1
Corporate Directory
Bellamy’s Australia Limited
ABN 37 124 272 108
ASX Code BAL
Directors
John Ho (Chair)
John Murphy (Deputy Chair)
Rodd Peters
Wai-Chan Chan
Principal registered office & Principal administration office
Bellamy’s Australia Limited
115 Cimitiere Street
Launceston TAS 7250
Telephone:
Facsimile:
Internet:
(03) 6332 9200
(03) 6331 1583
http://investors.bellamysorganic.com.au
Company secretary
Melinda Harrison
Location of share registry
LINK Market Services
Level 1, 333 Collins Street
Melbourne VIC 3000
External auditor
PricewaterhouseCoopers
2 Riverside Quay
Southbank VIC 3006
2
Contents
Corporate Directory ................................................................................................................................. 2
Chairman's letter ..................................................................................................................................... 4
Message from the CEO ........................................................................................................................... 5
Operating and Financial Review ............................................................................................................. 6
Board of Directors ................................................................................................................................... 9
Directors’ Report ................................................................................................................................... 12
Corporate Governance Statement ........................................................................................................ 22
Remuneration Report ............................................................................................................................ 30
Auditor’s Independence Declaration ..................................................................................................... 52
Consolidated Financial Statements ...................................................................................................... 53
Consolidated Statement of Profit or Loss and Other Comprehensive Income ..................................... 54
Consolidated Balance Sheet ................................................................................................................. 55
Consolidated Statement of Changes in Equity ..................................................................................... 56
Consolidated Statement of Cash Flows ................................................................................................ 57
Notes to the Financial Statements ........................................................................................................ 58
Directors Declaration ............................................................................................................................. 93
Shareholder Information ...................................................................................................................... 101
3
Message from the Chairman
Chairman's letter
25 August 2017
Dear Fellow Shareholder,
On behalf of the Board, I present to you the 2017 Annual Report for the fiscal year ended June 2017.
I was appointed to the Board in April 2017 as Bellamy’s faced significant challenges. Together with
recently appointed fellow Board members, our first priority was to recruit, retain and stabilise the
management team and continue the Board renewal process. As part of this, the Board established a
new turnaround long-term equity incentive plan, designed to align the interests of the Board,
management and shareholders for the long-term enterprise value creation of Bellamy’s.
Working closely with management, significant progress has been made in recent months to stabilise
the business and build a strong foundation for future growth. In particular, we have:
•
•
completed an Entitlement Offer, reducing the external debt and financial risk;
renegotiated key supplier arrangements, increasing our operational flexibility;
• acquired Camperdown Powder, increasing control over strategic assets;
• begun to re-invest in the Bellamy’s brand, focussing on the opportunity in China.
In the current turnaround phase, the Board is closely engaging with the CEO and the management
team to assess the changing business landscape and commercial initiatives. We are focussed on
building in Bellamy’s a culture of transparent communication, thoughtful strategic decision-making and
balanced risk-taking, while always operating with a long-term mindset.
The opportunity for Bellamy’s continues to be immense, and we are excited to re-orient the company
to return to long-term, profitable and sustainable growth. On behalf of the Board and management team
of Bellamy's, thank you for your ongoing support.
Yours sincerely
John Ho
Chairman
4
Message from the CEO
Message from the CEO
25 August 2017
Dear Shareholders,
The last year has been challenging on many fronts for the Bellamy’s business. However, together with
a new Board and Management team we have set a clear direction and turnaround plan.
This plan has resulted in a number of significant one-off restructuring costs in the FY17 year and
impacted results. We believe this investment was critical to resetting the business and rebuilding a
foundation for future growth.
From an operating perspective, we are beginning to see momentum. Our sales and normalised EBIT
results exceeded the expectations set for the second half and a number of leading indicators are worth
highlighting:
•
sales gained momentum through 2H17, price realisation increased, and there has been a slow
recovery in market pricing across retailers and platforms;
• our operating cost base has been reset with a 23% reduction in overheads versus 1H17 and
•
•
we are now in a position to reinvest;
the supply-chain restructure is yielding reductions in future input costs. The amended Fonterra
manufacturing agreement is an important cornerstone for the future and our procurement of
ingredients has improved;
inventory has declined since March 2017 and we have greater visibility of trade inventory and
are approaching acceptable levels;
• operating cash-flow has been positive since March 2017 (after adjusting for the one off Fonterra
payment) and we are currently in a net cash position and are debt free.
Strategically, the Camperdown acquisition and recent reinstatement of our CNCA licence provides a
pathway to CFDA registration in China. This registration relates specifically to our ‘Chinese labelled’
product and the offline channel in China representing 15.4% of FY17 sales. In addition to its licence,
we believe the Camperdown business can become an important future contributor given its existing
customer base and future Bellamy’s volumes.
Looking forward, the potential for our brand and size of the opportunity remains clear. It is critical the
Management team continues to both solidify and de-risk the business and our sales channels to achieve
sustained growth. To this end, FY18 will be a year of continued investment in our brand, marketing,
product, supply-chain and internal capability.
We thank you for your ongoing support.
Yours sincerely
Andrew Cohen
CEO
5
Company Overview
Operating and Financial Review
Financial Performance
The Group achieved Revenue of $240.2 million (2016#: $234.1 million) and a loss after tax of $0.8 million
(2016 profit: $38.3 million). The normalised profit after tax was $28.2 million.
The major impact on profitability in the period was the recognition of significant items totalling $41.4 million
before tax as outlined in Note 6. Excluding the impact of these items, normalised earnings results would
have been as follows:
$ millions
2H17
FY17
Revenue
EBIT
Profit / (Loss) before
income tax expense
Profit / (Loss) after
income tax expense
Statutory
Profit
Significant
items (1)
Normalised
result (2)
Statutory
Profit
Significant
items (1)
Normalised
result (2)
121.9
(9.5)
(10.7)
-
121.9
240.2
32.8
32.8
23.3
22.1
0.6
(0.7)
(8.1)
23.0
14.9
(0.8)
-
41.4
41.4
29.0
240.2
42.0
40.7
28.2
(1) Refer Significant Items below and in Note 6 for details of individually significant items.
(2) Bellamy’s has followed the guidance for underlying profit as issued by the ASIC regulator Guide RG230 ‘Disclosing non-IFRS
information’. The profit and loss summary with a prior period comparison in the table above, has been sourced from the accounts but
has not been subject to separate review or audit. The Directors believe that the presentation of the unaudited non-IFRS profit and
loss summary in the table above is useful for users as FY17 includes significant items that are not expected to be repeated in future
years. The table reflects the normalised earnings of the business.
# restated, refer Note 5.
Revenue and Profitability
Bellamy’s grew revenue for six consecutive halves before declining 11.7% in 1H17. However, year-on-year
revenue grew 2.6%.
Sales of ‘Chinese label’ product grew to $36.9 million compared with $13.0 million in 2016. It is important
to note that these sales will be impacted by Chinese regulation as of 1 January 2018. Given this it is forecast
that $18.3 million will be sold in 1H18 and $nil in 2H18 pending CFDA registration.
For our ‘Australian label’ product the market has now returned to normal trading after a build-up of inventory
by China/Hong Kong resellers in 2H16 and 1H17 led to an oversupply, causing discounting and channel
instability. Production rates could not be immediately reduced for lower demand. The combined result was
to increase inventory holdings and reduce cash.
Remedial actions have been undertaken in early 2H17, the result has been to stabilise sales and margin,
and reduced trade inventory levels of ‘Australian label’ product.
The gross profit margin for the year of 38.1% was down 5.1 percentage points on the 2016# full year result
of 43.2% (2H17: 36.7%). The decrease in gross margin was due to increased ingredient and production
costs, including a $2.0 million provision for shortfall payments. However, this was partially offset by higher
price realisation later in the 2H17 period.
6
Company Overview
AUD $millions
Revenue
$150.0
$100.0
$50.0
$-
1H14 2H15 1H15 2H15 1H16* 2H16* 1H17 2H17
Revenue (*restated)
Expenses
Expenses after normalisation adjustments increased by $2.3 million from the prior year. The increase
resulted from a combination of factors which need to be viewed in the context of the business growth and
turnaround.
AUD $millions
$30.0
Overhead
$25.0
$20.0
$15.0
$10.0
$5.0
1H14
2H15
1H15
2H15 1H16* 2H16* 1H17# 2H17#
Overhead excl Marketing (*restated, #normalised) Marketing
The chart above shows overhead costs after normalisation adjustments and restatements. Marketing
spend was reduced in 2H17 while the marketing strategy was reassessed. It is expected to return to a more
appropriate level in FY18. The line on the chart above shows the cost savings, excluding marketing over
18 months.
Marketing and promotion costs equate to 4.5% of revenue for the year (2016: 3.0%). The marketing spend
in 1H17 did not prove effective and was reduced in 2H17. Marketing will be directed to more effective
channels as well as joint marketing with customers in future periods.
Employee costs increased along with headcount. The headcount level grew to support a larger business
in 1H17 but was reduced to a sustainable level in 2H17. Changes also include investment in capability and
ensuring skills are available to support the turnaround strategy.
2H17 overhead costs are $6.8 million less than 1H17 on a normalised basis. Excluding marketing, this is
a reduction of $1.8 million compared with 1H17. It is estimated that cost reductions deployed in January
2017, contributed an additional $7 million in cost avoidance when compared to the run rate at the end of
1H17. The costs saved/avoided provide the financial capacity to invest in product, capability and marketing
in future periods.
Costs totalling $41.4 million (2016: $nil) are considered ‘one-off’ in nature. They include $6.8 million in
inventory provisions and write-offs, $27.5 million payment to Fonterra as part of the broader supply chain
reset and $6.7 million in other costs including costs associated with the acquisition of Camperdown Powder,
indirect capital raising costs, legal and other professional fees, and restructuring costs.
7
Company Overview
Balance Sheet
Net debt at 30 June 2017 was $7.8 million. The balance includes the institutional component of the capital
raise of $12.7 million less the $27.5 million payment to Fonterra. Excluding these transactions, the Group
would have reported a positive cash position of $7.0 million (30 June 2016: $32.2 million).
The reduction in cash can be attributed to a $7.1 million dividend in 1H17 and a $31.1 million increase in
inventory over the year.
Inventory at 30 June 2017 is $93.5 million, of which $83.0 million (89%) is finished goods. This currently
represents approximately 5-6 months of sales coverage. Whilst finished goods inventory increased $47.9
million from 30 June 2016, and $0.9 million from 31 December 2016, it is important to recognise that
finished goods inventory has declined since peaking in March 2017.
On 7 July 2017, the Group received the balance of the capital raise of $44.6 million. From this date, the
Group has been debt free. A $40.0 million banking facility remains in place.
Cash Flow
Net cash outflows from operating activities was $45.7 million. There were no shortfall payments made in
FY17, however the $27.5 million supply chain restructure payment was made to Fonterra. The remaining
$18.2 million reduction in the cash can be largely attributed to an increase in inventory. The Group has
been cash flow positive since March 2017 (excluding supply chain reset costs). Bellamy’s will focus on
positive cash flow generation through balancing production and revenue along with revenue and cost
management.
Significant items
Note 6 to the Financial Statements provides information on significant items included in the profit for the
year. The table below provides unaudited non-IFRS information on the FY17 significant items that are not
expected to be repeated in future years. These values are used to determine the normalised earnings of
the business.
1H17
$000
6,838
718
-
300
727
2H17
$000
FY17
Comment
$000
-
6,838
Inventory provisions and write-offs
2,262
2,980 Professional fees
1,083
1,149
837
1,083
Indirect costs associated with the capital raise and costs relating to the
acquisition of Camperdown Powder
1,449 Restructuring
1,564
Ineffective foreign exchange hedges
-
27,500
27,500 Payment to Fonterra as part of the supply chain reset
8,583
32,831
41,414 Total significant items (before tax) considered one-off
8
Board of Directors
Board of Directors
John Ho
Non- Executive Chair
(appointed 13 April 2017)
John Murphy
Independent Non-
Executive Director
Deputy Chairman
Chair of Audit & Risk
(appointed 18 May 2017)
Rodd Peters
Non-Executive Director
(appointed 28 February
2017)
Wai-Chan Chan
Independent Non-
Executive Director
(appointed 28 February
2017)
John founded Janchor Partners and serves as its Chief Investment
Officer. Janchor Partners is a long-term industrialist investor in companies
with superior long-term value creation potential in the Asia Pacific region.
He also serves as Deputy Chairman of the Hong Kong Exchange Listing
Committee, the regulatory body that provides independent oversight of
listing rules and companies in Hong Kong. John has extensive business
and investment experience in consumer, technology and health related
sectors, especially in Australia and China. He is an Australian citizen and
holds a Bachelor of Science in Mathematics and Bachelor of Commerce
in Finance (First Class Honours and University Medal) from the University
of New South Wales.
John has over 35 years’ experience in Australia and internationally in the
beverage, food and packaging industry. He has held numerous senior
leadership roles at large multinational companies, including Managing
Director of Coca-Cola Amatil Australia, CEO of Visy Packaging and
Recycling
for Australasia and Managing Director of Fosters
Australia/Carlton & United Breweries.
John currently sits on the advisory board of a number of private
companies including PFD Food Services and Bladnoch Distillery, and also
advises a range of companies internationally. He previously served as
Chairman of the Lantern Hotel Group.
Rodd has more than 30 years' experience as a commercial transactions
lawyer and litigation lawyer. For the first 7 years of his career he was a
barrister and he then established his own law firm in partnership in 1993.
He is admitted as a solicitor of the Supreme Court of New South Wales
and the High Court of Australia. He has acted for several of Australia's
wealthiest individuals and families and also for many small to medium
sized entrepreneurial companies here and abroad. He is currently a
consulting lawyer to Kemp Strang Lawyers in Sydney. Rodd holds a
Bachelor of Laws from University of Tasmania and also a Master of Laws
(Hons) from Trinity Hall, University of Cambridge.
After being voted onto Bellamy's board at the EGM in February 2017,
Rodd accepted the role of interim Chairman overseeing the initial
transition of Bellamy's turnaround plan and Board renewal and thereafter
he has remained as a non-executive Director of Bellamy's.
Wai-Chan was appointed as a Non-Executive Director in February
2017. He brings 25 years of consulting and operating experience in the
consumer products and retailing sectors, with a focus on Asia, in particular
China. He advises clients in the grocery, health and beauty, apparel and
food and beverages industries on issues related to strategy, operations,
organisation, and digital. He currently works for Oliver Wyman where he
is a partner and the Global Leader of the Consumer Goods Practice. He
was also previously at the retailer, Dairy Farm where he was the Regional
North Asia Director, responsible for some 2,500 stores across multiple
formats. He was also a partner at McKinsey & Company in Greater
China. Wai-Chan holds a Ph.D. from the University of Cambridge, an
MBA from the Harvard Graduate School of Business Administration, and
a B.Sc. from Imperial College, London.
9
Board of Directors
Former Directors
Rob Woolley
Non-Executive Chair
(Independent)
(resigned 28 February 2017)
Laura McBain
Managing Director and
CEO
(resigned January 2017)
Michael Wadley
Rob was appointed as Chair on the formation of the Group in 2007 and
resigned 28 February 2017.
Rob holds a Bachelor of Economics and is a Fellow of the Institute of
Chartered Accountants.
Laura was appointed as General Manager of Bellamy’s in 2006, Chief
Executive Officer (“CEO”) in 2011 and Managing Director and CEO in
2014 and resigned in January 2017.
Laura holds a Bachelor of Commerce and in 2013 completed the IMD
Leadership Challenge.
Michael was appointed a Non-Executive Director in 2014 and has been
based in Shanghai over 15 years.
Independent
Non-Executive Director
(removed 28 February 2017)
Michael holds a Bachelor of Laws from Queensland University of
Technology, and is admitted to practice in the Supreme Court of
Queensland, the High and Federal Courts of Australia, and is registered
as a foreign lawyer in China and Hong Kong.
Launa Inman
Independent Non-
Executive Director
(resigned 28 February 2017)
Launa was appointed as a Non-Executive Director of the Group in
February 2015 and resigned 28 February 2017.
Launa’s qualifications include: MCom, University of South Africa (UNISA),
BCom (Hons) (UNISA), BCom (Economics & Accounting) (UNISA).
Charles Sitch
Charles was appointed a Non-Executive Director on 10 March 2016 and
was removed on 28 February 2017.
Independent Non-
Executive Director
(removed 28 February 2017)
Charles has a Bachelor of Law/Commerce from the University of
Melbourne, an M.B.A. from Columbia Business School, and is a Graduate
of the Australian Institute of Company Directors.
Patria Mann
Independent Non-
Executive Director
(resigned 18 May 2017)
Patria was appointed a Non-Executive Director on 10 March 2016 and
resigned 18 May 2017.
Patria was formerly a Partner at KPMG and holds a Bachelor of
Economics (University of Sydney), is a Chartered Accountant and a
Fellow of the Australian Institute of Company Directors.
10
Executive Team
Andrew Cohen
Chief Executive Officer
Nigel Underwood
Chief Financial Officer
Melinda Harrison
General Counsel &
Company Secretary
Peter Fridell
Director of Operations
David Jedynak
Director of Sales &
Marketing
Andrew was appointed as Chief Executive Officer in April 2017 having been
appointed as acting Chief Executive in January 2017 and had previously
held the position of Chief Operating Officer and Chief Strategy Officer of
the Group from July 2016. Mr Cohen brings extensive experience in
grocery, retail and FMCG, including successful and extensive China go-to-
market experience in vitamins, infant formula and dairy. Prior to joining
Bellamy’s, Mr Cohen worked as a Partner with Bain & Company where he
held a leadership role in Consumer Products and Retail practice. With over
15 years’ retail and FMCG experience in management and consulting roles,
Mr Cohen has worked with multiple high-profile companies to capitalise on
the greatest opportunities in the sector and delivering strategies to
accelerate growth across multiple platforms. Mr Cohen holds a Bachelor of
Commerce and Arts, University of Melbourne and has completed an
M.B.A., Cambridge University (Dux).
Nigel was appointed as Chief Financial Officer in April 2017, having been
appointed acting Chief Financial Officer of the Group in January 2017. Prior
to joining Bellamy’s Mr Underwood had experience in senior finance roles
in a number of leading companies and was most recently Chief Financial
Officer of transport operator, Keolis Downer. Mr Underwood holds a Master
of Business Administration, is a Fellow of the Chartered Accountants
Australia and New Zealand and is a graduate member of the Australian
Institute of Company Directors.
Melinda was appointed as General Counsel and Company Secretary in
May 2017. Melinda has over 20 years’ experience in law, risk and
governance in listed and privately held companies both in Australia and
internationally. Most recently, Ms Harrison was General Counsel at Carter
Holt Harvey, one of Australia's largest wood manufacturing business where
she lead the legal function in Australia as well as being chair of the risk
committee. Prior to that Ms Harrison held senior legal and governance roles
in a US listed group of companies based in Hong Kong, conducting
significant work in China and throughout Asia. Ms Harrison started her
career in private practice in Corporate Advisory including at King Wood
Mallesons. She holds an M.B.A. (honours) from the University of Hull (U.K.),
an L.L.B (honours) from Melbourne University, a B.A. (honours) from
Melbourne University and recently graduated from the Australian Institute
of Company Directors course with an order of merit. She has also
completed a certificate of Governance Practice from the Governance
Institute of Australia.
Peter joined Bellamy’s in February 2017. He has fifteen years of strategy,
operational improvement and financial management experience. Prior to
joining Bellamy’s, he gained extensive fast-moving consumer goods
experience as Strategy Director and Supply Finance General Manager at
Carlton & United Breweries. He has previously worked with A.T. Kearney
management consultants and as a mechanical design engineer. Mr Fridell
holds an M.B.A. (Dean’s list), INSEAD (France), a Bachelor in Mechanical
& Manufacturing Engineering (first-class honours), University of Melbourne,
and a Bachelor of Commerce, University of Melbourne.
David joined Bellamy’s in July 2016 and was key advisor during the
restructure of the business. He was appointed as acting Director of Sales
and Marketing in January 2017, and confirmed in the role in June 2017.Mr
Jedynak has 13 years of experience in strategy, private equity and venture
investing, across both developed and emerging markets. He has worked
as Principal with Bain & Company where he focused on consumer/retail
businesses, managed investment portfolios focused on high-growth small-
cap businesses, and built and advised several tech start-ups. Mr Jedynak
holds a Bachelor of Engineering (Mechatronics) and Bachelor of Computer
Science from the University of Melbourne.
11
Directors’ Report
Directors’ Report
Your Directors present their report on the consolidated entity consisting of Bellamy’s Australia Limited
and the entities it controlled (“the Group” or “Bellamy’s”) at the end of, or during, the year ended 30
June 2017 as follows:
1
Information about the Directors
1.1
Names and particulars
The names of the Directors in office at any time during or since the end of the financial year are:
Current Directors
John Ho
Non-Executive Chair (appointed 12 April 2017, appointed Chair 18 May 2017)
Rodd Peters
Non-Executive (appointed 28 February 2017, Chair from 28 February to 18 May 2017)
Wai-Chan Chan
Independent Non-Executive Director (appointed 28 February 2017)
John Murphy
Independent Non-Executive Director (appointed 18 May 2017)
Former Directors
Rob Woolley
Independent Non-Executive Chair (resigned 28 February 2017)
Laura McBain
Managing Director and CEO (ceased as CEO 11 January 2017, resigned as Director 24 January 2017)
Michael Wadley
Independent Non-Executive Director (removed 28 February 2017)
Launa Inman
Independent Non-Executive Director (resigned 28 February 2017)
Charles Sitch
Independent Non-Executive Director (removed 28 February 2017)
Patria Mann
Independent Non-Executive Director (resigned 18 May 2017)
More information about the Board of Directors is provided on page 22.
1.2
Directorships of other listed companies
Directorships of other listed companies held by Directors in the 3 years immediately before the end of the
financial year are as follows:
Director
Company
Period of Directorship
Current directors
John Ho
Rodd Peters
Wai-Chan Chan
John Murphy
-
-
-
Lantern Hotel Group
-
-
-
2015-2016
12
Directors’ Report
Director
Company
Period of Directorship
Former directors
Robert Woolley
Launa Inman
Patria Mann
Charles Sitch
Tandou Limited
Tas Foods Limited
Commonwealth Bank Limited
Super Retail Group Limited
Precinct Properties Pty New Zealand
Ridley Corporation Limited
Event Hospitality & Entertainment Limited
Spark New Zealand Limited
Apiam Animal Health Limited
2011 - 2015
2015-Feb 2017
Since 2011
Since 2015
Since 2015
Since 2008
Since 2013
Since 2011
Since 2015
1.3
Director shareholdings
The following table sets out each Director’s relevant interest in Bellamy’s shares and options as at the date
of this report.
Director
John Ho
Rodd Peters
Wai-Chan Chan
John Murphy
Fully paid ordinary shares
No.
Share options
No.
8,481,320
-
-
-
-
36,257
36,257
193,373
Refer to the Tables C and D of the Remuneration Report for further details.
1.4
Directors’ Meetings
The number of Directors’ meetings held and the number of meetings attended during the financial year were:
Directors
Board of Directors
Attended
A
Held
B
Current directors
Rodd Peters5
Wai-Chan Chan5
John Ho6
John Murphy7
Former directors
Patria Mann8
Robert Woolley2
Laura McBain1
Michael Wadley3
Launa Inman4
Charles Sitch3
8
9
4
3
62
56
33
56
51
51
9
9
4
3
63
57
40
57
57
57
A
B
1
2
3
4
5
6
7
8
Number of meetings attended during the year
Number of meetings held during the time the Directors held office during the year.
Resigned 24 January 2017
Resigned 28 February 2017
Removed 28 February 2017
Resigned 28 February 2017
Appointed 28 February 2017
Appointed 13 April 2017
Appointed 18 May 2017
Resigned 18 May 2017
Attendances at the Audit & Risk Committee and the Remuneration & Nominations Committee meetings
during the financial year were as follows:
13
Directors’ Report
Directors
Audit and Risk
Committee
Remuneration and
Nominations
Committee
Attended
A
Held
B
Attended
A
Held
B
Current directors
Rodd Peters
Wai-Chan Chan
John Ho
John Murphy3,4
Former directors
Patria Mann1
Robert Woolley5
Michael Wadley6
Launa Inman2
Charles Sitch7
1
1
1
0
5
4
4
3
2
1
1
1
0
5
4
4
4
4
0
0
0
0
1
4
0
4
4
0
0
0
0
4
4
4
4
4
A
B
Number of meetings attended during the year
Number of meetings held during the time the Directors held office during the year.
1
2
3
4
5
6
7
Resigned as the Chair of the Audit and Risk Committee as of 18 May 2017
Resigned as Chair and Member of the Remuneration and Nominations Committee as of 28 February 2017
Appointed as the Chair of the Remuneration and Nominations Committee as of 27 July 2017
Appointed as the Chair of the Audit and Risk Committee as of 18 May 2017
Resigned as a Member of the Remuneration and Nominations Committee and Audit and Risk Committee as of 28 February 2017
Removed as a Member of the Audit and Risk Committee as of 28 February 2017
Removed as a Member of the Remuneration and Nominations Committee as of 28 February 2017
2
Share options granted to senior management
October 2016 Grant
On 3 October 2016, in accordance with the employee Long Term Incentive Plan (as approved by the
shareholders at the annual general meeting on 26 October 2016), the Group issued 614,746 conditional
vesting options to the Chief Executive Officer and other senior management as part of their remuneration.
The exercise price for the 2017 grant options is $14.04, however the options can only be exercised if specific
performance hurdles are met. These options expire five years after the date of the grant which should be no
later than 3 October 2021.
The holders of these options do not have the right, by virtue of the option to participate in any share issue or
interest issue of the Group or of any other related body corporate.
June 2017 Grant
On 13 June 2017, in accordance with the employee Long Term Incentive Plan, the Group issued 4,105,887
conditional vesting options to the Chief Executive Officer and other senior management as part of their
remuneration.
The exercise price for the grant is $5.643, however the options can be exercised if specific performance
hurdles are met. These options expire in four years after the date of the grant which should be no later than
13 June 2021.
The details of grant of options are set out below:
14
Directors’ Report
Directors and senior
management
No. of options granted
FY17
Total No. of
ordinary shares
under option
Directors
John Ho
John Murphy
Wai-Chan Chan
Rodd Peters
Senior Management
Andrew Cohen
Nigel Underwood2
Melinda Harrison3
David Jedynak4
Peter Fridell4
Other executives
Former KMP
Laura McBain1
Shona Ollington1
Other former executives
-
193,373
36,257
36,257
1,843,345
475,000
200,000
475,000
440,000
717,336
239,154
40,021
16,828
-
193,373
36,257
36,257
2,533,295
475,000
200,000
475,000
440,000
599,986
1,127,173
368,814
216,817
Further details about share based payments to Directors and key management personnel are included in
the Remuneration Report.
1 Ceased being senior management 11 January 2017
2 Appointed senior management 11 January 2017
3 Appointed as senior management 5 May 2017
4 Appointed as senior management 13 June 2017
3
Company Secretaries
Melinda Harrison was appointed Company Secretary of Bellamy’s Australia Limited on 5 May 2017 and held
the position at the end of the financial year.
Brian Green held the position of Company Secretary of Bellamy’s Australia Limited from 2014 and resigned
as Company Secretary on 22 June 2017.
Dimitri Kiriacoulacos was appointed Company Secretary on 11 January 2017 and resigned 12 May 2017.
4
Corporate Governance
Bellamy’s Australia Limited ACN 124 272 108 (Company) and its associated entities are committed to
upholding a high standard of corporate governance. This corporate governance statement sets out the key
features of the Group’s governance framework and practices.
The Group has adopted corporate governance policies and practices which are designed to support and
promote the responsible management and conduct of the Group and that are based on the 3rd edition of the
ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (ASX
Recommendations).
The Group was only partially compliant with the ASX Recommendations for the year ended 30 June 2017
as a result of changes to the composition of the Board following the shareholder-requisitioned extraordinary
general meeting of 28 February 2017. The Board believes that its current composition is appropriate for
overseeing and guiding management’s execution of the Group’s current turnaround plan and positioning the
Group to realise the significant, long-term opportunities that are available in Australia, China and other
markets. However, the Board will review and consider the Group’s corporate governance practices, including
the composition of the Board, on an ongoing basis with a view to making changes as the Group’s
15
Directors’ Report
circumstances evolve. Detailed
Recommendations is set out in this corporate governance statement.
information
regarding
the Group’s compliance with
the ASX
This statement is current at 24 August 2017 and has been approved by the Group’s Board. The Group’s
Board and Committee charters, Code of Conduct and various policies referred to in this corporate
governance statement are available on the Corporate Governance section of the Group’s website.
Refer also to the Corporate Governance Statement below.
5
Principal activities
The Company is an ASX-listed Tasmanian food brand business. The Company offers a range of organic
food and formula products for babies and toddlers. The Company's products are all Australian-made and
certified organic.
The Company offers over 30 products that are tailored to the needs of babies and toddlers.
There were no significant changes to the principal activities during the year.
6
Review of operations
A comprehensive review of operations is set out in the in the front section of this Annual Report under Review
of Operations.
On the acquisition of Camperdown Powder Pty Ltd (described in Note 29), the Group will have greater
ownership and therefore responsibility for production of infant milk formula. There is also greater risk
associated with operating a manufacturing environment. In addition, changes to licencing requirements in
China (described in Note 22) will affect sales in China of Chinese labelled infant milk formula product from 1
January 2018.
7
Events since the end of the financial year
On 3 July 2017, the Group acquired a 90% interest in A.C.N. 619 661 611 Pty Ltd, a newly formed entity that
holds all the issued capital of Camperdown Powder Pty Ltd, which operates a CNCA licenced canning facility.
On 6 July 2017, the CNCA suspended Camperdown Powder’s licence to export to China pending enquiries.
This suspension was lifted on 9 August 2017.
On 7 July 2017, the capital raise was completed and proceeds from the $60.4 million entitlement received.
As a result of the CNCA licence suspension, shares in the company were placed in a trading halt followed
by a voluntary suspension until 19 July pending the issue of a supplementary prospectus.
On 17 July 2017, a supplementary prospectus was issued enabling retail shareholders the opportunity to
seek a refund for the shares subscribed to under the original prospectus. On 17 August 2017, the
supplementary prospectus closed resulting in the refund of 3,339 shares to 19 shareholders. These were
acquired by the underwriters to the supplementary prospectus.
Further details are in Note 29.
8
Future developments
The Group‘s strategy is to continue to focus investment, capacity and capability on bringing the core business
of infant formula and baby food in Australia and China to full potential. The Chinese market is particularly
important to the Group due to its size and projected growth rate, driven by demographics and changing
consumer wealth and preferences.
In the near term, the Group is focused on stabilising the business through improved execution, including
reducing overhead and supply chain costs, and achieving the required CFDA registration to continue
importing and selling ‘Chinese labelled’ product within China. The successful closing and integration of the
Acquisition will be critical.
16
Directors’ Report
In the medium term, the priority will be to strengthen the Bellamy’s consumer proposition within the organic
baby food and formula category. This will require investment in both the brand and in updating and expanding
the product range.
The Group is continually evaluating new markets and laying early foundations for longer-term growth beyond
the core business.
Further information about likely developments in the operations of the Group and the expected results of
those operations in future financial years has not been included in this report as the disclosure of the
information is likely to result in unreasonable prejudice to the Group.
9
Risk
Bellamy’s is subject to a number of risks both specific to Bellamy’s and of a general nature, which may either
individually or in combination adversely affect the future operating and financial performance of Bellamy’s,
its investment returns and the value of its Shares.
This section does not purport to list every risk, however provides a selection of risks that may impact future
financial performance.
9.1
Regulatory Risks
‘Chinese labelled’ product regulatory and market risk
The Chinese government has instituted a dairy food products regulatory regime that requires, among other
things, certain foreign manufacturing facilities to complete a registration process in order to import, distribute
and sell ‘Chinese labelled’ dairy food products to the local offline retail channel. Specifically, it requires
registration with the CNCA in compliance with the Administrative Provisions on Registration of overseas
Manufacturing Enterprises of Imported Foodstuffs of the nominated canning facility used to blend and pack
infant formula products.
The Chinese government maintains significant discretion in the granting and renewal of registration
certificates and other qualifications necessary for the import of food products into China. CNCA registration
is valid for four years before renewal and the renewal application must be submitted one year prior to the
expiration of the four-year term.
A further regulatory requirement has been introduced that any ‘Chinese labelled’ brand imported, distributed
and sold through retail channels in China beyond 1 January 2018 requires CFDA (China Food and Drug
Administration) registration. This registration is also held by the canning facility and is valid for five years.
Any individual facility can register a maximum of three individual brands and a total of nine stock keeping
units (i.e. Step 1, 2 and 3 for a given brand). Each registered brand must also be significantly different in
formulation to be recognised.
As previously announced, following the sale by Bega Cheese Ltd of its infant formula finishing plant at
Derrimut to Mead Johnson Nutrition in February 2017, Bellamy's 'Chinese labelled' products are no longer
able to be registered through that CNCA licenced plant. Notwithstanding the Group's manufacturing contract
with Bega remains in place.
As a result, Bellamy's has sought to mitigate this risk by acquiring Camperdown Powder. The Camperdown
Powder facility was granted its CNCA licence in July 2015 with an expected renewal date in July 2019.
Bellamy’s expects that it will allow Bellamy’s to now begin the CFDA brand and product registration process
for its 'Chinese labelled' products in its own right (rather than relying on the registrations obtained by third
party manufacturers).
However, Bellamy’s does not anticipate that it will have the required registrations in place by 1 January 2018
given the time required to develop the application, a six-month shelf life testing requirement and the lengthy
CFDA processing time guideline. Bellamy’s is working with its distributor to seek to ensure that there is an
appropriate level of stock in China prior to 1 January 2018 to sustain supply during this delay, however a
further delay in obtaining the registration, or the failure to successfully submit a registration will have a
material impact on Bellamy's financial position. The sale of Bellamy's 'Chinese labelled' products accounted
for 15.4% of total revenue in FY17.
In addition to the above it should also be noted that the future or sudden regulatory changes in China continue
to be a business risk.
17
Directors’ Report
Even with successful submission of a CDFA application, the Chinese government maintains significant
discretion over the retention and renewal of any Chinese certification that the Group or the Group may hold
from time to time, with limited avenues for appeal or review.
‘Australian labelled’ product regulatory risk (MOFCOM import restrictions)
Bellamy’s also sells ‘Australian labelled’ product in China through CBEC, leveraging various platforms
including Tmall, JD.com, VIP.com and Kaola. Original interpretation of the CFDA regulation required these
platforms to also distribute ‘China labelled’ or CFDA registered product beyond 1 January 2018. However,
recent statements form the China Ministry of Commerce (MOFCOM) on 17 March 2017 indicated a positive
signal that 'Australian labelled' “personal” goods can continue to be sold through CBEC platforms beyond
January 2018.
However, some industry participants expect further clarification of the definition of “personal” goods and
timelines in relation to the 17 March 2017 statement. As such regulations have not yet been formalised and
the Group is not able to determine whether its 'Australian labelled' infant milk formula products will comply
with the requirements imposed by further clarification or regulation in relation to the CBEC channel.
Although the vast majority of ‘Australian labelled’ product consumed in China is ‘direct mailed’ and not
distributed through the CBEC channel, if the Group is unable to comply with any future clarification or
regulation relating to the CBEC channel this may nonetheless have a material adverse impact on financial
performance. This risk of future regulation on the ‘direct mail’ channel must also be considered but could
include the imposition of taxes and/or prohibitions or measures taken to restrain the ability to undertake the
ability to undertake direct mail activity.
Import testing
China's State Administration of Quality Supervision, Inspection and Quarantine is responsible for national
import and export commodity inspections in China. Within that framework, all food product imported into
China is subjected to a sample based quality testing, known as China Inspection and Quarantine (CIQ) tests.
Bellamy’s tests the quality of its products at several stages of both the manufacturing process and across its
distribution channels. Tests are also required to be conducted by independent and government based
laboratories, who retain discretion as to whether a product test is successful. Test failures and the need for
re-testing are not uncommon in the industry. Should a product in a shipment being made to be imported into
China fail the CIQ tests, Chinese law prevents the entire shipment from entering China, even if the affected
product forms only part of the shipment. While limited re-testing is available, no reference to previously
successful tests of the relevant product can be made.
The Group is not able to insure for such a risk and no compensation is available from the manufacturer of
the Group's products even if prior tests have been successful in Australia. If the Group's products or the
products from a canning line owned by the Group fail a CIQ test, this could have a material adverse impact
on the Group's business, financial performance and operations. This includes products produced by
Camperdown Powder for third party customers.
Market concentration risk
A material proportion of the Group's revenue is derived from the import of the Group's ‘Chinese labelled’
products into China. The Group's 'Chinese labelled' products imported into China is forecast to represent
15.4% of group revenue in FY17. In addition, sales of the Group’s ‘Australian labelled’ products to persons
in Australia who on-sell to Chinese consumers via e-commerce and social media platforms cannot reliably
be estimated by the Group, but is thought to be very substantial and the Group is highly reliant on this
channel.
Accordingly, Bellamy’s has a large exposure to changes in consumer demand for its products in China. A
failure by Bellamy's to predict or respond to changes in consumer preferences in China or a decrease in
demand for the Group's products in China could materially adversely impact on the Group's future financial
and operating performance.
Erosion of brand reputation in China
The Group's business and in particular its sales either directly or indirectly to China are highly sensitive to
consumers' perceptions of the safety and quality of the Group's products. Any actual or perceived
contamination, spoilage or other adulteration, product misbranding, failed product testing or tampering may
lead to a material erosion of the Group's brand reputation in China, regardless of its merits. Counterfeiting
and imitation of well-known products in China has also occurred in the past. There can be no assurance
that this will not occur to Bellamy's in the future. The Group's failure to detect counterfeiting and imitation of
18
Directors’ Report
its products and trademarks or a failure to mitigate their impact could result in a material adverse impact on
the Group's sales in China.
Further, the dairy industry in China has been the subject of product recalls and product contamination in the
past, including products supplied from outside China into China. Publication of reports of contaminated or
tainted dairy products by other non-Chinese manufacturers that supply the Chinese market could negatively
impact the Group’s business even if there is no direct connection with Bellamy’s products. Regardless of
merit, such reports could also lead to additional scrutiny and testing by regulators which could impact the
Group's business, financial performance and operations.
Visibility of the Group's distribution channels
Bellamy’s transfers ownership of its products to purchasers at the time of sale (usually on receipt into the
purchaser’s warehouse, except for sales to Bellamy's offline China distributor where ownership transfers
upon delivery by the Group of inventory to the port in Melbourne). Many purchasers then on-sell the Group's
products to sub-purchasers, who then further on-sell the products to the end-consumer. Bellamy’s is not able
to obtain information on the level of inventory which remains unsold at each step in the distribution chain.
While efforts are made to minimise levels of unsold inventory, a large release of a distributor’s inventory to
the market at a discount to the price at which Bellamy's charges for its products at the initial point of sale
may have a material adverse effect on sales through other channels. In addition, this may cause inventory
holdings at other distributors to be ‘stranded’, at least until the relevant product has been depleted. All of this,
in turn, may have a material adverse effect on demand and ultimately sales of Bellamy's products.
9.2
Other risks
Production facility licencing
The Camperdown Powder manufacturing facility must maintain a licence with by the CNCA to enable its
products to be exported to China. Should the licence be cancelled, the investment in this subsidiary would
need to be assessed and potential some or all of its valued impaired.
Australia made labelling laws
The Australian Government introduced new country of origin labelling laws that commenced on 23 February
2017 to provide additional transparency and certainty in relation to the country of origin of ingredients used
in consumer products to be sold in Australia. From 1 July 2018, food to be sold in Australia must be labelled
according to the requirements set out in the Country of Origin Food Labelling Information Standard 2016.
As Australia is not a major producer of organic milk, Bellamy’s sources the majority of its organic milk
powders from Europe. The new labelling requirements mean that Bellamy’s will need to provide consumers
with further transparency about the source of key ingredients. This may affect consumer demand for the
Group's products as consumers look to purchase those products which use Australian ingredients. Changes
in consumer demand for the Group's products in Australia could adversely affect the operating and financial
performance of the Group.
Change in regulations
There is a risk that laws or regulations may be introduced or amended in Australia, or in foreign jurisdictions
in which the Group sells, or sources its ingredients and/or products. Changes to the regulatory environment
could have a material effect in a number of ways. For example, the financial and production effects resulting
from changing requirements to:
a) product packaging and/or labelling requirements as a requirement of increases to mandatory dietary
b)
c)
content disclosures; or
the introduction of taxation measures that reference food content; and/or
restrictions that prevent or restrict access to markets by amendments to regulations governing the export
or importation of products (ie free trade agreements).
While the Group is not aware of any current issues other than the China regulatory change noted above, the
Australian made labelling changes highlighted, or any impending regulatory change in relevant markets,
there is the potential for any such measures to reduce Bellamy’s revenues and/or increase its costs.
Product contamination, recall and food safety
As a producer of food products, Bellamy’s is subject to a general risk that any product contamination or
product recall issue (however caused) could have a material adverse effect on the Company’s brand and
thus its financial performance. The Company employs a number of measures to minimise the risk in this area
19
Directors’ Report
(such as requiring manufacturers to have current food safety accreditation and the Company having in place
appropriate insurances).
10
Environmental regulations
The Group’s operations are not regulated by any significant environmental regulation under a law of the
Commonwealth or of a State or Territory.
11
Dividends
No dividend will be paid with respect to the year ended 30 June 2017 (2016: 7.8 cents per share).
In respect of the half year ended 31 December 2016, an interim dividend was not declared (2016: 4.10 cents
per share).
12
Indemnification and insurance of officers and auditors
During the financial year, the Group paid a premium in respect of a contract insuring the Directors of the
Group, the Group Secretary and all executive officers of the Group and of any related body corporate against
a liability incurred as such a Director, secretary or executive officer to the extent permitted by the
Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the
amount of the premium.
The Group has not otherwise, during or since the end of the financial year, except to the extent permitted by
law, indemnified or agreed to indemnify an officer or auditor of the Group or of any related body corporate
against a liability incurred as such an officer or auditor.
13
Audit
13.1
Independence declaration
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act
2001 is set out on page 52 and forms part of the Directors’ report for the year ended 30 June 2017.
13.2
Statutory auditors
For the year ended 30 June 2017 PricewaterhouseCoopers (“PwC”) acted as the Group’s external auditor.
A representative from PwC will be available to the Annual General Meeting to answer shareholder questions
about the conduct of the audit and the preparation and content of the FY17 audit report.
13.3 Non-audit services
Details of amounts paid or payable to the auditor for non-audit services provided during the year are outlined
in Note 31 to the financial statements.
The Board of Directors has considered the position and, in accordance with written advice provided by
resolution of the Audit and Risk Committee, is satisfied that the provision of non-audit services, during the
year, by the auditor (or by another person or firm on the auditor’s behalf) is compatible with the general
standard of independence for auditors imposed by the Corporations Act 2001.
The Directors are of the opinion that the services as disclosed in Note 31 to the financial statements do not
compromise the external auditor’s independence, based on advice received from the Audit and Risk
Committee, for the following reasons:
• all non-audit services have been reviewed and ratified by the Audit and Risk Committee to ensure
that they do not impact the impartiality and objectivity of the auditor; and
20
Directors’ Report
• none of the non-audit services undermine the general principles relating to auditor independence as
set out in APES 110 Code of Ethics for Professional Accountants.
14
Rounding of amounts
The Group is a company of the kind referred to in ASIC Corporations (Rounding in Financials/Directors’
Reports) Instrument 2016/191, issued by the Australian Securities and Investments Commission, related to
the ‘rounding off’ of amounts in the Directors’ Report and the financial report. Amounts in the Directors’
Report and financial report have been rounded off to the nearest thousand dollars in accordance with that
ASIC Instrument.
21
Corporate Governance Statement
Corporate Governance Statement
Bellamy’s Australia Limited ACN 124 272 108 (Company) and its associated entities are committed to
upholding a high standard of corporate governance. This corporate governance statement sets out the
key features of the Company’s governance framework and practices.
The Company has adopted corporate governance policies and practices which are designed to support
and promote the responsible management and conduct of the Company and that are based on the 3rd
edition of the ASX Corporate Governance Council’s Corporate Governance Principles and
Recommendations (ASX Recommendations).
The Company was only partially compliant with the ASX Recommendations for the year ended 30 June
2017 as a result of changes to the composition of the Board following the shareholder-requisitioned
extraordinary general meeting of 28 February 2017. The Board believes that its current composition is
appropriate for overseeing and guiding management’s execution of the Company’s current turnaround
plan and positioning the Company to realise the significant, long-term opportunities that are available
in Australia, China and other markets. However, the Board will review and consider the Company’s
corporate governance practices, including the composition of the Board, on an ongoing basis with a
view to making changes as the Company’s circumstances evolve. Detailed information regarding the
Company’s compliance with the ASX Recommendations is set out in this corporate governance
statement.
This statement is current at 24 August 2017 and has been approved by the Company’s Board. The
Company’s Board and Committee charters, Code of Conduct and various policies referred to in this
corporate governance statement are available on the Corporate Governance section of the Company’s
website.
Board of directors
The role of the Board
The Board recognises its overriding responsibility to act honestly, fairly, diligently and in accordance
with the law in serving the interests of the Company’s shareholders as well as its employees, customers
and the community. Under the constitution, the Board is vested with accountability to shareholders for
the management of the Group.
The Board has delegated responsibility for the operation and administration of the Company and Group
to the CEO and executive management. Responsibilities are delineated by formal authority delegations.
Senior executives reporting to the CEO have their roles and responsibilities defined in position
descriptions.
The Board’s role, responsibilities, powers, duties and functions and the matters specifically reserved to
the Board or its Committees are detailed in the Board Charter. A copy of the Board Charter is available
from the Company’s website.
Board composition
The Board currently consists of four Non-executive Directors, of whom two are independent Non-
executive Directors (including the Deputy Chairman).
Details of each Director, including the skills, experience, relevant expertise and period of office, are
disclosed on pages 9 and 12.
The Board considers that individually and collectively the Directors bring a level of skill, knowledge and
experience that enables the Board to discharge its responsibilities effectively. The following table
summarises the key skills and experience of the Directors:
22
Corporate Governance Statement
Skill / Experience
Number of Directors
Governance
Accounting / Audit
Finance / Banking
Risk / Compliance
Strategy
Crisis management
International Business focus on
China / Asia
Food Manufacturing
Brand / Marketing
FMCG/ Retail
Logistics
Legal
Human Resource Management
and Remuneration
3
2
3
3
4
2
3
2
3
2
2
1
3
The Board, with the assistance of the Remuneration and Nominations Committee, periodically reviews
the mix of skills, expertise and experience of the Board and considers whether the composition and
membership is appropriate to meet the Board’s objectives. On the recommendation of the
Remuneration and Nominations Committee, the Board has determined that together, the Directors
possess a comprehensive mix of skills, expertise and experience to discharge its responsibilities.
Director independence
Currently, half of the Directors on the Board are independent Non-executive Directors.
The Board considers that the Deputy Chairman, John Murphy, and Wai-Chan Chan are each
independent. The Chairman, John Ho, and Rodd Peters are not independent as they are nominees of
substantial shareholders of the Company, Janchor Partners and Black Prince Private Foundation
respectively.
As a result of its current composition, the Board does not comply with Recommendation 2.4, (which
recommends that a majority of the Board should be independent Directors) and Recommendation 2.5
(which provides that the Chair should be independent).
As stated above, the Board believes that its current composition is appropriate for the task of overseeing
and guiding management on the execution of the Company’s current turnaround plan. The Board
considers that John Ho and Rodd Peters each bring objective and independent judgement to Board
deliberations and add significant value to the Board given their experience and skills. John Ho is an
experienced investor with extensive international business expertise, including in relation to the
Australian and Chinese markets. Rodd Peters is an experienced lawyer, with many years of practice in
commercial law, litigation and compliance.
As noted in the Board Charter, while the Company will aim to have a majority of independent Non-
executive Directors, this may not always be practicable given the size of the Board and the
circumstances. The Board will continue to consider Board renewal and succession planning on an
ongoing basis, and is focused on identifying suitable candidates for further appointments to the Board,
in particular having regard for the need to appoint another independent Non-executive Director in the
future.
23
Corporate Governance Statement
John Murphy was appointed to the Board and elected Deputy Chairman on 18 May 2017. The creation
of the Deputy Chairman role reflects the Board’s commitment to ensuring that there is active
participation from independent Directors in the leadership of the Board (recognising that the Chairman
is not an independent Director). John will stand for election as an independent Non-executive Director
at the 2017 Annual General Meeting (AGM).
Director
1 John Ho
2 John Murphy
Role
Independence
Chair, Non-executive Director
Not independent
Deputy Chair, Non-executive
Director
Independent
3 Wai-Chan Chan
Non-executive Director
Independent
4 Rodd Peters
Non-executive Director
Not independent
Further detail is contained in the Board Charter.
Director selection, nomination and appointment
The Company’s process for the selection, nomination and appointment of Directors involves a formal
selection process undertaken by the Board, with the assistance of the Remuneration and Nomination
Committee.
The Board, on the advice of the Remuneration and Nomination Committee, establishes criteria about
the general qualifications and experience, as well as the specific qualifications that a candidate should
possess.
An executive search firm is generally engaged to assist selecting directors. Appropriate checks on any
potential candidates are conducted before a person is appointed by the Board, or put forward to
shareholders as a candidate for election as a Director.
The Company provides formal letters to all new Directors and senior executives setting out the key
terms and conditions of their appointment.
Shareholders are provided with all material information in the Company’s possession that is relevant to
a decision on whether to elect or re-elect a Director in the notice of AGM.
Further detail is contained in the Remuneration and Nomination Committee Charter.
Induction and ongoing professional development
The Remuneration and Nomination Committee is responsible for formulating the induction process in
respect of new Directors and the review of the same, alongside the development of any programs, or
identification of any opportunities necessary to ensure the directors develop and maintain the skills and
knowledge they require to fulfil their roles effectively.
Further detail is contained in the Remuneration and Nomination Committee Charter.
Performance evaluation
Board
The Board Charter requires that each year the Board will conduct an evaluation of its effectiveness and
performance that evaluates:
•
•
•
its own performance, including against the requirements of its Charter;
the performance of its committees; and
the performance of individual Directors, against both measurable and qualitative
indicators.
24
Corporate Governance Statement
Given that all of the Directors were only recently appointed, a performance evaluation of the Board, the
Committees and each Director was not conducted in FY17. It is intended that an evaluation will be
conducted in FY18.
Senior executives
The Remuneration and Nomination Committee monitors and advises on the periodic performance of
senior executives. The CEO initiates performance reviews of the executive whereby the individual is
assessed against agreed goals and objectives.
Performance evaluations of senior executives have been undertaken during the current financial year
in accordance with that process. The outcomes of the review, and the link to individual remuneration
levels, are discussed in the Remuneration Report.
Remuneration
Disclosure regarding the remuneration of the Company's Non-executive Directors, the CEO and CFO
are set out in the 2017 Remuneration Report.
The CEO and each senior executive have a written contract with the Company. The Remuneration
Report sets out details of each written contract of members of the Company’s key management
personnel.
Company Secretary
The Company Secretary is accountable to the Board through the Chair, and all Directors have access
to the Company Secretary.
The Company Secretary’s role in respect of matters relating to the proper functioning of the Board
includes advising the Board and its Committees on governance matters, monitoring that Board and
Committee policies and procedures are followed, coordinating all Board business (including agendas,
board papers, minutes, communication with regulatory bodies and ASX, and all statutory and other
filings) and providing a point of reference for dealings between the Board and employees.
Further detail is contained in the Board and Committee Charters.
Board Committees
The following Committees assist the Board in carrying out its responsibilities:
•
•
Audit and Risk Committee; and
Remuneration and Nomination Committee.
An overview of the role and responsibilities, composition, and membership as at 30 June 2017 of each
Committee is provided below.
Audit and Risk
Committee1
Remuneration and
Nomination Committee2
Roles and responsibilities
The primary purpose of the
Audit and Risk Committee is
The primary roles of the
Remuneration and
1 Prior to the extraordinary meeting on 28 February 2017, the Audit and Risk Committee comprised Patria Mann (Chair), Rob
Woolley, and Michael Wadley who were all independent Non-executive Directors.
2 Prior to the extraordinary meeting on 28 February 2017, the Remuneration and Nomination Committee comprised Launa
Inman (Chair), Rob Woolley, and Charles Sitch who were all independent Non-executive Directors.
25
Corporate Governance Statement
Audit and Risk
Committee1
Remuneration and
Nomination Committee2
to monitor and advise the
Board on:
Nomination Committee are
to assist the Board:
•
financial reporting;
• external audit;
•
•
risk management; and
internal control structure.
•
•
to attract and retain
suitable Directors and
senior executives;
to ensure that Directors
and executives
• are fairly and responsibly
remunerated;
•
•
to evaluate the
performance of Directors
and executives; and
to ensure that there are
appropriate succession
plans.
Members as at 30 June 2017
• John Murphy (Chair)
• John Murphy (Chair)
Composition
• Rodd Peters
• John Ho
• Wai-Chan Chan
• Wai-Chan Chan
The Chair of the Audit and
Risk Committee is an
independent Director who is
not the Chair of the Board
and the majority of the
Committee’s members of
independent.
The Chair of the
Remuneration and
Nomination Committee is an
independent Director who is
not the Chair of the Board
and the majority of the
Committee’s members of
independent.
The Committee must
comprise of:
The Committee must
comprise of:
• a minimum of 3
• a minimum of 3
members of the Board;
members of the Board;
• only Non-executive
• only Non-executive
Directors;
Directors;
• a majority of independent
• majority of independent
Directors; and
Directors; and
• an independent Director
who is nominated by the
Board as Chair, who is
not Chair of the Board.
• an independent Director
who is nominated by the
Board as Chair, who is
not Chair of the Board.
The Company’s Audit and Risk Committee composition complies with the ASX Listing Rules and ASX
Recommendations.
The Company’s Remuneration and Nomination Committee composition complies with the ASX Listing
Rules as it comprises all Non-executive Directors. A majority of the Directors on the Committee are
26
Corporate Governance Statement
independent Directors and it therefore complies with Recommendation 8.1, that a majority of members
should be independent. See Audit and Risk Committee Charter and Remuneration and Nomination
Committee Charter for further information.
Details of the number of meetings held by the Board and its Committees during FY17, and attendance
by Board members, are disclosed on pages 13 and 14.
Details of each Committee member, including the skills, experience, relevant expertise, independence
and period of office, are disclosed on pages 9 and 12.
Risk framework
Risk management and identification
The Company has employed ongoing risk management processes. The Company maintains a risk
register that identifies the key risks facing the business, and the status of initiatives implemented to
manage them. This risk register is reviewed and updated on a regular basis.
The Audit and Risk Committee have responsibility for monitoring and reporting to the Board on the
Company’s risk management framework including:
•
•
identifying, assessing, monitoring and managing risk; and
any material change to the group's risk profile.
The Company undertakes annual reviews of the risk management framework to ensure that it continues
to be sound. The Company has undertaken a review of its risk management process in FY17.
The Board ensures that adequate external insurance cover is in place appropriate to the Company’s
size and risk profile.
The Company also regularly considers its material exposure to economic, environmental and social
sustainability risks.
Internal audit
The Company does not have an internal audit function.
Due to the Company’s size and business structure, the Company has not had an internal audit function.
Under the Audit and Risk Committee Charter, the Audit and Risk Committee is responsible for providing
an independent and objective assessment to the Board regarding the adequacy, effectiveness and
efficiency of the Company’s risk management and internal control processes. The Committee has full
and complete access to the Company’s executives, external auditor and to external advisers.
External auditor
The external auditor attended the Company’s 2016 AGM and was available to answer questions.
The Company requires that its external auditor attend the Company’s 2017 AGM and be available to
answer questions.
CEO and CFO declaration
A decision by the Board to approve the Company's financial statements for a financial period is subject
to receipt from its CEO and CFO of a declaration that, in their opinion, the financial records of the entity
have been properly maintained and that the financial statements comply with the appropriate accounting
standards and give a true and fair view of the financial position and performance of the entity and that
the opinion has been formed on the basis of a sound system of risk management and internal control
which is operating effectively.
27
Corporate Governance Statement
Such declarations were received by the Board in respect of both the half-year and full- year financial
statements for 2017.
Governance policies
Code of Conduct
The Company has a comprehensive Code of Conduct that applies to its Directors, senior executives
and employees. The code addresses (amongst other things):
•
•
•
•
•
•
•
•
Compliance with laws and regulations;
Fair trading and dealing;
Conflicts of interest;
Improper use of Bellamy assets or intellectual property;
Privacy;
Employment practices;
Community engagement; and
Public communications and disclosures.
Securities Trading Policy
The Company’s Long-Term Incentive Scheme does not allow participants to enter into transactions
(whether through the use of derivatives or otherwise) that limit the economic risk of participating in the
scheme.
This is supported by the Company's Securities Trading Policy under which employees are prohibited
from entering into transactions using financial products that operate to limit the economic risk associated
with holding vested and unvested Company securities. Further, all employees are prohibited from
entering into margin loan arrangements to fund the acquisition of any of the Company's securities.
Diversity
The Board is committed to improving its workplace diversity throughout the organisation. To help
achieve this, the Board, together with the Remuneration and Nomination Committee, has established
measurable objectives for attaining gender diversity. The Company has plans to formally approved a
Diversity Policy in FY18 to facilitate a more diverse and representative management and leadership
structure.
The measurable objectives, and Bellamy’s progress towards achieving them, will be assessed annually
by the Board (on recommendation of the Remuneration and Nomination Committee), and will be
reported on in the Annual Report each year. The achievement of these outcomes is included in the
CEO’s objectives and the charter of the Board also reflects these accountabilities.
Throughout the majority of FY17, women represented 50% of the Company’s Board. Following changes
to the composition of the Board and the review of the Company’s management team during FY17, the
proportion of women on the Board and in senior executive positions has decreased.
The Board recognises the importance of diversity in the workplace and is focused on achieving a
balanced representation of women on the Board and in senior positions over a reasonable transition
period. Following changes to the composition of the Board and the review of the Company’s
management team during FY17, the proportion of women on the Board has decreased. However, the
number of women in Senior Executive positions has increased from 3 to 5.
28
Corporate Governance Statement
18 August 2016
24 August 2017
Board Measurable
Objective
Board
Senior
Executive*
All
employees
50%
33%
67%
* defined as KMP and other senior managers
Continuous Disclosure
0%
42%
71%
40%
50%
50%
The Company has adopted a Continuous Disclosure Policy which establishes processes and
procedures designed to ensure that directors and management are aware of and fulfil their obligations
in relation to the timely disclosure of material price-sensitive information. Under the policy, the Board
will be responsible for managing the Company's compliance with its continuous disclosure obligations.
Communicating with shareholders
The Board has established the Shareholder Communications Policy, which is designed to promote
effective two-way communication with shareholders.
The Board ensures that shareholders are informed of all material information relating to the Company
by communicating via:
•
•
•
continuous disclosure to the ASX;
media releases and publication of information on the Company’s website; and
through its annual and half year reports.
The Company provides shareholders with the option of communicating with the Company and the
Company’s share registry (Link Market Services Ltd) electronically. Shareholder’s communication
preferences can be updated at any time by the member at the share registry’s website.
At the Company’s AGM the Board encourages the effective participation of shareholders in accordance
with the Company’s Shareholder Communications Policy. At the AGM the Chair will provide time for
questions and comments from security holders.
29
Remuneration Report
Remuneration Report
Message from the Chairman of the Board
The Board of Bellamy’s presents the Remuneration Report for the financial year ended 30 June 2017.
This year, there have been significant changes to our Key Management Personnel and Board composition
required to achieve a demanding turnaround and growth strategy. The new executive leadership team
is:
- Andrew Cohen – Chief Executive Officer
- Nigel Underwood – Chief Financial Officer
- Peter Fridell – Director of Operations
- David Jedynak – Director Sales & Marketing
- Melinda Harrison – General Counsel & Company Secretary
Given the significant challenges that continue to face Bellamy’s and the need to drive its demanding
turnaround strategy, the Board has re-designed its remuneration program to ensure it:
- attracts, motivates and retains top talent executives and directors;
- aligns reward with the creation of sustainable value for shareholders including through long-term
equity based incentives and performance metrics linked to total shareholder value;
- aligns rewards with strategic objectives and the Board’s high performance expectations;
-
implements a robust and transparent remuneration decision making process and performance
review system; and
targets stretch for critical talent and rewards exceptional performance.
-
At the 2016 Annual General Meeting (AGM) a sizable minority voted against the Remuneration Report,
constituting a first strike. The new Board has taken seriously the AGM vote and the concerns raised by
our shareholders and proxy advisors; and we have redesigned the remuneration program and the
disclosures set out in this Report.
Our re-designed remuneration program:
-
is heavily skewed to long term incentives aligned to long-term and sustainable enterprise value
creation;
includes minimal KMP fixed remuneration increases;
-
- comprises a re-designed STI plan which:
o
o
overall reduces at-target and maximum STI amounts, as well as STI participants;
focuses on stretch performance for critical talent linked directly to our turnaround objectives;
- contains a turnaround LTI plan which:
o
o
o
o
results in $500 million increase in shareholder value and a doubling of share price if full
vesting is achieved over 3.5 years;
is an upfront grant covering the next 3 years with no vesting until the end of the performance
period in year 2, 3, and 3.5 years promoting a long-term ownership mind-set;
is designed to attract, motivate and retain key talent and deliver long term value to
shareholders
is 100% ‘at risk’ based only on the metric of total return to shareholders (TSR).
Our 2017 Remuneration Report transparently communicates remuneration outcomes for FY17 and
clearly explains our re-designed remuneration structures, aligned to our turnaround strategy, that we have
put in place in FY17 and beyond.
On behalf of the Board, we recommend the Report to you and we look forward to welcoming you to the
2017 AGM.
John Ho
Chairman of Board
Remuneration report (audited)
30
Remuneration Report
The Board of Bellamy’s is committed to ensuring that our remuneration practices and policies drive a
culture of performance and ensures executives are rewarded for the delivery of results and the
achievement of Bellamy’s short-term financial objectives and long-term business strategy and ultimately
delivering value for our shareholders.
This report outlines the remuneration framework and outcomes of Bellamy’s, for key management
personnel for the year ended 30 June 2017. It also enables our investors to understand:
- The costs and benefits associated with Bellamy’s remuneration practices and policies; and
- The link between Bellamy’s performance and the remuneration paid to the CEO and KMP
executives.
This report has been prepared in accordance with Section 300A of the Corporations Act 2001 (Cth).
The Report has been set out as follows:
1 Key management personnel
2 Remuneration governance
3 Remuneration principle, strategy & outcomes
4 Executive contracts
5 Non-executive directors’ remuneration
6 Termination payments to former CEO
7 Remuneration Tables – Directors and KMP executives
31
Remuneration Report
Key management personnel
The term key management personnel (KMP) refers to those persons having the authority and
responsibility for planning, directing and controlling the activities of the Consolidated entity (Group),
directly or indirectly and includes any director of the Group (whether executive or otherwise).
The KMP of Bellamy’s for the year ended 30 June 2017 were:
1.
2.
3.
4.
5.
6.
John Ho (Ho) joined the Board on 13 April 2017 and became Chairman on 18 May 2017;
Rodd Peters (Peters) was elected to the Board on 28 February 2017 and was appointed as interim Chairman of the Board on 1 March 2017 until 18 May
2017;
Andrew Cohen (Cohen) was appointed to the role of Chief Operations & Strategic Officer on 27th June 2016. He was appointed to the role of Acting
CEO on 11 January 2017, and subsequently made permanent in that role on 13 April 2017;
Nigel Underwood (Underwood) was appointed to the role of advisor on 19 December 2016 under a short-term contract of employment. He was
appointed to the role of Acting CFO on 11 January 2017 and subsequently made permanent in that role on 13 April 2017;
Laura McBain (McBain) departed as CEO of Bellamy’s on 11 January 2017 and as a director on 24 January 2017 but remained as an employee until 31
March 2017; and
Shona Ollington (Ollington) was appointed to the role CFO on 11 August 2014 and moved to the role of Finance Director (reporting to the CFO) on 11
January 2017 (ceasing as a KMP on 11 January 2017).
32
Current Non-executive DirectorsRoleAppointment DateJohn Ho1Chairman13 April 2017John MurphyDeputy Chairman18 May 2017Rodd Peters2Non-executive Director28 February 2017Wai-Chan ChanNon-executive Director28 February 2017Current KMP ExecutivesRoleAppointment DateAndrew Cohen3Chief Executive Officer11 January 2017Chief Operations & Strategy Officer27 June 2016Nigel Underwood4Chief Financial Officer11 January 2017Peter FridellDirector of Operations12 June 2017David JedynakDirector Sales & Marketing12 June 2017Melinda HarrisonGeneral Counsel/Company Secretary8 May 2017Former Non-executive DirectorsRoleEnd DateRobert WoolleyChairman28 February 2017Michael WadleyNon-executive Director28 February 2017Patria MannNon-executive Director18 May 2017Launa InmanNon-executive Director28 February 2017Charles SitchNon-executive Director28 February 2017Former KMP ExecutivesRoleEnd DateLaura McBain5Chief Executive Officer/Managing Director11 January 2017Shona Ollington6Chief Financial Officer11 January 2017
Remuneration Report
Remuneration governance
Role of the Remuneration & Nomination Committee
The role of the Remuneration & Nomination Committee is to assist the Board by ensuring that Bellamy’s:
- has appropriate remuneration policies and practices which enable Bellamy’s to attract, motivate,
and retain non-executive directors and executives to ensure sustainable value for our
shareholders;
-
fairly and responsibly remunerates non-executive directors and executives having regard to
Bellamy’s overall strategy and objectives, the performance of Bellamy’s, the performance of the
executives, and the general market environment; and
- has polices to evaluate composition of the Board, individual directors and executives and ensure
succession plans are in place (including for the recruitment or appointment of non-executive
directors and executives).
The remuneration committee is responsible for assessing performance against KPIs and determining the
STI and LTI to be paid. To assist in this assessment, the committee receives detailed reports on financial
performance from management which is based on independently verifiably data.
In the event of serious misconduct or a material misstatement in the company’s financial statements the
remuneration committee can cancel or defer performance-based remuneration and may also claw back
performance-based remuneration paid in previous financial years.
The Remuneration & Nomination Committee has a Charter which outlines the terms of reference under
which it operates. It is available online at www. bellamysorganic.com.au.
Engagement of remuneration consultants
The Remuneration & Nomination Committee periodically engages independent remuneration
consultants to advise and assess the remuneration of the Chairman, Non-executive Directors, CEO and
those executives reporting to the CEO. These advisors are engaged by, and report directly to, the
Remuneration & Nomination Committee and are used to:
- provide updates on remuneration trends, regulatory changes, and shareholder and proxy advisor
views;
-
remuneration trends and market analysis; and
- assist in the review, design, and development of CEO and senior executive reward levels and
arrangements (including short-term and long-term incentives).
During FY17, the Remuneration & Nomination Committee engaged Egan Associates Pty Ltd (Egan) and
Godfrey Remuneration Group (GRG). During FY17 GRG provided extensive support in the design of the
Turnaround LTI plan, but did not provide any recommendations on the participants, quantum for
participants, or the target.
No remuneration recommendations from these independent remuneration consultants was received
during the year ended 30 June 2017.
Remuneration principles, strategy & outcomes
Remuneration principles
Bellamy’s approach to remuneration is framed by the strategic direction and operational demands of the
business, the international context and market complexity in which Bellamy’s operates, and the
importance of linking executive remuneration to sustainable shareholder returns over the long-term.
The principles that underpin our remuneration approach:
- attracts, motivates and retains top talent executives and directors;
- aligns reward with the creation of sustainable value for shareholders including through long-term
equity based incentives and performance metrics linked to total shareholder value;
33
Remuneration Report
- aligns rewards with strategic objectives and the Board’s high performance expectations;
- drives behaviours that align with the interests of our shareholders;
-
implements a robust and transparent remuneration decision making process and performance
review system; and
-
targets stretch for critical talent and rewards exceptional performance.
Attract, motivate, and retain the best talent for Bellamy’s
- Bellamy’s operates in a global market which is highly regulated and challenging and, therefore,
needs to attract, motivate, and retain executives and directors who have the requisite skills and
ability to perform at the highest of levels in order to ensure they deliver on Bellamy’s strategic
objectives and contribute to ongoing financial performance of Bellamy’s and sustainable value
for shareholders.
Support the execution of Bellamy’s business strategy
- Setting performance measures and targets that support Bellamy’s business performance in both
the short term and long term; and
- Ensure that the performance measures and targets are clearly defined and understood by the
executives and to ensure their relevance to the executive’s role and linked to total shareholder
value.
Alignment of remuneration with business performance and sustainable shareholder returns
- Ensure a correlation between an executive’s reward and long-term shareholder value;
- Differentiate individual rewards commensurate with contribution to overall results and according
to responsibility, performance, and potential; and
- Provide executives with an incentive to meet and exceed challenging performance targets set by
the Board.
Good governance
- Having a Remuneration & Nomination Committee with a Charter which outlines its terms of
reference;
- Having an approval process that sees the Board approving, based on remuneration
recommendations of the Remuneration & Nomination Committee, remuneration for the CEO and
all executives who report to the CEO.
Review of remuneration strategy & framework
The remuneration strategy & framework and associated programmes are reviewed regularly to ensure
that they continue to align with the Bellamy’s strategic objectives and focuses executives’ effort on the
long-term strength of Bellamy’s, provides clear and direct alignment with shareholder interests through
share ownership, i.e., executives are rewarded when shareholders are rewarded.
In the first half of FY17 the STI and LTI plans were reviewed; which resulted in a reduction in the number
of participants as the view of the then Board was that only those employees who could directly impact the
financial performance of Bellamy’s should participate in an STI plan.
A remuneration benchmarking exercise for the new members in the Bellamy’s Executive leadership team
was performed. In the second half of FY17 the new Board reviewed the mix of short-term and long-term
incentives and the quantum.
In line with the new Board’s desire for a focus on long-term and sustainable enterprise value creation;
there was a decrease in the quantum of the STI opportunity for KMP executives and an increase in the
LTI opportunity for KMP executives.
Remuneration strategy & framework
The remuneration strategy sets the direction for the remuneration framework, and drives the design and
application of remuneration practices and policies for executives of Bellamy’s (including KMP).
34
Remuneration Report
Executive remuneration structure
As discussed above the new Board has reviewed the participants, quantum, and measures for both the
STI plan and LTI plan it has not changed the components of the remuneration framework - details are set
out below.
Component
Remuneration Approach & Performance Link
Total Fixed
Remuneration
(TFR)
-
-
salary
statutory
superannuation
Executive TFR levels are market-aligned by comparison to similar roles in ASX-listed companies
that have comparable market capitalisation, revenues, and financial metrics relevant to the
executive’s role, executive’s knowledge, skills and experience, and individual performance.
This ensures that Bellamy’s attract, motivate, and retain top talent executives to ensure they can
deliver on Bellamy’s business strategy and contribute to the Bellamy’s ongoing financial
performance.
Short Term
Incentive (STI)
- Annual
incentive
opportunity
delivered in
cash
The Bellamy’s Short Term Incentive plan rewards the CEO and those executives reporting to him
(including the KMP executives) for performance against a pre-determined scorecard of measures
linked to Bellamy’s short-term business performance (12 months) and individual performance.
Performance measures may vary from year to year depending on the business’s objectives, and
are chosen on the basis that they will increase financial performance, market share, and
shareholder returns.
Relative weighting of fixed and variable components for target performance are set according to
the scope of the executive’s role.
The STI plan is designed to encourage and reward high performance and for this reason it places
a proportion of the executives’ remuneration at-risk against targets linked to the Company’s annual
performance objectives. This supports the alignment between the interests of the executive,
Bellamy’s and our shareholders.
A combination of financial and non-financial KPIs are used to ensure a balance between short term
financial measures and more strategic non-financial measures which in the medium to longer term
will support the growth of Bellamy’s.
Performance is generally measured against:
- Financial – actual results compared to budgeted results for items including EBIT,
EBITDA, PBT and NPAT.
- Business growth – NPAT, earnings per share, price earnings ratio, new order value,
acquisitions and new customers.
- Business management – cash generation, capital management, working capital
management, inventory turnover, cost/revenue ratios, and staff utilisation.
- Strategy – development, approval, implementation, and achievement.
- People – leadership, development, retention, and high-performance.
Measures and targets against which performance will be measured are established during the
annual strategic review and budgeting process undertaken by Bellamy’s.
Performance for each measure is assessed on a range from Threshold, Target, to Stretch. A
stretch target is set by the Board for each measure at a level that ensures maximum STI is payable
only where performance has truly and substantially exceeded expectations. Threshold
performance is set annually which is generally 90% of target performance but this will depend on
the performance measure.
The Board has discretion to adjust STI outcomes up or down to ensure that individual outcomes
are appropriate to ensure that both the “What” and the “How” are recognised.
Relative weighting of fixed and variable components for target performance are set according to
the scope of the executive’s role.
35
ThresholdTargetStretch% STI measure performance 90%100%110%+% STI at-target payable60%100%101% to 167%
Remuneration Report
Long-term
Incentive (LTI)
- An award of
options with
performance
assessed over
3 or more
years
The purpose of the LTI is to focus the executives’ efforts on the achievement of sustainable long-
term shareholder value creation and the long-term financial success of Bellamy’s.
The provision of LTI plan awards via options for ordinary shares in Bellamy’s encourages long-
term share exposure for the executives and, therefore, drives behaviours that align with the
interests of our shareholders.
The Board believes a three-year performance period provides a reasonable period to align reward
with shareholder return and also acts as a vehicle to help retain the KMP, align the business
planning cycle, and provide sufficient time for the longer-term performance to be achieved.
Performance measures may vary from year to year depending on the long-term business
objectives, and are chosen on the basis that they will increase financial performance, market share
and shareholder returns, influencing both share price and the capacity to pay increased dividends.
Each grant may be divided into two tranches and each tranche is measured independently from
the other so one tranche may vest fully or partially whilst another tranche may not.
Remuneration mix
The Board recognises that each executive needs a significant portion of their remuneration to be at-risk
and be linked to Bellamy’s annual business objectives and actual performance and has ensured that the
remuneration mix is aligned with the creation of sustainable value for shareholders.
Due to the importance of the demanding turnaround strategy for Bellamy’s, the new Board has created a
larger weighting for long-term variable remuneration; with a reduction in the short-term variable
component. For the KMP executives the ‘at risk’ components are as follows:
1.
2.
3.
4.
The short-term incentive is the total payment at-target as a % of TFR
KMP executives’ STIs have a stretch component that is designed to encourage above at-target performance as a % of TFR.
The long-term incentive refers to the value, of any grant as a % of TFR. The % in this table represents the annual value of options granted to KMP
executives under the Turnaround LTI plan.
The at-target % and stretch % for Cohen’s STI was decreased from 30% and 50% (1H) to 28% and 47% (2H) respectively as a result of his increased
entitlement under the Turnaround LTI plan.
The mix of each at-target component as a percentage of the current KMP’s, TFR is shown in the graph
below with a detailed description of each element discussed in more detail below.
36
TFRShort TermIncentive(At-Target)1Short TermIncentive(Stretch)2Long TermIncentive(At- Target Opportunity)3Long TermIncentive(Maximum Opportunity)Current KMP ExecutivesAndrew Cohen4$820,00028%47%70%140%Nigel Underwood$350,00020%30%46%93%Peter Fridell$350,00020%30%43%86%David Jedynak$350,00020%30%46%93%Melinda Harrison$270,00020%30%25%51%
Remuneration Report
1.
Relationship between KMP remuneration outcomes and FY17 company performance
Total fixed remuneration
Current KMP executives
On his appointment to the role of Chief Operations & Strategic Officer Cohen’s fixed remuneration was
$769,616. As a result of his appointment to the role of Acting CEO his TFR was increased to $820,000
(an increase of 6.5%). This increase was based on his increased responsibilities and accountabilities
and the challenges he would face during a period of initial repair and turnaround. After confirmation of
Cohen in the role of CEO permanently his TFR remained at $820,000.
Former KMP executives
After a review in 2016 McBain’s TFR was increased to $820,000 (inclusive of superannuation), an 37.0%
increase, and Ollington’s TFR was increased to $313,616 (inclusive of superannuation), a 4.8% increase.
Short term incentive arrangements
Details of KMP executives’ STI payments for the year ended 30 June 2017, the proportion to be received
for at-target and stretch performance, achieved STI, and the amounts forfeited are shown in the tables
below.
Current CEO’s FY17 STI
Cohen’s performance for FY17 has been assessed based on the following:
-
first-half of FY17 (1H17) KPIs, whilst performing the role of Chief Operations & Strategy Officer
(CO&SO);
- second-half of FY17 (2H17) KPIs, whilst performing the role of Chief Executive Officer (CEO);
and
- consideration of Cohen’s important and significant role in the repairing and the turn-around of
Bellamy’s in 2H17, including his leadership, direction and prioritisation of activities required in the
later part of Q2 and Q3 of FY17.
1H FY17 performance
The measures for 1H17 were set by the then Board in early FY17 and related to Cohen’s roles as Chief
Operations & Strategy Officer.
The financial measures were the same for the former CEO McBain and her direct reports and were based
on the then priorities for FY17.
The non-financial measures were specific to Cohen’s role and required him to establish fully defined and
adaptable 2020 strategy that clearly articulated the pathway for Bellamy’s to become a Global and Iconic
Infant Brand and transform the organisation to a high-performing FMCG group that could deliver the
aspirations of the strategic plan with high retention and high engagement of employees.
For 1H17 only the Gross Profit Margin performance measure was achieved.
Cohen outperformed on all the non-financial measures:
-
the strategy was defined and agreed to by the Board by 31 October 2016;
37
Key Performance Indicators (1H)Weighting(At-Target %)Achievement(As a % of FY17 Target)Paid outFinancialEBIT as a % Net Revenue48%79.50%NoGross Profit Margin as a % Net Revenue6%90.80%YesSales Revenue6%60.67%NoNon-financial2020 Strategy28%125.00%YesPeople12%125.00%YesTotal100%
Remuneration Report
-
-
the strategy was clearly and comprehensively communicated to executives and employees of
Bellamy’s;
the implementation of a commercial finance function (to ensure an improved ability to manage
gross margin, COGS, and the S&OP process); and
- a step change in marketing and e-commerce capability in Australia and China; and undertook
key restructure decisions to materially reduce headcount and improve productivity.
2H FY17 performance
The 2H17 financial performance measures were set after the appointment of the new Board and Cohen
to the role of CEO and were based on the need to focus on Bellamy’s short-term financial performance
and achieve the longer term turnaround (18 months) of Bellamy’s.
The non-financial measures focussed on Credibility & Stability, Brand & Penetration, and Strategy &
People both domestically and internationally.
1. Normalised EBIT excludes the significant items not expected to be repeated in future years, including inventory write-downs, FX losses, legal, accounting
and restructuring costs which was important for Bellamy’s in FY17.
The improved financial performance of Bellamy’s is reflected in the 2H17 financial measures exceeding
the stretch performance measure target and supplemented by a stronger cash position and inventory
position (both owned and trade stock).
Cohen outperformed on all the non-financial measures by establishing a Board approved turnaround
strategy, creating a new executive leadership team and organisation structure, and leading Bellamy’s
through a crisis and times of uncertainty.
Accordingly, the amount of STI awarded to Cohen recognises his individual performance and the strongly
improved financial performance of Bellamy’s in the 2H17. In addition to the payment for achieving the
above targets the Board has awarded Cohen an additional discretionary payment of $20,000 to reflect
the additional efforts required by him during this period due to the significant internal and external
challenges in 2H17 and that Cohen’s leadership team was relatively new.
Other KMP executive’s STIs for FY17
Underwood commenced in January 2017, and was integral to the strategic reset of Bellamy’s,
successfully achieving financial stability and reducing the financial risk through working capital
management and with the capital raising. This involved a high level of internal and external stakeholder
engagement as well as partnering with the CEO, the Board and leadership team, to navigate through a
complex series of issues. Underwood was integral to the strategic decisions as well as upgrading
governance capability and support systems. This was all achieved in a short period of time and in an
environment of considerable volatility and challenge.
38
Key Performance Indicators (2H)Weighting(At-Target %)Achievement(As a % of FY17 Target)Paid outFinancialNormalised EBIT124%150.91%YesGross Profit Margin %6%114.06%YesSales Revenue30%116.10%YesDrive Out Cost8%125.00%YesPositive Cash Flow8%125.00%YesNon-financialCredibility & Stability8%125.00%YesBrand & Penetration8%125.00%YesStrategy & People8%125.00%YesTotal100%
Remuneration Report
In recognition of this achievement Underwood was awarded a $40,000 STI payment.
No other KMP executives were eligible to participate in the FY17 STI plan.
Summary of FY17 STI payments to KMP executives
1.
2.
3.
4.
KMP executives’ STIs have a stretch component that is designed to encourage above at-target performance.
STIs amounts indicated to have been achieved in respect of the year ended 30 June 2017 are subject to an annual review and only payable subsequent
to 30 June 2017 upon ratification and recommendation by the Remuneration & Nomination Committee and approved by the Board of Directors.
Based on his start date of 11 January 2017 the payment to Underwood of $40,000 represents 57.14% of his annual at-target STI amount of $70,000 or
114.3% of his pro rata at-target STI amount of $35,000 for 2H17.
The $295,379 amount of “STI Achieved” awarded to Cohen includes the Board discretionary amount of $20,000.
Company financial performance
The following graphs and table provides details of the relationship between KMP executives’ at-risk
remuneration (based on the 3 key financial measures) and Bellamy’s overall financial performance:
39
1H17 STI PaymentSTI $At-TargetSTI $Stretch1STI Achieved2% At-Target STI Achieved% StretchSTI Achieved% StretchSTI ForfeitedCurrent KMP Executives$$$%%%Andrew Cohen116,391193,98584,90272.9%43.8%56.2%Nigel Underwood0000%0%0%2H17 STI PaymentSTI $At-TargetSTI $Stretch1STI Achieved2% At-Target STI Achieved% StretchSTI Achieved% StretchSTI ForfeitedCurrent KMP Executives$$$%%%Andrew Cohen114,263190,710190,477166.7%100%0%Nigel Underwood335,00052,50040,000114.3%76.2%23.8%FY17 STI PaymentSTI $At-TargetSTI $Stretch1STI Achieved2% At-Target STI Achieved% StretchSTI Achieved% StretchSTI ForfeitedCurrent KMP Executives$$$%%%Andrew Cohen4230,654384,695295,379128.1%76.8%23.2%Nigel Underwood35,00052,50040,000114.3%76.2%23.8%
Remuneration Report
1. The net revenue for 2016 is the restated number. (refer Note 5)
2. For 2017 normalised EBIT been used as it excludes the significant items not expected to be repeated in future years, including inventory write-downs, FX
losses, legal, accounting and restructuring costs which was important for Bellamy’s in FY17.
3. Only Cohen and Underwood participated in the FY17 STI plan
4. The share price on 11 January 2017 was $5.35 on resumption of trading following a trading halt.
5. Only Cohen and Underwood participated in the FY17 STI plan
40
Measure2H171H17201720162015Net Revenue1 ($000)$121,885$118,300$240,182$234,083$125,302Net Revenue Growth3%3%87%204%EBIT2$23,319$18,688$42,007$54,306$12,286EBIT Growth25%-23%342%497%Share price at start of year4$5.35$10.21$10.21$4.37$1.30Share price at end of year$6.91$6.68$6.91$10.21$4.37Share price growth29%-35%-32%134%236%Interim dividend (cents per share)$0.000$0.000$0.000$0.041$0.00Final dividend/distribution (cents per share)$0.000$0.000$0.000$0.078$0.0286Total dividend/distribution (cents per share)$0.000$0.000$0.000$0.119$0.0286Basic EPS (cents per share)-$0.083$0.075-$0.08039.89.8Average STI payout as a % at-target for eligible KMP executives3121.17%150.05%138.89%
Remuneration Report
Long-term incentive plans
Turnaround long-term incentive plan
The Board recognises the work required to achieve the turnaround of Bellamy’s in order to deliver ongoing
sustainable earnings growth and provide increased returns in the short term; and most importantly
increased wealth for our shareholders over the long-term.
To achieve this turnaround Bellamy’s needed to attract, motivate, and retain a strong and capable CEO
and executive leadership team; but also directors who have extensive skills and experience to operate in
such an environment. This is especially important due to:
- The complexity of the Bellamy’s business;
- Bellamy’s operating in a global market and a highly regulated market; and
- The need to carefully manage brand risk during this period of turnaround.
For this reason, the Board has implemented a long-term incentive plan specifically to motivate and retain
executives during the turnaround. The Turnaround LTI plan has been designed to result in a $500 million
increase in shareholder value if full vesting is achieved over the next 3 years.
The Board will be seeking shareholder approval for the Turnaround LTI plan at the 2017 AGM.
The terms and conditions that apply to the Turnaround LTI plan grant of options are set out below.
Participants
CEO, his direct reports and non-executive directors (excluding Chair of the Board), and other key
executives who can substantially contribute to turnaround of Bellamy’s.
What are
options?
An option to acquire a fully paid ordinary share in the Company (subject to payment of an exercise price),
that will only vest and become exercisable if performance hurdles are satisfied.
Do
participants
pay for
options?
Options are granted as part of remuneration and therefore there is no payment provided in connection
with a grant. However, senior executives are required to pay an exercise price to exercise the options
and receive shares.
What is the
grant
frequency?
A single grant to cover next 3 years of equity remuneration. For participants who are not Directors the
grant was made in June 2017. For participants who are Directors the grant was also made in June 2017,
however, will be subject to approval at the 2017 AGM.
What is the
performance
period?
The grant was divided into two tranches. The performance period that applies to each tranche is set out
below.
Note: The last testing for vesting may occur up to 31 March 2021.
What is the
performance
hurdle and
why was it
chosen?
The TSR Hurdle is based on the Company's share price growth on a compound basis performance over
the relevant performance period. A TSR hurdle has been chosen as it is directly linked to the Company’s
share price growth and therefore the increase in value created for shareholders. Further details on the
hurdle is set out below.
41
Remuneration Report
How does the
TSR
performance
hurdle work?
The share prices used to calculate the TSR performance of the Company will be measured as follows:
-
-
the opening share price of $5.643; and
the closing share price will be the VWAP of the Company's ordinary securities traded on ASX for the
10 trading days following the announcement of the Company's annual results in respect of each
performance period in the Total Performance Period (or following the announcement of the half
yearly results in respect of the Third Performance Period).
Process for
assessing
performance
conditions
The Board has determined that the TSR performance hurdle will be assessed based on the growth in
the Company’s share price from $5.643 over the relevant performance period.
The Board believes the LTI provides the right measure and appropriately challenging target for
participants.
What are the
rights
attaching to
the options?
What is the
vesting price
and how was
it
determined?
What
happens on
cessation of
employment?
No voting rights or entitlements to dividends are attached to the options.
$5.643, the Board determined the exercise price. This is the theoretical ex rights price (TERP) struck at
the time acquisition, supply chain reset, and capital raising was announced.
The allocation price was $2.05 for tranche 1 and $2.04 for tranche 2 and was based on the fair value.
The fair value is calculated using a binomial option pricing model, which takes into consideration factors
such as the performance hurdles, probability of those hurdles being achieved, share price volatility,
expected life of the award, dividend yield and risk free rate.
If a participant ceases to be employed within the Group due to Termination for Cause (as defined in the
Rules), any and all Unvested Options held at the time will lapse with effect from the date of cessation of
employment.
If a participant gives notices of resignation from employment with any Group Company, in circumstances
where, in the Board's opinion, the Group Company was entitled to terminate the participant’s
employment without notice or payment in lieu of notice or for actual or alleged misconduct, any and all
Unvested Options the participant holds at that time will lapse on the date of cessation of their
employment.
If a participant ceases to be employed within the Group for any reason that does not result in the lapse
of all of the Unvested Options, a pro rata portion of any Unvested Options held at that time will lapse on
the date of cessation of employment, unless the Board determines otherwise.
What
happens on a
change of
control?
If a Corporate Control Event (as defined in the Rules) occurs that involves, or has resulted in, a person
acquiring Voting Power of more than 50% in the Company, any and all of the Unvested Options issued
to the participant under this Offer will be taken to have become Vested Options (and the outstanding
Vesting Conditions will be waived) from the date on which the person's Voting Power in the Company
increases from below to above 50% (as disclosed in the relevant substantial holding notice given to
ASX).
Shareholder
approval
Approval for this plan will be sought from shareholders at the 2017 AGM.
Legacy long-term incentive plan
The terms and conditions that applied to the FY17 grant of options under the Legacy LTI plan are the
same as for the FY15 and FY16 grants. The conditions specific for the FY17 grant are set out below.
42
Remuneration Report
Participants
CEO, his direct reports, and other key executive.
What is the
performance
period?
The FY17 grant was divided into two tranches. The performance period that applies to each
tranche is set out below.
% of
grant
Performance
measure
Relevant performance period
Tranche 1
50%
Tranche 2
50%
Earnings per
share
Share price
growth
1/07/2016 – 30/06/2019
1/07/2016 – 30/06/2019
How does the
EPS
performance
hurdle work?
The EPS performance hurdle is subject to the measurement of the Company’s average
annual growth in EPS.
Company's EPS
% of options that will vest in
tranche 1
Less than 7%
12%
Nil
20%
Above 7% but less than
12%
Between 20% and 100%, as
determined on a pro-rata, straight
line basis
At or above 12%
100%
How does the
SPG
performance
hurdle work?
For tranche 2, the percentage of the options that vest and become exercisable, if any, will
be determined over the relevant performance period by reference to the following vesting
schedule:
Company's SPG
% of options that will vest in
tranche 2
Less than 8%
8%
Nil
20%
Above 8% but less than
12%
Between 20% and 100%, as
determined on a pro-rata, straight
line basis
At or above 12%
100%
The Board has determined that the opening share price to be used for the purpose of the
SPG Hurdle is $14.14.
Process for
assessing
performance
conditions
The EPS performance hurdle is assessed based on the Company’s audited financial
statements. This method of measurement was chosen as the use of financial statements
ensures the integrity of the measure and alignment with the true financial performance of the
Company.
The Board has determined that the SPG performance hurdle will be assessed based on the
growth in the Company’s share price from $14.14 over the relevant performance period.
What is the
vesting price
and how was
it
determined?
For the FY17 grant the original vesting price was $14.14 based on the volume weighted
average share price over a 10-day period, comprised of the 5-day period before the
announcement date of the Company's relevant annual financial results and the 5-day period
commencing on 19 August 2016. As a result of the June 2017 rights issue, the exercise
price of FY17 legacy LTI grant has been recalculated and is now $14.04. The allocation
price was $2.74 and was based on the fair value. The fair value is calculated using a binomial
option pricing model, which takes into consideration factors such as the performance hurdles,
probability of those hurdles being achieved, share price volatility, expected life of the award,
dividend yield and risk free rate.
43
Remuneration Report
When do the
options
expire?
23 December 2021.
Current CEO’s FY16 grant of options
As disclosed in last year’s remuneration report Cohen was provided with 3 grants of options on joining
Bellamy’s (1 July 2016) as follows:
- A grant of 37,575 as a sign-on offer with a vesting date of 30th June 2017, nil exercise price and a
fair value of each option at the grant date of $9.98;
- A grant of 369,125 based on the offer made to other KMP as part of the FY15 Grant with a vesting
date of 30 June 2017, an exercise price of $9.88 (adjusted) and a fair value of each option at the
grant date of $1.21; and
- A grant of 283,250 based on the offer made to other KMP as part of the FY16 Grant with a vesting
date of 30 June 2018, an exercise price of $9.88 (adjusted) and a fair value of each option at the
grant date of $1.58.
The Board has approved the vesting of Cohen’s 37,575 sign-on offer options and Cohen exercised them
in August 2017 with a nil exercise price and a fair value of each option at the grant date of $1.21.
FY15 legacy long-term incentive grant vesting
The vesting of the FY15 legacy LTI grant is as follows:
- Cohen is able to participate in the legacy LTI plan (as detailed above and in the 2015 Remuneration
Report);
- Whilst Ollington is no longer a KMP executive she is still able to participate in the FY15 legacy LTI
plan (as detailed in the 2015 Remuneration Report); and
- McBain participated in the FY15 legacy LTI plan.
Cohen, Ollington and McBain were eligible to participate in the FY15 LTI grant. At the time of writing the
FY15 legacy LTI grant had not been assessed and/or approved by the Board for Cohen and Ollington.
Details of McBain’s FY15 LTI grant vesting are set out on page 47 below.
Former CEO’s future grant of options
The Board obtained shareholder approval for the grant of up to 1,050,000 options to McBain, CEO, as
part of her long-term incentive (LTI) award for the financial years ending FY18, FY19, FY20.
As a result of McBain departing as CEO the Board cancelled these long-term incentive awards.
Exercise price adjustment
In accordance with Legacy Long Term Incentive Plan Rules, as a result of the June 2017 rights issue, the
exercise price of legacy LTI grants has been recalculated as follows:
1.
These grants relate to the current CEO’s FY16 grant of options
The exercise price of the Turnaround LTI plan is not impacted as the exercise price of this grant already
included an adjustment for the rights issue.
44
GrantGrant DateOriginal exercise priceAdjusted exercise priceFY1529 June 2015$1.30$1.20FY1623 December 2015$4.97$4.87FY16130 June 2016$9.98$9.88FY173 October 2016$14.14$14.04
Remuneration Report
Executive contracts
The remuneration and other terms of employment for the executives are covered in formal employment
contracts that have no fixed terms. Bellamy’s may terminate an executive immediately for cause, in which
case the executive is not entitled to any payment other than the value of total fixed remuneration (and
accrued entitlements) up to the termination date.
Non-executive directors’ remuneration
Bellamy’s remuneration policy for non-executive directors aims to ensure that Bellamy’s can attract and
retain suitably qualified and experienced directors having regard to:
-
-
-
-
the level of fees paid to non-executive directors of other comparable Australian listed companies;
the growing size and complexity of Bellamy’s operations;
the responsibilities and work requirements of Board members; and
the skills and diversity of Board members.
Current fee levels and fee pool
Under the ASX Listing Rules, the total amount paid to all non-executive directors in any financial year
must not exceed the amount fixed in a general meeting of the Company. This amount is currently
$1,000,000 as determined by Shareholders at the AGM held on 20 October 2015.
For FY17, non-executive directors’ annual fees (inclusive of any superannuation entitlements) were:
1.
2.
In order to ensure good governance and independence the Chairman made the personal decision to waive his Board fees, and this was approved at the
18 May 2017 Board meeting.
The Deputy Chairman is the Chair of the Remuneration & Nomination Committee and does not receive an additional fee for this role.
Directors may also be reimbursed for travel and other expenses incurred in attending to Bellamy’s affairs.
Prior to his appointment to the Board of Bellamy’s Murphy provided Bellamy’s with consultancy services
relating to
45
Notice Periodby Bellamy'sNotice Periodby ExecutivePayment in lieu of noticeRedundancy for fundamental change in role RedundancyCurrent KMP ExecutivesAndrew CohenChief Executive Officer (CEO)6 months6 monthsYesYesRedundancy payment of 6 months’ salary and will include any applicable pay in lieu of notice.Nigel UnderwoodChief Financial Officer (CFO)6 months6 monthsYesYesRedundancy payment that varies depending on his length of service, the payment will range between 6 months’ and 12 months’ salary and will include any applicable pay in lieu of notice.Peter FridellDirector of Operations6 months6 monthsYesNoRedundancy payment that is calculated in accordance with the Company or Group's policy and will include any applicable pay in lieu of notice.David JedynakDirector Sales & Marketing6 months6 monthsYesNoRedundancy payment that is calculated in accordance with the Company or Group's policy and will include any applicable pay in lieu of notice.Melinda HarrisonGeneral Counsel & Company Secretary6 months6 monthsYesNoRedundancy payment that is calculated in accordance with the Company or Group's policy and will include any applicable pay in lieu of notice.NameBase FeeChair of Audit CommitteeChair of Remuneration & Nomination CommitteeMember of Audit CommitteeMember of Remuneration & Nomination CommitteeChairman1$200,000$0$0$0$0Deputy Chairman2$120,000$0$0$3,000$0Director$75,000$15,000$15,000$3,000$3,000
Remuneration Report
- assisting the CEO with talent development and acquisition;
- supply chain advice, procurement/ global sourcing, network redesign, and supplier negotiation;
- marketing and sales advice on the overall sales channel development; and
-
internal and external Company communications.
These services were in addition to his directors' duties and required involvement outside ordinary board
and committee meetings. These services were approved by the Board and the payments have been
included in Table A.
All non-executive directors enter into a service agreement with the company in the form of a letter of
appointment. The letter summarises the board policies and terms, including remuneration, relevant to
the office of director. There are no retirement benefit schemes for directors other than statutory
superannuation contributions, and non-executive directors’ remuneration must not include a commission
on, or a percentage of, the profits or income of Bellamy’s.
Participation in Turnaround LTI plan
The Board recognises that the participation of directors in an equity-based plan is not usual.
Given the company is at the beginning of a critical turn-around phase, it was especially important to have
high calibre Directors with the requisite and specific skills. The LTI plan is one of the components in being
able to attract such talent to the Board.
John Ho, Bellamy’s Chairman, led a remuneration review for Directors. The Board decided that instead
of simply increasing the cash component of Director fee to attract the most suitable Board talent, it would
use an at-risk LTI to motivate and recognise the significant amount of additional effort that will be required
over and above what is considered in the ordinary course of business for a board as part of the turnaround
of Bellamy’s.
Recognising the potential conflict that an LTI plan could create for Directors, the LTI plan design is only
linked to Total Shareholder Return. That is, unlike many LTI plans there is no business performance or
subjective metrics that need to be assessed for vesting. Hence, this Turnaround LTI plan for Directors
further achieves the objective of aligning the long-term enterprise value creation of the company and the
total Director remuneration over the next few years.
The current Chairman will not participate in the Turnaround LTI plan.
Shareholder approval for the directors to participate in the Turnaround LTI plan will be sought at the 2017
AGM.
Termination payments to former CEO
Termination payment
Bellamy’s has not paid any termination amount to McBain that exceeds the termination benefits cap under
the Corporations Act 2001(Cth).
Key terms of leaving arrangement
On 11 January 2017, the Board announced that McBain would leave the role of CEO effective 11 January
2017 (and resigned as a director of the company on 24 January 2017).
Under her employment contract McBain was entitled to 6 months’ notice and Bellamy’s had the right to
require her to work all or part of this notice period. Accordingly, Bellamy’s determined as follows:
1. McBain was on gardening leave for the period 11 January 2017 to 31 March 2017 during which
time McBain agreed to assist with any outstanding matters; and
2. McBain received a termination payment which included a payment for the remaining 3 months
(approximately) in lieu of notice, pro rata long service leave, unused annual leave, and other
statutory entitlements.
No ex-gratia payments were or will be made to McBain nor is she entitled to a pro rata STI payment for
FY17.
46
Remuneration Report
Long-term incentive outcomes
Equity granted in prior years under Bellamy’s LTIP will, in accordance with the terms of their issue and
McBain’s employment contract:
If you cease to be employed for any other reason, then a pro rata proportion of any Unvested
Options you hold at that time, calculated by reference to the proportion of the Performance Period
that has elapsed as at the date you cease employment, will be tested based on performance
against the EPS Hurdle and SPG Hurdle to that date.
As at 31 March 2017, McBain had the following long-term incentive awards:
- The FY15 Options, granted on 29 June 2015;
- The FY16 Options, granted on 23 December 2015; and
- The FY17 Options, granted on 3 October 2016.
Each of the Options invitation letters provided the treatment to apply to McBain’s unvested options on
cessation of employment. That is, if McBain ceased to be employed for any reason other than termination
for cause, then a pro rata proportion of any unvested Options held at that time, calculated by reference
to the proportion of the total performance period that had elapsed as at the date McBain ceased
employment, were tested based on performance to that date. The terms of the Options invitation letters
were consistent with the terms approved by shareholders at the 2014 AGM.
In summary, the Company tested the awards and determined that only 504,870 of McBain’s FY15 options
would be eligible for vesting at this time as the remaining options did not yet meet the requisite
performance hurdles. The FY16 and FY17 options also lapsed as the performance hurdles were not met.
Details of the FY15 options that vested are set out in the table below.
The treatment of unvested options on cessation of employment results in the automatic and accelerated
vesting of a share-based payment, which is a termination benefit. Accordingly, any options provided in
these circumstances fall within the termination benefits cap. This is because the legislation specifically
catches automatic and accelerated share-based payments. Therefore, McBain was only entitled to
receive 116,348 of the 504,870 vesting options with a maximum benefit equal to $369,988 (116,348 x
$4.38* – 116,348 x $1.20). The remaining 388,522 options under the FY15 grant remain afoot as the
company is still assessing the extent to which they will vest. As at the date of this report McBain had not
exercised any of the 116,348 options.
*The share price of $4.38 was based on 10 day VWAP of Bellamy’s shares up to the date of cessation of 31 March 2017.
Signed in accordance with a resolution of the Board of Directors.
John Ho
Chair
John Murphy
Director
Dated at Melbourne this 25th day of August, 2017
47
Tranche % of Grant Performance Measures Performance Period Target Pro rata Target (31 March 2017) Result (31 March 2017) % Options vesting No Options available for vesting Tranche 1 EPS 16.67% Absolute EPS 1-Jul-14 to 30-Jun 15 $0.0474 $0.098 $0.098 100% 504,870 Tranche 2 EPS 33.33% EPS growth 1-Jul-14 to 30-Jun 17 $0.1122 $0.1104 $0.1078 0% Tranche 3 50.00% SPG 1-Jul-14 to 30-Jun 17 $1.64 $1.61 $4.38 100%
Remuneration Report
Details of the nature and amount of each element of the remuneration
Table A: Remuneration for KMP for the year ended 30 June 2017
1. The amounts shown for STI relates to the actual payments for FY16 and the approved amounts for FY17. Noting, the former CEO McBain was not entitled to any pro rata STI payment as part of her termination entitlements.
2. The fair value of options as at the date of their grant has been determined in accordance with AASB 2 Share-based Payment. The amount shown is the amortised expense for FY17 (pro rata for McBain and Ollington). For the Directors,
the options granted are subject to shareholder approval at the 2017 AGM.
3. Murphy received $8,335 for consultancy services provided to Bellamy’s, this amount has been included in his fees for FY17.
4. McBain received a termination payment of $457,750, which included payments of $224,723 for in lieu of notice, $135,482 for pro rata long service leave, and $97,545 for unused annual leave. Long service leave and annual leave are
excluded from the termination cap
5. Ollington participates in the Turnaround LTI plan but was invited to participate after she ceased to be a KMP.
48
TotalPerformance Related %YearSTI Payment1Non-monetary benefitsSuperannuationLong term employment benefitsSharesOptions2Current Non-executive Directors$$$$$$$$%John Ho2017000000000%2016000000000%John Murphy3201724,303001,517005,25831,07817%2016000000000%Wai-Chan Chan201726,000002,4700098629,4563%2016000000000%Rodd Peters201752,237004,9040098658,1272%2016000000000%Current KMP ExecutivesAndrew Cohen2017772,867295,379019,385001,035,4652,123,09663%20168,24100782005,73314,75639%Nigel Underwood2017165,01540,00044,3097,7580012,916269,99820%2016000000000%Peter Fridell201712,707001,2070011,96425,87846%2016000000000%David Jedynak201712,707001,2070012,91626,83048%2016000000000%Melinda Harrison201734,669003,294005,43843,40113%2016000000000%Former Non-executive Directors$$$$$$$$%Robert Woolley2017133,3330012,667000146,0000%2016200,0000019,000000219,0000%Michael Wadley201752,000004,94100056,9410%201684,000007,98000091,9800%Patria Mann201771,419007,05400078,4730%201624,437002,32200026,7590%Launa Inman201754,000005,13100059,1310%201681,000007,69500088,6950%Charles Sitch201752,000005,55800057,5580%201623,860002,26700026,1270%Former KMP ExecutivesLaura McBain42017612,300013,24319,616457,7500175,2891,278,19814%2016578,533267,01133,57218,93651,7230293,7571,243,53245%Shona Ollington52017158,11030,000010,8821034,130233,12328%2016279,231123,336018,427440058,777480,21138%Short Term Employee BenefitsPost-employment BenefitsShare Based Payments
Remuneration Report
Share based payments
Table B: Share-based payments granted as remuneration to KMP during FY17
1.
2.
3.
4.
5.
For the Directors, the options granted are subject to shareholder approval at the 2017 AGM.
The value of the options is amortised over the period from grant date to the vesting date for purposes of accounting and KMP remuneration reporting. The fair value of each option for the FY16 grant was $1.04 and for the FY17 legacy grant
it was $0.875 for McBain and Ollington (the only KMP who participated), and for the FY17 Turnaround grant it was $2.05 for tranche 1 and $2.04 for Tranche 2. In FY18 the June FY17 grant will have a remuneration value of $2,263,986.
Cohen’s grant for FY17 includes 168,345 options issued under the FY17 legacy LTI plan and 1,675,000 options issued under the FY17 Turnaround LTI plan.
For McBain 116,348 of the 504,870 vesting options were eligible to be exercised based on a maximum termination benefit cap of $369,988 (116,348 x $4.38* – 116,348 x $1.20) but at the date of this report they have not been exercised.
The remaining 388,522 options under the FY15 grant remain afoot as the company is still assessing extent to which they will vest.
Loans to KMP and other transactions of KMP and their personally related entities - neither Bellamy’s nor any other Group company:
•
•
has outstanding loans with KMP; or
was party to any other transactions with KMP (including their personally related entities)
49
YearOption SeriesGrant DateNumber Granted1Value of Options Granted2$Number VestedPercentage of Grant ForfeitedCurrent Non-executive DirectorsJohn Ho2017FY17 Grant13-Jun-1700NilNil2016FY16 Grant00NilNilJohn Murphy2017FY17 Grant13-Jun-17193,373395,448NilNil2016FY16 Grant00NilNilWai-Chan Chan2017FY17 Grant13-Jun-1736,25774,146NilNil2016FY16 Grant00NilNilRodd Peters2017FY17 Grant13-Jun-1736,25774,146NilNil2016FY16 Grant00NilNilCurrent KMP ExecutivesAndrew Cohen2017FY17 Grant303-Oct-161,843,3453,762,02835,575Nil2016FY16 Grant30-Jun-16689,9501,275,000NilNilNigel Underwood2017FY17 Grant13-Jun-17475,000973,750NilNil2016FY16 Grant00NilNilPeter Fridell2017FY17 Grant13-Jun-17440,000902,000NilNil2016FY16 Grant00NilNilDavid Jedynak2017FY17 Grant13-Jun-17475,000973,750NilNil2016FY16 Grant00NilNilMelinda Harrison2017FY17 Grant13-Jun-17200,000410,000NilNil2016FY16 Grant00NilNilFormer KMP ExecutivesLaura McBain2017FY17 Grant03-Oct-16239,154466,350Nil100%2016FY16 Grant23-Dec-15530,918464,554Nil100%2015FY15 Grant429-Jun-15825,877240,000504,87039%Shona Ollington2017FY17 Grant03-Oct-1640,02178,042NilNil2016FY16 Grant23-Dec-15112,00098,000NilNil
Remuneration Report
Options over shares in Bellamy’s Australia Limited
Table C: Movements during FY17 in the options over shares in the Company held, directly, indirectly or beneficially, by each KMP, including their related parties.
1.
2.
3.
For the Directors, the options granted are subject to shareholder approval at the 2017 AGM.
The Board approved the vesting of Cohen’s 37,575 sign-on offer options and Cohen exercised them in August 2017 with a nil exercise price and a fair value of each option at the grant date of $1.21.
For McBain 116,348 of the 504,870 vesting options were eligible to be exercised based on a maximum termination benefit cap of $369,988 (116,348 x $4.38* – 116,348 x $1.20); and at the date of this report they have not been exercised.
The remaining 388,522 options under the FY15 grant remain afoot as the company is still assessing extent to which they will vest.
50
YearOptionsheld atStart of YearGranted as remuneration in period1Vested in FY17and exercisableExercised during the reporting periodOptions pending forfeitureOptions forfeited in FY17Optionsheld atEnd of YearCurrent Non-executive DirectorsJohn Ho2017000000020160000000John Murphy20170193,3730000193,37320160000000Wai-Chan Chan2017036,257000036,25720160000000Rodd Peters2017036,257000036,25720160000000Current KMP ExecutivesAndrew Cohen22017689,9501,843,34537,5750002,533,29520160689,9500000689,950Nigel Underwood20170475,0000000475,00020160000000Peter Fridell20170440,0000000440,00020160000000David Jedynak20170475,0000000475,00020160000000Melinda Harrison20170200,0000000200,00020160000000Former KMP ExecutivesLaura McBain320171,356,795239,154116,34801,010,825(468,776)1,127,17320161,779,210530,918953,333(953,333)001,356,7952015953,333825,87700001,779,210Shona Ollington2017328,79340,0210000368,8142016216,793112,0000000328,793
Remuneration Report
Fully paid ordinary shares of Bellamy’s Australia Limited
Table D: Movement during FY17 in the shares of Bellamy’s held, directly, indirectly or beneficially, by each
KMP, including their related parties.
1.
2.
3.
There were no shares held nominally by KMP as at 30 June 2017 and as at the date of this report.
The shareholding for the exiting directors and former KMP executives are shown at the end of their term, not the end of the year.
The shares shown for Harrison are held directly by a family member.
51
YearShares held atStart of Year or when commencedNet other changesSharesheld atEnd of Year1&2Non-executive DirectorsNo.No.John Ho20176,779,284892,0107,671,2942016000Rodd Peters201794,700148,000242,7002016000Wai-Chan Chan20170002016000John Murphy201700020160Current KMP ExecutivesAndrew Cohen201713,750013,750201613,750013,750Nigel Underwood20170002016000Peter Fridell20170002016000David Jedynak20170002016000Melinda Harrison320173,47503,4752016000Former Non-executive DirectorsRobert Woolley2017452,277(352,277)n/a20161,335,739(883,462)452,277Michael Wadley201700n/a2016000Patria Mann20174,0000n/a201604,0004,000Launa Inman201726,0200n/a201622,0004,02026,020Charles Sitch201700n/a2016000Former KMP ExecutivesLaura McBain20171,165,376(1,165,376)n/a20161,565,376(400,000)1,165,376Shona Ollington201700n/a2016000
Auditor’s Independence Declaration
Auditor’s Independence Declaration
52
Financials
Consolidated Financial Statements
Consolidated Statement of Profit and Loss and Other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
How numbers are calculated
Segment information
Shareholder returns
Profit and loss information
Financial assets & financial liabilities
Non-financial assets & liabilities
Issued Capital
Risk
Critical estimates and judgements
Financial risk management
Group structure
Parent entity financial information
Subsidiaries
Unrecognised items
Contingent liabilities and assets
Other information
Related party transactions
Key management personnel disclosures
Auditor’s remuneration
Share based payments
Deed of Cross Guarantee
Summary of Significant Accounting Policies
Directors’ Declaration
Independent Auditors Report
54
55
56
57
58
59
61
62
64
66
71
75
75
76
79
79
79
81
81
83
83
83
85
85
87
87
93
94
53
Bellamy’s Australia Limited
Consolidated Statement of Profit or Loss and Other Comprehensive Income
for the year ended 30 June 2017
Note
2017
$’000
Restated
2016
$’000
Revenue
Cost of sales
Gross Profit
Other income
Direct costs (distribution & other costs)
Employee costs
Marketing & promotion costs
Administrative and other costs
Depreciation and amortisation
Earnings before net interest and tax (EBIT)
Net interest (expense) / revenue
(Loss)/ profit before income tax
Income tax expense
Net (Loss)/profit for the year
Other comprehensive income (net of tax)
Items that may be reclassified to profit and loss
Changes in the fair value of cash flow hedges
Income tax relating to these items
Exchange differences arising from translation of wholly
owned foreign entities
Total other comprehensive income
Total comprehensive income for the year
Basic earnings per share
Diluted earnings per share
5
6
5
6
6
6
6
7
240,182
234,083
(148,661)
(132,855)
91,521
101,228
248
522
(22,258)
(15,992)
(10,919)
(41,220)
(787)
593
(1,270)
(677)
(131)
(809)
(18,010)
(10,433)
(6,969)
(11,725)
(307)
54,306
588
54,894
(16,566)
38,328
540
(565)
(447)
93
(599)
1,164
(716)
37,164
2017
cents
2016
Cents
(0.8)
(0.8)
39.8
38.6
The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in
conjunction with the accompanying notes.
54
Bellamy’s Australia Limited
Consolidated Balance Sheet
as at 30 June 2017
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other financial assets
Financial assets at fair value through profit or loss
Current tax assets
Other assets
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Deferred tax assets (net)
Total Non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Borrowings
Provisions
Derivatives
Current tax liabilities
Total Current Liabilities
Non-current liabilities
Borrowings
Provisions
Total Non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained profits
Total equity
Note
2017
$’000
2016
$’000
21(a)
8
11
9
10
18
16
12
13
18
14
15
17
15
18
15
17
19
20
17,479
37,057
93,497
-
-
274
2,051
32,295
33,887
67,752
500
283
-
4,475
150,358
139,192
1,006
1,740
3,537
6,283
1,105
1,704
1,500
4,309
156,641
143,501
37,726
25,264
2,329
34
-
65,353
-
29
29
65,382
91,259
53,795
5,635
31,829
91,259
48,373
113
328
807
10,495
60,116
18
146
164
60,280
83,221
40,216
2,829
40,176
83,221
The above Consolidated Balance Sheet should be read with the accompanying notes.
55
Bellamy’s Australia Limited
Consolidated Statement of Changes in Equity
For the year ended 30 June 2017
Foreign
currency
translation
reserve
$’000
Cash
flow
hedge
reserve
$’000
Share
based
payment
reserve
$’000
Issued
capital
$’000
Retained
earnings
$’000
Total
$’000
40,216
(373)
(565)
3,767
40,176 83,221
-
-
-
13,579
-
-
53,795
-
(447)
(447)
-
-
-
-
540
540
-
-
-
(820)
(25)
-
-
-
(809)
-
(809)
(809)
93
(716)
-
-
2,713
6,480
- 13,579
(7,538)
2,713
(7,538)
-
31,829 91,259
39,655
(159)
-
499
8,916 48,911
-
-
-
561
-
-
-
(214)
(214)
-
(565)
(565)
-
-
-
38,328 38,328
(1,164)
37,943 37,164
(385)
-
-
-
-
-
-
-
-
3,268
3,767
-
(6,683)
-
561
(6,683)
3,268
40,176 83,221
Balance as at 1 July 2016
Comprehensive income
Profit for the year
Other comprehensive income
Total comprehensive income
Issue of shares (net of
transaction costs)
Dividends
Share based payments
Balance as at 30 June 2017
Balance as at 1 July 2015
Comprehensive income
Profit for the year
Other comprehensive income
Total comprehensive income
Issue of shares (net of
transaction costs)
Dividends
Share based payments
Balance as at 30 June 2016
40,216
(373)
(565)
The above Consolidated Statement of Changes in Equity should be read in conjunction with the
accompanying notes.
56
Net cash inflow/(outflow) from operating activities
21 (b)
Bellamy’s Australia Limited
Consolidated Statement of Cash Flows
for the year ended 30 June 2017
Cash flows from operating activities
Cash receipts from customers
Cash payments to suppliers and employees
Cash generated from operations
Interest received
Dividends received
Other revenue
Interest paid
Income taxes paid
Cash flows from investing activities
Proceeds from sale of property plant & equipment
Purchases of property, plant & equipment
Proceeds on sale of investments
Purchases of intangibles
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from share issue
Proceeds of borrowings
Repayment of borrowings
Dividends paid to Company’s shareholders
Net cash inflow/(outflow) from financing activities
Net increase/(decrease) in cash equivalents
Cash and cash equivalents at the beginning of the
financial year
Effects of exchange rate changes
Cash and cash equivalents at the end of the financial
year
Note
2017
$’000
2016
$’000
237,018
(269,433)
(32,415)
94
-
-
(876)
(12,522)
(45,718)
48
(273)
297
(544)
(472)
13,175
65,452
(40,319)
(7,135)
31,173
(15,018)
231,092
(214,416)
16,676
598
5
38
(10)
(8,412)
8,895
1
(752)
-
(1,651)
(2,402)
561
(107)
-
(6,684)
(6,230)
263
32,295
32,035
202
(3)
21 (a)
17,479
32,295
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying
notes.
57
Bellamy’s Australia Limited
Notes to the Financial Statements
For the year ended 30 June 2017
These are the consolidated financial statements of Bellamy’s Australia Limited and its subsidiaries. A
list of all subsidiaries is included in Note 25. The financial statements are presented in the Australian
currency. The Notes are set out in the following main sections:
How numbers are calculated: provides a breakdown of those individual line items in the financial
statements that the Directors consider most relevant in the context of the operations of the Group, or
where there have been significant changes that required specific explanations.
Risk: discusses the Group’s exposure to various financial risks and what the Group does to manage
these risks.
Group structure: explains significant aspects of the Group structure.
Unrecognised items: provides information about items that are not recognised in the financial
statements.
Other information: includes information that is not directly related to specific line items in the financial
statements, including: related party transactions and share-based payments. Other information also
includes significant accounting policies applied in the preparation of these financial statements.
58
Bellamy’s Australia Limited
How numbers are calculated
1
Significant changes in the current reporting period
During the year the Group experienced a disconnect between its production, distribution and sales
strategies. In early 2H17, a sales reset strategy was successfully deployed and followed by a supply chain
reset. The result has been to stabilise sales and margin and reduce inventory. At the end of 2H17, a capital
raise provided funding to acquire a manufacturing facility as well as improve working capital. The Group
was debt free by the end of July 2017.
For detailed discussion of the Group’s performance and financial position refer also to the Operating and
Financial Review on pages 6 to 8. This review identifies costs that are not expected to recur in future
financial years.
Refer note 22 for the critical estimates and judgements note related to the future working capital
requirements of the Group.
2
Segment information
a) Description of segments
Operating segments are determined in accordance with AASB 8 Operating Segments. To identify the
operating segments of the business management has considered the business from both a product and
geographical perspective, as well as considering the way information is reported to management and the
Board.
The operating segments have been redefined based on the geographical location of the retailer/reseller in
respect of the direct sale by the Company to reflect how the business is now managed. Previously
segments were determined based on Management’s assumption of the location of the end consumer. This
change has been implemented to simplify reporting and to eliminate judgement in determination of
identification of the end consumer. The 2016 segment disclosure has been amended to reflect the change
in segments.
The three operating segments are as follows:
i)
ii)
iii)
Australia – revenues derived from sales to retailers and other resellers within Australia.
China/Hong Kong – revenue derived from sales to Chinese distributors and online sales from third
party websites to Chinese customers.
Other/South East Asia – sales to other distributors and retailers, predominantly in South East
Asia.
Senior management assess the performance of the operating segments based on a measure of underlying
earnings before interest and tax (EBIT). This measurement basis excludes the effects of non-recurring
expenditure from the operating segments such as restructuring costs and one-off items to ensure
comparability of the underlying operating result. Interest income and expenditure are not allocated to
segments.
Significant items relate to significant changes in the business during the past financial year and are
identified due to their nature and magnitude on the assessment of segment performance. They include the
costs that are associated with the turnaround plan and include costs arising from the supply chain reset,
professional fees and restructuring costs that are not expected to recur in future financial years. These
have been included as non-recurring and are excluded by management when assessing the underlying
EBIT of the segments.
A reconciliation of segment EBIT to profit before income tax is provided in (b) below.
Total assets and liabilities are measured in a manner consistent with that in the financial statements. These
assets are allocated based on the operations of the segment and physical location of the asset.
59
Bellamy’s Australia Limited
2017 $’000
Segment revenue from external
customers
Underlying segment EBIT *
Segment EBIT %
Total segment assets
Total segment liabilities
Other disclosures
Depreciation & amortisation
Income Tax
Restated 2016 $’000
Segment revenue from external
customers
Underlying segment EBIT
Segment EBIT %
Total segment assets
Total segment liabilities
Other disclosures
Depreciation & amortisation
Income Tax
Australia
China/Hong
Kong
Other/South
East Asia
Group Total
160,049
32,221
20.1%
123,158
34,770
731
(606)
180,342
41,526
23.0%
91,089
46,931
249
15,082
73,143
14,516
19.97%
10,956
1,558
31
870
49,932
14,975
30.0%
17,463
1,352
38
1,738
6,990
115
1.7%
1,237
3,397
25
(133)
3,809
340
8.9%
1,154
90
20
(255)
240,182
46,853
19.5%
135,351
39,725
787
131
234,083
56,841
24.3%
109,706
48,373
307
16,566
b) Reconciliation of the underlying segment EBIT to profit before tax
2017
$’000
2016
$’000
46,853
56,841
(4,845)
(2,535)
(6,838)
(1,449)
(27,500)
(1,083)
(2,980)
(1,564)
(41,414)
-
-
-
-
-
-
-
(1,270)
588
(677)
54,894
Underlying segment EBIT
Unallocated corporate costs *
Significant items /non-recurring:
Inventory provisions and write-down
Restructuring costs
Fonterra payment for supply chain reset
Costs associated with the acquisition of Camperdown
Powder and indirect capital raising costs
Professional fees of a non-recurring nature
Ineffective foreign exchanges hedge losses
Net interest revenue/(expense)
(Loss)/profit before tax
*Non trading entity costs
60
Bellamy’s Australia Limited
c) Reconciliation of segment assets and liabilities
Australia
China/Hong Kong
Other/South
East Asia
Consolidated
2017
$'000
2016
2017
$'000
$'000
2016
$'000
2017
2016
$'000
$'000
2017
$'000
2016
$'000
123,158
91,089 10,956
17,463
1,237
1,154
135,351
109,706
17,479
32,295
274
3,537
-
1,500
156,641
143,501
34,770
46,931
1,558
1,352
3,397
90
39,725
48,373
Segment assets
Unallocated
Cash and cash equivalents
Current tax assets
Deferred tax assets (net)
Total assets
Segment liabilities
Unallocated
Provisions (employee
benefits)
Borrowings
Derivatives
Current tax liabilities
Total Liabilities
Shareholder returns
3
Earnings per share
Basic earnings per share (a)
Diluted earnings per share (b)
a) Basic earnings per share
358
25,264
34
-
65,382
474
131
807
10,495
60,280
2017
cents
2016
Cents
(0.8)
(0.8)
39.8
38.6
The calculation of basic earnings per share is based on the profit/(loss) attributable to ordinary shareholders
of ($809,000) (2016: $38,328,000) and the weighted average number of shares outstanding of 96,736,658
(2016: 96,350,131).
b) Diluted earnings per share
The calculation of diluted earnings per share is based on the weighted average number of shares
outstanding of 103,893,555, including unexercised employee options of 6,891,010 (2016: 3,035,662).
The calculation does not include 3,190,042 shares to be issued to the vendors of Camperdown Powder
Pty Ltd when conditions subsequent have been achieved. It also does not include 265,888 options issued
to the directors which have not yet been approved by the shareholders.
4
Dividends to shareholders
On 19 August 2016, the Directors declared a fully franked dividend of 7.8 cents per share in respect of the
financial year ended 30 June 2016. (Dividends of 2.86 cents per share and 4.10 cents per share were paid
during the previous financial year.)
61
Bellamy’s Australia Limited
As at 30 June 2017, the level of 30% franking credits available to shareholders on a tax paid basis was
$12,506,612 (2016: $14,095,000). The franking credits available are based on the balance of the dividend
franking account in the prior year tax return adjusted in relation to the current income tax liabilities for the
year ended 30 June 2017. The ability to utilise franking credits is dependent upon the ability to declare
dividends.
Profit and loss information
This following Notes provides further information about individual line items in the profit and loss statement
5
Revenue
Restatement of prior year
The prior year comparative has been restated to reclassify $10.5 million of expenses from direct costs to
reduce revenue. These costs were associated with payments made to domestic retailers to support
promotional and brand building activity in the prior year. It was considered that these costs should be more
appropriately reflected as a reduction in revenue which is consistent with the accounting for these amounts
in 2017.
The expenses have been restated for the comparative line items within the Consolidated Profit and Loss
and Other Comprehensive Income that were affected as set out below:
Consolidated Statement of Profit and Loss and Other Comprehensive Income (extract)
Revenue
Costs of sales
Gross profit
Direct costs
2016
$000
244,583
(132,855)
111,728
(28,510)
Increase
/(Decrease)
$000
Restated
2016
$000
(10,500)
-
(10,500)
(10,500)
234,083
(132,855)
101,228
(18,010)
There was no impact on Net Profit /(Loss) for the year, Earnings per share nor any impact on the
Consolidated Balance Sheet.
The change is allocated $5.0 million in 1H16 and $5.5 million in 2H16.
Revenue from continuing operations
240,182
234,083
2017
$’000
Restated
2016
$’000
Other income
Grants received
Dividends received
Fair value increment/(decrement) – financial assets
Gain/(loss) on disposal of assets
Commissions received
Sundry income
Total other income
62
-
-
-
-
248
248
39
5
66
(8)
353
67
522
Bellamy’s Australia Limited
Revenue recognition
Measurement of revenue
Revenue is measured at fair value of the consideration received or receivable after taking into account any
trade discounts and volume rebates allowed.
Timing of recognition
Revenue from the sale of goods is recognised at the point of delivery as this corresponds to the transfer of
significant risks and rewards of ownership of the goods and the cessation of all involvement in those goods.
Interest revenue is reported under the heading of net finance costs and recognised using the effective
interest rate method.
Grant income is recognised as income when the grant becomes receivable.
All revenue is stated net of the amount of goods and services tax (GST).
6
Expenses and significant items
Cost of sales
Shortfall payments
Direct costs
Inventory provisions and write offs*
Employee costs
Wages & salaries
Restructuring costs*
Share based payments
Administrative & Other
Fonterra payment for the supply chain reset*
Costs associated with the acquisition of
Camperdown Powder and indirect capital raising
costs*
Professional fees of a non-recurring nature*
Ineffective foreign exchange hedge losses*
Net finance (revenue)/costs
Interest revenue
Interest expense
Depreciation and amortisation
Depreciation – property, plant & equipment
Amortisation of product development costs
Amortisation of software
12(b)
2017
$’000
2016
$’000
2,000
-
6,838
657
9,401
1,449
2,289
27,500
1,083
2,980
1,564
(94)
1,364
280
387
120
6,860
-
685
-
-
657
-
(598)
10
256
36
17
* The items above are defined as significant items due to their nature and magnitude and have been
included as non-recurring for the underlying EBIT for the segment disclosure – refer Note 2 for more details.
63
Bellamy’s Australia Limited
7
Income tax expense
a) Amounts recognised in profit or loss:
Current tax expense
Deferred tax expense/(benefit)
Total income tax expense
2017
$’000
2016
$’000
1,948
(1,817)
131
14,482
2,084
16,566
b) Numerical reconciliation between tax expense and profit before tax.
(Loss) /profit before tax from continuing operations
Prima facie tax payable at 30% (2016:30%)
Non deductible expenditure
Other
Effect of different overseas tax rates
Impact of Controlled Foreign Company Rules
R&D benefits
Total income tax expense
Weighted average effective tax rates
Financial assets & financial liabilities
8
Trade and other receivables
Current
Trade receivables (a)
Loss allowance provision
Other receivables
2017
$’000
2016
$’000
(677)
(203)
455
-
(1,043)
1,071
(149)
131
(19%)
54,894
16,468
6
(51)
(1,571)
1,714
-
16,566
30%
2017
$’000
2016
$’000
33,942
(100)
33,842
3,215
37,057
33,582
(60)
33,522
365
33,887
a) Accounting for trade receivables
The average number of days outstanding for trade debtors is approximately 45 days. Interest is not charged
on overdue balances. Less than 1% of the balance is past 60 days overdue with all balances considered
to be recoverable. Collectability of trade receivables is reviewed on an ongoing basis and written off by
reducing the carrying value when known to be uncollectable. The impairment amount is recognised within
administrative costs.
b) Credit risk
The Group applies the simplified approach to providing for expected credit losses prescribed by AASB 9,
which permits the use of the lifetime expected loss provision for all trade receivables. The loss allowance
provision as at 30 June 2017 is determined as follows:
64
Bellamy’s Australia Limited
2017
Expected loss rate
Gross carrying
amount
Loss allowance
provision
2016
Expected loss rate
Gross carrying
amount
Loss allowance
provision
Current
$’000
0.3%
31,815
100
Current
$,000
More than 30
days $’000
More than 60
days $’000
More than 120
days $’000
-
945
-
1,169
-
13
-
More than 30
days $,000
-
More than 60
days $,000
-
More than 120
days $,000
0.3%
-
18,308
15,138
60
-
-
136
-
Total
$’000
0.3%
33,942
100
Total
$,000
0.2%
33,582
60
2016
$’000
0
60
60
-
-
-
2017
$’000
60
40
100
Opening loss allowance 1 July
Increase in loss allowance recognised in profit or loss during the period
As at 30 June
The gross carrying amount of trade receivables is $33.9m (2016: $33.6m).
During the period, the Group made no write offs of trade receivables it did not expect to receive future cash
flows from and did not make any recoveries from collection of cash flows previously written off.
9
Other financial assets
Current
USD held in trust
10
Financial assets at fair value through profit and loss
Current
Listed equity securities
Listed equity securities
2017
$’000
2016
$’000
-
-
-
-
500
500
283
283
2016
$’000
2017
$’000
The shares were held for trading and were designated as financial assets at fair value through profit and
loss. Changes in fair value were included in the Statement of Comprehensive Income under the heading
of other income. The shares were sold during the financial year, resulting in a profit on sale of $15,000.
65
Bellamy’s Australia Limited
Non-financial assets & liabilities
11
Inventories
Raw materials
Finished goods
Goods in transit
2017
$’000
2016
$’000
10,483
83,014
-
93,497
20,726
35,109
11,917
67,752
Inventories are measured at lower of cost and net realisable value. Refer note 22 for critical estimates and
judgements.
12
Property, plant and equipment
a) Carrying amounts
Plant and Equipment
At cost
Accumulated depreciation
Leasehold improvements
At cost
Accumulated depreciation
Total Property Plant & Equipment
b) Reconciliation of carrying amount
Balance as at 1 July 2016
Additions
Disposals
Depreciation expense
Balance as at 30 June 2017
Balance as at 1 July 2015
Additions
Disposals
Depreciation expense
Balance as at 30 June 2016
2017
$’000
2016
$’000
1,336
(590)
746
369
(108)
261
1,006
Plant &
equipment
786
260
(91)
(209)
746
576
400
(8)
(182)
786
Leasehold
improvements
319
13
-
(71)
261
41
352
-
(74)
319
1,238
(452)
786
564
(245)
319
1,105
Total
$’000
1,105
273
(91)
(280)
1,006
617
752
(8)
(256)
1,105
Non-current assets pledged as security
Plant and equipment pledged as security for asset purchase liabilities has a written down value of $5,000
(2016: $103,000).
66
Bellamy’s Australia Limited
13
Intangible assets
Product development costs
At cost
Accumulated amortisation and impairment
Software
At cost
Accumulated amortisation
Trademarks
Total intangibles
2017
$’000
2016
$’000
1,560
(424)
1,136
596
(123)
473
131
1,555
(36)
1,519
202
(17)
185
-
1,740
1,704
Expenditure during the research phase of a project is recognised as an expense when incurred.
Development costs are capitalised only when the project is expected to deliver future economic benefits
and those benefits can be reliably measured.
Product development costs will be amortised over 3 years, or where the product line is discontinued, the
balance is written off during that financial period.
Product
Development
1,519
5
-
(388)
1,136
Software
Trademarks
Total
185
408
-
(120)
473
0
131
-
-
131
1,704
544
-
(508)
1,740
2017
Balance as at 1 July 2016
Additions
Disposals
Amortisation expense
Balance as at 30 June 2017
2016
Balance as at 1 July 2015
Additions
Disposals
Amortisation expense
Balance as at 30 June 2016
1,519
185
-
104
1,451
-
(36)
-
202
-
(17)
-
-
-
104
1,653
-
(53)
1,704
14
Trade and other payables
Current
Unsecured:
Trade payables
Sundry payables and accrued expenses
2017
$’000
2016
$’000
30,448
7,278
37,726
42,359
6,014
48,373
Payables are unsecured and are usually paid for 30 days from end of month.
67
Bellamy’s Australia Limited
15
Borrowings
Current
Secured
Trade financing (a)
Asset purchase liabilities (b)
Total current borrowings
Non-Current
Secured
Asset purchase liabilities (b)
Total non-current borrowings
Total borrowings
2017
$’000
2016
$’000
25,259
5
25,264
-
-
25,264
-
113
113
18
18
131
Additional information on finance facilities available
a)
HSBC provides a working capital facility to the Group in an aggregate amount of $40 million,
together with a credit card facility of $250,000 and a bank guarantee facility of $200,000 (together,
the “facilities”). The working capital facility is comprised of a number of sub-facilities with specific
conditions and limits, with the effect that the Group’s ability to utilise the working capital facility is
subject to those conditions being satisfied and those limits not being exceeded. The facilities are
secured over assets of the Group and are subject to the Group complying with its obligations
(including financial covenants) under those facilities. At 30 June 2017, the aggregate amount
outstanding under the facilities was $25.2 million and the Group was in compliance with its
obligations under those facilities. Based on current forecasts, the Group expects that the Group
will remain in compliance with those obligations. Subject to the terms of its manufacturing
the Group.
agreement, Fonterra has a second-ranking security over
the assets of
b)
The asset purchase liabilities are secured by underlying assets carried at $25,778 (2016:
$103,000).
Bank accepted letters of credit are provided from time to time in relation to export sale orders and are
secured by the underlying receivable balance.
Recognised fair value measurements
Fair value hierarchy
To provide an indication about the reliability of the inputs used in determining fair value, the Group has
classified its financial instruments into the three levels prescribed under the accounting standards. An
explanation of each level follows underneath the table.
Recurring fair value
measurements as at 30 June
2017
Financial Assets
Financial assets at FVPL
Australian listed equity
securities
Total Financial Assets
Financial Liabilities
Derivatives used for hedging
Foreign exchange contracts
Total Financial Liabilities
Notes
Level 1
Level 2
Level 3
Total
-
-
34
-
-
-
-
-
-
-
34
-
-
-
-
-
68
Bellamy’s Australia Limited
Recurring fair value
measurements as at 30 June
2016
Financial assets at FVPL
Australian listed equity
securities
Total Financial Assets
Financial Liabilities
Derivatives used for hedging
Foreign exchange contracts
Total Financial Liabilities
Notes
Level 1
Level 2
Level 3
Total
10
283
283
-
-
-
-
807
807
-
-
-
-
283
283
807
807
There were no transfers between levels 1 and 2 for recurring fair value measurements during the year.
The Group’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the
reporting period.
Level 1: The fair value of financial instruments traded in active markets is based on quoted market prices at the end
of the reporting period. The quoted market price used for financial assets held by the Group is the current bid price.
These instruments are included in level 1.
Level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation
techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates.
If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in
level 3. This is the case for unlisted equity securities.
Valuation techniques used to determine fair values
Specific valuation techniques used to value financial instruments include:
- the use of quoted market prices or dealer quotes for similar instruments
- the fair value of forward foreign exchange contracts is determined using forward exchange rates at
the balance sheet date
16
Other assets
Current
Prepayments
2017
$’000
2016
$’000
2,051
4,475
Prepayments for 2016 include payments for purchases of raw materials prior to ownership passing to the
Group.
17
Provisions
Current
Employee entitlements
Minimum annual volume provision
Non-Current
Employee entitlements
2017
$’000
2016
$’000
329
2,000
2,329
29
2,358
328
-
328
146
474
69
Bellamy’s Australia Limited
2017
Balance as at 1 July 2016
Accrued during the year
Payments made on termination
Balance as at 30 June 2017
2016
Balance as at 1 July 2015
Accrued during the year
Payments made on termination
Balance as at 30 June 2016
Minimum
annual
volume
Annual
leave
Long
service
leave
Total
-
2,000
-
2,000
-
-
-
-
328
167
(166)
329
179
150
-
328
146
18
(135)
29
69
77
-
146
474
2,185
(301)
2,358
248
226
-
474
Refer note 27 (a) for further information on accounting for minimum annual volume provision (shortfall
payments).
18
Tax
Current (asset) / liability
2017
$’000
2016
$’000
Income tax payable/(refundable)
(274)
10,495
Deferred tax balances recognised
Temporary differences relating to income
Temporary differences relating to spending
Inventories
Other liabilities
Employee entitlements
Foreign exchange losses
Overseas operating losses
Share based payments
Other assets and liabilities
Capital raising costs (equity)
Net deferred tax balances recognised
Represented by
Deferred tax assets
Deferred tax liabilities
Movement in recognised deferred tax balances
Opening balance
Recognised in income
Recognised in equity
70
2017
$’000
2016
$’000
-
-
138
1,210
108
342
499
822
(175)
593
3,537
3,909
(372)
3,537
1,500
1,817
220
3,537
314
196
141
40
290
189
-
330
1,500
2,109
(609)
1,500
774
(2,075)
2,801
1,500
Bellamy’s Australia Limited
Current (asset) / liability
2017
$’000
2016
$’000
Income tax payable/(refundable)
(274)
10,495
Deferred tax balances recognised
Temporary differences relating to income
Temporary differences relating to spending
Inventories
Other liabilities
Employee entitlements
Foreign exchange losses
Overseas operating losses
Share based payments
Other assets and liabilities
Capital raising costs (equity)
Net deferred tax balances recognised
Represented by
Deferred tax assets not recognised
Australian Tax Consolidated Group
Tax losses: capital
Temporary differences: revenue
2017
$’000
2016
$’000
-
-
138
1,210
108
342
499
822
(175)
593
3,537
314
196
141
40
290
189
-
330
1,500
201
-
201
-
Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the
extent that it is probable that future taxable profit will be available against which the benefits of the deferred
tax asset can be utilised.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation
authority and the Group intends to settle its current tax assets and liabilities on a net basis.
19
Issued capital
a) Fully paid ordinary shares
Opening balance at 1 July
Issue of ordinary shares during the year:
2017
Shares
96,656,397
2016
Shares
95,000,392
2017
$’000
40,216
2016
$’000
39,655
Employee options exercised
Dividend reinvestment plan
-
30,128
1,633,962
22,043
Institutional investment offer
2,992,820
-
Closing balance at 30 June
99,679,345
96,656,397
-
404
13,175
53,795
323
238
-
40,216
On 26 September 2016, 30,128 shares were issued to existing shareholders under the Bellamy’s Australia
Limited Dividend Reinvestment Plan (2016: 22,043).
71
Bellamy’s Australia Limited
On 23 June 2017, 2,992,820 shares were issued to Institutional investors as part of the capital raise
announced on 13 June 2017.
b) Share options granted under the Group’s employee share option plan
On 3 October 2016, 614,746 options were granted to executives and employees under the Bellamy’s
Australia Limited employee option plan. These options have a vesting date of 31 August 2019.
599,398 options were forfeited as a result of eligible employees ceasing employment with the Group.
On 13 June 2017, a further issue of 4,105,888 options were granted to Directors, executives and senior
managers under the long-term incentive program. These options have a vesting date no later than 31
March 2021.
As at 30 June 2017, executives and employees held options over 6,891,010 (2016: 2,345,712) ordinary
shares of the Group. Note, a further 265,888 options intended for Directors will not be allocated until
shareholder approval is received at the AGM.
The holders of these options do not have the right, by virtue of the option to participate in any share issue
or interest issue of the Group or of any other related body corporate.
Until they are exercised, the options carry no rights to dividends and no voting rights.
c) Capital management
Management and the Board of Directors monitor the capital of the Group in order to maintain a prudent
debt to equity ratio, provide the shareholders with adequate returns and ensure that the Group can
effectively fund the operations in line with business growth objectives.
The Group’s debt and capital includes ordinary share capital and financial liabilities, supported by financial
assets.
Management effectively manages the Group’s capital by assessing the Group’s risk and adjusting its capital
structure in response to changes in these risks. These responses include the management of debt levels,
distributions to shareholders and share issues.
In response to this analysis, on the 13 June 2017, the Group issued a prospectus to increase capital by
$60.4 million. This capital raise provides funding for the supply chain reset, the Camperdown acquisition
and reducing reliance on debt funding.
The net debt to cash position as at the end of the reporting period is as follows:
Total borrowings
Less cash and cash equivalents
Net debt / (cash)
2017
$’000
2016
$’000
25,264
(17,479)
7,785
131
(32,295)
(32,164)
The 13 June 2017 Prospectus and the 17 July 2017 Supplementary Prospectus successfully raised $60.4
million (gross) proceeds with a timing that traversed 30 June 2017 as follows:
Allotted Shares
Capital Proceeds
Capital Raise Costs
Net Proceeds
Institutional
Component
Retail
Component
23/06/2017
07/07/2017
2,993
14,216
(1,535)
12,681
9,738
46,257
(1,669)
44,588
Applications for refund of 3,339 shares were received under the supplementary prospectus. These shares
were transferred to the underwriters.
72
Bellamy’s Australia Limited
20
Reserves (net of income tax)
Foreign currency translation
Share based payments
Cash flow hedge reserve
Foreign currency translation reserve
Balance at the beginning of the year
Exchange differences arising on translating net assets of foreign
operations
Balance at the end of the year
2017
$’000
2016
$’000
(821)
6,480
(24)
5,635
(373)
3,767
(565)
2,829
2017
$’000
2016
$’000
(373)
(448)
(821)
(159)
(214)
(373)
Exchange differences relating to the translation of the results and net assets of the Group’s foreign
operations are recognised directly in other comprehensive income and are accumulated in the foreign
currency translation reserve.
Share based payments reserve
Balance at the beginning of the year
Arising on share based payments
Balance at the end of the year
2017
$’000
2016
$’000
3,767
2,713
6,480
499
3,268
3,767
The reserve relates to share options granted by the Group to its employees under its Employee Share
Option Plan. Further details are provided in Note 32.
Cash flow hedge reserve
Balance at the beginning of the year
Arising from changes in fair value of hedging instruments
Income tax effect
Balance at the end of the year
2017
$’000
2016
$’000
(565)
773
(232)
(24)
-
(807)
242
(565)
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow
hedges is recognised in the cash flow hedge reserve within equity, limited to the cumulative change in fair
value of the hedged item on a present value basis from the inception of the hedge. The gain or loss relating
to the ineffective portion is recognised immediately in profit or loss.
21
Additional cash flow information
a) Cash and cash equivalents
Cash and cash equivalents
2017
$’000
2016
$’000
17,479
32,295
For the purposes of the cash flow statement, cash and cash equivalents includes cash on hand and in
banks and investments in money market instruments, net of outstanding bank overdrafts. Cash and cash
equivalents at the end of the financial year as shown in the cash flow statement is reconciled to the related
items in the balance sheet as follows:
73
Bellamy’s Australia Limited
b) Reconciliation of profit for the period to net cash flows from operating activities
Reconciliation of profit for the year to net cash from
operating activities
Profit after tax
Adjust for non- cash items
Depreciation
Amortisation
Loss on sale – plant and equipment
Profit on sale of investments
Financial assets – fair value through profit or loss
Stock provision movements
Provision for doubtful debts
Net exchange movements
Interest on asset purchase
Share based payments
Movements in working capital
(Increase)/decrease in trade and other receivables
(Increase)/decrease in inventories
(Increase)/decrease in other assets
(Increase)/decrease in net tax assets
(Decrease)/increase in trade payables
(Decrease)/increase in provisions
Net cash from operating activities
2017
$’000
2016
$’000
(809)
38,328
280
508
44
(15)
-
5,374
40
(881)
2
2,713
(3,210)
(31,119)
2,924
(12,806)
(10,647)
1,884
(45,718)
256
51
8
-
66
-
-
(1,196)
10
3,268
(13,020)
(54,135)
(537)
6,106
29,264
426
8,895
74
Bellamy’s Australia Limited
Risk
22
Critical estimates and judgements
Estimates and judgement supporting the preparation of the Financial Statements 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 entity and that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The most significant estimates and
assumptions made in the financial statements are discussed below.
Future working capital requirements
The Group has assessed its working capital requirements for the business for a 12 month period from the
date of signing the financial statements. The assessment of the Group’s working capital requirements is
based on a forecast of sales, production requirements, production shortfall payments and overheads. The
forecast is based on the period from 1 August 2017 to 31 August 2018 (defined as “the forecast”). Forecasts
are based on the approved plans of the Board.
The critical judgements in relation to the assessment of working capital requirements are considered below,
although the Directors are confident this risk has reduced significantly over the last 6 months as a result of
the successful capital raise and trading performance.
The sales forecast is based on a combination of historic trends, engagement with key customers, internal
demand analysis and external market information. The sales forecast is dependent on estimates of demand
in both the domestic market and sales to distributors/resellers into China and other markets.
There are proposed changes to regulations affecting the sale of the Group’s products in China which will
be applicable on 1 January 2018. These China regulations will require Chinese labelled imported products
to be accredited with the China Food and Drug Administration (CFDA). The CFDA license operates in
addition to the need to maintain Certification Accreditation Administration of the People’s Republic of China
(CNCA) accreditation for the facility that produces Bellamy’s Organic infant milk formula products. The
forecast assumes there are no sales of Chinese labelled accredited product from 1 January 2018. The
forecast assumes continued sale of Australian labelled domestic product, which does not require CFDA or
CNCA accreditation for export to China.
The forecast also includes production shortfall payments which may be required under the Group’s
manufacturing arrangement (refer note 27 for further information).
The Group has assessed the cash position over the forecast period. The Group raised a net $57.3 million
(net of transaction costs) in a non-renounceable entitlement offer during June and July 2017, of which
approximately $19.5 million will be used to fund working capital and capital expenditure.
Based on the forecast the Directors believe the Group will be in a net cash position over the forecast period.
The Directors acknowledge there are business risks and uncertainties which could result in a reduction in
the cash position, however there are banking facilities available to the Group (refer Note 15) and the
Directors are confident that the Group will comply with its financial covenants and ancillary obligations
under the banking arrangement.
The Group has been served with two Class Actions during the year (refer Note 26). The Group intends to
vigorously defend the proceedings. The statements of claim filed in the proceedings do not quantify, and it
is too early in the process to assess, these claims to provide a reliable assessment of the likely quantum
of any damages that may become payable if its defence is unsuccessful in whole or in part. Defence costs
incurred by the Group have been expensed.
The Directors are confident the Group will meet its working capital requirements over the forecast period
based on the strategy of the Board and management.
Net realisable value of inventory
The valuation of inventory is considered an area of judgement on the basis that an assessment is required
as to whether inventory can be sold above its carrying value. The ability for the Group to sell finished goods
above the carrying value is dependent on selling the inventory within the acceptable shelf life required for
retailers and distributors. This assessment is based on the sales forecast which requires significant
75
Bellamy’s Australia Limited
judgements as indicated above. Should sales forecasts not be achieved inventory may not be sold within
the expiry period and may be required to be written down to the net realisable value.
Manufacturing contracts
The accounting for manufacturing contracts is based on estimates and judgements in relation to future
production levels. Based on the current forecast the Group has assessed that the economic benefit of the
manufacturing contracts exceeds the cost of the contracts (including anticipated shortfall payments) and
therefore the contracts are not considered onerous.
23
Financial Risk Management
a) Financial risk management policies
The Group’s financial instruments consist mainly of loans and deposits with banks, accounts receivable
and payable, loans to subsidiaries, and foreign exchange derivatives.
b) Financial risk exposures
The Group is exposed to interest rate, liquidity and credit risks and exposure to foreign exchange and
equity price risk.
Interest rate risk
The Group’s main interest rate risk arises from borrowings, which expose the Group to cash flow interest
rate risk.
Liquidity risk
Liquidity risk is managed by maintaining sufficient cash and monitoring forecast cash flows.
The Group’s approach to liquidity management involves projecting cash flows in major currencies and
considering the level of liquid assets necessary to meet these.
Consolidated Group 2017
Financial assets
Cash and cash equivalents
Receivables
Financial assets at fair value
through profit or loss
Total financial assets
Financial Liabilities
Trade payables
Derivative
Borrowings
Total financial liabilities
Net financial assets
Weighted
Average
Interest
Rate %
Floating
Interest
Rate
$’000
Fixed
Interest
Rate
Mature
within 1
Year
$’000
Fixed
Interest
Rate
Mature
later
than 1
Year
$’000
Non-
interest
bearing
$’000
Total
2017
$’000
0.9%
4,963
-
-
4,963
-
-
-
-
10.9%
-
-
-
-
-
-
(25,264)
(25,264)
4,963
(25,264)
-
-
-
-
-
-
-
-
-
12,516
33,842
17,479
33,842
-
-
46,348
51,321
(30,449)
(34)
-
(30,449)
(34)
(25,264)
(30,483)
(55,747)
15,875
(4,426)
76
Bellamy’s Australia Limited
Consolidated Group 2016
Weighted
Average
Interest
Rate %
Floating
Interest
Rate
$’000
Fixed
Interest
Rate
Mature
within 1
Year
$’000
Fixed
Interest
Rate
Mature
later
than 1
Year
$’000
Non
interest
bearing
$’000
Total
2016
$’000
2.6%
6.5%
17,140
-
-
17,140
-
-
-
-
17,140
-
-
-
-
-
-
(113)
(113)
(113)
-
-
-
-
15,155
33,887
32,295
33,887
283
283
49,325
66,465
-
-
(18)
(18)
(18)
(48,373)
(807)
-
(48,373)
(807)
(131)
(49,180)
(49,311)
145
17,154
Financial assets
Cash and cash equivalents
Receivables
Financial assets at fair value
through profit or loss
Total financial assets
Financial Liabilities
Trade payables
Derivative
Borrowings
Total financial liabilities
Net financial assets
Credit risk
Credit risk arises from exposure to customers and deposits with financial institutions. Management
monitors credit risk by actively assessing and rating quality and liquidity of counter parties, through a
combination of obtaining external credit ratings, credit checks and past experience. Individual risk limits are
set in accordance with the Group’s Credit Policy. The compliance with credit limits by customers is regularly
monitored by management.
Foreign exchange risk
The Group has exposure to movements in foreign currency exchange rates through:
- Sales to distributors and customers in foreign currency
- Purchases of inventory
- Translations of net investments in foreign subsidiaries denominated in foreign currencies
Bellamy’s Australia Limited’s functional currency is Australian dollars. For the internal operations in the
entities in Singapore, Hong Kong and China, all income and expenses are conducted in local currency.
The Group imports ingredients to meet production requirements, and has exposure to USD and EUR
movements directly where it purchases ingredients on its own behalf and indirectly through purchases of
finished products where the Group’s product manufacturers purchase ingredients on its behalf.
In order to hedge against the exposure to fluctuations in exchange rates associated with the highly probable
purchase of ingredients, the Group enters into forward exchange contracts, which are designated as cash
flow hedges.
Exposure of overseas debtors to foreign exchange risk is minimal as these transactions in Australia are
primarily denominated in AUD while local offices are in their functional currency.
Forward exchange contracts
The Board’s risk management policy is to hedge up to 100% of committed foreign currency cash flows
within the next twelve months (mainly inventory purchases) in EUR, subject to a review of the cost of
implementing each hedge. At 30 June 2016, approximately 100% of inventory purchases were hedged in
respect of foreign currency risk.
At balance date, details of the significant outstanding forward exchange contracts, stated in Australian
dollar equivalents are:
77
Bellamy’s Australia Limited
Average
exchange rate
Foreign
currency
(in foreign
currency)
Contract value
(AUD)
Mark to
market assets
Mark to
market
liabilities
2017
$
2016
$
2017
$’000
2016
$’000
2017
$’000
2016
$’000
2017
$’000
2016
$’000
2017
$’000
2016
$’000
0.6600
0.6544
1,175
28,683
1,780
43,826
-
122
(34)
(930)
Hedging
Imports:
Maturing
within 12
months
Buy Euro
At the reporting date, the net amount of unrealised losses under forward exchange contracts hedging
anticipated purchases of inventory is $34,000 (2016: $807,000).
Derivative financial instruments – foreign exchange forward contracts
Carrying amount
Notional amount
Maturity date
Hedge ratio
Change in fair value of outstanding hedging instruments since 1 July
Change in value of hedged item used to determine hedge effectiveness
Weighted average hedged rate for the year (including forward points)
30 June 2017
$’000
30 June 2016
$’000
$34
$807
$1,780
$43,966
September 2017
1:1
$1
($1)
July 2016 –
December
2016
1:1
$79
($79)
0.6600
0.6533
The foreign exchange forward contracts are denominated in the same currency as the highly probable
future inventory purchases (EUR), therefore the hedge ratio is 1:1.
Foreign currency exposures arising on translation of net investments in foreign subsidiaries are
predominantly unhedged.
a) Categories of financial instruments
Other than equity investments classified at fair value through profit and loss classified under the heading
of current financial assets, all the nature and categories of all other financial instruments are apparent from
the Statement of Financial Position.
b) Carrying value of financial assets and financial liabilities
The carrying amounts of financial assets and financial liabilities recognised in the consolidated financial
statements are considered to approximate their fair values.
78
Bellamy’s Australia Limited
Group Structure
24
Parent entity supplementary information
The following information has been extracted from the books and records of the parent and has been
prepared in accordance with Australian Accounting Standards.
Statement of Financial Position
Assets
Current assets
Non-current assets
Total Assets
Liabilities
Current liabilities
Non-current liabilities
Total Liabilities
Net Assets
Equity
Issued capital
Reserves
Retained earnings
Total Equity
Statement of Profit or Loss and Other Comprehensive Income
Total profit
Total comprehensive income
Guarantees
Contingent liabilities - Refer note 26
Contractual commitments
25
Subsidiaries
2017
$’000
2016
$’000
65,407
1,475
66,882
52,202
530
52,732
1,978
-
1,978
8,654
-
8,654
64,904
44,078
53,795
6,480
4,629
64,904
40,216
3,767
94
44,078
12,086
12,086
10,592
10,592
-
-
Name
Company
Number
Principal
activity
Bellamy’s Organic Australia Pty Ltd
Bellamy’s Kitchen Pty Ltd
Yum Mum Pty Ltd
Bellamy’s Organic (South East Asia) Pte Ltd
Bellamy’s Organic (Hong Kong) Company Ltd
Bellamy’s Food Trading (Shanghai) Co Ltd
11 125 461 903
147 551 639
50 148 896 280
201205554M
CRN 1795740
(a)
(b)
(b)
(a)
(a)
(a)
Place of
incorporation
and operation Ownership %
2016
2017
Australia
Australia
Australia
Singapore
Hong Kong
China
100
100
100
100
100
100
100
100
100
100
100
100
(a) Sale and distribution of organic food and formula products for babies and toddlers
(b) Non-operating
79
Bellamy’s Australia Limited
These following entities have financial reporting periods that are not synchronised with the parent entity. The
financial reporting year ends with respect to these entities are:
- Bellamy’s Organic (Hong Kong) Company Ltd
- Bellamy’s Food Trading (Shanghai) Co Ltd
- Bellamy’s Organic (South East Asia) Pte Ltd
31 December
31 December
31 March
Post Balance Date
On 3 July 2017, the Group acquired 90% ownership in A.C.N. 619 661 611 Pty Ltd, incorporated on 9 June
2017, which owns 100% of the issued capital of Camperdown Powder Pty Ltd (ABN 56 168 982 250).
Name
Company Number
Principal
Activity
Place of
Incorporation
Ownership
%
A.C.N. 619 661 611 Pty Ltd
A.C.N. 619 661 611
Camperdown Powder Pty Ltd
A.C.N. 168 982 250
Little Treasure (Aust) Pty Ltd
A.C.N. 103 217 232
Camperdown Leura Star Brands Pty Ltd A.C.N. 610 595 803
Duri Brands Pty Ltd
A.C.N. 600 737 595
Camperdown Vchina Brands Pty Ltd
A.C.N. 609 645 052
Camperdown TMP Brands Pty Ltd
A.C.N. 600 788 912
Comarco Pty Ltd
A.C.N. 155 983 038
Camperdown AIMI Brands Pty Ltd
A.C.N. 601 363 437
(a)
(b)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
90
100
50
51
51
51
51
51
51
(a) Investment vehicle
(b) Manufacturing powdered milk products
(c) Joint venture sales and marketing
80
Bellamy’s Australia Limited
Unrecognised items
26
Contingent liabilities and contingent assets
a) Contingent liabilities
On 23 February 2017, Slater & Gordon Limited commenced a representative proceeding (shareholder
class action) in the Federal Court of Australia against the Group. The statement of claim includes
allegations of contraventions of the Corporations Act 2001(Cth) in relation to misleading or deceptive
conduct and continuous disclosure obligations. The proceeding is brought on behalf of persons who
acquired Bellamy’s shares between 14 April 2016 and 12 December 2016.
On 8 March 2017, Maurice Blackburn commenced a further representative proceeding (shareholder class
action) in the Federal Court of Australia against the Group. The statement of claim includes allegations of
contraventions of the Corporations Act 2001(Cth) in relation to misleading or deceptive conduct and
continuous disclosure obligations. The proceeding is brought on behalf of persons who acquired Bellamy’s
shares between 14 April 2016 and 9 December 2016.
The proceedings have, to date, mostly been consumed with procedural issues relating to the fact that there
are two near-identical class actions said to be commenced on behalf of several of the same shareholders.
The Group will continue to vigorously defend the proceedings. The statements of claim served by the
applicants do not quantify, and it is too early in the process to assess, these claims to provide a reliable
assessment of the likely quantum of any damages that may become payable if its defence is unsuccessful
in whole or in part.
b) Contingent assets
As at the date of this report the Group is not aware of any reportable contingent assets.
27
Commitments for expenditure
a) Shortfall payments
There are two manufacturing arrangements which have minimum volume commitments which run for a
number of years. Where the Group is not able to fulfil minimum volume commitments, it is required to make
production shortfall payments. In June 2017, the Group revised the supply agreement with Fonterra,
resulting in a one-time $27.5 million payment to Fonterra, which reduces the projected shortfall payments
over the life of the agreement but retains minimum volume commitments.
The minimum volume commitments are based on the contract year (which differs from the Group’s financial
year). At each reporting period, a provision is raised when production thresholds have not been met or the
Group does not have the ability to meet the threshold under the contractual terms.
At 30 June 2017, an assessment has been made in relation to achievement against the relevant thresholds
for both contracts (which have different contract years). At 30 June 2017, production shortfall payments of
$2.0 million have been provided for. An additional expense may be incurred during FY18 if contractual
volumes are not met, which is currently estimated to be approximately $4 million. In FY19 if production
levels remain consistent with FY18 a higher expense may be incurred. Beyond FY19 shortfall payments
and the related expense may continue over the term of the contacts and could increase or decrease
depending on the level of production.
b) Other
There are no known other commitments for expenditure (2016: $Nil).
81
Bellamy’s Australia Limited
28
Operating lease arrangements
Non-cancellable operating lease commitments
Not later than 1 year
Later than one year and not later than 5 years
Later than 5 years
2017
$’000
2016
$’000
309
819
-
1,128
258
501
-
759
Operating lease commitments primarily relate to office leasing arrangements.
29
Subsequent events
a) Acquisition of Camperdown Powder
On 3 July 2017, the Group acquired 90% of A.C.N. 619 661 611 which owned 100% of Camperdown
Powder Pty Ltd. The purchase price comprised $10.5 million in cash and 3,190,042 shares in Bellamy’s
Australia Limited.
The transaction has conditions subsequent that require satisfaction before the shares can be issued to the
Camperdown vendor. The fair value of the shares will be determined when issued and therefore the total
acquisition price is yet to be finalised.
At 30 June 2017, the acquisition price was estimated to be approximately $32.5 million (based on the share
price at 30 June 2017) against provisional net liabilities $3.0 million.
Accounting standards provide up to 12 months to determine fair value of the acquired assets and liabilities.
The Group has not completed an exercise to consider the fair value of the intangible assets acquired along
with any related deferred tax amounts. The types of intangibles which may be recognised as part of the
acquisition accounting may include licences and customer contracts. Each of the identified intangibles
acquired will have a limited life and must be amortised over that life, accordingly there will be an impact on
depreciation and amortisation charge in future periods.
The identified intangible assets and the goodwill will be required to be tested for impairment. The
impairment assessment will need to consider future cash flows of the business which are dependent on
the CNCA licence and the outcome of the application for the CFDA licence.
b) Suspension of CNCA Licence
On 6 July 2017, the CNCA suspended Camperdown Powder’s licence pending enquiries required to
investigate allegations received by CNCA from a third-party complainant relating to historical filing and
records and to certain previous quality issues relating to Camperdown’s processing facility. None of the
enquiries raised by the CNCA related to micro-biological or contamination issues or Camperdown’s change
of ownership.
On the morning of 7 July 2017, the Group sought an ASX Trading Halt progressing to a voluntary
suspension on 11 July 2017. Trading resumed on 20 July 2017 subsequent to the issue of a Supplementary
Prospectus dated 17 July 2017.
On 9 August 2017, the licence suspension was removed.
c) Accelerated Non-Renounceable Rights Issue and Supplementary Prospectus
On 13 June 2017, Bellamy’s Australia Limited announced a 5 for 38 accelerated non-renounceable rights
issue pro-rate offer of new ordinary share in the Company at an issue price of $4.75.
The Institutional Entitlement Offer was completed on 15 June 2017 and raised gross proceeds of $14.3
million. The Institutional shares were issued on 23 June 2017.
The Retail Entitlement Offer was completed on 4 July 2017 and raised gross proceeds of $46.3 million.
The Retail shares were issued on 7 July 2017.
82
Bellamy’s Australia Limited
On 17 July 2017, as a result of requirements under the Corporations Act arising in connection with the
suspension of Camperdown Powder's CNCA registration which occurred prior to the issue of certain
securities under the Offer, the Company issued a Supplementary Prospectus to provide Entitled Applicants
with the right to withdraw their Applications and be repaid any Application Monies paid to the Company by
them. The Supplementary Prospectus, closed 17 August 2017. Shareholders sought refund for 3,339
shares.
Other information
30
Related party transactions
a) Parent entities
The parent entity within the Group is Bellamy’s Australia Limited.
b) Subsidiaries
A list of subsidiaries is provided in Note 25.
Transactions between related parties are on normal commercial terms and conditions no more favourable
than those available to other parties unless otherwise stated.
Balances and transactions between the Group and its controlled entities, which are related parties of the
Group, have been eliminated on consolidation and are not disclosed in this Note. Details of transactions
between the Group and other related parties are disclosed below.
c) Transactions with related parties
Key management personnel compensation
The key management personnel compensation included in ‘employee costs’ (see Note 6) is as follows:
Short term benefits
Post-employment benefits
Other long-term benefits
Termination benefits
Share based payments
2017
$’000
2016
$’000
2,657
108
-
457
1,295
4,517
1,058
37
52
-
359
1,506
Individual Directors and executive compensation disclosures
Information regarding individual Directors and key management personnel compensation and some equity
instruments disclosures as required by the Corporations Regulations 2M.3.03 is provided in the
Remuneration Report section of the Directors’ Report.
Apart from the details disclosed in this Note, no Director has entered into a material contract with the Group
since the end of the previous financial year and there were no material contracts involving Directors’
interests existing at year end.
There were no loans outstanding at reporting date between the Group and key management personnel.
Other key management personnel transactions with the Group or its controlled entities
From time to time, key management personnel of the Group or its controlled entities, or their related entities,
may purchase goods from the Group. These purchases are on the same terms and conditions as those
entered into by other group employees or customers and are trivial or domestic in nature.
83
Bellamy’s Australia Limited
Shareholdings
The number of ordinary shares held in Bellamy’s Australia Limited as at the date of this report and as at
the end of the reporting period, by each key management person, including their related parties, are as
follows:
1 July 2016 or
when
commenced
No.
Movement
during year
No.
Balance at
30 June
2017
No.
Balance at
Reporting
Date
No.
Non-Executive Directors:
Current directors
R Peters5
W Chan5
John Ho6
John Murphy
Former directors
R Woolley2
M Wadley3
L Inman4
C Sitch 3
P Mann8
Executives
A Cohen
N Underwood
M Harrison
D Jedynak
P Fridell
Former KMP
L McBain1
S Ollington
-
-
6,779,284
-
-
-
892,010
-
-
-
7,671,294
-
-
-
8,481,320
-
452,277
-
26,020
-
4,000
13,750
-
3,475
-
-
(352,277)
-
-
-
-
-
-
-
-
-
1,165,376
-
(1,165,376)
-
n/a
n/a
n/a
n/a
n/a
13,750
-
3,475
-
-
-
-
n/a
n/a
n/a
n/a
n/a
16,012
-
3,933
-
-
-
-
1
2
3
4
5
6
7
8
Resigned 24 January 2017
Resigned 28 February 2017
Removed 28 February 2017
Resigned 28 February 2017
Appointed 28 February 2017
Appointed 13 April 2017, indirect interest in the shares held by Janchor Partners Limited in his capacity as a Director.
Appointed 18 May 2017
Resigned 18 May 2017
Options over ordinary shares
The number of options over Bellamy’s Australia Limited ordinary shares held as at the date of this report
and as at the end of the reporting period, by each key management person, including their related parties
are set out below.
2017
Current
directors
John Murphy
Rodd Peters
Wai-Chan Chan
Balance at
1 July
2016
Granted as
remuneration
in FY17
Vested in
FY17 and
exercisable
Exercised
during
FY17
Forfeited
during
FY17
Pending
forfeiture
Held as at
30 June
2017 1
-
-
-
193,373
36,257
36,257
-
-
-
-
-
-
-
-
-
-
-
-
193,373
36,257
36,257
84
Bellamy’s Australia Limited
Balance at
1 July
2016
Granted as
remuneration
in FY17
Vested in
FY17 and
exercisable
Exercised
during
FY17
Forfeited
during
FY17
Pending
forfeiture
Held as at
30 June
2017 1
689,950
1,843,345
-
-
-
-
475,000
200,000
440,000
475,000
-
-
-
-
-
1,356,795
328,793
239,154
116,348
40,021
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,533,295
475,000
200,000
440,000
475,000
(468,776)
(1,010,825)
1,127,173
-
368,814
Balance at 1
July 2015
Granted as
remuneration
in FY16
Vested in
FY16 and
exercisable
Exercised
during FY16
Forfeited in
FY16
Held as at
30 June
2016
1,779,210
216,793
-
530,918
112,000
689,950
953,333
(953,333)
-
-
-
-
-
-
-
1,356,795
328,793
689,950
Executives
A Cohen
N Underwood
M Harrison
P Fridell
D Jedynak
Former KMP
L McBain
S Ollington
2016
Executives
L McBain
S Ollington
A Cohen
No Directors held options over ordinary shares in 2016.
1 Subject to final assessment regarding forfeiture
31
Auditor’s remuneration
a) Auditor of the parent entity
Audit of the financial statements
Due diligence and other assurance services for the equity raise
Other audit, tax and compliance related services
Total paid to PricewaterhouseCoopers
b) Auditors of the wholly owned overseas subsidiaries
Audit of the financial statements
Other tax and compliance services
Total paid to PricewaterhouseCoopers
32
Share based payments
a) Employee Option Plan
2017
$
2016
$
402,000
500,851
12,587
915,438
132,000
14,000
146,000
2017
$
2016
$
130,000
155,000
6,000
-
136,000
155,000
The Chief Executive Officer and other senior management held, as part of their remuneration, conditional
vesting options over 6,891,010 (2016: 3,035,662) ordinary shares of the Group comprising the:
- 2015 grant which was made on 29 June 2015,
- 2016 grants which were made on 23 December 2015, and 30 June 2016;
- 2017 year grants which were made on 3 October 2016, and 13 June 2017.
85
Bellamy’s Australia Limited
FY15 grant
The exercise price for the FY15 grant of options is $1.20 (adjusted). The options can only be exercised if
specific performance hurdles are met. Refer to the remuneration report on pages 30 to 51 for detail
regarding the performance hurdles. These options expire four years after the date of the grant, which should
be no later than 29 June 2019.
FY16 grant
The exercise price for the FY16 grant of options is $4.87 (adjusted). The options can only be exercised if
specific performance hurdles are met. Refer to the remuneration report on pages 30 to 51 for detail
regarding the performance hurdles. These options expire five years after the grant date, which should be
no later than 23 December 2020.
Additional grant on 30 June 2016
A subsequent grant of 689,950 options was made on 30 June 2016. The options were granted under the
LTI plan.
FY17 grant
The exercise price for the FY17 grant of options is $14.04 (adjusted). The options can only be exercised if
specific performance hurdles are met. Refer to the remuneration report on pages 30 to 51 for detail
regarding the performance hurdles.
Additional grant on 13 June 2017
The exercise price for the subsequent grant of options is $5.643. The options can only be exercised if
specific performance hurdles are met. Refer to the remuneration report on pages 30 to 51 for detail
regarding the performance hurdles.
b) Other movements
During the current financial year there were no options exercised. 599,398 options were forfeited.
c) Fair value of options granted during the year
The fair value of the options granted during the year was Legacy Long-term Incentive Plan $1.95,
Turnaround Long Term Incentive Plan tranche 1 $2.04 and tranche 2 $2.05 respectively.
d) Expenses arising from share based payment transactions
The value of options granted to key management personnel are amortised over the period from the grant
date to the vesting date for accounting purposes. Share based payments expense in relation to key
management personnel for the year is as follows:
Name
Current directors
J Murphy
Wai-Chan Chan
Rodd Peters
KMP
A Cohen
A Cohen
A Cohen
N Underwood
M Harrison
P Fridell
D Jedynak
Former KMP
Laura McBain
Laura McBain
Laura McBain
Shona Ollington
Shona Ollington
Shona Ollington
Total
Option series
Grant date
Share
based
payment
expense $
No. of
options
FY17 Grant
FY17 Grant
FY17 Grant
FY16 Grant
FY17 Grant
FY17 Grant
FY17 Grant
FY17 Grant
FY17 Grant
FY17 Grant
FY15 Grant
FY16 Grant
FY17 Grant
FY15 Grant
FY16 Grant
FY17 Grant
13/6/17
13/6/17
13/6/17
193,373
36,257
36,257
30/6/2016
14/10/2016
13/6/2017
13/6/2017
13/6/2017
13/6/2017
13/6/2017
29/6/2015
23/12/2015
14/10/2016
29/6/2015
23/12/2015
14/10/2016
689,950
168,345
1,675,000
475,000
200,000
440,000
475,000
825,877
530,918
239,154
216,793
112,000
40,021
5,258
986
986
937,014
52,903
45,548
12,916
5,438
11,964
12,916
58,034
89,142
28,114
13,493
16,985
3,652
6,353,945
1,295,349
86
Bellamy’s Australia Limited
33
Deed of cross guarantee
Bellamy’s Australia Limited and Bellamy’s Organic Pty Ltd executed a deed of cross guarantee on 16
February 2015 under which each company guarantees the debts of the other. By entering into the deed,
the wholly owned subsidiaries have been relieved from the requirement to prepare a financial report and
Directors’ Report under ASIC Corporations (wholly-owned Companies) Instrument 2016/785 issued by the
Australian Securities and Investments Commission. The above companies represent a “Closed Group”
for the purposes of the Class Order, and as there are no other parties to the deed of cross guarantee that
are controlled by Bellamy’s Australia Limited, they also represent the “extended closed Group”.
34
Summary of significant accounting policies
Reporting entity
Bellamy’s Australia Limited is a listed public company incorporated in Australia. The address of the principal
place of business and registered office is as follows:
115 Cimitiere Street
Launceston
Tasmania 7250
The entity’s principal activities are to offer a range of organic food and formula products for babies and
toddlers. The Company’s products are certified organic.
The consolidated financial statements and notes represent those of Bellamy’s Australia Limited and
Controlled Entity (the “Consolidated Group” or “Group”).
The separate financial statements of the parent entity, Bellamy Australia Limited, have not been presented
within this financial report as permitted by the Corporations Act 2001.
The principal accounting policies adopted in the preparation of these consolidated financial statements 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 Bellamy’s Australia Limited
and its subsidiaries.
Basis of preparation
These consolidated general purpose financial statements have been prepared in accordance with
Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board
and the Corporations Act 2001. Bellamy’s Australia Limited is a for-profit entity for the purpose of preparing
the financial statements.
The financial statements were authorised for issue on 25 August 2017 by the Directors of the Group.
Early adoption of standards
The Group has early adopted AASB 9 – Financial Instruments.
Historical cost convention
These financial statements have been prepared under the historical cost convention, as modified by the
revaluation of available for sale financial assets, financial assets and liabilities.
Compliance with IFRS
The consolidated financial statements of the Bellamy’s Australia Limited group also comply with
International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards
Board (IASB).
a) Principles of consolidation
i)
Subsidiaries
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Bellamy’s
Australia Limited (‘company’ or ‘parent entity’) as at 30 June 2017 and the results of all subsidiaries for the
87
Bellamy’s Australia Limited
year then ended. Bellamy’s Australia Limited and its subsidiaries together are referred to in this financial
report as the Group or the consolidated entity.
Subsidiaries are all entities (including special purpose entities) over which the Group has the power to
govern the financial and operating policies, generally accompanying a shareholding of more than one-half
of the voting rights. The existence and effect of potential voting rights that are currently exercisable or
convertible are considered when assessing whether the Group controls another entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-
consolidated from the date that control ceases.
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.
b)
Income tax
The income tax expense for the financial reporting period comprises current income tax expense (income)
and deferred tax expense (income).
Current income tax expense charged to the profit or loss is the tax payable on taxable income calculated
using applicable income tax rates enacted, or substantially enacted, as at reporting date. Current tax
liabilities (assets) are therefore measured at the amounts expected to be paid to (recovered from) the
relevant taxation authority.
Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances
during the financial year as well unused tax losses.
Current and deferred income tax expense (income) is charged or credited directly to equity instead of the
profit or loss when the tax relates to items that are credited or charged directly to equity.
Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets
also result where amounts have been fully expensed but future tax deductions are available. No deferred
income tax will be recognised from the initial recognition of an asset or liability, excluding a business
combination, where there is no effect on accounting or taxable profit or loss.
Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the
extent that it is probable that future taxable profit will be available against which the benefits of the deferred
tax asset can be utilised.
Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and
joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the
temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable
future.
Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is
intended that net settlement or simultaneous realisation and settlement of the respective asset and liability
will occur. Deferred tax assets and liabilities are offset where a legally enforceable right of set-off exists,
the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either
the same taxable entity or different taxable entities where it is intended that the net settlement or
simultaneous realisation and settlement of the respective asset and liability will occur in future periods in
which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled.
Bellamy’s and its wholly owned Australian controlled entities have implemented the tax consolidation
legislation. Bellamy’s, as the head entity in the tax consolidated group and its wholly owned Australian
controlled entities continues to account for their own current and deferred tax amounts. These tax amounts
are measured as if each entity in the tax consolidated group continues to be a standalone taxpayer in its
own right. In addition to its own current and deferred tax amounts, Bellamy’s also recognises the current
tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits
assumed from controlled entities in the tax consolidated group. Assets or liabilities arising under the tax
funding agreement with the tax consolidated entities are recognised as amounts receivable from or payable
to other entities in the Group.
88
Bellamy’s Australia Limited
c) Foreign currency translation
Items included in the Financial Information of each of the Group’s entities are measured using the currency
of the primary economic environment in which the entity operates (“the functional currency”). The
consolidated financial statements are presented in Australian dollars.
Transactions in foreign currencies are converted at the exchange rates in effect at the dates of each
transaction. Amounts payable to or by the Group in foreign currencies have been translated into Australian
currency at the exchange rates ruling on balance date. Gains and losses arising from fluctuations in
exchange rates on monetary assets and liabilities are included in the income statement in the period in
which the exchange rates change, except when deferred in equity as qualifying cash flow hedges.
d) Employee expenses and entitlements
Provision is made for employee expenses arising to the end of the reporting period. Employee expenses
that are expected to be settled within one year have been measured at the amounts expected to be paid
when the liability is settled. Employee expenses payable later than one year have been measured at the
present value of the estimated future cash outflows to be made for those benefits. In determining the
liability, consideration is given to employee wage increases and the probability that the employee may
satisfy any vesting requirements.
Provision has been made in the accounts for benefits accruing to employees up to balance date, such as
annual leave, long service leave and bonuses. No provision is made for non-vesting sick leave as the
anticipated pattern of future sick leave taken indicates that accumulated non-vesting leave will never be
paid. Annual leave provisions are measured at their nominal amounts using the remuneration rates
expected to apply at the time of settlement and are classified in other payables. Long service leave
provisions are measured as the present value of expected future payments to be made in respect of
services provided by employees up to reporting date.
Expected future payments are discounted using market yields at reporting date on Australian corporate
bonds with terms to maturity that match estimated future cash outflows.
All on-costs, including superannuation, payroll tax, workers’ compensation premiums and fringe benefits
tax are included in the determination of provisions.
e) Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly
liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts
are shown within short-term borrowings in current liabilities on the Statement of Financial Position.
f) Borrowings
Loan facilities are initially recognised at fair value, net of transaction costs incurred. Borrowings are
subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs)
and the redemption amount is recognised in the income statement over the period of the borrowings using
the effective interest method.
Fees paid on the establishment of loan facilities, which are not incremental costs relating to the actual
drawdown of the facility, are capitalised and amortised on a straight-line basis over the term of the facility.
g)
Receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less
any provision for doubtful debts. Trade receivables are generally due for settlement based upon trading
terms negotiated with customers. Sales to export distributors are generally receivable before shipment or
secured by letter of credit for longer periods. Sales to domestic customers are generally receivable
approximately 45 days from invoice.
For trade receivables, the Group applies the simplified approach to providing for expected credit losses
prescribed by AASB 9, which requires the use of the lifetime loss provision for all trade receivables. Any
credit losses are written off to Administrative Costs in the profit and loss.
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Bellamy’s Australia Limited
h)
Inventories and cost of sales
Inventories are measured at the lower of cost and net realisable value. Net realisable value represents the
estimated selling price for inventories less all estimated costs of completion and costs necessary to make
the sale.
Cost of sales includes the purchase cost of inventory and includes recurring shortfall payments.
i)
Impairment of assets
Intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually
for impairment, or more frequently if events or changes in circumstances indicate that they might be
impaired. Other assets are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which
the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an
asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are
grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units).
j) Property, plant and equipment
Each class of property, plant and equipment is carried at cost or fair value, less where applicable, any
accumulated depreciation or amortisation.
Plant and equipment
Plant and equipment are measured on the cost basis and therefore carried at cost less accumulated
depreciation and any accumulated impairment
The carrying amount of plant and equipment is reviewed annually by the Directors to ensure it is not in
excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis
of the expected net cash flows which will be received from the assets’ employment and subsequent
disposal. The expected net cash flows have been discounted to their present values in determining
recoverable amounts.
Depreciation
The depreciable amount of all fixed assets, excluding freehold land, is depreciated on a straight-line basis
over the asset’s useful life to the consolidated group commencing from the time the asset is held ready for
use.
The depreciation rates used for each class of depreciable assets are:
Class of Fixed Asset
Plant and equipment
•
IT Hardware
• Motor Vehicles
•
Furniture and fittings
Useful life
4 years
8 years
10 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance
sheet date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying
amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These
gains or losses are included in the profit and loss statement. When revalued assets are sold, amounts
included in the revaluation reserve relating to that asset are transferred to retained earnings.
k) Leases
Leases of property, plant and equipment where the Group has substantially all the risks and rewards of
ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the
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Bellamy’s Australia Limited
lower of the fair value of the leased property and the present value of the minimum lease payments. The
corresponding rental obligations, net of finance charges, are included in other long-term payables. Finance
lease payments are allocated between interest expense and reduction of lease liability over the term of the
lease. The interest expense is determined by applying the interest rate implicit in the lease to the
outstanding lease liability at the beginning of each lease payment period. Finance leased assets are
depreciated on a straight-line basis over the shorter of the asset’s estimated useful life and the lease term.
Where the risks and rewards of ownership are retained by the lessor, leased assets are classified as
operating leases and are not capitalised. Rental payments are charged to the income statement on a
straight-line basis over the period of the lease.
l) Accounts payable
These amounts represent liabilities for goods provided prior to the end of the reporting period and which
are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition, however some
manufacturers retain ownership in the inventory until payment for it is received.
m) Provisions
Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events,
for which it is probable that an outflow of economic benefits will result and that outflow can be reliably
measured.
n) Financial Instruments
Financial assets and financial liabilities are recognised when a group entity becomes a party to the
contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at
fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and
financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are
added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on
initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial
liabilities at fair value through profit or loss are recognised immediately in profit or loss.
Financial assets classified at fair value through profit and loss
From time to time the Group may hold listed investments for the purposes of trading, such investments are
classified at fair value though profit and loss. These investments are measured at fair value with changes
in carrying amount being included in profit or loss. Fair value is determined with reference to ASX quoted
bid prices.
o) Goods and Services Tax (GST)
Revenues, expense and assets are recognised net of the amount of GST, except where the amount of
GST incurred is not recoverable from the Australian Taxation Office. In these circumstances the GST is
recognised as part of the cost of acquisition of the asset or as part of an item of an expense. Receivables
and payables in the balance sheet are shown inclusive of GST.
Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of
investing and financing activities, which are disclosed as operating cash flows.
p) Share based payments
Equity-settled share-based payments to employees and others providing similar services are measured at
the fair value of the equity instruments at the grant date. Details regarding the determination of the fair
value of equity-settled share-based transactions are set out in Note 32. The fair value determined at the
grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting
period, based on the Group’s estimate of equity instruments that will eventually vest, with a corresponding
increase in equity. At the end of each reporting period, the Group revises its estimate of the number of
equity instruments expected to vest. The impact of the revision of the original estimates, if any, is
recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a
corresponding adjustment to the equity-settled employee benefits reserve.
q) Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the new share issue are
shown in equity as a deduction, net of tax, from the proceeds.
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Bellamy’s Australia Limited
r) Comparative figures
When required by the Accounting Standards, comparative figures are adjusted to conform to changes in
presentation for the current financial year.
In the event that the Group retrospectively applies an accounting policy, makes a retrospective restatement
or reclassifies items in its financial statements, an additional (third) Statement of Financial Position as at
the beginning of the preceding period in addition to the minimum comparative financial statements is
presented.
Comparative information is reclassified where appropriate to enhance comparability and provide more
appropriate information to users.
s) Adoption of new and revised Accounting Standards
In the current year, the Group has applied an amendment to AASBs issued by the Australian Accounting
Standards Board (AASB) that is mandatorily effective for an accounting period that begins on or after 1
July 2016, and therefore relevant for the current year end. There was no financial impact related to the
below amendments.
AASB 2014-4 ‘Amendments to Australian Accounting Standards – Clarification of Acceptable Methods of Depreciation
and Amortisation’
AASB 2015-1 ‘Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting
Standards 2012-2014 Cycle’
AASB 2015-2 ‘Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101’
t) New Accounting Standards for application in future periods
The table below lists the standards and amendments to standards that were available for early adoption
and were applicable to the Group. The Group is in the process of reviewing the impact of the standards
outlined below, however the adoption of the new standards is not expected to have a material impact on
the reported results and financial position of the Group.
The Group does not intend on adopting the following new standards or amendments before their mandatory
effective dates.
Standard / Interpretation
Effective for annual
reporting periods
beginning on or after
Expected to be
initially applied in
the financial year
ending
AASB 15: ‘Revenue from Contracts with Customers’, and
associated Amending Standards
AASB 16: ‘Leases’
1 January 2018
30 June 2019
1 January 2019
30 June 2020
u) Rounding of Amounts
The Group is a company of the kind referred to in ASIC Corporations (Rounding in Financials/Directors’
Reports) Instrument 2016/191, dated 24 March 2016, and in accordance with that Corporations Instrument
amounts in the Directors’ Report and the financial statements are rounded off to the nearest thousand
dollars, unless otherwise indicated.
92
Bellamy’s Australia Limited
Directors’ Declaration
for the year ended 30 June 2017
In the Directors’ opinion:
(a) The financial statements and notes set out on pages 53 to 92 are in accordance with the
Corporations Act 2001, including:
i.
ii.
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 2017
and of its performance for the financial year ended on that date, and
(b) 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
(c) at the date of this declaration, there are reasonable grounds to believe that the members of the
extended closed group identified in Note 33 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 33.
Note 34 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 the Chief Financial
Officer required by Section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
John Ho John Murphy
Chair Director
Dated at Melbourne this 25th day of August, 2017
93
Independent auditor’s report
To the shareholders of Bellamy’s Australia Limited
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of Bellamy’s Australia Limited (the Company) and its controlled
entities (together, the Group) is in accordance with the Corporations Act 2001, including:
a) giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its
financial performance for the year then ended
b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
•
•
•
•
•
the consolidated balance sheet as at 30 June 2017
the consolidated profit and loss and other comprehensive income for the year then ended
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the year then ended
the notes to the consolidated financial statements, which include a summary of significant
accounting policies
•
the directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial
report section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant
to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities
in accordance with the Code.
94
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from
material misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an
opinion on the financial report as a whole, taking into account the geographic and management
structure of the Group, its accounting processes and controls and the industry in which it operates.
The Group operates in Australia, China (including Hong Kong) and Singapore
Materiality
Audit scope
Key audit matters
• Amongst other relevant topics,
we communicated the following
key audit matters to the Audit
and Risk Committee:
- Financial position and
working capital requirements
- Valuation of inventory
- Accounting for production
shortfall provisions
- Revenue recognition for sales
to Chinese Distributor
- Accounting and disclosure for
promotional activity
•
These are further described in
the Key audit matters (KAM)
section of our report.
• Our audit focused on where the
Group made subjective
judgements; for example,
significant accounting estimates
involving assumptions and
inherently uncertain future
events
• We conducted an audit of the
financial information of the
Group’s Australian operations
given its financial significance to
the Group.
• We performed specified risk
focused audit procedures for
operations in Singapore which
were not quantitatively material
to the Group financial report.
• Component auditors operating
under our instructions
performed audit procedures on
the Group’s subsidiaries in China
and Hong Kong.
• We used overall Group materiality
of $1.34 million which represents
approximately 5% of the Group’s
profit before tax after adding back
$27.5 million for the Fonterra
supply reset payment.
• We applied this threshold, together
with qualitative considerations, to
determine the scope of our audit
and the nature, timing and extent of
our audit procedures and to
evaluate the effect of misstatements
on the financial report as a whole.
• We chose Group profit before tax
because, in our view, it is the metric
against which the performance of
the Group is most commonly
measured and is a generally
accepted benchmark in the
consumer goods industry. We
adjusted for the Fonterra supply
reset payment as it is an
infrequently occurring item
impacting profit or loss.
• We selected 5% based on our
professional judgement noting that
it is also within the range of
commonly acceptable profit related
thresholds in the consumer goods
industry.
95
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report for the current period. The key audit matters were addressed in the
context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters. Further, any commentary on the outcomes of a
particular audit procedure is made in that context.
Key audit matter
How our audit addressed the key audit matter
Financial position and working capital
requirements
(Refer note 22, consolidated statement of profit or loss,
consolidated balance sheet, consolidated statement of
cash flows, note 15 borrowings)
The Group has assessed its working capital
requirements for a 12 month period from the signing
date of the financial report. The assessment of the
Group’s working capital requirements is based on the
Group’s actual financial position for July 2017 and a
forecast of sales, production requirements, production
shortfall payments and overheads for the period from 1
August 2017 to 31 August 2018 (defined as “the
forecast”).
The Group’s financial position for July 2017 includes the
cash flows from the equity raising announced in June
2017 and the impact of the committed cash outflows for
the acquisition of Camperdown Powder Pty Limited
(Camperdown) (disclosed in note 29) and the payment
to Fonterra Australia Pty Ltd (Fonterra) of $27.5 million
for shortfall payments (refer below - Accounting for
Production Shortfall Provisions).
The Group used the actual financial position as at July
2017 and the forecast to evaluate its ability to meet
expected financial commitments, the adequacy of the
financing position of the Group and the ability to
continue to comply with financial covenants associated
with the banking facilities.
The critical judgements of the Group in relation to the
forecast are disclosed in note 22 and include:
• estimated sales to domestic customers and resellers
in China
•
the potential impact of proposed regulations in
China
• estimated production levels and shortfall payments.
Given the critical judgements included in the forecast
and the Group’s need to ensure compliance with
banking covenants to maintain funding we considered
this to be a key audit matter.
In considering the Group’s financial position and
financing arrangements we, among other things:
• Considered the Group’s forecast financial position
for the period from 1 August 2017 to 31 August 2018
and estimated the forecast headroom in the banking
facilities and cash position throughout the period.
• Agreed the cash received from the equity raise to the
relevant bank statements.
• Agreed the cash paid by the Group for the
acquisition of Camperdown and paid to Fonterra to
the relevant bank statements.
• Read the banking agreement to obtain an
understanding of the financial covenants and other
obligations associated with the banking facility.
• Considered the impact of the shareholder class
action.
• Considered the Group’s ability to comply with the
financial banking covenants by comparing the
financial covenants per the banking agreement to
the Group’s forecast covenant position for each
quarter.
•
Inspected correspondence from the bank
confirming that the one-off payment to Fonterra
was excluded from the financial covenant
calculation.
• Considered the reliability of the underlying data
used in the Group’s forecast and considered whether
the key assumptions such as sales volumes and
margins were supportable. To do this we:
compared forecast sales volumes and
margins to actual sales volume for FY17
considered the impact of regulatory
changes in China and considered how
sensitive the forecast would be to changes
or potential changes in regulations
• Performed a sensitivity analysis by varying the key
assumptions in the forecast, in particular sales, to
assess whether the Group was likely to continue to
comply with its banking covenants.
96
Key audit matter
How our audit addressed the key audit matter
Valuation of inventory
(refer to note 11)
The Group’s inventories at 30 June 2017 amounted to
$93.5 million, of which $83 million related to finished
goods and $10.5 million related to raw materials.
Inventory predominantly consists of infant milk
formula, baby food and associated raw materials which
are held at third party distribution centres located in
Australia and China.
Inventory is measured at the lower of cost or net
realisable value. To assess net realisable value, the
Group estimates the future sales value of inventory and,
where this is less than the cost of the inventory, writes
down the value of inventory to the estimated sales value.
We considered this a key audit matter due to the size of
the inventory balance and the judgement required by
the Group to estimate the future sales value of
inventory. This included considering factors such as:
• product expiry dates
• expected sales volumes
• expected sales prices
•
the impact of regulations in China.
To assess the valuation of inventory we, among other
things:
• Inspected a sample of sales invoices issued in July
2017 and August 2017 to identify whether any
inventory was sold at less than its cost price.
• Examined the Group’s report that provides a list of
the expiry dates of raw materials and compared a
selection of raw materials which were close to
expiry or past expiry to the Group’s list of raw
materials contained in the inventory provision.
• Inspected the Group’s report that provides a list of
the expiry dates of raw ingredients and finished
goods and the Group’s sales forecast to develop an
understanding of whether the finished goods were
expected to be sold within the expiry window as
required by key customers.
• Tested the accuracy of the expiry dates in the
underlying report by comparing the expiry date
listed for a sample of finished goods to the expiry
date on the product label.
• Considered announcements from Australian and
Chinese regulators relating to sale of infant formula
and packaging of infant formula for the period
1 July 2016 to 24 August 2017 and made inquiries of
the Group as to whether there were any changes
which could impact the sale of inventory on hand.
Accounting for production shortfall provisions
(refer to note 17 and note 27)
To assess the accounting for the production shortfall
provisions we, among other things:
The Group has two key contractual arrangements for the
manufacture of finished goods. These contracts have
minimum volume commitments and where the Group is
not able to fulfil these minimum volume commitments,
it is required to make production shortfall payments to
the relevant manufacturers.
The minimum volume commitments are based on each
individual contract year (which differs from the Group’s
financial year). At each financial year- end, the Group
raises a provision when production thresholds have not
been met or the Group does not have the ability to meet
the threshold under the contractual terms.
In June 2017, the Group entered into a revised
agreement with Fonterra which resulted in the Group
agreeing to pay Fonterra $27.5 million to significantly
reduce further exposure to future shortfall amounts.
We considered the accounting for production shortfall
provisions a key audit matter given the judgement
required in:
• Read the two key contracts with manufacturers to
develop an understanding of the key terms and the
thresholds for minimum production for each
contract.
• Compared the actual production from the
commencement of the contract year to 30 June 2017
for each contract to the Group’s production records.
• Considered the Group’s ability under the respective
contracts to meet the volume threshold for the
remaining period of the applicable contract year by
considering the maximum production levels
specified in the contract
• Compared the actual production plus the estimated
production volume for the remaining contract
period for each contract to the Group’s minimum
annual volume calculation.
97
Key audit matter
How our audit addressed the key audit matter
• assessing the Group’s ability to reach production
• Compared the volume/production shortfall rate per
thresholds for the contract year
• estimating the amount of provision required at 30
June 2017.
Revenue recognition for sales to China
Distributor
(Refer note 2 Segment revenues)
For the year ended 30 June 2017, the Group generated
$73.1 million of sales for the China segment, which
included sales to the China distributor.
We considered the recognition of revenue to the China
distributor to be a key audit matter because there are
large shipments close to year-end with specific shipment
terms and conditions and certain products imported
into China are subjected to sample quality testing,
known as China Inspection and Quarantine (CIQ) tests.
Accounting and disclosure for promotional
activity
(Refer note 5 Revenue)
As is industry practice in Australia there are numerous
pricing arrangements (“rebates”) with retail customers
(supermarkets and chemists) which relate to the retailer
selling Bellamy’s products on promotion. The amount
payable for these rebates depends upon the quantity of
units sold in the promotion period.
tonne in the relevant contracts to the Group’s
calculation of the shortfall provision.
• Agreed the cash paid for the shortfall payment to
Fonterra to the revised agreement and the relevant
bank statement.
To test whether revenue for export sales was recognised
in the correct period we:
• Read the terms and conditions of the sales contract
with the Group’s China distributor to develop an
understanding of the risks facing the Group with
respect to recognising revenue in the correct
financial year.
• Selected all sales transactions to the China
distributor for May 2017 and June 2017 and
compared the date of the transaction and the
volume of product sold to the terms of the relevant
sale agreement.
• Considered the Group’s quality testing process for
export sales. For a sample of export sales in May
2017 and June 2017, we inspected the Group’s
quality testing results in Australia to assess the risk
of product returns.
Our audit procedures over the accounting and
disclosure for promotional activity included:
• Inspecting a sample of rebates claimed by retailers
after the balance date to consider whether claims
relating to sales made by the Group before the
financial year-end, were accrued for.
• Assessing whether the promotional costs for the
year ended 30 June 2017 were deducted against
revenue.
The Group is required to estimate and accrue for these
rebates (variable trade spend obligations) at each
reporting date to the extent they relate to sales made by
the Group in that financial year. We considered this a
key audit matter because:
• Considering the reclassification of promotional
spend and assessing the related disclosures against
the requirements of the Australian Accounting
Standards which outline that discounts and rebates
should be deducted against revenue.
• Agreeing the amount of the restatement for the
prior period promotional spend to the amount
included in direct costs for the prior period.
• The date Bellamy’s products are delivered to
retailers differs from the period over which the
promotions will run, and therefore estimates are
required to ensure all trade spend accruals are
recorded (i.e. the accrual is “complete”).
• The quantity of product sold on promotion may
not be known to the Group at balance date.
The Group restated prior period promotional spend to
reclassify $10.5 million of expenses from direct costs to
reduce revenue.
98
Other information
The directors are responsible for the other information. The other information comprises the
Chairman’s letter, Message from the CEO, Company Overview, Board of Directors, Executive Team,
Directors’ Report, Corporate Governance Statement and Shareholder Information included in the
Group’s annual report for the year ended 30 June 2017 but does not include the financial report and
our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent
with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:
www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor’s
report.
99
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 30 to 51 of the directors’ report for the
year ended 30 June 2017.
In our opinion, the remuneration report of Bellamy’s Australia Limited, for the year ended 30 June
2017 complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
remuneration report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the remuneration report, based on our audit conducted in
accordance with Australian Auditing Standards.
PricewaterhouseCoopers
Alison Tait
Partner
Melbourne
25 August 2017
100
Shareholder Information
Bellamy’s Australia Limited and controlled entities
The following additional information is provided in accordance with the ASX Listing Rules as at 31 July
2017.
Number of holders of equity securities
Ordinary share capital
109,417,595 shares are held by 17,951 shareholders. At a general meeting, every shareholder present
in person or by proxy, attorney or representative has one vote on a show of hands, on a poll, one vote
for each fully paid share held.
Unlisted options over ordinary share capital
A total of 7,156,898 options are held by 20 individual option holders, including 265,887 of options not
yet approved by shareholders. The options do not carry any voting rights.
Distribution of holders of equity securities
Ordinary shares
No. of equity securities held
No. of holders
No. of shares
% of shares
1 to 1000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and Over
Total
10,227
6,212
925
551
36
4,374,763
13,564,410
6,432,051
11,940,247
73,106,124
17,951
109,417,595
4.00%
12.40%
5.88%
10.91%
66.81%
101
Substantial shareholders
Name
Citicorp Nominees Pty Ltd
Black Prince Private Foundation
Quality Life Pty Ltd
HSBC Custody Nominees (Australia) Limited-GSCO ECA
HSBC Custody Nominees (Australia) Ltd
Twenty largest shareholders
Rank Name
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Citicorp Nominees Pty Ltd
The Black Prince Private Foundation
Quality Life Pty Ltd
HSBC Custody Nominees (Australia) Limited-GSCO ECA
HSBC Custody Nominees (Australia) Ltd
JB Were (NZ) Nominees Ltd
JP Morgan Nominees Australia Ltd
CS Third Nominees Pty Ltd
Miss Mengjie Liu
Merrill Lynch (Australia) Nominees Pty Ltd
Brispot Nominees Pty Ltd
National Nominees Ltd
CS Fourth Nominees Pty Ltd
HSBC Custody Nominees Pty (Australia) Ltd - A/C 2
Buttonwood Nominees Pty Ltd
Netwealth Investments Ltd
Saba Family Investments Pty Ltd
Suetone Pty Ltd
RBC Investor Services Australia Nominees Pty Ltd
BNP Paribas Nominees Pty Ltd
Total
Total remaining holders balance
TOTAL
Number of
ordinary shares
18,194,200
15,842,106
8,012,049
6,763,733
4,394,564
% of
voting
power
advised
16.63
14.48
7.32
6.18
4.02
Number of
ordinary shares
held
% of capital
held
18,194,200
15,842,106
8,012,049
6,763,733
4,394,564
3,162,693
2,523,060
2,252,198
2,065,158
1,139,092
948,004
915,675
822,504
800,872
662,362
624,783
463,948
320,000
301,086
292,063
70,500,150
38,917,445
109,417,595
16.63
14.48
7.32
6.18
4.02
2.89
2.31
2.06
1.89
1.04
0.87
0.84
0.75
0.73
0.61
0.57
0.42
0.29
0.28
0.27
64.43%
35.57%
100.00%
102