Bega Cheese Limited
2022
ANNUAL
REPORT
INNOVATION SPOTLIGHT
HELPING
EVERYBODY
ENJOY MILK
Pura Milk Lactose Free and Farmers Union
Iced Coffee Lactose Free
Innovating for a better future means understanding
the needs of consumers who can’t enjoy the
products we make from milk.
44% of Australians are affected by lactose
malabsorption.1 Bega helps them enjoy dairy with
easier to digest, lactose-free milk products with
the same great taste as our regular products.
Lactose free products have been launched under
two of our major dairy brands in South Australia –
Pura Full Cream and Light Start milks and Farmers
Union Iced Coffee.
1. Data Source: Christian Løvold Storhaug, Svein Kjetil Fosse, and Lars T Fadnes,
“Country, Regional, and Global Estimates for Lactose Malabsorption in Adults:
A Systematic Review and Meta-Analysis,” thelancet.com, Oct. 1, 2017.
Contents
Performance Highlights
Chairman’s Report
Chief Executive Officer’s Review
Review of Financial Performance
and Operations
Directors’ Report
Auditor’s Independence Declaration
Corporate Governance Statement
Financial Statements
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Shareholder Information
Corporate Directory
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2022 Annual Report
3
Our Purpose
CREATING
GREAT
FOOD FOR
A BETTER
FUTURE
Our purpose helps connect our people,
customers, consumers, suppliers and the
communities in which we operate. It helps
guide strategy and decision-making and
informs our values and behaviours.
We are proud of our heritage as an
iconic Australian business with strong
connections to agriculture and a passion
for creating great food.
To deliver on our purpose for consumers
we must anticipate consumer needs
and food trends. The recent product
launches
report
showcase how we innovate products to
create great food for a better future.
featured
this
in
4
2022 Annual Report
5
Bega Cheese Limited
Performance
Highlights
Revenue
The Bega Cheese Group generated top-line revenue of $3.01 billion in FY2022, which is
45% higher than FY2021. With a full year of Bega Dairy and Drinks, Bega Cheese achieved
its goal of having at least 80% of all revenue through branded products, finishing the
year with 82% of sales derived from branded business (73% in FY2021).
The statutory result for each of FY2022 and FY2021 includes a number of non-
recurring items. In FY2022 these related primarily to acquisition and integration costs,
partially offset by income from the early termination of two contracts with Reckitt
during FY2021. In FY2021 these primarily related to the bargain purchase on business
combination and income from the early termination of two contracts with Reckitt,
partially offset by acquisition and integration costs.
FY2022
$3.01
billion
18%
Bulk
82%
Branded
FY2021
$2.07
billion
27%
Bulk
73%
Branded
EBITDA ($ million)
Basic earnings per share (cents)
180.1
184.5
141.7
149.9
15.2
15.0
8.0
29.5
FY2022
FY2021
FY2022
FY2021
FY2022
FY2021
FY2022
FY2021
Normalised
Statutory
Normalised
Statutory
Profit after tax ($ million)
Total dividend per share (cents)
78.0
46.3
39.6
24.2
11.0
10.0
FY2022
FY2021
FY2022
FY2021
FY2022
FY2021
Normalised
Statutory
Statutory
6
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Bega Cheese Limited2022 Annual Report
OUR TRANSFORMATION
TO BECOMING
A GREAT AUSTRALIAN
FOOD COMPANY
2009
Increase
scale
Acquisition of
Strathmerton
Cut, pack and
processing scale
and capability
Further diversification
of customer base
2007
Grow and
diversify
Acquisition of
Tatura
Growth and
diversification of
milk sourcing
Entry into nutritionals,
cream cheese and
milk powders
Diversification of
customer base
2011
Structure for
the future
Accessing
capital for
growth
Successful ASX listing
Value release for farmers
Well structured for
corporate activity
Acquisition of the
remaining stake in Tatura
Investment in capacity
and increased focus on
nutritionals and high-
value dairy products
Developing
foodservice and
consumer businesses
2001
Seek new
opportunities
Co-operative
founded in 1899
Industry deregulation
2001
Bega based co-op with
strong regional brand
Main focus: cheddar
manufacture, process
and pack
Long-term Australian
supply and licence
agreement with Fonterra
Developing international
sales opportunities
8
Bega Cheese has transformed over the
past 20 years from a dairy co-operative
with a strong regional cheese brand
into a diversified food and beverage
business with an integrated and flexible
supply chain.
2021
Transformational
acquisition
Acquisition of
Dairy and Drinks
Portfolio of iconic
Australian brands
Broaden customer
base and new cold
chain distribution
network
Future
A Great Australian
Food Company
Creating great
food for a
better future
Diversified portfolio of
market-leading brands
Efficient distribution
network servicing
customer growth
Globally competitive
supply chain
Substantial synergies
across the supply chain
Direct relationship with
farmers and suppliers
Accelerated
investments in growth
and innovation
Further growth and
diversification of
the milk pool
Shaping our future
through sustainability
and circularity
2018
Strengthen
our supply chain
Acquisition
of Koroit
Growth and
diversification of
milk sourcing
Strengthening our
dairy portfolio
Integrated and flexible
supply chain
Scale ingredient
processing supporting
customer brands
Decision to
close sub-scale
manufacturing
facility in Coburg
2017
New business
platform
Acquisition of
grocery brands
Entry into spreads
category
Iconic Australian
brands, including
Vegemite
Extending the Bega
brand into new
categories
Investing in sales and
marketing capability
Acquisition of PCA
to secure Australian
source of peanuts
We have responded to significant changes in the dairy industry
post deregulation to create a resilient business with a higher-
returning product mix and a higher proportion of revenue derived
from our portfolio of heritage brands. Over this time we have led
and participated in industry consolidation and navigated through
a challenging supply environment.
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Bega Cheese Limited2022 Annual Report
Chairman’s Report
The importance of capability, culture and
clear strategy have never been more evident
than in FY2022.
Across our supply chains and throughout the entire community
we have all needed to be both resilient and agile as we were tested
by the impacts of the COVID-19 pandemic and the disruptions to
supply chains emanating from both the pandemic and extreme
weather conditions. While the challenges were many, the Bega
Group of companies continued to respond effectively to the
almost daily operational impacts, while successfully completing
the integration of the Lion Dairy and Drinks business and executing
our capital works program.
In the context of both Australian and International business
conditions, the financial outcomes for the FY2022 year were
pleasing with a strong cash flow and continued reduction in our
debt leverage ratio. The normalised EBITDA for FY2022, which
excludes the integration costs of the Lion Dairy and Drinks
business and the benefits of the Reckitt contract termination,
is $180.1 million and normalised profit after tax is $46.3 million.
FY2022 statutory EBITDA is $149.9 million and statutory profit after
tax is $24.2 million. Our leverage ratio is 1.8 times.
The impact of the COVID-19 pandemic has been significant and
affected both our Australian and International business, with
disruption across our entire supply chain from transport and
logistics to factory operations and volatility in our customers’
demand particularly in food service and convenience channels.
As previously reported the direct cost of COVID-19 and its
associated impacts contributed an estimated additional cost in
excess of $40 million.
The volatility and uncertainty created by both domestic and
international events continues. The war in Ukraine significantly
increased the cost of oil, packaging and other commodities. Global
inflation continues to contribute to rising costs in all areas of the
economy. Climatic events are now more frequent and extreme.
The need to navigate the challenges of the COVID-19 pandemic
continue and the geopolitical environment remains unstable.
The Australian dairy industry continued to experience decreases in
milk production with a reduction in national supply of approximately
4% to 8.5 billion litres. In general, climatic conditions were positive
from a farming perspective although a number of regions were
significantly impacted by wet weather and flooding events.
The shortage of farm labour and alternative land use options
combined with high property prices have accelerated retirement
plans for some dairy farmers. Increasing competition for traditional
dairy farming assets has impacted dairy farmers wishing to expand
their operations although we do observe ongoing investment by
many of our farmers in their dairy businesses.
Early retirements, labour availability and weather conditions
in some regions have been the major factors contributing to
the decrease in farm gate milk supply. The decrease in supply
together with historically high international commodity markets
has seen robust competition for milk continue through FY2022
and accelerate in FY2023.
The increases in farm gate milk prices and other input costs are
largely being reflected in the Australian market and will provide
a stronger base from which to encourage further investment
by dairy farmers in response to much more attractive returns,
particularly when compared to the past decade.
Reflecting on global trends, as a food producer, food security and
specifically the need to feed more people in a changing climate
and a changing international geopolitical environment is emerging
as a theme both locally and internationally.
the current economic, environmental and social
While
circumstances need to be factored into our planning and forecasts,
we remain very confident that the company’s strategy sees the
Bega Group well-positioned to manage and respond to changes
across our supply chain both in Australia and internationally.
The strength of our brands, the quality of our infrastructure and
our range of dairy and food products delivers the company a
well-balanced Australian and international market presence and
a product portfolio that can respond to changes in those markets.
The acquisition and integration of the Dairy and Drinks business
has significantly added to the strength of the Bega Group
particularly in the Australian market.
While significant increases in input prices and market volatility
associated with COVID-19 have presented challenges and
impacted the shorter term performance, the overall integration
costs, synergies,
infrastructure and brand positions are at
expectation and we continue to be very positive in regard to the
opportunities we are identifying in the business.
In times of volatility it is important to recognise short and long
term challenges while also ensuring you continue to invest and
execute opportunities.
This year the Bega Group made important investments in capacity,
efficiency and packaging projects that respond to market demand,
improve financial performance and deliver positive environmental
outcomes. The operational and financial performance of the
business is discussed in greater detail in the CEO’s Review and
Review of Financial Performance and Operations.
The iconic market leading brands and large product range in our
portfolio have been very important in an era of much volatility
and uncertainty. While some of the challenges in the past years
will continue into FY2023, the balance of our Australian and
international business and the strength of our spreads, dairy
and juice brands have allowed us to manage an extraordinarily
disrupted supply chain and customer base. As we successfully
pass through pricing and our supply chains stabilise, we can be
very confident that the company is well positioned for growth and
any corporate opportunities that further strengthen the business.
It’s important that we consider how we contribute to climate
change through our greenhouse gas emissions and how we
can reduce those impacts. It is also important that we assess
how extreme weather events, a changing climate and the
transition to a
low carbon economy presents risks and
opportunities for our business.
In FY2021 we adopted company-wide greenhouse gas reduction
targets which include 50% reduction in emissions intensity by 2030
and Net zero emission by 2050. This year we started measuring
emissions associated with our supply chain. In FY2023, we will
assess our climate-related risks and opportunities consistent
with the recommendations of the Taskforce on Climate-related
Financial Disclosures.
It is important that we also look beyond the business, specifically
at the context in which we operate, and work closely with multiple
stakeholders including suppliers, government and communities in
the regions where we operate to meet sustainability goals.
Our collaborative approach to sustainability can be seen in our
leadership in the Circular Valley initiative in the Bega Valley.
The Bega Group has been one of the driving forces behind the
establishment of a Circularity Co-operative model in the Bega
Valley, the home of the company, with the bold ambition of
making the Bega Valley the most circular valley in the world,
with outcomes that combine the knowledge of all the
stakeholders in the community to deliver economic, social and
environmental benefits.
Barry Irvin
Executive Chairman
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Bega Cheese Limited2022 Annual Report
Chairman’s Report
This ambitious project operates under
its own separate
governance structure. A shared aim is for this work to become a
template for other food and agricultural regions to follow and be
an important part of emissions reduction, improved biodiversity,
waste management, soil health, packaging and logistics, animal
welfare and water management. Detail about the Bega Valley
project will be provided in our Sustainability Report.
Our culture and values are the cornerstones on which this
company has been built. We are very proud of the Bega story and
our team, we know that it is the efforts and support of many that
has helped us grow into a company that all Australian’s can be
proud of.
Our hearts remain in the country as our success and the support
of our customers have allowed us to continue to invest in regional
communities and support our farmers.
We are very proud of our origins in the Bega Valley and ownership
of the famous Bega Cheese brand. We are equally proud of our
growth and the addition of iconic brands such as Vegemite,
Farmers Union, Dairy Farmers, Pura, Dare, Juice Brothers and
Yoplait which are now all part of the company and the Bega story.
It is appropriate that we recognise all that Bega Cheese has
become and the efforts of the many that ensure Bega continues
to be an important part of Australian life and a leading Australian
dairy and food company. In this report we have made the subtle
change of now referring to the business as the Bega Group better
reflecting the activities of the business while always remembering
our heritage and values.
As we reflect on the outcomes of FY2022 it is important to
recognise that the business could not have achieved the financial
outcomes, levels of service to our customers, the continued
operation of our factories and distribution depots, the supply of
milk from our farmers and inputs from other suppliers without the
dedication of many. In managing COVID-19 and the associated
challenges, we have seen people across the entire supply chain
and from all sectors working together with a goal of delivering
our much needed products to customers no matter where they
were in the world. I would like to acknowledge the wonderful staff
of Bega Group for their efforts and particularly thank Paul van
Heerwaarden and his executive team for the leadership, care and
support they demonstrated to their teams and the outcomes they
achieved. I would also like to thank the Bega Board for their wise
counsel and values driven approach during such a challenging
period. Thank you also to our shareholders and farmers for their
continued support.
Barry Irvin
Executive Chairman
26 August 2022
INNOVATION SPOTLIGHT
GROWING
OUR SPREADS
PORTFOLIO
Bega Simply Nuts Shake’ N Squeeze
This first to market innovation improves
consumers’ lives by resolving the mess typically
associated with natural peanut butter.
Its easy squeezy format makes it easier to use
at breakfast and on other occasions throughout
the day, such as in cooking, baking and snacking.
We installed a new production line to support
this launch and expand manufacturing
capability across the nut spreads portfolio.
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Bega Cheese Limited
Chief Executive Officer’s Review
We approached FY2022 with a strong emphasis on realising the
efficiencies and synergies following the acquisition of the Bega
Dairy and Drinks business which has seen the company double in
size. It has been pleasing to see the relatively seamless transition
of the Dairy and Drinks business into the Bega Group. This was
done while navigating the significant disruption across our supply
chains and market channels from early October through until May
related to COVID-19 and floods.
This year we have seen a rise in commodities and inflation levels not
seen for many years. Competition for milk remained robust putting
upward pressure on farm gate milk prices. Whilst the upward
pressure on costs has been industry wide and challenging, returns
for dairy commodities in our Bulk segment increased. Further
increases across the cost base for the Branded segment required
us to balance maintaining market share with maintaining margins
through price increases. While we managed to achieve this balance,
the timing of our prices generally lagged the cost increases.
Major capital projects were approved to expand growth categories,
investing also in packaging sustainability and implementing
efficiencies in our route to market capability. We continue to
invest in our people and capability and end the year with a strong
balance sheet and momentum into FY2023.
Financial result
FY2022 was the first full year of ownership of the Dairy and Drinks
business (acquired in January 2021), which contributed to the
material growth in the normalised financial metrics of the Group.
Bega Cheese Ltd achieved statutory revenue of $3.0 billion for the
year, up 45% on FY2021. Statutory EBITDA for FY2022 was $149.9
million, with statutory PAT of $24.2 million. On a normalised basis,
EBITDA was $180.1 million, within our updated guidance for the
year, with PAT of $46.3 million.
In December we renewed our syndicated debt facility and
increased the number of banks from two to four. Focused
management of working capital significantly improved cashflow
and reduced both our leverage ratio and net debt. Our net debt
on 30 June 2022 was $265.1 million, 18% lower than the prior year.
The Group’s leverage ratio of 1.8 for FY2022 was significantly lower
than FY2021 and well within covenant limits. Early termination
payments from Reckitt agreements injected $41.6 million in cash,
which also contributed to the overall reduction in debt.
Paul van Heerwaarden
Chief Executive Officer
Consolidating transformation –
positioned well for the future
Market dynamics – commodity
and consumer milk
I am very pleased with the contribution of the Bega Dairy and Drinks
business in the 18 months we have owned the business, despite
the challenges throughout the year. Following the acquisition, we
focused on our 100 day plan and immediately implemented the
changes we needed, whilst we determined the opportunities in
the longer term. Throughout FY2022 we executed the business
integration and synergy program, successfully optimised milk
usage through our expanded milk processing network, realised
procurement cost savings and leveraged combined distribution
and go-to-market capabilities.
We are working on opportunities in our extensive route business
which enables our entire Group to deal directly with customers
for whom we already process approximately 39,000 orders a
week. We are leveraging our expanded customer base, which now
includes cafes, impulse, government, aged care and healthcare
to complement our traditional stronghold of grocery, co-
manufacturing and quick service restaurant customers. Initiatives
included extending the range of products supplied to those
customers to create greater value from our distribution network,
introducing contactless delivery in response to COVID-19 and we
continue to invest in our digital platforms and infrastructure to
further improve customer experience.
With regular disruptions in the impulse and food service channels
due to COVID-19 and the floods, our retail portfolio of market
leading brands was able to capitalise on buoyant demand in the
grocery channel to mitigate the impact of disruptions elsewhere.
Pleasingly, the impulse trade and foodservice channels have both
demonstrated levels of recovery leading into FY2023.
Branded product categories
FY2022 saw category value growth of 6.3% in yoghurt, 5.2% in
chilled juice, 5.2% in spreads and 2.3% in milk based beverages.
Despite significant disruption to both manufacturing and
distribution of branded products we maintained market leading
positions in yoghurt, milk based beverages and spreads.
We continue to invest in innovation of our products and
packaging to meet consumer trends and needs. This year we
launched Squeezy Simply Nuts peanut butter, a new range of
Mildura sparkling fruit drinks, Dare Sparkling Cold Brew, lactose
free Farmers Union Iced Coffee and Pura lactose free milk. We
extended the Dare no added sugar offering and expanded
our range of flavoured milk, yoghurt and juice with new flavour
extensions. In chilled juice we launched a new Daily Juice one litre
specialty range with added fibre and probiotics.
Further details are included in the Review of Financial Performance
and Operations.
With the substantial and rapid increase in global commodity prices
over the course of FY2022 we realised increased returns for our
bulk dairy products, which in some cases exceeded the returns
from some of our consumer dairy products. The longer time frame
to realise price increases in the consumer market compared to
commodities markets contributed to this. This interplay between
commodity prices and the domestic consumer prices for dairy
products is not common. Normally we would expect the opposite,
however it is worth noting the importance of this bulk business.
White milk is a core part of our product range in both grocery
and non-grocery channels. Since the acquisition of the Bega Dairy
and Drinks business, the consumer price for private label white
milk at major grocers has increased 41%, from $1.10 to $1.55 per
litre of milk for a two-litre bottle, in response to the higher cost of
farm gate milk. With ongoing pressure on the supply of milk, these
significant price increases across the market are expected to
continue to have a positive impact on our returns from white milk.
Flexibility in our supply chain enables us to manage milk efficiently
across the network to maximise value. This has been particularly
beneficial during extended periods of disruption, enabling us
to shift production across different products and facilities. This
was a material synergy, which we started to realise in FY2021
and consolidated throughout FY2022 and is a process now well-
established in our daily operations.
In the Bulk segment we completed the exit from the Reckitt service
and access agreements and received the remainder of the early
termination payments, which are included in the statutory result.
We have reset the cost structure of that business to deal with
the termination of those agreements, exited the Derrimut infant
formula canning site, and secured access to canning capacity via
a co-manufacturing arrangement with a third party. Following a
softening of the market in FY2021, the infant formula market has
stabilised over the course of the year. Lactoferrin contributes a
material profit to the Group and we continue to explore further
opportunities to grow this business.
Our contract cheese packaging business faced challenges with
supply chain disruption and low labour availability. This business
stabilised by the fourth quarter.
Further details are included in the Review of Financial Performance
and Operations.
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Bega Cheese Limited2022 Annual Report
Chief Executive Officer’s Review
Sustainability
Outlook
The acquisitions in recent years of Bega Foods, Peanut Company
of Australia, the Koroit dairy plant and Bega Dairy and Drinks
have transformed the company. These acquisitions have
diversified our product offering, expanded our distribution
capability and reduced risk in our supply chain through greater
flexibility. This has positioned us to navigate disruption, extract
value and continue to grow.
Recently we announced the appointment of Peter Findlay to the
new role of Chief Operating Officer focused on developing and
growing the Branded segment. Peter joined Bega in November
2019 as Chief Financial Officer and has over 20 years’ experience
in professional services and senior finance and operational roles
in private and publicly owned businesses. Recruitment of a Chief
Financial Officer has commenced.
An immediate challenge is inflationary pressure and how we
mitigate higher costs through a range of mechanisms including
but not limited to pricing, growth, cost control and productivity.
We have had significant cost increases going into FY2023 and
have factored these into our outlook and guidance.
The COVID-19 and supply chain disruptions that significantly
impacted us from October through to May have stabilised.
While changes to isolation requirements could potentially impact
operations, we factor in COVID-19 as a normal part of doing
business. The return to normal service levels and sales momentum
in mid-May has continued. Our diversification of inputs and
capability help mitigate the ongoing risks of disruption. We have
been able to redirect milk across different facilities to realise value
when there has been disruption. Flexibility in our supply chain
has been an important factor in our resilience and ability to
navigate disruptions.
The benefit of increased consumer prices has started to flow
through in FY2023 across all channels and product categories. As
foreshadowed in June, we expect competition for farmgate milk to
remain robust in FY2023.
We are pleased to end the year in a position of balance sheet
strength, one which enables us to continue to support further
growth,
innovation, capital projects and
invest
importantly our people.
in brands,
Finally, I would like to extend my thanks to our employees, the
executive team, the Board, our farmer suppliers, other suppliers,
investors, customers and consumers of our products for their
support, dedication and encouragement. Whilst the year was
one of significant challenge, it was transformative and one of
opportunity. We exit FY2022 well placed for the future.
Paul van Heerwaarden
Chief Executive Officer
26 August 2022
We continue to focus on the five sustainable priorities established
and communicated in our FY2019 Sustainability Report. These are
food nutrition, diversity, inclusion and equality, greenhouse gases,
packaging sustainability and water sustainability.
Flood events in South Australia in February and then New South
Wales and Queensland in March, further escalated the disruption
from COVID-19. This impacted our access to road and rail logistics,
which reduced our ability to ship products around the country.
In FY2021 we committed to greenhouse gas emission reduction,
establishing targets on carbon Scope 1 and 2 emissions which
include a 40% reduction in absolute emissions by 2030 and net
zero carbon emissions by 2050.
We have completed an initial assessment of our Scope 3 emissions,
which are generated primarily in our supply chain, particularly
dairy farming. This assessment has identified opportunities with
our partners to reduce Scope 3 emissions and mitigate risks.
An Energy Management Capability program to increase energy
efficiency in our manufacturing sites is underway. This includes
energy management initiatives such as energy mapping, metering,
lighting, heat recovery and refrigeration.
Global shipping disruption, and specifically the lockdown in
Shanghai, a lack of container availability and the cost of containers,
impacted our export and international market during the year,
especially for infant formula to China. Delays in the shipping of
some imported ingredients, packaging and capital items put
further pressure on our operations.
In mid May we started to see service levels recover and markets
return to some level of normality. Overall we had a six month
period of significant disruption impacting our supply chain, our
customers and our people.
Investment in our people
As a member of the Steering Committee of Dairy Australia’s
Australian Dairy Industry Sustainability Framework we aligned with
industry goals and in April we adopted a Planet Pledge, extending
our environmental targets to also include zero waste to landfill
by 2025, a 30% reduction in water use by 2030 and 100% of our
packaging to be reusable, recyclable or compostable by 2025.
Along with other dairy industry participants, we are partnering
with Dairy Australia to formulate an action plan to halve dairy food
waste by 2030.
As part of the ongoing commitment to having an interdependent
safety culture, we aligned the Bega Safety Principles in consultation
with our employees to guide decisions and influence the way our
people act and interact. These principles will help us embed a culture
of care that has been central to the safety transformation work
commenced in FY2021. Our Health and Safety Policy was updated
in July 2021. Our Safety Management System is being updated
to align to the requirements of AS/NZS ISO 45001 standards.
Our safety metrics are reported in our Sustainability Report.
Further details can be found in our FY2022 Sustainability Report.
Operational disruption
In the first quarter of FY2022 we started to incur significant
increases in input costs for oil, packaging and other commodities
including coffee and sugar. More material and sustained
commodity price increases escalated in the second quarter
and through the remainder of the financial year, fuelled by
COVID-19, floods and the war in Ukraine. To the extent possible,
we have actively passed on these cost increases and have
progressed further cost saving initiatives to mitigate the impact of
inflationary pressures.
From October the Omicron variant of COVID-19 saw high levels
of absenteeism across our manufacturing sites and distribution
centres and those of our suppliers, including raw material,
packaging, transport and pallet suppliers. This in turn placed
pressure on production volumes and service levels.
Following the launch of our Calm healthy minds program in FY2021,
we have established a mental health committee to elevate visibility
of and provide the tools to support leaders to have conversations
about mental health. To support our people and in particular,
our working families that may experience stress and additional
pressure caused by school closures and restrictions, we continue
to enhance and promote our workplace flexibility policy.
Our approach to diversity and inclusion is outlined in our Bega
Cheese Diversity and Inclusion Policy updated in July 2021. We
report to the Workplace Gender Equality agency (WGEA) and have
this year received compliance status. In line with our submission
to WGEA, we undertake an annual review of the gender pay gap and
address immediately like for like anomalies. To ensure diversity
and inclusion reaches all of our people, we have introduced
site-based diversity and inclusion teams. The teams provide an
opportunity for direct two-way feedback with the executive that
is frequently candid, thought provoking and ultimately fast tracks
identification of issues and improves outcomes.
To limit the impact of COVID-19 in our workplace, we invested
heavily in personal protective equipment and rapid antigen tests,
as well as deep cleaning and segregation. COVID-19 also impacted
our customers, many of whom not only experienced significant
reduction in foot traffic but also had to close their stores on short
notice because of lockdowns or labour unavailability.
In June we received Board approval and formally achieved
signatory status in August to the HESTA 40:40 vision where we
have pledged to achieve gender balance (40% men, 40% women
and 20% any gender) in executive leadership by 2030. In line with
the program milestones, we will make public in the next twelve
months our pathway targets for 2024 and 2027.
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Bega Cheese Limited2022 Annual Report
Creating Great Food for a
Better Future and Sustainability
Our purpose statement guides our policy framework and our key focus areas with
respect to sustainability. A better future incorporates our farmers and suppliers, our
people, our customers and consumers and the communities in which we operate.
Within our program framework, we have five key sustainability priorities. This incorporates the Bega Better Farms program and influences
how resources are deployed across the business. These five key sustainability programs are aligned with the United Nations Sustainable
Development Goals and are described in more detail in our annual sustainability report.
Our priorities are aligned
with the UN Sustainable
Development Goals
Food and nutrition
Reformulating products to align with nutritional profiling
standards and designing product alternatives to meet specific
dietary requirements.
Packaging
to
Developing more
improve recyclability, with an alignment to the Australian
Packaging covenant.
sustainable packaging
solutions
Greenhouse gas emissions
Reducing our scope one and scope two emissions to achieve
our 2030 and 2050 targets and engaging with suppliers and
customers to better understand the sources of our scope three
emissions and where reduction opportunities exist.
Diversity, inclusion and equality
Creating an inclusive culture, embracing diversity and treating
people with respect.
Water sustainability
Investing in capital to improve water systems and process redesign
to improve water management throughout our operations.
The Bega circular valley initiative
In a circular economy, resources and materials are maintained
at their highest possible value for as long as possible. In contrast
with traditional linear economies with high levels of waste,
a circular economy reflects a closed loop along the value chain.
With the specialist support of KPMG and Rabobank, alongside
the Bega Valley Shire Council and input from local NSW
State Government Representatives, we have now created the
Regional Circularity Co-operative. The co-operative is actively
working with industry, community and government to source
funding and prioritise projects to create a legacy for future
generations of the Bega Valley. It is our vision that the circular
valley initiative will build a more resilient Bega Valley region
through the adoption of circular practices and will be a model
that can be applied in other regions throughout Australia. Bega
Cheese has provided co-investment in both the establishment
of the co-operative and in pro-bono resources to explore
potential projects and partners.
A circular economy is about
more than just recycling
1. Using resources more efficiently by changing the way we
think about production processes. Is the product the best
way to meet the demand? Could we use fewer or different
resources in its production?
2. Design differently: for example by considering reuse, repair
and recycling options in advance of production
3. Product reuse for same purpose
4. Product repair, maintenance and revision
5. Processing and reuse of materials
6. Recover energy from materials
7. Lastly, waste disposal and incineration without energy
recovery is avoided where possible
18
19
GREATERGOODPeoplesafetyCommunitycontributionand expectationDiversity,inclusion and equalityPeoplecapabilityResponsiblemarketingFood safetyand qualityFoodnutritionKeeping everyonehealthy at workHelping the community thriveRecognisingthat everyonehas somethingto giveMaking people’spotential a realitySpeakinghonestlyabout ourproductsMaking foodthat our customersand consumerstrustMaking better,healthier foodSupportingsustainablefarm practicesResponding tothe challenges of climate changeEnsuring everydrop countsProducing more,wasting lessPackaging for a better planetLandmanagementGreenhousegasesWatersustainabilityWastePackagingOUR PEOPLE AND COMMUNITIESOUR PRODUCTSOUR PLANETBega Cheese Limited2022 Annual Report3. Reuse1. Rethink and reduce2. Redesign6. Redesign7. Disposal5. Recycling4. Repair and remanufacturingMacro, Meso, Micro levelUse
Our Business Model
FARMERS AND
OTHER SUPPLIERS
BULK PROCESSING
PACKAGED GOODS PROCESSING
FOOD MANUFACTURERS,
MARKETERS AND TRADERS
CONTRACT PACKING
AND PRIVATE LABEL
BEGA BRANDED
BUSINESS
Our core
capabilities
Direct relationship
with our farmers
and other suppliers
Globally
competitive
supply chain
Diversified
portfolio of
market leading
food brands
Bulk segment
Integrated value chain from farm to consumer
Bega’s business model comprises four core capabilities, which
represent our integrated value chain from farm to consumer.
Our long-term and short-term planning processes are focused
on further strengthening this value chain and are supported and
enabled by high-performing teams with deep industry experience.
This business model also helps explain how activities are grouped
as part of segment reporting.
Bega maintains strong relationships with farmers and other
suppliers which ensures provenance and quality throughout
the supply chain. We work closely with our suppliers to support
sustainable farm practices and will continue to explore circularity
as a key initiative to build long term resilience in the communities
in which we operate.
incorporates
Our bulk business
large-scale and efficient
ingredient processing facilities that provide security of supply
for our branded business. These bulk processing facilities also
utilise capacity to manufacture and sell ingredient and nutritional
products to a range of food manufacturers, marketers and traders.
Our branded business incorporates packaged goods processing
facilities and a portfolio of heritage Australian brands with
category leadership positions. Our branded products are sold
to a wide range of retail and food service customers in Australia
and in export markets through an efficient distribution network.
The scale of the branded business supports continuous
in consumer research, product
investment
innovation and
marketing. In order to maximise the utilisation and efficiency of
our packaged goods processing facilities, we also contract pack
and toll process products for a range of customers under long-
term contractual arrangements.
We further strengthened our integrated value chain following the
acquisition of the Bega Dairy and Drinks business in 2021. This
transformational acquisition enabled the further diversification
of milk sourcing and improved the flexibility and efficiency of the
supply chain. As part of the integration, we have implemented
a range of initiatives to reduce our cost base and improve
the way dairy solids are managed across the manufacturing
network. The acquisition also included a portfolio of heritage
brands and significantly increased our customer reach through
the daily chilled distribution network which provides a platform
for further growth.
“BEGA HAS DEVELOPED A
FLEXIBLE AND INTEGRATED
VALUE CHAIN WHICH
PROVIDES A PLATFORM
FOR FURTHER GROWTH.”
20
DISTRIBUTION
NETWORK
Efficient
distribution
network serving
customer growth
FOODSERVICE AND
RETAIL CUSTOMERS
Key
CONSUMERS
Branded segment
Product flow
Supplier
Internal Bega
process
Bega’s direct
customer
Bega’s indirect
customer
21
Bega Cheese Limited2022 Annual Report
Australian Retail Categories
and Consumer Brands
Bega has a portfolio of leading iconic brands in seven consumer categories. Many of
these brands have become trusted household names by generations of consumers. Our
brand portfolio strength, priorities and strategies are crucial to long-term sustainable
value creation.
The ongoing investment in brand building and innovation ensures we compete
in attractive and growing product segments, capitalise on emerging consumer trends,
remain relevant, and win consumer preference.
Category
Category size $m Category growth
Bega share
Brand portfolio
Fresh
white milk1, 2
1,942
1.4%
12%
Yoghurt1
1,563
6.3%
25%
Milk based1, 2
beverages
851
2.3%
50%
Spreads3
666
5.2%
32%
Chilled juice1 620
5.2%
23%
Creams
and custards1 515
1.3%
10%
Water ice1
54
8.2%
81%
Portfolio with breadth and scale
Sustainability as a growth driver
The categories cover a broad spectrum of consumer needs, uses,
consumption occasions and sales channels. The portfolio breadth
increases business resilience and creates efficiencies in marketing
activity, with consumer insights often relevant across multiple
categories. Our scale enables us to partner with customers in retail
and foodservice channels to grow their business and customise
products for local tastes and preferences.
Building a sustainable future links directly with our purpose,
creating great food for a better future. Most of our brands contain
ingredients sourced directly from farmers. This direct connection
to source and Bega’s focus on farming sustainability answers
consumers’ desire for brands and ingredients that are natural,
healthier, less processed, and sustainably sourced.
1 Data extracted from IRI Total Business Scan (AU grocery Unweighted and Structured
Convenience) MAT 30 June 2022. Statements in relation to market share value data
provided by IRI (and Bega’s competitive position) are based on outside data sources,
assumptions and weightings in combination with management estimates
2 Excludes non dairy
3 Bega calculation based in part on data reported by NielsenIQ through its Scantrack
Service for the Total Spreads category (Client defined), for the 52-week period ending
28 June 2022, for the Total Grocery Australia market (value). Copyright © 2021, Nielsen
Consumer LLC
22
Bega Cheese Limited
Daily Juice One Litre Functional Range
of Juices
For the best start to the day, the Daily Juice
brand has an expanded range of products with
added nutrients for an extra dose of happiness
and wellness.
The trend of nutritional fortification is strong in
most categories, as consumers look for ways to
eat better while enjoying their favourite foods.
This range makes it easy to improve wellbeing
outcomes with delicious juices containing
nutrients that consumers value as part of a
balanced diet.
INNOVATION SPOTLIGHT
IMPROVING
WELLBEING
THROUGH
NUTRITION
Review of Financial
Performance and Operations
Key highlights
FY2022 represented the first full year of operations within the Bega
Cheese Group of the acquired Lion Dairy and Drinks business.
In addition to the realisation of efficiencies from the acquisition,
the Group managed many challenges as a result of supply chain
disruption caused by COVID-19, the impact of substantive flooding
in vast parts of Australia and record farm gate milk prices.
Expansion of the processing network achieved through the
acquisition of Lion Dairy and Drinks enabled the Group to optimise
the value of milk and this, along with procurement cost savings
and the ability to leverage the combined distribution and go-to-
market capabilities, helped mitigate the impact of the extended
period of significant disruption during FY2022.
The industry has experienced a sharp and sustained recovery
in both the commodity and consumer price of milk which has
continued into FY2023. Whilst the increased costs are being
passed on and have started to flow through, there is a lag in the
full recovery which will extend to FY2024.
A disciplined approach to cash flow generation and a refinancing
of debt sees the Group finish the year in a position of Balance
Sheet strength with a leverage ratio well within covenant limits and
the capability to continue to invest in brands, products, people
and capital for further growth in accordance with the Group’s
strategic pillars for FY2023.
Finance and operational overview
Bega Cheese generated top line statutory revenue of $3.0 billion,
up 45%, statutory EBITDA of $149.9 million, down 19%, statutory
profit after tax of $24.2 million, down 69% and statutory earnings
per share of 8.0 cents (FY2021 29.5 cents).
The Group will, as it has in previous years, report on both the
statutory result and the normalised result for FY2022 compared
to the prior year. This report focuses on the normalised result. The
normalising adjustments to the statutory results are in the table
on page 29. The non-IFRS financial information contained within
this Directors’ Report has not been audited in accordance with
the Australian Auditing Standards.
Bega Cheese generated normalised EBITDA of $180.1 million,
up 27%, normalised profit after tax of $46.3 million, up 17% and
normalised earnings per share of 15.2 cents (FY2021 15.0 cents).
The Group result for FY2022 was impacted by:
disruption associated with COVID-19, especially from lower
sales demand in impulse and foodservice channels, high
absenteeism in our factories and supply chain disruption
impacting local and export delivery performance. Significant
additional costs were incurred during this period to maximise
continuity of supply
significant price increase in global commodities used in the
production of finished goods as well as fuel costs linked to
crude oil increases
temporary stock shortages and higher freight costs associated
with alternate transport routes impacted by floods
export container availability and cost, as well as port closure
in Shanghai
strong competition for milk supply and significant increases in
farm gate milk prices.
•
•
•
•
•
24
The impact of these challenges was mitigated by:
•
•
•
•
•
completion of Bega Dairy and Drinks
achievement of synergy target
integration and
strong retail sales volume and mix across the branded
segment, particularly in retail Grocery
favourable sales pricing on commodity sales within the
bulk segment
pass-through of cost-led price increases which will mostly be
realised in FY2023
achievement of cost saving and continuous improvement
programmes
•
full year of earnings on Bega Dairy and Drinks.
Bega Cheese continues to maintain a strong balance sheet, with
net debt reducing to $265.1 million (FY2021 $324.9 million) and
leverage ratio down to 1.8 times (FY2021 2.3 times), well below
covenant limits and well placed to fund investments in growth and
future commitments.
The Group received 1.40 billion litres of milk during FY2022, up
25% on the 1.12 billion litres received in FY2021. FY2022 includes
the first full year of milk procured for Bega Dairy and Drinks which
was acquired seven months into FY2021. The Group acknowledges
the loyalty of its milk suppliers and welcomes new suppliers.
Progress towards achieving
strategic objectives
The Group continues to make significant progress towards achieving
the key strategic objectives outlined in last year’s annual report.
The strategic pillars that underpin those objectives are:
•
•
•
a diversified portfolio of market-leading food brands
an efficient distribution network servicing customer growth
a globally competitive integrated supply chain
• direct relationships with farmers and suppliers.
Diversified portfolio of market leading brands
Following the strategic acquisitions of the last five years,
culminating in the purchase of the Dairy and Drinks business in
January 2021, the Group has grown the proportion of branded
product from 20% to 82%, surpassing the goal of having 80% of
all revenue generated through branded product during the year.
This transition to a consumer branded business unlocks greater
long term value for shareholders and reduces risk across our portfolio.
The spreads category continues to grow, up 5.2% in FY2022. The
Group’s brands in this category, which include Vegemite, one of
Australia’s most iconic household names, along with the Group’s
peanut butter and honey range had a very strong year, with less
disruption than in other parts of the business. Diversification
into these products brings robustness and resilience to our
portfolio, and this business, which was acquired five years ago,
is performing well. During the year, a consumer friendly Squeezy
Simply Nuts Peanut Butter and Bega Peanut Butter with 25% more
protein was launched. The Group maintained its share of the
Australian spreads market in FY2022.
Category growth in milk based beverages was 2.3%. Big M, Farmers
Union iced coffee and Dare brands along with the category as
a whole were regularly impacted by disruption in the impulse
purchase channel during FY2022.
Notwithstanding this the Group managed to maintain a market
leading position in milk based beverages, with a market share
of 50%, driven by strong activation and innovation platforms,
particularly the no added sugar range in the iced coffee segment
and Dare Sparkling Cold Brew which was launched in convenience
and grocery channels. The Group also expanded the range of
flavoured milk with new flavour extensions.
With category growth of 5.2% in FY2022, chilled juice is another
category presenting considerable opportunity for the Daily Juice,
Mildura and The Juice Brothers brands. Whilst market share fell
1.6 percentage points over the course of the reporting period, the
Group is focused on recovering share by evolving the portfolio to
tap into functional health trends whilst continuing to invest in our
core value brands. During the year the Group introduced a new
range of Mildura sparkling fruit drinks in convenience and grocery
channels, launched a new Daily Juice one litre specialty range with
added fibre and probiotics and added new flavour extensions
to our existing product range, adapting to lifestyle changes and
emerging consumer preferences and tastes.
With category growth of 6.3%, yoghurt was the stand out
performer for the year from among our traditional suite of product
categories. Whilst market share declined due to strong competitor
activity in this category, with the expansion of indulgent and
functional health innovation and increased promotional intensity,
the Group were still able to capitalise on growth in this category
and finished the year retaining a market leading position with 25%
market share. In FY2022 the Group launched a functional range
of Farmers Union Greek yoghurt with lactose free and immunity
variants, improved the formulation of Australia’s favourite family
yoghurt – Yoplait, resulting in a thicker yoghurt with even more
fruit. With its high rate of category growth, yoghurt continues to
bring significant opportunity for the business in the future.
Adapting to changing consumer tastes and preferences, the
Group increased production of plant-based proteins, and the
Joint Venture with Vitasoy International Holdings Pty Ltd, now
holds 26% of the plant based milk market in Australia, a fast-
growing category that achieved 11.7% growth in FY2022.
The white milk category grew 1.4% in FY2022. With market
share of 12%, the performance of the Group’s portfolio of white
milk brands: Pura, Dairy Farmers, Masters, Complete Dairy and
Canberra Milk stabilised in the grocery channel despite strong
inflationary pressure. The focus for the year ahead will be to
continue to invest marketing support behind core brands whilst
selectively participating in emerging growth segments such as
lactose free.
Globally competitive integrated supply chain
The Group’s integrated manufacturing network enables value to
be added to each stage of the product life cycle and enables
the optimisation of milk by moving it to the most profitable
lines in response to changes in global commodity markets, local
consumer tastes and preferences as well as logistical challenges.
This proved particularly valuable during the COVID-19 and flooding
disruptions of FY2022, enabling the movement of milk to alternative
sites where access was restricted or sites were understaffed due
to isolation requirements. In doing this the maximum value of milk
was extracted, so critical with milk prices increasing significantly
during the period. It also allowed increased exposure to important
global commodity price increases in products such as butter and
skim milk powder.
Processed cheese capability was consolidated and efficiencies
and synergies were extracted through that part of the business.
With multiple product streams across 20 manufacturing facilities
around Australia, the Group can balance fat and protein between
product categories and different sites, to optimise returns. The
Group have an ever-growing dairy collection network which now
provides increased access to dairy areas such as Gippsland and
Tasmania, creating a larger and more resilient milk pool.
Direct relationships with our farmers and suppliers
The Group deals directly with approximately 920 dairy, fruit and
peanut growers across Australia. These direct farming relationships
enable provenance with most of the products that are produced.
They also allow for genuine, meaningful relationships to be struck
with suppliers. That creates the opportunity for Bega to support
sustainable and responsible farming of produce.
With a La Niña weather pattern bringing colder wetter conditions
from December 2021 through to June 2022, large areas of
Queensland, New South Wales, Northern Victoria and South
Australia experienced major storm events and extensive flooding.
This caused disruption to milk supply, some minor damage to this
year’s peanut crop and extensive damage to farm infrastructure
such as fences, laneways and irrigation infrastructure.
Support to farmers included:
•
•
•
•
•
•
adopted a safety first approach across the supply chain to
help ensure wellbeing
in some regions affected by storm damage and power outages
generators were sourced to help farmers continue milking
where milk could not be collected due to road closures,
farmers were still paid for their milk
funded field visits to impacted farms to advise on wet weather
management and recovery strategies
made funding available under the Better Farms Program for
capital works grants and to repair infrastructure
prioritised installation of back-up generators in the capital
works program to enable famers to keep milking and minimise
adverse animal welfare outcomes resulting from prolonged
power outages.
25
Bega Cheese Limited2022 Annual Report
Review of Financial Performance and Operations
Efficient distribution network servicing customer growth
Since the acquisition of the Dairy and Drinks business, Bega
has 110 logistics locations across Australia servicing more than
26,000 customers across all states. These logistics locations
form one of the largest cold chain distribution networks in the
country, with connectivity between metropolitan, satellite and
regional Australia.
Supported by a robust technology platform to manage orders,
delivery and payment, the network currently services 39,000
deliveries per week with capacity for growth. This network is
central to Bega’s value proposition to clients, enabling it to offer
customers a better customer experience at a more efficient cost.
Although the route business was impacted by both COVID-19
and floods, the Group were able to mitigate the impact of those
by enhancing the customer experience through new offerings
such as contactless delivery and realising new business in cafes,
government institutions, aged care and health care.
A pilot trial was successfully completed with an expanded product
range of butter and cheese through the Group’s direct delivery
model in Victoria which is expected to be extended to additional
products and across more states.
While impulse purchases through convenience stores declined
during lockdowns, grocery sales increased.
The Group continues to leverage the scale and reach of the
combined cold chain distribution network of both Bega Foods and
Bega Dairy and Drinks, and their go-to-market capabilities. The
Group see great opportunity in the route business and continue to
explore opportunities to grow this part of our operations through
investment in technology, improved customer experience, and
channel specific sales support.
Significant events
Integration
In FY2022 the integration of Bega Dairy and Drinks was completed.
The integration program successfully delivered planned outcomes
in the following areas:
• Realisation of synergy targets through:
The Dairy and Drinks Integration Committee of the Board
concluded its work and dissolved in July 2022 after the committee
had determined that it had achieved its mandate.
COVID–19
COVID-19 continued to be a challenge for the Group throughout
FY2022. The Group continually navigated uncertainty in our supply
chain and customer base throughout the year. As disclosed in
market updates during the year, COVID-19 impacts eased in
the fourth quarter. However, full year direct costs attributable to
COVID-19 are estimated to be in excess of $40 million. This does
not include any indirect costs that have hampered efficiency or
affected consumer buying habits.
The Group continued to respond through FY2022 to the pandemic
making the safety and wellbeing of employees, suppliers, customers,
and communities our highest priority. The measures with which the
Group responded to the pandemic include:
•
•
•
•
•
COVID-19 safety plans for all sites and documentation of a
comprehensive set of policies and procedures for staff to use.
Formal contract tracing for our employees where there was
potential they had visited COVID-19 exposure sites.
A COVID-19 special leave policy to enable employees to stay
at home if unwell, or be tested, without financial disadvantage.
This leave can also be used when employees choose to get
vaccinated.
Segregation of shifts and people, and where possible, separate
amenities and zones for contractors and transport drivers.
A COVID-19 executive crisis committee to manage the
Group’s response consistently across the business and to
external stakeholders.
Maintaining Bega’s supply chain efficiency during the pandemic
proved to be a challenge, with isolation requirements, for both
employee close contact and testing positive for COVID-19,
reducing plant and warehouse capacity due to absenteeism.
Suppliers and service providers were not immune to these
challenges and also experienced significant pressure due to
COVID-19 related absenteeism. Bega were able to mitigate to
some extent by leveraging the Group’s increasingly diversified
manufacturing footprint and extensive distribution network.
o
o
o
o
more efficient combined organisation design implemented
in late FY2021
Safety
cost savings across common suppliers in technology and
personnel services, packaging and media
savings programs implemented across the supply chain
network during FY2022
more effective milk flow through manufacturing assets
optimising solids and returns
Safety is fundamental and the Group recognise that its current
Total Reportable Injury Frequency Rate (TRIFR) needs to improve.
The Group is committed to ensuring a healthy and safe work
environment for employees, contractors and visitors to sites.
The Group’s safety culture encompasses the employees’ beliefs,
values and attitudes with respect to safety and this helps ensure
that any safety risks present in activities are effectively managed.
o continued investment in high returning capital projects.
Transition of IT infrastructure from Lion to Bega and the
completion of the transitional services agreement with Lion in
January 2022 as planned.
Integration of key policies and controls ensuring a strong
governance framework is maintained across the business.
The Group relaunched eight safety principles to help all
employees to integrate safety into the business goals and
values and behaviours. The Group has continued to roll out a
safety behavioural leadership program facilitated by DuPont
Sustainable Solutions.
•
•
26
Sustainability
The vision is to be the Great Australian Food Company. This
involves a focus on great food, great people, great aspirations and
working for the greater good. The Greater Good strategy is aligned
to the United Nations Sustainable Development Goals with a
focus on addressing the impacts of the Group and where it can
contribute to sustainable development. Detailed information on
the Group’s corporate sustainability performance can be found
in the 2022 Sustainability Report which will be available on our
website.
The Group has continued to support the ‘Bega Circular Valley
2030’ program, which is a regional development initiative to
establish Bega Valley Shire as the most circular regional economy
by 2030. This pilot program, which operates in collaboration
with key external stakeholders and under its own separate
governance structure, will identify, accelerate and implement
9 enabling projects, supporting the delivery of 15 flagship and
29 circular projects to stimulate a regional circular marketplace
and a network of diverse stakeholders. Further information on the
Bega Circular Valley 2030 program will be contained in the
2022 Sustainability Report.
Environmental regulations and management
- Legislative framework
The Group’s manufacturing sites are licensed under multiple
Federal and State Environment Protection Regulations. The
licences stipulate performance standards as well as specific
monitoring requirements for emissions such as noise, air, odour
and wastewater.
In FY2022, the Group reported compliance activities to
environmental regulators and water authorities. Most notifications
have been successfully resolved with the appropriate regulator
during the year and no fines have been issued. Specifically,
the Group:
•
•
•
received one minor notice from South East Water in Chelsea,
Victoria which was resolved without further action
received one Direction Notice from the Tablelands Regional
Council to the Peanut Company of Australia regarding dust
complaints at the Tolga Factory in Queensland, which is
in progress
reported five wastewater breaches against waste trade
agreements - two at Penrith, New South Wales and three at the
Vegemite Way site in Victoria. All breaches were resolved and
no further action was required of the Group by the regulator.
In addition, during FY2022, the Group complied with all statutory
requirements and
and voluntary environmental
continues to monitor and report energy intensity and greenhouse
gas emissions.
reporting
Major environmental initiatives
Initiatives to improve the Group’s environmental performance
during FY2022 include:
•
Adoption of a Carbon Reduction Program 2030 and further
implementation of our Energy Management Capability which
was recognised at the National Energy Efficiency Awards in
the Leading Energy User Category.
•
•
•
•
•
Adoption of corporate targets under a Planet Pledge including
zero waste to landfill by 2025, a 30% reduction in water use by
2030, net zero carbon emissions by 2050 and packaging to
be reusable, recyclable or compostable by 2025.
Audits by third parties of key manufacturing sites at Malanda,
Kingaroy, Koroit, Bentley, Lagoon Street, Ridge Street, Salisbury,
Lenah Valley and Strathmerton under the SEDEX Members
Ethical Trade Audit (SMETA).
Completion of an ethical sourcing self-assessment
questionnaire by 205 suppliers and 90% of suppliers
designated to be higher risk have completed an independent
audit under SMETA.
Work with the Rainforest Alliance to procure coffee for specific
manufacturing sites which are now independently certified to
the Rainforest Alliance 2020 Sustainable Agriculture Standard.
Completion of the transition away from polyvinyl chloride
packaging. More than 82% of total packaging is recyclable and
nearly 24% of packaging includes recycled content.
Supporting farmers
Bega Cheese Limited, Tatura Milk Industries Pty Ltd and Bega
Dairy and Drinks Pty Ltd are required, by the Dairy Industry
Code of Conduct, to use Standard Form Agreements for all new
agreements entered into with dairy farmer suppliers.
These agreements are available on the website at:
www.begacheese.com.au/ farm-services/milk-supply-agreements/
The Group continues to support dairy farmers through the Better
Farms Program which helps farmers develop and improve their
business through capital grants, advice and training. The Group
have extended the program to now include all of its dairy farmers
who have joined the network through and since the acquisition
of Bega Dairy and Drinks in January 2021. Between April 2018 and
May 2022, the Group invested more than $1,765,000 in grants
for advice and service support, capital works and training and
development. Grants to more than 500 dairy farmers have been
distributed. These grants were made chiefly to improve animal
health and welfare outcomes and to manage effluent, irrigation
and water, energy, workplace health and safety, chemicals and
soil. A dedicated website tracks the program’s achievements, to
highlight them to Australian consumers. A third party provides
independent assurance every three years to stakeholders
that grants under the program are being spent on agreed
projects. This information is publicly available on the website at
https://betterfarms.com.au
The Group have been able to expand the Australian peanut crop
this year to an estimated 25,000 metric tonnes, from 8,000 metric
tonnes in FY2020. This supports Australian peanut farmers and
the Simply Nuts peanut butter range which is made from 100%
Australian grown peanuts. The Group’s Farming Services Team of
eight provides peanut growers with agronomic advice in the field,
and training on growing conditions and new varieties. A Grower
Advisory Group includes grower representatives from each of the
major growing regions. They meet quarterly and while they help
in our communication with farmers, they also advocate and raise
concerns on behalf of peanut growers.
27
Bega Cheese Limited2022 Annual Report
Review of Financial Performance and Operations
Modern Slavery prevention
The Group will produce its third modern slavery statement at
the end of this calendar year in compliance with section 13 of
the Modern Slavery Act 2018 (Cth) and section 24 of the Modern
Slavery Act 2018 (New South Wales). The Modern Slavery Action
Plan is implemented by an internal Modern Slavery Working
Group which reports to the Board and consists of a group of
cross functional managers. The Working Group reviews risks and
assesses the performance against industry norms and regulations
in the jurisdictions in which the Group operate. While early work in
this area was focused on identifying potential sources of modern
slavery risk in operations and supply chain, the Group’s focus now
is on building awareness and trust.
Finalisation of Reckitt contract
In FY2021, one of the Group’s major customers, Reckitt, notified
that two agreements would cease ahead of their contractual
expiry date. The first of these related to an access and services
agreement at a plant in Derrimut which ended in October 2021, prior
to its original end date of December 2026. The second related to
the Tatura MSD2 dryer access and services agreement that ended
in January 2022, prior to its original end date of December 2026.
To compensate for the loss of future earnings, the Group recognised
contractual termination fees totalling $55.5 million across FY2021
and FY2022 ($25.7 million in FY2022) in relation to both agreements.
$41.6 million of fees were received in cash in FY2022 with no further
amount outstanding. The Group has assessed the implications of
the termination and implemented cost out initiatives through the
closure of the plant in Derrimut and rationalisation of dryer capacity
at Tatura. The Group has also sourced alternate canning capacity
with a third party to secure own volume requirements.
Dividends paid in FY2022
On 27 August 2021 Bega Cheese declared a final FY2021 fully
franked dividend of 5.0 cents per share, representing a distribution
of $15.1 million. The Directors activated the Group’s Dividend
Reinvestment Plan (DRP) for this dividend. The DRP offers ordinary
shareholders in Australia and New Zealand the opportunity to
acquire fully paid ordinary shares without transaction costs.
Shares purchased under the DRP were allotted on 24 September
2021 and raised $2.0 million in new share capital.
On 24 February 2022 Bega Cheese declared an interim fully
franked dividend of 5.5 cents per share, representing a distribution
of $16.7 million. The Directors again activated the Group’s DRP for
this dividend. Shares purchased under the DRP were allotted on
24 March 2022 and raised $1.1 million in new share capital.
On 26 August 2022 Bega Cheese declared a final fully franked
dividend of 5.5 cents per share representing a distribution of
$16.7 million, an increase of $1.6 million compared to the 2021 final
dividend. The DRP will also be available for this dividend.
Dividends paid to shareholders in relation to the FY2022 year will
total $33.4 million which represents a $3.2 million increase over the
dividends paid in respect of FY2021 which totalled $30.2 million.
Reconciliation of statutory and
normalised performance
As in previous years, the Group reports on both the statutory
result and the normalised result for FY2022 compared to the prior
year. Commentary in this report focuses on the normalised result.
GROUP STATUTORY RESULT FY2022
On a statutory reporting basis, the Group generated:
$ million
EBITDA
EBIT
PBT
PAT
EPS
FY2022
$149.9
$46.2
$33.8
$24.2
FY2021
$184.5
$109.5
$99.2
$78.0
8.0 cents
29.5 cents
GROUP NORMALISED RESULT FY2022
The statutory result for the Group in each of FY2022 and
FY2021 included several one-off items, most of which related to
corporate activity. While these items all had a financial impact on
the statutory performance of the Group, they did not affect the
underlying financial performance of the business.
To provide a more meaningful understanding of the underlying
financial performance, normalising adjustments to the statutory
financial statements for each of these items were made. These
are set out in more detail in the table on page 29. On a normalised
basis the Group generated:
$ million
EBITDA
EBIT
PBT
PAT
EPS
FY2022
$180.1
$76.4
$64.0
$46.3
FY2021
$141.7
$68.8
$60.1
$39.6
15.2 cents
15.0 cents
MATERIAL ITEMS IMPACTING GROUP
NORMALISED RESULT FY2022 AND PRIOR YEAR
Normalising adjustments in FY2022 consist of the following:
•
•
•
One off costs incurred in relation to the acquisition and
integration of Lion Dairy and Drinks totalling EBITDA of $46.5
million, including excess transition services arrangement
legal, redundancy,
charges from Lion, consultancy and
separation costs, and project team resourcing.
Income associated with the termination of the Derrimut and
MSD2 access and services agreement by Reckitt totalled
$55.5 million across FY2021 and FY2022. Termination fee
income of $25.7 million was partially offset by rightsizing
restructuring costs of $6.0 million in FY2022.
Other costs include expensing of certain Software as a Service
(SaaS) applications totalling $3.0 million under a revised
accounting policy.
28
The table below demonstrates the movement between the financial performance for statutory reporting purposes and the normalised
financial performance for the Group. These adjustments have not been subject to specific audit procedures.
Consolidated
Period ending 30 June 2022
Revenue
Cost of sales
Gross profit
EBITDA
Depreciation, amortisation and impairment
EBIT
Net finance costs
Profit before income tax
Income tax expense
Profit for the year
Gross margin - percentage
Basic earnings per share - cents
Per Financial
Statements
$m
Reckitt
Termination
$m
LDD
Transaction
Related
Costs
$m
Other
Costs
$m
Normalised
Outcome
$m
(24.1)
0.2
(23.9)
(19.3)
-
(19.3)
-
(19.3)
5.8
(13.5)
-
-
-
46.5
-
46.5
-
46.5
(13.0)
33.5
3,009.9
(2,320.5)
689.4
149.9
(103.7)
46.2
(12.4)
33.8
(9.6)
24.2
22.9%
8.0
-
-
-
3.0
-
3.0
-
3.0
(0.9)
2.1
2,985.8
(2,320.3)
665.5
180.1
(103.7)
76.4
(12.4)
64.0
(17.7)
46.3
22.3%
15.2
Consolidated
Period ending 30 June 2021
Revenue
Cost of sales
Gross profit
EBITDA
Depreciation, amortisation
and impairment
EBIT
Net finance costs
Profit before income tax
Income tax expense
Profit for the year
Gross margin - percentage
Basic earnings per share - cents
LDD
Transaction
Related
Costs
$m
Gains
Relating
to LDD
Acquisition
$m
Per Financial
Statements
$m
Reckitt
Termination
$m
Kraft Legal
Settlement
$m
Other
Costs
$m
Normalised
Outcome
$m
-
-
-
62.2
-
62.2
1.6
63.8
(8.7)
55.1
-
-
-
(13.9)
-
(13.9)
(71.8)
(29.8)
-
(71.8)
-
(71.8)
-
(71.8)
-
(29.8)
-
(29.8)
8.9
(20.9)
-
-
-
(9.3)
-
(9.3)
-
(9.3)
2.8
(6.5)
-
-
-
5.9
2.1
8.0
-
8.0
(2.3)
5.7
2,073.4
(1,608.2)
465.2
184.5
(75.0)
109.5
(10.3)
99.2
(21.2)
78.0
22.4%
29.5
2,059.5
(1,608.2)
451.3
141.7
(72.9)
68.8
(8.7)
60.1
(20.5)
39.6
21.9%
15.0
29
Bega Cheese Limited2022 Annual Report
Review of Financial Performance and Operations
Cash flow, net debt and
group capital management
Cash flows
The Group generated the following cash flows in FY2022:
$ million
Operating activities
Investing activities
Financing activities
FY2022
$158.2
($63.8)
($136.7)
FY2021
$111.4
($546.7)
$499.6
Key operating activities generating cash flow in FY2022 were:
•
•
•
net profit after tax and after adjusting back non-cash items of
depreciation and amortisation of $127.9 million
improvement in working capital of $73.2 million through strong
receivable and inventory management partially offset by other
non-working capital balances
Included in the above amounts were cash receipts of
$41.6 million from the termination of the Derrimut and MSD2
access and services agreement by Reckitt.
Key investing activities generating cash flow in FY2022 were:
• payments totalling $65.8 million for capital investment
• payments totalling $6.0 million for investments in software
•
receipts of $7.0 million from sale of idle property, plant and
equipment.
Key financing activities generating cash flow in FY2022 were:
• decrease in net borrowings of $83.0 million
Balance sheet capital management
The Group continues to receive support from its bankers and has
the following facilities:
•
•
a primary Syndicated Debt Facility funded by four banks with
Coöperatieve Rabobank U.A. (Rabobank Australia Branch)
acting as agent throughout FY2022
an Inventory Facility and a Trade Receivables Facility provided
by Rabobank, and
• other guarantee facilities provided by Westpac.
In December 2021, the Group successfully refinanced the
Syndicated Debt Facility expanding the number of participating
banks from two to four. The Syndicated Debt Facility consists of
two facilities: Facility 1 which has a limit of $270 million maturing
in February 2025 and Facility 2 which has a limit of $180 million
maturing in February 2027. In August 2022, the Group renewed
the Rabobank Trade Receivables Facility, with an expiry date of
31 January 2024.
The normalised EBITDA to net debt leverage ratio reduced from
2.3 times to 1.8 times and is well within year end bank covenant
requirement of 3.5 times. The Group expects its leverage ratio to
continue within covenant requirements throughout FY2023 and is
very well placed to meet future covenant obligations.
As announced in May 2022, the Group commenced an expression
of interest campaign for the sale and leaseback of the property
at 1 Vegemite Way, Port Melbourne. This property, at which
Bega Cheese manufactures Vegemite, peanut butter and other
products, is approximately 5 kilometres from the Melbourne
CBD. The structure of the sale and leaseback proposals being
sought would enable Bega Cheese to continue to manufacture
Vegemite and other products at the site under a long-term lease
arrangement. At 30 June 2022, this property has been classified
as an asset held for sale on the Group’s Balance Sheet.
• dividend payments of $28.7 million
Capital investment
• principal elements of lease payments $25.0 million.
Net debt at year end
The Group had consolidated net debt of $265.1 million as of
30 June 2022, compared to $324.9 million at 30 June 2021, a
reduction of $59.8 million. The significant reduction in net debt
arose from operating cash inflows of $158.2 million and includes
an improvement in working capital of $73.2 million. This was
partially offset by capital and software investment of $71.8
million, dividend payments of $28.7 million, and principal lease
payments of $25.0 million.
The Group invested capital of $71.8 million (FY2021: $32.2 million)
during FY2022. The Group’s FY2022 capital works programme
centred on:
•
•
•
•
installation and commissioning of equipment to support
capacity expansion of yoghurt production as well as
new product innovation such as dairy free cheese and Simply
Nuts squeeze
a range of logistics and customer service projects focusing
on upgrades to logistics centres, warehouse management
systems, and transport management systems
infrastructure upgrades across various sites
modest investments in software to improve efficiencies in
administration
•
various projects to improve safety.
Risk management
The senior management team is responsible for ensuring an active
and integrated risk management approach to ensure strategic
and operational risks are
identified, assessed and treated
appropriately and in line with the approved risk appetite of the
Bega Board.
The management team reports regularly to the Audit and
Risk Committee (ARC) and the Board on the risk profile of the
organisation and the treatment plans to manage them. The ARC
is also responsible for overseeing and assessing the efficacy
process of the Group’s risk management.
The Board reviews the Group’s risk management framework
annually to satisfy itself that this framework continues to be
sound and that the Group is operating with due regard to the risk
appetite set by the Board, including emerging risks such as bio
security, geopolitical factors and supply chain conditions.
The internal audit function provides independent and objective
assurance on the adequacy and effectiveness of the Group’s
systems for risk management, internal control and governance,
along with recommendations to improve the effectiveness and
efficiency of these systems and processes.
In FY2022 the Group has refreshed the enterprise-wide
risk management framework which manages risks through
understanding and responding to the strategic and operational
uncertainties the Group faces. The Board reflected the risk
appetite statement as part of this process.
Over the past 12 months the Group have reviewed the approach
to managing the effects of climate change and its impact. While
climate impacts are managed via our existing risk framework and
mitigated via robust business continuity planning, supply chain
planning and supplier planning, the understanding of and response
to the effect of climate change is constantly under renewal.
Bega has appointed an external partner to assist the Group to
more fully integrate the risk of climate change into our risk and
planning processes. The goal is to maximise the Group’s ability
to understand, manage and mitigate climate related risks and
continue alignment with Task Force on Climate-Related Financial
Disclosures (TCFD) reporting requirements. Using the TCFD
themes of governance, strategy, risk and metrics Bega is examining
the role the climate will play in the future both for on operations
and those of dairy farmers and other core suppliers.
The review is underway and includes both physical and transition
industry challenges associated with climate change. In addition
to the review the Group are currently developing regional climate
change and hazard scenarios over multiple trajectories and time
horizons to further enhance the Group’s response. This review and
scenario planning is expected to be completed during FY2023.
30
31
Bega Cheese Limited2022 Annual Report
Review of Financial Performance and Operations
Key strategic risks include:
Key operational risks include:
Source of Risk
Risk overview
Mitigation Strategies
Source of Risk
Risk overview
Mitigation Strategies
Geopolitical tensions
Significant country and regional
upheavals impacting normal
lines of business
Product and
consumer trends
Unable to forecast significant
shifts away from profitable
product categories that
materially impact returns to the
business
Competitors
New market entrants enter
the market and change the
competitive landscape
•
•
•
•
Continue to focus on building diversified revenue streams
Develop and enhance strong relationships with trading partners
Support and strengthen on the ground presence in key markets
Commitment to ongoing development of product
portfolio diversity
•
Supply chain resilience including multi-supplier arrangements
•
•
•
•
•
Invest in consumer insights teams, research and trend analysis
Active new product development programs across the group
Build and develop strong retailer relationships
Sustainability program including carbon neutral products,
and packaging innovation
Commitment to ongoing brand support, brand growth, and brand
extension plans
Technology and
cyber security
Technology becomes aged
and is not maintained and
upgraded on a regular
basis and is no longer able
to support the business
adequately
Technology platforms across
the business are breached
• Maintain strong customer and supplier relationships
Business continuity
People retention
We fail to attract and retain top
talent that gives us a competitive
advantage in our sector
• Performance review and development process
• Remuneration governance overseen by Board sub-committee
Milk pool
Milk volumes continue to decline
in Australia increasing the relative
price of milk and reducing ability
to grow profitably
•
•
•
•
•
Talent recognition process
Data capture and analysis for regretful exits and
unsuccessful contract offers
Emphasis on maintaining strong farmer relationships and
delivering a competitive farm gate milk price
More geographically diverse spread of site assets
Focus on higher returning dairy categories
Robust business continuity
plans for all sites and essential
centralised services are not
in place and the business is
unable to respond to an event
Safety
Our operations fail to protect
employees from physical harm
or mental health issues
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Technology-based infrastructure renewal process
Operational technology is reviewed and upgraded in conjunction
with industry standards
Enhancements to corporate system infrastructure is subject to
regular review and approval processes
Technology processes aligned to the ISO 27001 Information
Management System (ISMS) standard
Adoption of the NIST CSF (Cyber Security Framework)
Cyber security dashboard regularly reviewed by the Executive and
Audit and Risk Committee
Real-time analysis of security alerts generated by applications and
network hardware
Organisation-wide awareness and training programs
Enterprise-wide backup and system recovery solution
Business continuity plans referencing production and supply chain
alternatives in the event of a disruption
Business continuity plans (BCP) that provide redundancy in terms
of production, critical staff, and the procurement of materials
Emergency response plans regularly tested
System back-up plans in the event of a major loss of technology
Executive level performance measures include safety performance
Comprehensive safety management systems inclusive of incident
management
Capital approval process that prioritises safety investment
Safety performance elevated as Board priority with monthly
reporting and deep dives into root cause analysis
•
Engagement of external specialists to support ongoing improvement
32
33
Bega Cheese Limited2022 Annual Report
Review of Financial Performance and Operations
Key operational risks include (cont.):
Source of Risk
Risk overview
Mitigation Strategies
Food safety
Unsafe products are produced
and leave our facilities causing
harm to the public and
significant reputational damage
Bio security
Failure to prevent biosecurity
hazards from entering product
supply chain and causing
production disruptions, limiting
the ability to meet customer
requirements
•
•
•
•
•
•
•
•
•
Immediate escalation of potential major incidents
Frequent external reviews of premises by external parties across a
number of accreditations
Product recall process frequently tested and reviewed
Mature quality management system that is compliant to
international standards
Appropriate food safety certifications held
Regular process of quality-based internal audits on third party
warehouses and suppliers of materials
Ensure alternative supplier arrangements are in place
Identified or potential Biohazard, virus and infestations are
managed and monitored by specialist committees with protocols
well understood
Engage government and industry bodies to help develop policy
and ensure appropriate border controls and other controls are
implemented
INNOVATION SPOTLIGHT
ENHANCING
HEALTH
THROUGH
SCIENCE
HAPPi Day & Night Infant Formula
and Toddler Milk
The first Australian nutrition range to reflect
science showing that mother’s milk changes
between day and night.
The innovation improves consumers’ lives by
delivering growing children the right nutrition
at the right time to help support normal
growth and development during the day
and while they sleep.
HAPPi Day and Night showcases Bega’s
25 years expertise in the development
and production of infant and children’s
nutritional products.
34
Bega Cheese Limited
Directors’ Report
Your Directors present the Annual Financial Report of the
Bega Cheese Group for the year ended 30 June 2022
Barry Irvin is recognised globally for his extensive
experience in the dairy industry and has been Chairman
of Bega Cheese Limited since 2000. Barry’s leadership
has seen Bega grow from a small regionally based dairy
company to now one of the largest dairy and food
companies in Australia, supplying a large range of dairy
and grocery products in Australia and around the world.
Barry’s depth of knowledge of the industry includes
a significant understanding of the issues affecting
Australian dairy farmers, the key investments required to
meet changing consumer needs and the management
of long term customer relationships.
Barry is very aware of the importance of social
responsibility, he has been Chairman of Giant Steps, an
organisation providing services to children and young
adults with autism since 2002.
Peter has many years of leadership experience in major
Australian and International food companies, including
Executive Chairman of Asahi Holdings (Australia) Pty
Ltd, Chief Executive of Goodman Fielder Ltd and before
that Chief Executive and Chief Operating Officer of
National Foods Ltd.
Other BGA Committees:
• Member of Dairy and Drinks Integration Committee
Other Directorships:
• Chairman of Giant Steps Australia Limited
• Chairman of Giant Steps Melbourne Limited
• Director of Vitasoy Australia Pty Ltd
Former Directorships in the last 3 years:
• Nil
Other BGA Committees:
• Chair of Dairy and Drinks Integration Committee
Other Directorships:
• Non-executive Director of Costa Group Holdings
(ASX:CGC)
• Non-executive Director of Nufarm Ltd (ASX:NUF)
• Member of the Geminder Family Advisory Board
Former Directorships in the last 3 years:
• Director of Bega Cheese Limited (ASX:BGA)
• Non-executive Director of Pact Limited (ASX:PGH)
Raelene Murphy has over 30 years’ experience in
strategic, financial and operational leadership in both
industry and professional advisory. In her professional
advisory career, she specialised in operational and
financial restructuring including merger and acquisition
integration. She was formerly a Managing Director at
KordaMentha and a Partner in a national accounting
firm where she led the corporate turnaround practice.
Her industry experience includes CEO of the Delta
Group and senior executive roles in the Mars Group.
Raelene is a Fellow of Chartered Accountants Australia
and New Zealand.
Other BGA Committees:
• Chair of Audit and Risk Committee
• Member of Nomination Remuneration
& Human Resources
Other Directorships:
• Non-executive Director of Elders Limited (ASX:ELD)
• Non-executive Director of
Integral Diagnostics
Limited (ASX:IDX)
• Non-executive Director of Altium Limited (ASX:ALU)
• Non-executive Director of Ross House Investments
Pty Limited (Stillwell Motor Group)
• Non-executive Director of Tabcorp Holdings Limited
(ASX:TAH)
Former Directorships in the last 3 years:
• Non-executive Director of Clean Seas Seafood
Limited (ASX:CSS)
• Non-executive Director of Service Stream Limited
(ASX:SSM)
Barry Irvin – AM
Executive
Chairman Bega
Cheese Limited
Peter Margin
BSc (Hons), MBA
Independent
Director since
September 2020
and Deputy
Chairman
Raelene Murphy
B BUS, FCA, GAICD
Independent
Director since
June 2015
36
Terry brings to the Board a wealth of experience in the
food industry, including a period of the Chairmanship
of the Australian Food and Grocery Council and has
been responsible for leading growth and acquisition
strategies over many years in the industry.
Terry was, from 2001 until 2017, the Managing Director
of Simplot Australia Pty Limited, the US owned, but
Australian centric, food processor and marketer
managing leading Australian brands including Birds
Eye, Edgell and John West. After his retirement in early
2017, Terry took up a number of Australian Company
Board positions, recently reducing these to two. An
accountant by training, Terry has been active in finance
and management roles in the textile industry for ten
years and in the food industry for over 30 years.
Rick was appointed to the Board following the merger of
Bega Cheese Limited and Tatura Milk Industries Pty Ltd.
Rick joined the Tatura Milk Industries’ Board in 2003 and
was heavily involved in negotiating the initial subscription
by Bega of 70% shareholding in Tatura Milk Industries.
Rick also took a lead role in negotiating the scheme of
arrangement for Bega to acquire the remaining 30% of
Tatura Milk Industries in December 2011.
Rick has represented dairy farmers in many various
industry roles, and was formerly the Chair of Murray
Dairy, Inc. He also owns and actively manages a
progressive dairy farm in northern Victoria.
Other BGA Committees:
• Chair of the Nomination Remuneration & Human
Resources Committee
• Member of the Audit & Risk Committee
Other Directorships:
• Chairman of Bundaberg Brewed Drinks Pty Limited
Former Directorships in the last 3 years:
• Chairman of Clean Seas Seafood Limited (ASX:CSS)
Other BGA Committees:
• Chair of the Milk Services Committee
• Member of the Nomination Remuneration & Human
Resources Committee
Other Directorships:
• Nil
Former Directorships in the last 3 years:
• Nil
Patria is an experienced Non-executive Director with
20 years Board experience across various sectors
and geographies. She has significant insight and
understanding of market development, business
transformation, including digital and technological
change and M&A and financial transactions. She
also brings strong ASX, audit, risk management and
governance experience.
Patria qualified as a Chartered Accountant and was
a former Partner at KPMG. She is a Fellow of the
Australian Institute of Company Directors.
Other BGA Committees:
• Member of Audit & Risk Committee
Other Directorships:
• Non-executive Director of Event Hospitality
Entertainment Limited (ASX:EVT)
• Non-executive Director of Ridley Corporation
Limited (ASX:RIC)
Former Directorships in the last 3 years:
• Non-executive Director of Allianz Australia Limited
Originally from Northern Ireland, Harper and his wife
own and operate two dairy farms near Koroit in Western
Victoria. Harper’s career has centred around agriculture
and agribusiness. His career in agribusiness included
several senior executive roles with Glenfarm Holdings
rendering business in the UK, and Deputy CFO / Head
of Finance with Almarai Co., the market leading GCC
food and beverage company based in Riyadh, Kingdom
of Saudi Arabia.
Other BGA Committees:
• Member of Audit & Risk Committee
Other Directorships:
• Finance Director of the Australian Dairy
Conference Pty Ltd
Former Directorships in the last 3 years:
• Nil
Terry O’Brien
FCPA, FAICD
Independent
Director since
September 2017
Rick Cross
B.Ag Sci (Hon),
GAICD
Director since
December 2011
Patria Mann
B Ec, FAICD
Independent
Director since
September 2019
Harper Kilpatrick
BSc Agriculture,
MBA, FCA, GAICD
Director since
April 2021
37
Bega Cheese Limited2022 Annual Report
Directors’ Report
Principal activities
The principal activity of the Bega Cheese Group in the course of
the financial year was receiving, processing, manufacturing and
distributing dairy and other food-related products. A number of
key events in relation to the activities of the Group during the
year ended 30 June 2022 are set out in the Chairman’s report,
the Chief Executive Officer’s review and the Review of Financial
Performance and Operations which are to be read in conjunction
with this Directors’ report.
Dividends
Interim ordinary dividend for the year
ended 30 June 2022 of 5.5 cents
Final ordinary dividend for the year
ended 30 June 2021 of 5.0 cents
Interim ordinary dividend for the year
ended 30 June 2021 of 5.0 cents
Final ordinary dividend for the year
ended 30 June 2020 of 5.0 cents
2022
$m
16.7
15.1
-
-
2021
$m
-
-
15.1
10.7
In addition to the above dividends, since the end of the financial
year the Directors have recommended payment of a final ordinary
dividend of $16.7 million (5.5 cents per fully paid share) to be paid
on 23 September 2022.
Review of operations
A comprehensive review of operations is set out in the Review of
Financial Performance and Operations.
Significant changes in the state of affairs
in the Chairman’s report, the
Other than that disclosed
Chief Executive Officer’s review and the Review of Financial
Performance and Operations there have been no significant
changes in the state of affairs of the Bega Cheese Group since the
last Annual Report.
Indemnification and insurance
premiums for officers
During the financial year, the Bega Cheese Group paid a premium
in respect of a contract insuring the Directors and all executive
officers of the Group and of any related body corporate against
a liability incurred as such a Director or executive officer, not
exceeding the extent permitted by law. The contracts of insurance
prohibit disclosure of the nature of the liabilities and the amount
of the premiums. The Group has not otherwise, during or since the
financial year, except to the extent permitted by law, indemnified
or agreed to indemnify an officer of the Group or any related
body corporate against a liability incurred as such an officer. This
does not include remuneration or employment related benefits,
any sum payable pursuant to a financial support direction or
contribution notice issued in respect of any pension scheme,
fines and pecuniary penalties for a deliberate or intentional act,
nor amounts, which are prohibited to be paid by law.
Each Director has entered into a deed of access and indemnity
with the Group, which indemnifies them for losses incurred as a
Director or officer of Bega Cheese and places an obligation on the
Bega Cheese Group to maintain a current Directors’ and Officers’
policy with a reputable insurer for the period of the Director’s tenure
and for a seven year tail period (or longer if there is an unresolved
outstanding claim against the Director) and a contractual right
of the Director to access Group records for the period of the
Director’s tenure and for a seven year tail period (or longer if there
is an unresolved outstanding claim against the Director).
The Company has also agreed to indemnify the Company
Secretary and certain senior executives for all liabilities to another
person (other than the Company or a related body corporate) that
may arise from their position, except where the liability arises out
of conduct involving a lack of good faith. The agreement stipulates
that the Company will meet the full amount of any such liabilities,
including costs and expenses.
Company secretary
The Company Secretary registered with the ASX is Brett Kelly
FCA, GAICD. Brett Kelly was appointed to the position of
Company Secretary in 2002. Brett Kelly holds a Bachelor of
Commerce in Accounting and is a Chartered Accountant with
37 years’ experience. He has also been a graduate member of the
Australian Institute of Company Directors since 2006. Brett Kelly
completed the Certificate in Governance and Risk Management
with the Governance Institute of Australia in December 2011.
Meetings of Directors and
Board Committees
Meetings of the Audit & Risk Committee
Meetings of the Board of Directors
Held and Eligible
Attended
Held and Eligible
Attended
Raelene Murphy
Patria Mann
Terry O’Brien
Harper Kilpatrick1
5
5
5
4
5
5
4
4
Meetings of the Nomination, Remuneration
and Human Resources Committee
Barry Irvin
Rick Cross
Patria Mann
Raelene Murphy
Terry O’Brien
Peter Margin
Held and Eligible
Attended
Harper Kilpatrick
18
18
18
18
18
18
18
18
17
18
18
18
17
18
Terry O’Brien
Rick Cross
Raelene Murphy
4
4
4
4
4
4
1.
Harper Kilpatrick was appointed a member of the Audit & Risk
Committee on 1 September 2021.
Directors gave apologies in advance of the meetings they were unable
to attend.
Meetings of the Milk Services Committee
Held and Eligible
Attended
Rick Cross
3
3
Meetings of the Dairy and Drinks Integration Committee
Held and Eligible
Attended
Peter Margin
Barry Irvin
9
9
9
9
38
39
Bega Cheese Limited2022 Annual Report
Directors’ Report
Remuneration report (audited)
Key Management Personnel (KMP)
Letter from the Nomination, Remuneration and Human Resources Committee (NRHRC) Chair
Dear Shareholders,
On behalf of the Board of Bega Cheese Limited (Bega Cheese or the Group), I am pleased to present you with our FY2022 Remuneration
Report. At Bega, we remain committed to ensuring that we have remuneration structures in place which support our strategy and values
(“Great Food, Great People, Great Aspirations and Greater Good”) and that our reward outcomes align with sustainable long term value
creation in the interests of our shareholders and other stakeholders.
We have continued with our upgraded report layout as introduced last year, maintaining the simpler, more readable, and more transparent
format.
FY2022 performance & strategy highlights
FY2022 has been a transformative year for Bega Cheese as we bed down the January 2021 Lion Dairy and Drinks acquisition which
essentially doubled the size of the Group and diversified the Group’s portfolio by bringing together great brands including Bega Cheese,
Vegemite, Dare, Farmers Union, Dairy Farmers, Yoplait, B honey, Big M, Masters, Juice Brothers and Berri.
With consideration to the significant impact of the COVID-19 pandemic and having absolute discretion to amend any component of
the STI plan, the Board exercised discretion to open the gate for payments to be made under the STI plan despite the EBITDA gateway
not being achieved. The Board in making this decision declined to make any payments relating to the EBITDA target but acknowledged
the strong operating cash flow generated by the business in FY2022 and the significant success of the continued integration of the
Lion Dairy and Drinks Business in FY2022. Payments were therefore restricted to the cash flow and personal objectives components of
the Plan.
Linking remuneration outcomes with Group performance
Having regard to the Group performance highlights noted above:
•
•
the FY2022 STI was achieved at 30% for the Executive Chairman, 31% for the Chief Executive Officer and 33% for the Chief Financial
Officer. These outcomes reflect the strong operating cash flow result for the Group and achievements against each KMP’s personal
objectives under the STI plan. The EBITDA and Safety metrics were not achieved under the FY2022 STI plan. Refer Section “FY2022
STI outcomes” for further details.
Performance rights granted under the FY2020-FY2022 and the FY2022-2024 Long Term Incentive (LTI) plans, tested at 30 June
2022, lapsed, reflecting that the performance hurdles of EPS and ROFE were not achieved. Refer section “LTI awards vesting in
FY2022” for further details.
Overall remuneration outcomes for our Executive KMP are commensurate with the performance delivery and our shareholders’
experience.
Conclusion
This report sets out the remuneration of the Executive Chairman and Non-executive Directors as well as the Chief Executive Officer
(CEO) and the Chief Financial Officer (CFO). These individuals represent the KMP of the Group, being those accountable for planning,
directing and controlling the affairs of the Group during the financial year to 30 June 2022.
The executive positions comprising KMP are determined by the NRHRC in consultation with the Executive Chairman and the CEO. There
was no change to the composition of executive KMP or any changes to the composition of the Board.
Position Held
Term
Name
Executive KMP
Barry Irvin
Executive Chairman
Paul van Heerwaarden
Chief Executive Officer
Peter Findlay
Chief Financial Officer
Non-Executive Directors
Rick Cross
Non-Executive Director
Harper Kilpatrick
Non-Executive Director
Patria Mann
Peter Margin
Raelene Murphy
Terry O’Brien
Non-Executive Director
Deputy Chairman
Non-Executive Director
Non-Executive Director
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Overview of FY2022 Executive Remuneration Framework
At Bega, our executive remuneration framework is designed to attract, motivate and retain highly qualified and experienced executives,
who align with our values of “Great Food, Great People, Great Aspirations and Greater Good.”
Our remuneration structures ensure linkage between pay outcomes and business performance. Our remuneration structures ensure
that we:
We are excited for the year ahead, with Dairy and Drinks employees now in our remuneration and performance review annual cycle as we
continue our journey as the Great Australian Food Company. We look forward to further feedback from our shareholders on the FY2022
Remuneration Report.
•
appropriately remunerate employees for their role,
• motivate employees to perform in the best interests of the company,
Terry O’Brien
Chair of the Nomination,
Remuneration & Human Resources Committee
• make remuneration decisions in a way that provides equity and consistency in and between roles,
•
•
•
have remuneration outcomes that are aligned with our short-term and long-term objectives,
support effective governance, and
attract the talent we need to underpin the Group’s strategic plan.
40
41
Bega Cheese Limited2022 Annual Report
Directors’ Report
An overview of our Executive KMP remuneration framework is set out below:
Remuneration Element
Description
Fixed Remuneration
Total fixed remuneration (TFR) comprises cash salary and superannuation contributions.
FY2022 Fixed Remuneration outcomes
(a) Overview
As noted above, the TFR for KMP is reviewed annually by the NRHRC having regard to individual and Group performance, the skills and
experience of the individual, the size and complexity of the individual’s role and the KMP’s total remuneration package. In setting TFR, to
remain market competitive, the NRHRC will refer to appropriate external market benchmarks.
50% of Total Target
Opportunity
TFR is not subject to specific performance or deliverables criteria and is generally considered fixed for
the duration of the relevant annual review period.
(b) Review of TFR in 2022
TFR is reviewed annually by the NRHRC regarding individual and Group performance, the skills and
experience of the individual, the size and complexity of the individual’s role and the KMP’s total
remuneration package.
Further information can be found under FY2022 Fixed Remuneration outcomes.
Short-Term Incentive
25% of Total Target
Opportunity
The objective of the Short-Term Incentive (STI) Plan is to reward participants for achieving annual goals
linked with the Group’s strategy.
Payments under the STI Plan are subject to agreed performance outcomes as approved by the Executive
Chairman and the NRHRC for the CEO and CFO. The performance outcomes for the Executive Chairman
are approved by the Board.
Further information can be found under FY2022 STI outcomes.
Long-Term Incentive
25% of Total Target
Opportunity
The objective of the Long-Term Incentive (LTI) Plan is to reward participants for long-term performance
and long-term value creation for shareholders.
The LTI Plan is subject to the achievement of performance hurdles as determined by the NRHRC. Further
information can be found under LTI awards granted in FY2022.
Following the acquisition of Lion Dairy & Drinks in January 2021, which doubled the size of the Group and resulted in an increased scope
and complexity of Executive KMP roles, the Group sourced current remuneration market data for comparable organisations based on
the revenue and market capitalisation for the Group to ensure Bega continues to provide market competitive remuneration to our KMP.
As there was an increase in the TFR for Executive KMP in February 2021 as reported in the FY2021 Remuneration Report there was no
KMP remuneration review in FY2022, other than to reflect the increase in the annual maximum superannuation contribution base of
$1,873.80 on 1 July 2021.
The following changes were made to the TFR of Executive KMP in FY2022:
•
•
•
Executive Chairman: consistent with previous years, the Board agreed that the TFR of the Executive Chairman be split as to his
responsibilities as Chairman of the Board and as to his responsibilities as the most senior executive of the Group. Following the
acquisition of Lion Dairy and Drinks, the Board increased the Chairman’s remuneration to $212,000 per annum effective 1 July 2021
to reflect the increased scope and complexity of the role given his responsibilities as Chairman of the Group.
The Executive Chairman’s annual fixed remuneration is $703,873.80 comprising a TFR of $491,873.80 relating to his executive duties
and $212,000 relating his role as Chairman of the Group.
CEO: The annual fixed remuneration of the CEO is $1,018,873.80.
CFO: The annual fixed remuneration of the CFO is $671,873.80.
The target pay mix of our Executive Chairman (excluding Chairman Board Fees), the CEO and CFO is set out below:
Linking remuneration outcomes with Group performance
The key indicators of Group performance and shareholder wealth relevant to the remuneration of KMPs that have been extracted from
the FY2022 financial statements are as follows:
Executive Chairman
50%
25%
25%
d
e
s
i
l
a
m
r
o
N
2
2
0
2
Y
F
2
2
0
2
Y
F
l
a
u
t
c
A
d
e
s
i
l
a
m
r
o
N
1
2
0
2
Y
F
d
e
s
i
l
a
m
r
o
N
0
2
0
2
Y
F
0
2
0
2
Y
F
l
a
u
t
c
A
9
1
0
2
Y
F
l
a
u
t
c
A
d
e
s
i
l
a
m
r
o
N
9
1
0
2
Y
F
d
e
s
i
l
a
m
r
o
N
8
1
0
2
Y
F
8
1
0
2
Y
F
l
a
u
t
c
A
1
2
0
2
Y
F
l
a
u
t
c
A
FY2022
vs FY2021
Normalised
Amount
%
CEO
CFO
50%
25%
25%
50%
25%
25%
$m 1,422
1,422
2,087
2,087
1,190
1,190
1,309
1,309
1,617
1,617
(665)
(32)
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$m
$m
33.8
64.0
99.2
60.1
31.0
46.2
8.4
44.9
50.9
69.0
3.9
6
24.2
46.3
78.0
39.6
21.3
31.9
4.4
30.9
28.8
44.0
6.7
17
Cents
11.00
11.00
10.00
10.00
10.00
10.00
11.00
11.00
11.00
11.00
1.00
10
Cents
8.0
15.2
29.5
15.0
9.9
14.9
2.1
14.9
15.6
23.9
0.2
1
$
3.82
3.82
5.89
5.89
4.38
4.38
4.70
4.70
7.29
7.29
(2.07)
(35)
% (33.28)
(33.28)
34.61
34.61
(4.81)
(4.81)
(33.01)
(33.01)
15.51
15.51
(67.89)
(196)
$’000
3,853
3,853
4,446
4,446
2,940
2,940
3,025
3,025
3,658
3,658
(593)
(13)
Fixed Remuneration
Target STI Opportunity
Target LTI Opportunity
Key
performance
indicator
Enterprise
value
Profit
before tax
Profit
after tax
Dividends
per share
Earnings
per share
Share price
at 30 June
Total
shareholder return
KMP total
remuneration
42
43
Bega Cheese Limited2022 Annual Report
Directors’ Report
FY2022 STI outcomes
(a) Overview
Executive KMP have part of their total remuneration delivered under the Group’s STI Plan, which is designed to reward the achievement
of performance hurdles that are linked to the annual objectives which are tied to the Group’s overarching strategy.
The payment of any STI is subject to the personal performance of the individual and the Group against determined financial and non-
financial criteria and is also subject to the achievement of Group and individual gateways i.e., if these gateways are not met, there will be
no payment under the STI unless discretion is exercised by the Board. The maximum STI payable is 110% of target opportunity with 10%
aligned to a stretch EBITDA target.
The EBITDA performance gateway for the STI Plan to open in FY2022 was not met. Having absolute discretion to amend any component
of the STI plan, the Board exercised this discretion to open the gate for payments to be made under the STI Plan. KMP were subsequently
assessed on their performance against measures of their respective STI objectives except for the EBITDA metric.
The target STI awards that Executive KMP were eligible to receive in respect of FY2022, as well as FY2022 STI outcomes, are set out in
the table below. These outcomes reflect both individual and Group performance against key metrics.
Executive KMP
Barry Irvin
Paul van Heerwaarden
Peter Findlay
Target STI
opportunity ($)
Target STI (% of fixed
remuneration)
% of target FY2022
STI awarded
% of target FY2022
STI forfeited
$245,937
$509,437
$335,937
50%
50%
50%
30%
31%
33%
70%
69%
67%
(b) Performance against FY2022 STI measures
The below table sets out the FY2022 STI outcomes for the Executive Chairman. The NRHRC reviewed the performance of the Executive
Chairman and recommended the following outcomes for Board approval. The recommended STI outcome was approved.
STI component
EBITDA
EBITDA STRETCH
Personal Objectives
%
50%
10%
50%
Barry Irvin, Executive Chairman
0%
0%
30%
The below table sets out the FY2022 STI outcomes for the CEO and CFO. The NRHRC reviewed the performance of the CEO and CFO
and recommended the following outcomes for Board approval. The recommended STI outcomes were approved.
STI component
EBITDA
EBITDA Stretch
OH&S
Free Cash Flow
Personal Objectives
%
Paul van Heerwaarden, CEO
Peter Findlay, CFO
50%
10%
15%
15%
20%
0%
0%
0%
15%
16%
0%
0%
0%
15%
18%
(c) FY2022 STI terms – further detail
The STI for the Executive Chairman, the CEO and CFO are determined in accordance with the STI Plan as approved annually by the Board.
The table below outlines the key terms and conditions applying to the STI Plans for the Executive KMP during FY2022.
Component
Detail
Target Opportunity
50% of total fixed remuneration for the Executive Chairman, CEO and CFO
Performance period
STI awards are assessed over the 12-month financial year. Any STI award payments are made after
performance is tested at the end of the performance period.
Vehicle
Gateway
All STI awards are delivered in cash.
The Executive Chairman, CEO and CFO are only entitled to a payment under the STI Plan if specific
Group performance and individual gateways are achieved. These gateways ensure that STI payments
are aligned to the Group’s key strategic and business objectives.
The Group gateways are as follows:
•
•
no STI payments are made unless the Group achieves or exceeds targeted EBITDA (having accrued
for the payout of the program in that year); and
no STI payments are made if during the year there is a major safety, quality or environmental event
that was within the reasonable control of the Group.
Individual gateways apply to the Chairman, CEO and CFO meaning that no STI payment is made unless
the individual KMP executed their duties in a proper and effective manner by:
•
leading by example and being a role model for safety, quality, and the environment;
• demonstrating collegiate behaviour and active participation in workgroup meetings; and
•
upholding and promoting the Company values and behaviours.
The CEO and CFO need to meet additional individual performance gateways relating to participation in
safety, quality and environmental programs as well as achieving a satisfactory annual performance review.
Personal Objectives
Each KMP has individual performance objectives. These personal objectives are clearly linked to key
strategic areas set for the business. Performance objectives include improvement in Group safety
performance, cost reduction, productivity improvements, and business growth.
Financial Objectives
The financial metrics to be applied are reviewed by the Board on an annual basis to ensure that they
closely align with the specific corporate, leadership and financial objectives of the Group.
The strategic plan, business and operating plans and annual budgets are the key reference points used
in determining the financial metrics.
Each year the NRHRC makes a recommendation to the Board for approval in respect of the determined
financial metrics for all KMP.
Performance
Assessment
Each KMP’s performance was assessed at the end of the financial year against their agreed objectives.
Overall performance was assessed considering what was achieved in total across all objectives, how
this was achieved and by an assessment of personal adherence to the Group’s values.
Governance
Executive Chairman performance
At the end of the financial year the NRHRC reviews the performance of the Executive Chairman relating
to his executive duties against determined criteria.
CEO performance
At the end of the financial year the Executive Chairman assesses the actual performance of the CEO
against determined criteria.
CFO performance
At the end of the financial year, the CEO assesses the actual performance of the CFO against the
determined criteria.
STI outcome recommendations are submitted to the NRHRC prior to being submitted to the Board for
final review and approval. Board approval is required before any STI is paid.
Board Discretion
The Board has absolute discretion to amend any component of the STI for KMP.
44
45
Bega Cheese Limited2022 Annual Report
Directors’ Report
LTI awards granted in FY2022
(a) Overview
The group operates an LTI Plan, for the Executive Chairman, the CEO and the CFO..
The purpose of the LTI is to:
Component
Detail
Performance measures
Performance measures
The table below outlines the performance measures and vesting schedules applying to the FY2022 LTI
Plan as it applies to the Executive Chairman, CEO and CFO.
assist in the retention, motivation and reward of the Executive Chairman, the CEO and the CFO;
Apportionment of Performance Rights
50% of fixed remuneration
N/A (see further detail below)
EPS FY2022-FY2024
•
•
•
link the reward of the Executive Chairman, the CEO and the CFO to shareholder value creation; and
align the economic interests of the CEO and CFO with shareholders by providing an opportunity to be rewarded via an equity interest
in the Group based on creating shareholder value. The Executive Chairman, CEO and CFO have identical LTI performance targets.
The FY2022 LTI grant will be assessed against both EPS and ROFE.
(b) FY2022 LTI awards
The table below outlines the face value of LTI awards granted to KMP during FY2022.
Target LTI
opportunity ($)
Target LTI opportunity
(% of fixed remuneration)
Number of performance
rights issued
Executive KMP
Barry Irvin
Paul van Heerwaarden
Peter Findlay
$245,937
$509,437
$335,937
50% of fixed remuneration
50% of fixed remuneration
92,679
61,115
(c) FY2022 LTI key terms – further detail
The table below sets out the key terms attached to the LTI awards granted to the KMP during the year.
Component
Detail
Overview
Instrument
The FY2022 LTI Plan is designed to reward the Executive Chairman, the CEO and the CFO for long-term
performance and long-term value creation for shareholders.
•
•
Executive Chairman (cash): The Executive Chairman is a substantial shareholder of Bega Cheese
and as a result his personal financial interests are already aligned with other shareholders. The
opportunity to receive further shares in Bega Cheese under a share-based long-term incentive plan
may be seen to provide the Executive Chairman with an opportunity to increase his shareholding in
a manner not available to other substantial shareholders. As such, the Executive Chairman’s LTI is to
be paid in cash if the performance hurdles are met.
CEO and CFO (performance rights): Given that the CEO and CFO are not substantial shareholders
in Bega Cheese the Board has agreed that the best way to align the performance of the CEO
and CFO with the interests of shareholders is for the outcome available under their long-term
incentive to be based on performance rights over ordinary shares in the Company. The number of
performance rights for the LTI Plan is calculated using the ‘face value’ method (see below). Subject
to the satisfaction of the performance hurdles and the vesting conditions as set out below, each
performance right issued under the plan is converted into one fully paid ordinary share in the Group.
Exercise price
Nil.
Allocation methodology
The face value of the performance rights for allocation purposes is calculated by taking the five-day
volume weighted average price of Bega Cheese Limited shares at the Grant Date, and deducting the
present value of expected dividends forgone over the duration of the FY2022 Plan (i.e. the dividends not
received until the performance rights vest).
The face value used to allocate the FY2022 LTI grant was $5.50. The fair value used for accounting
purposes for the FY2022 LTI grant was $5.38.
Performance period
The FY2022 LTI grant was granted on 21 January 2022 and is subject to a performance period from
1 July 2021 to 30 June 2024.
55% of the performance rights granted under the FY2022 LTI Plan are subject to a performance hurdle
based on the achievement of certain Earnings Per Share (EPS) growth targets. The EPS growth targets
are outlined below and apply over the entire Performance Period.
45% of the performance rights granted under the FY2022 LTI Plan are subject to a Return On Funds
Employed (ROFE) performance hurdle, apportioned into three equal tranches of 15% that may vest each
year of the plan where each annual target is met. The ROFE targets are set out in the below table for
each year of the Performance Period.
The apportionment of performance rights is outlined in the table below:
Performance Hurdle
Apportionment of Performance Rights
ROFE FY2022
ROFE FY2023
ROFE FY2024
Total
55%
15%
15%
15%
100%
Performance Measures and Targets
Earnings Per Share
Vesting percentage
EPS growth targets FY2022-FY2024
Nil vesting
50% vesting
below 23.5% over the performance period
at 23.5% over the performance period
Pro-rated vesting between
50% and 100%
between 23.5% and 27.5% over the performance period
100% vesting
at 27.5% or above over the performance period
The Board retains the discretion to adapt the calculation of the LTI Plan measure of the Earnings Per
Share performance hurdle to reflect the impact of significant events, such as capital raising or corporate
activity, that may occur during the performance periods.
Return on Funds Employed
Vesting percentage
FY2022 ROFE
FY2023 ROFE
FY2024 ROFE
Nil vesting
less than 6.5%
less than 7%
less than 8 .5%
50% vesting
75% vesting
6.5%
7.5%
7%
8%
8.5%
9.5%
100% vesting
8.5% or more
9% or more
10.5% or more
There will be no vesting under the LTI unless the KMP remain employed with the Group during the entire
performance period of the relevant plan, unless the KMP is determined to be a “good leaver” under the
rules of the plan.
Performance rights that have not vested as a result of performance measures not being met will
automatically lapse, nor any cash payment made to the Executive Chairman in these circumstances.
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47
Bega Cheese Limited2022 Annual Report
Directors’ Report
Component
Detail
Dividend and
voting rights
There are no voting or dividend rights until the performance rights vest and are exercised and converted
into ordinary shares in the Group. Additional performance rights are not granted as a result of holding
performance rights when dividends are declared by the Group.
Restrictions on transfer
The CEO and CFO may not transfer or encumber the performance rights with a security interest without
the consent of the Board.
Malus
All performance rights will also lapse in other circumstances, including, but not limited to, where the
CEO and CFO have acted fraudulently or dishonestly as determined by the Board.
LTI awards vesting in FY2022
(a) Overview
i.
Long Term Incentive Plan FY2020 – FY2022
The FY2020 LTI award was tested in FY2022 (i.e. on 30 June 2022). 55% of this award was tested against EPS growth targets and
45% was tested against ROFE targets, with vesting subject to continued employment over the performance period.
The FY2020 LTI performance hurdles were not met and as a result no cash payment was made to the Executive Chairman
and no performance rights vested into shares for the CEO or CFO. 82,599 performance rights lapsed for the CEO, and 21,450
performance rights lapsed for the CFO.
ii. Long Term Incentive Plan FY2022 – FY2024
Executive KMP remuneration statutory table
Details of each of the Executive KMP’s remuneration for FY2022 (calculated in accordance with the applicable Accounting Standards)
are set out below.
Short-term benefits
Post-
employment
benefits
Long-term benefits
Year
Cash
Salary
and fees
$
Short-term
Incentive Superannuation
$
$
Leave(1)
$
Long-term
Incentive(2)
$
Share-based
payment
Equity settled
performance
rights(3)
$
Total
All
amounts
$
Executive Chairman
Barry Irvin (4)
2022
680,306
73,781
23,568
29,351
(31,353)
2021
725,332
163,146
25,000
81,321
72,234
-
-
775,653
1,067,033
Executives
Paul van Heerwaarden
2022
995,306
157,925
23,568
76,741
2021
844,392
408,273
25,000
191,704
Peter Findlay
2022
648,306
110,859
23,568
57,660
2021
612,588
264,409
21,694
65,464
-
-
-
-
(14,222)
1,239,318
128,462
1,597,831
59,162
899,555
112,860
1,077,015
The first ROFE tranche of the FY2022 LTI was tested in FY2022 (i.e. on 30 June 2022). 15% of the award was tested against the
FY2022 ROFE target, with vesting subject to continued employment over the performance period.
Total Executive
Remuneration
2022
2,323,918
342,565
70,704
163,752
(31,353)
44,940
2,914,526
2021
2,182,312
835,828
71,694
338,489
72,234
241,322
3,741,879
The ROFE performance hurdle for the first tranche of the FY2022 LTI was not met, and as a result no cash payment was made
to the Executive Chairman and no performance rights vested for the CEO or CFO. 13,901 performance rights lapsed for the CEO,
and 9,167 performance rights lapsed for the CFO.
(b) Further detail
Further detail in respect of the terms of the FY2020 LTI Plan are set out below:
Component
Executive Chairman
CEO and CFO
Grant Dates
Not applicable
CEO: 20 April 2020, CFO: 14 August 2020
Vesting Dates
Performance Period
Potential Value
of the Plan
30 June 2022
1 July 2019 – 30 June 2022
$207,498
CEO: $367,566, CFO: $95,453
Subject to the satisfaction of the performance
hurdles and vesting conditions of the plan
Subject to the satisfaction of the performance
hurdles and vesting conditions of the plan
Face Value
Not applicable
$4.45
Performance
Rights issued
Not applicable
CEO: 82,599, CFO: 21,450
(1) The expense relates to the combined long service and annual leave accrual during the year.
(2) Long-term incentive based on the achievement of specified milestones of the Executive Chairman’s LTI Plan. The amount reflects the expense for the
FY2022 proportion of the cash incentive due to vest in 2023 ($4,251) and in 2024 ($55,695). This is offset by the prior period expense relating to the
FY20 to FY22 LTI plan not vesting. Further details of the Executive Chairman’s LTI Plan are set out in the Summary of Plans above.
(3) In accordance with accounting standards, remuneration includes the amortisation of the fair value at grant date of performance rights issued under
the LTI Plans that are expected to vest, less any write-back on performance rights lapsed or expected to lapse as a result of actual or expected
performance against Plan hurdles. The value disclosed in the above Table represents the portion of fair value allocated to this reporting period and is
not indicative of the benefit, if any, that may be received by the Executive should the performance conditions with respect to the relevant long term
incentive plan be satisfied. The FY2022 amount of $44,940 in FY22 reflects current year expense of $248,668 for the FY21 to FY23 plan and the FY22
to FY24 plan; less the write-back of expense incurred in prior periods relating to unvested rights that were forfeited in respect of the FY20 to FY22 plan
and the FY22 to FY24 plan of $203,728. Further details of the CEO’s and CFO’s LTI Plan are set out in the Summary of Plan above.
(4) Includes remuneration for Non-executive Chairman responsibilities.
48
49
Bega Cheese Limited2022 Annual Report
Directors’ Report
Non-Executive Directors’ remuneration
Remuneration policy and arrangements
Non-Executive Directors – Statutory remuneration
The fees paid or payable to the Non-Executive Directors of the Group in respect of FY2022 are set out in the table below.
The Board sets Non-Executive Director fees in line with the key objectives of the Group’s remuneration policy set out below.
Year
Director Fees
Superannuation
•
•
Market competitive: In setting Directors’ fees, the Board takes into consideration the Group’s existing remuneration policies, fees
paid by comparable companies and the level of remuneration required to attract and retain Directors of the appropriate caliber. The
Board will also have regard to the size and complexity of the Group’s operations, as well as the workload and time commitments and
responsibilities of their roles.
Independence and impartiality: To maintain independence and impartiality, Non-executive Directors are not entitled to any form of
incentive payments and the level of their fees is not set with reference to measures of Group performance (except for the Executive
Chairman who participates in the STI and LTI plan based on his TFR which relates to his executive duties).
Aggregate fee pool
The Group pays Chair and Committee fees to the Non-executive Directors out of the maximum aggregate fee pool of $1,750,000 per
annum approved by shareholders at the 2021 Annual General Meeting.
Fees and other benefits
Following the acquisition of Lion Dairy & Drinks in January 2021 the Group sourced current Board fee market data for comparable
organisations based on the revenue and market capitalisation of the Group to ensure Bega continues to provide market competitive
remuneration to our Directors. Directors’ fees were adjusted effective 1 July 2021. The Chairman’s fee below represents the Board Fees
relating to his role as a Non-Executive Director.
The following table details the previous and current level of all Directors’ fees and allowances, which are all inclusive of superannuation
obligations:
Rate as from 1/11/2020
$
Rate as from 1/7/2021
$
Board fees
Chairman of the Board
Deputy Chairman
Director fees
Committee fees
Chair of Audit & Risk Committee
Audit & Risk Committee member allowance
Chair of NRHRC
NRHRC member allowance
Chair of Milk Services Committee
Milk Services Committee member allowance
Chair of the Dairy and Drinks Integration Committee
188,200
144,100
94,100
24,000
10,000
17,500
8,750
10,000
5,000
130,000
212,000
156,000
106,000
24,000
12,000
24,000
12,000
15,000
7,500
130,000
Non-executive Directors are also entitled to be reimbursed for reasonable travel, accommodation and other expenses incurred while
engaged on the business of the Group.
Non-executive Directors
Rick Cross
Harper Kilpatrick
Patria Mann
Peter Margin
Raelene Murphy
Terry O'Brien
Total Non-Executive
Director Remuneration
Remuneration governance
Overview of remuneration governance framework
$
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
$
$
120,909
102,103
105,455
20,097
107,273
94,505
262,431
149,036
129,091
115,282
129,091
110,487
854,250
591,510
12,091
9,700
10,545
1,909
10,727
8,978
23,569
30,227
12,909
10,952
12,909
17,062
82,750
78,828
Total
$
133,000
111,803
116,000
22,006
118,000
103,483
286,000
179,263
142,000
126,234
142,000
127,549
937,000
670,338
The Board, supported by the NRHRC, is responsible for the remuneration strategy, principles and procedures for employees of the Group.
The NRHRC operates under a formal charter to assist the Board in relation to its responsibilities in identifying, attracting and remunerating
Directors, the Executive Chairman, the CEO and the CFO. The NRHRC provides guidance to the Executive Chairman and the CEO in
implementing decisions of the Board in relation to remuneration and strategic human resource planning.
An overview of the NRHRC responsibilities is set out below:
Role
Details
Recommendations to the Board
The Board takes recommendations from the NRHRC in setting the remuneration of
Executive KMP. The NRHRC assesses and makes recommendations to the Board on any
changes to the composition of the Board with a view to ensuring that it can operate
effectively and efficiently and adequately discharge its responsibilities and duties.
In formulating its recommendations, the NRHRC considers a range of factors including:
•
•
•
•
group financial performance
remuneration market data for KMP operating in similar listed organisations and
industry sectors
remuneration components and weightings of fixed and variable remuneration
the performance levels and contribution of the individual KMP.
50
51
Bega Cheese Limited2022 Annual Report
Directors’ Report
Role
Details
Advice and Assistance to the Board
The NRHRC advises and assists the Board to ensure that the Group:
Other matters
Related party transactions
•
•
•
has coherent human resources policies and practices which enable the Group to
attract and retain Directors and executives who will create value for shareholders
and that support the Group’s wider objectives and strategies
fairly and responsibly remunerates Directors and executives, having regard to
the performance of the Group, the performance of executives and the market
remuneration environment
has effective human resources policies and procedures to attract, motivate and
retain appropriately skilled people to meet the Group’s current and future needs.
Further details of the role of the NRHRC is provided in the FY2022 Corporate Governance Statement published on the Bega Cheese
Limited website (www.begacheese.com.au/investors/corporate-governance).
Executive KMP service agreements
During the year, some KMP and their related entities engaged in related party transactions with the Group relating to the supply of
milk, sale of peanuts and property rental. These transactions were on the same normal commercial terms as other suppliers and are
summarised in the table below:
Payments made by the Group during the year
Sales made by the Group during the year
Rental income received by the Group during the year
Amounts payable at year end
Amounts receivable at year end
No Executive KMP or their related parties held any loans with the Group during FY2022.
CONSOLIDATED
2022
$m
2021
$m
6,304,708
5,621,827
358,641
53,649
504,206
43,451
406,131
11,305
255,894
50,708
The Executive Chairman, in relation to his executive duties, the CEO and the CFO have service agreements, the key terms of which were
unchanged as follows:
Shareholdings
Term
Ongoing, subject to termination rights set out in the service agreement.
Termination by Group
Six months’ notice or payment in lieu of such minimum notice, or without notice where
the termination is for cause.
Termination by Executive
Six months’ notice or lesser period as agreed by the Group.
Payments on Termination
Salary and statutory entitlements up to the date of termination and, if applicable,
payment in lieu of the minimum notice period as per above.
Use of remuneration consultants
In accordance with its Charter, the NRHRC can engage with remuneration consultants. No remuneration consultants were engaged in
FY2022. No remuneration recommendations as defined in section 9B of the Corporations Act 2001 were obtained in FY2022.
The number of shares held by Directors and KMP during the year including their close family members and entities related to them are
as follows:
2022 – Numbers of
ordinary shares
Executive Chairman
Barry Irvin
Executive KMP
Paul van Heerwaarden
Peter Findlay
Non-executive Directors
Rick Cross
Harper Kilpatrick
Patria Mann
Peter Margin
Raelene Murphy
Terry O’Brien
Balance at
start of year
Shares
purchased
STI shares
awarded
Shares
sold
Balance at the
end of the year
2,018,841
20,000
-
122,073
20,243
198,400
3,669
24,445
-
10,956
17,772
-
-
4,166
14,161
5,555
14,357
4,000
5,541
34,875
23,098
-
-
-
-
-
-
-
-
(20,243)
-
-
-
-
-
-
2,038,841
156,948
23,098
202,566
17,830
30,000
14,357
14,956
23,313
52
53
Bega Cheese Limited2022 Annual Report
Directors’ Report
Likely developments and expected
results of operations
Other than as disclosed in the Chairman’s review, the Chief
Executive Officer’s review and the review of financial performance
and operations information on likely developments has not been
included because disclosure would likely result in unreasonable
prejudice to the Group.
Rounding of amounts
Auditor
Details of the amounts paid or payable to PricewaterhouseCoopers
(PwC) Australia for audit and non-audit services provided during
the financial year are set out in note 32.
The Board of Directors have considered the position and in
accordance with advice from the Audit & Risk Committee 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 for the following reasons:
The Group is of a kind referred to in 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 one hundred thousand dollars, or in
certain cases, to the nearest dollar.
•
•
all non-audit services have been reviewed by the Audit & Risk
Committee to ensure they do not impact the impartiality and
objectivity of the auditor
none of the services undermine the general principles relating
to auditor independence as set out in APES 110 Code of Ethics
for Professional Accountants.
Matters subsequent to the
end of the financial year
On 26 August 2022, the Directors declared a final fully franked
dividend of 5.5 cents per share, which represents a distribution
of $16.7 million.
A copy of the Auditor’s Independence Declaration as required
under section 307C of the Corporations Act 2001 is set out on
page 56.
This report is made in accordance with a resolution of the Directors.
No other matters or circumstances occurring subsequent to
the end of the financial year have significantly affected, or may
significantly affect, the operations of the consolidated entity,
the results of those operations, or the state of affairs of the
consolidated entity in future years.
Barry Irvin
Executive Chairman
Bega
Raelene Murphy
Independent Director
Melbourne
26 August 2022
INNOVATION SPOTLIGHT
EXPANDING
BRAND
OFFER IN
FOODSERVICE
Dairy Farmers Cheese, Butter and
Cream Cheese Foodservice Range
For over 120 years, Dairy Farmers has been
a dairy brand synonymous with quality,
community support and industry sustainability
and is now available in an expanded range for
foodservice customers.
The expansion of the Dairy Farmer’s foodservice
range builds brand scale in this channel and
increases the opportunity for consumers to
enjoy Dairy Farmer’s products in more outlets
and occasions.
This innovation is an example of Bega’s strategy
to invest in its market-leading brands and
strengthen its brand portfolio and distribution
network capability.
54
55
Bega Cheese Limited2022 Annual Report
Auditor’s Independence Declaration
Corporate Governance Statement
The Bega Cheese Group is committed to achieving and maintaining the highest standards
of accountability and transparency in the management and conduct of its business.
The Board has adopted corporate governance policies and practices that it believes are consistent with the continued growth and
success of the Group and the ongoing enhancement of value for the Bega Cheese Group shareholders.
The Corporate Governance Statement outlines the key aspects of the Group’s corporate governance framework and is available on the
Group’s website at www.begacheese.com.au/investors/corporate-governance/.
The Board considers that the Group’s corporate governance framework and practices have complied with the ASX Recommendations
for the financial year, except as otherwise detailed in the Corporate Governance Statement.
Auditor’s Independence Declaration
As lead auditor for the audit of Bega Cheese Limited for the year ended 30 June 2022, I declare that
to the best of my knowledge and belief, there have been:
(a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
(b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Bega Cheese Limited and the entities it controlled during the period.
Sam Lobley
Partner
PricewaterhouseCoopers
Melbourne
26 August 2022
PricewaterhouseCoopers, ABN 52 780 433 757
2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001
T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
56
2022 Annual Report
57
Bega Cheese Limited
Index to Financial Statements
60
61
62
63
64
64
64
64
64
64
64
65
65
65
66
67
67
68
69
69
69
70
70
70
71
72
73
73
74
74
75
76
79
79
79
80
81
81
81
81
82
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
HOW NUMBERS ARE CALCULATED
1 Significant Events in the Accounting Period
1a Dividend Reinvestment Plan
1b Revised Syndicated Facility
1c Fonterra Legal Action
1d Termination of Customer Contract
1e Transaction costs related to the
acquisition of Lion Dairy and Drinks
2 Segment Information
2a Description of Segments
2b Segment Information Provided to the CODM
2c Other Segment Information
3 Earnings Per Share
4 Dividends to Shareholders
5 Revenue and Other Income
6 Expenses
7
Income Tax
7a Income Tax Expense
7b Numerical Reconciliation of Income Tax
Expense to Prima Facie Tax Expense
7c Amounts Recognised Through Other
Comprehensive Income
7d Amounts Recognised Through Equity
7e Movements in Deferred Tax
7f Income Taxes Paid
8 Trade and Other Receivables
9 Other Assets
10
Inventories
11 Property, Plant & Equipment
12 Leases
13
14 Trade and Other Payables
15 Other liabilities
16 Borrowings
17 Provisions
18 Share Capital
Intangible Assets
18a Share Capital
18b Movement in Share Capital Value
and Number of Shares
19 Reserves
20 Notes to the Consolidated Statement of Cash Flows
20a Reconciliation of Cash and Cash Equivalents
20b Reconciliation of Profit for the Period to Net
Cash Flows from Operating Activities
83
83
83
83
83
83
84
85
85
85
87
87
88
88
89
RISK
21 Critical Accounting Estimates and Judgements
22 Financial Risk Management
22a Market Risk
Market Risk - Foreign Exchange Risk
Market Risk - Commodity Price Risk
Market Risk - Group Sensitivity
Market Risk - Cash Flow and Fair
Value Interest Rate Risk
Market Risk - Interest Rate Sensitivity
22b Credit Risk
22c Liquidity Risk
22d Financing Arrangements
22e Maturities of Financial Liabilities
22f Fair Value Estimation
23 Capital Risk Management
90 GROUP STRUCTURE
90
90
90
90
90
24 Parent Entity Financial Information
24a Summary Financial Information
24b Guarantees Entered into by Parent Entity
24c Contingent Liabilities of the Parent Entity
24d Contractual Commitments for the Acquisition
of Property, Plant or Equipment
91
92
93
95
95
95
95
95
95
95
95
95
96
96
97
98
25 Subsidiaries, joint arrangements and associates
26 Business Combination
27 Closed Group Disclosure
UNRECOGNISED ITEMS
28 Contingent Liabilities
29 Commitments
30 Subsequent Events
30a Dividend
FURTHER DETAILS
31 Related Party Transactions
31a Terms and Conditions of Related
Party Transactions
31b Related Party Transactions with Group Entities
31c Key Management Personnel
Remuneration and Transactions
32 Remuneration of Auditors
33 Share-based payments
34 Summary of Significant Accounting Policies
2022 Annual Report
59
Financial Statements
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Revenue
Cost of sales
Gross profit
Other revenue
Other income
Distribution expense
Marketing expense
Occupancy expense
Administration expense
Acquisition related expenses
Impairment of assets
Finance costs
Share of net profit of equity accounted investments
Gain on bargain purchase
Profit before income tax
Income tax expense
Profit for the period attributable to owners of Bega Cheese Limited
Other comprehensive income:
Items that may be reclassified to profit or loss
Cash flow hedges, net of tax
Exchange differences on translating foreign operations
Total other comprehensive income
Notes
5
5
5
1e
6
6
26
7a
Total comprehensive income for the period attributable to owners of Bega Cheese Limited
Earnings per share for profit attributable to ordinary equity holders of the parent:
Basic earnings per share
Diluted earnings per share
CONSOLIDATED
2022
$m
3,009.9
(2,320.5)
689.4
2021
$m
2,073.4
(1,608.2)
465.2
11.4
6.4
(279.3)
(104.9)
(52.8)
(179.3)
(46.5)
-
(12.5)
1.9
-
33.8
(9.6)
24.2
2.7
0.2
2.9
27.1
2022
Cents
8.0
8.0
25.3
13.5
(158.7)
(65.1)
(26.6)
(150.3)
(62.2)
(2.2)
(10.4)
1.2
69.5
99.2
(21.2)
78.0
(1.3)
-
(1.3)
76.7
2021
Cents
29.5
29.4
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Derivative financial instruments
Inventories
Current tax assets
Assets held for sale
Other current assets
Total current assets
Non-current assets
Property, plant and equipment
Right-of-use assets
Deferred tax assets
Other assets
Intangible assets
Investments accounted for using the equity method
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Other liabilities
Derivative financial instruments
Lease liabilities
Current tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Lease liabilities
Other liabilities
Provisions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Share capital
Reserves
Retained earnings
Capital and reserves attributable to owners of Bega Cheese Limited
Total Equity
CONSOLIDATED
2022
$m
2021(*)
$m
Notes
20
8
10
11
9
11
12
7e
9
13
25
14
15
12
17
16
12
15
17
7e
18a
19
44.9
274.7
2.7
317.6
3.0
60.5
26.9
730.3
844.0
109.9
38.9
-
588.1
47.6
87.2
348.7
1.1
345.0
13.3
-
37.9
833.2
911.6
103.4
22.7
0.1
589.5
46.6
1,628.5
1,673.9
2,358.8
2,507.1
449.2
16.5
1.7
21.0
10.3
107.3
606.0
308.5
93.3
-
16.9
71.7
490.4
477.4
42.8
2.1
25.5
18.4
119.8
686.0
391.9
79.1
0.5
24.6
58.5
554.6
1,096.4
1,262.4
1,240.6
1,266.5
878.2
26.9
357.3
1,262.4
1,262.4
875.7
25.9
364.9
1,266.5
1,266.5
60
61
(*) The 30 June 2021 balance sheet has been restated to reflect the final fair value of the purchase price allocation of Bega Dairy and Drinks, which
was acquired on 25 January 2021. Refer to note 26 for further details.
The above Consolidated Balance Sheet should be read in conjunction with the accompanying notes.
Bega Cheese Limited2022 Annual Report
Financial Statements
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Consolidated
Balance as at 1 July 2020
Profit for the period
Other comprehensive income/(expense) for the period
Share
capital
$m
480.5
-
-
Transactions with owners in their capacity as owners:
- Issue of shares, net of transaction costs and tax (note 18)
395.2
- Share-based payments relating to incentives
- Dividends provided for or paid
Balance as at 30 June 2021
Balance as at 1 July 2021
Purchase price acquisition adjustment (1)
Profit for the period
Other comprehensive income/(expense) for the period
Transactions with owners in their capacity as owners:
- Issue of shares (note 18)
- Share-based payments relating to incentives
- Dividends provided for or paid
- Tax effect of prior period share issue transaction costs
Balance as at 30 June 2022
-
-
875.7
875.7
-
-
-
3.1
-
-
(0.6)
878.2
Reserves
$m
20.8
-
(1.3)
-
6.4
-
25.9
25.9
-
-
2.9
-
(1.9)
-
-
26.9
Retained
earnings
$m
312.7
72.2
-
-
-
(25.8)
359.1
Total
$m
814.0
72.2
(1.3)
395.2
6.4
(25.8)
1,260.7
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
Net receipts/(payments) from/to Trade Receivables Facility
Interest and other costs of financing paid
Interest received
Income taxes paid
Net inflow from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property, plant and equipment
Net proceeds from sale of property, plant and equipment
359.1
1,260.7
Payments for intangible assets
5.8
24.2
-
-
-
(31.8)
-
357.3
5.8
24.2
2.9
3.1
(1.9)
(31.8)
(0.6)
1,262.4
Payment for acquisition of subsidiaries, net of cash acquired
Distributions received from associate
Net outflow from investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings
Repayment of borrowings
Principal elements of lease payments
Net proceeds from issue of shares
Dividends paid to Bega Cheese Limited's shareholders
Net (outflow)/inflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
(1) The adjustments relating to the change in the provisional bargain purchase on acquisition of Bega Dairy and Drinks has been reflected in the
opening balance of retained earnings as at 1 July 2021. Refer to note 26 for further details. An additional adjustment to prior period income tax of
$4m has also been reflected through opening retained earnings.
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
62
CONSOLIDATED
2022
$m
2021
$m
Notes
3,342.8
(3,179.2)
2,221.7
(2,086.5)
18.9
(12.5)
0.1
(11.9)
158.2
(65.8)
7.0
(6.0)
-
1.0
(63.8)
310.0
(393.0)
(25.0)
-
(28.7)
(136.7)
(42.3)
87.2
44.9
7f
20
4
20
(12.7)
(10.5)
0.1
(0.7)
111.4
(22.2)
-
(10.0)
(514.5)
-
(546.7)
205.0
(60.0)
(12.3)
390.2
(23.3)
499.6
64.3
22.9
87.2
63
Bega Cheese Limited2022 Annual Report
Notes to the Financial Statements
How numbers are calculated
1. Significant events in the accounting period
A. Dividend reinvestment plan
The Group’s Dividend Reinvestment Plan (DRP) will be activated for the FY2022 final fully franked dividend. The DRP is optional and offers
ordinary shareholders in Australia and New Zealand the opportunity to acquire fully paid ordinary shares without transaction costs.
Shares allocated under the DRP will be derived from new issued ordinary shares. The shares issued rank pari passu with other ordinary
shares already on issue. The allocation price will be determined in accordance with the DRP rules as the arithmetic average of the daily
volume weighted average market price of all Bega Cheese Limited shares sold through a normal trade on the ASX trading system over
the five business days commencing on the day of the record date.
A shareholder can elect to participate in or terminate their involvement in the DRP at any time. Election notices for participation in the
DRP in relation to the FY2022 final fully franked dividend to be paid on 23 September 2022 must be recorded by the registry by 5:00 pm
on 1 September 2022 to be effective for that dividend.
B. Revised Syndicated Facility
In December 2021, the Group entered into a revised syndicated debt facility structure (Refer to “Note 22d” for further details).
C. Fonterra legal action
As previously reported, in 2017, Fonterra Brands Australia commenced legal proceedings in the Supreme Court of Victoria in relation
to the scope of the 2001 trade mark licence between Bega Cheese and Fonterra. On 25 February 2021, the Supreme Court of Victoria
held that Bega Cheese is entitled to use the Bega trade mark, as owner of the trade marks, on its products, outside of the scope of the
Fonterra licence, without Fonterra’s consent. Fonterra has an ongoing exclusive licence to use the Bega trade mark on natural cheddar
cheese, processed cheddar cheese, string cheese and butter. Bega Cheese’s counter claims in respect of alleged breaches of the trade
mark licence by Fonterra were dismissed. Neither party appealed the decision. Fonterra was ordered to pay Bega Cheese’s costs in
relation to the claim. Bega Cheese was ordered to pay Fonterra’s costs in relation to the counterclaim. The parties have now settled the
claims in relation to costs. This resolves all outstanding issues relating to this matter.
D. Termination of customer contract
In FY2021, one of the Group’s major customers, Reckitt, notified the Group that two arrangements would cease ahead of their contractual
expiry date. The first related to an access and services agreement at a plant in Derrimut which ended in October 2021, prior to its original
end date of December 2026. The second relates to the Tatura MSD2 dryer access and services agreement that ended in January 2022,
prior to its original end date of December 2026. A summary of revenue and other income recognised, and cash received is shown below
Summary of termination fee recognition
Recognised in FY2021
Recognised in FY2022
Total
Summary of termination fee cash receipts
Received in FY2021
Received in FY2022
Total
MSD2
$m
14.3
20.1
34.4
MSD2
$m
8.6
25.8
34.4
Derrimut
$m
15.5
5.6
21.1
Derrimut
$m
5.3
15.8
21.1
TOTAL
$m
29.8
25.7
55.5
TOTAL
$m
13.9
41.6
55.5
E. Transaction costs related to the acquisition of Lion Dairy and Drinks
Following the acquisition of Lion Dairy and Drinks (“LDD”) in FY2021, the Group incurred costs in relation to the acquisition and
integration of LDD totalling $46.5 million (FY2021 $63.8 million), which included excess transition services arrangement charges from
Lion, consultancy and legal, redundancy, separation costs, and project team resourcing. The acquisition costs have been recognised in
the Group’s consolidated statement of comprehensive income for the respective financial years.
Following the acquisition, the entities of the Lion Dairy and Drinks were consolidated within the Branded Segment as Bega Dairy and
Drinks (“BDD”).
2. Segment information
A. Description of segments
The Group determines the reporting segments based on financial and other management reports reviewed by the Executive Chairman,
Chief Executive Officer and Chief Financial Officer, in their capacity as the Chief Operating Decision Makers (CODM).
The Group has two reporting segments:
i. Branded – the manufacture of value added consumer products for owned and externally owned brands.
ii. Bulk – the manufacture of bulk dairy ingredients, nutritional and bio nutrient products.
The CODM assesses the performance of the reporting segments based on a measure of EBITDA. In addition, the CODM takes into
account current year events by segment so that normalised business performance is assessed.
Unallocated overheads relate to corporate and legal costs that cannot be reasonably classified into a segment.
Inter-segment eliminations represent elimination of sales and profit in stock arising from inter-segment sales at an arm’s length
transfer price.
B. Segment information provided to the CODM
The segment information provided to the CODM for the reportable segments for the year ended 30 June 2022 is as follows:
Branded
$m
Bulk
$m
Unallocated
overheads
$m
Inter-segment
eliminations
$m
Group
Total
$m
Year ending 30 June 2022
Revenue
EBITDA
Depreciation, amortisation and impairment
EBIT
Interest income
Interest expense
Profit before income tax
Income tax expense
Profit for the year
2,480.9
107.8
735.5
80.3
-
(39.8)
Impact of current year events on profit before tax
LDD transaction related costs
Reckitt termination
Other costs
(27.2)
-
-
-
19.3
-
(19.3)
-
(3.0)
(206.5)
3,009.9
1.6
-
-
-
149.9
(103.7)
46.2
0.1
(12.5)
33.8
(9.6)
24.2
(46.5)
19.3
(3.0)
64
65
Bega Cheese Limited2022 Annual Report
Notes to the Financial Statements
2. Segment information (cont.)
Prior period comparative segment information as follows:
3. Earnings per share
Branded
$m
Bulk
$m
Unallocated
overheads
$m
Inter-segment
eliminations
$m
Group
Total
$m
1,519.9
94.5
897.5
98.9
-
(79.7)
(344.0)
70.8
(3.9)
-
-
-
-
-
-
29.8
-
(2.1)
(59.9)
-
-
9.3
(5.9)
-
71.8
-
-
-
2,073.4
184.5
(75.0)
109.5
0.1
(10.4)
99.2
(21.2)
78.0
(63.8)
71.8
29.8
9.3
(8.0)
Year ending 30 June 2021
Revenue
EBITDA
Depreciation, amortisation and impairment
EBIT
Interest income
Interest expense
Profit before income tax
Income tax expense
Profit for the year
Impact of current year events on profit before tax
Acquisition related expenses
Gain on bargain purchase
Reckitt termination
Kraft legal settlement
Other costs
C. Other segment information
Segment revenue
Sales between segments are carried out at arm’s length and eliminated on consolidation. The revenue from external parties reported to
the CODM is measured in a manner consistent with that in the Consolidated Statement of Comprehensive Income. Segment sales by
destination are as follows:
CONSOLIDATED
2022
$m
2,249.0
248.2
2,497.2
231.9
280.8
512.7
2021
$m
1,269.6
252.6
1,522.2
250.3
300.9
551.2
3,009.9
2,073.4
Sales to external customers in Australia
Branded
Bulk
Total sales to external customers in Australia
Sales to external customers in other countries
Branded
Bulk
Total sales to external customers in other countries
Total sales to external customers
66
Earnings per share for profit from continuing operations attributable to
ordinary equity holders of the parent:
Basic earnings per share
Diluted earnings per share
Weighted average number of shares used as the denominator
in calculating basic earnings per share
Adjustments for calculation of diluted earnings per share:
Contingent employee incentives
Shares used as the denominator in calculating diluted earnings per share
Profit attributable to the ordinary equity holders of the Group
used in calculating earnings per share
4. Dividends to shareholders
Recognised amounts:
2022 Interim dividend of 5.50 cents
2021 Final dividend of 5.00 cents
2021 Interim dividend of 5.00 cents
2020 Final dividend of 5.00 cents
Total dividend
Issue of shares under the DRP
Net cash outflow
Unrecognised amounts:
2022 Final dividend of 5.50 cents
2021 Final dividend of 5.00 cents
The dividends paid in 2022 and 2021 were fully franked. The 2022 final dividend will be fully franked.
CONSOLIDATED
2022
Cents
2021
Cents
8.0
8.0
29.5
29.4
2022
Number
2021
Number
303,210,210
264,273,802
749,125
646,341
303,959,335
264,920,143
2022
$m
24.2
2021
$m
78.0
CONSOLIDATED
Full year
2022
$m
Full year
2021
$m
16.7
15.1
-
-
31.8
(3.1)
28.7
16.7
-
-
-
15.1
10.7
25.8
(2.5)
23.3
-
15.1
67
Bega Cheese Limited2022 Annual Report
Notes to the Financial Statements
4. Dividends to shareholders (cont.)
Value of the dividend franking account
CONSOLIDATED
COMPANY
2022
$m
100.3
2021
$m
102.2
2022
$m
52.1
2021
$m
15.8
The value of the dividend franking account represents the balance of the franking account as at the end of the year, adjusted for franking
credits and debits that will arise from the settlement of liabilities or receivables for income tax.
The consolidated amounts include franking credits that would be available to the parent entity if distributable profits of the subsidiaries
were paid as dividends.
5. Revenue and other income
Sale of goods
Services
Total revenue
Other revenue
Royalties
Contract termination fees
Other
Total other revenue
Other income
Rental income
Interest income
Legal settlement proceeds
Gain on equity interest
Gain on sale of land
Gain from early lease termination
Other
Total other income
CONSOLIDATED
2022
$m
2,909.0
100.9
3,009.9
2021
$m
1,990.4
83.0
2,073.4
8.4
1.6
1.4
11.4
0.2
0.1
-
-
1.7
1.3
3.1
6.4
8.2
15.9
1.2
25.3
1.0
0.1
9.3
2.3
-
-
0.8
13.5
The Group recognises the majority of its revenue from contracts with customers for the transfer of goods at a point in time. Refer to note
34e for further explanation of the Group’s revenue recognition policy.
Revenues of approximately $1.1 billion (2021: $623.8 million) are concentrated in a small number of external customers.
6. Expenses
Profit before income tax includes the following specific expenses:
Net (profit)/loss on disposal of property, plant and equipment
Write-off of intangible assets
Decrease in inventory provisions
Decrease of bad and doubtful debts provision
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Impairment of property, plant and equipment
Amortisation of intangible assets
Trade Receivables Facility costs
Employee benefit expense:
- Defined contribution superannuation expense
- Other employee benefits expense
Total employee benefit expense
Finance costs:
- Interest on bank loans
- Lease liability interest
- Other finance costs
Total finance costs
7.
Income tax
A.
INCOME TAX EXPENSE
Current tax (expense)
Deferred tax benefit/(expense) from the origination and reversal of temporary differences
Adjustments recognised in the current year in relation to tax of prior years
Total income tax expense
CONSOLIDATED
2022
$m
(1.7)
-
(0.3)
(2.9)
63.7
28.9
-
11.1
2.2
35.9
423.0
458.9
5.0
4.0
3.5
12.5
CONSOLIDATED
2022
$m
(12.6)
4.7
(1.7)
(9.6)
2021
$m
0.1
(0.4)
(0.8)
(0.1)
49.0
12.8
2.2
11.0
2.5
23.7
324.9
348.6
4.7
2.1
3.6
10.4
2021
$m
(14.7)
(4.6)
(1.9)
(21.2)
Judgement is required in determining the provision for income taxes. There are certain transactions and calculations undertaken during
the ordinary course of business for which the ultimate tax determination is uncertain as at the end of the financial year. The Group
estimates its tax liabilities based on its understanding of the tax law. Where the final tax outcome of these matters is different from the
amounts recorded, such differences will impact the amount of current or deferred income tax liabilities in the period such determination
is made.
68
69
Bega Cheese Limited2022 Annual Report
Notes to the Financial Statements
7.
Income tax (cont.)
B. NUMERICAL RECONCILIATION OF INCOME TAX EXPENSE TO PRIMA FACIE
TAX EXPENSE
Profit from continuing operations before income tax
Tax (expense) at the Australian tax rate of 30% (2021 - 30%)
Tax effect of amounts which are not deductible/(taxable) in calculating taxable income:
Non-assessable income
Non-deductible expenses
Other assessable income
Tax incentives
Adjustments in respect of prior year
De-recognition of previously recognised tax losses
Previously unrecognised tax losses used to reduce deferred tax expense
Current year tax losses not recognised
Total income tax expense
C. AMOUNTS RECOGNISED THROUGH OTHER COMPREHENSIVE INCOME
Aggregate current and deferred tax arising in the reporting period and not recognised
in net profit or loss but through other comprehensive income in respect of:
Movement in hedging reserve
Total amount recognised through other comprehensive income
D. AMOUNTS RECOGNISED THROUGH EQUITY
Aggregate current and deferred tax arising in the reporting period and not recognised
in net profit or loss or other comprehensive income but through equity in respect of:
Share issue costs - net of adjustment in respect of prior year
Total amount recognised through equity
CONSOLIDATED
2022
$m
2021
$m
33.8
99.2
(10.1)
(29.8)
1.6
(0.2)
(1.4)
-
0.4
(1.2)
-
12.0
(10.7)
(9.6)
21.8
(10.9)
(0.2)
10.7
0.2
(1.9)
(0.2)
11.6
(11.8)
(21.2)
CONSOLIDATED
2022
$m
2021
$m
(1.1)
(1.1)
CONSOLIDATED
2022
$m
(0.6)
(0.6)
0.6
0.6
2021
$m
2.5
2.5
70
7.
Income tax (cont.)
E. MOVEMENTS IN DEFERRED TAX
Movements in deferred tax in the year are detailed below:
Consolidated
Year ending 30 June 2022
Deferred tax assets
Doubtful debts
Inventories
Sundry accrued expenses
Black hole expenditure
Employee provisions
Other provisions
Leased assets
Share issue costs
Fair value of derivatives
Tax losses
Other
Total deferred tax assets
Deferred tax (liabilities)
Property, plant and equipment
Investments
Brand names
Software
Other
Total deferred tax (liabilities)
Total deferred tax
Opening
balance
$m
Charged
to income
$m
Charged
to equity
$m
Closing
balance
$m
1.9
6.2
7.5
-
19.9
8.8
(0.8)
3.3
0.8
-
0.6
48.2
(15.7)
(4.3)
(53.4)
(9.1)
(1.5)
(84.0)
(35.8)
(1.7)
(5.8)
(3.6)
1.7
9.9
(4.7)
1.8
(0.5)
-
8.4
(0.1)
5.4
2.4
(0.5)
(2.7)
-
0.1
(0.7)
4.7
-
-
-
-
-
-
-
(0.6)
(1.1)
-
-
(1.7)
-
-
-
-
-
-
(1.7)
0.2
0.4
3.9
1.7
29.8
4.1
1.0
2.2
(0.3)
8.4
0.5
51.9
(13.3)
(4.8)
(56.1)
(9.1)
(1.4)
(84.7)
(32.8)
71
Bega Cheese Limited2022 Annual Report
Notes to the Financial Statements
7.
Income tax (cont.)
E. MOVEMENTS IN DEFERRED TAX (cont.)
Consolidated
Year ending 30 June 2021
Deferred tax assets
Doubtful debts
Inventories
Sundry accrued expenses
Black hole expenditure
Employee provisions
Other provisions
Leased assets
Share issue costs
Fair value of derivatives
Tax losses
Other
Total deferred tax assets
Deferred tax (liabilities)
Property, plant and equipment
Investments
Brand names
Software
Other
Total deferred tax (liabilities)
Total deferred tax
Opening
balance
$m
Acquisition
$m
Charged
to income
$m
Charged
to equity
$m
Closing
balance
$m
0.2
2.9
4.4
2.8
16.0
-
0.4
0.8
-
5.8
-
33.3
(16.4)
-
(42.5)
(11.3)
(1.4)
(71.6)
(38.3)
1.7
4.6
2.1
-
2.6
8.8
(0.6)
-
-
-
0.3
19.5
-
(4.3)
(11.2)
-
-
(15.5)
4.0
-
(1.3)
1.0
(2.8)
1.3
-
(0.6)
-
0.2
(5.8)
0.3
(7.7)
0.7
-
0.3
2.2
(0.1)
3.1
(4.6)
-
-
-
-
-
-
-
2.5
0.6
-
-
3.1
-
-
-
-
-
-
3.1
1.9
6.2
7.5
-
19.9
8.8
(0.8)
3.3
0.8
-
0.6
48.2
(15.7)
(4.3)
(53.4)
(9.1)
(1.5)
(84.0)
(35.8)
8. Trade and other receivables
Current assets
Trade receivables
Allowance for impairment of receivables
Net trade receivables
Goods and services tax (GST) receivable
Accrued revenue
Amounts receivable under Trade Receivables Facility
Other debtors
Total trade and other receivables
CONSOLIDATED
2022
$m
241.3
(6.5)
234.8
21.2
5.2
6.3
7.2
274.7
2021
$m
303.8
(9.4)
294.4
23.3
5.8
6.8
18.4
348.7
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are
generally due for settlement within 30 to 60 days and are therefore all classified as current. Trade receivables are recognised initially at
the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair
value. The Group holds the trade receivables with the objective of collecting the contractual cash flows and therefore measures them
subsequently at amortised cost using the effective interest method. Details about the Group’s impairment policies and the calculation
of the loss allowance are provided in note 34.
Accrued revenue primarily relates to receivables from customers under product supply contracts whereby the revenue has yet to
be invoiced.
The Group utilises a Trade Finance Facility (‘Trade Receivables Facility’) with the Coöperatieve Rabobank U.A. (Australia Branch)
(Rabobank) whereby it may purchase receivables from the Group at a discount. This facility is utilised by the Group as a primary source
of working capital. The maximum available at any time under the facility was $200.0 million during the financial year. Most eligible
receivables sold to Rabobank are insured by the Group with the Group retaining a continuing involvement asset of 10%, representing
its maximum exposure under the facility. 90% of the value of receivables sold by the Group into this facility are de-recognised as an
asset as the contractual rights to cashflows from these receivables have expired on acceptance of the sale to Rabobank. The Trade
Receivables Facility is a $200m facility with half of it on fully committed basis and was extended to 31 January 2024 in August 2022. The
funded value of the Group’s Trade Receivables Facility was $156.3 million as at 30 June 2022 (2021: $136.9 million).
Deferred tax assets and liabilities in the Consolidated Balance Sheet have been disclosed based on whether the taxable entity they
relate to has a legally enforceable right to set off the recognised amounts. These are presented as follows:
9. Other assets
Deferred tax assets
Deferred tax liabilities
Net deferred tax liabilities
CONSOLIDATED
2022
$m
38.9
(71.7)
(32.8)
2021
$m
22.7
(58.5)
(35.8)
Unused tax losses for which no deferred tax asset has been recognised as at 30 June 2022 are $61.2 million (2021: $55.1 million), the potential tax
benefit of this at 30% is $18.4 million (2021: $16.5 million). Unused temporary differences for which no deferred tax asset has been recognised
as at 30 June 2022 are $48.0 million (2021: $64.3 million) (tax effected). Unused capital losses for which no deferred tax asset has been
recognised as at 30 June 2022 are $13.7 million (2021: $13.7 million), the potential tax benefit of this at 30% is $4.1 million (2021: $4.1 million).
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable
amounts will be available to utilise those temporary differences and losses. The Group is not consolidated for tax purposes and has
undertaken an analysis regarding the future taxable income of each legal entity on a stand-alone basis.
F. INCOME TAXES PAID
Income taxes paid is included in the Consolidated Statement of Cash Flows as follows:
Income taxes (paid) included in operating activities
Total income taxes (paid)
72
CONSOLIDATED
2022
$m
(11.9)
(11.9)
2021
$m
(0.7)
(0.7)
Current assets
Prepayments
Trade Receivables Facility continuing involvement asset
Other assets
Total current other assets
Non-current assets
Prepayments and other
Total non-current other assets
Total other assets
CONSOLIDATED
2022
$m
10.8
14.0
2.1
26.9
-
-
26.9
2021
$m
12.8
16.1
9.0
37.9
0.1
0.1
38.0
73
Bega Cheese Limited2022 Annual Report
Notes to the Financial Statements
10. Inventories
The write-down of inventories to net realisable value requires judgement in assessing future commodity prices, other market conditions,
product shelf life and provisions for quality.
11. Property, plant and equipment (cont.)
Assets held for sale
Raw materials and work in progress
Finished goods
Maintenance spares
Provisions
Carrying amount of inventories at lower of cost or net realisable value
11. Property, plant and equipment
Land and buildings
At cost
Accumulated depreciation
Total land and buildings
Plant and equipment
At cost
Accumulated depreciation
Total plant and equipment
Construction in progress
Total property, plant and equipment
The movements in property, plant and equipment are:
Consolidated
Year ending 30 June 2022
Balance at the beginning of the financial year
Purchase price acquisition adjustment
Capital expenditure
Disposals
Depreciation
Assets classified as held for sale
Transfers
Balance at the end of the financial year
Year ending 30 June 2021
Balance at the beginning of the financial year
Acquisitions through business combinations
Capital expenditure
Disposals
Depreciation
Impairment
Transfers
Balance at the end of the financial year
74
CONSOLIDATED
2022
$m
143.5
160.6
49.3
(35.8)
317.6
CONSOLIDATED
2022
$m
425.0
(56.0)
369.0
830.1
(406.4)
423.7
2021
$m
169.0
166.1
46.0
(36.1)
345.0
2021
$m
490.5
(50.2)
440.3
814.1
(378.6)
435.5
51.3
35.8
844.0
911.6
Construction
in progress
$m
Land and
buildings
$m
Plant and
equipment
$m
35.8
-
65.7
-
-
-
(50.2)
51.3
9.6
17.9
26.8
-
-
-
(18.5)
35.8
417.3
23.0
-
(5.2)
(10.7)
(60.5)
5.1
369.0
164.0
260.1
-
-
(8.3)
-
1.5
417.3
455.4
(19.9)
-
(0.1)
(53.0)
-
41.3
423.7
272.4
209.0
-
(0.1)
(40.7)
(2.2)
17.0
455.4
Total
$m
908.5
3.1
65.7
(5.3)
(63.7)
(60.5)
(3.8)
844.0
446.0
487.0
26.8
(0.1)
(49.0)
(2.2)
-
908.5
Land and Buildings held for sale
CONSOLIDATED
2022
$m
60.5
2021
$m
-
In May 2022, the Group commenced an expression of interest campaign for the sale and leaseback of the Land and Buildings at
1 Vegemite Way, Port Melbourne. This property manufactures Vegemite, peanut butter and other products. The sale is anticipated to be
completed before the end of June 2023.
12. Leases
The balance sheet shows the following amounts relating to leases:
Right-of-use assets
At cost
Accumulated depreciation
Total right-of-use assets
Right-of-use assets
Properties
Equipment
Motor vehicles
Total right-of-use assets
CONSOLIDATED
2022
$m
151.3
(41.4)
109.9
CONSOLIDATED
2022
$m
87.5
19.2
3.2
109.9
Additions and remeasurements to the right-of-use assets during the 2022 financial year were $40.2 million (2021: $14.0 million).
Lease liabilities
Current
Non-current
Total lease liabilities
The statement of comprehensive income shows the following amounts relating to leases:
Depreciation charge of right-of-use assets
Interest expense (included in finance cost)
The total cash outflow for leases in 2022 was $29.0 million (2021: $14.4 million).
CONSOLIDATED
2022
$m
21.0
93.3
114.3
CONSOLIDATED
2022
$m
28.9
4.0
2021
$m
121.7
(18.3)
103.4
2021
$m
82.5
17.0
3.9
103.4
2021
$m
25.5
79.1
104.6
2021
$m
12.8
2.1
75
Bega Cheese Limited2022 Annual Report
Notes to the Financial Statements
13. Intangible assets
13. Intangible assets (cont.)
Brands
Water rights
Software
Goodwill
Other
Total intangible assets
Consolidated
Year ending 30 June 2022
Balance at the beginning of the financial year
Additions
Amortisation
Transfers
Balance at the end of the financial year
Year ending 30 June 2021
Balance at the beginning of the financial year
Acquisitions through business combinations
Additions
Disposals
Amortisation
Balance at the end of the financial year
Brands and other identifiable intangible assets
CONSOLIDATED
2022
$m
177.6
5.6
56.2
347.4
1.3
588.1
Brands
$m
Software
$m
Water
Rights
$m
Goodwill
$m
Other
$m
177.6
-
-
-
177.6
140.4
37.2
-
-
-
177.6
57.0
5.9
(10.5)
3.8
56.2
53.5
4.4
10.1
(0.4)
(10.6)
57.0
5.6
-
-
-
5.6
5.6
-
-
-
-
5.6
347.4
-
-
-
347.4
346.5
0.9
-
-
-
347.4
1.9
-
(0.6)
-
1.3
2.1
0.2
-
-
(0.4)
1.9
2021
$m
177.6
5.6
57.0
347.4
1.9
589.5
Total
$m
589.5
5.9
(11.1)
3.8
588.1
548.1
42.7
10.1
(0.4)
(11.0)
589.5
Brands and other identifiable intangible assets purchased by the Group are initially recognised at cost, or at their fair value if acquired
as part of a business combination.
These identifiable intangible assets are subsequently measured:
•
•
if they have a finite life, at cost less amortisation, and
if they have an indefinite life, at cost less accumulated impairment losses.
Finite life brands or other identifiable intangible assets are amortised on a straight-line basis over the shorter of their contractual or
useful economic life, being three to 25 years. They are also tested for impairment when an indicator of impairment may exist.
Indefinite life identifiable intangible assets are not amortised but are instead tested for impairment annually, or more frequently if there
is an indicator of impairment. Brands or other identifiable intangible assets are determined to have an indefinite life where there is an
intention to maintain and support the brand or other intangible asset for an indefinite period.
Water rights
Water rights are indefinite life identifiable intangible assets and were acquired as part of the acquisition of the Strathmerton and Peanut
Company of Australia (PCA) facilities. Water rights are attributable to the Branded segment. Impairment was tested by reference to third
party market valuation based on recent transactions and related data.
Software
SaaS arrangements are service contracts providing the Group with the right to access the cloud provider’s application over the contract
period. As such the Group does not receive a software intangible asset at the contract commencement date. For SaaS arrangements,
the Group assesses if the contract will provide a resource that it can control to determine whether an intangible asset is present. If the
Group cannot determine control of the software, the arrangement is deemed a service contract and any implementation costs including
costs to configure or customise the cloud provider’s application software are recognised as operating expenses when incurred.
Costs incurred to obtain access to the cloud provider’s application software are generally recognised as operating expenses when the
services are received.
Costs incurred for the development of software code that enhances, modifies or creates additional capability to existing for on-premise
are capitalised if it meets the recognition criteria for an intangible asset.
Certain internal and external costs directly incurred in acquiring and developing software are capitalised if it they meet the recognition
criteria of an Intangible asset and are amortised on a straight-line basis over their estimated useful lives, being 3 to 10 years. Capitalised
costs are tested for impairment when an indicator of impairment exists.
Goodwill
Goodwill represents the excess of the cost of acquisition over the fair value of the net identifiable assets of the acquired business at the
date of acquisition. Goodwill on acquisition of subsidiaries is included in intangible assets.
Goodwill is not amortised but 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 related to that entity.
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 (CGU) that are expected to benefit from the business combination in which the goodwill arose.
Bulk impairment assessment
The Group has identified the assets of the Tatura, Lagoon St (Bega), and Koroit manufacturing sites to be a CGU. This CGU includes
goodwill of $117.0 million. The cash inflows of the Bulk CGU are driven by available milk volumes, which are utilised across all manufacturing
sites in the CGU and can be diverted to the site that can produce the highest return on that milk.
This CGU is subject to annual impairment testing as it holds indefinite life intangible assets. Impairment testing requires a high degree of
judgement in assessing whether the carrying value of assets is supported by their recoverable amount. The recoverable amount of the
Bulk CGU has been determined using the ‘value in use’ approach.
In calculating the recoverable amount of the Bulk CGU a discounted cash flow model was utilised forecasting cash flows for the period
FY2023 to FY2027. A number of assumptions were made in respect of matters which are not certain, including the following key
assumptions:
•
•
•
•
the gross margin of the CGU is sensitive to future assumptions on farmgate milk prices and global dairy commodity prices. The
FY2023 budget assumes farmgate milk prices are in line with Bega’s announced prices and budgeted sales are based on contracted
prices and forecast global dairy commodity prices for uncontracted sales. Beyond FY2023, the forecast assumes the correlation
between farmgate milk prices and global dairy commodity prices to trend towards their five year historical averages
the FY2023 budget assumes milk volumes allocated to the Bulk CGU of 668mL and from FY2023 to FY2027 they are assumed to
decrease by a CAGR of 0.4%
with advice from independent experts, applied post tax discount rate of 7.6%
a long-term nominal growth rate of 2.0% beyond the forecast period
Using the above assumptions, the recoverable amount was $116 million above the carrying value of the Bulk CGU as at 30 June 2022
and as a result no impairment was required. The sensitivities shown assume the specific assumption changes in isolation, while all other
assumptions are held constant which does not reflect the interrelationship of these assumptions over the longer term.
Sensitivity analysis
Management has considered the following changes in key assumptions in isolation to be reasonably possible which could result in an
impairment.
Variance from base case
Gross margin growth (CAGR)
Milk intake decrease (CAGR)
Current assumption
(FY2023 to FY2027)
0.5%
(0.4)%
Assumption to arrive
at nil headroom
(1.7)%
(3.2)%
76
77
Bega Cheese Limited2022 Annual Report
Notes to the Financial Statements
13. Intangible assets (cont.)
Bega Dairy and Drinks impairment assessment
The Group has identified the Lion Dairy and Drinks business, acquired in January 2021 and renamed Bega Dairy and Drinks, to be a CGU.
This CGU includes capitalised brands of $37.2m. The Bega Dairy and Drinks’ core business is the manufacture, marketing and sales, and
distribution of Milk Based Beverages, Yogurt, Chilled Juices, Cream and Custard and White Milk.
This CGU is subject to annual impairment testing as it holds indefinite life intangible assets. Impairment testing requires a high degree of
judgement in assessing whether the carrying value of assets is supported by their recoverable amount. The recoverable amount of the
Bega Dairy and Drinks CGU has been determined using the ‘value in use’ approach.
In calculating the recoverable amount of the Bega Dairy and Drinks CGU a discounted cash flow model was utilised forecasting cash
flows for the period FY2023 to FY2027. A number of assumptions were made in respect of matters which are not certain, including the
following key assumptions:
•
a long-term nominal growth rate of 2.0% beyond the forecast period
• with advice from independent experts, applied post tax discount rate of 7.5%
•
the CGU incurred a significant amount of direct costs due to COVID-19 related disruptions in FY2022 and it is expected that the
majority of these costs are mostly confined to FY2022. Sales price increases are forecast in FY2023 and are expected to largely
offset the recent increase in costs of production inputs and the supply chain. The cash flow model assumes a gross margin increase
by a CAGR of 5.1% between FY2023 - FY2027, which includes the impact of assumed volume and sales price increases and the
impact of Bega’s recently announced farmgate milk prices and other key production inputs.
Using the above assumptions, the recoverable amount was $186 million above the carrying value of the Bega Dairy and Drinks CGU as at
30 June 2022 and as a result no impairment was required. The sensitivities shown assume the specific assumption changes in isolation,
while all other assumptions are held constant which does not reflect the interrelationship of these assumptions over the longer term.
Sensitivity analysis
Management has considered the following changes in key assumptions in isolation to be reasonably possible which could result in an
impairment.
Variance from base case
Gross margin growth (CAGR)
Bega Foods impairment assessment
The Group has identified the Mondelēz Grocery Business, acquired in July 2017 and renamed Bega Foods, to be a CGU. This CGU
includes goodwill of $230.3 million and capitalised brands of $140.0 million. The Bega Foods CGU produces branded grocery products
including Vegemite, peanut butter and honey for sale to domestic customers.
This CGU is subject to annual impairment testing as it holds indefinite life intangible assets. Impairment testing requires a high degree of
judgement in assessing whether the carrying value of assets is supported by their recoverable amount. The recoverable amount of the
Bega Foods CGU has been determined using the ‘value in use’ approach.
In calculating the recoverable amount of the Bega Foods CGU a discounted cash flow model was utilised forecasting cash flows for the
period FY2023 to FY2027. A number of assumptions were made in respect of matters which are not certain, including the following key
assumptions:
•
a long-term nominal growth rate of 2.5% beyond the forecast period
• with advice from independent experts, applied post tax discount rate of 7.6%
•
the FY2023 budget assumes consumer buying behaviour in retail grocery returns towards pre-COVID-19 levels. EBITDA growth over
the forecast period is expected from new products, operational efficiencies and increases in pricing
Using the above assumptions, the recoverable amount was not less than the carrying value of the Bega Foods CGU as at 30 June 2022
and as a result no impairment was required. Based on sensitivity analysis, a reasonably possible change in any single assumption would
not result in the recoverable amount of the Bega Foods CGU being lower than its carrying value as at 30 June 2022.
14. Trade and other payables
Current liabilities
Trade payables
Accrued charges and sundry creditors
Total trade and other payables
CONSOLIDATED
2022
$m
267.0
182.2
449.2
2021
$m
315.5
161.9
477.4
The average credit period on purchases is the month end after the goods are received, except for utilities and certain professional fees.
No material amounts of interest are charged on late payments and the amounts are unsecured.
Judgement is used in assessing trade payables due to suppliers under product supply contracts that require a periodic reconciliation to
specific terms of those contracts. From time to time there may be differences of opinion between the Group and the supplier as to the
amount payable under the contracts. Such differences are usually resolved amicably between the parties having regard to the relevant
contract. Where such differences are unresolved at reporting dates the Group seeks additional information and professional advice in
the context of the relevant contract in forming a view as to the amount to be accrued for at the reporting date.
15. Other liabilities
Current liabilities
Deferred income
Non-current liabilities
Deferred income
Total non-current other liabilities
Total other liabilities
16. Borrowings
Non-current - at amortised cost
Secured term loans
Borrowing costs
Total non-current borrowings
Total borrowings
For further details on borrowings and facilities, see note 22d.
CONSOLIDATED
2022
$m
2.5
14.0
16.5
-
-
2021
$m
26.7
16.1
42.8
0.5
0.5
16.5
43.3
CONSOLIDATED
2022
$m
310.0
(1.5)
308.5
2021
$m
393.0
(1.1)
391.9
308.5
391.9
Current assumption
(FY2023 to FY2027)
5.1%
Assumption to arrive
at nil headroom
4.3%
Trade Receivables Facility continuing involvement liability
Total current other liabilities
78
79
Bega Cheese Limited2022 Annual Report
Notes to the Financial Statements
17. Provisions
Current liabilities
Employee benefits
Onerous contracts
Restructuring provision
Restoration provision
Other provisions
Total current provisions
Non-current liabilities
Employee benefits
Onerous contracts
Restoration provision
Total non-current provisions
Total provisions
CONSOLIDATED
2022
$m
94.6
4.5
1.6
1.0
5.6
2021
$m
91.6
11.6
6.3
0.6
9.7
107.3
119.8
5.3
1.4
10.2
16.9
8.9
5.2
10.5
24.6
124.2
144.4
Consolidated
Year ending 30 June 2022
Balance at the beginning of the financial year
Charged/(credited) to profit or loss
Amounts used during the year
Balance at the end of the financial year
Year ending 30 June 2021
Balance at the beginning of the financial year
Acquisitions through business combinations
Charged/(credited) to profit or loss
Amounts used during the year
Balance at the end of the financial year
Onerous
contracts
$m
Restructure
provision
$m
Restoration
provision
$m
Other
provisions
$m
16.8
-
(10.9)
5.9
-
21.5
-
(4.7)
16.8
6.3
-
(4.7)
1.6
-
3.9
14.1
(11.7)
6.3
11.1
0.1
-
11.2
-
11.0
0.1
-
11.1
9.7
(0.3)
(3.8)
5.6
-
8.3
2.7
(1.3)
9.7
Total
$m
43.9
(0.2)
(19.4)
24.3
-
44.7
16.9
(17.7)
43.9
The current provision for employee benefits includes accrued annual leave, vesting sick leave and long service leave. Long service leave
covers all unconditional entitlements where employees have completed the required period of service. The amount of the provision
presented as current of $94.6 million (2021: $91.6 million) is due to the Group not having 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.
18. Share capital
a. Share capital
Share capital - ordinary shares fully paid
b. Movement in share capital value and number of shares
Ordinary shares on issue at 1 July 2020
Shares issued under Placement and Institutional Entitlement Offer
Shares issued under Retail Entitlement Offer
Shares issued under Dividend Reinvestment Plan
Shares issued to management under STI scheme
Share issue transaction costs, net of tax
Ordinary shares on issue at 30 June 2021
Ordinary shares on issue at 1 July 2021
Shares issued under Dividend Reinvestment Plan
Tax effect of prior period share issue transaction costs
Shares issued to management under STI scheme
Ordinary shares on issue at 30 June 2022
CONSOLIDATED
2022
$m
878.2
2021
$m
875.7
Ordinary
Shares
Number
‘000
214,437
62,156
25,024
437
573
-
302,627
Ordinary
Shares
$m
480.5
285.9
115.1
2.5
-
(8.3)
875.7
302,627
875.7
598
-
58
303,283
3.1
(0.6)
-
878.2
Ordinary shares entitle the holder to participate in dividends and share in the proceeds of winding up the Company in proportion to the
number of 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. There are no different rights,
preferences or restrictions among the class of ordinary shares.
19. Reserves
Share-based payment reserve
Capital profits reserve
Hedging reserve
Foreign currency translation reserve
Transactions with non-controlling interests reserve
Total reserves
CONSOLIDATED
2022
$m
4.9
34.0
0.4
0.2
(12.6)
26.9
2021
$m
6.8
34.0
(2.3)
-
(12.6)
25.9
The share-based payment reserve is used to recognise the fair value of shares and performance rights issued to employees by the Company.
The capital profits reserve is as a result of historical capital transactions.
The hedging reserve is used to record gains or losses on hedging instruments (cash flow hedges) that are recognised directly in equity,
as described in note 3.
The foreign currency translation reserve is used to convert the results of the parent company ‘s foreign subsidiaries to its reporting currency.
The transactions with non-controlling interests reserve records the difference arising as a result of the acquisition of the non-controlling
interest in Tatura Milk Industries Pty Ltd.
80
81
Bega Cheese Limited2022 Annual Report
Notes to the Financial Statements
20. Notes to the Consolidated Statement of Cash Flows
Risk
CONSOLIDATED
21. Critical accounting estimates and judgements
A. RECONCILIATION OF CASH AND CASH EQUIVALENTS
Cash and cash equivalents
Balance per statement of cash flow
B. RECONCILIATION OF PROFIT FOR THE PERIOD
TO NET CASH FLOWS FROM OPERATING ACTIVITIES
Profit after income tax
Adjustments for non-cash, investing and financing items:
Depreciation of non-current assets
Amortisation of intangible assets
(Profit)/loss on sale of property, plant and equipment
Write-off of intangible assets
Gain from early lease termination
Impairment of tangible assets
Fair value adjustment to derivatives
Movement in share based-payments reserve
Income from Reckitt termination fees received/(not yet received)
Share of profit of equity accounted investments
Gain on bargain purchase
Gain on equity interest
Changes in operating assets and liabilities:
(Increase)/decrease in assets:
Trade and other debtors and GST recoverable
Inventories
Prepayments
Current and deferred tax assets
Increase/(decrease) in liabilities:
Trade and other payables
Provision for income taxes payable excluding taxation on investments
Changes in provisions
2022
$m
44.9
44.9
2021
$m
87.2
87.2
24.2
78.0
92.6
11.1
(1.7)
-
(1.3)
-
1.9
(1.9)
15.9
(1.9)
-
-
65.0
27.4
1.8
(7.1)
(52.2)
5.0
(20.6)
61.8
11.0
0.1
0.4
-
2.2
0.2
6.4
(15.9)
(1.2)
(69.5)
(2.3)
8.6
(13.8)
8.1
2.6
19.0
17.8
(2.1)
Net cash flow from operating activities
158.2
111.4
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of
future events that may have a financial impact on the Group and that are believed to be reasonable under the circumstances.
In particular, information about significant areas of estimation, uncertainty and critical judgement in applying accounting policies that
have the most significant effect on the amount recognised in the financial statements are described in note 7 - income tax, note 8 -
trade and other receivables, note 11 - inventories, note 13 - intangible assets and note 26 - business combination.
22. Financial risk management
The Group’s activities expose it to a variety of financial risks: market risks (including currency risk, interest rate risk and commodity
price risk), credit risk and liquidity risk. The Group’s overall risk management approach focusses on the unpredictability of financial
markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative financial
instruments such as foreign exchange contracts to hedge certain risk exposures. Derivatives are exclusively used for hedging purposes,
not for trading or other speculative purposes. The Group uses different methods to measure different types of risk to which it is
exposed. These methods include sensitivity analysis in case of interest rate, foreign exchange and aging analysis for credit risk.
Financial management is carried out by the treasury function within the finance department under policies approved by the Board of
Directors and overseen by the Audit & Risk Committee. Treasury identifies, evaluates and hedges financial risks in close co-operation
with the Group’s operating units, by applying principles provided by the Board that has overall responsibility for risk management. The
Board also approves policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk and commodity price
risk, use of financial instruments, and investment of excess liquidity.
A. Market risk
The Group’s activities expose it primarily to market risks in relation to foreign currency interest rate movements and commodity prices.
The Group enters into a variety of derivative financial instruments to manage exposures which include forward foreign currency contracts
to hedge exchange rate risks from the sale of exported goods and purchase of imported goods.
Foreign exchange risk
Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that is
not the entity’s functional currency. The Group exports dairy products and is exposed to foreign exchange risk, primarily movements in
exchange rates of US dollar and Japanese Yen. The Group also makes purchases including capital equipment, ingredients and packaging
that exposes it to movements in exchange rates of US dollar, NZD and Euro. The risk is measured using sensitivity analysis and cash flow
forecasting. Forward contracts and options are currently used to manage these risks.
The Group’s risk management policy is to match known and highly probable future cash flows in foreign currencies, for cash flow and fair
value hedge accounting purposes, with forward exchange contracts in the same currency and with closely corresponding settlement
dates. 30- 80% of its estimated foreign currency exposures in respect of forecast sales over the subsequent 12 months are hedged. All
material foreign currency purchases are hedged on execution of contracts.
Commodity price risk
Commodity price risk in the Group primarily arises from price fluctuations and the availability of raw materials and other manufacturing
inputs (e.g. crude oil, sugar). The Group may enter into derivative transactions to limit these risks. Hedging activities are evaluated
regularly to align with Group expectations about the price changes and defined risk appetite; ensuring the most cost-effective hedging
strategies are applied.
It is the policy of the Group that it may enter into commodity forward contracts hedges to manage the commodity price risk associated
with anticipated purchase transactions out to 12 months. In the current year, the Group has designated certain commodity forward
contracts as a cash flow hedge of highly probable purchases.
82
83
Bega Cheese Limited2022 Annual Report
Notes to the Financial Statements
22. Financial risk management (cont.)
The Group’s exposure to foreign exchange risk at the end of the reporting period is expressed as follows:
22. Financial risk management (cont.)
Cash flow and fair value interest rate risk
Contract
amount
$m
Contract
amount in
foreign
currency
$m
Weighted
average
forward
rate
$m
Market
value
assets
$m
Market
value
liabilities
$m
52.2
7.2
2.4
37.0
4.6
212.2
0.7087
0.6421
87.2100
31.7
22.9
0.7232
-
-
0.2
1.6
(1.5)
(0.2)
-
-
Contract
amount
$m
Unit - Ltr
$m
USD per Ltr
$m
Market
value
assets
$m
Market
value
liabilities
$m
-
4.6
0.7
0.9
-
Contract
amount
$m
Contract
amount in
foreign
currency
$m
Weighted
average
forward
rate
$m
Market
value
assets
$m
Market
value
liabilities
$m
75.2
2.2
57.9
179.4
0.7695
83.3564
-
-
(2.0)
(0.1)
82.7
64.8
0.7831
1.1
-
Consolidated
At 30 June 2022
Cash flow hedges
US Dollar
Euro
Japanese Yen
Held for trading
US Dollar
Consolidated
Commodity hedges
US Dollar
Consolidated
At 30 June 2021
Cash flow hedges
US Dollar
Japanese Yen
Options
US Dollar
Group sensitivity
The Group sensitivity for cash flow exposures is based on the financial instruments held on 30 June 2022, had the Australian dollar
strengthened or weakened by 10% against the US dollar with all other variables held constant. The analysis is performed on the same
basis for 2021 and has no material impact on profit after tax due to the Group aiming to fully hedge its foreign currency exposures and
the accounting treatment of the instruments held. The sensitivity on the Group’s hedging instruments is detailed in the following table:
Equity
AUD$ strengthens 10% - increase
AUD$ weakens 10% - (decrease)
CONSOLIDATED
2022
$m
2.1
(4.8)
2021
$m
6.4
(7.3)
The Group’s main interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow
interest rate risk. Historically, the Group has used interest rate swaps as appropriate to manage interest rate risk. Due to a sustained
low market interest rates, there were no interest rate swaps in place at 30 June 2021 or 2022 but the use of interest rate swaps is
regularly monitored and reviewed as to their effectiveness by the Group. All borrowings were denominated in Australian dollars during
2021 and 2022.
As at the reporting date, the Group had the following interest bearing borrowings and assets outstanding:
Fixed rate instruments
Assets
Vat and supplier loans
Liabilities
Lease liabilities
Variable rate instruments
Assets
Cash and cash equivalents
Liabilities
Bank overdrafts and loans
CONSOLIDATED
2022
$m
2021
$m
-
0.1
(114.3)
(104.6)
44.9
87.2
(308.5)
(391.9)
Net exposure to interest rate risk on variable rate instruments
(263.6)
(304.7)
An analysis by maturities is provided in note 22e.
Interest rate sensitivity
At 30 June 2022, if interest rates had changed by -/+ 100 basis points from the year end rates with all other variables held constant, the
Group’s post-tax profit for the year would have been $2.8 million higher/(lower) (2021: $1.7 million higher/(lower)).
B. Credit risk
Credit risk is managed on an entity basis. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits
with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables
and committed transactions. For banks and financial institutions, only independently rated parties with a minimum rating of “AA” are
accepted. For customers, the finance function assesses the credit quality of the customer, taking into account its financial position, past
experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Board.
The compliance with credit limits by customers is regularly monitored by management.
The maximum exposure to credit risk at the reporting date is the carrying amount of the financial assets as summarised in note 8 and
note 22f. For some trade receivables, the Group may also obtain security in the form of guarantees, deeds of undertaking or letters of
credit that can be called upon if the counterparty is in default under the terms of the agreement. In addition, the Group obtains credit
insurance over export debtors and some Australian customers.
84
85
Bega Cheese Limited2022 Annual Report
Notes to the Financial Statements
22. Financial risk management (cont.)
The maximum exposure to credit risk is as follows:
22. Financial risk management (cont.)
C. Liquidity risk
Cash and cash equivalents
Trade receivables
Accrued revenue
Other receivables
Fair value derivatives
Total credit risk exposure
CONSOLIDATED
2022
$m
44.9
234.8
5.2
30.5
2.7
318.1
2021
$m
87.2
294.4
5.8
37.4
1.1
425.9
There is considered to be limited credit risk in the balances of other receivables due to their nature as entities with which close
commercial relationships are maintained, related parties or government agencies. The Group manages amounts payable by direct milk
suppliers to the Group for supplier advances, loans or other prepayments for milk so as to mitigate any material exposure to default.
The ageing analysis of trade receivables is set out in the table below. The credit quality of financial assets that are neither past due nor
impaired is assessed based on the application of the credit risk policies described above. The expected impairment loss calculation
for trade receivables considers the impact of past events, and exercises judgment over the impact of current and future economic
conditions when considering the recoverability of outstanding trade receivable balances at the reporting date. Subsequent changes in
economic and market conditions may result in the provision for impairment losses increasing or decreasing in future periods.
Consolidated
Year ending 30 June 2022
Expected loss rate
Gross carrying amount - trade receivables
Loss Allowance
Year ending 30 June 2021
Expected loss rate
Gross carrying amount - trade receivables
Loss Allowance
Current
$m
More than 30
days past due
$m
More than 60
days past due
$m
More than 90
days past due
$m
-
221.6
-
0.2%
275.9
0.4
9.8%
5.2
0.5
3.8%
11.2
0.4
14.8%
5.0
0.7
11.1%
3.8
0.4
55.9%
9.5
5.3
63.3%
12.9
8.2
Opening loss allowance
Acquisitions through business combinations
(Decrease)/increase in loss allowance recognised in profit or loss during the year
Receivables written off during the year as uncollectible
Closing loss allowance
CONSOLIDATED
2022
$m
9.4
-
(2.3)
(0.6)
6.5
Total
$m
241.3
6.5
303.8
9.4
2021
$m
0.6
8.8
0.1
(0.1)
9.4
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the availability of funding through
committed credit facilities to meet obligations when due and to close out market positions. Due to the dynamic nature of the underlying
businesses, the Group maintains flexibility in funding by maintaining availability under committed credit lines. The Group manages
liquidity risk by continuously monitoring forecast and actual cash flows and matching maturity profiles of financial assets and liabilities.
D. Financing arrangements
The Group had access to the following borrowing facilities at the end of the reporting period:
Undrawn facilities expiring within one year
Undrawn facilities expiring beyond one year
Drawn facilities
Total facilities
Total facilities are represented by:
Syndicated Facility - Revolving Cash Advance Facility maturing 17 February 2025
Syndicated Facility - Revolving Cash Advance Facility maturing 17 February 2027
Syndicated Facility - Revolving Cash Advance Facility maturing 10 November 2023
Syndicated Facility - Revolving Cash Advance Facility maturing 10 November 2023
Syndicated Facility - Revolving Cash Advance Facility maturing 30 September 2022
Syndicated Facility - Term Facility maturing 30 September 2022
Inventory Facility
Total facilities
CONSOLIDATED
2022
$m
100.0
140.0
310.0
550.0
270.0
180.0
-
-
-
-
100.0
550.0
2021
$m
100.0
87.0
393.0
580.0
-
-
140.0
140.0
100.0
100.0
100.0
580.0
In December 2021, the Group cancelled its $480m Syndicated Debt Facility consisting of three revolving cash advance facilities totalling
$380 million (with maturity dates between 30 September 2022 and 10 November 2023) and a term facility totalling $100 million (with
a maturity date of 30 September 2022).
This was replaced with a new Syndicated Debt Facility consisting of two facilities: Facility 1 which has a limit of $270 million maturing in
February 2025 and Facility 2 which has a limit of $180 million maturing in February 2027.
In addition to the Syndicated Debt Facility, the Group continues to operate a stand-alone Inventory Facility (matures on 30 March 2023)
which is not subject to cross-charges or cross-guarantees, except as disclosed in note 24.
The Syndicated Debt Facility and Inventory Facility are secured by equitable mortgages and floating charges on the assets of Bega
Cheese Limited and its subsidiaries subject to the Deed of Cross Guarantee as disclosed in note 25.
Under the Syndicated Facilities, the Group is required to comply with the following covenants:
i.
the leverage ratio is not greater than 3.50 times;
ii.
the interest cover ratio must be equal or greater than 2.50 times; and
iii. shareholder funds must be equal or greater than $750 million.
The Group has complied with these and previous covenants throughout the reporting period.
86
87
Bega Cheese Limited2022 Annual Report
Notes to the Financial Statements
22. Financial risk management (cont.)
E. Maturities of financial liabilities
The following table analyses the Group’s financial liabilities. The amounts disclosed in the table are contractual undiscounted cash flows:
22. Financial risk management (cont.)
The following table presents the Group’s assets and liabilities measured and recognised at fair value at the end of the reporting periods:
Consolidated
At 30 June 2022
Non-derivatives
Lease liabilities
Secured bank loans
Trade and other payables
Derivatives
Inflows
Outflows
0-12
months
$m
(24.9)
(13.3)
(449.2)
95.0
(94.9)
1-2 years
$m
2-5 years
$m
>5 years
$m
Total
contractual
cash flows
$m
Carrying
amount
$m
(23.5)
(14.8)
-
-
-
(50.8)
(323.6)
-
-
-
(31.0)
-
-
-
-
(130.2)
(351.7)
(449.2)
(114.3)
(308.5)
(449.2)
95.0
(94.9)
-
(1.7)
Total financial liabilities
(487.3)
(38.3)
(374.4)
(31.0)
(931.0)
(873.7)
At 30 June 2021
Non-derivatives
Lease liabilities
Secured bank loans
Trade and other payables
Derivatives
Inflows
Outflows
(26.2)
(7.3)
(477.4)
75.4
(77.4)
(22.6)
(145.4)
(44.0)
(254.8)
-
-
-
-
-
-
(37.9)
-
-
-
-
(130.7)
(407.5)
(477.4)
(104.6)
(391.9)
(477.4)
75.4
(77.4)
-
(2.1)
Total financial liabilities
(512.9)
(168.0)
(298.8)
(37.9)
(1,017.6)
(976.0)
F. Fair value estimation
The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.
The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and financial assets at
fair value securities) is based on quoted market prices at the reporting date. The quoted market price used for financial assets held by
the Group is the current bid price.
The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance date. The
fair value of forward exchange contracts is determined using forward exchange market rates at the reporting date. The carrying value
less impairment provision of trade receivables and payables are assumed to approximate their fair values due to their short-term nature.
The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current
market interest rate that is available to the Group for similar financial instruments. The Directors consider that the carrying amounts of
financial assets and financial liabilities recorded at amortised cost in the financial statements approximates to their fair values. All fair
value instruments are measured using quoted prices from active markets where available.
The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.
AASB 7 Financial Instruments: Disclosures requires disclosure of fair value measurements by level under the following fair value
measurement hierarchy:
i.
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
ii.
Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices)
or indirectly (derived from prices);
iii. Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Consolidated
At 30 June 2022
Assets
Foreign currency forwards - fair value hedges
Foreign currency forwards - held for trading
Commodity hedges
Total assets
Liabilities
Foreign currency forwards - cash flow hedges
Total liabilities
At 30 June 2021
Assets
Foreign currency options
Total assets
Liabilities
Foreign currency forwards - cash flow hedges
Total liabilities
23. Capital risk management
Level 2
$m
Total
$m
0.2
1.6
0.9
2.7
(1.7)
(1.7)
1.1
1.1
(2.1)
(2.1)
0.2
1.6
0.9
2.7
(1.7)
(1.7)
1.1
1.1
(2.1)
(2.1)
The Group’s objectives when managing capital are to safeguard the ability to continue as a going concern and generate adequate
returns to shareholders. Consistent with others in the industry, the Group monitors its capital on the basis of net debt, total equity and
gearing ratio.
Borrowings
Add back: borrowing costs
Unrecognised bank guarantees (1)
Cash and cash equivalents
Net debt
Total equity
Net debt to equity ratio
CONSOLIDATED
2022
$m
308.5
1.5
-
(44.9)
265.1
2021
$m
391.9
1.1
19.1
(87.2)
324.9
1,262.4
1,266.5
21%
26%
(1) For FY2022, bank guarantees are excluded from the definition of net debt under the terms of the revised Syndicated Debt Facility.
88
89
Bega Cheese Limited2022 Annual Report
Notes to the Financial Statements
Group structure
24. Parent entity financial information
a. Summary financial information
The individual financial statements for the parent entity show the following aggregate amounts:
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
Shareholder’s equity
Issued capital of parent entity
Reserves
Share-based payment reserve
Capital profits reserve
Hedging reserve
Retained earnings
Total equity
Profit/(loss) after tax for the year
Total comprehensive income/(loss)
BEGA CHEESE
2022
$m
444.8
1,927.6
(551.9)
(909.5)
2021
$m
481.1
1,978.7
(583.7)
(1,025.7)
1,018.1
953.0
25. Subsidiaries, joint arrangements and associates
Consolidated
180 Nutrition Pty Ltd
BDD Australia Pty Ltd*
BDD Foods Pty Ltd*
BDD Milk Pty Ltd*
Bega Cheese Benefit Fund Ltd
Bega Cheese Investments Pty Ltd
Bega Dairy and Drinks Pty Ltd*
Bega Dairy and Drinks Finance Pty Ltd*
Bega Dairy and Drinks (NZ) Ltd
Bega Dairy and Drinks Services Pty Ltd*
Bega Insurance Pte Ltd
Berri Pty Ltd*
Berri Asia Sdn Bhd
881.6
879.0
Blowflex Mouldings Pty Ltd*
2.2
32.6
0.6
101.1
1,018.1
91.9
91.9
1.7
32.6
(1.3)
41.0
953.0
(20.2)
(20.9)
Capitol Chilled Foods (Australia) Pty Ltd*
Dairy and Drinks Singapore Pte Ltd
Dairy Farmers Pty Ltd*
Dairy Vale Foods Pty Ltd*
Malanda Dairyfoods Pty Ltd*
National Foods Holdings Ltd*
National Foods Beverage Holdings Pty Ltd*
Peanut Company of Australia Pty Ltd*
QUD Pty Ltd*
Shanghai Great Lion Food & Beverages Management Co Ltd
Tatura Milk Industries Pty Ltd*
Tatura Cheese Industries Pty Ltd
Vitasoy Australia Products Pty Ltd
CBH Fresh Ltd
Country of
incorporation
Nature of
relationship
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
Australia
Singapore
Australia
Malaysia
Australia
Australia
Singapore
Australia
Australia
Australia
Australia
Australia
Australia
Australia
China
Australia
Australia
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
2022 % of
ownership
interest
100
2021 % of
ownership
interest
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
49
20
Australia
Associate
Australia
Joint venture
49
13.7
Current assets and liabilities of Bega Cheese include intercompany loans.
b. Guarantees entered into by parent entity
The parent entity has entered into a deed of cross guarantee in relation to the debts of its subsidiaries as described in note 25.
c. Contingent liabilities of the parent entity
The parent entity did not have any contingent liabilities as at 30 June 2022 or 30 June 2021 except as disclosed in note 28.
* A party to Deed of Cross Guarantee dated 21 February 2021.
d. Contractual commitments for the acquisition of property, plant or equipment
Interest in associate
As at 30 June 2022, the parent entity had contractual commitments for the acquisition of property, plant or equipment totalling
$3.9 million (2021: $5.6 million). These commitments are not recognised as liabilities as the relevant assets have not yet been received.
The principal activity of the associate is the manufacture, marketing and sales and distribution of plant-based beverages. The Group
financial statements include the following results of the associate:
Share of profit of equity accounted investments
Investments accounted for using the equity method
Accounting policies applied for associates are described in note 34b.
VITASOY
2022
$m
1.9
47.6
2021
$m
0.8
46.6
90
91
Bega Cheese Limited2022 Annual Report
Notes to the Financial Statements
26. Business combination
26. Business combination (cont.)
In the prior year, the Group acquired 100% of the shares in Lion Dairy and Drinks legal entities, renamed Bega Dairy and Drinks. Details of
this business combination were disclosed in the Group’s 2021 Annual Report.
The amounts which have been altered and the effect on the consolidated statement of comprehensive income have been summarised
below:
At 30 June 2021, the fair value of some assets and liabilities had been recognised on a provisional basis. In the current reporting period,
the fair value of assets acquired and liabilities assumed have been finalised. The amounts which have been altered and the effect on the
consolidated balance sheet have been summarised below:
Cash and cash equivalents
Trade and other receivables
Inventories
Intangible assets
Property, plant and equipment
Right-of-use assets
Investments accounted for using the equity method
Deferred tax assets
Trade and other payables
Lease liabilities
Provisions
Deferred tax liabilities
Fair value of identifiable net assets acquired
Provisional
fair value
$m
Final
adjustments
$m
13.7
-
229.5
73.8
41.8
487.0
101.3
45.8
19.5
(0.2)
-
-
3.1
-
-
-
(208.2)
-
-
(1.1)
-
(99.2)
(89.5)
(15.5)
600.0
Final fair
value
$m
13.7
229.3
73.8
41.8
490.1
101.3
45.8
19.5
(208.2)
(99.2)
(90.6)
(15.5)
1.8
601.8
Consolidated statement of comprehensive income
and segment information (extracts)
Revenue
Cost of sales
Gross profit
EBITDA
EBIT
Profit before income tax
Income tax expense
Profit for the period attributable to owners of Bega Cheese Limited
30 June 2021
(Previously
stated)
$m
Adjustment
30 June 2021
(Restated)
$m
2,073.4
-
(1,608.2)
-
465.2
182.7
107.7
97.4
(25.2)
72.2
-
1.8
1.8
1.8
4.0
5.8
$m
2,073.4
(1,608.2)
465.2
184.5
109.5
99.2
(21.2)
78.0
Earnings per share
Basic earnings per share
Diluted earnings per share
30 June 2021
(Previously
stated)
Cents
27.3
27.2
Adjustment
30 June 2021
(Restated)
Cents
2.2
2.2
Cents
29.5
29.4
Total purchase consideration
(532.3)
-
(532.3)
27. Closed group disclosure
Gain on bargain purchase
67.7
1.8
69.5
The adjustments relating to the change in the provisional gain on bargain purchase are also reflected by increasing the opening balance
of retained earnings as at 1 July 2021.
Total acquisition-related costs incurred during the year ended 30 June 2022 are $46.5 million before tax (2021: $63.8 million before
tax). These acquisition costs are not included in the purchase consideration disclosed above. These costs are included in the Group’s
consolidated statement of comprehensive income for the year ended 30 June 2022 and are disclosed as a significant item (see note 2).
Entities that are party to a Deed of Cross Guarantee under which each company guarantees the debts of the other are included in note
25. These companies represent a “closed group” for the purposes of the Instrument 2016/785, issued by the Australian Securities and
Investments Commission. By entering into the deed these entities have been relieved from the requirement to prepare a financial report
and Directors’ report under the Instrument.
The statement of Comprehensive Income and the Balance Sheet for this closed group are shown below:
Profit before income tax
Income tax expense
Profit for the year
CLOSED GROUP
2022
$m
33.5
(9.6)
23.9
2021
$m
32.8
(5.7)
27.1
92
93
Bega Cheese Limited2022 Annual Report
Notes to the Financial Statements
27. Closed group disclosure (cont.)
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Derivative financial instruments
Inventories
Current tax assets
Assets held for sale
Other assets
Total current assets
Non-current assets
Property, plant and equipment
Right-of-use assets
Deferred tax assets
Other assets
Intangible assets
Investments accounted for using the equity method
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Other liabilities
Derivative financial instruments
Lease liabilities
Current tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Lease liabilities
Other liabilities
Provisions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Share capital
Reserves
Retained earnings
Total equity
94
CLOSED GROUP
2022
$m
40.1
272.8
2.8
317.5
3.0
60.5
26.7
723.4
844.0
109.9
38.9
-
588.1
47.6
2021
$m
82.5
347.9
1.1
344.9
13.3
-
37.9
827.6
911.6
103.4
22.7
0.1
589.5
46.6
1,628.5
1,673.9
2,351.9
2,501.5
448.0
16.5
1.7
21.0
10.3
107.1
604.6
308.5
93.3
-
16.9
71.7
490.4
477.1
42.8
2.1
25.5
18.4
119.7
685.6
391.9
79.1
0.5
24.5
58.5
554.5
1,095.0
1,240.1
1,256.9
1,261.4
870.1
25.9
360.9
867.7
24.9
368.8
1,256.9
1,261.4
Unrecognised items
28. Contingent liabilities
The Group enters into product supply agreements with ongoing requirements to reconcile to specific contractual terms (see note 14).
Contingent liabilities may arise where completion of the reconciliation process subsequent to a reporting date results in a payable
greater than the amount accrued. Based on all available information and professional advice, management considers there are
no significant contingent liabilities at 30 June 2022. The group has $15.5 million of bank guarantees as at 30 June 2022 (2021: $19.1 million).
29. Commitments
Capital expenditure contracted for at the reporting date
but not recognised as liabilities is as follows:
Plant and equipment - payable within one year
30. Subsequent events
CONSOLIDATED
2022
$m
2021
$m
24.4
9.1
The financial impact of the transactions set out below which occurred after 30 June 2022 has not been recognised in these financial
statements.
A. Dividend
On 26 August 2022, the Directors declared a final fully franked dividend of 5.5 cents per share, which represents a distribution of
$16.7 million.
The Group’s Dividend Reinvestment Plan (DRP) will be activated for the FY2022 final fully franked dividend. The DRP is optional and offers
ordinary shareholders in Australia and New Zealand the opportunity to acquire fully paid ordinary shares without transaction costs.
Shares allocated under the DRP will be derived from new issued ordinary shares. The shares issued rank pari passu with other ordinary
shares already on issue. The allocation price will be determined in accordance with the DRP rules as the arithmetic average of the daily
volume weighted average market price of all Bega Cheese Limited shares sold through a normal trade on the ASX trading system over
the five business days commencing on the day of the record date.
A shareholder can elect to participate in or terminate their involvement in the DRP at any time. Election notices for participation in the
DRP in relation to the FY2022 final fully franked dividend to be paid on 23 September 2022 must be recorded by the registry by 5:00 pm
on 1 September 2022 to be effective for that dividend.
Further details
31. Related party transactions
A.
Terms and conditions of related party transactions
Transactions between the Group and related parties are conducted on normal commercial terms and conditions.
B.
Related party transactions with group entities
Details of transactions between the Group and other related parties are disclosed below.
After completion of the Bega Dairy and Drinks acquisition in 2021, the Group owns 100% of the shares of Capitol Chilled Foods (Australia)
Pty Ltd (CCFA). All transactions between Bega Cheese and CCFA during the year are fully eliminated on consolidation.
Sales made to CCFA
Rent paid by CCFA to Bega Cheese
CONSOLIDATED
2022
$m
-
-
2021
$m
4.0
0.1
95
Bega Cheese Limited2022 Annual Report
Notes to the Financial Statements
31. Related party transactions (cont.)
33. Share-based payments
The Group had the following transactions with Vitasoy Australia Products Pty Ltd (Vitasoy) during the year:
Expenses arising from Bega Cheese Limited Long-Term Incentive and Short-Term Incentive Plans
Sales made to Vitasoy by BDD
Management fees paid by Vitasoy to BDD
Other charges paid by Vitasoy to BDD
Dividend declared by Vitasoy to BDD
Further details of the joint venture and associate are included in note 25.
C. Key management personnel remuneration and transactions
Short-term employee benefits
Post-employment benefits
Other long-term employee benefits
Share-based payments
Total employee benefits
CONSOLIDATED
2022
$m
11.7
5.7
9.8
1.0
2021
$m
5.0
2.3
3.5
1.0
CONSOLIDATED
2022
$
2021
$
3,520,733
3,640,776
153,454
132,399
44,940
153,479
410,723
241,322
3,851,526
4,446,300
During the year, some KMP and their related entities engaged in related party transactions with the Group relating to the supply of milk,
sale of peanuts and property rental. These transactions were on the same normal commercial terms as other suppliers and customers
and are summarised in the table below.
The Long-term Incentive Plans (LTIs) are designed to provide long-term incentives to the CEO and executive team to deliver shareholder
returns. Under the 2020-2022 LTI Plan (2022 Plan), 2021-2023 LTI Plan (2023 Plan), and the 2022-2024 LTI Plan (2024 Plan), each
member of the executive team is granted share rights which only vest if certain performance standards are met.
The total number of performance rights outstanding at 30 June 2022 was 749,125 (2021: 646,341).
Certain executives and staff have been awarded Short-term Incentive (STI) payments that will be partly made in the form of Bega
Cheese Limited Shares.
Details of the movements in LTI performance rights are disclosed in the Remuneration Report.
Entitlements due under employee share schemes
Expense in relation to LTIs and STIs
Total employee share scheme expense
The following tables detail the total performance rights issued by the Group:
LTI Plan
2024 Plan
2023 Plan
2022 Plan
Performance rights on issue at end of period
Vesting date
30 June 2024
30 June 2023
30 June 2022
Valuation
price
$5.38
$4.17
$4.45
Payments made by the Group during the year
Sales made by the Group during the year
Rental income received by the Group during the year
Amounts payable at year end
Amounts receivable at year end
Further details of key management personnel remuneration are disclosed in the Remuneration Report.
32. Remuneration of auditors
CONSOLIDATED
2022
$
2021
$
6,304,708
5,621,827
358,641
53,649
504,206
43,451
406,131
11,305
255,894
50,708
CONSOLIDATED
2022
$
2021
$
For the year ended 30 June 2022
Outstanding at the beginning of the period
Granted during the period
Lapsed during the period
Outstanding at end of period
For the year ended 30 June 2021
Outstanding at the beginning of the period
Granted during the period
Lapsed during the period
Outstanding at end of period
Audit services
PwC Australia - Audit and review of financial statements
1,736,000
1,551,000
Non-audit services
PwC Australia - Assurance services
PwC Australia - Other services
75,000
557,000
929,000
854,000
From time to time the Group may engage PwC Australia on assignments additional to the statutory audit duties where their experiences
with the Group is important, provided such assignments do not give rise to a potential conflict of interest. During the current year PwC
provided non-audit services relating to GST compliance, tax compliance and share schemes.
96
CONSOLIDATED
2022
$m
0.2
0.2
2021
$m
6.4
6.4
CONSOLIDATED
2022
2021
No. of rights
359,892
No. of rights
-
389,233
-
749,125
389,233
257,108
646,341
Long term incentives
Performance rights
No.
$
646,341
423,403
(320,619)
749,125
383,984
389,233
(126,876)
646,341
n/a
$5.50
$4.45
n/a
n/a
$4.17
$6.98
n/a
97
Bega Cheese Limited2022 Annual Report
Notes to the Financial Statements
34. Summary of significant accounting policies
The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated. The financial statements are for the consolidated entity
consisting of Bega Cheese and the entities it controlled at year end or from time to time during the financial year. Bega Cheese is
domiciled in New South Wales and is incorporated in Australia.
The financial statements were authorised for issue by the Directors on 26 August 2022. The Directors have the power to amend and
re-issue the financial statements.
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 (AASB), and the Corporations Act 2001. Bega Cheese is a for-profit entity for the
purpose of preparing the financial statements and is a company limited by shares.
Compliance with IFRS
The consolidated financial statements of Bega Cheese also comply with International Financial Reporting Standards (IFRS) as issued by
the International Accounting Standards Board (IASB).
34. Summary of significant accounting policies (cont.)
C. Segment reporting
Operating segments are reported in a manner consistent with internal reporting provided to the Chief Operating Decision Makers. The
Chief Operating Decision Makers, who are responsible for allocating resources and assessing performance of the reporting segments,
are the Executive Chairman, the Chief Executive Officer and the Chief Financial Officer.
D. Foreign currency translation
Functional and presentation currency
The consolidated financial statements are presented in Australian dollars, which is Bega Cheese and its subsidiaries’ functional and
presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end
exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss, except when they
are deferred in equity as qualifying cash flow hedges.
Early adoption of standards
E. Revenue recognition
The Group has elected not to apply any pronouncements before their operative date in the annual reporting period beginning 1 July 2021.
Adoption of new standards
There are no other standards that are not yet effective and that would be expected to have a material impact on the Group in the current
or future reporting periods and on foreseeable future transactions.
Historical cost convention
These financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets
and liabilities (including derivative instruments).
Critical accounting estimates
The preparation of financial statements in conformity with Australian Accounting Standards 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. Areas
where assumptions and estimates are significant to the financial statements are disclosed in note 21. Certain items in the prior period
have been reclassified to be consistent with their presentation in the current period.
B. Principles of consolidation
Subsidiaries
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Bega Cheese (Company or parent
entity) as at 30 June 2022 and the results of all subsidiaries for the year then ended. Bega Cheese and the entities it controlled together
are referred to in this financial report as the ‘Group’ and the ‘consolidated entity’.
Subsidiaries are all 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.
The acquisition method of accounting is used to account for business combinations by the Group. 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 asset transferred. Accounting policies of subsidiaries have been changed where
necessary to ensure consistency with the policies adopted by the Group.
Joint ventures and associates
Interests in joint ventures and associates are accounted for using the equity method, after initially being recognised at cost in the
consolidated balance sheet. The interest in joint ventures and associates are accounted for using the equity method after initially being
recognised at cost in the consolidated balance sheet. Under the equity method of accounting, joint ventures and associates are initially
recognised at cost and adjusted thereafter to recognise the Group’s share of post-acquisition profits or losses of the joint venture or
associate in profit or loss, and the Group’s share of movements in other comprehensive income of the joint venture or associate in
other comprehensive income. Distributions received or receivable from joint venture and associate are recognised as a reduction in the
carrying amount of the investment.
Details relating to the joint venture and associates are set out in note 25.
Revenue is recognised to the extent that the Group satisfies a performance obligation where control of the goods or services passes to
the customer, and the transaction price can be readily identified. Revenue is measured at the agreed price being the amount to which
the entity expects to be entitled in exchange for goods and services. Amounts disclosed as revenue are net of returns, trade allowances,
rebates and amounts collected on behalf of third parties.
Judgement is used in assessing revenue from customers under product supply contracts that require a periodic reconciliation to
specific terms of those contracts. From time to time there may be differences of opinion between the Group and the customer as to
the amount receivable under the contracts. Such differences are usually resolved amicably between the parties having regard to the
relevant contract.
Advertising of Bega-owned retail brands in conjunction with certain customers where the Group has some control over the way the
money is invested, and a similar service could be provided by another party, the cost of this activity has been recognised separately as
an advertising expense, consistent with prior periods.
The Group does not have any contracts where the period between the transfer of the promised product or services to the customer
and payment by the customer exceeds one year. Consequently, the Group does not adjust any of the transaction prices for the time
value of money.
Revenue is recognised for the major business activities as follows:
Sale of goods and disposal of assets
Revenue from the sale of goods and disposal of other assets is recognised at a point in time when the Group has passed control of
promised goods or assets to the customer. Transfer of control to the customer occurs when the product has been shipped to the
location specified by the customer and the customer accepts the product. The delivery terms include cost and freight (CFR) and cost,
insurance and freight (CIF). These terms mean the Group is responsible for providing shipping services up until the date at which control
of the goods passes to the customer. The Group assesses these sales at December and June reporting period and adjusts for those
where control has not transferred to the customer.
Rebates and sale incentives to customers that have variable consideration are only included in revenue when it is highly probable that
the inclusion will not result in significant adjustments in the future.
The Group procures some ingredients from customers which are used to produce finished goods sold to the same customers. Payments
for these ingredients are offset against the revenue earned from those customers where the payments are not deemed to be for distinct
goods or services as defined in the standard. The Group has not recognised the ingredients purchased from customers as inventory,
instead recognising the items in other assets.
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34. Summary of significant accounting policies (cont.)
Services
Revenue from services relating to certain production agreements with customers is recognised over time in the reporting period in
which the performance obligation is met.
Royalties and rental revenue
Revenue is recognised over time on an accruals basis in accordance with the substance of the relevant agreement. Royalties and licence fees
for use of its brand names with customers is recognised when the performance obligation is satisfied (for the use of intellectual property).
Interest income
Interest income is recognised on a time proportion basis using the effective interest method.
Dividends
Dividends are recognised as revenue when the right to receive payment is established.
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 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 deducted from the cost of the asset 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 revenue for the period is the tax payable on the current period’s taxable income based on the applicable
income tax rate 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.
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, the deferred income tax is not recognised 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 reporting date 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 for deductible temporary differences and unused tax losses only if it is probable that future taxable
amounts will be available to utilise those temporary differences and losses.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities. 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.
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.
34. Summary of significant accounting policies (cont.)
H. 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 fair values of the assets
transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair
value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary.
Acquisition-related costs are expensed as incurred. 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. On an acquisition-by-
acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s
proportionate share of the acquiree’s net identifiable assets.
The excess of the consideration transferred and the amount of any non-controlling interest in the acquiree over the fair value of
the net identifiable assets acquired is recorded as goodwill. If the fair value of the net identifiable assets acquired exceeds the
consideration transferred this amount is recognised immediately as a gain on bargain purchase in the Consolidated Statement of
Comprehensive Income.
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.
I.
Impairment of assets
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows
that are largely independent of the cash flows from other assets or groups of assets or cash generating units (CGUs).
The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a post-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset. Fair value measurement is covered by AASB 13 and defines fair value of an asset
as the price that would be received to sell the asset in an orderly transaction between market participants at the measurement date.
The Group uses a discounted cash flow model to assess the value in use for impairment testing purposes of its CGUs.
The Group uses discounted cash flow modelling to assess the value in use for impairment testing. The estimated future cash flows are
based on reasonable underlying financial and operational assumptions at the time including having regard to each of:
•
recent actual historical performance
• business plans, budgets and other forecasts reflecting the short to medium-term outlook
•
strategic plans defining the longer-term outlook and strategy approved for the business and related identifiable intangible assets.
The future cash flows are discounted to their present value using a discount rate reflecting the appropriate weighted average cost of
capital based on capital market conditions, risk free rates, underlying growth rates and the risks specific to the asset at the time of the
assessment. Key cash flow and discount rate assumptions are based on management judgement and also refer to external data and
input from independent experts as required.
Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each
reporting period.
J. Cash and cash equivalents
For the purpose of presentation in the Consolidated Statement of Cash Flows, cash and cash equivalents includes cash on hand and
deposits held at call with financial institutions. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet.
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Notes to the Financial Statements
34. Summary of significant accounting policies (cont.)
K. Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method,
less provision for impairment. Trade receivables are generally due for settlement within 30 to 60 days.
Collectability of trade receivables is reviewed on an on-going basis. Debts that are known to be uncollectible are written off by reducing
the carrying amount directly.
A loss allowance provision (allowance for impairment of trade receivables) is recognised for the lifetime expected credit losses from
trade receivables. The loss allowance considers the impact of past events including historical loss rates, and exercises judgment over
the impact of current and future economic conditions when considering the recoverability of outstanding trade receivable balances
at the reporting date. Subsequent changes in economic and market conditions may result in the loss allowance provision increasing or
decreasing in future periods.
Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default
or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the impairment allowance
is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original
effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial.
The amount of the impairment loss is recognised in profit or loss within administration expense. When a trade receivable for which
an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance
account. Subsequent recoveries of amounts previously written off are credited against administration expense in profit or loss.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:
•
•
The rights to receive cash flows from the asset have expired
The Group 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 transferred substantially all
the risk and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risk and rewards of the
asset, but has transferred control of the asset.
When the Group transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates
if and to what extent it has retained the risks and rewards of ownership.
When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset,
the asset is recognised to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognises an
associated liability.
The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.
L.
Inventories
Inventories are stated at the lower of cost and net realisable value. Costs are assigned to individual items of inventory on hand by the
method most appropriate to each particular class of inventory, with the majority being valued on a first in first out basis. Milk is valued
at average annual cost, including committed price increases in respect of the reporting period.
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 or other appropriate cost allocation apportionments.
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.
M. Other assets
Other assets
The Group procures some ingredients from customers which are used to produce finished goods sold to the same customers. Payments
for these ingredients are offset against the revenue earned from those customers where the payments are not deemed to be for distinct
goods or services as defined in the standard.
The Group has not recognised the ingredients purchased from customers as inventory, instead recognising the items in other assets.
Prepayments
The Group recognises upfront payments to suppliers for exclusive supply as a prepayment on the balance sheet. The prepayments are
amortised on a straight-line basis over the period of exclusive supply. The Group mitigates the credit risk of direct milk suppliers through
management of payables to the suppliers.
34. Summary of significant accounting policies (cont.)
N.
Investments and other financial assets
Loans and receivables
The Group classifies its investments in the following categories: loans and receivables and financial assets at fair value through
other comprehensive income financial assets. The classification depends on the purpose for which the investments were acquired.
Management determines the classification of its investments at initial recognition.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
They are included in current assets, except for those with maturities greater than 12 months after the reporting date that are classified
as non-current assets. Loans and receivables are included in trade and other receivables (note 8) in the balance sheet.
Loans and receivables are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition of the
financial asset. They are subsequently carried at amortised cost using the effective interest method. They are derecognised when the
rights to receive cash flows from them have expired or have been transferred and the Group has transferred substantially all the risks
and rewards of ownership.
The Group assesses on a forward-looking basis the expected credit losses associated with its debt instruments carried at amortised
cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade
receivables, the group applies the simplified approach permitted by AASB 9, which requires expected lifetime losses to be recognised
from initial recognition of the receivables, see note 22 for further details.
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 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, 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.
Financial assets at fair value through other comprehensive income (FVOCI)
Certain shares held by the Group are classified as being financial assets at fair value through other comprehensive income (FVOCI) and
are stated at fair value. Fair value is determined in the manner described in note 22. Gains and losses arising from changes in fair value
are recognised through other comprehensive income with the exception of impairment losses that are recognised directly in profit or
loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in reserves
is included in profit or loss for the period.
O. Derivatives and hedging activities
The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange
rate risk, including forward foreign exchange contracts and options. The Group does not enter into derivative financial instruments for
speculative purposes.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to
their fair value at the end of each reporting period. The accounting for subsequent changes in fair value assumes that the derivative is
designated as a hedging instrument and depends on the nature of the item being hedged.
At the inception of the hedge relationship the Group documents the relationship between the hedging instrument and the hedged item,
along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception
of the hedge and on an on-going basis, the Group documents whether the hedging instrument that is used in a hedging relationship is
highly effective in offsetting changes in fair values or cash flows of the hedged item.
The fair values of various derivative financial instruments used for hedging purposes are disclosed in note 22. Movements in the hedging
reserve in shareholders’ equity are shown in the Consolidated Statement of Changes in Equity. The full fair value of a hedging derivative
is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months and otherwise
as a current asset or liability.
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Notes to the Financial Statements
34. Summary of significant accounting policies (cont.)
Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other
comprehensive income and accumulated in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit
or loss within other income or administration expenses.
Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss (for instance,
when the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of forward foreign exchange contracts
hedging export sales is recognised in profit or loss within “revenue”. However, when the forecast transaction that is hedged results in
the recognition of a non- financial asset (for example, inventory or fixed assets) the gains and losses previously deferred in equity are
transferred from equity and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognised
in profit or loss as cost of goods sold in the case of inventory, or as depreciation in the case of fixed assets.
When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any
cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately
recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in
equity is immediately reclassified to profit or loss.
Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss, together with
any changes in the fair value of the hedged items that are attributable to the hedged risk. The gain or loss relating to the ineffective
portion is recognised in profit or loss within other income or administration expenses.
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the
effective interest method is used is amortised to profit or loss over the period to maturity using a recalculated effective interest rate.
P. Property, plant and equipment
Property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items. Cost may also include any gains/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 replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the
reporting period in which they are incurred.
34. Summary of significant accounting policies (cont.)
Q. Leases
The Group leases various Buildings (Offices and Warehouses), Motor Vehicles and Equipment (Forklifts and Other Equipment). The
building rental agreements are generally for fixed periods between 2 and 20 years with options to extend for further 1 to 10 years. Other
lease contracts are typically made for fixed periods of between 2 and 10 years. Leases identified as Short term (12 months or less) and
low value will continue to be recognised in the profit or loss as a lease expense. Lease terms are negotiated on an individual bases and
contain a wide range of different terms and conditions.
Contracts may contain both lease and non-lease components. The group allocates the consideration in the contract to the lease and
non lease components when possible, however for real estate for which the group is lessee, it has elected not to separate and includes
all non lease components as a single lease component.
Lease liabilities are recognised by the Group at the commencement date of the lease and are measured at the present value of lease
payments to be made over the lease term. Lease payments include fixed payments and variable lease payments that depend on an index
or rate. Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.
The incremental borrowing rate is used unless the implicit interest rate in the lease is readily determined. The lessee’s incremental
borrowing rate is the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value
to the right of use asset in a similar economic environment with similar terms, security, and conditions. Determining the incremental
borrowing rate requires significant judgement. The discount rate is derived from key external market-based rates, the Group’s credit
margin, location of the asset and the length of the lease.
Right-of-use lease assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any
remeasurement of lease liabilities. The cost of right-of-use lease assets includes the amount of lease liabilities recognised, initial direct
costs incurred, and lease payments made at or before the commencement date less any lease incentive received. Right-of-use lease
assets are depreciated on a straight line basis in the profit or loss over the lease term.
R.
Intangible assets
Goodwill
Goodwill represents the excess of the cost of acquisition over the fair value of the Group’s share of the net identifiable assets of the
acquired subsidiary at the date of acquisition. Goodwill on acquisition of subsidiaries is included in intangible assets.
Goodwill is not amortised but 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 related to that entity.
Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued
amounts, net of their residual values, over their estimated useful lives, as follows:
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.
• buildings, 10 to 50 years
• plant and equipment, 2 to 30 years.
Brands and other identifiable intangible assets
Brands and other identifiable intangible assets purchased by the Group are initially recognised at cost, or at their fair value if acquired
as part of a business combination.
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 assets carrying amount is greater than its
estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in profit or loss.
These identifiable intangible assets are subsequently measured:
•
•
if they have a finite life, at cost less amortisation, and
if they have an indefinite life, at cost less accumulated impairment losses.
Finite life brands or other identifiable intangible assets are amortised on a straight-line basis over the shorter of their contractual or
useful economic life, being three to 25 years. They are also tested for impairment when an indicator of impairment may exist.
Indefinite life identifiable intangible assets are not amortised but are instead tested for impairment annually, or more frequently if there
is an indicator of impairment. Brands or other identifiable intangible assets are determined to have an indefinite life where there is an
intention to maintain and support the brand or other intangible asset for an indefinite period.
Such assets are tested for impairment in accordance with the policy stated in note 34i.
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Notes to the Financial Statements
34. Summary of significant accounting policies (cont.)
SaaS arrangements are service contracts providing the Group with the right to access the cloud provider’s application over the contract
period. As such the Group does not receive a software intangible asset at the contract commencement date. For SaaS arrangements,
the Group assesses if the contract will provide a resource that it can control to determine whether an intangible asset is present. If the
Group cannot determine control of the software, the arrangement is deemed a service contract and any implementation costs including
costs to configure or customise the cloud provider’s application software are recognised as operating expenses when incurred.
Costs incurred to obtain access to the cloud provider’s application software are generally recognised as operating expenses when the
services are received.
Costs incurred for the development of software code that enhances, modifies or creates additional capability to existing for on-premise
are capitalised if it meets the recognition criteria for an intangible asset.
Certain internal and external costs directly incurred in acquiring and developing software are capitalised if it they meet the recognition
criteria of an Intangible asset and are amortised on a straight-line basis over their estimated useful lives, being 3 to 10 years.
Capitalised costs are tested for impairment when an indicator of impairment exists.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value
at the acquisition date (which is regarded as their cost).
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated
amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
S. Trade and other payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid.
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.
T. Borrowings
Establishment fees are capitalised against borrowings and amortised over the period of the facility to which it relates. Should it be
probable that the facility will not be fully utilised, the related establishment fees are written off to profit and loss as soon as the
underutilisation has been identified.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least
12 months after the reporting date.
Borrowing costs are expensed as incurred unless they relate to significant qualifying assets.
34. Summary of significant accounting policies (cont.)
Restoration provisions
Provisions for the costs to restore (make good) leased plant assets to their original condition, as required by the terms and conditions
of the lease, are recognised when the obligation is incurred, either at the commencement date or as a consequence of having used the
underlying asset during a particular period of the lease, at the directors’ best estimate of the expenditure that would be required to
restore the assets. Estimates are regularly reviewed and adjusted as appropriate for new circumstances.
Restructurings
A restructuring provision is recognised when the Group has developed a detailed formal plan for the restructuring and has raised a
valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or announcing its main
features to those affected by it. The measurement of a restructuring provision includes only the direct expenditures arising from the
restructuring, which are those amounts that are both necessarily entailed by the restructuring and not associated with the ongoing
activities of the entity.
V. Employee benefits
Short-term obligations
Liabilities for wages and salaries, including non-monetary benefits and vesting sick leave that are expected to be settled 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 liability
for accumulating sick leave and annual leave is recognised in the provision for employee benefits. All other short-term employee benefit
obligations are presented as payables.
Other long-term employee benefit obligations
The liability for long service leave and annual leave which is not expected to be settled within 12 months after the end of the period
in which the employees render the related service is recognised in the provision for employee benefits and 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.
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 on high quality corporate bonds with
terms to maturity that match, as closely as possible, the estimated future cash outflows.
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 date, regardless of when the actual settlement is expected to occur.
Retirement benefit obligations
All employees of the Group are entitled to benefits from the Group’s superannuation plan on retirement, disability or death. All employees
receive fixed contributions from the Group and the Group’s legal or constructive obligation is limited to these contributions.
U. Provisions
Share-based payments
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that
the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting
date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows
estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value
of money is material).
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a
receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can
be measured reliably.
Onerous contracts
Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered
to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the
economic benefits expected to be received under it.
The fair value of rights granted under the Bega Cheese Limited Long-Term Incentive Plan is recognised as an employee benefit expense
with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the rights granted
at the beginning of the scheme, which includes any market performance conditions and the impact of any non-vesting conditions.
Non-market vesting conditions are included in assumptions about the number of performance rights that are expected to vest. The total
expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At
the end of each period, the entity revises its estimates of the number of performance rights that are expected to vest based on the non-
marketing vesting conditions. It recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding
adjustment to equity.
Profit-sharing and bonus plans
The Group recognises a liability and an expense for bonuses and profit sharing based on a formula that takes into consideration the
profit attributable to the Company’s shareholders after certain adjustments. The Group recognises a liability where contractually obliged
or where there is a past practice that has created a constructive obligation.
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Bega Cheese Limited2022 Annual Report
Notes to the Financial Statements
Director’s Declaration
34. Summary of significant accounting policies (cont.)
W. Contributed equity
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a
deduction, net of tax, from the proceeds.
X. 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.
Y. Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to owners of the Company by the weighted average number of
ordinary shares outstanding during the financial year.
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
the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive
potential ordinary shares.
Z. Research and development costs
Expenditure on research activities is recognised as an expense in the period in which it is incurred. Where no internally-generated
intangible asset can be recognised, development expenditure is recognised as an expense in the period as incurred.
AA. 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 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.
AB. Rounding of amounts
The Company is of a kind referred to in 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 hundred thousand dollars, or in certain cases, the nearest dollar.
AC. Parent entity financial information
The financial information for the parent entity, Bega Cheese, disclosed in note 24 has been prepared on the same basis as the
consolidated financial statements, except as set out below:
Investments in subsidiaries and joint venture entities
Investments in subsidiaries and joint venture entities are accounted for at cost in the financial statements of Bega Cheese.
Dividend income
Dividends receivable from subsidiaries and joint venture entities are included in Bega Cheese’s income statement.
i.
ii.
108
In the Directors’ opinion
a.
i.
ii.
b.
c.
the financial statements and notes set out on pages 36 to 108
are in accordance with the Corporations Act 2001, including
complying with Accounting Standards, the Corporations
Regulations 2001 and other mandatory professional reporting
requirements; and
giving a true and fair view of the consolidated entity’s financial
position as at 30 June 2022 and of its performance for the
financial year ended on that date; and
there are reasonable grounds to believe that the Group will
be able to pay its debts as and when they become due and
payable, and
at the date of this declaration, there are reasonable grounds
to believe that the members of the extended closed Group
identified in note 27 will be able to meet any obligations or
liabilities to which they are, or may become, subject by virtue
of the deed of cross guarantee described in note 27.
Note 34a confirms that the financial statements also comply
with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
The Directors have been given the declarations by the Chief
Executive Officer and Chief Financial Officer required by section
295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the
Directors.
Barry Irvin
Executive Chairman
Bega
Raelene Murphy
Independent Director
Melbourne
26 August 2022
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Bega Cheese Limited2022 Annual Report
Independent Auditor’s Report
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111
Bega Cheese Limited2022 Annual Report
Independent Auditor’s Report
112
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Bega Cheese Limited2022 Annual Report
Independent Auditor’s Report
114
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Bega Cheese Limited2022 Annual Report
Shareholder Information
Corporate Directory
The shareholder information set out below was applicable as at 30 June 2022:
Distribution of Equity Securities
HOLDING
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
NUMBER
9,222
7,026
2,064
1,454
172
19,938
There were 1,859 holders of less than a marketable parcel of ordinary shares.
Equity Security Holders
The names of the twenty largest holders of quoted equity securities are listed below:
INVESTOR NAME
NUMBER OF
SHARES
% OF TOTAL
SHARES ON ISSUE
1
2
3
4
5
6
7
8
9
Forrest Family
Perpetual Limited
FIL Investment Management Australia Limited
Dimensional Fund Advisors Limited
Spheria Asset Management Pty Limited
The Vanguard Group, Inc.
Argo Investments Limited
State Street Global Advisors Australia Limited
Ethical Partners Funds Management Pty Limited
10
BlackRock Investments, LLC
11 Macquarie Asset Management Holding Pty Limited
12
13
Ellerston capital Limited
Vanguard Investments Australia Limited
14 Messrs Roy A & Anthony P Medich
15
16
17
Investors Mutual Limited
Norges Bank Investment Management
BlackRock Investments, LLC
18 Mr Richard C Parbery
19 Wilson Asset Management (International) Pty Limited
20 Mr and Mrs Ken Kimber
Total
30,328,343
16,171,263
14,360,815
11,488,913
9,872,031
9,788,650
8,374,378
8,131,085
7,969,184
6,176,036
5,229,340
4,862,909
4,507,339
4,102,495
4,021,910
3,469,736
2,741,957
2,670,000
2,454,691
2,142,923
10.0
5.3
4.7
3.8
3.3
3.2
2.8
2.7
2.6
2.0
1.7
1.6
1.5
1.4
1.3
1.2
0.9
0.9
0.8
0.7
158,863,998
52.4
*Shareholdings related to KMP including Directors are detailed in the Remuneration Report.
Voting rights
On a show of hands every member present at a meeting in person or by
proxy shall have one vote and upon a poll each share shall have one vote.
Advisors
Auditor
PricewaterhouseCoopers
One International Towers Sydney Watermans Quay
Barangaroo NSW 2000
Solicitors
Addisons
Level 12, 60 Carrington Street
Sydney NSW 2000
Bankers
Rabobank Australia Limited Level 16, Darling Park Tower 3
201 Sussex Street
Sydney NSW 2000
Westpac Banking Corporation 360 Collins Street
Melbourne VIC 3000
Stock Exchange Listing
Bega Cheese Limited shares are listed on the
Australian Securities Exchange (ASX) – Code BGA
Directors & Company Secretaries
Directors
Barry Irvin
Executive Chairman
Rick Cross
Director
Harper Kilpatrick
Director
Patria Mann
Independent Director
Peter Margin
Independent Director
Raelene Murphy
Independent Director
Terry O’Brien
Independent Director
Company Secretary
Brett Kelly
Executive Team
Paul van Heerwaarden
Chief Executive Officer
Hamish Reid
Executive General Manager Nutritionals & Ingredients
Peter Findlay
Chief Financial Officer and Chief Operating Officer
Antonietta Timms
Executive General Manager Beverage Operations
Colin Griffin
Executive General Manager Contract Manufacturing
Darryn Wallace
Executive General Manager Bega Beverages Sales & Marketing
David McKinnon
Executive General Manager Human Resources
Rob Grima
Executive General Manager Operational Excellence
Adam McNamara
Executive General Manager Bega Foods
Jacqueline Scarlett
Group General Counsel
Stephen Rae
Executive General Manager Strategy & Planning
Entity Information
Bega Cheese Limited
Trading as “Bega Cheese” ABN 81 008 358 503
The Annual Report includes the results of Bega Cheese Limited (Bega Cheese, Company or parent entity) and the results of the
subsidiaries, joint venture and associate. Bega Cheese and its subsidiaries together are referred to in this financial report as the
Bega Cheese Group (Group or consolidated entity).
Principal Registered Office
23 Ridge Street
Bega NSW 2550
T: 02 6491 7777
E: admin@bega.com.au
W: www.begacheese.com.au
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Bega Cheese Limited2022 Annual Report
Manufacturing Footprint
Manufacturing Facilities
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Bega Cheese Limited
2022 Annual Report
119
White Milk and Milk Based BeveragesMilk Based Beverages HubCheese813222111Dairy Powder and FatsPeanutsJuiceYoghurtSpreadsPlant-based – Joint VentureMalandaTolgaKingaroyCrestmeadPenrithWetherill ParkSmithfieldLeetonACTBega Lagoon and Ridge StreetsLenah ValleyWodongaMorwellChelseaPort MelbourneStrathmertonKoroitSalisburyTaturaBentleyWhite Milk and Milk Based BeveragesMilk Based Beverages HubCheese813222111Dairy Powder and FatsPeanutsJuiceYoghurtSpreadsPlant-based – Joint VentureMalandaTolgaKingaroyCrestmeadPenrithWetherill ParkSmithfieldLeetonACTBega Lagoon and Ridge StreetsLenah ValleyWodongaMorwellChelseaPort MelbourneStrathmertonKoroitSalisburyTaturaBentley
bega.com.au