Ann: GENERAL: AUG: Growth In Funds Management Business/Loss of PIE Status

• Release Date: 24/03/16 08:54
• Summary: GENERAL: AUG: Growth In Funds Management Business/Loss of PIE Status
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					AUG
24/03/2016 08:54
GENERAL
PRICE SENSITIVE
REL: 0854 HRS Augusta Capital Limited

GENERAL: AUG: Growth In Funds Management Business/Loss of PIE Status

The continuing success and growth of the Augusta Capital Limited's (ACL)
funds management business has meant it has been valued in a range of $28.0
million - $34.8 million.  A consequence of this, however, is that ACL may no
longer be a Portfolio Investment Entity (PIE) from 1 July 2016.  This loss of
PIE status arises due to the market value of the funds management business
and other subsidiaries exceeding 10% of ACL's total assets.

The key impacts of the loss of PIE status for shareholders are:

o Augusta will need to withhold tax from dividend payments to New Zealand
resident shareholders at up to a level of 33%, as compared to the current
maximum prescribed investor rate of 28%, unless they have a withholding tax
exemption.
o While, imputation credits will continue to be attached up to the maximum
level of 28%, this is dependent on available imputation credits. In recent
times the ACL dividend has been fully imputed as the dividend pay-out ratio
has been approximately 75-80% of operating earnings.
o Based on the current annual dividend of 5 cents per share, the net
effective dividend rate under the non-PIE regime will be 4.64 cents per share
for a shareholder with a 33% withholding tax rate and 33% final tax rate. The
effective dividend for a shareholder, who is a PIE entity themselves, will
remain unchanged.

If the PWC valuation was able to be included in the ACL's audited group
financial statements, the net asset value would increase to between a range
of $1.05 to $1.12 per share.

Further information on the valuation and the PIE criteria is set out below.

Background Information on PIEs

A PIE is a special tax investment entity type which allows for a maximum tax
rate of 28% on income distributed to shareholders.  This means where there
are insufficient imputation credits available, income is passed through to
shareholders as excluded income as the shareholders pay no more tax than ACL
does.  The benefit of PIE status used to be more significant for ACL
shareholders when buildings were depreciable for income tax purposes.  This
benefit ceased when income tax depreciation on buildings was removed from the
law in 2011.

ACL is required to meet certain criteria to maintain PIE status.  The two
tests, as relevant to ACL, are:

(a) Income test - 90% of ACL's income must be derived from an interest in
land, interest, financial arrangements or dividend income. This is a
quarterly test and is satisfied as the income derived from its subsidiaries
(including Augusta Funds Management) is by way of dividend income and rental
income is derived in respect of the directly held property.

(b) Investment test - ACL's investment in Augusta Funds Management Limited
(AFM) and other subsidiaries must be 10% or less of the total asset value
held by ACL. This is a market value test which is tested quarterly. In
respect to the investment test, the market value of the funds management
business and other subsidiaries cannot exceed 10% of the total asset value of
ACL. This test is no longer satisfied given the valuation.

Valuation and impact on net asset value

The reason the balance sheet test is no longer satisfied is that ACL has
commissioned an independent market valuation of the funds management business
which has been produced by PWC. This independent report refers to a valuation
range of $28.0 million - $34.8 million based on a multiple range of 6.0-7.0
times Earnings before Interest Tax, Depreciation and Amortisation (EBITDA).
External bank debt of $7.4 million is currently recorded within AFM which
reduces the effective market value. However, notwithstanding that debt, the
market value is still in excess of the 10% threshold (and now sits at between
16% - 21% of the total asset value of ACL).

The valuation cannot be reflected in ACL's audited group financial statements
as, under applicable accounting standards, intangible assets are not able to
be revalued. However, if this valuation was to be represented, the restated
current net asset value is expected to range from $1.05 to $1.12 per share
which is above the reported net asset value of $0.89 per share as at 30
September 2015.

It is not expected that Augusta will be able to remedy this PIE status loss
within the next quarter ending 30 June 2016 and hence faces a 5 year stand
down period from being a PIE effective from 1 July 2016.  Augusta will
continue to monitor opportunities to regain PIE status if possible.

Current distribution level

Augusta continues to monitor its dividend distribution level on a quarterly
basis with the next dividend expected to be paid in mid-May 2016.

-ENDS-

For further information please contact:

Mark Francis Simon Woollams
Managing Director   Chief Financial Officer
End CA:00279811 For:AUG    Type:GENERAL    Time:2016-03-24 08:54:50