business. Under the livestock leasing operation, RFM StockBank retains ownership of the
livestock and leases them to farmers in return for a placement fee which is similar to interest, and an upfront fee
from the livestock agent. RFM, as responsible entity for RFM StockBank, has commenced the process of returning
capital to investors and winding up the business.
Agricultural plant and equipment with a net book value of $4,178,000 (2015: $3,153,000) is owned by the Group
and leased to AF06, AF07, AF08 and M07.
The Group owns a 8.96% interest in Perth Markets Limited, a stapled entity which owns the Market City site in
Canning Vale, WA.
Banking facilities
At 30 June 2016 the core debt facility available to the Group was $147,500,000 (2015: $103,000,000), with a drawn
down balance of $146,500,000 (2015: $89,650,000). The facility limit was increased to $200,000,000 on 12 July
2016. The facility expiry is unchanged (being December 2018), and at 30 June 2016 RFF had active interest rate
swaps totalling 60% (2015: 84%) of the drawn down balance to manage interest rate risk.
29
Rural Funds Group Annual Report 2016
Rural Funds Group
Directors’ Report
30 June 2016
Distributions
Distribution declared 1 June 2015, paid 30 July 2015
Distribution paid 30 October 2015
Distribution paid 29 January 2016
Distribution paid 29 April 2016
Distribution declared 1 June 2016, paid 29 July 2016
Earnings per unit
Net profit after income tax for the year ($)
Weighted average number of units on issue during the year
Basic and diluted earnings per unit (total) (cents)
Indirect cost ratio
Cents
per unit
2.1475
2.2325
2.2325
2.2325
2.2325
Total
$
2,837,755
2,955,482
3,670,193
3,681,201
3,691,602
34,788,000
154,854,317
22.46
The indirect cost ratio (ICR) is the ratio of the Group’s management costs over the Group’s average net assets for
the year, expressed as a percentage.
Management costs include management fees and reimbursement of other expenses in relation to the Group, but
do not include transactional and operational costs such as brokerage. Management costs are not paid directly by
the unitholders of the Group.
The ICR for the Group for the year ended 30 June 2016 is 2.43% (2015: 2.42%). The ICR for the year has been
impacted by costs associated with the placement and rights issue completed in October 2015.
Matters subsequent to the end of the year
In July 2016 the Group successfully completed a non-renounceable rights issue of $61,000,000 (1 new unit for
every 4 existing units), in order to fund the acquisitions of the macadamia orchards and cattle properties and
expansions to the almond development at Kerarbury by a further 1,000 hectares.
In July 2016 the Group negotiated an increase to its debt facility from $147,500,000 to $200,000,000.
In July and August 2016 the Group acquired three cattle properties: Rewan, a 17,500 hectare cattle property near
Rolleston, QLD and Oakland Park and Mutton Hole, located near the Gulf of Carpentaria in far north Queensland
and comprising a combined area of 225,800 hectares. The acquisition of the three cattle properties and associated
livestock will increase the Group’s total assets by approximately $50,000,000. The properties and livestock will be
leased for ten years to Cattle JV Pty Limited, a wholly owned subsidiary of RFM.
No other matter or circumstance has arisen since the end of the year that has significantly affected or could
significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group
in future financial years.
Likely developments and expected results of operations
The Group expects to continue to derive its core future income from the holding and leasing of investment property,
biological assets and water entitlements. Management is continually looking for growth opportunities in agricultural
and related industries.
30
Rural Funds Group
Directors’ Report
30 June 2016
Environmental regulation
The operations of the Group are subject to significant environmental regulations under the laws of the
Commonwealth and States or Territories of Australia. Water usage for irrigation, domestic and levee purposes,
including containing irrigation water from entering the river, water course or water aquifer are regulated by the
Water Management Act 2000. Water licences are leased to external parties who are then responsible to meet the
legislative requirements of these licences. There have been no known significant breaches of any environmental
requirements applicable to the Group.
Units on issue
165,357,290 units in Rural Funds Trust were on issue at 30 June 2016 (2015: 132,142,235). During the year
33,215,055 units were issued by the Trust (2015: 15,043,076) and nil (2015: nil) were redeemed.
165,357,290 units in RF Active were on issue at 30 June 2016 (2015: 132,142,235). During the year 33,215,055
units were issued by the Trust (2015: 15,043,076) and nil (2015: 50,000) were redeemed.
Indemnity of Responsible Entity and Custodian
In accordance with its constitution, Rural Funds Group indemnifies the Directors, Company Secretaries and all
other officers of the responsible entity and Custodian when acting in those capacities, against costs and expenses
incurred in defending certain proceedings.
Rounding of amounts
The Group is an entity to which ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191
applies and accordingly amounts in the consolidated financial statements and directors' report have been rounded
to the nearest thousand dollars.
31
Rural Funds Group Annual Report 2016
Rural Funds Group
Directors’ Report
30 June 2016
Information on Directors of the Responsible Entity
Guy Paynter
Qualifications
Experience
Non-Executive Chairman
Bachelor of Laws from The University of Melbourne
Guy Paynter is a former director of broking firm JB Were and brings to RFM
more than 30 years of experience in corporate finance. Guy is a former
member of the Australian Securities Exchange (ASX) and a former associate
of the Securities Institute of Australia (now known as the Financial Services
Institute of Australasia). Guy is also Chairman of Bill Peach Group Limited
(previously known as Aircruising Australia Limited). Guy's agricultural
interests include cattle breeding in the Upper Hunter region in New South
Wales.
Special responsibilities
Directorships held in other listed
entities during the three years prior
to the current year
Member of Audit Committee
RFM Poultry
David Bryant
Qualifications
Experience
Special responsibilities
Directorships held in other listed
entities during the three years prior
to the current year
Michael Carroll
Qualifications
Experience
Managing Director
Diploma of Financial Planning from the Royal Melbourne Institute of
Technology and a Masters of Agribusiness from The University of Melbourne.
David Bryant established RFM in February 1997. Since then, David has led
the RFM team that has acquired over $460 million in agricultural assets
across eight Australian agricultural regions. This has included negotiating the
acquisition of more than 35 properties and over 79,000 megalitres of water
entitlements.
Managing Director
RFM Poultry
Non-Executive Director
Bachelor of Agricultural Science from La Trobe University and a Masters of
Business Administration from The University of Melbourne's Melbourne
Business School. Michael has completed the Advanced Management
Program at Harvard Business School, Boston, and is a Fellow of the
Australian Institute of Company Directors.
Michael Carroll serves a range of food and agricultural businesses in a board
and advisory capacity. Michael is on the boards of Tassal Group Limited,
Select Harvests Limited, Paraway Pastoral Company, Sunny Queen Pty
Limited, and the Gardiner Dairy Foundation. Michael also has senior
executive experience in a range of companies, including establishing and
leading the National Australia Bank (NAB) Agribusiness division.
Special responsibilities
Chairman of Audit Committee
Directorships held in other listed
entities during the three years prior
to the current year
Michael is on the Board of Tassal Group Limited, RFM Poultry and Select
Harvests Limited. Michael was on the Board of Warrnambool Cheese and
Butter Limited from August 2009 until May 2014.
32
Rural Funds Group
Directors’ Report
30 June 2016
Interests of Directors of the Responsible Entity
Balance at 30 June 2014
Additions
Balance at 30 June 2015
Additions
Balance at 30 June 2016
Guy Paynter
Units
351,833
30,323
David Bryant
Units
3,287,372
368,819
382,156
151,100
533,256
3,656,191
3,987,152
7,643,343
Company Secretaries of the Responsible Entity
Stuart Waight and Andrea Lemmon are RFM’s joint company secretaries. Stuart joined RFM in 2003, is a Chartered
Accountant and is RFM’s Chief Operating Officer. Andrea has been with RFM since 1997 and is RFM’s Executive
Manager Funds Management.
Meetings of Directors of the Responsible Entity
During the financial year 16 meetings of Directors (including committees of Directors) were held. Attendances by
each Director during the year were as follows:
Guy Paynter
David Bryant
Michael Carroll
Directors meetings
No. eligible
to attend
16
16
16
No. attended
14
15
*15
Audit Committee meetings
No. eligible
to attend
2
No. attended
-
2
2
-
2
* Michael Carroll excused himself from one meeting to avoid any potential conflict of interest.
PricewaterhouseCoopers attended the Board meeting where the Directors considered and approved the Financial
Statements for the year ended 30 June 2016 as the audit committee was unable to form a quorum at that time.
Non-audit services
During the year ended 30 June 2016 fees of $6,121 (2015: nil) were paid or payable to PricewaterhouseCoopers
for compliance audit services provided.
Auditor’s independence declaration
The auditor’s independence declaration in accordance with section 307C of the Corporations Act 2001 for the year
ended 30 June 2016 has been received and is included on page 34 of the financial report.
The Directors’ report is signed in accordance with a resolution of the Board of Directors of Rural Funds
Management Limited.
David Bryant
Director
24 August 2016
33
Rural Funds Group Annual Report 2016 Auditor’s Independence Declaration
As lead auditor for the audit of Rural Funds Group for the year ended 30 June 2016, I declare that to
the best of my knowledge and belief, there have been:
1.
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
2.
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Rural Funds Group and the entities it controlled during the period.
David Ronald
Partner
PricewaterhouseCoopers
Sydney
24 August 2016
PricewaterhouseCoopers, ABN 52 780 433 757
Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
34
Rural Funds Group
Consolidated Statement of Comprehensive Income
Rural Funds Group
For the year ended 30 June 2016
Consolidated Statement of Comprehensive Income
Note
For the year ended 30 June 2016
Revenue
Other income
Management fees
Professional fees
Revenue
Finance costs
Other income
Other expenses
Management fees
Share of net profit - equity accounted investments
Professional fees
Gain/(loss) on sale of assets
Finance costs
Depreciation and impairments
Other expenses
Change in fair value of biological assets
Share of net profit - equity accounted investments
Change in fair value of investment property
Gain/(loss) on sale of assets
Change in fair value of interest rate swaps
Depreciation and impairments
Reversal of impairment of intangible assets
Change in fair value of biological assets
Net profit before income tax
Change in fair value of investment property
Income tax (expense)/benefit
Change in fair value of interest rate swaps
Net profit after income tax
Reversal of impairment of intangible assets
Net profit before income tax
Other comprehensive income:
Income tax (expense)/benefit
Revaluation (decrement)/increment
Income tax relating to these items
Net profit after income tax
Other comprehensive income for the year, net of tax
Other comprehensive income:
Total comprehensive income attributable to unitholders
Revaluation (decrement)/increment
Income tax relating to these items
Total comprehensive income for the year attributable to
Other comprehensive income for the year, net of tax
unitholders arising from:
Total comprehensive income attributable to unitholders
Rural Funds Trust
RF Active (non-controlling interest)
Total comprehensive income for the year attributable to
unitholders arising from:
Rural Funds Trust
RF Active (non-controlling interest)
Earnings per unit
Basic and diluted earnings per unit from continuing operations:
Per stapled unit (cents)
Per unit of Rural Funds Trust (cents)
Earnings per unit
Per unit of RF Active (cents)
Basic and diluted earnings per unit from continuing operations:
Per stapled unit (cents)
Per unit of Rural Funds Trust (cents)
Per unit of RF Active (cents)
6
Note
6
7
7
25
7
25
7
27
27
27
27
27
27
2016
$'000
26,549
2016
76
$'000
(3,165)
(2,050)
26,549
(5,612)
76
(1,969)
(3,165)
61
(2,050)
290
(5,612)
(939)
(1,969)
26,495
61
3,343
290
(7,116)
(939)
-
26,495
35,963
3,343
(1,175)
(7,116)
34,788
-
35,963
(1,175)
(14)
34,788
-
(14)
34,774
(14)
-
(14)
34,774
34,644
130
34,774
34,644
130
34,774
22.46
22.38
0.08
22.46
22.38
0.08
The accompanying notes form part of these financial statements.
The accompanying notes form part of these financial statements.
2015
$'000
22,218
2015
69
$'000
(2,496)
(2,253)
22,218
(5,285)
69
(1,364)
(2,496)
125
(2,253)
(5)
(5,285)
(490)
(1,364)
1,835
125
(4,824)
(5)
(734)
(490)
2,645
1,835
9,441
(4,824)
712
(734)
10,153
2,645
9,441
712
8
10,153
-
8
10,161
8
-
8
10,161
10,088
73
10,161
10,088
73
10,161
8.38
8.32
0.06
8.38
8.32
0.06
35
Rural Funds Group Annual Report 2016
Rural Funds Group
Consolidated Statement of Comprehensive Income
Rural Funds Group
For the year ended 30 June 2016
Consolidated Statement of Financial Position
As at 30 June 2016
Note
Revenue
Other income
Management fees
ASSETS
Professional fees
Current assets
Finance costs
Cash and cash equivalents
Other expenses
Trade and other receivables
Share of net profit - equity accounted investments
Other current assets
Gain/(loss) on sale of assets
Total current assets
Depreciation and impairments
Non-current assets
Change in fair value of biological assets
Investments accounted for using the equity method
Change in fair value of investment property
Financial assets
Change in fair value of interest rate swaps
Plant and equipment
Reversal of impairment of intangible assets
Investment property
Net profit before income tax
Biological assets
Income tax (expense)/benefit
Intangible assets
Net profit after income tax
Deferred tax assets
Other comprehensive income:
Total non-current assets
Revaluation (decrement)/increment
Total assets
Income tax relating to these items
LIABILITIES
Other comprehensive income for the year, net of tax
Current liabilities
Total comprehensive income attributable to unitholders
Trade and other payables
Interest bearing liabilities
Total comprehensive income for the year attributable to
Income tax payable
unitholders arising from:
Distributions payable
Rural Funds Trust
Total current liabilities
RF Active (non-controlling interest)
Non-current liabilities
Interest bearing liabilities
6
Note
9
10
14
16
15
12
13
11
7
17
22, 23
25
7
18
19
23
26
19
Other non-current liabilities
Earnings per unit
Derivative financial liabilities
Basic and diluted earnings per unit from continuing operations:
Total non-current liabilities
Per stapled unit (cents)
Total liabilities (excluding net assets attributable to unitholders)
Per unit of Rural Funds Trust (cents)
27
27
20
21
Net assets attributable to unitholders
Per unit of RF Active (cents)
27
Total liabilities
2016
$'000
26,549
2016
76
$'000
(3,165)
(2,050)
(5,612)
3,034
(1,969)
7,239
61
2,501
290
12,774
(939)
26,495
9,041
3,343
10,078
(7,116)
4,178
-
168,951
35,963
113,206
(1,175)
59,691
34,788
1,120
366,265
(14)
379,039
-
(14)
34,774
6,920
3,030
-
3,901
34,644
13,851
130
34,774
146,500
1,634
9,190
157,324
22.46
171,175
22.38
207,864
0.08
379,039
2015
$'000
22,218
2015
69
$'000
(2,496)
(2,253)
(5,285)
712
(1,364)
2,729
125
307
(5)
3,748
(490)
1,835
3,903
(4,824)
617
(734)
3,153
2,645
142,379
9,441
67,581
712
28,965
10,153
2,317
248,915
8
252,663
-
8
10,161
2,038
657
29
2,947
10,088
5,671
73
10,161
91,451
1,553
2,048
95,052
8.38
100,723
8.32
151,940
0.06
252,663
The accompanying notes form part of these financial statements.
The accompanying notes form part of these financial statements.
36
Rural Funds Group
Consolidated Statement of Comprehensive Income
Rural Funds Group
For the year ended 30 June 2016
Consolidated Statement of Financial Position
As at 30 June 2016
Revenue
Other income
Management fees
NET ASSETS ATTRIBUTABLE TO UNITHOLDERS
Professional fees
Unitholders of Rural Funds Trust
Finance costs
Issued units
Other expenses
Asset revaluation reserve
Share of net profit - equity accounted investments
Accumulated profit
Gain/(loss) on sale of assets
Parent entity interest
Depreciation and impairments
Unitholders of RF Active
Change in fair value of biological assets
Issued units
Change in fair value of investment property
Accumulated profit
Change in fair value of interest rate swaps
Non-controlling interest
Reversal of impairment of intangible assets
Total net assets attributable to unitholders
Net profit before income tax
Note
6
Note
25
2016
$'000
26,549
2016
76
$'000
(3,165)
(2,050)
(5,612)
134,110
(1,969)
1,392
61
70,476
290
205,978
(939)
26,495
1,683
3,343
203
(7,116)
1,886
-
207,864
35,963
2015
$'000
22,218
2015
69
$'000
(2,496)
(2,253)
(5,285)
111,711
(1,364)
1,406
125
37,427
(5)
150,544
(490)
1,835
1,323
(4,824)
73
(734)
1,396
2,645
151,940
9,441
Income tax (expense)/benefit
Water entitlements are held at cost in the Consolidated Statement of Financial Position in accordance with
accounting standards. Refer to note 5 for disclosure of the directors’ valuation of water entitlements, which are
10,153
supported by independent property valuations.
Net profit after income tax
34,788
(1,175)
712
7
Other comprehensive income:
Revaluation (decrement)/increment
Income tax relating to these items
Other comprehensive income for the year, net of tax
25
7
(14)
-
(14)
8
-
8
Total comprehensive income attributable to unitholders
34,774
10,161
Total comprehensive income for the year attributable to
unitholders arising from:
Rural Funds Trust
RF Active (non-controlling interest)
34,644
130
34,774
10,088
73
10,161
Earnings per unit
Basic and diluted earnings per unit from continuing operations:
Per stapled unit (cents)
Per unit of Rural Funds Trust (cents)
Per unit of RF Active (cents)
27
27
27
22.46
22.38
0.08
8.38
8.32
0.06
The accompanying notes form part of these financial statements.
The accompanying notes form part of these financial statements.
37
Rural Funds Group Annual Report 2016
Rural Funds Group
Consolidated Statement of Comprehensive Income
Rural Funds Group
For the year ended 30 June 2016
Consolidated Statement of Changes in Net Assets Attributable to Unitholders
For the year ended 30 June 2016
$'000
Note
$'000
2016
2015
Revenue
2016
Other income
Management fees
Note
Issued
units
Retained
earnings
6
Asset
revaluation
reserve
Total
26,549
Non-
controlling
interest
76
(3,165)
22,218
Total
69
(2,496)
$'000
(2,253)
151,940
(5,285)
(14)
(1,364)
125
(14)
(5)
35,963
(490)
(1,175)
1,835
34,774
(4,824)
(734)
2,645
36,817
9,441
(1,669)
712
35,148
10,153
(13,998)
137,471
8
10,088
73
8
10,161
9,441
712
10,161
8.38
15,777
8.32
(760)
0.06
$'000
-
-
-
111,711
Professional fees
Balance at 1 July 2015
Finance costs
Other comprehensive
Other expenses
income
Total other
Share of net profit - equity accounted investments
comprehensive income
Gain/(loss) on sale of assets
Profit before income tax
Depreciation and impairments
Income tax expense
7
Change in fair value of biological assets
Total comprehensive
Change in fair value of investment property
income for the year
Change in fair value of interest rate swaps
Issued units
Reversal of impairment of intangible assets
Units issued during the
year
Net profit before income tax
Issue costs
Income tax (expense)/benefit
Total issued units
Net profit after income tax
Distributions to
26
unitholders
Other comprehensive income:
Balance at 30 June 2016
Revaluation (decrement)/increment
(12,389)
134,110
36,449
34,788
(1,661)
24
24
-
-
$'000
37,427
-
-
35,912
(1,254)
34,658
-
-
-
(1,609)
70,476
Income tax relating to these items
2015
Note
Other comprehensive income for the year, net of tax
Issued
units
Retained
earnings
Total comprehensive income attributable to unitholders
$'000
1,406
(14)
(14)
-
-
$'000
(2,050)
150,544
(5,612)
$'000
1,396
(14)
(1,969)
(14)
35,912
(1,254)
61
290
(939)
26,495
-
-
51
79
(14)
34,644
3,343
130
(7,116)
36,449
-
(1,661)
34,788
35,963
(1,175)
34,788
(13,998)
368
(8)
360
-
7
-
-
-
-
1,392
25
205,978
(14)
1,886
207,864
8
7
Asset
revaluation
reserve
-
Total
Non-
(14)
controlling
interest
34,774
-
Total
8
10,161
$'000
$'000
$'000
$'000
$'000
$'000
108,281
Total comprehensive income for the year attributable to
Balance at 1 July 2014
27,792
unitholders arising from:
Other comprehensive
Rural Funds Trust
income
Total other
RF Active (non-controlling interest)
comprehensive income
Profit before income tax
9,360
-
-
-
-
-
-
7
Income tax expense
Earnings per unit
Total comprehensive
income for the year
Basic and diluted earnings per unit from continuing operations:
Issued units
Per stapled unit (cents)
Units issued during the
Per unit of Rural Funds Trust (cents)
year
Issue costs
Per unit of RF Active (cents)
14,447
10,080
(753)
720
24
24
-
-
-
Total issued units
Distributions to
unitholders
13,694
-
26
(10,264)
(445)
1,398
137,471
8
8
-
8
34,644
130
8
34,774
9,360
720
8
10,088
-
-
-
81
(8)
73
27
27
-
27
-
-
-
22.46
14,447
22.38
1,330
(753)
0.08
(7)
13,694
1,323
15,017
(10,709)
-
(10,709)
Balance at 30 June 2015
111,711
37,427
1,406
150,544
1,396
151,940
The accompanying notes form part of these financial statements.
The accompanying notes form part of these financial statements.
38
Rural Funds Group
Consolidated Statement of Comprehensive Income
Rural Funds Group
For the year ended 30 June 2016
Consolidated Statement of Cash Flows
For the year ended 30 June 2016
Revenue
Other income
Management fees
Cash flows from operating activities
Professional fees
Receipts from customers
Finance costs
Payments to suppliers
Other expenses
Interest received
Share of net profit - equity accounted investments
Finance costs
Gain/(loss) on sale of assets
Net cash inflow from operating activities
Depreciation and impairments
Change in fair value of biological assets
Cash flows from investing activities
Change in fair value of investment property
Payments for acquisition of macadamia leasing business
Change in fair value of interest rate swaps
Acquired as a result of stapling transaction
Reversal of impairment of intangible assets
Payments for investment property
Net profit before income tax
Payments for biological assets
Income tax (expense)/benefit
Payments for intangible assets
Net profit after income tax
Payments for financial assets
Other comprehensive income:
Payments for plant and equipment
Revaluation (decrement)/increment
Payments for deposits
Income tax relating to these items
Payments for equity accounted investments
Other comprehensive income for the year, net of tax
Proceeds from sale of investment property
Proceeds from sale of assets
Total comprehensive income attributable to unitholders
Distributions from equity accounted investment
Distributions received
Total comprehensive income for the year attributable to
unitholders arising from:
Loans to related parties
Rural Funds Trust
Net cash outflow from investing activities
RF Active (non-controlling interest)
Cash flows from financing activities
Proceeds from issue of units
Earnings per unit
Proceeds from borrowings
Basic and diluted earnings per unit from continuing operations:
Repayment of borrowings
Per stapled unit (cents)
Distributions paid
Per unit of Rural Funds Trust (cents)
Net cash inflow from financing activities
Per unit of RF Active (cents)
Net increase/(decrease) in cash and cash equivalents held
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
Note
6
Note
34
31
7
25
7
16
27
27
27
9
The accompanying notes form part of these financial statements.
The accompanying notes form part of these financial statements.
2016
$'000
2015
$'000
26,549
2016
76
$'000
(3,165)
(2,050)
29,255
(5,612)
(9,492)
(1,969)
80
(5,612)
61
290
14,231
(939)
26,495
3,343
(7,291)
(7,116)
-
-
(23,275)
35,963
(13,606)
(1,175)
(30,381)
34,788
(9,359)
(1,760)
(14)
(2,242)
-
(5,275)
(14)
1,162
22,218
2015
69
$'000
(2,496)
(2,253)
24,539
(5,285)
(9,988)
(1,364)
21
(5,350)
125
9,222
(5)
(490)
1,835
(4,824)
-
(734)
591
2,645
(9,095)
9,441
(240)
(2,730)
712
10,153
-
(334)
-
8
-
-
-
8
34,774
348
10,161
-
234
11
132
113
-
34,644
(91,434)
130
642
10,088
(10,921)
73
34,774
10,161
35,148
58,079
(657)
22.46
(13,045)
22.38
79,525
0.08
2,322
712
3,034
15,017
3,585
(8,630)
8.38
(10,284)
(312)
8.32
0.06
(2,011)
2,723
712
39
Rural Funds Group Annual Report 2016
Rural Funds Group
Notes to the Financial Statements
30 June 2016
1
General information
This financial report covers the consolidated financial statements and notes of Rural Funds Trust and its
Controlled Entities including RF Active (Rural Funds Group, the Group or collectively the Trusts). Rural
Funds Group is a for profit entity domiciled in Australia. The Directors of the Responsible Entity authorised
the Financial Report for issue on 24 August 2016 and have the power to amend and reissue the Financial
Report.
Items included in the financial statements of each of the Group entities are measured using the currency
of the primary economic environment in which the entity operates (functional currency). The consolidated
financial statements are presented in Australian dollars which is the parent entity’s functional and
presentation currency.
The separate financial statements and notes of the parent entity, Rural Funds Trust, have not been
presented within this financial report as permitted by amendments made to the Corporations Act 2001.
Parent entity information is included in note 36.
2
Summary of significant accounting policies
Basis of preparation
The accounting policies that have been adopted in respect of the financial report are those of Rural Funds
Management (RFM) as responsible entity of the Trusts.
The Trusts have common business objectives and operate as an economic entity collectively known as
Rural Funds Group.
The financial statements are general purpose financial statements that have been prepared in accordance
with Australian Accounting Standards, Australian Accounting Interpretations, and other authoritative
pronouncements of the Australian Accounting Standards Board, the Corporations Act 2001 and the Trusts’
Constitution. The report has been prepared on a going concern basis.
The financial statements and notes comply with International Financial Reporting Standards as issued by
the International Accounting Standards Board. The significant accounting policies used in the preparation
and presentation of these financial statements are provided below and are consistent with prior reporting
periods unless otherwise stated. The financial statements are based on historical cost, except for the
measurement at fair value of selected non-current assets, financial assets and financial liabilities.
As permitted by Class Order 05/642, issued by the Australian Securities and Investments Commission,
these financial statements are consolidated financial statements and accompanying notes of both Rural
Funds Trust and RF Active.
As permitted by Class Order 13/1644, which amends Class Order 13/1050, this financial report presents
the Consolidated Financial Statements and accompanying notes of the Rural Funds Group (being the
consolidated financial statements and notes of the Group).
Principles of consolidation
The consolidated financial statements include the financial position and performance of controlled entities
from the date on which control is obtained until the date that control is lost.
Intragroup assets, liabilities, equity, income, expenses and cash flows relating to transactions between
entities in the consolidated Group have been eliminated in full for the purpose of these financial
statements.
Appropriate adjustments have been made to the controlled entity’s financial position, performance and
cash flows where the accounting policies used by that entity were different from those adopted by the
consolidated entity. All controlled entities have a 30 June financial year end.
40
Rural Funds Group
Notes to the Financial Statements
30 June 2016
2
Summary of significant accounting policies (continued)
Principles of consolidation (continued)
Controlled entities
In accordance with AASB 3 Business Combinations, Rural Funds Trust is deemed to control RF Active
from the stapling date of 16 October 2014. Rural Funds Trust is considered to be the acquirer of RF Active
due to the size of the respective entities and as the stapling transaction and capitalisation of RF Active
was funded by a distribution from Rural Funds Trust that was compulsorily used to subscribe for units in
RF Active.
Associates
Associates are entities over which the Group has significant influence but not control or joint control,
generally accompanying a holding of between 20% and 50% of the voting rights. Investments in
associates are accounted for using the equity method of accounting, after initially being recognised at
cost.
The Group's share of its associates’ post-acquisition profits or losses is recognised in profit or loss, and
its share of post-acquisition other comprehensive income is recognised in other comprehensive income.
The cumulative post-acquisition movements are adjusted against the carrying amount of the investment.
Dividends or distributions receivable from associates are recognised as a reduction in the carrying amount
of the investment.
Business combinations
Business combinations are accounted for by applying the acquisition method which requires an acquiring
entity to be identified in all cases. The acquisition date under this method is the date that the acquiring
entity obtains control over the acquired entity.
The fair value of identifiable assets and liabilities acquired are recognised in the consolidated financial
statements at the acquisition date.
Goodwill or a discount on acquisition may arise on the acquisition date, this is calculated by comparing
the fair value of the consideration transferred and the amount of non-controlling interest in the acquirer
with the fair value of the net identifiable assets acquired. Where the consideration is greater than the
identifiable assets, the excess is recorded as goodwill. Where the net assets acquired are greater than
the consideration, the measurement basis of the net assets are reassessed and then a discount on
acquisition recognised in the Consolidated Statement of Comprehensive Income.
All acquisition-related costs are recognised as expenses in the periods in which the costs are incurred
except for costs to issue debt or equity securities.
Any contingent consideration which forms part of the combination is recognised at fair value at the
acquisition date. If the contingent consideration is classified as equity then it is not remeasured and the
settlement is accounted for within equity. Otherwise subsequent changes in the value of the contingent
consideration liability are measured through the statement of comprehensive income.
Comparative amounts
Comparatives amounts have not been restated unless otherwise noted.
41
Rural Funds Group Annual Report 2016 Rural Funds Group
Notes to the Financial Statements
30 June 2016
2
Summary of significant accounting policies (continued)
Revenue
Revenue is recognised when the amount of the revenue can be measured reliably, it is probable that
economic benefits associated with the transaction will flow to the entity and specific criteria relating to the
type of revenue as noted below, have been satisfied.
Revenue from the leasing of investment property, water rights, property, plant and equipment,
infrastructure and biological assets, where the Group is a lessor, is recognised in income over the lease
term on an accruals basis. The respective leased assets are included in the Consolidated Statement of
Financial Position based on that nature.
Interest revenue is recognised on an accruals basis taking into account the interest rates applicable to the
financial assets.
All revenue is stated net of the amount of goods and services tax (GST).
Income tax
The charge for current income tax expense is based on the profit adjusted for any non-assessable or
disallowed items. It is calculated using the tax rates that have been enacted or are substantially enacted
by the balance sheet date.
Deferred tax is accounted for using the balance sheet method in respect of temporary differences arising
between the tax bases of assets and liabilities and their carrying amounts in the financial statements.
No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding
a business combination, where there is no effect on accounting or taxable profit or loss.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is
realised or liability is settled. Deferred tax is charged/credited in the income statement except where it
relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly
against equity.
Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be
available against which deductible temporary differences can be utilised.
The amount of benefits brought to account or which may be realised in the future is based on
management’s judgement, the assumption that no adverse change will occur in income taxation
legislation and the anticipation that the consolidated group will derive sufficient future assessable
income to enable the benefit to be realised and comply with the conditions of deductibility imposed by
the law.
Goods and services tax (GST)
Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except
where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO).
Receivables and payables are stated inclusive of GST.
The net amount of GST recoverable from, or payable to, the ATO is included as part of trade and other
receivables or payables in the consolidated statement of financial position.
Cash flows in the consolidated statement of cash flows are included on a gross basis and the GST
component of cash flows arising from investing and financing activities which is recoverable from, or
payable to, the taxation authority is classified as operating cash flows.
42
Rural Funds Group
Notes to the Financial Statements
30 June 2016
2
Summary of significant accounting policies (continued)
Cash and cash equivalents
Cash and cash equivalents comprises cash on hand, demand deposits and short-term investments which
are readily convertible to known amounts of cash and which are subject to an insignificant risk of change
in value.
Bank overdrafts also form part of cash equivalents for the purpose of the consolidated statement of cash
flows and are presented within current liabilities on the consolidated statement of financial position.
Trade and other receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost less
an allowance for doubtful debts.
Collectability of trade receivables is reviewed on an ongoing basis. Individual impairment is identified at a
counterparty specific level following objective evidence that a financial asset is impaired. This may be
after an interest or principal payment is missed or when information comes to hand that would indicate an
inability to meet repayments. An allowance for doubtful debts is established when there is objective
evidence that the Group will not be able to collect all amounts due according to the original terms of
receivables. The amount of the allowance is the difference between the asset's carrying amount and the
present value of estimated future cash flows, discounted at the originally assessed effective interest rate
and taking into account the amount of security held. The amount of the allowance is recognised in the
income statement.
Debts which are known to be uncollectible are written off when identified. Write-offs are charged against
accounts previously established for impairment allowance or directly to the income statement.
Where the debt is in relation to amounts due on almond groves and the impact of non-payment would
result in the cancellation of the almond grove rights, which would revert to the Group, then the impairment
provision is measured against the value of the rights that would be obtained by the Group.
Intangible assets
Water rights
Permanent water rights and entitlements are recorded at historical cost less accumulated impairment
losses. Such rights have an indefinite life, and are not depreciated. The carrying value is tested annually
for impairment as well as for possible reversal of impairment. If events or changes in circumstances
indicate impairment, or reversal of impairment, the carrying value is adjusted to take account of impairment
losses.
Goodwill
Goodwill is carried at cost less accumulated impairment losses. Goodwill is calculated as the excess of
the sum of:
the consideration transferred;
any non-controlling interest; and
the acquisition date fair value of any previously held equity interest; over the acquisition date fair
value of net identifiable assets acquired.
43
Rural Funds Group Annual Report 2016
Rural Funds Group
Notes to the Financial Statements
30 June 2016
2
Summary of significant accounting policies (continued)
Financial instruments
Financial instruments are recognised initially using trade date accounting, i.e. on the date that the Group
becomes party to the contractual provisions of the instrument.
On initial recognition, all financial instruments are measured at fair value plus transaction costs (except
for instruments measured at fair value through profit or loss where transaction costs are expensed as
incurred).
a. Financial assets
Financial assets are divided into the following categories which are described in detail below:
loans and receivables;
financial assets at fair value through profit or loss;
available-for-sale financial assets; and
held-to-maturity investments.
Financial assets are assigned to the different categories on initial recognition, depending on the
characteristics of the instrument and its purpose. A financial instrument’s category is relevant to the way
it is measured and whether any resulting income and expenses are recognised in profit or loss or in other
comprehensive income.
All income and expenses relating to financial assets are recognised in the consolidated statement of
comprehensive income in the ‘finance income’ or ‘finance costs’ line item respectively.
b. Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market. They arise principally through the provision of goods and services to
customers but also incorporate other types of contractual monetary assets.
After initial recognition these are measured at amortised cost using the effective interest method, less
provision for impairment. Any change in their value is recognised in profit or loss.
Discounting is omitted where the effect of discounting is considered immaterial.
Significant receivables are considered for impairment on an individual asset basis when they are past due
at the reporting date and when objective evidence is received that a specific counterparty will default.
The amount of the impairment is the difference between the net carrying amount and the present value of
the future expected cash flows associated with the impaired receivable.
For trade receivables, impairment provisions are recorded in a separate allowance account with the loss
being recognised in profit or loss. When confirmation has been received that the amount is not collectable,
the gross carrying value of the asset is written off against the associated impairment provision.
Subsequent recoveries of amounts previously written off are credited against other income in profit or
loss.
In some circumstances, the Group renegotiates repayment terms with customers which may lead to
changes in the timing of the payments, the Group does not necessarily consider the balance to be
impaired, however assessment is made on a case-by-case basis.
44
Rural Funds Group
Notes to the Financial Statements
30 June 2016
2
Summary of significant accounting policies (continued)
Financial instruments (continued)
c. Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets:
acquired principally for the purpose of selling in the near future;
designated by the entity to be carried at fair value through profit or loss upon initial recognition; or,
which are derivatives not qualifying for hedge accounting.
The Group has some derivatives which are designated as financial assets at fair value through profit or
loss.
Assets included within this category are carried in the consolidated statement of financial position at fair
value with changes in fair value recognised in finance income or expenses in profit or loss.
Any gain or loss arising from derivative financial instruments is based on changes in fair value, which is
determined by direct reference to active market transactions or using a valuation technique where no
active market exists.
d. Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that do not qualify for inclusion in
any of the other categories of financial assets.
Purchases and sales of available-for-sale investments are recognised on settlement date.
All available-for-sale financial assets are measured at fair value, with subsequent changes in value
recognised in other comprehensive income.
Gains and losses arising from financial instruments classified as available-for-sale are only recognised in
profit or loss when they are sold or when the investment is impaired.
In the case of impairment or sale, any gain or loss previously recognised in equity is transferred to the
profit or loss.
e. Held-to-maturity investments
The group classifies investments as held-to-maturity if:
they are non-derivative financial assets;
they are quoted in an active market;
they have fixed or determinable payments and fixed maturities; and,
the group intends to, and is able to, hold them to maturity.
Held-to-maturity financial assets are included in non-current assets, except for those with maturities of
less than 12 months from the end of the reporting period, which would be classified as current assets.
45
Rural Funds Group Annual Report 2016
Rural Funds Group
Notes to the Financial Statements
30 June 2016
2
Summary of significant accounting policies (continued)
Financial instruments (continued)
f. Financial liabilities
Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the
instrument. All interest-related charges are reported in profit or loss are included in the income statement
line items "finance costs" or "finance income".
Financial liabilities are classified as either financial liabilities ‘at fair value through profit or loss’ or other
financial liabilities depending on the purpose for which the liability was acquired. Although the Group uses
derivative financial instruments in economic hedges of interest rate risk, it does not hedge account for
these transactions.
The Group‘s financial liabilities include borrowings and trade and other payables, which are measured at
amortised cost using the effective interest rate method.
All of the Group‘s derivative financial instruments that are not designated as hedging instruments in
accordance with the strict conditions explained in AASB 139 are accounted for at fair value through profit
or loss.
g. Impairment of financial assets
At the end of the reporting period the Group assesses whether there is any objective evidence that a
financial asset or group of financial assets is impaired.
h. Financial assets at amortised cost
If there is objective evidence that an impairment loss on financial assets carried at amortised cost has
been incurred, the amount of the loss is measured as the difference between the assets carrying amount
and the present value of the estimated future cash flows discounted at the financial assets original
effective interest rate.
Impairment on loans and receivables is reduced through the use of an allowance account, all other
impairment losses on financial assets at amortised cost are taken directly to the asset.
Plant and equipment
Classes of plant and equipment are measured using the cost model as specified below.
The asset is carried at its cost less any accumulated depreciation and any impairment losses. Costs
include purchase price, other directly attributable costs and the initial estimate of the costs of dismantling
and restoring the asset, where applicable.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to the
Group and the cost of the item can be measured reliably. The carrying amount of any component
accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are
charged to profit or loss during the reporting period in which they are incurred.
The depreciation rates used for each class of depreciable asset are shown below:
Fixed asset class
Capital works in progress
Plant and equipment
Motor vehicles
Depreciation rate
Nil
3-16 years
6-16 years
46
Rural Funds Group
Notes to the Financial Statements
30 June 2016
2
Summary of significant accounting policies (continued)
Plant and equipment (continued)
At the end of each annual reporting period, the depreciation method, useful life and residual value of each
asset is reviewed. Any revisions are accounted for prospectively as a change in estimate.
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are
included in profit or loss. When revalued assets are sold, it is Group policy to transfer any amounts
included in other reserves in respect of those assets to retained earnings.
Biological assets
In accordance with AASB 141 Agriculture, vines, almond and macadamia trees have been recognised at
fair value, less costs to sell. Fair value is determined as follows:
up until the time when commercial yields are achieved, cost approximates fair value, less costs to
sell;
thereafter based on the present value of expected net cash flows from the vineyards, almond
orchards and macadamia orchards, discounted using a pre-tax market determined rate.
Changes in the fair value of biological assets are recognised in the income statement in the year they
arise.
Investment property
Investment properties, comprise land, buildings and integral infrastructure including irrigation and
trellising.
Investment properties are held for long-term rental yields and are not occupied by the Group. They are
carried at fair value and changes in fair value are presented in the income statement.
Leases
Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the
asset, but not the legal ownership that are transferred to entities in the Group are classified as finance
leases.
Lease payments for operating leases, where substantially all of the risks and benefits have not been
transferred from the lessor, are charged as expenses on a straight-line basis over the life of the lease
term.
Lease incentives under operating leases are recognised as a liability and amortised on a straight-line
basis over the life of the lease term.
Provisions
Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events,
for which it is probable that an outflow of economic benefits will result and that outflow can be reliably
measured.
Provisions are measured at the present value of management's best estimate of the outflow required to
settle the obligation at the end of the reporting period. The discount rate used is a pre-tax rate that reflects
current market assessments of the time value of money and the risks specific to the liability. The increase
in the provision due to the unwinding of the discount is taken to finance costs in the income statement.
47
Rural Funds Group Annual Report 2016
Rural Funds Group
Notes to the Financial Statements
30 June 2016
2
Summary of significant accounting policies (continued)
Provisions (continued)
Provisions for distributions
Provision is made for the amount of any distribution declared, being appropriately authorised and no
longer at the discretion of the Group, on or before the end of the reporting period but not distributed at the
end of the reporting period.
Borrowing costs
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying
asset are capitalised as part of the cost of that asset. All other borrowing costs are recognised as an
expense in the period in which they are incurred.
Earnings per unit
Basic earnings per unit are calculated on net profit attributable to unitholders of the Group divided by the
weighted average number of issued units.
Interest bearing liabilities
Interest bearing liabilities are initially recognised at fair value less any related transaction costs.
Subsequent to initial recognition, interest bearing liabilities are stated at amortised cost. Any difference
between cost and redemption value is recognised in the statement of comprehensive income over the
entire period of the borrowings on an effective interest basis. Interest-bearing liabilities are classified as
current liabilities unless the Group has an unconditional right to defer the settlement of the liability for at
least twelve months from the balance sheet date.
Issued units
Ordinary units are classified as liabilities in accordance with AASB 132 Financial Instruments:
Presentation. Incremental costs directly attributable to the issue of ordinary units and unit options which
vest immediately are recognised as a deduction from net assets attributable to unitholders, net of any tax
effects. There is no equity relating to the Group.
Rounding of amounts
The Group is an entity to which ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument
2016/191 applies and accordingly amounts in the consolidated financial statements and directors' report
have been rounded to the nearest thousand dollars.
Parent entity information
The financial information of the parent entity, Rural Funds Trust, disclosed in note 36 has been prepared
on the same basis as the consolidated financial statements, except as set out below.
Investments in subsidiaries and associates
Investments in subsidiaries and associates are accounted for at historical cost less any accumulated
impairment. Distributions received from equity investments are recognised in the parent entity’s profit or
loss when its right to receive the distribution is established.
48
Rural Funds Group
Notes to the Financial Statements
30 June 2016
2
Summary of significant accounting policies (continued)
New accounting standards and interpretations
Standard Name
Effective
date for
the Group
Requirements
Impact
AASB 2014-6
Amendments to
AASB 116 and
AASB 141 for bearer
plants
1 Jan 2016 Amends the accounting for
bearer plants to now be the
same as property, plant and
equipment in AASB 116
Property, Plant and
Equipment, because their
operation is similar to that of
manufacturing.
AASB 15 Revenue
from contracts with
customers
1 Jan 2018 Recognise contracted
AASB 16 Leases
1 Jan 2019
revenue when control of a
good or service transfers to a
customer. The notion of
control replaces the existing
notion of risks and rewards.
Introduces a single lease
accounting model and
requires a lessee to recognise
assets and liabilities for all
leases with a term of more
than 12 months.
Bearer plants held by the
Group will no longer be
treated as biological assets,
and will be classified as
property, plant and
equipment. The Group will
have the choice to hold the
assets at either cost or fair
value. Any revaluations held
at fair value will be taken
through comprehensive
income rather than through
profit and loss.
It is not expected that this
standard will have a material
impact on the Group.
There is no impact on
reported financial position or
performance expected for the
Group as it is a lessor in
nature.
There are no other standards that are not yet effective and that would be expected to have a material
impact on the entity in the current or future reporting periods.
3
Significant accounting judgements, estimates and assumptions
The preparation of the financial statements requires management to make judgements, estimates and
assumptions that affect the reported amounts in the financial statements. Management continually
evaluates its judgements, estimates and assumptions in relation to assets, liabilities, contingent liabilities,
revenue and expenses. Management bases its judgements, estimates and assumptions on historical
experience and on other various factors it believes to be reasonable under the circumstances, the result
of which form the basis of the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different assumptions and conditions
and may materially affect financial results or the financial position reported in future periods.
Management has identified the following critical accounting policies for which significant judgements,
estimates or assumptions are made.
49
Rural Funds Group Annual Report 2016
Rural Funds Group
Notes to the Financial Statements
30 June 2016
3
Significant accounting judgements, estimates and assumptions (continued)
Valuations
Independent property valuations were obtained for established almond orchards and associated
properties, from independent valuer, CBRE Valuations Pty Limited in June 2016. Independent property
valuations were obtained for vineyard properties from independent valuer, Gaetjens Pickett Valuers in
June 2016. Independent property valuations were obtained for macadamia orchards and associated
properties from independent valuer, CBRE Valuations Pty Limited in June 2016.
Independent property valuations were obtained for poultry property and infrastructure from independent
valuer, Opteon (Victoria) Pty Limited in June 2016. The Directors have adopted all of the valuations from
the independent valuers with the exception of certain poultry assets, where the Directors determined a
more conservative view was appropriate in line with assumptions applied with those assets.
Almond orchards and associated properties, including those under development, macadamia orchards
and associated properties, poultry property and infrastructure and vineyard properties are valued at fair
value excluding the value of water rights. Water rights are treated as intangible assets, which are held at
historical cost less accumulated impairment losses.
The valuation model used judgement by using discount rates, capitalisation rates and comparable sales
in calculating the values and allocating those values over investment property and biological assets.
Recognition of deferred tax assets
The recognition of deferred tax assets is based upon whether it is more likely than not that sufficient and
suitable taxable profits will be available in the future against which the reversal of temporary differences
can be deducted. To determine future taxable profits, reference is made to the latest available profit
forecasts. Where the temporary differences are related to losses, relevant tax law is considered to
determine the availability of the losses to offset against the future taxable profits.
Recognition therefore involves judgement regarding the future financial performance of the particular legal
entity or tax group in which the deferred tax asset has been recognised. Historical differences between
forecast and actual taxable profits have not resulted in material adjustments to the recognition of deferred
tax assets.
Valuation of Barossa Infrastructure Limited and Coleambally Irrigation Co-operative Limited
shares
The shares in Barossa Infrastructure Limited (BIL) and Coleambally Irrigation Co-operative Limited (CICL)
have been valued using the number of megalitres of water that the Group is entitled to under the BIL and
CICL schemes as supported by an external valuation on an 'in use' basis, or at initial cost. These methods
are used due to a lack of evidence of trading in BIL and CICL shares.
4
Working capital
The deficiency in working capital at 30 June 2016 is due to the timing of distributions. Based on the
forecast cash flows, the Group believes it can pay all of its debts as and when they fall due.
50
Rural Funds Group
Notes to the Financial Statements
30 June 2016
5
Segment information
The Group operates in one operating segment (2015: one segment), being the holding and leasing of
agricultural property and equipment.
Water rights and entitlements
The Board reviews the business based on the internal and external valuations of its properties.
Permanent water rights and entitlements are held at historical cost less accumulated impairment losses.
The book value of the water rights (including investments in BIL and CICL) at 30 June 2016 is $69,534,000
(2015: $29,485,000).
In June 2016 independent property valuations were performed by CBRE Valuations Pty Limited and
Opteon (Victoria) Pty Limited on the almond and macadamia orchards, and associated properties and
poultry property and infrastructure that attribute a value to the water entitlements held by the Group. The
Directors consider that these valuations are reasonable estimates of the fair value at 30 June 2016. These
valuations value the water rights at 30 June 2016 at $97,949,000 (2015: $39,060,000) representing a
movement in the value of the water rights above cost of $28,415,000 (2015: $9,575,000).
The following is a comparison of the book value at 30 June 2016 to an adjusted value based on the
Directors' valuation of the water rights.
Per Statutory
Consolidated
Statement of
Financial
Position
Revaluation of
water
entitlements
per Directors'
valuation
Adjusted
Consolidated
Statement of
Financial
Position
$'000
$'000
$'000
12,774
366,265
379,039
13,851
157,324
171,175
207,864
1.26
-
28,415
28,415
-
-
-
28,415
0.17
12,774
394,680
407,454
13,851
157,324
171,175
236,279
1.43
Assets
Total current assets
Total non-current assets
Total assets
Liabilities
Total current liabilities
Total non-current liabilities
Total liabilities
Net assets
Net asset value per unit ($)
51
Rural Funds Group Annual Report 2016
Rural Funds Group
Notes to the Financial Statements
30 June 2016
6
Revenue
Rental revenue
Reimbursement of water charges
Temporary water sales
Interest received
Other revenue
Total
2016
$'000
26,469
-
-
80
-
2015
$'000
21,719
212
182
69
36
26,549
22,218
7
Income tax expense
The major components of income tax expense comprise:
Current tax
Deferred tax
Adjustments in respect of current income tax of previous years
Adjustments in respect of deferred income tax of previous
years
Income tax expense/(benefit) reported in the Statement of
Comprehensive Income
Income tax expense is attributable to:
Profit from continuing operations
Total
2016
$'000
-
1,210
(29)
(6)
1,175
1,175
1,175
Deferred income tax expense/(benefit) included in income tax expense comprises:
Decrease in deferred tax assets
Decrease in deferred tax liabilities
Total
Numerical reconciliation of income tax expense to prima facie tax payable
Accounting profit before tax from continuing operations
At the statutory income tax rate of 30% (2015: 30%)
Tax effect of amounts that are not deductible/(taxable) in
determining taxable income
Previously unrecognised deferred tax asset now recognised
Adjustments in respect of tax of previous years
Imputation credits received
Total
(2,586)
1,382
(1,204)
2016
$'000
35,963
10,789
(9,520)
-
(35)
(59)
1,175
2015
$'000
29
(741)
-
-
(712)
(712)
(712)
(932)
191
(741)
2015
$'000
9,441
2,832
(1,948)
(1,596)
-
-
(712)
From 1 July 2014 both Rural Funds Trust and RFM Chicken Income Fund are flow through trusts for tax
purposes. As a result, it is no longer probable that a lax liability will be incurred in these entities in relation
to future sale of assets for a gain or through trading.
52
Rural Funds Group
Notes to the Financial Statements
30 June 2016
7
Income tax expense (continued)
Amounts recognised directly in equity
Capitalised issue costs
Total
Franking credits
2016
$'000
(7)
(7)
2015
$'000
-
-
At 30 June 2016 there are $59,000 of franking credits available to apply to future RF Active income
distributions (2015: nil).
8
Remuneration of auditors
During the year the following fees were paid or payable for services provided by the auditor of the Group:
PricewaterhouseCoopers Australia:
Audit and review of financial statements
Compliance audit
Total
9
Cash and cash equivalents
Cash at bank
Total
Reconciliation of cash
2016
$
210,508
6,121
216,629
2016
$'000
3,034
3,034
2015
$
213,073
-
213,073
2015
$'000
712
712
Cash and cash equivalents reported in the Consolidated Statement of Cash Flows are reconciled to the
equivalent items in the Consolidated Statement of Financial Position as follows:
Cash and cash equivalents
3,034
712
10
Trade and other receivables
Current
Trade receivables
Sundry receivables
Receivables from related parties
Total
2016
$'000
6,056
433
750
7,239
2015
$'000
1,804
517
408
2,729
Trade receivables are non-interest bearing and are generally on 30 day terms.
As at 30 June 2016, no trade receivables were past due but not impaired (2015: nil).
53
Rural Funds Group Annual Report 2016
Rural Funds Group
Notes to the Financial Statements
30 June 2016
11
Biological assets
2016
Opening balance
Additions
Acquisitions
Fair value adjustment
Closing balance
2015
Opening balance
Additions
Fair value adjustment
Closing balance
Almond
trees:
fair value
$'000
42,735
12,200
-
34,679
89,614
Almond
trees:
fair value
$'000
41,426
-
1,309
42,735
Vines:
fair value
$'000
24,846
-
-
(7,397)
17,449
Vines:
fair value
$'000
24,080
240
526
24,846
Macadamia
trees:
fair value
$'000
-
1,405
5,525
(787)
6,143
Macadamia
trees:
fair value
$'000
-
-
-
-
Total
$'000
67,581
13,605
5,525
26,495
113,206
Total
$'000
65,506
240
1,835
67,581
Biological assets include mature bearer assets of almond and macadamia trees and new almond tree
developments. Mature and new almond trees are situated on properties near Hillston, NSW and
Darlington Point, NSW. Mature macadamia trees are situated on properties near Bundaberg, QLD. The
Group owns and maintains the trees for the purpose of leasing these assets to third parties. At 30 June
2016 the Group owned almond trees on 2,414 hectares of land (2015: 1,814 hectares) and macadamia
trees on 259 hectares of land (2015: nil).
Biological assets also include grape vines located in South Australia and Victoria. The Group owns vines
for the purposes of leasing to third parties. At 30 June 2016 the Group owned vines on 668 hectares of
land (2015: 668 hectares).
The determination of the fair value of biological assets is discussed further at note 29.
54
Rural Funds Group
Notes to the Financial Statements
30 June 2016
12
Plant and equipment
2016
Opening net book amount
Additions
Disposals
Depreciation and impairment
Closing net book amount
2015
Opening net book amount
Acquisitions
Additions
Disposals
Depreciation
Closing net book amount
13
Investment property
Opening balance
Acquisitions
Additions
Change in fair value
Disposals
Total
Amounts recognised in profit and loss
Rental income
Change in fair value
Leasing arrangements
Capital
works in
progress
$'000
44
335
-
-
379
Capital
works in
progress
$'000
-
30
14
-
-
44
Plant and
equipment
Motor
vehicles
$'000
2,815
1,316
(52)
(665)
3,414
$'000
294
168
(6)
(71)
385
Plant and
equipment
Motor
vehicles
$'000
-
2,885
244
-
(314)
2,815
$'000
-
259
93
(18)
(40)
294
2016
$'000
142,379
1,116
23,275
3,343
(1,162)
168,951
Total
$'000
3,153
1,819
(58)
(736)
4,178
Total
$'000
-
3,174
351
(18)
(354)
3,153
2015
$'000
138,108
-
9,095
(4,824)
-
142,379
25,319
3,343
21,042
(4,824)
Minimum lease payments receivable under non-cancellable operating leases of investment properties,
biological assets, plant and equipment and water rights not recognised in the financial statements, are
receivable as follows:
Within one year
Later than one year, but not later than five years
Later than five years
Total
35,318
156,153
458,560
650,031
21,665
105,396
223,195
350,256
55
Rural Funds Group Annual Report 2016
Rural Funds Group
Notes to the Financial Statements
30 June 2016
14
Other current assets
Prepayments
Deposits
Deposits - water purchases
Total
15
Financial assets
Note
Non-current
Investment - RFM Poultry
Investment - BIL
Investment - CICL
Investment - Macadamia Processing Co. Limited
Total
2016
$'000
118
1,066
1,317
2,501
2016
$'000
133
509
9,334
102
10,078
2015
$'000
166
141
-
307
2015
$'000
97
520
-
-
617
Coleambally Irrigation Co-operative Limited (CICL) is Australia's fourth largest irrigation company and is
wholly owned by its farmer members. CICL's irrigation delivery system delivers water to 400,000 hectares
of area across the Coleambally Irrigation District, in the Riverina, near Griffith, NSW.
56
Rural Funds Group
Notes to the Financial Statements
30 June 2016
16
Investments accounted for using the equity method
RFM StockBank
2015
$'000
2016
$'000
Perth Markets Limited
2015
$'000
2016
$'000
Summarised financial information for associates
Summarised balance sheet
Total current assets
Total non-current assets
Total current liabilities
Total non-current liabilities
Net assets
14,670
17,560
-
(3,053)
-
11,617
-
(2,224)
(3,693)
11,643
6,714
135,014
(2,506)
(81,777)
57,445
Reconciliation to carrying amounts
Opening net assets
11,643
-
Net assets at date of gaining significant influence through:
-
11,656
- Stapling with RFA
- Initial equity issue
Profit for the period
Other comprehensive income
Distributions provided for
Closing net assets
Group's share in %
Group's share in $'000
Carrying value of investment
Summarised statement of comprehensive income
Revenue
2,328
Profit from continuing operations
Other comprehensive income
Total comprehensive income
588
-
588
588
-
(608)
11,623
33.50%
3,894
3,894
-
341
-
(354)
11,643
33.52%
3,903
3,903
1,440
341
-
341
-
-
56,416
1,029
-
-
57,445
8.96%
5,147
5,147
5,764
1,029
-
1,029
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Distributions received or receivable from
associate
234
173
-
There are no commitments or contingencies relating to investments accounted for using the equity
method.
57
Rural Funds Group Annual Report 2016
Rural Funds Group
Notes to the Financial Statements
30 June 2016
17
Intangible assets
Intangible assets include water rights and entitlements. Refer to note 5 for Directors’ valuation of water
rights and entitlements.
30 June 2016
Non-current
Opening net book
amount
Additions
Acquisitions
Impairment
Closing net book
amount
Cost
Accumulated
amortisation and
impairment
Net book amount
30 June 2015
Non-current
Opening net book
amount
Additions
Reversal of
impairment
Closing net book
amount
Water
licences:
Almonds
$'000
Water
licences:
Poultry
infrastructure
$'000
Water
licences:
Vineyards
Water
licences:
Macadamias
Total
$'000
$'000
$'000
1,049
500
27,416
30,327
-
(203)
57,540
-
-
-
1,049
57,743
1,049
(203)
-
57,540
1,049
-
54
548
-
602
28,965
30,381
548
(203)
59,691
602
59,894
-
(203)
602
59,691
Water
licences:
Almonds
$'000
Water
licences:
Poultry
infrastructure
$'000
Water
licences:
Vineyards
Water
licences:
Macadamias
Total
$'000
$'000
$'000
22,041
1,049
500
2,730
2,645
-
-
27,416
1,049
-
-
-
-
-
-
23,590
2,730
2,645
28,965
28,965
28,965
-
-
-
500
500
-
500
-
-
500
500
500
Cost
Net book amount
27,416
27,416
1,049
1,049
58
Rural Funds Group
Notes to the Financial Statements
30 June 2016
18
Trade and other payables
Trade payables
Accruals
Sundry creditors
Total
19
Interest bearing liabilities
Current
Equipment loans (ANZ)
Total
Non-current
Borrowings (ANZ)
Equipment loans (ANZ)
Total
2016
$'000
659
694
5,567
6,920
2016
$'000
3,030
3,030
2015
$'000
226
467
1,345
2,038
2015
$'000
657
657
146,500
-
146,500
89,650
1,801
91,451
59
Rural Funds Group Annual Report 2016
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60
Rural Funds Group
Notes to the Financial Statements
30 June 2016
19
Interest bearing liabilities (continued)
Loan amounts are provided by ANZ at the Bank’s floating rate, plus a margin. For bank reporting purposes,
these assets are valued at market value. Refer to note 5 for Directors’ valuation of water rights and
entitlements
Borrowings
At 30 June 2016 the core debt facility available to the Group, and due to expire in December 2018, was
$147,500,000 (2015: $103,000,000). The facility limit increased to $200,000,000 on 12 July 2016. As at
30 June 2016 RFF has active interest rate swaps totalling 60% of the drawn down balance (2015: 84%)
to manage interest rate risk.
Loan covenants
Under the terms of the ANZ borrowing facility, the Group is required to comply with the following financial
covenants:
maintenance of a maximum loan to value ratio of 50%;
maintenance of net tangible assets in excess of $150,000,000; and,
an interest cover ratio for the Group not less than 2.50:1.00.
Rural Funds Group has complied with the financial covenants of its borrowing facilities during the year.
20
Other non-current liabilities
Lessee deposits
Total
21
Derivative financial instruments
Interest rate swaps
Total
2016
$'000
1,634
1,634
2016
$'000
9,190
9,190
2015
$'000
1,553
1,553
2015
$'000
2,048
2,048
61
Rural Funds Group Annual Report 2016
Rural Funds Group
Notes to the Financial Statements
30 June 2016
22
Deferred tax
Deferred tax liabilities
Biological assets
Plant & equipment
Fair value investment property
Gross deferred tax liabilities
Deferred tax assets
Fair value investment property
Investments
Legal costs
Other
Unused income tax losses
Gross deferred tax assets
Set off of deferred tax liabilities
Net deferred tax assets
2016
$'000
3,513
2,381
515
6,409
-
227
80
21
7,201
7,529
(6,409)
1,120
2015
$'000
5,720
2,070
-
7,790
2,112
223
126
17
7,629
10,107
(7,790)
2,317
The deferred tax assets include an amount of $7,201,000 (2015: $7,629,000), which includes $7,151,000
(2015: $7,629,000) of carried forward tax losses of the RFM Australian Wine Fund. The Group has
concluded that the deferred tax assets will be recoverable using the estimated future taxable income
based on budgets and the contracted cash flows of the subsidiary. The losses can be carried forward
indefinitely and have no expiry date.
23
Recognised deferred tax assets and liabilities
Current income tax
Deferred income tax
Opening balance
Credited/(charged) to income
Credited to equity
2016
$'000
(29)
29
-
2015
$'000
-
(29)
-
Closing balance
Tax expense/(credit) in the Consolidated Statement of Comprehensive
Income
Amounts recognised in the Consolidated Statement of Financial Position:
-
(29)
Deferred tax asset
24
Issued units
2016
$'000
2,317
(1,204)
7
1,120
1,175
2015
$'000
1,576
741
-
2,317
(712)
1,120
2,317
Units on issue at the beginning of the
year
Units issued during the year
2016
2015
No.
132,142,235
$
113,034,000
No.
117,099,159
$
108,281,000
33,215,055
35,148,000
15,043,076
15,017,000
Distributions to unitholders
-
(12,389,000)
-
(10,264,000)
Units on issue at the end of the year
165,357,290
135,793,000
132,142,235
113,034,000
62
Rural Funds Group
Notes to the Financial Statements
30 June 2016
25
Asset revaluation reserve
Opening balance
Net (decrement)/increment in financial assets
Total comprehensive income
Income tax applicable
Total
26
Distributions
The Group paid and declared the following distributions in the year:
Distribution declared 1 June 2015, paid 30 July 2015
Distribution paid 30 October 2015
Distribution paid 29 January 2016
Distribution paid 29 April 2016
Distribution declared 1 June 2016, paid 29 July 2016
2016
$'000
1,406
(14)
(14)
-
1,392
2015
$'000
1,398
8
8
-
1,406
Cents
per unit
2.1475
2.2325
2.2325
2.2325
2.2325
Total
$
2,837,755
2,955,482
3,670,193
3,681,201
3,691,602
The holders of ordinary units are entitled to participate in distributions and the proceeds on winding up of
the Group. On a show of hands at meetings of the Group, each holder of ordinary units has one vote in
person or by proxy, and upon a poll each unit is entitled to one vote.
The Group does not have authorised capital or par value in respect of its units.
27
Earnings per unit
Per stapled unit
Net profit after income tax for the year ($'000)
2016
2015
34,788
10,153
Weighted average number of units on issue during the year
154,854,317
121,153,081
Basic and diluted earnings per unit (total) (cents)
22.46
8.38
Per unit of Rural Funds Trust
Net profit after income tax for the year ($'000)
34,658
10,080
Weighted average number of units on issue during the year
154,854,317
121,153,081
Basic and diluted earnings per unit (total) (cents)
22.38
8.32
Per unit of RF Active
Net profit after income tax for the year ($'000)
130
73
Weighted average number of units on issue during the year
154,854,317
122,787,543
Basic and diluted earnings per unit (total) (cents)
0.08
0.06
63
Rural Funds Group Annual Report 2016
Rural Funds Group
Notes to the Financial Statements
30 June 2016
28
Capital commitments
Significant capital expenditure relating to the Kerarbury and Tocabil almond developments, contracted for
but not recognised as liabilities is as follows:
Plant and equipment
Investment property
Intangible assets
Biological assets
Total
29
Fair value measurement of assets and liabilities
Fair value hierarchy
2016
$'000
440
33,039
39,655
67,515
140,649
2015
$'000
-
5,817
4,149
14,833
24,799
This note explains the judgements and estimates made in determining the fair values of the financial
instruments that are recognised and measured at fair value in the financial statements. To provide an
indication about the reliability of the inputs used in determining fair value, the Group has classified its
financial instruments into the three levels prescribed under the Australian Accounting Standards.
AASB 13 Fair Value Measurement requires all assets and liabilities measured at fair value to be assigned
to a level in the fair value hierarchy. The level in the fair value hierarchy is determined having regard to
the nature of inputs used to determine fair value. The hierarchy is as follows:
Level 1
Level 2
Level 3
Fair value based on unadjusted quoted prices in active markets for identical assets or
liabilities that the entity can access at the measurement date (such as publicly traded
equities).
Fair value based on inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly or indirectly.
One or more significant inputs to the determination of fair value is based on
unobservable inputs for the asset or liability.
64
Rural Funds Group
Notes to the Financial Statements
30 June 2016
29
Fair value measurement of assets and liabilities (continued)
Financial assets and liabilities
Fair value hierarchy
At 30 June 2016
Recurring fair value measurements
Financial assets
Equity securities (listed)
Equity securities (unlisted)
Total
Financial liabilities
Derivatives
Total
At 30 June 2015
Financial assets
Equity securities (listed)
Equity securities (unlisted)
Total
Financial liabilities
Derivatives
Total
Level 1
$'000
Level 2
$'000
Level 3
$'000
Total
$'000
133
-
133
-
-
97
-
97
-
-
-
-
-
9,190
9,190
-
-
-
2,048
2,048
-
9,945
9,945
-
-
-
520
520
-
-
133
9,945
10,078
9,190
9,190
97
520
617
2,048
2,048
There were no transfers between levels for recurring fair value measurements during the year.
The Group’s policy is to recognise transfers into and out of fair value hierarchy levels at the end of the
reporting period. There were no transfers in the current year (2015: nil).
Valuation techniques used to determine fair values
Specific valuation techniques used to value financial instruments include:
the use of quoted market prices or dealer quotes for similar instruments;
the present value of the estimated future cash flows based on observable yield curves to determine
the fair value of the interest rate swaps; and,
discounted cash flow analysis to determine the fair value of the remaining financial instruments.
All of the resulting fair value estimates are included in level 1 or 2 except for unlisted equity securities
which are level 3, where the fair values have been determined based on present values and the discount
rates used were adjusted for counterparty or own credit risk.
65
Rural Funds Group Annual Report 2016
Rural Funds Group
Notes to the Financial Statements
30 June 2016
29
Fair value measurement of assets and liabilities (continued)
Financial assets and liabilities (continued)
Fair value measurements using significant unobservable inputs (level 3)
The following table presents the changes in level 3 items for the years ended 30 June 2016 and 30 June
2015:
Unlisted equity securities
Opening balance
Additions
Losses recognised in other comprehensive income
Closing balance
Valuation inputs and relationship to fair value
2016
$
520
9,437
(12)
9,945
2015
$
520
-
-
520
Description
Investment in BIL
Investment in CICL
Closing balance
Fair
value
at 30
June
2016
$'000
509
9,334
9,843
Unobservable
inputs
Range of
inputs
(probability
- weighted
average)
Relationship
of
unobservable
inputs to fair
value
Price of water entitlements
Price of water entitlements
+/- 10%
+/- 10%
+/- $50,000
+/- $933,000
-
-
-
The Group’s investment in Macadamia Processing Co. Limited is held at cost.
66
Rural Funds Group
Notes to the Financial Statements
30 June 2016
29
Fair value measurement of assets and liabilities (continued)
Non-financial assets
Fair value hierarchy
This note explains the judgements and estimates made in determining fair values of the non-financial
assets that are recognised and measured at fair value in the financial statements. To provide an indication
about the reliability of the inputs used in determining fair value, the Group has classified its non-financial
assets and liabilities into the three levels prescribed under Australian Accounting Standards as mentioned
above. At 30 June 2016 all non-financial assets are level 3.
At 30 June 2016
Investment properties
Almond orchard property
Poultry property and infrastructure
Vineyard property
Macadamia orchard property
Biological assets
Almond orchard
Vines
Macadamia orchard
Level 3
$'000
Total
$'000
58,329
86,011
23,156
1,455
89,614
17,449
6,143
58,329
86,011
23,156
1,455
89,614
17,449
6,143
Total non-financial assets
282,157
282,157
At 30 June 2015
Investment properties
Almond orchard property
Poultry property and infrastructure
Vineyard property
Macadamia orchard property
Biological assets
Almond orchard
Vines
Macadamia orchard
36,926
91,918
13,535
-
42,735
24,846
-
36,926
91,918
13,535
-
42,735
24,846
-
Total non-financial assets
209,960
209,960
The Group’s policy is to recognise transfers in to and transfers out of fair value hierarchy levels as at the
end of the reporting period. There were no transfers between levels for recurring fair value measurements
during the year.
Valuation techniques used to determine level 3 fair values
The Group obtains independent valuations for its property assets at least annually, except for properties
that are under development. At the end of each reporting period, the directors update their assessment of
fair value of each property, taking into account the most recent independent valuations. The directors
determine a property’s value within a range of reasonable fair value estimates.
67
Rural Funds Group Annual Report 2016
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a
Rural Funds Group
Notes to the Financial Statements
30 June 2016
29
Fair value measurement of assets and liabilities (continued)
Valuation inputs and relationships to fair value
The following table summarises the quantitative information about the significant unobservable inputs
used in recurring level 3 fair value measurements. See above for the valuation techniques adopted.
Description
Fair value at Unobservable
inputs*
30
June
2016
30
June
2015
Range of inputs
(probability -
weighted average)
30 June
30 June
2015
2016
Relationship
of
unobservable
inputs to fair
value
Almond orchard property
(excluding water
licences)**
Poultry property and
infrastructure (excluding
water licences)**
Vineyard (excluding
water licences)**
Macadamia orchard
property (excluding water
licences)**
$'000
147,943
$'000
79,662 Discount rate
86,011 91,918 Capitalisation
rate
40,605 38,380 Discount rate
7,598
- Discount rate
%
9.00%
(9.00%)
10.75% -
13.00%
(12.01%)
9.75%
(9.75%)
9.00%
(9.00%)
%
9.5%-
10.5%
(10.26%)
The higher the
discount rate,
the lower the
fair value.
11.32% The higher the
capitalisation
rate, the lower
the fair value.
The higher the
discount rate,
the lower the
fair value.
n/a The higher the
capitalisation
rate, the lower
the fair value.
9.5%-
10.5%
(10.06%)
* There were no significant inter-relationships between unobservable inputs that materially affect fair
values.
** Water licences are held at historical cost less accumulated impairment, as detailed in note 17 to the
consolidated financial statements.
Valuation processes
The Group engages external, independent and qualified valuers to determine the fair value of the Group’s
properties. The properties were externally valued by CBRE Valuations Pty Limited, Opteon (Victoria) Pty
Limited, and Gaetjens Pickett Valuers at 30 June 2016. Director’s valuations have been performed on the
poultry assets at 30 June 2016, based on the valuation methodology applied by the valuer and applying
Director’s assumptions to take a more conservative view on the valuations.
The main level 3 inputs used by the Group include discount rates and capitalisation rates estimated in the
respective valuations based on comparable transactions and industry data. Changes in level 3 fair values
are analysed at each reporting date during the valuation discussion between management and external
valuers. As part of this discussion management presents updated model inputs and explains the reason
for any fair value movements.
69
Rural Funds Group Annual Report 2016
Rural Funds Group
Notes to the Financial Statements
30 June 2016
30
Financial risk management
The Group is exposed to a variety of financial risks through its use of financial instruments. This note
discloses the Group‘s objectives, policies and processes for managing and measuring these risks. The
Group‘s overall risk management plan seeks to minimise potential adverse effects due to the
unpredictability of financial markets.
The Group does not speculate in financial assets.
The most significant financial risks which the Group is exposed to are described below:
Specific risks
Market risk - interest rate risk and price risk
Credit risk
Liquidity risk
Financial instruments used
The principal categories of financial instrument used by the Group are:
Trade receivables
Cash at bank
Bank overdraft
Trade and other payables
Floating rate bank loans
Interest rate swaps
Financial risk management policies
Risks arising from holding financial instruments are inherent in the Group’s activities and are managed
through a process of ongoing identification, measurement and monitoring.
The responsible entity is responsible for identifying and controlling the risks that arise from these financial
instruments.
The risks are measured using a method that reflects the expected impact on the results and net assets
attributable to unitholders of the Group from changes in the relevant risk variables. Information about
these risk exposures at the reporting date, measured on this basis, is disclosed below.
Concentrations of risk arise where a number of financial instruments or contracts are entered into with the
same counterparty, or where a number of counterparties are engaged in similar business activities that
would cause their ability to meet contractual obligations to be similarly affected by changes in economic,
political or other conditions.
70
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71
Rural Funds Group Annual Report 2016
Rural Funds Group
Notes to the Financial Statements
30 June 2016
30
Financial risk management (continued)
Liquidity risk and capital management (continued)
The responsible entity of the Group defines capital as net assets attributable to unitholders. The Group's
objectives when managing capital are to safeguard the going concern of the Group and to maintain an
optimal capital structure.
The Group is able to maintain or adjust its capital by divesting assets to reduce debt or adjusting the
amount of distributions paid to unitholders.
Interest rate swaps held for hedging
Interest rate risk is managed by using a floating rate debt and through the use of interest rate swap
contracts. The Group does not speculate in the trading of derivative instruments.
Interest rate swap transactions are entered into by the Trust to exchange variable and fixed interest
payment obligations to protect long-term borrowings from the risk of increasing interest rates. The
economic entity has variable interest rate debt and enters into swap contracts to receive interest at
variable rates and pay interest at fixed rates.
The notional principal amounts of the swap contracts approximates 60% (2015: 84%) of the Group's
drawn down balance at 30 June 2016.
At balance date, the details of the interest rate swap contracts are:
Maturity of notional amounts
Settlement - between 1 to 3 years
Settlement - between 3 to 5 years
Settlement - greater than 5 years
Total
Effective average
interest rate payable
Balance
2016
%
3.44
-
3.42
2015
%
3.27
3.77
-
2016
$'000
2015
$'000
75,000
-
13,000
88,000
50,000
25,000
-
75,000
The following interest rate swap contracts have been entered into at 30 June 2016 but are not yet effective.
Maturity of notional amounts
Settlement - between 3 to 5 years
Settlement - greater than 5 years
Total
Effective average
interest rate payable
Balance
2016
%
2.50
3.10
2015
%
2.50
2.70
2016
$'000
2015
$'000
10,000
75,000
85,000
10,000
15,000
25,000
The net loss recognised on the swap derivative instruments for the year ended 30 June 2016 was
$7,116,000 (2015: $734,000).
72
Rural Funds Group
Notes to the Financial Statements
30 June 2016
30
Financial risk management (continued)
Interest rate swaps held for hedging (continued)
At 30 June 2016 the Group had the following mix of financial assets and liabilities exposed to variable
interest rates:
Cash
Interest bearing liabilities
Total
2016
$'000
3,034
(146,500)
(143,466)
2015
$'000
712
(92,109)
(91,397)
At 30 June 2016, 2.03% (2015: 0.71%) of the Group’s debt is fixed, excluding the impact of interest rate
swap contracts.
Credit risk
The maximum exposure to credit risk (excluding the value of any collateral or other security) at balance
date to recognised financial assets is the carrying amount, net of any provisions for impairment of those
assets. This has been disclosed in the Consolidated Statement of Financial Position and notes to the
financial statements.
Credit risk for derivative financial instruments arises from the potential failure by counterparties to the
contract to meet their obligations.
Market risk
Interest rate risk (sensitivity analysis)
At 30 June 2016, the effect on profit before tax and equity as a result of changes in the interest rate, net
of the effect of interest rate swaps, with all other variables remaining constant, would be as follows:
Change in profit before income tax:
Increase in interest rate by 1%
Decrease in interest rate by 1%
Change in equity:
Increase in interest rate by 1%
Decrease in interest rate by 1%
2016
$'000
6,556
(7,221)
4,498
(4,964)
2015
$'000
2,098
(2,181)
1,469
(1,527)
73
Rural Funds Group Annual Report 2016
Rural Funds Group
Notes to the Financial Statements
30 June 2016
31
Business combinations
On 15 March 2016 the Group acquired two macadamia orchards located near Bundaberg, QLD and the
leasing businesses associated with these orchards. The acquisition represents the Group’s measured first
step into the macadamia industry. The consolidated results for the Group for the year includes 3 months
and 15 days of results from the leasing businesses acquired.
Purchase consideration
Assets and liabilities recognised as a result of the acquisition were as follows:
Investment property
Biological assets
Intangible assets
Financial assets
Net assets acquired
Revenue and profit contribution
2016
$'000
7,291
1,116
5,525
548
102
7,291
The acquired business contributed revenues of $187,000 to the Group for the period from 15 March to 30
June 2016.
Acquisition-related costs
Acquisition-related costs of $452,000 are included in other expenses in the Consolidated Statement of
Comprehensive Income and in operating cash flows in the Consolidated Statement of Cash Flows.
32
Key management personnel
Directors
The Directors of RFM are considered to be key management personnel of the Group. The Directors of
the responsible entity in office during the year and up to the date of this report are:
Guy Paynter
David Bryant
Michael Carroll
Interests of Directors of the responsible entity
Units in the Group held by Directors of RFM or related entities controlled by Directors of RFM as at 30
June 2016 are:
Guy Paynter
Units
351,833
David Bryant
Units
3,287,372
30,323
382,156
151,100
533,256
368,819
3,656,191
3,987,152
7,643,343
Balance at 30 June 2014
Additions
Balance at 30 June 2015
Additions
Balance at 30 June 2016
74
Rural Funds Group
Notes to the Financial Statements
30 June 2016
32
Key management personnel (continued)
Other key management personnel
In addition to the Directors noted above, RFM, as the responsible entity of the Group is considered to be
key management personnel with the authority for the strategic direction and management of the Group.
The constitutions of Rural Funds Trust and RF Active (the stapled entities forming the Group) are legally
binding documents between the unitholders of the Group and RFM as responsible entity. Under the
constitutions, RFM is entitled to the following remuneration:
Management fee: 0.6% per annum (2015: 0.6%) of the gross value of Group assets; and,
Asset management fee: 0.45% per annum (2015: 0.45%) of the gross value of Group assets.
Compensation of key management personnel
No amount is paid by the Group directly to the directors of the responsible entity. Consequently, no
compensation as defined in AASB 124 Related Party Disclosures is paid by the Group to the Directors as
key management personnel. Fees paid to RFM as responsible entity are disclosed in note 33.
75
Rural Funds Group Annual Report 2016
Rural Funds Group
Notes to the Financial Statements
30 June 2016
33
Related party transactions
Transactions between the Group and related parties are on commercial terms and conditions.
Responsible entity (Rural Funds Management) and related entities
Transactions between the Group and the responsible entity and its associated entities are shown below:
Management fee
Asset management fee
Total management fees
Expenses reimbursed to RFM
Expenses reimbursed to RFM Poultry
Expenses due to Murdock Viticulture
Distribution paid/payable to RFM
Total amount paid to RFM and related entities
Rental income received from RFM Almond Fund 2006
Rental income received from RFM Almond Fund 2007
Rental income received from RFM Almond Fund 2008
Rental income received from RFM
Rental income received from RFM Farming Pty Limited
2016
$'000
1,809
1,357
3,166
2,231
-
199
376
5,972
1,945
588
1,498
372
390
Rental income received from RFM Poultry
10,450
Rental income received from 2007 Macgrove Project
Expenses charged to RFM Poultry
Distribution received/receivable from RFM Poultry
Distribution received/receivable from RFM StockBank
Interest income from Murdock Viticulture
Water sale proceeds from RFM Almond Fund 2006
Water sale proceeds from RFM Almond Fund 2007
Water sale proceeds from RFM Almond Fund 2008
Water sale proceeds from RFM
Water sale proceeds from RFM Farming Pty Limited
140
54
14
234
-
59
16
44
9
52
Total amounts received from RFM and related entities
15,865
Murdock Viticulture is a vineyard manager 28% owned by RFM.
Debtors
RFM Farming Pty Limited
RFM
RFM Macadamias Pty Limited
2007 Macgrove Project
Total
76
2016
$'000
3
41
20
538
602
2015
$'000
1,435
1,061
2,496
2,114
135
518
128
5,391
1,719
501
1,300
279
-
10,349
-
482
15
244
19
45
12
35
7
-
15,007
2015
$'000
-
204
-
-
204
Rural Funds Group
Notes to the Financial Statements
30 June 2016
33
Related party transactions (continued)
Creditors
RFM
Total
2016
$'000
153
153
Entities with influence over the Group
Rural Funds Management Limited
Interest in related parties
RFM StockBank
RFM Poultry
Units
5,153,833
Units
3,897,259
108,615
2016
%
3.12
2016
%
33.50
1.58
Units
1,450,465
Units
3,897,259
108,615
2015
$'000
180
180
2015
%
1.24
2015
%
33.52
1.58
77
Rural Funds Group Annual Report 2016
Rural Funds Group
Notes to the Financial Statements
30 June 2016
34
Cash flow information
Reconciliation of net profit after income tax to cash flow from operating activities:
Net profit after income tax
Cash flows excluded from profit attributable to operating activities
Non-cash flows in profit
Share of net profit - equity accounted investments
Change in fair value of biological assets
Change in fair value of investment property
Change in fair value of interest rate swaps
Depreciation and impairments
Reversal of impairment of intangible assets
(Gain)/loss on sale of assets
Change in fair value of other assets
Changes in assets and liabilities
(Increase)/decrease in trade and other receivables
(Increase)/decrease in prepayments
Increase/(decrease) in trade and other payables
Increase/(decrease) in unearned income
Increase/(decrease) in GST (net)
(Increase)/decrease in deferred tax assets (net)
Net cash inflow from operating activities
35
Events after the reporting date
2016
$'000
34,788
(61)
(26,495)
(3,343)
7,116
939
-
(290)
(36)
(4,510)
48
4,878
-
-
1,197
14,231
2015
$'000
10,153
(125)
(1,835)
4,824
734
490
(2,645)
5
(113)
931
(65)
(1,359)
(476)
(562)
(735)
9,222
In July 2016 the Group successfully completed a non-renounceable rights issue of $61,000,000 (1 new
unit for every 4 existing units), in order to fund the acquisitions of the macadamia orchards and cattle
properties and expansions to the almond development at Kerarbury by a further 1,000 hectares.
In July 2016 the Group negotiated an increase to its debt facility from $147,500,000 to $200,000,000.
In July and August 2016 the Group acquired three cattle properties: Rewan, a 17,500 hectare cattle
property near Rolleston, QLD and Oakland Park and Mutton Hole, located near the Gulf of Carpentaria in
far north Queensland and comprising a combined area of 225,800 hectares. The acquisition of the three
cattle properties and associated livestock will increase the Group’s total assets by approximately
$50,000,000. The properties and livestock will be leased for ten years to Cattle JV Pty Limited, a wholly
owned subsidiary of RFM.
No other matter or circumstance has arisen since the end of the year that has significantly affected or
could significantly affect the operations of the Group, the results of those operations or the state of affairs
of the Group in future financial years.
78
Rural Funds Group
Notes to the Financial Statements
30 June 2016
36
Parent entity
The individual financial statements of the parent entity, Rural Funds Trust, show the following aggregate
amounts:
Statement of Financial Position
ASSETS
Current assets
Non-current assets
Total assets
LIABILITIES
Current liabilities
Non-current liabilities
Total liabilities (excluding net assets attributable to
unitholders)
Net assets attributable to unitholders
Total liabilities
Statement of Comprehensive Income
Net profit after income tax
Other comprehensive income for the period, net of tax
Total comprehensive income attributable to unitholders
2016
$'000
2015
$'000
58,736
294,920
353,656
10,578
157,324
167,902
185,754
353,656
33,313
(14)
33,299
49,824
179,918
229,742
4,830
93,251
98,081
131,661
229,742
6,332
8
6,340
79
Rural Funds Group Annual Report 2016
Rural Funds Group
Directors’ Declaration
30 June 2016
In the Directors of the Responsible Entity’s opinion:
1
The financial statements and notes of Rural Funds Group set out on pages 35 to 79 are in accordance
with the Corporations Act 2001, including:
a.
b.
complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory
professional reporting requirements; and
giving a true and fair view of the Group’s financial position as at 30 June 2016 and of its
performance for the financial year ended on that date; and
2
There are reasonable grounds to believe that the Group will be able to pay its debts as and when they
become due and payable.
Note 2 confirms that the financial statements also comply with International Financial Reporting Standards as
issued by the International Accounting Standards Board.
The Directors have been given the declarations by the persons performing the chief executive officer and chief
financial officer functions as required by section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Board of the Directors of Rural Funds Management
Limited.
David Bryant
Director
24 August 2016
80
Independent auditor’s report to the unitholders of Rural
Funds Group
Report on the financial report
We have audited the accompanying financial report of Rural Funds Group (the registered scheme),
which comprises the consolidated statement of financial position as at 30 June 2016, the consolidated
statement of comprehensive income, consolidated statement of changes in net assets attributable to
unitholders and consolidated statement of cash flows for the year ended on that date, a summary of
significant accounting policies, other explanatory notes and the directors’ declaration for Rural Funds
Group (the consolidated entity). The consolidated entity comprises the registered scheme and the
entities it controlled at year’s end or from time to time during the financial year.
Directors' responsibility for the financial report
The directors of Rural Funds Management Limited (the responsible entity) are responsible for the
preparation of the financial report that gives a true and fair view in accordance with Australian
Accounting Standards and the Corporations Act 2001 and for such internal control as the directors
determine is necessary to enable the preparation of the financial report that is free from material
misstatement, whether due to fraud or error. In Note 2, the directors also state, in accordance with
Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements
comply with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted
our audit in accordance with Australian Auditing Standards. Those standards require that we comply
with relevant ethical requirements relating to audit engagements and plan and perform the audit to
obtain reasonable assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial report. The procedures selected depend on the auditor’s judgement, including the
assessment of the risks of material misstatement of the financial report, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the consolidated
entity’s preparation and fair presentation of the financial report in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by the directors, as well
as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations
Act 2001.
PricewaterhouseCoopers, ABN 52 780 433 757
Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
81
Rural Funds Group Annual Report 2016 Auditor’s opinion
In our opinion:
(a)
the financial report of Rural Funds Group is in accordance with the Corporations Act 2001,
including:
(i)
(ii)
giving a true and fair view of the consolidated entity's financial position as at 30 June
2016 and of its performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations
2001.
(b)
the financial report and notes also comply with International Financial Reporting Standards as
disclosed in Note 2.
PricewaterhouseCoopers
David Ronald
Partner
Sydney
24 August 2016
82
ruralfunds.com.au
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