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...from farm to fork
Corporate Directory
BESTON GLOBAL FOOD COMPANY LIMITED
ACN 603 023 383
Annual Report for the period ended 30 June 2018
INCORPORATION
Incorporated in Australia on 24 November 2014
Executive Chairman
Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
DIRECTORS
Roger Sexton
Stephen Gerlach
Catherine Cooper
Petrina Coventry
Jim Kouts
Ian McPhee
CEO
Sean Ebert
COMPANY SECRETARY
Richard Willson
REGISTERED OFFICE
Level 9, 420 King William St, Adelaide, South Australia 5000
+61 (0)8 8470 6500
PRINCIPAL PLACE OF BUSINESS
Level 9, 420 King William St, Adelaide, South Australia 5000
+61 (0)8 8470 6500
SHARE REGISTER
Link Market Services
Tower 4, Collins Square, 727 Collins St, Melbourne, Victoria 3008
+61 (0)3 9200 4555
Beston Global Food Company Limited shares are listed on the Australian Stock Exchange (ASX)
LEGAL ADVISORS
Minter Ellison
AUDITORS
Ernst & Young Australia
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BOARD OF DIRECTORS
CHAIRMAN’S REVIEW
CHIEF EXECUTIVE’S REVIEW
OUR DIVISIONS & BRANDS
INTERNATIONAL UPDATE
FINANCIAL SUMMARY
CORPORATE GOVERNANCE
THE PATH FORWARD
FINANCIAL REPORT
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Board of Directors
R N Sexton AM
B.Ec. (Hons), M.Ec., PhD (Econ), FAICD,
FAIM, S.F.Fin, C.Univ.
Chairman
Dr Roger Sexton is an investment
banker and company director.
He holds Doctorate and Master’s
Degrees in Economics from North
Carolina State University and an
Honours Degree (First Class) in
Economics from the Flinders
University of South Australia.
He was awarded the Bank of
Adelaide Prize in Economics in
1970 and the American Agricultural
Economics Society Outstanding
Doctoral Program Award in 1976.
Roger has extensive experience and
education in the agricultural sector,
in addition to finance and business
management. Roger has also had 30
years experience overseas, particularly
in China and the Asia Pacific.
Roger is Chairman of the Investment
Manager, Beston Pacific Asset
Management Pty Ltd, KeyInvest Ltd,
and a Director of IBISWorld. He is
a former member of the Australian
Accounting Standards Board.
..
Stephen Gerlach AM
LLB, FAICD
Non-Executive Director
Stephen is Chancellor of Flinders
University, Chair of Adelaide
Capital Partners, Gerlach Asset
Development, Ebony Energy and a
Director of Beston Global Foods and
Beston Pacific Asset Management.
He was formerly the Chair of Santos,
Futuris Corporation, Equatorial
Mining, Elders Australia, Challenger
Listed Investments, Amdel, and
Penrice. He was also a Director of a
number of other public companies
including Southcorp, AMP Australia,
Brunner Mond Holdings and Elders
Rural Bank and a member of other
public companies including ones
located in the UK, USA and Chile.
Stephen was a partner of legal
firm Finlaysons for 23 years and its
Managing Partner from 1985-91. He
has also been involved in a number
of community and professional
associations, including being the
inaugural Chair of Foodbank South
Australia Inc from 1999 to 2014 and
a Director of Foodbank Australia.
.
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Petrina Coventry
B.Ed., M. Phil. (Ethics), MBA, EMBA, FAHRI
Independent
Non-Executive Director
Petrina Coventry is Industry Professor
and Director of Development with the
Adelaide University Faculty of
Professions and Business School. She
previously held Global Vice President
roles with General Electric and Coca
Cola in the United States and Asia and
more recently CHRO with Santos Ltd.
Her experience covers industries
including energy, technology,
education, fast moving consumer
goods and financial services.
Her work in organisational
transformation, company performance
and governance has led to increased
involvement with governments,
industry associations and consulting
groups across the Asian region.
Petrina is an ethicist by background
and completed her PHD with
Melbourne University. She is a Fellow
of the AICD, a Vincent Fairfax Fellow,
and a Non-Executive Director with
the Australasian Association
of Philosophy (AAP).
View of the South Parkland, Adelaide
from the Beston Boardroom
Jim Kouts
BA (Journalism), FAICD
Independent
Non-Executive Director
Ian McPhee AO PSM
B.Bus., B.A, FCPA, FCA
Independent
Non-Executive Director
Catherine Cooper
LLB, GDLP, FAICD
Independent
Non-Executive Director
Jim has served as a senior
executive and non-executive
director in major companies
in the energy, financial service
and business tourism industries
and has also held various senior
positions in the public sector.
He is currently Chair of Home
Start Finance, Chair of the
Adelaide Convention Bureau,
Non-Executive Director of the
Adelaide Venue Management
Corporation and is Strategic
Advisor to Adelaide Airport Ltd.
Through his various roles,
Jim has gained strong commercial
and contract negotiation skills
and has a sound grasp of
governance, strategy and
strategy implementation.
These skills, together with his
extensive insight of air freight
logistics into Asia are invaluable
on the Board.
Ian served as the Auditor General
of Australia until June 2015.
He holds a Bachelor of Business
(Accountancy) degree and a
Bachelor of Arts (Computing
Studies) degree.
Ian is a Fellow of CPA Australia
and a Fellow of Chartered
Accountants Australia and
New Zealand.
He is currently a Member of the
International Ethics Standards
Board for Accountants and a
Distinguished Honorary Professor
at the College of Business and
Economics, Australian National
University, a member of the
Council of Central Queensland
University, and a director of
Ian McPhee Consulting Pty Ltd.
He is the former Deputy Chair
of the Australian Accounting
Standards Board.
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Catherine is an experienced NED
with a portfolio of approximately 50
Board positions. After a professional
career as a commercial lawyer,
Catherine moved into the business
world and developed wide
knowledge and experience across
a broad range of sectors such
as agribusiness, food and health,
energy and water, and technology.
Catherine has been involved in
startups, SME’s, public and private
sectors, ASX listed, and NFP on
a national and international basis.
Career highlights include the
establishment of national joint
venture Rural Bank, awarded Telstra
Business Woman of the Year finalist
twice, inclusion in an international
management program at GE and
winning a position in the AICD’s
ASX Top 200 Chairman’s Mentoring
Program. Catherine is an experienced
Audit Committee Chair and holds
many positions on such committees.
Chairman’s Review
Taking two substantial
dairy factories out of
receivership, rebuilding
the assets, restoring the
export accreditation, and
bringing them back into
commercial production.
The Board of Beston Global Food
Company Limited (ASX: BFC) is
pleased to report on the progress
made across a number of areas
during the 2018 financial year.
Several key milestones in delivering
on the Company’s strategy were
achieved over the year.
Significant investments to ‘build
out’ the asset base and establish a
new level of operations have largely
been completed. The Group is now
putting those investments to work.
The business model which BFC has
implemented from the outset has
been based around a number of
fundamental principles that the
Investment Manager has employed
successfully in other industries.
These include:
Each time we have experienced
a set-back such as this, we have
changed tack, and changed tack
quickly. As our past experience in
building and running companies
has shown, in order to be
innovative and advance forward,
management needs to be willing
to make mistakes from time
to time. It is not acceptable
nevertheless, not to learn
from these mistakes.
A great deal has been achieved
over the last three years across all
areas of the business. These include:
• Increasing sales revenues from
virtually zero at the time of the
listing to $24 million in FY17
and $48 million in FY18.
• Taking two substantial dairy
factories out of receivership,
rebuilding the assets, restoring
the export accreditation, and
bringing them back into
commercial production.
• Acquiring and installing
a state-of-the-art Mozzarella
plant at Jervois and restoring
the cream and butter plant.
• Buying income generating assets
• Building 8 new brands and
at or below their intrinsic
economic value.
• Allocating capital to those
areas where it can generate the
greatest returns (and capitalise
on the benefits of compounding).
• Putting in place initiatives which
can build sustainable revenue
and earnings’ streams over the
longer term.
Like most businesses from time to
time, especially those in start-up
mode we have got things ‘wrong’.
Some were related to events
outside of our control, such as and
importantly, the delayed delivery
in our Mozzarella plant from the
equipment manufacturers.
However, we have done many
things ‘right’ and in a relatively
short space of time.
developing over 50 new and
different product offerings:
Edwards Crossing, Beston Pure,
Kyubu, Fancy Bites, Mables,
Grange Peak, Eight water
and Yarra Valley meats.
• BFC won eleven major awards at
the 2018 SA Dairy Awards- Royal
Adelaide Show including
Champion Cheddar Cheese of
The Show, Champion Hard or
Semi-Hard Cheese Variety other
than Cheddar, Best Innovative
Dairy Product- Fancy Bites and
Champion South Australian
Manufactured Cheese along with
7 other Gold and Silver Awards
taking the total tally for
Champion Gold, Silver, Bronze
and other National Awards,
for its dairy products to 70 since
listing in 2015.
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Chairman’s Review CONTINUED
• Developing OZIRIS/Brandlok
traceability and anti-counterfeiting
technology with eleven
International Patents or
Patents pending.
We have built a company that
Shareholders can be proud of.
We manufacture food and beverage
products that meet the needs
of health-conscious consumers
and promote healthy eating.
We have fulfilled our Vision
of taking the best of Australia’s
premium quality food and
beverages to the consumers
of the world.
To achieve this Vision, we have
implemented a business model
whereby we control the raw
materials that go into our foods,
and control how those materials
are processed into the healthy,
premium quality products that
we offer consumers for purchase.
Through the OZIRIS/Brandlok
technology we are able to ensure
consumers that what they are
going to put in their mouths
is authentic (i.e. is produced by
BFC and is not a ‘fake food’). We are
also able to show consumers the
integrity of the ingredients in our
products and demonstrate them
through the production process,
from the farm to the fork.
As we have previously explained
to Shareholders, BFC is a company
which has been a start-up
(and in high growth mode) over the
relatively short period since listing.
We acquired our dairy
manufacturing business out
of receivership and invested in
three other agri-businesses
(meat, seafood and health/nutrition)
with a view to transforming those
businesses from relatively small,
family owned businesses into
globally focussed companies that
could achieve economies of scale
in their operations and a market
share position within each of their
areas of specialisation which was
of sufficient size as to earn above
average rates of return.
At the core of the Company’s
strategy for the three years
immediately following listing, was
a ‘build-out’ program whereby
BFC would expand the
infrastructure in each of our four
operating divisions (dairy, meat,
seafood, health/nutrition) so as
to achieve this transformation
and enable the Company to
grow and expand while extracting
progressively increasing returns
from the capital employed in
those divisions.
We manufacture
food and beverage
products that meet
the needs of
health-conscious
consumers and
promote healthy
eating.
The classic earnings profile for a
start-up company, whether it be in
the food industry or the technology
industry, or any other industry is a
U-shaped curve where net earnings
are negative initially and fall off
further as the company spends
money on building its business and
then recover as the company gains
tractions and generates returns
on the expenditure made in its
investment phase.
BFC initially sought to avoid this
classic U-shape earning profile by
taking on a Cornerstone Company
Shareholder from China, at its IPO,
which could deliver significant
sales, margins and profits while the
Company went through its planned
three year ‘build-out’ phase.
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A key assumption in our strategy,
as we have explained previously,
was that BFC’s revenues and
earnings during this build-out
period would be underpinned
by sales commitments made
by this Cornerstone Shareholder.
The sales agreements were
supported by letters of assurance
and it was reasonably accepted
that a significant Shareholder would
also wish to protect the value of
its commercial investment in BFC
by honouring its commitments.
As explained to Shareholders
on several occasions, these
commitments were not
subsequently delivered, for reasons
internal to that Shareholder.
Based on the committed orders
and margins applicable, we
estimate that this non-performance
against the supply agreements has
cost BFC more than $25 million in
foregone net profit before tax over
the last three years.
When the purchase commitments
were not delivered, the Board
of BFC resolved to put in place
alternative arrangements to achieve
the ‘build out’ strategy of the overall
BFC business so as to achieve
its objectives and build long-term
Shareholder value.
This has involved the acceleration
of our efforts to generate sales in
the domestic Australian market
rather than relying on the sales
revenues which had been
committed for the China market.
Initially it was expected that around
90% of the sales of the Company
would be derived from China in
each of the three years of the
‘build out’ phase (and the balance
10% from domestic sales), whereas
the reality has been that 90% of our
sales in this financial year has been
derived from the domestic market
in Australia.
2 0 1 8 A N N U A L R E P O R T
To do this, we have focussed
our efforts on:
• Increasing the productive
capacity of our dairy assets
as quickly as possible; and
• Producing the best quality cheese
products as quickly as possible
in order to win awards and build
a market presence.
We believe that this focus on
long-term earnings growth will
derive a greater benefit in terms
of building the wealth of our
Shareholders than a focus
only on short term objectives.
The merits of this approach are
now coming through via the
progress being made in each of
our operating divisions, as listed
under ‘Our Divisions and Brands’
of this report. The steps outlined
in the section ‘The Path Forward’
of this report depicts challenging
however, exciting times ahead
and gives the Board confidence that
we will deliver on our FY19 targets.
I wish to take this opportunity to
thank our Board, team and all our
staff in our Factories and Farms
who work tirelessly to deliver the
best possible outcomes for our
Shareholders and Customers.
I also wish to thank our Investee
Companies; Scorpio, NBI, Aqua
Essence, Ferguson Australia, who
are all part of the Beston family
and most importantly our Farmers
who supply us the freshest milk on
a daily basis, and passionately share
our goals to take the best of Australia’s
dairy products to the world.
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Chief Executive’s Review
Beston Global Food
Company Limited (BFC)
has reported sales revenues
of $47.9 million in FY2017,
a doubling of sales
revenues over the previous
year of $23.8 million.
In our third year as a publicly listed
company we are pleased that
Beston Global Food Company
Limited (BFC) has reported sales
revenues of $47.9 million in FY2017,
a doubling of sales revenues over
the previous year of $23.8 million.
The result comes on the back of
an increase in milk supply, which
is now running at 120 million litres
per annum up by 25% on the
previous year.
Production capacity at our dairy
factories at Murray Bridge and
Jervois, South Australia, have
increased from 10,000 tonnes
per annum to 25,000 tonnes per
annum. Production and sales of
Mozzarella have scaled up from
May 2018 with SQF accreditation
and the win of a large contract
to supply a major Australian
retailer an average of 200 tonnes
per month from August 2018.
Earning results were impacted
substantially by the Mozzarella plant
being six months later than planned
due to unexpected delays from the
plant manufacturer. This was
compounded by impairments in
China resulting in a total statutory
loss of $12.6 million in FY18.
The company contracted supply
of milk at the rate of 90ML pa in
anticipation of the start-up of the
Mozzarella plant in November 2017.
The delay in completing the
construction of the plant then
achieving commercial levels of
production meant that the Company
had to fund a higher level of working
capital during this period. The milk
received between November 2017
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to April 2018 was intended to be
processed into Mozzarella. Instead
it was largely processed into cheddar
and held in inventory for maturation
before sale. This created an
unavoidable delay in the cycle of
conversion of milk supplied into
cash. Funding this higher working
capital requirement came from
new borrowings. The Company’s
opening cash reserves were
largely applied to completing
the Mozzarella project and
funding other operating costs.
The financial result for the FY18
was also impacted by:
• Insurance premiums that
increased by approximately
$1.8 million (i.e. an increase of
250% over the previous year).
A spate of recent fires world-
wide, including the Thomas
Foods fire at Murray Bridge,
have led to insurers re-assessing
the risks to property posed by
EPS panelling leading to a
substantial increase in premiums.
The Company has had
independent consultants review
the factories’ fire protection
systems and is satisfied that
equipment and procedures to
deliver personnel safety are being
appropriately managed. However,
an upgrade of the fire sprinkler
systems, along with other
measures, are being scoped to
further reduce the risk of property
loss in the event of fire and
reduce the insurance premium.
• Write downs of inventory and
receivables in Thailand during
the year totalled $1.0 million
mostly reported in the first half
of FY18 and partly attributable
to exchange rate adjustments.
The statutory financial results
masked the further significant
progress which had been made
during FY18 in building the company’s
platform for long term sustainable
growth and value creation.
2 0 1 8 A N N U A L R E P O R T
These include:
Yarra Valley (Scorpio) meats;
• Increasing sales revenues from
virtually zero at the time of the
listing to $24 million in FY17
and $48 million in FY18;
• Acquiring and installing a
state-of-the-art Mozzarella plant
at Jervois, restoring the cream
and butter plant and restoring
the dairy nutraceuticals plant;
• Building eight new brands and
developing over 50 new and
different product offerings:
Edwards Crossing, Beston Pure,
Kyubu, Fancy Bites, Mables,
Grange Peak, ei8h+ Water and
• Being awarded 70 Champion,
Gold, Silver and Bronze awards
and numerous high-profile
industry awards for BFC’s cheese
products within a space of three
years, as mentioned above.
The key task for management
is to now capitalise on the
achievements of the last three
years to maximise revenues,
margins and profits and resume
dividend payments to Shareholders.
BFC’s success will be largely driven
by the performance of the Dairy
Division. The other components
of the Company’s business
(particularly the meat business)
can be expected to start showing
increasing contributions to profit
as we progress forward. Early in
the FY19, the Scorpio meat business
will be 100% BFC owned and will
be achieving new contracts with
Australia and overseas retailers,
including Aldi and Costco.
BFC’s Board and Management
expresses confidence in FY19, based
on momentum achieved from
completion of the dairy infrastructure
‘build out’ and other growth
initiatives that are now in place.
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Our Divisions and Brands
Several key milestones in delivering
on the Company’s strategy were
achieved over the year. The key
developments in each of the
Divisions are summarised as follows;
• Extended BFC’s Dairy Brand
‘Edwards Crossing’ into the
adult snacking segment through
the launch of ‘Fancy Bites’
into Woolworths nationally.
Dairy Division
• The major $26.5M build-out in
dairy successfully completed and
in full operation with commercial
sales occurring, in May 2018
(as per 1 May 2018 ASX
announcement).
• Overall dairy capacity increased
from 10,000 tonnes (hard cheese)
to 25,000 tonnes capacity.
• New capabilities in Mozzarella,
Hard Cheese and Cream Cheese
has shifted BFC’s capacity into
higher margin products and
increased production of cream
and whey powder which are
in strong demand.
Industry
recognition has
resulted a total
of 70 Champion,
Gold, Silver, Bronze
awards for our
dairy products.
best practice quality standard and
is essential to become a supplier to
many major potential customers.
• A contract to supply a major
Australian retailer an average
of 200 tonnes per month
of Mozzarella, representing
30% of planned FY19 production,
was signed following SQF
accreditation. Supply
commenced in August 2018,
and other new customers steadily
increasing offtake.
• Mozzarella sales since
commissioning have totalled
$3.2 million of which $2.6 million
was in June/July 2018 as
customers began to take
Mozzarella into their range.
• Further Brand recognition
achieved being awarded Australia’s
Best Colby in 2018 to add to
being awarded Australia’s Best
Cheddar in 2017.
• Increased the productivity of the
BFC owned dairy farms’ portfolio
with the expansion of herd over the
FY18 period to around 3,000 herd.
• Milk supply has increased
33% from the previous year
underpinning BFC’s production
and sales plan for the dairy
factories for FY19.
• In June 2018 the plant achieved
the stringent quality accreditation
known as SQF, being the world’s
• Industry recognition has resulted
a total of 70 Champion, Gold, Silver,
Bronze for our dairy products.
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Our Divisions and Brands CONTINUED
2 0 1 8 A N N U A L R E P O R T
Meat Division
• BFC assumed management of
Scorpio Foods Pty Ltd (Scorpio)
in January 2018 (with the
appointment of a new GM
Mr Luke Bramston, formerly
Managing Director of Cater Fair,
a subsidiary of Top Cut Meats)
and has overseen the day-to-day
operations at Scorpio since that
time to drive a transformation
to lift revenues and profits of
this meat processing business.
• Sold Colac, Victoria building and
consolidated production operations
in Shepparton, Victoria including
the conversion of cold storage
facilities to a fully accredited food
processing facility to SQF and
export grade standards.
• Expanded Lamb Shank range into
Aldi under their ‘Farmwood’ brand
and launched Yarra Valley Lamb
Shanks into Costco nationally.
• Increased export sales with supply
for diced cooked beef into a Quick
Service Restaurant (QSR) chain
in Japan as well as on-going
shipments of Sliced Beef Bacon into
the Middle East retail markets.
BFC’s Dairy Brand
‘Edwards Crossing’
was extended into
the adult snacking
segment through
the launch of
‘Fancy Bites’ into
Woolworths
nationally.
• Consolidation of operations
in Shepparton, Victoria has
facilitated cost savings and
production efficiencies which
is enabling higher levels of
production and expansion
of Scorpio’s range of products.
Seafood Division
• Sales of Ferguson Seafood
products shifted into higher
margin markets during FY18
with the introduction of branded
retail packs.
• Ferguson branded frozen retail
packs were introduced into
independent supermarkets
across Australia during the year,
as well as into selected retail
and e-commerce chains in
Hong Kong and China.
• Total Southern Rock Lobster
processed was 440 tonnes,
down slightly on 2017 due
to a compressed fishing season.
• An innovative range of
ready-to-eat sashimi grade retail
tuna packs was developed for
launch in China in August 2018
Health and Nutrition
Division
• A substantial investment was made
by Neptune Bio Innovations (NBI)
during FY18 in upgrading its
manufacturing facilities to bring
more of its products back in-house
and reduce out-services costs.
• NBI successfully launched a
range of its food and consumer
health products; BIOLyte and
La Mayo Brands into major
pharmacy channels with 95%
coverage in Priceline stores,
and Heart Salt into Coles with
over 85% coverage.
• New product line extensions
with the expansion of BIOlyte
range into ready to drink,
effervescent and ice block
formats.
• New product innovation with the
development of the ‘Uricil’ brand
which treats and prevents urinary
tract infections.
• NBI has achieved sales into Asia
during FY18 (notably China and
Vietnam) by working with BFC
and is in advanced discussions
with channel partners in the
Middle East, UK and the USA.
Technology Division
• Heads of agreement entered into
with Datadot Technology Limited
(DDT), to explore the merger of
Beston Technology (BT) with DDT.
• Beston Technology granted US
Patent for the method and
apparatus of determining the
provenance of products.
• Integrated anti-counterfeit
technology into the food labels
of BFC branded products going
into export markets.
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International Update
China
BFC has continued to invest
strategically in growing our
presence in China through creating
brand recognition and establishing
and expanding relationships with
distributors and other key
participants in the China market.
BFC’s brand recognition was
significantly enhanced during the
year with BFC brands appearing
on the shelves of some of China’s
biggest retailers.
Nevertheless, gaining brand
recognition with a direct to retail
approach has proved more costly
than forecast by local management
in China. A net loss of $4.2m
has been reported for the year
for China.
There are no quick wins in China.
It is a market which requires
patience and tenacity. And, of
course, our investments in
developing our China market
do not result in tangible assets for
inclusion in the BFC balance sheet;
the net costs of our China activities
are reported in our P&L.
As we have explained previously,
the Board of BFC has taken
a long-term view on China.
The ChAFTA Free Trade Agreement
is half way through its four-year
transition period such that by 2020,
there will be zero tariffs on
Australian food imports into China.
The younger age groups in China
are seeking out fresher, healthier,
authentic food and beverage
products and have shown a
preference for sourcing these
products from overseas.
The work which has been done
in China to build our relationships
with distributors and achieve brand
recognition is now bearing fruit.
We have achieved access into a
number of retail and food service
markets and have developed good
working relationships with a
number of reliable distributors.
This work has served to establish
the quality credentials of BFC as
a reliable supplier of premium and
consistent quality Australian food
and beverage products and helped
us to move into the market where
we believe that our biggest short-
term opportunity lies namely,
Mozzarella. Since Pizza Hut opened
its first store in China in 1990, the
consumption of pizza (and hence
Mozzarella) has grown dramatically.
In recent months, BFC has
restructured its management team
The work which
has been done in
China to build our
relationships with
distributors and
achieve brand
recognition is now
bearing fruit.
in China and has received purchase
orders and signed contracts for
delivery of a range of dairy and
seafood products.
Of significance amongst these
orders is our first sales of
Mozzarella into the China market.
Penetrating the market in China
for Mozzarella to capitalize on the
rapidly growing demand for pizza
has been a key objective of our
China strategy. Once it became
available from our Jervois plant,
we were able to introduce our
Mozzarella into our established
relationships, conduct consumer
tastings, and procure orders
(for delivery from October 2018
onwards).
The demand for Mozzarella in
China is forecast to treble over the
next few years from around 175,000
tonnes currently to 248,000 tonnes
in 2022. The market has been
dominated by New Zealand
producers over the past 5 years.
With the proven quality of our
Mozzarella cheese and the
recognised presence which we
have established quickly in the
domestic (Australian) market for
pizza and other Italian style foods,
BFC has a significant opportunity
to capture a small, but significant
share of this lucrative and growing
market in China.
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South East Asia
The BFC products that are currently
sold in key retailers in Thailand,
Singapore and Korean markets
using local distributors are; Bulk
20kg Cheddar, Gouda, Kyubu,
Mables and Grange Peak, Edwards
Crossing mild and hard cheeses.
Our food service products that
are widely distributed into the
Horeca category throughout
the key areas of Thailand through
several distributors are;
2Kg Cheddar and Gouda blocks
and 2kg shredded Cheddar.
The quota system which is still
in place in Thailand until the year
2021 has been both a blessing
and a challenge. Strong focus
has been placed on how best
to maximise our advantage over
imported products from other
countries through the importation
of our Beston range during the
January quota window. It has
meant that we need to top load
on stock intended for use over an
extended period. Having available
stock in market however, is an
advantage for us. Converting bulk
stock from Murray Bridge into value
added items in Thailand to cover
demand for food service product
has worked to our advantage and
has also assisted in us being more
cost competitive.
Key highlights over the FY18 include;
• Over $2.1 million AUD revenue
generated throughout the FY18
(which excludes some direct
sales of retail items into
Singapore & Korea);
• A very strong 126% increase
in top line revenue for the 2nd
HY period;
• A substantial reduction in
outgoing expenditure which has
now flatlined into a lean monthly
list of expenses;
• An expanded and growing
customer base which includes
a good number of well
established ‘quality’ distributors;
15
International Update CONTINUED
• Establishment of an integrated
and functioning back office,
administrative, ordering, accounts
and stock reconciliation system
in conjunction with
administration outsourcing;
• Successful importation of 380MT
of stock during the January 2018
quota window which gives us
the stock required to continue
to trade with our customers
consistently through the
remainder of the calendar year;
• Development of products and
markets for new value-added
items using Beston’s cheese;
The quota system
which is still in
place in Thailand
until the year 2021
has been both
a blessing and
a challenge.
• Continued development of
a diverse customer base with
sales going into several different
categories including bulk sales
into food processors and food
manufacturers, sales into
Horeca/Food service as well
as sales into retail.
Malaysia has a young, growing
and broad group of higher
middle-income population.
This encourages the consumption
of imported food products.
There is almost no tariff barrier
for imported food products to
come into the market except for
liquid milk, rice, sugar and alcoholic
products. Food categories such
as meat and dairy are affected
by non-tariff barrier like Halal
(specifically JAKIM certification).
The recent change of government
in Malaysia (9th May 2018) has
contributed to the unsettling of
consumer confidence that has
slowed down the consumption
of imported goods. Retailers
and foodservice operators have
reported a decline in sales as
consumers are becoming more
price conscious and reorganised
their spending habit during this
period. It is hoped that Malaysia
consumer confidence will improve
towards Q3 of 2018, and we shall
expect sales of imported food
products to increase gradually.
Key highlights over the FY18
include;
• Incorporated Beston Global Food
Company (Malaysia) Sdn Bhd and
setting up the business operation
to service Malaysia, Brunei and
other prospective markets;
• Introduced Edwards Crossing and
Kyubu into Malaysia and Brunei;
and
• Increased distribution channels
for BGFC’s product in Malaysia
(new distributors; extending
retail products to foodservice).
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Financial Summary
Group sales revenues for the year
were $47.9 million, an increase
of 101% over FY 2017 sales of
$23.8 million. The increase is due
almost entirely to increased sales
of dairy products in FY18 reflecting
the higher milk supply compared
to FY 2017.
Gross margin on sales was again
strong, averaging 32% across
BFC’s product range.
Despite the strong sales growth,
and solid gross margins, the
Group overall reported a statutory
loss of $12.6 million.
The result is disappointing,
especially against where we
expected the company to be at
this point in its development and
can be attributed, substantially to
timing delays and increased costs
in obtaining delivery of and
installing the Company’s new
Mozzarella plant at Jervois, South
Australia, and unanticipated costs
in China as well as costs associated
with scaling up the Company’s
operations and sales, both
nationally and internationally.
The installation and commissioning
of the Mozzarella plant was six
months later than planned due
to unplanned delays from the
manufacturer. BFC reported that
it had commenced achieving
commercial sales of its Mozzarella
products in May of this year. The
consequence of these delays meant
that approximately two-thirds of
the planned sales of Mozzarella
(and derivative products) in the
second half of FY18 did not occur
as expected. Rather milk supply was
largely diverted into the production
of cheddar and other hard cheeses.
The diversion of milk production
into cheddar, which typically
requires between 3 and 9 months
maturation in storage before
becoming saleable, had four
significant impacts:
• Firstly, during the early part of
FY18, there was reduced volume
of product available for sale as
the increased cheddar stocks
matured;
• Secondly, the high value
by-products of Mozzarella
production, that is cream and
whey, were not produced
during the six months period
as anticipated thereby reducing
margins;
• Thirdly, the prices received
for cheddar when sold into
wholesale markets tend to
be influenced by international
commodity prices, which
fell away in the second half
of the year at the time when
our cheddar became available
for sale; and
• Fourthly, lower production
limited the recovery of indirect
factory costs which were
consequently expensed.
The consequence of the timing
delay in commissioning our new
$26.5 million state-of-the-art
Mozzarella plant, and the flow-on
effects as above, meant that sales
of cheese and related products in
FY18 were substantially below plan.
Moreover, the Company increased
its workforce in the second half
to deal with the installation and
commissioning of the Mozzarella
plant and incurred considerably
more expenditure in this process
than anticipated.
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The sales of cheddar are largely
deferred which is reflected in the
high cheese inventory holding
at 30 June 2018.
The overall impact of higher
expenditures and lower sales and
earned margins in the second half
was to reduce reported profit in
FY18 by $11 million.
In reflecting on the loss incurred
in the FY18, as previously explained
to Shareholders, BFC has had to
embark on its dairy infrastructure
build out, including the installation
of a Mozzarella plant without the
revenue and earnings “cover”
which was to have been provided
from the point of IPO by the sales
commitments from one of the
Company’s IPO cornerstone
investors. Furthermore, the investee
companies in which we hold
minority interests – Ferguson and
Neptune Bio Innovations, have not
performed to the levels expected,
either against previous historical
results or the forecasts prepared
by independent professional firms,
and have therefore not paid
dividends to BFC as expected.
The Ferguson family has initiated
a process to sell the entire
Ferguson fisheries business which
if successful may see BFC also
exit its 32% investment Fergusons
Australia Pty Ltd. At Neptune
Bio-Innovations, the majority
owners are planning to raise
additional funds to finance the
next stage of NBI’s growth,
either via the Company’s brands
or via other options to be put
forward by interested parties.
Corporate Governance
Beston Global Food Company
Limited and the Board are
committed to achieving and
demonstrating the highest
standards of corporate governance.
Beston Global Food Company
Limited has reviewed its corporate
governance practices against the
Corporate Governance Principles
and Recommendations
(3rd edition) published by the ASX
Corporate Governance Council.
The 2018 Corporate Governance
Statement is dated as at 30 June
2018 and reflects the corporate
governance practices in place
throughout the 2018 financial year.
The 2018 Corporate Governance
Statement has been approved by
the Board.
A description of the Company’s
current corporate governance
practices is set out in the
Corporate Governance Statement
which can be viewed at
www.bestonglobalfoods.com.au .
19
The Path Forward
The Directors believe that there
are good reasons to be confident
about the future direction, and
performance, of the Company.
Among them are:
Infrastructure built
We have successfully completed
the infrastructure build-out that
we foreshadowed at the outset
would take 2 to 3 years. We have
done so without the sales revenue
(and profit) support promised
by one of our IPO cornerstone
investors. The hard work has
been done and management is
now building on the foundations
put in place.
Financial performance
on the uplift
Having completed the
infrastructure build-out in its Dairy
Division and having commissioned
the new Mozzarella plant, the
Company has returned to profitable
trading and is cash flow positive.
With the Mozzarella plant up and
running, and producing premium
quality product, we have generated
several new, high margin revenue
streams. We have the flexibility
to channel milk into hard cheese
production (at Murray Bridge)
or into Mozzarella production
(at Jervois) which also produces
high value cream and butter as
by-products. We now have much
higher volumes of whey (and whey
powder) being produced as well as
consequence of our increased milk
throughput. Since the Mozzarella
plant came on stream, BFC has
generated additional revenues
of around $20 million on an
annualised basis.
The result is that the Company
has turned the corner and is
looking at a stronger financial
performance in the year ahead.
Incremental profit opportunities
from completion of the Dairy
infrastructure build-out
The installation of the Mozzarella
plant and the completion of the
dairy infrastructure build-out at
Jervois and Murray Bridge has
provided the opportunity to extract
synergistic operational benefits
between the two plants and achieve
incremental profit at minimal
marginal cost (for example, by
collecting the cheese “fines” which
otherwise pass out of the plant in
the whey liquid and reintroducing
them into the production process
to increase yields).
The Directors
believe that there
are good reasons
to be confident
about the future
direction, and
performance, of
the Company.
The announcement made by the
Company re winning a contract for
the sale of 200 tonnes of Mozzarella
each month from August 2018 with
a major Australian retailer is a
significant milestone. This contract
and securing SQF accreditation, has
endorsed both the quality of the
production process and the quality
of the Mozzarella product now being
produced at our Jervois factory.
The Jervois plant was previously
extremely well known in industry
circles for producing premium
Mozzarella cheese under the brand
name “Caboolture” prior to this brand
being sold by the Receivers. BFC
has replicated this premium quality
into “Edwards Crossing” Mozzarella
now being produced at Jervois.
Brands now well established
Over the past three years, BFC has
built eight new brands and over
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50 different product offerings.
The cost of developing these brands
is reflected in the Company’s P&L
statements and is not recognised
in the balance sheet. BFC’s cheese
products have won 70 Champion,
Gold, Silver and Bronze awards over
this same period in Australian and
international dairy competitions.
The Company’s cheese brands
are now well established in the
domestic retail and wholesale
markets and attracting increasing
interest from the major companies
operating in these markets.
From an investor standpoint, the
brands created by BFC obviously have
value. The higher the sales attributed
to a brand, the higher the value.
Proven capability and agility
in the development of new
products
BFC has shown that it is able
to respond to changing market
conditions and customer needs
very quickly. We have done so, for
example, in developing a flavoured
cheese product for the Asia market
“Kyubu”, creating an adult snacking
product “Fancy Bites” specifically
for this fastest growing segment
of the dairy market and developing
specialty health focussed cheeses
for the rapidly growing Mexican
food chain, Guzman y Gomez.
BFC has demonstrated that it
can be nimble in responding to
customer needs and think outside
the boundaries of our existing
(traditional) markets. This is a
competitive advantage which
our sales team is utilising to win
new customers and markets.
Well positioned in Australia’s
growing food industry
BFC is the largest company in the
Australian dairy industry outside
of the multinationals and the
7th largest in Australia. Significant
recent acquisitions of dairy
companies and assets in Australia,
at high price-earnings multiples,
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The Path Forward CONTINUED
have recognised the increasing
value proposition of the Australian
dairy industry. Acquisition of the
next ten dairy companies, in size,
in Australia would provide less than
half of BFC’s production capacity
and, based on the price-earnings
multiples paid in recent
transactions, cost more than
twice the market capitalisation
of BFC. In addition, BFC has
investments in the meat, seafood
and health and nutrition industries
in Australia.
Point of difference in food
manufacture
BFC was established with a
specific objective of taking healthy,
nutritious, premium quality and
verifiably safe food and beverage
products to the growing consumer
markets of the world. Our
positioning in the market place
with low salt and low fat cheese
and meat products which are free
of artificial colourings, additives,
accelerants or preservatives, has
created a point of difference which
is increasingly being recognised
and appreciated by more health
conscious consumers. Consumers
are looking for more natural foods
that are free from unnatural additives
and that come from trusted
sources. This point of difference
sets us apart from much of the
dietary homogenisation in food
products produced by the large
multi-national food companies.
Poised to switch on Dairy
Protein Extraction plant
When BFC acquired our Jervois
dairy factory, we also separately
acquired the adjoining Dairy
Protein Extraction Plant. Until the
Mozzarella plant was installed and
commissioned, we did not have
sufficient whey liquid to provide
the feedstock to operate this plant.
With the Mozzarella line coming
into production, we now have more
than an adequate supply of liquid
whey to operate the Dairy Protein
Extraction plant on an economic
basis. BFC has, over the last three
years expensed funds to restore
and upgrade the Dairy Protein
Extraction plant in order to produce
three nutraceutical products:
• Lactoferrin (LF)
• Lactoperoxidase (LP)
• Immunoglobulin (IgG)
The nutraceuticals produced from
the fractionation of dairy whey (i.e.
LF, LP and IgG) command relatively
high prices in the market place
and thereby relatively high returns
against the low cost feedstock of
whey liquid, a by-product of cheese
making. BFC anticipates to be in
a position to “switch on” its dairy
protein fractionation towards the
end of this calendar year, assuming
that there is no change in the global
market for dairy nutraceuticals.
Capitalising on our
‘ground work’ in China
The development of our brand
presence in China has been
painstaking and costly over the last
three years. Nevertheless, we have
“stayed the course” because of the
potential dividends: the sheer size
of the market (the largest consumer
market in the world) and the transition
to zero tariffs on Australian food
imports into China by 2020
(ChAFTA Free Trade Agreement).
With the purchase orders and
signed contracts received by BFC
in recent months for a range of
dairy and seafood products, the
China office is expected to more
than cover its costs in the FY19
financial year. Of particular
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significance, amongst these orders
is our first sales of Mozzarella into
the China market. The demand
for Mozzarella cheese is increasing
rapidly in China as the appetite for
pizza grows especially amongst
the nation’s younger groups. BFC
is well placed to capitalise on
this emerging trend in pizza
consumption in China with our
premium Mozzarella as well as by
taking our other food products into
retail and food service markets
in China (i.e. as tariffs come down
and demand goes up).
BFC also recently made its first sale
of Mozzarella into Vietnam, where
similar trends in pizza consumption
are starting to emerge.
Scorpio restructure complete
and under new management
BFC initially held a 40% beneficial
interest in Scorpio Food Pty Ltd
(“Scorpio”) and in early January
2018, entered into an agreement
to take management control and
acquire the whole of Scorpio.
A transformational restructuring
of the business was subsequently
undertaken which has included
the closure of Scorpio’s operations
at Colac, Victoria, the sale of the
Colac building, the consolidation
of all operations at the Scorpio
factory at Shepparton, Victoria
and the appointment of a new
General Manager, Mr Luke
Bramston (formerly Managing
Director of Cater Fair, a subsidiary
of Top Cut Meats).
Under the terms of the buy-out
agreement, BFC received interest
on its convertible notes and loans
to Scorpio during the year until
the acquisition was formally
completed on 22 August 2018.
The work done to transform
and consolidate Scorpio has
significantly improved the financial
viability of the business, the benefits
of which are expected to start to
flow through to BFC by way of
profit contribution in the 2018-19
Consumers are
looking for more
natural foods that
are free from
unnatural additives
and that come from
trusted sources.
financial year. In addition to
increasing sales in traditional
areas of the business, under its
new leadership Scorpio is heavily
focussed on value-added cut
portion control and cooked foods
as part of its forward strategy.
Commercialisation of Beston
Technologies in progress
BFC has previously advised
Shareholders of its intention
to commercialise our Beston
Technologies Pty Ltd (BT) business
to allow it to realise its full potential.
BFC has expended significant funds
to develop its OZIRS/Brandlok
technologies and sees the
opportunity to have the technology
utilised by other food companies to
provide food traceability/assurance
to consumers in Australia, Asia
and elsewhere to combat food
counterfeiting.
In February of this year, BFC
announced a merger with Data Dot
Technology Ltd (DDT) which values
BT at $13 million, reflecting an
independent valuation of BT’s
technology by Deloitte Finance Ltd.
The proposed merger was subject
to a number of provisions,
including due diligence, preparation
of a business plan for the merged
company (MergeCo) and a capital
raising to fund MergeCo.
Late in FY18, the respective Boards
of BFC and DDT resolved that more
work is needed to conclude supply
agreements with key customers
to underpin the revenue base for
MergeCo and support the intended
capital raising. In order to complete
this additional work BFC an
DDT have entered into a joint
venture framework with a view
to enabling a final decision
23
to be taken by late February, 2019.
The cost of food fraud, in the global
economy has been estimated at
over $60 Billion a year. Australia’s
reputation as a supplier of high
quality and safe food and beverage
products has made it a target for
counterfeit products.
BFC believes it is in a unique
position to further commercialise
and extract value from its
investment to date via the track-
and-trace and anti-counterfeiting
technology developed within
Beston Technologies.
Sound financial position
Notwithstanding the disappointing
FY18 statutory financial results,
BFC remains in a sound financial
position.
The Company has put in place
several working capital facilities
during the past financial year
in order to fund the growth in
milk purchases.
At 30 June 2018, the Group had
net borrowings of $16.9 million
comprising total borrowings of
$21.4 million offset by cash held
of $4.5 million. Gearing (net debt/
equity) was a modest 14%.
Mozzarella sales are increasing
significantly through the early
months of the new financial year
and inventory levels are reducing
which is expected to drive a
lower level of working capital
to be funded.
The Group has the capacity to
increase borrowings to fund
expansion activities if required. The
Board considers that net gearing of
up to 30% may be appropriate over
time as the operating cash flow
continues to grow to support that
level of borrowings (in line with the
IPO Prospectus).
Since balance date, the Company
has agreed with its bankers to
restructure its debt into a more
appropriate mix of long-term
and short-term facilities.
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2 0 1 8 A N N U A L R E P O R T
Sales team restructured
with expanded focus in
key market segments
The total sales revenues of BFC
in FY18 doubled over the previous
year (from $23.8 million in FY17
to $47.9 million). Sales are expected
to approximately double again
in this FY19 financial year on the
back of the increased milk supply
and the start-up of the Mozzarella
plant along with improved
performance at Scorpio.
Sales of cheese and related
products from the dairy factories
during January to May averaged
$2.6 million per month. This new
rate has since more than doubled
with July sales from the dairy
factories of $5.5 million. This
will increase again in August with
the commencement of the 200MT
per month Mozzarella supply
contract and continue to grow
with a further take up of our
products by other customers.
With the lift in our overall dairy
production from 10,000 tonnes
per annum (cheddar and other
hard cheeses only) to 24,500 metric
tonnes per annum (Mozzarella and
hard cheeses) our sales team has
been restructured and expanded
in size and breadth to accelerate
our entry into key domestic markets.
Additional sales staff, with extensive
industry experience, have been
appointed in the Eastern States
to provide national coverage
in key market segments, including
retail, distribution, food
manufacturing and quick service
restaurants. The sales action plans
which have been put in place
as part of the restructure of
the sales team recognise the
importance of “walking in the
shoes of our customers” to ensure
that our products as well as our
processes and procedures deliver
on customer expectations.
Our Sales Team is now headed
by David Wilson, Group General
Manager, Sales and Marketing
who has had a highly credentialled
career in the food industry, working
with both multinational and
Australian companies in the food,
beverage and tobacco industries.
Forward contracts have been put in
place to lock in revenues on several
dairy products sold by BFC into the
“food ingredients” industries as a
result of increased market demand
and pricing (e.g., much of the whey
powder produced at our powder
plant has been forward sold to
meet the increase in domestic
consumption of starches for
feedstock due to the drought).
Opportunity to realise
on shareholdings in
investee companies
BFC currently holds shares and/or
other beneficial interests in two
companies - seafood company
Ferguson Australia Pty Ltd and
health/nutrition company Neptune
Bio-Innovations Pty Ltd, which
are currently engaged in separate
sales processes. The reasons for the
decisions by the investee companies
to place themselves on the market
for sale vary in each case.
Ferguson Australia
The Ferguson family has decided
to place their 68% shareholding
in Ferguson Australia Pty Ltd and
other seafood assets on the market
for sale. The sale process is being
conducted by private tender
through a specialist firm appointed
by the Ferguson family.
BFC does not intend ot purchase
the Fergusons’ shareholdings and
depending on the outcome of the
process may exercise its rights
under “drag-along and tag-along”
provisions in the Shareholders
Agreement to exit the investment.
BFC holds lobster licences and the
Five Star seafood processing
property (leased to Ferguson
Australia) which may be sold as
part of the overall sales process.
25
BFC expects to realise at least the
book value of its assets through the
sale process if it exits its investment.
It is the Company’s intention to put
supply agreements in place with
the new owners to access seafood
products for supply to BFC’s
existing markets.
Neptune Bio Innovations
Following the receipt of a number
of unsolicited offers in relation
to their business (and its products),
the major Shareholders of NBI have
resolved to run a formal process
to raise additional funds to finance
the next stage of growth of the
Company’s products and/or invite
offers for NBI and/or its brands,
products and formulations.
Over the last few years, NBI has
developed into an innovative
food and consumer health product
manufacturer with in-house
scientific R&D capabilities with
four brands in market and 17 SKUs.
NBI products are now stocked in an
increasing number of key Australian
grocery and pharmacy chains and
revenues have been growing
quarter by quarter.
Conclusion
With the commissioning of our
Mozzarella plant, the restructuring
of our sales team and other
initiatives as outlined above,
the Board is of the view that
the Company is well on track
to increasing top line revenues,
margins and profits. We have
been building strong relationships
in our domestic markets as well
as overseas. We know that we
have excellent products and
continue to make significant
inroads into our key market
segments. The confidence
of the Board in the future direction
of the Company is underscored
by the fact that a number of the
Directors of BFC have significantly
increased their shareholdings
in the Company over the past
twelve months.
Financial Report
DIRECTORS’ REPORT
AUDITORS’ INDEPENDENT DECLARATION
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTENTS
REVIEW OF OPERATIONS AND ACTIVITIES
DIRECTORS’ DECLARATION
INDEPENDENT AUDITORS’ REPORT TO MEMBERS
ASX ADDITIONAL INFORMATION
27
40
41
47
97
112
113
119
Directors' report
The Directors present their report on the consolidated entity consisting of Beston Global Food Company
Limited and the entities it controlled at the end of, or during, the year ended 30 June 2018. Throughout
the report, the consolidated entity is referred to as the Group.
The following persons were Directors of Beston Global Food Company Limited during the whole of the
financial year and up to the date of this report unless otherwise stated:
Directors
R N Sexton
S Gerlach
P Coventry
J Kouts
I McPhee
C Cooper
Principal activities
During the year the principal continuing activities of the Group consisted of:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
Marketing and distribution of dairy, seafood, meat, wine, water, health and nutrition products into
local and international markets.
Production of milk, cheese and other dairy related products.
Production and processing of meat products.
Development and production of health and well-being focused food, beverage and
pharmaceutical products.
Processing of high pH natural spring water.
Development and commercialisation of end-to-end food traceability and anti-counterfeit
technology.
Development and commercialisation of a premium food e-commerce platform.
Dividends - Beston Global Food Company Limited
There were no dividends provided for during the year ended 30 June 2018 (2017: nil).
Review of operations
Information on the operations and financial position of the Group and its business strategies and
prospects is set out in the review of operations and activities on pages 97 to 111.
There were no significant changes in the state of affairs of the consolidated entity during the year.
Significant changes in the state of affairs
Events since the end of the financial year
On August 23 2018, the Group acquired 100% of the issued shares in Scorpio Foods Pty Ltd, a processor
and exporter of quality meat products, for consideration of $2,747,540 (see note 17).
No other matter or circumstance has arisen since 30 June 2018 that has significantly affected the Group's
operations, results or state of affairs, or may do so in future years.
Likely developments and expected results of operations
Refer to the operating and financial review on pages 97 to 111 for information on likely developments and
future prospects of the Group.
Beston Global Food Company Limited
16
30 June 2018
Directors’ Report
Directors' report
The Directors present their report on the consolidated entity consisting of Beston Global Food Company
Limited and the entities it controlled at the end of, or during, the year ended 30 June 2018. Throughout
the report, the consolidated entity is referred to as the Group.
Directors
The following persons were Directors of Beston Global Food Company Limited during the whole of the
financial year and up to the date of this report unless otherwise stated:
R N Sexton
S Gerlach
P Coventry
J Kouts
I McPhee
C Cooper
Principal activities
During the year the principal continuing activities of the Group consisted of:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
Marketing and distribution of dairy, seafood, meat, wine, water, health and nutrition products into
local and international markets.
Production of milk, cheese and other dairy related products.
Production and processing of meat products.
Development and production of health and well-being focused food, beverage and
pharmaceutical products.
Processing of high pH natural spring water.
Development and commercialisation of end-to-end food traceability and anti-counterfeit
technology.
Development and commercialisation of a premium food e-commerce platform.
Dividends - Beston Global Food Company Limited
There were no dividends provided for during the year ended 30 June 2018 (2017: nil).
Review of operations
Information on the operations and financial position of the Group and its business strategies and
prospects is set out in the review of operations and activities on pages 97 to 111.
Significant changes in the state of affairs
There were no significant changes in the state of affairs of the consolidated entity during the year.
Events since the end of the financial year
On August 23 2018, the Group acquired 100% of the issued shares in Scorpio Foods Pty Ltd, a processor
and exporter of quality meat products, for consideration of $2,747,540 (see note 17).
No other matter or circumstance has arisen since 30 June 2018 that has significantly affected the Group's
operations, results or state of affairs, or may do so in future years.
Likely developments and expected results of operations
Refer to the operating and financial review on pages 97 to 111 for information on likely developments and
future prospects of the Group.
27
Beston Global Food Company Limited
16
30 June 2018
Directors’ Report CONTINUED
Directors' report
Environmental regulation
Beston Pure Dairies Pty Ltd ("BPD") and Beston Farms Pty Ltd ("Beston Farms") operate under separate SA
EPA Environmental licences. These licences impose conditions to regulate activities that have the potential
to harm the environment.
BPD and Beston Farms operate their wastewater discharge to the local sewer system under Trade Waste
licences regulated by SA Water pursuant to section 56 of the Water Industry Act 2012 and Section 28(3) of
the EPA’s Code of Practice for Milking Shed Effluent 2003.
The Trade Waste licence authorises them to discharge trade waste into SA Water’s sewer system in
accordance with the specific terms and conditions set out in the licences.
BPD is also a mandatory reporter under the National Pollutant Inventory legislation, which requires it to
measure and report specific emission to ensure that the community has access to information about the
emission and transfer of toxic substances which may affect them locally.
BPD has appointed a Quality and Environment Manager responsible for the development and
implementation of strategies to meet all of the conditions of the licences. The Work Health & Safety
Coordinator and Maintenance Manager assist in ensuring compliance activities are completed and
maintained.
Group compliance activities include:
•
•
•
•
•
•
Environmental management and emergency response planning
Stormwater retention and release to aquifer procedures at Murray Bridge
Weekly reporting of Murray Bridge trade waste discharge data to SA Water
Periodic sampling and independent testing of trade wastewater discharges from Murray Bridge
Periodic testing of river, bore and wastewater at the Jervois site
Periodic soil testing of the treated wastewater discharge sites around Jervois
Beston Farms, with expanding herds, has initiated a significant capital upgrade program to ensure current
back-up systems (which are compliant) are replaced by upgraded permanent operational requirements,
particularly as it applies to the handling of the volume of waste water generated from the milking shed and
associated yards at all times of the year.
There have been no significant known breaches of the Group's licence conditions or any environmental
regulations to which it is subject.
Beston Global Food Company Limited
30 June 2018
17
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Directors' report
Information on directors
Roger Sexton, AM B.Ec. (Hons), M.Ec., PhD (Econ), FAICD, FAIM, S.F.Fin, C.Univ. Chair - non-executive
Experience and
expertise
Dr Roger Sexton is an investment banker and a company director. He has
extensive experience in the agricultural sector, having worked in senior positions
with the Bureau of Agricultural Economics. Roger also has had extensive
experience overseas and particularly in China and the Asia Pacific, as a result of
leading trade and investment missions to the region for more than 30 years and
from working on investment banking transactions in the region. Roger is actively
engaged in a number of community organisations, including as Chairman and
Principal Patron of the Freemasons Foundation Men's Health Centre at the
University of Adelaide.
Other current
directorships
• Chairman of the Investment Manager, Beston Pacific Asset Management Pty Ltd
• Chairman, KeyInvest Limited
• Director, IBISWorld Pty Ltd
Former directorships in
last 3 years
Roger has served on the Australian Accounting Standards Board and was an
Executive Director of the Industries Assistance Commission (now Productivity
Commission), specialising in rural industries.
Special responsibilities
• Founder of Beston Global Food Company Limited
• Chair of the Board
• Member of audit and risk committee
Interests in shares
Ordinary shares
18,306,215
Stephen Gerlach, AM LL.B, FAICD Non-executive director
Experience and
expertise
Other current
directorships
Stephen Gerlach is a corporate adviser and company director. He was formerly a
Partner and the Managing Partner of Finlaysons Lawyers for 23 years. Stephen is
also the Chancellor of Flinders University of South Australia.
Stephen was a Director and Chairman of Santos Ltd, and Elders Limited, and
Chairman of Equatorial Mining Ltd. Stephen has also been a Director of a number
of other public companies, and has been, and continues to be, involved in many
not for profit professional associations.
• Director of the Investment Manager, Beston Pacific Asset Management Pty Ltd
• Chairman, Ebony Energy Limited
• Chairman, Adelaide Capital Partners Pty Ltd
• Chairman, S Gerlach Pty Ltd
• Director, Gerlach Asset Development Pty Ltd
Former directorships in
last 3 years
-
Special responsibilities
• Member of remuneration and nomination committee
Interests in shares
Ordinary shares
3,476,445
Beston Global Food Company Limited
30 June 2018
18
29
Directors’ Report CONTINUED
Directors' report
Information on directors (continued)
Petrina Coventry, B.Ed., M. Phil. (Ethics), MBA, EMBA, FAHRI Non-executive director
Experience and
expertise
Other current
directorships
Former directorships in
last 3 years
Petrina has spent over twenty years working in Asia, the United States and
Europe in global leadership and director roles with The General Electric
Company, The Coca Cola Company and Procter and Gamble. Her experience
covers multiple industries including energy, technology, education, fast moving
consumer goods and financial services. Her work in organisational
transformation, company performance and governance has led to increased
involvement with governments, industry associations and consulting groups
across the Asian region. Petrina is an ethicist by background, is an Industry
professor at Adelaide University and is completing her PhD with Melbourne
University.
• Director, Australasian Association of Philosophy
• Director, Australian Human Resources Institute
Special responsibilities
• Chair of remuneration and nomination committee
Interests in shares
Ordinary shares
57,142
Jim Kouts, BA (Journalism), FAICD Non-executive director
Experience and
expertise
Jim has served as a senior executive and director in major companies in the
energy, financial service and business tourism industries and has also held
various senior positions in the public sector. Through his various roles, Jim has
gained strong commercial and contract negotiation skills and has a sound grasp
of governance, strategy and strategy implementation. These skills, together with
his extensive insight of air freight logistics into Asia, will be valuable on the
Board.
Other current
directorships
• Chairman, HomeStart Finance
• Director, Adelaide Venue Management Board
• Director, Adelaide Convention Bureau
• Strategic Advisor, Adelaide Airport Limited
Former directorships in
last 3 years
-
Special responsibilities
• Member of audit and risk committee
• Member of remuneration and nomination committee
Interests in shares
Ordinary shares
142,857
Beston Global Food Company Limited
30 June 2018
19
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Directors' report
Information on directors (continued)
Ian McPhee, AO PSM, B.Bus., B.A, FCPA, FCA, GAICD Non-executive director
Experience and
expertise
Ian served as the Auditor-General of Australia until June 2015. He holds a
Bachelor of Business (Accountancy) degree and a Bachelor of Arts (Computing
Studies) degree. Ian is a Fellow of CPA Australia and a Fellow of Chartered
Accountants Australia and New Zealand. He is currently a Member of the
International Ethics Standards Board for Accountants and a Distinguished
Honorary Professor at the College of Business and Economics, Australian
National University. Ian is also a member of the Council of Central Queensland
University. He is the former Deputy Chair of the Australian Accounting Standards
Board.
Other current
directorships
- Director, Ian McPhee Consulting Pty Ltd
Former directorships in
last 3 years
-
Special responsibilities
• Chair of the audit and risk committee
Interests in shares
Ordinary shares
1,000,000
Catherine Cooper, LL.B, GDLP, FAICD Non-executive director
Experience and
expertise
Catherine has a legal and business background with significant expertise in areas
such as strategic planning, leadership, innovation and effective governance
across a broad industry base including agribusiness, food security, finance and
audit, banking and insurance, energy, health and education, and research and
development.
She has previously chaired the SA Fisheries Council, the SA Dairy Regulator, and
The Fleurieu Regional Waste Management Authority, and held directorships at
SA Water, National Agrifoods Skills Council and the National Quarantine Export
Advisory Council.
She is a Commissioner of the Australian Fisheries Management Authority.
Catherine currently chairs GPEX, and The Environment Protection Authority SA,
and is a director of the Australian Egg Corporation Limited.
She has previously held management positions at Fosters Brewing Group, Elders
Limited, and Futuris Corporation.
Catherine was a finalist in both the 1997 and 1998 Telstra Business Women's
Awards.
Other current
directorships
• Commissioner, Deputy Chair, Australian Fisheries Management Authority
• Director, Energy Consumers Australia
• Chair - GPEX- Medical Education and Training
• Director, Environment Protection Agency SA
• Director, Australian Egg Corporation Limited
• Chair, Council Solutions - Shared services/Procurement
• Chair, The Environment Protection Authority SA
Former directorships in
last 3 years
-
Special responsibilities
• Member of the audit and risk committee
Interests in shares
Ordinary shares
355,000
Beston Global Food Company Limited
30 June 2018
20
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Directors’ Report CONTINUED
Directors' report
Company secretary
Mr Willson is an experienced, Non-Executive Director, Company Secretary and CFO with more than 20
years’ experience predominantly within the mining and agricultural sectors for both publicly listed and
private companies.
Mr Willson has a Bachelor of Accounting from the University of South Australia, is a fellow of CPA
Australia, and a Fellow of the Australian Institute of Company Directors.
In addition to his role as Company Secretary of Beston Global Food Company Limited, he is a
Non-Executive Director of Titomic Limited (ASX:TTT), Non-Executive Director of AusTin Mining Limited
(ASX:ANW), Non-Executive Director of the not-for-profit Unity Housing Company, Company Secretary of
1414 Degrees Limited (ASX:14D), Patron Resources Limited, Director and Treasurer of Variety SA, and a
Director and Company Secretary of numerous other private companies. Richard is the Chairman of the
Audit Committee of Titomic Limited and Unity Housing Company, and is the Chairman of the
Remuneration & Nomination Committee of Titomic Limited.
Richard has previously been CFO, Company Secretary and Non-Executive Director of a number of ASX
Listed Companies. He has significant experience with IPOs, back door listings and capital raisings.
Meetings of directors
The numbers of meetings of the Company's Board of Directors and of each Board committee held during
the year ended 30 June 2018, and the numbers of meetings attended by each Director were:
R N Sexton
S Gerlach
P Coventry
J Kouts
I McPhee
C Cooper
12
12
12
12
12
12
A = Number of meetings attended
B = Number of meetings held during the time the Director held office or was a member of the committee
during the year
12
12
12
12
12
12
-
2
2
2
-
-
-
2
2
2
-
-
6
-
-
-
6
6
6
-
-
-
6
6
Beston Global Food Company Limited
30 June 2018
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Directors' report
Remuneration report
The Directors present the Beston Global Food Company Limited 2018 remuneration report, outlining key
aspects of our remuneration policy and framework, and remuneration awarded this year. The
remuneration report has been audited.
The report is structured as follows:
(a)
(b)
(c)
(d)
(e)
(f)
Key management personnel (KMP) covered in this report
Remuneration policy and link to performance
Executive contracts
Remuneration expenses for non-executive KMP
Directors arrangements
Additional statutory information
(a) Key management personnel covered in this report
R N Sexton
S Gerlach
P Coventry
J Kouts
I McPhee
C Cooper
Non-executive Chairman
Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Other key management personnel
S Ebert
D Flew
Chief Executive Officer
Chief Financial Officer
(b) Remuneration policy and link to performance
The Group outsources all of its investment management, valuation, accounting and other administrative
functions to Beston Pacific Asset Management Pty Ltd ("BPAM" or "the Investment Manager"). As such, the
Group does not remunerate any key management personnel employees directly.
The remuneration and nomination committee comprises three non-executive directors. The committee
recommends the director nominees for each annual general meeting and ensures that the audit,
compensation and nominating and corporate governance committees of the Board have the benefit of
qualified and experienced independent directors. The committee makes recommendations to the Board
on remuneration packages and policies applicable to Directors and the management team.
(c) Executive contracts
(i) Management fee
The Group has a formal Investment Management Agreement with BPAM as the Investment Manager to
outsource key management activities for a fee of 1.20% (exclusive of GST) per annum of the Group's
portfolio value. This fee is calculated half yearly and paid monthly with an initial term of 5 years. During
the year ended 30 June 2018, BPAM was paid $2,438,144 under this arrangement (2017: $2,380,498).
(ii) Performance fee
Under the terms of the Investment Management Agreement, BPAM is also entitled to a performance fee
based upon the market capitalisation of BFC and the performance of the BFC’s share price relative to the
ASX All Ordinaries Accumulation Index. In February 2016, the Directors and BPAM agreed that the
commencement date of the performance period would begin from 1 January 2016, with an initial net asset
value of $0.3468 per share. In accordance with this agreement and the performance of BFC, the
Investment Manager would have been entitled to receive a performance fee of nil for the year ended 30
June 2018 (2017: nil).
Beston Global Food Company Limited
30 June 2018
22
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Directors’ Report CONTINUED
Directors' report
Remuneration report (continued)
(c) Executive contracts (continued)
(ii) Performance fee (continued)
The key metrics of the fee are summarised below:
Key metrics
Beston Global Food Company Limited
ASX All Ordinaries Accumulation Index
1 July 2017
$0.225
$54,897.11
30 June 2018
$0.175
$62,434.90
Performance
-22.22%
13.73%
The All Ordinaries Accumulation Index is a benchmark used to measure total investment performance,
and is largely used to compare the performance of professionally managed funds. It is a publicly available
measurement of the trend of price movements, incorporating the dividends paid.
The performance fee is calculated as follows:
A. Market capitalisation
B. Outperformance factor (BFC TSR% - ASX:XAOAI TSR%)
C. Agreed performance fee %
Total performance fee for the 12 months to 30 June 2018:
A x B x C
$77,580,278.47
-35.95%
17.5%
$0.00
Based on the share price performance during the period, no expense has been recognised for the year
ended 30 June 2018.
(d) Link between remuneration and performance
Statutory performance indicators
The following table shows key performance indicators for the group over the last three years:
Profit for the year attributable to owners of ($'000)
Net tangible assets per share (cents)
Share price at year end
Basic earnings per share (cents)
Dividends payments ($'000)
(12,593)
104,585
17.5
(2.8)
-
(7,749)
(1,716.0)
120,572 107,124.0
40.4
(0.5)
2,179
22.5
(182.0)
-
Beston Global Food Company Limited
30 June 2018
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Directors' report
Remuneration report (continued)
(e) Remuneration expenses for non-executive directors
The following table shows details of the remuneration expense recognised for the Group's non-executive
directors for the current and previous financial year measured in accordance with the requirements of the
accounting standards.
R N Sexton
S Gerlach
P Coventry
J Kouts
I McPhee
C Cooper
$
60,000
60,000
40,000
40,000
40,000
40,000
40,000
40,000
40,000
40,000
40,000
32,667
2017
2017
2017
2017
2017
2017
2017
252,667
$
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
$
5,700
5,700
3,800
3,800
3,800
3,800
3,800
3,800
3,800
3,800
3,800
3,103
24,003
$
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
$
65,700
65,700
43,800
43,800
43,800
43,800
43,800
43,800
43,800
43,800
43,800
35,770
276,670
* Short-term benefits as per Corporations Regulation 2M.3.03(1) Item 6
** Post-employment benefits as per Corporations Regulation 2M.3.03(1) Item 7
*** Other long-term benefits as per Corporations Regulation 2M.3.03(1) Item 8
No share-based payment in the form of Founders' Rights options were granted during the year from
Beston Global Food Company Limited (2017: $nil). Refer to part (f)(i) of this remuneration report for further
details.
(f) Director arrangements
The Board has resolved to provide for non-executive Director's fees (per annum) of up to a maximum of
$350,000 in total with effect from Listing.
In addition to earning a Director's fee, a Director may also be paid fees or other amounts as the Directors
determine if a Director performs special duties or otherwise performs services outside the scope of the
ordinary duties of a Director. A Director may also be reimbursed for out of pocket expenses incurred as a
result of their directorship or any other special duties.
Dr Roger Sexton AM
Mr Stephen Gerlach AM
Ms Petrina Coventry
Mr Jim Kouts
Mr Ian McPhee AO PSM
Mr Catherine Cooper
$60,000
$40,000
$40,000
$40,000
$40,000
$40,000
In addition, Directors will be entitled to statutory superannuation.
Dr Sexton and Mr Gerlach are shareholders and Directors of the Investment Manager and as such, may
receive remuneration from the Investment Manager for services provided to the Investment Manager. As
directors, shareholders and employees of the Investment Manager, in their respective capacities, they may
benefit from the entry by the Investment Manager into the Management Agreement with the Company,
through the payment of fees under the Management Agreement.
Beston Global Food Company Limited
30 June 2018
24
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Directors’ Report CONTINUED
Directors' report
Remuneration report (continued)
(f) Director arrangements (continued)
The Company believes that the Management Agreement has been entered into on arm's length terms and
that the remuneration payable to the Investment Manager is reasonable.
(g) Additional statutory information
(i) Reconciliation of options, deferred shares and ordinary shares held by KMP
Share holdings
2018
Name
Ordinary shares
R N Sexton
S Gerlach
P Coventry
J Kouts
I McPhee
C Cooper
S Ebert
Total
Balance at the
start of the
period
Acquired
during the
period
Founders rights
exercised
during the
period
Balance at the
end of the
period
17,853,205
3,476,445
57,142
142,857
400,000
175,000
401,194
22,505,843
453,010
-
-
-
600,000
180,000
916,165
2,149,175
-
-
-
-
-
-
-
-
18,306,215
3,476,445
57,142
142,857
1,000,000
355,000
1,317,359
24,655,018
(ii) Loans to key management personnel
No loans were made to KMP or their related parties during the year.
(iii) Other transactions with key management personnel
Grape Ensembles Co Pty Ltd is beneficially controlled by Dr Sexton. Grape Ensembles Co Pty Ltd holds an
80% interest in a company that owns the BRANDLOK intellectual property associated with brand
protection seals which has been developed as an anti-counterfeiting device. The Company has an option
to purchase Grape Ensembles Co Pty Ltd's 80% shareholding in Brandlock Protection Solutions Pty Ltd
("BBPS"). The purchase price for BBPS has been agreed at the greater of 10 times the net profit after tax of
BBPS; the then market value of the 80% holding of BBPS; and $2,000,000. These rights are exercisable by
the independent Directors of Beston Global Food Company Limited and include tag along and drag along
rights to enable the Company to acquire 100% of BBPS.
Main & Cherry is controlled by a family member of Dr Sexton who has no pecuniary interest in Main &
Cherry. During the year, the Group purchased wine stock from Main & Cherry for export into Asia. The
purchases were made based on normal commercial terms and conditions.
Beston Global Food Company Limited
30 June 2018
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Directors' report
Remuneration report (continued)
(g) Additional statutory information (continued)
(iii) Other transactions with key management personnel (continued)
Aggregate amounts for the above transactions with KMP of Beston Global Food Company Limited:
Amounts recognised as expense
Cost of goods sold
Amounts recognised as assets
Inventory
Amounts recognised as liabilities
Trade payables to Main & Cherry
There were no other transactions with KMP or their related parties during the year.
This is the end of the audited remuneration report.
30 June
2018
$
30 June
2017
$
177,444
1,119,671
684,828
3,796,703
-
4,035,199
Beston Global Food Company Limited
30 June 2018
26
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Directors’ Report CONTINUED
Directors' report
Shares under option
(a) Unissued ordinary shares
As at the date of this report, there were no unissued ordinary shares under option.
No options were granted to the Directors or any of the key management personnel of the Company since
the end of the financial year.
(b) Shares issued on the exercise of options
No founders' rights have been exercised by KMP and non KMP executives during the financial year.
Insurance of officers and indemnities
(a)
Insurance of officers
During the financial year, Beston Global Food Company Limited paid a premium of $31,064 to insure the
Directors and secretaries of the Company and its Australian-based controlled entities, and the general
managers of each of the divisions of the Group.
The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that
may be brought against the officers in their capacity as officers of entities in the Group, and any other
payments arising from liabilities incurred by the officers in connection with such proceedings. This does
not include such liabilities that arise from conduct involving a wilful breach of duty by the officers or the
improper use by the officers of their position or of information to gain advantage for themselves or
someone else or to cause detriment to the Company. It is not possible to apportion the premium between
amounts relating to the insurance against legal costs and those relating to other liabilities.
(b) Indemnity of auditors
Beston Global Food Company Limited has agreed to indemnify their auditors, Ernst & Young Australia, to
the extent permitted by law, against any claim by a third party arising from Beston Global Food Company
Limited's breach of their agreement. The indemnity stipulates that Beston Global Food Company Limited
will meet the full amount of any such liabilities including a reasonable amount of legal costs.
Proceedings on behalf of the company
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring
proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a
party, for the purpose of taking responsibility on behalf of the Company for all or part of those
proceedings.
No proceedings have been brought or intervened in on behalf of the Company with leave of the Court
under section 237 of the Corporations Act 2001.
Beston Global Food Company Limited
30 June 2018
27
38
D
E
T
I
M
I
L
Y
N
A
P
M
O
C
D
O
O
F
L
A
B
O
L
G
N
O
T
S
E
B
2 0 1 8 A N N U A L R E P O R T
Directors' report
Non-audit services
The following non-audit services were provided by the entity's auditor, Ernst & Young Australia. The
directors are satisfied that the provision of non-audit services is compatible with the general standard of
independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of
non-audit service provided means that the auditor independence was not compromised.
Ernst & Young Australia received, or are due to receive, the following amounts for provisions of non-audit
services:
Other assurance services
Total remuneration for other assurance services
Taxation services
Ernst & Young Australia firm:
Tax compliance services
Total remuneration for taxation services
Other services
Total remuneration for other services
2018
$
2017
$
-
-
84,442
84,442
107,204
107,204
-
-
Total remuneration for non-audit services
84,442
107,204
Rounding of amounts
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors' Reports)
Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to the
'rounding off' of amounts in the directors' report. Amounts in the directors' report have been rounded off
in accordance with that Instrument to the nearest thousand dollars, or in certain cases, to the nearest
dollar.
This report is made in accordance with a resolution of Directors.
R N Sexton
Chairman
Beston Global Food Company Limited
30 June 2018
28
39
Beston Global Food Company Limited
ABN 28 603 023 383
Preliminary annual financial report - 30 June 2018
Contents
Financial statements
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated statement of cash flows (direct method)
Notes to the consolidated financial statements
Directors' declaration
Independent auditor's report to the members
Page
31
33
34
35
36
86
87
These financial statements are the consolidated financial statements for the Group consisting of Beston
Global Food Company Limited and its subsidiaries. A list of subsidiaries is included in note 14.
The financial statements are presented in the Australian currency.
Beston Global Food Company Limited is a company limited by shares, incorporated and domiciled in
Australia.
Its registered office is:
Beston Global Food Company Limited
Level 9, 420 King William Street
Adelaide South Australia 5000
Its principal place of business is:
Beston Global Food Company Limited
Level 9, 420 King William Street
Adelaide South Australia 5000
A description of the nature of the consolidated entity's operations and its principal activities is included in
the review of operations and activities on page 1 and in the directors' report on page 16, both of which are
not part of these financial statements.
The financial statements were authorised for issue by the Directors on 28/09/2018. The Directors have the
power to amend and reissue the financial statements.
Through the use of the internet, we have ensured that our corporate reporting is timely and complete. All
press releases, financial reports and other information are available at our Investors' Centre on our
website: www.bestonglobalfoods.com.au
Beston Global Food Company Limited
30
30 June 2018
Ernst & Young
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
Auditor’s Independence Declaration to the Directors of Beston Global
Food Company Limited
As lead auditor for the audit of Beston Global Food Company Limited for the financial year ended 30 June
2018, I declare 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 audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Beston Global Food Company Limited and the entities it controlled during
the financial year.
Ernst & Young
BJ Pollock
Partner
Melbourne
28 September 2018
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
29
Beston Global Food Company Limited
ABN 28 603 023 383
Preliminary annual financial report - 30 June 2018
Contents
Financial Statements
Financial statements
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated statement of cash flows (direct method)
Notes to the consolidated financial statements
Directors' declaration
Independent auditor's report to the members
Page
31
33
34
35
36
86
87
These financial statements are the consolidated financial statements for the Group consisting of Beston
Global Food Company Limited and its subsidiaries. A list of subsidiaries is included in note 14.
The financial statements are presented in the Australian currency.
Beston Global Food Company Limited is a company limited by shares, incorporated and domiciled in
Australia.
Its registered office is:
Beston Global Food Company Limited
Level 9, 420 King William Street
Adelaide South Australia 5000
Its principal place of business is:
Beston Global Food Company Limited
Level 9, 420 King William Street
Adelaide South Australia 5000
A description of the nature of the consolidated entity's operations and its principal activities is included in
the review of operations and activities on page 1 and in the directors' report on page 16, both of which are
not part of these financial statements.
The financial statements were authorised for issue by the Directors on 28/09/2018. The Directors have the
power to amend and reissue the financial statements.
Through the use of the internet, we have ensured that our corporate reporting is timely and complete. All
press releases, financial reports and other information are available at our Investors' Centre on our
website: www.bestonglobalfoods.com.au
Beston Global Food Company Limited
30 June 2018
30
41
Financial Statements CONTINUED
Revenue from continuing operations
Sale of goods
Other revenue
Notes
2
2
30 June
2018
$'000
30 June
2017
$'000
47,877
382
48,259
23,826
728
24,554
Other income
3(a)
2,796
927
Expenses
Cost of sales of goods
Other expenses from ordinary activities
Operating overheads
Selling and distribution
Other
Corporate overheads and business support
Loss from operations
Finance income
Finance expenses
Net finance income
Share of profit/(loss) from associates
Loss before income tax
Income tax benefit
Loss for the period from continuing operations
Other comprehensive income
Exchange differences on translation of foreign operations
Other comprehensive loss for the period, net of tax
(32,657)
(14,438)
(20,360)
(5,027)
(1,819)
(8,648)
(17,456)
1,010
(60)
950
(22)
(16,528)
3,435
(13,093)
(10,461)
(3,106)
(593)
(7,316)
(10,433)
1,247
(172)
1,075
(654)
(10,012)
2,005
(8,007)
245
245
(443)
(443)
3(c)
3(c)
10(a)
4
9(b)
Total comprehensive loss for the period from continuing operations
(12,848)
(8,450)
Loss is attributable to:
Owners of Beston Global Food Company Limited
Non-controlling interests
Total comprehensive loss for the period is attributable to:
Owners of Beston Global Food Company Limited
Non-controlling interests
(12,594)
(499)
(13,093)
(12,349)
(499)
(12,848)
(7,749)
(258)
(8,007)
(8,192)
(258)
(8,450)
42
Beston Global Food Company Limited
30 June 2018
31
2 0 1 8 A N N U A L R E P O R T
Loss per share from continuing operations attributable to the
ordinary equity holders of the Company:
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
Loss per share attributable to the ordinary equity holders of the
Company:
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
20
20
20
20
Cents
Cents
(1.82)
(1.82)
(1.82)
(1.82)
D
E
T
I
M
I
L
Y
N
A
P
M
O
C
D
O
O
F
L
A
B
O
L
G
N
O
T
S
E
B
43
Beston Global Food Company Limited
30 June 2018
32
Financial Statements CONTINUED
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Assets classified as held for sale
Total current assets
Non-current assets
Receivables
Investments
Property, plant and equipment
Biological assets
Deferred tax assets
Intangible assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Borrowings
Current tax liabilities
Employee benefit obligations
Total current liabilities
Non-current liabilities
Deferred tax liabilities
Employee benefit obligations
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Other reserves
Accumulated losses
Capital and reserves attributable to owners of Beston Global Food
Company Limited
Notes
5(a)
5(b)
6(d)
7
5(b)
14(c)
6(a)
6(b)
6(c)
6(e)
5(c)
5(d)
4(a)
6(f)
6(c)
6(f)
9(a)
9(b)
9(c)
30 June
2018
$'000
30 June
2017
$'000
4,463
26,630
22,604
10,136
63,833
5,849
11,558
55,853
4,880
8,351
8,360
94,851
28,702
18,605
11,660
1,999
60,966
977
16,275
44,224
4,400
5,899
13,568
85,343
158,684
146,309
14,027
21,444
45
230
35,746
1,576
70
1,646
9,818
-
-
137
9,955
2,189
25
2,214
37,392
12,169
121,292
134,140
147,535
(237)
(26,192)
147,535
(482)
(13,598)
121,106
133,455
Non-controlling interests
14(b)
186
685
Total equity
121,292
134,140
44
Beston Global Food Company Limited
30 June 2018
33
2 0 1 8 A N N U A L R E P O R T
D
E
T
I
M
I
L
Y
N
A
P
M
O
C
D
O
O
F
L
A
B
O
L
G
N
O
T
S
E
B
Attributable to owners of
Beston Global Food Company Limited
Share capital
$'000
Other
reserves
$'000
Accum-
ulated
losses
$'000
Non-
controlling
interests
$'000
Total
$'000
Total
equity
$'000
Balance at 1 July 2016
113,472
5,569
(3,670)
115,371
943
116,314
Profit/(loss) for the period
Other comprehensive income/(loss)
Total comprehensive income for the period
-
-
-
-
(443)
(443)
(7,749)
-
(7,749)
(7,749)
(443)
(8,192)
(258)
-
(258)
(8,007)
(443)
(8,450)
Transactions with owners in their capacity as
owners:
Contributions of equity, net of transaction costs
and tax
Dividends provided for or paid
Founders' Rights share reserve
28,455
-
5,608
34,063
-
-
(5,608)
(5,608)
-
(2,179)
-
(2,179)
28,455
(2,179)
-
26,276
-
-
-
-
28,455
(2,179)
-
26,276
Balance at 30 June 2017
147,535
(482)
(13,598)
133,455
685
134,140
Profit/(loss) for the period
Other comprehensive income/(loss)
Total comprehensive income for the
period
9(c)
9(c)
-
-
-
-
245
245
(12,594)
-
(12,594)
(12,594)
245
(12,349)
(499)
-
(499)
(13,093)
245
(12,848)
Balance at 30 June 2018
147,535
(237)
(26,192)
121,106
186
121,292
45
Beston Global Food Company Limited
30 June 2018
34
Financial Statements CONTINUED
Cash flows from operating activities
Receipts from customers (inclusive of goods and services tax)
Payments to suppliers and employees (inclusive of goods and services
tax)
xxx
Interest paid
Income taxes paid
Interest received
Net cash (outflow) from operating activities
Cash flows from investing activities
Payments for acquisition of businesses, net of cash acquired
Proceeds from sale of business
Payments for property, plant and equipment
Payments for intangible assets
Loans to related parties
Proceeds from sale of property, plant and equipment
Repayment of loans by related parties
Advances and redemptions of convertible notes
Payments for livestock
Proceeds from sale of livestock
Net cash (outflow) from investing activities
Cash flows from financing activities
Proceeds from issues of shares
Transaction costs on issue of shares
Proceeds from borrowings
Dividends paid to Company's shareholders
Proceeds from government grants
Loans (to)/from related parties
Net cash inflow from financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of period
30 June
2018
$'000
30 June
2017
$'000
Notes
48,043
34,497
(77,945)
(46,373)
(60)
-
185
(29,777)
-
(104)
(13,672)
(711)
(4,270)
1,998
-
-
(728)
371
(17,116)
-
-
21,444
-
1,104
(213)
22,335
(24,558)
28,702
319
4,463
(145)
(367)
801
(11,587)
(764)
-
(8,325)
(1,587)
-
-
(250)
4,737
(758)
819
(6,128)
28,823
(368)
-
(2,179)
1,172
66
27,514
9,799
19,372
(469)
28,702
10(a)
13
6(a)
6(e)
6(b)
9(a)
9(a)
5(d)
12(b)
5(a)
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
46
Beston Global Food Company Limited
30 June 2018
35
Notes to the Consolidated
Financial Statements
Contents of the notes to the consolidated financial statements
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
Segment information
Revenue
Other income and expense
Income tax benefit
Financial assets and financial liabilities
Non-financial assets and liabilities
Assets held for sale
Impairment
Equity
Cash flow information
Financial risk management
Capital management
Business combination and disposals
Interests in other entities
Contingent liabilities and contingent assets
Commitments
Events occurring after the reporting period
Related party transactions
Remuneration of auditors
Earnings per share
Parent entity financial information
Summary of significant accounting policies
47
Page
48
50
51
52
54
56
62
63
65
67
68
71
71
72
76
76
76
77
79
80
81
82
Notes to the Consolidated Financial Statements CONTINUED
1 Segment information
(a) Description of segments
The Group's executive management committee, consisting of the Chief Executive Officer and the Chief
Financial Officer, examines the Group's performance both from a product and geographic perspective and
has identified four reportable segments of its business:
•
•
•
•
The Dairy division which owns farms and production plants and uses milk to produce cheese and
other dairy products.
The Seafood division is focused on sourcing and supplying high quality seafood to the markets.
The Health division targets innovative products for health conscious markets.
The Meat division brings high quality and innovative meat products to expanding markets.
The executive management committee monitors the operating results of its business units separately for
the purpose of making decisions about resource allocation and performance assessment. Segment
performance is evaluated based on operating profit or loss and is measured consistently with profit or loss
in the consolidated financial statements.
During the year, management reassessed the identified reportable segments reported to the executive
management committee and that the segment disclosure, including comparatives were updated to reflect
this.
(2) Segment results
The segment information provided to the executive management committee for the reportable segments
for the year ended 30 June 2018 is as follows:
2018
$'000
$'000
$'000
$'000
$'000
Sale of goods
Other revenue
Finance income
Share of profit/(loss) from associates
Total revenue
44,292
382
33
-
44,707
Cost of sales
Operating overheads
Selling and distribution
Other expenses
Corporate overheads and business
support
Finance costs
Segment profit/(loss)
(26,639)
(16,438)
(3,285)
(141)
(1,218)
-
(47,721)
(3,014)
(3,014)
295
436
-
(22)
709
(293)
-
-
-
(1)
-
(294)
415
415
843
100
61
-
1,004
(1,032)
-
(86)
(129)
(516)
(62)
(1,825)
(821)
(821)
399
-
485
-
884
(342)
-
-
-
-
-
(342)
542
542
47,304
(50,182)
2,048
2,260
431
-
4,739
(4,351)
(3,922)
(1,656)
(1,549)
(6,913)
2
(18,389)
(13,650)
(13,650)
52,043
(68,571)
Total segment assets
131,624
10,609
14,733
2,831
159,797
(1,113)
158,684
Total assets includes:
Capital expenditure
Total segment liabilities
13,540
(31,396)
-
(8)
78
(1,039)
-
-
(32,443)
54
(4,949)
(37,392)
48
Beston Global Food Company Limited
30 June 2018
37
D
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T
I
M
I
L
Y
N
A
P
M
O
C
D
O
O
F
L
A
B
O
L
G
N
O
T
S
E
B
2 0 1 8 A N N U A L R E P O R T
1 Segment information
(2) Segment results (continued)
There was no impairment charge or other significant non-cash item recognised in 2018.
The segment information provided to the executive management committee for the reportable segments
for the year ended 30 June 2017 is as follows:
2017
$'000
$'000
$'000
$'000
$'000
$'000
$'000
Sale of goods
Other revenue
Finance income
Share of profit/(loss) from associates
Total revenue
19,520
359
389
-
20,268
Cost of sales
Operating overheads
Selling and distribution
Other expenses
Corporate overheads and business
support
Finance costs
(10,726)
(4,839)
(1,179)
(147)
(2,990)
(62)
(19,943)
571
424
-
(274)
721
(509)
-
(215)
-
(345)
-
(1,069)
770
18
26
(380)
434
(599)
-
(355)
(22)
(915)
(27)
(1,918)
2,206
18
273
-
2,497
(2,341)
-
(318)
(66)
(906)
-
(3,631)
23,920
(26,561)
Operating profit/(loss)
325
(348)
(1,484)
(1,134)
759
836
559
-
2,154
(263)
(5,622)
(1,039)
(358)
(2,160)
(83)
(9,525)
(7,371)
26,074
(36,086)
Segment profit/(loss)
325
(348)
(1,484)
(1,134)
(7,371)
xxx
Total segment assets
Total assets includes:
Capital expenditure
Total segment liabilities
145,804
17,385
20,799
7,182
191,170
(44,861)
146,309
7,921
(72,597)
-
(9,932)
404
(2,738)
-
(2,598)
(87,865)
-
75,696
(12,169)
There was no impairment charge or other significant non-cash item recognised in 2017.
49
Beston Global Food Company Limited
30 June 2018
38
Notes to the Consolidated Financial Statements CONTINUED
2 Revenue
The Group derives the following types of revenue:
Sales revenue
Other revenue
Leasing income
Management fees
Total revenue
30 June
2018
$'000
30 June
2017
$'000
47,877
23,826
382
-
382
708
20
728
48,259
24,554
(a) Recognising revenue from major business activities
Revenue is recognised for the major business activities using the methods outlined below.
(i) Sale of goods
Revenue from the sale of goods in the course of the ordinary activities is measured at the fair value of the
consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue for sale
of goods is recognised when the significant risks and rewards of ownership have been transferred to the
buyer, recovery of the consideration is probable, the associated costs and possible return of the goods can
be estimated reliably, there is no continuing involvement with goods, and the amount of revenue can be
measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably,
then the discount is recognised as a reduction of revenue as the sales are recognised.
Transfer of risks and rewards varies depending on the individual terms of the contract of sale. For exports
of finished goods these criteria are met at the time the product is shipped and delivered to the customer
and title and risk have passed to the customer (depending on the delivery conditions) and acceptance of
the product has been obtained. Examples of delivery conditions are ‘Free on Board point of delivery’, ‘Costs
and Freight point of delivery’, ‘Costs, Freight and Insurance point of delivery’, where the point of delivery
may be the shipping warehouse or any other point as agreed in the contract with the customer and where
title and risk for the goods pass to the customer.
For products for which a right of return exists during a defined period, revenue recognition is determined
based on the historical pattern of actual returns and internal quality reviews. Return policies are typically
based on customary return arrangements in local markets.
In case of loss under a sales agreement, the loss is recognised immediately.
(ii) Revenue from services
Revenue from services is recognised when the Group can reliably measure the amount of revenue and the
associated cost related to the stage of completion of a contract or transaction, and the recovery of the
consideration is considered probable.
(iii) Other revenue
See note 22(e) for the recognition and measurement of other revenue.
50
Beston Global Food Company Limited
30 June 2018
39
D
E
T
I
M
I
L
Y
N
A
P
M
O
C
D
O
O
F
L
A
B
O
L
G
N
O
T
S
E
B
2 0 1 8 A N N U A L R E P O R T
3 Other income and expense items
(a) Other income
Net gain on disposal of business
Fair value adjustment to biological assets
Other items
Government grants
(b) Break down of expenses by nature
Changes in inventories of finished goods and work in progress
Raw materials and consumables used
Employee benefits expenses
Depreciation and amortisation
Management fees
Operating lease expense
Fair value (gain)/loss on revaluation of assets held for sale
(c) Finance income and costs
Finance income
Interest income
Net exchange gains
Finance income
Finance costs
Finance charges paid for financial liabilities
Net exchange losses
Net finance costs
Notes
13
30 June
2018
$'000
30 June
2017
$'000
1,419
123
1,071
183
2,796
-
-
90
837
927
30 June
2018
$'000
30 June
2017
$'000
Notes
(3,764)
36,290
11,785
2,063
2,422
1,015
-
(1,191)
14,895
6,813
713
2,380
684
218
30 June
2018
$'000
30 June
2017
$'000
846
164
1,010
(60)
-
(60)
950
1,247
-
1,247
(145)
(27)
(172)
1,075
7
Notes
11(a)
51
Beston Global Food Company Limited
30 June 2018
40
Notes to the Consolidated Financial Statements CONTINUED
4 Income tax benefit
(a) Income tax benefit
Current tax
Current tax
Total current tax expense
Deferred income tax
(Increase) decrease in deferred tax assets
Increase (decrease) in deferred tax liabilities
Prior year adjustment
Total deferred tax expense/(benefit)
30 June
2018
$'000
30 June
2017
$'000
Notes
45
45
(2,870)
(610)
-
(3,480)
(469)
(469)
(1,803)
310
(43)
(1,536)
6(c)
6(c)
Income tax benefit
(3,435)
(2,005)
(b) Numerical reconciliation of income tax expense to prima facie tax payable
Loss from continuing operations before income tax
Tax at the Australian tax rate of 30.0% (2017 - 30.0%)
Tax effect of amounts which are not deductible (taxable)
in calculating taxable income:
Research and development adjustments (net)
Entertainment
Share of profit/loss from associates
Tax rate differentials and non-recognition of foreign DTA's
Overseas entity CFC Profits
Prior year under/over
Impact of disposal of Beston Dalian
Sundry items
Fair value revaluation on Assets held for sale
Income tax benefit
(c) Amounts recognised directly in equity
Aggregate current and deferred tax arising in the reporting period and not
recognised in net profit or loss or other comprehensive income but directly
debited or credited to equity:
Deferred tax: share issue costs
30 June
2018
$'000
(4,958)
(176)
11
7
2,092
16
-
(426)
(1)
-
(3,435)
30 June
2017
$'000
(10,012)
(3,004)
388
-
198
227
112
(49)
-
58
65
(2,005)
30 June
2018
$'000
30 June
2017
$'000
-
(177)
52
Beston Global Food Company Limited
30 June 2018
41
D
E
T
I
M
I
L
Y
N
A
P
M
O
C
D
O
O
F
L
A
B
O
L
G
N
O
T
S
E
B
2 0 1 8 A N N U A L R E P O R T
4 Income tax benefit
(d) Tax losses
Unused tax losses for which no deferred tax asset has been recognised
Potential tax benefit @ 30.0%
30 June
2018
$'000
7,211
2,163
30 June
2017
$'000
170
51
The unused tax losses were incurred by a foreign subsidiary that is not part of the Australian tax
consolidated group. The Directors have not recognised a deferred tax asset in relation to the tax losses on
the basis that the entity is still in its establishment phase. See note 6(c) for information about recognised
tax losses and significant judgements made in relation to them.
5 Financial assets and financial liabilities
(a) Cash and cash equivalents
Cash at bank and in hand
(b) Trade and other receivables
Trade receivables
Provision for impairment (see note
11(b))
Receivables from related parties
Other receivables
Prepayments
Goods and services tax (GST)
receivable
Convertible notes receivable (ii)
30 June
2018
$'000
30 June
2017
$'000
4,463
28,702
Current
$'000
14,104
(24)
14,080
-
6,133
1,100
2,569
2,748
26,630
Non-
current
$'000
-
-
-
-
5,849
-
-
-
5,849
Total
$'000
Current
$'000
14,104
7,555
(24)
14,080
-
11,982
1,100
2,569
2,748
32,479
(42)
7,513
-
504
4,107
3,733
2,748
18,605
30 June
2017
Non-
current
$'000
-
-
-
14
963
-
-
-
977
Total
$'000
7,555
(42)
7,513
14
1,467
4,107
3,733
2,748
19,582
(i) Loans and receivables
This category is the most relevant to the Group. Loans and other receivables are non-derivative financial
assets with fixed or determinable payments that are not quoted in an active market. If collection of the
amounts is expected in one year or less they are classified as current assets. If not, they are presented as
non-current assets. Trade receivables are generally due for settlement within 90 days and therefore are all
classified as current. The Group’s impairment and other accounting policies for trade and other
receivables are outlined in notes 11(b) and 22(l) respectively. This category generally applies to trade and
other receivables.
$6.1 million of the Other Receivables (current) balance is due from Scorpio Foods Pty Ltd, and has been
reviewed further at note 17.
53
Beston Global Food Company Limited
30 June 2018
42
Notes to the Consolidated Financial Statements CONTINUED
5 Financial assets and financial liabilities
(b) Trade and other receivables (continued)
(ii) Convertible notes receivable
On 25 August 2015, the Group entered into a convertible note with potential to acquire a 40% interest in
Scorpio Foods Pty Ltd for an amount of $2,400,000. This note was issued at a 9.5% interest rate, and at the
discretion of the Group, may be converted to that number of ordinary shares which equate to 40% of the
issued capital of the investee.
Convertible notes are treated as loans and receivables, and carried at amortised cost.
On 11 August 2016, the Group entered into an additional convertible note with Scorpio Foods Pty Ltd for
an amount of $300,000. The note was issued at a 9.5% interest rate and converts to that number of shares
which equates to 5% of the issued capital of the investee. The Group may convert the note at its discretion.
The Directors consider the embedded derivative component of the convertible notes are not material and
therefore it has not been separately brought to account on inception. At balance date, the Directors also
consider the movement in the fair value of the embedded derivative not to be material.
On 23 August 2018, the Group formally acquired 100% of the shares of Scorpio Foods Pty Ltd (“Scorpio”)
pursuant to a Heads of Agreement as advised to market in its ASX release dated 8 February 2018. This
action completes the transition of the Group’s position from a key financial investor in Scorpio to holding
a controlling interest.
Scorpio is a further processor of meats, specialising in developing product solutions for customers. The
Group acquired Scorpio because it significantly enlarges the Group’s operations within the Meat segment.
The acquisition-date fair value of the total consideration transferred was $2.7 million, being the fair value
of convertible notes forgiven on acquisition. In connection with the acquisition the Group also acquired
Scorpio’s Shepparton property for consideration of $5.95 million.
For further information on the fair value of the convertible note, refer to note 17.
(iii) Fair value of trade and other receivables
Due to the short-term nature of the current receivables, their carrying amount is assumed to be the same
as their fair value. For non-current receivables, the fair values are also not significantly different to their
carrying amounts.
(iv) Impairment and risk exposure
Information about the impairment of trade and other receivables, their credit quality and the Group’s
exposure to credit risk, foreign currency risk and interest rate risk can be found in note 11.
(c) Trade and other payables
Current liabilities
Trade payables
Amounts due to associates
Goods and services tax (GST) payable
Accrued expenses
Government grants
Payroll liabilities
Other payables
30 June
2018
$'000
30 June
2017
$'000
7,582
-
344
3,072
1,041
247
1,741
14,027
4,607
213
1,930
1,243
120
411
1,294
9,818
Trade payables are unsecured and are usually paid within 30 days of recognition.
54
Beston Global Food Company Limited
30 June 2018
43
2 0 1 8 A N N U A L R E P O R T
5 Financial assets and financial liabilities
(c) Trade and other payables (continued)
(i) Fair value of trade and other payables
The carrying amounts of trade and other payables are considered to be the same as their fair values, due
to their short-term nature.
D
E
T
I
M
I
L
Y
N
A
P
M
O
C
D
O
O
F
L
A
B
O
L
G
N
O
T
S
E
B
(d) Borrowings
Milk supply facility
Financing facility
Hire purchase
Insurance Loan
Interest rate
%
Maturity
2018
$'000
2017
$'000
3.05%
3.02%
2.35%
2.53%
180 days
30 days
June 2023
October 2018
14,935
5,300
93
957
21,285
159
21,444
-
-
-
-
-
-
-
Hire purchase
2.53%
June 2023
As all borrowings have been initiated during the current financial period, financing cash flow movements are
equal to the borrowings balance at the year end. Refer to the Cash flows from financing activities in the
Consolidated statement of cash flows.
(i) Secured liabilities and assets pledged as security
The total secured liabilities (current and non-current) are as follows:
Of the current borrowings, $5.3m relates to debtor finance, secured by the underlying debtor balances.
The remaining bank loans are secured by first mortgages over the Group's freehold land and buildings and
water licences. Hire purchase agreements are secured by the underlying asset being financed.
(ii) Unsecured liabilities
The current insurance loan is unsecured and is repayable in instalments by 31 October 2018.
55
Beston Global Food Company Limited
30 June 2018
44
Notes to the Consolidated Financial Statements CONTINUED
6 Non-financial assets and liabilities
(a) Property, plant and equipment
At 1 July 2016
Cost or fair value
Accumulated
depreciation
Net book amount
Year ended 30 June 2017
Opening net book
amount
Acquisition of subsidiary
Additions
Assets included in a
disposal group classified
as held for sale and other
disposals
Assets classified as held
for sale and other
disposals
Depreciation charge
Closing net book amount
At 30 June 2017
Cost or fair value
Accumulated
depreciation
Net book amount
Year ended 30 June 2018
Opening net book
amount
Additions
Assets included in a
disposal group classified
as held for sale and other
disposals
Assets classified as held
for sale and other
disposals
Depreciation charge
Closing net book amount
At 30 June 2018
Cost
Accumulated
depreciation
Net book amount
Land
$'000
Buildings
$'000
Plant and
equipment
$'000
Furniture,
fittings and
equipment
$'000
Motor
vehicles
$'000
23,536
3,391
11,893
-
23,536
(83)
3,308
(733)
11,160
23,536
-
-
3,308
-
848
11,160
374
7,248
150
(7)
143
143
-
155
127
(7)
120
120
-
74
Total
$'000
39,097
(830)
38,267
38,267
374
8,325
-
-
(254)
(3)
-
(257)
(1,857)
-
21,679
21,679
-
21,679
(257)
(147)
3,752
(102)
(60)
18,366
3,975
19,155
(223)
3,752
(789)
18,366
-
(41)
254
302
(48)
254
-
(21)
173
201
(28)
173
(2,216)
(269)
44,224
45,312
(1,088)
44,224
21,679
-
3,752
283
18,366
13,245
254
63
173
81
44,224
13,672
-
-
(417)
(40)
-
(457)
(292)
-
21,387
(201)
(216)
3,618
-
(788)
30,406
21,387
4,044
31,534
-
21,387
(426)
3,618
(1,128)
30,406
-
(64)
213
321
(108)
213
-
(25)
229
281
(52)
229
(493)
(1,093)
55,853
57,567
(1,714)
55,853
56
Beston Global Food Company Limited
30 June 2018
45
D
E
T
I
M
I
L
Y
N
A
P
M
O
C
D
O
O
F
L
A
B
O
L
G
N
O
T
S
E
B
2 0 1 8 A N N U A L R E P O R T
6 Non-financial assets and liabilities
(a) Property, plant and equipment (continued)
(i) Depreciation methods and useful lives
Property, plant and equipment is stated at historical cost less depreciation. Land is carried at cost.
Depreciation is calculated using the straight-line method to allocate their cost or revalued amounts, net of
their residual values, over their estimated useful lives:
-
-
-
Buildings
Plant and equipment
Furniture, fittings and equipment
- Motor vehicles
20 - 50 years
5 - 40 years
3 - 10 years
7 - 15 years
See note 22(o) for the other accounting policies relevant to property, plant and equipment.
(b) Biological assets
Livestock
30 June
2018
$'000
30 June
2017
$'000
4,880
4,400
Livestock relates to cattle herds at the Pedra Branca and Kurleah dairy farms. Cattle are held primarily for
dairy farming purposes.
As at 30 June 2018, the Group held a total of 3,343 cattle (2017 - 2,834).
Movements:
Opening balance
Increases due to purchases
Decreases due to livestock sold
Change in fair value
Closing balance
(i) Accounting for biological assets
30 June
2018
$'000
30 June
2017
$'000
4,400
728
(371)
123
4,880
4,241
758
(604)
5
4,400
Biological assets are measured at fair value less cost to sell. Costs to sell include the incremental selling
costs, including auctioneers’ fees, commission paid to brokers and dealers and estimated costs of transport
to the market but excludes finance costs and income taxes.
Livestock are classified as current assets if they are to be sold within one year.
(ii) Measuring biological assets at fair value
The fair value of cattle is based on the market price of livestock of a similar age, weight, breed and genetic
make-up. As these prices are observable, they are deemed to be Level 2 in the fair value hierarchy.
The value of these cattle, comprising principally females and breeding bulls, is determined by independent
valuation with reference to prices received from representative sales of breeding cattle similar to the
Group's herd. Prices for these cattle are reflective of current market conditions.
Independent valuations were undertaken by Elders Limited. In performing the valuation, consideration is
given to the breed, class, age, quality and location of the herd. Direct comparisons are made to recent
sales evidence in relevant cattle markets.
57
Beston Global Food Company Limited
30 June 2018
46
Notes to the Consolidated Financial Statements CONTINUED
6 Non-financial assets and liabilities (continued)
(c) Deferred tax balances
(i) Deferred tax assets
The balance comprises temporary differences attributable to: Tax
losses and offsets
Employee benefits
Accruals
Tax only assets
Other
Other
Total deferred tax assets
30 June
2018
$'000
30 June
2017
$'000
6,863
90
106
983
309
8,351
4,175
48
150
1,526
-
5,899
Net deferred tax assets
8,351
5,899
Significant estimates
The deferred tax assets include an amount of $3,543,145 which relates to carried forward tax losses of the
Australian tax consolidated group. The Group has concluded that the deferred assets will be recoverable
using the estimated future taxable income based on the approved business plans and budgets. The losses
can be carried forward indefinitely and have no expiry date.
(ii) Deferred tax liabilities
The balance comprises temporary differences attributable to:
Property, plant and equipment
Intangible assets
Other
30 June
2018
$'000
30 June
2017
$'000
340
1,236
-
1,576
597
1,448
144
2,189
(iii) Tax consolidation
Members of the tax consolidated group and tax sharing agreement
Beston Global Food Company Limited and its 100% owned Australian resident subsidiaries formed a tax
consolidated group with effect from 11 February 2015. Beston Global Food Company Limited is the head
entity of the tax consolidated group. Members of the tax consolidated group have entered into a tax
sharing agreement that provides for the allocation of income tax liabilities between the entities should the
head entity default on its tax payment obligations. No amounts have been recognised in the financial
statements in respect of this agreement on the basis that the possibility of default is remote.
Tax effect accounting by members of the tax consolidated group
Measurement method adopted under AASB Interpretation 1052 Tax Consolidation Accounting
The head entity and the controlled entities in the tax consolidated group continue to account for their
own current and deferred tax amounts. The Group has applied the stand-alone taxpayer approach in
determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax
consolidated group. These tax amounts are measured as if each entity in the tax consolidated group
continues to be a separate taxable entity in its own right. The nature of the tax funding agreement is
discussed further below.
58
Beston Global Food Company Limited
30 June 2018
47
D
E
T
I
M
I
L
Y
N
A
P
M
O
C
D
O
O
F
L
A
B
O
L
G
N
O
T
S
E
B
2 0 1 8 A N N U A L R E P O R T
6 Non-financial assets and liabilities
(c) Deferred tax balances (continued)
(iii) Tax consolidation
Tax effect accounting by members of the tax consolidated group
In addition to its own current and deferred tax amounts, the head entity also recognises current tax
liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits
assumed from controlled entities in the tax consolidated group.
Nature of the tax funding agreement
Members of the tax consolidated group have entered into a tax funding agreement. Under the funding
agreement, the wholly-owned entities fully compensate Beston Global Food Company Limited for any
current tax payable assumed and are compensated for any current tax receivable and deferred tax assets
relating to unused tax losses or unused tax credits transferred to Beston Global Food Company Limited
under the tax consolidation legislation. The funding amounts are determined by reference to the amounts
recognised in the wholly-owned entities' financial statements.
The tax funding agreement requires payments to/from the head entity to be recognised via an inter-entity
receivable (payable) which is at call. To the extent that there is a difference between the amount charged
under the tax funding agreement and the allocation under AASB Interpretation 1052, the head entity
accounts for these as equity transactions with the subsidiaries.
The amount receivable or payable under the tax funding agreement are due upon receipt of the funding
advice from the head entity, which is issued as soon as practicable after the end of each financial year. The
head entity may also require payment of interim funding amounts to assist with its obligation to pay tax
instalments.
(d) Inventories
Current assets
Raw materials and stores
Finished goods – at cost
30 June
2018
$'000
30 June
2017
$'000
1,179
21,425
22,604
1,480
10,180
11,660
(i) Assigning costs to inventories
The costs of individual items of inventory are determined using weighted average costs. See note 22(m)
for the Group’s other accounting policies for inventories.
(ii) Amounts recognised in profit or loss
Inventories recognised as expense during the year ended 30 June 2018 amounted to $32,656,836 (2017 -
$8,538,344).
There were write-downs of inventories during the year of $92,391 (2017 - nil).
59
Beston Global Food Company Limited
30 June 2018
48
Notes to the Consolidated Financial Statements CONTINUED
6 Non-financial assets and liabilities (continued)
(e) Intangible assets
Internally
generated
software*
$'000
Goodwill
$'000
Customer
contracts
$'000
Lobster
quotas
$'000
Water
licences
$'000
Total
$'000
543
4,949
3,959
10,349
At 1 July 2016
Cost
Year ended 30 June 2017
Opening net book
amount
Additions - acquisition
Additions - internal
development
Acquisitions of businesses
Assets classified as held
for sale
Amortisation charge
Closing net book amount
At 30 June 2017
Cost
Accumulation
amortisation
Net book amount
Year ended 30 June 2018
Opening net book
amount
Additions - acquisition
Assets classified as held
for sale
Amortisation charge
Closing net book amount
At 30 June 2018
Cost
Accumulated
amortisation
Net book amount
535
535
-
-
1,312
-
-
1,847
1,847
-
1,847
1,847
-
-
-
1,847
1,847
-
1,847
363
363
-
995
-
-
(105)
1,253
1,358
(105)
1,253
1,253
668
-
(223)
1,698
543
485
-
735
-
(283)
1,480
1,763
(283)
1,480
1,480
43
-
(747)
776
2,026
1,382
(328)
1,698
(606)
776
4,949
-
-
-
-
-
4,949
4,949
-
4,949
4,949
-
(4,949)
-
-
-
-
-
3,959
107
-
-
(27)
-
4,039
4,039
-
4,039
4,039
-
-
-
4,039
4,039
-
4,039
10,349
592
995
2,047
(27)
(388)
13,568
13,956
(388)
13,568
13,568
711
(4,949)
(970)
8,360
9,294
(934)
8,360
* Software includes capitalised development costs being an internally generated intangible asset.
(i) Amortisation methods and useful lives
For the year ended 30 June 2018, there was amortisation was recognised for the first time in relation to
software, as specific assets were deemed in use by the Group. The Group amortises IT development and
software from the date of first use, using the straight line method over 3-5 years.
Lobster quotas and water licences have an indefinite useful life and are not amortised:
•
Lobster quotas: The Group has the right to the annual lobster quotas over an indefinite period and
therefore the lobster quotas have an indefinite useful life.
• Water licences: The Group has the right to use water over an indefinite period and therefore the water
licences are considered to have an indefinite useful life.
60
Beston Global Food Company Limited
30 June 2018
49
D
E
T
I
M
I
L
Y
N
A
P
M
O
C
D
O
O
F
L
A
B
O
L
G
N
O
T
S
E
B
2 0 1 8 A N N U A L R E P O R T
6 Non-financial assets and liabilities
(e) Intangible assets (continued)
(i) Amortisation methods and useful lives (continued)
Customer contracts were acquired as part of the AQUAessence Pty Ltd and Australian Provincial Cheese
Pty Ltd business combinations. They are recognised at their fair value at the date of acquisition and are
amortised on a straight-line based on the timing of the projected cash flows of the contracts over their
estimated useful lives.
(ii) Impairment tests for goodwill and other indefinite life intangibles
Goodwill and other indefinite life intangibles have been tested for impairment. Based on valuations
undertaken of Dairy CGU to which the goodwill relates, goodwill is not impaired. Refer to note 8 for further
discussion relating to impairment assessments.
(f) Employee benefit obligations
Current
$'000
Non-
current
$'000
Total
$'000
Current
$'000
30 June
2017
Non-
current
$'000
Total
$'000
Leave obligations (i)
230
70
300
137
25
162
(i) Leave obligations
The leave obligations cover the Group’s liability for long service leave and annual leave.
The current portion of this liability includes all of the accrued annual leave, the unconditional entitlements
to long service leave where employees have completed the required period of service and also those
where employees are entitled to pro-rata payments in certain circumstances. The entire amount of the
provision of $230,227 (2017 - $49,604) is presented as current, since the Group does not have an
unconditional right to defer settlement for any of these obligations. However, based on past experience,
the Group does not expect all employees to take the full amount of accrued leave or require payment
within the next 12 months. The following amounts reflect leave that is not to be expected to be taken or
paid within the next 12 months.
30 June
2018
$'000
30 June
2017
$'000
Current leave obligations expected to be settled after 12 months
69
41
61
Beston Global Food Company Limited
30 June 2018
50
Notes to the Consolidated Financial Statements CONTINUED
7 Assets held for sale
In January 2018, the majority shareholders of the Ferguson Fisheries Group (inclusive of Ferguson
Australia Pty Ltd) and the Group decided to sell their respective interests in the Ferguson Fisheries Group
and subsequently entered a formal sale process.
The Group concluded that its 32% equity interest in Ferguson Australia Pty Ltd, along with certain
property, plant and equipment and intangible assets owned by the Group and leased to Ferguson Australia
Pty Ltd, which have been included as part of the sale, should be treated as a disposal group (the ‘Ferguson
Disposal Group’) and classified as assets held for sale as at 30 June 2018. The Group ceased to equity
account for the equity investment from 1 January 2018, being the point at which the investment became
held for sale.
The Ferguson Disposal Group has been reclassified as held for sale as at 30 June 2018 and separately
disclosed within the consolidated balance sheet at the lower of its carrying amount and fair value less
costs to sell. The assets comprising the Ferguson Disposal Group are as follows:
Investment - Ferguson Australia Pty Ltd
Property, plant and equipment
Intangible assets
Loss on fair valuation of assets held for sale
(a) Management analysis
30 June
2018
$'000
30 June
2017
$'000
4,694
493
4,949
-
10,136
-
2,217
-
(218)
1,999
The fair value of the investment in Ferguson Australia Pty Ltd was determined using the income approach
based on level 3 (unobservable) inputs. The valuation was based on an estimate of future cash flows
attributable to the investment in Ferguson Australia Pty Ltd covering a five year period, discounted to their
present value, less any expected disposal costs. The estimate of future cash flows was determined using
unobservable inputs developed by management, using the best information available in the
circumstances, including the Group’s own data. In developing inputs, the Group began with financial
budgets and forecasts approved by senior management covering a five year period.
The pre-tax discount rate applied to the cash flow projections is 10.5% and the cash flows beyond the five
year period are extrapolated using a 2.1% growth rate that is the same as the long-term average growth
rate. The discount rate represents the current market assessment of the risks specific to the investment,
taking into consideration the time value of money.
The fair value of the property, plant and equipment, which is comprised of land and buildings, was
determined based on independent external valuations of the assets at 30 June 2018, less expected disposal
costs, and constitutes the use of level 2 inputs. The Group’s selection criteria for external valuers include
market knowledge, reputation, independence and whether professional standards are maintained. The
Group’s external valuers determined the market value of land and buildings with reference to price per
hectare based on observable market data involving sales of comparable land and buildings in similar
locations.
The fair value of intangible assets held for sale, which are comprised of lobster licences, have been
determined based on quoted market prices of lobster pots at 30 June 2018, less any expected disposal
costs. The lobster licence market does not routinely experience high transaction volumes and is therefore
determined not be an active market. As such, the quoted lobster pot prices are considered to be level 2
inputs.
No revaluation loss relating to the reclassification of the Ferguson Disposal Group assets has been
recognised as at 30 June 2018.
62
Beston Global Food Company Limited
30 June 2018
51
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2 0 1 8 A N N U A L R E P O R T
8 Impairment
(a) Management analysis
The Group performed its annual impairment test in June 2017 and 2018. The Group considered the
relationship between its market capitalisation and book value, among other factors, when reviewing for
indicators of impairment. At 30 June 2018, the market capitalisation of the Group was below the book
value of its equity, indicating a potential impairment of long-life intangible assets.
Goodwill which has been acquired through business combinations, and intangible assets with indefinite
lives such as lobster quotas and water licenses, are related to the Dairy, Seafood and Health CGUs, which
are operating and reporting segments for the purposes of impairment testing. These assets have been
tested for potential impairment using assumptions relevant for each of the segments. Conservative
estimates have been applied to ensure each of the CGUs are robust in their assessment of future cash
flows.
Discount rates represent the current market assessment of the risks specific to each CGU, taking into
consideration the time value of money and individual risks of the underlying assets that have not been
incorporated in the cash flow estimates. The discount rate calculation is based on the specific
circumstances of the Group and its operating segments, and is derived from the Group's weighted average
cost of capital (WACC).
The WACC takes into account both debt and equity. The cost of equity is derived from the expected return
on investment by the Group's investors. Segment-specific risk is incorporated by applying individual beta
factors. The beta factors are evaluated annually based on publicly available market data. Adjustments to
the discount rate are made to factor in the specific amount and timing of the future tax flows in order to
reflect a pre-tax discount rate.
Rates are based on published industry research. Management have intentionally used conservative growth
rate estimates when extrapolating cash flows beyond the forecast period. Growth rate estimates of 2.1%
were used across all CGUs.
(i) Dairy CGU
The recoverable amount of the Dairy CGU, $205.4 million as at 30 June 2018, has been determined based
on a value in use calculation using cash flow projections from financial budgets and forecasts, approved
by senior management, and covering a five year period.
The carrying value of goodwill allocated to the Dairy CGU is $1,847,067, and the carrying value of
indefinite life intangible assets allocated to the Dairy CGU is $3,834,227.
Key drivers which impact the recoverable amount of the Dairy CGU include:
•
•
•
The price of milk paid to farmers and other suppliers;
The volume of milk obtained from farmers and other suppliers; and
The prices of products sold to customers.
Management have determine that a reasonable possible change in the key assumptions of the value in use
calculation would not cause the carrying amount to exceed the recoverable amount of the Dairy CGU. As a
result of this analysis management did not identify impairment for this CGU.
63
Beston Global Food Company Limited
30 June 2018
52
Notes to the Consolidated Financial Statements CONTINUED
8 Impairment (continued)
(b) Key assumptions - Dairy
The calculation of value in use for the Dairy operating segment is most sensitive to the following
assumptions:
•
•
•
•
Discount rates;
The price of milk paid to farmers and other suppliers;
The quantity of milk obtained from farmers and other suppliers; and
The price of products sold to customers.
Each of the sensitivities below assumes that a specific assumption moves in isolation, while all other
assumptions are held constant. A change in one of the aforementioned assumptions could be
accompanied by a change in another assumption, which may increase or decrease the net impact.
(i) Discount rates
The pre-tax discount rate applied to the cash flow projections is 9.39% and the cash flows beyond the
five-year period are extrapolated using a 2.1% growth rate that is the same as the long-term average
growth rate. It was concluded that the fair value less costs of disposal did not exceed the value in use.
An increase of the pre-tax discount rate to 10.39% (i.e. +1.0%) in the Dairy CGU would result is a decrease
in the recoverable amount of $26.4 million. This decrease would not result in impairment.
(ii) Product sales prices
A decrease of the average product sales price by 5.0% in the Dairy CGU would result is a decrease in the
recoverable amount of $143.7 million. This decrease would result in a proposed impairment of $36.5
million.
(iii) Milk supply prices
An increase of the milk supply prices by 10.0% in the Dairy CGU would result is a decrease in the
recoverable amount of $105.4 million. This decrease would not result in impairment.
(iv) Milk supply volume
A decrease of the milk supply volumes by 10.0% in the Dairy CGU would result is a decrease in the
recoverable amount of $8.0 million. This decrease would not result in impairment.
64
Beston Global Food Company Limited
30 June 2018
53
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2 0 1 8 A N N U A L R E P O R T
9 Equity
(a) Contributed equity
Ordinary shares - fully paid
443,315,867
443,315,867
147,535
147,535
30 June
2018
Shares
30 June
2017
Shares
30 June
2018
$'000
30 June
2017
$'000
(i) Movements in ordinary share capital
Opening balance 1 July 2016
Share issue via placement - 31 August 2016
Exercise of Founders' Rights
Less: Equity raising costs
Number of shares
$'000
363,241,052
64,051,111
16,023,704
443,315,867
-
113,472
28,823
5,608
147,903
(368)
443,315,867
147,535
(ii) Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the
Company in proportion to the number of and amounts paid on the shares held.
On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled
to one vote, and upon a poll each share is entitled to one vote.
Ordinary shares have no par value and the Company does not have a limited amount of authorised capital.
(b) Other reserves
The following table shows a breakdown of the balance sheet line item ‘other reserves’ and the movements
in these reserves during the year. A description of the nature and purpose of each reserve is provided
below the table.
Share-based payments
Foreign currency translation
30 June
2018
$'000
30 June
2017
$'000
9
(246)
(237)
9
(491)
(482)
65
Beston Global Food Company Limited
30 June 2018
54
Notes to the Consolidated Financial Statements CONTINUED
9 Equity (continued)
(b) Other reserves (continued)
Movements:
Share-based payments
Opening balance
Employee Share Trust to employees
Balance 30 June
Foreign currency translation
Opening balance
Currency translation differences arising during the year
Balance 30 June
(i) Nature and purpose of other reserves
Share-based payments
30 June
2018
$'000
30 June
2017
$'000
9
-
9
(491)
245
(246)
5,617
(5,608)
9
(48)
(443)
(491)
The share-based payments reserve is used to recognise Founders' Rights issued to non-executive
Directors. This represents the fair value at grant date.
Foreign currency translation
Exchange differences arising on translation of the foreign controlled entity are recognised in other
comprehensive income as described in note 22(d) and accumulated in a separate reserve within equity.
The cumulative amount is reclassified to profit or loss when the net investment is disposed of.
(c) Accumulated losses
Movements in accumulated losses were as follows:
Opening balance
Net loss for the period attributable to equity holders of the parent
Dividends
Balance 30 June
Notes
12(b)
30 June
2018
$'000
(13,598)
(12,594)
-
(26,192)
30 June
2017
$'000
(3,670)
(7,749)
(2,179)
(13,598)
66
Beston Global Food Company Limited
30 June 2018
55
2 0 1 8 A N N U A L R E P O R T
D
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I
M
I
L
Y
N
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O
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D
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F
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A
B
O
L
G
N
O
T
S
E
B
10 Cash flow information
(a) Reconciliation of loss after income tax to net cash outflow from operating activities
Loss for the year
Adjustment for
Depreciation and amortisation
Bad debts written off
Net loss on disposal of fixed assets
Fair value adjustment to biological assets
Share of loss from associates
Foreign exchange loss
Inventory write-off
Gain on disposal of livestock
Grant income received
Change in operating assets and liabilities:
(Decrease)/Increase in trade and other receivables
Increase in inventories
Increase in deferred tax assets
Increase in trade and other payables
(Decrease)/Increase in provision for income taxes payable
(Decrease)/Increase in deferred tax liabilities
Increase in other provisions
Net cash inflow (outflow) from operating activities
Notes
3(b)
30 June
2018
$'000
30 June
2017
$'000
(13,093)
(8,007)
2,096
860
(1,418)
(123)
22
(164)
1,468
33
(183)
(17,044)
(16,099)
(2,870)
17,164
45
(610)
139
(29,777)
713
440
257
(5)
654
27
92
(215)
(837)
679
(3,787)
(1,803)
669
(875)
306
105
(11,587)
67
Beston Global Food Company Limited
30 June 2018
56
Notes to the Consolidated Financial Statements CONTINUED
11 Financial risk management
This note explains the Group's exposure to financial risks and how these risks could affect the Group’s
future financial performance. Current year profit and loss information has been included where relevant to
add further context. Senior management oversees the management of these risks. The Board of Directors
reviews and agrees policies for managing each of these risks.
(a) Market risk
(i) Foreign exchange risk
Foreign exchange risk is the risk that the fair value of future cash flows of an exposure will fluctuate
because of changes in foreign exchange rates. The Group's exposure to risk of changes in foreign
exchange rates relates primarily to the Group's operating activities (when revenue or expense is
denominated in a foreign currency) and the Group's net investments in foreign subsidiaries.
Exposure
The Group's exposure to foreign currency risk at the end of the reporting period, expressed in Australian
dollar, was as follows:
Trade receivables
Trade payables
30 June 2018
CNY
$'000
506
(266)
THB
$'000
332
(41)
30 June 2017
CNY
$'000
USD
$'000
1
(19)
682
(12)
THB
$'000
416
(34)
Amounts recognised in profit or loss and other comprehensive income
During the year, the following foreign exchange related amounts were recognised in profit or loss:
Amounts recognised in profit or loss
Net foreign exchange gain/(loss) included in other income/other expenses
Total net foreign exchange gains/(losses) recognised in profit before income
tax for the period
A
A
Sensitivity
30 June
2018
$'000
30 June
2017
$'000
164
164
(27)
(27)
The sensitivity of profit or loss to changes in the exchange rates is summarised below. Given the foreign
currency balances included in the consolidated balance sheet at balance date, if the Australian dollar at
that date strengthened by 10% with all other variables held constant, then the impact on post tax
profit/(loss) arising on the balance sheet exposure would be as follows:
Index
THB/AUD exchange rate - increase 10%
THB/AUD exchange rate - decrease 10%
CNY/AUD exchange rate - increase 10%
CNY/AUD exchange rate - decrease 10%
USD/AUD exchange rate - increase 10%
USD/AUD exchange rate - decrease 10%
Impact on post-tax profit
2018
$'000
(24)
30
(22)
27
-
-
2017
$'000
(32)
39
(61)
74
(54)
209
68
Beston Global Food Company Limited
30 June 2018
57
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2 0 1 8 A N N U A L R E P O R T
11 Financial risk management
(a) Market risk (continued)
(i) Foreign exchange risk (continued)
Sensitivity (continued)
(ii) 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 Group's exposure to the risk of changes in market interest
rates relates primarily to the Group's external debt facilities and cash at bank held at variable rates.
Cash and cash equivalents
Borrowings
Sensitivity
30 June
2018
$'000
4,463
(21,443)
(16,980)
30 June
2017
$'000
28,702
-
28,702
The following sensitivity analysis is based on the interest rate risk exposures in existence at balance date.
At 30 June 2018, if interest rates had moved as illustrated in the table below, with all other variables held
constant, post-tax profit and equity would have been impacted as follows:
Interest rates - increase by 100 basis points
Interest rates - decrease by 100 basis points
(iii) Price risk
Exposure
Impact on post-tax profit and
equity
2018
$'000
56
(104)
2017
$'000
240
(240)
The Group is affected by the price volatility of certain commodities. Its operating activities require the
ongoing purchase of milk and manufacture of cheddar and other cheese products, in addition to seafood
and therefore require a continuous supply of milk and seafood. The Group manages commodity risk by
where possible entering into longer term relationships with key suppliers that create more certainty
around key commodity prices.
(b) Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or
customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating
activities (primarily trade receivables) and from its financing activities, including deposits with banks and
financial institutions, foreign exchange transactions and other financial instruments. The maximum
exposure to credit risk before any credit enhancements at the end of each reporting period is the carrying
amount of the financial assets (refer note 5(b)).
(i) Risk management
Customer credit risk is managed by each business unit subject to the Group's established policy,
procedures and control relating to customer credit risk management. Credit quality of a customer is
assessed based on an extensive credit rating scorecard and individual credit limits are defined in
accordance with this assessment.
Management have regular reporting and assessment of key customers credit risk in order to manage this.
69
Beston Global Food Company Limited
30 June 2018
58
Notes to the Consolidated Financial Statements CONTINUED
11 Financial risk management (continued)
(b) Credit risk (continued)
(ii) Impaired trade receivables
Individual receivables which are known to be uncollectible are written off by reducing the carrying
amount directly. The other receivables are assessed collectively to determine whether there is objective
evidence that an impairment has been incurred but not yet been identified. For these receivables the
estimated impairment losses are recognised in a separate provision for impairment. The Group considers
that there is evidence of impairment if any of the following indicators are present:
•
•
significant financial difficulties of the debtor; and
probability that the debtor will enter bankruptcy or financial reorganisation.
Receivables for which an impairment provision was recognised are written off against the provision when
there is no expectation of recovering additional cash.
Impairment losses are recognised in profit or loss within other expenses. Subsequent recoveries of
amounts previously written off are credited against other expenses. See note 21(n)(v) for information
about how impairment losses are calculated.
Movements in the provision for impairment of trade receivables that are assessed for impairment
collectively are as follows:
At 1 July
Provision for impairment recognised during the year
Receivables written off during the year as uncollectible
At 30 June
(iii) Past due but not impaired
30 June
2018
$'000
30 June
2017
$'000
42
842
(860)
24
-
469
(427)
42
As at 30 June 2018, trade receivables of $3,114,984 (2017 - $4,137,375) were past due but not impaired.
These relate to a number of independent customers for whom there is no recent history of default.
Up to 3 months
3 to 6 months
6 to 9 months
(c) Liquidity risk
30 June
2018
$'000
30 June
2017
$'000
2,707
243
165
3,115
1,995
1,213
929
4,137
The Group monitors its risk to a shortage of funds using a liquidity planning tool. The Group's objective is
to maintain a sufficient cash surplus in order to pay its debts as and when they fall due.
All financial liabilities of the Group are non-derivatives and have contractual maturities of up to 6 months.
(i) Maturities of financial liabilities
The table below summarises the maturity profile of the Group's financial liabilities based on contractual
undiscounted payments:
70
Beston Global Food Company Limited
30 June 2018
59
2 0 1 8 A N N U A L R E P O R T
D
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I
M
I
L
Y
N
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O
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O
F
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O
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G
N
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B
11 Financial risk management
(c) Liquidity risk (continued)
(i) Maturities of financial liabilities (continued)
Contractual maturities of financial
liabilities
At 30 June 2018
Non-derivatives
Trade and other payables
Borrowings (excluding finance leases)
Finance lease liabilities
Total non-derivatives
12 Capital management
(a) Risk management
On
demand
$'000
Less than
3 months
$'000
3 to 12
months
1 to 5
years
Over 5
years
Total
$'000
$'000
$'000
$'000
10,073
-
-
10,073
3,954
12,809
23
16,786
-
8,461
70
8,531
-
-
175
175
-
-
-
-
14,027
21,270
268
35,565
The Group's objectives when managing capital are to safeguard their ability to continue as a going
concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders.
In order to maintain the capital structure, the Group may adjust the amount of dividends paid to
shareholders, return capital to shareholders or issue new shares.
(b) Dividends
There were no dividends provided for during the year ended 30 June 2018 (2017: $nil).
13 Business combination and disposals
On 31 December 2017, the Group disposed of its investment in Beston Global Food Company (Dalian)
Limited. The financial statements include the results of the disposal from the disposal date.
Beston Global Food Company (Dalian) Limited
New Benefit International Investment Limited
less: unwind of Foreign currency Translation Reserve
blank
Cash
Trade and Other Receivables
Prepayments
Inventory
Property, Plant & Equipment
Deferred Tax Asset
blank
Accounts Payable
Payroll Liabilities
Other liabilities
blank
Gain on disposal of Entity
There were no business acquisitions for the period.
30 June
2018
$'000
3,896
1,800
(89)
(104)
(1,092)
(168)
(3,301)
(36)
(415)
18
27
883
1,419
71
Beston Global Food Company Limited
30 June 2018
60
Notes to the Consolidated Financial Statements CONTINUED
14 Interests in other entities
(a) Material subsidiaries
The Group’s principal subsidiaries at 30 June 2018 are set out below. Unless otherwise stated, they have
share capital consisting solely of ordinary shares that are held directly by the Group, and the proportion of
ownership interests held equals the voting rights held by the Group. The country of incorporation or
registration is also their principal place of business.
Name of entity
Country of
incorporation
and operation
Ownership interest
held by the Group
Ownership interest
held by NCI
2018
%
2017
%
2018
%
2017
%
Principal activities
Beston Global Food
Company Limited
Beston Farms Pty Ltd
Beston Dairies Pty Ltd
Beston Pure Foods
(Australia) Pty Ltd
Beston Global Food
(Thailand) Company
Limited
Beston Global Food
Company (Hong
Kong) Limited
Beston Global Food
Company (Dalian)
Limited
Beston Food
(Shanghai) Co.
Limited
Beston Technologies
Pty Ltd
AQUAessence Pty Ltd
Australia
Australia
Australia
100.0
100.0
100.0
100.0
100.0
100.0
Australia
100.0
100.0
-
-
-
-
- Food services
- Dairy farming
- Dairy production
- Sales and distribution
Thailand
98.0
98.0
2.0
2.0 Sales and distribution
Hong Kong
100.0
100.0
China
-
100.0
China
Australia
Australia
100.0
100.0
51.0
-
100.0
51.0
-
-
-
- Sales and distribution
- Sales and distribution
- Sales and distribution
-
49.0
- Technology developer
49.0 Water products
(b) Non-controlling interests (NCI)
Interest in:
Share capital
30 June
2018
$'000
30 June
2017
$'000
186
685
Set out below is summarised financial information for each subsidiary that has non-controlling interests
that are material to the Group. The amounts disclosed for each subsidiary are before inter-company
eliminations.
72
Beston Global Food Company Limited
30 June 2018
61
14 Interests in other entities
(b) Non-controlling interests (NCI) (continued)
Summarised balance sheet
Current assets
Current liabilities
Non-current assets
Non-current liabilities
Accumulated NCI
Summarised statement of comprehensive income
Revenue
Profit/(loss) for the period
Profit/(loss) allocated to NCI
< blank header row >
Summarised cash flows
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
D
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2 0 1 8 A N N U A L R E P O R T
AQUAessence Pty Ltd
30 June
2018
$'000
30 June
2017
$'000
171
1,037
(866)
1,236
-
1,236
370
181
400
524
(124)
2,155
794
1,361
1,237
606
AQUAessence Pty Ltd
30 June
2018
$'000
308
(1,020)
(1,020)
(500)
30 June
2017
$'000
319
(720)
(720)
(353)
AQUAessence Pty Ltd
30 June
2018
$'000
30 June
2017
$'000
331
(308)
(62)
(39)
470
(403)
(26)
41
73
Beston Global Food Company Limited
30 June 2018
62
Notes to the Consolidated Financial Statements CONTINUED
14 Interests in other entities (continued)
(c) Investments
Name of entity
Country of
incorporation
and operation
Ferguson
Australia Pty Ltd1
Neptune
Bio-Innovations
Pty Ltd2
Australia
Australia
% of ownership
interest
Nature of
relationship
Measurement
method
2018
%
2017
%
Carrying amount
2018
$'000
2017
$'000
32
10
42
32
Associate
Equity method
-
4,716
Associate
Fair value/
Equity method
20
52
11,558
11,558
11,558
16,274
(1)
Ferguson Australia Pty Ltd is a processor and exporter of premium seafood products. It is a strategic
investment for the Group to complement its distribution of seafood products into Asia. The Group holds
additional lobster quotas to increase the supply of Ferguson Australia Pty Ltd's core product, the Southern
Rock Lobster. This investment is contained within the Seafood segment of the Group.
Ferguson Australia Pty Ltd entered into sale negotiations in January 2018, and as such management have
determined that the Group's investment should be considered as held for sale. Refer to note 5(a) for further
disclosure regarding this asset.
74
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30 June 2018
63
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2 0 1 8 A N N U A L R E P O R T
14 Interests in other entities
(c) Investments (continued)
(2)
Neptune Bio-Innovations Pty Ltd ("NBI") is an industry recognised and accredited Research & Development
food contract manufacturer, operating in the Food & Beverage, Nutritional, Personal Care and Nutraceutical
product industries. It is a strategic investment for the Group offering a range of health and well-being
enhancing functional foods, either used as stand-alone products or in conjunction with the Dairy, Meat and
Health divisions. NBI is in the early stages of commercialising its innovative food and consumer health
products, with significant growth prospects. NBI currently offers four brands in the market, and 17 SKU's. This
investment is contained in the Health segment of the Group.
The Group’s investment in NBI remains important and there remains the intention to maintain a commercial
relationship with NBI. However, the Group’s focus is increasingly on its dairy and meat segments. The potential
synergies with NBI’s activities are reduced with NBI focussing its growth plans more on consumer health
products that are less aligned to the Group’s main activities. The Group stepped back from its close
commercial relationship with NBI from early 2018, and as a result, agreed with NBI to restructure its
shareholding which was implemented on 3 April 2018. The Group does not have a representative on the NBI
board. As a result of the diminished commercial alignment, the Group no longer has significant influence over
the operations and financial decision making of NBI and has ceased to equity account for its investments in
NBI.
As at 30 June 2018 the carrying value of the Group’s investment in NBI of $11.6 million comprises a convertible
note and put option issued on 3 April 2018 in connection with the restructuring of BFC’s investment in NBI of
$5.9 million and a retained 9.9% equity investment of $5.7 million.
The convertible note and put option are held at fair value in accordance with AASB 139 Financial Instruments:
Recognition and Measurement and the investment is held at its fair value less costs of disposal in accordance
with AASB 13 Fair Value Measurement. The fair value of the convertible note and put option was determined
using the income approach based on level 3 (unobservable) inputs. The same model was used to assess the
recoverable amount of the Group’s equity investment based on a fair value less costs of disposal valuation.
As NBI is a private company, there is no observable market price of its shares to assist in determining fair value.
The Group has estimated the fair value of NBI by preparing cash flow projections for NBI and discounting the
projected future cash flows at an appropriate discount rate. The pre-tax discount rate applied to the cash flow
projections is 13.9%. The discount rate represents the current market assessment of the risks specific to the
investment, taking into consideration the time value of money.
In preparing its cash flow projections for NBI, the Group obtained forecast financial information and received
guidance from NBI management. The financial information provided was reviewed in conjunction with NBI to
assess its reasonableness. Key assumptions regarding the future sales projections for NBI's product ranges
were reviewed with NBI. Key assumptions include channels to market, key customers, market penetration
rates, product pricing and related trade spend. Future cash flows reflect short-term growth assumptions which
are subsequently reduced to reflect long-term inflation expectations. Assumptions regarding costs of sales and
other operating expenses as well as capital expenditure necessary to support NBI's growth projections were
also reviewed with NBI. Key risks and opportunities related to NBI’s guidance were also reviewed with NBI to
assist the Group in determining its view of NBI’s guidance.
The Group formed the view that the guidance provided by NBI was based on their detailed analysis and that
there exists a reasonable basis and level of support for NBI’s key assumptions. Accordingly, the Group formed
the view that it had been provided reasonable information upon which to base an assessment of the fair value
of NBI at 30 June 2018. It should be noted that NBI is in the process of undertaking a detailed financial analysis
including cash flow projections with the assistance of a major professional services firm. That work is in
preparation for NBI seeking additional funding and/or selling all or part of its business later in the year. The
work of the professional services firm had not been concluded in time for the Group and its auditors to be
provided the independently assessed financial models. However, the guidance provided by NBI to the
Company was developed through this process and NBI has confirmed that it is consistent with the data being
used for that purpose.
The above entities are private companies with no quoted price available.
Beston Global Food Company Limited
30 June 2018
64
75
Notes to the Consolidated Financial Statements CONTINUED
15 Contingent liabilities and contingent assets
The Group had no contingent assets or liabilities at 30 June 2018 (2017 - nil).
16 Commitments
(a) Non-cancellable operating leases - Group as lessee
The Group leases its offices under non-cancellable operating leases expiring within 3 years. The Group
also leases farm equipment under non-cancellable leases expiring within 5 years. Commitments for
minimum lease payments in relation to non-cancellable operating leases are payable as follows:
Within one year
Later than one year but not later than five years
30 June
2018
$'000
30 June
2017
$'000
284
10
294
239
126
365
(b) Finance lease commitments: Group as lessee
The Group has finance leases and hire purchase contracts for various items of plant and machinery. The
Group’s obligations under finance leases are secured by the lessor’s title to the leased assets. Future
minimum lease payments under finance leases and hire purchase contracts, together with the present
value of the net minimum lease payments are, as follows:
Within one year
Later than one year but not later than five years
(c) Other commitments
30 June
2018
$'000
30 June
2017
$'000
87
180
267
74
98
172
At 30 June 2018, the Group had commitments of $40,527,963 relating to milk supply purchases from
farmers. These milk purchase commitments have terms of between 1 and 3 years.
At 30 June 2018, the Group had commitments of $595,606 relating to equipment capital expenditure.
These capital expenditure commitments have terms of less than 1 year.
17 Events occurring after the reporting period
As disclosed in Note 5(b) on 23 August 2018, the Group acquired 100% of the shares of Scorpio Foods Pty
Ltd (“Scorpio”) for consideration of $2.7 million and acquired Scorpio’s Shepparton property for
consideration of $5.95 million. The purchase of the Shepparton property was partially funded with a new
mortgage of $4.2 million.
No other matter or circumstance has arisen since 30 June 2018 that has significantly affected the Group's
operations, results or state of affairs, or may do so in future years.
76
Beston Global Food Company Limited
30 June 2018
65
18 Related party transactions
(a) Subsidiaries
Interests in subsidiaries are set out in note 14(a).
(b) Key management personnel compensation
Short-term employee benefits
Post-employment benefits
Long-term benefits
Termination benefits
Share-based payments
(c) Transactions with other related parties
The following transactions occurred with related parties:
Sales of goods and services
Sales of goods to investee entities
Remuneration received for directors services
Interest income from investee entities
Purchases of goods and services
Purchases of electronic equipment from other related parties
Purchases of various goods and services from related parties
Management fees to the Investment Manager
D
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G
N
O
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S
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2 0 1 8 A N N U A L R E P O R T
30 June
2018
$
260,000
24,700
-
-
-
284,700
30 June
2017
$
252,667
24,003
-
-
-
276,670
30 June
2018
$
30 June
2017
$
405,890
90,000
633,081
412,121
90,000
644,338
-
(831,175)
(2,387,799)
(545,344)
(1,513,630)
(2,380,498)
(i) Transactions with other related parties
The Group entered into the following transactions with related parties:
•
•
•
•
•
Provision of additional directors services to all associates and investee entities
Provision of funding via convertible notes and charging of interest on loan balances owing by
associates and investees
Purchases of products from associates and investee entities for export and on-sale to third parties
Purchases of products from associates and investees entities for sale via the Beston Marketplace
e-commerce platform
Procurement of management services from the Investment Manager
77
Beston Global Food Company Limited
30 June 2018
66
Notes to the Consolidated Financial Statements CONTINUED
18 Related party transactions (continued)
(d) Outstanding balances arising from sales/purchases of goods and services
The following balances are outstanding at the end of the reporting period in relation to transactions with
related parties:
Outstanding balances receivable/(payable)
Current receivables
Current payables
(e) Loans to/from related parties
Loans to other related parties
Beginning of the year
Loans advanced
Loans converted to sales proceeds
End of year
30 June
2018
$
30 June
2017
$
6,198,017
(310,318)
2,226,510
(134,383)
30 June
2018
$
30 June
2017
$
32,503
-
-
32,503
32,503
250,000
(250,000)
32,503
There is no allowance account for impaired receivables in relation to any outstanding balances, and no
expense has been recognised in respect of impaired receivables due from related parties.
(f) Terms and conditions
(i) Transactions with the Investment Manager
The Company outsources various investment management and administrative functions to an Investment
Manager, including key management personnel services. Dr Sexton controls and Mr Gerlach is a director of
the Investment Manager, Beston Pacific Asset Management Pty Ltd ("BPAM"). The Investment Manager
receives a fee for its management of the Group. This fee is equal to 1.20% per annum (exclusive of GST) of
the gross portfolio value of the assets of the Group.
The Investment Manager will also be entitled to receive a performance fee for outperformance by BFC.
Outperformance is calculated as the total shareholder return against a benchmark index, namely the ASX
All Ordinaries Accumulation Index.
The key metrics of the fee are summarised below:
Beston Global Food Company Limited
ASX All Ordinaries Accumulation Index
$0.225
$54,897.11
$0.175
$62,434.90
-22.22%
13.73%
The All Ordinaries Accumulation Index is a benchmark used to measure total investment performance,
and is largely used to compare the performance of professionally managed funds. It is a publicly available
measurement of the trend of price movements, incorporating the dividends paid.
The performance fee is calculated as follows:
A. Market capitalisation
B. Outperformance factor (BFC TSR% - ASX:XAOAI TSR%)
C. Agreed performance fee %
Total performance fee for the 12 months to 30 June 2018:
A x B x C
$77,580,278.47
-35.95%
17.5%
$0.00
78
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30 June 2018
67
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18 Related party transactions
(f) Terms and conditions (continued)
(ii) Transactions with other related parties
Grape Ensembles Co Pty Ltd is beneficially controlled by Dr Sexton. Grape Ensembles Co Pty Ltd holds an
80% interest in a company that owns the BRANDLOK intellectual property associated with brand
protection seals which has been developed as an anti-counterfeiting device. The Company has an option
to purchase Grape Ensembles Co Pty Ltd's 80% shareholding in Brandlock Protection Solutions Pty Ltd
("BBPS"). The purchase price for BBPS has been agreed at the greater of 10 times the net profit after tax of
BBPS; the then market value of the 80% holding of BBPS; and $2,000,000. These rights are exercisable by
the independent Directors of Beston Global Food Company Limited and include tag along and drag along
rights to enable the Company to acquire 100% of BBPS.
Main & Cherry is controlled by a family member of Dr Sexton, who has no pecuniary interest in Main &
Cherry. During the year, the Group purchased wine stock from Main & Cherry for export into Asia. The
purchases were made based on normal commercial terms and conditions.
Sales of goods to other associates and related parties during the year were based on the price lists in force
and terms that would be available to third parties. Purchases of goods from associates and other related
parties during the year were also based on the price lists in force and terms that would be available to
third parties.
All amounts owing to and from associates and related parties are settled on normal commercial terms and
time frames. No interest was charged on trading balances owing to or from associates and related parties.
Management fees from investee companies are invoiced at appropriate milestones as agreed with them
beforehand, and on normal commercial terms.
Remuneration received for directors services is charged every six months in arrears.
Interest income from investee companies is invoiced monthly in arrears, in line with their respective
convertible note agreements.
No guarantees were provided for any related parties.
19 Remuneration of auditors
During the year the following fees were paid or payable for services provided by the auditor of the entity
and its related practices:
Ernst & Young
Audit and other assurance services
Audit and review of financial statements
Taxation services
Tax compliance services
2018
$
2017
$
229,000
146,890
84,442
107,204
Total remuneration of Ernst & Young
313,442
254,094
79
Beston Global Food Company Limited
30 June 2018
68
Notes to the Consolidated Financial Statements CONTINUED
20 Earnings per share
(a) Basic earnings/(loss) per share
From continuing operations attributable to the ordinary equity holders of the
Company
From discontinued operations
Total basic earnings/(loss) per share attributable to the ordinary equity holders
of the Company
(b) Diluted earnings/(loss) per share
From continuing operations attributable to the ordinary equity holders of the
Company
From discontinued operations
Total diluted earnings/(loss) per share attributable to the ordinary equity
holders of the Company
(c) Reconciliation of earnings used in calculating earnings per share
Basic earnings/(loss) per share
Loss attributable to the ordinary equity holders of the Company used in
calculating basic earnings/(loss) per share:
From continuing operations
From discontinued operations
Diluted earnings/(loss) per share
Loss from continuing operations attributable to the ordinary equity holders
of the Company
Used in calculating basic earnings/(loss) per share
Used in calculating diluted earnings/(loss) per share
(d) Weighted average number of shares used as the denominator
30 June
2018
Cents
30 June
2017
Cents
(2.84)
-
(2.84)
(1.82)
-
(1.82)
30 June
2018
Cents
30 June
2017
Cents
(2.84)
-
(2.84)
(1.82)
-
(1.82)
30 June
2018
$'000
30 June
2017
$'000
(12,593)
-
(12,593)
(7,749)
-
(7,749)
(12,593)
(12,593)
(7,749)
(7,749)
2018
Number
2017
Number
Weighted average number of ordinary shares used as the denominator in
calculating basic and diluted earnings/(loss) per share
443,315,867
425,631,252
80
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30 June 2018
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2 0 1 8 A N N U A L R E P O R T
21 Parent entity financial information
(a) Summary financial information
The individual financial statements for the parent entity show the following aggregate amounts:
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Issued capital
Reserves
Share-based payments
Accumulated losses
Dividends paid
Foreign currency translation reserve
Profit/(loss) for the period
Total comprehensive income/(loss)
(b) Contingent liabilities of the parent entity
30 June
2018
$'000
30 June
2017
$'000
9,571
131,441
141,012
32,823
110,003
142,826
957
3,215
4,172
2,507
2
2,509
136,840
140,317
147,535
147,358
8
(10,479)
-
(224)
8
(4,646)
(2,179)
(224)
136,840
140,317
(3,654)
(2,127)
(3,654)
(2,127)
The parent entity did not have any contingent liabilities as at 30 June 2018 or 30 June 2017.
81
Beston Global Food Company Limited
30 June 2018
70
Notes to the Consolidated Financial Statements CONTINUED
22 Summary of significant accounting policies
This note provides a list of the significant accounting policies adopted in the preparation of these
consolidated financial statements to the extent they have not already been disclosed in the other notes
above. These policies have been consistently applied to all the years presented, unless otherwise stated.
The financial statements are for the Group consisting of Beston Global Food Company Limited and its
subsidiaries.
(a) Basis of preparation
These general purpose financial statements have been prepared in accordance with Australian Accounting
Standards and interpretations issued by the Australian Accounting Standards Board and the Corporations
Act 2001. Beston Global Food Company Limited is a for-profit entity for the purpose of preparing the
financial statements.
(i) Compliance with IFRS
The consolidated financial statements of the Beston Global Food Company Limited Group also comply
with International Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB).
(ii) Historical cost convention
These financial statements have been prepared under the historical cost basis, except for assets held for
sale, certain investments, and Biological Assets which are recognised at fair value less costs to sell.
(iii) New and amended standards adopted by the Group
The Group has applied the following standards and amendments for the first time in their annual reporting
period commencing 1 July 2017:
•
AASB 2014-4 Amendments to Australian Accounting Standards - Clarification of Acceptable Methods of
Depreciation and Amortisation
There has been no material impact to the Group's results or disclosures as a result of these new standards.
The adoption of these amendments did not have any impact on the current period or any prior period and
is not likely to affect future periods.
The Group also elected to adopt the following amendments early:
•
•
AASB 2015-1 Amendments to Australian Accounting Standards - Annual Improvements to Australian
Accounting Standards 2012-2014 Cycle, and
AASB 2016-2 Amendments to Australian Accounting Standards - Disclosure Initiative: Amendments to
AASB 107.
As these amendments merely clarify the existing requirements, they do not affect the Group’s accounting
policies or any of the disclosures.
82
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22 Summary of significant accounting policies
(a) Basis of preparation (continued)
(iv) Critical accounting estimates
The preparation of financial statements requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of applying the Group's accounting policies.
The Group carries its biological assets at fair value, with changes in fair value being recognised in the
statement of comprehensive income. The Group engaged an independent valuation specialist to assess
the fair value of biological assets at 30 June 2017. A valuation methodology based on fair value less costs
of disposal was used. Refer to note 6 (c) for further disclosures.
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable
amount, which is the higher of its fair value less costs of disposal and its value in use. The value in use
calculation is based on a Discounted Cash Flow ("DCF") model, with cash flows derived from the forecast
for the next five years, and do not include restructuring activities that the Group is not yet committed to or
significant future investments. These estimates are most relevant to goodwill and other intangible assets
with indefinite useful lives recognised by the Group. The key assumptions used to determine the
recoverable amount for the different CGUs are disclosed and further explained in note 7.
Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit
will be available against which the losses can be utilised. Management judgement is required to determine
the amount of deferred tax asset that can be recognised, based on the likely timing and the level of future
taxable profits, together with future tax planning strategies. Further details on deferred tax balances are
disclosed in note 6 (d).
Management uses their judgement in selecting an appropriate valuation technique for financial
instruments and investments not quoted in an active market. Where assets are a carried at fair value, and
where there are no observable market prices, the Group undertakes a fair value assessment utilising
expected future cash flows less estimated costs of disposal. This is relevant to investments in associates
accounted for using the fair value method, and assets held for sale. Wherever possible, future cash flow
estimates are based on information obtained from the investee entity, and the Group assesses
reasonableness of this information and applies judgement to ensure that the expected future cash flow
estimates are appropriate. Such estimates and judgements are subject to change as a result of changing
economic and operation conditions. Actual cash flows may therefore differ from forecasts and could result
in the recognition of impairment charges in future periods.
Further details on assets held for sale are disclosed in note 7, and further details on investments in
associates accounted for using the fair value method are disclosed in note 14.
83
Beston Global Food Company Limited
30 June 2018
72
Notes to the Consolidated Financial Statements CONTINUED
22 Summary of significant accounting policies (continued)
(a) Basis of preparation (continued)
(v) New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that are not mandatory for 30
June 2018 reporting periods and have not been early adopted by the Group. The Group’s assessment of
the impact of these new standards and interpretations is set out below.
Mandatory for financial
years commencing on or
after 1 January 2018. The
Group has adopted the
standard from 1 July
2018.
Mandatory for financial
years commencing on or
after 1 January 2018. The
Group has adopted the
standard from 1 July
2018.
AASB 9
Financial
Instruments
AASB 15
Revenue
from
Contracts
with
Customers
The Group does not expect a
material impact on its balance
sheet or equity on applying the
classification and measurement
requirements of AASB 9. It expects
to continue measuring at fair value
through profit and loss all financial
assets currently held at fair value.
AASB 9 requires the Group to
record expected credit losses on all
of its debt securities, loans and
trade receivables, either on a
12-month or lifetime basis.
Convertible notes are required to
be carried at fair value through
profit and loss going forward.
At this point, the Group has
assessed individual contracts,
which has indicated the adoption
of the standard is not expected to
have a material impact. The Group
will apply the modified
retrospective approach on
transition and there will be no
adjustment to profit and loss.
Additional disclosures on contract
details and performance
obligations will be required and
minor presentation changes of
amounts in the Statement of
Comprehensive Income will arise.
AASB 9 addresses the
classification,
measurement and
derecognition of
financial assets and
financial liabilities and
introduces new rules for
hedge accounting. In
December 2014, the
AASB made further
changes to the
classification and
measurement rules and
also introduced a new
impairment model.
These latest
amendments now
complete the new
financial instruments
standard.
The AASB has issued a
new standard for the
recognition of revenue.
This will replace AASB
118 which covers
contracts for goods and
services and AASB 111
which covers
construction contracts.
The new standard 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.
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22 Summary of significant accounting policies
(a) Basis of preparation (continued)
(v) New standards and interpretations not yet adopted (continued)
AASB 16
Leases
AASB 16 was issued in
February 2016. It will
result in almost all leases
being recognised on the
balance sheet, as the
distinction between
operating and finance
leases is removed. Under
the new standard, asset
(the right to use the
leased item) and a
financial liability to pay
rentals are recognised.
The only exceptions are
short-term and
low-value leases. The
accounting for lessors
will not significantly
change.
While the Group has yet to
undertake a detailed assessment of
the impact of AASB 16, the Group
does not expect there to be a
material impact of the Group’s
asset and liabilities.
● The standard will affect
Mandatory for financial
years commencing on or
after 1 January 2019. At
this stage, the Group
does not intend to adopt
the standard before its
effective date.
primarily the accounting for the
Group’s operating leases. At the
reporting date, the Group has
lease commitments currently
disclosed as operating leases of
$0.29 million (refer to note 16)
over a period of 2 years.
● Some commitments disclosed
relate to milk purchases will not
qualify as leases under AASB 16.
There are no other standards that are not yet effective and that would be expected to have a material
impact on the entity in the current or future reporting periods and on foreseeable future transactions.
Standards that are not yet effective that would be expected to have an immaterial impact on the entity in
the current or future periods include:
•
•
•
•
AASB 2016-2 Amendments to Australian Accounting Standards - Disclosure Initiative: Amendments
to AASB 107
AASB 2016-5 Amendments to Australian Accounting Standards - Classification and Measurement
of Share-based Payment Transactions
AASB Interpretation 22 Foreign Currency Transactions and Advance Consideration
IFRIC Interpretation 23 Uncertainty over Income Tax Treatments
(b) Principles of consolidation
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Beston
Global Food Company Limited ("Company" or "parent entity") as at 30 June 2018 and the results of all
subsidiaries for the year then ended. Beston Global Food Company Limited and its subsidiaries together
are referred to in this financial report as the Group or the consolidated entity.
(i) Subsidiaries
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group
controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns through its power to direct the activities of the
entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They
are deconsolidated from the date that control ceases.
The acquisition method of accounting is used to account for business combinations by the Group (refer to
note 22(i)).
Beston Global Food Company Limited
30 June 2018
74
85
Notes to the Consolidated Financial Statements CONTINUED
22 Summary of significant accounting policies (continued)
(b) Principles of consolidation (continued)
(i) Subsidiaries (continued)
Intercompany transactions, balances and unrealised gains on transactions between Group companies are
eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the
impairment of the transferred asset. Accounting policies of subsidiaries have been changed where
necessary to ensure consistency with the policies adopted by the Group.
Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated
statement of comprehensive income, consolidated statement of changes in equity and consolidated
balance sheet respectively.
(ii) Associates
Associates are all entities over which the Group has significant influence but not control or joint control.
This is generally the case where the Group holds between 20% and 50% of the voting rights. Investments
in associates are accounted for using the equity method of accounting (see (iii) below), after initially being
recognised at cost.
(iii) Equity method
Under the equity method of accounting, the investments are initially recognised at cost and adjusted
thereafter to recognise the Group's share of the post-acquisition profits or losses of the investee in profit
or loss, and the Group's share of movements in other comprehensive income of the investee in other
comprehensive income. Dividends received or receivable from associates and joint ventures are
recognised as a reduction in the carrying amount of the investment.
When the Group's share of losses in an equity-accounted investment equals or exceeds its interest in the
entity, including any other unsecured long-term receivables, the Group does not recognise further losses,
unless it has incurred obligations or made payments on behalf of the other entity.
Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated
to the extent of the Group's interest in these entities. Unrealised losses are also eliminated unless the
transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity
accounted investees have been changed where necessary to ensure consistency with the policies adopted
by the Group.
The carrying amount of equity-accounted investments is tested for impairment in accordance with the
policy described in Note 22(j).
(c) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision maker.
The Board of Beston Global Food Company Limited has appointed an executive management committee
which assesses the financial performance and position of the Group, and makes strategic decisions. The
executive management committee, which has been identified as being the chief operating decision maker,
consists of the Chief Executive Officer and the Chief Financial Officer.
(d) Foreign currency translation
(i) Functional and presentation currency
Items included in the financial statements of each of the Group's entities are measured using the currency
of the primary economic environment in which the entity operates ('the functional currency'). The
consolidated financial statements are presented in Australian dollars ($), which is Beston Global Food
Company Limited's functional and presentation currency.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year end exchange rates of monetary assets
and liabilities denominated in foreign currencies are recognised in profit or loss.
Beston Global Food Company Limited
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22 Summary of significant accounting policies
(d) Foreign currency translation (continued)
(ii) Transactions and balances (continued)
Foreign exchange gains and losses are presented in the consolidated income statement on a net basis
within other income or other expenses.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated
using the exchange rates at the date of initial transactions.
Non-monetary items that are measured at fair value in a foreign currency are translated using the
exchange rates at the date when the fair value was determined. Translation differences on assets and
liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation
differences on non-monetary assets and liabilities such as equities held at fair value through profit or loss
are recognised in profit or loss as part of the fair value gain or loss and translation differences on
non-monetary assets such as equities classified as available-for-sale financial assets are recognised in
other comprehensive income.
(iii) Group companies
The results and financial position of foreign operations (none of which has the currency of a
hyperinflationary economy) that have a functional currency different from the presentation currency are
translated into the presentation currency as follows:
•
•
assets and liabilities for each balance sheet presented are translated at the closing rate at the date of
that balance sheet
income and expenses for each statement of profit or loss and statement of comprehensive income are
translated at average exchange rates (unless this is not a reasonable approximation of the cumulative
effect of the rates prevailing on the transaction dates, in which case income and expenses are
translated at the dates of the transactions), and
all resulting exchange differences are recognised in other comprehensive income.
•
When a foreign operation is sold, the associated exchange differences are reclassified to profit or loss, as
part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets
and liabilities of the foreign operation and translated at the closing rate.
(e) Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as
revenue are net of returns, trade allowances, rebates and amounts collected on behalf of third parties.
The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that
future economic benefits will flow to the entity and specific criteria have been met for each of the Group's
activities as described below. The Group bases its estimates on historical results, taking into consideration
the type of customer, the type of transaction and the specifics of each arrangement.
The specific accounting policies for the Group’s main types of revenue are explained in note 2. Revenue
for interest income is recognised on the following basis:
Interest income is recognised using the effective interest method. When a receivable is impaired, the
Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow
discounted at the original effective interest rate of the instrument, and continues unwinding the discount
as interest income. Interest income on impaired loans is recognised using the original effective interest
rate.
(f) Government grants
Grants from the government are recognised at their fair value where there is a reasonable assurance that
the grant will be received and the Group will comply with all attached conditions.
Government grants relating to costs are deferred and recognised in the profit or loss over the period
necessary to match them with the costs that they are intended to compensate.
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22 Summary of significant accounting policies (continued)
(f) Government grants (continued)
Government grants relating to the purchase of property, plant and equipment are included in non-current
liabilities as deferred income and are credited to profit or loss on a straight-line basis over the expected
lives of the related assets.
(g) Income tax
The income tax expense or credit for the period is the tax payable on the current period's taxable income
based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets
and liabilities attributable to temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted
at the end of the reporting period in the countries where the Company's subsidiaries and associates
operate and generate taxable income. Management periodically evaluates positions taken in tax returns
with respect to situations in which applicable tax regulation is subject to interpretation. It establishes
provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method, on temporary differences arising
between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial
statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of
goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or
liability in a transaction other than a business combination that at the time of the transaction affects
neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws)
that have been enacted or substantially enacted by the end of the reporting period and are expected to
apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to
utilise those temporary differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying
amount and tax bases of investments in foreign operations where the Company is able to control the
timing of the reversal of the temporary differences and it is probable that the differences will not reverse in
the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax
assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends
either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Beston Global Food Company Limited and its wholly-owned Australian controlled entities have
implemented the tax consolidation legislation. As a consequence, these entities are taxed as a single entity
and the deferred tax assets and liabilities of these entities are set off in the consolidated financial
statements.
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items
recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in
other comprehensive income or directly in equity, respectively.
(h) Leases
Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and
rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease's inception
at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The
corresponding rental obligations, net of finance charges, are included in other short-term and long-term
payables. Each lease payment is allocated between the liability and finance cost. The finance cost is
charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period. The property, plant and equipment acquired under
finance leases is depreciated over the asset's useful life or over the shorter of the asset's useful life and the
lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease
term.
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(h) Leases (continued)
Leases in which a significant portion of the risks and rewards of ownership are not transferred to the
Group as lessee are classified as operating leases (note 16). Payments made under operating leases (net of
any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the
period of the lease.
Lease income from operating leases where the Group is a lessor is recognised in income on a straight-line
basis over the lease term . The respective leased assets are included in the consolidated balance sheet
based on their nature.
(i) Business combinations
The acquisition method of accounting is used to account for all business combinations, regardless of
whether equity instruments or other assets are acquired. The consideration transferred for the acquisition
of a subsidiary comprises the following:
•
•
•
•
•
fair values of the assets transferred
liabilities incurred to the former owners of the acquired business
equity interests issued by the Group
fair value of any asset or liability resulting from a contingent consideration arrangement, and
fair value of any pre-existing equity interest in the subsidiary.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are,
with limited exceptions, measured initially at their fair values at the acquisition date. The Group recognises
any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair
value or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable
assets.
Acquisition-related costs are expensed as incurred.
The excess of the
•
•
•
consideration transferred,
amount of any non-controlling interest in the acquired entity, and
acquisition-date fair value of any previous equity interest in the acquired entity
over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less
than the fair value of the net identifiable assets of the subsidiary acquired, the difference is recognised
directly in profit or loss as a bargain purchase.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are
discounted to their present value as at the date of exchange. The discount rate used is the entity’s
incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an
independent financier under comparable terms and conditions.
Contingent consideration is classified either as equity or a financial liability. Amounts classified as a
financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit
or loss.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s
previously held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains
or losses arising from such remeasurement are recognised in profit or loss.
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22 Summary of significant accounting policies (continued)
(j) Impairment of assets
Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are
tested annually for impairment, or more frequently if events or changes in circumstances indicate that
they might be impaired. Other assets are tested for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An impairment loss is
recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. For the
purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash inflows which are largely independent of the cash inflows from other assets or Groups of
assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are
reviewed for possible reversal of the impairment at the end of each reporting period.
(k) Cash and cash equivalents
For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on
hand, deposits held at call with financial institutions, other short-term, highly liquid investments with
original maturities of three months or less that are readily convertible to known amounts of cash and
which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are
shown within borrowings in current liabilities in the consolidated balance sheet.
(l) Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using
the effective interest method, less provision for impairment. See note 5(b) for further information about
the Group’s accounting for trade receivables and note 11(b) for a description of the Group's impairment
policies.
(m) Inventories
Raw materials and stores, work in progress and finished goods
Raw materials and stores, work in progress and finished goods are stated at the lower of cost and net
realisable value. Cost comprises direct materials, direct labour and an appropriate proportion of variable
and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity.
Costs are assigned to individual items of inventory on the basis of weighted average costs. Costs of
purchased inventory are determined after deducting rebates and discounts. Net realisable value is the
estimated selling price in the ordinary course of business less the estimated costs of completion and the
estimated costs necessary to make the sale.
(n) Investments and other financial assets
(i) Classification
The Group classifies its financial assets in the following categories:
•
•
•
•
financial assets at fair value through profit or loss,
loans and receivables,
held-to-maturity investments, and
available-for-sale financial assets.
The classification depends on the purpose for which the investments were acquired. Management
determines the classification of its investments at initial recognition and, in the case of assets classified as
held-to-maturity, re-evaluates this designation at the end of each reporting period.
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(n) Investments and other financial assets (continued)
(i) Classification (continued)
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is
classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are
classified as held for trading unless they are designated as hedges. Assets in this category are classified as
current assets if they are expected to be settled within 12 months; otherwise they are classified as
non-current.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. They are included in current assets, except for those with maturities greater
than 12 months after the reporting period which are classified as non-current assets. Loans and
receivables are included in trade and other receivables and receivables in the balance sheet.
Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and
fixed maturities that the Group's management has the positive intention and ability to hold to maturity. If
the Group were to sell other than an insignificant amount of held-to-maturity financial assets, the whole
category would be tainted and reclassified as available-for-sale. Held-to-maturity financial assets are
included in non-current assets, except for those with maturities less than 12 months from the end of the
reporting period, which are classified as current assets.
Available-for-sale financial assets
Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivatives
that are either designated in this category or not classified in any of the other categories. They are
included in non-current assets unless the investment matures or management intends to dispose of the
investment within 12 months of the end of the reporting period. Investments are designated as
available-for-sale if they do not have fixed maturities and fixed or determinable payments and
management intends to hold them for the medium to long-term.
(ii) Reclassification
The Group may choose to reclassify a non-derivative trading financial asset out of the held for trading
category if the financial asset is no longer held for the purpose of selling it in the near term. Financial
assets other than loans and receivables are permitted to be reclassified out of the held for trading category
only in rare circumstances arising from a single event that is unusual and highly unlikely to recur in the
near term. In addition, the Group may choose to reclassify financial assets that would meet the definition
of loans and receivables out of the held for trading or available-for-sale categories if the Group has the
intention and ability to hold these financial assets for the foreseeable future or until maturity at the date of
reclassification.
Reclassifications are made at fair value as of the reclassification date. Fair value becomes the new cost or
amortised cost as applicable, and no reversals of fair value gains or losses recorded before reclassification
date are subsequently made. Effective interest rates for financial assets reclassified to loans and
receivables and held-to-maturity categories are determined at the reclassification date. Further increases
in estimates of cash flows adjust effective interest rates prospectively.
(iii) Recognition and derecognition
Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the
Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive
cash flows from the financial assets have expired or have been transferred and the Group has transferred
substantially all the risks and rewards of ownership.
When securities classified as available-for-sale are sold, the accumulated fair value adjustments
recognised in other comprehensive income are reclassified to profit or loss as gains and losses from
investment securities.
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22 Summary of significant accounting policies (continued)
(n) Investments and other financial assets (continued)
(iv) Measurement
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial
asset not at fair value through profit or loss, transaction costs that are directly attributable to the
acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or
loss are expensed in profit or loss.
Loans and receivables and held-to-maturity investments are subsequently carried at amortised cost using
the effective interest method.
Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently
carried at fair value. Gains or losses arising from changes in the fair value are recognised as follows:
•
•
•
for ‘financial assets at fair value through profit or loss’ - in profit or loss within other income or other
expenses
for available-for-sale financial assets that are monetary securities denominated in a foreign currency -
translation differences related to changes in the amortised cost of the security are recognised in profit
or loss and other changes in the carrying amount are recognised in other comprehensive income
for other monetary and non-monetary securities classified as available-for-sale - in other
comprehensive income.
Dividends on financial assets at fair value through profit or loss and available-for-sale equity instruments
are recognised in profit or loss as part of revenue from continuing operations when the Group’s right to
receive payments is established.
Interest income from financial assets at fair value through profit or loss is included in the net
gains/(losses).Interest on available-for-sale securities, held-to-maturity investments and loans and
receivables are calculated using the effective interest method is recognised in the statement of profit or
loss as part of revenue from continuing operations.
(v)
Impairment
The Group assesses at the end of each reporting period whether there is objective evidence that a
financial asset or a Group of financial assets is impaired. A financial asset or a Group of financial assets is
impaired and impairment losses are incurred only if there is objective evidence of impairment as a result
of one or more events that occurred after the initial recognition of the asset (a 'loss event') and that loss
event (or events) has an impact on the estimated future cash flows of the financial asset or Group of
financial assets that can be reliably estimated. In the case of equity investments classified as
available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is
considered an indicator that the assets are impaired.
Assets carried at amortised cost
For loans and receivables, the amount of the loss is measured as the difference between the asset’s
carrying amount and the present value of estimated future cash flows (excluding future credit losses that
have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying
amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If a loan or
held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment
loss is the current effective interest rate determined under the contract. As a practical expedient, the
Group may measure impairment on the basis of an instrument’s fair value using an observable market
price.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognised (such as an improvement in the
debtor's credit rating), the reversal of the previously recognised impairment loss is recognised in profit or
loss.
Impairment testing of trade receivables is described in Note 7.
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(n) Investments and other financial assets (continued)
(v)
Impairment (continued)
Assets classified as available-for-sale
If there is objective evidence of impairment for available-for-sale financial assets, the cumulative loss -
measured as the difference between the acquisition cost and the current fair value, less any impairment
loss on that financial asset previously recognised in profit or loss - is removed from equity and recognised
in profit or loss.
Impairment losses on equity instruments that were recognised in profit or loss are not reversed through
profit or loss in a subsequent period.
If the fair value of a debt instrument classified as available-for-sale increases in a subsequent period and
the increase can be objectively related to an event occurring after the impairment loss was recognised in
profit or loss, the impairment loss is reversed through profit or loss.
(o) Property, plant and equipment
The Group's accounting policy for land and buildings is explained in note 6(a). All other property, plant and
equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items. Cost may also include transfers from equity of any gains or
losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment.
Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to
the Group and the cost of the item can be measured reliably. The carrying amount of any component
accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are
charged to profit or loss during the reporting period in which they are incurred.
The depreciation methods and periods used by the Group are disclosed in note 6(a).
The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each
reporting period.
An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying
amount is greater than its estimated recoverable amount (note 22(j)).
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are
included in profit or loss. When revalued assets are sold, it is Group policy to transfer any amounts
included in other reserves in respect of those assets to retained earnings.
(p) Intangible assets
(i) Goodwill
Goodwill is measured as described in note 22(i). Goodwill on acquisitions of subsidiaries is included in
intangible assets. Goodwill is not amortised but it is tested for impairment annually, or more frequently if
events or changes in circumstances indicate that it might be impaired, and is carried at cost less
accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount
of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is
made to those cash-generating units or Groups of cash-generating units that are expected to benefit from
the business combination in which the goodwill arose. The units or Groups of units are identified at the
lowest level at which goodwill is monitored for internal management purposes, being the operating
segments (note 1).
(ii) Trademarks and licences
Separately acquired trademarks and licences are shown at historical cost. Trademarks, licences and
customer contracts acquired in a business combination are recognised at fair value at the acquisition date.
They have a finite useful life and are subsequently carried at cost less accumulated amortisation and
impairment losses.
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22 Summary of significant accounting policies (continued)
(p) Intangible assets (continued)
(iii) Software (e-commerce platform and other applications)
Costs associated with maintaining software programs are recognised as an expense as incurred.
Development costs that are directly attributable to the design and testing of identifiable and unique
software products controlled by the Group are recognised as intangible assets when the following criteria
are met:
•
it is technically feasible to complete the software so that it will be available for use
• management intends to complete the software and use or sell it
•
•
•
there is an ability to use or sell the software
it can be demonstrated how the software will generate probable future economic benefits
adequate technical, financial and other resources to complete the development and to use or sell the
software are available, and
•
the expenditure attributable to the software during its development can be reliably measured.
Directly attributable costs that are capitalised as part of the software include employee costs and an
appropriate portion of relevant overheads.
Capitalised development costs are recorded as intangible assets and amortised from the point at which the
asset is ready for use.
(iv) Amortisation methods and periods
Refer to note 6(e) for details about amortisation methods and periods used by the Group for intangible
assets.
(q) Trade and other payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of
financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of
recognition. Trade and other payables are presented as current liabilities unless payment is not due within
12 months from the reporting date. They are recognised initially at their fair value and subsequently
measured at amortised cost using the effective interest method.
(r) Employee benefits
(i) Short-term obligations
Liabilities for wages and salaries, including non-monetary benefits and accumulating sick leave that are
expected to be settled wholly within 12 months after the end of the period in which the employees render
the related service are recognised in respect of employees’ services up to the end of the reporting period
and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are
presented as current employee benefit obligations in the consolidated balance sheet.
(ii) Other long-term employee benefit obligations
The liabilities for long service leave and annual leave are not expected to be settled wholly within 12
months after the end of the period in which the employees render the related service. They are therefore
measured as the present value of expected future payments to be made in respect of services provided by
employees up to the end of the reporting period using the projected unit credit method. Consideration is
given to expected future wage and salary levels, experience of employee departures and periods of service.
Expected future payments are discounted using market yields at the end of the reporting period of
corporate bonds with terms and currencies that match, as closely as possible, the estimated future cash
outflows. Remeasurements as a result of experience adjustments and changes in actuarial assumptions are
recognised in profit or loss.
The obligations are presented as current liabilities in the balance sheet if the entity does not have an
unconditional right to defer settlement for at least twelve months after the reporting period, regardless of
when the actual settlement is expected to occur.
(iii) Share-based payments
Employees and Directors of the Group may receive remuneration in the form of share-based payments,
whereby employees render services as consideration for equity instruments (equity-settled transactions).
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(r) Employee benefits (continued)
(iii) Share-based payments
The cost of equity-settled transactions is determined by the fair value at the date when the grant is made
using an appropriate valuation model. The cost is recognised, together with a corresponding increase in
other capital reserves in equity, over the period in which the performance and/or service conditions are
fulfilled in employee benefits expense.
The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting
date reflects the extent to which the vesting period has expired and the Group's best estimate of the
number of equity instruments that will ultimately vest. The consolidated statement of comprehensive
income expense or credit for a period represents the movement in cumulative expense recognised as at
the beginning of the period and is recognised in employee benefits expense. No expense is recognised for
awards that do not ultimately vest, except for equity-settled transactions for which vesting is conditional
upon a market or non-vesting condition. These are treated as vesting irrespective of whether or not the
market or non-vesting condition is satisfied, provided that all other performance and/or service conditions
are satisfied.
When the terms of an equity-settled award are modified, the minimum expense recognised is the expense
had that terms not been modified, if the original terms of the award are not met. An additional expense is
recognised for any modification that increases the total fair value of the share-based payment transaction,
or is otherwise beneficial to the employee as measured at the date of modification. The dilutive effect of
outstanding options is reflected as additional share dilution in the computation of diluted earnings per
share.
(s) Contributed equity
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a
deduction, net of tax, from the proceeds.
(t) Dividends
Provision is made for the amount of any dividend declared, being appropriately authorised and no longer
at the discretion of the entity, on or before the end of the reporting period but not distributed at the end of
the reporting period.
(u) Earnings per share
(i) Basic earnings per share
Basic earnings per share is calculated by dividing:
•
•
the profit attributable to owners of the Company, excluding any costs of servicing equity other than
ordinary shares
by the weighted average number of ordinary shares outstanding during the financial year, adjusted for
bonus elements in ordinary shares issued during the year and excluding treasury shares.
(ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take
into account:
•
•
the after income tax effect of interest and other financing costs associated with dilutive potential
ordinary shares, and
the weighted average number of additional ordinary shares that would have been outstanding
assuming the conversion of all dilutive potential ordinary shares.
(v) Rounding of amounts
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors' Reports)
Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to the
'rounding off' of amounts in the financial statements. Amounts in the financial statements have been
rounded off in accordance with that instrument to the nearest thousand dollars, or in certain cases, the
nearest dollar.
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22 Summary of significant accounting policies (continued)
(w) Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST
incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of
acquisition of the asset or as part of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount
of GST recoverable from, or payable to, the taxation authority is included with other receivables or
payables in the consolidated balance sheet.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or
financing activities which are recoverable from, or payable to the taxation authority, are presented as
operating cash flows.
(x) Parent entity financial information
The financial information for the parent entity, Beston Global Food Company Limited, disclosed in note 21
has been prepared on the same basis as the consolidated financial statements, except as set out below.
Investments in subsidiaries, associates and joint venture entities
(i)
Investments in subsidiaries, associates and joint venture entities are accounted for at cost in the financial
statements of Beston Global Food Company Limited. Dividends received from associates are recognised in
the parent entity's profit or loss when its right to receive the dividend is established.
(ii) Tax consolidation legislation
Beston Global Food Company Limited and its wholly-owned Australian controlled entities have
implemented the tax consolidation legislation.
Refer to note 4 for further details.
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1 Executive Summary
The Board of Beston Global Food Company Limited (ASX: BFC) is pleased to report on the progress made
across a number of areas during the 2018 financial year. Several key milestones in delivering on the
Company’s strategy were achieved over the year.
Significant investments to build out the asset base and establish a new level of operations have largely
been completed. The Group is now putting those investments to work.
The key developments in each of our Divisions are summarised below:
Dairy
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Meat
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The new Mozzarella plant was installed in February 2018 and successfully commissioned in March
2018, with commercial sales occurring in May 2018.
Market reaction to our Mozzarella has been very favourable. Both domestic and potential export
customers have acknowledged the high quality of our Mozzarella.
The new plant achieved Export Accreditation in April 2018 enabling Mozzarella to be sold
overseas.
In June 2018 the plant achieved the stringent quality accreditation known as SQF. This
accreditation is a world best practice quality standard and is essential to become a supplier to
many major potential customers.
Commercial sales of our Mozzarella product were achieved in May 2018.
A contract to supply a major Australian retailer an average of 200T per month of Mozzarella,
representing 30% of planned FY19 production, was signed following SQF accreditation. Supply
commenced in August 2018.
Mozzarella production since commissioning has totalled approximately 1,250 tonnes. Sales since
commissioning have totalled $3.2 million of which $2.6 million was in June/July 2018 as
customers began to take our Mozzarella into their range. Mozzarella sales stepped up again in
August with the new 200T contract supply commencing along with existing and new customers
steadily increasing offtake.
Higher throughput and longer production runs are expected to provide cost and yield benefits
through FY19.
•
BFC assumed management of Scorpio Foods Pty Ltd (Scorpio) in January 2018, and has overseen
the day-to-day operations at Scorpio since that time to drive the transformation needed to lift
revenues and profits of the meat processing business in Shepparton, Victoria. These have included:
Closing the Colac operations and consolidating activities at Shepparton to reduce costs and
improve production efficiencies
Sale of the Colac property
Upgrading and expansion of the Shepparton factories
Securing significant new contracts including supply to Costco and Aldi.
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The formal arrangements for the acquisition of Scorpio Foods Pty Ltd were completed in August
2018. Until that time, BFC continued to earn convertible note interest on its investment.
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1 Executive Summary (continued)
Seafood
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Sales of Ferguson Seafood products shifted into higher margin markets during FY18 with the
introduction of branded retail packs
Ferguson branded frozen retail packs were introduced into independent supermarkets across
Australia during the year as well as into selected retail and e-commerce chains in Hong Kong
and China.
Total Southern Rock Lobster processed was 440 tonnes, down slightly on 2017 due to a
compressed fishing season.
An innovative range of ready-to-eat sashimi grade retail tuna packs was developed for launch in
China in August 2018.
Health and Nutrition
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A substantial investment was made by Neptune Bio Innovations (NBI) during FY18 in upgrading its
manufacturing facilities to bring more of its products back in-house and reduce out-services costs.
NBI successfully launched a range of its food and consumer health products into major pharmacy
channels and supermarkets in FY19 and as at 30 June 2018 was stocked in 1,513 outlets across
Australia.
The Company now has four brands in market: “BIOLyte” (oral hydration product), “Le Mayo”
(healthy vegetable-based Mayonnaise powder), “Heart Salt” (reduced sodium salt alternative), and
“Sweet and Gentle”/”Type 2” (plant-based sweetener which is a substitute for sugar).
NBI has achieved sales into Asia during FY18 (notably China and Vietnam) by working with BFC
and is in advanced discussions with channel partners in the Middle East, UK and the USA.
Through its in-house R&D facilities, NBI has developed a strong pipeline of products which provide
naturally based consumer health and wellness solutions. The Company is expected to release its
new “URICIL” product in FY19 which treats and prevents urinary tract infections.
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2 Financial Results
Group sales revenues for the year were $47.9 million, an increase of 101% over FY 2017 sales of $23.8
million. The increase is due almost entirely to increased sales of dairy products in FY18 reflecting the
higher milk supply compared to FY 2017.
Gross margin on sales was again strong, averaging 32% across BFC’s product range.
Despite the strong sales growth, and solid gross margins, the Group overall reported a statutory loss of
$12.6 million.
The result is disappointing, especially against where we expected the company to be at this point in its
development and can be attributed, substantially to timing delays and increased costs in obtaining
delivery of and installing the Company’s new Mozzarella plant at Jervois, South Australia, and
unanticipated costs in China as well as costs associated with scaling up the Company’s operations and
sales, both nationally and internationally.
The installation and commissioning of the Mozzarella plant was six months later than planned due to
unplanned delays from the manufacturer. BFC reported that it had commenced achieving commercial
sales of its Mozzarella products in May of this year. The consequence of these delays meant that
approximately two-thirds of the planned sales of Mozzarella (and derivative products) in the second half of
FY18 did not occur as expected. Rather milk supply was largely diverted into the production of cheddar
and other hard cheeses.
The diversion of milk production into cheddar, which typically requires between 3 and 9 months
maturation in storage before becoming saleable, had three significant impacts:
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Firstly, during the early part of FY18, there was reduced volume of product available for sale as the
increased cheddar stocks matured.
Secondly, the high value by-products of Mozzarella production, that is cream and whey, were not
produced during the six months' period as anticipated thereby reducing margins.
Thirdly, the prices received for cheddar when sold into wholesale markets tend to be influenced by
international commodity prices, which fell away in the second half of the year at the time when
our cheddar became available for sale.
Fourthly, lower production limited the recovery of indirect factory costs which were consequently
expensed.
The consequence of the timing delay in commissioning our new $26.5 million state-of-the-art Mozzarella
plant, and the flow-on effects as above, meant that sales of cheese and related products in FY18 were
substantially below plan. Moreover, the Company increased its workforce in the second half to deal with
the installation and commissioning of the Mozzarella plant and incurred considerably more expenditure in
this process than anticipated.
The sales of cheddar are largely deferred which is reflected in the high cheese inventory holding at 30
June 2018.
The overall impact of higher expenditures and lower sales and earned margins in the second half was to
reduce reported profit in FY18 by $11 million.
In reflecting on the loss incurred in the FY18, as previously explained to Shareholders, BFC has had to
embark on its dairy infrastructure build out, including the installation of a Mozzarella plant without the
revenue and earnings “cover” which was to have been provided from the point of IPO by the sales
commitments from one of the Company’s IPO cornerstone investors (refer 3 below). Furthermore, the
investee companies in which we hold minority interests - Ferguson and Neptune Bio Innovations, have
not performed to the levels expected, either against previous historical results or the forecasts prepared by
independent professional firms, and have therefore not paid dividends to BFC as expected.
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2 Financial Results (continued)
China
The other negative impact on our FY18 results was our trading results in China.
BFC has continued to invest strategically in growing our presence in China through creating brand
recognition and establishing and expanding relationships with distributors and other key participants in
the China market. BFC’s brand recognition was significantly enhanced during the year with BFC brands
appearing on the shelves of some of China’s biggest retailers.
Nevertheless, gaining brand recognition with a direct to retail approach has proved more costly than
forecast by local management in China. A net loss of $4.2m has been reported for the year for China,
which includes impairment provisions.
There are no quick wins in China. It is a market which requires patience and tenacity. And, of course, our
investments in developing our China market do not result in tangible assets for inclusion in the BFC
balance sheet; the net costs of our China activities are reported in our P&L.
As we have explained previously, the Board of BFC has taken a long-term view on China. The ChAFTA Free
Trade Agreement is half way through its four-year transition period such that by 2020, there will be zero
tariffs on most Australian food imports into China. The younger age groups in China, in particular, are
seeking out fresher, healthier, authentic food and beverage products and have shown a preference for
sourcing these products from overseas.
The work which has been done in China to build our relationships with distributors and achieve brand
recognition is now bearing fruit. We have achieved access into a number of retail and food service markets
and have developed good working relationships with a number of reliable distributors. This work has
served to establish the quality credentials of BFC as a reliable supplier of premium and consistent quality
Australian food and beverage products and helped us to move into the market where we believe that our
biggest short-term opportunity lies namely, Mozzarella. Since Pizza Hut opened its first store in China in
1990, the consumption of pizza (and hence Mozzarella) has grown dramatically.
In recent months, BFC has restructured its management team in China and has received purchase orders
and signed contracts for delivery of a range of dairy and seafood products.
Of particular significance amongst these orders is our first sales of Mozzarella into the China market.
Penetrating the market in China for Mozzarella to capitalize on the rapidly growing demand for pizza has
been a key objective of our China strategy. Once it became available from our Jervois plant, we were able
to introduce our Mozzarella into our established relationships, conduct consumer tastings, and procure
orders (for delivery from October 2018 onwards).
The demand for Mozzarella in China is forecast to treble over the next few years from around 175,000
tonnes currently to 248,000 tonnes in 2022. The market has been dominated by New Zealand producers
over the past 5 years.
With the proven quality of our Mozzarella cheese and the recognised presence which we have established
quickly in the domestic (Australian) market for pizza and other Italian style foods, BFC has a significant
opportunity to capture a small, but significant share of this lucrative and growing market in China.
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Other Items
The financial result for the FY18 was also impacted by:
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Insurance premiums that increased by approximately $1.8 million (i.e. an increase of 250% over
the previous year). A spate of recent fires world-wide, including the Thomas Foods fire at Murray
Bridge, have led to insurers re-assessing the risks to property posed by EPS panelling leading to a
substantial increase in premiums. The Company has had independent consultants review the
factories' fire protection systems and is satisfied that equipment and procedures to deliver
personnel safety are being appropriately managed. However, an upgrade of the fire sprinkler
systems, along with other measures, are being scoped to further reduce the risk of property loss in
the event of fire and reduce the insurance premium.
Write downs of inventory and receivables in Thailand during the year totalled $1.0 million mostly
reported in the first half of FY18 and partly attributable to exchange rate adjustments.
The company contracted supply of milk at the rate of 90ML pa in anticipation of the start up of the
Mozzarella plant in November 2017. The delay in completing the construction of the plant then achieving
commercial levels of production meant that the Company had to fund a higher level of working capital
during this period. The milk received between November 2017 to April 2018 was intended to be processed
into Mozzarella. Instead it was largely processed into cheddar and held in inventory for maturation before
sale. This created an unavoidable delay in the cycle of conversion of milk supplied into cash. Funding this
higher working capital requirement came from new borrowings. The Company’s opening cash reserves
were largely applied to completing the Mozzarella project and funding other operating costs.
No dividends will be payable in respect of the 2017-18 financial year.
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3 Operations
As we have previously explained to Shareholders, BFC is a company which has been a start-up (and in high
growth mode) over the relatively short period since listing.
The steps we have taken to build our food business were summarised in our report to Shareholders for the
first half of this financial year.
We acquired our dairy manufacturing business out of Receivership and invested in three other
agri-businesses (meat, seafood and health/nutrition) with a view to transforming those businesses from
relatively small, family owned businesses into globally focussed companies that could achieve economies
of scale in their operations and a market share position within each of their areas of specialisation which
was of sufficient size as to earn above average rates of return.
At the core of the Company’s strategy for the three years immediately following listing was a “build-out”
program whereby BFC would expand the infrastructure in each of our four operating divisions (dairy,
meat, seafood, health/nutrition) so as to achieve this transformation and enable the Company to grow and
expand while extracting progressively increasing returns from the capital employed in those divisions.
The classic earnings profile for a start-up company, whether it be in the food industry or the technology
industry, or any other industry is a U-shaped curve where net earnings are negative initially and fall off
further as the company spends money on building its business and then recover as the company gains
tractions and generates returns on the expenditure made in its investment phase.
BFC initially sought to avoid this classic U-shape earning profile by taking on a Cornerstone Company
Shareholder from China, at its IPO, which could deliver significant sales, margins and profits while the
Company went through its planned three year “build-out” phase.
A key assumption in our strategy, as we have explained previously, was that BFC’s revenues and earnings
during this build-out period would be underpinned by sales commitments made by this Cornerstone
Shareholder. The sales agreements were supported by letters of assurance and it was reasonably expected
that a significant Shareholder would also wish to protect the value of its commercial investment in BFC by
honouring its commitments. As explained to Shareholders on several occasions, these commitments were
not subsequently delivered, for reasons internal to that Shareholder.
When the purchase commitments were not delivered, the Board of BFC resolved to put in place alternative
arrangements to achieve the “build out” strategy of the overall BFC business so as to achieve its objectives
and build long-term Shareholder value.
This has involved the acceleration of our efforts to generate sales in the domestic Australian market rather
than relying on the sales revenues which had been committed for the China market. Initially it was
expected that around 90% of the sales of the Company would be derived from China in each of the three
years of the “build out” phase (and the balance 10% from domestic sales) whereas the reality has been that
90% of our sales in this financial year has been derived from the domestic market in Australia.
To do this, we have focussed our efforts on:
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Increasing the productive capacity of our dairy assets as quickly as possible; and
Producing the best quality cheese products as quickly as possible in order to win awards and build
a market presence
We believe that this focus on long-term earnings growth will derive a greater benefit in terms of building
the wealth of our Shareholders than a focus only on short term objectives. The merits of this approach are
now coming through via the progress being made in each of our operating divisions, as explained below.
Dairy Division
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Major $26.5 million build-out in dairy successfully completed and in full operation in May, 2018 (as
per 1 May, 2018 ASX announcement).
Overall dairy capacity increased from 10,000 tonnes (hard cheese) to 25,000 tonnes capacity.
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Dairy Division (continued)
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New capabilities in Mozzarella, Hard Cheese and Cream Cheese has shifted BFC’s capacity into
higher margin products and increased production of cream and whey powder which are in strong
demand.
Extended our Dairy Brand “Edwards Crossing” into adult snacking segment through the launch of
“Fancy Bites” into Woolworths nationally.
Further Brand recognition achieved being awarded Australia’s Best Colby in 2018 to add to being
awarded Australia’s Best Cheddar in 2017. Total awards now 70 in three years.
Increased the productivity of the BFC owned dairy farms portfolio with the expansion of our herd
over the FY18 period to around 3,000 herd.
Milk supply has increased to approximately 120 million litres at the start of the FY19 year, which is
up 33% from the previous year and in line with expectations. The increase in volume of milk
supply underpins our production and sales plan for the dairy factories for FY19.
Implemented a market leading milk management system MADCAP platform to improve the
operating efficiencies and communications with our farmers as supply increases.
Meat Division
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Assumed operational control of Scorpio Food Pty Ltd in January 2018 (with the appointment of
new General Manager) and completed 100% ownership control in August, 2018.
Sold Colac, Victoria building and consolidated production operations in Shepparton, Victoria
including the conversion of cold storage facilities to a fully accredited food processing facility to
SQF and export grade standards.
Expanded Lamb Shank range into Aldi under their “Farmwood” brand and launched Yarra Valley
Lamb Shanks into Costco nationally.
Increased export sales with supply for diced cooked beef into a Quick Service Restaurant (QSR)
chain in Japan as well as on-going shipments of Sliced Beef Bacon into the Middle East retail
markets.
Consolidation of operations in Shepparton, Victoria has facilitated cost savings and production
efficiencies which is enabling higher levels of production and expansion of Scorpio’s range of
products.
Seafood Division
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Roll-out of the Ferguson Branded premium range of frozen seafood retail packs into Independent
Supermarkets across Australia, and into selected retail and ecommerce chains in Hong Kong and
China including Fishnet Seaworld in Shenzhen.
Total Southern Rock Lobster tonnage of 440T per annum, slightly down on previous year, by 6%,
due a compressed fishing season.
Mori fresh branded Tuna continues to grow in China with the establishment of distribution
channels into the 3 major cities of Beijing, Shanghai and Shenzhen/Guangzhou.
Mori completed the product development and launch of an innovative new range of ‘retail ready-
to-eat sashimi grade tuna’ 100g size packs with its first launch into China ecommerce planned for
August 2018.
Direct to customer channels growth in China following the increasing demand from restaurant
chains and wedding market caters to purchase Southern Rock Lobster direct from Australia and a
distinct preference moving towards branded product.
A new financial information management system implemented to improve stock control,
inventory management and pricing optimisation.
Health and Nutrition Division
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Completed the investment in the manufacturing facility in Lidcombe, NSW for the in-house
production of the NBI range of products and the platform to produce TGI approved products in
the future.
Launched BIOLyte, Heart Salt and La Mayo Brands into Pharmacy channels with 95% distribution
in Priceline, and Heart Salt into Coles with over 85% distribution.
New product line extensions with the expansion of BIOLyte range into ready to drink, effervescent
and ice block formats.
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3 Operations (continued)
Health and Nutrition Division (continued)
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New product innovation with the development of the Uricil brand which treats and prevents
urinary tract infections.
Technology
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Heads of agreement entered into with Datadot Technology Limited (‘DDT’), to explore the merger
of Beston Technology (‘BT’) with DDT.
Beston Technology granted US Patent for the method and apparatus of determining the
provenance of products
Integrated anti-counterfeit technology into the food labels of BFC branded products going into
export markets.
Overview
The business model which BFC has implemented from the outset has been based around a number of
fundamental principles that the Investment Manager has employed successfully in other industries. These
include:
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Buying income generating assets at or below their intrinsic economic value:
Allocating capital to those areas where it can generate the greatest returns (and capitalise on the
benefits of compounding).
Putting in place initiatives which can build sustainable revenue and earnings streams over the
longer term.
We have got a few things wrong, like most businesses from time to time, especially those in start-up
mode. Some of these mistakes were of our own making. Some were related to events outside of our
control, such as and importantly, the delayed delivery in our Mozzarella plant from the equipment
manufacturers.
Each time we have experienced a set-back such as these, we have changed tack, and changed tack
quickly. As our past experience in building and running companies has shown, in order to be innovative
and advance forward, management needs to be willing to make mistakes and get things wrong from time
to time. It is not acceptable nevertheless, to repeat the mistakes and get the same things wrong, over and
over again.
Whilst we have got some things “wrong”, we have done many things “right”… and in a relatively short
space of time.
A great deal has been achieved over that last three years across all areas of the business. This includes:
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Increasing sales revenues from virtually zero at the time of the listing to $23 million in FY17 and
$48 million in FY18.
Taking two substantial dairy factories out of receivership, rebuilding the assets, restoring the
export accreditation, and bringing them back into commercial production.
Acquiring and installing a state-of-the-art Mozzarella plant at Jervois, and restoring the cream and
butter plant.
Building 8 new brands and developing over 50 new and different product offerings: “Edwards
Crossing”, “Beston Pure”, “Kyubu”, “Fancy Bites”, “Mables”, “Grange Peak”, “Eight” water and “Yarra
Valley” meats.
Being awarded 70 Champion, Gold, Silver and Bronze high-profile industry awards for our cheese
products within a space of three years.
Developing OZIRIS/Brandlok traceability and anti-counterfeiting technology with eleven
International Patents or Patents pending.
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Overview (continued)
We have built a company that Shareholders can be proud of. We manufacture food and beverage products
that meet the needs of health-conscious consumers, and promote healthy eating. We have fulfilled our
vision of taking the best of Australia’s premium quality food and beverages to the consumers of the world.
To achieve this vision, we have implemented a business model whereby we control the raw materials that
go into our foods, and control how those materials are processed into the healthy, premium quality
products that we offer consumers for purchase.
Through the OZIRIS/Brandlok technology we are able to ensure consumers that what they are going to put
in their mouths is authentic (i.e. is actually produced by BFC and is not a “fake food”). We are also able to
show consumers the integrity of the ingredients in our products and demonstrate them through the
production process, from the farm to the fork.
The key task for management is to now capitalise on the achievements of the last three years to maximise
revenues, margins and profits and resume dividend payments to Shareholders.
In the short-term, our success will be largely driven by the performance of our Dairy Division. The other
components of the Company’s business (particularly the meat business) can be expected to start showing
increasing contributions to profit as we progress forward.
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4 The Path Forward
The Directors believe that there are good reasons to be confident about the future direction, and
performance, of the Company. Among them are:
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We have successfully completed the infrastructure build-out that we foreshadowed at the outset
would take 2 to 3 years. We have done so without the sales revenue (and profit) support promised
by one of our IPO cornerstone investors. The hard work has been done and management is now
building on the foundations put in place.
Having completed the infrastructure build-out in its Dairy Division and having commissioned the
new Mozzarella plant, the Company has returned to profitable trading and is cash flow positive.
With the Mozzarella plant up and running, and producing premium quality product, we have
generated several new, high margin revenue streams. We have the flexibility to channel milk into
hard cheese production (at Murray Bridge) or into Mozzarella production (at Jervois) which also
produces high value cream and butter as by-products. We now have much higher volumes of
whey (and whey powder) being produced as well as consequence of our increased milk
throughput. Since the Mozzarella plant came on stream, BFC has generated additional revenues of
around $20 million on an annualised basis.
The result is that the Company has turned the corner and is looking at a stronger financial
performance in the year ahead.
The installation of the Mozzarella plant and the completion of the dairy infrastructure build-out at
Jervois and Murray Bridge has provided the opportunity to extract synergistic operational benefits
between the two plants and achieve incremental profit at minimal marginal cost (for example, by
collecting the cheese “fines” which otherwise pass out of the plant in the whey liquid and
reintroducing them into the production process to increase yields).
The announcement made by the Company earlier this month in winning a contract for the sale of
200 tonnes of Mozzarella each month with a major Australian retailer is a significant milestone for
BFC. This contract and securing SQF accreditation, has endorsed both the quality of the
production process and the quality of the Mozzarella product now being produced at our Jervois
factory.
The Jervois plant was previously extremely well known in industry circles for producing premium
Mozzarella cheese under the brand name “Caboolture” prior to this brand being sold by the
Receivers. BFC has replicated this premium quality into “Edwards Crossing” Mozzarella now being
produced at Jervois.
Over the past three years, BFC has built eight new brands and over 50 different product offerings.
The cost of developing these brands is reflected in the Company’s P&L statements and is not
recognised in the balance sheet. BFC’s cheese products have won 70 Champion, Gold, Silver and
Bronze awards over this same period in Australian and international dairy competitions. The
Company’s cheese brands are now well established in the domestic retail and wholesale markets
and attracting increasing interest from the major companies operating in these markets.
From an investor standpoint, the brands created by BFC obviously have value. The higher the sales
attributed to a brand, the higher the value.
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BFC has shown that it is able to respond to changing market conditions and customer needs very
quickly. We have done so, for example, in developing a flavoured cheese product for the Asia
market “Kyubu”, creating an adult snacking product “Fancy Bites” specifically for this fastest
growing segment of the dairy market and developing specialty health focussed cheeses for the
rapidly growing Mexican food chain, Guzman y Gomez. BFC has demonstrated that it can be
nimble in responding to customer needs and think outside the boundaries of our existing
(traditional) markets. This is a competitive advantage which our sales team is utilising to win new
customers and markets.
BFC is the largest company in the Australian dairy industry outside of the multinationals and the
7th largest in Australia. Significant recent acquisitions of dairy companies and assets in Australia,
at high price-earnings multiples, have recognised the increasing value proposition of the
Australian dairy industry. Acquisition of the next ten dairy companies, in size, in Australia would
provide less than half of BFC’s production capacity and, based on the price-earnings multiples paid
in recent transactions, cost more than twice the market capitalisation of BFC. In addition, BFC has
investments in the meat, seafood and health and nutrition industries in Australia.
BFC was established with a specific objective of taking healthy, nutritious, premium quality and
verifiably safe food and beverage products to the growing consumer markets of the world. Our
positioning in the market place with low salt and low fat cheese and meat products which are free
of artificial colourings, additives, accelerants or preservatives, has created a point of difference
which is increasingly being recognised and appreciated by more health conscious consumers.
Consumers are looking for more natural foods that are free from unnatural additives and that
come from trusted sources. This point of difference sets us apart from much of the dietary
homogenisation in food products produced by the large multi-national food companies.
When BFC acquired our Jervois dairy factory, we also separately acquired the adjoining Dairy
Protein Extraction Plant. Until the Mozzarella plant was installed and commissioned, we did not
have sufficient whey liquid to provide the feedstock to operate this plant.
With the Mozzarella line coming into production, we now have more than an adequate supply of
liquid whey to operate the Dairy Protein Extraction plant on an economic basis. BFC has, over the
last twelve months expensed funds to restore and upgrade the Dairy Protein Extraction plant in
order to produce three nutraceutical products:
•
•
•
Lactoferrin (LF)
Lactoperoxidase (LP)
Immunoglobulin (IgG)
The nutraceuticals produced from the fractionation of dairy whey (i.e., LF, LP and IgG) command
relatively high prices in the market place and thereby relatively high returns against the low cost
feedstock of whey liquid, a by-product of cheese making. BFC anticipates to be in a position to
“switch on” its dairy protein fractionation towards the end of this calendar year, assuming that
there is no change in the global market for dairy nutraceuticals.
Beston Global Food Company Limited
30 June 2018
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Review of Operations and Activities CONTINUED
4 The Path Forward (continued)
•
•
The development of our brand presence in China has been painstaking and costly over the last
three years. Nevertheless, we have “stayed the course” because of the potential dividends: the
sheer size of the market (the largest consumer market in the world) and the transition to zero
tariffs on Australian food imports into China by 2020 (ChAFTA Free Trade Agreement).
With the purchase orders and signed contracts received by BFC in recent months for a range of
dairy and seafood products, the China office is expected to more than cover its costs in the FY19
financial year. Of particular significance, amongst these orders is our first sales of Mozzarella into
the China market. The demand for Mozzarella cheese is increasing rapidly in China as the appetite
for pizza grows especially amongst the nation’s younger groups. BFC is well placed to capitalise on
this emerging trend in pizza consumption in China with our premium Mozzarella as well as by
taking our other food products into retail and food service markets in China (i.e. as tariffs come
down and demand goes up).
BFC also recently made its first sale of Mozzarella into Vietnam, where similar trends in pizza
consumption are starting to emerge.
BFC initially held a 40% beneficial interest in Scorpio Food Pty Ltd (“Scorpio”) and in early January
2018, entered into an agreement to take management control and acquire the whole of Scorpio. A
transformational restructuring of the business was subsequently undertaken which has included
the closure of Scorpio’s operations at Colac, Victoria, the sale of the Colac building, the
consolidation of all operations at the Scorpio factory at Shepparton, Victoria and the appointment
of a new General Manager, Mr Luke Bramston (formerly Managing Director of Cater Fair, a
subsidiary of Top Cut Meats).
Under the terms of the buy-out agreement, BFC received interest on its convertible notes and
loans to Scorpio during the year until the acquisition was formally completed on 23 August 2018.
The work done to transform and consolidate Scorpio has significantly improved the financial
viability of the business, the benefits of which are expected to start to flow through to BFC by way
of profit contribution in the 2018-19 financial year. In addition to increasing sales in traditional
areas of the business (as in 3 above), under its new leadership Scorpio is heavily focussed on
value-added cut portion control and cooked foods as part of its forward strategy.
Beston Global Food Company Limited
30 June 2018
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2 0 1 8 A N N U A L R E P O R T
4 The Path Forward (continued)
•
•
BFC has previously advised Shareholders of its intention to commercialise our Beston
Technologies Pty Ltd (BT) business to allow it to realise its full potential. BFC has expended
significant funds to develop its OZIRS/Brandlok technologies and sees the opportunity to have the
technology utilised by other food companies to provide food traceability/assurance to consumers
in Australia, Asia and elsewhere to combat food counterfeiting.
In February of this year, BFC announced a merger with Data Dot Technology Ltd (DDT) which
values BT at $13 million, reflecting an independent valuation of BT’s technology by Deloitte
Finance Ltd. The proposed merger was subject to a number of provisions, including due diligence,
preparation of a business plan for the merged company (MergeCo) and a capital raising to fund
MergeCo.
The respective Boards of BFC and DDT have resolved, earlier this month, that more work is needed
to conclude supply agreements with key customers to underpin the revenue base for MergeCo
and support the intended capital raising. In order to complete this additional work BFC and DDT
have entered into a joint venture framework with a view to enabling a final decision to be taken by
late February, 2019.
The cost of food fraud in the global economy has been estimated at over $60 Billion a year.
Australia’s reputation as a supplier of high quality and safe food and beverage products has made
it a target for counterfeit products.
BFC believes it is in a unique position to further commercialise and extract value from its
investment to date via the track-and-trace and anti-counterfeiting technology developed within
Beston Technologies.
Notwithstanding the disappointing FY18 statutory financial results, BFC remains in a sound
financial position.
The Company has put in place several working capital facilities during the past financial year in
order to fund the growth in milk purchases.
At 30 June 2018, the Group had net borrowings of $16.9 million comprising total borrowings of
$21.4 million offset by cash held of $4.5 million. Gearing (net debt/equity) was a modest 14%.
Mozzarella sales are increasing significantly through the early months of the new financial year
and inventory levels are reducing which is expected to drive a lower level of working capital to be
funded.
The Group has the capacity to increase borrowings to fund expansion activities if required. The
Board considers that net gearing of up to 30% may be appropriate over time as the operating cash
flow continues to grow to support that level of borrowings (in line with the IPO Prospectus).
Since balance date, the Company has agreed with its bankers to restructure its debt into a more
appropriate mix of long-term and short-term facilities.
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Beston Global Food Company Limited
30 June 2018
13
Review of Operations and Activities CONTINUED
4 The Path Forward (continued)
•
•
The total sales revenues of BFC in FY18 doubled over the previous year (from $23.8 million in FY17
to $47.9 million). Sales are expected to approximately double again in this FY19 financial year on
the back of the increased milk supply and the start-up of the Mozzarella plant along with improved
performance at Scorpio.
Sales of cheese and related products from the dairy factories during January to May averaged $2.6
million per month. This new rate has since more than doubled with July sales from the dairy
factories of $5.5 million. This will increase again in August with the commencement of the 200MT
per month Mozzarella supply contract and continue to grow with a further take up of our products
by other customers.
With the lift in our overall dairy production from 10,000 tonnes per annum (cheddar and other
hard cheeses only) to 24,500 metric tonnes per annum (Mozzarella and hard cheeses) our sales
team has been restructured and expanded in size and breadth to accelerate our entry into key
domestic markets.
Additional sales staff, with extensive industry experience, have been appointed in the Eastern
States to provide national coverage in key market segments, including retail, distribution, food
manufacturing and quick service restaurants. The sales action plans which have been put in place
as part of the restructure of the sales team recognise the importance of “walking in the shoes of
our customers” to ensure that our products as well as our processes and procedures deliver on
customer expectations.
Our Sales Team is now headed by David Wilson, Group General Manager, Sales and Marketing who
has had a highly credentialled career in the food industry, working with both multinational and
Australian companies in the food, beverage and tobacco industries.
Forward contracts have been put in place to lock in revenues on several dairy products sold by
BFC into the “food ingredients” industries as a result of increased market demand and pricing (e.g.,
much of the whey powder produced at our powder plant has been forward sold to meet the
increase in domestic consumption of starches for feedstock due to the drought).
BFC currently holds shares and/or other beneficial interests in two companies, seafood company
Ferguson Australia Pty Ltd and health/nutrition company Neptune Bio-Innovations Pty Ltd, which
are currently engaged in separate sales processes. The reasons for the decisions by the investee
companies to place themselves on the market for sale vary in each case.
Ferguson Australia
The Ferguson family has decided to place their 68% shareholding in Ferguson Australia Pty Ltd and
other seafood assets on the market, for family reasons. The sale process is being conducted by
private tender through a specialist firm appointed by the Ferguson family.
BFC has a 32% shareholding in Ferguson Australia and currently intends to exit its investment in
the sale process, along with its lobster licences and property presently leased to Ferguson. The
divestment process is expected to conclude within FY19.
BFC expects to realise at least the book value of its assets through the sale process. It is the
Company’s intention to put supply agreements in place with the new owners to access seafood
products for supply to BFC’s existing markets.
Beston Global Food Company Limited
30 June 2018
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4 The Path Forward (continued)
Neptune Bio-Innovations
Following the receipt of a number of unsolicited offers in relation to their business (and its
products), the major Shareholders of NBI have resolved to run a formal process to invite offers for
NBI and/or its brands, products and formulations.
Over the last few years, NBI has developed into an innovative food and consumer health product
manufacturer with in-house scientific R&D capabilities with four brands in market and 17 SKUs.
NBI products are now stocked in an increasing number of key Australian grocery and pharmacy
chains and revenues have been growing quarter by quarter.
Should offers be received for the whole business, and if accepted by the major shareholders of
NBI, and by BFC, BFC expects to realise at least the book value of its assets on any sale. It is BFC’s
intention to put agreements in place with any new owners to continue to access the technical
expertise of NBI and for the supply of products to BFC’s existing markets.
5 Conclusion
With the commissioning of our Mozzarella plant, the restructuring of our sales team and other initiatives
as outlined above, the Board is of the view that the Company is well on track to increasing top line
revenues, margins and profits. We have been building strong relationships in our domestic markets as well
as overseas. We know that we have excellent products and continue to make significant inroads into our
key market segments. The confidence of the Board in the future direction of the Company is underscored
by the fact that a number of the Directors of BFC have significantly increased their shareholdings in the
Company over the past twelve months.
Beston Global Food Company Limited
30 June 2018
15
111
Directors’ Declaration
In the Directors' opinion:
(a)
the financial statements and notes set out on pages 30 to 85 are in accordance with the
Corporations Act 2001, including:
(i)
(ii)
(iii)
complying with Accounting Standards, the Corporations Regulations 2001 and other
mandatory professional reporting requirements, and
complying with International Financial Reporting Standards , as disclosed in note 22(a)(i),
and
giving a true and fair view of the consolidated entity's financial position as at 30 June 2018
and of its performance for the financial year ended on that date, and
(b)
there are reasonable grounds to believe that the Company will be able to pay its debts as and when
they become due and payable.
This declaration has been made after receiving the declarations required to be made to the directors by
the Chief Executive Officer and the Chief Financial Officer in accordance with section 295A of the
Corporations Act 2001 for the financial year ended 30 June 2018.
This declaration is made in accordance with a resolution of Directors.
R N Sexton
Director
Adelaide
28/09/2018
112
Beston Global Food Company Limited
86
30 June 2018
113
Ernst & Young
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
Independent Auditor's Report to the Members of Beston Global Food
Company Limited
Report on the audit of the financial report
Qualified opinion
We have audited the financial report of Beston Global Food Company Limited (the Company) and its
subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as
at 30 June 2018, the consolidated statement of comprehensive income, consolidated statement of
changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial
statements, including a summary of significant accounting policies, and the directors' declaration.
In our opinion, except for the effect, if any, of the matter described in the ‘Basis for qualified opinion’
paragraph of our report, the accompanying financial report of the Group is in accordance with the
Corporations Act 2001, including:
(a) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2018 and
of its consolidated financial performance for the year ended on that date; and
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for qualified opinion
As at 30 June 2018 the carrying value of the Group’s investments in Neptune Bio-Innovations Pty Ltd
(‘NBI’) was $11.6 million, as disclosed note 14(c). The investments comprise a convertible note and put
option issued on 3 April 2018 and a 9.9% equity investment which are valued at 30 June 2018 at
$5.9 million and $5.7 million respectively.
The fair values of the convertible note and put option are required to be determined at the date of
issuance and as at 30 June 2018 in accordance with AASB 139 ‘Financial Instruments: Recognition and
measurement’. The Group’s equity investment is required to be assessed for impairment by comparing its
carrying amount with higher of its value-in-use and fair value less costs to sell in accordance with AASB
136 ‘Impairment of assets’. The Group’s assessment of the fair value of the convertible note and the fair
value less costs of disposal valuation of the equity investment were prepared using prospective financial
information provided by NBI management. We were unable to obtain access to NBI’s underlying financial
model and supporting documentation in respect of the prospective financial information provided to the
Group. Consequently, we have been unable to obtain sufficient appropriate evidence to assess the fair
value of the convertible note as at the date of issuance or 30 June 2018, and we have been unable to
assess the recoverable amount of the Group’s equity investment as at 30 June 2018.
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting
Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the
Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our qualified opinion.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our
audit of the financial report of the current year. These matters were addressed in the context of our audit
of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate
opinion on these matters. In addition to the matter described in the Basis for Qualified Opinion section, we
have determined the matters described below to be the key audit matters to be communicated in our
report. For each matter below, our description of how our audit addressed the matter is provided in that
context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of material
misstatement of the financial report. The results of our audit procedures, including the procedures
performed to address the matters below, provide the basis for our audit opinion on the accompanying
financial report.
1.
Impairment of non-current assets including intangibles
Why significant
How our audit addressed the key audit matter
Property, plant and equipment of $55.8 million as
disclosed in Note 6(a) and intangible assets of
$8.4 million as disclosed in Note 6(e) represent
significant balances relative to total assets.
As required by Australian Accounting Standards, the
Group assesses at the end of each reporting period
whether there is any indication that an asset may be
impaired. In addition, goodwill and indefinite life
intangible are tested for impairment at least annually.
Impairment assessments are complex and judgemental
as they include the modelling of a range of assumptions
and estimates that will be impacted by future
performance and market conditions.
Our audit procedures included an evaluation of the
assumptions and methodologies utilised in the
assessments, with an emphasis on those relating to the
determination of cash generating units, forecast cash
flows, growth rates, discount rates, comparative industry
valuation multiples and other market evidence.
We involved our valuation specialists to evaluate the
appropriateness of key inputs, where relevant to the
impairment tests, including:
•
•
• Market evidence of industry earnings valuation
Terminal growth rates
Discount rates
multiples
•
•
Long-term inflation and growth rate assumptions
Performing sensitivity analysis on the model forecasts
and key assumptions.
We also considered the adequacy of the financial report
disclosures regarding the impairment testing approach,
key assumptions and sensitivity analysis as disclosed in
Note 8.
A member firm of Ernst & Young Global Limited
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115
2. Assets held for sale
Why significant
How our audit addressed the key audit matter
As disclosed in Note 7 to the financial report, the
Group’s 32% equity interest in Ferguson Australia Group
and related plant and equipment and intangible assets
(the ‘Ferguson disposal group’) are classified as held for
sale as at 30 June 2018.
The Ferguson disposal group is measured at its fair
value less costs of disposal in accordance with Australia
Accounting Standard, AASB 5 Non-current Assets Held
for Sale and Discontinued Operations.
•
Judgement was required to be exercised by the Group in
determining the value of the Ferguson disposal group.
Our audit procedures in respect of the measurement of
assets held for sale included the following:
• We discussed with the Group, the status of the sale of
the Ferguson Australia Group by its majority
shareholders.
In conjunction with our valuation specialists we
assessed the Group’s key cash flow forecast
assumptions in respect of revenue growth, gross
margins, operating costs and the discount rate
applied.
•
In determining the fair value less costs of disposal of
the disposal group the Directors took into
consideration the valuation of the lobster quota
intangible assets determined by an external expert as
disclosed in Note 7(a). Our audit procedures included,
evaluating the competence, capabilities and objectivity
of the external valuation expert used by the Group and
assessing the valuation methodology used.
• We also assessed the fair value against other
comparable companies and market transactions based
on publicly available information.
• We assessed the adequacy of the disclosures in Note 7
of the financial report.
3. Deferred tax asset relating to losses
Why significant
How our audit addressed the key audit matter
At 30 June 2018 the Group held net deferred tax assets
of $6.8 million as disclosed in Note 6(c) of the financial
report.
The recognition and measurement of deferred tax
assets requires significant judgement by the Group in
assessing whether there will be sufficient future taxable
profits to utilise the available tax losses. Additional tax
losses have been recognised as deferred tax assets
during the year.
In conjunction with our tax specialists we assessed the
Group’s judgements relating to the forecasts of future
taxable income and evaluated the reasonableness of the
assumptions underlying the preparation of these forecasts.
This included evaluating the consistency of the
assumptions used with those used to evaluate the
recoverable amount of the Group’s cash generating units
for impairment testing purposes referred to above.
We assessed the adequacy of the disclosures in Note 6(c)
of the financial report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
4. Recoverability of other receivables
Why significant
How our audit addressed the key audit matter
As disclosed in Note 5(b) of the financial report the
carrying value of current other receivables of $12.6
million includes $8.8 million in respect of one
counterparty, Scorpio Foods Pty Ltd (the ‘Scorpio Foods
Other Receivables’). Subsequent to year end the Group
acquired 100% of the issued capital of Scorpio Foods as
disclosed in Note 5(b).
The carrying value of non-current other receivables of
$5.8 million disclosed in Note 5(b) relates to the
deferred sale proceeds receivable in respect of the
disposal of one of the Group’s subsidiaries as disclosed
in Note 13 of the financial report.
The recoverability of other receivables was a key audit
matter because of the value of the balance relative to
total assets. Prior to completing the acquisition of
Scorpio Foods, its financial performance was below the
Group’s future expectations. Consequently, there was a
degree of estimation and judgement in assessing
whether the future earnings of Scorpio Foods would be
sufficient to recover the carrying value of the Group’s
interest in Scorpio Foods as at 30 June 2018.
Our audit procedures in respect of the Scorpio Foods Other
Receivables included an evaluation of the assumptions and
methodologies utilised in the Group’s valuations and
recoverability assessment. We had particular focus on
those relating to the forecast revenue growth rates, gross
margin improvements and operating cost savings by
comparing them to historical results, market evidence of
industry earnings and contractual customer supply
arrangements, where available.
We involved our valuation specialists to evaluate the
appropriateness of key inputs, where relevant, including:
•
•
• Market evidence of industry earnings valuation
Terminal growth rates
Discount rates
multiples
•
•
Long-term inflation and growth rate assumptions
Performing sensitivity analysis on the model forecasts
and key assumptions.
Our audit procedures in respect of the recoverability of
Non-current other receivables included the following:
• We agreed the value of the deferred sale proceeds
receivable to the terms of the signed sale and
purchase agreement.
• We assessed whether there were any factors indicating
the amount receivable may not be fully recoverable.
We assessed the adequacy of the disclosures in Note 5(b)
of the financial report.
Information other than the financial report and auditor’s report thereon
The directors are responsible for the other information. The other information comprises the information
included in the Company’s 2018 Annual Report other than the financial report and our auditor’s report
thereon. We obtained the Directors’ Report that is to be included in the Annual Report, prior to the date
of this auditor’s report, and we expect to obtain the remaining sections of the Annual Report after the
date of this auditor’s report.
Our opinion on the financial report does not cover the other information and we do not and will not
express any form of assurance conclusion thereon, with the exception of the Remuneration Report and
our related assurance opinion.
In connection with our audit of the financial report, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the financial report or
our knowledge obtained in the audit or otherwise appears to be materially misstated.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
117
If, based on the work we have performed on the other information obtained prior to the date of this
auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for
such internal control as the directors determine is necessary to enable the preparation of the financial
report that gives a true and fair view and is free from material misstatement, whether due to fraud or
error.
In preparing the financial report, the directors are responsible for assessing the Company’s ability to
continue as a going concern, disclosing, as applicable, matters relating to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
•
•
•
•
Identify and assess the risks of material misstatement of the financial report, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial report or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Group to cease to continue as
a going concern.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
•
•
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events in a
manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the financial report. We are
responsible for the direction, supervision and performance of the Group audit. We remain solely
responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards
From the matters communicated to the directors, we determine those matters that were of most
significance in the audit of the financial report of the current year and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should
not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Report on the audit of the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 33 to 37 of the annual report for the year
ended 30 June 2018.
In our opinion, the Remuneration Report of Beston Global Food Company Limited for the year ended
30 June 2018, complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration
Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the Remuneration Report, based on our audit conducted in accordance with Australian
Auditing Standards.
Ernst & Young
BJ Pollock
Partner
Melbourne
28 September 2018
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
ASX Additional
Information
Additional information required by the Australian Stock Exchange Ltd and not shown elsewhere in this report
is as follows. The information is current as at 23 September 2018.
Ordinary Share Capital
443,315,867 fully paid Ordinary Shares are held by 3,431 individual Shareholders.
All Ordinary Shares carry one vote per share.
There are no restricted securities or securities subject to voluntary escrow.
There is no current on-market buyback.
Distribution of Equity Securities
The number of shareholders, by size of holding, in each class are:
Substantial Shareholders
(As disclosed in substantial holding notices given to the Company)
Name
Australia Aulong Auniu Wang Food Holdings Pty Ltd
Kunteng Pte Ltd
I.G. Investment Management Ltd
Allianz SE
100,001 and Over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
292
1,763
624
613
139
Ordinary Shares
Number of
Percentage of
Shares Held
Issued Shares
66,894,345
64,051,111
39,525,741
21,955,164
14.90%
14.99%
8.92%
6.04%
119
Twenty largest holders of Quoted Equity Securities
Name
Number of
Percentage of
Shares Held
Issued Shares
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
KUNTENG PTE LTD
67,780,613
64,051,111
AUSTRALIA AULONG AUNIU WANG FOOD HOLDINGS PTY LTD
54,449,834
BNP PARIBAS NOMINEES PTY LTD
BLUE RIDGE HOLDINGS PTY LTD
FIRST BOOM INVESTMENTS LIMITED
BNP PARIBAS NOMS PTY LTD
FIRST BOOM INVESTMENTS LIMITED
HISHENK PTY LTD
PERSHING AUSTRALIA NOMINEES PTY LTD
S GERLACH PTY LTD
BNP PARIBAS NOMS PTY LTD
MR MICHAEL MIHRAN ABOLAKIAN & MRS NAIRY ABOLAKIAN
& MR STEPHEN ABOLAKIAN
HWR NOMINEES PTY LTD
ABORIGINAL CONTRACTING WA PTY LTD
EDM TRANSPORT PTY LTD
BT PORTFOLIO SERVICES LIMITED
MR PETER VERHOEVEN
MR IAN GREGORY GRIFFITHS & MRS SUSAN JANE GRIFFITHS
MR MUN YUE AU YONG & MS LEE HWA TAN
42,995,139
16,611,905
11,428,572
9,720,640
8,333,334
6,000,000
3,003,103
2,816,385
2,546,522
2,425,000
1,800,000
1,568,417
1,500,000
1,224,157
1,100,000
1,070,223
1,050,000
15.29%
14.45%
12.28%
9.70%
3.75%
2.58%
2.19%
1.88%
1.35%
0.68%
0.64%
0.57%
0.55%
0.41%
0.35%
0.34%
0.28%
0.25%
0.24%
0.24%
Business Objectives & Use of Cash
Beston Global Food Company Limited has used Cash and Cash Equivalents held at the time of listing in a manner
consistent with its stated business objectives.
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2 0 1 8 A N N U A L R E P O R T
D
E
T
I
M
I
L
Y
N
A
P
M
O
C
D
O
O
F
L
A
B
O
L
G
N
O
T
S
E
B