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Managed by:
Annual Report
for the year ended 30 June 2020
About Rural Funds Group (ASX: RFF)
Rural Funds Group is an agricultural Real Estate Investment Trust (REIT) listed
on the ASX under the code RFF. RFF owns a diversified portfolio of Australian
agricultural assets which are leased predominantly to corporate agricultural
operators. RFF targets distribution growth of 4% per annum by owning and
improving farms that are leased to good counterparties.
About Rural Funds Management Limited (RFM)
RFM is the responsible entity and manager of RFF. RFM is an agricultural fund
and asset manager established in 1997. The management team includes specialist
fund managers, corporate professionals, horticulturists, agricultural scientists
and managers. RFM’s company culture is informed by its long-standing motto
“managing good assets with good people”.
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: 30 September 2020
Image: almond bloom, Mooral, Hillston, NSW, August 2020.
Cover image: Red-winged parrots (Aprosmictus erythropterus) perched on forage Sorghum at
Comanche, central Queensland, August 2020.
Table of Contents
Letter from the Managing Director
Page 4
Portfolio overview
Strategy and portfolio highlights
FY20 results highlights
Corporate governance statement
Page 6
Page 7
Page 8
Page 10
Environmental, Social and Governance
Page 22
ASX additional information
Financial statements
Page 28
Page 32
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Image: almond bloom, Mooral, Hillston, NSW, August 2020.
Cover image: Red-winged parrots (Aprosmictus erythropterus) perched on forage Sorghum at
Comanche, central Queensland, August 2020.
Letter from the Managing Director
Prior to the Mooral sale process, RFM
completed the sale of RFF’s poultry assets for
$71.9m. The decision to sell the poultry assets
took into consideration the upcoming material
capital requirement for their refurbishment.
RFM’s view was that investing in refurbishment
of the poultry assets would achieve a lower
return than investing in other agricultural
opportunities.
The sale of the poultry assets and expected
sale of the Mooral almond orchard provide
funding for further investment into productivity
and higher and better use developments. To
this end, in August 2020 RFM announced that
it had entered into contracts to acquire 5,409
ha of cropping properties located in central
Queensland and 8,060 ML of associated water
entitlements. RFM intends to progressively
convert these assets and several of the existing
cattle properties to 5,000 ha of macadamia
orchards.
The macadamia sector has a number of
appealing characteristics, such as low levels
of existing global production and increasing
demand. RFM first invested in the macadamia
sector in 2016 and has since accumulated
valuable operating and development knowledge
that will be beneficial to the planning of this
significant investment.
The orchards will be located in three
Queensland regions, Maryborough, Bundaberg
and Rockhampton, and are expected to be
developed over five years. RFF has also acquired
a macadamia tree nursery to supply planting
material for the developments.
When complete the macadamia orchards
are expected to provide development
gains, increased rental income, improved
diversification and increased weighted average
lease expiry (WALE). The WALE profile of RFF is
currently 10.9 years. RFM will continue to seek to
increase RFF’s WALE to provide ongoing long-
term income predictability for investors.
Another benefit of the developments is they
further diversify into Australia’s northern
climatic zone (see Figure 2). Diversifying RFF
this way is one of the strategies in which RFM
seeks to reduce the impact of climatic events. As
we entered calendar year 2020, bushfires that
were fuelled by above average temperatures
and prolonged drought raged in the eastern
states of Australia. While, sadly, many people
were devastated by the fires, no RFF properties
were materially impacted. Other strategies
in which RFM seeks to address climatic
events and climate change are detailed in the
Environmental, Social and Governance section
of this report.
Dear Unitholder,
We are pleased to present to you the Rural
Funds Group (RFF, the Fund) Annual Report for
the year ended 30 June 2020 (FY20).
Review of FY20
During FY20 the Fund continued to diversify
earnings, lessees and exposure to climatic
zones. This was achieved in part through
acquisitions, including eight cattle and cropping
properties in central Queensland and Western
Australia.
The investment strategy for these natural
resource acquisitions is to improve the assets'
productivity, or to develop them to higher
and better use. Both of these strategies aim
to improve the value of the assets and their
lease income-generating potential. This is a
continuation of the strategy that Rural Funds
Management Limited (RFM), the responsible
entity and manager of RFF, has successfully
implemented within the portfolio over a number
of years in numerous agricultural sectors.
Reinforcing this strategy, independent
valuations were undertaken for several of the
Funds’ cattle properties during FY20, resulting
in an increase in value of $14.3 million (m). The
higher valuations reflect improved productivity
and sector fundamentals. Similarly, three almond
orchards, which have been developed by RFM,
received net increased revaluations of $22.3m.
Macadamia orchards and unleased water
entitlements also benefitted from combined
revaluation gains of $22.2m.
RFM has also sought to dispose of assets
where deemed appropriate. In April 2020, RFM
announced that it had commenced a process to
sell the Mooral almond orchard after observing
investor demand for these types of assets. As
part of the release of the FY20 results RFM
confirmed that it had exchanged conditional
contracts for the sale of this asset at a premium
to the value recorded in the financial accounts.
4
Almost as soon as the final bushfires were
extinguished the world was learning of the
emergence of a novel coronavirus (COVID-19),
which would be later declared by the World
Health Organization to be a pandemic. While
many businesses have needed to respond with
unprecedented measures to the pandemic
there has been no material impact to RFF as
a result of COVID-19. RFF’s lessees, which
are predominantly corporate entities, have
continued to produce food from RFF's assets
for both local and global markets. Indeed,
many of these industries are prospering with
favourable seasonal and market conditions.
FY20 financial results
FY20 property revenue increased by 8%,
primarily as a result of acquisitions during
the year. Total Comprehensive Income, which
includes property revenue as well as the effect
of independent property valuations, increased
by 87%. The adjusted Net Asset Value (NAV)
of the Fund finished the period with a value
of $655.7m, or $1.94 on a per unit basis. This
equates to an 8% NAV per unit increase, when
compared to FY19.
Gearing at the end of FY20 was 29.7%, which
is at the lower end of the Fund’s target range
of 30-35%. The lower gearing provides
capacity for the Fund to complete acquisitions
and commence the macadamia orchard
developments, as described above.
Most pleasingly, RFF ended the year with
adjusted funds from operations (AFFO) of 13.5
cents per unit (cpu) and distributions of 10.85
cpu, both in line with forecasts. This is the sixth
consecutive financial year (FY15 to FY20) in
which the Fund has achieved AFFO forecasts
and distribution growth, the latter in line
with the 4% growth target (see Figure 1). The
distribution growth target is one of the primary
focuses of the RFM management team in the
ongoing management of RFF.
Looking ahead to FY21
RFM’s focus is to commence the macadamia
orchard developments and enter into leasing
arrangements for these assets. Part of the
funding for these developments is expected
to be from asset sales (poultry assets and the
Mooral almond orchard), which will result in a
short term reduction in AFFO per unit, but is
expected to be compensated by higher, medium
and long term AFFO generation.
Despite this material reconfiguration of the
portfolio as part of the full year results presented
in August 2020, RFM provided a forecast FY21
AFFO of 11.7 cpu, and forecast distributions of
11.28 cpu. This represents a 4% increase on
FY20 distributions and therefore consistent with
the Fund's strategy.
We look forward to providing you with updates
as they arise during FY21 and encourage you to
contact our Investor Services team if you have
any queries. In the meantime, we will continue to
prudently manage your investment in line with
our long-standing company motto of “managing
good assets with good people”.
Yours faithfully,
David Bryant
Managing Director
Rural Funds Management Limited
Figure 1: DPU, DPU growth, AFFO payout and adjusted NAV since listing¹
1. Adjusted assets incorporates independent property valuations, inclusive of water entitlements. Pro forma properties and sectors presented where applicable.
CAGR - Compound annual growth rate.
5
Portfolio overview
The portfolio of assets are diversified by climatic zone and agricultural
sector. The Fund seeks to invest in sectors in which Australia has
a comparative advantage and the manager, RFM, has operating
knowledge.
Figure 2: Sectors and assets²
Cattle
Properties:
FY20 value:
FY21f rent:
Vineyards
Properties:
FY20 value:
FY21f rent:
Cropping
Properties:
FY20 value:
FY21f rent:
Macadamias
Properties:
FY20 value:
FY21f rent:
Almonds
Properties:
FY20 value:
FY21f rent:
22
$335.6m
$25.7m
7
$63.6m
$4.0m
23
$52.6m
$4.1m
6
$22.4m
$1.6m
3
$455.2m
$31.9m
Figure 3: Total agricultural sector exposure (FY21f revenue) and corporate lessee (78% FY21
revenue) by sector.³
2. Shaded areas denote climatic zones differentiated by rainfall seasonality. Source: Bureau of Meteorology; see RFF Climatic Diversification discussion paper, 20 Jun
2016. Numbers in the icons show number of assets in that area. Blue square boxes on map denote cattle feedlots. Number of properties and forecast FY21 rent includes
Maryborough properties (expected to settle Oct 2020), shown as cropping until converted to macadamias, and the disposal of the Mooral almond orchard (expected
to settle Dec 2020). The Mooral sale is conditional on completion of due diligence and Foreign Investment Review Board approval. FY20 values and FY21f rent include
plant and equipment.
6
Strategy and portfolio highlights
RFF generates income by owning and improving farms that are leased
to good operators. Lease income growth is achieved through indexation
mechanisms, productivity improvements and higher and better use
developments. The Fund targets distribution growth of 4% per annum.
23yrs
Experience of the
manager: RFM
5
Agricultural
sectors
61²
Number of
properties
78%³
Corporate and/or
listed lessees
10.9yrs4
Weighted average
lease expiry profile
(WALE)
3
Index mechanisms
for structured
rental growth
44
Properties in
development
pipeline
5yrs
Track record of
DPU growth
Images from top left: green pastureland after early autumn rainfall, Comanche, central Queensland, March
2020; pruned grapevines at Kleinig vineyard (developed by RFM), Barossa Valley, South Australia, August
2020; winter muster at Cobungra, Victorian high country, August 2020; almond tree blossoms at Mooral
orchard (developed by RFM), Hillston, NSW, August 2020.
3. Figures shown are subject to rounding. Sectors shown by FY21f revenue. Assumes the disposal of Mooral and includes Maryborough properties. Olam refers to Olam
Orchards Australia Pty Ltd, a wholly owned subsidiary of SGX-listed Olam International Ltd (SGX: O32). Income from J&F Australia Pty Ltd attributed to JBS Australia.
Cotton JV income split 50% RFM and 50% Queensland Cotton Corporation Pty Ltd. White area denotes "other" revenue (5%). Excludes non-lessee income e.g.
annual water allocation sales and properties not leased. Corporate lessees shown in the right of the pie graph represent 78% of FY21f revenue (see presentation dated
25 August 2020, for additional information).
4. Calculated by FY21 forecast rent and the year of lease expiry. Excludes properties not leased.
7
FY20 results highlights
The positive FY20 results are largely due to the ongoing expansion of the
portfolio and independent valuations of various assets. The Fund achieved
FY20 forecast adjusted funds from operations (AFFO) and distributions per
unit (DPU). Forecast FY21 DPU of 11.28 cents is in line with the 4% growth
target.
Property revenue
$72.0m
8% on FY19
DPU
10.85 cents
4% on FY19 in line with forecast
Earnings (total comprehensive
income) per unit
18.4 cents
82% on FY19
Adjusted net asset value (NAV)
per unit
$1.94 per unit
8% on FY19
AFFO
13.5 cents
2% on FY19 in line with forecast
Adjusted total assets⁵
$1,012.6m
7% on FY19
Gearing⁶
29.7%
Below 30%-35% target range
FY21 forecast DPU
11.28 cents
4% on FY20 in line with strategy
Image: pruned shiraz grapevines at Kleinig vineyard, Barossa Valley, South Australia, August 2020.
5. Assets adjusted for the independent valuation of water entitlements which are recognised at the lower of cost or fair value on balance sheet.
6. Gearing calculated as external borrowings/adjusted total assets.
8
FY20 operating highlights
• Ongoing expansion of the portfolio increasing property revenue.
• Positive independent valuations for assets which have been undergoing
productivity improvement or higher and better use developments including
almond orchards and cattle properties.
• Recycling capital out of poultry and almond assets.7
• Acquisitions suitable for productivity improvements and higher and better
use development including assets to develop 5,000 ha of macadamia
orchards.
• Reconfiguration of the portfolio whilst continuing to grow distributions in
line with strategy.
• Total Unitholder return July 2014 to September 2020 of 272% (see Figure 4).
Figure 4: Total Unitholder return (compared to S&P/ASX 300 A-REIT accumulation index).8
7. Refer to Figure 2, page 6.
8. Calculation period 1 July 2014 to 11 September 2020. S&P/ASX 300 A-REIT Accumulation Index rebased to $1.00. RFF accumulation return rebased to $1.00 and
assumes dividends reinvested.
9
Image: beehives adjacent to almond trees in bloom, Mooral, Hillston, NSW, August 2020.
10
Corporate
governance
statement
11
Corporate governance statement
Definitions
AFS Licence
Australian Financial Services Licence No. 226701
ASIC
ASX
Board
Australian Securities and Investments Commission
Australian Securities Exchange Limited or ASX Limited
The Board of Directors of the Responsible Entity
Corporations Act
Corporations Act 2001 (Cth)
Corporate Governance Charter
RFM’s Corporate Governance Charter
RFM
WGEA
WGE Act
Unitholders
Rural Funds Management Limited ACN 077 492 838
Workplace Gender Equality Agency or Agency
Workplace Gender Equality Act 2012 (Cth)
The registered holder of a unit in the Fund
Rural Funds Group (the Fund) is listed on the ASX and comprises Rural Funds Trust ARSN 112 951 578
and RF Active ARSN 168 740 805, both registered managed investment schemes under the Corporations
Act 2001 (Cth) (the Corporations Act). Units in Rural Funds Trust are stapled to units in RF Active.
Rural Funds Management Limited (RFM) ACN 077 492 838 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 (AFS) Licence authorising it to operate the Fund. It has a duty to act in the
best interests of unitholders of the Fund (Unitholders). The Fund’s compliance plan has been lodged
with ASIC, a copy of which can be obtained from ASIC or by contacting the Responsible Entity. The
Responsible Entity publishes 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 with a mix of experience and skills necessary to oversee the corporate governance
requirements of the Responsible Entity. This ensures that 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 profitable, and efficient business.
To the extent that they are applicable for an externally managed 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 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 2019 to 30 June 2020
(Statement Period).
The ASX Corporate Governance Council has released an updated version of the Corporate Governance
Principles and Recommendations (4th Edition) which, for a listed entity, takes effect in the first full
financial year on or after 1 January 2020. RFM will adopt the 4th Edition in its annual report for the year
ended 30 June 2021.
At the time of printing this statement, there have been no material changes to corporate governance
policies and practices since 30 June 2020.
12
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 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 paragraphs four and five of RFM’s
Corporate Governance Charter. Their specific responsibilities are set out in paragraph six.
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, Mr David Bryant, is responsible for financial oversight, continuous disclosure
and compliance oversight, media, analyst briefings, responses to member questions, and for ensuring
that 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.
ASX recommendation 1.2
As an externally managed scheme, recommendation 1.2 does not apply to the Fund.
ASX recommendation 1.3
All directors of the Responsible Entity receive letters of appointment setting out the key terms and
conditions of their appointment.
All senior managers 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.
ASX recommendation 1.4
The Company Secretary of the Responsible Entity is accountable to the Board, through the Chair, on all
matters to do with the proper functioning of the Board.
As stated in the Corporate Governance Charter, the Company Secretary reports directly to the
Managing Director.
ASX recommendation 1.5
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 the process when identifying 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.
As at 30 June 2020, the Responsible Entity’s senior management included two female managers (out of
a total of 15 senior managers). Of the 107 staff members RFM and its associated entities employ, 29% are
female.
The Workplace Gender Equality Act 2012 (Cth) (WGE Act) applies to RFM as the Responsible Entity and
its associated entities, together employing more than 100 employees in Australia. The Agency confirmed
the annual compliance report sent by RFM is compliant with the WGE Act for FY20, having achieved the
required targets.
13
ASX recommendation 1.6
The expected performance of the Board, its committees and individual directors is outlined in the
Corporate Governance Charter.
The performance of individual Directors is reviewed annually in accordance with the timelines outlined
in the Responsible Entity’s Performance Management Policy.
ASX recommendation 1.7
The performance of all staff, including senior managers, is reviewed throughout the year, as appropriate,
in accordance with the timelines outlined in the Responsible Entity’s Performance Management Policy.
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 2.1
As an externally managed scheme, recommendation 2.1 does not apply to the Fund. Additionally, due to
the small size of the Responsible Entity’s Board, it is usual that all of the Board members are involved in
the full spectrum of discussion and decisions on matters. As a result, they bring the full complement of
skills and experience available to address matters as they arise. External advice is sought from senior
consultants including specialist tax, legal or business advisers when required.
ASX recommendation 2.2
As an externally managed scheme, recommendation 2.2 does not apply to the Fund.
ASX recommendation 2.3
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
15 February 2017
No
Yes
Yes
Yes
* Both Mr Paynter and Mr Carroll have more than ten years of service as Directors of the Responsible
Entity. It remains RFM’s opinion that both Mr Paynter and Mr Carroll have an independence of mind
and a strong element of objectivity regarding the affairs of RFM and the Fund. All members of the RFM
Board advocate their professional views as part of robust discussions.
Guy Paynter
Non–Executive Chairman
10 years
David Bryant
Managing Director
23 years
Michael Carroll
Non–Executive Director
10 years
Julian Widdup
Non–Executive Director
3 years
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 the Remuneration Committee.
Guy Paynter is a former director of broking firm JB Were. Guy 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’s agricultural interests include cattle breeding in the Upper Hunter region of New South Wales.
Guy holds a Bachelor of Laws from the University of Melbourne.
14
David Bryant is the Managing Director. David holds 78.01% of shares on issue in the Responsible
Entity.
David Bryant established RFM in February 1997 and since that time has led the team responsible for the
acquisition of large-scale agricultural property assets and associated water entitlements. As at 30 June
2020, RFM manages over $1.3 billion of agricultural assets.
On a day-to-day level, David is responsible for leading the RFM senior management 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
Chairman of Viridis Ag Pty Limited and Australian Rural Leadership Foundation. Michael is a Director on
the Boards of Select Harvests Limited and Paraway Pastoral Company Limited. Former board positions
include Elders Limited, Sunny Queen Australia Pty Limited, Tassal Group Limited, the Australian Farm
Institute, Warrnambool Cheese and Butter Factory Company Holdings Limited, Queensland Sugar
Limited, Rural Finance Corporation of Victoria, Meat and Livestock Australia and the Geoffrey Gardiner
Dairy Foundation.
Michael’s advisory clients have included government, major banks and institutional investors. He comes
from a family who have been involved in agriculture for over 145 years and has his own property in South
West Victoria. Michael has senior executive experience in a range of companies, including establishing
and leading the National Australia Bank (NAB) 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 - 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.
Julian Widdup is an Independent Non-Executive Director and is a member of the Audit Committee
and Remuneration Committee.
Julian Widdup has been involved in the financial services industry for over 25 years. Julian’s current
Directorships include Australian Catholic Superannuation & Retirement Fund, Catholic Schools NSW,
Screen Canberra and Cultural Facilities Corporation.
Julian brings extensive board experience to RFM having previously served as a Director for several
domestic and international organisations. Julian is a former executive of infrastructure investment
management companies, Palisade Investment Partners and Access Capital Advisers (now Whitehelm
Capital) and previously 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 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, senior management profiles;
and the skills, knowledge and experience of individual members can be found on the Responsible
Entity’s website.
ASX recommendation 2.4
As an externally managed scheme, recommendation 2.4 does not apply to the Fund; however, as
outlined in 2.3, the Responsible Entity’s Board is comprised of a majority of independent Directors.
ASX recommendation 2.5
As an externally managed scheme, recommendation 2.5 does not apply to the Fund; however,
independent non-executive Director, Guy Paynter, holds the role of Chair of the Responsible Entity.
ASX recommendation 2.6
As an externally managed scheme, recommendation 2.6 does not apply to the Fund; however, any
new Directors would be provided with an induction relevant to the Responsible Entity and the Fund.
Directors are also provided with opportunities to develop and maintain their skills and knowledge,
through both formal and informal training.
15
Principle 3: Act ethically and responsibly
A listed entity should act ethically and responsibly.
ASX recommendation 3.1
The Responsible Entity has adopted a Directors’ Code of Conduct 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 RFM’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 managers. 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.
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 4.1
The Board 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 independent non-executive
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 senior
management of the Responsible Entity and the Auditor of the Fund. The Audit Committee and invitees
review the financial reports and provide commentary to the Board as required.
Three 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 its roles and responsibilities 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.
ASX recommendation 4.2
The Board of the Responsible Entity has been given declarations by the person performing the chief
financial officer function. It is their opinion that the:
•
•
•
•
financial records of the Fund have been properly maintained in accordance with section 286 of the
Corporations Act;
financial statements and notes, referred to in paragraph 295(3)(b) of the Corporations Act, for the
financial year comply with the accounting standards;
financial statements and notes give a true and fair view of the financial position and performance of
the entity; and
opinion has been formed on the basis of a sound system of risk management and internal control
which is operating effectively.
ASX recommendation 4.3
As a registered managed investment scheme, recommendation 4.3 does not apply to the Fund. The
Fund has not held an Annual General Meeting during the Statement Period.
16
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 5.1
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 to
the Fund’s disclosure requirements and obligations. The policy underlines the Board’s commitment to
ensuring that Unitholders are provided with accurate and timely information about the Fund’s activities.
Image: macadamia development planting material at Nursery Farm, Bundaberg, central Queensland,
August 2020.
17
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 6.1
The Responsible Entity is one of the oldest and most experienced agricultural fund managers in
Australia. 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, legal, governance and human
resource 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, including corporate governance practices and
policies are available on the Responsible Entity’s website.
ASX recommendation 6.2
The Responsible Entity’s website has information available to Unitholders to facilitate two-way
communication. The investment products tab on the website provides a link to the Fund’s website which
provides a Fund overview, 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 Fund 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. Additionally,
Unitholders are welcome to make their own arrangements to visit the assets by contacting Investor
Services.
ASX recommendation 6.3
As an externally managed scheme that does not hold periodic meetings, recommendation 6.3 does not
apply to the Fund. If the Responsible Entity is required to hold a Unitholder meeting, it could use a web-
conferencing and/or a teleconferencing facility for remote Unitholders.
ASX recommendation 6.4
The Responsible Entity encourages all investors to communicate with it and with the Fund’s registry
electronically however, the Responsible Entity continues to communicate with investors via traditional
methods (mail and phone) when appropriate.
Image: cattle grazing at Comanche, central Queensland, August 2020.
18
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 7.1
The Responsible Entity has not established a Risk Committee. Due to the size of the Board and the
nature of the business, the Board has determined that risk oversight should be managed by the 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 managers of each business area, who
report to the Board on the effectiveness of mitigation 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.
ASX recommendation 7.2
The Responsible Entity’s risk management framework is reviewed annually, or more often if there has
been a substantive change in the risk profile. An annual risk review was performed during the Statement
Period.
The Annual Risk Review is a re-evaluation of all risks based on each risk owner reviewing each risk
and assessing whether the existing risk rating is appropriate. 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.
ASX recommendation 7.3
The Responsible Entity has an Internal Compliance Committee that assists the Board in evaluating the
risk management framework and material business risks on an ongoing basis. While 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.
Company Secretary (Chair)
Chief Financial Officer
During the Statement Period, the Internal Compliance Committee comprised:
•
•
• National Manager – Human Resources
•
•
Assistant Manager – Compliance and Risk
Senior Fund Administrator
In addition, the Chief Operating Officer, National Manager – RFF, Senior Business Manager and
Business Manager are invited to each Internal Compliance Committee meeting.
This broad representation of roles on the Internal Compliance Committee ensures it is fully informed of
matters and recommendations across the Fund and associated RFM entities.
ASX recommendation 7.4
The Responsible Entity is committed to undertaking the Fund’s business activities in a responsible
and ethical manner and ensuring that it remains sustainable. Environmental, social and governance
(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 sustainability
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 22.
19
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 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 adjusted gross asset value of the Fund
Asset Management Fee – up to 1.0% p.a. of the adjusted gross asset value of the Fund
Termination Fee – 1.5% of the adjusted 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 adjusted gross asset value of the Fund. For further information on these fees, refer to
page 87 for the dollar amounts.
The Board of Directors of the Responsible Entity has established a Remuneration Committee. The
purpose of the Remuneration Committee is to advise on remuneration and issues relevant to the
remuneration policies and practices for senior managers and non-executive directors.
The Remuneration Committee is comprised of three members, all of whom are independent
non-executive directors. An independent director, who is not the Chair of the Board of the Responsible
Entity, is Chair of the Remuneration 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 senior
management of the Responsible Entity. The Remuneration Committee and invitees will review the
remuneration and diversity report and provide commentary to the Board as required.
No Remuneration Committee meetings were held in relation to remuneration during the Statement
Period due to the effects of the COVID-19 pandemic. Two remuneration meetings are expected to be
held in FY21.
The Remuneration Committee has a formal charter that details its responsibilities 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.
ASX recommendation 8.2
As an externally managed scheme, refer to recommendation 8.1.
ASX recommendation 8.3
As an externally managed scheme, refer to recommendation 8.1.
20
Image: flowering mungbean crop at Lynora Downs, central Queensland, June 2020.
21
Image: winter at Cobungra Station, Omeo, Victoria, August 2020.
22
Environmental,
Social and
Governance
responsibilities
23
Environmental, Social and Governance
responsibilities
ASX recommendation 7.4 (continued)
Commitment and responsibility for implementation
RFM, as Responsible Entity for RFF, is committed to sustainable practices that benefit the environment,
land management, our staff and the community. These practices are underpinned by RFM’s ESG
responsibilities and are reflected in our policies, conduct and community support.
The below information provides a summary of our ESG commitments. Please note that some sections
relevant to ESG fall under the corporate governance section, which can be found from page 10 or in
policies which are available on RFM's website.
Environment
Climate change
RFM is aware of the potential risks that climate change could present to RFF’s assets. RFM has
committed to a climatic diversification strategy to mitigate these risks. Given that the majority of RFF’s
assets are leased out, the most significant risks of climate change lie in the residual risk of the assets
at the end of lease terms. These risks may be mitigated by how the assets are managed. In addition,
external valuations consider these and other risks when determining the valuations of the assets.
In addition, RFM has considered the impact of emissions from RFF’s assets, including carbon dioxide,
methane, and nitrous oxide. The assets produce these emissions through agricultural infrastructure and
machinery, cattle assets and through the application of fertiliser.
During FY20 RFM participated in a study with Meat & Livestock Australia (MLA) to assess emissions
from a selection of RFF’s cattle properties. The goal of this project is to work towards carbon neutrality on
RFF assets and contribute to the industry's objective of achieving this goal (see Case study, page 25).
Also during FY20, RFM worked with a major Australian energy company to assess the viability of solar
energy systems on assets including an almond orchard, to generate the majority of the operators
energy requirements. Consideration of the feasibility of these projects is ongoing and subject to lessee
discussion.
As part of RFM’s ongoing strategy to mitigate and improve climate related risks, RFM will continue to
monitor emissions and seek to implement infrastructure and practice changes where appropriate.
Management of natural 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 leases require operators to use appropriate agricultural production methods. These include farm
management methods to minimise environmental impact, protect biodiversity, manage water and sustain
soil health. Wherever practical, the Responsible Entity as manager of the Fund promotes:
• monitoring industry developments and adopt farm management practices that incorporate the latest
research findings and technologies to minimise environmental impact, protect biodiversity and better
use natural resources;
• maximising water-use efficiency by using modern, well-managed irrigation systems;
• water management practices consider and manage water quality and minimise run-off;
•
use of communication technologies to access water-use data remotely; and, assisting with optimal
water use, adopt nutrient management practices that improve long-term soil health;
pest and weed management requiring the use of chemicals occurs in a safe and environmentally
responsible manner; and
lessees and personnel understand and are focused on sustainable farming principles and adhere to
environmental legislation and regulations.
•
•
For the full details, see the Environmental Policy located on the Responsible Entity’s website.
24
Case study: Working with MLA to reduce greenhouse
gas (GHG) emissions by the cattle industry
MLA have set a target for Australia’s red meat industry to become carbon neutral by
2030. In January 2020, RFM and MLA commenced a project to assess GHG emissions
using data gathered from a selection of RFF’s cattle properties in Queensland and New
South Wales. The final report was prepared by Research Scientist, Dr Natalie
Doran-Browne and published in June 2020.
The project focused on assessing the emissions intensity of livestock production on
the properties since 2016. Emissions intensity, rather than total emissions, is a common
metric for assessing farming enterprises as it compares the GHG emissions generated
per unit of farm product (e.g kilograms of beef produced). For instance, improved
emissions intensity may be a result of higher farm production and a significant level of
avoided emissions that would have otherwise been produced.
The report calculated that from 2016-17 to 2018-19 GHG emissions intensity declined by
17% on the New South Wales properties and 43% on the Queensland properties. The
report identifies that improved feed quality and animal management as contributing
factors to these results. A reduction of this magnitude is the equivalent of not running
about 2,800 average Australian cars for a year.
The project is thought to benefit the industry by increasing the awareness of farm GHG
emissions accounting and providing appropriate benchmarks. The report also provides
a process which can be followed by other red meat producers who would like to take
steps towards carbon reduction and neutrality. RFM will use the findings of the report
to continue to improve farm practices to further reduce emissions intensity.
To learn how RFM is "Managing Good
Assets with Good People”scan the QR code.
25
Social
Our staff
As RFF does not directly employ staff, the Responsible Entity is responsible for staff management
associated with the management and operation of the Fund. A selection of RFM staff, with responsibility
for RFF, are presented in Figure 5.
• Code of Conduct;
• Work Health, Safety, and Environment (WHSE);
•
• Diversity; and,
• Equal Employment Opportunity.
Incident Management;
The aim of these policies is to create a safe, diverse and equitable workplace.
The Responsible Entity takes its Work Health and Safety (WHS) obligations seriously and has
implemented an extensive management system to educate employees and contractors and protect them
from harm. The Board receives a monthly workplace health and safety report identifying any issues and
incidents. The Responsible Entity periodically reviews arrangements with contractors to determine that
their practices and standards meet its safe work practices and expectations, legislative requirements
and contractual obligations.
The Responsible Entity is committed to providing employees with ongoing opportunities for WHS
training and development
Figure 5: RFM corporate management (including tenure)
Tim Sheridan
Chief Operating Officer
12 years
Daniel Yap
Chief Financial Officer
8 years
Emma Spear
Company Secretary
11 years
Dan Edwards
National Manager –
Rural Funds Group
15 years
James Powell
General Manager – Investor
Relations and Marketing
12 years
David Thomson
Senior Business Manager
13 years
Scott Roxburgh
Business Manager
10 years
Kristina Smith
National Manager - Human
Resources
14 years
Animal welfare
Some of RFF’s properties are leased to agricultural producers involved in intensive production, such
as cattle feedlots. The Responsible Entity has policies and procedures that are explicit about animal
treatment and welfare.
RFF’s cattle lessees are required to comply with best husbandry and pastoral practice. This is
stipulated in leases signed with RFF. Best practice includes low-stress handling, disease minimisation
and sustainable stocking rates. Most cattle sold by RFF lessees are sold and processed domestically,
but a small number may be sold to the live export market.
26
Community engagement
The Responsible Entity continues to provide support to Tahen, a village in the Battambang province
of Cambodia. The Responsible Entity has committed $1m over three years to assist farmers in their
agricultural practices to improve productivity and commodity diversification. The project aims to educate
and mentor local farmers to develop more modern, sustainable and diversified agricultural enterprises.
It is hoped that Tahen will also become a model that could be replicated by other local communities. To
view an update on the Tahen project visit www.ruralfunds.com.au/mgawgp.
The Responsible Entity has also supported a number of organisations through donations and labour.
Further details can be located on the Community Involvement page on the Responsible Entity’s website.
Applying RFM's
agricultural expertise
in Cambodia
Scan to learn
more >
Governance
Corporate governance
The Responsible Entity has established an Internal Compliance Committee (ICC) that reports to
the Board of Directors quarterly. The ICC monitors and reports on compliance with the Responsible
Entity’s AFS Licence, and compliance program to ensure that it is effective in meeting the Responsible
Entity’s compliance requirements. The ICC also provides a supporting role to the Compliance Manager.
The ICC is structured to include representatives from different business units to ensure compliance
monitoring and review is well embedded across the Responsible Entity.
Conflicts of interest and related party transactions
RFM manages a number of entities, including its role as Responsible Entity for four funds. Where related
party transactions occur between RFF and another RFM-managed entity, they are subject to the Conflict
of Interest Management Policy. The Responsible Entity’s responsibilities and contractual obligations are
set out in the Fund’s Constitution, the Corporations Act, the ASX Listing Rules and it's AFS Licence. As
the Responsible Entity, RFM must always act in the best interests of Unitholders, and if there is a conflict
between Unitholders’ interests and its own interests, it must give priority to Unitholders’ interests.
The Responsible Entity has also established protocols, including appointing separate personnel to act
for each entity with separate external advisers. To monitor compliance with these obligations, the Board
receives a monthly report from the Compliance Department, who reports on the Responsible Entity's
compliance, and any conflicts of interests or related party transactions.
Ethical conduct
The Responsible Entity’s 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 are expected to conduct themselves with integrity, in compliance with
legislative requirements and internal policies and procedures. Employee performance is monitored by
management through a combination of ongoing informal reviews.
The Responsible Entity’s recruitment process includes reference checking of all potential employees, as
well as national police checks and bankruptcy checks for high and medium risk roles. RFM’s anti-money
laundering and counter-terrorism financing program aims to identify, mitigate and manage the risk that
the Company or its Officers may unwittingly facilitate money laundering or financing of terrorism. The
Responsible Entity manages the above risks in accordance with its Risk Management Policy available on
the Responsible Entity’s website.
27
Image: macadamia orchard harvest, Bundaberg, central Queensland, August 2020.
28
ASX additional
information
29
ASX additional information
Additional information required by the ASX, under the Listing Rules and not disclosed elsewhere in this
report is set out below. This information is effective as at 14 September 2020.
(a) Distribution of Equity Securities
Holding Size
Unitholders
Class
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
3,740
5,283
2,361
3,405
181
Ordinary fully stapled securities
Ordinary fully stapled securities
Ordinary fully stapled securities
Ordinary fully stapled securities
Ordinary fully stapled securities
(b) Substantial Unitholders
Unitholder
Number of units
%
Vanguard Investments Australia
Daiwa Securities Group Inc8
Sumitomo Mitsui DS Asset Management Company8
Sumitomo Mitsu Financial Group8
32,584,896
16,808,337
16,808,337
16,808,337
9.702%
5.02%
5.02%
5.02%
(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
$2.30 as at 14 September 2020 is set out below:
Number of Unitholders
Number of units
1,835
475,531
(d) Voting rights
The voting rights attaching to the ordinary units, set out in section 253C of the Corporations Act 2001, are:
(i)
(ii)
on a show of hands, each member of a registered scheme has 1 vote; and
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.
8. There is overlap in the relevant interest of each of these entities. Persons reading the annual report should refer to the applicable substantial holder notices released via the
ASX.
30
(e) Twenty largest unitholders
Unitholder
Number of
units
%
HSBC Custody Nominees (Australia) Limited
53,026,798
15.672%
JP Morgan Nominees Australia Pty Limited
49,300,692
Netwealth Investments Limited (Wrap Services A/C>
Argo Investments Limited
CITICORP Nominees Pty Limited
Rural Funds Management Ltd
National Nominees Limited
BNP Paribas Nominees Pty Ltd
Bryant Family Services Pty Ltd
Netwealth Investments Limited
One Managed Investment Funds Limited
16,281,523
14,537,052
14,058,715
11,843,659
3,657,167
3,621,281
3,377,583
3,081,372
3,000,000
SCCASP Holdings Pty Ltd
1,663,073
Boskenna Pty Ltd
BNP Paribas Noms Pty Ltd
BNP Paribas Nominees Pty Ltd HUB24 Custodial Serv Ltd
Capital Property Corporation Pty Ltd
BNP Paribas Nominees Pty Ltd
CS Fourth Nominees Pty Ltd
WF Super Pty Ltd
NOELJEN Pty Ltd
1,209,104
1,129,262
1,070,312
936,276
900,092
823,039
770,335
711,902
14.571%
4.812%
4.296%
4.155%
3.500%
1.081%
1.070%
0.998%
0.911%
0.887%
0.492%
0.357%
0.334%
0.316%
0.277%
0.266%
0.243%
0.228%
0.210%
(f) On-market buy-back
RFF confirms there is no on-market buy-back facility in operation.
(g) Material lease details subsequent to listing rule 10.1 waiver
Lessees
Area
AETL as custodian and RFM as responsible entity of RFM Almond
Fund9
593 hectares of almond orchards
Property and location
Mooral, Hillston NSW
Expiry
Capital
commmitments:
29-Jun-26 and 02-Jul-28
Capex required to meet orchard development requirements and
replacement capital items on account of lessor, both subject to additional
rental.
Indexation:
2.5% per annum
Payment frequency:
FY20: 50% 31-Dec and 50% 30-Jun
From FY21: 25% 30-Sep, 25% 31-Dec, 50% 30-Jun
Securities exchange
The Fund is listed on the ASX. 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.
9. The RFM Almond Fund is a result of the merger of the RFM Almond Fund 2006, RFM Almond Fund 2007 and RFM Almond Fund 2008.
31
Image: irrigated wheat, Lynora Downs, Queensland, August 2020.
32
Financial
Statements
for the year ended 30 June 2020
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
33
Rural Funds Group
Corporate Directory
Registered Office
Responsible Entity
Directors
Company Secretary
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
Emma Spear
Australian Executor Trustees Limited
ABN 84 007 869 794
Level 19, 60 Castlereagh 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
34
1
Rural Funds Group
Directors’ Report
30 June 2020
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 2020.
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 state of affairs
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, cropping properties, agricultural plant and
equipment, cattle and water rights.
The following activities of the Group changed during the year:
In July 2019, the Group entered into simultaneous arrangements that terminated the current Rewan lease with
Cattle JV Pty Limited and commenced a new ten year lease with Australian Agricultural Company Limited (AACo).
In August 2019, the Group settled the acquisition of the Beef City feedlot, located in Queensland, for $12.8 million.
Adjacent cropping land settled in October 2019 for $0.5 million.
In October 2019, the Group purchased Cygnet, a property located in Queensland, for $1.6 million. The property is
currently unleased and under development to 40 hectares of macadamia plantings.
In December 2019, the Group sold its poultry assets to ProTen Investment Management Pty Ltd as trustee for
ProTen Investment Trust (ProTen) for $71.0 million. The sale consisted of shedding assets and water entitlements.
The Group also sold its poultry related plant and equipment held in RF Active to ProTen for $0.9 million.
In January 2020, the Group purchased Wattlebank, a 321 hectare cattle property located in central Queensland for
$1.8 million including transaction costs. A lessee is currently being sought.
In February 2020 the Group purchased Petro, High Hill and Willara for $22.6 million including transaction costs.
These three cattle properties are located in Western Australia and are leased to Stone Axe Pastoral Company for
a period of ten years.
In February 2020, the Group disposed of unleased groundwater assets totaling 1,910 ML for $6.7 million.
In March 2020, the Group purchased Swan Ridge South, a 123 hectare property adjoining Swan Ridge, located in
the Bundaberg region for $1.6 million including transaction costs. The property is currently unleased and under
development for macadamia plantings. The Group also purchased a 64 hectare property in the Bundaberg region
for $2.2 million including transaction costs. The property is currently unleased and under development for
macadamia plantings and the establishment of a macadamia tree nursery.
2
35
Rural Funds Group
Directors’ Report
30 June 2020
Principal activities and significant changes in state of affairs (continued)
In April 2020, unitholders approved an increase to the guarantee provided to J&F Australia Pty Limited (J&F), a
wholly owned subsidiary of Rural Funds Management Limited from $75 million to $100 million. The initial guarantee
increase was $7.5 million. The Group receives a fee from J&F on the guarantee provided.
In April 2020, the Group announced the commencement of the marketing process for the sale of the Mooral almond
orchard. These assets have been treated as held for sale.
In May 2020, the Group settled the acquisition of the Riverina feedlot, located in New South Wales, for $11.6 million
including transaction costs. The Group also purchased Yarra, a 2,173 hectare cattle property located in the
Rockhampton region of Queensland for $7.5 million including transaction costs. A lessee is currently being sought.
In June 2020, the Group purchased Homehill, a 3,270 hectare cattle property located in the Rockhampton region
of Queensland for $8.7 million including transaction costs. A lessee is currently being sought.
In the opinion of the Directors, there were no other significant changes in the state of affairs of the Group during
the year.
Operating results
The consolidated net profit after income tax of the Group for the year ended 30 June 2020 amounted to $48,988,000
(2019: $33,355,000). The consolidated total comprehensive income of the Group for the year ended 30 June 2020
amounted to $61,938,000 (2019: $33,078,000).
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 would
have been $45,427,000 (2019: $43,246,000), representing adjusted funds from operations (AFFO).
Adjusted funds from operations (AFFO)
The adjusted funds from operations (AFFO) calculated below effectively represents the underlying and recurring
cash earnings from the Group’s operations from which distributions are funded:
Net profit before income tax from continuing operations
Change in fair value of interest rate swaps
Depreciation and impairments - plant and equipment
Depreciation - bearer plants
Impairment/(reversal of impairment) of bearer plants
Change in fair value of investment property
Change in fair value of financial assets/liabilities
Impairment/(reversal of impairment) of intangible assets
Straight-lining of rental revenue
Interest component of JBS feedlot finance lease
Income tax payable (RF Active)
Gain on sale of assets
Net profit before income tax from discontinued operations
Depreciation and impairments
Change in fair value of investment property
Income tax payable (RF Active)
Loss on disposal
Loss on disposal - one off transaction costs
AFFO
AFFO cents per unit
36
2020
$'000
49,096
7,624
2,244
4,838
499
(16,194)
(510)
798
(1,232)
(789)
(884)
(4,032)
1,502
649
1,250
(57)
29
596
45,427
13.5
2019
$'000
36,982
18,208
1,230
4,600
(8,854)
(15,344)
70
(105)
(953)
(352)
(413)
(12)
1,197
-
6,992
-
-
-
43,246
13.3
3
Rural Funds Group
Directors’ Report
30 June 2020
Financial position
The net assets of the consolidated Group have increased to $557,966,000 at 30 June 2020 from $525,872,000 at
30 June 2019. At 30 June 2020, the Group had total assets of $914,920,000 (2019: $869,087,000).
At 30 June 2020, 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 $129,246,000 (2019:
$131,273,000). Directors obtain independent valuations on RFF properties ensuring that each property will have
been independently valued every two years or more often where appropriate. These valuations attribute a value to
the water entitlements held by the Group. The Directors have taken into account the most recent valuations on
each property and consider that they remain a reasonable estimate. On this basis the fair value of water
entitlements at 30 June 2020 was $226,945,000 (2019: $208,042,000). 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
2020
$'000
117,262
11,464
520
129,246
97,699
226,945
2019
$'000
118,531
12,222
520
131,273
76,769
208,042
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
Property leasing
2020
$'000
557,966
97,699
655,665
1.94
2019
$'000
525,872
76,769
602,641
1.80
At 30 June 2020 the Group held 41 properties as follows:
4 almond orchards (4,947 planted hectares);
7 vineyards (666 planted hectares);
3 macadamia orchards (261 planted hectares);
3 macadamia orchards under development (118 hectares);
22 cattle properties made up of 17 breeding, backgrounding and finishing properties (671,010 hectares) and
5 cattle feedlots with combined capacity of 150,000 head;
2 cropping properties (7,822 hectares).
During the year ended 30 June 2020, the properties held by the Group recorded an increment in the fair value of
investment properties of $14,944,000 (2019: $8,352,000) and an increment in bearer plants revaluation of
$12,451,000 (2019: $8,579,000).
4
37
Rural Funds Group
Directors’ Report
30 June 2020
Property leasing (continued)
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 4,947 hectares
(2019: 2,414 hectares plus 2,500 hectares under development):
Yilgah 1,006 planted hectares (2019: 1,006 hectares);
Mooral 808 planted hectares (2019: 808 hectares);
Tocabil 603 planted hectares (2019: 600 hectares);
Kerarbury 2,530 planted hectares (2019: 2,500 hectares).
Select Harvests Limited (SHV) 1,221 planted hectares (2019: 1,221 hectares);
These properties are under lease to the following tenants:
Olam Orchards Australia Pty Limited (Olam) 3,133 planted hectares (2019: 3,100 hectares);
RFM Almond Fund (RAF) 593 planted hectares (2019: 593 hectares). RAF is the result of the merger between
the RFM Almond Fund 2006 (AF06), RFM Almond Fund 2007 (AF07), RFM Almond Fund 2008 (AF08) and
RFM’s Almondlots that took place in August 2019.
For its almond orchards the Group owns water entitlements of 67,743ML (2019: 67,743ML) comprising
groundwater, high security river water, general security river water, supplementary river water, and domestic and
stock river water. In addition, the Group owns 21,430ML (2019: 21,430ML) of water delivery entitlements that
provide access to water delivery through CICL, with a low annual allocation expected to be provided.
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 (2019: 936ML). All vineyards are leased to Treasury Wine
Estates Limited and produce premium quality grapes. Six of the vineyards are leased until June 2026 and one is
leased until June 2022.
Macadamia orchards
Three established macadamia orchards located near Bundaberg, QLD and leased to the following tenants:
2007 Macgrove Project (M07) 234 hectares (2019: 234 hectares);
RFM Farming Pty Limited 27 hectares, novated from Rural Funds Management Limited (RFM) during the year
(2019: 27 hectares).
The Cygnet property located in Bundaberg, Queensland is currently unleased and under development to 38
hectares of macadamia plantings.
Swan Ridge South located in Bundaberg, Queensland is currently unleased and under development to 40 hectares
of macadamia plantings.
The Nursery Farm property located in Bundaberg, Queensland is currently unleased with 12 hectares of
macadamia plantings. The property is under development for an additional 28 hectares of macadamia
plantings and the establishment of a macadamia tree nursery.
Cattle property
Cattle properties held by the Group comprise of cattle breeding, backgrounding and finishing properties and cattle
feedlots.
Rewan located near Rolleston in central Queensland 17,479 hectares (2019: 17,479 hectares);
Mutton Hole and Oakland Park located in far north Queensland 225,800 hectares (2019: 225,800 hectares);
Natal aggregation located near Charters Towers in north Queensland 390,600 hectares (2019: 390,600
hectares);
Comanche located in central Queensland 7,600 hectares (2019: 7,600 hectares);
Cerberus located north west of Rockhampton in central Queensland 8,280 hectares (2019: 8,280 hectares);
Dyamberin located in the New England region of New South Wales 1,728 hectares (2019: 1,728 hectares);
Woodburn located in the New England region of New South Wales 1,063 hectares (2019: 1,063 hectares);
38
5
Rural Funds Group
Directors’ Report
30 June 2020
Property leasing (continued)
Cattle property (continued)
Cobungra located in the East Gippsland region of Victoria 6,500 hectares (2019: 6,500 hectares);
Petro, High Hill and Willara located in Western Australia 6,196 hectares (2019: N/A);
Wattlebank located north west of Rockhampton in central Queensland 321 hectares (2019: N/A);
Yarra located south west of Rockhampton in central Queensland 2,173 hectares (2019: N/A);
Homehill located north west of Rockhampton in central Queensland 3,270 hectares (2019: N/A); and
Prime City, Mungindi, Caroona, Beef City and Riverina, 5 cattle feedlots with a combined capacity of 150,000
head (2019:70,500 head).
The properties comprise a combined 671,010 hectares and are leased to the following tenants:
Australian Agricultural Company Limited, leasing Rewan;
Cattle JV Pty Limited, a wholly owned subsidiary of RFM, leasing Mutton Hole and Oakland Park;
DA & JF Camm Pty Limited, a member of the Camm Agricultural Group, leasing the Natal aggregation;
Elrose Enterprises Pty Limited, leasing Comanche;
Katena Pty Limited, leasing Cerberus; and
Stone Axe Pastoral Company Pty Limited, leasing Dyamberin, Woodburn, Cobungra, Petro, High Hill and
Willara.
In addition to this, JBS Australia Pty Limited leases the Prime City, Mungindi, Caroona, Beef City and Riverina
feedlots.
The remaining properties are not currently leased as at 30 June 2020.
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 cattle.
The lease arrangement for the Cerberus property includes a $1.6 million financing facility to fund the purchase of
cattle.
Cropping property
Cropping properties held by the group comprise of:
Lynora Downs, a 4,880 hectare (2019: 4,880 hectare) cropping property 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.
Mayneland, a 2,942 hectare (2019: 2,942 hectare) cropping property located 25 km north of Lynora Downs in
central Queensland, is leased to RFM Farming Pty Limited (a wholly owned subsidiary of RFM) until 30 June
2021. A long-term lessee is being sought.
Other activities
Agricultural plant and equipment with a net book value of $6,969,000 (2019: $8,537,000) and finance leases of
agricultural plant and equipment with a net book value of $978,000 (2019: nil) is owned by the Group and leased
to RFM Almond Fund, M07, Cotton JV, Cattle JV and RFM Farming. Of this, $3,768,000 of plant and equipment is
classified as held for sale as at 30 June 2020.
Breeder assets with a net book value of $14,383,000 (2019: $14,431,000) are leased to Cattle JV Pty Limited.
Banking facilities
At 30 June 2020 the core debt facility available to the Group was $335,000,000 (2019: $335,000,000), with a drawn
balance of $297,248,000 (2019: $291,445,000). The facility is split into two tranches with a $225,000,000 tranche
expiring in November 2021 and a $110,000,000 tranche expiring in November 2023. Approval has been received
from the banks to extend the $225,000,000 tranche to $290,000,000. The $290,000,000 tranche will reduce to
$260,000,000 at the earlier of the potential Mooral almond property sale or November 2021. At 30 June 2020, RFF
had active interest swaps totaling 61.6% (2019: 55.9%) of the drawn balance to manage interest rate risk.
6
39
Rural Funds Group
Directors’ Report
30 June 2020
Distributions
Distribution declared 3 June 2019, paid 31 July 2019
Distribution paid 31 October 2019
Distribution paid 31 January 2020
Distribution paid 30 April 2020
Distribution declared 2 June 2020, paid 31 July 2020
Earnings per unit
Net profit after income tax for the year ($'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
2.6075
2.7118
2.7118
2.7118
2.7118
Total
$
8,715,923
9,082,534
9,107,837
9,133,908
9,158,113
48,988
336,035,155
14.58
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 other expenses such as corporate overheads 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 2020 is 1.99% (2019: 1.87%).
Matters subsequent to the end of the year
On 23 July 2020, the Group contracted to acquire 1,655 hectares of grazing land adjacent to the Homehill property
for $4.1 million excluding transaction costs. Settlement is expected to occur in December 2020 and will be funded
from RFF’s debt facility.
On 3 August 2020, the Group contracted to acquire 5,409 hectares of sugar cane farms (with associated plant and
equipment) and 8,060 ML of water entitlements from MSF Sugar Pty Ltd for $81.1 million excluding transaction
costs. Settlement is expected to occur in October 2020 and will be funded from an approved increase to the Group’s
debt facility.
On 24 August 2020, the Group exchanged contracts for the sale of the Mooral almond orchard for $98.0m (subject
to various adjustments and inclusions) with a global agriculture and timberland investment manager as nominee
for a special purpose vehicle that will be owned by pension funds and institutional investors. The sale is conditional
on completion of due diligence (within 45 days but subject to possible extensions) and Foreign Investment Review
Board approval.
No other matter or circumstance has arisen since the end of the year that has significantly affected or could
significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group
in future financial years.
Likely developments and expected results of operations
The Group expects to continue to derive its core future income from the holding and leasing of agricultural property
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. Responsibility of water licences that are leased to external parties then requires the
tenant to meet the legislative requirements for these licences. There have been no known significant breaches of
any environmental requirements applicable to the Group.
40
7
Rural Funds Group
Directors’ Report
30 June 2020
Climate change risk
RFM is aware of the potential risks that climate change could present to the Group’s assets. RFM has committed
to a climatic diversification strategy in order to mitigate these risks. Some of the areas that RFM is focused on is
the impact of emissions from Group’s assets, including carbon dioxide, methane, and nitrous oxide. The Group’s
assets produce these emissions through its agricultural infrastructure and machinery, cattle assets and through the
application of fertiliser. As part of RFM's ongoing strategy to mitigate and improve climate related risks, RFM will
continue to monitor emissions and seek to implement infrastructure and practice changes. RFM considers that
climate change may present risks for the Group primarily in the form of residual risk of the Group's assets at the
end of the lease terms. These risks may be mitigated by how the assets are managed. External valuations consider
these types of factors as well as other risks when determining the valuations of the assets.
COVID-19 outbreak
During the year ended 30 June 2020, there was an outbreak of Coronavirus Disease 2019. There have been
unprecedented measures put in place by the Australian Government, as well as governments across the globe, to
contain the coronavirus which has led to significant uncertainty and has had a significant impact on the Australian
and global economies. Following the outbreak, the Group continues to operate with no significant impacts to its
ongoing operation to date. RFM will continue to monitor the potential impacts of the outbreak.
Units on issue
337,713,420 units in Rural Funds Trust were on issue at 30 June 2020 (2019: 334,263,593). During the year
3,449,827 units (2019: 78,633,078) were issued by the Trust and nil (2019: nil) were redeemed.
Indemnity of Responsible Entity and Custodian
In accordance with its constitution, Rural Funds Group indemnifies the Directors, Company Secretary 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
Non-Executive Chairman
Bachelor of Laws from The University of Melbourne
Guy Paynter is a former director of broking firm JB Were. Guy 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’s agricultural interests
include cattle breeding in the Upper Hunter region in New South Wales.
Member of Audit Committee and Remuneration Committee
Directorships of other listed entities
in the last three years
RFM Poultry
David Bryant
Qualifications
Experience
Managing Director
Diploma of Financial Planning from the Royal Melbourne Institute of
Technology and 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. RFM manages
approximately $1.3 billion of agricultural assets. David is responsible for
leading the RFM management team, maintaining key commercial
relationships and sourcing new business opportunities.
Special responsibilities
Managing Director
Directorships of other listed entities
in the last three years
RFM Poultry
8
41
Rural Funds Group
Directors’ Report
30 June 2020
Information on Directors of the Responsible Entity (continued)
Michael Carroll
Qualifications
Experience
Non-Executive Director
Bachelor of Agricultural Science from La Trobe University and a Master of
Business Administration from The University of Melbourne's Melbourne
Business School. Michael has completed the Advanced Management
Program at Harvard Business School, Boston, and is a Fellow of the
Australian Institute of Company Directors.
Michael Carroll serves in a board and advisory capacity for a range of
agribusiness entities. Michael is Chairman of Viridis Ag Pty Limited and
Australian Rural Leadership Foundation. Michael is a Director on the
Boards of Select Harvests Limited and Paraway Pastoral Company
Limited. Former board positions include Elders Limited, Sunny Queen
Australia Pty Limited, Tassal Group Limited, the Australian Farm Institute,
Warrnambool Cheese and Butter Factory Company Holdings Limited,
Queensland Sugar Limited, Rural Finance Corporation of Victoria, Meat
and Livestock Australia and the Geoffrey Gardiner Dairy Foundation.
Michael’s advisory clients have included government, major banks and
institutional investors. He comes from a family who have been involved in
agricultural for over 145 years and has his own property in South West
Victoria. Michael has senior executive experience in a range of companies,
including establishing and leading the National Australia Bank (NAB)
Agribusiness division. Michael worked for several years as a Senior
Adviser in the NAB internal investment banking and corporate advisory
team. Before joining the NAB, Michael worked for a range of agribusiness
companies including Monsanto Agricultural Products and a biotechnology
venture capital company.
Special responsibilities
Chairman of Audit Committee and Remuneration Committee
Directorships of other listed entities
in the last three years
Michael is on the Boards of Select Harvests Limited with previous roles as
Chairman of Elders Limited and Director of Tassal Group Limited and RFM
Poultry.
Julian Widdup
Qualifications
Experience
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 Widdup has been involved in the financial services industry for over
25 years. Julian’s current Directorships include Australian Catholic
Superannuation & Retirement Fund, Catholic Schools NSW, Screen
Canberra and Cultural Facilities Corporation. Julian is a former executive
of infrastructure investment management companies, Palisade Investment
Partners and Access Capital Advisers (now Whitehelm Capital) where 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.
Special responsibilities
Member of Audit Committee and Remuneration Committee
Directorships of other listed entities
in the last three years
RFM Poultry
42
9
Rural Funds Group
Directors’ Report
30 June 2020
Interests of Directors of the Responsible Entity
Balance at 30 June 2018
Additions
Balance at 30 June 2019
Additions
Balance at 30 June 2020
Guy Paynter
Units
814,696
244,408
1,059,104
500,000
1,559,104
Units
David Bryant* Michael Carroll
Units
20,322
7,301
11,678,182
2,736,672
14,414,854
823,180
15,238,034
27,623
57,111
84,734
Julian Widdup
Units
-
-
-
110,203
110,203
*Includes interests held by Rural Funds Management Limited as the Responsibly Entity.
Company Secretary of the Responsible Entity
Emma Spear is RFM’s company secretary. Emma joined RFM in 2008, is a member of CPA Australia and is
admitted as a Legal Practitioner of the Supreme Court of the ACT.
Meetings of Directors of the Responsible Entity
During the financial year 19 meetings of Directors (including committees of Directors) were held. Attendances by
each Director during the year were as follows:
Directors
meetings
Audit Committee
meetings
Remuneration
Committee meetings
No. eligible
to attend
No.
attended
No. eligible
to attend
No.
attended
16
16
16
16
15
16
16
16
3
-
3
3
3
-
3
3
No. eligible
to
attend
-
-
-
-
No.
attended
-
-
-
-
Guy Paynter
David Bryant
Michael Carroll
Julian Widdup
Non-audit services
Fees of $15,690 (2019: $9,425) were paid or payable to PricewaterhouseCoopers for compliance audit services
provided for the year ended 30 June 2020.
Auditor’s independence declaration
The auditor’s independence declaration in accordance with section 307C of the Corporations Act 2001 for the year
ended 30 June 2020 has been received and is included on page 11 of the financial report.
The Directors’ report is signed in accordance with a resolution of the Board of Directors of Rural Funds
Management Limited.
David Bryant
Director
25 August 2020
10
43
Auditor’s Independence Declaration
As lead auditor for the audit of Rural Funds Group for the year ended 30 June 2020, 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 Trust and the entities it controlled during the period.
Rod Dring
Partner
PricewaterhouseCoopers
Sydney
25 August 2020
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.
11
44
Rural Funds Group
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2020
Continuing operations
Revenue
Other income
Management fees
Property expenses
Finance costs
Other expenses
Gain on sale of assets
Depreciation and impairments - plant and equipment
Depreciation - bearer plants
(Impairment)/reversal of impairment of bearer plants
Change in fair value of investment property
Change in fair value of interest rate swaps
(Impairment)/reversal of impairment of intangible assets
Change in fair value of financial assets/liabilities
Net profit before income tax from continuing operations
Income tax expense
Net profit after income tax from continuing operations
Net profit before income tax from discontinued operations
Income tax expense on discontinued operations
Net profit after income tax from discontinued operations
Net profit after income tax
Other comprehensive income:
Items that will not be reclassified to profit or loss
Revaluation increment - bearer plants
Income tax relating to these items
Other comprehensive income for the year, net of tax
Total comprehensive income attributable to unitholders
Note
B3
B3
C6
C3
C3
C2
C5
D1
G3
G3
C3
D1
2020
$'000
66,818
4,397
(9,621)
(2,038)
(10,255)
(4,938)
4,032
(2,244)
(4,838)
(499)
16,194
(7,624)
(798)
510
49,096
(1,553)
47,543
1,502
(57)
1,445
48,988
12,950
-
12,950
61,938
2019
$'000
55,674
2,541
(7,651)
(1,534)
(8,532)
(3,723)
12
(1,230)
(4,600)
8,854
15,344
(18,208)
105
(70)
36,982
(4,824)
32,158
1,197
-
1,197
33,355
(275)
(2)
(277)
33,078
The accompanying notes form part of these financial statements.
12
45
Rural Funds Group
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2020
Total net profit after income tax is attributable to:
Rural Funds Trust
RF Active (non-controlling interest)
Note
Total comprehensive income for the year is attributable
to:
Rural Funds Trust
RF Active (non-controlling interest)
Total comprehensive income for the year attributable to
unitholders arising from:
Continuing operations
Discontinued operations
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)
Basic and diluted earnings per unit attributable to the unitholders:
Per stapled unit (cents)
Per unit of Rural Funds Trust (cents)
Per unit of RF Active (cents)
B4
B4
B4
2020
$'000
44,627
4,361
48,988
57,577
4,361
61,938
60,493
1,445
61,938
14.15
12.85
1.30
14.58
13.28
1.30
2019
$'000
32,388
967
33,355
32,111
967
33,078
31,881
1,197
33,078
9.86
9.56
0.30
10.23
9.93
0.30
The accompanying notes form part of these financial statements.
13
46
Rural Funds Group
Consolidated Statement of Financial Position
As at 30 June 2020
Note
2020
$'000
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Assets held for sale
Other current assets
Total current assets
Non-current assets
Investment property
Plant and equipment - bearer plants
Financial assets
Intangible assets
Plant and equipment - other
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Interest bearing liabilities
Income tax payable
Derivative financial liabilities
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
F1
F2
C7
F3
C2
C3
C4, E2
C5
C6
F4
E1
D2
E3
E8
E1
F5
E3
D2
2019
$'000
2,588
5,043
-
1,699
9,330
489,327
172,915
70,447
118,531
8,537
859,757
869,087
6,101
3,832
439
103
8,950
19,425
5,085
5,446
63,358
2,688
76,577
474,838
153,528
100,225
106,551
3,201
838,343
914,920
3,502
3,814
1,533
3,666
9,460
21,975
297,248
291,445
3,877
27,999
5,855
334,979
356,954
557,966
914,920
2,629
23,938
5,778
323,790
343,215
525,872
869,087
*Water entitlements are held at cost in the Consolidated Statement of Financial Position in accordance with
accounting standards. Refer to note B1 Segment information, 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.
14
47
Rural Funds Group
Consolidated Statement of Financial Position
As at 30 June 2020
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
E7
F6
E7
2020
$'000
2019
$'000
355,923
59,412
131,628
546,963
4,651
6,352
11,003
358,269
46,462
114,565
519,296
4,585
1,991
6,576
Total net assets attributable to unitholders
557,966
525,872
The accompanying notes form part of these financial statements.
15
48
Rural Funds Group
Consolidated Statement of Changes in Net Assets Attributable to Unitholders
For the year ended 30 June 2020
2020
Note
Issued
units
$'000
Asset
revaluation
reserve
$'000
Retained
earnings
$'000
Non-
controlling
interest
$'000
Total
$'000
Total
$'000
Balance at 1 July 2019
358,269
46,462
114,565
519,296
6,576
525,872
-
-
-
-
-
12,950
12,950
-
-
-
-
12,950
12,950
-
-
12,950
12,950
45,213
45,213
5,385
50,598
(586)
(586)
(1,024)
(1,610)
12,950
44,627
57,577
4,361
61,938
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
Distributions to unitholders
6,494
79
6,573
(8,919)
E7
B4,
E7
-
-
-
-
-
-
-
6,494
79
6,573
66
-
66
6,560
79
6,639
(27,564)
(36,483)
-
(36,483)
Balance at 30 June 2020
355,923
59,412
131,628
546,963
11,003
557,966
2019
Balance at 1 July 2018
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
D1
E7
B4,
E7
Issued
units
$'000
Asset
revaluation
reserve
$'000
Retained
earnings
$'000
Non-
controlling
interest
$'000
Total
$'000
Total
$'000
230,574
46,739
97,310
374,623
4,112
378,735
-
-
-
-
-
(277)
(277)
-
-
(277)
(277)
-
-
(277)
(277)
-
-
36,799
(4,411)
36,799
(4,411)
1,380
(413)
38,179
(4,824)
(277)
32,388
32,111
967
33,078
152,288
(4,948)
147,340
(19,645)
-
-
-
-
-
-
-
152,288
(4,948)
147,340
1,540
(43)
1,497
153,828
(4,991)
148,837
(15,133)
(34,778)
-
(34,778)
Balance at 30 June 2019
358,269
46,462
114,565
519,296
6,576
525,872
The accompanying notes form part of these financial statements.
16
49
Rural Funds Group
Consolidated Statement of Cash Flows
For the year ended 30 June 2020
Cash flows from operating activities
Receipts from customers (inclusive of GST)
Payments to suppliers (inclusive of GST)
Interest received
Finance income
Finance costs
Income tax paid
Net cash inflow from operating activities
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 intangible assets
Proceeds from sale of plant and equipment
Proceeds from other assets/liabilities
Proceeds from sale of poultry assets
Transaction costs on disposal of poultry assets
Distributions received
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from issue of units
Proceeds from borrowings
Repayment of borrowings
Distributions paid
Net cash (outflow)/inflow from financing activities
Net 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
Note
2020
$'000
2019
$'000
C2
C3
C5
C6
G3
G3
E7
71,021
(26,723)
139
10,218
(10,881)
(439)
43,335
66,199
(19,139)
83
6,853
(9,985)
(277)
43,734
(59,779)
(123,657)
(2,997)
(3,250)
(27,243)
(2,228)
6,668
173
-
71,913
(596)
50
(11,697)
(11,500)
(32,076)
(4,277)
-
50
2,322
-
-
31
(17,289)
(180,804)
6,639
78,101
(72,316)
(35,973)
(23,549)
2,497
2,588
5,085
148,832
221,646
(199,569)
(32,461)
138,448
1,378
1,210
2,588
The accompanying notes form part of these financial statements.
17
50
Rural Funds Group
Notes to the Financial Statements
30 June 2020
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 25 August 2020 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 G4.
COVID-19 outbreak
During the year ended 30 June 2020, there was an outbreak of Coronavirus Disease 2019. There have been
unprecedented measures put in place by the Australian Government, as well as governments across the globe, to
contain the coronavirus which has led to significant uncertainty and has had a significant impact on the Australian
and global economies. Following the outbreak, the Group continues to operate with no significant impacts to its
ongoing operation to date. RFM will continue to monitor the potential impacts of the outbreak.
Basis of preparation
The Trusts have common business objectives and operate collectively as an economic entity 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 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.
These financial statements are consolidated financial statements and accompanying notes of both Rural Funds
Trust and RF Active.
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.
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, 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.
18
51
Rural Funds Group
Notes to the Financial Statements
30 June 2020
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.
The following are areas for which significant judgements, estimates or assumptions are made:
Valuation of property related assets
Independent valuations on the Group’s properties are obtained, ensuring that each property will have been
independently valued every two financial years or more often where appropriate. Independent valuation reports
assess and provide value for properties in their entirety.
Significant judgement is applied in order to allocate the total property value, as disclosed in the independent
valuation reports where applicable, to investment property, bearer plants and water entitlements. The allocation
technique will vary depending on the nature of the lease arrangement.
Where information is available, each component of the property, meaning the land and infrastructure, the trees and
any water assets, disclosed in the financial statements as investment property, bearer plants and water
entitlements, will be allocated on an encumbered (subject to lease) basis.
If this information is not available, the valuation report may provide additional information, such as the summation
basis of the unencumbered (not subject to lease) value, which along with other sources, including the nature of
capital expenditure on the property, is used to determine the encumbered allocation to components. Significant
judgement is applied as part of these allocations, which vary from property to property, given the individual
circumstances of the leasing arrangements. The allocation technique may change to reflect the best estimate of
fair value attributable to each component at reporting date. Allocation techniques are disclosed in Note C1.
Estimation of useful lives of bearer plants
The useful lives of bearer plants have been estimated by assessing industry data. The useful lives of bearer plants
are disclosed in Note C3.
Comparative amounts
Comparative amounts have not been restated unless otherwise noted.
Going concern
These consolidated financial statements have been prepared on a going concern basis which contemplates the
realisation of assets and settlement of liabilities in the normal course of business as they become due.
On 3 August 2020, the Group announced it has contracted to acquire 5,409 ha of sugar cane farms (with associated
plant and equipment) and 8,060 ML of water entitlements from MSF Sugar Pty Ltd (MSF) for $81.1m. Settlement
is expected to occur in October 2020.
At the date of these accounts, the Group announced that conditional contracts have been exchanged for the sale
of the Mooral almond orchard. The Mooral almond orchard sale was a consideration in determining the funding
requirements for these transactions. Approvals were obtained from RFF’s bankers in July 2020 and modified in
August 2020 to increase the limit of the $225,000,000 tranche of the debt facility to $290,000,000. This tranche of
the facility will reduce from $290,000,000 to $260,000,000 at the earlier of the potential Mooral almond property
sale and November 2021. There were no changes to the $110,000,000 tranche with maturity in November 2023.
The directors are confident the Group has sufficient funding in place to meet its ongoing working capital
requirements for a minimum period of twelve months from the date of these financial statements. Accordingly, the
directors have prepared the financial report on a going concern basis.
Working capital
Working capital at 30 June 2020 is impacted by the timing of distributions. Based on the forecast cash flows, the
Group believes it can pay all its debts as and when they fall due for at least a minimum period of 12 months from
the date of these accounts. The Group has headroom in its bank facility limit of approximately $37.8 million as at
30 June 2020 subject to compliance with the Group’s bank covenants.
52
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R
Rural Funds Group
Notes to the Financial Statements
30 June 2020
B1 Segment information (continued)
Net asset value adjusted for water rights
The chief operating decision maker of RFF assesses the segments on property asset values 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 recognised as financial assets) at 30
June 2020 is $129,246,000 (2019: $131,273,000).
Independent valuations on the Group’s properties are obtained, ensuring that each property will have been
independently valued every two years or more often where appropriate. Independent valuation reports assess and
provide value for properties in their entirety. The independent valuation reports contains information with which
judgement is applied in order to allocate values to investment property, bearer plants and water entitlements. The
Directors have taken into account the most recent valuations on each property and consider that they remain a
reasonable estimate and on this basis the fair value of water entitlements before deferred tax adjustments at 30
June 2020 was $226,945,000 (2019: $208,042,000) representing the value of the water rights of $97,699,000
(2019: $76,769,000) above cost.
The following is a reconciliation of the book value at 30 June 2020 to an adjusted value based on the Directors'
valuation of the water rights which are assessed by the chief operating decision maker.
Assets
Total current assets
Total non-current assets
Total assets
Liabilities
Total current liabilities
Total non-current liabilities
Total liabilities
Net assets
Net asset value per unit ($)
Per Statutory
Consolidated
Statement of
Financial
Position
$'000
Revaluation of
water
entitlements per
Directors'
valuation
$'000
76,577
838,343
914,920
21,975
334,979
356,954
557,966
1.65
-
97,699
97,699
-
-
-
97,699
0.29
Directors'
valuation
(Adjusted)
$'000
76,577
936,042
1,012,619
21,975
334,979
356,954
655,665
1.94
56
23
Rural Funds Group
Notes to the Financial Statements
30 June 2020
B1 Segment information (continued)
Total property assets by property
Area
808 ha
1,006 ha
603 ha
2,530 ha
17,479 ha
140,300 ha
85,500 ha
390,600 ha
7,600 ha
8,280 ha
1,728 ha
150,000 hd
1,063 ha
6,500 ha
2,942 ha
1,601 ha
1,653 ha
321 ha
2,173 ha
3,270 ha
4,880 ha
2,942 ha
130 ha
104 ha
27 ha
38 ha
40 ha
40 ha
206 ha
243 ha
30 ha
50 ha
55 ha
82 ha
8,754 ML
1,910 ML
30 June 2020
Almonds
Mooral (NSW) (held for sale)
Yilgah (NSW)
Tocabil (NSW)
Kerarbury (NSW)
Cattle
Rewan (QLD)
Mutton Hole (QLD)
Oakland Park (QLD)
Natal Aggregation (QLD)
Comanche (QLD)
Cerberus (QLD)
Dyamberin (NSW)
JBS Feedlots Finance Lease Receivable
(NSW/QLD)
Woodburn (NSW)
Cobungra (VIC)
Petro (WA)
High Hill (WA)
Willara (WA)
Wattlebank (QLD)
Yarra (QLD)
Homehill (QLD)
Cropping
Lynora Downs (QLD)
Mayneland (QLD)
Macadamias
Swan Ridge (QLD)
Moore Park (QLD)
Bonmac (QLD)
Cygnet (QLD)
Swan Ridge South (QLD)
Nursery Farm (QLD)
Vineyards
Kleinig (SA)
Geier (SA)
Dohnt (SA)
Hahn (SA)
Mundy and Murphy (SA)
Rosebank (VIC)
Water
River water (NSW)
Ground water (NSW)
Total property and water assets
Cattle finance leases and other assets
Plant and equipment
Other receivables and equipment leases
Plant and equipment held for sale
Total adjusted property assets
30 June 20
Adjusted
30 June 19
Adjusted
Most Recent Independent
Valuation
property
value
$'000
property
value
$'000
Date
$'000
Encumbered
valuation
$'000
75,879
105,112
47,119
223,282
74,850
111,248
40,126
196,340
76,000
105,000
47,000
223,000
43,075
8,695
5,365
63,700
21,997
13,844
13,900
N/A
7,300
35,000
11,700
4,900
4,900
1,800
6,150
7,750
33,050
17,500
6,400
4,000
2,900
-
-
-
22,700
28,200
1,025
4,850
3,800
3,400
65,217
3,056
Mar 2020
Mar 2020
Mar 2020
Mar 2020
Jun 2019
Jun 2019
Jun 2019
Dec 2019
Jun 2020
Jun 2020
Jun 2020
N/A
Jun 2020
Feb 2019
Feb 2020
Feb 2020
Feb 2020
Jun 2020
Jun 2020
Jun 2020
43,075
8,635
5,365
55,675
15,827
10,891
14,073
29,034
6,503
35,000
-
-
-
-
-
-
33,055
16,876
Jun 2019
Apr 2020
5,986
4,914
1,822
-
-
-
22,805
28,200
1,025
4,850
3,800
3,400
Oct 2019
Oct 2019
Oct 2019
-
-
-
Jun 2019
Jun 2019
Jun 2019
Jun 2019
Jun 2019
Jun 2019
48,147
3,056
Jun 2020
Dec 2017
43,159
9,209
5,605
63,700
22,003
13,849
13,900
54,846
7,300
35,050
11,700
4,900
4,900
1,795
6,194
7,750
33,736
17,832
6,653
3,953
2,852
1,770
1,645
3,028
22,286
27,748
1,019
5,154
4,062
3,365
65,216
-
957,571
824,578
29,031
3,201
3,161
3,768
25,531
8,537
953
-
996,732
859,599
The almond, vineyard and macadamia areas detailed above refer to planted and planned development areas.
24
57
Rural Funds Group
Notes to the Financial Statements
30 June 2020
B1 Segment information (continued)
Total property assets by property (continued)
Revaluations from external valuations
The four almond properties have been revalued during the year ended 30 June 2020. On an overall basis, the
aggregated almond properties encumbered value have increased since 30 June 2019 which have been driven by
a number of factors as outlined below. As noted in note C1, the valuer adopts a discounted cash flow approach as
its primary technique in deriving a value. This is supported by market transactions including comparable sales
evidence. There has been a decrease in the discount rates adopted by the external independent valuer in the
current financial year as part of the discounted cash flow approach. This has been a result of various factors
including market transactions and comparable sales evidence, the decrease in the 10-year government bond rate
over the past year, and market sentiment for these classes of assets which has been largely driven by an increase
in demand. As part of the valuation process, the external independent valuer performs comparisons between the
subject property to any market transactions. In doing so, the valuer would identify and contrast key aspects of the
subject property including any encumbrances, such as any lease arrangements, as part of the analysis in
determining the encumbered valuation. For the newly developed almond properties, Tocabil and Kerarbury, the
valuer noted a decrease in the discount rates adopted based on the above factors and also as a reflection of the
age profile of the orchards approaching maturity and the lease arrangements in place. Given the age profile of the
Mooral and Yilgah properties, which are mature orchards, the discount rates adopted have not decreased to the
same extent as the Tocabil and Kerarbury properties.
The cattle properties have increased in value during the year ended 30 June 2020. The Group acquired an
additional six cattle properties and two feedlots during the year. In addition, there has been a noted increase in the
valuation for a number of the Group’s properties. External valuations were completed for eleven of the Group’s
cattle properties during the year. Six of these valuations were completed as part of the acquisition of the properties,
and five valuations were completed for properties that were acquired prior to the start of the year, namely the Natal
Aggregation, Comanche, Cerberus, Dyamberin and Woodburn properties. These five properties have been the key
contributors to the revaluation uplift recognised for the cattle properties. The uplift has been a result of factors
including increased productivity of the properties which is measured by the rate of adult equivalents and the number
of adult equivalents as part of a carrying capacity analysis performed by the external valuer. The increase to the
rate of adult equivalents has been driven by improved demand and market sentiment for cattle properties across
these locations. Demand and market sentiment have also been affected by a decrease in interest rates. The
increase in number of adult equivalents has been driven by the development capital expenditure that the Group
has spent on the properties to date with the aim of being able to increase the amount of cattle that is able to be run
on the properties. Further information on the significant unobservable inputs adopted by the external valuer in the
fair value measurement of the properties is described in note C1.
The river water valuation has increased as a result of comparable market transactions as assessed by the
independent external valuer. Any increases in value above the cost for these intangible water assets are not
recognised in the financial statements but disclosed as an adjustment to asset values as noted in the segment note
in B1.
Adjusted property values movements subsequent to external revaluations
Increases to the adjusted property value from the last encumbered valuation is primarily a result of new acquisitions
or capital expenditure subsequent to the valuation, designed to improve an asset’s productivity and value.
Decrease to the adjusted property value from the last encumbered valuation is primarily a result of depreciation on
the bearer plants.
58
25
Rural Funds Group
Notes to the Financial Statements
30 June 2020
B2 Adjusted funds from operations (AFFO)
The following presents the components of adjusted funds from operations (AFFO) and provides a reconciliation
from AFFO to Net profit after income tax which is assessed by the chief operating decision maker.
Continuing operations
Revenue
Other income
Management fees
Property expenses
Finance costs
Other expenses
Straight-lining of rental revenue
Interest component of JBS feedlot finance lease
Income tax payable on public trading trust (RF Active)
Discontinued operations
Revenue
Other income
Management fees
Property expenses
Finance costs
Other expenses
Income tax payable on public trading trust (RF Active)
Adjusted Funds From Operations (AFFO)
Change in fair value of interest rate swaps
Depreciation and impairments – plant and equipment
Depreciation - bearer plants
(Impairment)/reversal of impairment of bearer plants
Change in fair value of investment property
Change in fair value of investment property - discontinued operations
Change in fair value of financial assets/liabilities
Impairment of intangible assets
Straight-lining of rental revenue
Interest component of JBS feedlot finance lease
Income tax expense
Gain on sale of assets
Loss on disposal - one off transaction costs
Net profit after income tax
2020
$'000
66,818
4,397
(9,621)
(2,038)
(10,255)
(4,938)
(1,232)
(789)
(884)
5,160
4
(334)
(28)
(626)
(150)
(57)
45,427
(7,624)
(2,893)
(4,838)
(499)
16,194
(1,250)
510
(798)
1,232
789
(669)
4,003
(596)
48,988
2019
$'000
55,674
2,541
(7,651)
(1,534)
(8,532)
(3,723)
(953)
(352)
(413)
10,717
-
(845)
(61)
(1,453)
(169)
-
43,246
(18,208)
(1,230)
(4,600)
8,854
15,344
(6,992)
(70)
105
953
352
(4,411)
12
-
33,355
AFFO cents per unit
13.5
13.3
26
59
Rural Funds Group
Notes to the Financial Statements
30 June 2020
B3 Revenue
Continuing operations
Rental income
Finance income
Interest received
Total
Discontinued operations
Rental income
Interest received
Total
2020
$'000
55,716
10,987
115
66,818
5,136
24
5,160
2019
$'000
48,386
7,205
83
55,674
10,717
-
10,717
The Group’s revenue is largely comprised of income under leases and finance income. 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 a straight-line basis over the period of the lease. The respective leased assets are included in the Consolidated
Statement of Financial Position based on that nature.
Finance income arises from the provision of financial guarantees and working capital loans, finance leases on cattle
feedlots and cattle breeders and leased agricultural plant and equipment and recognised on an accrual basis using
the effective interest rate method.
Other Income
Sale of temporary water allocations
Other income
Other income - discontinued operations
Total
Expenses
2020
$'000
4,308
89
4
4,401
2019
$'000
2,427
114
-
2,541
Expenses such as Responsible Entity fees, property expenses and overheads are recognised on an accruals basis.
Interest expenses are recognised on an accrual basis using the effective interest method.
B4 Earnings per unit
Per stapled unit
Net profit after income tax for the year ($'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)
2020
2019
48,988
336,035
14.58
44,627
336,035
13.28
4,361
336,035
1.30
33,355
326,170
10.23
32,388
326,170
9.93
967
326,170
0.30
Basic earnings per unit are calculated on net profit attributable to unitholders of the Group divided by the weighted
average number of issued units.
27
60
Rural Funds Group
Notes to the Financial Statements
30 June 2020
B5 Distributions
The group paid and declared the following distributions during the year:
Distribution declared 3 June 2019, paid 31 July 2019
Distribution paid 31 October 2019
Distribution paid 31 January 2020
Distribution paid 30 April 2020
Distribution declared 2 June 2020, paid 31 July 2020
Cents
per unit
2.6075
2.7118
2.7118
2.7118
2.7118
Total
$
8,715,923
9,082,534
9,107,837
9,133,908
9,158,113
28
61
Rural Funds Group
Notes to the Financial Statements
30 June 2020
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 – bearer plants,
Intangible assets, Financial assets and Plant and equipment – other. 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 - other
Asset held for sale
Total
C2
C3
C4
C5
C6
C7
Rental income and fair value movements from RFF property assets
Continuing operations (including Mooral)
Rental income from property assets
Change in fair value of investment property
Revaluation increment - bearer plants
Discontinued operations
Rental income from property assets
Change in fair value of investment property
Loss on disposal
Leasing arrangements
2020
$'000
474,838
153,528
97,557
106,551
3,201
63,358
899,033
2020
$'000
66,703
16,194
12,451
5,136
(1,250)
(625)
2019
$'000
489,327
172,915
68,260
118,531
8,537
-
857,570
2019
$'000
55,591
15,344
8,579
10,717
(6,992)
-
Minimum lease payments receivable under non-cancellable operating leases of investment properties, bearer plants,
plant and equipment, water rights and assets held for sale not recognised in the financial statements, are receivable
as follows:
Within 1 year
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
Between 4 and 5 years
Later than 5 years
Total
62
2020
$'000
56,860
56,959
56,902
55,239
55,785
370,538
652,283
2019
$'000
63,703
63,509
63,349
61,674
60,414
413,953
726,602
29
Rural Funds Group
Notes to the Financial Statements
30 June 2020
C1 RFF property assets (continued)
Key changes to the property portfolio during the year:
In July 2019, the Group entered into a simultaneous arrangement that terminated the current Rewan lease
with Cattle JV Pty Limited and commenced a new ten year lease with Australian Agricultural Company
Limited (AACo).
In August 2019, the Group settled the acquisition of the Beef City feedlot, located in Queensland, for $12.8
million. Adjacent cropping land settled in October 2019 for $0.5 million.
In October 2019, the Group purchased Cygnet, a property located in Queensland, for $1.6 million. The
property is currently unleased and under development to 40 hectares of macadamia plantings.
In December 2019, the Group sold its poultry assets to ProTen Investment Management Pty Ltd as trustee
for ProTen Investment Trust (ProTen) for $71.0 million. The sale consisted of shedding assets and water
entitlements. The Group also sold its poultry related plant and equipment held in RF Active to ProTen for
$0.9 million.
In January 2020, the Group purchased Wattlebank, a 321 hectare cattle property located in central
Queensland for $1.8 million including transaction costs. A lessee is currently being sought.
In February 2020 the Group purchased Petro, High Hill and Willara for $22.6 million including transaction
costs. These three cattle properties are located in Western Australia and are leased to Stone Axe Pastoral
Company for a period of ten years.
In February 2020, the Group disposed of unleased groundwater assets totaling 1,910 ML for $6.7 million.
In March 2020, the Group purchased Swan Ridge South, a 123 hectare property adjoining Swan Ridge,
located in the Bundaberg region for $1.6 million including transaction costs. The property is currently
unleased and under development for macadamia plantings. The Group also purchased a 64 hectare
property in the Bundaberg region for $2.2 million including transaction costs. The property is currently
unleased and under development for macadamia plantings and the establishment of a macadamia tree
nursery.
In April 2020, unitholders approved an increase to the guarantee provided to J&F Australia Pty Limited (J&F)
a wholly owned subsidiary of Rural Funds Management Limited from $75 million to $100 million. The initial
guarantee increase was $7.5 million. The Group receives a fee from J&F on the guarantee provided.
In April 2020, the Group announced the commencement of the marketing process for the sale of the Mooral
almond orchard.
In May 2020, the Group settled the acquisition of the Riverina feedlot, located in New South Wales, for $11.6
million including transaction costs. The Group also purchased Yarra, a 2,173 hectare cattle property located
in the Rockhampton region of Queensland for $7.5 million including transaction costs. A lessee is currently
being sought.
In June 2020, the Group purchased Homehill, a 3,270 hectare cattle property located in the Rockhampton
region of Queensland for $8.7 million including transaction costs. A lessee is currently being sought.
30
63
Rural Funds Group
Notes to the Financial Statements
30 June 2020
C1 RFF property assets (continued)
Valuations
Independent valuations on the Group’s properties are obtained, ensuring that each property will have been
independently valued every two financial years or more often where appropriate. Independent valuers engaged hold
recognised and relevant professional qualifications with experience in agricultural properties.
The following existing properties had relevant independent valuations during the year ended 30 June 2020:
Almond properties
Cattle properties
Cropping properties
Macadamia properties
Other
Tocabil, Yilgah, Mooral, Kerarbury
Comanche, Cerberus, Dyamberin, Woodburn, Natal Aggregation
Mayneland
Swan Ridge, Moore Park, Bonmac
Unleased High Security Murrumbidgee Water
The Directors have considered independent valuations and market evidence where appropriate to determine the
appropriate fair value to adopt. The Directors have adopted all valuations from independent valuers in the periods
where valuations have been obtained.
The Directors have deemed that independent valuations were not required on the remaining properties as there have
been no material changes to the industry, physical and geographical conditions of these properties in which the
independent valuers have previously assessed. For these properties, the Directors have performed internal
assessments, considering the latest valuation reports, that the carrying amount is still reflective of the fair value of
the properties at reporting date.
The Group’s properties, including those under development, are carried 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. Independent valuation reports assess and provide value for properties in its entirety. The independent
valuation reports contain information with which judgement is applied in order to allocate values to investment
property, bearer plants and water entitlements, where relevant.
Judgement is applied in order to allocate the total property value, as disclosed in the independent valuation reports,
to each component; investment property, bearer plants and water entitlements. The allocation technique will vary
depending on the nature of the lease arrangement.
Where information is available, such as when provided by the external valuer, each component of the property,
meaning the land and infrastructure, the trees and any water assets, disclosed in the financial statements as
investment property, bearer plants and water entitlements, will be allocated on an encumbered (subject to lease)
basis.
If this information is not available, the valuation report may provide additional information, such as the summation
basis of the unencumbered (not subject to lease) value, which along with other sources, including the nature of capital
expenditure on the property, is used to determine the encumbered allocation to components. Judgement is applied
as part of these allocations which vary from property to property given the individual circumstances of the leasing
arrangements. The allocation technique may change to reflect the best estimate of fair value attributable to each
component at reporting date.
Valuation reports obtained subsequent to December 2019 have referred to circumstances of uncertainty as a result
of the outbreak of COVID-19. For the avoidance of doubt, such references have not meant that the valuations cannot
be relied upon but rather ensures transparency of the fact that in the current circumstances, less certainty can be
attached to the valuation than would otherwise be the case. Discussions held with the valuers have confirmed that
there is no expected material impact to the valuations as a result of COVID-19.
Significant accounting judgements, 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, considering
the most recent independent valuations. The Directors determine a property’s value using reasonable fair value
estimates from the most recent independent valuer’s valuation reports.
Independent valuation reports assess and provide fair values for properties in their entirety. Judgement is applied in
order to allocate the total property values as disclosed in the independent valuation reports, to investment property,
bearer plants and water entitlements. The independent valuation reports contain information with which judgement
is applied to allocate values to investment property, bearer plants and water entitlements.
64
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65
Rural Funds Group
Notes to the Financial Statements
30 June 2020
C1 RFF property assets (continued)
Valuations (continued)
Primary valuation technique
External valuations typically assess property values using different valuation techniques.
Discounted cash flow
Income Capitalisation
Summation assessment
Productive unit
Allocation technique
Valuation based on future net rental cash flows discounted to the present
value. The terminal value (as determined by the terminal capitalisation rate) is
typically assessed and discounted in these types of valuations. The valuer may
also use comparative sales as supporting information.
Valuation based on a capitalisation rate on passing rent
Assessment of the property on an asset by asset basis based on comparative
sales evidence and typically driven by a rate per productive hectare and
assessment of other components such as water and supporting buildings.
Assessment on the property driven by the value per adult equivalent head that
is supported by the property and carrying capacity of the property.
Independent valuation reports assess and provide value for properties in their entirety. Component allocation
techniques are adopted to allocate the total property value to investment property, bearer plants and water
entitlements. The component allocation technique applied is assessed on each external valuation to ensure that
the allocation technique is consistent with the nature and characteristics of the property including any lease
encumbrances. The allocation technique may change to reflect the best estimate of fair value attributable to each
component at reporting date.
The following allocation techniques have been applied:
Rental base
Component based
Component based - Almonds
Proportionate
Applied for properties with long term indexed leases by allocating value to
component assets using the rental base. The rental base is identifiable and
generally determined by the cost of the assets. The allocation by rental base
reflects the encumbered nature of the assets where rental incomes are not
affected by short term market fluctuations in the value of the assets due to
lack of rental review mechanism.
The encumbered value is allocated based on information in the valuation
report which enables the allocation by components on an encumbered basis.
To determine the allocation of components on an encumbered basis, the
external valuer will assess various factors such as market indicators,
comparable sales data of encumbered assets, comparable rental data and
other relevant information such as replacement cost concepts.
Applied for properties where leases include rental reviews. Information is
provided in the valuation to allocate the encumbered value of the property to
water assets, investment property and bearer plants on an encumbered
basis.
Firstly, the approach allocated value to water assets based on comparable
encumbered rental data. The value of land was determined based on
comparable sales data. Orchard infrastructure including irrigation was
determined based on a replacement cost assumption adjusted for an
estimate of the age of the assets. Bearer plants was identified as being the
residual value of the total encumbered value of the property.
Applied for properties where leases include rental reviews and where
component based information is not able to be used. For properties with
water assets, the allocation considers the unencumbered value of water
assets and allocates this on a proportionate basis to the encumbered value
of the property. Judgement is then applied to allocate encumbered values to
investment property and bearer plants using available information, including
information from the valuation report and the nature of capital expenditure
on the relevant property.
66
33
Rural Funds Group
Notes to the Financial Statements
30 June 2020
C1 RFF property assets (continued)
Valuations (continued)
Unobservable inputs
Unobservable inputs are assumptions based on the assessments and determinations made by external valuers
in their capacity as qualified experts which are key inputs in the valuation techniques utilised.
Discount rate (%)
The higher the discount rate the lower the fair value
Terminal capitalisation rate (%)
The higher the terminal capitalisation rate the lower the fair value
Capitalisation rate (%)
The higher the capitalisation rate the lower the fair value
Average $ per irrigated hectare
The higher the value per irrigated hectare, the higher the fair value
$ per adult equivalent carrying
capacity
The higher the value per adult equivalent carrying capacity, the higher the
fair value
C2 Investment property
2020
Almond
property
Cattle
property
Vineyard
property
Cropping
property
Macadamia
property
Poultry
property
Total
$'000
$'000
$'000
$'000
$'000
$'000
$'000
Opening net book amount
136,016 193,447
37,651
46,260
4,857
71,096 489,327
Acquisitions
Additions
Classified as held for sale or
disposals
Amortisation of lease incentives
Fair value adjustment
Closing net book amount
2019
-
7,911
38,753
3,908
-
519
-
2,170
5,329
904
-
285
44,082
15,697
(18,881)
-
-
2,473
(200)
13,626
-
-
-
127,519 249,534
38,170
-
-
(534)
47,896
-
(70,131)
(89,012)
-
629
11,719
-
(1,250)
-
(200)
14,944
474,838
Almond
property
Cattle
property
Vineyard
property
Cropping
property
Macadamia
property
Poultry
property
Total
Opening net book amount
Acquisitions
Additions
Amortisation of lease incentives
Fair value adjustment
Closing net book amount
118,214 104,897
-
13,923
-
3,879
84,542
2,873
(200)
1,335
136,016 193,447
25,435
-
152
-
12,064
37,651
27,131
17,879
3,184
-
(1,934)
46,260
4,685
77,156 357,518
-
172
-
-
4,857
- 102,421
932
-
21,236
(200)
(6,992)
8,352
71,096 489,327
Investment properties comprise land, buildings and integral infrastructure including shedding, irrigation and
trellising.
Investment properties are held for long-term rental yields and capital growth and are not occupied by the Group.
RFF measures and recognises investment property at fair value where the valuation technique is based on
unobservable inputs. 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.
34
67
Rural Funds Group
Notes to the Financial Statements
30 June 2020
C3 Plant and equipment – bearer plants
2020
Opening net book amount
Additions
Classified as held for sale or disposals
Depreciation and impairment
Fair value adjustment - profit and loss
Fair value adjustment - other comprehensive
income
Closing net book amount
2019
Opening net book amount
Additions
Depreciation and impairment
Fair value adjustment - profit and loss
Fair value adjustment - other comprehensive
income
Closing net book amount
Bearer
Plants -
Almonds
$'000
145,226
2,897
(29,998)
(3,655)
-
12,335
Bearer
Plants -
Vineyards
$'000
20,721
-
-
(965)
-
-
Bearer
Plants -
Macadamias
$'000
6,968
100
-
(217)
(499)
615
Total
$'000
172,915
2,997
(29,998)
(4,837)
(499)
12,950
126,805
19,756
6,967
153,528
Bearer
Plants -
Almonds
$'000
129,330
11,470
(3,607)
8,313
(280)
Bearer
Plants -
Vineyards
$'000
20,898
227
(950)
541
5
Bearer
Plants -
Macadamias
$'000
7,011
-
(43)
-
-
Total
$'000
157,239
11,697
(4,600)
8,854
(275)
145,226
20,721
6,968
172,915
Bearer plants are solely used to grow produce over their productive lives and are accounted for under AASB 116
Property, Plant and Equipment.
Bearer plants are held for long-term rental yields and are not operated by the Group. RFF initially measures and
recognises bearer plants at cost. After initial measurement, the Group adopts the revaluation model and bearer
plants are carried at fair value less any accumulated depreciation and accumulated impairment losses.
Bearer plants are subject to revaluations based on the Group’s valuation policies. Increases in the carrying amounts
arising from revaluation of bearer plants are recognised in other comprehensive income and accumulated in net
assets attributable to unitholders under asset revaluation reserve. Revaluation increases which reverse a decrease
previously recognised in profit and loss are recognised in profit or loss. Revaluation decreases which offset previous
increases are recognised in other comprehensive income in the asset revaluation reserve. Any other decreases
are recognised in profit and loss.
Bearer plants are subject to depreciation over their respective useful lives calculated on a straight-line basis on the
carrying amount. Depreciation commences when bearer plants are assumed ready for use which is based on when
the trees reach maturity. The useful lives and maturity assumptions used for each class of depreciable asset are
shown below:
Fixed asset class:
Almond bearer plants
Vineyard bearer plants
Macadamia bearer plants
Useful life:
30 years
40 years
45 years
Depreciation commences from years:
6 years
4 years
13 years
At the end of each annual reporting period, the useful life, maturity assumptions and carrying amount of each asset
is reviewed. Any revisions are accounted for prospectively as a change in estimate.
68
35
Rural Funds Group
Notes to the Financial Statements
30 June 2020
C3 Plant and equipment – bearer plants (continued)
Bearer plants as stated on a historical cost basis is as follows:
Cost
Accumulated depreciation
Accumulated impairment
Net book amount
C4 Financial assets – property related
Non-current
Property related
Investment - BIL
Investment - CICL
Finance Lease - Breeders
Finance Lease - Feedlots
Finance Lease - Equipment
Cattle Facility - Katena Pty Ltd ATF Schafferius Family Trust
Cattle Facility - DA & JF Camm Pty Limited
Term Loan - DA & JF Camm Pty Limited
Other receivables
Total
2020
$'000
148,698
(14,389)
(2,840)
131,469
2020
$'000
520
11,464
14,383
54,846
978
1,300
1,881
10,000
2,185
97,557
2019
$'000
145,701
(11,328)
(2,355)
132,018
2019
$'000
520
12,222
14,431
29,034
-
1,100
-
10,000
953
68,260
Barossa Infrastructure Ltd (BIL) is an unlisted public Company supplying non-potable supplementary irrigation water for
viticulture in the Barossa. The Group holds a minority interest in BIL.
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. The Group holds a minority interest in CICL.
Finance Lease – Breeders is comprised of breeders which have been leased to Cattle JV Pty Limited, a wholly-owned
subsidiary of Rural Funds Management Limited, for a term of ten years ending in 2026.
Finance Lease – Feedlots is comprised of feedlots leased to JBS Australia Pty Limited (JBS) for a term of ten years
ending in 2028 with a repurchase call option exercisable by JBS and a sale put option exercisable by the Group. The
call option held by JBS can be exercised from year six but will incur a break fee if exercised before year ten.
Finance Lease – Equipment is comprised of agricultural plant and equipment leased to 2007 Macgrove Project and
Cattle JV Pty Limited.
A $1,600,000 cattle financing facility with a term of ten years was extended to Katena Pty Ltd, the lessee of the Cerberus
property to fund the purchase of trade cattle. The facility is due to expire in September 2028. The balance drawn as at
30 June 2020 is $1,300,000 (2019: $1,100,000). Its fair value approximates its carrying amounts.
A $5,000,000 cattle financing facility with a term of five years was extended to DA & JF Camm Pty Limited, the lessee
of the Natal aggregation to fund the purchase of cattle. The facility is due to expire in December 2022. The balance
drawn as at 30 June 2020 is $1,881,000 (2019: Nil). A $10,000,000 secured loan with a term of ten years was also
extended to DA & JF Camm Pty Limited and is due in December 2027. Its fair value approximates its carrying amount.
Other receivables relates to recognition of rental revenue on a straight-line basis in accordance with AASB 16 Leases.
Significant accounting judgements in the valuation of Coleambally Irrigation Co-operative and Barossa
Infrastructure Limited shares
The investments in BIL and CICL are treated the same as water rights, that is, recorded at historical cost less
accumulated impairment losses and not revalued.
36
69
Rural Funds Group
Notes to the Financial Statements
30 June 2020
C4 Financial assets – property related (continued)
Finance leases
Finance leases are measured at amortised cost. Each lease payment was allocated as a reduction to the finance lease
receivable and as finance income. The finance income was charged to profit or loss over the lease period so as to
produce a constant periodic rate of interest on the remaining balance of the receivable for each period. These represent
leases of property 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.
Minimum lease payments receivable under non-cancellable finance leases of feedlots, breeders and equipment not
recognised in the financial statements, are receivable as follows:
Within 1 year
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
Between 4 and 5 years
Later than 5 years
Total
2020
$'000
5,234
5,201
5,200
5,185
5,148
81,788
107,756
2019
$'000
1,990
1,990
1,990
1,990
1,990
37,055
47,005
70
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71
Rural Funds Group
Notes to the Financial Statements
30 June 2020
C5 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.
C6 Plant and equipment – other
2020
Opening net book amount
Additions
Classified as held for sale or disposals
Depreciation
Impairment
Closing net book amount
Cost
Accumulated depreciation
Accumulated impairment
Net book amount
2019
Opening net book amount
Additions
Disposals
Depreciation and impairment
Closing net book amount
Cost
Accumulated depreciation
Net book amount
Plant and equipment
$'000
8,537
2,228
(4,671)
(1,600)
(1,293)
3,201
10,043
(5,549)
(1,293)
3,201
Plant and equipment
$'000
5,480
4,277
(38)
(1,182)
8,537
12,486
(3,949)
8,537
Total
$'000
8,537
2,228
(4,671)
(1,600)
(1,293)
3,201
10,043
(5,549)
(1,293)
3,201
Total
$'000
5,480
4,277
(38)
(1,182)
8,537
12,486
(3,949)
8,537
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 Group manages and monitors its leased assets and physically attend to properties where assets are located
on a regular basis.
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
Useful life:
Not applicable
2-16 years
2-16 years
72
39
Rural Funds Group
Notes to the Financial Statements
30 June 2020
C6 Plant and equipment – other (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 and loss.
C7 Assets held for sale
Investment property
Bearer plants
Intangible assets
Plant and equipment
Total
C2
C3
C5
C6
2020
$'000
18,881
29,998
10,711
3,768
63,358
2019
$'000
-
-
-
-
-
In April 2020, the Group commenced the marketing process for the sale of the Mooral almond orchard. The Mooral
almond orchard is not considered a separate line of business and has not been treated as a discontinued operation.
C8 Capital commitments
Capital expenditure across all properties largely relates to cropping property developments, almond property
improvements, cattle property developments and the macadamia developments. These commitments are
contracted for but not recognised as liabilities:
Bearer plants
Investment property
Intangible assets
Total
2020
$'000
2,728
22,050
-
24,778
2019
$'000
2,409
12,805
1,959
17,173
40
73
Rural Funds Group
Notes to the Financial Statements
30 June 2020
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. RFM Chicken Income Fund was
treated as a flow through trust up until the date of disposal. RFM Australian Wine Fund (a subsidiary of Rural Funds
Trust) is the head of 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 net assets attributable to unitholders, in which case the deferred tax is adjusted directly
against net assets attributable to unitholders.
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
Profit from discontinued operation
Total
Deferred income tax expense included in income tax expense comprises:
Increase in deferred tax liabilities
Total
Amounts charged or credited directly to net assets attributable to
unitholders
Capitalised issue costs
Change in fair value taken through asset revaluation reserve
Total
2020
$'000
1,533
77
-
1,610
1,553
57
1,610
77
77
2020
$'000
-
-
-
2019
$'000
439
4,376
9
4,824
4,824
-
4,824
4,372
4,372
2019
$'000
(15)
2
(13)
41
74
Rural Funds Group
Notes to the Financial Statements
30 June 2020
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% (2019: 30%)
Tax effect of amounts that are not taxable in determining taxable
income
Adjustments in respect of tax of previous years
Imputation credits received
General capital gain tax discount on the sale of capital assets
Total
Franking credits
2020
$'000
50,598
15,179
(12,977)
-
-
(592)
1,610
2019
$'000
38,179
11,454
(6,637)
9
(2)
-
4,824
At 30 June 2020 there are $901,000 of franking credits available to apply to future income distributions (2019:
$463,000).
D2 Deferred tax and current tax payable
Deferred tax liabilities
Bearer plants
Plant and equipment
Fair value investment property
Other assets
Gross deferred tax liabilities
Set off of deferred tax assets
Net deferred tax liabilities
Deferred tax assets
Investments
Other
Unused income tax losses
Gross deferred tax assets
Set off of deferred tax liabilities
Net deferred tax assets
2020
$'000
3,795
2,208
4,461
60
10,524
(4,669)
5,855
223
35
4,411
4,669
(4,669)
-
2019
$'000
4,046
2,723
4,405
43
11,217
(5,439)
5,778
223
31
5,185
5,439
(5,439)
-
Recognised tax assets and liabilities
Current income tax
Deferred income tax
Opening balance
Charged to income
Credited to net assets attributable to unitholders
Tax payments
Closing balance
2020
$'000
(439)
(1,533)
-
439
(1,533)
2019
$'000
(277)
(439)
-
277
(439)
Tax expense in the Consolidated Statement of Comprehensive Income
Amounts recognised in the Consolidated Statement of Financial Position:
2020
$'000
(5,778)
(77)
-
-
(5,855)
1,610
2019
$'000
(1,406)
(4,385)
13
-
(5,778)
4,824
Net deferred tax liability
(5,855)
(5,778)
42
75
Rural Funds Group
Notes to the Financial Statements
30 June 2020
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 ratio target range of 30-35% 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 (Secured)
Equipment loans (ANZ)
J&F Guarantee - Borrowing loss provision
Total
Non-current (Secured)
Borrowings (ANZ)
Borrowings (Rabobank)
Total
2020
$'000
3,775
39
3,814
190,008
107,240
297,248
2019
$'000
3,793
39
3,832
186,525
104,920
291,445
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.
J&F Guarantee
The J&F Guarantee is a $82.5 million limited guarantee provided to J&F Australia Pty Ltd (J&F), a wholly owned
subsidiary of Rural Funds Management Limited, for a period of ten years from August 2018. From the provision of
this guarantee, the Group earns a guarantee fee classified as finance income as noted in B3, paid on a monthly
basis. The guarantee enables J&F to supply cattle to JBS Australia Pty Limited (JBS) for its grain fed business.
The guarantee may be payable in the event of a JBS default and a subsequent material fall in cattle price resulting
in a shortfall in the J&F bank loans.
Financial liabilities relate to the credit loss allowance taking into account the likelihood of the financial guarantee to
J&F being triggered and its financial impact for the Group. In calculating the allowance, consideration was given to
counterparty risk associated with the arrangement. The credit loss allowance is recognised at fair value through
profit or loss.
As part of the JBS transaction, the Group has contracted to purchase five feedlots from JBS Australia Pty Limited
(JBS). All these feedlots have settled as at 30 June 2020. The feedlots are classified as a finance lease with a
repurchase call option exercisable by JBS and a sale put option exercisable by the Group as noted in C4. The call
option held by JBS can be exercised from year six in 2024 but will incur a break fee if exercised before year ten in
2028.
Borrowings
At 30 June 2020 the core debt facility available to the Group was $335,000,000 (2019: $335,000,000), split into
two tranches, with a $225,000,000 tranche expiring in November 2021 and a $110,000,000 tranche expiring in
November 2023. Approval has been received from the banks to extend the $225,000,000 tranche to $290,000,000.
The $290,000,000 tranche will reduce to $260,000,000 at the earlier of the potential Mooral almond property sale
or November 2021.
As at 30 June 2020 RFF had active interest rate swaps totaling 61.6% (2019: 55.9%) of the drawn down balance
to manage interest rate risk. Hedging requirements under the terms of the borrowing facility may vary with bank
consent.
76
43
Rural Funds Group
Notes to the Financial Statements
30 June 2020
E1 Interest bearing liabilities (continued)
Loan covenants
Under the terms of the updated borrowing facility, the Group was required to comply with the following financial
covenants for the year ended 30 June 2020:
maintain a maximum loan to value ratio of 50%;
maintain net tangible assets (including water entitlements) in excess of $400,000,000;
a minimum hedging requirement of 40% of debt drawn under the borrowing facility; and
an interest cover ratio for the Group not less than 3.00:1.00.
The loan to value ratio calculation includes the J&F guarantee of $82.5 million (2019: $75.0 million).
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 based on latest external valuation report. Refer to section B1 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 (up until 18 December 2019), 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.
The following assets are pledged as security over the loans:
2020
Mortgage: Leased
Properties
Other assets
Equipment loans
Total
2019
Mortgage: Leased
properties
Other assets
Equipment loans
Total
Investment
property
Water
licences
$'000
$'000
Plant and
equipment
- Bearer
Plants
$'000
Financial
assets
Plant and
equipment
Assets
held
for sale
TOTAL
$'000
$'000
$'000
$'000
474,838
74,987
153,528
12,649
31,564
-
474,838 106,551
-
-
153,528
74,093
-
86,742
-
-
3,201
3,201
59,590 775,592
- 105,657
6,969
3,768
63,358 888,218
Investment
property
Water
licences
$'000
$'000
Plant and
equipment
- Bearer
Plants
$'000
Financial
assets
Plant and
equipment
Assets
held
for sale
TOTAL
$'000
$'000
$'000
$'000
489,327
84,295
172,915
12,844
34,236
-
489,327 118,531
-
-
172,915
57,603
-
70,447
-
-
-
-
E2 Financial assets – other (non-property related)
Investment - RFM Poultry
Investment - Marquis Macadamias Limited
Investment - Almondco Australia Limited
Total
-
-
8,537
8,537
2020
$'000
-
664
2,004
2,668
- 759,381
-
-
-
91,839
8,537
859,757
2019
$'000
81
102
2,004
2,187
The Group’s investments in Marquis Macadamias Limited (formerly Macadamia Processing Co Limited) and
Almondco Australia Limited are held at fair value through profit and loss (level 3 – see section E4).
44
77
Rural Funds Group
Notes to the Financial Statements
30 June 2020
E3 Derivative financial instruments measured at fair value
Current
Interest rate swaps
Total other liabilities
Non-current
Interest rate swaps
Total other liabilities
2020
$'000
3,666
3,666
2019
$'000
103
103
27,999
27,999
23,938
23,938
The Group’s derivative financial instruments are held at fair value (level 2 - see section E4).
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 2020 all non-financial assets are level 3.
RFF’s unlisted equity investments, BIL, CICL, Marquis Macadamias Ltd (formerly MPC) and Almondco 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 (2019: 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 C1.
78
45
Rural Funds Group
Notes to the Financial Statements
30 June 2020
E5 Financial instruments
Financial instruments are recognised initially using trade date accounting, i.e. on the date that the Group becomes
party to the contractual provisions of the instrument.
On initial recognition, all financial instruments are measured at fair value plus transaction costs (except for
instruments measured at fair value through profit or loss where transaction costs are expensed as incurred).
a. Financial assets
Financial assets are divided into the following categories which are described in detail below:
financial assets at amortised cost; and
financial assets at fair value through profit or loss.
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. Financial assets at amortised cost
Financial assets held with the objective of collecting contractual cash flows are recognised at amortised cost. After
initial recognition these are measured using the effective interest method, less provision for expected credit loss.
Any change in their value is recognised in profit or loss.
Discounting is omitted where the effect of discounting is considered immaterial.
For trade receivables, impairment provisions are recorded in a separate allowance account with the loss being
recognised in profit or loss. 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
The group classifies the following financial assets at fair value through profit or loss:
debt investments that do not qualify for measurement at either amortised cost
equity investments for which the entity has not elected to recognise fair value gains and losses through
other comprehensive income
The Group’s 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 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 and are included in the income statement line
item titled "finance costs".
Financial liabilities that measured at fair value through profit or loss include the Group’s derivatives. All other
financial liabilities are measured at amortised cost.
46
79
Rural Funds Group
Notes to the Financial Statements
30 June 2020
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:
Loans and receivables
Finance lease 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.
Interest rate swap transactions are entered into by the Group 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 61.6% (2019: 55.9%) of the Group's drawn down
debt at 30 June 2020.
At balance date, the details of the effective 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
Average interest rate payable
2019
%
2020
%
Balance
2020
$'000
2.70
3.42
3.06
2.62
-
3.08
15,000
13,000
155,000
183,000
2019
$'000
25,000
-
138,000
163,000
47
80
Rural Funds Group
Notes to the Financial Statements
30 June 2020
E6 Financial risk management (continued)
b.
Interest rate risk and swaps held for hedging (continued)
The following interest rate swap contracts that have been entered into but are not yet effective as at 30 June 2020
are:
Maturity of notional amounts
Settlement - greater than 5 years
Total
Average interest rate payable
2020
%
1.99
2019
%
3.04
Balance
2020
$'000
90,000
90,000
2019
$'000
60,000
60,000
The net loss recognised on the swap derivative instruments for the year ended 30 June 2020 was $7,624,000
(2019: $18,208,000 loss).
At 30 June 2020 the Group had the following mix of financial assets and liabilities exposed to variable interest
rates:
Cash
Interest bearing liabilities
Total
2020
$'000
5,085
(297,248)
(292,163)
2019
$'000
2,588
(291,445)
(288,857)
At 30 June 2020, 1.25% (2019: 1.30%) of the Group’s debt is fixed, excluding the impact of interest rate swaps.
c.
Interest rate risk (sensitivity analysis)
At 30 June 2020, the effect on profit before tax and net assets attributable to unitholders 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 net assets attributable to unitholders:
Increase in interest rate by 1%
Decrease in interest rate by 1%
d. Credit risk
2020
$'000
19,749
(21,794)
19,749
(21,794)
2019
$'000
14,334
(15,935)
14,334
(15,935)
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 and associated impacts are also managed through security, in the form of guarantees, security deposits
and property security in favor of the group. Counterparty credit risk for finance leases have also been assessed
and accounted for through the recognition of credit loss provisions.
All of the entity’s debt investments at amortised cost are considered to have low credit risk and the loss allowance
recognised during the year was therefore limited to 12 months’ expected losses. Management considers the credit
risk to be low where the counterparty does not have material outstanding repayments and has capacity to meet its
contractual debt obligations. Debt investments are secured against collateral which is monitored by management.
In recognising any potential credit loss provisions, management also assesses the collateral held. Where the fair
value of such collateral is greater than the debt investment, a lower loss allowance amount is recognised.
48
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t
Rural Funds Group
Notes to the Financial Statements
30 June 2020
E7 Issued units
Units on issue at the beginning of the year
334,263,593
2020
No.
$'000
362,854
2019
No.
255,630,515
Units issued during the year
Distributions to unitholders
Units on issue
3,449,827
6,639
78,633,078
-
(8,919)
-
337,713,420
360,574
334,263,593
$'000
233,666
148,833
(19,645)
362,854
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.
E8 Distributions payable
Distributions payable
Total
2020
$'000
9,460
9,460
2019
$'000
8,950
8,950
50
83
Rural Funds Group
Notes to the Financial Statements
30 June 2020
F. OTHER ASSETS AND LIABILTIIES
F1 Cash and cash equivalents
Cash at bank
Total
Reconciliation of cash
2020
$'000
5,085
5,085
2019
$'000
2,588
2,588
Cash and cash equivalents reported in the Statement of Cash flows are reconciled to the equivalent items in the
Statement of Financial Position as follows:
Cash and cash equivalents
F2 Trade and other receivables
Current
Trade receivables
Sundry receivables
Receivables from related parties
Total
2020
$'000
5,085
2020
$'000
3,607
623
1,216
5,446
2019
$'000
2,588
2019
$'000
1,963
1,388
1,692
5,043
Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the
effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for
settlement within 30 days.
The Group has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected
loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days
overdue with no significant overdue amounts.
F3 Other current assets
Prepayments
Deposits
Total
F4 Trade and other payables
Trade payables
Accruals
Sundry creditors
Total
84
2020
$'000
2,101
587
2,688
2020
$'000
725
1,189
1,588
3,502
2019
$'000
1,679
20
1,699
2019
$'000
4,136
1,279
686
6,101
51
Rural Funds Group
Notes to the Financial Statements
30 June 2020
F5 Other non-current liabilities
Lessee deposits
Total
F6 Asset revaluation reserve
Opening balance
Bearer plants revaluation
Income tax applicable
Closing balance
2020
$'000
3,877
3,877
2020
$'000
46,462
12,950
-
59,412
2019
$'000
2,629
2,629
2019
$'000
46,739
(275)
(2)
46,462
52
85
Rural Funds Group
Notes to the Financial Statements
30 June 2020
G. ADDITIONAL 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 2020.
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 2020
are:
Balance at 30 June 2018
Additions
Balance at 30 June 2019
Additions
Balance at 30 June 2020
Guy Paynter
Units
814,696
David Bryant* Michael Carroll
Units
20,322
11,678,182
Units
244,408
2,736,672
1,059,104
500,000
1,559,104
14,414,854
823,180
15,238,034
7,301
27,623
57,111
84,734
Julian Widdup
Units
-
-
-
110,203
110,203
*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 (2019: 0.6%) of adjusted total assets; and,
Asset management fee: 0.45% per annum (2019: 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.
86
53
Rural Funds Group
Notes to the Financial Statements
30 June 2020
G2 Related party transactions
Responsible Entity (Rural Funds Management) and related entities
Transactions between the Group and the Responsible Entity and its associated entities are shown below:
Management fee
Asset management fee
Total management fees
Expenses reimbursed to RFM
Expenses reimbursed to RFM Poultry
Expenses reimbursed to RFM Almond Fund
Distribution paid/payable to RFM
Total amount paid to RFM and related entities
Rental income received from RFM Almond Fund
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 2007 Macgrove Project
Rental income received from RFM Macadamias
Finance income from Cattle JV
Interest income from Cattle JV
Finance income from J&F Australia Pty Limited
Rental income received from RFM Poultry
Distribution received/receivable from RFM Poultry
Water sale proceeds from RFM Poultry
Water expenses charged to RFM Almond Fund
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
Water expenses charged to RFM Farming Pty Limited
Expenses charged to RFM Farming Pty Limited
Total amounts received from RFM and related entities
2020
$'000
5,689
4,266
9,955
5,222
-
90
1,272
16,539
2,640
717
266
753
409
2,168
1,363
2,320
716
380
1,198
87
5,622
5,158
-
-
59
-
-
-
-
-
164
5
24,026
2019
$'000
4,855
3,641
8,496
4,068
401
-
1,155
14,120
-
1,533
567
1,602
1,108
1,917
2,933
2,168
767
352
1,243
46
3,818
10,717
10
49
-
3
1
3
1
151
-
483
29,472
Murdock Viticulture is a vineyard manager 28% owned by RFM.
The terms and nature of the historical transactions between the Group and related parties have not changed during
the year ended 30 June 2020. Transactions entered into between related parties during the year have been
reviewed.
54
87
Rural Funds Group
Notes to the Financial Statements
30 June 2020
G2 Related party transactions (continued)
Responsible Entity (Rural Funds Management) and related entities (continued)
The key movements during the year:
Expenses reimbursed to RFM relates to expenses incurred or paid by RFM on behalf of the Group which are
subsequently reimbursed by the Group. Examples of these expenses include corporate overheads, professional
service fees such a legal, audit and tax matter costs and regulatory fees and charges.
Rental income from RFM Almond Fund (RAF) relates to rent which was previously charged to RFM Almond Fund
2006, RFM Almond Fund 2007, RFM Almond Fund 2008 and RFM’s Almond Lots which merged to form RAF
during the year ended 30 June 2020.
Rental income from CJV relates to the lease of properties including the lease of Rewan which was terminated and
leased to Australia Agricultural Company Limited in October 2019.
Finance income from J&F Australia Pty Limited (J&F) relates to the $82.5 million (2019: $75.0 million) limited
guarantee provided to J&F, a wholly owned subsidiary of Rural Funds Management Limited. From the provision
of this guarantee, the Group earns a guarantee fee classified as finance income.
Expenses reimbursed to RAF relates to fees to carry over water for the Group between seasons on licences which
have been leased to RAF.
Rental income from RFM Poultry ceased on 18 December 2019 when the poultry assets were sold to ProTen
Investment Management Pty Ltd as trustee for ProTen Investment Trust (ProTen).
Debtors (including finance lease receivables)
RFM Farming Pty Limited
RFM Macadamias Pty Limited
Cattle JV Pty Limited
Cotton JV Pty Limited
J&F Australia Pty Limited
RFM Almond Fund
RFM Poultry
Total
Creditors
RFM
RFM Farming Pty Limited
Total
Custodian fees
Australian Executor Trustees Limited
Total
Financial Guarantee
2020
$'000
307
429
14,352
8
575
721
-
16,392
2020
$'000
195
-
195
2020
$'000
286
286
2019
$'000
213
37
15,526
-
-
-
7
15,783
2019
$'000
364
12
376
2019
$'000
250
250
The Group provides a $82.5 million (2019: $75.0 million) guarantee to J&F Australia Pty Limited (J&F), a subsidiary
of RFM. The guarantee enables J&F to supply cattle to JBS Australia Pty Limited for its grain fed business. In April
2020, unitholders approved an increase to the guarantee provided to J&F from $75 million to $100 million. The
initial guarantee increase was $7.5 million to $82.5 million.
88
55
Rural Funds Group
Notes to the Financial Statements
30 June 2020
G2 Related party transactions (continued)
Entities with influence over the Group
Rural Funds Management
11,843,659
Interest in related parties
2020
Units
2019
%
3.51
Units
11,843,659
RFM Poultry
Other
2020
Units
-
%
-
2019
Units
225,529
%
3.54
%
3.28
Michael Carroll is a director of Select Harvests Limited which leases orchards from Rural Funds Group. This is not
a related party as defined by AASB 124 Related Party Disclosure. Transactions are on commercial terms and
procedures are in place to manage any potential conflicts of interest. Mr. Carroll does not participate in the
negotiation of these leases.
G3 Discontinued operations
On 28 October 2019, the Group announced its intention to sell its poultry assets to ProTen. The poultry assets
were sold on 18 December 2019 and the poultry segment is reported in the current year as a discontinued
operation. Financial information relating to the discontinued operation for the year is set out below:
Revenue
Other income
Management fees
Property expenses
Finance costs
Other expenses
Depreciation and impairment
Change in fair value of investment property
Loss on disposal
Loss on disposal - one off transaction costs
Net profit before income tax
Income tax (expense)/benefit
Profit from discontinued operation
Basic and diluted earnings per unit from discontinued operations
Net cash inflow from operating activities
Net cash inflow from investing activities (includes an inflow of
$71,913,000 from the sale of the segment)
Net cash outflow from financing activities
Net increase/(decrease) in cash generated by the subsidiary
2020
$'000
5,160
4
(334)
(28)
(626)
(150)
(649)
(1,250)
(29)
(596)
1,502
(57)
1,445
Cents
0.43
2020
$'000
3,943
71,628
(3,625)
71,946
2019
$'000
10,717
-
(845)
(61)
(1,453)
(169)
-
(6,992)
-
-
1,197
-
1,197
Cents
0.37
2019
$'000
8,088
(932)
(7,180)
(24)
56
89
Rural Funds Group
Notes to the Financial Statements
30 June 2020
G3 Discontinued operations (continued)
Details of the disposal of the discontinued operations
Consideration received:
Cash
18 December
2019
$'000
71,913
Total disposal consideration
The carrying amounts of assets and liabilities as at the date of sale (18 December 2019) were as follows:
71,913
Investment property
Intangible assets
Plant & equipment - other
Total assets
Carrying amount of net assets sold
Loss on sale before income tax
Transaction cost on disposal
Loss on sale before income tax, net of transaction costs
Income tax expense
Loss on sale after income tax
G4 Parent entity information
70,131
1,049
762
71,942
71,942
(29)
(596)
(625)
(57)
(682)
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 Trust has been prepared on the same basis as the consolidated
financial statements, except as set out below.
Investments in subsidiaries and associates
Investments in subsidiaries and associates are accounted for at historical cost less any accumulated impairment.
Distributions received from equity investments are recognised in the parent entity’s profit or loss when its right to
receive the distribution is established.
The individual financial statements of the parent entity, Rural Funds Trust, show the following aggregate amounts:
Statement of Financial Position
ASSETS
Current assets
Non-current assets
Total assets
LIABILITIES
Current liabilities
Non-current liabilities
Total liabilities (excluding net assets attributable to unitholders)
Net assets attributable to unitholders
Total liabilities
90
2020
$'000
2019
$'000
9,789
859,031
868,820
12,639
332,453
345,092
523,728
868,820
7,631
813,100
820,731
14,662
318,153
332,815
487,916
820,731
57
Rural Funds Group
Notes to the Financial Statements
30 June 2020
G4 Parent entity information (continued)
Statement of Comprehensive Income
Net profit after income tax
Other comprehensive income for the year, net of tax
Total comprehensive income attributable to unitholders
G5 Cash flow information
Reconciliation of net profit after income tax to cash flow from operating activities
Net profit/(loss) after income tax
Cash flows excluded from profit attributable to operating
activities
Non-cash flows in profit
Gain on sale of assets
Depreciation and impairment - plant and equipment
Depreciation - bearer plants
Amortisation of lease incentives
Finance income - lease receivable
Change in fair value of bearer plants
Change in fair value of investment property
Change in fair value of financial assets/liabilities
Impairment/ (reversal of impairment) of intangible assets
Change in fair value of interest rate swaps
Straight-lining of rental revenue
Dividend income classified as investing cash flows
Changes in operating assets and liabilities
(Increase)/decrease in trade and other receivables
Increase in other assets
Decrease in trade and other payables
Increase in net tax liabilities
Increase in other liabilities
Net cash inflow from operating activities
Net debt reconciliation
2020
$'000
52,769
12,950
65,719
2020
$'000
48,988
(3,407)
2,893
4,838
200
(789)
499
(14,944)
(510)
798
7,624
(1,232)
(50)
(403)
(989)
(2,600)
1,171
1,248
43,335
2019
$'000
26,218
(280)
25,938
2019
$'000
33,355
(12)
1,230
4,600
200
(352)
(8,854)
(8,352)
70
(105)
18,208
(953)
-
338
(1,103)
(27)
4,534
957
43,734
This section sets out an analysis of net debt and the movements in net debt for each of the years presented.
Cash and cash equivalents
Borrowings - repayable within one year
Borrowings - repayable after one year
Net debt
Cash and cash equivalents
Gross debt - fixed interest rates
Gross debt - variable interest rates
Net debt
2020
$'000
5,085
(3,775)
(297,248)
(295,938)
5,085
(3,775)
(297,248)
(295,938)
2019
$'000
2,588
(3,793)
(291,445)
(292,650)
2,588
(3,793)
(291,445)
(292,650)
58
91
Rural Funds Group
Notes to the Financial Statements
30 June 2020
G5 Cash flow information (continued)
Net debt reconciliation (continued)
Reconciliation of net debt is presented below:
Net debt as at 1 July 2019
Cash flows
Net debt as at 30 June 2020
Net debt as at 1 July 2018
Cash flows
Net debt as at 30 June 2019
G6 Remuneration of auditors
Borrowings
$'000
(295,238)
(5,785)
(301,023)
(273,161)
(22,077)
(295,238)
Cash
$'000
2,588
2,497
5,085
1,210
1,378
2,588
Total
$'000
(292,650)
(3,288)
(295,938)
(271,951)
(20,699)
(292,650)
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
Other audit related service
Compliance audit
Total
G7 Other accounting policies
Cash and cash equivalents
2020
$
379,473
90,168
15,690
485,331
2019
$
274,900
-
9,425
284,325
Cash and cash equivalents comprise 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.
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.
92
59
Rural Funds Group
Notes to the Financial Statements
30 June 2020
G7 Other accounting policies (continued)
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.
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.
G8 Events after the reporting date
On 23 July 2020, the Group contracted to acquire 1,655 hectares of grazing land adjacent to the Homehill property
for $4.1 million excluding transaction costs. Settlement is expected to occur in December 2020 and will be funded
from RFF’s debt facility.
On 3 August 2020, the Group contracted to acquire 5,409 hectares of sugar cane farms (with associated plant and
equipment) and 8,060 ML of water entitlements from MSF Sugar Pty Ltd for $81.1 million excluding transaction
costs. Settlement is expected to occur in October 2020 and will be funded from an approved increase to the Group’s
debt facility.
On 24 August 2020, the Group exchanged contracts for the sale of the Mooral almond orchard for $98.0m (subject
to various adjustments and inclusions) with a global agriculture and timberland investment manager as nominee
for a special purpose vehicle that will be owned by pension funds and institutional investors. The sale is conditional
on completion of due diligence (within 45 days but subject to possible extensions) and Foreign Investment Review
Board approval.
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.
G9 Contingent liabilities
Other than what has been disclosed in the accounts there are no contingent liabilities as at 30 June 2020.
60
93
Rural Funds Group
Directors’ Declaration
30 June 2020
In the Directors of the Responsible Entity’s opinion:
1
The financial statements and notes of Rural Funds Group set out on pages 12 to 60 are in accordance
with the Corporations Act 2001, including:
a.
b.
complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory
professional reporting requirements; and
giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its
performance for the year ended on that date; and
2
There are reasonable grounds to believe that the Group will be able to pay its debts as and when they
become due and payable.
Note A confirms that the financial statements also comply with International Financial Reporting Standards as
issued by the International Accounting Standards Board.
The Directors have been given the declarations by the persons performing the chief executive officer and chief
financial officer functions as required by section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Board of the Directors of Rural Funds Management
Limited.
David Bryant
Director
25 August 2020
94
61
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 (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 2020 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 2020
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 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 (including Independence
Standards) (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.
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
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.
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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 Group
financial 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 $2.3 million, which represents
approximately 5% of the Group’s Adjusted Funds From Operations.
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 Adjusted Funds From Operations because, in our view, it is a benchmark against which the
performance of the Group is most commonly measured.
We utilised a 5% 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 which included individuals with industry expertise and
property valuation experts.
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.
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Key audit matter
How our audit addressed the key audit matter
For a selection of external valuations obtained by the
Group, together with PwC real estate property
valuation experts:
we assessed the competency, qualifications,
experience and objectivity of any external valuers
we read the valuers’ terms of engagement to
identify any terms that might affect their
objectivity or impose limitations on their work
relevant to the valuation
we interviewed external valuers in relation to a
selection of properties subject to valuation and
on the rationale behind the chosen allocation
techniques
we compared a sample of inputs used in the
valuation and allocation models, such as rental
income and lease terms, to the relevant lease
agreements
we assessed the reasonableness of certain inputs
including, where applicable, market rents,
discount rates and capitalisation rates, rates per
ha, cattle carrying capacity, value per cattle adult
equivalent used in the valuation and allocation
models, for a sample of properties based on
benchmark market data
we inspected the final valuation reports and
compared the fair value as per the valuation to
the value recorded in the Group’s accounting
records.
For properties not subject to external valuations, we
discussed with the directors and evaluated the
directors’ internal assessment of the fair value of the
properties and their assertion that the properties are
carried at fair value as per the latest external valuation
report, adding any capital expenditure made during
the intervening period.
Valuation of agricultural properties, which
comprise:
- Investment property $474.8m
- Bearer plants $153.5m
- Water entitlements $106.5m
Refer to note C2, C3, C5
The Group holds agricultural properties for long-term
leasing.
Each agricultural property comprises one or more of
the following three components:
investment properties (including land and
infrastructure attached to land)
bearer plants (including almond trees,
macadamia trees and wine grape vines)
water entitlements.
The Group’s valuation policy requires agricultural
properties to be externally valued by an expert every
two financial years or more often where the Group
considers appropriate.
External valuations provide an aggregate value for each
agricultural property. Key variables and consideration
in the valuations can include discount rates, passing
rents, comparable sales, market rent, cattle carrying
capacity, value per cattle adult equivalent. Factors such
as associated lease agreements, prevailing market
conditions, and the individual nature, condition and
location of these properties impact these variables, and
overall valuations.
The aggregate value of each agricultural property is
allocated across the three components of investment
properties (carried at fair value), bearer plants (carried
under revaluation model) and water entitlements
(carried at cost less accumulated impairment).
The directors, or external valuers where appropriate,
determined the suitable allocation technique to be
applied to each agricultural property, taking into
account the nature and characteristics of the property
including any lease encumbrances.
This was a key audit matter because:
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Key audit matter
How our audit addressed the key audit matter
agricultural properties are fundamental to the
Group’s business model. Investment properties,
bearer plants and water entitlements form the
majority of the Group’s assets in the consolidated
statement of financial position
the quantum of changes in fair value of
agricultural properties directly impact the
consolidated statement of comprehensive income
the nature of agricultural property valuations is
inherently subjective due to the use of
assumptions and estimates in the valuation
model. The COVID-19 outbreak has caused an
increase in estimation uncertainty for fair value of
properties
the selection and application of allocation
technique are inherently subjective due to the
unique characteristics of each property
the valuations and allocation outcomes are
sensitive to key inputs/assumptions in the model
such as the discount rate and capitalisation rates,
the utilisation of comparable sales data and to
allocation techniques.
Related party transactions
(Refer to note G2)
We developed an understanding of the Group’s
relevant controls and processes for identifying related
parties and related party transactions.
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:
For significant contracts entered into during the year,
we verified that the transactions were appropriately
approved.
For a sample of lease income recorded during the year,
we compared the lease income to the relevant
supporting documents including the lease agreements.
For management fees and asset management fees, we
compared the rates used to determine fees to the rates
disclosed in the explanatory memorandum issued on
formation of the Group.
We discussed the related party transactions with
management to develop an understanding of the
business rationale for the transactions.
In relation to the increase in the financial guarantee
from $75m to $100m ($82.5m of which was utilised as
at year end), we developed an understanding of the
arrangement from reading the Explanatory
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rental income from the lease of agricultural
properties and plant and equipment
finance income from the lease of cattle
finance and interest income
management fees and asset management fees
paid
distributions paid
reimbursement of operating expenses
provision of a limited financial guarantee and
receipt of associated fee income
Related party transactions were a key audit matter due
to the significant 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.
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Key audit matter
How our audit addressed the key audit matter
memorandum, and from discussions with management
and others of the purpose, terms and conditions, and
substance of the arrangement.
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 the Responsible Entity are responsible for the other information. The other
information comprises the information included in the annual report for the year ended 30 June
2020, 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 Corporate Directory, Directors'
Report and Additional Information for Listed Public Entities. We expect the remaining other
information to be made available to us after the date of this auditor's report.
Our opinion on the financial report does not cover the other information and we do not and will not
express an opinion or any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
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.
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, if we conclude that there is a material
misstatement therein, we are required to communicate the matter to the directors of the Responsible
Entity and use our professional judgement to determine the appropriate action to take.
Responsibilities of the directors of the Responsible Entity for the financial report
The directors of the Responsible Entity are responsible for the preparation of the financial report that
gives a true and fair view in accordance with Australian Accounting Standards and the Corporations
Act 2001 and for such internal control as the directors of the Responsible Entity determines 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 of the Responsible Entity 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 of the Responsible
Entity either intends to liquidate the Group or to cease operations, or have no realistic alternative but
to do so.
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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:
https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of
our auditor's report.
PricewaterhouseCoopers
Rod Dring
Partner
Sydney
25 August 2020
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Managing good assets
with good people
Rural Funds Management Limited
ABN 65 077 492 838
AFSL 226 701
Level 2, 2 King Street Deakin ACT 2600
Locked Bag 150 Kingston ACT 2604
1800 026 665
1800 625 518
investorservices@ruralfunds.com.au
www.ruralfunds.com.au
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