MERCY SUPER FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016

Transcription

1 FINANCIAL STATEMENTS CONTENTS Page Statement of Changes in Net Assets 2 Statement of Net Assets 3 Notes to the Financial Statements 4 26 Statement by Trustee 27 Independent Auditor s Report Issued by Mercy Super Pty Ltd ABN , AFS Licence No as Trustee for Mercy Super ABN

2 STATEMENT OF CHANGES IN NET ASSETS Notes INVESTMENT REVENUE Interest 133, ,942 Dividends and distributions 64,632,128 43,539,072 Changes in net market value 9 (28,669,542) 36,195,133 Fee rebates 670, ,594 Direct investment expense 10 (1,418,667) (1,108,737) 35,348,281 79,593,004 CONTRIBUTION REVENUE Employer contributions 52,380,706 56,958,647 Salary sacrifice contributions 17,727,742 17,301,483 Member contributions 11,893,990 11,923,920 Government co-contributions 131, ,051 Transfers in 31,848,673 30,154, ,982, ,486,257 OTHER REVENUE Insurance proceeds 2,381,400 2,453,600 Other income 752 3,623 2,382,152 2,457,223 TOTAL REVENUE 151,713, ,536,484 EXPENSES General administration expenses 11 5,314,033 4,459,652 Insurance premiums 6,335,981 5,809,197 Benefits paid 12 70,110,550 77,660,525 TOTAL EXPENSES 81,760,564 87,929,374 CHANGES IN NET ASSETS BEFORE TAX 69,952, ,607,110 INCOME TAX EXPENSE 13(a)(b) 8,651,052 12,158,768 CHANGE IN NET ASSETS AFTER INCOME TAX 61,301,636 98,448,342 NET ASSETS AVAILABLE TO PAY BENEFITS at the beginning of the period 943,383, ,935,655 NET ASSETS AVAILABLE TO PAY BENEFITS At the end of the period 1,004,685, ,383,997 This Statement should be read in conjunction with the accompanying notes. Page 2

3 STATEMENT OF NET ASSETS AS AT 30 JUNE 2016 Notes ASSETS Cash Assets Cash and cash equivalents 14 6,178,754 9,918,235 Receivables GST receivable 160, ,187 Distributions receivable 10,372,463 9,121,003 Sundry receivable 49, ,651 Investments Managed portfolios 15 60,313,526 14,217,019 Unit trusts ,771, ,961,679 Pooled superannuation trusts 17 76,344,215 65,921,765 Other Assets Prepayments 157, ,624 TOTAL ASSETS 1,017,348, ,502,163 LIABILITIES Creditors and accruals 18 1,353,424 1,383,131 Current tax liabilities 13(c) 3,870,230 1,557,662 Deferred tax liabilities 13(d) 7,438,936 9,177,373 TOTAL LIABILITIES 12,662,590 12,118,166 NET ASSETS AVAILABLE TO PAY BENEFITS 1,004,685, ,383,997 Represented By: LIABILITY FOR ACCRUED BENEFITS Allocated to members accounts - Accumulation 5,6 801,653, ,323,118 - Pensioners 104,396,048 80,372,682 - Defined benefits (including DB reserve) 82,563,896 88,220,367 - Unallocated 7,335,110 6,484,475 Reserves - Trustee operating account 8(a) 5,740,165 5,792,940 - Operational risk reserve 8(b) 2,996,975 2,190,415 NET ASSETS AVAILABLE TO PAY BENEFITS 1,004,685, ,383,997 This Statement should be read in conjunction with the accompanying notes. Page 3

4 1. REPORTING ENTITY Mercy Super ( the Fund ) is a hybrid between defined benefits and defined contributions superannuation fund domiciled in Australia. The address of the Fund s registered office is The Kelly Building, Mater Misericordiae Limited (MML), Raymond Terrace, South Brisbane, QLD The Fund is operated for the purpose of providing for members (and their dependants or beneficiaries), lump sum benefits upon retirement, termination of service, death and disablement. The Fund is constituted by a Trust Deed dated 31 July The Trustee of the Fund is Mercy Super Pty Ltd (ABN ). 2. BASIS OF PREPARATION (a) Statement of Compliance The financial statements are general purpose statements which have been drawn up in accordance with Australian accounting standards including AAS25 Financial Reporting by Superannuation Plans ( AAS25 ) as amended by AASB (December 2005), other applicable Accounting Standards and the requirements of the Superannuation Industry (Supervision) Act 1993 and Regulations ( SIS ) and the provisions of the Trust Deed. International Financial reporting Standards ( IFRS ) form the basis of Australian Accounting Standards adopted by the AASB. Certain requirements of AAS25 however differ from the equivalent requirements that would be applied under IFRS, accordingly the financial statements do not comply with IFRS. The financial statements were approved by the Board of the Trustee, Mercy Super Pty Ltd on 26 September (b) Basis of Measurement The financial statements have been presented under the historical cost convention, apart from the valuation of investments which are measured at net market value. (c) Functional and Presentation Currency The financial statements are presented in Australian dollars, which is the functional currency of the Fund. (d) Use of Estimates and Judgements The preparation of financial statements requires the use of certain critical accounting assumptions and estimates. It also requires the Trustee and management to exercise judgement in the process of applying the entity s accounting policies and reporting amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. There are no critical accounting estimates and judgements contained in these financial statements other than those used to determine the liability for accrued benefits (Note 5), valuation of investments (Note 3(a)) and deferred tax asset recognition (Note 3(h)), which are not brought to account but disclosed by way of note. Page 4

5 2. BASIS OF PREPARATION (CONTINUED) (e) New and amended standards adopted during the year The Fund has changed some of its accounting policies as a result of new and revised accounting standards which became effective for the annual reporting periods commencing on 1 July The affected polices are: AASB Amendment / Standard AASB AASB AASB Title Amendments to Australian Accounting Standards Annual Improvements to Australian Accounting Standards Cycle Amendments to Australian Accounting Standards Disclosure Initiative: Amendments to AASB 101 Part E: Financial Instruments Nature of change to accounting policy The amendments affect some disclosures relating to servicing contracts, changes in method of disposal, AASB7 disclosures for interim reports and discount rates for employee benefits. The amendments propose narrow-focus amendments to address some of the concerns expressed about existing presentation and disclosure requirements and to ensure entities are able to use judgement when applying a Standard in determining what information to disclose in their financial statements. The amendments made by AASB affect the hedge accounting disclosures set out in AASB 7 Financial Instruments: Disclosures and to AASB 132 Financial Instruments: Presentation to permit irrevocable designation of own use contracts as measured at fair value through profit or loss if the designation eliminates or significantly reduces an accounting mismatch. (f) Comparatives Where necessary, comparative information has been reclassified to achieve consistency in disclosure with current financial year information and other disclosures. 3. SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in these financial statements. (a) Investments Investments of the Fund are initially recognised using trade date accounting. From this date any gains and losses arising from changes in net market value are recorded. Estimated costs of disposal are deducted in the determination of net market value. As disposal costs are generally immaterial, unless otherwise stated, net market value approximates fair value. Net Market Values have been determined as follows: Market quoted investments The net market value of an investment for which there is a readily available market quotation is determined as the last quoted sale price at the close of business on reporting date, less an appropriate allowance for costs expected to be incurred in realising the investments. Non-market quoted investments Investments for which market quotations are not readily available are valued at the net fair value determined by the Trustee as follows: Unlisted securities recorded with reference to recent arm s length transactions, current market value of another instrument substantially the same or discounted cash flows, less estimated realisation costs. Page 5

6 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Where discounted cash flow techniques are used, estimated future cash flows are based on Trustee s best estimates and the discount rate used is a market rate at the balance sheet date applicable for an instrument with similar terms, condition and risk. Where other pricing models are used, inputs are based on market data at the reporting date. Private equity investments are valued according to the most recent valuation obtained from the underlying manager at net market value adjusted for subsequent investments, redemptions and significant changes in underlying market conditions through to balance date. Units in pooled superannuation trusts, unlisted unit trusts and property trusts These are valued at the redemption price at reporting date quoted by the investment managers which are based on the net market value of the underlying investments. Unit values denominated in foreign currency are translated to Australian dollars at the current exchange rates. Short term deposits These are valued at their market value at close of business on the last business day of the reporting period. (b) Cash and Cash Equivalents Cash comprises cash on hand and demand deposits. Cash equivalents are short term, highly liquid investments that are readily converted to known amounts of cash and which are subject to an insignificant risk of changes in value. (c) Foreign Currency Transactions in foreign currencies are translated at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at balance sheet date are translated to Australian dollars at the foreign exchange rate ruling at that date. Foreign exchange differences are recognised in the Statement of Changes in Net Assets. (d) Receivables Interest receivable represents accrued interest revenue from government securities, other fixed interest securities, money market securities and derivatives. Receivables are carried at nominal amounts accrued or due at reporting date, which approximate fair value and is equivalent to net market value. (e) Financial Liabilities The Fund recognises financial liabilities on the date it becomes a party to the contractual provisions of the instrument. Other payables are payable on demand or over short time frames of less than 60 days. The Fund recognises financial liabilities at net market value as at reporting date with any change in net market values since the beginning of the reporting period included in the Statement of Changes in Net Assets. As disposal costs are generally immaterial, unless otherwise stated net market value approximates fair value. Page 6

7 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (f) Revenue Recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised. Changes in net market value of investments Changes in net market value of investments are recognised as income in the Statement of Changes in Net Assets in the periods in which they occur. Changes in net market values are determined as the difference between the net market value at balance date or consideration received (if sold during the year) and the net market value at the previous balance date or the cost (if the investment was acquired during the year). Interest revenue Interest revenue is recognised in the Statement of Change in Net Assets as it accrues, using the original effective interest rate of the instrument calculated at the acquisition or origination date. Interest income includes the amortisation of any discount or premium, transaction costs or other differences between the initial carrying amount of an interest-bearing instrument and its amount at maturity calculated on an effective interest rate basis. Dividend revenue Revenue from dividends is recognised on the date the shares are quoted ex-dividend and if not received at reporting date, is reflected in the Statement of Net Assets as a receivable at net market value. Trust distribution revenue Distributions from managed investment schemes are recognised on the date as at the date the unit value is quoted ex-distribution and the Fund is entitled to receive the distribution. If not received at reporting date, the distribution receivable is reflected in the Statement of Net Assets as a receivable at net market value. Contributions revenue and transfers in Contributions revenue and transfers in are recognised when the control and the benefits from the revenue have transferred to the Fund and is recognised gross of any taxes in the period to which they relate. Where contributions have not been allocated to members accounts at period end they are included as a liability on the Statement of Net Assets. (g) Benefits Benefits paid recognise all benefits due and payable from the Fund. Benefits payable are settled in accordance with the Fund s trust deed. (h) Income Tax The Fund is a complying superannuation fund within the provisions of the Income Tax Assessment Act and accordingly the concessional tax rate of 15% has been applied. Current tax Current tax is calculated by reference to the amount of income tax payable or recoverable in respect of the taxable income accrued for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by reporting date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable). Deferred tax Deferred tax is accounted for using the comprehensive balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those items. In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities, which affect neither taxable income nor accounting profit. Page 7

8 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflect the tax consequences that would follow from the manner in which the Fund expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Fund intends to settle its current tax assets and liabilities on a net basis. (i) Goods and Services Tax Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated with the amount of GST included in the value. The net amount of GST recoverable from, or payable to, the Australian Taxation Office (ATO) is included as a current asset or liability in the Statement of Net Assets. (j) Excess Contributions Tax The Australian Taxation Office ( ATO ) may issue release authorities to members of the Fund relating to the relevant member s excess contributions tax that is payable in respect of the member s concessional and/or nonconcessional contributions for a particular year. The liability for excess contributions tax will be recognised when the relevant release authorities are received from members, as the Trustee considers this is when it can be reliably measured. The excess contributions tax liability recognised by the Fund will be charged to the relevant members accounts. (k) No-TFN Contributions Tax Where a member does not provide their tax file number to a fund, the fund may be required to pay no-tfn contributions tax at a rate of 34% which is in addition to the concessional tax rate of 15% which applies to the Fund s assessable income. The no-tfn contributions tax liability recognised by the Fund will be charged to the relevant members accounts. Where a tax offset is obtained by the Fund in relation to members no-tfn contributions tax, the tax will be included in the relevant members accounts. (l) Financial Instruments Recognition The Fund recognises financial assets and financial liabilities on the date it becomes a party to the contractual provisions of the instrument. Financial assets are initially recognised using trade date accounting. From this date, any gains and losses arising from changes in fair value of the financial assets or liabilities are recorded. Financial liabilities are not recognised unless one of the parties has performed or the contract is a derivative contract not exempt from the scope of AASB139. Measurement Financial instruments are initially measured at cost, being the fair value of the consideration given. Subsequent to initial recognition all financial instruments are valued at net market value. Derecognition of Financial Assets and Liabilities A financial asset is derecognised when the rights to receive cash flows from the asset have expired or the Fund transfers substantially all the risks and rewards of ownership of the asset. A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. Page 8

9 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (m) Structured Entities A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity. This could be the case where voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. The Fund invests in other funds for the purpose of capital appreciation. The investee funds objectives range from achieving medium to long term capital growth. The investee funds invest in a number of different financial instruments, including equities and debt instruments. The size of a related investee fund is indicated by the net asset value of the fund per the investee funds balance sheet. For unrelated funds, size is indicated by the carrying value of the Fund s investment as recognised on the Fund s balance sheet as at reporting date as there is no other exposure to the Fund other than the carrying value of its investment. (n) New Standards and Interpretations not yet Adopted A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 30 June 2016, and have not been applied in preparing these financial statements. Those which may be relevant to the Fund are set out below. The Fund does not plan to adopt these standards early. AASB 9 Financial Instruments AASB 9 replaces the existing guidance in AASB 139 Financial Instruments: Recognition and Measurement. AASB 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from AASB 139. AASB 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. The adoption of AASB 9 is expected to have an impact on the Fund s financial assets, but no impact on the Fund s financial liabilities. The Fund has not yet determined the impact on its hedging arrangements. AASB 15 Revenue from Contracts with Customers AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including AASB 118 Revenue, AASB 111 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. AASB 15 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. AASB 15 is based on the principle that revenue is recognised when control of a good or service transfers to a customer so the notion of control replaces the existing notion of risks and rewards. The Fund's main sources of income are interest, dividends, distributions and gains on financial instruments held at fair value. All of these are outside the scope of the new revenue standard. As a consequence, the directors do not expect the adoption of the new revenue recognition rules to have a significant impact on the Fund's accounting policies or the amounts recognised in the financial statements. AASB 16 Leases AASB 16 removes the lease classification test for lessees and requires all leases (including operating leases) to be brought to account onto the balance sheet. The definition of a lease is also amended and is not the new on/off balance sheet test for lessees. AASB 16 is effective for annual reporting periods beginning on or after 1 January 2019, with early adoption permitted where AASB 15 Revenue from Contracts with Customers is adopted at the same time. The Fund does not expect any impact on its financial statements resulting from the application of AASB 16. Page 9

10 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) AASB1056 Superannuation Entities The Australian Accounting Standard Board issued AASB 1056 Superannuation Entities in June The new standard replaces AAS 25 Financial Reporting by Superannuation Plans and will be applicable from financial year beginning 1 July 2016 (and its prior year comparatives). The purpose of this new standard is to address deficiencies in AAS 25 and also make the requirements for superannuation entities more consistent with current requirements in Australian Accounting Standards. AASB1056 will have a number of impacts on the financial statements of the Fund. The key disclosure changes will include: 1. Preparation of five statements under the new standard: a. Statement of Financial Position; b. Income Statement; c. Statement of Changes in Equity/Reserves; d. Statement of Cash Flows; and e. Statement of Changes in Member Benefits. 2. Recognition of member benefits as a liability on the face of the Statement of Financial Position 3. Net assets of the Fund to reflect the Fund s reserves, including the Operational Risk Financial Reserve 4. Increased disclosure in relation to insurance arrangements. 5. Additional disclosures on member benefits. 6. The defined benefits need to be measured annually. 7. Management is still estimating the impact on investment values of adopting the new standard and does not expect it to be material due to the exposure to units in unit trusts and pooled superannuation trusts. Page 10

11 4. FUNDING ARRANGEMENTS Defined Benefit Category The funding policy adopted in respect of the Defined Benefit Category is directed at ensuring that benefits accruing to members are fully funded as the benefits fall due. As such, in framing employer contribution rates, the Fund's Actuary has considered long term trends in such factors as Fund membership, salary growth and average market value of the Fund's assets. In May 2014 the Trustee resolved that it would adopt a more conservative investment objective with the decision fully implemented by October Financial Position Based on the most recent actuarial report review as at 30 June 2015 the Fund has an estimated Vested Benefit Index (VBI) of 104.7% (30 June 2015: 101.5%), and a Minimum Requisite Benefit Index (MRBI) of 119.3% (30 June 2015: 118.7%). A MRBI of at least 100% is required for solvency. The Actuary has provided the Trustee with a Funding and Solvency Certificate dated 1 April 2015 for the period 1 April 2015 to 31 March The Trustee and the Actuary concluded at 30 June 2013 that the value of the assets of the Fund were inadequate to meet the accrued benefits and vested benefits disclosed in Notes 5 and 6 of the Financial Statements and that the Fund remained in an unsatisfactory financial position. In September 2015 the Actuary reviewed the position as at 30 June 2015 and determined that position had improved from 30 June 2013 and the Fund is now in a satisfactory financial position. The Actuary is projecting the Fund will continue in to be in a satisfactory financial position for the long-term based on the following: (i) Investment return of 6% p.a. for the year ended 30 June 2016 (2015: 5%) and 6% p.a. thereafter; (ii) Salary inflation rate of 5% p.a. for the year to 30 June 2016; (iii) The Defined Benefit Category of the Fund was closed to new members; (iv) Transfers out of the Defined Benefit Category of the Fund into the Accumulation Category of the Fund were limited; (v) Freezing of the defined benefits from 1 July 2012 (the accrued multiple is frozen, however, the final average salary and discount factor are calculated at the date of leaving the Defined Benefit Category); (vi) The Fund's investment strategy being monitored closely and adjusted if required; (vii) The employers continue to contribute to the Fund as recommended by the Actuary. Award/ Superannuation Guarantee Charge Contribution Category Employers contributed to the Fund an amount required to meet their obligations under either the Superannuation Guarantee (Administration) Act 1992, or an employee's relevant industrial agreement. 5. LIABILITY FOR ACCRUED BENEFITS The amount of accrued benefits is determined on the basis of the present value of the expected future payments that arise from membership of the Fund up to the measurement date. The liability reported has been determined by reference to the expected future salary levels and by application of the market-based, riskadjusted discount rate and relevant actuarial assumptions. The valuation of accrued benefits was undertaken by the actuary as part of a comprehensive actuarial review dated 30 June Accrued benefits were previously valued as part of a comprehensive review undertaken 30 June The next comprehensive actuarial review is due for 30 June 2016 which will be completed after these financial reports are signed. 30 Jun Jun 10 Liability for accrued benefits 727,926, ,858,000 Page 11

12 6. VESTED BENEFITS Vested benefits are benefits that are not conditional upon continued membership of the Fund (or any factor other than resignation from the Fund) and include benefits which members were entitled to receive had they terminated their Fund membership as at the reporting date. Vested Benefits 984,926, ,305, GUARANTEED BENEFITS No guarantees have been made in respect of any part of the liability for accrued benefits. 8. RESERVES (a) Trustee Operating Reserve The trustee operating reserve is established in accordance with the trust deed and is used to fund the operating expenses of the Fund. Balance at beginning of period 5,792,940 2,496,926 Net increase/(decrease) in reserve as a result of operations (52,775) 3,296,014 Balance at end of period 5,740,165 5,792,940 (b) Operational Risk Financial Reserve (ORFR) Balance at beginning of period 2,190,415 1,733,582 Transfer of surplus on unit pricing implementation - 307,000 Transfer of tax surplus 700,000 - Investment earnings attributed to reserve 106, ,833 Balance at end of period 2,996,975 2,190,415 Under APRA Prudential Standard SPS 114: Operational Risk Financial Requirements ( ORFR ), a fund is required to maintain an ORFR reserve of at least 0.25% of a fund s assets. The Trustee intends that the actual dollar amount of the ORFR will increase in line with increasing Fund assets to achieve and maintain a target level at 0.30% of Fund assets. The ORFR is invested within the Fund s default Balanced Growth Investment Option. 9. CHANGES IN NET MARKET VALUE OF INVESTMENTS Investments realised during the period (10,382,525) (2,826,402) Investments held at reporting date (18,287,017) 39,021,535 TOTAL CHANGES IN NET MARKET VALUE (28,669,542) 36,195,133 Page 12

13 10. DIRECT INVESTMENT EXPENSES Custodian fees 352, ,573 Asset consultant fees 364, ,644 Management expenses 700, ,520 TOTAL DIRECT INVESTMENT EXPENSES 1,418,667 1,108, ADMINISTRATION EXPENSES Administration fees 1,619,880 1,346,983 Advertising and marketing 35,923 30,374 Audit and tax 161, ,310 Bank fees 4,529 3,446 Communications 147, ,948 Consulting Fees 175, ,202 Directors compensation 185, ,882 Employment costs 1,510,358 1,151,687 General operational expenses 69,861 51,233 Legal fees 3,328 40,640 Memberships, conferences, seminars and travel 42,499 34,072 Postage and distribution 160,519 76,056 Project expenses 811, ,456 Regulator levies 105, ,149 Telecommunications and IT 151,113 62,621 Training and recruitment 19,754 14,936 Trustee expenses and insurance 109, ,657 TOTAL ADMINISTRATION EXPENSES 5,314,033 4,459, BENEFITS Benefits paid 63,653,007 72,747,176 Pensions paid 6,457,543 4,913,349 TOTAL BENEFITS 70,110,550 77,660,525 Page 13

14 13. TAXATION (a) Major components of tax expenses Current income tax - Current tax charge 10,637,037 8,823,946 - Adjustment to current tax for prior period (247,547) (847,481) Deferred income tax - Relating to the origination and reversal of temporary differences (1,738,438) 4,182,303 Income tax expense 8,651,052 12,158,768 (b) Income tax expense Benefits accrued as a result of operations before tax 69,952, ,607,110 Tax applicable at the rate of 15% (2015: 15%) 10,492,903 16,591,067 Tax effect of income/(losses) not assessable or (deductible) in determining taxable income - Non assessable income from investments 380,544 (7,228,481) - Discount in capital gains/losses (1,739,988) 3,958,635 - Contributions revenue and transfers in (6,503,146) (6,267,292) - Insurance proceeds (357,210) (368,040) Tax effect of expenses that are not deductible in determining taxable income - Benefits paid 10,516,583 11,649,079 Tax effect of other adjustments - Imputation and foreign tax credits (3,287,515) (4,799,234) - Anti-detriment (146,602) (178,179) - Exempt pension income (420,563) (365,779) - No TFN tax liability (36,407) 14,473 - Under/(Over) provision prior year (247,547) (847,481) Income tax expense 8,651,052 12,158,768 (c) Current tax liabilities Balance at beginning of year 1,557,662 2,057,729 Income tax paid current period (6,766,808) (7,266,284) Income tax paid prior periods (1,310,114) (1,210,248) Current year income tax provision 10,637,037 8,823,946 Under/(Over) provision prior year (247,547) (847,481) Current tax liabilities 3,870,230 1,557,662 Page 14

15 13. TAXATION (CONTINUED) (d) Deferred tax liabilities The amount of net deferred tax liability recognised: Deferred tax liabilities Accrued income 380,079 - Realised capital losses (discounted) - (476,662) Unrealised capital gains (discounted) 7,161,585 9,758,314 Deferred tax liabilities 7,541,664 9,281,652 Deferred tax assets Accrued expenses (102,447) (103,115) Unallocated contributions (281) (1,164) Deferred tax assets (102,728) (104,279) Net deferred tax liabilities 7,438,936 9,177, CASH AND CASH EQUIVALENTS Operating bank account 5,702,652 5,372,121 Cash held by custodian 475,902 4,545,914 Petty cash TOTAL CASH AND CASH EQUIVALENTS 6,178,754 9,918, MANAGED PORTFOLIOS Tribeca Investment Partners Australia Equities Portfolio 17,306,719 14,217,019 Sanders Capital 43,006,807-60,313,526 14,217,019 Page 15

16 16. UNIT TRUSTS Holding% $ Holding% $ AMP Responsible Investment Leaders Balanced Fund 0.50% 4,293, % 4,622,993 BlackRock Whsle Indexed Aust Bond Fund 4.01% 34,659, % 31,141,414 BlackRock Global Bond Index Fund 2.37% 20,435, % 21,767,116 BCA Global Loan Fund Trust 3.90% 33,702, % 17,944,228 Capital Intnl Global Equities Fund (Hedged) % 32,479,797 Fiduciary International Real Estate % 2,043, % 3,898,611 Fortius Active Property Trust No % 224, % 6,495,728 Gardior Funds (prev TPCG Infrastructure) 3.94% 34,018, % 30,079,528 Hastings Yield Fund % 6,953 P.A Private Capital Fund % 150, % 329,100 P.A Private Capital Fund % 115, % 252,310 P.A Private Capital Fund % 1,931, % 2,610,500 IFM Australian Equity Index Fund 4.83% 41,698, % 45,900,027 IFM Australian Infrastructure Whlsle Fund 0.17% 1,508, % 1,236,664 Industry Super Holdings 0.04% 380, % 311,488 Investa Commercial Property Fund 3.58% 30,948, % 10,450,489 ISPT No % 24,473, % 18,758,377 ISPT No % 10,376, % 8,394,862 ISPT Retail Australia Property Trust 2.10% 18,172, % 14,119,652 Lazard Emerging Market Equity Fund 2.10% 18,122, Macquarie IFP Global Franchise Fund 5.26% 45,461, % 43,495,492 Maple-Brown Abbott Australian Equity Trust 8.69% 75,092, % 82,190,816 Members Equity Bank Pty Ltd 0.05% 427, % 427,696 MFS Global Equity Trust 5.64% 48,701, % 42,305,890 Newbury Equity Partners II (Cayman) LP 0.41% 3,576, % 4,293,459 Oaktree Mezzanine Fund Ill, L.P. Class A 0.00% % 843,266 Oaktree Mezzanine Fund Ill, L.P. Class B 0.67% 5,775, % 5,709,608 Paradice Mid Cap Fund 3.58% 30,909, % 23,231,290 PIMCO Target Return Fund 1.70% 14,662, % 14,409,297 Pinebridge Global Dynamic Absolute Return 1.96% 16,933, QIC Cash Fund 14.20% 122,558, % 124,517,777 QIC Property Fund 4.47% 38,603, % 29,511,585 ROC Alternative Investment Trust III 0.09% 804, % 1,178,500 ROC Alternative Investment Trust IV 0.13% 1,160, % 1,322,603 ROC Alternative Investment Trust V 0.34% 2,914, % 3,520,000 ROC Alternative Investment Trust VI 1.40% 12,130, % 9,964,500 Sands Capital Emerging Market Growth Feeder Fund 1.86% 16,034, Schroder Australian Equity Fund 10.45% 90,170, % 96,163,441 Siguler Guff Distressed Opp Fund Ill (F) LP 0.26% 2,282, % 2,931,006 SSgA -Global Index Plus Hedged Trust 5.80% 50,116, % 53,698,665 Super Loans Trust 0.02% 191, % 230,527 WMP (Dublin) PLC Emerging Markets Port % 36,117,388 Wellington Global Value Equity Port % 13,005,133 Westbourne Yield Fund No % 3,105, % 9,282,486 Wilshire Australian Private Markets No.2 Fund 0.57% 4,901, % 6,811,245 Unsettled transactions 0.00% % 172 TOTAL UNIT TRUSTS % 863,771, % 855,961,679 Page 16

17 17. POOLED SUPERANNUATION TRUSTS Holding% $ Holding% $ IFM Australian Equity Indexed Fund % 97,626 IFM Australian Infrastructure Unit Class 27.62% 21,084, % 17,305,191 IFM International Infrastructure 72.38% 55,259, % 48,518,948 TOTAL POOLED SUPERANNUATION TRUSTS % 76,344, % 65,921, CREDITORS AND ACCRUALS Insurance premiums payable 534, ,041 PAYG withholding 10,547 15,912 Trade and sundry creditors 806, ,415 Unallocated contributions 1,876 7,763 TOTAL CREDITORS AND ACCRUALS 1,353,424 1,383, AUDITOR S REMUNERATION Amounts paid or due and payable to PricewaterhouseCoopers for the following services: Audit of the financial report and regulatory compliance 70,584 63,000 Amounts paid or due and payable to BDO Audit Pty Ltd for the following services: Audit of the trustee - 2,200 TOTAL AUDITOR S REMUNERATION - 2,200 Amounts paid or due and payable to KPMG for the following services: Internal audit 50,578 52,145 Other services 10,000 - TOTAL AUDITOR S REMUNERATION 60,578 52,145 Page 17

18 20. RELATED PARTIES (a) Trustee and Key Management Personnel The Trustee of the Fund is Mercy Super Pty Ltd. The following people were directors of the Trustee during the financial year and since year end are: Directors Dr John James O Donnell Brendan Joseph O Farrell Christopher John Beilby Cheryl Lee Clayton Dr John Alexander Hinds Robert Gerard Gregg In addition to the Directors of the Trustee Company, the key management personnel who held office during the year or since year end are: Neil Sheppard (Chief Executive) The Directors of the Trustee who are members of the Fund contribute on the same terms and conditions as other members. During the financial year there were no retirement benefits paid to key management personnel (including their related parties) who were members of the Fund. (b) Key Management Personnel Remuneration Key management personnel compensation in relation to services to the Fund is as follows: Short-term employee benefits 381, ,666 Post employment benefits 44,059 39, , ,004 All directors and officers of the Trustee with the exception of Robert Gregg are members of Mercy Super. Contributions and benefits are determined using the same provisions that apply to all members. (c) Other Related Parties Expense reimbursements were paid to the employer sponsor Mater Misericordiae Limited (MML) for various operational costs, including remuneration for Fund staff. Mercy Super Financial Services Pty Ltd provides financial advice to Mercy Super members. MML 1,957,302 1,698,503 Expenses accrued and payable to MML 161, ,028 Dr John O Donnell was employed by MML until January Mercy Super had receivables/(payables) from the following related parties at year end: Mercy Super Pty Ltd (1,359) 46,317 Mercy Super Financial Services Pty Ltd 51,142 54,337 During the year the expenses accrued and paid to/(reimbursed from) these related parties were as follows: Mercy Super Pty Ltd 161, ,132 Mercy Super Financial Services Pty Ltd (60,000) - Page 18

19 21. FINANCIAL INSTRUMENTS The Trustee recognises that it is important for the members of the Fund, and their beneficiaries, to be assured that the prudential management of the Fund is being undertaken with continuous and appropriate risk identification and management strategies are being put in place and utilised. Risk Management is recognised as critical to the effective operation of the Fund. The Trustee undertakes a formal risk assessment process at least annually when assessing the risks associated with operating the Fund, both internally and externally. This formal risk assessment process is included in the Board s annual strategic and/or business planning activities. State Street Australia Limited acts as custodian for the Fund. The investments of the Fund (other than cash held for liquidity purposes) consist of direct equity mandates, units in collective investment vehicles such as life office investment policies, managed investment funds and pooled superannuation trusts. The Trustee has determined that these types of investments are appropriate for the Fund and are in accordance with the Fund's published investment strategy. The investment manager(s) of the collective investment vehicle(s) will have invested in a variety of financial instruments, including derivatives which expose the Fund's investments to a variety of investment risks, including market risk, credit risk, interest rate risk and currency risk. The investment manager(s) provide regular reports on the Fund's investment to the Trustee. The Trustee seeks information from the trustee and/or manager of each proposed collective investment (and may also seek independent advice from other qualified persons) so as to determine the nature and extent of any risks, and the expected returns, associated with each investment prior to determining its suitability as an investment for the Fund. Each investment manager is required to invest the assets managed by it in accordance with the terms of a written investment mandate. The Trustee has determined that the appointment of these managers is appropriate for the Fund and is in accordance with the Fund s investment strategy. The allocation of assets between the various types of financial instruments is determined by the Trustee who manages the Fund s portfolio of assets to achieve the Fund s investment objectives. Divergence from target asset allocations and the composition of the portfolio is monitored by the Fund on at least a quarterly basis. The Fund s investing activities expose it to the following risks from its use of financial instruments: market risk credit risk liquidity risk The nature and extent of the financial instruments employed by the Fund are discussed below. This note presents information about the Fund s exposure to each of the above risks, the Fund s objectives, policies and processes for measuring and managing risk. The Trustee of the Fund has overall responsibility for the establishment and oversight of the Fund s risk management framework. Categories of financial instruments The assets and liabilities of the Fund are recognised at net market value as at reporting date. Net market value approximates fair value less costs of realisation for investments. The cost of realisation is minimal and therefore net market value that is carrying value approximates fair value. Changes in net market value are recognised through the Statement of Changes in Net Assets. Page 19

20 21. FINANCIAL INSTRUMENTS (CONTINUED) Market Risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Fund s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. Currency Risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Fund is exposed to currency risk on financial instruments, receivables and liabilities that are denominated in a currency other than the respective functional currency (Australian Dollars) of the Fund. The Fund also invests in Australian domiciled unit trusts where the underlying investments are in overseas equities. The financial instruments presenting direct exposure to currency risk are the investments in Siguler Guff Distressed Opportunities Fund, Fiduciary International Real Estate 3, Newbury Equities Partners II (Cayman) LP, Oaktree Mezzanine Fund III and Sands Capital Emerging Market Growth Feeder. The Fund s strategy on the management of currency risk is driven by the Fund s investment objectives. The Fund may invest in financial instruments and enter into transactions denominated in currencies other than its functional currency. Consequently, the Fund is exposed to risks that the exchange rate of its currency relative to other foreign currencies may change in a manner that has an adverse affect on the value of that portion of the Fund s assets or liabilities denominated in currencies other than the Australian Dollar. The Fund's currency risk is monitored on a monthly basis by the Asset Consultant in accordance with the asset allocations as outlined in the Fund's product disclosure statement and investment strategy. This includes monitoring the investment's performance against identified benchmarks. The Fund's investment managers may use derivative financial instruments to reduce risks in the currency markets and to increase or decrease the Fund's exposure to particular investment classes or markets The Fund s major exposure to fluctuations in foreign currency exchange rates through its monetary assets at the balance date was as follows: Fair Value Fair Value Assets USD 62,484,070 18,691,485 EUR 3,774,527 - GBP 3,976,355 - CHF 1,853,247 - JPY 1,539,638 - Other 1,141,190 - Sensitivity analysis The Trustee has determined that for the coming year the reasonably possible change for all currencies is 15% (2015: 15%). A rate increase would decrease the net assets of the Fund by $9,372,614 (2015: $2,803,723) and a rate decrease would increase the assets of the Fund by $9,372,614 (2015: $2,803,723). This analysis assumes that all other variables, in particular interest rates, remain constant. The comparative analysis was performed on the same basis as Page 20

21 21. FINANCIAL INSTRUMENTS (CONTINUED) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The majority of the Fund s financial assets comprise non-interest-bearing and interest bearing financial instruments. Interest-bearing financial assets and interest-bearing financial liabilities mature or re-price due to market changes. As a result, the Fund is subject to exposure to fair value interest rate risk due to fluctuations in the prevailing levels of market interest rates. The Fund also invests in Australian domiciled unit trusts where the underlying investments are in fixed interest securities. The Fund s major exposure to fluctuations in interest rates at balance date was as follows: 2016 Investment Floating Interest Rate Fixed Interest Rate Noninterest bearing Total Cash 7,278, ,278,861 Shares in listed companies ,252,042 57,252,042 Pooled superannuation trusts ,344,215 76,344,215 Units in Unit Trusts - 226,208, ,524, ,733,099 Total 7,278, ,208, ,120,676 1,006,608,217 Weighted average interest rate: 1.75% 2015 Investment Floating Interest Rate Fixed Interest Rate Noninterest bearing Total Cash 10,369, ,369,218 Shares in listed companies ,217,019 14,217,019 Pooled superannuation trusts ,921,765 65,921,765 Units in Unit Trusts - 210,017, ,526, ,543,955 Total 10,369, ,017, ,665, ,051,957 Weighted average interest rate: 2.1% Sensitivity analysis The Trustee has determined that a reasonable possible change in interest rates for the coming year is 175 basis points (2015: 175 basis points). An increase or decrease of 175 basis points in interest rates would have decreased or increased the net assets attributable to members and the change in net assets by $108,273 (2015: $154,242). As the interest rate on the Fund s bank account is a floating rate and varies with market interest rates, any change in interest rates will have no impact on the valuation of the account. The amount of interest the Fund receives after interest rate changes is dependent on the Fund s bank balance in the future. Other market price risk Other market price risk is the risk that the value of the instrument will fluctuate as a result of changes in market prices, whether caused by factors specific to an individual investment, its issuer or all factors affecting all instruments traded in the market. As the Fund s financial instruments are valued at net market value (fair value) with changes in net market value recognised in the Statement of Changes in Net Assets, all changes in market conditions will directly affect investment revenue. Page 21

22 21. FINANCIAL INSTRUMENTS (CONTINUED) Sensitivity analysis The following sensitivity analysis is based upon historical data as supplied by the investment consultant. Possible future market movements may differ significantly from the rates used Investment Change in Variable Change in net assets after tax Change in net assets available to pay benefits Australian Equities 38.3% ±89,398,185 ±89,398,185 Australian Private Equity 22.3% ±8,399,355 ±8,399,355 International Equities 38.5% ±48,954,256 ±48,954,256 International Equities Emerging Market 49.8% ±35,685,114 ±35,685,114 Direct Properties 23.3% ±26,179,661 ±26,179,661 Absolute Return Strategies 22.3% ±2,335,356 ±2,335,356 Australian Fixed Interest 15.4% ±4,830,259 ±4,830,259 International Fixed Interest 15.7% ±9,721,468 ±9,721,468 Infrastructure Units 22.3% ±23,075,924 ±23,075,924 Cash 3.5% ±3,860,581 ±3,860,581 Total ±252,440,159 ±252,440, Investment Change in Variable Change in net assets after tax Change in net assets available to pay benefits Australian Equities 38.3% ±91,692,150 ±91,692,150 Australian Private Equity 20.9% ±5,027,526 ±5,027,526 International Equities 38.5% ±76,611,970 ±76,611,970 Direct Properties 23.3% ±19,214,665 ±19,214,665 Australian Fixed Interest 15.4% ±4,349,115 ±4,349,115 International Fixed Interest 15.7% ±7,647,247 ±7,647,247 Infrastructure Units 20.9% ±22,609,649 ±22,609,649 Cash 3.8% ±4,137,808 ±4,137,808 Total ±231,290,130 ±231,290,130 A positive or negative rate of return equal to the 90% confidence intervals above would have an equal but opposite effect on the Fund s investment revenue, on the basis that all other variables remain constant. Standard deviation is a useful historical measure of the variability of return earned by an investment portfolio. The standard deviations above provide a reasonable sensitivity variable to estimate each investment s expected return in future years. Actual movements in returns may be greater or less than anticipated due to a number of factors, including unusually large market shocks resulting from changes in the performance of the economies, markets and securities in which the underlying trusts invest. As a result, historic variations in rates of return are not a definitive indicator of future variations in rates of return. Page 22