CONTENTS
Corporate Directory
Performance Highlights
Board of Directors
Chairman’s Letter to Shareholders
Executive Team
Chief Executive Officer’s Report
Review of Operations and Financial Results
Securing Milk Supply
IFC
Investment Manager
01
02
04
11
12
16
32
Awards’ Update
Community
Corporate Governance
Environment
Financial Statements
for the Year Ended 30 June 2019
ASX Additional Information
34
36
38
38
39
40
102
2019
ANNUAL REPORT OUR VISION
OUR CORPORATE CULTURE (BEHAVIOURS)
Taking healthy eating to the world’s
communities with Australia’s best foods
OUR VALUES
Professionalism
Strive for new heights
Positive influence
We inspire
Powerful together
Move forward as one
united team
Dynamic
performance
We are a step ahead
Lasting impact:
Leave it in a better
state than you found it
• How people behave with each
• How the organization behaves
other
• How people behave with
customers/clients - all internal
and external stakeholders
• How people view their
relationship with their peers,
manager/supervisor and in
general stakeholders
• People’s response to WHS,
energy use, community
involvement, absence, work
ethics etc.
to its employees – WHS,
on-going training, professional
development, performance
reviews, communication
processes, recognize
achievements, fairness and
equity, promote diversity
of people, discussion and
transparency
• We deliver on our V3 strategy
– Volume, Value and Velocity
JERVOIS
MURAL
T he Mural that can be located on
the façade of our Jer vois Mozzarella
factor y is in spired by the histor y of
the area and the factor y itself which
dates back to the 1930’s.
See the full stor y
on page 104.
CORPORATE DIRECTORY
BESTON GLOBAL FOOD COMPANY LIMITED
ACN 603 023 383
Annual Report for the period ended 30 June 2019
INCORPORATION
Incorporated in Australia on 24 November 2014
DIRECTORS
Chairman
Roger Sexton
Stephen Gerlach Non-Executive Director
Catherine Cooper
Petrina Coventry
Jim Kouts
Ian McPhee
Independent, Non-Executive Director
Independent, Non-Executive Director
Independent, Non-Executive Director
Independent, Non-Executive Director
CEO
Jonathan Hicks
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
bestonglobalfoods.com.au
01
2019 THE YEAR
AT A GLANCE
The year that was… substantial progress made in
factories, farms, production efficiencies, sales, margins
Sales revenue (group)
2
0
1
9
2
0
1
8
$84.8 M
$47.9 M
Forward production
committed as at 30/6
2
0
1
9
82% 0%
2
0
1
8
Mozzarella produced
(more profitable product)
Total cheese
production
2019 4,387 T
2018 1,244 T
2019 5,790 T
2018 6,297 T
Volumes of
milk supplied
2019 103 M litres
2018 90.5 M litres
Farm herd size
BFC owned
farms valuation
Industry recognition
(awards)
2019 3,687
2018 2,987
2019 30 M
2018 26 M
2019 43 (113 total)
2018 27 (70 total)
02
BOARD OF DIRECTORS
Petrina Coventry
B.Ed., M. Phil. (Ethics), MBA, EMBA,
FAHRI, FAICD
Independent Non-Executive Director
Stephen Gerlach, AM
LLB FAICD
Company Director and
Corporate Advisor
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
the General Electric Company and The Coca Cola
Company in the United States and Asia and more
recently CHRO with Santos Ltd.
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 and
completing her PHD with Melbourne University.
She is a Fellow of the Australian Institute of
Company Directors, a Vincent Fairfax Fellow, and
a Non-Executive Director with the Australasian
Association of Philosophy (AAP).
He is Chancellor of Flinders University. He is also
the Chairman of Adelaide Capital Partners Pty Ltd,
Gerlach Asset Development Pty Ltd, Ebony Energy
Ltd and a Director of Beston Global Foods Ltd and
Beston Pacific Asset Management Pty Ltd.
He was formerly the Chairman of Santos Limited,
Futuris Corporation Ltd (subsequently known as
Elders Ltd), Equatorial Mining Ltd, Elders Australia
Ltd, Challenger Listed Investments Limited, Amdel
Ltd, and Penrice Ltd. He was also a Director of
a number of other public companies including
Southcorp Ltd, AMP Australia Ltd, Brunner Mond
Holdings Ltd (UK) and Elders Rural Bank and a
member of other public companies including
companies located in the United Kingdom, United
States of America and Chile.
Stephen was a partner of the Adelaide legal firm
Finlaysons for 23 years and it’s Managing Partner
from 1985 to 1991.
He has also been actively involved in a number
of community and professional associations and
is currently a Trustee of the Australian Cancer
Research Foundation, a Director of The General
Sir John Monash Scholarship Foundation and
Chairman of The Psychosis Australia Trust.
He was the inaugural Chairman of Foodbank South
Australia Inc from 1999 to 2014, and a Director
of Foodbank Australia Ltd.
Roger Sexton, AM
B.Ec. (Hons), M.Ec., PhD (Econ), FAICD,
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.
Roger founded BFC in 2012, taking it to a listing in
2015.
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 03
Catherine Cooper
LLB, GDLP, FAICD
Jim Kouts
BA (Journalism), 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.
Catherine is an experienced NED with an extensive
portfolio of approximately 50 Board positions over
18 years.
After a professional career as a commercial
lawyer, Catherine moved into the business world
in 1992 and has developed wide knowledge and
experience across a broad range of sectors such as
agribusiness, food and health, energy and water,
and science and technology.
Catherine has been involved in startups, SME’s,
public sector, private sector, ASX listed, and NFP on
a national and international basis including many
with global export businesses.
Career highlights include the establishment of a
national joint venture Rural Bank, being awarded as
a Telstra Business Woman of the Year finalist twice,
inclusion in an international management program
at GE in New York and more recently winning a
position in the ASX Top 200 Chairman’s Mentoring
program run by the AICD.
Catherine is an experienced Audit Committee
Chair and currently holds a number of positions on
such committees- her strategic, governance and
risk management skills are well established.
Ian McPhee, AO PSM
B.Bus, B.A, FCPA, FCA
Independent Non-Executive Director
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.
04
On a recent visit to our dairy factories in South Australia,
one of our Shareholders made an interesting observation…
that the sight of a flock of long-distance migrating birds,
flying overhead all in a tight ‘V’ formation, provided an
analogy to the journey taken by Beston Global Food
Company (ASX:BFC) over the past few years, since
launching on to the ASX. The leader at the tip of the ‘V’
works the hardest and risks the most. The leader has to
keep pushing ahead, through rain and shine, to get to the
end destination and not be distracted by head winds or
unexpected changes in weather conditions.
The analogy is certainly a pertinent one.
BFC set out to be a leader in the production and
supply of premium quality, safe and healthy food
and beverage products in Australia and overseas.
We have worked very hard on this objective at a
time when the food industry in Australia and the
dairy industry in particular, is being subjected to
enormous challenges and change.
And, we have done what we said we would do.
Despite encountering a number of headwinds
and unexpected set-backs, we have stuck to our
plans to build a globally oriented food company
around a reputation of premium quality, with
healthy ingredients that can be authenticated,
tracked and traced and with a point of difference
that we have created through innovation and
integrity.
While we started with a more diversified
business, the Company has become much more
focused on dairy and meat and related products
as we have moved from the first phase of our
business growth strategy to the second phase
and concentrated our efforts on the areas of
the business where we can achieve the greatest
return on capital employed.
CHAIRMAN’S LETTER TO SHAREHOLDERSBESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 CHAIRMAN’S LETTER TO SHAREHOLDERS
05
LOOKING BACK
When BFC started out, we had no milk (other
than from our own farms), no operational
factories, no brands, no market presence and
no export licenses. BFC was a start-up business
with a sales and profit profile for the first three
years which was to have been underpinned by
sales and purchasing agreements from one of
our cornerstone shareholders. As explained to
shareholders previously the non-performance
by this shareholder, for reasons internal to that
shareholder, was a setback which impacted
significantly on BFC in the early stages of our
journey. BFC paid a dividend in our first year
of trading on the ASX but was subsequently
stymied in its dividend objectives by the gap in
earnings which was to have been delivered from
the purchase commitments entered into with
this cornerstone investor.
Following this early set back, the Board of BFC
resolved to put in place alternative arrangements
to achieve the first phase of our business
strategy, namely to “fix, focus and build-out” our
assets by re-starting the dairy assets we had
acquired, building the infrastructure around
these assets, building brands, building milk supply
and establishing a market presence.
The objectives of this first phase of our business
plan, which we summarized internally as the
“three C’s”, that is, building Capability, (with
high quality premium safe, healthy foods and
beverages), Capacity (with ability to scale up and
achieve production efficiencies as sales volumes
increased) and Clout (with brands, reputation,
quality and trust), were achieved well within the
target time frame of 36 months.
Hand in hand with this approach, we have
instituted an extensive cost reduction program
across the Company which has started to show
bottom line returns… with more expected as we
progress forward. In addition, during this financial
year, we have fully impaired our investment in
NBI and have written down inventories where
required and absorbed the cost of redundancies
associated with our restructuring changes.
We have fully built our sales team, with our
own sales staff on the ground in all mainland
states, and as a consequence, turnover for the
Company has increased by 77% in the current
financial year, even though production levels
have been affected by milk shortages.
Notwithstanding these top line results, where
we are right now, in terms of our headline
earnings numbers, is disappointing. Not because
of a lack of progress in achieving our business
objectives… but because this progress is not
being reflected as yet in our FY19 bottom-line
results or in dividends to shareholders.
Turnover for the Company has increased
by 77% in the current financial year, even
though production levels have been
affected by milk shortages.
It is the case that the dairy industry is finding it
tough going at the moment. Most notably from
the impact of the drought on milk production
and the associated impact on the cost of milk.
We have also seen significant increases in the
price of power and insurance.
But we have been responding to these
headwinds by building on our strategies and
approaches to better position the company
going forward. At the heart of BFC since its
early days has been a focus on the quality of
our products and the strength of our business
and community relationships. This has held
the company in good stead to weather these
tougher times.
06
Since listing in late 2015, BFC has successfully
taken two substantial dairy factories out of
receivership, rebuilt the assets, restored the
export accreditation, brought the assets back
into commercial production with elevated
operating standards (i.e. to world best
practice SQF standards), while building solid
relationships with key stakeholder groups
and communities. BFC has also successfully
completed the acquisition and installation
of a state-of-the-art Mozzarella plant at its
Jervois (SA) factory and restored the cream and
butter plant as well as the dairy fractionation
(lactoferrin) plant.
Within this same time frame, BFC has
built a reputation, both domestically and
internationally, for producing premium quality
dairy products, around a brand (“Edwards
Crossing”) which previously did not exist.
We have now won 113 major industry awards
for the quality of our cheese products since
listing in 2015.
Recently, we won the Christian Hansen Cup
for the Best Cheddar in Australia at the Dairy
Industry Association of Australia (DIAA) Awards
of Excellence. This was the second time in three
years that BFC has been awarded the Christian
Hansen Cup for its “Edwards Crossing” cheese
products.
Dairy Companies and Cheesemakers strive
to win this prestigious Cup each year as it
represents the “Best of the Best”. Amongst the
other 17 awards that we won at this event, one
was a gold medal for our Mozzarella, of which
we only commenced production in commercial
quantities at the beginning of FY19. We knew
our Mozzarella was the best in Australia when
we released it, however we now have formal
recognition of this fact from the independent
industry ‘umpires’, namely, the judges from the
DIAA.
We have achieved similar results with our Meat
business. BFC moved to 100% ownership of
Scorpio Foods with effect from August 2018.
(Prior to that time, BFC held a 40% beneficial
interest in Scorpio). Subsequent to moving to
100% ownership, and control, we undertook a
major restructure of Scorpio which included
consolidating the operations from two separate
locations (Colac, Victoria and Shepparton,
Victoria) into one (Shepparton, Victoria),
building dedicated production rooms for
specific product types to significantly improve
efficiencies, upgrading the quality of all of the
production processes to SQF standards (global
food safety management accreditation) and
changing the name to the Provincial Food
Group (PFG).
In February 2019, BFC announced that it had
secured three new major customers with initial
orders of close to $10 million in annualized
sales for the supply of gourmet burgers and
other quick meal products (pre-cooked, ready-
to-heat) for domestic and international markets.
These new contracts will more than double
previous revenues and reduce the previous
reliance on one major customer (i.e. a global
soup company).
Since taking full ownership of the business,
we have developed significant capability within
PFG of manufacturing plant-based protein
food products. This capability will be expanded
further in the FY20 year in line with our focus
on being a protein company; with dairy protein,
meat protein and plant-based protein products.
On our BFC owned farms at Mount Gambier,
South Australia, a very focused revitalization
program implemented since the time of
purchase in 2015 has achieved a dramatic
improvement in their performance.
As well as making major changes in the supply
side of our business, with our factories and
farms, we have also focused on the demand
side by empowering our consumers with
technology to be able to authenticate our
products and track and trace the ingredients.
When BFC was established, we expected that
we would be able to purchase some existing
‘off the shelf’ technology for the purposes
of providing our consumers with the ability
to check for “fake” products and ingredient
verification.
However, when we learned that we could
not source such technology anywhere in
the world, we set about building our own
(Brandlok/OZIRIS). Our track-and-trace and
anti-counterfeiting technology business Beston
Technologies Pty Ltd holds 12 international
patents including a Blockchain Patent for
managing and providing the provenance
of a product, including food. Work is well
progressed on a project to enable this
technology to be adopted by other users,
outside of BFC.
As a small player in a big global market, BFC
recognised very early on that it would never
be successful by trying to compete with other
players in the global commodity space. As we
stated in our IPO Prospectus, our aim was to
be a niche player in the food and beverage
industry by concentrating on health oriented,
“clean and green” products via a focus on
quality innovation and integrity. We are
achieving this aim, not only with our core
dairy products, but also with our innovative
cheese snacking products (such as “Fancy
Bites”) which are progressively being rolled
out to retail markets and with our meat and
vegetarian/vegan products being produced by
our (now) wholly owned subsidiary, Provincial
Food Group.
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 CHAIRMAN’S LETTER TO SHAREHOLDERS
07
The Q4 period of FY19 was our best
single quarter performance to date.
As at 30 June 2019, BFC has forward
sold more than 82% of its budgeted
production for 2019-20.
The installation of our new state-of-the-art
Mozzarella plant at Jervois, South Australia has
been transformative for the Company. It has
been a game changer, as we intended… and as
we expected it would be. It has enabled us to
produce other dairy products in commercial
quantities, such as cream and butter, and have
an adequate supply of liquid whey to operate our
Dairy Protein Extraction Plant and manufacture
Lactoferrin (Lf) on an economic basis. Lactoferrin
is in high demand in the global nutraceuticals
market and commands high prices with high
margins.
BFC’s Jervois facility is one of only three major
Mozzarella factories of scale in Australia.
Our new plant, which has been sourced from
Italy, has the flexibility to manufacture different
types of Mozzarella cheese products as well as
the capacity to significantly expand production
over time.
LEADERSHIP CHANGES
On 8 August 2018, we announced that CEO
Sean Ebert had stepped aside to take on the role
of Dairy Division Manager. The move allowed
Sean to focus on the completion of a number of
important projects in the dairy factories to boost
revenues and earnings and for the Board to have
a conversation with him about the relevance
of his skills as BFC transitioned into its second
phase of growth.
Sean resigned from the Company in late October
after completing the designated projects at the
Murray Bridge and Jervois factories. With his
engineering, project management and asset
acquisition and deployment skills, Sean did a
great job in taking BFC through the first phase
of our growth strategy and asset build out.
The Board thanks him for his hard work and
contributions.
On 28 November 2018, the Company
announced that Jonathan Hicks had been
appointed as the new CEO and would take up
the position on 7 January 2019. Jonathan has
come to BFC with a wealth of knowledge and
global experience in the Dairy Industry. He is a
Cheese Maker by training and spent the early
part of this career working for dairy companies
and retail supermarket companies in the UK.
Over the last 30 years, Jonathan has held senior
positions within the Australian Dairy Industry.
The appointment of Jonathan reflects a strategic
decision by the Board of BFC to increase the
utilization of the productive capacity at BFC’s
dairy factories to drive profitability while at the
same time shifting more of the Company’s sales
revenues into higher margin earning segments
of the market, such as dairy nutraceutical
products, and pursuing its focus on being a
protein business.
RESTRUCTURING CHANGES
The Company announced a number of
significant management and restructuring
changes in August 2018 which included a
comprehensive review of BFC’s operations
across all areas of the business: factories, farms,
warehouses, customers, systems, people and
culture.
The restructuring changes implemented in
H1 had the effect of increasing revenues and
operating efficiencies and reducing costs.
Over the period from August to December
2018, net costs of in excess of $1.0 million (on an
annualized basis) were taken out of the business.
The restructure continued following the
appointment of our new CEO, Jonathan Hicks,
in early January 2019, and further operational
improvements were identified and are being
implemented which are expected to deliver
further net cost savings of close to $6.0 million
over a full year. These changes are centred
around the Volume, Value and Velocity (“three
V’s) strategy of the second phase of our business
plan and build on Jonathan’s deep experience in
the dairy industry.
In moving through our journey, from a Phase 1
“start up” to the Phase 2 “consolidation” stage,
we have been able to strip out a sizeable
amount of operating costs. This has occurred
in part, because a number of staff necessary
for the “build out” phase (e.g. engineers, project
managers, technical specialists etc.) were not
required after the infrastructure build out and
plant installation was completed and became
operational.
But it has also occurred as we have continually
improved our operational performance and
extracted efficiencies from the assets which we
have employed.
The significance of achieving operating
efficiencies and cost savings in the business,
along with changes made in our sales and
marketing operations, is apparent in the Q4
results of the Company. Demand for our
products exceeded our capacity to supply in the
period with each month in the period showing
positive operating cash flows.
The Q4 period of FY19 was our best single
quarter performance to date and reflected an
operational and financial rhythm in the business
which we expect to be the normal, underlying,
pattern of performance going forward.
08
Our confidence in the outlook for the Company
is underscored by our forward sales volumes
for 2019-20 (i.e. contracted sales volume,
internationally and domestically). As at 30 June
2019, BFC has forward sold more than 82% of its
budgeted production for 2019-20, all of which is
contracted at higher margins than in the 2018-19
financial year.
While we have done a lot of things “right”, we
also made a few mistakes as we moved through
the implementation of our Phase 1 objectives.
In particular, processing milk into mozzarella
ahead of our sales orders in the early part of the
year and then quitting the inventories at reduced
margins in order to free up storage capacity
and cash.
Importantly, we have learned from any such
mistakes and have used them to improve
the way we do things; such as, in this case,
developing our own, dedicated just-in-time
demand planning systems. As a relatively
small player in the Australian dairy and meat
industries, we have been able to respond quickly,
to “change the dial” and implement changes
promptly.
The Board of BFC is of the view that the
milestones achieved along our journey hold us in
good stead for the future. Whilst we will continue
to face some short-term challenges, especially in
view of the complex mix of issues affecting the
dairy industry, we have made strong investments
over the past few years to secure our future.
Notwithstanding a number of one-off “hits” to
our bottom line, and the resulting disappointing
statutory FY19 results, the Directors of BFC
remain confident about the direction and
future performance of the Company. We
have increased the topline revenues, margins
and operating profits and cash flows over
the previous financial year while tightening
up financial disciplines across all areas of the
Company. We believe that we are in a good
position to continue to build on the Company’s
strong foundations to extract increased earnings
from incremental sales revenues in this next
period.
BFC is a well collateralized business with
significant hard assets and strong underlying
asset values. We have a strong management
team in place and strong operational capabilities
with growth potential. We have re-set the cost
base of the business over FY19 and established
a sales team which is capable of growing both
revenues and margins.
Our asset base provides the ability to consider
a range of capital management options as we
progress forward. We have adopted a “be ready”
position for strategic expansion opportunities
and are currently evaluating several potential
bolt-on opportunities.
LOOKING AHEAD TO FY20
We are now in the second phase of our 5-year
business plan… that is to capitalize on the
investments made and grow out earnings.
Our business has come a long way, and while
acknowledging that some things could have
been done better, we have done a lot of things
right!
In building the milk supply to our factories at
Murray Bridge and Jervois for example, we took
in milk from farmers at a time when no other
dairy company would do so. Back in 2016 and
2017 many dairy farmers in South Australia did
not have an outlet for their milk and were in
desperate financial straits. We purchased milk
ahead of our processing needs because it was
the right thing to do. It was the right thing to help
farmers get through their very difficult times.
It was also the right thing for our shareholders
as it helped to build a pool of contracted milk
which we could tap into, very readily, as our
Mozzarella plant came on line and our sales
increased. And it strengthened our relationships
with farmers in the key regions we rely on for
milk supply.
Having “excess” milk while we brought our
new Mozzarella plant on line meant that we
had to trade out around 40% of our milk to
liquid milk companies (often at low margins)
over this period. But it built goodwill with the
dairy farming community in South Australia.
That goodwill is now being repaid as the cycle
has turned and milk has become in tight supply
across Australia (in large part, because of the
drought and increased fodder costs).
We are hopeful that the relationships we
have built and the loyalty which BFC has
demonstrated to farmers, not only in purchasing
their milk ahead of our requirements but also in
facilitating access to counselling, health care and
other services for their families when required,
will hold us in good stead as we progress
forward with our aim to achieve a throughput
of 200+ million litres at our factories at Murray
Bridge and Jervois, South Australia.
We are now processing almost all of our milk
receivals, the majority of which is being used for
the manufacture of mozzarella and high margin
by-products. In concert with the increased
production at our factories, the unit costs of
production have reduced and yields per litre of
milk have increased.
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 CHAIRMAN’S LETTER TO SHAREHOLDERS
09
We believe that our shareholders and other
stakeholders can be proud of the achievements
to date, not only in building the asset base of
the Company but also in the social outcomes
of our efforts. Through the journey of the past
few years, we have created jobs for over 300
people, directly or indirectly, and have provided
support for many farming families (and regional
communities) which were hitherto struggling
to survive.
We understand we have work to do in terms
of the financial performance of the Company
but, as explained, by shoring up our milk supply,
building our sales team, refining our production
capability, and extracting costs from the
business, we are confident we are better placed
going forward to address this.
We appreciate that we have enjoyed the support
of many people along the way – especially our
3,300 highly valued shareholders and customers
and our loyal employees and farmers. On behalf
of the Board, I would like to express my personal
thanks and sincere gratitude to this diverse group
of stakeholders.
Our management team and our staff have
demonstrated yet again both their loyalty and
their commitment to the objectives of the
business in improving performance while also
promoting the culture and values of BFC to our
customers.
Finally, I would like to thank the BFC Directors for
the expertise and experience which they have
again contributed during the year and for their
incredibly hard work and dedication in guiding
and assisting management to deliver on the
Company’s objectives.
We are now processing almost
all of our milk receivals, the
majority of which is being
used for the manufacture of
mozzarella and high margin
by-products.
Roger Sexton
Chairman
10
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 11
EXECUTIVE TEAM
Jonathan Hicks
Chief Executive Officer
David Wilson
GM Sales and Marketing
Adam Rigano
GM Commercial and Supply Chain
Jonathan Hicks has a wealth of knowledge
and global experience in the Dairy Industry.
A Cheesemaker by trade, Jonathan has held senior
positions within the Australian Dairy Industry
over the last 20 years, including Bega Cheese
Limited and Tatura Milk Industries Limited and
was part of the Executive Team which took Bega
Cheese Limited to an IPO in 2011. Jonathan was
the Chief Executive Officer of Pure Dairy Australia,
a successful Australian-based international dairy
trading company from 2014 until 2017. He then
became Managing Director of an advisory firm
operating across a range of agribusiness and
manufacturing platforms, particularly in the Dairy
and Pharma Industries.
Darren Flew
Chief Financial Officer
Darren Flew is a highly experienced senior
finance executive known for strong commercial
and strategic capabilities focussed on driving
achievement of business goals. Before joining
BFC in March 2018, he spent 19 years at Santos
in various senior finance roles including Chief
Financial Officer Eastern Australia Business
Unit and was variously responsible for finance,
commercial, strategy, business development,
procurement, joint venture engagement,
environment, cultural heritage and regulatory
engagement.
Prior to joining Santos, Darren worked for
Baulderstone Hornibrook (construction) as their
Group Finance Manager for 3 years. He qualified as
a chartered accountant in 1985 working for Ernst
& Young and spent time in Singapore and Toronto
before leaving in 1996 to join Santos.
Chartered Accountant, BA Accounting.
David Wilson has had 30 years’ experience in
the FMCG, predominately with Philip Morris Ltd.
Over these years his roles have included; Division
Manager, State Field Sales Manager, Key Account
Manager for Metcash, Woolworths, Coles, MSO’s
and held the State Manager SA/NT position. He
was then appointed Region Manager for SA, NT,
WA and Tasmania responsible for Philip Morris total
business across these three States and Territory.
David successfully held this position for 15 years
and has also successfully managed multimillion-
dollar accounts and large sales teams, which have
delivered consistently on their targets and goals. He
was employed by BFC in April 2018 as the National
Retail Manager and was promoted to GM Sales and
Marketing in August that year. The benefit to BFC re
these skills has seen ranging across major MSO’s,
Woolworths and the Peregrine Group (OTR).
David has a Graduate Diploma in Innovation and
Service Management at RMIT.
We have a capable
management team
in place and strong
operational capabilities
with growth potential.
Adam Rigano is a senior executive with over 17
years of strategic commercial, operational and
financial experience within ASX listed companies.
Adam commenced with BFC as the Chief
Operating Officer in November 2016 and within 7
months also assumed the Chief Financial Officer
role. In Feb 2018 he assumed the position of Chief
Development Officer focussed primarily on value
creation throughout the Supply Chain. Prior to
BFC Adam was with Santos in senior executive
and managerial positions leading business
transformation, strategic, commercial, planning,
economic and finance functions. Prior to Santos he
has been involved in various industries including
new venture commercialisation, agriculture (wine)
and security industries.
Hamish Browning
General Manager, Agribusiness
BFC and Non-Exec Director of
Aquaessence P/L
Hamish’s career spans over 25 years in agriculture
and food with Elders Ltd, Frontier International
Agri Pty Ltd (Ruralco J/V, ASX: RHL), Thomas Foods
International, and Beston Global Food Company.
Senior management and administration roles held
within these companies include Managing Director,
Chief Operations Officer, General Manager,
Senior Trader, and Chairman. Graduate Diploma
in Financial Services – AFMA, Cert IV in Frontline
Business Management, Global Agribusiness
Program - Harvard Business School and Executive
Change Management Program – Australian
Graduate School of Management.
12
In our fourth year as a publicly listed company,
we are pleased to report that we achieved sales
revenues of $84.8million in FY19, representing an
increase of 77% on the FY18 results. Indeed, we
have almost doubled our sales every year since
FY17… a long way from virtually zero revenues at
the outset when the Company listed in FY16.
The increase in revenues incorporate a similar
increase in customer capture over the same period,
particularly in the area of Domestic Food Service.
International revenues during FY19 included sales
to customers in China, Vietnam, Thailand, Japan,
Malta, Philippines and Canada.
We have achieved a lot in this past financial year.
Key performance achievements for the year
include:
• Sales revenues increased by 77% on the same
period last year to $84.8million.
• Revenues for the Dairy Division accounted for
nearly 90% of the sales achieved for FY19 and
were up by 81% on the prior year.
• The state-of-the-art mozzarella plant at
Jervois (commissioned in the second half of
FY18) progressively ramped up the production
of commercial quantities of cheese, such
that by April 2019, the plant was consistently
producing more than 500 metric tonnes per
month, and on a “just-in-time” basis (i.e. on an
order matching basis).
• The ramp up in mozzarella production and
sales enabled more of our milk supply to be
put into our own use in production, rather
than having some 40% of our milk traded out
as raw milk as in H119.
• 60% of our milk supply was used in our own
production in FY19 and 73% of that went
into the production of mozzarella and high
value by-products. BFC produced 4387MT of
mozzarella in FY19 compared with 1244MT
in FY18, the year of installation of the plant.
In the FY20 year, we expect that nearly all of
our milk will be used for our own production
needs, except for a small amount which
is committed to assist two other South
Australian companies, Nippy’s and Moo with
whom BFC has close working relationships.
• The commencement of commercial
• BFC completed the refurbishment and
mozzarella production at Jervois substantially
increased the range of other dairy products
available for sale (i.e. butter, cream, whey
powder and dairy nutraceuticals) and enabled
synergistic benefits to be extracted between
the Company’s two dairy factories at Murray
Bridge and Jervois.
upgrading of the dairy fractionation plant at
Jervois and “switched on” the production of
high value lactoferrin in the latter part of H1.
• Freeze Drying and milling facilities were
added in January 2019, enabling final form
powdered product to be produced and sold
in H2.
CHIEF EXECUTIVE OFFICER’S REPORTBESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 CHIEF EXECUTIVE OFFICER’S REPORT
13
The Company has come a long way since it listed. BFC set
out with a goal to take healthy, safe, and premium food and
beverage products produced in Australia to the growing
consumer markets of the world. We remain committed to
that goal. Food and, particularly, access to protein is rapidly
emerging as one of the great challenges facing the world,
with more than 1 billion people being added to the global
population by 2030.
• Beston Global Food Company has partnered
with Mexican-themed casual dining chain,
Guzman Y Gomez (GYG) over the past 12
months to develop, trial and manufacture a
unique fit-for-purpose cheese for GYG’s 106
stores across Australia. Following successful
completion of the trials by GYG, Beston Global
Food Company has entered into a Supply
Agreement with GYG to be their principal
Australian cheese supplier.
•
In February 2019, BFC announced that it had
secured three new major customers at PFG
with initial orders of close to $10million in
annualized sales for the supply of gourmet
burgers and other quick meal products
(precooked, ready-to-heat) for domestic and
international markets. These new contracts
will more than double annual revenues and
reduce the reliance on one major customer
(i.e. a global soup company).
• The Company’s owned farms in Mount
Gambier performed strongly on the back of
significant on-farm investment program over
the past three years, which enable the farms
to more than double silage production and
mitigate the effects of the crippling drought
conditions in Australia.
• A combination of improved management
of pasture, fodder production and herd
improvement has increased milk production
per cow and resulted in the BFC owned farms
breaking even in one of the most difficult
years of dairy farming in recent history.
• The improvements made on the farms is
reflected in the independent valuations of
the farm properties at 30 June 2019 which
increased to $30.4million.
• Provincial Food Group (formerly Scorpio
Foods) was extensively restructured and
repositioned during the year after BFC moved
to 100% ownership in August 2018.
• The restructure included consolidating the
operations from two separate locations
(Colac, Victoria and Shepparton, Victoria),
building dedicated production rooms at
Shepparton for specific product types to
improve efficiencies and upgrade the quality
of all the production processes to SQF
Standards (global food safety management
accreditation).
• As part of the restructure of Scorpio and its
transformation into Provincial Foods, BFC
acquired the PFG building in Shepparton,
which was previously on a lease arrangement.
BFC now owns the property and charges rent
to the business of PFG.
• Since taking full ownership of the business
and completing the restructuring works,
we have developed substantial capability
for the manufacture of plant-based protein
food products, with the products now being
sold by contract customers into major retail
stores across Australia. This capability will be
expanded further in the FY20 year.
• BFC sales team was restructured and
repositioned during the year to remove
contracted third-party service providers and
replace them with our own in-house sales
personnel. As a result of this change, BFC now
has its own market interfacing sales team with
representatives on the ground in all mainland
states.
• BFC won 43 new medals for its “Edwards
Crossing” brand of cheese products during
the 2018-19 year, bringing the total tally of
medals to 113 in the last 3 ½ years. Apart from
receiving many high-profile industry awards
since listing, which in the FY19 included
again the DIAA’s Christian Hansen Cup for
the Best Cheddar in Australia, BFC has also
been awarded a Gold Award at the Nantwich
International Cheese Show, held in the UK
in July 2019. This prestigious dairy judging
event is the largest cheese awards event in
the world and has been held since 1897. This
year, over 500 cheese experts judged 5200
entries of the best cheese and dairy products
from 27 countries. Also following another very
successful SA Dairy Awards event held on
Friday 9 August 2019, BFC won an additional
15 awards which included two trophies being;
Champion Cheddar Cheese of The Show and
Best Innovative Dairy Product (Entertainers’
Selection).
14
• Whilst the winning of such awards is
an industry validation for the skills and
capabilities of both our cheesemakers and
our milk suppliers, the importance of such
awards is in having them translate into sales
in the marketplace. The increased consumer
recognition gained from these awards has
helped to increase the demand for the BFC’s
products, in both food service and retail
outlets. (Over the last quarter of FY19, our
sales of retail cheese in the domestic market
increased by 206%.)
• The building of our brand presence in
important overseas markets also, particularly
China and SE Asia, has enabled us to wind
back our international offices and achieve our
objectives in a more cost-effective manner.
A number of important strategic sales and
distribution relationships have been put in
place during the year (particularly in China,
Thailand, Vietnam, Philippines and Singapore/
Malaysia) which will underpin BFC’s presence
in these regions.
While these achievements are significant and
have been transformative for the business of
BFC, we have not achieved enough. We have not
achieved our objective this year of producing a
positive statutory net profit.
The FY19 financial performance of the Group
was an overall statutory loss of $26.98million
(including the $5.9million NBI impairment).
The Q4 period of FY19 represented
an operational and financial rhythm
in the business which we expect to
be the normal, underlying, pattern of
performance going forward.
SIGNIFICANT IMPACTS ON FY19 NPAT ($ MILLION)
These statutory results reflect a number of
challenges, one-off events and disappointments
experienced during the FY19 year including:
• The flow-on effects of the later than
scheduled commissioning of our mozzarella
plant (including the later than anticipated take-
up of orders and consequential lost margin
opportunities).
• The impairment of NBI and Ferguson
Australia.
• The redundancy costs associated with
restructuring measures implemented in the
Company during FY19 (including the wind-
down of overseas offices).
• The disposal of inventories. The Company
wrote off some mozzarella stocks from the
early production runs (when the plant was
in the process of being fine-tuned) due to
the product not satisfying BFC’s quality
standards. Some mozzarella stocks were also
written down which had been produced for
several large customers but were not taken
on schedule due to inconsistent fill rates on
shelves by those customers.
• The flow-on effects of the severe drought
across Australia which led to reduced milk
supply and higher milk prices, resulting in
higher conversion costs and less product
available for sale.
• The difficult trading conditions in Q3 from
reduced milk supply and higher prices was
compounded by the down time and build
out of capacity at PFG which occurred at the
same time (had it not been for the impacts
of these events, BFC was on track to more
than double sales in FY19 over the previous
financial year).
The impact of these items on FY19 NPAT can be
seen in the chart below:
-
-5
-10.0
-15.0
-20.0
-25.0
-30.0
1.7
1.9
2.6
2.7
2.0
5.9
1.0
1.9
2.4
-5.2
Drivers of increasing
profitability:
• Growing milk suppply
• Deep sales pipeline
•
margins
• Cost reductions
Increasing yields and
-27.3
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BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019
CHIEF EXECUTIVE OFFICER’S REPORT
15
• The efficiencies introduced at Provincial
Foods, and the capabilities which have been
developed around plant-based protein food
production, in addition to value-added meat
products has pushed demand to capacity
and substantially enhanced the overall
viability of the PFG business. (The work
done at Provincial over the last financial
year has created the opportunity for BFC to
be the trusted provider of premium protein
products in Australia, at a time when the
demand for both meat and alternative meat
products is rising significantly.)
The significance of achieving operating
efficiencies and cost savings in the business,
along with changes made in our sales and
marketing operations, is apparent in the Q4
results of the Company. Demand for our
products exceeded our capacity to supply in the
period, with each month in the period showing
positive operating cash flows.
The Q4 period of FY19 represented an
operational and financial rhythm in the
business which we expect to be the normal,
underlying, pattern of performance going
forward.
BFC is a well collateralized business with
significant hard assets and strong underlying
asset values. We have a capable management
team in place and strong operational
capabilities with growth potential. We have re-
set the cost base of the business over FY19 and
established a sales team which is capable of
continuing to grow both revenues and margins
in FY20.
Our asset base provides the ability to consider
a range of capital management options as we
move forward. We have adopted a “be ready”
position for strategic expansion opportunities
and are currently evaluating several potential
bolt-on opportunities.
We remain confident as to the outlook for the
Company which is underscored, inter alia,
by our forward sales volumes for 2019-20
(i.e. contracted sales volume, internationally
and domestically). As at 30 June 2019, BFC
has forward commitments for 82% of its
budgeted production for 2019-20, all of which is
contracted at higher margins than in the 2018-
19 financial year.
Jonathan Hicks
Chief Executive Officer
During FY19, we reviewed, reflected and re-set
our direction, including:
•
Identifying and focusing on the successful
parts of the business being the core dairy
and meat/protein businesses.
• Restructuring the sales team to remove
third-party consultants and employing
dedicated, experienced staff with a presence
across all mainland States.
•
Instituting a comprehensive operational and
organizational review across all aspects of
the Company: factories, farms, warehouses,
customers, systems, people and culture.
• Re-setting the cost base through all areas of
the Company’s operations.
• Shoring up our milk supply with increased
farmer interaction and a dedicated milk
supply team.
•
Increasing the acquittal of our milk supply
into processing of BFC’s own products.
• Restructuring the business of Provincial
Foods to reduce costs, increase efficiencies,
and diversify and increase the sales base.
• Growing our brand recognition through both
broad and targeted marketing.
A number of these actions involved
difficult decisions, particularly in relation to
redundancies, but were necessary, not only
to enable the transition and growth of our
business from a Phase 1 “start-up” to the Phase
2 “consolidation” stage, but also to reflect the
realities of today’s market conditions.
The results of these actions started to show
through in H2, and particularly in the last three
months of FY19:
• The margins earned on sales have lifted
significantly.
• Production yields in the factories have risen
(i.e. we are now producing more cheese with
less milk).
• Cost savings in the business which have
been identified from the comprehensive
review of operations, personnel, assets
and commercial supply arrangements (i.e.
input costs), along with the completion of
the “build-out” phase of the Company’s
development, are translating into annualized
savings of approximately $6million (i.e. on a
full year basis).
• An increase in cash available to the business.
•
Improved awareness of BFC’s brands in the
marketplace (retail sales of the Company’s
Edwards Crossing Cheese products
increased by 206% in Q4).
16
REVIEW OF OPERATIONS AND FINANCIAL RESULTSBESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 REVIEW OF OPERATIONS AND FINANCIAL RESULTS
17
FINANCIAL RESULTS
Substantial progress made in factories, farms, production efficiencies,
sales, margins and new products were overshadowed by one-off,
non-recurring restructuring costs and drought.
The Company reported a statutory loss of
$11.5million at the half year ending 31 December
2018, after impairing its investment in NBI and
incurring a number of non-recurring costs as
previously reported, namely:
• The flow-on effects of the later than
scheduled commissioning of the Company’s
new mozzarella plant;
• The changeover of BFC’s sales team from an
external third party to an insourced team in
the latter part of Q2;
•
Inconsistent fill rates by a number of new
retail customers in the later part of Q2; and
• Write-downs of inventories from the early
production runs of mozzarella.
These one-off, non-recurring impacts and
costs were exacerbated in the second half by
the very significant effects of the drought in
Australia which led to a substantial reduction in
milk intake, and a consequential, and dramatic
increase in conversion costs at the factories.
While our own farms did not experience severe
drought conditions (and indeed we were
substantially insulated from drought by virtue
of our underground water supplies) the costs
of fodder, grain and other shed feed increased
dramatically (by 2 to 3 times) and more than
doubled the input costs of our contract dairy
farmers. These farmers responded by culling
their herd numbers and the use of high energy
feeds which in turn reduced milk supply to our
factories.
The reduction in milk supply from our group
of contract farmers resulted in our overall milk
throughput for 2018/19 being 23% down on
budget. Milk supply to BFC to 30 June 2019 was
103 million litres. The drop off in milk supply not
only pushed up the unit cost of products, but
also meant that our newly established in-house
sales team had less dairy product available to sell.
The impact of these drought induced events
was felt primarily in Q3 (January-March 2019),
resulting in significant operating losses in that
period.
The Company responded by further
reducing costs across all operations via the
comprehensive organizational review which
commenced in H1.
In addition to the operating losses in Q3,
we incurred the cost of further redundancies
associated with the restructuring from our
organizational review and with the wind down
of personnel engaged in our overseas offices.
Pleasingly, these adverse events turned around
in the fourth quarter when the significance of
achieving operating efficiencies and cost saving
in the business became apparent. Demand for
our products exceeded our capacity to supply
in Q4 with each month in the period showing
positive operating cash flows.
As shown by the year end results, the pickup
in performance in Q4 (sales up, costs down,
margins up) was not sufficient to outweigh
the operating losses and non-recurring costs
incurred over the previous three quarters.
The FY19 financial performance of the Company
was an overall loss of $26.98million after
including the NBI impairment of $5.9million.
The result includes the non-recurring transitional
impacts and costs which reduced the result
by approximately $22.1million over the year.
These matters are described below as they
related to each division.
Notwithstanding the disappointing statutory
result, the Directors of BFC remain confident
about the underlying momentum, direction
and performance of the Company. We have
increased the topline revenues, margins and
operating profits and cash flows over the
previous financial year and believe that we
are in a good position to continue to build on
the Company’s strong foundations to extract
increased earnings from incremental sales
revenues in this next period.
18
DAIRY DIVISION
The dairy division comprises the dairy farms owned by the Company
and the dairy factories at Murray Bridge and Jervois.
Mozzarella and cheddar production in Q419
were substantially higher than earlier months
with April at 516T, May at 642T and June was
649T which was the highest for the year.
This was driven by significantly higher demand
with milk supply constraints limiting production
and sales volumes during this period.
The delay in the commissioning in the
mozzarella plant in FY18 meant that mozzarella
customer base for FY19 had not been established
ahead of the spring milk flush period. With
high levels of cheddar stocks already on hand,
the significant milk surplus to production
requirements was traded out. As this occurred
during the spring flush the milk was only able
to be sold at cost. Lost margin in H119 totalled
$2.0million.
Milk continued to be traded through Q319 as
demand was still building. However, the price
received increased as milk went into short
supply after the spring flush period due to
the drought conditions. As noted earlier, milk
receivals in H219 averaged some 23% below
plan resulting in the lost margins. With the large
inventory position at 30 June 2018 and the
slower growth in sales in the high milk supply
period, the Group decided to reduce its inventory
holdings and sell some of its production at lower
prices to maintain cash flow and operational
performance. Some Mozzarella stocks from
the early production runs were also written
down and disposed of due to the product not
satisfying BFC’s quality standards. The impact of
the lost margin opportunities from these factors
depressed the reported net result of the Group
by approximately $2.7million in total, after tax.
FACTORIES
Sales of dairy products were $75.4million for the
year an increase of 81% over the prior year. Total
cheese produced was 5,790T, down from 6,297T
in FY18.
Milk receivals at the factories totalled 102.8ML
13.5% higher than 90.5ML in FY18. The total milk
received fell short of the initially contracted
volumes of 117ML. This was especially felt in
2H19 when drought conditions and the loss
of 4 farm suppliers saw monthly milk received
averaging around 30% below plan in that period
(as previously mentioned, overall milk throughput
for 2018/19 was 23% down on budget).
Mozzarella production was 4,387T (FY18:1,244T)
and sales were 4,364T (FY18:382T). Yield
performance at the Mozzarella plant has
continued to improve even at lower volumes of
throughput than planned. This is an important
result as small yield variances can have a
significant impact on the quantity of product
produced for sale and ultimately profit.
Cheddar production was reduced during the
year in favour of the more profitable mozzarella
products. Cheddar production was 1,404T
(FY18:5,054T) and sales were 2,616T (FY18:3,753T).
The core sales of dairy products grew through
the year as new customers were added.
One significant new customer was Guzman
Y Gomez, an Australian casual dining, quick
service restaurant chain specialising in Tex-Mex
dishes such as burritos, nachos, taco, quesadillas
and other specialty items. Guzman Y Gomez
currently has over 106 stores across Australia, as
well as stores in Singapore and Japan. A number
of different variations of the cheese have been
trialled by Guzman Y Gomez over the last 12
months to identify the preferred recipes for the
cheeses to be used by the Company in all of
its stores across Australia. It is anticipated that
annual supply to Guzman Y Gomez will exceed
500 tonnes in FY20.
A
L
L
E
R
A
Z
Z
O
M
PRODUCTION
4,387 T
(FY18: 1,244 T)
SALES
4,364 T
(FY18: 382 T)
252%
1,042%
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 REVIEW OF OPERATIONS AND FINANCIAL RESULTS
19
DAIRY FACTORY MILK AND PRODUCTION VOLUMES FY 2019
)
L
M
(
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0
700
600
500
400
300
200
100
0
(
T
)
JUL
AUG
SEP OCT NOV DEC
JAN
FEB MAR
APR MAY
JUN
Milk Processed (ML)
Milk Sold (ML)
Cheese Production (T)
20
BFC owns four dairy farms in the
South-Eastern region of South Australia
which in aggregate, produce just over
17 million litres of milk. The farms total
1,546 hectares in size (i.e. 3,800 acres) and
carry a 2,550 dairy cow herd plus dairy
replacements (i.e. a total herd of 3,687).
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 REVIEW OF OPERATIONS AND FINANCIAL RESULTS
21
The on-farm infrastructure has been further
improved during 2018-19 with the installation
of two new irrigation centre pivots (one
replacement and one addition) and the ripping
and crushing of non-grazable stoney areas.
This latter activity has increased the grazable
areas on the farms by 40 hectares (approx. 100
acres).
Our revitalised and replacement breeding and
purchasing program has seen 1,500 new heifers
introduced to the herd during FY19, which has
had a positive impact on productivity per cow.
For the first time, a maize silage crop has been
grown on our Ashwood Farm, yielding 380
tonnes from an area of 20 hectares (i.e. around
19 tonnes per hectare). During financial year, we
cut approximately 2.5 times the previous years’
volume of pasture silage and hay from virtually
the same area of land.
As a result of these initiatives, the dairy farms
owned by BFC have performed strongly
during the year, despite the general drought
conditions. (As above, milk production of circa
17.1 million litres exceeded the management
budget and was an increase of 14% on FY18
production.)
Further benefits are expected to be obtained
from these initiatives in the year ahead.
An independent valuation of the BFC owned
farms as at 30 June 2019 shows that the farms
have increased in value by $4million over the
past twelve months to $30million.
OVERALL RESULT
The overall trading result for the dairy division
(factories and farms) was a loss of $12.5million
before tax or $8.8million after tax.
FARMS
BFC owns four dairy farms in the South-Eastern
region of South Australia which in aggregate,
produce just over 17 million litres of milk.
The farms total 1,546 hectares in size (i.e. 3,800
acres) and carry a 2,550 dairy cow herd plus
dairy replacements (i.e. a total herd of 3,687).
The dairy farms owned by BFC have performed
strongly during the year, despite the general
drought conditions. Milk production on our BFC
owned farms of circa 17.1million litres exceeded
the management budget and is up by 14% on
FY18.
The herd size at 30 June 2019 of 3,687 cows
has grown by around 700 cows in net terms
since June 2018.
Operating costs on the farms were contained,
despite industry-wide increase in feed costs,
aided by a record silage harvest. The result
demonstrates the benefits of the investments
which have been made in farm improvement
over the past three years (including via the
acquisition of additional water, pasture
improvement, herd enhancement and
upgrading of on-farm management).
The properties also have access to significant
quantities of underground water. BFC owns
material permanent water rights of around
5,044 megalitres.
The balance of BFC’s annual water supply are
provided by third-party licenses, entitling the
Company to a total of 6,077 megalitres of water,
which has proven to be more than sufficient for
requirements even in the drought of 2018.
Investments have been made by the Company
into the farms in the past few years by way of
improvements in infrastructure, herd profile,
pasture quality and people.
Like all dairy farms in Australia during the
past twelve months, our Company owned
farms have been challenged with severe
cost increases brought about by the drought
induced feed shortages and resultant
increases in the price of grain and dry fodder.
Pleasingly, due to a combination of pasture
improvement, increased fodder production
and herd improvement, we were able to reduce
grain consumption input costs, yet increase
milk yield per cow (resulting in the total milk
production on our farms being 2.2 million litres
higher than in the previous financial year).
22
MEAT DIVISION
The Group’s acquisition of Provincial Foods Group (renamed from
Scorpio Foods) was completed on 23 August 2018 (prior to this time,
BFC held a beneficial interest in Scorpio of 45%).
Since acquisition, BFC has completed the
extensive transformation of this business.
In the lead up to acquiring 100% ownership
of the business, it commenced a number
of significant changes. The Colac factory
in Southwest Victoria was sold and the
Dandenong office was closed. All retained
equipment was relocated to the Shepparton
cold storage facility where five cold storage
rooms were refitted for manufacturing and SQF
food processing accreditation was obtained.
Since August 2018, much of the processing
equipment has been replaced and upgraded
with the latest technology. The company
has also been rebranded as “Provincial Food
Group” to reflect the ever-growing focus from
consumers on provenance and understanding
the origins of the food they purchase.
In conjunction with the restructure of the
business, the property at Shepparton previously
occupied under a lease arrangement, was
purchased and is now an asset of BFC. A new
General Manager was also appointed, Luke
Bramston, who has a long history in food
manufacturing, formerly as part of the Topcut
Meats Group.
The need for a change in direction of the
business was highlighted in October 2018 when
a single major customer, which previously
accounted for close to 80% of the revenues of
the business, held a shut-down of their business
for two weeks, which ultimately extended to
four weeks. Purchase orders were subsequently
much lower than initial customer forecasts.
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 REVIEW OF OPERATIONS AND FINANCIAL RESULTS
23
In the FY20 year our focus will be on
being a protein company; with dairy
protein, meat protein and plant-based
protein products.
With the repositioning of the business, the focus
on profit and growth has been to:
• Extend the Core: capture higher end users of
burgers, sausages, and meatballs in Australia.
(Supply to a significant burger chain has
recently been secured.)
• Expand Export Sales: PFG has moved into
portion control cutting and gained orders
for retail prepared steaks with a major food
company in South East Asia.
• Diversify Product Lines: using PFG’s
manufacturing IP, the business has been
able to apply its improved capabilities to
provide tailored solutions to a wider range of
customers.
• Build Food Service Capabilities: PFG has
developed a food service range under a new
brand “5026”.
Production trials were held in January/February
2019 for three new major customers. These
trials were successfully concluded resulting in
commercial agreements which are expected
to contribute at least $10million per annum
in revenues. The initial fill for these contracts
occurred through May and June and into July.
Monthly revenues nearly doubled largely as
a result of the commencement of the new
contracts from $0.6million in January to
$1.2million in June.
Production trials were held in January/
February 2019 for three new major
customers. These trials were successfully
concluded resulting in commercial
agreements which are expected to
contribute at least $10million per annum
in revenues.
As part of the repositioning of the business,
PFG has developed substantial capability in
the manufacture of plant-based protein food
products. Through the expertise developed
in-house, and the purchase of specialized,
dedicated equipment from overseas, PFG has,
over the past six months, developed into one
of the largest contract manufacturers of plant-
based protein foods in Australia. PFG is now
supplying alternative meat products to many
of the leading brands of vegetarian and vegan
products sold in retail stores across Australia.
Notwithstanding the considerable successes
achieved at PFG through the restructure and
repositioning of the business, the financial results
bore the impact (on both revenues and costs)
of the transformation strategies implemented
across the business and the initial costs of
production trials and ramp up, which will not
recur.
PFG reported a loss after tax of $1.9million since
acquisition.
The financial result was also impacted by the
decisions to close the Thailand and China offices.
This decision resulted in redundancy costs, stock
write downs and related cost totalling $1.7million
after tax incurred or provided for in Q419.
Other restructuring costs incurred in FY19 related
to staff redundancies and the AQUAEssence
water business and totalled $1.0million.
The Group’s seafood assets have since January
2018 been the subject of a sale process run
by Ferguson Fisheries. The sale process was
not successful and at 30 June 2019 the Group
has written down its investment in Ferguson
Australia to nil. The total write-down of the
Ferguson Australia investment is partly reflected
in the profit and loss statement as a result of
applying retrospectively equity accounting for
the investment. The profit and loss statement
include equity accounted losses for the current
year and prior year of $762k and an impairment
write down of $893k as at 31 December 2018.
Refer to note 14 in the financial statements for
more details of this accounting requirement.
The profit and loss account also include an
impairment charge of $2.4million to write down
to nil the carrying value of a loan receivable from
an entity domiciled in China.
No dividends will be payable in respect of the
2018-19 financial year.
24
MILK SUPPLY
The dairy industry in Australia
has experienced one of its most
difficult periods in recent history
over the last twelve months.
Crippling drought conditions
particularly in the northern parts of
the country, dramatically increased
the cost of stock feed (by between
200% and 300% for much of the
year). Farmers responded to the
situation by reducing cow numbers
and the use of high energy feed,
all of which reduced the available
supply of milk.
BFC contracted for the supply of 117 million litres
of milk for the year (against a target of 130ml) but
the reduced on-farm production by its contract
dairy farmers meant that the actual milk received
only totalled 103 million litres.
Pleasingly, the milk supplied by BFC’s own
farms actually increased during the period,
notwithstanding the flow-on effects of the
drought. The on-farm milk production totalled
17.1 million litres, up by 15% on FY18.
After starting from a position of zero milk
supply in 2015 (except for that from our
own farms), BFC now takes in 21% of all milk
produced in South Australia on an annual basis.
Our longer-term target is to account for 30%-
40% of milk produced each year in the State of
South Australia.
We value highly the relationship with our
contract dairy farmers. Our farmers, along with
the whole of the dairy industry, have had to face
a wide mix of complex issues and challenges in
this last year, including drought, increased feed
costs, soaring energy prices and critical labour
shortages (as a number of farmers, particularly
older farmers retiring, have left the industry).
We recognize that our relationships with farmers
isn’t simply about milk supply… it is also about
the welfare and livelihood of the farmers, their
families and the rural communities in which
they live. For this reason, we work closely with
our farmers, and with the South Australian
Dairyfarmers Association (SADA) to ensure that
we contribute in as many ways as possible to
their well-being, and that of their families.
We have committed to working on our own
farms, as well as with our contract dairy farmers
to ensure that we are adopting world best
practices in farm milk production and that we
are a processor of choice as a result of adopting
best industry practices in our factories.
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 25
After starting from a position of zero milk supply in 2015 (except
for that from our own farms), BFC now takes in 21% of all milk
produced in South Australia on an annual basis. Our longer-term
target is to account for 30%-40% of milk produced each year in the
State of South Australia.
The historic connection between farmers and
processors in the Australian Dairy Industry is
well documented. At BFC, we have sought to
use our size, access and agility to drive an even
closer and more engaging relationship with our
farmers. With between 30-50 contract farmers
on our books, for 100-130 million litres supply
(compared to large processors with thousands
of farmers and millions of litres), we believe that
we can provide our farmers with a stronger
voice, faster decision making, and a sense of
partnership with BFC.
As we go into the 2019-20 milk season, we will
continue to position ourselves as a business
of choice for dairy farmers based on trust,
reliability and transparency. In FY19, we engaged
a dedicated Milk Supply Manager who is known
by farmers for his commitment to providing a
high level of service. Our dairy business lifeline
is a sustainable consistent milk supply and we
remain committed to delivering outcomes that
will have long term benefits for our farmers
along with all stakeholders.
The outlook for the 2019-20 season is for a
material increase in milk prices. It is pleasing
that we are now starting to see the true value
of milk as a food product recognized by the
market even though this will translate into higher
input costs for BFC, and for all dairy processors
in Australia. The stronger milk prices will be
good for farmers and their families, and for rural
communities.
The challenge for BFC will be to manage these
cost increases by getting even better at what we
do in the factories, and by continuing with the
strict disciplines we have put in place around
cost controls.
26
INTERNATIONAL DIVISION
Since listing, BFC has operated two main International Offices in China
and Thailand. Both of these markets are of high importance to the
Company. Throughout FY19 we have been examining new models
of how we can achieve our objectives in these markets in a more
cost-effective manner, while building on the brand presence we have
established over the past three years in these markets. A number of
strategic sales and distribution relationships have now been put in
place to service, and importantly, grow BFC’s presence in these regions.
This has enabled BFC to commence winding down its two main offices
in both China and Thailand. The impact on BFC’s cost line from winding
down these offices and increasing the use of third-party sales and
distribution arrangement in-country is expected to be significant over
the FY20.
Consistent business has been on-going in the
markets of China, Malta, Thailand, and Japan
in recent years and we expect that our market
footprint in these countries will continue to
expand in FY20.
With the strong recognition of our brands in
China, BFC was selected as one of the key
suppliers to the new Costco China store in
Shanghai. The Company’s “Mable’s” brand
of cheese products featured in the opening
specials at the launch of the first Costco store in
China on 26 August, 2019.
With the emphasis on building the Mozzarella
market, the focus in the first six months of
FY19 was establishing new international
relationships. This focus has been underpinned
by favourable customer responses received
from many new markets such as Vietnam,
Canada, Philippines and South Korea, all of
which are indicating significant volume interest
in Mozzarella and associated bi-products.
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 27
Successful participation in international events
such as HOFEX held in Hong Kong, SIAL held in
Shanghai China and Food Expo held in South
Korea, saw planned outcomes achieved at each
event, with potential follow through expected in
FY20 and beyond.
Our Private Label offerings have also gained
momentum in the global marketplace with
interest being shown from New Zealand and
Philippines.
During FY19, BFC has had a significant number of
important internationally required certifications
approved or renewed such as KOSHER, HALAL,
HACCP, ISO, SQF.
In FY20 significant savings are expected to be
achieved as a result of the strategic decision
to manage and operate overseas sales
opportunities largely out of Adelaide using
international distributors which are commercially
and culturally aligned with BFC. This change,
coupled with strong performance indicators
coming through in the first quarter of the FY20,
are expected to see international business
volumes continue to increase in line with budget
targets.
28
NON-CORE ASSETS
The investee companies Neptune Bio Innovations Pty Ltd (NBI) and
Ferguson Australia Pty Ltd (FA) made no contribution to the Group’s
operating results in the FY19 financial year. These companies have
not performed to budget expectations or to the forecasts prepared by
independent financial experts at the time of our investment.
NEPTUNE BIO INNOVATIONS (NBI)
As part of the restructuring in H1, we undertook
a review of all of our investments, assets and
supply arrangements. This review resulted
in a decision to fully impair the Company’s
investment (equity and convertible notes) in
Neptune Bio Innovations (NBI) as reported at the
half year ended 31 December 2018.
NBI has demonstrated a proven ability to
formulate and commercialise a portfolio of
health brands into the Australian consumer
health market. The Company has progressively
launched its core brands of BioLyte (Oral
Rehydration), Heart Salt (60% reduced sodium
salt) and Sweetin (natural sugar replacer) since
early 2019 which have been rolled out into
over 1,500 Australian pharmacy stores through
national chains such as including Chemist
Warehouse, Priceline Pharmacy, Chemsave and
Pharmacy Choice.
As previously noted in the BFC First Half Results
announcements, the market release of NBI’s
innovative, naturally based urinary tract infection
product (URICIL) has now been made available
to selected pharmacies across Australia.
Notwithstanding these activities by NBI, BFC has
been unable to obtain a line of sight on future
revenues and earnings at least at a significant
level of certainty to satisfy its impairment test.
Accordingly, the Company resolved to fully
impair its equity and Convertible Notes interests
in NBI.
BFC will continue to retain our securities in
NBI (i.e. 10% shareholding and 10% beneficial
Convertible Note interest) and use NBI for
technical support for our operations as required.
However, the operating results of BFC will not,
henceforth, be affected by the activities of
NBI. Any gains to BFC which may arise from
the actions taken by NBI to capitalise on its
distribution agreements and/or the raising of
additional funds to finance its growth will be
recognised at the time.
The Investment Manager, BPAM has worked with
NBI, at BPAM’s cost, over the past financial year
to assist NBI in realising value from the progress
which it has made in developing pharmacy
and retail health products for the Australian and
global markets, particularly in the high growth
markets of Asia. Through this work, NBI has
recently signed an agreement (in August 2019)
which will provide distribution access into China
and Hong Kong throughout a well-established
Asian pharmacy network. NBI is scheduled to
deliver its first shipment of Lactoferrin drops,
Algae DHA and Phospholipids, Probiotic Drops
into this pharmacy network in October 2019.
FERGUSON AUSTRALIA
BFC’s equity investment of 32% in seafood
company Ferguson Australia had been classified
as an “asset held for sale” (along with the
Group’s investments in lobster licenses and a
property both leased to Ferguson Australia), as
a consequence of the decision by the Ferguson
family to place the business of Ferguson Fisheries
(which includes their 68% interest in Ferguson
Australia) on the market for sale. A sale had not
been affected as at 30 June 2019.
Due to the lack of a successful sale outcome, the
Group was required to reclassify the assets held
for sale back to their appropriate classifications in
the balance sheet. At 30 June 2019, the Group’s
investment in Ferguson Australia Pty Ltd has
been written down to nil. Refer to note 14 in the
financial statements for more information on the
accounting requirements in this regard.
The Group still intends to dispose of its interests
in the seafood assets in the near future. However,
this may not be as a package of assets as was
previously intended. The main seafood asset
held by the Group are the lobster licenses which
have been independently assessed to have a
market value in excess of $7.0million.
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 29
BESTON TECHNOLOGIES
A fundamental part of the core objectives of BFC, from the outset, was to
not only be able to supply premium, healthy food and beverage products
to consumers, but also to be able to ensure consumers that they were
“safe”. That is, we wanted to be able to empower the consumers of BFC
products to authenticate the products (i.e. ensure that they were not
“fake”) and be able to track-and-trace the ingredients and verify their
provenance.
When we learned that we were not able to
purchase some “off the shelf” technology for this
purpose, we set about building our own. The
technology platform developed by 100% owned
Beston Technologies Pty Ltd, has been awarded
13 patents, including a block chain patent from
the USA.
As part of the work undertaken for these
merger investigations, BFC commissioned an
independent review of its technology by the
technology consulting firm Readify Pty Ltd
(a subsidiary of Telstra Corporation). The review
concluded, that the Beston Technology Platform
(combining OZIRIS and Brandlok):
The end-to-end traceability (OZIRIS) and anti-
counterfeiting technology (Brandlok) platform
is delivered on a mobile phone App (in English,
Mandarin and Arabic languages), enabling
consumers to verify the source, logistics,
producers, quality and integrity of food and
beverage products. The technology provides a
comprehensive and compelling solution to allay
the fears of consumers about food source and
integrity, allowing them to verify the product
they are looking to purchase as safe to eat, with
the assurance and confidence that the product is
authentic and can be verified.
BFC has previously advised shareholders of
its intention to commercialise the Beston
Technologies Pty Ltd (BT) business to allow it to
realise is full potential and enable BFC to focus
on its core business as a food and beverage
company. BFC has expended significant funds
to develop its IP and technology platform and
sees the opportunity to have the technology
used by other food and beverage companies to
provide traceability and assurance to consumers
in Australia, China, Asia and elsewhere to combat
counterfeiting.
In February 2018, BFC announced a possible
merger with DataDot Technology Ltd (DDT)
which valued BT at $13million, reflecting an
independent valuation of BT’s technology by
Deloitte Finance Ltd. The merger proposal was
centred around creating an Australian-owned
and integrated e-commerce traceability and
anti-counterfeiting software-as-a-service (SaaS)
solution across a range of industries and was
subject to a number of pre-conditions and
provisions, including mutual due diligence and
other investigations.
• Utilises fit-for-purpose technologies and
presents functionality via attractive easy to
use interfaces on appropriate device form
factors.
• Solves verification and authenticity of the
‘actual food product’ whilst in the hands
of the consumer rather than relying on
the traditional manual capture (Enterprise
Resource Planning or ERP) techniques as per
its emerging competitors.
• Provides a powerful model to market based
on its ability to enable food trust in existing
systems such as ERP systems and established
E-commerce platforms.
The review identified a number of areas for
enhancements particularly in relation to cyber
security protections, which Readify were
subsequently engaged to implement.
In May 2019, the Board of BFC in consultation
with DDT resolved to discontinue its
investigations and negotiations in relation to the
possible merger of Beston Technologies with
DDT following the announcement of a number
of corporate changes at DDT which resulted in a
change of control and a change of direction by
the Company.
BFC has continued with the work necessary to
ensure the robustness of its systems and facilitate
their transitioning to become a software-as-a-
service provider to other companies seeking
solutions for product integrity and authenticity
assurances to customers. This work is also
focussed around reducing the cost to users
and increasing its affordability relative to other
emerging competitors and alternative solutions
in the marketplace.
30
CAPITAL MANAGEMENT
The Company announced on 11 January 2019 that it was giving
consideration to capital management initiatives to assist the Company in
improving its profitability in the near term. The Board of BFC believes that
there are compelling opportunities to allocate capital to projects which
can accelerate the profitability of the Company.
As part of the process of implementing the
restructuring changes outlined above, the
Company identified a number of areas in the
factories and farms where investment in new
technology and plant and equipment could result
in cost savings and increases in profits from the
existing revenue base.
The investment areas relate to in-house
packaging, dairy protein expansion, storage and
logistics, production line upgrades, ESG cost
saving measures and dairy cow herd expansion.
The areas identified are all “low hanging fruit”
in terms of providing relatively short pay-back
periods (i.e. less than four years) and have now
been developed into detailed costed “priority
projects”.
As well as providing the opportunity to extract
greater returns from the existing asset base at the
dairy factories, the projects will also enable full
oversight of the quality assurance processes and
total control over the quality of the end products
shipped to customers. Many of the projects will
also generate significant environmental benefits.
A number of high value-added “priority projects”
have been earmarked for investment. These, as
previously announced, include:
• The acquisition and installation of plant and
equipment to bring the Company’s Cut, Pack
and Shred requirements back in-house (these
services are currently provided by interstate
third party contractors at an annual cost of
approximately $3million).
• Further expansion of the Company’s dairy
nutraceutical capabilities to produce other
high demand products in addition to the
current production of Lactoferrin.
• Energy cost reductions through the
introduction of solar energy-based solutions
to the Company’s power needs at its two
dairy factories at Murray Bridge and Jervois in
South Australia, subject to further commercial
review. (Electricity and gas are the largest
operating costs in the conversion of milk into
cheese.)
• The refurbishment of the production facilities
of Provincial Food Group at Shepparton to add
new and improved capability.
• The introduction of trade waste recycling and
treatment equipment at the Murray Bridge
factory (to save the costs of waste cartage and
dumping and enable the recapture of cheese
fines and nutrients currently lost in the waste
water).
• The acquisition of additional dairy cows to
utilise the expanded productive capacity of
the Company’s farms and increase on-farm
milk production.
The Company has been involved in discussing a
range of options for funding these projects and
increasing the Company’s working capital to
the level which Directors believe is appropriate
to support the Company growing profitably
(including by securing additional milk volume)
whilst managing the on-going volatility in the
dairy industry.
While no final decisions have been reached as
yet on these capital management options, the
Company has pushed ahead with implementing
a number of these projects from its own
internally generated cash flow and through the
selective use of plant and equipment finance.
The projects implemented have been described
in the operations reports above and in summary
are:
• The addition of 1,500 new dairy cows at the
BFC owned dairy farms at Mount Gambier (for
both replacements and additions).
• The expansion of the Company’s dairy
nutraceutical capabilities with the installation
of freeze drying and milling equipment at the
Jervois factory.
• The installation of new plant and equipment
at the PFG Shepparton Factory to increase
both the capacity and efficiency of production.
The refurbishments at PFG have included the
complete renovation of all production rooms,
the addition of a new waste water treatment
system and the establishment of capability
in the manufacture of plant-based protein
alternative-meat products.
In addition to these completed projects, work is
progressing on the selection of a comprehensive
renewable energy solution to be installed across
the Company’s factories and farms. A preferred
supplier will be selected after completion of
the current tender process. The objective is to
have the capital costs of the solar based system
fully met by the contracted supplier on a user
pays cost recovery arrangement. With expected
savings to BFC of at least $500,000 per annum in
energy costs once installed.
BFC is also currently evaluating various options
for the Company’s dairy product packaging
needs (cut, pack and shred) facility with a view
to progressing the most practical and economic
solution within FY20.
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 REVIEW OF OPERATIONS AND FINANCIAL RESULTS
31
FORWARD FOCUS
The forward focus of BFC in FY20 is around the Volume, Value and
Velocity strategy which has been implemented in the business following
on the from the comprehensive commercial review which commenced
in H1 and continued through H2. Put another way, it is about
continuing the sales drive, getting costs out, increasing margins and
conserving cash.
We are pleased with the achievements we
have made in these areas during FY19 and
particularly with the initiatives taken to broaden
our revenue base and drive cost reductions as
we have progressed from a Phase One start-up
Company to a Phase Two consolidation stage
business.
The meat business, Provincial Food Group
(PFG) as explained above, has undergone an
extensive transformation during FY19. The
response from the market to the new format
of the Company has been pleasing, with sales
for May of $1.1million and June $1.2million, up
from $761K in April 2019.
In simple terms, BFC has transformed and
consolidated into a protein business; dairy
protein, meat protein, and plant-based protein
products.
While acknowledging that we didn’t meet all of
our targets for the year, we have been able to
tick off a large number of the objectives which
we set for ourselves at the start of FY19.
While all dairy companies in Australia were
adversely affected by the widespread drought
conditions affecting milk supply and prices we
believe that as a result of the actions taken this
year, we have developed a company which
is more robust and more able to withstand
exogenous shocks when they occur, such as
the drought in FY19, than would have otherwise
been the case.
These include:
• Putting much more of our milk supply into
our own products.
• Lifting the level of financial discipline across
the Company.
• Recruiting a new CEO.
• Repositioning of the BFC sales team with our
own in-house personnel, located across all
mainland States.
•
Increasing the market awareness of BFC’s
dairy products through the winning of 43
new awards for quality.
• Moving PFG from a “dice and grind” business
to a provider of tailored food solutions with
a substantial capability and know-how in
the manufacture of plant-based protein
(alternative meat) foods.
• Re-setting the cost base of the business (with
savings in all areas of operations including
personnel, freight, storage, chemicals, gas,
electricity and contractors).
Mozzarella sales represent the fastest stock and
cash cycle within our dairy assets and therefore
have and will continue to be, a key imperative
for management.
Aside from further improving our operational
efficiencies in FY19 to improve profitability, we
intend to capitalize on the revenue and profit
levers we have put in place over the last few
years, including by:
• Making greater use of our mozzarella plant
to manufacture a more diverse range of
products.
• Building on our relationships with dairy
farmers to increase our total milk supply.
• Extending the capabilities in our dairy
nutraceutical plant.
• Further exploiting the substantial production
capacity and technical intellectual property
which we have now developed at PFG in the
manufacture of plant-based protein food
products.
• Capitalising on our new product
development (NPD) skills and track record
(such as with Edwards Crossing “Fancy
Bites”) to take more innovative niche
products to market where we have pricing
advantages.
The clear focus for management in FY20 is
to deliver increasing product sales in both
the dairy and meat/protein divisions while
achieving further production efficiencies and
cost reductions.
32
SECURING MILK SUPPLY
The creation and introduction of a Dairy Farm Real Estate Investment
Trust (DF-REIT) has been investigated over the last year by the Investment
Manager, BPAM, in order to secure long-term milk supply.
As explained in the 2017-18 Annual Report, the
initial concept was anticipated to possibly entail a
capital raising of $100million in the Trust to both;
• Acquire the existing dairy farms and dairy
herds owned by BFC; and
• Provide capital for the acquisition of additional
dairy farms to supply milk to our Beston Pure
Farms’ dairy factories.
The objectives were to;
• Free up capital to provide funds for additional
contract milk purchases;
• Redeploy the capital currently tied up in
our dairy farms to higher revenue and profit
generating assets; and
• Secure access to an additional 35-40 million
litres of milk to add to the capacity of our
dairy factories as known. We sought a lower
volatility in the source of key ingredients.
BPAM tested a number of structures to ascertain
investment interest in the marketplace. A number
of well capitalised Australian Superannuation,
Institutional and Family office investors were
approached for confidential discussions on their
interest in participating in a DF-REIT. At the same
time, option agreements for potential acquisition
of a number of pre-qualified South Australian
dairy farms were exchanged.
The Board of BFC examined two specific models
of purchase and leaseback (to Beston Pure
Farms) on secured sizable portfolios. In each
case the models called for BFC to underwrite
the volatility of the earnings at levels which were
unacceptable. Simultaneously the value of dairy
farms in the South East of South Australia has
risen and demand from buyers (particularly from
overseas) has increased.
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 33
The Board has consequently resolved to move
to a longer term, (reduced risk) model based
on directly leasing individual dairy land from
partner farmers, with options to purchase
at future market value. This approach better
aligns progressive accumulation of milk
volume to production demand and avoids the
malalignment of dairy farm values to dairy farm
net incomes.
During August 2019, BFC finalised a commercial
lease for the first farm in this model, a
100-hectare property located at Allendale
East – in close proximity to its three core
farms. The lease contains a call option to
acquire the farm after five years, on market
terms - a flexibility that suits the new Lessor.
The arrangement will provide an additional
estimated 2.5 million litres of milk to BFC at
limited additional variable operating cost. It is
anticipated this model will be replicated going
forward to add additional milk volumes.
34
INVESTMENT MANAGER
BFC is currently managed through an Investment
Management Agreement (IMA) put in place with the
Investment Manager, Beston Pacific Asset Management
Pty Ltd (BPAM).
BPAM is an Australian Company and holds an
Australian Financial Services Licence (AFSL No
246727).
The Investment Manager has over 25 years’
experience in funds management and has a
proven track record in acquiring and securitising
high quality assets that generate recurring
income and strong capital growth.
The IMA was put in place at the time when
BFC consisted predominantly of a portfolio of
investments in unlisted entities.
The Management Fee is based on a fixed fee
(1.2%pa) of the gross portfolio value of BFC
(exclusive of GST) and carries an entitlement to
an annual bonus payment (performance fee)
for outperformance (measured in terms of total
returns to shareholders).
The reasons for the IMA were well founded.
They were centred primarily around protecting
and enhancing the interests of shareholders and
included:
COMPENSATION
To provide a way of compensating BPAM for
the costs incurred over a three year period,
from 2012, to the listing in 2015, in forming,
developing and growing the business of BFC
without making a lump sum payment (either in
cash or shares) to BPAM at the time of listing, as
would normally occur. The Management Fee
locks BPAM into being rewarded over time in line
with returns to shareholders rather than being
rewarded up-front by shareholders as would
have been the case if paid out at the time of
listing.
COST MANAGEMENT
The Management fee paid to BPAM is to
cover the remuneration costs of the senior
management team at BFC. The amount of the
fee is fixed by the portfolio value of BFC and
cannot be increased until the portfolio value
increases. In other words, it puts a ceiling on
the costs of managing BFC. The actual costs
incurred by BPAM over the period since listing
have been higher than the fee paid. This is
because:
• When the fee was first set, the role of BPAM
was to be only a “Portfolio Manager”, not a
direct manager of the BFC business as has
turned out to be the situation.
• As BFC has grown, BPAM has taken on more
management responsibilities as the shift away
from the investee companies being the core
of the business has occurred.
• The fee covers the costs and liabilities of
the management team at BFC (i.e. senior
executives and other key employees
excluding Board functions). The team in place
at BFC is much larger than if BPAM was simply
a “Portfolio Manager”.
• BPAM has performed other services
consistent with the Agreement which have
not as yet been recompensed (refer below).
• As BFC has grown, the functions and
responsibilities of the senior executive team
has grown.
• BPAM has absorbed various increases in
salaries, bonuses and CPI increases without
any compensating adjustment for these
increases in the management fee paid to
BPAM.
In summary, BPAM has met the shortfalls on the
management fees paid since the listing of BFC
in the interest of building the business of BFC for
the benefit of shareholders.
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 35
PRUDENTIAL BUFFER
When unexpected events occur in companies
or problems arise that require expeditious
resolution, the typical approach is to throw
resources at the problem until it is fixed. This
will often require the addition of personnel,
outside of the senior management team, so that
management can continue to concentrate on
business as usual.
The nature of the IMA is such that if this situation
occurs, the costs of funding and applying these
additional resources needs to be met by the
Investment Manager, BPAM. The Investment
Management fee is fixed by the Portfolio Value
and is not increased to deal with unexpected
contingencies. In other words, it acts as a “shock
absorber” so that any additional costs incurred
in such circumstances do not impact on the
bottom-line performance of BFC, and hence on
shareholders.
Indeed, this is precisely what has occurred over
the past three years (as explained below).
CULTURE
The establishment and implementation of the
BPAM Management Agreement at the time
of the IPO was seen as being instrumental for
achieving the appropriate culture in BFC to
drive it forward from a start-up state through to
maturity and then consolidation as a growth
company. A number of significant investors
were keen to see that BFC, as a new start-up
company, developed the appropriate core values
within it to emulate the “Beston Family” culture
which had contributed, in a very significant way,
in driving the highly successful outcomes in
previous companies developed by BPAM from
start-up through to exit. For example, the Beston
Wine Industry Trust (now part of CK Life (HK)
Limited) which is one of the largest owners of
vineyards and related wine assets in Australia
and NZ and Discovery Holiday Parks, the largest
owner and operator of caravan parks in Australia.
Both of these companies were part of a number
of companies which have been developed from
a start-up state by BPAM over the last 25 years,
all of which have achieved highly successful
outcomes.
The Royal Commission into Banking and
Financial Services highlighted the critical
importance of getting the culture right in
an organisation in order to drive the right
behavioural outcomes.
Under its IMA, BPAM has been responsible for
the appointment of a team to manage BFC rather
than individuals and ensuring that appropriate
core values have been embraced to achieve the
right culture for BFC as a new start-up public
company. The management team appointed to
manage BFC by BPAM have been people that live
the “Beston” values and can innovate and lead to
ensure that the desired outcomes get delivered.
The IMA sets out the terms and conditions
on which BPAM may be terminated. BPAM
has made it known to the non-executive
independent Directors of BFC, and to
shareholders, that it will agree to terminate
arrangements at an appropriate time upon
agreeing to commercial terms with BFC.
36
AWARDS’ UPDATE
BFC was once again announced winner of the Christian Hansen Cup
by the Dairy Industry Association of Australia’s Awards of Excellence
event in May. The meaning of this Cup translates as “The Best
Cheddar Cheese in Australia” for 2019. “Christian Hansen” is a name
synonymous with improving cheesemaking methods from the 19th
Century and winning this prestigious Cup is a prize all major Dairy
companies and Cheesemakers strive to win each year.
Further to this, the Company’s premium quality cheese was
also acknowledged on a global scale as “Best Australian
Mild Cheddar Cheese” at the UK’s International Cheese and
Dairy Awards.
Winning awards of this level is an important industry
validation for the skills and capabilities of both our
cheesemakers and our milk suppliers – and importantly, this is
translating into sales in the marketplace.
This esteemed dairy judging event is the largest cheese
awards event in the world and has been held since 1897. This
year, over 500 cheese experts judged 5200 entries of the best
cheese and dairy products from 27 countries.
BFC’s overall tally of Champion, Gold, Silver and Bronze
Awards is currently at an impressive 113 since listing late 2015.
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 37
GOLD MEDAL
• Beston’s Edwards Crossing Cheddar Mild
20kg block
• Beston’s Edwards Crossing Gruyere 6kg round
SILVER MEDAL
• Beston’s Edwards Crossing Gouda 200g block
• Beston’s Edwards Crossing Colby 200g block
• Beston’s Edwards Crossing Black wax vintage
cheddar
• Beston’s Edwards Crossing Vintage Cheddar
20kg block
• Beston’s Edwards Crossing Pepato 4.9kg round
2018 AUSTRALIAN FOOD AWARDS
GOLD MEDAL
• Beston’s Edwards Crossing Vintage
Cheddar
SILVER MEDAL
• Beston’s Edwards Crossing Black Wax
Vintage
BRONZE MEDAL
• Beston’s Edwards Crossing Gouda
• Bronze Medal: Beston’s Edwards Crossing
Romano
2019 INTERNATIONAL CHEESE AND
DAIRY AWARDS IN NANTWICH,
ENGLAND
• Best Australian Mild Cheddar Cheese
2019 DAIRY INDUSTRY ASSOCIATION
OF AUSTRALIA AWARDS OF
EXCELLENCE
• Christian Hansen Cup and Award
– ‘Best Vintage Cheddar Cheese in
Australia’
GOLD MEDAL
• Beston’s Edwards Crossing Vintage Cheddar
20kg block
• Beston’s Edwards Crossing Mozzarella
• Beston’s Edwards Crossing Parmesan
• Beston’s Edwards Crossing Colby
2019 SYDNEY ROYAL CHEESE AND
DAIRY SHOW
SILVER MEDAL
• Beston’s Edwards Crossing Gruyere
• Beston’s Edwards Crossing Parmesan
BRONZE MEDAL
• Beston’s Edwards Crossing 2.3kg Black
Wax Cheddar
• Beston’s Edwards Crossing Cheddar
200g block
• Beston’s Edwards Crossing Colby 200g block
• Beston’s Edwards Crossing Mozzarella
• Beston’s Edwards Crossing Pepato
• Beston’s Edwards Crossing Vintage Cheddar
2018 BUSINESS SA EXPORT AWARDS
• Emerging Exporter Award
SILVER MEDAL
• Beston’s Edwards Crossing Cheddar
• Beston’s Edwards Crossing Gouda
• Beston’s Edwards Crossing Vintage
Cheddar 2.3kg
• Beston’s Edwards Crossing Pepato
• Beston’s Edwards Crossing Romano
• Beston’s Edwards Crossing Gruyere
• Beston’s Mables Melon & Mango
Cream Cheese
• Beston’s Mables Apricot & Almond
Cream Cheese
• Beston’s Mables Fruit & Nut Cream Cheese
• Beston’s Mables Sweet Chilli Cream Cheese
• Beston’s Mables Garlic & Chives Cream Cheese
• Beston’s Mables Spring Onion Cream Cheese
• Beston’s Whey Powder
2018 SOUTH AUSTRALIAN DAIRY
AWARDS
• Champion SA Manufactured
Cheese Trophy
• Champion Cheddar Cheese of
The Show Trophy
• Champion Hard or Semi-Hard Cheese
Variety other than Cheddar Trophy
• Best Innovative Dairy Product Trophy
(Fancy Bites)
38
COMMUNITY
BFC believes that its Vision of taking healthy eating to the world’s communities with
Australia’s best foods starts at ‘home’. We have continued to support the communities in
which we operate during FY19 through a number of initiatives to promote community
engagement and provide assistance to farming families.
The Company made meaningful contributions to local
communities and to South Australian charities in the way
of sponsorship and in-kind donations of food hampers. Of
note, the Company and its staff participated in a “Christmas
Gift and Food Drive” with the Salvation Army and St Vincent
de Paul’s Murray Bridge divisions, as well as ac.care (Anglican
Community Care Inc), a charity started by country people
and now serving the Murraylands, Riverland and Limestone
Coast communities in South Australia. The BFC team was
asked to bring in a wrapped gift with a label advising the most
suitable gender and age, or a non-perishable food item to
place under the BFC Christmas tree in the Reception areas of
both its Head Office and Murray Bridge Plant. The company
added to these gifts with non-perishable food items from
“Beston Marketplace” resulting in a total of 20 fully packed 40
litre Beston food hampers donated and delivered to the Rural
Town of Murray Bridge, along with approximately 15 gifts for
children.
Additional food hampers were packed and delivered
to Catherine House, (a charity that provides supported
accommodation services to women experiencing
homelessness in South Australia) and Hutt Street Centre, (a
charity that aims to end homelessness for every person who
walks through our doors, with care and without judgement).
highlighting the hardships experienced by Dairy Farmers in
recent times.
This new gesture is in line with BFC’s overarching strategy of
support to SA Dairy Farmers and the company believes that
the Farmers’ Tribute highlights the challenges faced by farmers
in a more public manner, thereby encouraging all South
Australians to help BFC help the State’s valued Dairy Farmers.
BFC will work with the SA Dairyfarmers’ Association to
determine the fairest and most appropriate allocation of these
funds.
Additionally, BFC has supported many of its contracted farmers
who have commitments in their own communities around
developing children in sports over this past year. The images
below highlight one in particular of the “Little Bluds Buddies”
from Jervois Bluds Netball Club proudly showing off their
new shirts and netballs supplied by BFC. The Sponsorship
Report BFC received from the Club highlights the importance
of introducing children to activities such as netball and
developing skills, both physical and mental in nature.
Over the course of the company’s existence, BFC has given
new hope to Dairy Farmers in South Australia. With many of
the big dairy companies pulling back four years ago, BFC came
along at precisely the right time, and contracted some 38 dairy
families across the State to supply milk for its factories. BFC also
put programs in place to assist Farmers who were in need of
support at the time.
This year, BFC launched its limited edition Black Wax Vintage
Cheddar Cheese and deemed it the most appropriate cheese
to support and honour South Australia’s Dairy Farmers - at the
time not realising that it would soon be awarded “Best Vintage
Cheddar Cheese in Australia”.
The 200gm cheese block, appropriately named “Farmers’
Tribute”, has been hand crafted at BFC’s Murray Bridge factory
by the company’s talented team of Cheesemakers as a way
of recognising the significant contribution which Dairy
Farmers make to the economy of South Australia, as well as
Apart from all this, the Company also takes pride in the fact
that it provides direct and indirect employment for nearly 300
people and many of these are from regional areas.
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 39
ENVIRONMENT
BFC has implemented a number of initiatives during FY19 to reduce the environmental
impact of our manufacturing and farming operations and achieve a more efficient use of
resources. Our focus has not only been on reducing energy usage (electricity and natural
gas are amongst the highest input costs in the business), but also on curbing water usage
and reducing trade waste. BFC is committed to protecting the environment and ensuring
the sustainability of the resources it uses in its production processes as well as in meeting
the expectations of our stakeholders and the communities in which we operate.
Activities to reduce environmental impacts and improve
resource use in FY19 have included:
ENERGY
•
•
Installation of a new exhaust stack on the Jervois powder
plant which has reduced gas usage by 20%.
Implementation of power factor correction at both
factories to match production efficiency with energy
demand reducing network charges that will be finalized at
end quarter 1 FY2020.
• Maximising efficiency of production lines to minimize
energy use.
• Re-tendering of gas contracts reducing rates by 5%.
• Feasibility studies undertaken on alternative generation
opportunities at the factories to assess viability of own
generation.
WATER
• Reduction of rinse volumes in our cheese plants by
focusing on rinse effectiveness. This initiative has
delivered a saving of 70,000 litres per day or approximately
17.5million litres annually.
• Optimisation of holding volumes and rinse time on wash
in Pastueriser, resulting in a water saving of 5,000 litres per
day or approximately 1.25million litres annually.
•
•
Improving the efficiency of Separator dischargers while
running, resulting in savings of 400 litres per day or
100,000 litres annually.
Introduction of soil water monitoring meters on BFC
owned farms which, together with various changes in
farming practices, has enabled us to leave 28% of our
licensed water in the aquifer for environmental benefits.
Total annual
saving of approx.
18.85 M
litres of water
The table below compares water usage on our farms in FY19
compared with last year. The major differences are a 14%
increase in milk volume and a reduction of 2% in the amount
of water used per litre of milk produced. The savings in on-
farm water use translates to a total water saving of 85,635KI or
the equivalent of 35 Olympic size swimming pools.
Year
Ha
Irrigation
Kl used
Average/
ha
Litres
milk
Kl used /
litre milk
2017/18
735 4596000
6.24
14956374
0.307
2018/19
752 5170000
6.87
17127133
0.302
WASTE MANAGEMENT
• A new waste-water system installed at Provincial Food
Group, to improve waste management and facilitate
increased production.
•
Installation of new state-of-the-art Mozzarella plant at
Jervois has virtually eliminated the generation of waste-
water from curd productions.
Future initiatives have been identified to further reduce the
environmental footprint of BFC’s manufacturing and farming
operations which will be progressively implemented over
time.
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 2019 Corporate Governance Statement is dated as
at 30 June 2019 and reflects the corporate governance
practices in place throughout the 2019 financial year.
The 2019 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
bestonglobalfoods.com.au.
40
Director’s Report
Auditors’ Independence Declaration
Financial Statements
Notes to the Consolidated Financial Statements Contents
Directors’ Declaration
Independent Auditor’s Report
ASX Additional information
41
49
50
54
94
95
102
FINANCIAL REPORTBESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – DIRECTORS’ REPORT
41
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 2019. 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) Marketing and distribution of dairy, seafood, meat,
wine, water, health and nutrition products into local and
international markets.
(b) Production of milk, cheese and other dairy related
products.
(c) Production and processing of meat products.
(d) Development and production of health and well-being
focused food, beverage and pharmaceutical products.
(e) Processing of high pH natural spring water.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF
OPERATIONS
Refer to the operating and financial review on pages 16
to 23 for information on likely developments and future
prospects of the Group.
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.
(f) Development and commercialisation of end-to-end food
traceability and anti-counterfeit technology.
Group compliance activities include:
(g) 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 2019 (2018: 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 12 to 17.
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
No matter or circumstance has arisen since 30 June 2019
that has significantly affected the Group’s operations,
results or state of affairs, or may do so in future years.
(a) Environmental management and emergency response
planning
(b) Stormwater retention and release to aquifer procedures at
Murray Bridge
(c) Weekly reporting of Murray Bridge trade waste discharge
data to SA Water
(d) Periodic sampling and independent testing of trade
wastewater discharges from Murray Bridge
(e) Periodic testing of river, bore and wastewater at the
Jervois site
(f) 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.
42
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
Former directorships in last
3 years
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
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 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 including Southcorp Holdings
Ltd, and has been, and continues to be, involved in many not for profit organisations including the Australian
Cancer Research Foundation, the General Sir John Monash Scholarship Foundation and Foodbank SA.
Other current directorships
Former directorships in last
3 years
Special responsibilities
• Member of remuneration and nomination committee
Interests in shares
Ordinary shares
3,476,445
Petrina Coventry, B.Ed., M. Phil. (Ethics), MBA, EMBA, FAHRI Non-executive director
Experience and expertise
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.
Other current directorships
Former directorships in last
3 years
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
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 | ANNUAL REPORT 2019 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – DIRECTORS’ REPORT
43
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
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
Former directorships in last
3 years
Special responsibilities
• Member of the audit and risk committee
Interests in shares
Ordinary shares
355,000
44
COMPANY SECRETARY
REMUNERATION REPORT
Richard Willson, B.Acc, FCPA, FAICD
Richard 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.
Richard 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.
Richard is a Non-Executive Director of Titomic Limited
(ASX:TTT), AusTin Mining Limited (ASX:ANW), Thomson
Resources Limited (ASX:TMZ), Graphene Technology Solutions
Limited, Unity Housing Company Limited, and Variety SA; and
Company Secretary of a number of ASX Listed Companies.
Richard is the Chairman of the Audit Committee of Titomic
Limited, AusTin Mining Limited, and Unity Housing Company,
and is the Chairman of the Remuneration & Nomination
Committee of Titomic Limited.
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 2019, and the numbers of meetings attended
by each Director were:
Full meetings
of directors
Meetings of committees
Audit
Remuner-ation
and nomination
A
R N Sexton 12
S Gerlach
12
P Coventry 12
12
J Kouts
12
I McPhee
12
C Cooper
B
12
12
12
12
12
12
A
7
-
-
-
7
7
B
7
-
-
-
7
7
A
-
2
2
1
-
-
B
-
2
2
2
-
-
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
The Directors present the Beston Global Food Company
Limited 2019 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) Key management personnel (KMP) covered in
this report
(b) Remuneration policy and link to performance
(c) Executive contracts
(d) Remuneration expenses for non-executive KMP
(e) Directors arrangements
(f) Additional statutory information
(A) KEY MANAGEMENT PERSONNEL COVERED IN
THIS REPORT
R N Sexton
Non-executive Chairman
S Gerlach
Non-executive Director
P Coventry
Independent Non-executive Director
J Kouts
Independent Non-executive Director
I McPhee
Independent Non-executive Director
C Cooper
Independent Non-executive Director
Other key management personnel
Name
S Ebert
D Flew
R Sexton
J Hicks
Position
Chief Executive Officer (until 1 October 2018)
Chief Financial Officer
Executive Chairman (until 7 January 2019)
Chief Executive 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.
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019
FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – DIRECTORS’ REPORT
45
(D) LINK BETWEEN REMUNERATION AND
PERFORMANCE
Statutory performance indicators
The following table shows key performance indicators for
the group over the last three years:
2019
2018
2017
2016
2015
(26,975) (12,593) (7,749.0) (1,716.0) (1,103.0)
(6.1)
(2.8)
(1.8)
(0.5)
(0.5)
12.0
17.5
22.5
40.4
–
13.7
23.6
28.3
33.7
99.2
-
–
– 2,179.0
–
Profit for the year
attributable to
owners of ($’000)
Basic earnings per
share (cents)
Share price at
year end (cents)
Net tangible
assets per share
(cents)
Dividends
payments ($’000)
(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.
(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 2019, BPAM was paid
$2,438,144 under this arrangement (2018: $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 2019 (2018: nil).
The key metrics of the fee are summarised below:
Key metrics
Beston Global
Food Company
Limited
ASX All Ordinaries
Accumulation
Index
1 July
2018
$0.18
30 June
2019
$0.12
Performance
-31.34%
$62,434.90
$69,326.90
11.04%
(ii) Performance fee (continued)
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
$53,197,904.04
-42.38%
17.5%
$0.00
Based on the share price performance during the period,
no expense has been recognised for the year ended
30 June 2019.
46
Short-term benefits
Post-employment
Longterm
benefits
Share-based
payments
Cash
salary*
$
Cash
bonus*
$
Non-
monetary
benefits*
$
Super-
annuation
benefits**
$
Other
post
employment
benefits**
$
Annual and
long service
leave***
$
Shares
$
Share
options
$
Name
Year
R N Sexton
2019 60,000
2018 60,000
S Gerlach
2019 40,000
2018 40,000
P Coventry
2019 40,000
J Kouts
2018 40,000
2019 40,000
2018 40,000
I McPhee
2019 40,000
2018 40,000
C Cooper
2019 40,000
Total NED
remuneration
2018 40,000
2019 260,000
2018 260,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,700
5,700
3,800
3,800
3,800
3,800
3,800
3,800
3,800
3,800
3,800
3,800
24,700
24,700
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
$
65,700
65,700
43,800
43,800
43,800
43,800
43,800
43,800
43,800
43,800
43,800
43,800
284,700
284,700
* 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 (2018: $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.
Annual maximum fee
Dr Roger Sexton AM
Mr Stephen Gerlach AM
Ms Petrina Coventry
Mr Jim Kouts
Mr Ian McPhee AO PSM
Mr Catherine Cooper
In addition, Directors will be entitled to statutory
superannuation.
$60,000
$40,000
$40,000
$40,000
$40,000
$40,000
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.
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
2019
Name
Balance at
the start of
the period
Acquired
during the
period
Balance at
the end of
the period
Founders
rights
exercised
during
the period
Ordinary shares
R N Sexton
S Gerlach
P Coventry
J Kouts
I McPhee
C Cooper
Total
18,306,215
3,476,445
57,142
142,857
1,000,000
355,000
23,337,659
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18,306,215
3,476,445
57,142
142,857
1,000,000
355,000
23,337,659
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – DIRECTORS’ REPORT
47
(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 prior year, the Group purchased wine stock from Main
& Cherry for export into Asia. The purchases were made
based≈on normal commercial terms and conditions.
Aggregate amounts for the above transactions with KMP
of Beston Global Food Company Limited:
30 June
2019
$
–
30 June
2018
$
177,444
–
684,828
Amounts recognised as expense Cost
of goods sold
Amounts recognised as assets
Inventory
Amounts recognised as liabilities
There were no other transactions with KMP or their related
parties during the year. This is the end of the audited
remuneration 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 $30,450 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.
48
NON-AUDIT SERVICES
ROUNDING OF AMOUNTS
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:
2019
$
2018
$
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
Advisory services
Ernst & Young Australia firm:
Capital and debt advisory services
Total remuneration for advisory services
Taxation services
Ernst & Young Australia firm:
Tax compliance services
41,156 84,442
Tax due diligence services
54,068
-
95,224 84,442
Total remuneration for taxation services
Total remuneration for non-audit services 205,224 84,442
110,000
110,000
–
–
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – DIRECTORS’ REPORT
49
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 the financial report of Beston Global Food Company Limited for the
financial year ended 30 June 2019, 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
30 August 2019
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
36
50
CONTENTS
Financial Statement
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
Indepenent Auditor’s Report to the Members
50
51
52
53
53
54
94
95
FINANCIAL STATEMENT
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
16 and in the Directors’ Report on page 41, both of which are not part of these
financial statements.
The financial statements were authorised for issue by the Directors on the 30th
August, 2019. The Director’s 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: bestonglobalfoods.com.au
FINANCIAL STATEMENTSBESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019
51
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 June 2019
Revenue from continuing operations
Sale of goods
Other revenue
Other income
Expenses
Cost of sales of goods
Other expenses from ordinary activities
Operating overheads
Selling and distribution
Corporate overheads and business support
Loss from operations
Finance income
Finance expenses
Net finance income
Impairment of financial asset
Share of profit/(loss) from associates
Loss before income tax
Income tax benefit
Loss for the period
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations
Item that will not be reclassified to profit or loss
Changes in the fair value of equity instruments at FVOCI
Total comprehensive loss for the period
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
Loss per share attributable to the ordinary equity holders of the Company:
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
Notes
2
2
3(a)
3(c)
3(c)
14(c)
10(a)
4
9(b)
14(c)
30 June
2019
$'000
84,794
431
85,225
882
30 June
2018
$'000
47,877
382
48,259
2,796
(81,078)
(42,548)
(11,539)
(2,398)
(11,966)
(20,874)
358
(1,646)
(1,288)
(9,615)
(762)
(32,539)
5,224
(27,315)
(10,867)
(2,832)
(12,264)
(17,456)
1,010
(60)
950
–
(22)
(16,528)
3,435
(13,093)
(196)
245
(8,693)
(36,204)
(26,975)
(340)
(27,315)
(35,864)
(340)
(36,204)
Cents
(6.08)
(6.08)
–
(12,848)
(12,594)
(499)
(13,093)
(12,349)
(499)
(12,848)
Cents
(2.84)
(2.84)
52
CONSOLIDATED BALANCE SHEET
As at 30 June 2019
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
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
Current liabilities
Trade and other payables
Borrowings
Current tax liabilities
Employee benefit obligations
Total current liabilities
Non-current liabilities
Borrowings
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
Non-controlling interests
Total equity
Notes
5(a)
5(b)
6(d)
5(b)
14(c)
6(a)
6(c)
6(e)
6(b)
5(c)
5(d)
4(a)
6(f)
5(d)
6(e)
6(f)
9(a)
9(b)
9(c)
14(b)
30 June
2019
$'000
30 June
2018
$'000
1,920
15,740
14,192
31,852
–
–
68,168
5,303
15,802
19,437
108,710
140,562
15,689
5,516
45
428
21,678
35,807
2,785
179
38,771
60,449
80,113
147,535
(9,135)
(58,133)
80,267
(154)
80,113
4,463
26,630
22,604
53,697
5,849
16,253
56,346
4,880
8,351
13,309
104,988
158,685
14,028
21,444
45
230
35,747
–
1,576
70
1,646
37,393
121,292
147,535
(237)
(26,192)
121,106
186
121,292
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019
53
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2019
Attributable to owners of
Beston Global Food Company Limited
Share
capital
$'000
Other
reserves
$'000
Accumulated
losses
$'000
Non-controlling
interests
$'000
Total
$'000
Total
equity
$'000
Notes
Balance at 1 July 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
Balance at 30 June 2018
Balance at 1 July 2018
Adjustment on adoption of AASB 9
Restated total equity at the beginning of
the financial year
–
–
–
147,535
147,535
–
245
245
(237)
(237)
(12,594)
–
(12,594)
(12,594)
245
(12,349)
(499)
–
(499)
(13,093)
245
(12,848)
(26,192)
121,106
186
121,292
(26,192)
121,106
186
121,292
22(a)(iii)
–
–
(4,966)
(4,966)
–
(4,966)
147,535
(237)
(31,158)
116,140
186
116,326
Profit/(loss) for the period
Other comprehensive income/(loss)
Total comprehensive income for the period
9(b)
–
–
–
(9)
(8,889)
(8,898)
(26,975)
–
(26,975)
(26,984)
(8,889)
(35,873)
(340)
–
(340)
(27,324)
(8,889)
(36,213)
Balance at 30 June 2019
147,535
(9,135)
(58,133)
80,267
(154)
80,113
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2019
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)
Interest paid
Interest received
Net cash (outflow) from operating activities
Cash flows from investing activities
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
Payments for livestock
Proceeds from sale of livestock
Net cash (outflow) from investing activities
Cash flows from financing activities
Proceeds from borrowings
Proceeds from government grants
Loans (to)/from related parties
Net cash inflow from financing activities
Net (decrease) 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
Notes
10(a)
13
6(a)
6(b)
6(c)
5(d)
30 June
2019
$'000
87,415
(95,275)
(1,612)
358
(9,114)
–
(12,343)
(429)
–
–
(880)
605
(13,047)
19,847
–
–
19,847
(2,314)
4,463
30 June
2018
$'000
48,043
(77,945)
(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
5(a)
1,920
4,463
54
CONTENTS OF THE NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
1
Segment Information
2 Revenue
3 Other Income and Expense Items
4
5
Income Tax Benefit
Financial Assets and Financial Liabilities
6 Non-Financial Assets and Liabilities
7 Assets Held for Sale
8
Impairment
9 Equity
10 Cash Flow Information
11 Financial Risk Management
12 Capital Management
13 Business Combination and Disposals
14 Interests In Other Entities
15 Contingent Liabilities and Contingent Assets
16 Commitments
17 Events Occurring after the Reporting Period
18 Related Party Transactions
19 Remuneration of Auditors
20 Earnings Per Share
21 Parent Entity Financial Information
22 Summary of Significant Accounting Policies
55
57
58
59
60
62
66
67
68
70
71
73
73
75
77
77
78
78
80
80
81
82
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSBESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 55
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 Australian Dairy segment which owns farms and
production plants and uses milk to produce cheese and
other dairy products.
• The Australian Meat segment is focused on production of
high quality and innovative meat and related products for
expanding domestic and export markets.
• The Australian Other segment includes other Australian
domiciled businesses developing technological software
for tracking the provenance and authenticity of goods,
as well as the production of spring water and related
products.
• The International Other segment includes foreign
entities providing sales support and customer support for
customers of the consolidated entity.
• The Corporate segment provides business support to the
operating segments.
During the period, the Group announced changes to its
operating model, with an increased focus on fewer core
businesses comprising Australian Dairy and Australian Meat,
to simplify operations and improve visibility of each business’s
performance. Management reassessed the identified
reportable segments reported to the executive management
committee and the segment disclosure has been amended,
including comparatives to reflect this, to enable readers of
the financial statement to better understand the entity’s
operations.
The executive management committee monitors the
operating results of its business segments separately for the
purpose of making decisions about resource allocation and
performance assessment. Segment performance is evaluated
based on operating profit and is measured consistently with
profit in the consolidated financial statements.
The following summarises the changes made to the reporting
of business segments:
• Segments are now aligned with the core strategic entity
operations of the business, being the Dairy and Meat
segments.
• A clearer disaggregation of the corporate costs incurred
by the consolidated entity has been implemented with the
introduction of a Corporate segment, and transparency of
the costs allocated out to the operational business units is
improved.
Management also reviewed the classification of expenditure
during the period to improve the transparency of disclosure
of the nature of expenditure, and comparability with similar
operations . The comparative period in both the Statement of
Comprehensive Income and in Note 1 have been restated to
allow inter-period comparability of information, assisting users
assess trends in the financial information.
The following table identifies the nature, amount, and reason
for each classification:
Cost of sales of goods
Operating overheads
Selling and distribution
Corporate overheads and business support
Other
Restated
disclosure
30 June 2018
$’000
Original
disclosure
30 June 2018
$’000
Variance
disclosed
30 June 2018
$’000
(42,548)
(10,867)
(2,832)
(12,264)
–
(68,511)
(32,657)
(20,360)
(5,027)
(8,648)
(1,819)
(68,511)
(9,891)
9,493
2,195
(3,616)
1,819
–
FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 56
1
SEGMENT INFORMATION
(b) Segment results
The segment information for the year ended 30 June 2019 and restated segment the year ended 30 June 2018 provided to the
executive management committee for the reportable segments are as follows:
2019
Revenue
Sale of goods
Other income
Other revenue
Finance income
Total revenue
Expenses
Cost of sales
Operating costs
Selling and distribution
Business support
Finance costs
Corporate Allocation
Impairment of assets (note 3(c))
Share of profit/(loss) from associates
Australian
Dairy
$'000
Australian
Meat
$'000
Australian
Other
$'000
International
Other
$'000
Corporate
$'000
75,444
844
426
18
76,732
(70,269)
(8,291)
(2,126)
(4,276)
(1,143)
(3,109)
–
–
6,485
–
–
–
6,485
(6,081)
(2,237)
(153)
(447)
(15)
(292)
–
–
245
–
5
–
250
(238)
(619)
(94)
(330)
(121)
(30)
–
–
2,620
–
–
–
2,620
(4,490)
(392)
(25)
(489)
(122)
(159)
–
–
–
38
–
340
378
–
–
–
(6,424)
(245)
3,590
(9,615)
(762)
Total
$'000
84,794
882
431
358
86,465
(81,078)
(11,539)
(2,398)
(11,966)
(1,646)
–
(9,615)
(762)
Total expenses
(89,214)
(9,225)
(1,432)
(5,677)
(13,456)
(119,004)
Operating loss before tax
Total segment assets; including
Capital expenditure
Total segment liabilities
(12,482)
93,210
4,685
(39,804)
(2,740)
9,431
2,086
(4,828)
(1,182)
4,041
557
(873)
(3,057)
5,778
–
(2,634)
(13,078)
28,102
6,342
(12,310)
(32,539)
140,562
13,670
(60,449)
2018
Revenue
Sale of goods
Other revenue
Other income
Finance income
Total revenue
Expenses
Cost of sales
Operating costs
Selling and distribution
Business support
Finance costs
Share of profit/(loss) from associates
Total expenses
Operating loss before tax
Total segment assets; including
Capital expenditure
Total segment liabilities
Australian
Dairy
$'000
Australian
Meat
$'000
Australian
Other
$'000
International
Other
$'000
Corporate
$'000
Total
$'000
41,569
382
395
-
42,346
(34,206)
(6,789)
(1,902)
(3,047)
(15)
-
(45,959)
(3,613)
131,624
13,540
(31,396)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
406
-
45
-
451
(611)
(771)
(220)
(646)
(42)
-
(2,290)
(1,839)
5,582
132
(1,821)
5,902
-
1,456
310
7,668
(7,731)
(3,307)
(710)
(1,650)
(3)
-
(13,401)
(5,733)
10,727
-
(1,331)
-
-
900
700
1,600
-
-
-
(6,921)
-
(22)
(6,943)
(5,343)
10,752
-
(2,845)
47,877
382
2,796
1,010
52,065
(42,548)
(10,867)
(2,832)
(12,264)
(60)
(22)
(68,593)
(16,528)
158,685
13,672
(37,393)
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 2 REVENUE
The Group derives the following types of revenue:
Sale of goods
Other revenue
Leasing income
Total revenue
57
30 June 2019
30 June 2018
$'000
84,794
431
85,225
$'000
47,877
382
48,259
(a) Recognising revenue from major business activities
Revenue is recognised for the major business activities using the methods outlined below.
(i)
Sale of goods
The Group’s contracts with customers for the sale of products include one performance obligation. The Group recognises revenue
from sale of products at the point in time when control of the asset is transferred to the customer on delivery of the goods. The
normal credit terms are 30 to 60 days.
Some contracts for the sale of products provide customers with volume rebates and trade discounts which give rise to variable
consideration. The variable consideration is estimated at contract inception using the expected value method based on
forecast volumes and is constrained until it is highly probable that a significant revenue reversal in the amount of cumulative
revenue recognised will not occur when the associated uncertainty is subsequently resolved. The amount of revenue reflects
the consideration to which the Group expects to be entitled to in exchange for those goods.
(ii) Other revenue
See note 22(e) for the recognition and measurement of other revenue.
(b) Disaggregation of revenue from contracts with customers
The Group derives revenue from the sale of goods in the following major geographical regions:
2019
Sale of goods
Australia
$’000
78,340
78,340
Asia
$’000
4,738
4,738
Europe North America
$’000
$’000
1,601
1,601
115
115
Total
$’000
84,794
84,794
FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 58
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
Raw materials and consumables used
Employee benefits expense
Depreciation and amortisation expense
Impairment of financial asset
Management Fee
Other expenses
Consultancy expenses
Leasing expenses
Rates and taxes
Repairs and maintenance
Insurance expenses
Logistics and marketing expenses
(c) Finance income and costs
Interest income
Net exchange gains
Finance income
Finance charges paid for financial liabilities
Net exchange losses
Finance costs
Net finance costs
Notes
13
11(a)
30 June
2019
$'000
–
477
121
284
882
30 June
2019
$'000
(4,862)
75,115
13,392
1,869
9,615
2,383
4,157
1,580
627
3,061
2,178
2,318
5,163
116,596
30 June
2019
$'000
358
–
358
(1,612)
(34)
(1,646)
(1,288)
30 June
2018
$'000
1,419
123
1,071
183
2,796
30 June
2018
$'000
(3,764)
36,290
11,785
2,063
–
2,422
4,433
2,572
1,015
3,334
1,390
1,325
5,646
68,511
30 June
2018
$'000
846
164
1,010
(60)
–
(60)
950
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 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
Other adjustment
Total deferred tax expense/(benefit)
Income tax benefit
6(e)
6(e)
(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% (2018 - 30.0%)
Tax effect of amounts which are not deductible (taxable)
in calculating taxable income:
Impairment of Capital items
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
Derecognition of DTA
Impact of disposal of Beston Dalian
Sundry items
AASB 9 adjustment
Income tax benefit
(c) Tax losses
Unused tax losses for which no deferred tax asset has been recognised
Potential tax benefit @ 30.0%
59
30 June
2018
$'000
45
45
(2,870)
(610)
–
(3,480)
(3,435)
30 June
2018
$'000
(16,528)
(4,958)
–
(176)
11
7
2,092
16
–
(426)
(1)
–
(3,435)
30 June
2018
$'000
7,211
2,163
30 June
2019
$'000
45
45
(7,451)
1,209
875
(5,367)
(5,322)
30 June
2019
$'000
(32,539)
(9,762)
1,114
(93)
13
229
965
–
522
–
(80)
1770
(5,322)
30 June
2019
$'000
9,732
2,920
The unused tax losses were incurred by a foreign subsidiaries 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(e) for information about recognised tax losses and significant judgements made in
relation to them.
FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
60
5 FINANCIAL ASSETS AND FINANCIAL LIABILITIES
(a) Cash and cash equivalents
Cash at bank and in hand
(b) Trade and other receivables
30 June
2019
$'000
1,920
30 June
2018
$'000
4,463
30 June 2019
30 June 2018
Current
$'000
Non-current
$'000
Total Current
$'000
$'000
Non-current
$'000
Trade receivables
Provision for impairment (see note 11(b))
Other receivables
Prepayments
Goods and services tax (GST) receivable
Convertible notes receivable
(i) Trade and other receivables
13,603
(257)
13,346
–
1,178
1,216
–
15,740
–
–
–
–
–
–
–
–
13,603
(257)
13,346
–
1,178
1,216
–
15,740
14,104
(24)
14,080
6,133
1,100
2,569
2,748
26,630
–
–
–
5,849
–
–
–
5,849
Total
$'000
14,104
(24)
14,080
11,982
1,100
2,569
2,748
32,479
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.
(ii) 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.
(iii) 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
Goods and services tax (GST) payable
Accrued expenses
Government grants
Payroll liabilities
Other creditors
30 June
2019
$'000
10,844
–
3,328
432
426
659
15,689
30 June
2018
$'000
7,583
344
3,072
1,041
247
1,741
14,028
Trade payables are unsecured and are usually paid within 30 days of recognition.
(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.
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 5 FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED)
(d) Borrowings
Current interest-bearing loans and borrowings
Milk supply facility
Financing facility
Hire purchase
Insurance Loan
Secured lending
Total current interest-bearing loans and borrowings
Non-current interest-bearing loans and borrowings
Hire purchase
Secured lending
Secured lending
Working capital facility
Total non-current interest-bearing loans and borrowings
Interest rate
%
Maturity
3.02%
1.93%
BBSY + 2.05%
June 2024
October 2019
May 2020
3.02%
BBSY + 2.00%
BBSY + 2.50%
BBSY + 2.05%
June 2024
October 2021
May 2021
May 2022
2019
$'000
–
–
249
767
4,500
5,516
1,268
14,625
3,834
16,080
35,807
61
2018
$'000
14,935
5,300
252
957
–
21,444
–
–
–
–
–
Total interest-bearing loans and borrowings
41,323
21,444
FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 62
6 NON-FINANCIAL ASSETS AND LIABILITIES
(a) Property, plant and equipment
At 1 July 2017 Cost or fair value
Accumulated depreciation
Net book amount
Year ended 30 June 2018 Opening net
book amount
Additions
Disposals
Depreciation charge
Closing net book amount
At 30 June 2018 Cost or fair value
Accumulated depreciation
Net book amount
Year ended 30 June 2019
Opening net book amount
Acquisition of subsidiary
Additions
Disposals
Depreciation charge
Closing net book amount
At 30 June 2019 Cost
Accumulated depreciation
Net book amount
Land
Buildings
Plant and
equipment
Furniture,
fittings and
equipment
Motor
vehicles
$'000
21,679
–
21,679
21,679
–
–
–
21,679
21,679
–
21,679
21,679
6,320
–
–
–
27,999
27,999
–
27,999
$'000
3,975
(223)
3,752
3,752
283
–
(216)
3,819
4,257
(438)
3,819
3,819
–
1,366
(7)
(312)
4,866
5,603
(737)
4,866
$'000
19,155
(789)
18,366
18,366
13,245
(417)
(788)
30,406
31,534
(1,128)
30,406
30,406
918
4,400
(17)
(1,019)
34,688
36,613
(1,925)
34,688
$'000
$'000
302
(48)
254
254
63
(40)
(64)
213
321
(108)
213
213
–
38
(6)
(60)
185
355
(170)
185
201
(28)
173
173
81
–
(25)
229
281
(52)
229
229
–
249
–
(48)
430
530
(100)
430
Total
$'000
45,312
(1,088)
44,224
44,224
13,672
(457)
(1,093)
56,346
58,072
(1,726)
56,346
56,346
7,238
6,053
(30)
(1,439)
68,168
71,100
(2,932)
68,168
(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
20 - 50 years
5 - 40 years
• Furniture, fittings and equipment
3 - 10 years
• Motor vehicles
7 - 15 years
See note 22(p) for the other accounting policies relevant to property, plant and equipment.
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 6 NON-FINANCIAL ASSETS AND LIABILITIES (CONTINUED)
(b) Intangible assets
At 1 July 2017 Cost
Accumulation amortisation
Net book amount
Year ended 30 June 2018 Opening net
book amount
Additions - acquisition
Amortisation charge
Closing net book amount
At 30 June 2018 Cost
Accumulation amortisation
Net book amount
Year ended 30 June 2019 Opening net
book amount
Additions - acquisition
Amortisation charge
Closing net book amount
At 30 June 2019 Cost
Accumulated amortisation
Net book amount
Internally
generated
software*
Goodwill
$'000
$'000
1,847
-
1,847
1,847
-
-
1,847
1,847
-
1,847
1,847
6,312
-
8,159
8,159
-
8,159
1,358
(105)
1,253
1,253
668
(223)
1,698
2,026
(328)
1,698
1,698
116
(231)
1,583
2,142
(559)
1,583
Customer
contracts
Lobster
quotas
Water
licences
$'000
1,763
(283)
1,480
1,480
43
(747)
776
1,382
(606)
776
776
129
(198)
707
1,496
(789)
707
$'000
$'000
4,949
-
4,949
4,949
-
-
4,949
4,949
-
4,949
4,949
-
-
4,949
4,949
-
4,949
4,039
-
4,039
4,039
-
-
4,039
4,039
-
4,039
4,039
-
-
4,039
4,039
-
4,039
63
Total
$'000
13,956
(388)
13,568
13,568
711
(970)
13,309
14,243
(934)
13,309
13,309
6,557
(429)
19,437
20,785
(1,348)
19,437
* Software includes capitalised development costs being an internally generated intangible asset.
(i) Amortisation methods and useful lives
For the year ended 30 June 2019, 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.
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.
FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 64
6 NON-FINANCIAL ASSETS AND LIABILITIES (CONTINUED)
(c)
Biological assets
Livestock
30 June
2019
$'000
5,303
30 June
2018
$'000
4,880
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 2019, the Group held a total of 3,687 cattle (2018 - 3,343).
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
2019
$'000
4,880
879
(933)
477
5,303
30 June
2018
$'000
4,400
728
(371)
123
4,880
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.
(d) Inventories
Current assets Raw materials and stores
Finished goods – at cost
(i) Assigning costs to inventories
30 June 2019
30 June 2018
$'000
3,619
10,573
14,192
$'000
1,179
21,425
22,604
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 2019 amounted to $81,078,253 (2018 - $32,656,836).
There were write-downs of inventories during the year of $1,988,773 (2018 - $92,391).
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 6 NON-FINANCIAL ASSETS AND LIABILITIES (CONTINUED)
(e) 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
Total deferred tax assets
Significant estimates
65
30 June
2018
$’000
6,863
90
106
983
309
8,351
30 June
2019
$’000
13,933
1,070
144
450
205
15,802
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: Tax losses and offsets
Property, plant and equipment
Intangible assets
Other
(iii) Tax consolidation
30 June
2019
$’000
1,297
1,237
251
2,785
30 June
2018
$’000
340
1,236
–
1,576
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.
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.
FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 66
6 NON-FINANCIAL ASSETS AND LIABILITIES (CONTINUED)
(e) Deferred tax balances (continued)
(iii) Tax consolidation (continued)
Tax effect accounting by members of the tax consolidated group
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.
(f) Employee benefit obligations
(i) Leave obligations
30 June 2019
30 June 2018
Current
No-current
$’000
428
$’000
179
Total
$’000
607
Current
No-current
$’000
230
$’000
70
Total
$’000
300
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 $428,074 (2018 - $230,227) 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.
Current leave obligations expected to be settled after 12 months
30 June 2019
30 June 2018
$'000
140
$'000
69
7 ASSETS HELD FOR SALE
In January 2018, the majority shareholders of the Ferguson
Fisheries group (inclusive of Ferguson Australia Pty Ltd)
decided to sell their interests and the Group decided to
sell its interest in Ferguson Australia Pty Ltd as part of that
process.
Ferguson Fisheries subsequently entered a formal sale
process.
The Group concluded that its 32% interest in Ferguson
Australia Pty Ltd, along with certain property, plant and
equipment and intangible assets owned by the Group and
leased to Ferguson’s Australia Pty Ltd, should be treated
as a disposal group (the ‘Ferguson Disposal Group’) and
classified as assets held for sale. The Group ceased to
equity account for its investment in Ferguson Australia
Pty Ltd from 1 January 2018, being the time at which the
investment became held for sale.
The sale process run by Ferguson Fisheries has not been
successful. In order to remain classified as held for sale, the
sale of the disposal group needs to be highly probable. The
lack of success to date indicates that the sale of the assets as a
disposal group does not meet this test. Accordingly, as at 30
June 2019, the assets comprising the Ferguson Disposal Group
are no longer classified as held for sale. Although the Group
still intends to dispose of these assets it may be that they are
disposed of individually rather than collectively.
On reclassifying the assets from held for sale, the assets
need to be returned to their appropriate classification
on the balance sheet at the carrying values at which they
would have been held had they not been classified as held
for sale. The comparative balance sheet has also been
restated to reflect the appropriate classifications at 30 June
2018 had the assets not been classified as held for sale at
that date.
The investment in Ferguson Australia Pty Ltd was initially
reclassified as an equity accounted investment. Refer note
14 (c) for further information regarding the consequent
accounting impacts.
The intangible assets were reclassified to intangible assets
and continued to be carried at cost. The property, plant
and equipment were reclassified in the balance sheet after
making an adjustment to depreciation of $13,000.
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 67
8
IMPAIRMENT
(a) Management analysis
The Group performed its annual impairment test in June 2018
and 2019. The Group considered the relationship between its
market capitalisation and book value, among other factors,
when reviewing for indicators of impairment. At 30 June 2019,
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 Australian Dairy and Australian Dairy 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 2.5% were used across all CGUs.
(i) Australian Dairy CGU
The recoverable amount of the Dairy CGU, $150.9 million
as at 30 June 2019, has been determined based on a fair
value less cost to sell 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 $4,055,288.
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 determined 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.
(ii) Australian Meat CGU
The recoverable amount of the Australian Meat CGU, $13.8
million as at 30 June 2019, has been determined based
on a fair value less cost to sell 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 Australian Meat
CGU is
$6,313,242, and the carrying value of indefinite life intangible
assets allocated to the Australian Meat CGU is $nil.
Key drivers which impact the recoverable amount of the
Australian Meat CGU include:
• Real sales growth;
• Gross margin; and
•
Inflation.
Management have determined 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 Australian Meat CGU. As a result of
this analysis management did not identify impairment for this
CGU.
(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 yields achieved through the production process.
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 12.3% and the cash flows beyond the five-year period are
extrapolated using a 2.5% 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 13.8% (i.e. +1.5%) in
the Dairy CGU would result is a decrease in the recoverable
amount of $22.1 million. This decrease would not result in
impairment.
FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 68
8
IMPAIRMENT (CONTINUED)
(b) Key assumptions – Dairy
(ii) 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
$5.3 million. This decrease would not result in impairment.
(iii) 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
$64.3 million. This decrease would not result in impairment.
(iv) Production yields
A decrease of the production yields by 2.5% in the Dairy CGU
would result is a decrease in the recoverable amount of $3.4
million. This decrease would not result in impairment.
(c) Key assumptions - Australian Meat
The calculation of value in use for the Australian Meat
segment is most sensitive to the following assumptions:
• Discount rates;
• Real sales growth; and
• Gross margin.
9 EQUITY
(a) Contributed equity
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 12.3% and the cash flows beyond the five-year period are
extrapolated using a 2.5% 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 13.8% (i.e. +1.5%)
in the Australian Meat CGU would result is a decrease in the
recoverable amount of $1.5 million. This decrease would not
result in impairment.
(ii) Gross margin
A decrease of the gross margin by 2.5% in the Australian Meat
CGU would result is a decrease in the recoverable amount of
$3.5 million. This decrease would not result in an impairment.
(iii) Real sales growth
An decrease in the real growth rate achieved by 2.5% in
the Australian Meat CGU would result is a decrease in the
recoverable amount of $2.1 million. This decrease would not
result in impairment.
Ordinary shares - fully paid
443,315,867
443,315,867
Shares
Shares
$’000
147,535
$’000
147,535
30 June 2019
30 June 2018
30 June 2019
30 June 2018
(i) Movements in ordinary share capital
Opening balance 1 July 2017
Balance 30 June 2018
Opening balance 1 July 2018
Balance 30 June 2019
(ii) Ordinary shares
Number of
shares
443,315,867
443,315,867
443,315,867
443,315,867
$'000
147,535
147,535
147,535
147,535
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.
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 9 EQUITY (CONTINUED)
(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.
69
Financial assets and liabilities at FVOCI
Share-based payments
Foreign currency translation
Movements:
Financial assets and liabilities at FVOCI
Revaluation - gross
Share-based payments
Opening balance
Option expense
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
2019
$'000
(8,693)
–
(442)
(9,135)
(8,693)
9
(9)
–
(246)
(196)
(442)
30 June
2018
$'000
–
9
(246)
(237)
–
9
–
9
(491)
245
(246)
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 24(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
Adjustment on adoption of AASB 9
Restated opening balance at the beginning of the financial year
Net loss for the period attributable to equity holders of the parent
Balance 30 June
30 June
2019
$'000
(26,192)
(4,966)
(31,158)
(26,975)
(58,133)
30 June
2018
$'000
(13,598)
–
(13,598)
(12,594)
(26,192)
The opening balance as at 1 July 2018 and as 1 July 2017 is after the restatement for the changes in accounting policy disclosed in note 25.
FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 70
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
Impairment of financial asset
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
Decrease/(increase) in inventories
Increase in deferred tax assets
Increase/(decrease) in trade and other payables
Increase in provision for income taxes payable
Increase/(decrease) in deferred tax liabilities
Increase in other provisions
Net cash inflow (outflow) from operating activities
Notes
3(b)
30 June
2019
$'000
(27,315)
1,869
9,615
233
-
(477)
762
34
1,989
328
(284)
2,351
7,238
(6,530)
(370)
-
1,210
233
(9,114)
30 June
2018
$'000
(13,093)
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)
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 71
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.
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 2019
30 June 2018
CNY
$'000
207
(11)
THB
$'000
827
(11)
CNY
$'000
506
(266)
THB
$'000
332
(41)
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
30 June
2019
$'000
30 June
2018
$'000
34
34
164
164
Sensitivity
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%
(ii)
Interest rate risk
Impact on post-tax profit
2019
$'000
(42)
52
(42)
(8)
2018
$'000
(24)
30
(22)
27
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
30 June
2019
$'000
1,920
(41,323)
(39,403)
30 June
2018
$'000
4,463
(21,443)
(16,980)
FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
72
11 FINANCIAL RISK MANAGEMENT (CONTINUED)
(ii)
Interest rate risk (continued)
Sensitivity
The following sensitivity analysis is based on the interest rate risk exposures in existence at balance date. At 30 June 2019,
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
2019
$'000
(282)
1,589
56
(104)
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.
(ii) 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
30 June
2019
$'000
23
–
234
257
30 June
2018
$'000
42
842
(860)
24
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019
73
11 FINANCIAL RISK MANAGEMENT (CONTINUED)
(b) Credit risk (continued)
(iii) Past due but not impaired
As at 30 June 2019, trade receivables of $5,081,949 (2018 - $3,114,984) 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
2019
$'000
4,364
339
379
5,082
30 June
2018
$'000
2,707
243
165
3,115
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:
Contractual maturities of financial liabilities
At 30 June 2019
On demand
$'000
Less than 3
months
$'000
3 to 12
months
$'000
1 to 5
years
$'000
Over 5
years
$'000
Non-derivatives
Trade and other payables
Borrowings (excluding finance leases)
Finance lease liabilities
Total non-derivatives
12 CAPITAL MANAGEMENT
(a) Risk management
15,114
–
–
15,114
181
–
34
215
551
5,267
102
5,920
–
34,539
1,268
35,807
–
–
–
–
Total
$'000
15,846
39,806
1,404
57,056
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 2019 (2018: $nil).
13 BUSINESS COMBINATION AND DISPOSALS
(a) Summary of acquisition
On 23 August 2018, the Company acquired 100% of the ordinary shares of Scorpio Foods Pty Ltd (“Scorpio”). The acquisition
has been accounted for using the acquisition method. The financial statements include the results for Scorpio for the year from
the acquisition date.
Scorpio Foods is a HACCP and AQIS accredited processor and exporter of quality meat products supplying the food service
industry.
The acquisition was completed to consolidate the Group’s investment in the business.
FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 74
13 BUSINESS COMBINATION AND DISPOSALS (CONTINUED)
(b) Purchase consideration
Details of the purchase consideration, the net assets acquired, and goodwill are as follows:
Cash paid ($2)
Deferred consideration
Total consideration to be paid
Add: Settlement of pre-existing relationships
Elimination of loan receivable
Total consideration in relation to business acquisition
Assets
Trade and other receivables
Inventory
Property, plant & equipment
Deferred tax asset
Liabilities
Trade creditors and accruals
Employee provisions
Overdraft facility
Interest bearing liabilities (related party)
Goodwill
Goodwill
Net assets acquired
30 June
2019
$'000
–
195
(195)
5,927
(6,122)
744
815
918
28
2,505
(2,360)
(74)
(33)
(228)
(2,695)
6,312
(6,312)
6,122
The goodwill is attributable to the expected synergies and other benefits from combining the operations of Scorpio with those
of the Group. It will not be deductible for tax purposes.
(iii) Revenue and profit contribution
The acquired business contributed revenues of $6.5m and a net loss of $2.5m to the Group for the period from 23 August 2016
to 30 June 2019.
(iv) Acquisition-related costs
Acquisition related costs of $30,000 are included in administration expenses in the consolidated statement of comprehensive
income and in operating cash flows in the consolidate statement of cash flows.
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 75
14
INTERESTS IN OTHER ENTITIES
(a) Material subsidiaries
The Group’s principal subsidiaries at 30 June 2019 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
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 Food (Shanghai) Co. Limited
Beston Technologies Pty Ltd
AQUAessence Pty Ltd
Scorpio Foods Pty Ltd
Country of
incorporation
and operation
Ownership interest
held by the Group
2018
%
2019
%
Ownership interest
held by NCI
2018
%
2019
%
Principal activities
Australia
Australia
Australia
Australia
Thailand
100.0
100.0
100.0
100.0
98.0
100.0
100.0
100.0
100.0
98.0
–
–
–
–
–
–
–
–
Food services
Dairy farming
Dairy production
Sales and distribution
2.0
2.0
Sales and distribution
Hong Kong
100.0
100.0
China
Australia
Australia
100.0
100.0
51.0
Australia
100.0
100.0
100.0
51.0
–
–
–
–
–
–
–
Sales and distribution
Sales and distribution
Technology developer
49.0
49.0
Water products
–
–
Protein processing
(b) Non-controlling interests (NCI)
Interest in:
Share capital
30 June
2019
$'000
30 June
2018
$'000
(154)
186
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.
FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 76
14
INTERESTS IN OTHER ENTITIES (CONTINUED)
Summarised balance sheet
Current assets
Current liabilities
Current net assets
Non-current assets
Non-current net assets
Net assets
Accumulated NCI
Summarised statement of comprehensive income
Revenue
Profit/(loss) for the period
Total comprehensive income
Profit/(loss) allocated to NCI
Summarised cash flows
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Net increases/(decrease) in cash and cash equivalents
AQUAessence Pty Ltd
30 June
2019
$'000
30 June
2018
$'000
148
730
(582)
2,351
2,351
1,769
(186)
171
1,037
(866)
1,236
1,236
370
181
AQUAessence Pty Ltd
30 June
2019
$'000
188
(694)
(694)
(340)
30 June
2018
$'000
308
(1,020)
(1,020)
(500)
AQUAessence Pty Ltd
30 June
2019
$'000
346
(297)
(123)
(74)
30 June
2018
$'000
331
(308)
(62)
(39)
(c) Investments
Name of entity
Ferguson Australia Pty Ltd1
Neptune Bio-Innovations Pty Ltd2
Total investments
Country of
incorporation
and operation
Australia
Australia
Measurement
method
% of ownership
interest
2018
%
2019
%
32
10
32
10
FVOCI
FVOCI
Carrying amount
2018
2019
$'000
$'000
–
–
–
4,695
11,558
16,253
(1) Ferguson Australia Pty Ltd is a processor and exporter of premium seafood products in which the Group holds a 32%
interest. Ferguson Fisheries holds the remaining 68% interest.
In January 2018, the Ferguson Fisheries group (inclusive of Ferguson Australia Pty Ltd) decided to sell their interests in
Ferguson Fisheries and the Group decided to sell its interest in Ferguson Australia Pty Ltd as part of that process. Ferguson
Fisheries subsequently entered a formal sale process.
The Group classified its interest in Ferguson Australia Pty Ltd as held for sale at that time and ceased to equity account for
its investment. Refer note 7.
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019
77
14
INTERESTS IN OTHER ENTITIES (CONTINUED)
(c) Investments (continued)
The Group has determined that it ceased to have significant influence over the financial and operational decision making
of Ferguson Australia Pty Ltd from January 2019. The lack of significant influence culminated in Beston’s representative
director subsequently resigning from the board of Ferguson Australia Pty Ltd. As a consequence of the assessments
outlined above, the Group has for the year ended 30 June 2019:
• Recorded in the profit and loss statement equity accounted losses from Ferguson Australia Pty related to the prior year
for the six-month period ending 30 June 2018 and for the six-month period to 31 December 2018 totalling $762,000.
• Recorded in the profit and loss statement an impairment of the equity accounted investment of $893,000 assessed as at
1 January 2019.
• Ceased equity accounting for the investment as at 1 January 2019 and designated the investments as held at fair value
through other comprehensive income.
• Recorded a fair value decrement of $3,035,000 as at 30 June 2019, which is reported in Other Comprehensive Income.
(2) The Group received updated financial forecast from Neptune Bio-Innovations Pty Ltd (NBI) at 31 December 2018. Analysis
of this information has led the Group to assess the fair value of the convertible notes and equity investments as nil,
resulting in an impairment of $11.56 million.
An amount of $5.90 million has been recognised in relation to the convertible note through the profit and loss, and an
amount of $5.66 million has been recognised in relation to the equity instrument through other comprehensive income
The above entities are private companies with no quoted price available.
15 CONTINGENT LIABILITIES AND CONTINGENT ASSETS
The Group had no contingent assets or liabilities at 30 June 2019 (2018 - 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
(b) Finance lease commitments: Group as lessee
30 June
2019
$'000
297
10
307
30 June
2018
$'000
284
10
294
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
2019
$'000
467
1,186
1,653
30 June
2018
$'000
87
180
267
At 30 June 2018, the Group had commitments of $90,628,790 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 nil commitments relating to equipment capital expenditure.
FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
78
17 EVENTS OCCURRING AFTER THE REPORTING PERIOD
No matter or circumstance has arisen since 30 June 2019 that has significantly affected the Group’s operations, results or state
of affairs, or may do so in future years.
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 various goods and services from related parties
Management fees to the Investment Manager
30 June
2019
$
260,000
24,700
–
–
–
284,700
30 June
2019
$
721,594
32,500
338,861
30 June
2018
$
260,000
24,700
–
–
–
284,700
30 June
2018
$
405,890
90,000
633,081
(13,863)
(2,382,705)
(831,175)
(2,387,799)
(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
(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
30 June
2019
$
30 June
2018
$
429,849
(303,285)
6,198,017
(310,318)
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019
(e) Loans to/from related parties
Loans to other related parties
Beginning of the year
End of year
79
30 June
2018
$
32,503
32,503
30 June
2019
$
32,503
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:
Key metrics
Beston Global Food Company Limited
ASX All Ordinaries Accumulation Index
1 July 2018
$0.18
$62,434.90
30 June 2019
$0.12
$69,326.90
Performance
-31.34%
11.04%
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
(ii) Transactions with other related parties
$53,197,904.04
-42.38%
17.5%
$0.00
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.
FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 80
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
Total audit services
Audit services
Audit and review of financial statements
Total non-audit services
Advisory services
Capital and debt advisory services
Taxation services
Tax compliance services
Tax due diligence services
2019
$
2018
$
287,000
287,000
229,000
229,000
110,000
41,156
54,068
205,224
–
84,442
–
84,442
Total remuneration of Ernst & Young
492,224
313,442
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
30 June
2019
Cents
(6.08)
–
(6.08)
30 June
2019
Cents
(6.08)
–
(6.08)
30 June
2018
Cents
(2.84)
–
(2.84)
30 June
2018
Cents
(2.84)
–
(2.84)
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 20 EARNINGS PER SHARE (CONTINUED)
(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
81
30 June
2019
$'000
30 June
2018
$'000
(26,975)
–
(26,975)
(12,593)
–
(12,593)
(26,975)
(26,975)
(12,593)
(12,593)
2019
Number
2018
Number
Weighted average number of ordinary shares used as the denominator in calculating basic
and diluted earnings/(loss) per share
443,315,867
443,315,867
21 PARENT ENTITY FINANCIAL INFORMATION
(a) Summary financial information
The individual financial statements for the parent entity show the following aggregate amounts:
ASSETS
Current assets
Non-current assets
Total assets
LIABILITIES
Current liabilities
Non-current liabilities
Total liabilities
Net assets
EQUITY
Issued capital
Reserves
Revaluation surplus - property, plant and equipment
Share-based payments
Accumulated losses
Foreign currency translation reserve
Total equity
Profit/(loss) for the period
Total comprehensive income/(loss)
30 June
2019
$'000
17,155
115,370
132,525
4,124
10,308
14,432
30 June
2018
$'000
9,571
131,441
141,012
957
3,215
4,172
118,093
136,840
147,535
147,535
(8,693)
–
(8,460)
–
–
8
(10,479)
(224)
130,382
136,840
(12,275)
(20,612)
(3,654)
(3,654)
FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 82
21 PARENT ENTITY FINANCIAL INFORMATION (CONTINUED)
(b) Contingent liabilities of the parent entity
The parent entity did not have any contingent liabilities as at
30 June 2019 or 30 June 2018.
On adoption, the standard has affected in particular the
Group’s accounting for its available-for-sale financial assets,
which under AASB 9 have been designated as fair value
through other comprehensive income (FVOCI) as discussed
below. Fair value gains and losses on available-for-sale debt
investments, for example, will therefore have to be recognised
directly in profit or loss. There is no material impact on the
statement of comprehensive income or the statement of cash
flows and basic and undiluted EPS.
Classification and measurement
Except for certain trade receivables, under AASB 9, the Group
initially 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. Under AASB 9, debt financial instruments
are subsequently measured at fair value through profit or loss
(FVPL), amortised cost, or FVOCI. The classification is based
on two criteria: the Group’s business model for managing the
assets; and whether the instruments’ contractual cash flows
represent ‘solely payments of principal and interest’ on the
principal amount outstanding (the ‘SPPI criterion’).
The new classification and measurement of the Group’s debt
financial assets are, as follows:
• Debt instruments at amortised cost for financial assets
that are held within a business model with the objective to
hold the financial assets in order to collect contractual cash
flows that meet the SPPI criterion. This category includes
the Group’s Trade and other receivables, and Receivables
included under non-current financial assets.
• Debt instruments at fair value through profit and loss
(FVTPL) for instruments that are held within a business
model with the objective to hold the financial assets in
order to collect contractual cash flows that do not meet
the SPPI criterion. This category includes the convertible
notes included in Receivables included under non-current
financial assets.
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, for the first time, certain standards
and amendments which are effective for the first time in their
annual reporting period commencing 1 July 2018. The nature
and effect of the changes as a result of adoption of these new
accounting standards are described below:
AASB 9 Financial Instruments
The Group applied AASB 9 Financial Instruments
prospectively, from 1 July 2018. AASB 9 Financial Instruments
replaces AABS 139 Financial Instruments: Recognition and
Measurement for annual periods beginning on or after 1
January 2018, bringing together all three aspects of the
accounting for financial instruments: classification and
measurement; impairment; and hedge accounting. The
Group has not restated the comparative information, which
continues to be reported under AASB 139. Differences arising
from the adoption have been recognised directly in retained
earnings on 1 July 2018 and other components of equity as
described below.
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 83
22 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(a) Basis of preparation (continued)
Classification and measurement (continued)
Other financial assets are classified and subsequently
measured, as follows:
• Equity instruments at FVOCI, with no recycling of gains or
losses to profit or loss on derecognition. This category only
includes equity instruments, which the Group intends to
hold for the foreseeable future and which the Group has
irrevocably elected to so classify upon initial recognition
or transition. The Group classified its unquoted equity
instruments as equity instruments at FVOCI. Equity
instruments at FVOCI are not subject to an impairment
assessment under AASB 9. Under AASB 139, the Group’s
unquoted equity instruments were classified as available-
for-sale (AFS) financial assets.
The accounting for the Group’s financial liabilities remains
largely the same as it was under AASB 139.
Impairment
AASB 9 has fundamentally changed the Group’s accounting
for impairment losses for financial assets by replacing AASB
139’s incurred loss approach with a forward-looking expected
credit loss (ECL) approach. AASB 9 requires the Group to
record an allowance for ECLs for all loans and other debt
financial assets not held at FVTPL.
ECLs are based on the difference between the contractual
cash flows due in accordance with the contract and all the
cash flows that the Group expects to receive. The shortfall is
then discounted at an approximation to the asset’s original
effective interest rate.
For Trade and other receivables, the Group has applied the
standard’s simplified approach and has calculated ECLs based
on lifetime expected credit losses. The Group has established
a provision matrix that is based on the Group’s historical credit
loss experience, adjusted for forward-looking factors specific
to the debtors and the economic environment.
The Group applied AASB 9 prospectively, with an initial
application date of July 1, 2018. The Group has not restated
the comparative information, which continues to be reported
under AASB 139. Differences arising from the adoption have
been recognised directly in retained earnings and other
components of equity. The statement of profit or loss for the
six months ended 31 December 2017 was not required to be
restated. The impact on the statement of financial position as
at 1 July 2018 is as follows:
Assets
Trade and other receivables
Deferred tax asset
Equity
Retained earnings
30 June
2019
$'000
(5,855)
889
(4,966)
(4,966)
(4,966)
Each of the transition adjustments noted above relate to
financial assets held at amortised cost under both AASB
139 and AASB 9. Convertible notes were accounted for at
amortised cost with an embedded derivative at FVTPL under
AASB 139. On transition to AASB 9 they will be FVTPL in their
entirety. No adjustments to carrying value were required on
transition.
AASB 15 Revenue
The Group applied AASB 15 Revenue from Contracts with
Customers for the first time from 1 July 2018 in accordance
with the modified retrospective transitional approach. Under
this approach, the cumulative effect of initially applying
AASB 15 is recognised at the date of initial application as an
adjustment to the opening balance of retained earnings and
comparative information is not restated.
AASB 15 supersedes AASB 118 Revenue, AASB 111
Construction Contracts and related Interpretations and it
applies to all revenue arising from contracts with customers,
unless those contracts are in the scope of other standards.
The new standard establishes a five-step model to account
for revenue arising from contracts with customers. Under
AASB 15, revenue is recognised at an amount that reflects
the consideration to which an entity expects to be entitled in
exchange for transferring goods or services to a customer.
The Group assessed the impact of the new standard by
analysing its customer contracts in each of the Group’s
revenue streams described in Note 3, having regard to the
requirements of AASB 15 comparing the Group’s accounting
policies and practices for accounting for the rights and
obligations identified in those contracts and identify potential
differences. Based on this analysis, there is no material impact
on the recognition and measurement of revenue and contract
costs on the adoption of AASB 15 at 1 July 2018.
AASB 15 does however require the Group to include in the
financial statements certain additional information in respect
of the Group’s revenue streams as described below.
Sale of goods
The Group’s contracts with customers for the sale of products
include one performance obligation. The Group recognises
revenue from sale of products at the point in time when
control of the asset is transferred to the customer on delivery
of the goods. The normal credit terms are 30 to 60 days.
Variable consideration
Some contracts for the sale of products provide customers
with volume rebates and trade discounts which give rise to
variable consideration. The variable consideration is estimated
at contract inception using the expected value method
based on forecast volumes and is constrained until it is highly
probable that a significant revenue reversal in the amount
of cumulative revenue recognised will not occur when the
associated uncertainty is subsequently resolved. The amount
of revenue reflects the consideration to which the Group
expects to be entitled to in exchange for those goods.
FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 84
22 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(a) Basis of preparation (continued)
Trade receivables
Deferred tax balances
A receivable represents the Group’s right to an amount of
consideration that is unconditional (ie only the passage of
time is required before payment of the consideration is due).
Contract assets
A contract asset is the right to consideration in exchange for
goods or services transferred to the customer. If the Group
performs by transferring products to a customer before
payment is due, a contract asset is recognised for the right to
the earned consideration that is conditional.
Contract liabilities
A contract liability is the obligation to transfer products to
customers for which the Group has received consideration
from the customer in advance. If a customer pays
consideration before the Group transfers products to the
customer, a contract liability is recognised when the payment
is made or the payment is due. Contract liabilities are
recognised as revenue when the Group provides the product
under the contract.
(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.
Revaluation of biological assets
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 of non-financial assets
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).
Fair value assessments
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.
(v)
New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have
been published that are not mandatory for 30 June 2019
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:
AASB 16 Leases
AASB 16 replaces AASB 117 Leases, AASB Interpretation 4
‘Determining whether an Arrangement contains a Lease’,
AASB Interpretation 115 ‘Operating Leases-Incentives’
and AASB Interpretation 127 ‘Evaluating the Substance of
Transactions Involving the Legal Form of a Lease’. AASB 16
sets out the principles for the recognition, measurement,
presentation and disclosure of leases and requires lessees to
account for all leases under a single on-balance sheet model
similar to the accounting for finance leases under AASB
117. The standard includes two recognition exemptions for
lessees - leases of ’low-value’ assets and short-term leases.
At the commencement date of a lease, a lessee will recognise
a liability to make lease payments and an asset representing
the right to use the underlying asset during the lease term.
Lessees will be required to separately recognise the interest
expense on the lease liability and the depreciation expense on
the right-of-use asset.
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22 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(a) Basis of preparation (continued)
(v)
New standards and interpretations not yet adopted
(continued)
AASB 16 Leases (continued)
Lessees will be also required to remeasure the lease liability
upon the occurrence of certain events. The lessee will
generally recognise the amount of the remeasurement of the
lease liability as an adjustment to the right-of-use asset. AASB
16 requires lessees to make more extensive disclosures than
under AASB 117.
The most significant impact identified based on an initial
assessment is that the Group will recognise new right of
use assets and financial liabilities for its operating lease
commitments for office buildings and plant and equipment.
The current accounting treatment of recognising operating
lease expenses in ‘Other expenses’ in the Statement of
Profit or Loss and Other Comprehensive Income will also
change on adoption of AASB 16, with amortisation of the
lease expenditure recognised in both Depreciation and
amortisation expense and Interest expense.
As lessee, the Group can either apply the standard using a
retrospective approach or a modified retrospective approach
with optional practical expedients.The Group plans to apply
AASB 16 using the modified retrospective approach. The
Group will elect to apply the standard to contracts that were
previously identified as a lease applying AASB 117 and AASB
Interpretation 4. The Group will elect to use the exemptions
proposed by the standard on lease contracts for which the
lease terms ends within 12 months as of the date of initial
application, and lease contracts for which the underlying
asset is of low value. The Group has leases of certain office
equipment that are considered of low value (ie less than
$10,000).
The Group has completed an initial assessment of the
potential impact on its consolidated financial statements. The
impact of AASB 16 has not yet been quantified. The actual
impact of applying AASB 16 on the financial statements from
1 July 2019 is still being determined and is dependent on
the Group’s borrowing rate, the composition of the Group’s
lease portfolio, the Group’s assessment of whether it will
exercise any renewal options and the extent to which the
Group chooses to use practical expedients and recognition
exemption. Under the modified retrospective approach, the
cumulative impact of application will be recognised as at 1
July 2019.
IFRIC 23 Uncertain Tax Position
The Interpretation clarifies the application of the recognition
and measurement criteria in IAS 12 Income Taxes when there
is uncertainty over income tax treatments. The Interpretation
specifically addresses the following:
• Whether an entity considers uncertain tax treatments
separately.
• The assumptions an entity makes about the examination
of tax treatments by taxation authorities.
• How an entity determines taxable profit (tax loss), tax bases,
unused tax losses, unused tax credits and tax rates.
• How an entity considers changes in facts and
circumstances. The impact of IFRIC 23 has not yet been
quantified.
Standards not yet effective
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
(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
2019 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)).
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.
FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 86
22 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b) Principles of consolidation (continued)
(ii) Associates
(ii) Transactions and balances
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.
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.
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.
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 87
22 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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.
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.
FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 88
22 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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
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.
(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.
• acquisition-date fair value of any previous equity interest in
the acquired entity
(l) Trade receivables
Trade receivables are recognised initially at the transaction
price as determined under AASB 15, 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.
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.
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22 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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 and measurement
With the exception of trade receivables, the Group initially
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. Transaction costs of financial assets carried
at fair value through profit or loss are expensed in profit or
loss. Trade receivables are measured at the transaction price
determined under AASB 15.
The classification of financial assets depends on the financial
asset’s contractual cash flow characteristics and the Group’s
business model for managing them. In order for a financial
asset to be classified and measured at amortised cost or fair
value through OCI (for a debt instrument), it needs to give
rise to cash flows that are ‘solely payments of principal and
interest (SPPI)’ on the principal amount outstanding.
This assessment is referred to as the SPPI test and is
performed at an instrument level.
The Group’s business model for managing financial assets
refers to how it manages its financial assets in order to
generate cash flows. The business model determines whether
cash flows will result from collecting contractual cash flows,
selling the financial assets, or both.
Financial assets fair value through profit and loss
Financial assets at fair value through profit or loss include
financial assets held for trading, financial assets designated
upon initial recognition at fair value through profit or loss,
or financial assets mandatorily required to be measured at
fair value. Financial assets are classified as held for trading if
they are acquired for the purpose of selling or repurchasing
in the near term. Derivatives, including separated embedded
derivatives, are also classified as held for trading unless they
are designated as effective hedging instruments. Financial
assets with cash flows that are not solely payments of
principal and interest are classified and measured at fair value
through profit or loss, irrespective of the business model.
Financial assets at fair value through profit or loss are carried
in the Consolidated balance sheet at fair value with net
changes in fair value recognised in the statement of profit
or loss. This includes convertible notes within the Trade and
other receivables balance and certain investments within
Investments in the Consolidated balance sheet.
Financial assets at amortised cost
This category is the most relevant to the
Group. The Group measures financial assets
at amortised cost if both of the following
conditions are met:
• The financial asset is held within a business model with
the objective to hold financial assets in order to collect
contractual cash flows; and
• The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
Financial assets at amortised cost are subsequently measured
using the effective interest (EIR) method and are subject to
impairment. Gains and losses are recognised in profit or loss
when the asset is derecognised, modified or impaired. The
Group’s financial assets at amortised cost includes trade
receivables and other receivables within the Trade and other
receivables balance in the Consolidated balance sheet.
Financial assets designated at fair value through OCI
(equity instruments)
Upon initial recognition, the Group can elect to classify
irrevocably its equity investments as equity instruments
designated at fair value through OCI when they meet the
definition of equity under AASB 132 Financial Instruments:
Presentation and are not held for trading. The classification
is determined on an instrument-by-instrument basis. Gains
and losses on these financial assets are never recycled to
profit or loss. Dividends are recognised as other income in
the statement of profit or loss when the right of payment has
been established, except when the Group benefits from such
proceeds as a recovery of part of the cost of the financial
asset, in which case, such gains are recorded in OCI. Equity
instruments designated at fair value through OCI are not
subject to impairment assessment.
(ii) Recognition and derecognition
The Group initially recognises a financial asset when
it becomes party to the contractual provisions of the
instrument. A financial asset (or, where applicable, a part of
a financial asset or part of a group of similar financial assets)
is primarily derecognised (i.e., removed from the Group’s
consolidated statement of financial position) when:
• The right to receive cash flows from the asset have
expired; or
• The Group has transferred its rights to receive cash flows
from the asset or has assumed an obligation to pay the
received cash flows in full without material delay to a third
party under a ‘pass-through’ arrangement; and either
(a) the Group has transferred substantially all the risks
and rewards of the asset, or (b) the Group has neither
transferred nor retained substantially all the risks and
rewards of the asset, but has transferred control of the
asset.
FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 90
22 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(n) Investments and other financial assets (continued)
(iii) Impairment
Assets classified as available-for-sale
The Group recognises an allowance for expected credit losses
(ECLs) for all debt instruments not held at fair value through
profit or loss. ECLs are based on the difference between the
contractual cash flows due in accordance with the contract
and all the cash flows that the Group expects to receive,
discounted at an approximation of the original effective
interest rate. The expected cash flows will include cash flows
from the sale of collateral held or other credit enhancements
that are integral to the contractual terms.
ECLs are recognised in two stages. For credit exposures for
which there has not been a significant increase in credit risk
since initial recognition, ECLs are provided for credit losses
that result from default events that are possible within the next
12-months (a 12-month ECL). For those credit exposures for
which there has been a significant increase in credit risk since
initial recognition, a loss allowance is required for credit losses
expected over the remaining life of the exposure, irrespective
of the timing of the default (a lifetime ECL).
For trade receivables and contract assets, the Group applies a
simplified approach in calculating ECLs. Therefore, the Group
does not track changes in credit risk, but instead recognises a
loss allowance based on lifetime ECLs at each reporting date.
The Group has established a provision matrix that is based
on its historical credit loss experience, adjusted for forward-
looking factors specific to the debtors and the economic
environment.
The Group considers a financial asset in default when
contractual payments are 90 days past due. However, in
certain cases, the Group may also consider a financial
asset to be in default when internal or external information
indicates that the Group is unlikely to receive the outstanding
contractual amounts in full before taking into account any
credit enhancements held by the Group. A financial asset
is written off when there is no reasonable expectation of
recovering the contractual cash flows.
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.
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) Financial liabilities
(i)
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as
financial liabilities at fair value through profit or loss, loans and
borrowings, payables, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate. All financial
liabilities are recognised initially at fair value and, in the case of
loans and borrowings and payables, net of directly attributable
transaction costs. The Group’s financial liabilities include trade
and other payables, and loans and borrowings.
(ii) Subsequent measurement
The measurement of financial liabilities depends on their
classification, as described below:
Loans and borrowings
This is the category most relevant to the Group. After initial
recognition, interest-bearing loans and borrowings are
subsequently measured at amortised cost using the EIR
method. Gains and losses are recognised in profit or loss
when the liabilities are derecognised as well as through the
EIR amortisation process.
Amortised cost is calculated by taking into account any
discount or premium on acquisition and fees or costs that are
an integral part of the EIR. The EIR amortisation is included as
finance costs in the statement of profit or loss.
This category generally applies to interest-bearing borrowings.
(iii) Derecognition
A financial liability is derecognised when the obligation under
the liability is discharged or cancelled or expires. When an
existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange
or modification is treated as the derecognition of the original
liability and the recognition of a new liability. The difference
in the respective carrying amounts is recognised in the
statement of profit or loss.
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 91
22 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(p) Property, plant and equipment
(iii) Software (e-commerce platform and other applications)
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.
(q) 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.
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(b) for details about amortisation methods and
periods used by the Group for intangible assets.
(r) 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.
(s) 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.
FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 92
22 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(ii) Other long-term employee benefit obligations
(t) Contributed equity
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). 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.
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.
(u) 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.
(v) 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.
(w) 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.
(x) 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.
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 93
22 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(y) 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.
(i)
Investments in subsidiaries, associates and joint venture
entities
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.
FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 94
In the Directors’ opinion:
(a) the financial statements and notes set out on pages 50 to 93 are in accordance with the
Corporations Act 2001, including:
(i) complying with Accounting Standards, the Corporations Regulations 2001 and other
mandatory professional reporting requirements, and
(ii) complying with International Financial Reporting Standards , as disclosed in note 22(a)(i), and
(iii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2019
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
Chairman
DIRECTORS’ DECLARATIONBESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – INDEPENDENT AUDITORS REPORT TO THE MEMBERS
95
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 2019, 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)
b)
giving a true and fair view of the consolidated financial position of the Group as at 30 June 2019
and of its consolidated financial performance for the year ended on that date; and
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 comprised a convertible note and put
option issued on 3 April 2018 and a 9.9% equity investment which were recorded at 30 June 2018 at
$5.9 million and $5.7 million respectively. As at 30 June 2019 the carrying value of the convertible note,
put option and equity investment are nil, as disclosed note 14(c).
As at 30 June 2018 we were unable to obtain sufficient appropriate evidence to assess the fair value of
the convertible note and we were unable to assess the recoverable amount of the Group’s equity
investment. Our opinion on the financial report for the year ended 30 June 2018 was modified
accordingly. Consequently, we were unable to determine whether adjustments might have been
necessary in respect of the consolidated statement of comprehensive income for the year ended 30 June
2019 as it reflects the movement in the carrying value of Group’s convertible note and equity investment
from 1 July 2018. We were also unable to determine whether adjustments might have been necessary in
respect of the initial adoption of AASB 9 ‘Financial Instruments’ by the Group on 1 July 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.
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Key audit matters
Key audit matters are those matters that, in our professional judgment, 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.
Deferred tax asset relating to losses
Why significant
How our audit addressed the key audit matter
The Group’s deferred tax balances are subject to
complexity and estimation risk around the utilisation
of tax losses. The Group's deferred tax asset of
$15.8 million as at 30 June 2019 includes $13.9
million relating to carry forward tax losses and
offsets, the recoverability of which is subject to the
generation of future taxable profits.
The recoverability of the deferred tax assets was a
key audit matter due to the significance of the
balances and the judgements involved in determining
forecast profitability.
The Group’s disclosures are included in Note 6(e) of
the financial report.
Our audit procedures included assessing the Group’s
forecasts of future taxable income by comparing these
cash flows for consistency with the cash flows utilised in
the Group’s impairment testing and testing the
mathematical accuracy of the Group’s calculations to
derive current and deferred taxes.
We also assessed the adequacy of the Group’s
disclosures with regards to the closing tax balances
recorded at year end.
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FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – INDEPENDENT AUDITORS REPORT TO THE MEMBERS
97
Impairment of non-current assets including goodwill and other intangibles
Why significant
How our audit addressed the key audit matter
The carrying value of property, plant and equipment
(“PPE”) of $68.2 million and goodwill and other
intangible assets of $19.4 million as disclosed in Note
6 represent 62% of the total assets of the Group.
As required by Australian Accounting Standards, the
Group assesses at the end of each reporting period
whether there is any indication that PPE may be
impaired. In addition, goodwill and indefinite life
intangibles are tested for impairment at least
annually.
The impairment of non-current assets, including
goodwill and other intangibles was a key audit matter
due to the significance of these balances and the
complex judgements in the impairment assessment
process such as forecast revenue growth, product
sales prices, margins and milk supply volume and
prices that are affected by future market or
economic conditions.
The Directors obtained an independent valuation of
the Group’s cash generating units (“CGUs”) subject to
impairment testing, based on their fair value less
costs to sell as disclosed in Note 8.
The Group’s disclosures are included in Note 8, which
specifically explain the key operating assumptions
used and sensitivity of changes in the key
assumptions which could give rise to an impairment
loss in the future.
Our audit procedures included assessing the
appropriateness of the CGUs where impairment testing
was performed, taking into consideration the levels at
which management monitors business performance and
the interdependency of cash flows.
In respect of the Group’s CGUs, where indicators of
impairment were present or in CGUs that contained
significant goodwill balances as at 30 June 2019, we
performed the following procedures:
►
In respect of the independent valuation we:
–
–
–
–
Evaluated the competence, capabilities and
objectivity of the external valuation expert.
Assessed the valuation methodology used
against generally accepted valuation practices.
Assessed the discount rates applied by the
expert through comparing the cost of capital
for the Group with comparable businesses.
Assessed the results of the expert’s
comparative industry valuation multiples
analysis and analysis of other market evidence
used as valuation cross-checks.
►
In respect of the cash flow forecasts provided to the
independent valuer by the Group we:
–
–
–
–
–
Assessed key assumptions such as forecast
revenue growth, product sales prices, margins
and milk supply volume and prices in
comparison to external independent data,
where relevant.
Assessed the Group’s results in comparison to
historical forecasts to assess forecast accuracy.
Compared future cash flows to board approved
budgets.
Assessed the adequacy of capital expenditure
forecasts.
Tested the mathematical accuracy of the
discounted cash flow model.
We performed sensitivity analysis in respect of the
assumptions noted above, which were considered to
have the most significant impact on carrying values, to
ascertain the extent of changes in those assumptions
which either individually or collectively would be
required for there to be an impairment. We assessed
the likelihood of these changes in assumptions arising.
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.
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Accounting for Ferguson disposal group previously held for sale
Why significant
How our audit addressed the key audit matter
Our audit procedures included the following:
► We assessed the Group’s determination of the date
from which the Ferguson Disposal Group was no
longer held for sale with reference to the status of
the formal sale process undertaken by Ferguson’s
majority shareholders.
► We assessed the Group’s accounting treatment in
respect of the equity investment in Ferguson,
including the determination of loss of significant
influence.
► We assessed the Group’s determination of
recoverable amount and fair value, as applicable to
the respective assets at the relevant dates by:
–
–
Assessing the Group’s key cash flow forecast
assumptions in respect of revenue growth,
gross margins, operating costs and the
discount rate applied.
Evaluating the competence, capabilities and
objectivity of the external valuation expert used
by the Group in their assessment the
recoverable amount of the lobster quota
intangible assets.,
► We assessed the adequacy of the disclosures in
Note 7 and Note 14(c) of the financial report.
As disclosed in Note 7 to the financial report, during
the year the Group’s 32% equity interest in Ferguson
Australia Pty Ltd (“Ferguson”) and certain plant and
equipment and intangibles classified as held for sale
as at 30 June 2018 were reclassified from held for
sale to their respective asset categories in the
consolidated balance sheet as the planned disposal
transaction was no longer expected to occur.
Significant judgement was required in assessing
when the Ferguson Disposal Group no longer met the
‘held for sale’ criteria under Australian accounting
standard, AASB 5 Non-current assets held for sale
and discontinued operations (“AASB 5”). The
accounting treatment for derecognition as held for
sale is complex. requiring the assets to be
reclassified in the statement of financial position at
the lower of, their carrying amount before being
classified as held for sale, adjusted for any
depreciation, amortisation or revaluations that would
have been recognised had the asset not been
classified as held for sale, and their respective
recoverable amounts at this date.
In addition, as disclosed in Note 14(c), the Group lost
significant influence over Ferguson during the year
and thereafter designated the equity investment as
held at fair value through other comprehensive
income.
Significant judgement was required in determining
the date at which significant influence was lost and
the fair value of the investment at this date.
Due complexity in the judgements relating from the
loss of significant influence and change in intention
relating to the sale the Accounting for the Ferguson
disposal group was considered a key audit matter.
The Group’s disclosures are included in Note 7 and
Note 14(c) of the financial report.
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BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019
FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – INDEPENDENT AUDITORS REPORT TO THE MEMBERS
99
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 2019 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.
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
judgment 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.
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100
•
•
•
•
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.
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 44 to 47 of the directors' report for the year
ended 30 June 2019.
In our opinion, the Remuneration Report of Beston Global Food Company Limited for the year ended 30
June 2019, complies with section 300A of the Corporations Act 2001.
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BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019
FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2019 – INDEPENDENT AUDITORS REPORT TO THE MEMBERS
101
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
30 August 2019
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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 6 September 2019.
ORDINARY SHARE CAPITAL
• 443,315,867 fully paid Ordinary Shares are held by 3,017
• There are no restricted securities or securities subject to
individual Shareholders.
voluntary escrow
• All Ordinary Shares carry one vote per share.
• There is no current on-market buyback.
DISTRIBUTION OF EQUITY SECURITIES
The number of shareholders, by size of holding, in each class are:
Range
100,001 and Over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
Unmarketable Parcels
Securities
380,726,043
56,309,019
4,582,578
1,669,698
28,529
443,315,867
1,114,586
%
85.88
12.70
1.03
0.38
0.01
100.00
0.25
SUBSTANTIAL SHAREHOLDERS
(As disclosed in substantial holding notices given to the Company)
Australia Aulong Auniu Wang Food Holdings Pty Ltd
Kunteng Pte Ltd
I.G. Investment Management Ltd
Allianz SE
Number of holders
%
306
1,504
550
520
137
3,017
540
Number of shares held
66,894,345
64,051,111
39,525,741
21,955,164
8.51
51.38
18.19
17.87
4.05
100.00
17.90
%
14.90
14.99
8.92
6.04
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 ASX ADDITIONAL INFORMATION
103
TWENTY LARGEST HOLDERS OF QUOTED EQUITY SECURITIES
Rank
Name
Number of Shares Held
%
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
KUNTENG PTE LTD
AUSTRALIA AULONG AUNIU WANG FOOD HOLDINGS PTY LTD
BNP PARIBAS NOMINEES PTY LTD
BLUE RIDGE HOLDINGS PTY LTD
BNP PARIBAS NOMS PTY LTD
FIRST BOOM INVESTMENTS LIMITED
FIRST BOOM INVESTMENTS LIMITED
WILLOUGHBY CAPITAL PTY LTD
EDM TRANSPORT PTY LTD
CITICORP NOMINEES PTY LIMITED
S GERLACH PTY LTD
BNP PARIBAS NOMS PTY LTD
MNA FAMILY HOLDINGS PTY LTD
HWR NOMINEES PTY LTD
MR JEFFREY YEH
ABORIGINAL CONTRACTING WA PTY LTD
MR REGINALD GEORGE KENNETH NEALIE & MRS TERESA NEALIE
WARRINGAL PASTORAL PTY LTD
MR PETER VERHOEVEN
Total
Balance of register
Grand total
65,022,400
64,051,111
54,449,834
42,917,145
16,611,905
11,868,757
11,428,572
8,333,334
6,775,000
3,600,000
3,397,597
2,816,385
2,546,522
2,425,000
1,800,000
1,642,985
1,568,417
1,500,000
1,361,657
1,300,000
305,416,621
137,899,246
443,315,867
14.67%
14.45%
12.28%
9.68%
3.75%
2.68%
2.58%
1.88%
1.53%
0.81%
0.77%
0.64%
0.57%
0.55%
0.41%
0.37%
0.35%
0.34%
0.31%
0.29%
68.89%
31.11%
100.00%
104
JERVOIS MURAL
The Mural that we have painted on the facade of our
Mozzarella factory, at Jervois, South Australia is inspired
by the history of the area and the factory itself which
dates back to the 1930’s.
ABOUT THE HISTORY OF THE AREA
Following the examples of communities upstream – low
lying swampland adjacent to the river, such as Jervois, were
reclaimed by building embarkments to hold the water back.
Jervois was identified as being potential prosperous
pastureland and 11 miles of Jervois swamp, which extended
from Wellington to Wood’s Point at the top end, was drained.
In 1881, Governor Jervois had 3,320 acres reclaimed of the
area that now bears his name. Being slightly higher land,
Jervois was the only area not to go under water in the 1931
floods. Dairies were reasonably well established by mid-1930’s
in the Jervois area- primitive times, few horses, few cows,
no roads, no fences and the few houses were wooden huts.
Highlands were low bald hills and there were lots of box thorn
bushes that were difficult to remove.
By 1940 there were 50 Dairy Farmers in the area.
ABOUT THE CHESO FAMILY – DAIRY FARMERS
The Cheso Family has been extremely important to the
Jervois area and its history. Antonio Cheso gifted the land (1
acre) to the newly formed Co-op where the Jervois factory
was built and stands today. He also gifted a further 2 acres
as required for excess whey storage. Antonio was a builder
by trade and migrated to Australia in 1926. In 1936 Antonio
borrowed money from Farmers Union Factory, Murray Bridge
to buy land at Jervois. His wife Rita and three children came
to Australia in 1936.
A typical dairy farm in those days was not fenced and all
farmers cows grazed together. His son, Oscar would fetch
cows early in the morning on horseback and bring them
back to the dairy. Oscar and Rita hand milked cows between
4:30am and 5am each morning, using lamps as there was no
electricity. Milk went into 10-gallon galvanized tin milk cans
– early 1930’s machines commenced taking over from hand
milking and Antonio purchased their first milking machine.
Stationary kerosene or oil engines powered the machines…
there was no electricity until 1955. Milk was taken by horse
and cart, in milk boats at the river.
Later on, Cheso Dairy constructed a landing at the riverside
with a car on rails to carry milk cans to another landing
alongside the road where it was picked up by horse and cart
and later a truck. The illustration of Antonio, his horse and cart
and milk cans has been used on the Mural and also can be
found on BFC’s Edward’s Crossing Vintage Cheese packaging
(which in FY19 won the Dairy Industry of Australia’s Christian
Hansen Cup, for the “Best Cheddar Cheese in Australia”…
Antonio would be proud!).
ABOUT THE JERVOIS FACTORY
The Jervois factory opened and received the first milk
(7300 litres) on 11 June 1939. The day attracted hundreds
of people and included formalities and festivities. The first
Manager was Lindsay Simms an ex-teacher at the local
Jervois West Primary School. Lindsay had a staff of 6 people,
with the first cheese- maker being Harry Larsen. The factory
was predominantly, a wholesale provider of cheese with
people purchasing cheese direct from the factory up to the
mid-1990’s.
The ownership of the factory
• Jervois Co-op 1939 – early 1980’s
• Dairy Vale 1980’s
• Dairy Farmers 1997
• National Foods 2007
• United Dairy Power 2012 and
• Beston Global Foods 2015 –
The Jervois Factory produced cheese only, with the
first production in 1939 being 2nd grade due to a lack
of pasteurization. Whey was a bi-product and used for
feeding pigs.
BESTON GLOBAL FOOD COMPANY LIMITED | ANNUAL REPORT 2019 By 1941 improvements to dairy quality controls
meant dairy farmers were forced to have milk
water coolers. Rejection of sub-standard milk
and the installation of Australian’s first plate type
pasteurizer at the factory improved the quality of
the cheese dramatically.
Between 1939 and 2004 the factory only
produced Cheddar Cheese, with 82% being
rindless cheddar for ‘Kraft Australia’. The balance
was sold to a local market and factory under the
Jervois brand name, with 18% exported to Japan
in 20kg blocks. In 2004 the Mozzarella plant was
installed using closed vats, with both cheddar
and mozzarella being produced up to 2007. In
2007 the factory ceased making cheddar. In 2015
BFC purchased the factory from United Dairy
Power and commenced producing Mozzarella
in 2018 after purchasing ‘’state-of-the-art’’
equipment from Italy.
2019
bestonglobalfoods.com.au
ANNUAL REPORT