RFM Almond Funds
merger proposal May 2019
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Managed by:
Disclaimer
Rural Funds Management Limited ACN 077 492 838 holder of AFSL 226701 (RFM) as Responsible Entity (RE) for RFM Almond
Fund 2006 (ARSN 117 859 391), RFM Almond Fund 2007 (ARSN 124 998 527) and RFM Almond Fund 2008 (ARSN 127 947 960),
has prepared this presentation based on information available to it. Although all reasonable care has been taken to ensure that
the facts stated and opinions given in this presentation are fair and accurate, the information provided in this presentation has not
been independently verified. Accordingly, no representation or warranty, expressed or implied is made as to the fairness, accuracy,
completeness or correctness of the information and opinions contained in this presentation.
Whilst RFM has taken all reasonable care in producing the information in this presentation, subsequent changes in circumstances
may occur at any time and may impact on the accuracy of the information. Neither RFM or its directors or employees guarantee
the success of the Funds including any return received by Growers in the Funds.
The information contained in this presentation is by way of general summary only and has been prepared without taking into
account any person’s individual objectives, financial situation or needs. Before making any decision to invest a person should
consider the appropriateness of the information to their individual objectives, financial situation and needs and if necessary seek
advice from a suitably qualified professional.
The purpose of this presentation is to inform the Growers of the opportunity for a potential merger of RFM Almond Fund
2006, RFM Almond Fund 2007 and RFM Almond Fund 2008. All details presented in this document are preliminary views
only and subject to change. Full and final details of any proposed merger will be set out in the final offer documents
provided to the Growers at a later date. Any merger will be subject to voting at a meeting by the Growers for each
Almond Fund.
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Front cover: Mooral almond orchard, Hillston, NSW, 2017.
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Executive summary
• Rural Funds Management (RFM) is the Responsible Entity of RFM Almond Fund 2006 (AF06), RFM Almond Fund 2007 (AF07) and RFM Almond Fund 2008 (AF08), collectively referred to as the “Almond Schemes” or “Schemes”:
─ Schemes are structured such that “Growers” are responsible for all costs associated with the growing of almonds on their “Almond lot(s)” or “Lot(s)”. The duration of the Schemes is to 2026 for AF06 and 2028 for AF07 & AF08.
─ The return from the Schemes comprises of two components: income net of growing costs and a refund of GST paid by the scheme. GST needs to be claimed personally by Growers.
▪ Growers are personally liable for any shortfall (when expenses exceed revenue in a financial year) which if unpaid may lead to removal from the Scheme.
▪ Due to the biennial bearing nature of almonds shortfalls are likely in future years.
▪ The Scheme structure requires Growers to be invoiced for GST.
▪ Scheme tax losses can only be used to offset future Scheme income (unless Growers meet certain tests).
─ Using debt funding for working capital is not possible under the Schemes.
─ No secondary market exists to facilitate liquidity or valuation of Lots.
• RFM intends to propose the three Schemes merge into a single unit trust. Should the merger proceed the unit trust will be referred to as the “Almond Fund” or “Fund” and subsequently Growers will be referred to as “Unitholders”. The merged Almond Fund is intended to provide the following benefits:1
─ Eliminate future shortfall invoices and personal liability: RFM has negotiated preliminary approval for a term debt facility for the merged Almond Fund.
─ Simplified administration: Unitholders will not need to claim GST refunds.
─ Liquidity: RFM has sought preliminary feedback to list the Almond Fund on the National Stock Exchange (NSX).
─ Diversification: Production risks will be spread across a larger asset base.
Note:
1. All details presented about the merger proposal are subject to change and full and final details will subsequently be confirmed in the offer documentation issued to Growers.
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Merger proposal
• RFM intends to offer Growers the opportunity to merge the Almond Schemes into a unit trust called the Almond Fund.
• The ratio in which Lots will convert to Units has been calculated based on each Scheme’s:
─ Inventory held at the time of merger based on a ‘low’ and ‘high’ yield scenario for the 2019 crop2
─ Valuation of future cash flows from the time of merger
─ Lot size3
─ Liabilities consisting of the FY19 shortfall4, FY20 operating result prior to the merger and prepayments.
• The area which was acquired by RFM from defaulting Growers in past years will also merge into the Almond Fund on the same basis as described above. RFM also owns 291 Lots in AF06.
• Offer documentation with the full and final details of the proposed merger will be provided to Growers which will include an Independent Expert Report and an agronomic report.
• The Grower meetings where the Growers will vote on whether or not to proceed with the proposed merger are expected to occur in October 2019.
Notes:
1. All details presented on this page are estimates only. Final details will be included in the offer
documentation issued to Growers.
2. The 2019 harvest is incomplete at the time of publication, therefore a ‘low’ and ‘high’ yield
scenario has been presented: AF06 3.2 and 3.6t/ha, AF07 3.4 and 3.8t/ha, AF08 3.5 and
3.8t/ha, and RFM 3.2 and 3.8t/ha.
3. Lot size is 0.25 ha for AF06 and 0.22 ha for AF07, AF08 and RFM.
4. Based on 2018 actual yields: AF06 2.6t/ha, AF07 3.1t/ha, AF08 3.2t/ha and RFM 3.0t/ha.
Overview of merger proposal1
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Structure of Schemes compared to the Fund
• The Almond Fund will have a capital structure similar to a company. Therefore distributions to Unitholders will be a function of the overall cash flow and debt position of the Fund. This contrasts to the current Scheme arrangement whereby operating surpluses and shortfalls are distributed and invoiced respectively to each Grower.
• For simplicity the final year cash flow (FY28) in the merged Almond Fund assumes that the lease of the AF06 area is extended by two years to expire in-line with the AF07 and AF08 leases on the same terms (subject to confirmation by RFM).
Hypothetical cash flows of the Schemes and Fund1
Note:
1. The cash flows presented in the graph above have been provided to illustrate the structural differences of the Schemes compared to the Fund. They are neither forecasts nor
projections of future returns. To reflect the biennial bearing nature of almond trees, yield is assumed to alternate between 3.2 to 3.8 tonnes/ha. The almond price assumption
is $8.00/kg indexed at 2% p.a. from FY20.
-5,000
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28
$/h
a
Almond Fund A06 A07 A08
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Tax calculations – high yield scenario
AF06 AF07 AF08
Gross taxable income from merger 4,750 4,320 4,320
Less: FY19 shortfall invoice (1,570) (810) (620)
Less: FY20 pre-merger invoice (1,720) (1,430) (1,410)
Less: carried forward losses5 (160) - -
Net taxable income from merger $1,300 $2,080 $2,290
Tax payable at 15% and 45%7 ($200) - ($590) ($310) - ($940) ($340) - ($1,030)
Payment of FY19 shortfall n/app n/app n/app
Offset by: prepayments n/app6 570 370
Offset by: refundable GST2 940 310 310
Net cash position from merger
(assuming 15% and 45% tax rate)$740 - $350 $570 – ($60) $340 – ($350)
Net cash position assuming no
merger($990) ($240) ($240)
• The merger will trigger a tax liability for Growers, offset by refundable GST and reimbursement of prepaid expenses.
• The tables compare cashflow arising from the merger with the existing structures.
• Net taxable income attributable to the merger includes:
─ Value of inventory based on a high yield scenario for the 2019 harvest3
─ Less the FY19 shortfall, FY20 pre-merger invoice4 and carried forward losses5
• The FY19 shortfall and FY20 pre-merger liabilities will be paid by the merged entity and not by Growers.
• If the merger does not proceed Growers will be invoiced for their FY19 shortfall, offset by reimbursement of prepayments (AF07 and AF08 only) and applicable GST.
Notes:
1. All of the figures presented in the table on this page are estimates only. RFM is not a licenced tax agent. Growers should obtain their own tax advice.
2. Comprises two GST refunds for FY19 and the FY20 pre-merger period.
3. Includes harvested and non-harvested inventory at implementation of the merger. The 2019 harvest is incomplete at the time of publication, therefore a
‘high’ yield scenario has been presented on this page: AF06 3.6t/ha, AF07 3.8t/ha, AF08 3.8t/ha and RFM 3.8t/ha.
4. The operating result for the period prior to the merger, assumed to be 1 July 19 to 31 Oct 19 and prepayment of operating expenses.
5. Based on RFM estimates only AF06 Growers still have carried forward losses.
6. The AF06 constitution does not allow for prepayment of expenses.
7. Tax payable will impact both FY19 and FY20
Tax and net cash position (per Lot) associated with the merger1
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Tax calculations – low yield scenario
AF06 AF07 AF08
Gross taxable income from merger 3,810 3,540 3,590
Less: FY19 shortfall invoice (1,570) (810) (620)
Less: FY20 pre-merger invoice (1,530) (1,210) (1,170)
Less: carried forward losses5 (160) - -
Net taxable income from merger $550 $1,520 $1,800
Tax payable at 15% and 45%7 ($80) - ($250) ($230) - ($680) ($270) - ($810)
Payment of FY19 shortfall (75%) (1,180) (610) (470)
Offset by: prepayments n/app6 570 370
Offset by: refundable GST2 940 310 310
Net cash position from merger
(assuming 15% and 45% tax rate)($320) – ($490) $40 – ($410) ($60) – ($600)
Net cash position assuming no
merger($990) ($240) ($240)
• The merger will trigger a tax liability for Growers, offset by refundable GST and reimbursement of prepaid expenses.
• The tables compare cashflow arising from the merger with the existing structures.
• Net taxable income attributable to the merger includes:
─ Value of inventory based on a low yield scenario for the 2019 harvest3
─ Less the FY19 shortfall, FY20 pre-merger invoice4 and carried forward losses5
• FY20 pre-merger liabilities and part of the FY19 shortfall will be paid by the merged entity and not by Growers.
• If the merger does not proceed Growers will be invoiced for their FY19 shortfall, offset by reimbursement of prepayments (AF07 and AF08 only) and applicable GST.
Notes:
1. All of the figures presented in the table on this page are estimates only. RFM is not a licenced tax agent. Growers should obtain their own tax advice.
2. Comprises two GST refunds for FY19 and the FY20 pre-merger period.
3. Includes harvested and non-harvested inventory at implementation of the merger. The 2019 harvest is incomplete at the time of publication, therefore a
‘low’ yield scenario has been presented on this page: AF06 3.2t/ha, AF07 3.4t/ha, AF08 3.5t/ha, and RFM 3.2t/ha.
4. The operating result for the period prior to the merger, assumed to be 1 July 19 to 31 Oct 19 and prepayment of operating expenses.
5. Based on RFM estimates only AF06 Growers still have carried forward losses.
6. The AF06 constitution does not allow for prepayment of expenses.
7. Tax payable will impact both FY19 and FY20
Tax and net cash position (per Lot) associated with the merger1
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Summary and conclusion
Elimination of future
shortfall invoices and
personal liability
• The Almond Fund will have a capital structure similar to a company. Therefore distributions to Unitholders will be a function of the overall cash flow and debt position of the Fund. This contrasts to the current Scheme arrangement whereby operating surpluses and shortfalls are distributed and invoiced respectively to each Grower.
• Growers will therefore no longer be personally liable and removes risk of default which exists under the Scheme structures.
Simplified
administration• Unitholders will not need to claim GST refunds after FY20.
Liquidity
and valuation
• RFM has sought preliminary feedback to list the Almond Fund on the National Stock Exchange (NSX) and intends to list the Almond Fund during FY20. This is expected to provide liquidity and valuation of securities to investors.
Diversification • Production risks will be spread across a larger asset base.
Alignment
of interests
• The area which was acquired by RFM from defaulting Growers and the in past years and the 291 Lots in AF06 will also merge into the Almond Fund on the same basis as described above.
Rural Funds Management Ltd
ACN 077 492 838
AFSL 226701
Canberra Office
Level 2, 2 King Street
Deakin ACT 2600
Telephone: +61 2 6203 9700
Facsimile: +61 2 6281 5077
Website: ruralfunds.com.au
Managing good assets with good people
For further information:
David Bryant
Managing Director
Rural Funds Management
T 02 6203 9700
For media enquiries:
Stuart Waight
Executive Manager
Rural Funds Management
T 0419 126 689
Investor relations enquiries:
James PowellGeneral Manager - Investor
Relations & Marketing
Rural Funds Management
T 0420 279 374
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