annual report 2017 - nzx - new zealand stock … management - continuous growth investment assets -...

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BEING FULLY PRESENT IN THE NOW, IS THE

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A$111.6m

$4.6m

$28.8m

$1.60 billion

$73.2m

BRISBANE

NELSON

OTAGO

TARANAKI

TOTAL OF NEW ZEALAND AND AUSTRALIA PROPERTIES UNDER MANAGEMENT:

TOTAL SUM OF THE NEW ZEALAND AND AUSTRALIAN PORTFOLIO:

PORTFOLIO BY LOCATION

Number of properties:

Sum of valuations:


Sum of valuations:


Sum of valuations:


Sum of valuations:


AUGUSTA CAPITAL ANNUAL REPORT 2017

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49

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22

84

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$1,014.7m

$120.2m

$23.2m$19.3m

$71.9m

$50.3m

$45.1m

$35.7m

AUCKLAND

CANTERBURY

BAY OF PLENTYNORTHLAND

WAIKATO

HAWKES BAY

MANAWATU & WHANGANUI

WELLINGTON



Sum of valuations:

Sum of valuations:


Sum of valuations:


Sum of valuations:


Sum of valuations:


Sum of valuations:


Sum of valuations:


Sum of valuations:



5


6

CONTENTSKey Highlights 2017 08

01. Annual Review 10

Chairman’s Letter 12

Managing Director’s Letter 14

Report from Management 16

Funds Management Strategic Update 22

Funds Management Focus 24

Portfolio by Property 32

Director Profiles 34

Investor Relations 38

Corporate Governance 39

02. Financial Statements 46

Independent Auditor’s Report 80

Shareholder Statistics 84

Directory 86

7


FINANCIAL PERFORMANCE

based on Adjusted Funds From Operations earnings of 7.71 cents per share.

NET PROFIT

$7.75 MILLIONNet Profit After Taxation and Total Comprehensive Income of $7.75 million, is 43% lower than FY2016 reported result of $13.52 million, primarily as a result of a number of strong revaluation gains as well as gains on disposals in the prior comparative period (FY2016).

INVESTMENT ASSETS SEGMENT PERFORMANCE

or $0.73 million (after tax) driven by returns from investment assets (VAF and NPT).

19%Operating performance (Adjusted Funds From Operations) increased strongly by 19% to $6.75 million (up from $5.68 million).

OPERATING PERFORMANCE

14%or $0.45 million (after tax)

FUNDS MANAGEMENT SEGMENT PERFORMANCE

cents per share

NET ASSET VALUE (NAV)

98increased from 94 cents per share to

71%paid equating to 5.50 cents per share – a ‘pay out’ ratio of

CASH DIVIDENDS

KEY HIGHLIGHTS

31%


8KEY HIGHLIGHTS

FUNDS MANAGEMENT- CONTINUOUS GROWTH

INVESTMENT ASSETS - BALANCE SHEET TRANSFORMATION

FIVE NEW SYNDICATION DEALS

$6.87 MILLION

completed during the year generating

of upfront revenue

NEW DEAL ASSET VALUE

$347 MILLIONand equity raised of $203m raised from new deals.

ASSETS UNDER MANAGEMENT NOW

$1.7 BILLION

inc. 33 Broadway, Newmarket, Auckland.

excluding transactional income, now at $5.60 million up

10%RECURRING MANAGEMENT FEES

from FY2016 ($5.10 million)

Diversified product offering to investors with the Augusta Value-Add Fund No.1, Australian Syndications and 33 Broadway Trust (early in FY2018).

FINANCE CENTRE NOW UNCONDITIONALLY SOLD FOR

$96 MILLION with a staged sale

through to April 2019.

Strategic acquisition of

Also acquired 10% stake in Augusta Value Add Fund No. 1 for $6.0 million. Revaluation gain of $0.78 million / 13% recognised in FY2017.

NPT SHARES


9KEY

HIGHLIGHTS

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CHAIRMAN’S REPORT

REVIEW

ANNUAL

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CHAIRMAN’S REPORT

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It’s been another year during which Augusta Capital performed strongly against its strategic agenda to protect and grow the future value of the company’s assets, based on a clearly defined long-term strategy in the funds management sector. The prime driver in the increased revenue profile and operating earnings was from funds management initiatives. The

company is currently in a state of significant transformation which will redefine the future operating earnings of the business and the Board is pleased with the scale and pace at which this change is being realised.

The Board recognises the management team for the work undertaken to achieve the financial result, which saw adjusted funds from operations increase 19%, and the progress on the business transformation. Continued sound governance in alignment with the long term strategy is essential and the progress over the past 12 months is proof of that.

The past year has seen the launch of the Augusta Value Add Fund, a new wholesale fund and the Graham Street offerings, being the two largest retail capital raises in Augusta’s history, as well as the unconditional sale of the Finance Centre. We also took the opportunity to realise a number of strong capital gains for our investors in the currently buoyant market by selling some of our managed assets with investor approval.

Recurring operating earnings is the primary barometer of financial performance in becoming a property funds management business as well as the alignment of interest from the investment in products we manage. This strategy delivers a higher return on capital and the future balance sheet will be utilised to drive business growth. The Managing Director will cover the key operating matters and indicators in his report.

The future strategy targets the growth in assets under management though the launch or acquisition of a diverse range of products. Property syndicates will continue to be a core part of this growth but will be larger in scale, as is evidenced by the current 33 Broadway, Newmarket, Auckland offer, which is to be the future home of Mercury Energy. This growth will also continue to include Australian product. The stakes in NPT Limited and the Augusta Value Add Fund No. 1 Limited fit with this strategy and transformation. The exit of the Finance Centre created the necessary capability to fund the share acquisition in NPT Limited.

We have built a solid platform, and believe we have the necessary capability, to optimise this in conjunction with our strategic partners to drive the growth in the assets under management and maximise returns to investors.

Risk management is a focus for the Board to ensure that the balance sheet is appropriately managed and new product initiatives are launched after thorough due diligence.

OutlookAugusta is continuing on the journey to grow its business through diversification of its income from directly owned property to other investment and funds management revenue. The sale of the Finance Centre is a critical element to this transition and an outstanding priority.

Growth in assets under management and recurring earnings can be delivered with the support of a balance sheet through warehousing assets, underwriting capital raises as well as investing in products managed by Augusta, but ultimately management fee earnings growth is not capital intensive in the long term. Future economic conditions may influence the rate of growth in assets under management as well as the future product offered. It is expected that the balance sheet will transform to investment in funds management initiatives but will retain the necessary capability and flexibility to create and take advantage of new opportunities.

The Board’s expectation for the year ahead is to maintain the improving trend in earnings with a key focus on the management of existing assets to generate increasing returns and value for our investors. The launch of new initiatives such as the 33 Broadway offer and the potential acquisition of other funds management opportunities will be a continuing focus.

The Company plans to hold its annual meeting at the Northern Club, 19 Princes Street, Auckland on Thursday 31 August 2017 at 2.30pm. I encourage shareholders to attend and engage at this year’s annual meeting as we will provide a further update on the progress against strategy.

P.J. Duffy Chairman 30 May 2017

CHAIRMAN’S LETTER

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CHAIRMAN’S LETTER

WE HAVE BUILT A SOLID PLATFORM, AND BELIEVE WE HAVE

THE NECESSARY CAPABILITY, TO OPTIMISE THIS IN CONJUNCTION

WITH OUR STRATEGIC PARTNERS TO DRIVE THE GROWTH IN THE ASSETS UNDER MANAGEMENT

AND MAXIMISE RETURNS TO INVESTORS.

13


CHAIRMAN’S LETTER (CONTINUED)

It has been another busy and successful year at Augusta. We continue the evolution to a funds management model and the exit of the Finance Centre clearly sets us on that path. It will provide the necessary financial capability to launch new initiatives and change the course of Augusta including our aspirations to manage product in the listed and

wholesale sectors. The efforts of the Augusta team have been significant and with the support of the Board we have set a platform and defined a funds management strategy for the years ahead.

Some of the key highlights for the year;• Adjusted funds from operations increased 19% on the

back of increased recurring base management fees and increased transactional income derived from leasing, project management and sales activity.

• Assets under management have grown from $1.46 billion to $1.60 billion and we are further adding to this with our current 33 Broadway offer due to settle on 30 June 2017 which will take the portfolio to $1.70 billion. Annualised base management fees, which is a key metric for us increased by 10% to $5.6 million, while transactional income recorded for the year provided an additional $1.95 million.

• The balance sheet has evolved as we now hold investment assets being the 10% stake in the Augusta Value Add Fund and what is now an 18.85% stake in NPT following a further acquisition post balance date (9.26% was acquired during the FY2017 financial year). Both investments are consistent with our strategy.

• We have retained earnings to build shareholder wealth in the transformation phase we are now in, with our dividend pay-out ratio the lowest in the sector. Growth in recurring earnings is a key benchmark of performance for us. The transactional income created through an alignment of interests where both the investors and manager are rewarded, continues to become more recurring in nature.

• Corporate costs have increased as we continue to build our fund capability and platform as the portfolio grows. With scale we expect to generate further synergies in our operations. The Financial Markets Conduct Act is a welcome addition to our sector and ensures all managers have the necessary capabilities to manage investors’ money, however it has added a layer of cost.

• The launch of the Augusta Value Add Fund No.1 Limited on 1 April 2016, after a successful capital raise from wholesale investors set the tone for the year and now we are pleased to say that two of the five properties are unconditionally sold well above the acquisition price confirming that the value add strategy is working.

• The Graham Street offerings, which were our biggest ever syndications, were both fully subscribed, which is clear evidence of the investor appetite for the quality product we offer.

NPTAs the largest shareholder in NPT Limited, Augusta Capital’s board and management team were highly satisfied with the outcome of the Special Meeting on 21 April this year. The result was the outcome of a carefully thought through and well executed plan to realise a change in governance – in the interests of all NPT shareholders.

Importantly, the NPT investment now stands to deliver Augusta shareholders a vehicle for attractive earnings growth under a burgeoning property funds management business model. The reason management fought so hard for this outcome was that under the previous stewardship NPT was sitting idle for too long as an under-performing company. Augusta can see the potential for NPT and is delighted to have an opportunity to help realise this.

In terms of next steps, within the near term Augusta will table a proposal to the new NPT Board to externalise its management. NPT can and should be run for less and Augusta has already identified opportunities, which if realised, would deliver an attractive earnings uplift against NPT’s existing assets.

To address NPT’s sub-scale Augusta will take the time necessary to develop a compelling proposal (or series of proposals) for the new NPT Board to consider. This is a core area of Augusta’s expertise and management is confident of delivering on this commitment.

MANAGING DIRECTOR’S LETTER

14


MANAGING DIRECTOR’S LETTER

Funds Management

Appetite for syndicated product remained strong as we raised $203 million of new equity in the 12 months to 31 March 2017. Five new deals were completed generating $6.87 million of deal fees on a total of $347 million of investment property. Each offer had its own unique characteristics as we strive to further diversify our offerings.

Gross management fees recorded for the year were $7.26 million which was an increase of 36% on the prior year. Transactional income is becoming a recurring theme and a significant driver of earnings as we continue to extract value from the assets we manage for our syndicate investors. It creates not only bottom line recurring earnings but positive outcomes for syndicate investors and also a reputation for delivering results.

Investment asset income was a new stream of income for the year and this alignment of interests, or co-investment in Augusta product, is something you will see more of in the future. Recurring investment income of $0.66 million was derived from the Augusta Value Add Fund investment and the NPT stake. The Augusta Value Add investment was also revalued upwards by $0.78 million or 13% on the original investment of $6 million. As we paid above the trade price for NPT stock we did record a write-down as at 31 March 2017 of $2.175 million. We are obviously motivated to re-rate the share price.

The managed portfolio performed very well over the last 12 months. We were able to sell a number of managed assets above valuation and the March 2017 annual valuations have seen a number of gains for our syndicate investors.

The exit of the Finance Centre, which you as shareholders voted on back in July last year, is seen as a key milestone in Augusta’s history. Whilst there has been a delay in the issue of a new title to facilitate settlement of the Augusta House transaction we remain focused on executing the phased settlements up to April 2019. The deal was structured to provide sufficient time to identify new avenues in our transformational phase as well as the certainty of an unconditional deal.

The current market is still very active and we continue to see deals being concluded at compressing yields. The access to and cost of funding is something that may dictate yields in the medium to longer term.

The near term key strategic operating priorities include securing the NPT management contract and aside from our stake in the company we obviously bring a wealth of skill and experience in commercial real estate and have a history of turning around under-performing assets. The successful conclusion to the 33 Broadway offer, the settlement of Augusta House and of course the launch of new products are also other key priorities in the year ahead. We have proven we can raise capital on a consistent basis and in respect to recent divestments we have created enhanced values for our investors.

M.E. Francis Director 30 May 2017

APPETITE FOR SYNDICATED PRODUCT REMAINED STRONG AS WE RAISED $203 MILLION.

15


MANAGING DIRECTOR’S LETTER (CONTINUED)

FINANCIAL RESULTSREPORT FROM MANAGEMENT

The results for the year ended 31 March 2017 recorded total comprehensive income for the year, net of tax of $7.75 million compared to a profit of $13.52 million in the prior year.

Adjusted Funds From Operations (AFFO) which represents net profit after income tax paid, excluding revaluations, mark to market of interest rate swaps, deferred tax and one off transactions increased by $1.07 million or 19% from $5.68 million to $6.75 million.

This equates to operating earnings per share of 7.71 cents for the year compared to 6.5 cents per share last year.

A 19% increase in AFFO was driven by;

1. The Funds Management business segment was up $0.45 million or 14% on last year. This was due to growth in recurring management fees and transactional income

2. Investment Asset performance after tax increased $0.73 million or 31% on last year – this was due to higher income from investments (primarily VAF and NPT) as well as growth in Finance Centre earnings due to higher occupancy and rental rates, partly offset by lower rental income as a result of the sale of 7 City Road and 36 Kitchener Street

In respect to non-operating adjustments;

3. An investment property positive revaluation gain of $4.12 million was recorded which was $2.95 million or 42% lower compared with the strong valuation increase in the prior year of $7.07 million.

4. Revaluation loss of $2.18 million recognised in relation to the stake in NPT Limited (reflected in other comprehensive income)

5. No material gains on sale were recognised in FY2017 as an asset sold was warehoused for a short period of time for the Augusta Value Add Fund No. 1. A gain on sale was recognised in the prior year of $0.96m for the sale of 7 City Road.

6. Recognition of $1.41 million of transaction costs relating to the future sale of the Finance Centre

7. A positive revaluation gain of $0.78 million for stake in the Augusta Value Add Fund No. 1.

8. Derecognition of $0.83 million of intangible assets relating to management contracts of assets that have been sold.

The Augusta Capital Board considers the result to be a strong performance on the back of growth in recurring earnings.

FY2017 PERFORMANCE DRIVEN BY GROWTH IN RECURRING EARNINGS

Note: Net Revenue analysis excludes cleaning net revenue. 9.13

10.64

13.62

16.96

19.10

Net Revenue

Investment Portfolio

Funds Management - Recurring Fees

Funds Management - New Deal Fees

($M

)

2013 2014 2015 2016

8.05

0.91

1.68

1.370.64

7.125.37

3.68

4.57

6.66

3.28

7.02

Transformation of Augusta's Net Revenue Profile ($m)

2017

6.73

5.71

6.66

16


REPORT FROM MANAGEMENT

Five Year SummaryYear Ended 31 March 2017

2017 ($m)

2016 ($m)

2015($m)

2014($m)

2013($m)

Net Revenue – Investment Portfolio 6.73 6.66 5.37 8.05 7.12

Net Revenue – FM Recurring Fees 5.71 3.28 3.68 0.91 0.64

Net Revenue – FM New Deals 6.66 7.02 4.57 1.68 1.37

Net Revenue – Cleaning Services (0.05) 0.14 0.22 0.21 0.19

Corporate & Administration Costs (8.14) (7.16) (6.36) (2.11) (1.90)

Net Funding Costs (2.16) (2.93) (3.09) (2.66) (2.03)

Unrealised Net Change in Value of Investment Properties 4.12 7.07 4.37 (2.19) 1.86

Total Comprehensive Income for the Year, Net of Tax 7.75 13.52 10.39 1.99 5.44

Adjusted Funds From Operations (AFFO) - NON-GAAP* 6.75 5.68 4.86 4.63 4.97

AFFO – cents per share 7.71 6.50 5.80 5.70 6.11

($m) ($m) ($m) ($m) ($m)

Total Assets 134.8 136.8 124.4 126.2 107.5

Total Liabilities 49.4 54.8 55.2 65.5 45.5

Shareholders’ Equity 85.4 82.0 69.2 60.7 62.0

Net Interest Bearing Debt to Investment Assets (%) 26.6% 36.5% 37.6% 45.9% 36.2%

Shares on Issue (m) 87.53 87.42 83.78 81.28 81.28

Cash Dividends Paid (cps) 5.38 5.00 4.75 4.00 4.00

Net Tangible Assets Per Share (excluding intangible assets and goodwill) ($) 0.80 0.75 0.64 0.69 0.71

Net Assets Per Share ($) 0.98 0.94 0.83 0.75 0.76

Adjusted Funds From Operations (AFFO) Reconciliation ($m) ($m) ($m) ($m) ($m)

Total Comprehensive Income for the Year, Net of Tax 7.75 13.52 10.39 1.99 5.44

Adjust For:

Loss / (Gains) from sales of investment property 0.02 (0.96) - 0.06 -

Fair value Loss / (Gains) on investment property (4.12) (7.07) (4.37) 2.19 (1.86)

Fair value Loss / (Gains) on the mark to market of derivatives (0.55) 0.47 1.44 (0.59) 0.18

Non-FFO deferred tax expenses - (0.42) (3.18) 0.59 0.46

Other unrealised or one-off items** 3.65 0.14 0.58 0.39 0.75

Adjusted Funds From Operations (AFFO) 6.75 5.68 4.86 4.63 4.97

**Other unrealised or one-off items - detail

Contingent Consideration Discount Adjustment - (0.03) 0.90 0.06 0.16

Fair Value Gain (Loss) on Investments (0.78) - - - -

Transaction costs 1.41 - - - -

Comprehensive Income - Unrealised Gain / (Loss) on Investments 2.18 - - - -

Derecognition of intangible asset 0.83 - - - -

Other Movements 0.01 0.17 0.32 0.33 0.59

Other unrealised or one-off items 3.65 0.14 0.58 0.39 0.75

*Adjusted Funds From Operations (AFFO) is non-GAAP financial information and are common investor metrics, calculated based on guidance issued by the Property Council of Australia.

17


REPORT FROM MANAGEMENT (CONTINUED)

The below table outlines the material year on year movements;

Year on Year Impacts2017

$m2016

$m

Year on Year Variance

$m Commentary

Property Revenue 8.05 8.88 (0.83) Lower due to sale of investment properties (7 City Road and 36 Kitchener St) partly offset by revenue growth in Finance Centre

Management Fees 7.26 5.31 1.95 Strong growth in base management fees plus transactional fee income partly offset by divestment of some managed properties

Offeror Fees 5.45 5.12 0.33 5 deals completed in FY17

Underwriting Fees 1.43 1.90 (0.47) Augusta provided for $68 million of equity underwritten. In total, $203 million of equity was raised

Investment Income 0.66 0.10 (0.56) Primarily income from stakes in Augusta Value Add Fund No. 1 and NPT Limited

Cleaning Services 0.47 0.62 (0.15) Cleaning business sold in December 2016

Gross Revenue 23.32 21.93 1.39

Operating Costs (4.28) (4.83) 0.55 Lower operating costs due to sale of investment properties (7 City Road and 36 Kitchener St)

Net Revenue 19.04 17.10 1.94

Corporate Costs (8.14) (7.16) (0.98) Personnel costs higher due to creation of new roles and LTI incentive

Funding Costs (2.16) (2.93) 0.77 Lower average balances and lower effective interest rates

Net Profit Before Fair Value Movements, Gains / (Losses) on Disposal and Taxation 8.74 7.01 1.73

Adjusted Funds From Operations 6.75 5.68 1.07 Increase of 19%

18



Overhead in respect to funds management increased due to additional resourcing requirements. The March 2017 result recognised the full year impact of a number of roles including the General Counsel, Development Manager and Legal & Compliance Manager who were recruited during the later stages of the prior financial year. There was also additional costs recognised in relation to senior management for long term incentives, recruitment and associated human resource costs.

Funds ManagementFive new syndication deals and one fund were completed generating $6.88 million of gross upfront fee income, consisting of offeror fees of $5.45 million and underwriting fees of $1.43 million. The total value of the assets purchased across New Zealand and Australia was in excess of NZ$347 million and the corresponding equity raised was over NZ$203.0 million. (One of the assets purchased was in Australia with a total asset value and equity raise of A$23.0 million and A$14.0 million respectively).

Management fees, including transactional income, grew 37% or $1.95 million year-on-year, from $5.31 million to $7.26 million. The impact of new deals, higher transactional income

and fee growth on existing properties was partly offset by sale/loss of the management contracts of some managed properties.

Augusta continues to grow the recurring income streams from funds under management. Current annualised base management fees are currently $5.6 million (last year was $5.1 million) but with additional fees able to be derived in respect to transactional activity such as leasing, project management and sales. Recurring management fees will continue to grow in early FY2018 with the completion of 33 Broadway Trust offer.

Investment Property Portfolio – Directly HeldThe Finance Centre is now subject to an unconditional sale and purchase agreement for $96.0 million. The sale transaction will be staged with the four titles being sold through to April 2019. In July 2016 a $9.6 million non-refundable deposit was received from the purchaser.

The 36 Kitchener Street property was sold into Augusta Value Add Fund No.1 established by the Group on 1 April 2016.

Segment ReportingInvestment Assets

($’000)Funds Management

($’000)Cleaning

($’000)Total

($’000)

Total gross revenues 8,703 14,134 480 23,317

Total net revenues 6,730 12,362 (47) 19,045

Corporate costs (1,492) (6,626) (20) (8,138)

EBIT 5,238 5,736 (67) 10,907

Funding costs (1,572) (592) - (2,164)

Profit before Fair Value Movements, Gains / (Losses) on Disposal and Taxation

3,666 5,144 (67) 8,743

Segment – Year on Year

AFFO 3,094 3,705 (54) 6,745

AFFO Prior Year 2,360 3,260 62 5,682

Year on year 734 445 (116) 1,063

Year on year % 31% 14% (287%) 19%

19



Portfolio ValuationsThe investment properties (Finance Centre) are reported as ‘held for sale’. Directors’ valuations have been assessed using market rental and cap rates. No external valuations were completed as at 31 March 2017, therefore market rents as at March 2016 have been used for cap rate analysis.

A revaluation gain of $4.1 million for the full year was achieved which equated to a 4% increase in value at the Finance Centre. The average cap rate based on sale price and market rents for the portfolio as at 31 March 2016 was 6.73% (2016 7.06%).

Balance Sheet and TreasuryTotal assets were $134.8 million at year end FY2017 compared to $136.8 million as at 31 March 2016 and liabilities decreased from $54.8 million to $49.4 million.

Borrowings decreased by $13.9 million during the year. Repayments were made from funds received from sale of assets, refunds of deposits and underwrite positions as well as positive operating cash flows. Drawdowns of debt were made during the year for deposits for new properties, short term underwrite positions and acquisitions of investments.

The company’s constitution limits borrowings to a ratio of 50% of the gross asset value (GAV). Internal treasury policy is for a long term target ratio of approximately 35%. At balance date this ratio was 26.6%. (2016 36.5%). Augusta Capital Limited’s lenders (ASB) require core borrowings to not exceed 55% of directly held investment property portfolio value. The core debt ratio was 39.7% as at 31 March 2017.

$48.0 million of debt is currently drawn as at 30 May 2017 and gearing has increased to 33.2% after a further $15.5 million shares in NPT Limited were purchased and the 33 Broadway deposit of $5 million was paid. The core debt banking covenant remains unchanged.

The Group’s banking facilities with ASB run through to March 2019. The facilities are subject to annual review and extension. $22.5 million of the drawn debt is hedged with a weighted average term of 2.9 years.

The current balance sheet capacity in the medium term creates the ability to underwrite the 33 Broadway offer as well as capability to support the growth in the funds management business. The upcoming exit of Augusta House will provide further capital to invest in funds management initiatives.

Investment Property

Fair Value

Mar-17 $000

Sale Price

$000

Net Market Rent

Mar-16 $000

Net Yield (Market)

Mar-17 $000

Occupancy Mar-17

%

WALE Mar-17

Years

Finance Centre Carpark 28,490 30,000 1,851 6.50% 99 10.1

Finance Centre Podium 10,445 11,000 858 8.21% 99 2.5

19 Victoria St West 30,000 30,000 2,171 7.24% 100 2.7

Retail Title 24,350 25,000 1,399 5.75% 91 4.7

Total (as at 31 March 2016) 93,285 96,000 6,279 6.73% 98 5.3

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CONSOLIDATED STATEMENTOF CHANGES IN EQUITYFOR THE YEAR ENDED 31 MARCH 2017

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NZME. - Building A, Graham Street

FY2016 FY2017

FUNDS MANAGEMENT STRATEGIC UPDATE

FY16 ($m) Expected 1H18($m)

FY17 ($m)

$106.8m78%

$16.2m12%

$5.2m4%

$8.6m6%

Funds Management Business

Investment PropertyInvestment Assets

CashOther Assets

$4.2m3%$93.3m

70%

$15.6m12%

$15.5m11%

$6.1m4%

$63.3m51%

$35.6m29%

$15.5m13%

$6.1m5%

$3.0m2%


FY17 ($m)

$106.8m78%

$16.2m12%

$5.2m4%

$8.6m6%



CashOther Assets

$4.2m3%$93.3m

70%

$15.6m12%

$15.5m11%

$6.1m4%

$63.3m51%

$35.6m29%

$15.5m13%

$6.1m5%

$3.0m2%

Future Balance SheetThe future balance sheet post the exit of the Finance Centre will release capital to grow the funds management business and will include;

• Warehoused assets – pipeline for new product

• Underwriting capability in respect to new offers

• The ability to invest in new products or investments which are managed by Augusta to create an alignment of interests

The funding structure will also adapt to provide the necessary capability and flexibility to create new opportunities to grow the funds management business.

The staggered exit of the Finance Centre, Auckland allows Augusta the necessary time to transition the balance sheet whilst still deriving a running yield up to settlement on each respective asset.

The value of the funds management business is reported at historical cost and is not representative of the fair value of the business model. An independent valuation of the business will be sought post the completion of a material event or as the Directors see fit.

Balance Sheet Transformation

LAST YEAR WE SAID “AUGUSTA IS AT AN IMPORTANT STAGE IN ITS EVOLUTION INCLUDING:

WHAT WE ACHIEVED THIS YEAR:

A great deal of progress was made during the period under review. Augusta continues to lay a very strong foundation for future growth of its property funds management business.

These achievements are encouraging early signs of the long-term potential to create a leading property funds management business with recurring and diversified operating earnings.

» Market leading position in our ‘core’ syndication market

» Launch of our two largest property syndicates (Graham Street properties) strengthening leading position in the syndication market

» Further diversification in the launch of the 33 Broadway offer - the business model has evolved to be a part of the creation of these assets. Augusta Value Add Fund launched on 1 April 2016

» Further launch of more diverse range of investment products with both capital growth and cash yield characteristics

» Limited opportunities for growth in our direct property portfolio without substantial new capital, and favourable market conditions for diversifying our direct portfolio.”

» Future exit of the Finance Centre – unconditional sale deal across the entire Centre with a staggered exit.


22FUNDS MANAGEMENT STRATEGIC UPDATE

FY2018 +


FY17 ($m)

$106.8m78%

$16.2m12%

$5.2m4%

$8.6m6%



CashOther Assets

$4.2m3%$93.3m

70%

$15.6m12%

$15.5m11%

$6.1m4%

$63.3m51%

$35.6m29%

$15.5m13%

$6.1m5%

$3.0m2%

Continued focus on growing assets under management and recurring income.

» Realising further opportunities to manage funds

» Launching additional funds with the potential to expand and diversify these types of offerings into niche and strong performing sectors of the economy

» Ongoing, measured expansion into Australia

» Maintaining prudent capital management structures

» Working closely with Bayleys to maintain optimal efficiency across the existing asset portfolio.

TO ACHIEVE THIS MANAGEMENT IS FOCUSED ON:

INVESTMENT PROPERTY REDUCTION DUE TO DIVESTMENT OF FINANCE CENTRE.INVESTMENT ASSETS INCLUDE STAKES IN AUGUSTA VALUE ADD FUND, NPT LIMITED AND UNDERWRITE COMMITMENTS.

Effective balance sheet structure assumes Augusta House settlement, 18.85% NPT stake and proceeds invested in other funds or underwrite positions.


23FUNDS MANAGEMENT

STRATEGIC UPDATE (CONTINUED)

FUNDS MANAGEMENT FOCUS

102

174

991

826

1,267

107

1,246

1031,456

95257

2013 2014 2015 2016

93

1,489

961,678

2017

KCL & IPTAcquisitions

1,178

98212

310

Augusta Capital - Directly Owned

Augusta Syndicates (NZ and AUS)

Other Properties Under Management

1,4561,6781,594

50

1,684

FY16

NEW ASS

ETS

REVALUATIO

NS

DIVESTMENTS

33 BROADWAY

CURRENTFY

17

FY17

PIPELINE

AUGUSTA H

OUSE

DIVESTMENTS

**

OUTLOOK*

FY18 Outlook

Assets Under Management up $222m / 15%

*FY18 Outlook excludes future management acquisitions.**Reflects an assumption based on sales already contracted and historical trends.

30

8684

53238

153

Assets Under Management ($M)

Assets Under Management Growth ($M)

24


FUNDS MANAGEMENT FOCUS



33 Broadway Trust, Newmarket, Auckland - Artist’s Impression

25FUNDS MANAGEMENT

FOCUS (CONTINUED)

QUALITY TENANT(S), LEASE TERM, LOCATION & ADAPTABILITYFY17 DEAL HISTORY

$122.5 million of the equity raised was in relation to the Graham St offerings. Assets of this scale had never been syndicated before in New Zealand. The Graham Street properties, located in the Victorian Quarter in Auckland, also won the “Best of the Best” award at the 2016 New Zealand Property Council awards. Aside from the establishment fee income, material recurring management fee earnings were generated without capital commitment.

TOTAL ASSETS SYNDICATED IN TOTAL

$347 MILLION

Building A, Graham Street

Category: Office

Location: Building A, BDO Centre, 2-4 Graham Street, Auckland Central

Tenant: NZME, Pernod Ricard, Meredith Connell

Settlement: August 2016

Purchase Price: $115.8 million

Capital Raise: $70 million

A premium grade office, in a good location, with strong tenants and long leases. Augusta’s largest capital raise for a New Zealand property to date.

Building B, Graham Street

Category: Office

Location: Building B, BDO Centre, 2-4 Graham Street, Auckland Central

Tenant: NZME, Meredith Connell, Kotahi, Maersk Line

Settlement: November 2016


Capital Raise: $52.5 million

Following the success of Building A, Augusta launched Building B, Graham Street.

26


FUNDS MANAGEMENT FOCUS (CONTINUED)

Ashburton Central

Category: Retail

Location: 250 Tancred Street, Ashburton

Tenant: Various

Settlement: May 2016


Capital Raise: $5.3 million

A re-syndication of an existing managed property.

Quinns Hill

Category: Office/Industrial

Location: 76 Quinns Hill Road East, Stapylton

Tenant: A & L, Nu Pure

Settlement: July 2016

Purchase Price: A$23 million

Capital Raise: A$14 million

Augusta’s largest capital raise for an Australian property to-date. Appetite from our investors for Australian offerings remain strong.

TOTAL EQUITY RAISED

$203 MILLION

27



AUGUSTA VALUE ADD FUND NO. 1 LIMITEDCategory: Fund

Location: Auckland (5 Properties)

Tenant: Various

Settlement: April 2016


Current Valuation: $122.8 million

Capital Raise: $60 million

This new wholesale fund was launched on 1 April 2016. Two assets are now unconditionally sold, with deferred settlements, and Augusta is delivering on the strategy of generating value add from the assets through re-positioning and / or capital improvements whilst taking advantage of current market conditions. There are also very real propositions on the remaining portfolio of 3 properties.

“Yield with potential upside” – the Fund’s objective is to deliver a pre-tax internal rate of return of 11-14% pa (before any performance fee) through acquiring, redeveloping or implementing another value-add strategy (such as re-leasing or re-zoning) and then selling down a portfolio of five Auckland commercial properties.”

THE LAUNCH OF THIS FUND UNDER THE BRANDING ‘AUGUSTA PRIVATE PARTNERS’ IS THE FIRST STEP IN A DIVERSIFICATION OF PRODUCT OFFERINGS.

28



CITY01

Portfolio Key

1. 151 Victoria Street2. 36 Kitchener Street

3. 54 Cook Street4. 100 Carbine Road

5. 11 McDonald Street

5

4

32

1

29



33 Broadway, Newmarket, Auckland - Artist’s ImpressionAUGUSTA CAPITAL ANNUAL REPORT 2017

30FUNDS MANAGEMENT FOCUS (CONTINUED)

33 BROADWAY

Following the overwhelming interest from investors in last year’s Augusta offers, we are pleased to offer the opportunity to invest in the development of another new, premium grade, 5 green star office complex in a prime Auckland location with long leases. With assets of this calibre difficult to find in the current market, as part of Augusta’s investment selection process and commitment to only offering high quality properties to our investors, our business model has evolved to be a part of the creation of these assets.

This substantial Auckland office complex with ground floor retail is currently under construction and offers investors a 7% per annum forecast pre-tax return from Settlement (scheduled for 30 June 2017) through to 31 March 2020. The leases, which will apply from completion of the Development, provide for 3% annual rental growth. Augusta understands the importance of cash flow to our Investors. As such these returns are paid to Investors’ bank accounts monthly.

The anchor tenant on a 12 year lease (from completion of the Development) will be Mercury NZ Limited (previously known as Mighty River Power), the electricity retailer and generator listed on both the New Zealand and Australian Stock Exchanges. It is majority owned by the New Zealand Government, with its remaining shares having a wide New Zealand shareholder base. Mercury will rent level 2 of the east building and levels 3, 4, and 5 of both the west and east buildings, representing 57% of the rental income for 33 Broadway. Tegel Foods Limited, the market leading poultry producer, will also be a major tenant with a new 10 year lease from practical completion. Tegel will lease level 1 of the east and west buildings, representing 16.5% of the rental income for 33 Broadway.

We recognise this investment is different from our previous investments in that the property remains under construction after your investment. There are circumstances where, if the Development is not completed, or not completed on time, Mercury and/or Tegel may cancel their Leases. However, so long as Mansons Broadway and Mansons Equity remain solvent and continue performing their obligations under the Mansons Development Agreement then the Trust is insulated from development risk. If the Development is not completed prior to the Mercury Sunset Date (or any agreed extension of that date) and is sold at a price which results in Investors receiving less than $50,000 per Unit we will rebate to the Trust our offeror’s fee and development fee.

The property is located on a prime corner site on Broadway, in the Auckland suburb of Newmarket. The area is regarded as one of Auckland’s prominent retail and entertainment districts and the home to numerous corporate tenants including Fuji Xerox, Vector, 2degrees, Watercare,

Fidelity Life, Heartland, UDC, Metlifecare, Tonkin & Taylor and the ANZ Regional Centre along with the new Auckland University Campus. Newmarket is also known as a “true” transportation hub with easy accessibility for staff via train, bus and motorway access. This is a major contributing factor for the increasing demand for Newmarket office accommodation and the current record high levels of occupied floor area.

The property is being constructed by one of New Zealand’s leading property developers Mansons TCLM. The Mansons group has been around since the 1970’s, and have built more certified green star buildings than any other New Zealand developer and $1.16 billion of developments since 1999. As part of the Development, the land will be subdivided into two titles, providing future liquidity options to sell only one of the titles.

This property is the fourth recent Augusta offer of a Mansons development with both the Spark Headquarters and BDO Centre (which is also the NZME Headquarters) built by Mansons TCLM. The most recent Augusta offer of the BDO centre won the “Best of the Best” award at the 2016 New Zealand Property Council awards and this latest Newmarket development is benchmarked to that award winning level of quality. This is a testament to the high quality of their work. Another key feature of Mansons is that they stand behind their work with a 10 year capital expenditure guarantee from completion.

For a copy of the Disclosure Statement please visit www.33broadway.co.nz or email [email protected] or call 09 300 6161.

THIS SUBSTANTIAL AUCKLAND OFFICE COMPLEX WITH GROUND FLOOR RETAIL IS CURRENTLY UNDER CONSTRUCTION AND OFFERS INVESTORS A 7% PER ANNUM FORECAST PRE-TAX RETURN.

31



(DIRECTLY OWNED INVESTMENT PROPERTY – HELD FOR SALE)PORTFOLIO BY PROPERTY

Finance Centre Carpark

Location: Durham Lane, Auckland

Number of carparks: 436

Occupancy: 99%

WALE: 10.1 years

Key tenants: Wilson Parking New Zealand Ltd, Lollipops, Robert Jones Holdings

Sale Price: $30.0 million

Sale Date: April 2019

Finance Centre Podium

Location: Durham St West, Auckland

Occupancy: 99%

WALE: 2.5 years

Key tenants: Lollipops Educare Ltd, Just Workout and Foster Moore IT



32


PORTFOLIO BY PROPERTY

Augusta House - 19 Victoria Street West

Location: 19 Victoria Street West, Auckland

Lettable Area: 7,783m²

Occupancy: 100%

WALE: 2.7 years

Key tenants: Qantas, SMX and Castleford Media


Sale Date: June 2017

Retail Title

Location: 11-25 Victoria Street West, Auckland

Lettable Area: 5,123m²

Occupancy: 91%

WALE: 4.7 years

Key tenants: Countdown Metro, TAB, Warehouse Stationery



33


PORTFOLIO BY PROPERTY (CONTINUED)

DIRECTOR PROFILES

Paul Duffy Independent Chairman Dip Urb Val

Paul Duffy has over 35 years’ experience in the property investment/development industry, including CEO/executive director of DNZ Property Fund (now named Stride Property) for 13 years. During his career, Paul held the position of general manager of Fletcher Property Limited and was joint managing director of US Real Estate Subsidiaries for the Abu Dhabi Investment Authority. In this role he oversaw the formation of a large real estate portfolio in the United States and Europe. Paul is currently a director of NPT Limited and of a number of private companies.

Mark Francis Non-Independent Executive Director BCom (Fin)

Mark has a commerce degree in finance and for the last 22 years has worked in many aspects of property investment and development with companies such as Hendry Hay McIntosh, Village Roadshow, Force Corporation and his own private investment vehicles prior to forming Augusta in 2001. Mark is a founder and managing director of Augusta Capital Limited.

Mark has significant experience and background in property development and construction projects. Mark’s primary business prior to the formation of Augusta Capital Management in 2003 was property development with significant projects across all sectors including commercial, retail, industrial and residential.

34


DIRECTOR PROFILES

Bryce Barnett Non-Independent Executive Director FCA, FPINZ

Bryce is a Fellow Chartered Accountant and a Fellow of the Property Institute of New Zealand. He began his career in the Inland Revenue before becoming the Chief Accountant of the Moller Group of Companies in 1980. From there he joined General Properties Consolidation Limited as the Managing Director involved in property development and investment throughout New Zealand. In 1989 Bryce became General Manager of MacDow Properties, a subsidiary of the McConnell Dowell. Bryce was responsible for that company’s development and investment activity throughout New Zealand. In 1993 Bryce established KCL Property. KCL Property was acquired by Augusta Funds Management in April 2014.

John Loughlin Independent Director MBA, BCA, FCA, ANZIIF (fellow), INFINZ (fellow), FNZIM, AFInstD

John Loughlin is a professional company director. He is chairman of Powerco Limited, Tru-Test Corporation Limited, East Pack Limited, Rockit Global Limited, Askerne Estate Winery Limited and Meat Industry Association of NZ Inc.

John has signalled that he will retire as a director of Augusta at the 2017 annual meeting to be held in August.

35


DIRECTOR PROFILES (CONTINUED)

Martin Goldfinch Independent Director BCom, LLB

Martin has extensive commercial experience across a range of industries in both public and private companies. He holds degrees in Law and Commerce from Auckland University. He is currently the Private Equity Manager for Accident Compensation Corporation (ACC) and represents it on the boards of a number of companies that ACC invest in. He also has current directorships with Les Mills Holdings Limited, Youi (NZ) Pty Limited and is a Council Member of NZ Venture Capital Association.

Mark Petersen Independent Director Dip Urb Val

Mark is a Professional Director and corporate adviser who has worked in the commercial property sector for the past 35 years. Initially working as a registered valuer, Mark’s background includes development management, project management and investment management. Mark was Managing Director of NZX listed Shortland Properties Limited from 1989 to 1999. Mark is currently a director of CentrePort Limited, Wellington’s container port company and its subsidiaries. He is also an advisory Board member for Te Tumu Kainga, a trust administered by the Maori Trustee for the provision of affordable housing. Mark is a former director of Wellington Waterfront Limited, a former director of Australian property focused private equity funds which were established and managed by Grant Samuel and is a past Chair of the NZ Hockey Federation. Mark is currently an Executive Director of D H Flinders NZ Limited. D H Flinders is a Melbourne headquartered corporate advisory firm providing corporate and funds management advice in Australia, New Zealand and South East Asia.

36


DIRECTOR PROFILES (CONTINUED)

SENIOR MANAGEMENT OF AUGUSTA

Simon Woollams Chief Financial Officer

Simon has a commerce degree majoring in accountancy and is a Chartered Accountant. Simon has a strong financial background including roles with BDO Spicers, UK experience and ANZ National Bank in the property and finance teams. Simon has been with Augusta since 2007.

Guy French-Wright Chief Operating Officer

Guy joined Augusta from Quintessential Equity, a wholesale property fund manager based in Melbourne, Australia, where he was General Manager – Development and was responsible for building a diversified development business. Prior to that, he was Development Director – Commercial at the Mirvac Group in Melbourne and has held a range of other management positions at Mirvac Group, Salta Properties and Austcorp Group in Australia. He started his career as an Investment Banking Associate at Macquarie Bank.

Phil Hinton General Manager

Luke Fitzgibbon General Counsel & Company Secretary

Luke joined Augusta in January 2016 from Chapman Tripp where he spent 8 years in the corporate team where he advised on securities laws (including for Augusta’s syndications), mergers and acquisitions as well as general commercial and corporate advice. Luke’s role at Augusta is to oversee and advise on all legal aspects of the Augusta business.

Stephen Brown-Thomas Development & Project Manager

Stephen has a bachelor of business majoring in valuation and property management and has over 10 years’ experience in property, asset and development management. Stephen has previously had roles with DTZ International and joined KCL Property in 2007. Stephen subsequently joined Augusta in April 2014 after the acquisition of KCL as Development Manager and has had a strong focus on development and project work throughout the Augusta portfolio whilst also managing a number of assets.

Phil has decided to retire from a full time role with Augusta Capital, effective in June 2017. Phil is also a director of the Parent's wholly owned subsidiary, Augusta Funds Management Limited and he will retire as a director at the same time. He will, however, continue as a consultant, based in New Plymouth assisting the company on key projects, particularly in the investor relations area.

37


SENIOR MANAGEMENT

Investing in Augusta Capital LimitedShares in the Company are quoted under the issuer code ‘AUG’ on the NZX Main Board. There is only one class of securities, being Ordinary Fully Paid Shares.

Annual and Interim ReportsThe Company’s Annual report will be sent to Shareholders in June of each year. The interim report and annual reports will be available on the Company website at the end of May and November of each year.

MeetingsThe Company’s Annual Meeting is to be held on Thursday 31 August 2017 at the Northern Club, 19 Princes Street, Auckland at 2:30pm.

WebsiteThe Company’s website address is www.augusta.co.nz. The website contains information on the history, structure, governance and latest news on the Company, including details of the managed portfolio, financial reports and press releases.

AnnouncementsAll announcements of material information to the NZX Main Board are posted on the Company’s website at www.augusta.co.nz. Copies of announcements can be requested from the General Counsel & Company Secretary at [email protected]

RegistryThe registry for the shares of the Company is maintained by Link Market Services Limited. Investors should contact the registry if they wish to change their investment details such as address, method of receipt of dividend or general NZX inquiries.

ManagementAny inquiries about Augusta Capital Limited can be directed to Luke Fitzgibbon, General Counsel & Company Secretary, Augusta Capital Limited.

Email [email protected] Phone (09) 300 6161 Fax (09) 300 6162

INVESTOR RELATIONS

38


INVESTOR RELATIONS

The Board comprises six Directors: four Independent Directors (of which one is the Chairman) and two Executive Directors. The Company’s Constitution provides for the appropriate number of Directors to be between three and seven but requires the number of Independent Directors represented on the Board to in all cases constitute a majority.

The independent directors are Paul Duffy, Martin Goldfinch, Mark Petersen and John Loughlin. Mark Francis and Bryce Barnett are executive directors, with Mark Francis the designated executive director for the purpose of NZX Main Board Listing Rule 3.3.12(c).

The Boards of Augusta Capital and Augusta Funds Management are committed to maintaining the highest standards of business behaviour and accountability. Accordingly, each Board has adopted corporate governance policies and practices designed to promote responsible conduct throughout the Augusta Group.

The corporate governance framework is set out in the Board Charter, a copy of which can be found at the Company’s website: www.augusta.co.nz/corporate-governance-2/. As part of the Board Charter, the Board has identified the following as its main functions:

• from time to time, select and (if necessary) replace the Chairperson;

• ensure the company has a competent management team;

• ensure that there are adequate management resources to achieve Augusta Capital and Augusta Funds Management’s objectives;

• review and approve the strategic, business and financial plans prepared by management and to develop a depth of knowledge of the group’s business so as to understand and question the assumptions upon which such plans are based and to reach an independent judgment on the probability that such plans can be achieved;

• review and approve individual investment and divestment decisions which the Board has determined should be referred to it before implementation;

• review and approve material transactions not in the ordinary course of the group’s business;

• monitor the group’s performance against its approved strategic, business and financial plans and to oversee the group’s operating results on a regular basis so as to evaluate whether the business is being properly managed;

• ensure the group meets its statutory responsibility for the affairs and activities of the group including providing annual financial statements that comply with generally accepted accounting practice and provide a true and fair view of the group’s financial position;

• protect and enhance the value of the assets of the group for the benefit of shareholders, through the approval of appropriate corporate strategies (particularly those relating to capital structure, acquisition and divestment proposals and capital expenditure) and review of the performance of management;

• delegate responsibility to management to implement and deliver the adopted corporate strategies determined by the Boards;

• ensure effective disclosure policies and procedures are fulfilled to maintain a fully informed market;

• ensure ethical behaviour by the group, the Boards and management, including compliance with each company’s Constitution, the relevant laws, listing rules and regulations and the relevant auditing and accounting principles;

• implement and from time to time review the group’s Code of Ethics, foster high standards of ethical conduct and personal behaviour and hold accountable those directors, managers or other employees who engage in unethical behaviours;

• ensure the quality and independence of the group’s external audit process;

• assess from time to time each Board’s effectiveness in carrying out these functions and the other responsibilities of the Board.

The Board Charter also deals with a number of other matters including:

• board composition;

• the Chairperson’s role;

• director empowerment assurance;

• director responsibilities;

• conflicts of interest;

• board committees;

• external audit policy;

• remuneration policy;

• shareholder participation; and

• reporting and disclosure.

A Code of Ethics has been adopted to apply to all employees and directors. The Code sets out the minimum standards expected of Augusta’s employees and directors and is intended to facilitate decisions that are consistent with Augusta values, business goals and legal and policy obligations.

CORPORATE GOVERNANCE

39


CORPORATE GOVERNANCE

The following policies have also been adopted to govern the behaviour of Augusta’s employees and directors:

• Insider Trading Policy: the policy sets out standards and rules designed to ensure compliance with the insider trading provisions of the FMCA. The policy requires that all staff and directors obtain the consent of the Chairman before trading and contains blackout periods around results announcement dates prohibiting any trading.

• Risk Management Policy: The Boards recognise that there are a number of risks that the group faces. Accordingly, they have adopted a risk management policy which identifies key policies and procedures (such as regular reporting, insurance, financial and operational controls and a business continuity plan) to manage key business risks.

• Financial Reporting Policy: given the number of audited financial statements that the group is required to prepare in respect of managed investment schemes (in addition to the financial statements for Augusta Capital and Augusta Funds Management), the Boards recognise the importance of financial reporting. The policy therefore sets out a number of policies and procedures to:

» ensure financial statements are in compliance with GAAP;

» select and consistent apply appropriate accounting policies in compliance with GAAP;

» prepare financial statements that give a fair presentation of the financial performance and position of the company;

» prepare financial statements within required timeframes.

• Compliance Policy: recognising Augusta Funds Management’s obligations as a licensed manager, the Boards have adopted a compliance policy to document policies and procedures to enable the company to achieve compliance with external rules as well as internal policies. The policy also sets out the Company’s compliance assurance programme to test such compliance. The policy applies to all operations of the group, rather than solely Augusta Funds Management’s licensed obligations.

Board Committees To assist each Board in carrying out their objectives and functions, the Boards of Augusta Capital and Augusta Funds Management each have a number of formally constituted committees.

The committees are as follows:

Audit and Risk Management Committee

The Audit and Risk Management Committee of each group company is responsible for monitoring and reviewing the effectiveness of the Company’s controls in the areas of operational risk and financial reporting. The members are Mark Petersen (Chair), John Loughlin and Martin Goldfinch.

Remuneration Committee

The Remuneration Committee is a committee of the Augusta Capital board only. It addresses remuneration policy, sets salary terms and conditions and approves senior management remuneration. The members are John Loughlin (Chair) and Martin Goldfinch.

Health and Safety Committee

The Health and Safety Committee of each group company assists the Boards to fulfil its health and safety responsibilities and ensure compliance with all legislative and regulatory requirements. The committee reviews all health and safety incidents and oversees the due diligence on health and safety risks within the managed portfolio. The members are Mark Francis (Chair) and Mark Petersen.

Compliance Committee

The Compliance Committee of each group company assists the Board in discharging its responsibilities relative to compliance with policies and procedures and regulatory obligations. It reviews reports from management on compliance assurance testing undertaken. The members are Mark Francis (Chair), Mark Petersen and Martin Goldfinch.

Due Diligence Committees

As applicable, each group company convenes a due diligence committee to review the due diligence completed on any acquisition to be undertaken by a group company. The committee comprises of an independent director as chair, an executive director, members of management and the Company’s legal advisers.

A copy of each committee’s charter is at the Company’s website: www.augusta.co.nz

The corporate governance principles adopted and followed by the Company differ from the Corporate Governance Best Practice Code issued by the NZX in the following ways:

• the Company does not maintain a nominations committee to recommend director appointments to the Board;

• directors are not encouraged to take a portion of their remuneration via a performance-based equity securities compensation plan or encouraged to invest a portion of their cash remuneration in purchasing the Company’s equity securities.

Augusta Capital notes the revised NZX Corporate Governance Code which will come into effect from 1 October 2017 and will report against that Code in the next annual report. The Company considers that it currently complies with a significant majority of the recommendations set out in the code but continuously reviews its Corporate Governance policies and practices. It looks forward to reporting against the Code in the next annual report.

40


CORPORATE GOVERNANCE (CONTINUED)

Nature of Operations and Principal ActivitesThe principal activities during the period were that of commercial and industrial property investment, funds management specialised in property and cleaning services. During the period the cleaning business was sold to a third party. There has been no other changes in the nature of these activities during the period.

Directors Relevant Interests in the Shares of the CompanyThe interests of the Directors in the shares of Augusta Capital Limited as at 31 March 2017 were:

Director Nature of Interest Number of Shares

Mark Francis Legal and beneficial owner 14,620,000

Bryce Barnett Beneficial owner Power to control vote

5,000,000

John Loughlin Legal and beneficial owner 37,286

Directors’ interestsDuring the year ended 31 March 2017 the following are dealings in Augusta Capital shares involving Directors of the Company or its subsidiaries;

Share Acquisitions

Share dealingsNumber of

shares acquiredClass

of sharesConsideration

paidDate of

acquistion

B.R. Barnett* 88,966 Ordinary $71,173 16 May 2016

P.M. Hinton** 22,242 Ordinary $17,793 16 May 2016

* Shares issued as part of the KCL settlement and before B.R. Barnett was appointed a Director of Augusta Capital Limited and Augusta Funds Management Limited.

** Shares issued as part of the KCL settlement and before P.M. Hinton was appointed a Director of Augusta Funds Management Limited.

P.M. Hinton is a director of Augusta Funds Management Limited only.

Indemnification and Insurance of Directors and OfficersThe Company has agreed to indemnify all the Directors for:

(a) costs incurred in defending any liability for any act or omission made by the Director in their capacity as a director and for to which they are acquitted, judgment is given in their favour or the proceeding is discontinued;

(b) any liability in their capacity as a director (other than liability to the Company or its subsidiaries) for any act or omission as a director except where due to the wilful default or fraud, any criminal liability, breach of the duty to act in good faith, breach of any fiduciary duty and any other liability for which the giving of an indemnity is prohibited by law.

During the financial year, the company has paid premiums (as permitted by sections 162(3)-(5) of the Companies Act 1993) in respect of a Directors and Officers Liability Policy insuring all the Directors of Augusta Capital Limited (subject to the policy terms and conditions) against claims arising whilst they are acting in their individual or collective capacities as Directors and Officers.

The payment of insurance premiums was expressly approved by the Board, who consider the cost is fair to the Company.

41



Interests RegisterIn addition to the disclosure above regarding share acquisitions and director indemnities and insurance, the following are relevant disclosures in relation to changes in the Interests Registers of the Company and its subsidiaries following 1 April 2016:

Director Company / Transaction Interest

Mark Petersen

Harbour Quays Shed 39 Limited Director

Harbour Quays C1 Limited Director

Harbour Quays D3 Limited Director

Martin Goldfinch

Cavalier Woolscourers Limited Resigned as a director

Cavalier Wool Holdings Limited Resigned as a director

Mark Francis

AFM GP (Building B Graham Street) Limited Director

AFM GP (Building A Graham Street) Limited Director

AFM GP (Ashburton Central) Limited Director

Issue of Performance Share Rights under Augusta Capital Long Term Incentive Plan

Participant in Augusta Capital Long Term Incentive Plan

Bryce Barnett

AFM GP (Building B Graham Street) Limited Director

AFM GP (Building A Graham Street) Limited Director

AFM GP (Ashburton Central) Limited Director

Issue of Performance Share Rights under Augusta Capital Long Term Incentive Plan

Participant in Augusta Capital Long Term Incentive Plan

John Loughlin

Bay Venues Limited Resigned as a director

Port of Napier Limited Resigned as a director

Director Remuneration for the Year Ended 31 March 2017Director Roles Fees Paid

Paul Duffy Independent ChairmanChair, Due Diligence Committee for Building A, BDO Centre syndicateChair, Due Diligence Committee for Building B, BDO Centre syndicate

110,000

Mark Petersen Independent DirectorChair, Audit and Risk Management Committee, Member, Compliance Committee, Health and Safety Committee

61,000

John Loughlin Independent DirectorChair, Remuneration Committee Member, Audit and Risk Management Committee, Chair, Due Diligence Committee for Quinns Hill Road, Brisbane syndicate

68,000

Martin Goldfinch Independent DirectorMember, Audit and Risk Management Committee Member, Compliance Committee Chair, Chair, Due Diligence Committee for Ashburton Central syndication

60,000

In addition to the director fees noted above, the total remuneration and value of other benefits paid to M.E. Francis was $588,000 and B.R. Barnett was $457,000. This remuneration and other benefits were paid for their services as employees of Augusta Capital. No remuneration was paid in respect of their role as directors.

42



DirectorshipsThe names of the directors of the Company are set out in the Director Profiles on pages 34-36.

The following person held office as directors of the Company’s subsidiaries at 31 March 2017:

Main operating subsidiaries• Augusta Funds Management Limited: Paul Duffy, John

Loughlin, Martin Goldfinch, Mark Petersen, Bryce Barnett, Phil Hinton and Mark Francis

• Metroclean Limited: Mark Francis

General Partners of Limited Partnerships managed by Augusta Funds Management LimitedThe following subsidiaries act as the general partner of limited partnerships which are managed by Augusta Funds Management Limited:

• AFM GP (Ashburton Central) Limited: Mark Francis and Bryce Barnett

• AFM GP (Building A Graham Street) Limited: Mark Francis and Bryce Barnett

• AFM GP (Building B Graham Street) Limited: Mark Francis and Bryce Barnett

• AFM GP (Hugo Johnston Drive) Limited: Mark Francis and Bryce Barnett

• AFM GP (Peachgrove Road) Limited: Mark Francis and Bryce Barnett

• AFM GP (Shands Road) Limited: Mark Francis and Bryce Barnett

• Sherbrooke Rd Partners Pty Limited ; Bryce Barnett and David Krishnan

• Quinns Hill Rd Partners Pty Limited ; Bryce Barnett and David Krishnan

In addition, the following subsidiary has been incorporated to act solely as an initial limited partner when limited partnerships are formed:

• AFM LP Limited: Mark Francis and Bryce Barnett

Nominee companies for proportionate ownership schemesThe following companies act as nominee companies holding real property and other assets on bare trust for proportionate ownership schemes managed by Augusta Funds Management Limited:

• 23 Arrenway Equities Limited: Mark Francis, Bryce Barnett and Phil Hinton

• 587 Nominees Limited: Mark Francis

• 87 Main Highway Equities Limited: Mark Francis, Bryce Barnett and Phil Hinton

• Branston Street Nominees Limited: Mark Francis and Phil Hinton

• Church St Nominees Limited: Mark Francis, Bryce Barnett and Phil Hinton

• Colombo Street Nominee Limited: Mark Francis, Bryce Barnett and Phil Hinton

• Courtenay St Equities Limited: Mark Francis, Bryce Barnett and Phil Hinton

• Great South Road Equities Limited: Mark Francis, Bryce Barnett and Phil Hinton

• Hugo Johnston Equities Limited: Mark Francis, Bryce Barnett and Phil Hinton

• Kerwyn Ave Nominees Limited: Mark Francis, Bryce Barnett and Phil Hinton

• King Street Nominees Limited: Mark Francis and John Loughlin

• Manukau Rd Equities Limited: Mark Francis, Bryce Barnett and Phil Hinton

• Morrin Rd Equities Limited: Phil Hinton

• Port Rd Equities Limited: Mark Francis, Bryce Barnett and Phil Hinton

• Ronwood Ave Equities Limited: Mark Francis, Bryce Barnett and Phil Hinton

• Te Rapa Rd Nominees Limited: Mark Francis, Bryce Barnett and Phil Hinton

• Trafalgar Sq Equities Limited: Mark Francis, Bryce Barnett and Phil Hinton

• Tremaine Avenue Limited: Mark Francis, Bryce Barnett and Phil Hinton

• Vickery Street Nominees Limited: Mark Francis and Phil Hinton

• Vogler Dr Equities Limited: Mark Francis, Bryce Barnett and Phil Hinton

The following company holds interests in a proportionate ownership scheme on bare trust for certain investors:

• Evans Road Limited: Bryce Barnett and Mark Francis

Remuneration of Employees Whose Remuneration and Benefits Exceeded $100,000

580,000 – 589,999 1

450,000 - 459,999 1

360,000 - 369,999 1

330,000 - 339,999 1

300,000 - 308,999 1

170,000 - 179,999 3

160,000 - 169,999 1

150,000 - 159,999 1

140,000 - 149,999 1

130,000 - 139,999 1

110,000 – 119,999 1

Total 13

43



Auditor’s Remuneration

Fees paid to auditors for the year ended 31 March 2017 were $103,000 (2016 $85,000). Other non-audit services (tax and consulting) from EY for the year ended 31 March 2017 were $57,000 (2016 $64,000).

Donations

Donations of $17,462 were made during the year (2016 $5,261).

Gender Disclosures

The breakdown of the gender composition of the Company’s directors and executive team for the previous two years is as follows;

Board Officers

Financial Year Male Female Male Female

12 months ending 31 March 2016 6 - 6 -

12 months ending 31 March 2017 6 - 6 -

44





45

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STATEMENTS

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48


INDEXConsolidated Statement of Comprehensive Income 50

Consolidated Statement of Changes in Equity 51

Consolidated Statement of Financial Position 52

Consolidated Statement of Cash Flows 53

Notes to the Consolidated Financial Statements 54

1. Corporation Information 54

2. Summary of Significant Accounting Policies 54

3. Significant Accounting Judgements and Estimates 55

4. Financial Risk Management Objectives and Policies 55

5. Subsidiaries 58

6. Segment Information 59

7. Net Revenue 61

8. Costs and Expenses 62

9. Income Tax 63

10. Earnings per Shares 65

11. Dividends Paid and Proposed to Shareholders 65

12. Cash and Cash Equivalents 66

13. Trade and Other Receivables 66

14. Investment Properties 67

15. Investment Assets 69

16. Fixed Assets 69

17. Intangible Assets and Goodwill 70

18. Trade Payables and Accruals 71

19. Interest-Bearing Loans and Borrowings 71

20. Financial Assets 73

21. Issued Capital and Reserves 75

22. Commitments and Contingencies 75

23. Remuneration 76

24. Related Party Disclosures 77

25. Lease Commitments 78

25. Events After the Balance Sheet Date 78

49


CONSOLIDATED STATEMENTOF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 MARCH 2017

Note

2017

$’0002016

$’000

Revenue

Property Revenue 6,750 7,393

Management Fees 7,258 5,314

Offeror Fees 5,451 5,119

Underwriting Fees 1,425 1,903

Cleaning Services Income (discontinued operations) 480 618

Operating Costs Recovered 1,295 1,485

Investment Income 658 101

Gross Revenue 23,317 21,933

Less Operating Costs 7 (4,272) (4,829)

Net Revenue 7 19,045 17,104

Less Corporate Costs

Administration Costs 8 (8,138) (7,162)

Total Corporate Costs (8,138) (7,162)

Profit Before Financing, Fair Value Movements, Gain / (Loss) on Disposal and Taxation 10,907 9,942

Finance Income 8 273 118

Finance Expenses 8 (2,437) (3,048)

Net Finance Costs (2,164) (2,930)

Profit Before Fair Value Movements, Gain / (Loss) on Disposal and Taxation 8,743 7,012

Unrealised Gain / (Loss) in Value of Investment Properties 14 4,121 7,071

Unrealised Gain / (Loss) on Interest Rate Swap 550 (465)

Unrealised Gain / (Loss) on Investments 15 780 -

Contingent Consideration Discount Adjustment (11) 33

Gain / (Loss) on Disposal of Assets (19) 962

Transaction costs 14 (1,414) -

Derecognition of Intangible Assets 17 (828) -

FX Gain / (Loss) realised (6) -

Net Profit Before Taxation 11,916 14,613

Taxation Expense

Current Taxation 9 (1,998) (1,515)

Deferred Taxation 9 8 419

Taxation Expense (1,990) (1,096)

Profit for the Year 9,926 13,517

Net Loss on Available-For-Sale Financial Assets 15 (2,175) -

Net Other Comprehensive Loss to be Reclassified to Profit and Loss in Subsequent Periods, Net of Tax (2,175) -

Total Comprehensive Income for the Year, Net of Tax 7,751 13,517

Basic/Diluted Earnings Per Share 10 8.86 cents 15.46 cents

The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

50



Note

Share Capital

$’000

Retained Earnings / (Deficit)

$’000

Available For Sale Reserve

$’000

Other Capital

Reserves

$’000Total

$’000

Balance as at 1 April 2015 80,817 (11,629) - - 69,188

Issue of Shares 3,712 - - - 3,712

Profit / (Loss) for the year - 13,517 - - 13,517

Total comprehensive income for the year ended 31 March 2016 - 13,517 - - 13,517

Dividends 11 - (4,370) - - (4,370)

Balance as at 31 March 2016 84,529 (2,482) - - 82,047

Note

Share Capital

$’000

Retained Earnings / (Deficit)

$’000

Available For Sale Reserve

$’000

Other Capital

Reserves

$’000Total

$’000

Balance as at 1 April 2016 84,529 (2,482) - - 82,047

Issue of Shares 125 - - - 125

Share Based Payments 23 - - - 173 173

Profit / (Loss) for the year - 9,926 - - 9,926

Other Comprehensive Loss 15 - - (2,175) - (2,175)

Total comprehensive income for the year ended 31 March 2017 - 9,926 (2,175) - 7,751

Dividends 11 - (4,706) - - (4,706)

Balance as at 31 March 2017 84,654 2,738 (2,175) 173 85,390

The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.

51


AS AT 31 MARCH 2017

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Note

2017

$’0002016

$’000

Current Assets

Cash and Cash Equivalents 12 6,079 5,150

Trade and Other Receivables 13 1,541 2,779

Prepaid Expenses 206 128

Income Tax Receivable 153 133

Deposits Paid (Purchase of Property) 13 - 4,873

Interest Rate Swaps 20 1,357 -

Total Current Assets 9,336 13,063

Investment Properties Held for Sale 14 93,285 17,900

Non Current Assets

Investment Properties 14 - 88,900

Investment Assets 15 15,555 50

Intangible Assets 17 6,699 7,386

Goodwill 17 8,836 8,994

Fixed Assets 16 1,040 540

Total Non Current Assets 32,130 105,870

Total Assets 134,751 136,833

Current Liabilities

Income Received in Advance 37 55

Trade Payables and Accruals 18 2,212 2,226

Deposits Received 14 3,000 -

Interest Rate Swaps 20 594 450

Contingent Consideration 21 - 112

Fair Value of Rental Underwrite 65 490

Deferred Taxation 9 343 -

Total Current Liabilities 6,251 3,333

Non Current Liabilities

Borrowings 19 35,000 48,900

Deposits Received 14 6,600 -

Interest Rate Swaps 20 920 1,613

Deferred Taxation 9 590 940

Total Non Current Liabilities 43,110 51,453

Total Liabilities 49,361 54,786

Shareholders’ Equity 85,390 82,047

Total Liabilities and Shareholders’ Equity 134,751 136,833

For and on behalf of the Board of Directors, who authorise the issue of these Consolidated Financial Statements;

Director: Date: 30 May 2017

Director: Date: 30 May 2017

The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.

52


FOR THE YEAR ENDED 31 MARCH 2017

CONSOLIDATED STATEMENT OF CASH FLOWS

Note

March 2017

$’000March 2016

$’000

Cash Flows from Operating Activities

Profit Before Tax from Continuing Operations 11,916 13,517

Adjustments to reconcile profit before tax to net cash flows operating activities

Depreciation of fixed assets, amortisation and derecognition of intangible assets 999 383

Revaluation of investment property (4,121) (7,518)

Gain / (Loss) on disposal of property and assets 19 (1,087)

Transaction costs - property disposal 1,414 -

Fair Value Gain / (Loss) on investments (780) -

Finance Income (273) (118)

Finance Costs 2,437 3,048

Fair Value Adjustment to Financial Instruments (550) 465

Contingent Consideration 11 (33)

Share Based Payment Expense 173 -

Net foreign Exchange Difference 6 -

Working Capital Adjustments

(Increase) / Decrease in trade and other receivables and prepayments 296 522

Increase / (Decrease) in trade and other payables (270) 781

11,277 9,960

Interest Received 273 118

Interest Paid (2,531) (3,084)

Income Tax Paid (2,017) (1,184)

Net Cash Flows from Operating Activities 7,002 5,810

Investing activities

WIP developments (154) (1,034)

Deposits Paid (12,476) (11,155)

Deposits Refunded 17,349 8,819

Deposits received in relation to investment property sales 9,600 -

Net Retentions Received / (Paid) - 141

Net proceeds from sale of investment properties 16,052 20,996

Net proceeds from sale of other assets 158 12,450

Capital Expenditure and purchase of plant and equipment (1,096) (1,184)

Purchase of Investment Property Held For Sale - (16,500)

Net Purchase of Investment Assets 15 (16,900) (12,450)

Net Cash Flow From Investing Activities 12,533 83

Financing Activities

Proceeds from borrowing 18,500 22,450

Repayment of borrowings (32,400) (19,450)

Dividends paid (4,706) (4,370)

Net Cash Flow From Financing Activities (18,606) (1,370)

Net increase in cash held 929 4,523

Opening Cash balance 5,150 627

Cash and cash equivalents at 31 March 6,079 5,150

The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.

53


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2017

1. Corporate InformationThe consolidated financial statements of Augusta Capital Limited (the “Company”) and its subsidiaries (collectively the “Group”) for the year ended 31 March 2017 were authorised for issue in accordance with a resolution of the Directors on 30 May 2017.

The Company is a limited company incorporated and domiciled in New Zealand and whose shares are listed on the New Zealand Stock Exchange. The Company is an FMC Reporting Entity under the Financial Markets Conduct Act 2013. The registered office is located in Level 2, Bayleys House, 30 Gaunt Street, Wynyard Quarter, Auckland.

The nature of the operations and principal activities of the Group are that of investment in funds management specialising in property, commercial property and cleaning services. The cleaning services business was sold to the third party in December 2016. The Company still owns Metroclean Limited and intends to liquidate Metroclean Limited in the year ended 31 March 2018.

2. Summary of Significant Accounting Policies(a) Basis of PreparationThe consolidated financial statements have been prepared in accordance with generally accepted accounting practice in New Zealand (“NZ GAAP”). For the purpose of complying with NZ GAAP, the Company and its subsidiaries are for-profit entities. The consolidated financial statements have also been prepared on a historical cost basis, except for investment properties, derivative financial instruments, investment assets and investments and associates which have been measured at fair value.

The financial statements are presented in New Zealand dollars and all values are rounded to the nearest thousand dollars ($’000).

(b) Statement of ComplianceThe consolidated financial statements comply with New Zealand equivalents to International Financial Reporting Standards (‘NZ IFRS’). The consolidated financial statements also comply with International Financial Reporting Standards (‘IFRS’).

Changes in accounting policies

The accounting policies adopted are consistent with those of the previous financial year.

Accounting Standards that are issued but not yet effective

A number of new standards, amendments to standards and interpretations are effective for reporting periods on or after 1 April 2017, and have not been adopted in preparing these consolidated financial statements by the Group. None of these are expected to have a significant effect on the consolidated financial statements of the Group, except for the following:

NZ IFRS 9 Financial Instruments - This standard is part of a wider project to replace NZ IAS 39 Financial Instruments: Recognition and Measurement. The standard establishes two primary measurement categories for financial assets: amortised cost and fair value. The basis of classification will depend on the Group’s business model for managing the financial asset and contractual cash flow characteristics of the financial asset. The existing NZ IAS 39 requirements, being the classification for financial liabilities and the ability to use fair value is retained, however where fair value is used it will be for accounted as follows: the change attributable to the changes in credit risk are presented in other comprehensive income, while the remaining change is presented in profit or loss. If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in credit risk are also presented in profit or loss. The Group is assessing the impact of NZ IFRS 9 and does not expect any significant impact given the nature of the balance sheet, except for listed investment(s) which are currently held as available-for-sale, with gains and losses recorded in OCI (Other Comprehensive Income). Under NZ IFRS 9 these gains and losses will be measured at fair value through profit or loss instead, which will increase volatility in recorded profit or loss. The AFS reserve currently presented as accumulated OCI will be reclassified to opening retained earnings. The application date for this standard is for accounting periods beginning on or after 1 January 2018 hence the application date for the Group is 1 April 2018.

NZ IFRS 15 establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. NZ IFRS 15 supersedes:

(a) NZ IAS 11 Construction Contracts

(b) NZ IAS 18 Revenue

(c) NZ IFRIC 13 Customer Loyalty Programmes

(d) NZ IFRIC 15 Agreements for the Construction of Real Estate

(e) NZ IFRIC 18 Transfers of Assets from Customers

(f) NZ SIC-31 Revenue – Barter transactions Involving Advertising Services

The core principle of NZ IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

An entity recognises revenue in accordance with that core principle by applying the following steps:

(a) Step 1: Identify the contract(s) with a customer

(b) Step 2: Identify the performance obligations in the contract

54


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


(c) Step 3: Determine the transaction price

(d) Step 4: Allocate the transaction price to the performance obligations in the contract

(e) Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation

Management believe, that the impact of NZ IFRS 15 is likely to be in respect of the measurement and recognition of one-off deal fees and transactional / performance based fees. Management will assess individual contracts to understand the changes in treatment required. However a full assessment of the impact has not yet been performed. The application date for the standard is for accounting periods beginning on or after 1 January 2017 hence the application date for the Group is 1 April 2018.

IFRS 16 is the new standard on the recognition measurement, presentation and disclosure of leases.

The standard will replace:

a) NZ IAS 17 Leases;

b) NZ IFRIC 4 Determining whether an Arrangement contains a Lease;

c) NZ SIC – 15 Operating Leases – Incentives; and

d) NZ SIC -27 Evaluating The Substance of Transactions. Involving the legal form of a lease.

The Group has not yet assessed the impact of this standard. The Application of NZ IFRS 16 is required for annual periods beginning on or after 1 January 2019. As the Group continues to move into the funds management business, management believe NZ IFRS 16 will have less of an impact. However a full assessment will be undertaken to confirm this.

(c) Basis of ConsolidationThe consolidated financial statements of the Group comprise the financial statements of the Company and its subsidiaries as at and for the year ended 31 March each year.

Subsidiaries are all those entities over which the Company is exposed, or has rights, to variable returns from its investment with the entity and has the ability to affect those returns through its power over the entity. The existence and effect of potential voting rights that are currently exercisable or convertible are considered, if those rights are substantive, when assessing whether a Company controls another entity.

The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. In preparing the consolidated financial statements, all intercompany balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends have been eliminated in full.

3. Significant Accounting Judgements and Estimates In applying the Group’s accounting policies management continually evaluates judgements, estimates and assumptions based on experience and other factors, including expectations of future events that may have an impact on the Group. Actual results may differ from the judgements,

estimates and assumptions. Judgements made by the Directors in the application of NZ IFRS, that have significant effects on the financial statements and estimates with a significant risk of material adjustments in the next year are disclosed, where applicable, in the relevant notes to the financial statements. Significant judgements, estimates and assumptions made by the Group in the preparation of these consolidated financial statements are outlined below.

The preparation of these consolidated financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. Although the Group has internal control systems in place to ensure that estimates can be reliably measured, actual amounts may differ from those estimates. The areas involving a higher degree of judgement or areas where assumptions are significant to the Group include following;

• Valuations of Investment Properties (Note 14)

• Impairment of Goodwill & Intangibles (Note 17)

• Classification of the Augusta Value Add Fund No. 1 (Note 15).

4. Financial Risk Management Objectives and Policies The Group’s principal financial instruments, other than derivatives, comprise bank loans, cash and short-term deposits. The main purpose of these financial instruments is to provide funding for the Group’s operations.

The Group has various other financial instruments such as trade receivables and trade payables, which arise directly from its operations.

The Group also enters into derivative transactions consisting principally of interest rate swaps. The purpose is to manage interest rate risk arising from the Group’s operations and its sources of finance.

It is, and has been throughout the period under review, the Group’s policy that no trading in financial instruments shall be undertaken.

The main risks arising from the Group’s financial instruments are interest rate risk, credit risk and liquidity risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below.

The Group also monitors the market price risk arising from all financial instruments and the Group’s accounting policies in relation to derivatives are set out below.

Interest rate risk

The Group’s exposure to market risk for changes in interest rates relates primarily to the Group’s long-term debt obligations. The level of debt is disclosed in Note 19.

To manage this in a cost-efficient manner, the Group enters into interest rate swaps, in which the Group agrees to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount.

55


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 2017

4. Financial Risk Management Objectives and Policies (Continued)As the Group holds interest rate swaps in respect of $22.5 million (2016 $22.5 million) of the total Group debt, there is a risk that their economic value will fluctuate because of changes in market interest rates. The notional value of interest rate swaps is disclosed in Note 20, and it is acknowledged that this risk is a by-product of the Group’s attempt to manage its cash flow interest rate risk. These swaps are entered into to economically hedge underlying and forecast debt obligations.

At the balance date the Group also held interest rate swaps in respect of a further $68.0 million (2016 $Nil) of debt. These swaps relate to the Group’s latest syndication, 33 Broadway Trust, and the Group intends to novate these to the trust in June 2017. These swaps were entered into for the sole benefit of 33 Broadway Trust.

At 31 March 2017, after taking into account the effect of interest rate swaps which is in respect of 64% (or $22.5 million) of the Group’s borrowings, and with the balance of the debt (36% or $12.5 million) based on interest floating rates, the effective interest rates including margins are below for both the Group and Company;

- $8.5 million at the effective rate of 5.52%



The Group however has further exposure to changes in the floating liquidity premium margin, which is currently reviewed by ASB Bank on a quarterly basis. All other bank margins are fixed over the term of the loan facility, with the exception of potential future margin review changes, which ASB Bank has a right to review; in circumstances such as if the loan covenants are breached. As at balance date the Group had the following financial assets exposed to New Zealand variable interest rate risk that are not designated in cash flow hedges;

Actual 2017 $’000

Actual 2016 $’000

Cash at bank and in hand 6,079 5,150

The following demonstrates the sensitivity to the profit before tax and Shareholders’ Equity, resulting from a reasonably possible change in interest rates, with all other variables held constant. This is also on the basis of the cash deposits being available for a full year, and the interest rate change is also relevant for a full year. The below is based on an increase or decrease in interest rates of 50 basis points (+/- 0.5%);

2017 $’000

2016 $’000

Profit or loss impact of interest rate movement (+ 50 basis points)

236 264

Profit or loss impact of interest rate movement (- 50 basis points)

(236) (264)

Shareholders’ Equity impact of interest rate movement (+ 50 basis points)

- -

Shareholders’ Equity impact of interest rate movement (- 50 basis points)

- -

Credit risk

Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents and trade and other receivables.

In management’s opinion, the Group trades only with recognised, creditworthy third parties, whose obligations to the Group are contractually enforceable under tenancy agreements and carpark licences.

Receivable balances are monitored on an ongoing basis. As the Group has a wide spread of tenants over many industry sectors as well as holding contractual management rights in respect to the funds management business, it is not exposed to any significant concentration of credit risk. Assessments are made where appropriate in respect to new tenants including verification of financial position and industry reputation. Amounts which are past due are reviewed and any necessary provision for doubtful debts is raised where appropriate, based on all factors considered. The doubtful debts provision as at 31 March 2017 is $nil (2016 $Nil). No other past due receivables are impaired. The balance of the financial assets which are past due but not impaired as at 31 March 2017 is $44,838 (2016 $311,554). The aging of these past due financial assets (receivables) is greater than 30 days but less than 90 days. During the 2017 year, there was $133,109 bad debts which were written off (2016 $42,840) and there was no recovery of doubtful debts recorded during the year (2016 $Nil).

With respect to credit risk arising from the other financial assets of the Group, which comprise interest received on cash and cash equivalents and interest rate swaps in respect to the ‘receive’ portion, the Group’s exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. ASB Bank Limited, who is the counter party in respect to the financial assets of the Group, currently holds an AA- credit rating (issued by Standard & Poors).

Liquidity risk

Liquidity risk arises from the Group’s financial liabilities and the ability to meet all its obligations to repay financial liabilities as and when they fall due. The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans, and ordinary shares. The table below reflects all contractually fixed pay-offs for settlement and repayments resulting from recognised financial liabilities. This table is based on all interest rate variables being held constant over the relevant period of time. It does not allow for potential future margin increases as these can not be easily identified as at balance date. All payments are undiscounted and the timing of the cash flows is based on the contractual terms of the underlying contract.

56




4. Financial Risk Management Objectives and Policies (Continued)

As at 31 March 2017

Financial Liabilities

1 month

$’000

2 - 3 months

$’000

3 months - 1 year

$’000

1 - 2 years

$’000

2 - 5 years

$’000Total

$’000

Non-derivative financial liabilities

Trade payables 405 - - - - 405

Interest payable 111 221 995 1,327 - 2,654

Borrowings - - - 35,000 - 35,000

Derivative financial liabilities

Interest rate swap (net settled) 54 109 490 653 1,395 2,701

Total 570 330 1,485 36,980 1,395 40,760

As at 31 March 2016

Financial Liabilities

1 month

$’000

2 - 3 months

$’000

3 months - 1 year

$’000

1 - 2 years

$’000

2 - 5 years

$’000Total

$’000

Non-derivative financial liabilities

Trade payables 82 - - - - 82

Interest payable 176 352 1,584 2,112 - 4,224

Borrowings - - - 48,900 - 48,900

Contingent consideration - 112 - - - 112

Derivative financial liabilities

Interest rate swap (net settled) - 106 315 418 989 1,828

Total 258 570 1,899 51,430 989 55,146

57



4. Financial Risk Management Objectives and Policies (Continued)The interest payable above represents interest payable on the borrowings at the floating interest rate plus the bank’s margin as at balance date. While the interest rate swap (net) payable represents the interest payable on the borrowings, based on the interest rate differential between the floating rate and the swap rate, assuming no change in the floating rate from balance date.

$18.5 million was drawn down at various stages during the year and $32.4 million has subsequently been repaid as a permanent reduction in the loan facilities (2016 $19.5 million of debt was drawn down and $22.5 million was subsequently repaid). Trade payables and interest costs will be paid out

of working capital and operating cash inflows. The net settlement sale proceeds on future contracted asset sales may also be used to repay borrowings. The balance of the borrowings are expected to be refinanced on their maturity in March 2019 and are not to be repaid. Management have frameworks in place to monitor the Group’s liquidity and to ensure that banking covenants are complied with. Cash flow reports and banking covenant analysis is prepared and reviewed on a regular basis throughout the year. The table below outlines the carrying amounts at balance date for each of the following categories;

As at 31 March 2017 NoteFair value through

profit and lossLoans and

ReceivableOther Amortised

Cost

Cash and cash equivalents - 6,079 -

Trade and other receivables - 1,541 -

Listed Investments 15 8,775 - -

Interest rate swap gain (loss) (157) - -

Bank borrowings - - (35,000)

Trade payables and interest accrued - - (2,180)

Deposits Received - - (9,600)

Total 8,618 7,620 (46,780)

As at 31 March 2016Fair value through

profit and lossLoans and

Receivable

GroupOther Amortised

Cost

Cash and cash equivalents - 5,150 -

Trade and other receivables - 2,779 -

Interest rate swap gain (loss) (2,063) - -

Bank borrowings - - (48,900)

Trade payables and interest accrued - - (1,926)

Contingent consideration (112) - -

Deposits Paid - 4,873 -

Total (2,175) 12,802 (50,826)

5. SubsidiariesThe consolidated financial statements of the Group include:

NameCountry of

incorporation

% of equity interest

2017 2016

Augusta Fund Management Limited New Zealand 100% 100%

Metroclean Limited New Zealand 100% 100%

Augusta Funds Management Limited and Metroclean Limited focus on funds management specialising in property and providing cleaning services respectively. The cleaning services business was sold to a third party in December 2016. The Company still owns Metroclean Limited and intends to liquidate in the year ending 31 March 2018.

58




6. Segment InformationThe Group has identified its operating segments based on the internal reports that are reviewed and used by the Board of Directors in assessing performance on a monthly basis. The Group had three distinct divisions, being investment property, funds management and cleaning services.

During the year ended 31 March 2017 these three segments were reported to the Board.

For the year ended 31 March 2017

Investment Assets ($’000)

Funds Management

($’000)

Cleaning (Discontinued)

($’000)Unallocated

($’000)Elimination

($’000)Total

($’000)

Revenues

Third party 8,703 14,134 480 - - 23,317

Inter segment 1,250 - - - (1,250) -

Total gross revenues 9,953 14,134 480 - (1,250) 23,317

Total net revenues 6,730 12,362 (47) - - 19,045

Overheads (1,492) (6,626) (20) - - (8,138)

EBIT 5,238 5,736 (67) - - 10,907

Net Funding Costs (1,572) (592) - - - (2,164)

Profit before Fair Value Movements, Gains / (Losses) on Disposal and Taxation 3,666 5,144 (67) - - 8,743

Capital Gain/ (Loss) on Disposal (5) - (14) - - (19)

Revaluation of Investment Property 4,121 - - - - 4,121

Transaction costs associated with future sale of Finance Centre (1,414) - - - - (1,414)

Unrealised profit / (loss) on the fair value of investments 780 - - - - (1,395)

Other adjustments - (828) - 533 - (295)

Profit before taxation 7,148 4,316 (81) 533 - 11,916

Total Assets 114,492 20,223 36 - - 134,751

Total Liabilities 47,044 2,315 2 - - 49,361

Other Disclosures

Investment Property Held For Sale 93,285 - - - - 93,285

Intangible Assets & Goodwill - 15,535 - - - 15,535

A reconciliation of the unallocated segment is as follows;

$’000

Contingent consideration discount adjustment (11)

Unrealised profit / (loss) on the fair value of interest rate swaps 550

FX Gain / (Loss) realised (6)

Loss before tax of unallocated segment 533

During the year ended 31 March 2017;

36 Kitchener Street was sold at carrying value of $16.5 million on 1 April 2016. Lot 2, 2 Brian Smith Drive, (Silverdale Land) was sold at carrying value of $1.4 million on 31 March 2017.

During the year ended 31 March 2017 the Company charged overheads costs incurred to Augusta Funds Management Limited, being a subsidiary Company. This overhead cost allocation was based on various factors, the most material being personnel costs as well as the administrative costs of running the funds management business.

59



6. Segment Information (Continued)Borrowings and all other liabilities such as income received in advance, trade payables, accruals, the fair value of interest rate swaps and all tax liabilities are managed on a group basis and are not allocated to operating segments.

All other assets, aside from investment property, funds management assets and fixed assets, such as cash in hand, trade receivables, tax receivables, capitalisation of rental incentives, vendor loan and prepayments are managed on a group basis and are not allocated to operating segments.

For the year ended 31 March 2016

Investment Assets ($’000)

Funds Management

($’000)Cleaning

($’000)Unallocated

($’000)Elimination

($’000)Total

($’000)

Revenues

Third party 8,980 12,335 618 - - 21,933

Inter segment 2,777 - 99 - (2,876) -

Total gross revenues 11,757 12,335 717 - (2,876) 21,933

Total net revenues 6,664 10,296 144 - - 17,104

Overheads (1,630) (5,458) (74) - - (7,162)

EBIT 5,034 4,838 70 - - 9,942

Net Funding Costs (2,471) (459) - - - (2,930)

Profit before Fair Value Movements,Gains / (Losses) on Disposal and Taxation 2,563 4,379 70 - - 7,012

Capital Gain/ (Loss) on Disposal 962 - - - - 962

Revaluation of Investment Property 7,071 - - - - 7,071

Other adjustments - - - (432) - (432)

Profit before taxation 10,596 4,379 70 (432) - 14,613

Total Assets 117,143 19,622 68 - - 136,833

Total Liabilities 44,753 7,749 108 2,176 - 54,786

Other Disclosures

Investment Property 106,800 - - - - 106,800

Capital Expenditure 692 - - - - 692

Intangible Assets & Goodwill - 16,380 - - - 16,380

A reconciliation of the unallocated segment is as follows;

$’000

Contingent consideration discount adjustment 33

Unrealised profit / (loss) on the fair value of interest rate swaps (465)

Loss before tax of unallocated segment (432)


7 City Road was sold for $22.8 million on 19 August 2015. Including disposal costs and recognition of the fair value of the rental underwrite position there was a gain on sale of $0.96 million attributable to the sale.

During the year ended 31 March 2016 the Company charged overheads costs incurred to both Augusta Funds Management Limited and Metroclean Limited, being the subsidiary Companies. This overhead cost allocation was based on various factors, the most material being personnel costs as well as the administrative costs of running each business.

Borrowings and all other liabilities such as income received in advance, trade payables, accruals, the fair value of interest rate swaps and all tax liabilities are managed on a group basis and are not allocated to operating segments.

All other assets, aside from investment property, funds management assets and fixed assets, such as cash in hand, trade receivables, tax receivables, capitalisation of rental incentives, vendor loan and prepayments are managed on a group basis and are not allocated to operating segments.

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7. Net RevenueNet Revenue shown in the consolidated statement of comprehensive income comprises amounts received and receivable by the Group for:

Net Revenue2017

$’0002016$’000

Rentals charged to tenants in the ordinary course of business 6,750 7,393

Income from recurring management fees 5,310 4,063

Transactional income 1,948 1,251

Income from new offers 5,451 5,119

Income from underwriting new offers 1,425 1,903

Cleaning services income - Discontinued 480 618

Distributions and dividends received (Investment Income) 658 101

Operating cost recoveries from tenants and customers 1,295 1,485

Less Operating costs incurred (4,272) (4,829)

Net Revenue 19,045 17,104

Rental revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured, on a straight line basis over the lease term. Recoveries from tenants are recognised as revenue in the year the applicable costs are accrued.

Income derived from establishment of new Offers is recorded when a new Offer has been completed, the Scheme has commenced trading and the settlement of the relevant property has occurred. Income from the management of the new Scheme is recorded on an annual basis and based on the terms of the relevant management agreements.

Transactional Income is additional income derived from leasing, project management, sales, refinancing and secondary sale facilitation activity in the managed schemes.

Investment Income includes dividend income received from listed investments and distributions from managed schemes which the Group has invested in, including distributions received from underwrite positions in schemes.

Income from cleaning services is recognised once the service has been completed. The cleaning service contracts were sold to a third party in December 2016.

Operating cost recoveries represent the costs recovered from tenants during the year in respect to contractual rental agreements whereby the tenant is responsible for specific operating costs. These recoveries are not netted off against the operating costs incurred. In respect to cleaning supplies, certain cleaning supply costs are recovered from customers.

2017$’000

2016$’000

Operating costs

Property operating costs (1,896) (2,132)

Property management fees (1,555) (1,634)

Metroclean operating costs - Discontinued (451) (608)

Costs of sale – transactional income (217) (406)

Bad debt expense (133) -

Leasing costs (20) (49)

Total Operating Costs (4,272) (4,829)

Operating costs relate to costs incurred in running the directly owned portfolio including insurance, utilities and maintenance costs. Tenants are responsible for maintenance and holding costs associated with their tenancy, where they have contracted to do so in their tenancy agreements. Non recoverable operating expenses are the responsibility of the Group.

Property management fees are paid to Bayleys Property Services in relation to managing the portfolio. Further costs of sale relate to the generation of transactional income from the managed portfolio.

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8. Cost & Expenses2017$’000

2016$’000

Administration costs

Personnel costs (5,411) (4,172)

Depreciation and amortisation (171) (383)

Auditors Remuneration (1) (160) (149)

Director fees (299) (305)

Professional fees (582) (655)

Other administration costs (1,515) (1,498)

Total administration costs (8,138) (7,162)

Finance Income / (Expenses)

Bank loans and overdrafts interest (2,069) (2,688)

Bank loan facility fees (368) (360)

Bank interest earned 273 118

Total net finance costs (2,164) (2,930)

(1) Auditors remuneration as follows:

Expenses incurred to Ernst & Young for;

Audit of the Annual Report (103) (85)

Tax compliance/consulting (57) (64)

The annual audit fee includes the fees for both the annual audit of the consolidated financial statements and a review of the interim financial statements. Tax services include annual tax compliance, advice on PIE status, GST, restructuring, dividends and imputation credits.

EY also performs the audits of a number of syndicates managed by the group as well as the Augusta Value Add Fund No. 1 Limited. They are paid $43k for this service. EY also provides tax advice to the Augusta Value Add Fund No. 1 Limited to the value of $12k in relation to lease surrender payments, property revaluations, capitalised interest and GST.

Other administration costs include IT and telecommunication, property and opex, marketing and sponsorship, travel and other office related costs.

Accounting Policy

Employee BenefitsLiabilities for wages and salaries, including non-monetary benefits, Kiwisaver employer contributions and annual leave that are expected to be settled within 12 months of the reporting date are recognised in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled.

Goods and Services Tax (GST)Income, expenses and assets are recognised net of the amount of GST except:

• where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the item as applicable; and

• receivables and payables are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Statement of Financial Position. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

Finance IncomeFinance income consists of interest income and is recognised as interest accrues on cash deposits held using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate which exactly discounts the future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.

Finance ExpensesFinance expense, including borrowing costs, interest payable on borrowings and gain/loss on interest rate swaps are recognised as an expense in the profit or loss when incurred. Borrowing costs incurred do not relate to qualifying assets and hence are treated as an expense and are not capitalised.

Other expenses and costsOperating and administration costs are recorded as an expense in profit and loss when incurred.

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9. Income TaxMajor components of income tax expense for the year ended 31 March are;

2017$’000

2016$’000

Statement of profit and loss

Current Tax

Continuing Operations - Current income tax charge (1,986) (1,515)

Prior year tax adjustment (12) -

Current Tax (1,998) (1,515)

Net deferred income tax

Depreciation claimed for taxation - 286

Net change on revaluation of interest rate swap (154) 130

Accruals not deductible 4 3

Prior year tax adjustment 158 -

Net deferred income tax 8 419

Income taxation expense reported in Statement of Comprehensive Income (1,990) (1,096)

A reconciliation of the income tax expense applicable to net profit before income tax at 28%, to the income tax expense in the Statement of Comprehensive for the year ended 31 March is as follows;

2017$’000

2016$’000

Net profit (loss) before tax 11,916 14,613

Adjust for revaluations of investment land (4,121) (7,071)

Adjust for capital loss on disposal of property 19 (985)

Adjust for contingent consideration - (33)

Adjust for excluded dividend payments (151) -

Adjust for deductible expenditure (28) (207)

Adjust for non deductible expenditure 1,677 176

Adjusted net profit / (loss) before tax 9,312 6,493

Income taxation expense (28%) (2,607) (1,818)

Adjustment for deferred tax (depreciation) - 286

Adjustment for depreciation 467 438

Adjustment to the prior year taxation expense 150 2

Income taxation expense recorded in the Statement of Comprehensive Income (1,990) (1,096)

2017$’000

2016$’000

Deferred Income Tax Deferred income tax at 31 March relates to the following;

Deferred Income Tax Liabilities

Depreciation claimed for taxation - Augusta House 343 -

Depreciation claimed for taxation - Remainder of Finance Centre 1,050 1,551

Gross deferred income tax liabilities 1,393 1,551

Deferred income tax assets

Revaluation of interest rate swap (424) (577)

Accruals not deductible (36) (34)

Gross deferred income tax assets (460) (611)

Net deferred income tax 933 940

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Accounting Policy - Income TaxIncome tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax on the taxable income for the year, using rates enacted or substantially enacted at balance date, and any adjustment to income tax payable in respect of previous periods.

Deferred tax is provided using the liability method on all temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

• When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor the taxable profit or loss

• In respect of the taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised, except:

• When the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

• When the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilised.

The carrying amount of any deferred income tax asset is reviewed at each balance date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at balance date.

The Group has applied the rebuttable presumption under NZ IAS 12 that deferred tax on investment property measured using the fair value model in NZ IAS 40 is determined on the basis that its carrying amount will be recovered through sale.

Judgement is required in assessing whether deferred tax assets and certain deferred tax liabilities are recognised on the statement of financial position. Deferred tax assets, including those arising from tax losses and deductible temporary differences, are recognised only when it is considered more likely than not that they will be recovered, which is dependent on the generation of sufficient future taxable profits. Assumptions about the generation of future taxable profits focus on future forecast and cashflow projections. Judgements are also required in respect to the application of income tax legislation. The judgements and assumptions are subject to risk and uncertainty and hence there is a possibility that changes in circumstances will alter expectations, which may then alter the amounts of deferred tax assets and liabilities recorded on the Statement of Financial Position and that may also lead to a corresponding adjustment to profit or loss.

64




10. Earnings per ShareThe following reflects the income and share data used in the calculation of basic and diluted earnings per share computations;

2017$’000

2016$’000

Net Profit After Tax Attributable to Shareholders of the Group 7,751 13,517

Weighted Average Number of Ordinary Shares 87,529 87,418

Earnings / (Loss) Per Share (cents) - Basic and Fully Diluted 8.86 15.46

Accounting Policy - Basic Earnings Per ShareEarnings per share is calculated by dividing the Net Profit After Tax Attributable to Shareholders by the weighted average number of shares on issue during the year. In the current year both basic earnings and diluted earnings are equivalent.

11. Dividends Paid and Proposed to Shareholders2017

$’000 2017

Date Paid2016

$’000 2016

Date Paid

Q4 prior year net dividend of 1.25 cps 1,092.7 13/05/2016 1,092.5 15/05/2015

Q1 net dividend of 1.375 cps 1,203.5 12/08/2016 1,092.5 14/08/2015



Total paid during the year 4,703.2 4,370.0

Supplementary dividends for investors eligible for non-resident tax exemption of $2,669 were also paid in the year ended 31 March 2017 ($Nil 2016).

The Group’s current distribution approach is to retain sufficient operating funds to cover business as usual capital expenditure as well as funding the contingent consideration (earn out) payments arising from the purchase of the funds management business.

The dividend for the quarter ended 31 March 2017 was announced on 1 May 2017 and is as follows; (Note this dividend is not recognised as a liability as at 31 March 2017).

Dividends on ordinary shares, paid on 22 May 2017;

Final imputed dividend for 2017, 1.375 cents per share.

2017$’000

2016$’000

Imputation Credit Account

At 31 March the imputation credits available for use in subsequent reporting periods are 280 28

Accounting Policy - Provision for DividendsProvisions for dividends are recognised in the period that they are authorised and declared.

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12. Cash and Cash Equivalents2017$’000

2016$’000

Cash at bank 6,079 5,150

Cash at bank earns interest at floating rates based on daily bank deposit rates.

13. Trade and Other Receivables 2017$’000

2016$’000

Trade receivables 490 805

Other receivables 1,051 1,974

Total Trade and Other Receivables 1,541 2,779

Trade receivables are non-interest bearing and are on <30 day terms, and rent is due on the first day of every month. Management fees are also paid on the first day of every month.

2017$’000

2016$’000

Deposits Paid (Purchases of Property) - 4,873

Accounting Policy - Trade and Other ReceivablesTrade and other receivables are initially recognised at fair value plus transaction costs and subsequently carried at amortised costs using the effective interest rate method less an allowance for any impairment losses. Due to their short term nature trade and other receivables are not discounted.

Collection of trade receivables is reviewed on an ongoing basis at an individual debtor level. An impairment loss is recognised when there is objective evidence the Group will not be able to collect the receivable, which is due to either financial difficulties of the debtor, default payments or debts that are more than 60 days overdue.

66




14. Investment Properties Held For SaleOn 25 July 2016, the sale of the Finance Centre properties for $96.0 million was approved as a special resolution at the special shareholder meeting held. The transaction will be staged with the four titles being sold at different dates through to April 2019. Transaction costs of $1.4m relating to the future sale of the Finance Centre were recognised in the year ended 31 March 2017. A $9.6 million non-refundable deposit was received in July 2016.

The table below outlines the movements in the carrying values for all directly owned investment properties held for sale for the year ended 31 March 2017.

Property Valuation Capex RevaluationAcquisition/

Disposal Valuation Sale Date Sale Price

Apr-16 Mar-17 Mar-17 Mar-17 Mar-17 $000 $000 $000 $000 $000 $000

Finance Centre Carpark 28,700 46 (256) 28,490 April 2019 30,000

Finance Centre Podium 9,900 73 472 10,445 April 2018 11,000

19 Victoria St West (Augusta House) 28,800 137 1,063 30,000 June 2017 30,000

Retail Title 21,500 8 2,842 24,350 April 2019 25,000

Total Finance Centre 88,900 264 4,121 - 93,285 96,000

Silverdale Land* 1,400 - - (1,400) -

36 Kitchener Street** 16,500 - - (16,500) -

Total 106,800 264 4,121 (17,900) 93,285


*On 31 March 2017, the Silverdale Land was sold at carrying value for $1.4 million.

**36 Kitchener Street was purchased on 30 October 2015 for $16.5 million. This property has subsequently been sold at carrying value on 1 April 2016 to the Augusta Value Add Fund No.1.

The table below outlines the movements in the carrying values for all directly owned investment property for the year ended 31 March 2016.

PropertyRegistered

Valuer Valuation Revaluation CapexAcquisition/

Disposal Valuation

Mar-15 Mar-16 Mar-16 Mar-16 Mar-16$000 $000 $000 $000 $000

Finance Centre Carpark CBRE 25,500 3,177 23 - 28,700

Finance Centre Podium CBRE 9,400 444 56 - 9,900

19 Victoria St West (Augusta House) CBRE 25,400 2,789 611 - 28,800

Retail Title CBRE 20,200 1,292 8 - 21,500

Total (as at 31 March 2016) 80,500 7,702 698 - 88,900

36 Kitchener St n/a - - - 16,500 16,500

Silverdale Land n/a 1,600 (200) - - 1,400

7 City Road* n/a 19,600 - 30 (19,630) -

Total 101,700 7,502 728 (3,130) 106,800


*7 City Road was sold on the 19 August 2015 for $22,800,000.

67



14. Investment Properties Held For Sale (Continued)Below is a table of effective net market yields, occupancy and weighted average lease information by property as at balance date for the Group.

Property Carrying Value Net Market Rent Net Yield (Market) Occupancy WALE

Mar-17 Mar-16 Mar-17 Mar-17 Mar-17 $000 $000 $000 $000 Years

Finance Centre Carpark 28,490 1,851 6.50% 99 10.1

Finance Centre Podium 10,445 858 8.21% 99 2.5

19 Victoria St West 30,000 2,171 7.24% 100 2.7

Retail Title 24,350 1,399 5.75% 91 4.7

Total (as at 31 March 2017) 93,285 6,279 6.73% 98 5.3

As these investment properties are held for sale, Directors’ valuations have been assessed using market rental and cap rates. No independent valuations were completed as at 31 March 2017. Therefore the net market rents used in the net yield calculated were as at 31 March 2016, being the date of the most recent independent valuation.

Accounting Policy - Investment Properties, Including Investment Properties Held for SaleInvestment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at balance date. Fair value is determined by an independent valuation performed annually for investment properties, unless they are held for sale. Gains and losses arising from changes in the fair values of investment properties are recognised in profit or loss in the year in which they arise.

The Group classifies investment property as held for sale when the carrying amount will be recovered through a sale transaction. The assets and liabilities must be held for immediate sale and the Group must be committed to selling the asset either through the entering into a contractual sale and purchase agreement or by entering into a campaign to market the property for sale with the clear intention of disposal. The sale must be highly probable, an active programme to locate a buyer must be in place and the disposal plan must have been initiated.

Investment properties are derecognised either when they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the disposal of an investment property are recognised in profit or loss in the year of disposal.

Fair values are based on market conditions, being the estimated amount at which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction at the date of valuation. For Augusta Capital Limited’s properties there is an absence of current prices in an active market, for similar property in the same location and in the same condition with similar lease terms. Therefore the valuations are prepared following the discounted cash flow method and the capitalisation approach.

When an investment property is held for sale, an independent valuation may not be required. In cases where there is no independant valuation undertaken, a directors valuation will be completed to assess the fair value of the property.

The discounted cash flow method is based on the expected net rental cash flows applicable to each property, which are then discounted to their present value using a market determined, discount risk-adjusted rate applicable to the respective property. The capitalisation approach is also used as a valuation method which is based on the current contract rental and market rental and an appropriate yield for that particular property.

The market value is a weighted combination of both the discounted cash flow and the capitalisation approach.

The valuations also consider market assumptions of internal rates of return, rental growth, average lease terms, occupancy rates, and the costs associated with the initial purchase of the property and yield. All these assumptions are then compared, where possible, to market based evidence and transactions for properties in similar locations, condition and quality of accommodation.

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15. Investment Assets

Property Valuation Acquisition DisposalsReval. available for sale financial assets

Reval. Investments Valuation

Apr-16 Mar-17 Mar-17 Mar-17 Mar-17 Mar-17

$000 $000 $000 $000 $000 $000

Listed Investments - 10,950 - (2,175) - 8,775

Investments in Associates 50 6,000 (50) - 780 6,780

Total Investment Assets 50 16,950 (50) (2,175) 780 15,555

On 1 April 2016, the Company purchased a 10% holding in the Augusta Value Add Fund No. 1 for $6.0 million (Investment in Associates).

On 29 September 2016, the Company purchased 15 million shares or a 9.26% stake in NPT Limited (Listed Investments).

Accounting Policy – Listed InvestmentsListed Investments are measured at fair value using a quoted market price method (Level 1).

Available-for-sale financial assets (IAS 39) are those non-derivative financial assets that are designated as available for sale or are not classified as:

a) loans and receivables,

b) held-for trading investments or

c) financial assets elected to be recorded as fair value through profit or loss.

A gain or loss on an available-for-sale financial asset (listed investments) shall be recognised in other comprehensive income.

Accounting Policy - Investments in Associates Investment in associates are entities over which the Group has significant influence. The Group have taken advantage of the exemption in IAS 28 paragraph 8 to value the equity investments at fair value. These investments are equity accounted and are measured at fair value but not quoted in active markets (Level 2). Fair value movements are recognised in the Profit and Loss Statement as Unrealised Gain / (Loss) on Investments.

16. Fixed Assets2017 2016

$’000 $’000

Fixed Assets – Computer Equipment 147 238

Fixed Assets – Cleaning Equipment - 4

Fixed Asset – Motor Vehicle - 19

Fixed Assets – Furniture and Fittings 1,291 850

Accumulated Depreciation (398) (571)

Fixed Assets – Closing Balance 1,040 540

Accounting Policy - Fixed AssetsFixed assets are measured at historical cost, less accumulated depreciation and impairment losses. Depreciation is calculated using the diminishing balance method to allocate the cost at depreciation rate as follows:

Depreciation rate Method

Computer Equipment 30-60% Diminishing Balance

Motor Vehicle 40% Diminishing Balance

Furniture and Fittings 10-20% Diminishing Balance

69



17. Intangible Assets and Goodwill2017 2016

$’000 $’000

Intangible Assets - Funds Management 6,558 7,386

Intangible Asset - CRM Software 141 -

Goodwill 8,836 8,994

Total 15,535 16,380

Intangible Assets relating to the Funds Management business were derecognised by $0.83 million due to the termination of a number of management contracts primarily as a result of the sale of the properties and in some cases the property management was handed back to the owners which were included in the intangible asset(s) associated with the KCL, IPT and AFM acquisitions.

Goodwill reduced in the period ended 31 March 2017 by $158,000 as a result of the sale of the cleaning business to a third party in December 2016.

The intangible assets represent the funds management assets purchased, which consists of management contracts at the time of acquisition. The goodwill represents the future value to be generated out of the funds management assets. The intangible assets and goodwill will be allocated across the funds management business as they represent a cash-generating unit. The intangible assets are not amortised as the intangible assets are deemed to have an indefinite life. Impairment of the intangible assets and goodwill is assessed using an internal discounted cash flow model. The discount rate applied is 7.25% on the unleveraged pre-tax nominal cash flows. Based on the above assumptions, $0.83 million of impairment losses have been recognised in the period (2016: $nil). Any adverse changes in actual performance of the products and/or future rates of growth in the business, will reduce the calculated recoverable amount and may result in recognition of impairment in the carrying values of assets in future periods.

Accounting Policy - Goodwill and Intangible AssetsGoodwill acquired in a business combination is initially measured at cost of the business combination, being the excess of the consideration transferred over the fair value of the Group’s net identifiable assets acquired and liabilities assumed. After initial recognition, goodwill is measured at the amount recognised at acquisition date less any accumulated impairment losses. For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Each cash-generating unit represents the lowest level within the Group at which the goodwill is monitored for internal management purposes.

Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. The Group performs its impairment testing as at 31 March each year using the discounted cash flows method based on expected future contracted management fee income. When the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised.

Intangible assets acquired are initially measured at cost, and then following initial recognition, are measured at cost, less any impairment losses and amortisation. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level consistent with the methodology outlined for goodwill above. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite life is reviewed each reporting period to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for as a change in an accounting estimate and is thus accounted for on a prospective basis.

When individual assets managed by the company are sold or the management contract of that asset is handed back to the owners, the intangible asset value associated with that contract is to be derecognised immediately.

The intangible assets with a definite life are amortised over the life of the asset. (CRM software is amortised at an amortisation rate of 60% using the diminishing balance method).

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18. Trade Payables and Accruals2017 2016

$’000 $’000

Trade payables 405 82

Accruals 1,484 1,459

Interest accrued 291 385

GST Payable 32 300

Trade Payables and Accruals 2,212 2,226

Trade payables are non-interest bearing and are normally settled on the 20th of the month following invoice date.

Interest payable is settled quarterly throughout the financial year.

Accounting Policy – Trade Payable and AccrualsTrade payables and accruals are initially measured at fair value less any transaction costs and subsequently carried at amortised cost and due to their short term nature and are not discounted. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect to the purchase of these goods and services.

19. Interest-Bearing Loans and Borrowings2017$’000

2016$’000

Secured bank loan (ASB) – Loan Maturity 30/06/2018 - 48,900

Secured bank loan (ASB) – Loan Maturity 29/03/2019 35,000 -

Total 35,000 48,900

The drawn down facilities total $35.0 million at balance date with an expiry of 29 March 2019 in respect to total facilities of $37.0 million. The facilities are subject to annual review and can then be extended by one year post review. The current bank margin is 1.82% above the floating or hedged interest rate.

$12.5 million of debt is hedged (36% of the total debt) via interest rate swap agreements and these are tabled below; $8.5 million hedged until November 2018 at rate of 3.70% plus bank margin of 1.82% $8.5 million hedged until November 2020 at rate of 5.35% plus bank margin of 1.82% $5.5 million hedged until April 2021 at rate of 5.00% plus bank margin of 1.82%

$12.5 million of the debt (36% of the total debt) is currently unhedged and the current floating rate including margin is 3.79% as at balance date.

Below is a summary of the loan movements made during the year;

Repayments ($32,400)

Drawdowns $18,500

Net Movement ($13,900)

Drawdowns of debt were used for deposits for new properties, short term underwrite positions and acquisitions of investments. Repayments were made from funds received from sale of assets, refunds of deposits and underwrite positions as well as positive operating cash flows.

Financing facilities available At reporting date, the following financial facilities had been negotiated and were available;

2017$’000

2016$’000

Total facilities - Secured bank loan (ASB) 37,000 50,900

Facilities used at reporting date - Secured bank loan (ASB) 35,000 48,900

Facilities unused at reporting date- Secured bank loan (ASB) 2,000 2,000

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19. Interest-bearing Loans and Borrowings (Continued)Loan SecurityThe loans are secured by a registered first mortgage over the investment property and assets of the Group, an assignment of leases over all present and directly acquired properties mortgaged to the ASB Bank and a first general security interest over the assets of the Group.

Loan Covenants – ASB BankThe current loan covenants with ASB are:

1. Loan to Value Ratio (LVR) – core debt (the Company) must represent no more than 55% of the mortgaged security value. The core debt relates solely to the directly owned portfolio.

2. Interest Cover Ratio – earnings before interest and tax to represent no less than 2.75 times interest costs (the Group) and net rental income to represent no less than 1.75 times interest cost of core debt (Parent).

3. Augusta Funds Management Limited covenant – EBITDA: not less than $1.75 million for the previous and the next 12 month periods.

4. The WALE for the total Augusta Capital Limited portfolio must not be less than 3 years.

Accounting Policy - Interest-Bearing Loans and BorrowingsInterest bearing loans and borrowings are initially recognised at fair value of the consideration less directly attributable transaction costs.

Subsequent to initial recognition, interest-bearing loans and borrowings are stated at amortised cost using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer the settlement of the liability for at least 12 months after balance date.

Borrowing costs are recognised as an expense when incurred and not capitalised, as they do not relate to qualifying assets. See Note 8 for the accounting policy for Finance expenses.

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20. Financial Assets and Financial Liabilities Set out below is a comparison by category of carrying amounts and fair values of all of the Group’s financial assets in the financial statements.

Carrying Amount

2017 $’000

Fair Value 2017 $’000

Available-for-sale investments

Investment in associate 6,780 6,780

Quoted equity shares 8,775 8,775

Other Financial Assets

Interest Rate Swaps 1,357 1,357

Carrying Amount

2016 $’000


Available-for-sale investments

Investment in associate 50 50

Quoted equity shares - -

Set out below is a comparison by category of carrying amounts and fair values of all of the Group’s financial liabilities in the financial statements.

Carrying Amount

2017 $’000


Financial liabilities

Interest rate swaps – core debt 1,514 1,514

Contingent consideration - -

Carrying Amount

2016 $’000


Financial liabilities

Interest rate swaps – core debt 2,063 2,063

Contingent consideration 112 112

The carrying amount of all other financial instruments approximates their fair value.

During the year ended 31 March 2017, the Company has purchased three interest rate swaps which it will novate to its latest Scheme, 33 Broadway Trust, in July 2017. The fair value of these swaps, which are a financial asset, is $1,357,000.

Fair ValueThe following table provides the fair value movement hierarchy of the Group’s financial assets and liabilities. Refer to Note 14 for the fair value measurement disclosures relating to investment properties.

Year ended 31 March 2017 Year ended 31 March 2016

Quoted Marktet

Market Observable Non Market

Quoted Marktet

Market Observable Non Market

Price (Level 1)

Outputs (Level 2)

Observed Outputs (Level 3)

Price (Level 1)

Outputs (Level 2)

Observed Output (level 3)

Interest rate swaps - (1,514) - - (2,063) -

Contingent consideration - - - - - (112)

Investment in associate - 6,780 - - 50 -

Quoted equity shares 8,775 - - - - -

Interest rate swaps syndication - 1,357 - - - -

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20. Financial Instruments and Fair Value Measurement (Continued)The quoted market price method (Level 1) represents the fair value determined based on quoted prices in active markets as at the reporting date. For financial instruments not quoted in active markets (Level 2) the Group uses present value techniques, with a comparison to similar instruments for which market observable prices exist and other relevant models used by market participants, which includes current swap rates on offer and also the current floating interest rate. For financial instruments which are based on non-market observed inputs (Level 3), the Group uses present value techniques based on a forecasted future earnings.

Accounting Policy - Financial InstrumentsLoans and Receivables and other Financial Liabilities at Amortised Cost

Loans and receivables and other financial liabilities at amortised cost are initially recognised at fair value and then subsequently held at amortised cost using the effective interest rate method.

Derivatives

The Group uses derivative financial instruments (interest rate swaps) to economically hedge some of its exposure to interest rate risk arising from borrowings (see Note 4). The interest rate swaps convert certain variable interest rate borrowings to fixed interest rates reducing the exposure to fluctuations in floating interest rates.

Such derivative financial instruments are carried at fair value. Any resulting gain or loss on re-measurement is recognised in profit or loss.

The fair value of interest rate swaps is the estimated amount the Group would receive or pay to terminate the swap at balance date, taking into account current interest rates and the current creditworthiness of counterparties to the swap.

The Group does not undertake speculative trading transactions or hold derivative financial instruments for trading purposes.

Contingent Considerations

The Group recognises contingent consideration liability at its fair value as part of the consideration transferred in exchange for the acquiree and subsequently re-measures at fair value through profit or loss.

Accounting Policy - De-recognition of Financial InstrumentsThe de-recognition of a financial instrument takes place when the Group no longer controls the contractual rights that comprise the financial instrument, which is normally the case when the instrument is sold, or all the cash flows attributable to the instrument are passed through to an independent third party.

A financial asset is derecognised when:

• The rights to receive cash flows from the asset have expired

• The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset

A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the de-recognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the profit or loss.

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21. Issued Capital and Reserves2017

Thousands2016

Thousands

Ordinary Shares

Number of issued and fully paid shares as at 31 March

Ordinary shares have no par value.

87,529 87,418

Fully paid and ordinary shares carry one vote per share and carry the right to dividends.

# of sharesThousands $’000

Movement in ordinary shares on issue

As at 1 April 2016 87,418 84,529

Issue of shares 111 125

At 31 March 2017 87,529 84,654

On 16 May 2016 a further 111,208 shares were issued at $1.12 being the fair value increasing the share capital by $0.12 million.

Capital ManagementWhen managing capital, the Directors objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders.

As the market is constantly changing, management and the Board of Directors consider capital and management initiatives. The Directors have the discretion to change the amount of the dividends to be paid to the shareholders accordingly, issue new shares or sell investment property to reduce debt.

Management monitor capital through the gearing ratio (debt/investment assets).

Loan-to-value ratio

2017 $’000

2016 $’000

Total Group Debt 35,000 48,900

Total Group Assets 131,494 133,793

Gearing Ratio 26.6% 36.6%

The ASB Bank Limited holds no security over any cash deposits as at 31 March 2017 (March 2016 $nil).

Group Assets consist of cash, deposits paid, investment properties, investment assets, intangible assets, goodwill and fixed assets.

Accounting Policy - Share CapitalThe costs associated with raising equity (including non-claimable GST) in the Group are deducted from the proceeds of the share capital issued and are recorded as a deduction from equity.

The costs associated with repurchasing shares are also deducted from the proceeds of share capital. These deduction costs are

directly and incrementally incurred with any equity transactions.

22. Commitments and Contingencies Capital commitmentsAt 31 March 2017 the Group has capital commitments of $183,000 (2016 : $140,000).

GuaranteesThe Company has the following contingent liabilities at 31 March 2017;

ASB has provided a bond to the New Zealand Stock Exchange for the sum of $75,000, being the amount required to be paid by all Issuers listed on the New Zealand Stock Exchange, and the Company has provided a General Security Agreement over its’ assets in favour of ASB as security for this bond (2016 : $75,000).

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23. Remuneration2017$’000

2016$’000

Key management personnel costs

Salary and other short term benefits 2,397 2,163

Share based payment expenses 173 -

Total 2,570 2,163

Key management personnel includes M.E Francis, B.R Barnett, P.M. Hinton, S.W.J Woollams, L.J. Fitzgibbon, H.N. Bryant and S.M. Brown-Thomas.

Long term share incentive plansAugusta operates a long term share incentive (LTI) scheme for the senior management team. It is the Board’s view that the LTI scheme strongly aligns the interests of key employees with the interests of shareholders and ties remuneration outcomes to long-term investment performance. The senior management will receive share based payments only if specific hurdles, relating to the performance of the company, are achieved.

The share performance rights are measured at fair value at grant date and expensed over the period during which the employee becomes unconditionally entitled to the shares, based on an estimate of shares that will eventually vest. The fair value of the share performance rights which are either vested or forfeited are transferred from the options reserve to retained earnings.

Two schemes have been implemented under the plan.

The key features of the two schemes are:

• Each Share Right entitles you to one fully paid ordinary share in Augusta Capital Limited, if vested

• The individual must remain an employee of Augusta at the relevant vesting date for any rights to vest

• If the above conditions are satisfied, employees have a period of six months after the applicable vesting to exercise their Eligible Share Rights in accordance with the procedure in the Plan Rules.

• Rights are split into two tranches with half of the rights subject to a Total Shareholder Return (TSR) relative performance hurdle against an NZX50 performance and half to a NZX Property Index performance.

Tranche 1 - NZX50 Performance Hurdle

The NZX50 Performance Hurdle requires that the Company’s total shareholder return (TSR), over the period from the Commencement Date to the Vesting Date, exceeds the 50th percentile of the TSRs for those companies in the NZX50 as at the Commencement Date (the NZX50 Peer Group).

If the Company’s TSR does exceed the 50th percentile of the NZX50 Peer Group, then all Share Rights for Tranche One will become eligible to be exercised.

If the Company’s TSR is equal to or less than the 50th percentile of the NZX50 Peer Group, then none of the Share Rights for Tranche One will become eligible to be exercised.

Measurement of TSR is described below.

Tranche 2 - The NZX Property Index Performance Hurdle

The NZX Property Index Performance Hurdle requires that the Company’s TSR, over the period from the Commencement Date to the Vesting Date, exceeds the 50th percentile of the TSRs for those companies in the NZX Property Index as at the Commencement Date (the NZX Property Peer Group).

If the Company’s TSR does exceed the 50th percentile of the NZX Property Peer Group, then all Share Rights for Tranche One will become eligible to be exercised.

If the Company’s TSR is equal to or less than the 50th percentile of the NZX Property Peer Group, then none of the Share Rights for Tranche One will become eligible to be exercised.

TSR hurdle

TSR measures the total return received by shareholders from the increase in the “market value” of an ordinary share of the relevant entity and the receipt of dividends and other distributions, from the Commencement Date to the Vesting Date.

For the issuers in the relevant peer groups and the Company, “market value” on the Commencement Date or Vesting Date (as applicable) means the quoted financial product’s market price as quoted on the NZX Main Board.

To minimise the impact of short term volatility on the market price of financial products on the Commencement Date or Vesting Date (as applicable), the TSR will be calculated using the volume weighted average market price of the relevant financial product reported on the NZX Main Board over the ten trading days either up to and including or after the relevant date.

The TSRs will be calculated by a recognised independent party, being an investment bank, firm of chartered accountants or other person or body whom the Board considers has the expertise, experience and access to the necessary data to carry out the calculation (Recognised Independent Party).

The Board reserves the right to adjust the TSR for the Company or any other entity, on the recommendation of the Recognised Independent Party, to take account of any capital reconstructions, corporate transactions or other circumstances which materially alter the balance between the interests of the Company’s shareholders and the Participant, so as to ensure that the balance between the interests of Participants and the shareholders of the Company is repositioned in line with the original intention of the Performance Hurdle.

Details of each performance period FY15-FY19 FY16-FY20

Performance period start date 1 April 2015 1 April 2016

Number of rights issued 642,680 292,086

Testing date for vesting 31 March 2019 31 March 2020

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Further share performance rights under the long term share incentive plan may be issued on an annual basis. However, the terms of the plan, eligible participant, and offers of further share performance rights may be modified by the Board from time to time, subject to the requirements of the NZX Main Board Listing Rules and applicable laws.

24. Related Party Disclosures Schemes under ManagementAugusta Funds Management Limited, a subsidiary of the Company, owns the management contract rights of the Schemes. There are a number of different Scheme structures used.

Transactions with these Schemes are deemed to be related parties because Augusta Funds Management Limited is the funds manager of these schemes. The following table total the amount of transactions between the Group and these Schemes:

2017$’000

2016$’000

Revenue

Management Fees 5,310 4,063

Transactional Income 1,948 1,251

Offeror fees 5,451 5,119

Underwriting fees 1,425 1,903

Total 14,134 12,336

Amounts owed by Related Parties 444 819

In most cases Mark Francis, John Loughlin, Bryce Barnett or Phil Hinton who are the Director(s)s of the Group are also a Director(s) of these Nominee Companies. In other cases where a vehicle under management is structured as a Company, Bryce Barnett and Phil Hinton are Directors. In some cases a limited partnership structure has been used. In such cases the General Partner is a subsidiary of Augusta Funds Management Limited.

Subsidiaries who are nominee or custodian companiesThe Company has a number of subsidiary companies which are appointed by the Subscribers as their bare trustee to take and hold the Property on behalf of all the Subscribers in accordance with the terms of the management contracts. During the year ended 31 March 2017, the number of such subsidiaries decreased by 39. This change was a result of a

number of Augusta Funds Management Limited schemes being required to transition to compliance with the Financial Markets Conduct Act 2013 (as a result of the schemes having previously been offered to the public). For those schemes, the shareholdings in the Nominee Company were transferred to the Statutory Supervisor of the Schemes, where not already held by the supervisor.

For those nominee companies where Augusta Funds Management is still the sole shareholder, while they are strictly subsidiaries of Augusta Capital, it has no beneficial interest in or control over a Scheme’s assets. In respect to each Scheme, such a Nominee Company is established to act as the registered proprietor in respect of the relevant investment property on behalf of the Subscribers within each Scheme.

Transactions with DirectorsBryce Barnett and Phil Hinton, shareholders and directors of the Group, have interest in certain Schemes. All transactions between those Schemes and the Group were entered into arm’s length at both normal market prices and normal commercial terms.

The contingent consideration paid in the year ended 31 March 2017 related to the acquisition of KCL Property Limited are payable to Bryce Barnett and Phil Hinton. On 16 May 2016 the contingent consideration was settled by issuing 111,208 shares.

Director remuneration paid for the year ended 31 March is as follows;

2017$’000

2016$’000

P.J. Duffy 110 36

J.J. Loughlin 68 61

M.G. Goldfinch 60 65

R.M. Petersen 61 68

P.D. Wilson - 75

Total 299 305

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25. Lease Commitments

Operating Lease Receivables

Substantially all of the property owned and leased by the Company is leased to third party tenants. Future minimum rental revenues under non-cancellable operating property leases are as follows:

2017$’000

2016$’000

Due within one year 4,675 6,388

Due between one and five years 3,571 18,320

Due after five years - 19,274

The Group’s leasing arrangements are made with third party tenants, and are supported by relevant lease documentation. The lease terms vary between properties and individual tenants within those properties. The Group as the lessor grants the use of the space within these properties to a lessee (tenant) in return for a consideration, being a rental payment made by the lessee.

The reduction in operating lease receivables in 2017 is due to the sale of the Finance Centre.

There are no contingent rentals.

Operating Lease Payable

2017$’000

2016$’000

Due within one year 226 -

Due between one and five years 904 -

Due after five years 1,582 -

A new lease has been entered into for the Group’s new Auckland office at 30 Gaunt Street, Wynyard Quarter.

Accounting Policy – LeasesThe Group has entered into commercial property leases on its investment property portfolio. The Group has determined that it retains all the significant risks and rewards of ownership of these properties and has thus classified the leases as operating leases.

Judgement is involved in the determination of whether an arrangement is or contains a lease is based on the substance of the arrangement. This requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and that the arrangement conveys a right to use the asset.

• Group as Lessor

Rental leases, in which the Group retains substantially all the risks and benefits of ownership of the leased assets are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as the rental income.

26. Events After the Balance DateOn 1 April 2017 – the Group paid a $5.0 million deposit in relation to 33 Broadway, Newmarket, Auckland. Debt of $5.0 million was drawn down to fund the deposit.

On 11 April 2017 – the Group purchased an additional 15,529,933 shares in NPT Limited taking the companies stake in NPT Limited to 18.85%. Total cost, including brokerage was $10.6 million, and was funded by cash reserves and a debt drawdown of $8.0 million.

On 13 April 2016 – the Group registered a product disclosure statement for an offer of units in 33 Broadway Trust.

On 1 May 2017 – The Directors of the Company declared a final dividend on ordinary shares in respect to the year ended 31 March 2017. The total cash amount of the dividend is 1.375 cents per share and has been paid on 22 May 2017. The dividend has not been provided for in the 31 March 2017 financial statements.

78



79

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Augusta Capital Limited

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of Augusta Capital Limited (“the company”) and its subsidiaries (together “the group”) on pages 50 to 78, which comprise the consolidated statement of financial position of the group as at 31 March 2017, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended of the group, and the notes to the consolidated financial statements including a summary of significant accounting policies.

In our opinion, the consolidated financial statements on pages 50 to 78 present fairly, in all material respects, the consolidated financial position of the group as at 31 March 2017 and its consolidated financial performance and cash flows for the year then ended in accordance with New Zealand equivalents to International Financial Reporting Standards and International Financial Reporting Standards.

This report is made solely to the company’s shareholders, as a body. Our audit has been undertaken so that we might state to the company’s shareholders those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s shareholders as a body, for our audit work, for this report, or for the opinions we have formed.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (New Zealand). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.

We are independent of the group in accordance with Professional and Ethical Standard 1 (revised) Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Ernst & Young provides tax compliance services to the Group, and taxation advice services in relation to GST, PIE status and breaches, restructuring, dividends and imputation credits, and the setup of the Augusta Value Add Fund. We also perform the audit of a number of syndicates and the Augusta Value Add Fund No. 1 Limited, which are managed by the Group. We also provide taxation advice services to the Augusta Value Add Fund No. 1 Limited directly.

Partners and employees of our firm may deal with the group on normal terms within the ordinary course of trading activities of the business of the group.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

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INDEPENDENT AUDITOR’S REPORT

We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of the audit report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.

1. Valuation of investment properties held for sale

Why significant How our audit addressed the key audit matter

The valuation of the investment properties held for sale carried at $93.3 million on the consolidated statement of financial position is important to our audit as it represents a judgment area and a significant percentage of the total assets of the group (69%). The valuation of the investment properties is dependent on forecasts and estimates. We therefore identified the valuation of investment properties as a significant audit risk.

These investment properties held for sale comprise four properties which are subject to an executed sale and purchase agreements which have a deferred settlement date where title will pass to the purchaser on defined future dates. As a result of title not passing to the purchaser as at balance date ACL continues to control the properties held for sale and must value these properties in accordance with NZ IAS 40 Investment Property.

The Group has made an assessment of the fair value of these properties using property rental income and market capitalisation rates.

Disclosures surrounding this item are included in note 14 to the consolidated financial statements.

In obtaining sufficient audit evidence we:

• assessed the sale and purchase agreements to determine whether the properties met the requirements to be disclosed as “properties held for sale”;

• evaluated the group’s assessment of fair value and reconciled the net market rental used in the valuation analysis to rental income in our revenue testing to ensure that the income used for the fair valuation assessment was complete;

• compared the capitalisation rates used by the group to market rates;

• involved our real estate valuation specialists to evaluate the work performed by the group including the underlying key assumptions and methodology. The key assumption being capitalisation rates; and

• assessed the adequacy of the disclosures made in respect of the valuation of investment properties.

2. Goodwill and other intangible assets impairment assessment


The goodwill and other intangible assets carried at $8.8 million and $6.7 million respectively are important to our audit because they represent a significant component of total assets (12%) and the process of considering potential impairment requires judgment. The group performs impairment tests annually and are reliant on forecasts and estimates. We therefore identified the valuation of this item as a significant audit risk.

The impairment test is performed by the group using a value in use calculation which contains cashflow forecasts for 2018 as approved by the Board, with future cashflow projections for 10 years and a terminal value post that. Assumptions have been made around growth rates on revenue and costs and discount rate. There is an element of judgment and subjectivity in each of these assumptions.


In obtaining sufficient audit evidence we:

• involved our valuation specialists to assist us in analysing the underlying valuation methodology;

• performed sensitivity analysis, on key assumptions, including alternative cashflows, growth rates and discount rates to determine if a reasonably possible change would materially impact the outcome;

• assessed the forecast revenue streams for 2018, and compared these to 2017 actuals; and

• assessed the adequacy of the disclosures made in respect of the impairment testing of goodwill and intangible assets.

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INDEPENDENT AUDITOR’S REPORT (CONTINUED)

3. Underwriting and offeror revenue


The group recognised $5.5million of offeror fee revenue, and $1.4million of underwriting fee revenue for the year ended 31 March 2017.

Recognition of these streams of revenue, including, interpreting and accounting for the various obligations and commitments between the group and the funds it manages, is considered a key audit matter given the materiality of these revenue streams to the overall consolidated financial statements. There is also judgment required when assessing the timing of when revenue relating to offeror and underwriting fees should be recognised. Revenue recognition depends on the timing of the syndication and the terms of the individual arrangement.


In obtaining sufficient audit evidence we;

• agreed a sample of underwriting and offeror fee revenue recorded in the year to product or investment disclosure statements to determine whether the revenue recognised was in accordance with the underlying documentation; and

• assessed the timing of the recognition of the revenue against the terms in the contract, to test whether the revenue was recognised in the correct period.

4. Classification of investment in Augusta Value Add Fund


The group acquired a 10% investment in the Augusta Value Add Fund No1 (“the fund”) during the year. The group has determined that it exerts significant influence over the fund resulting in the investment being accounted for as an associate. Accordingly, the group has applied the equity method of accounting to the fund results in the consolidated financial statements.

Classification of this investment as a subsidiary or an associate requires significant judgment due to the complexity of the relationship between the group and the fund.

We therefore identified the classification of this investment as a significant audit risk.


In obtaining sufficient audit evidence, we;

• assessed the constitution of the fund and the management agreement between the fund and ACL;

• considered the information obtained from the constitution and the management agreement alongside guidance in NZ IFRS10 “Consolidated Financial Statements” to assess if the group had adopted the appropriate accounting treatment for this investment; and

• assessed the adequacy of the disclosures made in respect of the investment in the Augusta Value Add Fund.

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Information Other than the Financial Statements and Auditor’s Report

The directors of the company are responsible for the Annual Report, which includes information other than the consolidated financial statements and auditor’s report.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained during the audit, or otherwise appears to be materially misstated.

If, based upon the work we have performed, 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.

Directors’ Responsibilities for the Financial Statements

The directors are responsible, on behalf of the entity, for the preparation and fair presentation of the consolidated financial statements in accordance with New Zealand equivalents to International Financial Reporting Standards and International Financial Reporting Standards, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the directors are responsible for assessing on behalf of the entity the group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or cease operations, or have no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are 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 International Standards on Auditing (New Zealand) 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 these consolidated financial statements.

A further description of the auditor’s responsibilities for the audit of the financial statements is located at External Reporting Board’s website: https: www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-report-1/. This description forms part of our auditor’s report.

The engagement partner on the audit resulting in this independent auditor’s report is Susan Jones.

Auckland 30 May 2017

83



AUGUSTA CAPITAL LIMITED

Top 20 Shareholders (with expanded NZCSD Sub-Register)1 as at 19 May 2017

Rank Investor Name Total Units % Issued Capital

1 Mark Edward Francis & Rockridge Trustee Company Ltd 14,620,000 16.70%

2 Guardian Nominees No 2 Ltd 9,046,783 10.34%

3 Forsyth Barr Custodians Ltd 8,154,487 9.32%

4 Premier Nominees Limited 5,279,739 6.03%

5 Kawaroa Trustee Limited 5,000,000 5.71%

6 Mfl Mutual Fund Limited 2,929,018 3.35%

7 Cogent Nominees Limited 2,603,026 2.97%

8 Premier Nominees Ltd Armstrong Jones Property Securities Fund 2,339,625 2.67%

9 Accident Compensation Corporation 2,252,665 2.57%

10 Michael Walter Daniel & Nigel Geoffrey Burton & Michael Murray Benjamin 2,000,000 2.28%

11 NZ Permanent Trustees Ltd Grp Invstmnt Fund No 20 1,981,677 2.26%

12 New Zealand Superannuation Fund Nominees Limited 1,880,652 2.15%

13 Phillip Michael Hinton & Robyn Kay Hinton & Stephen David Eichstaedt 1,250,000 1.43%

14 Custodial Services Limited 901,402 1.03%

15 Cypress Capital Limited 610,865 0.70%

16 Jennifer Margaret Ross Singh 575,063 0.66%

17 Shona Elizabeth Ross Caughey 575,061 0.66%

17 Ian Richard Ross Seddon 575,061 0.66%

18 Robert James Briggs Hunter & Shirley Dawn Hunter 572,596 0.65%

19 Timothy Paul Blundell & Steven Kenneth Harrington 512,596 0.59%

20 FNZ Custodians Limited 490,689 0.56%

Total number of issued securities 87,528,908

1 Shares held by New Zealand Central Securities Depositary Limited (NZCSD) are grouped under a single legal holding. The table above shows the underlying NZCSD holder.

SHAREHOLDER STATISTICS


84SHAREHOLDERSTATISTICS

As at 31 March 2017, the following shareholders have filed substantial security holder notices in accordance with the Financial Markets Conduct Act.

Shareholder Number of shares relevant

interest last disclosed for

Mark Francis and Rockridge Trustee Company Limited 14,620,000

ANZ New Zealand Investments Limited and ANZ Bank New Zealand Limited 10,510,652

Salt Funds Management Limited 8,430,336

Westpac Banking Corporation and BT Private Selection 8,109,495

Mint Asset Management 6,505,494

Kawaroa Trustees Limited 5,000,000

Forsyth Barr Investment Management Limited 4,761,693

The following is a spread of quoted security holders as at 19 May 2017;

Ranges Investors Securities % Issued Capital

1 to 1,000 34 17,843 0.02

1,001 to 5,000 146 553,549 0.63

5,001 to 10,000 212 1,776,284 2.03

10,001 to 50,000 365 8,434,110 9.64

50,001 to 100,000 54 3,899,097 4.45

100,001 and Over 52 72,848,025 83.23

Total 863 87,528,908 100.00

This annual report is dated 30 May 2017 and is signed on behalf of the board by:

Paul Duffy Chair

Mark Petersen Director

85


SHAREHOLDERSTATISTICS (CONTINUED)

DIRECTORYDirectorsP.J. Duffy J.J. Loughlin M.E. Francis B.R. Barnett M.G. Goldfinch R.M. Petersen

Chief Operating Officer G.R. French-Wright

Chief Financial OfficerS.W.J. Woollams

General Counsel & Company SecretaryL.J. Fitzgibbon

Registered OfficeLevel 2, 30 Gaunt Street, Bayleys House Wynard Quarter Auckland New Zealand

Share RegisterLink Market Services Level 11 Deloitte Centre 80 Queen Street Auckland New Zealand

SolicitorsChapman Tripp Level 35 23-29 Albert Street Auckland New Zealand

BankersASB Bank ASB North Wharf 12 Jellicoe Street Auckland New Zealand

AuditorsErnst & Young 2 Takutai Square Auckland New Zealand

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DIRECTORY

Augusta Capital Limited

Level 2, 30 Gaunt Street Auckland, New Zealand

PO Box 37953 Parnell

Telephone +64 (9) 300 6161 Facsimile +64 (9) 300 6162

www.augusta.co.nz

annual report 2017 - nzx - new zealand stock … management - continuous growth investment assets -...

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