RURAL FUNDS GROUP
ANNUAL REPORT
for the year ended 30 June 2018
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
Issued on: 27 September 2018
CONTENTS
Letter from the Managing Director
Investment strategy & FY18
results highlights
Corporate governance statement
Environmental, social and
governance responsibilities
ASX additional information
Financial statements
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4
8
26
32
36
LETTER FROM THE
MANAGING DIRECTOR
Dear Unitholder,
We are pleased to present to you the Rural Funds Group (ASX:RFF, the Fund) Annual Report for the year ended
30 June 2018 (FY18).
RFF at 30 June 2018
RFF ended the year in a strong financial position. Funds from operations increased to 12.7 cents per unit(cpu), and
the 4% per annum distribution growth target was maintained with 10.03 cpu paid to investors. This distribution
growth target was supported by RFF’s conservative payout ratio of 79% and a weighted average lease expiry of
12.4 years. The adjusted Net Asset Value (NAV) of the Fund increased to $723.6 million(m), or $1.68 on a per unit
basis, representing a 6.3% per unit increase, when compared to the previous corresponding period.
Review of financial year 2018
FY18 activities focused on supporting RFF’s investment objective of generating a stable income stream
through the leasing of properties, and capital growth through appreciation in the value of those properties.
The assets acquired during the year, and the ongoing development programs undertaken, strengthened
portfolio diversification in terms of sector, geographic and climatic measures.
In October 2017, RFF contracted to acquire the Natal aggregation in northern Queensland, comprising three
adjoining cattle properties and totaling 390,600 hectares(ha) as part of a $72.5m transaction. The properties
were purchased from members of the Camm Agricultural Group (CAG), a large family business operating for
more than 20 years, and leased to DA & JF Camm Pty Limited, also a member of CAG. When announcing the
purchase, RFM outlined a development program focusing on increasing water and fencing infrastructure.
The aim of the program is to increase the carrying capacity of the properties, and ultimately have this
increase reflected in a valuation uplift for the benefit of RFF unitholders.
As part of the 2018 half year accounts presentation in February, Rural Funds Management Limited (RFM)
provided the results of independent valuations undertaken on two central Queensland properties: the cattle
property Rewan, and the cotton property Lynora Downs. Rewan was valued 17% higher than the combination
of acquisition price and deployed capital expenditure. The valuation uplift was driven by an increase in the
property’s carrying capacity, which has been the focus of RFM’s cattle development program. In the case of
Lynora Downs, a modest valuation increase was received. Development at Lynora Downs is ongoing, particularly
the expansion of the irrigated cropping area, a key valuation measure for cotton properties. RFM expects future
valuations will recognise the increased cropping area of this property once the development is completed.
In May 2018, RFF contracted to acquire Comanche, a 7,600 ha cattle property located in central Queensland, for
$16.6m. The property is suited to both breeding and backgrounding cattle and, importantly, offers productivity
development opportunities almost identical to those proven on Rewan.
In addition to the acquisitions that occurred in FY18, RFM managed the deployment of $50.4m of capital
expenditure across the RFF portfolio. The largest development by value is the Kerarbury almond orchard in the
NSW Riverina. I’m pleased to report that all 2,500 ha of almond trees are now planted, a significant achievement
on the part of the lessee, Olam Orchards Australia, and the RFM team.
Other components of RFF’s annual capital expenditure program included the development of additional
irrigated cotton area on Lynora Downs (mentioned earlier), and the lower cost but equally important
development activities such as watering points and pasture improvements which are designed to increase
carrying capacity across RFF’s seven cattle properties.
2
The full year results presented in August included a number of property valuation uplifts. A 37% uplift was
recorded for the three Queensland macadamia properties – Swan Ridge, Moore Park and Bonmac. Whilst this
uplift is modest in the context of the wider portfolio, the increase on a stand-alone basis is pleasing. An 8% uplift
was received for the Mooral, Yilgah and Tocabil almond properties. These valuations are reflective of strong
demand for almond orchards in optimal growing regions, such as the NSW Riverina.
In addition to increasing the NAV of the Fund over time, RFM seeks to monetise valuation uplifts by structuring
leases with periodic rental reviews. RFM’s aim is to grow the proportion of leases within the portfolio that
contain rental reviews, so that increases in property values, particularly through capital developments,
can be monetised for the benefit of RFF investors.
During July 2018, RFF completed a $149.5m equity raising with proceeds used to fund the Comanche acquisition
as well as a transaction with JBS Australia Pty Limited (JBS), the country’s largest lot feeder and meat processor.
The JBS transaction includes the purchase from JBS of five feedlots for $52.7m and the provision of a $75.0m
limited guarantee that will enable JBS to replace an existing arrangement for the supply of cattle for its grainfed
business. The feedlots represent the largest feedlot capacity in Australia, and RFF is pleased to welcome JBS as
a lessee within the RFF portfolio. The equity raising has created balance sheet capacity to support acquisitions,
and details will be provided to investors as acquisitions occur.
Looking ahead to FY19
The weather outlook for the current year is a continuation of the very dry conditions that many parts of
regional Australia are currently experiencing. While dry conditions in Australian agriculture are certainly not a
new phenomenon, it is sensible to consider the impact of these conditions in relation to the RFF portfolio.
First and foremost, as an agricultural Real Estate Investment Trust, RFF is not directly exposed to the fluctuations
of the agricultural operating environment. These risks are borne by our lessees. Despite this, RFM has
implemented a number of strategies aimed at managing climatic and seasonal variability.
The core tool to manage climatic variability was articulated in RFM’s Climate Diversification paper released in
June 2016. This paper outlines the need to invest in assets located in varying rainfall zones across Australia,
reducing the likelihood of multiple leases experiencing extreme conditions simultaneously. In line with this
strategy, RFF has acquired 13 properties outside of the southern climatic zone since listing in 2014. Investors may
be aware that all of RFF’s properties were located within the southern climatic zone at the time of listing.
In addition to the climatic diversification strategy, RFF owns a large portfolio of 103,900ML of water entitlements.
An important component of RFF’s water entitlements is 49,206ML of groundwater and high security
entitlements, which are characterised as having a very high level of reliability. The varying types of water
entitlements held within the portfolio mean that RFF’s tenants are able to economically access a combination
of water entitlements that provide sufficient reliability to meet their individual irrigation requirements,
whilst reducing their reliance on the temporary spot market. This is particularly the case for lessees of assets
with permanently planted crops, such as almonds and grapevines.
Finally, RFF aims to lease its assets to quality lessees with the financial capability to operate through seasonal
and commodity cycles. Many of RFF’s lessees are domestic and internationally listed entities, their subsidiaries,
or are large private operators.
RFM’s objective for RFF remains unchanged; investing in assets, and where possible developing those assets,
with the aim of achieving consistent distribution and capital growth over time. To this end, RFM will continue to
undertake due diligence on properties, particularly in the cattle and cotton sectors, where there are acquisition
and development opportunities that can grow the Fund’s scale and distributions into the future.
We look forward to bringing you updates as the year progresses, and as always please don’t hesitate to contact
the RFM team should you have any questions about your investment.
Yours faithfully,
David Bryant
Managing Director
Rural Funds Management Limited
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 3
RFM’s investment strategy for RFF focuses on the management of the existing portfolio and expansion through acquisitions. This strategy has the aim of increasing; earnings and distribution growth, sector and climatic diversification, liquidity and scale. Investment strategy Agricultural sector1Climatic zone1Sector characteristics11 Pro forma for July 2018 $149.5m equity raising at $1.95 per unit. Figures based on FY19 forecast revenue.Lease indexation mechanisms1CPI and CPI linked indexation 52%CPI with market review 5%2.5% fixed indexation 12% Other 2%Almonds 46% Cattle 23%Poultry 17%Vineyards 6%Cotton 3%Macadamias 2%Other 2%Southern 71%Northern 29%Natural resource predominant 59%Infrastructure predominant 41%2.5% fixed indexation with market review 29% FY18 results highlights110.03¢ DPU279%AFFO PAYOUT RATIO$1.72ADJ. NAV PER UNIT25.0%GEARING4.0%FY19 DPU GROWTH4.9%FORECAST YIELD455.4%DEBT HEDGED4.0%EFFECTIVE COST OF TOTAL DEBTKey financial metricsAdjusted funds from operations (AFFO) growth of 26% primarily a result of additional lease income, development capital expenditure and indexation. EPU2 driven by AFFO growth and revaluations of properties. Balance sheet metricsAdjusted total assets increased primarily due to cattle sector acquisitions, almond orchard capital expenditure and valuation uplifts. Gearing reduction provides balance sheet capacity to pursue future acquisitions.FY19 forecastsDPU in line with annual growth target of 4%. Payout ratio of 79% providing funding for capital expenditure, which attracts additional lease income. Capital managementSyndicated debt facility with $80.2m headroom. 1 All figures pro forma for July 2018 $149.5m equity raising at $1.95 per unit.2 Earnings per unit (EPU), distributions per unit (DPU) and cents per unit (CPU). EPU calculated as Total Comprehensive Income / weighted average units.3 Net asset value (NAV) incorporates most recent independent property valuations, inclusive of water entitlements, and is adjusted for the independent valuation of water entitlements which are recognised at the lower of cost or fair value on the balance sheet.4 FY19 forecast DPU of 10.43 cents divided by 30 June 2018 closing price of $2.12.Adj. total assets $792.9m3Debt $198.2mAFFO 13.2 CPUDPU 10.43 cents Term debt facility $275.0mTerm debt drawn$194.8m EPU 17.3 centsAFFO 12.7 CPU2 1 Pro forma for July 2018 $149.5m equity raising at $1.95 per unit.2 Shaded areas in map denote different climatic zones. Source: Bureau of Meteorology.3 Assets adjusted for the independent valuation of water entitlements which are recognised at a lower of cost or fair value on the balance sheet.4 Lease expiries weighted by forecast FY19 rental income, expressed in years from 30 June 2018.Fund overview1Number of properties:44Adjusted total assets:3$792.9mSectors:6Weighted average lease expiry:412.3 yrsRural Funds GroupRural Funds Group (RFF) is an agricultural real estate investment trust which owns a diversified portfolio of quality Australian agricultural assets across six sectors. Assets have long-term leases with experienced agricultural operators. 111111111113111534133Summer dominantSummerWinterUniformAridWinter dominantClimatic zones2 1 Pro forma for July 2018 $149.5m equity raising at $1.95 per unit.2 Shaded areas in map denote different climatic zones. Source: Bureau of Meteorology.3 Assets adjusted for the independent valuation of water entitlements which are recognised at a lower of cost or fair value on the balance sheet.4 Lease expiries weighted by forecast FY19 rental income, expressed in years from 30 June 2018.PoultryProperties: Value:Lessee:FY19 f’cast rent:17 farms(154 sheds)$80.8mRFM Poultry$10.7mVineyardsProperties: Value:Lessee:FY19 f’cast rent:7$47.9mTWE$3.8mCattleProperties: Value:Lessee:FY19 f’cast rent:12$199.3mCattle JV,Camm & JBS $15.0mCottonProperties: Value:Lessee:FY19 f’cast rent:1$30.8mCotton JV$2.2mMacadamiasProperties: Value:Lessee:FY19 f’cast rent:3$13.6m2007 Macgrove Project & RFM$1.3mAlmondsProperties: Value:Lessee:FY19 f’cast rent:4$374.9mSHV, Olam, RFM Almond Schemes & RFM$29.8m CORPORATE
GOVERNANCE
STATEMENT
Definitions
ASIC
ASX
Australian Securities and Investments Commission
Australian Securities Exchange Limited or ASX Limited
Corporations Act
Corporations Act 2001 (Cth)
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 (AFSL) authorising it to operate the Fund. It has a duty to act in the best
interest of unitholders of the Fund. The Fund’s compliance plan has been lodged with ASIC and 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 four directors
and has a mix of 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 its 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 ASX Listing Rule 4.10.3, set out in this section 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 principle. The statement has been approved by the Board of the Responsible
Entity and applies to the period 1 July 2017 to 30 June 2018 (Statement Period).
At the time of printing this statement, there have been no material changes to the corporate governance policies
and practices since 30 June 2018.
10
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.
ASX
RECOMMENDATION
FUND’S RESPONSE
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)
> Non-Executive Director: Julian Widdup (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 2.3 and 2.4 of the Corporate Governance Charter. The specific
responsibilities are set out in section 2.5.
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.
As an externally managed scheme, recommendation 1.2 does not apply to the Fund.
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.
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.
1.2
1.3
1.4
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 11
ASX
RECOMMENDATION
FUND’S RESPONSE
As an externally managed scheme, recommendation 1.5 does not apply to the Fund.
The Responsible Entity has a diversity policy, which is reviewed annually with
any changes approved by the Board. 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. The policy addresses issues of diversity
in developing selection criteria, skills mix and process when recommending
candidates for appointment to the Board. Additionally, the Responsible Entity
seeks to attract a diverse pool of suitably skilled candidates for available positions
within the organisation. Due to the size of the Responsible Entity’s Board and
its senior management team, and 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 six executives). Of the 93 staff, 33% are female.
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.
The performance of senior executives is formally 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. Informal reviews providing feedback about
key projects are conducted on an ongoing basis.
1.5
1.6
1.7
12
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.
ASX
RECOMMENDATION
FUND’S RESPONSE
2.1
2.2
2.3
14
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 as they arise. 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.
As an externally managed scheme, recommendation 2.2 does not apply to the Fund.
The Responsible Entity Board comprises four members, three 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
Julian Widdup
17 February 2017
No
Yes
Yes
Yes
Guy Paynter is an Independent Non-Executive
Director, holds the role of Chair of the Board
and is a member of the Audit Committee
and Remuneration Committee.
Guy Paynter is a former director of broking firm JB Were
and brings to the Responsible Entity more than 30 years’
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.
ASX
RECOMMENDATION
FUND’S RESPONSE
2.3 continued
David Bryant is the Managing Director.
David Bryant holds 78.20% of shares on issue in
the Responsible Entity.
David Bryant established RFM in February 1997 and
since that time has led the team that is responsible for
the acquisition of large-scale agricultural property assets
and associated water entitlements. As at 30 June 2018,
RFM manages over $740 million of agricultural assets.
On a day-to-day level, David is responsible for leading
the RFM 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 (RMIT) University and a
Master of Agribusiness from The University of Melbourne.
Michael Carroll is an Independent
Non-Executive Director and is the
Chair of the Audit Committee and
the Remuneration Committee.
Michael Carroll serves in a board and advisory capacity
for a range of agribusiness entities. Michael is a
Director of Elders Limited, Select Harvests Limited,
Paraway Pastoral Company, Viridis Ag Pty Limited
and Sunny Queen Limited. Former board positions
include Tassal Group Limited, the Australian Farm
Institute, Warrnambool Cheese & Butter Factory
Company Holdings Limited, Meat & Livestock Australia,
Queensland Sugar Limited, the Geoffrey Gardiner Dairy
Foundation 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 (MBA) 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.
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 15
ASX
RECOMMENDATION
FUND’S RESPONSE
2.3 continued
Julian Widdup is an Independent
Non-Executive Director and is a
member of the Audit Committee
and Remuneration Committee.
Julian Widdup is a former executive of infrastructure
investment management companies, Palisade
Investment Partners and Access Capital Advisers
(now Whitehelm Capital). He was responsible for
the acquisition and asset management of major
infrastructure assets, risk management, portfolio
construction, institutional client management and
overseeing all aspects of investment operations.
Previously Julian had worked with Towers Perrin
(now Willis Towers Watson) as an asset consultant,
the Australian Bureau of Statistics and the Insurance
and Superannuation Commission (now APRA).
Julian brings extensive experience to the RFM Board,
having previously served as a director of Palisade
Investment Partners, Darwin International Airport,
Alice Springs Airport, NZ timberland company Taumata
Plantations Limited, Regional Livestock Exchange
Investment Company, Merredin Energy power generation
company, Victorian AgriBioscience Research Facility, Casey
Hospital in Melbourne and Mater Hospital in Newcastle.
Julian holds a Bachelor of Economics from the Australian
National University, is a Fellow of the Institute of Actuaries
of Australia and 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.
16
ASX
RECOMMENDATION
FUND’S RESPONSE
2.4
2.5
2.6
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.
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.
As an externally managed scheme, recommendation 2.6 does not apply
to the Fund; however, any new directors are provided with an induction
relevant to the Responsible Entity and the Fund. Directors are also provided
with opportunities to develop and maintain their skills and knowledge,
through both formal and informal training and networking opportunities.
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 17
PRINCIPLE 3
Act ethically and responsibly
A listed entity should act ethically and responsibly.
ASX
RECOMMENDATION
FUND’S RESPONSE
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
senior executives. The Corporate Governance Charter which includes the
Directors’ Code of Conduct is available on the Responsible Entity’s website.
Both codes are reviewed annually to ensure that they remain current and relevant.
3.1
18
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.
ASX
RECOMMENDATION
FUND’S RESPONSE
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 three members, all 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 1 of the Corporate
Governance Charter on the Responsible Entity’s website.
4.2
The Board of the Responsible Entity have been given the declarations by the
persons performing the chief executive officer and chief financial officer functions.
It is in their opinion that:
>
>
>
>
the financial records of the Fund have been properly maintained in
accordance with section 286 of the Corporations Act 2001 (Cth)
the financial statements and notes referred to in paragraph 295(3)(b)
of the Corporations Act 2001 (Cth) for the financial year comply with the
accounting standards
the financial statements and notes give a true and fair view of the
financial position and performance of the entity
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.
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 19
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.
ASX
RECOMMENDATION
FUND’S RESPONSE
The Responsible Entity has adopted a Continuous Disclosure Policy (the 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, 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.
5.1
20
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.
ASX
RECOMMENDATION
FUND’S RESPONSE
6.1
6.2
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, agricultural managers and livestock managers. 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.
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 processes; financial
information, key documents, news and announcements and details about how
to contact the Responsible Entity and the Share Registry.
In addition, unitholders are encouraged to contact the Responsible Entity
using any of the following methods:
Email: investorservices@ruralfunds.com.au
Website: https://ruralfunds.com.au/contact-us/
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.
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 21
ASX
RECOMMENDATION
FUND’S RESPONSE
6.3
6.4
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
a teleconferencing facility for remote unitholders along with an online polling
system provided by the Registry, enabling unitholders to vote online at any meeting.
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 investors via traditional
methods (mail and phone) when appropriate.
22
PRINCIPLE 7
Recognise and manage risk
A listed entity should establish a sound risk management framework and periodically review
the effectiveness of that framework.
ASX
RECOMMENDATION
FUND’S RESPONSE
7.1
7.2
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 that documents
the Responsible Entity’s policy for the oversight and management of material
business risks. It 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 based on standards set out in the International Standards
ISO 31000:2018.
The Risk Management Policy is available on the Responsible Entity’s website.
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.
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 23
ASX
RECOMMENDATION
FUND’S RESPONSE
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, the Internal Compliance 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
Assistant Company Secretary & Compliance Manager (from 26 October 2017)
Financial Controller
> National Manager – Human Resources
>
>
>
>
Senior Fund Administrator
Compliance Officer
Executive – Cattle & Acquisitions (invitee)
Business Managers (invitees)
> National Manager – Cotton (invitee).
This broad representation of roles on the Internal Compliance Committee ensures
it is fully informed of matters, and there is sufficient skills and experience among
its members to make decisions as necessary.
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 (ESG) issues are embedded in many of its
policies and procedures and are considered when making investment decisions.
RFF’s core activity is the leasing of agricultural land, water and infrastructure,
and thus the Fund is largely passive in nature. Lessees are required to adopt
practices that retain or improve the integrity of the Fund’s assets.
In response to disclosing ESG matters for the Responsible Entity with the greatest
materiality to the Fund and its investors, please refer to the Environmental, Social
and Governance Responsibilities section starting at page 26.
7.3
7.4
24
PRINCIPLE 8
Remunerate fairly and responsibly
An externally managed listed entity should clearly disclose the terms governing the remuneration
of the Responsible Entity.
ASX
RECOMMENDATION
FUND’S RESPONSE
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.
The purpose of the Remuneration Committee is to advise on remuneration
and issues relevant to the remuneration policies and practices for senior
executives and non-executive directors.
The Remuneration Committee is comprised of three members, all 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.
Information on the relevant qualifications and experience of the members is
available on the Responsible Entity’s website.
The Remuneration Committee will routinely invite other individuals to attend
meetings, including executive management and management members of the
Responsible Entity. The Remuneration Committee and invitees will review the
remuneration and diversity report and provide commentary to the Board as required.
One meeting of the Remuneration Committee was held in relation to
remuneration during the Statement Period.
The Remuneration Committee has a formal charter that details the
responsibilities of the Remuneration Committee and its obligations to report
to the Board. The charter sets out the powers of the Remuneration Committee
and the meeting procedure framework. The Remuneration Committee
charter can be found in Schedule 2 of the Corporate Governance Charter
on the Responsible Entity’s website.
8.2
8.3
As an externally managed scheme, refer to recommendation 8.1.
As an externally managed scheme, refer to recommendation 8.1.
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 25
ENVIRONMENTAL,
SOCIAL AND
GOVERNANCE
RESPONSIBILITIES
ASX Recommendation 7.4
Commitment and responsibility for implementation
As Responsible Entity (RE) for the Rural Funds Group (RFF), Rural Funds Management (RFM) takes the
environmental, social and governance (ESG) responsibilities of the Fund seriously. The statements outlined
in this section have been endorsed by the RFM Board of Directors, with RFM senior management responsible
for their implementation and monitoring.
Some areas within this section relate more directly to RFM than RFF. For instance, RFF does not directly employ staff,
so the human capital management section is in reference to staff employed by RFM which manages the Fund’s assets.
7.4 Environment
Management of natural resources, including water resources
RFF owns a portfolio of Australian agricultural assets and the stewardship of these assets is of critical
importance to the performance and growth of RFF. RFF’s leases require operators to use appropriate agricultural
production methods.
Wherever practical, the Fund will:
> monitor industry developments and adopt farm management practices that incorporate the latest
research findings and technologies to minimise environmental impact, protect biodiversity and better
use the natural resources
> maximise water-use efficiency through the use of modern, well managed irrigation systems
>
>
>
>
ensure water management practices consider and manage water quality and minimise run-off
use communication technologies to access water-use data remotely, assisting with optimal water use
adopt nutrient management practices that improve long term soil health, and ensure that pest and weed
management requiring the use of chemicals occurs in a safe and environmentally responsible manner
ensure that lessees and personnel understand and are focused on sustainable farming principles
and adhere to environmental legislation and regulations.
Climate change
RFM monitors the impact of climate change on RFF’s portfolio of assets and has implemented a climatic
diversification strategy. The strategy promotes the acquisition of assets across different growing regions
and asset classes. A Climate Diversification discussion paper was released to the ASX on 20 June 2016.
Energy use
RFM regularly reviews assets and infrastructure to identify more efficient technologies to reduce RFF’s energy
consumption and carbon footprint. RFF’s assets in the cattle and poultry sectors have achieved savings from
solar technologies. RFM Poultry, the lessee of the Fund’s poultry assets, recently installed 100 kilowatt solar
systems on each of RFF’s four Victorian poultry farms. The energy produced is used to support chicken growing
activities, with excess energy fed back into the grid. RFM is undertaking assessment of further solar energy
options across the portfolio. Other examples of energy savings are the RFF almond and macadamia assets,
which benefit from technology that measures tree sap flow ensuring the delivery of exact water requirements.
7.4 Social
Community engagement
Community engagement is an integral part of RFM’s corporate culture and is key to maintaining the support
of the communities where RFF owns assets. RFM’s first preference when employing staff is to seek potential
personnel with suitable skills and expertise from local communities for both employment and contracting
opportunities in the areas where it operates.
In addition to being an employer in various areas of rural and regional Australia, RFM regularly provides support
via donations, labour and other means to local community organisations. Organisations that RFM supported
during the year include:
the McGrath Foundation, which helps to place breast care nurses into regional areas, including those
where RFF has assets
the Rolleston State School and the Bundaberg Science and Engineering Challenge, a two day event
attended by over 700 school students
>
>
28
>
ArtSound “Senior Memories”, a not-for-profit digital audio service tailored specifically to the needs
and interests of seniors living in aged care facilities and retirement villages
> Meg’s Children, a children’s home and community outreach program in outer Kathmandu, Nepal.
RFM believes it is important to engage the communities in the areas where the Fund’s assets are located,
as many of its developments are significant in size and scale. In May 2018, RFM and lessee Olam Orchards
Australia hosted a community tour of its Kerarbury almond orchard in the NSW Riverina. The tour provided
local organisations, business groups and landholders an insight into the progress and future plans of the
substantial development. RFM also provides horticultural traineeships for local high school students,
providing them with on-the-job training and potential ongoing employment opportunities with RFM.
Human capital
As RFF does not directly employ staff, RFM is responsible for human capital management associated with
the management and operation of the Fund. RFM has implemented a range of human capital related policies,
including: Code of Conduct, Environmental, Health, Safety and Environment (HSE), Incident Management, Diversity
and Equal Employment Opportunity. The aim of these policies is to create a safe, diverse and equitable work place.
The RE takes it’s obligations relating to Workplace Health and Safety seriously and has implemented an extensive
HSE management system to educate personnel and protect them from harm. The RFM Board receives a monthly
workplace health and safety report identifying any issues and incidents. RFM periodically reviews arrangements
with independent contractors to determine their practices and standards meet legislative requirements and
contractual obligations. RFM is committed to providing employees with ongoing opportunities for HSE training
and development.
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 29
Animal welfare
RFF owns properties that are leased to chicken and cattle producers, including those involved in intensive
production. RFM has policies and procedures with respect to animal treatment and welfare. The following
information is provided about the cattle and chicken growing sectors.
Poultry: The birds produced at RFF’s poultry sheds are accredited under the RSPCA’s Approved Farming Scheme
Standards – Meat Chickens. Ongoing compliance with the Standards is monitored through RSPCA audits,
with each farm being audited twice each year, in addition to random audits. Chickens are raised in accordance
with RSPCA standards for prescribed stocking densities and with the freedom to express normal behaviours.
Cattle: The lessees of RFF’s cattle properties are required to adopt best practice husbandry techniques including
“low stress” stock handling methods which assists to maintain animal wellbeing. Fattened animals are generally
sold domestically, to either a processor or feedlot. A small proportion of the cattle may not be suited to being
finished and therefore may be sold to the live export market.
7.4 Governance
Corporate governance
RFM as RE is responsible for the management of RFF on behalf of its unitholders. The Board takes its corporate
governance responsibilities seriously. The Board, which has a majority of independent directors, including an
independent Chairman, is comprised of four directors with the experience and skills necessary to oversee the
corporate governance requirements of the RE. The Board works together, and its collective ability facilitates
effective decision making to lead a viable, profitable and efficient business. Board member performance is
reviewed annually. RFM provides Directors with the opportunity for ongoing training as required to enable them
to effectively meet their responsibilities.
In addition, RFM has established an internal compliance committee (ICC) that reports to the Board monthly. The
ICC monitors and reports on compliance with RFM’s AFSL and compliance program to ensure that it is effective in
meeting RFM’s compliance requirements. The ICC also provides a supporting role to the Compliance Officer. The
ICC is structured to include representatives from different business units to ensure compliance monitoring and
review are well embedded across RFM.
Conflicts of interest and related party transactions
RFM manages a number of entities, including in its role as RE for six funds. Where related party transactions
occur between RFF and another RFM managed entity, they are subject to the RFM Conflict of Interest
Management Policy. RFM’s responsibilities and contractual obligations are set out in the Fund’s Constitution,
the Corporations Act, the ASX Listing Rules and in the RE’s AFSL. As RE, RFM must always act in the best interests
of the unitholders, and if there is a conflict between the unitholders’ interests and its own interests, it must
give priority to the unitholders’ interests. RFM has also established protocols, including appointing separate
personnel to act for each entity with separate external advisers. To monitor compliance with these obligations,
the RFM Board receives a monthly report from the RFM Compliance Officer, who reports on RE compliance,
conflicts of interests and related party transactions.
Ethical conduct
RFM seeks to act ethically while doing business and this underpins its approach with all transactions.
RFM employees are obligated to conduct themselves in accordance with the standards set out in the RFM Code
of Conduct, the Corporate Governance Charter and other related policy documents. Our employees conduct
themselves with integrity, in compliance with legislative requirements and with internal policies and procedures.
Employee performance is monitored by management through a combination of ongoing informal reviews
and formal annual reviews. RFM’s recruitment process includes reference checking of all potential employees,
as well as national police checks and bankruptcy checks for sensitive roles. RFM’s anti-money laundering and
counter-terrorism financing program policy aims to identify, mitigate and manage the risk that the Company or
its Officers may unwittingly facilitate money laundering or financing of terrorism. The RE manages the above
risks in accordance with its Risk Management Policy available on the RE’s website.
30
“...THE BIRDS
PRODUCED AT RFF’S
POULTRY SHEDS
ARE ACCREDITED
UNDER THE RSPCA’S
APPROVED FARMING
SCHEME STANDARDS
– MEAT CHICKENS...”
ASX ADDITIONAL
INFORMATION
Additional information required by the ASX Listing Rules and not disclosed elsewhere in this report is set out
below. This information is effective as at 14 September 2018.
(a)
Distribution of Equity Securities
HOLDING SIZE
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
UNITHOLDERS
CLASS
2,192
Ordinary fully stapled securities
4,245
Ordinary fully stapled securities
2,129
Ordinary fully stapled securities
3,428
Ordinary fully stapled securities
205
Ordinary fully stapled securities
(b)
Substantial unitholders
The number of substantial unitholders and their associates is set out below:
UNITHOLDER
The Vanguard Group, Inc1
NUMBER OF UNITS
22,238,563
%
8.699
(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 $2.19
as at 14 September 2018, is set out below:
NUMBER OF UNITHOLDERS
262
(d)
Voting rights
NUMBER OF UNITS
12,169
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.
1. ‘Notice of change of interests of substantial holder’ disclosed to the ASX 19 July 2018.
32
(e)
Twenty largest unitholders at 14 September 2018
UNITHOLDER
J P Morgan Nominees Australia Limited
HSBC Custody Nominees (Australia) Limited
NUMBER OF
UNITS
%
53,739,205
16.152
44,577,570
13.398
Netwealth Investments Limited
14,542,743
4.371
Argo Investments Limited
Rural Funds Management Limited
Citicorp Nominees Pty Limited
National Nominees Limited
12,494,364
3.755
11,843,659
3.560
11,807,171
3.549
8,543,325
2.568
Netwealth Investments Limited
3,661,911
1.101
Bryant Family Services Pty Limited
2,555,941
0.768
One Managed Investment Funds Limited
2,000,000
0.601
Neweconomy Com Au Nominees Pty Limited <900 Account>
19,481,285
0.596
SCCASP Holdings Pty Ltd
1,663,073
0.500
BNP Paribas Nominees Pty Ltd
1,229,092
0.369
Boskenna Pty Limited
1,059,104
0.318
Bond Street Custodians Limited
781,363
0.235
WF Super Pty Limited
Noeljen Pty Limited
BNP Paribas Nominees Pty Limited
770,335
0.232
711,902
0.214
684,427
0.206
BNP Paribas Nominees Pty Limited
629,614
0.189
Bond Street Custodians Limited
625,454
0.188
(f)
On-market buy-back
As at 14 September 2018, RFF confirms there is no on-market buy-back facility in operation.
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 33
(g) Material lease details subsequent to listing rule 10.1 waiver
LESSEES:
AETL AS CUSTODIAN AND
RFM AS RESPONSIBLE
ENTITY RFM ALMOND
FUND 2006
AETL AS CUSTODIAN AND
RFM AS RESPONSIBLE
ENTITY FOR RFM
ALMOND FUNDS
2007 & 2008
AETL AS CUSTODIAN AND
RFM AS RESPONSIBLE
ENTITY FOR RFM POULTRY
Area:
272 hectares of almond
orchards
279 hectares of almond
orchards
303,216 sq metres of
poultry sheds
Property and
Mooral, Hillston NSW
Mooral, Hillston, NSW
location:
Expiry:
30-Jun-26
2-Jul-28
Capital
commitments:
Capex required to meet
orchard development
requirements and
replacement capital items
on account of lessor,
both subject to additional
rental.
Capex required to meet
orchard development
requirements and
replacement capital items
on account of lessor,
both subject to additional
rental.
13 farms (134 sheds)
Griffith, NSW, and 4 farms
(20 sheds) Lethbridge, VIC.
Weighted average lease
expiry 15-Jan-23
R&M and ongoing capital
expenditure on account
of lessee.
Indexation:
2.5% per annum
2.5% per annum
65% of CPI capped at 2%
Payment
Annually in October
Quarterly in advance
Quarterly in advance
frequency:
Securities exchange
The Trust is listed on the Australian Securities Exchange. The 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.
34
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 35
FINANCIAL
STATEMENTS
for the year ended 30 June 2018
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
Rural Funds Group
Corporate Directory
Registered Office
Responsible Entity
Directors
Company Secretaries
Custodian
Auditors
Share Registry
Bankers
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
Julian Widdup
Andrea Lemmon
Stuart Waight
Australian Executor Trustees Limited
ABN 84 007 869 794
Level 22, 207 Kent Street
SYDNEY NSW 2000
PricewaterhouseCoopers
One International Towers Sydney
Watermans Quay
BARANGAROO 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
Rabobank Australia Group
Darling Park Tower 3
201 Sussex Street
SYDNEY NSW 2000
Stock Exchange Listing
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
38
1
Rural Funds Group
Directors’ Report
30 June 2018
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 2018.
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
Julian Widdup
Non-Executive Chairman
Managing Director
Non-Executive 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, cattle properties, a cotton property, agricultural plant and equipment,
cattle and water rights.
The following activities of the Group changed during the year:
•
In December 2017, the Group purchased three contiguous cattle properties, Natal Downs, Longton and
Narellan near Charters Towers in north Queensland. The three properties, collectively referred to as the
Natal aggregation, encompass an area of 390,600 hectares and are leased to DA & JF Camm Pty Limited,
a member of the Camm Agricultural Group, for ten years. As part of the transaction, the Group has
provided the lessee a $5,000,000 cattle financing facility to fund the purchase of trade cattle. The facility
was not drawn during the year. In addition, a $10,000,000 secured loan with a term of ten years was
extended to the lessee as part of the lease agreement.
Operating results
The consolidated net profit after income tax of the Group for the year ended 30 June 2018 amounted to $36,032,000
(2017: $43,326,000). The consolidated total comprehensive income of the Group for the year ended 30 June 2018
amounted to $44,012,000 (2017: $34,238,000).
The Group holds investment property, bearer plants 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 $32,323,000 (2017: $25,599,000), representing adjusted funds from operations (AFFO).
2
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 39
Rural Funds Group
Directors’ Report
30 June 2018
Adjusted funds from operations (AFFO)
Net profit before income tax
Change in fair value of investment property
Change in fair value of plant and equipment - bearer plants
Change in fair value of interest rate swaps
Depreciation and impairments
Gain on sale of assets
Income tax payable (RF Active)
Share of net profit of associate attributable to change in fair value of
investment property
AFFO
AFFO cents per unit
2018
$'000
37,112
(7,398)
-
1,956
947
(17)
(277)
-
32,323
12.7
2017
$'000
45,167
(17,191)
2,498
(5,311)
1,568
(33)
-
(1,099)
25,599
12.5
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 $378,735,000 at 30 June 2018 from $357,678,000 at
30 June 2017. At 30 June 2018 the Group had total assets of $673,808,000 (2017: $543,003,000).
At 30 June 2018, 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 $119,657,000 (2017:
$121,469,000). Independent valuations as at 30 June 2018 were received on the established almond orchard
properties, the Tocabil almond orchard property, macadamia orchard 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 and on this basis the fair value of water entitlements at 30 June 2018 was
$169,498,000 (2017: $166,012,000). The value of water entitlements is illustrated in the table below:
Intangible assets (water entitlements)
Investment in CICL
Investment in BIL
Total book value of water entitlements
Revaluation of intangible assets per valuation
Adjusted total water entitlements
Adjusted net asset value
2018
$'000
106,926
12,222
509
119,657
49,841
169,498
2017
$'000
108,738
12,222
509
121,469
44,543
166,012
The following depicts the net assets of the Group following the revaluation of water entitlements comprising
intangible assets and investments in BIL and CICL per these valuations.
Net assets per Consolidated Statement of Financial Position
Revaluation of intangible assets per valuation
Adjusted net assets
Adjusted NAV per unit
40
2018
$'000
378,735
49,841
428,576
1.68
2017
$'000
357,678
44,543
402,221
1.58
3
Rural Funds Group
Directors’ Report
30 June 2018
Significant changes in state of affairs
In December 2017, the Group purchased three contiguous cattle properties, Natal Downs, Longton and Narellan
near Charters Towers in north Queensland. The three properties, collectively referred to as the Natal aggregation,
encompass an area of 390,600 hectares and are leased to DA & JF Camm Pty Limited, a member of the Camm
Agricultural Group, for ten years. As part of the transaction, the Group has provided the lessee a $5,000,000 cattle
financing facility to fund the purchase of trade cattle. The facility was not drawn during the year. In addition, a
$10,000,000 secured loan with a term of ten years was extended to the lessee as part of the lease agreement.
In December 2017, the Group negotiated an increase to its syndicated debt facility from $250,000,000 to
$275,000,000 with no change to the facility expiry, being December 2019.
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 2018 the Group held 38 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);
6 cattle properties (633,900 hectares);
1 cotton property (1,272 irrigable hectares).
During the year ended 30 June 2018, the properties held by the Group recorded a fair value of investment
properties increment of $7,398,000 (2017: $17,191,000) and of bearer plants revaluation increment of $7,980,000
(2017: $11,687,000 decrement).
Almond orchards
The three fully established almond orchard properties (including water entitlements) are located in Hillston, NSW
and are leased to tenants who make regular rental payments. These encompass a planted area of 2,414 hectares
(2016: 2,414 hectares):
Yilgah 1,006 planted hectares (2017: 1,006);
•
• Mooral 808 planted hectares (2017: 808);
•
Tocabil 600 planted hectares (2017: 600).
Select Harvests Limited (SHV) 1,221 planted hectares (2017: 1,221);
These properties are under lease to the following tenants:
•
• Olam Orchards Australia Pty Limited (Olam) 600 planted hectares (2017: 600);
•
•
•
•
RFM Almond Fund 2006 (AF06) 272 planted hectares (2017: 272);
RFM Almond Fund 2007 (AF07) planted 73 hectares (2017: 73);
RFM Almond Fund 2008 (AF08) 206 planted hectares (2017: 206);
Rural Funds Management Limited (RFM) 42 planted hectares (2017: 42).
The Kerarbury property is located in Darlington Point, NSW and is leased to Olam. The full 2,500 hectares of
almond orchard at Kerarbury is planted with a portion of the water delivery infrastructure to be completed.
For its almond orchards the Group owns water entitlements of 65,743ML (2017: 66,448ML) comprising
groundwater, high security river water, general security river water and supplementary river water. In addition, the
Group owns 21,430ML (2017: 21,430ML) of water delivery entitlements that provide access to water delivery
through CICL, with a low annual allocation expected to be provided.
4
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 41
Rural Funds Group
Directors’ Report
30 June 2018
Property leasing (continued)
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 (2017: 1,432ML). Leases are in place with RFM
Poultry, a scheme managed by RFM, for 100% (2017: 100%) of the poultry property and infrastructure, with
remaining lease terms between 6 and 18 years. The poultry growing operations are performed by RFM Poultry
which is contracted with Baiada Poultry Pty Limited and Turi Foods Pty Limited.
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 (2017: 936ML). All vineyards are leased to Treasury Wine
Estates and produce premium quality grapes. Six of the vineyards are leased until June 2026 and one is leased
until June 2022.
The Group underwent a rent review for the properties leased to Treasury Wine Estates which was effective from 1
July 2017.
Macadamia orchards
Established macadamia orchards located near Bundaberg, QLD are leased to the following tenants:
•
•
2007 Macgrove Project (M07) 234 hectares (2017: 234);
Rural Funds Management Limited (RFM) 25 hectares (2017: 25).
Cattle property
Cattle properties are located in QLD, comprising of cattle breeding, backgrounding and finishing properties. These
are Rewan, near Rolleston in central Queensland, Mutton Hole and Oakland Park in far north Queensland and the
Natal aggregation near Charters Towers in north Queensland. The properties comprise a combined 633,900
hectares and are leased to the following tenants:
•
•
Cattle JV Pty Limited, a wholly owned subsidiary of RFM, leasing Rewan, Mutton Hole and Oakland Park
(243,300 hectares);
DA & JF Camm Pty Limited, a member of the Camm Agricultural Group, leasing the Natal aggregation
(390,600 hectares).
The lease arrangement for the Natal aggregation includes a $10 million secured loan provided to the lessee and a
$5 million cattle financing facility to fund the purchase of trade cattle.
Cotton property
A 4,880 hectare cotton property (1,272 irrigable hectares) located near Emerald, QLD is leased to Cotton JV Pty
Limited, a joint venture between RFM and Queensland Cotton Corporation Pty Limited (a subsidiary of Olam
International Limited), until April 2022.
Other activities
Agricultural plant and equipment with a net book value of $5,480,000 (2017: $5,127,000) is owned by the Group
and leased to AF06, AF07, AF08, M07, Cotton JV and Cattle JV.
Breeder assets with a net book value of $14,179,000 (2017: $10,953,000) are leased to Cattle JV Pty Limited.
42
5
Rural Funds Group
Directors’ Report
30 June 2018
Banking facilities
At 30 June 2018 the core debt facility available to the Group was $275,000,000 (2017: $250,000,000), with a drawn
balance of $269,800,000 (2017: $164,500,000). The facility expires in December 2019. At 30 June 2018, RFF had
active interest swaps totaling 40.0% (2017: 53.5%) of the drawn balance to manage interest rate risk.
Distributions
Distribution paid 31 July 2017
Distribution paid 31 October 2017
Distribution paid 31 January 2018
Distribution paid 30 April 2018
Distribution declared 29 June 2018, paid 31 July 2018
Earnings per unit
Net profit after income tax for the year ($'000)
Weighted average number of units on issue during the year
Basic and diluted earnings per unit (total) (cents)
Indirect cost ratio
Cents
per unit
2.4100
2.5075
2.5075
2.5075
2.5075
Total
$
6,130,580
6,386,447
6,393,099
6,400,611
6,409,935
36,032
255,028,372
14.13
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 2018 is 1.72% (2017: 3.29%). The ICR for the prior year has
been impacted by costs associated with rights issues completed in July 2016 and June 2017.
Matters subsequent to the end of the year
On 12 July 2018, the Group announced that it has negotiated a transaction involving the acquisition of JBS Australia
Pty Limited’s (JBS) five Australian feedlots and associated cropping land for $52.7 million including stamp duty and
the provision of a $75.0 million limited guarantee to J&F Australia Pty Ltd that will enable JBS to replace an existing
arrangement for the supply of cattle for its grainfed business. The guarantee transaction was subject to RFF
unitholder approval as J&F Australia Pty Ltd would become a subsidiary of Rural Funds Management Limited on
settlement. Approval was granted at the unitholder meeting held on 10 August 2018.
On 12 July 2018, the Group announced that it was undertaking a fully underwritten equity raise for $149.5 million
to fund the JBS transaction, associated costs, as well as the acquisition a cattle property, Comanche. The equity
raise was completed for the full amount on 3 August 2018.
On 16 July 2018, the Group purchased Comanche, a 7,600 hectare cattle property located in central Queensland
for $15.7 million.
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.
6
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 43
Rural Funds Group
Directors’ Report
30 June 2018
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,
bearer plants and water entitlements. Management is continually looking for growth opportunities in agricultural
and related industries.
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
255,630,515 units in Rural Funds Trust were on issue at 30 June 2018 (2017: 254,380,898). During the year
1,249,617 units (2017: 89,023,608) were issued by the Trust and nil (2017: nil) 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.
Information on Directors of the Responsible Entity
Guy Paynter
Qualifications
Experience
Special responsibilities
Directorships currently held in other
listed entities and during the three
years prior to the current year
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.
Member of Audit Committee and Remuneration Committee
RFM Poultry
44
7
Rural Funds Group
Directors’ Report
30 June 2018
Information on Directors of the Responsible Entity (continued)
David Bryant
Qualifications
Experience
Special responsibilities
Directorships currently held in other
listed entities and during the three
years prior to the current year
Michael Carroll
Qualifications
Experience
Special responsibilities
Directorships currently held in other
listed entities and during the three
years prior to the current year
Julian Widdup
Qualifications
Experience
Special responsibilities
Directorships currently held in other
listed entities and during the three
years prior to the current year
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 and since that time has
led the team that is responsible for the acquisition of large scale
agricultural property assets and associated water entitlements. As at 30
June 2018, RFM manages over $740 million of agricultural assets. On a
day-to-day level, David is responsible for leading the RFM Executive
team, maintaining key commercial relationships and sourcing new
business opportunities.
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 and Sunny
Queen Pty Limited. Michael has senior executive experience in a range
of companies, including establishing and leading the National Australia
Bank (NAB) Agribusiness division.
Chairman of Audit Committee and Remuneration Committee
Michael is on the Board of Tassal Group Limited, RFM Poultry, and Select
Harvests Limited.
Non-Executive Director
Bachelor of Economics from the Australian National University. Julian is
a Fellow of the Institute of Actuaries of Australia and a Fellow of the
Australian Institute of Company Directors.
Julian brings extensive experience to the RFM board having previously
served as a director of Palisade Investment Partners, Darwin International
Airport, Alice Springs Airport, NZ
timberland company Taumata
Plantations Limited, Regional Livestock Exchange Investment Company,
Merredin Energy power generation company, Victorian AgriBioscience
Research Facility, Casey Hospital in Melbourne and Mater Hospital in
Newcastle.
Member of Audit Committee and Remuneration Committee
RFM Poultry
8
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 45
46
Rural Funds GroupDirectors’ Report30 June 20189 Interests of Directors of the Responsible EntityGuy PaynterDavid Bryant*Michael CarrollJulian WiddupUnitsUnitsUnitsUnitsBalance at 30 June 2016533,256 7,643,343 --Additions281,440 4,034,839 19,389 -Balance at 30 June 2017814,696 11,678,182 19,389 -Additions--933-Balance at 30 June 2018814,696 11,678,182 20,322 -*Includes interests held byRural Funds Management Limited as the Responsibly Entity.Company Secretaries of the Responsible EntityStuart Waight and Andrea Lemmon are RFM’s joint company secretaries. Stuart joined RFM in 2003, is a Chartered Accountant and is an Executive of RFM. Andreahas been with RFM since 1997 and is RFM’s Executive Manager Funds Management.Meetings of Directors of the Responsible EntityDuring the financial year 15 meetings of Directors (including committees of Directors) were held. Attendances by each Director during the year were as follows:Directors meetingsAudit Committee meetingsRemuneration Committee meetingsNo. eligible to attendNo. attendedNo. eligible to attendNo. attendedNo. eligible to attend No. attendedGuy Paynter15152211David Bryant1514----Michael Carroll15152211Julian Widdup15152211Non-audit servicesFees of $9,425(2017: $6,370) were paid or payable to PricewaterhouseCoopers for compliance audit services provided for the year ended 30 June 2018. Auditor’s independence declarationThe auditor’s independence declaration in accordance with section 307C of the Corporations Act 2001 for the yearended 30 June 2018 has been received and is included on page 10 ofthe financial report.The Directors’ report is signed in accordance with a resolution of the Board ofDirectors of Rural Funds Management Limited. David BryantDirector15August2018 Auditor’s Independence Declaration
As lead auditor for the audit of Rural Funds Group for the year ended 30 June 2018, I declare that to
the best of my knowledge and belief, there have been:
(a)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
(b)
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.
CMC Heraghty
Partner
PricewaterhouseCoopers
Sydney
15 August 2018
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
10
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 47
Rural Funds Group
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2018
Note
B
B
C3
C2
D1
C3
D1
Revenue
Other income
Management fees
Property expenses
Finance costs
Other expenses
Share of net profit - equity accounted investments
Gain on sale of assets
Depreciation and impairments
Change in fair value of plant and equipment - bearer plants
Change in fair value of investment property
Change in fair value of interest rate swaps
Net profit before income tax
Income tax expense
Net profit after income tax
Other comprehensive income:
Items that will not be reclassified to profit or loss
Revaluation increment/(decrement) - bearer plants
Income tax relating to these items
Other comprehensive income/(loss) for the year, net of tax
Total comprehensive income attributable to unitholders
Total net profit after income tax for the year attributable to
unitholders arising from:
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)
Per unit of RF Active (cents)
B3
B3
B3
2018
$'000
51,087
1,183
(6,263)
(1,383)
(9,053)
(2,971)
-
17
(947)
-
7,398
(1,956)
37,112
(1,080)
36,032
7,980
-
7,980
44,012
35,309
723
36,032
43,289
723
44,012
14.13
13.85
0.28
The accompanying notes form part of these financial statements.
48
2017
$'000
41,573
72
(4,393)
(1,473)
(7,891)
(2,494)
1,304
33
(1,568)
(2,498)
17,191
5,311
45,167
(1,841)
43,326
(9,189)
101
(9,088)
34,238
43,219
107
43,326
34,131
107
34,238
21.17
21.12
0.05
11
Rural Funds Group
Consolidated Statement of Financial Position
As at 30 June 2018
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Other current assets
Total current assets
Non-current assets
Financial assets
Plant and equipment
Plant and equipment - bearer plants
Investment property
Intangible assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Interest bearing liabilities
Income tax payable
Distributions payable
Total current liabilities
Non-current liabilities
Interest bearing liabilities
Other non-current liabilities
Derivative financial liabilities
Deferred tax liabilities
Total non-current liabilities
Total liabilities (excluding net assets attributable to
unitholders)
Net assets attributable to unitholders
Total liabilities
Note
F1
F2
C4, E2
C7
C3
C2
C6
F3
E1
D1
E1
F4
E3
D2
2018
$'000
1,210
5,381
2,918
9,509
37,136
5,480
157,239
357,518
106,926
664,299
673,808
6,128
3,361
277
6,633
16,399
2017
$'000
3,838
4,608
1,800
10,246
23,916
5,127
121,193
273,783
108,738
532,757
543,003
5,138
3,204
-
6,368
14,710
269,800
164,500
1,634
5,834
1,406
1,634
3,878
603
278,674
170,615
295,073
185,325
378,735
673,808
357,678
543,003
The accompanying notes form part of these financial statements.
12
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 49
Rural Funds Group
Consolidated Statement of Financial Position
As at 30 June 2018
NET ASSETS ATTRIBUTABLE TO UNITHOLDERS
Unitholders of Rural Funds Trust
Issued units
Asset revaluation reserve
Retained earnings
Parent entity interest
Unitholders of RF Active
Issued units
Retained earnings
Non-controlling interest
Note
F5
2018
$'000
2017
$'000
230,574
35,555
108,494
374,623
3,091
1,021
4,112
252,880
27,575
73,860
354,315
3,066
297
3,363
Total net assets attributable to unitholders
378,735
357,678
Water entitlements are held at cost in the Consolidated Statement of Financial Position in accordance with
accounting standards. Refer to note B2 for disclosure of the Directors’ valuation of water entitlements, which are
supported by independent property valuations.
The accompanying notes form part of these financial statements.
13
50
Rural Funds Group
Consolidated Statement of Changes in Net Assets Attributable to Unitholders
For the year ended 30 June 2018
2018
Note
Issued
units
Accumulated
profit
Asset
revaluation
reserve
Total
Non-
controlling
interest
Total
Balance at 1 July 2017
252,880
73,860
27,575 354,315
3,363
357,678
$'000
$'000
$'000
$'000
$'000
$'000
-
-
-
-
-
-
-
7,980
7,980
7,980
7,980
-
-
7,980
7,980
36,095
(786)
-
-
36,095
(786)
1,017
37,112
(294)
(1,080)
35,309
7,980
43,289
723
44,012
Other comprehensive income
Total other comprehensive
income
Profit before income tax
Income tax expense
D1
Total comprehensive
income for the year
Issued units
Units issued during the year
Issue costs
Total issued units
E7
E7
2,610
(3)
2,607
-
-
-
-
-
-
-
2,610
(3)
2,607
26
-
26
2,636
(3)
2,633
(25,588)
-
(25,588)
Distributions to unitholders
B4
(24,913)
(675)
Balance at 30 June 2018
230,574
108,494
35,555 374,623
4,112
378,735
2017
Balance at 1 July 2016
Other comprehensive income
Total other comprehensive
income
Profit before income tax
Income tax expense
Total comprehensive
income for the year
Issued units
Units issued during the year
Issue costs
Total issued units
Distributions to unitholders
Balance at 30 June 2017
D1
E7
E7
B4
Issued
units
Accumulated
profit
Asset
revaluation
reserve
Total
Non-
controlling
interest
Total
$'000
134,110
-
$'000
35,218
-
$'000
$'000
36,663 205,991
(9,088)
(9,088)
$'000
1,873
-
$'000
207,864
(9,088)
-
-
-
-
-
(9,088)
(9,088)
-
(9,088)
45,050
(1,831)
-
-
45,050
(1,831)
43,219
(9,088)
34,131
117
(10)
107
45,167
(1,841)
34,238
140,577
(5,264)
135,313
(16,543)
252,880
-
-
-
(4,577)
73,860
-
-
-
-
140,577
(5,264)
135,313
(21,120)
27,575 354,315
1,420
(37)
1,383
-
3,363
141,997
(5,301)
136,696
(21,120)
357,678
The accompanying notes form part of these financial statements.
14
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 51
Rural Funds Group
Consolidated Statement of Cash Flows
For the year ended 30 June 2018
Note
Cash flows from operating activities
Receipts from customers
Payments to suppliers
Interest received
Finance income
Finance costs
Net cash inflow from operating activities
G4
Cash flows from investing activities
Payments for investment property
Payments for plant and equipment - bearer plants
Payments for intangible assets
Payments for financial assets
Payments for plant and equipment
Proceeds from sale of assets
Deposits paid
Proceeds from sale of/Distributions from equity accounted
investments
Distributions received
2018
$'000
55,006
(16,606)
71
1,554
(9,053)
30,972
(74,470)
(28,066)
1,893
(13,275)
(1,324)
9
(1,167)
-
30
2017
$'000
47,810
(13,672)
95
790
(8,109)
26,914
(87,641)
(19,673)
(49,758)
(13,882)
(1,788)
60
-
10,345
11
Net cash outflow from investing activities
(116,370)
(162,326)
Cash flows from financing activities
Proceeds from issue of units
Proceeds from borrowings
Distributions paid
Net cash inflow from financing activities
Net (decrease)/increase in cash and cash equivalents held
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
2,636
105,457
(25,323)
82,770
(2,628)
3,838
1,210
136,696
18,174
(18,654)
136,216
804
3,034
3,838
52
15
Rural Funds Group
Notes to the Financial Statements
30 June 2018
A. REPORT OVERVIEW
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 incorporated and domiciled in Australia. The Directors of the Responsible Entity authorised the
Financial Report for issue on 15 August 2018 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 section G3.
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 ASIC Corporations (Stapled Group Reports) Instrument 2015/838, 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.
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 valuation of property related assets as critical accounting policies for which
significant judgements, estimates or assumptions are made.
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.
16
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 53
Rural Funds Group
Notes to the Financial Statements
30 June 2018
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.
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.
Comparative amounts
Comparatives amounts have not been restated unless otherwise noted.
Working capital
The deficiency in working capital at 30 June 2018 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.
54
17
Rural Funds Group
Notes to the Financial Statements
30 June 2018
B. RESULTS
The Group operates in one operating segment (2017: one segment), being the holding and leasing of agricultural
property and equipment.
Revenue
Rental income
Finance income
Interest received
Total
2018
$'000
49,462
1,554
71
51,087
2017
$'000
40,689
790
94
41,573
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. All revenue is stated net of the amount of goods and services tax (GST).
Rental income arises from the leasing of property assets and operational plant and equipment and is accounted
for on an accruals basis. The respective leased assets are included in the Consolidated Statement of Financial
Position based on that nature.
Finance income arises from the provision of finance leases in the form of leased cattle breeders and working capital
loans and recognised on an accrual basis using the effective interest rate method.
Other Income
Temporary water sales
Other income
Total
Expenses
2018
$'000
1,093
90
1,183
2017
$'000
-
72
72
Expenses such as Responsible Entity fees, property expenses and overheads are recognised on an accruals basis.
Interest expenses are recognised on an accrual basis using the effective interest method.
18
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 55
Rural Funds Group
Notes to the Financial Statements
30 June 2018
B1 Adjusted funds from operations (AFFO)
The following presents the adjusted funds from operations (AFFO) for the single operating segment of RFF and
provides the reconciliation of the result from RFF’s operating segment to AFFO as well as a reconciliation from
AFFO to Net profit after income tax.
Revenue
Other income
Share of net profit of associate
Property Expenses
Fund Overheads
Fund & asset management fees
Finance costs
Income tax payable on public trading trust (RF Active)
Adjusted Funds From Operations (AFFO)
Share of net profit of associate - change in fair value of investment property
Gain on sale of assets
Depreciation and impairments
Change in fair value of plant and equipment - bearer plants
Change in fair value of investment property
Change in fair value of interest rate swaps
Income tax expense
Net profit after income tax
AFFO cents per unit
2018
$'000
51,087
1,183
-
(1,383)
(2,971)
(6,263)
(9,053)
(277)
32,323
-
17
(947)
-
7,398
(1,956)
(803)
36,032
2017
$'000
41,573
72
205
(1,473)
(2,494)
(4,393)
(7,891)
-
25,599
1,099
33
(1,568)
(2,498)
17,191
5,311
(1,841)
43,326
12.7
12.5
B2 Net asset value adjusted for water rights
RFF owns permanent water rights and entitlements which 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.
The book value of the water rights (including investments in BIL and CICL) at 30 June 2018 is $119,657,000 (2017:
$121,469,000).
Independent valuations as at 30 June 2018 were received on the established almond orchard properties, the
Tocabil almond orchard property, macadamia orchard 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. These valuations value the water rights at 30 June 2018 $169,498,000
(2017: $166,012,000) representing a movement in the value of the water rights of $49,841,000 (2017: $44,543,000)
above cost.
56
19
Rural Funds Group
Notes to the Financial Statements
30 June 2018
B2 Net asset value adjusted for water rights (continued)
The following is a comparison of the book value at 30 June 2018 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
$'000
9,509
664,299
673,808
16,398
278,675
295,073
378,735
1.48
-
49,841
49,841
-
-
-
49,841
0.20
9,509
714,140
723,649
16,398
278,675
295,073
428,576
1.68
Assets
Total current assets
Total non-current assets
Total assets
Liabilities
Total current liabilities
Total non-current liabilities
Total liabilities (excluding net assets attributable
to unitholders)
Net assets attributable to unitholders
Net asset value per unit ($)
B3 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.
2018
2017
Per stapled unit
Net profit after income tax for the year ($'000)
Weighted average number of units on issue during the year (thousands)
Basic and diluted earnings per unit (total) (cents)
Per unit of Rural Funds Trust
Net profit after income tax for the year ($'000)
Weighted average number of units on issue during the year (thousands)
Basic and diluted earnings per unit (total) (cents)
Per unit of RF Active
Net profit after income tax for the year ($'000)
Weighted average number of units on issue during the year (thousands)
Basic and diluted earnings per unit (total) (cents)
36,032
255,028
14.13
35,308
255,028
13.85
724
255,028
0.28
43,326
204,617
21.17
43,219
204,617
21.12
107
204,617
0.05
20
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 57
Rural Funds Group
Notes to the Financial Statements
30 June 2018
B4 Distributions
The Group paid and declared the following distributions in the year:
Distribution paid 31 July 2017
Distribution paid 31 October 2017
Distribution paid 31 January 2018
Distribution paid 30 April 2018
Distribution declared 29 June 2018, paid 31 July 2018
Cents
per unit
2.4100
2.5075
2.5075
2.5075
2.5075
Total
$
6,130,580
6,386,447
6,393,099
6,400,611
6,409,935
58
21
Rural Funds Group
Notes to the Financial Statements
30 June 2018
C. PROPERTY ASSETS
This section includes detailed information regarding RFF’s properties, which are made up of multiple line items on
the Consolidated Statement of Financial Position including Investment property, Plant and equipment, Plant and
equipment – bearer plants, Intangible assets and Financial assets. These asset items generate rental and other
property income.
C1 RFF property assets
Investment property
Plant and equipment - bearer plants
Financial assets - property related
Intangible assets
Plant and equipment
Total
Adjustment to record water at fair value
Adjusted total value of RFF property assets
C2
C3
C4
C6
C7
B2
Rental income and fair value movements from RFF property assets
Rental income from property assets
Change in fair value of investment property
Revaluation increment/(decrement) - bearer plants
2018
$'000
357,518
157,239
36,910
106,926
5,480
664,073
49,841
713,914
2018
$'000
51,016
7,398
7,980
2017
$'000
273,783
121,193
23,684
108,738
5,127
532,525
44,543
577,068
2017
$'000
41,479
17,191
(11,687)
Direct operating expenses incurred during the year that did not generate rental income amounted to $163,000
(2017: $97,000).
Leasing arrangements
Minimum lease payments receivable under non-cancellable operating leases of investment properties, bearer
plants, 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
Key changes to the property portfolio during the year:
2018
$'000
51,858
243,679
509,219
804,756
2017
$'000
44,683
204,238
547,107
796,028
In December 2017, the Group purchased three contiguous cattle properties, Natal Downs, Longton and Narellan
near Charters Towers in north Queensland. The three properties, collectively referred to as the Natal aggregation,
encompass an area of 390,600 hectares and are leased to DA & JF Camm Pty Limited, a member of the Camm
Agricultural Group, for ten years. As part of the transaction, the Group has provided the lessee a $5,000,000 cattle
financing facility to fund the purchase of trade cattle. The facility was not drawn during the year. In addition, a
$10,000,000 secured loan with a term of ten years was extended to the lessee as part of the lease agreement.
22
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 59
Rural Funds Group
Notes to the Financial Statements
30 June 2018
C1 RFF property assets (continued)
Valuations
Directors obtain independent valuations on RFF properties ensuring that each property will have been
independently valued every two years or more often where appropriate.
Directors have considered independent valuations and market evidence where appropriate to determine the
appropriate fair value to adopt. Independent property valuations were obtained for poultry property and
infrastructure, macadamia orchard properties, the developed almond orchard properties and the Tocabil almond
orchard property as at 30 June 2018. 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.
Independent property valuations were also obtained for unallocated water entitlements, including the high security
Murrumbidgee River water entitlements, the cotton property, and the cattle properties located near Rolleston in
central Queensland and Charters Towers in north Queensland for the half year ended 31 December 2017.
The Directors have deemed that independent valuations were not required on the remaining properties as there
has been no material change to the industry and geographical conditions of the properties in which the independent
valuers previously assessed these assets. Directors’ valuations have been adopted for these properties in the
financial statements.
The Group’s properties, including those under development, 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 bearer plants.
Significant accounting judgments, estimates and assumptions in relation to valuation of property assets
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.
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. Further details are found in section C5.
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.
60
23
Rural Funds Group
Notes to the Financial Statements
30 June 2018
C2 Investment property
2018
Almond
property
Poultry
property
Vineyard
property
Macadamia
property
Cotton
property
Cattle
property
Total
Opening net book
amount
Acquisitions
Additions
Amortisation of lease
incentives
Fair value adjustment
Closing net book
amount
2017
Opening net book
amount
Additions
Acquisitions
Fair value adjustment
Closing net book
amount
$'000
$'000
$'000
$'000
$'000
$'000
$'000
95,605
83,011
25,435
2,015
24,157
43,560
273,783
-
17,257
-
-
-
-
5,352
(5,855)
-
-
-
-
-
320
-
2,350
-
2,440
53,156
3,297
53,156
23,314
-
534
(133)
(133)
5,017
7,398
118,214
77,156
25,435
4,685
27,131
104,897
357,518
Almond
property
Poultry
property
Vineyard
property
Macadamia
property
Cotton
property
Cattle
property
Total
58,329
86,011
23,156
1,455
-
-
168,951
19,292
-
-
-
-
-
17,984
(3,000)
2,279
560
-
-
2,079
22,935
(857)
1,258
41,517
785
23,189
64,452
17,191
95,605
83,011
25,435
2,015
24,157
43,560
273,783
Investment properties comprise land, buildings and integral infrastructure including shedding, irrigation and
trellising.
Investment properties are held for long-term rental yields and are not occupied by the Group. RFF measure and
recognise investment property at fair value where the valuation technique is based on unobservable inputs (level
3 – see section C5). Changes in fair value are presented through profit or loss in the Consolidated Statement of
Comprehensive Income.
Capital expenditure that enhances the future economic benefits of the assets are capitalised to investment property.
Incentives provided are also capitalised to the investment property and are amortised on a straight-line basis over
the term of the lease as a reduction of rental revenue.
24
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 61
Rural Funds Group
Notes to the Financial Statements
30 June 2018
C3 Plant and equipment – bearer plants
2018
Opening net book amount
Additions
Fair value adjustment - other comprehensive
income
Closing net book amount
2017
Opening net book amount
Additions
Fair value adjustment - other comprehensive
income
Fair value adjustment - profit and loss
Closing net book amount
Bearer
Plants -
Almonds
$'000
Bearer
Plants -
Macadamias
$'000
95,285
26,957
7,088
6,119
-
892
Bearer
Plants -
Vineyards
$'000
19,789
1,109
Total
$'000
121,193
28,066
-
7,980
129,330
7,011
20,898
157,239
Bearer
Plants -
Almonds
$'000
89,614
Bearer
Plants -
Macadamias
$'000
6,143
Bearer
Plants -
Vineyards
$'000
17,449
19,250
(8,850)
(4,729)
95,285
-
-
(24)
6,119
424
(339)
2,255
Total
$'000
113,206
19,674
(9,189)
(2,498)
19,789
121,193
Bearer plants are solely used to grow produce over their productive lives and are accounted for under AASB 116
Property, Plant and Equipment.
The bearer plants are measured at fair value (level 3 – see section C5). Any change in the carrying amount above
cost is recognised in asset revaluation reserve, and any decrease in the carrying amount below cost is recognised
in the Consolidated Statement of Comprehensive Income.
C4 Financial assets – property related
Investment - BIL
Investment - CICL
Finance Lease - Breeders
Term Loan - DA & JF Camm Pty Limited
Total
2018
$'000
509
12,222
14,179
10,000
36,910
2017
$'000
509
12,222
10,953
-
23,684
Coleambally Irrigation Co-operative Limited (CICL) is one of Australia's major irrigation companies 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.
Finance lease is in the form of breeders which have been leased to Cattle JV Pty Limited, a subsidiary of Rural
Funds Management Limited, for a term of ten years ending in 2026.
A $10,000,000 secured loan with a term of ten years was extended to DA & JF Camm Pty Limited as part of the
lease of the Natal aggregation located near Charters Towers, QLD.
62
25
Rural Funds Group
Notes to the Financial Statements
30 June 2018
C4 Financial assets – property related (continued)
Significant accounting judgements in the valuation of Coleambally Irrigation Co-operative and Barossa
Infrastructure Limited shares
The shares in Coleambally Irrigation Co-operative Limited (CICL) and Barossa Infrastructure Limited (BIL) 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. As such, investments in BIL and CICL are treated the same as water
rights, that is, recorded at historical cost less accumulated impairment losses.
Finance leases
Finance leases are measured at amortised cost. These represent leases of fixed assets or biological assets where
all the risks and benefits incidental to the ownership of the asset, but not the legal ownership, are substantially
transferred from the lessor.
26
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 63
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2
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 65
s
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i
Rural Funds Group
Notes to the Financial Statements
30 June 2018
C6 Intangible assets (continued)
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.
C7 Plant and equipment
2018
Opening net book amount
Additions
Disposals
Depreciation and impairment
Closing net book amount
Cost
Accumulated depreciation and amortisation
Net book amount
2017
Opening net book amount
Additions
Disposals
Depreciation and impairment
Transfers
Closing net book amount
Cost
Accumulated depreciation and amortisaton
Net book amount
Capital works
in progress
Plant and
equipment
$'000
-
-
-
-
-
-
-
$'000
5,127
1,324
(19)
(952)
5,480
8,258
(2,778)
5,480
Capital works
in progress
Plant and
equipment
$'000
379
-
-
-
(379)
-
$'000
3,799
1,788
(27)
(812)
379
5,127
6,971
(1,844)
5,127
Total
$'000
5,127
1,324
(19)
(952)
5,480
8,258
(2,778)
5,480
Total
$'000
4,178
1,788
(27)
(812)
-
5,127
6,971
(1,844)
5,127
Classes of plant and equipment other than bearer plants 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 removing
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
29
66
Rural Funds Group
Notes to the Financial Statements
30 June 2018
C7 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.
C8 Capital commitments
Significant capital expenditure across all properties, largely relating to the Kerarbury development, contracted for
but not recognised as liabilities is as follows:
Bearer plants
Investment property
Intangible assets
Total
Other commitments
2018
$'000
13,718
15,250
-
28,968
2017
$'000
26,265
42,024
16,032
84,321
Other significant commitments contracted for but not recognised as a liability relate to the provision of the $5 million
cattle financing facility to DA & JF Camm Pty Limited. The facility was not drawn during the year ended 30 June
2018.
30
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 67
Rural Funds Group
Notes to the Financial Statements
30 June 2018
D. TAX
Since 1 July 2014 both Rural Funds Trust and RFM Chicken Income Fund (a subsidiary of Rural Funds Trust)
became flow through trusts for tax purposes. As a result, it is no longer probable that a tax liability will be incurred
in these entities in relation to future sale of assets for a gain or through trading. Australian Wine Fund (a subsidiary
of Rural Funds Trust) is a separate tax consolidated group taxed in its own right. RF Active (a subsidiary of Rural
Funds Trust) is a public trading trust and is taxed as a company.
D1 Income Tax expense
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 in 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.
The major components of income tax expense comprise:
Current tax
Deferred tax
Adjustments in respect of deferred income tax of previous years
Income tax expense reported in the Statement of Comprehensive Income
Income tax expense is attributable to:
Profit from continuing operations
Total
Deferred income tax expense included in income tax expense comprises:
Decrease in deferred tax assets
Increase in deferred tax liabilities
Total
Amounts charged or credited directly to equity
Capitalised issue costs
Change in fair value taken through asset revaluation reserve
Total
2018
$'000
277
780
23
1,080
1,080
1,080
-
803
803
2018
$'000
-
-
-
2017
$'000
-
2,021
(180)
1,841
1,841
1,841
1,120
721
1,841
2017
$'000
(16)
(101)
(117)
31
68
Rural Funds Group
Notes to the Financial Statements
30 June 2018
D1 Income Tax expense (continued)
Numerical reconciliation of income tax expense to prima facie tax payable
Net profit before income tax
At the statutory income tax rate of 30% (2017: 30%)
Derecognition of tax losses that are no longer available for utilisation
Tax effect of amounts that are not taxable in determining taxable income
Adjustments in respect of tax of previous years
Imputation credits received
Total
Franking credits
2018
$'000
37,112
11,134
(17)
(10,042)
23
(18)
1,080
2017
$'000
45,167
13,550
-
(11,504)
(180)
(25)
1,841
At 30 June 2018 there are $183,000 of franking credits available to apply to future income distributions (2017:
$156,000).
D2 Deferred tax
Deferred tax liabilities
Bearer plants
Plant & equipment
Fair value investment property
Gross deferred tax liabilities
Set off of deferred tax assets
Net deferred tax liabilities
Deferred tax assets
Investments
Legal costs
Other
Unused income tax losses
Gross deferred tax assets
Set off of deferred tax liabilities
Net deferred tax assets
2018
$'000
4,127
1,960
1,519
7,606
(6,200)
1,406
227
-
34
5,940
6,200
(6,200)
-
2017
$'000
4,103
1,936
1,519
7,558
(6,955)
603
227
36
53
6,639
6,955
(6,955)
-
Recognised tax assets and liabilities
Current income tax
Deferred income tax
Opening balance
Charged to income
Credited to equity
Closing balance
2018
$'000
-
(277)
-
(277)
2017
$'000
-
-
-
-
Tax expense in the Consolidated Statement of Comprehensive Income
Amounts recognised in the Consolidated Statement of Financial Position:
Deferred tax liability
2018
$'000
(603)
(803)
-
(1,406)
1,080
2017
$'000
1,120
(1,841)
118
(603)
1,841
(1,406)
(603)
32
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 69
Rural Funds Group
Notes to the Financial Statements
30 June 2018
E. Capital structure and Financial risk management
RFM, the Responsible Entity of RFF, is responsible for managing the policies designed to optimise RFF’s capital
structure. This is primarily monitored through an internal gearing target ratio of less than 35% calculated as interest
bearing liabilities on adjusted total assets. The optimal capital structure is reviewed periodically, although this may
be impacted by market conditions which may result in an actual position which may differ from the desired position.
E1 Interest bearing liabilities
Current
Equipment loans (ANZ)
Total
Non-current
Borrowings (ANZ)
Borrowings (Rabobank)
Total
2018
$'000
3,361
3,361
172,672
97,128
269,800
2017
$'000
3,204
3,204
105,280
59,220
164,500
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.
Borrowings
At 30 June 2018 the core debt facility available to the Group, and due to expire in December 2019, was
$275,000,000 (2017: $250,000,000). As at 30 June 2018 RFF had active interest rate swaps totaling 40.0% (2017:
53.5%) of the drawn down balance to manage interest rate risk. Hedging requirements under the terms of the
borrowing facility may vary with bank consent.
Loan covenants
Under the terms of the borrowing facility, the Group is required to comply with the following financial covenants for
the period ending 30 June 2018:
• maintain of a maximum loan to value ratio of 50%;
• maintain of net tangible assets (including water entitlements) in excess of $200,000,000;
•
•
a hedging requirement of 50% of debt drawn under the borrowing facility; and
an interest cover ratio for the Group not less than 2.95:1.00 (2017: 2.75:1.00) with distributions
permitted if the interest cover ratio is not less than 3.15:1.00 (2017: 2.95:1.00).
Rural Funds Group has complied with the financial covenants of its borrowing facilities during the year.
Loan amounts are provided at the Bankers’ floating rate, plus a margin. For bank reporting purposes, these assets
are valued at market value. Refer to section B2 for Directors’ valuation of water rights and entitlements.
Borrowings with Australian and New Zealand Banking Group (ANZ) and Rabobank Australia Group (Rabobank)
are secured by:
•
•
a fixed and floating charge over the assets held by Australian Executor Trustee Limited (AETL) as
custodian for Rural Funds Trust, RFM Chicken Income Fund, RFM Australian Wine Fund (a subsidiary of
Rural Funds Trust) and RF Active; and
registered mortgages over all property owned by the Rural Funds Trust and its subsidiaries provided by
AETL as custodian for Rural Funds Trust and its subsidiaries.
70
33
Rural Funds Group
Notes to the Financial Statements
30 June 2018
E1 Interest bearing liabilities (continued)
Loan covenants (continued)
The following assets are pledged as security over the loans:
2018
Mortgage: Leased
Properties
Other assets
Equipment loans
Total
2017
Mortgage: Leased
Properties
Other assets
Equipment loans
Total
Investment
property
Water
licences
Plant and
equipment
- Bearer
Plants
Financial
assets
Plant and
equipment
TOTAL
$'000
$'000
$'000
355,652
72,669
157,239
1,866
-
357,518
34,257
-
106,926
-
-
157,239
$'000
12,833
24,303
-
37,136
$'000
$'000
-
598,393
-
5,480
5,480
60,426
5,480
664,299
Investment
property
Water
licences
Plant and
equipment
- Bearer
Plants
Financial
assets
Plant and
equipment
TOTAL
$'000
$'000
$'000
273,783
74,362
121,193
-
-
273,783
34,376
-
108,738
-
-
121,193
$'000
12,833
11,083
-
23,916
$'000
$'000
-
482,171
-
5,127
5,127
45,459
5,127
532,757
E2 Financial assets – other (non-property related)
Investment - RFM Poultry
Investment - Macadamia Processing Co (MPC)
Total
The Group’s investment in RFM Poultry is held at fair value (level 1 - see section E4).
The Group’s investment in Macadamia Processing Co. Limited is held at cost.
E3 Derivative financial instruments measured at fair value
Non-current
Interest rate swaps
Total other liabilities
2018
$'000
124
102
226
2018
$'000
5,834
5,834
The Group’s derivative financial instruments are held at fair value (level 2 - see section E4).
2017
$'000
130
102
232
2017
$'000
3,878
3,878
34
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 71
Rural Funds Group
Notes to the Financial Statements
30 June 2018
E4 Fair value measurement of assets and liabilities
This note explains the judgements and estimates made in determining fair values of Investment property, Plant
and equipment – bearer plants and financial assets and liabilities 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 each item into the three levels prescribed under Australian Accounting Standards as
mentioned above.
Level 1 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).
Level 2 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.
Level 3 One or more significant inputs to the determination of fair value is based on unobservable inputs for the
asset or liability.
RFF’s listed equity investments are level 1.
RFF’s financial liabilities, being interest rate swap derivatives are level 2.
At 30 June 2018 all non-financial assets are level 3.
RFF’s unlisted equity investments, BIL and CICL are level 3.
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 (2017: nil).
Valuation techniques used to determine fair values
Specific valuation techniques used to value financial instruments via level 1 and level 2 inputs include:
•
•
the use of quoted market prices or dealer quotes for similar instruments;
the fair value of interest rate swaps is calculated as the present value of estimated future cash flows
based on observable yield curves
Specific valuation techniques used to value financial assets, investment property and bearer plants via level 3 are
discussed in section C5.
Description
Fair value
Investment in Macadamia Processing Co
Closing balance
E5 Financial instruments
$'000
102
102
Unobservable
inputs
Range of
inputs
Relationship of
unobservable
inputs to fair
value
Price of macadamias
+/- 10%
+/- $10,000
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 amortised cost; and
financial assets at fair value through profit or loss.
72
35
Rural Funds Group
Notes to the Financial Statements
30 June 2018
E5 Financial instruments (continued)
a. Financial assets (continued)
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.
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.
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 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. 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.
e.
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.
36
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 73
Rural Funds Group
Notes to the Financial Statements
30 June 2018
E5 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 item
titled "finance costs".
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.
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 Financial Instruments: Recognition and Measurement are
accounted for at fair value through profit or loss.
E6 Financial risk management
The Group is exposed to a variety of financial risks through its use of financial instruments. 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:
• Market risk - interest rate risk and price risk
•
•
Credit risk
Liquidity risk
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
a. 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 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.
b.
Interest rate risk and 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.
74
37
Rural Funds Group
Notes to the Financial Statements
30 June 2018
E6 Financial risk management (continued)
b.
Interest rate risk and swaps held for hedging (continued)
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 approximate 40.0% (2017: 53.5%) of the Group's drawn down
debt at 30 June 2018.
At balance date, the details of the interest rate swap contracts are:
Maturity of notional amounts
Settlement - between 0 to 3 years
Settlement - 3 to 5 years
Settlement - greater than 5 years
Effective average interest rate
payable
Balance
2018
%
3.40
2.70
3.05
2017
%
3.40
2.70
3.19
2018
$'000
35,000
15,000
58,000
108,000
2017
$'000
35,000
15,000
38,000
88,000
The following interest rate swap contracts have been entered into at 30 June 2018 and have forward start dates.
Maturity of notional amounts
Settlement - greater than 5 years
Total
Effective average interest rate
payable
Balance
2018
%
3.11
2017
%
3.04
2018
$'000
110,000
110,000
2017
$'000
100,000
100,000
The net loss recognised on the swap derivative instruments for the year ended 30 June 2018 was $1,956,000
(2017: $5,311,000 gain).
At 30 June 2018 the Group had the following mix of financial assets and liabilities exposed to variable interest
rates:
Cash
Interest bearing liabilities
Total
2018
$'000
1,210
(269,800)
(268,590)
2017
$'000
3,838
(164,500)
(160,662)
At 30 June 2018, 1.23% (2017: 1.91%) of the Group’s debt is fixed, excluding the impact of interest rate swap
contracts.
38
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 75
Rural Funds Group
Notes to the Financial Statements
30 June 2018
E6 Financial risk management (continued)
c.
Interest rate risk (sensitivity analysis)
At 30 June 2018, 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%
d. Credit risk
2018
$'000
11,327
(12,585)
11,327
(12,585)
2017
$'000
10,395
(11,525)
10,395
(11,525)
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.
76
39
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i
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 77
Rural Funds Group
Notes to the Financial Statements
30 June 2018
E7 Issued units
Units on issue at the beginning of the period
Units issued during the year
Distributions to unitholders
Units on issue
2018
2017
No.
254,381
1,250
-
255,631
$'000
255,946
2,633
(24,913)
233,666
No.
165,357
89,024
-
254,381
$'000
135,793
136,696
(16,543)
255,946
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. Voting is determined based on the closing market value of each
unit.
The Group does not have authorised capital or par value in respect of its 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.
78
41
Rural Funds Group
Notes to the Financial Statements
30 June 2018
F. OTHER ASSETS AND LIABILTIIES
F1 Trade and other receivables
Current
Trade receivables
Sundry receivables
Receivables from related parties
Total
2018
$'000
2,964
1,030
1,387
5,381
2017
$'000
1,756
1,175
1,677
4,608
Trade receivables are non-interest bearing and are generally on 30 day terms.
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.
F2 Other current assets
Prepayments
Deposits
Total
F3 Trade and other payables
Trade payables
Accruals
Sundry creditors
Total
F4 Other non-current liabilities
Lessee deposits
Total
F5 Asset revaluation reserve
Opening balance
Bearer plants revaluation
Total comprehensive income
Income tax applicable
Closing balance
2018
$'000
352
2,566
2,918
2018
$'000
598
780
4,750
6,128
2018
$'000
1,634
1,634
2018
$'000
27,575
7,980
7,980
-
35,555
2017
$'000
401
1,399
1,800
2017
$'000
1,087
1,375
2,676
5,138
2017
$'000
1,634
1,634
2017
$'000
36,663
(9,189)
(9,189)
101
27,575
42
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 79
Rural Funds Group
Notes to the Financial Statements
30 June 2018
G. OTHER INFORMATION
G1 Key management personnel
Related parties are persons or entities that are related to the Group as defined by AASB 124 Related party
disclosures. These include directors and other key management personnel and their close family members and
any entities they control as well as subsidiaries and associates of the Group. The following provides information
about transactions with related parties during the year as well as balances owed to or from related parties as at 30
June 2018.
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
Julian Widdup
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 2018
are:
Balance at 30 June 2016
Additions
Balance at 30 June 2017
Additions
Balance at 30 June 2018
Guy Paynter
Units
533,256
281,440
814,696
-
814,696
Units
7,643,343
4,034,839
11,678,182
-
11,678,182
David Bryant* Michael Carroll
Units
Julian Widdup
Units
-
-
-
-
-
-
19,389
19,389
933
20,322
*Includes interests held by Rural Funds Management Limited as the Responsibly Entity.
Other key management personnel
In addition to the Directors noted above, RFM, as 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 (2017: 0.6%) of adjusted total assets; and,
•
Asset management fee: 0.45% per annum (2017: 0.45%) of adjusted total 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 and payable to RFM as Responsible Entity are disclosed in note G2.
80
43
Rural Funds Group
Notes to the Financial Statements
30 June 2018
G2 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 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
Rental income received from Cattle JV
Rental income received from Cotton JV
Rental income received from RFM Poultry
Rental income received from 2007 Macgrove Project
Rental income received from RMA Macadamias
Finance income from Cattle JV
Expenses charged to RFM Poultry
Distribution received/receivable from RFM Poultry
Distribution received/receivable from RFM StockBank
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
Interest income from Cattle JV
2018
$'000
2,664
3,599
6,263
3,056
114
1,122
10,555
2,048
565
1,599
992
288
3,448
1,969
10,670
757
326
1,321
-
14
-
26
7
20
4
51
1
2017
$'000
1,883
2,510
4,393
2,491
229
834
7,947
2,029
606
1,549
336
148
2,694
991
10,520
744
290
790
1
14
4,018
44
12
34
7
30
9
Total amounts received from RFM and related entities
24,106
24,866
Murdock Viticulture is a vineyard manager 28% owned by RFM.
44
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 81
Rural Funds Group
Notes to the Financial Statements
30 June 2018
G2 Related party transactions (continued)
Related party transactions (continued)
Debtors (including finance lease receivable)
RFM Farming Pty Limited
RFM
RFM Macadamias Pty Limited
2007 Macgrove Project
Cattle JV Pty Limited
Cotton JV Pty Limited
Total
Creditors
RFM
Total
Custodian fees
Australian Executor Trustees Limited
Total
Entities with influence over the Group
Rural Funds Management
Interest in related parties
RFM StockBank
RFM Poultry
G3 Parent entity information
2018
$'000
656
10
30
70
14,236
564
15,566
2018
$'000
150
150
2018
$'000
215
215
2018
Units
9,110,507
2017
%
3.56
Units
8,632,418
2018
Units
-
225,529
%
-
3.28
2017
Units
3,897,259
108,615
2017
$'000
27
3
-
345
11,770
485
12,630
2017
$'000
472
472
2017
$'000
104
104
%
3.39
%
33.50
1.58
RFF was formed by the stapling of the units in two trusts, RFT and RFA. In accordance with Accounting Standard
AASB 3 Business Combinations, the stapling arrangement referred to above is regarded as a business combination
and the RFT has been identified as the parent for preparing Consolidated Financial Reports. The financial
information of the parent entity, Rural Funds has been prepared on the same basis as the consolidated financial
statements, except as set out below.
82
45
Rural Funds Group
Notes to the Financial Statements
30 June 2018
G3 Parent entity information (continued)
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.
The individual financial statements of the parent entity, Rural Funds Trust, show the following aggregate amounts:
2018
$'000
2017
$'000
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
G4 Reconciliation of profit to operating cashflow
Reconciliation of net profit after income tax to cash flow from operating activities:
Net profit after income tax
Adjustments for:
Share of net profit - equity accounted investments
Amortisation of lease incentives
Change in fair value of plant and equipment - bearer plants
Change in fair value of investment property
Change in fair value of interest rate swaps
Depreciation and impairments
Gain on sale of assets
Other non-cash items
Changes in operating assets and liabilities
(Increase)/decrease in trade and other receivables
Decrease in other assets
Increase/(decrease) in trade and other payables
Decrease in deferred tax assets (net)
Net cash inflow from operating activities
10,413
628,856
639,269
12,583
277,267
289,850
349,419
639,269
35,938
7,980
43,918
2018
$'000
36,032
-
133
-
(7,398)
1,956
947
(17)
(2,000)
(800)
49
990
1,080
30,972
9,976
499,645
509,621
11,126
170,013
181,139
328,482
509,621
37,386
(8,850)
28,536
2017
$'000
43,326
(1,304)
-
2,498
(17,191)
(5,311)
1,568
(33)
-
2,618
701
(1,782)
1,824
26,914
46
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 83
Rural Funds Group
Notes to the Financial Statements
30 June 2018
G5 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
G6 Other accounting policies
Cash and cash equivalents
2018
$
223,422
9,425
232,847
2017
$
250,637
6,370
257,007
Cash and cash equivalents comprises cash on hand, demand deposits and short-term investments with less than
3 months of original maturity 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.
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.
84
47
Rural Funds Group
Notes to the Financial Statements
30 June 2018
G6 Other accounting policies (continued)
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.
Leases
Leases of fixed assets or biological assets where substantially all the risks and benefits incidental to the ownership
of the asset, but not the legal ownership, are transferred from the lessor, 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.
New accounting standards and interpretations
Effective date
for the Group
1-Jan-18
1-Jan-18
Standard
Name
AASB 9
Financial
Instruments
AASB 15
Revenue from
contracts with
customers
AASB 16
Leases
1-Jan-19
Requirements
Impact
Changes to the measurement of
different classes of financial assets
Recognise contracted
revenue
when control of a good or service
transfers to a customer. The notion
of control replaces the existing
notion of risks and rewards.
The Group does not hold financial
instruments for trading and it is not
expected that this standard will have a
material impact on the Group.
Revenue for the Group can be broken
down into Leasing, Finance Income,
Interest and Water Sales. Water sales
are sold via contract with where
revenue is recognised when transfer is
completed. It is not expected that this
standard will have a material impact on
the Group.
a
to
single
recognise on
Introduces
lease
accounting model and requires
lessees
the
balance sheet an asset (right of
use) and a corresponding liability
(lease commitment) for leases with
a term of more than 12 months.
is no
impact on
There
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 period.
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.
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.
48
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 85
Rural Funds Group
Notes to the Financial Statements
30 June 2018
G7 Events after the reporting date
On 12 July 2018, the Group announced that it has negotiated a transaction involving the acquisition of JBS Australia
Pty Limited’s (JBS) five Australian feedlots and associated cropping land for $52.7 million including stamp duty and
the provision of a $75.0 million limited guarantee to J&F Australia Pty Ltd that will enable JBS to replace an existing
arrangement for the supply of cattle for its grainfed business. The guarantee transaction was subject to RFF
unitholder approval as J&F Australia Pty Ltd would become a subsidiary of Rural Funds Management Limited on
settlement. Approval was granted at the unitholder meeting held on 10 August 2018.
On 12 July 2018, the Group announced that it was undertaking a fully underwritten equity raise for $149.5 million
to fund the JBS transaction, associated costs, as well as the acquisition a cattle property, Comanche. The equity
raise was successfully completed for the full amount on 3 August 2018.
On 16 July 2018, the Group purchased Comanche, a 7,600 hectare cattle property located in central Queensland
for $15.7 million.
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.
86
49
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 87
Rural Funds GroupDirectors’ Declaration30 June 201850In the Directors of the Responsible Entity’s opinion: 1 The financial statements and notes of Rural Funds Groupset out on pages 11 to49are in accordance with the Corporations Act2001, including:a.complyingwith Accounting Standards, the Corporations Regulations2001and other mandatoryprofessional reporting requirements; andb.givinga true and fair view of the Group’s financial position as at 30 June 2018and of itsperformance for thefinancialyearended on that date; and2 There are reasonable grounds to believe that the Groupwill be able to pay its debts as and when they become due and payable.Note Aconfirms 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 BryantDirector15 August 2018 Independent auditor’s report
To the stapled security holders of Rural Funds Group
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of Rural Funds Trust (the Registered Scheme) and its controlled
entities (including RF Active) (together Rural Funds Group, or the Group) is in accordance with the
Corporations Act 2001, including:
(a) giving a true and fair view of the Group's financial position as at 30 June 2018 and of its
financial performance for the year then ended
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
the consolidated statement of financial position as at 30 June 2018
the consolidated statement of comprehensive income for the year then ended
the consolidated statement of changes in net assets attributable to unitholders for the year then
ended
the consolidated statement of cash flows for the year then ended
the notes to the consolidated financial statements, which include a summary of significant
accounting policies
the directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial
report section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant
to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities
in accordance with the Code.
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
51
88
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from
material misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an
opinion on the financial report as a whole, taking into account the geographic and management
structure of the Group, its accounting processes and controls and the industry in which it operates.
The structure of Rural Funds Group is commonly referred to as a “stapled group”. In a stapled group
the securities of two or more entities are 'stapled' together and cannot be traded separately. In the case
of the Group, the units in Rural Funds Trust have been stapled to the units in RF Active. For the
purposes of consolidation accounting, Rural Funds Trust is 'deemed' the parent and the consolidated
report reflects the consolidation of Rural Funds Trust and its controlled entities, including RF Active.
Materiality
For the purpose of our audit we used overall Group materiality of $3.8 million, which represents
approximately 1% of the Group’s net assets.
We applied this threshold, together with qualitative considerations, to determine the scope of our audit
and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on
the financial report as a whole.
We chose Group net assets because, in our view, it is the benchmark against which the financial position of
the Group is most reliably measured.
We used a 1% threshold based on our professional judgement, noting it is within the range of commonly
acceptable thresholds.
Audit scope
Our audit focused on where the Group made subjective judgements; for example, significant accounting
estimates involving assumptions and inherently uncertain future events.
The audit of the group was performed by a team primarily in Sydney which included individuals with industry
expertise and valuation experts.
52
RURAL FUNDS GROUP ANNUAL REPORT 2018 | 89
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report for the current period. The key audit matters were addressed in the
context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters. Further, any commentary on the outcomes of a
particular audit procedure is made in that context. We communicated the key audit matters to the
Audit Committee.
Key audit matter
How our audit addressed the key audit matter
Valuation of investment properties
(Refer to note C1, C2) $357.5m
Investment properties are carried at fair value.
All agricultural assets, which comprise investment
properties, bearer plants, and water entitlements, have
been externally valued in the last two years in
accordance with the Group’s valuation policy. For those
agricultural assets which have not been externally
valued within the financial year, the directors monitor
and update the key inputs of the valuation model and
consider whether any significant market indicators
suggest that the valuation has changed and as such an
updated external valuation is needed.
Key variables in the valuation model included discount
rates, capitalisation rates, passing rents and
comparable sales. Factors such as prevailing market
conditions, and the individual nature, condition,
location and the expected future income of these
properties impacted these variables.
This was a key audit matter because of the:
size of the investment property balance in the
consolidated statement of financial position
quantum of revaluation gains that could directly
impact the consolidated statement of
comprehensive income through the net fair value
gain/loss of investment properties
inherently subjective nature of investment
property valuations due to the use of assumptions
and estimates in the valuation model
sensitivity of valuations to key
inputs/assumptions in the model such as the
discount rate and capitalisation rates.
We compared a sample of inputs used in the valuation
model, such as rental income and lease terms, to the
relevant tenancy schedules and lease agreements.
We compared the market rents, discount rates and
capitalisation rates used in the valuation models for a
sample of investment properties to an acceptable range
which we determined based on benchmark market
data. Where the rates used fell outside of our
anticipated range, we discussed the rationale
supporting the rates applied in the valuation with
management and obtained supporting documents for
the rationale provided.
Where an external valuation of investment properties
was obtained:
We assessed the competency, qualifications,
experience and objectivity of any external valuers
used by the Group.
We read the valuers’ terms of engagement - we
did not identify any terms that might affect their
objectivity or impose limitations on their work
relevant to the valuation.
We inspected the final valuation reports and
agreed the fair value as per the valuation to the
value recorded in the Group’s accounting records.
53
90
Key audit matter
How our audit addressed the key audit matter
Valuation of bearer plants
(Refer to note C3) $157.2m
The Group’s bearer plants include almond trees,
macadamia trees and wine grape vines, which are
classified as Plant and equipment and carried at fair
value.
The valuations described in the Valuation of
investment properties key audit matter above are
determined for the agricultural assets as a whole. The
valuers also determine the value of the investment
property and water entitlements in isolation. As a
result, the directors determine the fair value of bearer
plants as the residual value after deducting the fair
value of land and water entitlements from the value of
the agricultural assets. The fair value of water
entitlements are determined based on the volume of
water and the market rates for water. For reference,
water entitlements are carried at historic cost and
assessed for impairment annually.
This was a key audit matter because of the:
size of the bearer plants on the consolidated
statement of financial position
quantum of revaluation gains that could directly
impact the consolidated statement of
comprehensive income through the net fair value
gain/loss of bearer plants
inherently subjective nature and sensitivity of the
valuations due to the use of assumptions and
estimates as described in the Valuation of
investment properties key audit matter.
Related party transactions
(Refer to note G2)
The Group’s Responsible Entity, along with other funds
for which it is the Responsible Entity, are considered
related parties of the Group. Key transactions with
these parties include:
Lease of investment properties, land, building
and plant and equipment
Lease of bearer plants
Lease of cattle for breeding
Lease of water entitlements.
Management fees
Asset management fees
In addition to the audit procedures described in the
Valuation of investment properties key audit matter,
we performed the below procedures, amongst others,
with respect to the value of bearer plants.
We reperformed the calculation of the fair value of
bearer plants, by deducting the fair value of land and
infrastructure and water entitlements from the fair
value of the agricultural asset.
In respect of the fair value of water entitlements, we
agreed the volume of water to water
entitlements certificates
agreed the water rate to market rates as
quoted by the external valuers engaged to
value the agricultural assets.
We evaluated the directors’ estimation of the fair value
of land and infrastructure by, for example, considering
comparable sales transactions.
We considered whether the methodology used to
determine the value of bearer plants was in line with
the requirements of Australian Accounting Standards.
We obtained an understanding of the Group’s
processes for identifying related parties and
related party transactions, through discussions
with management.
For significant contracts entered into during the
year, we verified that the transactions were
approved in accordance with internal procedures
including involvement of key personnel at the
appropriate level by inspecting relevant
supporting documents.
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Key audit matter
How our audit addressed the key audit matter
Distributions from investments
Recharge of operating expenses
We considered the related party transactions to be a
key audit matter due to the influence of related parties
on the Group, as well as the potential impact of these
transaction on the results of the Group. Additionally,
because of their nature, they are pervasive and material
to the presentation of and disclosures within the
financial report.
For a sample of lease income received during the
year, we agreed the lease income to the relevant
supporting documents including the lease
agreements and evaluated the directors’ assertion
that the transactions were at arm’s length by
comparing the transactions to the market data
which was used by the external valuers in their
valuation of the related investment property.
For management and asset management fees, we
compared the rates used to determine fees to the
rates disclosed in the prospectus documents for
the related funds.
We discussed the related party transactions with
management to obtain an understanding of the
business rationale for the transactions.
For a sample of related party agreements, we
assessed the rights and obligations of the parties
as per the terms and conditions of the agreements
and, taking these into account, whether the
transactions were recorded appropriately by the
Group.
We assessed the adequacy of the disclosures in
Note G2, of related party relationships and
transactions in light of the requirements of
Australian Accounting Standards.
Other information
The directors of Rural Funds Management Limited (the Responsible Entity of the Group) (the
directors) are responsible for the other information. The other information comprises the information
included in the Group’s annual report for the year ended 30 June 2018, but does not include the
financial report and our auditor’s report thereon. Prior to the date of this auditor’s report, the other
information we obtained included the Directors' Report, and ASX additional information. We expect
the remaining other information to be made available to us after the date of this auditor’s report,
including Letter from the Managing Director and Corporate governance statement.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent
with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
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If, based on the work we have performed on the other information that we obtained prior to the date of
this auditor’s report, we conclude that there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report in this regard.
When we read the other information not yet received as identified above, if we conclude that there is a
material misstatement therein, we are required to communicate the matter to the directors and use
our professional judgement to determine the appropriate action to take.
Responsibilities of the directors for the financial report
The directors are responsible for the preparation of the financial report that gives a true and fair view
in accordance with Australian Accounting Standards and Corporations Act 2001 and for such internal
control as the directors determine is necessary to enable the preparation of the financial report that
gives a true and fair view and is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our
auditor's report.
PricewaterhouseCoopers
CMC Heraghty
Partner
Sydney
15 August 2018
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