Transforming global infrastructure investment opportunities to deliver long-term value Melbourne, London, New York, Sydney, Singapore www.hastingsinfra.com Hastings Funds Management Limited Level 27, 35 Collins Street Melbourne VIC 3000 Australia ASX Announcement T +61 3 8650 3600 F +61 3 8650 3701 ABN 27 058 693 388 AFSL No. 238309 (HHY) Total pages: 30 27 February 2015 Appendix 4D Report for the half year ended Please find enclosed the following documents: A. Results for announcement to the market B. Commentary on the results C. Financial report for the half year ended D. Independent auditor s report For further enquiries, please contact: Ross Pritchard Chief Operating Officer Tel: +61 3 8650 3600 Fax: +61 3 8650 3701 Email: investor_relations@hastingsinfra.com.au Website: www.hfm.com.au/asxlisted/funds/hhyf/ Simon Ondaatje Head of Investor Relations Hastings Funds Management Tel: +61 3 8650 3600 Fax: +61 3 8650 3701 Email: investor_relations@hastingsinfra.com.au Website: www.hfm.com.au/asxlisted/funds/hhyf/ Jane Frawley Company Secretary Hastings Funds Management Limited Unless otherwise stated, the information contained in this document is for informational purposes only. It does not constitute an offer of securities and should not be relied upon as financial advice. The information has been prepared without taking into account the investment objectives, financial situation or particular needs of any particular person or entity. Before making an investment decision you should consider, with or without the assistance of a financial adviser, whether any investments are appropriate in light of your particular investment needs, objectives and financial circumstances. Neither Hastings, nor any of its related parties including Westpac Banking Corporation ABN 33 007 457 141, guarantees the repayment of capital or performance of any of the entities referred to in this document and past performance is no guarantee of future performance. Hastings, as the Manager or Trustee of various funds, is entitled to receive management and performance fees.
Appendix 4D Report for the half year ended A. Results for announcement to the market Change from prior corresponding period Half year ended ($ 000) Half year ended 2013 ($ 000) Income from ordinary activities Up 26% 2,127 1,684 Profit from ordinary activities after tax attributable to unitholders Up 41% 1,889 1,339 Net profit for the period attributable to unitholders Up 41% 1,889 1,339 Net cashflows from operating activities Down 48% 431 828 Refer to Section B for commentary on the results. (1) Half year ended Half year ended 2013 Special distribution 31 July cents per unit (cpu) 25.8 n/a Record date to determine entitlements to distribution 31 July n/a Payment date for distribution 29 August n/a Price of units issued under HHY s distribution reinvestment plan (1) (DRP) ($) n/a n/a September quarter cash distribution cents per unit (cpu) n/a 3.59 Record date to determine entitlements to distribution n/a 30 September 2013 Payment date for distribution n/a 15 November 2013 Price of units issued under HHY s distribution reinvestment plan (1) (DRP) ($) n/a n/a December quarter cash distribution (cpu) n/a n/a Record date to determine entitlements to distribution n/a n/a Payment date for distribution n/a n/a Price of units issued under HHY s DRP (1) ($) n/a n/a Total cash distributions for the half year (cpu) 25.8 3.59 Franking credits (cpu) - - Total gross distributions for the half year (cpu) 25.8 3.59 The DRP was suspended following the March 2011 distribution and remains suspended. 2013 Net Tangible Asset backing (NTA) per unit $0.24 $0.47 Closing price $0.175 $0.335
Appendix 4D Report for the half year ended B. Commentary on the results Overview During the half year ended, a distribution of 25.8 cents per unit was paid to investors. The payment represents the return of excess cash and was in line with HHY s run-off strategy announced to the market in August 2012. During the half, HHY generated a net profit attributable to unitholders of $1.9 million, an increase from the prior corresponding period. The carrying value of Hyne Timber was increased from $3.9 million to $4.7 million. There were no other impairment events for unlisted debt securities or fair value adjustments to unlisted equity securities during the period. During the period HHY s holding in Maher Terminal's junior floating rate loan was repaid in full in advance of its scheduled maturity. The Group received total proceeds of $21.3 million upon the repayment in full of the original investment. HHY had a residual portfolio of two investments at the end of the period. HHY s net cash flow from operating activities declined 48% percent to $0.4 million for the half year ended. The decline in cash flows is largely reflective of reduced interest income from investments due to the smaller investment portfolio following asset repayments and sales, as well as a lower proportion of cash income from the residual portfolio following the repayment of Maher Terminals. HHY is currently in a taxable loss position, which is expected to continue for the remaining life of the fund. After the end of the period the Manager reached agreement to sell HHY s position in Hyne Timber. With the process of an orderly run-off now substantially complete the Manager intends to actively explore strategies to bring forward the intended wind-up of HHY. HHY distributions Distributions paid to unitholders for the half year ended of 25.8 cents per unit were in line with HHY s strategy of returning all surplus cash to unitholders. During the half year ended 31 December, the following cash distributions were declared: a special distribution of $26.6 million, equating to 25.8 cpu, paid on 29 August ; no distribution was paid for the quarter ended 30 September no distribution was paid for the quarter ended There were no franking credits generated for the half year ended. Distribution guidance As announced to the market in HHY s 2012 financial year results, HHY will not be providing distribution guidance to investors during the run-off of the portfolio. All surplus cash including interest income, asset repayments and sales and will be returned to investors in the respective quarterly distributions. Investment portfolio At, HHY held two investments. The details of each investment are set out below: Investment Instrument Investment Amount $ 000 Cory Environmental Junior Floating Rate Loan 15,315 Hyne Timber Ordinary Equity 4,729 Total 20,044
Appendix 4D Report for the half year ended In addition to the investments above, HHY had a cash balance of $4.9 million as at. Hyne Timber Hyne Timber is a privately owned company based in Queensland and was established in 1882. The company is a fully integrated forestry business with extensive interests in timber processing, wholesaling and exporting. Principal activities include softwood sawmills, timber manufacturing plants and wholesale and distribution outlets. In April 2005, Hyne Timber issued $60 million of exchangeable securities (HYNES) issued to fund capital expenditure, of which HHY purchased $13 million face value. In December 2010, Hyne Timber elected to convert the majority of the HYNES to ordinary equity as permitted under the HYNES terms. The conversion equated to $135 per share. Prior to the current period the asset underperformed, and the Manager valued HHY s interest in Hyne Timber downwards to $37.50 per share. Following recent improvements in performance at the valuation was increased to $45.00 per share. Following the end of the period the Manager entered into an agreement to sell its residual interest in Hyne Timber at a price equivalent to $58.00 per Hyne Timber share. The transaction is subject to the approval of the Hyne Timber Board and other conditions that normally apply to a transaction such as this. Cory Environmental Cory Environmental was acquired by a consortium consisting of ABN AMRO Infrastructure (now EISER Infrastructure), Finpro and Santander Private Equity in March 2007 for 588 million. HHY provided a 7 million participation in a 40 million Junior Floating Rate Loan arranged to part fund the acquisition. The company operates multiple landfill sites, and provides municipal waste collection and recycling services in the United Kingdom, with a focus in London and Essex. During 2013 Cory Environmental commissioned the Riverside Energy from Waste facility in London. Despite a strong performance relative to its budget, Cory is performing below its 2011 restructuring case, particularly with regards to its failure to refinance the Riverside project finance facilities, which prevent any distributions from Riverside passing up to Cory Group level. Riverside and Cory Group Lenders, including HHY, were approached with a restructuring proposal in July. The proposal was rejected and financial advisers have been appointed. Negotiations to agree an acceptable restructuring are ongoing. As part of this restructure process the company has initiated an M&A process. Although there has yet to be any default under the facilities, we maintain a negative outlook. The asset continues to be held at historical cost, but a restructuring process has commenced and that there are a range of uncertain outcomes including the possibility of either a full, partial or nil recovery in due course. Given the negative outlook, HHY no longer hedges Cory against currency movements. Since taking this action the Australian dollar has depreciated against the UK Pound and accordingly the holding value of Cory has increased. Cory s holding value will continue to be affected by any further movements in the two currencies.
Appendix 4D Report for the half year ended Sources of return Returns to unitholders comprise periodic income in the form of interest and gains/(losses) on investments. Net profit attributable to unitholders for the half year ended was derived as follows: (1) Investment Interest & dividends $ 000 Realised & unrealised gains/(losses) (1) $ 000 Total $ 000 Cory Environmental 527 701 1,228 Hyne Timber - 788 788 Maher Terminals 8 57 65 Security revenue 535 1,546 2,081 Cash and other 145 (99) 46 Total revenue 680 1,447 2,127 Other expenses (2) Net profit attributable to unitholders 1,889 Realised gains/(losses) on investments may occur due to mismatches in the maturity of underlying investments and the maturity of related derivative securities used for hedging purposes. Unrealised gains/(losses) occur upon the revaluation of foreign currency denominated investments and the mark-to market of related derivative securities used for hedging purposes and upon the revaluation of equity securities such as Hyne Timber. (238) (2) Includes Responsible Entity management fees of $68,503. Summary & outlook Since the announcement of the change in strategy in the June 2012 annual results, HHY has been delivering on its run-off strategy and returning surplus cash to investors. Investments are being recovered through both repayments and divestment where value can be achieved for investors. Following the divestment of Hyne after the end of the period, HHY s sole remaining asset other than cash is the underperforming Cory Environmental which has entered an uncertain restructuring process. The manager will continue to monitor this position and will actively seek opportunities to exit if value can be achieved. With the process of an orderly run-off now almost complete the Manager will continue to focus on strategies to minimise costs. In addition the Manager intends to actively explore options to accelerate the return of cash to investors and strategies to bring forward the intended wind-up of HHY.
Appendix 4D Report for the half year ended C. Financial report for the half year ended
ARSN 112579129 Consolidated Interim Financial Statements for the half year ended
Directors' Report Directors' Report The directors of Hastings Funds Management Limited as Responsible Entity for present their report together with the consolidated interim financial statements of ('the Scheme'), consisting of the Scheme and the entities it controlled at the end of, or during, the half year ended 31 December (referred to hereafter as 'the Group'). Responsible Entity The Responsible Entity for is Hastings Funds Management Limited (ABN 27 058 693 388). The Responsible Entity's registered office is Level 27, 35 Collins Street, Melbourne, VIC, 3000. Directors The following persons held office as directors of the Responsible Entity during the half year or since the end of the half year and up to the date of this report: Alan Cameron (Chairman) James Evans (Director) Anthony Masciantonio Andrew Day (Alternate Director to Anthony Masciantonio) William Forde (Alternate Director to Alan Cameron and James Evans) Company secretaries The company secretaries of the Responsible Entity in office during the half year and up to the date of the report are Jane Frawley and Jefferson Petch. Principal activities The principal activity of the Scheme was to invest funds in accordance with its investment objectives and guidelines as set out in the Product Disclosure Statement issued on 14 February 2005 (PDS) and in accordance with the provisions of the Scheme's Constitution. In August 2012, the Responsible Entity resolved that the Group would not make any further investments, look to exit existing investment positions and seek to return all surplus cash to unitholders including the proceeds from investment income, principal repayments and sales of investments as part of an orderly run-off and wind down of investment activity. The Scheme did not have any employees during the half year (2013 - nil). There has been no change in the principal activities of the Scheme during the half year. Review and results of operations Results The operating profit after income tax and before finance costs attributable to unitholders for the half year ended was $1,889,000 (2013 - $1,339,000). Distributions During the half year ended, distributions were declared by the Group as follows: a special distribution of 25.8 cents per unit was declared on 31 July and was paid on 29 August. no distribution was declared or paid for the quarter ended 30 September (2013-3.59 cents per unit). no distribution was declared or paid for the quarter ended (2013 - nil). Significant changes in state of affairs In the opinion of the directors, there were no significant changes in the state of affairs of the Group that occurred during the half year. 1
Directors' Report (continued) Matters subsequent to the end of the reporting period On 3 February 2015, the Responsible Entity entered into a share sale agreement to sell the Group's interest in Hyne & Son at a price of $58.00 per share. The expected proceeds from the sale transaction are $6,095,000, compared to the valuation of $4,729,000. The transaction is expected to complete by March 2015 following the satisfaction of the requirements of the share sale agreement. Following completion, the surplus cash from the proceeds of the sale will be returned to unitholders. No other significant events have occurred since the end of the reporting period which would impact on the financial position of the Group disclosed in the Consolidated Statement of Financial Position as at or on the results and cash flows of the Group for the half year ended on that date. Rounding of amounts to the nearest thousand dollars The Group is an entity of a kind referred to in Class Order 98/0100 (as amended) issued by ASIC relating to the 'rounding off' of amounts in the Directors' Report. Amounts in the Directors' Report report have been rounded to the nearest thousand dollars in accordance with that Class Order, unless otherwise indicated. Auditor's independence declaration A copy of the Auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 3. This report is made in accordance with a resolution of the directors of Hastings Funds Management Limited as Responsible Entity for. James Evans Director 27 February 2015 2
Auditor s Independence Declaration As lead auditor for the review of for the half-year ended, I declare that to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the review; and b) no contraventions of any applicable code of professional conduct in relation to the review. This declaration is in respect of and the entities it controlled during the period. Elizabeth O'Brien Melbourne Partner PricewaterhouseCoopers 27 February 2015 PricewaterhouseCoopers, ABN 52 780 433 757 Freshwater Place, 2 Southbank Boulevard, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation.
Consolidated Statement of Comprehensive Income For the half year ended Consolidated Statement of Comprehensive Income 2013 Notes Income Interest income 3 680 1,430 Net gain/(loss) - cash and cash equivalents (96) 353 Net gain/(loss) - securities 4 1,546 (155) Net gain/(loss) - other (3) 56 Total income 2,127 1,684 Expenses Responsible Entity management fees 5 69 143 Audit fees 23 21 Tax fees 11 14 Valuation fees 11 9 Legal fees 14 - Unitholder and investor relations expenses 36 50 Other operating expenses 74 108 Total expenses 238 345 Operating profit/(loss) before income tax and finance costs attributable to unitholders 1,889 1,339 Income tax expense/(benefit) - - Operating profit/(loss) after income tax and before finance costs attributable to unitholders 1,889 1,339 Finance costs attributable to unitholders Distributions to unitholders 7 (26,600) (3,700) (Increase)/decrease in net assets attributable to unitholders 24,711 2,361 Profit/(loss) for the half year - - Other comprehensive income Movement in foreign currency translation reserve 9(c) 17 (21) Total other comprehensive income 17 (21) Other comprehensive income/(loss) attributable to unitholders (17) 21 Total comprehensive income for the half year - - The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 4
Consolidated Statement of Financial Position As at Consolidated Statement of Financial Position 30 June Notes Assets Cash and cash equivalents 4,892 9,790 Receivables 20 380 Securities 8 20,044 39,539 Total assets 24,956 49,709 Liabilities Payables 94 152 Current tax liabilities - 1 Total liabilities (excluding net assets attributable to unitholders) 94 153 Net assets attributable to unitholders - (liability) 24,862 49,556 Represented by: Issued units 9(a) 200,702 200,702 Foreign currency translation reserve 9(c) 85 68 Undistributed profit/(loss) attributable to unitholders 9(d) (175,925) (151,214) Total unitholders' interests 24,862 49,556 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. 5
Consolidated Statement of Changes in Equity For the half year ended Consolidated Statement of Changes in Equity In accordance with AASB132 Financial Instruments: Disclosure and Presentation, unitholders' interests are classified as a liability and accordingly the Group has no equity for financial statement purposes. The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. 6
Consolidated Statement of Cash Flows For the half year ended Consolidated Statement of Cash Flows 2013 Cash flows from operating activities Interest received 742 1,186 Operating expenses paid (311) (349) Income tax paid/(refunded) - (9) Net cash inflow/(outflow) from operating activities 431 828 Cash flows from investing activities Proceeds from sale of unlisted securities - 2,192 Proceeds from repayment of unlisted securities 21,330 23 Proceeds from settlement of derivative securities 11 - Payments for settlement of derivative contracts - (4,071) Net cash inflow/(outflow) from investing activities 21,341 (1,856) Cash flows from financing activities Distributions paid (26,600) (22,356) Net cash inflow/(outflow) from financing activities (26,600) (22,356) Net increase/(decrease) in cash and cash equivalents (4,828) (23,384) Cash and cash equivalents at the beginning of the half year 9,790 32,113 Effects of exchange rate changes on cash and cash equivalents (70) 425 Cash and cash equivalents at the end of the half year 4,892 9,154 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. 7
Notes to the consolidated financial statements 1 General information (the Scheme) was established in Australia under a Constitution dated 19 January 2005 (as amended), with Hastings Funds Management Limited as the Responsible Entity of the Scheme. On 31 July 2007, HHY International Holdings 1 Pty Ltd was incorporated in Australia as a company limited by shares. It has been 100% owned since its date of incorporation by the Scheme. On 13 September 2007, HHY Luxembourg S.à r.l was incorporated in Luxembourg as a company limited by shares. It has been 100% owned since its date of incorporation by HHY International Holdings 1 Pty Ltd. HHY International Holdings 1 Pty Ltd and HHY Luxembourg S.à r.l were established for the purpose of holding the Scheme s European based investments. The diagram below details the structure of the Scheme and its subsidiaries (the Group): The Responsible Entity for is Hastings Funds Management Limited (ABN 27 058 693 388). The Responsible Entity's registered office is Level 27, 35 Collins Street, Melbourne, Victoria, 3000. 8
Notes to the consolidated financial statements (continued) 2 Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated interim financial statements are set out below. These policies have been consistently applied to all reporting periods presented, unless otherwise stated. (a) Basis of preparation The consolidated interim financial statements are general purpose financial statements which have been prepared in accordance with the Scheme's Constitution, the requirements of the Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Act 2001. The consolidated interim financial statements for the half year ended do not include all notes of the type normally included in the annual financial statements. Accordingly, the consolidated interim financial statements should be read in conjunction with the annual financial statements of the Group for the year ended 30 June and any public announcements made by the Scheme and Hastings during the half year ended 31 December in accordance with the continuous disclosure requirements of the Corporations Act 2001. For the purpose of preparing the consolidated interim financial statements, the half year has been treated as a discrete reporting period. The consolidated interim financial statements have been prepared on a historical cost basis, except where otherwise stated. Compliance with AASB 134 Interim Financial Reporting ensures compliance with International Financial Reporting Standard IAS 34 Interim Financial Reporting. The Consolidated Statement of Financial Position is presented on a liquidity basis. Assets and liabilities are presented in decreasing order of liquidity and are not distinguished between current and non current. The functional currency of the Scheme and presentation currency of the Group is Australian Dollars. The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period. The consolidated interim financial statements of the Group for the half year ended were authorised for issue in accordance with a resolution of directors of the Responsible Entity. The directors of the Responsible Entity have the powers to amend and reissue the consolidated interim financial statements. 9
Notes to the consolidated financial statements (continued) 3 Interest income 2013 Cash and cash equivalents 145 222 Unlisted securities 535 968 Derivative securities - 240 Total interest income 680 1,430 4 Net gain/(loss) - securities 2013 Net gain/(loss) - unlisted securities Net gain/(loss) - unrealised 3,444 2,283 Net gain/(loss) - realised (1,912) 10 Total net gain/(loss) - unlisted securities 1,532 2,293 Net gain/(loss) - derivative securities Net gain/(loss) - unrealised 3 1,623 Net gain/(loss) - realised 11 (4,071) Total net gain/(loss) - derivative securities 14 (2,448) Total net gain/(loss) - securities 1,546 (155) 5 Responsible Entity management fees 2013 Responsible Entity management fees 69 143 Total Responsible Entity management fees 69 143 In accordance with the Scheme's Constitution, the Responsible Entity is entitled to a management fee determined at a rate of 0.75% per annum of the market capitalisation of the Scheme. The fee is calculated quarterly and payable quarterly in arrears. 10
Notes to the consolidated financial statements (continued) 6 Responsible Entity performance fee 2013 Responsible Entity performance fee - - Total Responsible Entity performance fee - - The Responsible Entity is entitled to an performance fee in situations where the "Total Unit Holder Return" exceeds the "Benchmark Return" as defined and calculated in accordance with the Scheme s Constitution and the Scheme's PDS dated 14 February 2005. No performance fee was levied by the Responsible Entity for the half year ended (2013 - $nil). 7 Distributions to unitholders 2013 Distributions declared and paid 26,600 3,700 Total distributions to unitholders 26,600 3,700 During the half year ended, distributions were declared by the Group as follows: a special distribution of 25.8 cents per unit was declared on 31 July and was paid on 29 August. no distribution was declared or paid for the quarter ended 30 September (2013-3.59 cents per unit). no distribution was declared or paid for the quarter ended (2013 - nil). 11
Notes to the consolidated financial statements (continued) 8 Securities 30 June Securities Unlisted securities 20,044 39,542 Derivative securities - (3) Total securities 20,044 39,539 Unlisted securities comprise the following holdings: Unlisted debt securities Cory Environmental 15,315 14,313 Maher Terminals - 21,288 Total unlisted debt securities 15,315 35,601 Unlisted equity securities Hyne & Son - (a) 4,729 3,941 Total unlisted equity securities 4,729 3,941 Total unlisted securities 20,044 39,542 Derivative securities comprise the following holdings: Cross currency swaps - (3) Total derivative securities - (3) (a) Unlisted Equity Security Revaluations - Hyne & Son Current Period: The Responsible Entity determined that the fair value of the Hyne & Son ordinary shares was $4,729,000 ($45.00 per share) as at. Refer to Note 10 Fair value measurements for further information. Prior Period: The Responsible Entity determined that the fair value of the Hyne & Son ordinary shares was $3,941,000 ($37.50 per share) as at 30 June. This fair value determination was materially consistent with the fair value determination made by an appropriately qualified independent valuer, KPMG Corporate Finance (KPMG), who valued the ordinary shares at $38.72 per share as at 30 June 2013. No information has been made available to the Responsible Entity since the KPMG independent valuation date that would result in a reassessment of the fair value of the Hyne & Son ordinary shares by the Responsible Entity at 30 June. 12
Notes to the consolidated financial statements (continued) 9 Net assets attributable to unitholders Movements in the number of units and net assets attributable to unitholders during the period were as follows: (a) Issued units 30 June 30 June No. '000 No. '000 Opening balance 103,070 103,070 200,702 200,702 Closing balance 103,070 103,070 200,702 200,702 The movement represents movements for the half year ended. The 30 June movement represents movements for the year ended 30 June. (b) Terms and conditions Each issued unit confers upon the unitholder an equal interest in the Group and is of equal value. A unit does not confer any interest in any particular asset or investment held by the Group. Unitholders have various rights under the Constitution, including the right to: receive income distributions; attend and vote at meetings of unitholders; and participate in the termination and winding up of the Scheme. The rights, obligations and restrictions attached to each unit are identical in all respects. (c) Foreign currency translation reserve 30 June Opening balance 68 40 Movement for the period 17 28 Closing balance 85 68 The movement represents movements for the half year ended. The 30 June movement represents movements for the year ended 30 June. 13
9 Net assets attributable to unitholders (continued) Notes to the consolidated financial statements (continued) (d) Undistributed profit/(loss) attributable to unitholders 30 June Opening balance (151,214) (149,880) Operating profit/(loss) after income tax and before finance costs attributable to unitholders 1,889 2,366 Distributions to unitholders (26,600) (3,700) Closing balance (175,925) (151,214) The movement represents movements for the half year ended. The 30 June movement represents movements for the year ended 30 June. The undistributed loss attributable to unitholders of $175,925,000 comprises the following: Since inception operating profits after income tax of $71,336,000 Since inception distributions to unitholders of $247,261,000 comprising: Since inception income distributions of $78,416,000 Since inception returns of capital of $168,845,000 14
Notes to the consolidated financial statements (continued) 10 Fair value measurements The Group measures and recognises the following assets and liabilities at fair value on a recurring basis: Unlisted equity securities Derivative securities The Group has no assets or liabilities measured at fair value on a non-recurring basis in the current reporting period. (a) Fair value hierarchy (i) Classification of financial assets and financial liabilities AASB 13 Fair Value Measurement requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: (a) quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1); (b) inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (Level 2); and (c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3). Recognised fair value measurements The tables below set out the Group s assets and liabilities measured and recognised at fair value as at 31 December and 30 June. At Level 1 Level 2 Level 3 Total Financial assets Financial assets designated at fair value through profit or loss Unlisted equity securities - - 4,729 4,729 Total - - 4,729 4,729 At 30 June Level 1 Level 2 Level 3 Total Financial assets Financial assets designated at fair value through profit or loss Derivative securities - (3) - (3) Unlisted equity securities - - 3,941 3,941 Total - (3) 3,941 3,938 (ii) Transfers between levels There were no transfers between levels 1, 2 and 3 for recurring fair value measurements during the period. The Group s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period. 15
Notes to the consolidated financial statements (continued) 10 Fair value measurements (continued) (b) Disclosed fair values For all financial assets and liabilties other than those measured at fair value their carrying value approximates fair value. (c) Valuation techniques used to derive Level 2 and Level 3 fair values The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for the Group s unlisted equity securities. Specific valuation techniques used to value financial instruments include: The fair value of forward foreign exchange contracts and cross currency swaps is determined using forward exchange rates at the end of the reporting period. Third party completed or pending transactions are considered the best evidence for the change in fair value, where these are not obtainable, other techniques, such as capitalised earnings methodology, are used to determine the fair value of unlisted equity securities. (d) Fair value measurements using significant unobservable inputs (Level 3) The following tables present the changes in Level 3 items for the Group for the periods ended and 30 June for recurring fair value measurements: Unlisted equity securities Opening balance 3,941 Net gain/(loss) recognised in profit or loss 788 Closing balance 4,729 Total unrealised gains or losses for the year included in the Consolidated Statement of Comprehensive Income for the financial assets and laibiltiies held at the end of the period 30 June 788 Unlisted equity securities Opening balance 4,766 Sale of securities (825) Closing balance 3,941 Total unrealised gains or losses for the year included in the Consolidated Statement of Comprehensive Income for the financial assets and laibiltiies held at the end of the year - 16
Notes to the consolidated financial statements (continued) 10 Fair value measurements (continued) (d) Fair value measurements using significant unobservable inputs (Level 3) (continued) (i) Changes in valuation techniques In the current period the fair value of Level 3 items were determined based on expressions of interest from third parties. In the prior period the fair value of Level 3 items were determined based on a capitalised earnings methodology. (ii) Valuation inputs and relationships to fair value The significant unobservable inputs used in level 3 fair value measurements for the periods ended and 30 June are summarised in the tables below. See (c) above for the valuation techniques adopted. Fair value as at Unobservable Description inputs * Unlisted equity securities 4,729 Other market information - purchase offer 30 June Fair value as at 30 June Unobservable Description inputs * Unlisted equity securities 3,941 Other market information *There were no significant inter-relationships between unobservable inputs that materially affect fair values. (iii) Valuation processes At, the Responsible Entity determined the fair value of the Hyne & Son ordinary shares to be $45.00 per share, that was determined primarily through expressions of interest by third parties. At 30 June, the Responsible Entity determined the fair value of the Hyne & Son ordinary shares to be $37.50 per share, consistent with a purchase offer received in 2013 from the Hyne & Son Ltd Board for a portion of the ordinary shares held by the Group. The Responsible Entity then compared its valuation to an independent valuation of the Hyne & Son ordinary shares at 30 June 2013 conducted by KPMG that was determined primarily through a capitalised earnings methodology. The main level 3 inputs used to derive KPMG's valuation were: The maintainable EBITDA is determined based on the historical growth and volatility of earnings of the unlisted equity security over the last number of years. Capitalisation multiple for unlisted equity securities are estimated based on market information for similar types of companies and transactions. Marketability discount based on the liquidity of an investment or how quickly and certainly it can be converted to cash. At each financial reporting period the fair value of each level 3 security is reconsidered by the Responsible Entity and updated where any new information has become available that may have a material impact on the unlisted equity security s fair value. 17
Notes to the consolidated financial statements (continued) 11 Segment information Operating segments Operating segments are based on the reports reviewed by the Board of Hastings Funds Management Limited (acting in its capacity as the Responsible Entity of the Scheme and the Group) that are, in conjunction with the input and guidance of the Chief Operating Officer of the Scheme and the Group, used to make strategic decisions for the Group. The operating segment is aligned with the investment objectives and guidelines set out in the Scheme's PDS and in accordance with the provisions of the Scheme's Constitution. The Group has one reportable operating segment being the investment in unlisted debt and equity securities. The Responsible Entity takes a broad portfolio construction approach to its investment and divestment activities of securities and to the management of the Group. Accordingly, all operating decisions are based upon analysis of the Group as one operating segment. The reportable operating segment's income consists of interest income, participation fees, consent fees and gains and losses from movements in the value of investments, cash, receivables and borrowings. The segment information reported to the Hastings Board is consistent with the Australian Accounting Standards and therefore consistent with the information included within the interim consolidated financial statements. 12 Earnings per unit Earnings per unit The earnings per unit calculation that is performed in accordance with AASB 133 Earnings per Share results in earnings per unit of nil cents as AASB 133 refers to equity, whilst issued units are classified as debt. The directors believe it is useful to calculate and disclose earnings per unit based on operating profit/(loss) after income tax and before finance costs attributable to unitholders for the half year. Basic operating profit/(loss) after income tax and before costs attributable to unitholders per unit is calculated as operating profit/(loss) after income tax and before finance costs attributable to unitholders for the half year, divided by the weighted average number of ordinary units on issue, adjusted for any bonus element. Diluted operating profit/(loss) after income tax and before costs attributable to unitholders per unit is not materially difference from basic operating profit/(loss) after income tax and before costs attributable to unitholders per unit. 2013 Basic operating profit/(loss) after income tax and before costs attributable to unitholders per unit (cents per unit) Earnings used in calculating basic operating profit/(loss) after income tax and before costs attributable to unitholders per unit () Weighted average number of units on issues ('000) 1.83 1.30 1,889 1,339 103,070 103,070 18
13 Contingent assets and liabilities and commitments Notes to the consolidated financial statements (continued) There are no outstanding contingent assets, liabilities or commitments as at (2013 - $nil). 14 Events after the reporting period On 3 February 2015, the Responsible Entity entered into a share sale agreement to sell the Group's interest in Hyne & Son at a price of $58.00 per share. The expected proceeds from the sale transaction are $6,095,000, compared to the valuation of $4,729,000. The transaction is expected to complete by March 2015 following the satisfaction of the requirements of the share sale agreement. Following completion, the surplus cash from the proceeds of the sale will be returned to unitholders. No other significant events have occurred since the end of the reporting period which would impact on the financial position of the Group disclosed in the Consolidated Statement of Financial Position as at or on the results and cash flows of the Group for the half year ended on that date. 19
Directors' Declaration Directors' Declaration In the opinion of the directors of the Responsible Entity: (a) (b) the consolidated interim financial statements and notes set out on pages 4 to 19 are in accordance with the Corporations Act 2001, including: (i) (ii) complying with Australian Accounting Standards (including Interpretations) and other mandatory professional reporting requirements, the Corporations Regulations 2001 and are in accordance with the Scheme's Constitution; and giving a true and fair view of the Group's financial position as at and of its performance for the half year ended on that date, and there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the directors. James Evans Director 27 February 2015 20
Independent auditor s review report to the unitholders of Report on the Half-Year Financial Report We have reviewed the accompanying half-year financial report of (the Scheme), which comprises the consolidated statement of financial position as at, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the half-year ended on that date, selected explanatory notes and the directors' declaration for (the consolidated entity). The consolidated entity comprises the Scheme and the entities it controlled during that half-year. Directors' responsibility for the half-year financial report The directors of Hastings Funds Management Limited (the responsible entity) are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the half-year financial report that is free from material misstatement whether due to fraud or error. Auditor s responsibility Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Australian Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity s financial position as at and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. As the auditor of Hastings High Yield Fund, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report. A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Independence In conducting our review, we have complied with the independence requirements of the Corporations Act 2001. Conclusion Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of is not in accordance with the Corporations Act 2001 including: a) giving a true and fair view of the consolidated entity s financial position as at and of its performance for the half-year ended on that date; and PricewaterhouseCoopers, ABN 52 780 433 757 Freshwater Place, 2 Southbank Boulevard, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation.
b) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. PricewaterhouseCoopers Elizabeth O'Brien Melbourne Partner 27 February 2015
Appendix 4D Report for the half year ended D. Independent auditor s report The financial report has been reviewed and the report is attached. Refer to Section C.