Annual
Report
2018
Costa Group
Holdings
Limited
C
o
s
t
a
G
r
o
u
p
H
o
l
d
i
n
g
s
L
i
m
i
t
e
d
–
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8
Here we grow
Contents
Chairman’s Report
Managing Director’s Review
Company Profile
Harvest Calendar
Directors’ Report
Auditor’s Independence Declaration
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
Notes to the Consolidated Financial Report
Directors’ Declaration
Independent Auditor’s Report
Shareholder Information
Corporate Directory
03
06
08
12
15
40
41
42
43
46
47
88
89
95
96
Front cover – Monarto mushroom
farm expansion, South Australia.
Corporate Governance Statement
Costa Group’s 2018 Corporate
Governance Statement is located at
http://investors.costagroup.com.au/investor-
centre/?page=corporate-governance
Costa Group Holdings Limited ABN 68 151 363 129
Manlai berry farm, China.
Expansion
Costa is Australia’s
leading grower, packer
and marketer of
premium quality fresh
fruit and vegetables.
01
Costa Group Holdings LimitedAnnual Report 2018 Quality
We are committed
to producing quality
produce through
innovative agronomic
practices and our
stringent quality
assurance programs.
02
Costa Group Holdings LimitedAnnual Report 2018 Chairman’s Report
The Costa business model is now underpinned by a portfolio
of five attractive produce categories – berries, mushrooms,
citrus, glasshouse tomatoes and avocados.
Overview
The 2018 financial year saw Costa deliver
a $76.6 million underlying Net Profit After
Tax (NPAT-S before material items), a 26.3%
increase on the previous full year and in line
with our forecast. This result further reinforces
the value of the growth strategy the Company
has embarked upon, which has more recently
included M&A activity in the avocado
category, further expansion of our international
segment, with the Company taking a majority
ownership stake in the Morocco based African
Blue business, and continued development
of our production capacity across our
produce segment.
The Costa business model is now underpinned
by a portfolio of five attractive produce
categories – berries, mushrooms, citrus,
glasshouse tomatoes and avocados, which
are all vertically integrated, with Costa
involved in farming, packing and marketing.
We hold the number one position in most
of these categories and we do this by
maintaining a high market share through
our focus on quality, continually improving
our efficiency and increasing our capacity
which is reflected in our growth strategy.
Our newest vertically integrated category
is avocados and to date our growth in this
category has occurred principally through
M&A activity. As of the end of financial year
2018, in conjunction with Macquarie
Agricultural Funds Management, the company
has deployed total capital of $110 million
in the avocado category. Further investment
is also occurring in R&D and innovation,
including the trialling of trellis growing to
drive the benefits of high density avocado
production and a small protected avocado
cropping trial to explore the potential for
improved fruit quality and yield.
Growth in our mushroom category is
occurring with the expansion of our Monarto,
South Australia mushroom farm. The doubling
of weekly site production capacity from 120
tonnes to 240 tonnes will further enhance our
competitive cost position with scale and
new technology, also equipping Costa
with additional prepack and brown
mushroom market development capability.
The outstanding performance of our citrus
category with its favourable export future
boosted by free trade agreements with China,
Korea and Japan means that growth and
expansion is being targeted through M&A
and greenfield development.
The further development and growth of
our international operations in Morocco and
China, highlights Costa’s success in applying
our business model and world leading
agronomic practices to growing environments
outside of Australia. In November 2017, two
of the founding shareholders in African Blue,
Gailes Holdings Ltd and Bennani Abdellatif,
agreed to sell their shares to Costa. As a result
Costa acquired 37% of the issued shares, with
options enabling the acquisition of an
additional 4% over the next three years. Total
Worldfresh a subsidiary of the UK listed fresh
produce company, Total Produce LLC, retained
a 10% interest. The value of the initial 37%
acquisition was approximately AU$68 million
plus transaction costs, being funded from
operating cash flow and existing debt capacity.
As a result of this transaction, our African Blue
Morocco operations are now an integral part
of not only Costa’s international segment but
also our overall business. The blueberry
varieties that we grow in Morocco are from
genetics developed by Costa originally in
Australia, meaning we also control the
intellectual property (IP). We believe this gives
us a distinct competitive advantage in the UK
and European markets as we are able to
deliver a premium product into those markets.
In May 2018 Costa was awarded the Business
Excellence Award for Agriculture, Food &
Beverage at the prestigious 25th Annual
AustCham Westpac Australia-China Business
Awards. The award recognised the agronomic
practices that Costa has brought to China,
including our world leading blueberry IP
and substrate growing methods. Importantly
the award was also recognition of our local
workforce and how Costa has worked with
all stakeholders in helping to realise their
commitment to agricultural policies and
practices that improve economic
development by creating jobs in agriculture,
have a positive environmental impact and
benefit the greater social good in rural China.
Results
For the first time Costa generated $1 billion
in revenue, with full year revenue of $1,002
million, a 10.2% increase on our full year
FY2017 result.
EBITDA before SGARA was up 30.9% on full
year FY2017 to $150.8 million, while statutory
NPAT before SGARA and material items
increased by 26.3% on the previous
year to $76.6 million.
Dividends
The Board declared a fully franked final
dividend of 8.5 cents per share resulting
in a full year fully franked dividend total
of 13.5 cents per share for FY2018. This
represents an increase of 22.7% on FY2017.
Our People
It is important to both our Board and the
Executive Team that we are consistent and
rigorous in the high standards that we apply
with respect to our people.
We recognise that they deserve a workplace
that is safe and healthy, provides them with
every opportunity to succeed, and rewards
effort for their contribution to our success
whether they are located in our domestic
or international businesses. Consistent with
this, there has been a significant focus on
developing team capability and safety culture
in our China operations, and during the year a
safety specialist was engaged to ensure that
Chinese operational safety standards are
aligned with best practice Australian standards.
03
Costa Group Holdings LimitedAnnual Report 2018
Forecast growth in the coming year is
consistent with our target of generating
a strong return on capital and average
annual low double digit earnings growth
over a three to five year horizon.
The group balance sheet remains robust
with ample capacity to continue to pursue a
disciplined M&A and organic growth agenda.
Change to financial year end
Through execution of the Company’s
domestic and international growth
platforms, Costa’s earnings profile has
become dramatically skewed to the January-
June half year reporting period. This trend will
become further pronounced with on-going
expansions, amplified by additional farming
cost investment required over July-December.
For these reasons the Board decided that
the Company’s financial year will now follow
the calendar year commencing from January
2019. In order to transition from financial year
to calendar year reporting, Costa will report a
six month interim fiscal period to December
2018, followed by the 2019 calendar year.
The Company’s AGM for the financial year
ended June 2018 will be held on the 22nd of
November 2018. An AGM will then be held for
the interim fiscal period to December 2018 by
the end of May 2019, with all future AGMs
after this time being held in May of the
relevant year.
Neil Chatfield
Chairman
Chairman’s Report continued
Human resource practitioners have also
been employed in China with a brief to
develop succession plans that replicate Costa’s
domestic people capability plans so key talent
is matched to key roles. These practitioners
have also been trained in the relevant Chinese
labour law and regulations, and partake in
regular update sessions so they stay abreast
of any changes to the law and to ensure all
legal obligations are continuously being
met by the Company.
At Costa we are fortunate to have outstanding
people right across the organization who are
focused on delivering world class outcomes
and providing growing returns to the economy,
the communities we operate in and to our
shareholders. On your behalf I want to
thank all of our people for their efforts and
congratulate our management team lead by
our CEO, Harry Debney, for their excellent
leadership throughout the past year.
Community
There are very few other companies in
Australia that can lay claim to growing and
supplying a range of fresh produce that are
all healthy, nutritious and acknowledged as
being essential to maintaining a healthy body
and mind. This provides Costa with a unique
opportunity to engage with the communities
we operate in through using our products
to promote healthy eating and living.
This is no better illustrated than through
the activity of our berry and citrus categories,
which have both provided fresh produce for
school breakfast programs in New South
Wales and in South Australia. The Costa berry
team at Corindi on the north coast of New
South Wales teamed up with the local Orara
High School’s Breakfast Club to provide free
meals to around 40 students a day. Donating
fresh berries on a weekly basis to the school,
Costa plays a key role in supporting the school
in its efforts to provide healthy meals for
students to start their day. Elsewhere in South
Australia, Costa’s citrus team combined with
other Riverland citrus growers to donate citrus
to the KickStart For Kids program, which
serves 40,000 breakfasts to disadvantaged
students at 300 schools across South Australia.
The Board sees such visits and interaction with
the Company’s operations as adding real value
because it not only allows us to directly see
for ourselves how the business is operating,
it also enables us to apply a sufficient level
of scrutiny to what is occurring at the
operational level.
To this end the Board is committed to
making regular site visits in order to ensure
we continue to develop and maintain our
understanding of the company’s operations.
Tiffany Fuller resigned from the Board
as a Non-Executive Director effective 1st
September 2018. Tiffany joined the Board
shortly after the successful IPO in 2015 and
was a major contributor to the development
of the Company as Chair of the Audit and Risk
Committee. On behalf of the Board, I want to
sincerely thank Tiffany for her commitment
and contribution to Costa Group over such
a crucial period following the ASX listing.
Tiffany’s experience in capital markets as well
as finance, accounting and risk management
has been highly valued and we wish her the
very best in her future pursuits.
Subsequent to Tiffany’s departure, Mr Tim
Goldsmith was appointed to serve as an
independent Non-Executive Director of
the company effective 1st September, 2018.
Tim has extensive corporate experience
gained from over three decades of working
in Australia and internationally. Tim has been
very active in the Chinese marketplace and
has facilitated Chinese foreign investment into
Australian mining assets. He also held a role
as Director of the Australia China Business
Council and has a strong understanding
of the Chinese business culture.
Outlook
Costa’s growth plans continue to build
capacity and market positioning both
domestically and internationally.
During 2019 significant scale will be delivered
in mushrooms and avocados, and together
with growth in tomatoes and berries
are expected to provide long term
sustainable returns.
Board
During the year the Board visited our Guyra,
New South Wales tomato glasshouses and our
Moroccan blueberry growing operations.
Based on the current trading conditions,
the company expects to generate low
double digit NPAT-S growth in the year
ahead to 30 June, 2019.
04
Costa Group Holdings LimitedAnnual Report 2018 Growth
Costa’s growth plans
continue to build
capacity and market
positioning both
domestically and
internationally.
Renmark citrus farm, Riverland, South Australia.
Guyra tomato packhouse, New South Wales.
05
Costa Group Holdings LimitedAnnual Report 2018 Managing Director’s Review
The number of growth projects we are currently developing
and implementing is reflective of Costa being a Company
that is growth oriented, with an upward trajectory.
The diversity of our portfolio once again
proved its value and resilience in financial year
2018, with the citrus category delivering the
standout performance and tomatoes making
an excellent contribution. These results were
reflective of a strong citrus export market,
with 75% of our product being exported to
countries including Japan, United States and
China. The tomato category saw significant
improvement as a result of our increased
focus on growing snacking tomatoes, where
the majority of this category’s growth is
now focused.
The mushroom category continues to
contribute solidly to our overall performance
and will benefit from increased production
capacity once our Monarto South Australia
mushroom farm expansion is completed by
February 2019. Berries remain a key part
of our fresh produce offering and with our
production presence in the berry category
spanning across four states and five different
regions, this enhances our ability to supply the
market year round and be the major supplier
outside of the main growing season in what
are called the shoulder periods. There were
some challenges during these periods, both
in Tasmania and Far North Queensland where
lower production resulted in reduced
proportional pricing benefits. A small volume
of our new premium Arana blueberry variety
was available during the year, with a major
increase in production to occur in FY2019.
There was also the first offering to market
of our Driscoll’s variety blackberries,
Elvira and Victoria.
The vertical integration of our avocado
category continues apace, and we now have
a supply footprint stretching from February
through to December, with the majority
occurring April to October. During the year
we also launched a major new avocado brand
‘Lovacado’, under which we now sell our
premium Hass and Shepard varieties. The
brand has been well received and is already
developing strong consumer recognition.
Our international segment, which includes
berry growing operations in Morocco and
China, remains an important part of our
growth plans. The Moroccan blueberry season
was affected by unseasonal cold weather over
an extended period this year which led to an
eight week delay in crop maturity and
compromised quality in what was a shorter
than usual season. With consumer demand
growing in continental Europe, 65% of the
product now goes to Europe and 35% to
the more established UK market.
In China we harvested blueberries, raspberries
and blackberries off 46 hectares across two
farms. In line with our five year plan our
blueberry offering will remain dominant for
the foreseeable future, with raspberries and
blackberries requiring progressive market
development. The large jumbo premium
blueberries have been very well received,
benefiting from their widely publicised health
attributes and positioning us to capitalise on
the increasing focus by the growing Chinese
middle class on a healthier lifestyle.
The number of growth projects we are
currently developing and implementing are
reflective of Costa being a Company that is
growth oriented, with an upward trajectory.
During the year we made significant progress
on our second berry growth plan, which will
further increase our production volume
outside of the peak season in the shoulder
periods, and see a commensurate increase
in the availability of our berries under the
Driscoll’s brand during the summer and
autumn months. The expansion of the
Atherton avocado farm, Far North Queensland.
06
Costa Group Holdings LimitedAnnual Report 2018 Tasmanian Berry Distribution Centre was
completed on schedule, enabling handling
of peak December volumes and greater
storage capacity for blueberries in the
modified atmosphere facility.
Costa now has avocado farms located across
four growing regions, namely Far North
Queensland, Central Queensland, Mid North
Coast New South Wales and Renmark South
Australia. The majority of these farms are
leased from Macquarie Agricultural Funds
Management under 20 year leases, with Costa
having full ownership of the crop and the
returns generated from it. Our goal is to be
the number one player in the industry within
three years and to achieve as close to possible
to a 52 week supply offering.
We also continue to develop our citrus variety
offerings. Several new mandarin, orange and
lemon varieties are being trialled on
commercial sized blocks and have market
potential with improved attributes including
seedless, high brix (sugar), red flesh and
different maturity timing. More than 24
hectares of crop netting has been erected
over our mandarins and persimmons in the
Riverland, with the main benefits being a
reduction in water usage, reduced fruit
damage from wind and the production
of a higher percentage of first grade fruit.
There was significant activity in our
international growth projects during the
year, with the successful completion of our
acquisition of a majority ownership stake
(increased from 49% to 86%) in African Blue.
Our African blueberry production area is now
circa 294 hectares, with supply also sourced
from a further 108 hectares with licensed third
party growers. A commercial trial planting has
commenced at a new site in Agadir, 720 kms
south of our existing operations, with the
aim of exploring the opportunity for season
crop extension.
We are now into the third year of expansion
in China, across three farms located in Yunnan
Province. With an additional 53 hectares
planted in FY2018, our total berry plantings are
now circa 100 hectares. All of these plantings
are in substrate and under protective poly
tunnels. The FY2019 plantings schedule will
include 65 hectares at the Manhong site
which is our newest development.
During the past 12 to 18 months, Costa
has closely examined the renewable energy
options that are available to us across a
number of sites, with a focus on not only
reducing our carbon emissions footprint but
also ensuring security of energy supply. There
has been a particular focus on the installation
and use of solar power at our Monarto South
Australia mushroom farm. As a result we
commenced the installation of more than 5,000
solar panels at Monarto and these will generate
up to 2,000 kilowatts capacity when the site
expansion is completed. This will operate
during daylight hours and complement
power from the grid. We are investigating
complementary battery storage solutions,
such that when economically feasible we
will aim to further reduce the site’s reliance
on the power grid.
Costa maintains a strong focus on ensuring
effective water supply to underpin production
from all sites. We are constantly investing in
water assets and technology, with a particular
focus on water security, including capture,
efficiency of use, and recycling. One such
investment that occurred during the year was
a major upgrade to the irrigation drain water
capture system and storage capacity at our
20 hectare tomato glasshouse in Guyra,
northern New South Wales. This investment
included a doubling of the site’s recycled
irrigation drain water storage capacity and
the installation of a pre filtration system. The
benefits of recycling irrigation drainage water
include a reduction in total fertiliser inputs,
greater water security through increased
availability of sufficient irrigation water and
cost savings through reduced expenditure
on fertiliser and water. This investment will
save up to 22.5 megalitres of drain water
per annum and increase our drain water
recycling rate from 70% to 85%.
As always, the success of our business
and the ability to initiate and maintain a
sustainable growth strategy is dependent
on our workforce and key personnel. Our
management team has considerable depth
and over the past 18 months we have injected
outside talent and importantly also promoted
people internally. We routinely map the
most critical 300 people in the Company
concentrating on performance, professional
development and ensuring alignment
of key employees with Company values
and objectives.
This activity recognises that talent
identification and development is a fluid
process which must always have an eye to not
only current needs, but also the importance of
suitability and organisational fit of our people
with regard to the future roles and needs
within the Company.
Harry Debney
Managing Director and CEO
Monarto mushroom farm, South Australia.
07
Costa Group Holdings LimitedAnnual Report 2018 Company Profile
OPERATIONS
About Us
Costa is Australia’s leading
horticultural company and is
the largest fresh produce supplier
to the major Australian food
retailers, with total revenues
exceeding $1.0 billion in FY2018
(2017: $909.1 million) and NPAT
before SGARA1,2 of $76.7 million
(2017: $60.7 million)
Costa’s operations include
approximately 4,000 planted
hectares of farmland, 30 hectares
of glasshouse facilities and seven
mushroom growing facilities
across Australia, as well as six
blueberry farms in Morocco
and three berry farms in China.
Operational Structure
Costa operates across three
reportable segments:
Produce
Operates principally in five core categories;
berries, mushrooms, citrus, glasshouse-grown
tomatoes and avocados;
International
Comprises licensing of proprietary blueberry
varieties and expansion of berry farming in
attractive international markets, such as
Morocco and China; and
Costa Farms and Logistics (CF&L)
Incorporates interrelated logistics,
wholesale and marketing operations.
Business Model
The Costa business model is built
on the optimisation of a portfolio
of integrated farming, packing
and marketing activities.
Costa’s portfolio aims to be broad enough to
mitigate agricultural and market risks while
maintaining a strategic focus on high-growth
and high-value fresh produce categories. Costa
practises proactive risk management through
diversification of categories and geographies,
growing in protected cropping environments,
using market leading technology, targeting
produce categories with 52 week production
and supply windows, and maintaining strict
hygiene standards, quality control systems and
post-harvest protocols.
Costa’s products are predominantly grown and
sourced from Costa’s expansive footprint of
domestic and international farms, supplemented
with produce sourced through a diverse
network of third party growers.
Morocco
Morocco
China
Zaouia
Ouled Messbah
Chouafaa
Larache
China
Bailang
Yunnan Province
Manlai and Manle
Yunnan Province
Where We Operate
Australia
Western Australia
Berry Farm, Gingin
Mushroom Farm, Casuarina
Distribution Centre, Jandakot
Compost Facility, Mandurah
Queensland
Mushroom Farm, Glen Aplin
Mushroom Farm, North Maclean
Berry Farms, Tolga
Berry Farm, Atherton
Banana Farm, Walkamin
Banana Farm, Tully
Grape Farm, Mundubbera
Brisbane Market, Rocklea
Avocado Farm, Childers
Avocado Farm, Atherton
Berry Farm, Walkamin
New South Wales
Berry Farm, Corindi
Tomato Glasshouse, Guyra
Distribution Centre, Eastern Creek
Distribution Centre Grapes, Euston
Berry Farm, Tumbarumba
Berry Farm, Rosewood
Avocado Farm, Comboyne
Avocado Farm, Fishermans Reach
08
Victoria
Mushroom Farm, Mernda
Compost Facility, Nagambie
Melbourne Market, Epping
Distribution Centre, Derrimut
Business Support Centre, Ravenhall
Mushroom Farm, Yarrambat
South Australia
Mushroom Farm, Monarto
Yandilla Citrus Farm and Packhouse,
Renmark
Solora Citrus Farm, Loxton
Pike Creek Farm, Lyrup
Amaroo Citrus Farm, Murtho
Kangara Citrus Farm and Packhouse,
Murtho
Adelaide Market, Pooraka
Tasmania
Berry Farm, Sulphur Creek
Berry Farm, Wesley Vale
Berry Farm, East Devonport
Berry Farm, Dunorlan
Devonport Distribution Centre, Quoiba
Berry Distribution Centre and
Packhouse, Devonport
Mushroom Farm, Spreyton
Dulverton Compost Facility, La Trobe
Berry Farm, Lebrina
Costa Group Holdings LimitedAnnual Report 2018 Costa’s products are predominantly grown and sourced from Costa’s expansive
footprint of domestic and international farms, supplemented with produce sourced
through a diverse network of third party growers.
Figure 1: Costa’s Business Performance
by Segment for FY2018
Transacted Sales 1
11%
5%
Epping wholesale market, Melbourne, Victoria.
Figure 2: Costa’s Operational Structure
84%
Produce
International
CF&L
EBITDA before SGARA1, 2
Produce
International
Costa Farms and
Logistics (CF&L)
Mushrooms
Genetics Licensing
Wholesale
Berries
Morocco
Logistics
4%
17%
Tomatoes
China
79%
Citrus
Avocados
Produce
International
CF&L
1. Transacted Sales, EBITDA before SGARA and NPAT before SGARA are non-IFRS
financial measures.
2. NPAT before SGARA and EBITDA before SGARA is represented before material items.
African Blue farm, Morocco.
09
Costa Group Holdings LimitedAnnual Report 2018 Company Profile continued
STRATEGY AND GROWTH
Costa’s current position, operating platform and
world class practices provide it with multiple
growth drivers across its portfolio.
Costa’s corporate strategy involves a number
of initiatives aimed at sustaining long-term
growth, which include:
• Continuing to build out Costa’s market
position in its core Produce categories
through farming expansion, both
domestically and internationally;
• Expand licensing of Costa’s blueberry
varieties globally;
•
Investing in research and development
(R&D) to enhance Costa’s competitive position,
with focus on varietal development and
differentiation, agronomic practices,
and farming productivity & innovation;
• Developing new channels to market,
including new products and expansion
of export markets.
Costa maintains a prudent and disciplined
approach to capital deployment and continues
to invest in growth opportunities in the
medium to long term that maximises value
and return for shareholders.
Growth and future prospects
Costa aims to generate growth by investing
in its core categories and strategically growing
its offshore exposure in highly attractive
international markets. During the year Costa
continued to deliver on its growth initiatives
through the following key activities:
• Acquisition of an additional 37% share
in African Blue, taking Costa’s ownership
to 86% with options to increase to 90%
over the next three years;
• Australian berry expansion program saw
a further 97 hectares planted, including
31 hectares of blueberry soil to substrate
conversion to the premium Arana variety
at Corindi, and 10 hectares of new
blackberry varieties;
• Significant progress achieved establishing
avocados as the fifth vertically integrated
category, with six businesses acquired since
the decision taken to expand into avocados1;
• Monarto mushroom farm expansion
progressing, which will see a doubling
of that site’s capacity from 120 tonnes
to 240 tonnes per week;
• Continued growth of international berry
operations, with a third farm planted in China,
and further plantings in Morocco, including
expansion to a new area, Agadir, for season
extension.
• Acquisition of the Impi citrus orchard, and
greenfield development growth with a further
157 hectares of citrus and 44 hectares of
avocados planted at Costa’s existing citrus
orchards in the Riverland, SA through the
government funded 3IP program.
10
Australian Berry Expansion
• FY19 planting program of 45 hectares, including 24 hectares of blackberries (Tas, FNQ).
• Significant production of the Arana blueberry expected from Corindi. The majority
of product will be marketed in a 200g premium pack.
• Dedicated varietial program in FNQ to develop varieties specifically suited to low
latitude in Australia and overseas, such as China and Mexico.
International – Morocco
• 2019 planting program will focus on further plantings in Agadir (south of existing
plantings) for early season supply.
• Blueberry R&D program in Morocco showing promising signs on a number of early
season varieties.
Mushroom Expansion
• Project construction on schedule with additional production capacity progressively
coming on line from January 2019.
• Full 120 tonnes per week incremental capacity expected from Q3 calendar 2019.
Avocado Vertical Integration
• Continue building out the avocado category through maturity of existing farms,
further M&A bolt-ons and/or greenfied plantings to complement existing farms.
•
Lovacado brand launched for premium Costa packed product.
International – China
• A further 65 hectares to be planted in 2019.
• Active varietal selection program targeting berry varieties best suited
for China production and consumer preferences, such as premium jumbo
sized blueberries.
Tomato Expansion
• Further 10 hectares glasshouse expansion for the production of snacking tomatoes,
adjacent to the 10 hectares expansion undertaken in 2015.
• Cost $67m, including further nursery capacity and upgrade to packing capabilities.
• First planting expected from March 2020.
Costa Group Holdings LimitedAnnual Report 2018 SUMMARY OF FINANCIAL PERFORMANCE
Figure 2: Summary of Transacted Sales and revenue
FY2014 to FY2018
Figure 3: Summary of EBITDA-S and NPAT-S before
material items FY2016 to FY2018
Transacted Sales
($m)
CAGR 12.0%
Total Revenue
($m)
CAGR 9.0%
EBITDA-S Before Material
Items ($m)
NPAT-S Before Material
Items ($m)
CAGR 30.1%
CAGR 31.7%
.
2
9
7
1
1
,
.
1
6
3
3
1
,
.
1
9
0
9
.
7
1
2
8
.
9
0
1
7
.
0
6
3
7
.
5
2
4
0
1
,
.
0
2
2
9
.
9
7
4
8
.
0
2
0
0
1
,
.
8
0
5
1
.
2
5
1
1
.
1
9
8
.
7
6
7
.
7
0
6
.
2
4
4
FY14 FY15 FY16 FY17 FY18
FY14 FY15 FY16 FY17 FY18
FY16 FY17 FY18
FY16 FY17 FY18
1. Acquisition of avocado orchards has been completed primarily, but not exclusively, in conjunction with Macquarie Agriculture Funds Management (Macquarie). Under the agreement,
Macquarie purchased the land, biological assets, water and infrastructure assets with Costa entering into a 20-year lease with Macquarie to operate the orchards.
Lovacado brand
has been launched
for premium Costa
packed product.
11
Costa Group Holdings LimitedAnnual Report 2018 Harvest Calendar
Mushroom Mushroom Tomatoes
Tomatoes
Tomatoes Oranges Oranges
Browns
Whites
Truss
Cocktail
Sweet
Snacking
Valencia
Navels
Oranges
Blood
Orange
Grapefruit Grapefruit
Lemons
Limes Mandarins Mandarins Mandarins Mandarins Mandarins Mandarins Mandarins Mandarins Persimmons Persimmons Tangelos
Marsh
Ruby Red
Satsuma
Clementines
Daisy
Imperial
Afourer
Ellendale
Ortanique
Jiro
Fuyu
Honey
Murcott
Avocados Avocados Avocados Avocados Avocados Avocados Bananas
Bananas Raspberries Raspberries Raspberries
Blackberries Blueberries
Blueberries
Blueberries
Blueberries
Blueberries Strawberries
Grapes
Grapes
Grapes
Hass
Gwen
Reed
Shepard
Carmen Maluma Cavendish
Lady
Fingers
Corindi
Gin Gin
TAS
TAS
Corindi
FNQ
WA
NSW
TAS
TAS
Red
White
Black
Raspberries
China
Blackberries
China
Blueberries
China
Blueberries
Morocco
January
February
March
April
May
June
July
August
September
October
November
December
January
February
March
April
May
June
July
August
September
October
November
December
January
February
March
April
May
June
July
August
September
October
November
December
12
Costa Group Holdings LimitedAnnual Report 2018 Mushroom Mushroom Tomatoes
Tomatoes
Tomatoes Oranges Oranges
Oranges
Grapefruit Grapefruit
Lemons
Limes Mandarins Mandarins Mandarins Mandarins Mandarins Mandarins Mandarins Mandarins Persimmons Persimmons Tangelos
Browns
Whites
Truss
Cocktail
Snacking
Valencia
Navels
Marsh
Ruby Red
Satsuma
Clementines
Daisy
Imperial
Afourer
Ellendale
Sweet
Blood
Orange
Honey
Murcott
Ortanique
Jiro
Fuyu
Avocados Avocados Avocados Avocados Avocados Avocados Bananas
Bananas Raspberries Raspberries Raspberries
Blackberries Blueberries
Blueberries
Blueberries
Blueberries
Blueberries Strawberries
Grapes
Grapes
Grapes
Hass
Gwen
Reed
Shepard
Carmen Maluma Cavendish
Fingers
Corindi
Gin Gin
TAS
TAS
Corindi
FNQ
WA
NSW
TAS
TAS
Red
White
Black
Lady
January
February
March
April
May
June
July
August
September
October
November
December
January
February
March
April
May
June
July
August
September
October
November
December
January
February
March
April
May
June
July
August
September
October
November
December
Raspberries
Blackberries
Blueberries
Blueberries
China
China
China
Morocco
13
Costa Group Holdings LimitedAnnual Report 2018 Teamwork
Costa’s current position,
operating platform and
world class practices
provide it with multiple
growth drivers across
its portfolio.
14
Costa Group Holdings LimitedAnnual Report 2018 Directors’ Report
For the year ended 1 July 2018
The directors of Costa Group Holdings Ltd and its controlled entities (“the Group”) present their report together with the financial report of the Group
for the financial year ended 1 July 2018.
1. Directors
The directors of the Company at any time during or since the end of the financial year are:
Neil Chatfield M.Bus, FCPA, FAICD
Chairman and Independent Non-Executive Director
Director since 7 October 2011 and Chairman since 24 June 2015. Member of the Remuneration Committee and
Nomination Committee.
Neil is an established executive and Non-executive director with extensive experience across all facets of company
management, and with specific expertise in financial management, capital markets, mergers and acquisitions, and
risk management.
Neil is currently the Chair and Non-executive director of Seek Limited. Neil is also a Non-executive director of Transurban
Ltd and Aristocrat Leisure. He was previously a Non-executive director of Iron Mountain Inc. (to September 2017), Recall
Holdings Ltd (to May 2016), Chair and Non-executive director of Virgin Australia Holdings Ltd (to May 2015) and
Non-executive director of Grange Resources Ltd (to April 2014).
Neil previously served as an executive director and Chief Financial Officer of Toll Holdings Ltd (from 1997 to 2008).
Frank Costa AO OAM
Non-Executive Director
Director since 8 June 2011. Member of the Remuneration Committee and Nomination Committee.
Frank has been at the forefront of developing and building the Costa Group into a major horticultural company for
more than 50 years. He has previously served as President of the Geelong Football Club (1998 – 2010) and tirelessly
promotes the development of the City of Geelong and surrounding community. Frank has been honoured with an
Order of Australia Medal for his services to youth and the community.
During the past four years, Frank has not served as a director of any other listed company.
Harry Debney BAppSc (Hons)
Managing Director and Chief Executive Officer
Director since 5 January 2012 and Managing Director since 24 July 2015.
Since his appointment as CEO in 2010, Harry has overseen the transition of the business from a privately owned
company to its listing on the Australian Securities Exchange. Prior to joining Costa, Harry spent 24 years at Visy
Industries, including eight years as Chief Executive Officer. During this time, he substantially grew the Visy business,
both organically and through acquisitions.
Harry is currently a Non-executive director of Kogan.com Ltd and Chair and Non-executive director of The Yield Pty Ltd.
Tiffany Fuller B.Com, GAICD, ACA
Independent Non-Executive Director
Director since 1 October 2015. Chair of the Audit and Risk Committee and member of the Nomination Committee.
Tiffany has held various accounting, corporate finance, financial advisory and management consulting positions with
Arthur Anderson in Australia, the United States and in England and subsequently held roles in investment banking and
private equity with Rothschild Australia. Tiffany is an experienced public company director with broad expertise in finance,
strategy, M&A, risk and governance.
Tiffany currently serves as Non-executive director of Washington H. Soul Pattinson and as Non-executive director
and Risk and Audit Committee Chair of Computershare Ltd and Smart Parking Ltd.
15
Costa Group Holdings LimitedAnnual Report 2018 Directors’ Report continued
For the year ended 1 July 2018
Janette Kendall B.Bus (Marketing), FAICD
Independent Non-Executive Director
Director since 11 October 2016. Member of the Audit and Risk Committee, and Nomination Committee.
Janette has held various senior management roles in her career including Senior Vice President of Marketing at Galaxy
Entertainment Group in Macau, China; Executive General Manager of Marketing at Crown Melbourne; General Manager,
Pacific Brands; Managing Director of emitch Limited; and Managing Director of Clemenger Digital and Clemenger
Proximity.
Janette is currently a Non-executive director of Wellcom Group, Nine Entertainment, Vicinity Centres and Placer Property.
Peter Margin BSc (Hons), MBA
Independent Non-Executive Director
Director since 24 June 2015. Chair of the Remuneration Committee and member of the Audit and Risk Committee,
and Nomination Committee.
Peter has many years of leadership experience in major Australian and international food companies, including Chief
Executive of Goodman Fielder Ltd and before that Chief Executive and Chief Operating Officer of National Foods Ltd.
Peter has also held senior executive roles in Simplot Australia Pty Ltd, Pacific Brands Ltd, East Asiatic Company and
HJ Heinz Company Australia Ltd and is currently Executive Chairman of Asahi Beverages ANZ.
Peter currently serves as a Non-executive director of PACT Group Holdings Ltd, Nufarm Ltd and Bega Cheese Ltd.
Peter was previously a Non-executive director of the NSX listed company Ricegrowers Ltd (to August 2015), Chairman
and Non-executive director of Huon Aquaculture Ltd (to August 2016), and a Non-executive director of PMP Ltd
(to August 2016).
Kevin Schwartz BSc (Accountancy)
Non-Executive Director
Director since 7 October 2011. Member of the Nomination Committee.
Kevin is the Chief Executive Officer of Paine Schwartz Partners (since February 2017) which he cofounded in 2006.
He was a Managing Director at the predecessor firm, Fox Paine & Company, which he joined in 2002.
Kevin serves on the boards of directors of Foodchain ID, Lyons Magnus, Verdesian Life Sciences, and Wawona Delaware
Holdings, LLC. He is also a member of the Rush Associates Board of the Rush University Medical Center. Kevin has
previously served as a director of Advanta, AgBiTech, Icicle Seafoods, Seminis, Inc., Sunrise Holdings (Delaware), Inc.
and on the Board of United American Energy Corp.
During the past four years, Kevin has not served as a director of any other listed company.
2. Company Secretary
David Thomas LLB (Hons), BSc
Mr. Thomas joined the Company as General Counsel in July 2012 and was appointed to the position of Company Secretary in October 2012.
In addition to being the Company Secretary, Mr. Thomas oversees the Group’s legal department and advises the Group on legal, risk and compliance
matters. Prior to joining the Company, Mr. Thomas was a Partner of Middletons (now K&L Gates), practising in corporate and commercial law.
He has over 24 years’ experience in legal practice.
16
Costa Group Holdings LimitedAnnual Report 2018 3. Officers Who Were Previously Partners of the Audit Firm
There are no officers of the Company during the financial year that were previously partners of the current audit firm, KPMG, at a time when KPMG
undertook an audit of the Group.
4. Directors’ Meetings
The number of directors’ meetings (including meetings of committees of directors) and number of meetings attended by each of the directors of the
Company during the financial year are:
Director
Neil Chatfield
Frank Costa
Harry Debney
Tiffany Fuller
Janette Kendall
Peter Margin
Kevin Schwartz
Board Meetings
Audit and Risk
Committee Meetings
Remuneration
Committee Meetings
Nomination
Committee Meetings
Held
6
6
6
6
6
6
6
Attended
6
6
6
6
6
6
4
Held
7
7
7
7
7
7
7
Attended
61
21
61
7
7
7
–
Held
4
4
4
4
4
4
4
Attended
4
2
41
11
11
4
–
Held
2
2
2
2
2
2
2
Attended
2
2
21
2
2
2
1
Notes:
1. Not a member of the Committee. Attended the meeting as a guest.
5. Principal Activities
Costa Group is Australia’s leading horticulture company and is the largest fresh produce supplier to the major Australian food retailers. The Group’s
principal activities during the year were:
• the growing of mushrooms, blueberries, raspberries, glasshouse grown tomatoes, citrus, avocados and other selected fruits within Australia;
• the packing, marketing and distribution of fruit and vegetables within Australia and to export markets;
• provision of chilled logistics warehousing and services within Australia; and
•
licensing of proprietary blueberry varieties and berry farming in international markets.
No significant change in the nature of these activities occurred during the year.
6. Significant Changes in State of Affairs During the Year
In November 2017, the Group signed an agreement to acquire an additional 41% of the shares and voting interests in African Blue SARL (African Blue).
The transaction involved the Group initially acquiring 37% of the issued shares, with options enabling it to acquire an additional 4% over the next
3 years. As a result, the Group’s equity interest in African Blue increased from 49% to 86%, giving it control over the company. The transaction settled
on 27 November 2017. From this date, African Blue is accounted for as a subsidiary of the Group.
Other than the above matters and those matters referred to in both the ‘Strategy and Growth’ section of the Operating and Financial Review and the
Financial Statements, there have been no other significant changes in the state of affairs of the Group during the financial year.
17
Costa Group Holdings LimitedAnnual Report 2018 Directors’ Report continued
For the year ended 1 July 2018
7. Operating and Financial Review
Results for the Financial Year ended 1 July 2018
Summary of Group Performance
Revenue
EBITDA before SGARA1,2
NPAT-S1,2
FY2018
($m)
1002.0
150.8
76.7
vs FY2017
(%)
▲ 10.2
▲ 30.9
▲ 26.3
• Strong result for the year with all reportable segments achieving revenue growth
• Continued earnings growth contribution from the Produce segment with the citrus category being the standout
•
International segment growth inclusive of African Blue consolidated from November 2017
Table 1: Summary of results for FY2018 compared to prior year
Consolidated income statement
A$m
Revenue
Other revenue
Total Revenue
Raw materials, consumables & third party purchases
Employee benefits expense
Other operating expense
Share of associates profit
EBITDA-S1,2
EBITDA-S margin
Fair value movements in biological assets
EBITDA
Depreciation & amortisation
Profit/(loss) on sale of assets
EBIT
Net interest expense
Net profit/(loss) before tax
Income tax expense
NPAT (before material items)
Material items (before tax)
Tax on material items
Non-controlling interest
Net profit after tax attributable to shareholders
Transacted Sales1
NPAT-S1,2
FY2018
985.6
16.5
1,002.0
(321.0)
(331.3)
(205.8)
6.8
150.8
15.0%
(4.0)
146.8
(34.7)
(0.3)
111.8
(7.2)
104.7
(28.1)
76.6
40.3
1.0
(2.6)
115.2
1,336.1
76.7
FY2017
895.3
13.7
909.1
(336.0)
(300.4)
(173.6)
16.2
115.2
12.7%
5.9
121.1
(27.8)
0.3
93.6
(5.3)
88.3
(23.6)
64.7
(8.1)
0.9
0.1
57.7
1,179.2
60.7
Change
$
90.2
2.8
93.0
15.0
(30.8)
(32.2)
(9.4)
35.6
(9.9)
25.7
(6.9)
(0.7)
18.2
(1.9)
16.3
(4.5)
11.8
48.3
0.0
(2.7)
57.5
156.9
16.0
Change
%
10.1%
20.1%
10.2%
(4.5%)
10.3%
18.5%
(57.9%)
30.9%
2.3ppts
(167.6%)
21.3%
24.7%
(212.4%)
19.5%
36.1%
18.5%
19.2%
18.2%
99.6%
13.3%
26.3%
Notes:
1. Transacted Sales, EBITDA-S and NPAT-S are non-IFRS measures. See Table 8 for further details. Refer Table 9 for a reconciliation of Transacted Sales to revenue.
2. NPAT-S and EBITDA-S are presented before material items.
18
Costa Group Holdings LimitedAnnual Report 2018
Financial highlights
Revenue
Revenue increased by $93.0 million from the prior year with all reportable segments growing revenue. Strong growth achieved in particular
in the Produce ($57.1m) and International ($62.5m) segments.
Operating expenses
Raw materials, consumables and 3rd party purchases expenses decreased by $15.0 million due to change in mix of 3rd party and own farm costs
and a key 3rd party grower changing to an agency relationship in the Produce segment.
Employee benefits expenses increased by $30.8 million in line with the revenue growth achieved across the domestic and international businesses.
Other operating expenses increased $32.2 million driven predominantly by an increase in occupancy expenses with new Avocado orchards leased
through Macquarie Agriculture Funds Management (Macquarie), and higher variable rent on the Vitalharvest citrus properties due to strong
FY2018 performance.
Share of associates profit
Profits from associates decreased by $9.4 million with the change in African Blue being classified as a subsidiary from November 2017.
EBITDA before SGARA
EBITDA before SGARA increased by $35.6 million from prior year driven predominantly by the Produce and International segments. The increase
in Produce was led by a strong performance in the citrus category. The International segment increased with the acquisition of an additional 37%
of African Blue in November resulting in its consolidation and China also recording a modest profit.
Fair value movements in biological assets
SGARA fair value movement was down $4.0 million during the year. The largest driver of the decrease was due to release of African Blue biological
assets acquired following harvest. SGARA fair value movement for citrus was also negative, due to the 2018 calendar crop being a smaller ‘off-year’ crop
compared to the prior year.
Depreciation and amortisation
Depreciation and amortisation increased by $6.9 million in line with increased capital expenditures as well as consolidation of African Blue JV from
November 2017.
Net interest expense
Net finance cost up $1.9 million from FY2017, primarily as a result of the increased debt from the acquisition of African Blue and growth related
capital expenditures.
Tax expense
Higher tax expense in line with the increased earnings, with an effective tax rate of 26.9% compared to 26.7% in FY2017.
Material items
Material items (before tax) were $40.3 million, and relate to the African Blue acquisition. This includes a gain of $48.3 million recognised on the
disposal of the original 49% interest at fair value, net of transaction costs of $3.5 million and amortisation of intangibles of $4.6 million relating to
customer relationships and reacquired rights recognised on consolidation.
NPAT-S
NPAT-S increased by $16.0 million from prior year due to factors described above. Higher EBITDA-S was offset by an increase in depreciation and
amortisation expense, finance costs and tax expense.
Dividends
The Board has declared a final dividend of 8.5 cents per share on 23 August 2018. This brings the total dividend payment for FY2018 to 13.5 cents
per share, an increase of 22.7% from prior year. This equates to approximately 56% of NPAT-S before material items. Dividends are expected
to be fully franked.
19
Costa Group Holdings LimitedAnnual Report 2018 Directors’ Report continued
For the year ended 1 July 2018
Segment Information
Produce
Highlights of financial results:
Transacted Sales
Revenue
EBITDA-S
FY2018
($m)
1,180.3 ▲
843.3 ▲
119.3 ▲
vs FY2017
(%)
14.8
7.3
23.4
Figure 1: Revenue, Transacted Sales and EBITDA before SGARA results
96.7m
119.3m
EBITDA
before
SGARA
Revenue
Transacted
Sales
786.2m
843.3m
1,028.5m
1,180.3m
FY2017
FY2018
Table 2: Selected financial information for the Produce segment
Produce
A$m
Transacted Sales
Revenue
EBTIDA-S
EBITDA-S margin
FY2018
1,180.3
843.3
119.3
14.1%
FY2017
1,028.5
786.2
96.7
12.3%
Change
151.8
57.1
22.6
1.8%
Produce revenue increased by $57.1 million on FY2017. The drivers for the
increase include:
• Avocado sales growth through addition of the new avocado farms in FNQ and
Central QLD1, and increased marketing activities, both avocado and banana;
Revenue growth % on FY2017
• Strong citrus revenue growth, with favourable seasonal timing, benefit of
calendar 2017 biennial ‘on-year crop’ and strong export demand contributing; and
This was partially offset by a challenging year in the berry category with lower
production volumes in Tasmania and on the Atherton Tableland reducing shoulder
season pricing benefits.
EBITDA before SGARA increased by $22.6 million against FY2017. This was
predominantly driven by revenue growth in the citrus and avocado categories
as well as a solid contribution from the tomato category led by continuous
improvement at the new 10ha glasshouse.
1. Acquisition of avocado orchards have been completed primarily, but not exclusively, in conjunction with
Macquarie Agriculture Funds Management (Macquarie). For those orchards with which it was involved,
Macquarie purchased the land, biological assets, water and infrastructure assets with Costa entering into
a 20-year lease with Macquarie to operate the orchards.
30%
20%
10%
0.0%
-10.0%
%
1
4
.
%
0
9
2
.
%
5
3
1
.
%
8
0
-
.
%
4
4
-
.
Mushroom
Berry
Tomato Citrus Avocado
20
Costa Group Holdings LimitedAnnual Report 2018
Costa Farms & Logistics
Highlights of financial results:
Transacted Sales
Revenue
EBITDA-S
FY2018
($m)
149.3
152.2 ▲
5.7 ▲
▼
vs FY2017
(%)
1.1
0.4
31.1
Figure 2: Revenue, Transacted Sales and EBITDA before SGARA results
4.3m
5.7m
EBITDA
before
SGARA
Revenue
Transacted
Sales
Table 3: Selected financial information for the CF&L segment
Costa Farms and Logistics
A$m
Transacted Sales
Revenue
EBTIDA-S
EBITDA-S margin
151.6m
152.2m
151.0m
149.3m
FY2017
FY2018
FY2018
149.3
152.2
5.7
3.7%
FY2017
151.0
151.6
4.3
2.9%
Change
(1.7)
0.6
1.4
0.8%
Revenue up a modest $0.6 million compared to the prior year, mainly due to volumetric
growth in logistics through increased utilisation of the Eastern Creek facility. Trading
flow across the wholesale business was flat, with lower availability of product from
core product lines offset with higher services income.
EBITDA before SGARA increased by $1.4 million. This was primarily due to:
• FY2017 results includes a $5 million onerous lease provision recognised for the
Eastern Creek DC;
• Underlying logistics contribution was reduced from closure of Polar Fresh
operations (substantially exited during FY2017) and renewed Jandakot contract
at lower margins; and
• Wholesale market earnings were lower reflective of the reduced trading flow.
Revenue growth % on FY2017
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
%
5
4
4
.
%
7
5
0
-
.
(1.0)%
Costa Farms
Logistics
21
Costa Group Holdings LimitedAnnual Report 2018
Directors’ Report continued
For the year ended 1 July 2018
International
Highlights of financial results:
Transacted Sales
Revenue
EBITDA-S
FY2018
($m)
74.5
74.4 ▲
25.8 ▲
vs FY2017
(%)
▲ 84.4
523.8
82.2
Figure 3: Revenue, Transacted Sales and EBITDA before SGARA results
EBITDA
before
SGARA
14.2m
25.8m
Revenue
11.9m
Transacted
Sales
40.4m
Table 4: Selected financial information for the International segment
74.4m
74.5m
FY2017
FY2018
International
A$m
Transacted Sales
Revenue
EBTIDA-S
EBITDA-S margin
Transacted sales increased by $34.1 million compared to prior year primarily due
to the additional 37% acquisition of the African Blue from November 2017. China
revenue growth was primarily due to the harvest of an additional 20ha of blueberries
from the second farm at Manlai.
EBITDA before SGARA growth was $11.7 million driven by the consolidation of
African Blue, China growth, as well as increased royalty income from both Morocco
and Driscoll’s US licensing streams.
FY2018
74.5
74.4
25.8
nm
FY2017
40.4
11.9
14.2
nm
Change
34.1
62.5
11.7
nm
Transacted Sales growth % on FY2017
.
%
8
5
0
1
120.0%
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
%
1
0
7
.
%
6
3
1
.
African
Blue
Royalities
China
JV
22
Costa Group Holdings LimitedAnnual Report 2018 Balance Sheet
Table 5: Selected consolidated balance sheet for the year ended 1 July 2018
Selected Balance Sheet
A$m
As at 1 July 2018
Cash and cash equivalents
Receivables
Inventories
Property, plant and equipment
Intangible assets
Biological assets
Equity accounted investments
Other assets
Total assets
Payables
Provisions
Borrowings
Other liabilities
Total liabilities
Net assets
2018
60.4
109.8
26.0
364.6
255.8
47.8
11.4
13.7
889.6
127.0
26.1
236.5
20.7
410.3
479.3
2017
22.6
87.4
18.1
281.9
143.1
46.0
32.4
16.7
648.2
102.7
25.0
106.8
17.6
252.1
396.2
Change
37.8
22.3
7.9
82.6
112.7
1.8
(21.0)
(2.9)
241.3
24.3
1.1
129.7
3.1
158.2
83.1
Working capital
Increase in working capital accounts is primarily due to business growth, and consolidation of African Blue balances in FY2018.
Property, plant and equipment
Property, plant and equipment increased by $82.6 million driven by consolidation of the African Blue and growth project expenditures.
Biological assets
Biological assets increased $1.8 million to $47.8 million in FY2018, resulting from acquisitions of new avocado farms. This was partially offset by the
decrease in fair value led by the citrus and berry categories.
Equity accounted investments
Equity accounted investment decreased by $21.0 million due to African Blue now being classified as a subsidiary. This was partially offset by solid
earnings contribution from the Driscoll’s Australia marketing joint venture.
Other assets and liabilities
Other assets reduced by $2.9 million with the FY2017 deposit paid for the Monarto expansion project transferring from prepayments to property,
plant and equipment in FY2018.
Other liabilities increased by $3.1 million primarily driven by the put and call option liability recognised as part of the African Blue transaction.
Net debt
Table 6: Consolidated net debt as at 1 July 2018
Net debt
A$m
As at 1 July 2018
Bank loans
Capitalised loan establishment fees included in borrowings
Gross debt
Less: Cash and cash equivalents
Net debt
2018
237.3
(0.9)
236.5
(60.4)
176.1
2017
108.0
(1.2)
106.8
(22.6)
84.2
Net debt as at 1 July 2018 was $176.1 million and consisted of $60.4 million in cash and $237.3 million of borrowings. The increase in borrowings
reflects cash consideration paid for the African Blue transaction of $68.5 million in November 2017 and capital expenditure on growth projects
incurred during the year.
Under the existing domestic banking facilities in place during the year, the Group was required to meet set covenant compliance ratios which
included total leverage ratio (TLR) and interest coverage ratio (ICR). All covenants were comfortably met.
23
Costa Group Holdings LimitedAnnual Report 2018 Directors’ Report continued
For the year ended 1 July 2018
Cash Flow
Table 7: Cash flow before financing, tax, dividends and material items
Consolidated cash flow
A$m
EBITDAS before material items
Less: Share of profit of JVs
Dividends from JVs
Non-cash items in EBITDAS
Change in working capital
Net cash flow from operating activities before interest, tax and material items
Maintenance capital expenditure
Free cash flow
Productivity and growth capital expenditure
Payments for business acquisitions
Payment for acquisition of subsidiary
Proceeds from sale of investments
Disposal of property, plant and equipment
Net cash flow before financing, tax, dividends and material items
Cash conversion ratio1
Notes:
1. Defined as free cash flow divided by EBITDA before SGARA.
FY2018
150.8
(6.8)
5.5
2.2
(4.1)
147.6
(18.9)
128.7
(70.7)
(4.2)
(57.4)
–
0.7
(2.9)
85%
FY2017
115.2
(16.2)
9.2
1.0
(0.4)
108.8
(18.0)
90.8
(39.2)
(3.8)
–
3.6
0.1
51.5
79%
Change
35.6
9.4
(3.7)
1.2
(3.7)
38.8
(0.9)
37.9
(31.6)
(0.4)
(57.4)
(3.6)
0.6
(54.4)
Dividends from joint ventures
Dividends from JVs decreased by $3.7 million from prior year. FY2017 included $2.8 million dividends received from African Blue JV which was
consolidated in FY2018.
Working capital
Working capital outflow was $4.1 million, a moderate movement relative Costa’s sales and earnings growth.
Capital expenditure
Operating capital expenditure increased by $0.9 million against FY2017, consistent with the overall growth across the business.
Productivity and growth capital expenditure was $70.7 million for the year and comprises of:
• $22.5 million for the domestic berry expansion projects;
• $7.9 million for plant and equipment for the new avocado farming operations acquired during the year;
• $15.0 million for the Mushroom Monarto expansion project;
• $15.0 million for China joint venture; and
• $10.6 million for Morocco.
Other material items in cash flow
Payment for acquisition of subsidiary of $57.4 million relates to the African Blue acquisition representing cash consideration of $68.5 million less cash
acquired of $11.1 million. Payments for business acquisitions of $4.2 million comprises of the purchase of a citrus farm in Renmark.
24
Costa Group Holdings LimitedAnnual Report 2018
Material Business Risks
The material business risks faced by the company that are likely to have an effect on the financial prospects of the company are:
Weather and
climate
Brand risk
Customer risk
Labour
arrangements
Work health
and safety
Regulatory
changes
Changes in weather, climate or water availability can cause price and yield volatility for Costa. Costa partially mitigates against weather
risk by investing in weather protective growing environments and equipment. Approximately two-thirds of Costa’s produce related
EBITDA before SGARA is derived from crops currently grown under cover indoors or under permanent tunnels. While protected cropping
reduces the risk of disease and the impact of weather, this risk is still apparent. Possible changes in climate may also have an adverse
impact on Costa’s business. Costa has sought to manage the impact of this risk by increasing the geographic diversity of its operations
(both within Australia and internationally). Costa is also continuing to develop and implement further strategies to manage this risk and will
report on these strategies in future periods. If Costa’s existing water rights are reduced by regulatory changes or if Costa is unable to secure
sufficient water for the implementation of its growth projects, this could negatively impact on Costa’s operational and financial
performance. Costa regularly reviews its short and medium term water security and takes steps to secure access to additional water
as and when required, together with continuing to invest in technology and growing techniques that improve water efficiency.
Quality issues, product recall, contamination, public health issues, disputes or adverse media coverage could damage Costa’s brands or
their image which could adversely impact Costa’s financial performance. Costa has zero tolerance for circumstances which may result in
food safety concerns and employs strict food safety and quality assurance standards across its business.
Costa’s top three customers comprised approximately 75% of FY2018 domestic produce sales. While Costa actively seeks additional
channels for its produce, and seeks to manage the security of its existing customer arrangements, the nature of the Australian market
means that most customer arrangements are uncontracted and are supplied at market prices which are subject to fluctuation. Any
contractual agreements have supply periods typically for 1 season or 1 to 2 years.
Costa uses multiple employment models to meet the needs of growing and harvesting a product that is perishable. This includes using
labour hire firms to meet production peaks including harvest periods. Costa has less direct control over employment arrangements for
persons employed by labour hire firms than it does over its direct employees. Third party labour hire firms are processed by Costa
through a rigorous procurement process, and Costa requires their employment practices to satisfy all Australian employment laws. Costa
also ensures that all employment instruments and agreements used by any third party labour hire firm engaged by Costa comply with
legal minimum pay and conditions. In addition, the majority of Costa’s employees are covered by enterprise bargaining agreements and
other workplace agreements, which periodically require renegotiation and renewal. Disputes may arise in the course of renegotiations
which have the potential to lead to strikes and other industrial action, which may disrupt Costa’s operations. Any renegotiations could
also result in increased labour costs.
Given the nature of the industry in which Costa operates, Costa’s employees are at risk of workplace accidents and incidents. In addition
to the potential for harm to any employee, the occurrence of workplace accidents has the potential to harm both the reputation and
financial performance of Costa. Costa is committed to promoting a zero tolerance culture where the risk of harm to our people, through
our work activities, is unacceptable. Costa continually works towards achieving zero harm through best practice standards and the
elimination of work related injury/illness and risk.
Costa is a significant beneficiary of the import restrictions in place for fresh fruits and vegetables including mushrooms, bananas, tomatoes,
avocados and berries. Any changes to these import restrictions could have an adverse impact on margins and volumes. However, the
perishable nature of certain produce also acts as a natural barrier against imports. As Costa operates in the food sector, it is also required to
comply with a wide range of other laws and regulations which include food standards, labelling and packaging, fair trading and consumer
protection, environment, quarantine rules, customs, etc. Any change to the rules could adversely impact Costa’s operations in the form
of higher costs and lower margins for the business.
Competition
from new
market entrants
While Costa’s operations currently benefit from scale and access to superior genetics, this competitive landscape may change over time. If
one or more competitors or new market entrants obtained access to favourable genetic varieties which compete in the same categories
as those of Costa, or if they achieve greater scale, this could have a material adverse impact on the financial performance and prospects
of Costa.
Foreign
exchange
risk
Risks
associated
with foreign
operations
Costa is exposed to foreign exchange risk from a number of sources, namely from the export of produce to various countries including
Japan and the United States, and through the earnings it generates from its international operations, including the African Blue and
China joint ventures. Unfavourable movements in the foreign exchange rates between the Australian dollar and other currencies such as
the US dollar, Japanese yen, Moroccan dirham and Chinese Yuan can have a material adverse impact on the overall financial performance
of Costa. Costa actively employs hedging strategies to mitigate this risk.
Costa has significant interests in African Blue in Morocco and its joint venture with Driscoll’s Inc in China. Costa’s operations may be
adversely affected by the risks associated with operation in such jurisdictions, which may impact on its ability to grow the business by
expansion into other overseas markets. As with its domestic operations, Costa has instituted certain internal controls to regulate the
operations of its activities outside Australia, and constantly reviews and monitors these controls for effectiveness. Failure to adequately and
consistently monitor these internal controls may have an adverse impact on Costa’s financial performance. Jurisdictions in which Costa
operates may in the future experience sudden civil unrest or major change to their government or political or legal systems and the
nature of the legal and regulatory systems in those jurisdictions can result in a lack of certainty regarding the interpretation and
enforcement of local laws and regulations.
Environmental
risk
Community
Costa’s operations are subject to various environmental laws and regulations, and a range of licences and permits are required for Costa
to operate its farming operations. If Costa is responsible for any environmental pollution or contamination, or is found to be in breach of
any of its licences or permits, Costa may incur substantial costs (including fines and remediation costs), its operations may be interrupted,
and it may suffer reputational damage. Costa actively seeks to reduce its environmental impact, including by applying measures across its
business which are designed to reduce waste and reduce migration of any nutrients applied to crops.
Costa operates in many regional communities and a failure to successfully integrate with those communities could impact on its operations.
Costa is actively involved in supporting the social fabric of the many regional communities in which it operates. In addition to acting and
behaving as a responsible corporate citizen, Costa works closely with communities so that they can benefit both economically and
socially from Costa’s presence.
25
Costa Group Holdings LimitedAnnual Report 2018 Directors’ Report continued
For the year ended 1 July 2018
Non-IFRS measures
Throughout this report, Costa has included certain non-IFRS financial information, including EBITDA before SGARA, NPAT before SGARA and
Transacted Sales. Costa believes that these non-IFRS measures provide useful information to recipients for measuring the underlying operating
performance of Costa’s business. Non-IFRS measures have not been subject to audit.
The table below provides details of the operating and financial non-IFRS measures used in this report.
Table 8: Non-IFRS measures
Non-IFRS Financial measures
EBIT
EBITDA
EBITDA before SGARA (EBITDA-S) EBITDA adjusted for fair value movements in biological assets. For horticultural companies, EBITDA is typically
Earnings before interest and tax
Earnings before interest, tax, depreciation and amortisation
NPAT before SGARA (NPAT-S)
Non-IFRS operating measures
Transacted Sales
adjusted for fair value movements in biological assets due to the growing and harvesting cycles for fruit and
vegetables, and the accounting treatment of live produce and picked produce. The fair value movement in
self-generating or regenerating assets (SGARA) is non-cash; therefore, EBITDA before SGARA is used in
preference to EBITDA for Costa.
Net profit attributable to members of Costa before fair value movements in biological assets and material items.
Transacted Sales are used by management as a key measure to assess Costa’s sales and marketing performance
and market share. Transacted Sales represent the aggregate volume of sales in which Costa is involved in various
capacities (including sales of third party-grown produce marketed by Costa under agency arrangements), as
well as royalty income. Transacted Sales are not considered by Costa to be a revenue measure. There are material
differences between the calculation of Transacted Sales and the way in which revenue is determined under AAS.
Transacted Sales comprise:
• statutory sales revenue;
• gross invoiced value of agency sales of third party produce;
• Costa’s proportionate share of joint venture sales relating to the African Blue and Polar Fresh joint ventures;
• royalty income from the licensing of Costa blueberry varieties in Australia, the Americas and Africa; and
• 100% of Driscoll’s JV sales after eliminating Costa produce sales to the Driscoll’s JV. Prior to the formation
of Driscoll’s JV in 2010, all of Costa’s domestic sales and marketing activities for the berry category were
managed by Costa.
Table 9: Reconciliation of Transacted Sales to revenue
Reconciliation of Transacted Sales
A$m
Transacted Sales
Agency revenue adjustments
Joint venture adjustments
Driscoll’s Australia Partnership consolidation adjustments
Other revenue
Total revenue
Note
1
2
3
4
FY2018
1,336.1
(81.7)
(0.8)
(264.4)
12.7
1,002.0
FY2017
1,179.2
(41.1)
(31.3)
(206.6)
8.9
909.1
Notes:
1. Under AAS, the invoiced value of agency sales is excluded from revenue with only the commission associated with the agency sales recognised.
2. Costa’s proportionate share of joint venture sales relating to the African Blue and Polar Fresh joint ventures, of 49% and 50% respectively. Under AASB, joint ventures are accounted for under
the equity method, with only Costa’s share of joint venture NPAT recognised in profit or loss.
3. Costa owns 50% of the equity of Driscoll’s JV. Transacted Sales includes 100% of Driscoll’s JV sales, after eliminating Costa produce sales to the Driscoll’s JV.
4. Other revenue (with the exception of royalty income) not included in Transacted Sales.
26
Costa Group Holdings LimitedAnnual Report 2018
8. Dividends
During the year ended 1 July 2018, Costa Group Holdings Ltd declared and paid a fully franked final dividend of 7.0 cents per share for FY2017
(as previously disclosed in the Directors’ report for FY2017) and an interim dividend of 5.0 cents per share for FY2018.
The Board has approved a final dividend for FY2018 of 8.5 cents per share with record date of 13 September 2018 and payment date of
4 October 2018. This dividend will be fully franked. As this dividend was approved after year end, it has not been accrued for as at 1 July 2018.
This brings the total dividend payment for FY2018 to 13.5 cents per share. FY2019 dividends will be balanced against the company’s need
to fund growth objectives.
9. Likely Developments
The Group will continue to explore opportunities that meet the Group’s long term growth and development objectives. The goal is to provide
a superior sustainable increase in profits.
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 because disclosure of the information would be likely to result in unreasonable prejudice to the Group.
10. Environmental Regulation
The Group is committed to conducting business activities and investing in farming practices that are innovative, cost efficient, promote sustainable
horticulture and focus on the need for responsible environmental stewardship with respect to its use of natural resources, while continuing to meet
expectations of shareholders, employees, customers and suppliers.
The Group is subject to environmental regulations under various federal, state and local laws relating predominately to water use and air and noise
emission levels. The Group’s operations are conducted in accordance with its licences and permits (such as those for manufacturing compost for its
mushroom operations) and its environmental management plans. The Group was not found to be in breach of any environmental regulations during
the year.
The Group reports under the National Greenhouse and Energy Reporting Act 2007 (Cth). While its overall emissions have increased over recent years due
to the Group’s significant growth and larger production footprint, the Group continues to review, and adopt where appropriate, more efficient forms
of energy (such as the solar farm being established at the Group’s Monarto mushroom farm).
The Group publishes an annual Sustainability Report in which it reports on initiatives that are aimed at improving environmental performance. Reflecting
the growing importance of its sustainable farming initiatives, Costa’s 2018 Sustainability Report will be a separate report, rather than being included
in its Annual Report.
The Group is committed to achieving a level of environmental performance that meets or exceeds Federal, State and local requirements.
11. Directors’ Interests
The relevant interest of each director in the shares and options issued by Costa Group Holdings Ltd, as notified by the directors to the ASX in
accordance with S205G(1) of the Corporations Act 2001, at the date of this report is as follows:
Neil Chatfield
Frank Costa¹
Harry Debney
Kevin Schwartz
Peter Margin
Tiffany Fuller
Janette Kendall
Ordinary
shares
260,000
5,005,248
1,310,818
–
38,793
10,000
15,870
Options over
ordinary
shares
–
–
1,577,363
–
–
–
–
Notes:
1. Frank Costa’s interests represent an indirect interest in approximately 31.67% of the ordinary shares held by Costa AFR Pty Ltd as trustee for the Costa AFR Unit Trust as a result of his
shareholding in a series of other entities.
27
Costa Group Holdings LimitedAnnual Report 2018 Directors’ Report continued
For the year ended 1 July 2018
12. Share Options
Unissued ordinary shares under options
Unissued ordinary shares of Costa Group Holdings Ltd under option at the date of this report are as follows:
Number of unissued ordinary shares under option
50,000
361,904
2,063,469
616,944
1,706,2291
Issue price of shares
$1.45
$2.25
$2.78
$2.81
$4.82
Expiry date of
the options
October 2024
June 2020
December 2021
August 2019
September 2022
Notes:
1. These options represent unvested options granted to management (including the CEO) during FY18 under the Group’s LTI plan, including 352,481 options issued to Harry Debney, 183,936
options issued to Linda Kow and 181,818 options issued to Sean Hallahan, as KMP of the Company, and 69,936 options issued to David Thomas, the company secretary of the Company.
All unissued shares are ordinary shares in the Company, or will be converted into ordinary shares immediately after exercise of the relevant option.
No option holder has any right under the options to participate in any other share issue of the group.
Shares issued on exercise of options
During the financial year, the Company issued 236,259 shares as a result of the exercise of LTI options issued under the Company’s FY16 Long Term
Incentive Plan. The Company also issued 181,885 shares on the vesting of performance rights granted under the Company’s FY16 Short Term
Incentive Plan.
13. Indemnification and Insurance of Directors and Officers
Pursuant to its constitution, the Company may indemnify directors and officers, past and present, against liabilities that arise from their position as
a director or officer allowed under law. The Company has entered into deeds of indemnity, insurance and access with its existing and past directors,
its company secretary and the directors of the Company’s subsidiaries. Under the deeds of indemnity, insurance and access, the Company indemnifies
each director or officer against all liabilities to another person that may arise from their position as a director or officer of the Company or its
subsidiaries, to the extent permitted by law. The deeds stipulate that the Company will meet the full amount of any such liabilities, including
reasonable legal costs and expenses.
During the financial year, the Group paid premiums to insure all directors and officers against certain liabilities as contemplated under the Company’s
constitution. Disclosure of the total amount of the premiums paid under this insurance policy is not permitted under the provisions of the insurance
contract.
Further disclosure required under section 300(9) of the Corporations Act 2001 is prohibited under the terms of the contract.
14. Indemnification and Insurance of Auditors
No indemnities have been given or insurance premiums paid, during or since the end of the year, for any person who is or has been an auditor
of the group.
28
Costa Group Holdings LimitedAnnual Report 2018 15. Non-Audit Services
During the year KPMG, the Group’s auditors, has performed certain other services in addition to the audit and review of the financial statements.
The Board has considered the non-audit services provided during the year by the auditor and is satisfied that the provision of those non-audit
services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act
2001 for the following reasons:
• All non-audit services were subject to the corporate governance procedures adopted by the Group and have been reviewed by the Audit and Risk
Committee to ensure they do not impact the integrity and objectivity of the auditor; and
• the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics
for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making
capacity for the Group, acting as an advocate for the Group or jointly sharing risks and rewards.
Details of the amounts paid to the auditor of the Group, KPMG, and its network firms for audit and non-audit services provided during the year are set
out below.
Audit and review services
Services provided by KPMG Australia
Services provided by associate firms of KPMG Australia
Other services provided by KPMG Australia
Taxation compliance and other taxation advisory services (including R&D)
Other services
2018
$ ‘000
2017
$ ‘000
394,808
160,838
555,646
247,584
10,000
257,584
394,756
17,422
412,178
245,700
10,000
255,700
16. Rounding Off
The financial report is presented in Australian dollars with all values rounded to the nearest thousand unless otherwise stated, in accordance with
ASIC Corporations Instrument 2016/191.
17. Lead Auditor’s Independence Declaration
The Lead auditor’s independence declaration is set out on page 40 and forms part of the directors’ report for the financial year ended 1 July 2018.
29
Costa Group Holdings LimitedAnnual Report 2018
Directors’ Report continued
For the year ended 1 July 2018
Remuneration report (Audited)
1. Introduction
The directors are pleased to present the FY2018 Remuneration Report, outlining the Board’s approach to the remuneration for key management
personnel (KMP).
KMP are individuals who have authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly,
and comprise the directors and the senior executives of the Group, as listed below.
Name
Directors
Neil Chatfield
Frank Costa
Tiffany Fuller
Janette Kendall
Peter Margin
Kevin Schwartz
Harry Debney
Executives
Linda Kow
Sean Hallahan
Position Held
Chairman, Non-executive director
Non-executive director
Non-executive director
Non-executive director
Non-executive director
Non-executive director
Chief Executive Officer, Managing Director
Chief Financial Officer
Chief Operating Officer (commenced 2nd October 2017)
The information in this report has been audited as required by section 308(3C) of the Corporations Act 2001 (Cth).
2. Corporate Governance
2.1 Remuneration and Human Resources Committee
The Group has established a Remuneration and Human Resources Committee that is comprised of Non-Executive Directors, the majority of whom are
independent in accordance with the Remuneration and Human Resources Committee Charter.
The Remuneration and Human Resources Committee is responsible for assisting and advising the Board on:
• remuneration policies and practices for executives, and employees of the Group;
•
incentive schemes and equity-based remuneration plans;
• diversity;
• human resource policy and practices across the Group; and
• shareholder and other stakeholder engagement in relation to the Group’s remuneration policies and practices.
A full charter outlining the Remuneration and Human Resources Committee’s responsibilities is available at: http://investors.costagroup.com.au/
investor-centre/?page=corporate-governance.
2.2 Use of Remuneration Consultants
The Remuneration and Human Resources Committee can engage remuneration consultants to provide it with information on current market
practice, and other matters to assist the Committee in the performance of its duties. The Remuneration and Human Resources Committee engaged Ernst
& Young to undertake a review of the Long Term Incentive Plan (‘LTIP’) for FY2018. The objectives in the review included benchmarking and market
positioning of the LTIP to align participant performance with the long term growth and business strategy delivering shareholder value. During 2018
the Remuneration and Human Resources Committee engaged Ernst & Young specifically to undertake market data analysis benchmarking
executive remuneration incentive programs. The Remuneration and Human Resources Committee sought market data from the consultants
from appropriate comparator groups within Australia.
The Remuneration and Human Resources Committee engaged Ernst and Young further to the above, to undertake a review of Short Term Incentive
Plan (‘STIP’) and Long Term Incentive Plan (‘LTIP’) for FY2019. The objective of the review was to provide market intelligence and possible options for
transitional incentive plans to be considered in the planning for the pending transition to calendar financial year reporting periods.
The Remuneration and Human Resources Committee is satisfied that no remuneration recommendations (as defined in the Corporations Act 2001)
were provided by Ernst & Young.
2.3 Associated Policies
The Group has established a number of policies to support a strong governance framework, including a Whistleblower Policy, Anti-Bribery and
Anti-Corruption Policy, Diversity Policy, Disclosure Policy, Securities Trading Policy and Non-Executive Director Share Ownership Policy. These policies
and procedures have been implemented to uphold ethical behaviour and responsible decision making. Further information on the Group’s policies is
available at: http://investors.costagroup.com.au/investor-centre/?page=corporate-governance.
30
Costa Group Holdings LimitedAnnual Report 2018 3. Executive Remuneration
3.1 Remuneration Framework
The remuneration framework adopted by the Board is designed to attract and retain key talent, reward the achievement of strategic objectives and
align reward with the creation of shareholder wealth. The key principles supporting the Group’s remuneration framework are:
Principle
Competitive
Remuneration
Objective
Reward employees fairly and
competitively for their
contributions to the Group’s
success.
Application
• Total remuneration is set having regard to the individual’s capabilities and experience.
• Remuneration for FY2018 was set with regard to an appropriate comparator group of
companies within the consumer discretionary and consumer staples sectors of the S&P/
ASX Small Ordinaries Index.
Performance
Driven
Executives are rewarded
for achieving strategic goals
that create sustainable growth
in shareholder wealth.
• The Board may at times obtain independent advice on the appropriateness of total
remuneration package.
• Significant ‘at risk’ reward ensures executive’s interests remain aligned with creation of
shareholder value. Equity is used as a key element of the variable remuneration to align
executives and shareholders.
• At risk rewards are driven by the Group’s short and long-term performance incentives.
Performance measures are designed to ensure a focus on long term sustainable growth.
• Equity is used as a key element of the variable remuneration to align executives and shareholders.
3.1.1 Remuneration Overview for FY2018
The FY2018 remuneration for the CEO, CFO and COO (“Executive KMP”) included a combination of fixed remuneration, short-term incentives and
long-term incentives in the form of options over shares.
3.1.2 Remuneration Mix for FY2018
Total remuneration for the Executive KMP includes both fixed and ‘at risk’ reward components. ‘At risk’ reward includes short and long term incentives,
which are based on individual and group performance outcomes. In FY2018, the Executive KMP received fixed remuneration, together with the
following ‘at risk’ components:
• short term incentives, as outlined in section 3.2.2; and
•
long term incentives, as outlined in section 3.3,
as further outlined in Section 7 – Directors’ and Executive Officers’ Remuneration.
The mix of fixed versus variable ‘at risk’1 remuneration payable in respect of FY2018 for the Executive KMP was as follows:
CEO
CFO
COO2
57%
61%
65%
Fixed
At risk
43%
39%
35%
Includes cash and deferred equity component of FY2018 STI plan (section 3.2.2) and share-based payments associated with the FY2018 LTI arrangements (section 3.3).
1.
2. COO commenced employment with Costa on 2 October 2017.
31
Costa Group Holdings LimitedAnnual Report 2018 Directors’ Report continued
For the year ended 1 July 2018
Remuneration report (Audited) continued
3.2 Remuneration Components
3.2.1 Fixed Remuneration
Total fixed remuneration (“TFR”) is comprised of cash salary, superannuation contributions, and other non-monetary benefits such as car leasing
arrangements and additional superannuation contributions. TFR is reviewed annually by the Remuneration and Human Resources Committee with
regard to individual and Group performance. The Committee’s review of TFR takes into account the Executive KMP’s total remuneration package.
3.2.2 Short Term Incentive (“STI”) Plan
FY2018 STI Plan Overview
The STI Plan enables Executive KMP and other members of senior management to receive an incentive payment calculated as a percentage of total
fixed remuneration (“TFR”) conditional on achieving Group EBIT hurdles as set out below. Solely for the purposes of this section 3.2.2 all references
to “Group EBIT” means management EBIT-S, ie. statutory EBIT before the impact of the movement in SGARA and references to cash flows mean
management cash flows.
•
If the Group achieves less than 90% of budgeted Group EBIT for the year, no STI will be paid.
• Target STI is paid to a participant on the Group achieving 100% of budgeted Group EBIT and the participant satisfying their other STI performance
measures, with pro rata payments if Group EBIT is between 90% and 100% of budgeted Group EBIT.
•
Stretch STI is payable if the Group achieves over 100% of budgeted Group EBIT, with the maximum STI being payable at 110% of budgeted Group
EBIT (and the participant meets expectations of their individual performance STI measures). The stretch STI component is measured solely on
Group EBIT and is calculated on a straight line basis between 100% and 110% of budgeted Group EBIT.
An EBIT hurdle was selected on the basis that it has a direct correlation to the financial performance of the Group.
2018 Short Term Incentive Plan Features
The table below outlines the key features of the FY2018 STI Plan, as it applied to the Executive KMP and other members of senior management:
Objective
Participants
Performance Period
Opportunity
To reward participants for achieving goals directly linked with the Group’s business strategy
All Executive KMP and selected senior management
Financial year ending 1 July 2018
• CEO – Target STI is 45% of TFR, with a maximum opportunity of 70% TFR for achieving stretch targets.
• CFO – Target STI is 40 % of TFR, with a maximum opportunity of 60% TFR for exceeding stretch targets.
Performance Measures
• COO – Target STI is 35% of TFR, with a maximum opportunity of 60% TFR for exceeding stretch targets.
Consistent with FY2017, STI was assessed against both financial and non-financial measures, and for the CEO and
Executive KMP was weighted as follows:
Measure
Group EBIT
Cash Flow
Individual Performance
Weighting
50%
30%
20%
Individual Performance was measured against KPIs appropriate for the Executive’s role and included key business
measures such as safety, project execution, innovation, quality, customer satisfaction and people leadership.
Payment Method
Cash Flow is based on Group EBITDA cash conversion, which includes Group EBITDA adjusted for joint ventures,
operational working capital movements, and operating capex.
• Cash – Two thirds of the STI benefit payable will be paid in cash following the end of the performance year; and
• Deferred – One third of the STI benefit payable will be delivered in the form of performance rights. No dividends
or voting rights are attached to performance rights, but cash payments equivalent to dividends will be paid to
holders of performance rights.
A participant’s performance rights will vest on 1 September 2019 and the participant will receive an equivalent
number of shares, if the participant remains employed by the Group at that time (or has ceased employment in
circumstances where they are regarded as a ‘good leaver’).
Calculation methodology The STI incentive is assessed annually at the end of the financial year.
The stretch opportunity is based on the overachievement against the budgeted Group EBIT only, with the opportunity
capped at 20% of the CFO’s TFR and 25% of the CEO’s and COO’s TFR. Every 1% of actual Group EBIT over budgeted
Group EBIT increases the CFO’s incentive by 2.0% and the CEO’s and COO’s incentive by 2.5%.
The stretch STI component is measured solely on EBIT and is calculated on a straight line basis between 100% and 110%
of budgeted EBIT.
32
Costa Group Holdings LimitedAnnual Report 2018 Calculations
Each of the three measures (Group EBIT, Cash flow and Individual performance) has been evaluated.
Each of the participants has been determined to have met the requirements of the performance measures, as follows:
Personal:
The CEO assessed the individual performance of the CFO and COO and the Board assessed the individual performance
of the CEO, in each case against the relevant KPIs as described above. All KMPs were regarded as having achieved their
individual performance measure.
Cash flow:
The metric used for this performance measure is the Group’s free cash flow. This is calculated as cash from operations
less operating capital expenditure. For FY2018, budget free cash flow was $118.6m and the actual free cash flow
was $125.4m.
Group EBIT:
Budgeted Group EBIT for FY2018 was $115.4 million. The actual Group EBIT for FY2018 was $115.8 million. Based on the
calculation methodology outlined above, the STI payable for the KMP was calculated in accordance with the table below.
KMP
CEO
CFO
COO
STI payable at
budgeted EBIT
$448,659
$208,111
$210,000
Actual EBIT
achieved (as % of
budgeted EBIT)
100.3%
100.3%
100.3%
STI payable
(as % of total TFR)
45.8%
40.6%
35.8%
STI payable
($)
456,756
211,491
214,873
3.3 LTIP for FY2018
The FY2018 LTIP is designed to reward the Executive KMP (including the CEO) and other senior executives for long term performance and long term
value creation for shareholders.
Term
Eligibility
Consideration for grant
Instrument
Number of options
granted
Exercise price
Performance Period
Performance Measure
(EPS)
Description
CEO, CFO, COO and selected senior management
Nil
Options to acquire ordinary shares in Costa Group Holdings Limited
The number of options was determined based on a set percentage of the participant’s TFR (“LTI Incentive Amount”),
being 35% for the CEO and CFO and 30% for the COO. The options were indicatively valued by an independent external
valuer (Ernst & Young). The number of options issued to each participant was determined by dividing that participant’s
LTI Incentive Amount by the indicative value per Option as determined by the independent valuer. The final fair value
of the options was determined on the grant date.
$4.82 per share, being the volume weighted average price of an ordinary fully paid share in the capital of the Company
recorded on the ASX over 10 ASX trading days ending on 25 June 2017.
The FY2018 LTI performance period will be the 3 year period commencing on 26 June 2017 and ending on 28 June 2020.
75% of the options (“EPS Options”) will be subject to a performance hurdle based on the Company’s Earnings Per Share
(basic) compound annual growth rate (“CAGR”) over the performance period, with performance and vesting outcomes
as follows:
Company’s EPS CAGR
over performance period
Less than 10%
10%
Between 10% and 13% (inclusive)
Above 13%
Percentage of LTIP Options
(subject to the EPS hurdle) that will vest
0%
50%
50%-100%, on a straight line sliding scale
100%
The Board retains discretion to adjust the calculation of EPS (for example, to exclude the impact of significant events
that may occur during the performance period).
The Board will continue to assess the appropriateness of this metric over time.
33
Costa Group Holdings LimitedAnnual Report 2018 Directors’ Report continued
For the year ended 1 July 2018
Remuneration report (Audited) continued
Term
Performance Measure
(Growth)
Description
25% of the options (“Growth Target Options”) will be subject to a performance hurdle based on geographic and category
diversification and growth designed to support sustainable long term value creation linked to return on capital. Growth
includes the scaling up of the Avocado Category and continuing the growth trajectory of the Company’s international
joint ventures.
Entitlements
Option exercise
The number of Growth Target Options that vest will be determined by the Board (with the Managing Director not
voting) based on an assessment of the Company’s performance during the Performance Period against the growth
and diversification targets set by the Board.
The Company considers the performance targets for this hurdle to be commercially sensitive, with the result that
publication of that information prior to the end of the Performance Period may be prejudicial to the interests of
the Company. Accordingly, complete details regarding the outcomes of vesting will be disclosed at the end of
the Performance Period.
Options will not carry rights to dividends or voting rights prior to vesting.
Vested options must be exercised prior to 1 September 2022 (“expiry date”). Prior to the expiry date, an optionholder
can exercise by either:
• providing the Company with an exercise notice that specifies the number of options to be exercised, together with
the exercise price in respect of those exercised options; or
• electing a cashless exercise in respect of some or all of his options.
If an optionholder provides the exercise price, he/she will be issued with one share per exercised option. If an
optionholder elects a cashless exercise, he/she will be issued with a lower number of shares, calculated in accordance
with the following formula:
(A minus B) divided by C, where:
A = Number of Shares to which each Vested Option relates (ie. 1) x Number of Vested Options exercised
x Market Price per Share
B = Number of Vested Options exercised x Exercise Price per Option
C = Market Price per Share, being an amount equal to the volume weighted average price of a Share recorded on
the ASX over 10 ASX trading days immediately preceding the date on which the Market Price is to be calculated
or, if no sale occurred during such period, the last sale price of a Share recorded on the ASX.
Restrictions on Dealing
Participants must not sell, transfer, encumber, hedge or otherwise deal with their options granted under the LTIP.
Service conditions
Shares delivered on the exercise of 50% of the options will be subject to a restriction period (during which the shares
cannot be sold or otherwise dealt with) for 12 months following vesting.
Any unvested options granted under the LTIP will be forfeited where the participant is dismissed during the performance
period, or resigns in circumstances where they are not considered to be a ‘good leaver’. Where the participant is considered
a ‘good leaver’ (which includes death, disability or redundancy), a pro rata proportion of the unvested options (reflecting
the portion of the Performance Period served) will remain on foot subject to Board discretion and be tested at the end
of the original vesting date against the relevant performance conditions.
3.4 Remuneration transition plans for 2019
The transition to calendar year financial periods from 1 January 2019 required consideration of transitional arrangements for the STIP and LTIP for FY2019.
2019 Short Term Incentive Plan
The STI transition plan will adopt the features and methodology of the FY2018 STI in all areas outlined above apart from the length of the
performance period. The performance period will commence from 2 July 2018 and end 29 December 2019. The performance period will be
approximately eighteen (18) months for this transitional period, then reverting to a 12 month STIP performance period for subsequent years.
2019 Long Term Incentive Plan
The LTI transition plan will adopt the methodology of the FY2018 LTI outlined above. The performance period will commence from 1 January 2018
and end 27 December 2020.
34
Costa Group Holdings LimitedAnnual Report 2018 4. Executive Remuneration Disclosure
4.1 Executives’ Contract Terms
A summary of the key terms of employment for executives as at 1 July 2018 is presented in the below table:
Executive
Harry Debney
Linda Kow
Sean Hallahan
Role
Chief Executive Officer
Chief Financial Officer
Chief Operating Officer
Notice by the Group
6 Months
3 Months
3 Months
Notice on Resignation
6 Months
3 Months
3 Months
5. Non-executive Directors
The details of fees paid to non-executive directors in FY2018 are included in Section 7 of this report. Non-executive directors’ fees were fixed and they
did not receive any performance based remuneration.
The table below outlines the fee structure for non-executive directors in FY2018. The annual aggregate fee pool for non-executive directors is
$1,200,000. Board and committee fees, which are inclusive of statutory superannuation contributions, are included in this aggregate fee pool.
Board/Committee
Board base fee
Audit and Risk Committee
Remuneration and Human Resources Committee
Nomination Committee
Chairman Fee ($)
241,172 (inclusive of committee fees)
20,972
15,729
–
Member Fee ($)
104,587
10,486
7,864
–
6. Relationship between remuneration policy and Group performance
FY2016
Key performance indicator
821,861
Revenue ($’000)
46,128
Statutory EBIT-S ($’000)
65,558
EBIT-S before material items ($’000)
44,230
NPAT-S before material items ($’000)
9.0
Dividend paid or declared to ordinary shareholders (cents per ordinary share)
FY20151
736,231
22,289
49,911
34,349
Nil
FY2017
909,054
79,651
87,711
60,713
11.0
FY2018
1,002,027
152,092
115,474
76,550
13.5
1.
FY2015 was restated as a result of the adoption of the amendments made to Accounting Standards AASB 116 Property, Plant and Equipment and AASB 141 Agriculture in relation to bearer
plants. The FY2015 EBIT-S before material items and NPAT-S before material items results have not been subject to audit.
The charts below set out information about the Group’s performance for previous financial years up to and including FY2018.
35
FY15FY16CAGR 11%FY1701002003004005006007008009001,0001,100FY18Total revenue($m)FY15FY16CAGR 31%FY1701020304050607080FY18NPAT (excluding materialitems and SGARA)($m)FY16CAGR 22%FY1702468101214FY18Total dividend paid or declared toordinary shareholders (cents per share)Costa Group Holdings LimitedAnnual Report 2018 Directors’ Report continued
For the year ended 1 July 2018
Remuneration report (Audited) continued
7. Directors’ and Executive Officers’ Remuneration
Details of the nature and amount of each major element of remuneration of each director of the Company, and other KMP of the consolidated entity are:
Short-term
Post-employment
Long-term benefits
Termination
Share-based payments
Total
Non-executive Directors1
Neil Chatfield
Frank Costa
Kevin Schwartz
Peter Margin
Tiffany Fuller
Janette Kendall (appointed 11.10.16)
Managing Director and Executive KMP
Harry Debney
Linda Kow
Sean Hallahan
(commenced 2.10.17)
Salary
& fees
$
221,124
215,674
102,942
100,431
104,856
100,000
119,700
116,781
114,912
112,110
105,336
67,673
976,970
953,011
500,228
466,549
434,963
–
STI
(cash)
$
–
–
–
–
–
–
–
–
–
–
–
–
Non-monetary
benefits
$
–
–
–
–
–
–
–
–
–
–
–
–
Other
Monetary
Benefits
$
–
–
–
–
–
–
–
–
–
–
–
–
Total
$
221,124
215,674
102,942
100,431
104,856
100,000
119,700
116,781
114,912
112,110
105,336
67,673
304,504
453,927
140,994
194,496
143,249
–
–
–
–
–
–
–
7,973
7,677
3,416
3,062
–
–
1,289,447
1,414,615
644,638
664,107
578,212
–
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Notes in relation to the table of Directors’ and Executive KMP’s remuneration
1. Reasonable travel, accommodation and other costs incurred by Directors in the course of their duties are reimbursed to Directors, in addition to the remuneration noted above.
Superannuation
benefits
Long service
leave
Termination
benefits
$
20,049
19,616
9,780
9,541
–
–
11,372
11,094
10,917
10,650
10,007
6,429
25,036
19,616
25,036
19,616
15,037
–
$
–
–
–
–
–
–
–
–
–
–
–
–
18,976
13,164
11,955
8,767
7,197
–
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
–
–
473,077
508,168
202,060
194,014
100,007
–
$
241,173
235,290
112,722
109,972
104,856
100,000
131,072
127,875
125,829
122,760
115,343
74,102
1,806,536
1,955,563
883,689
886,504
700,453
–
36
Costa Group Holdings LimitedAnnual Report 2018
Remuneration report (Audited) continued
7. Directors’ and Executive Officers’ Remuneration
Details of the nature and amount of each major element of remuneration of each director of the Company, and other KMP of the consolidated entity are:
Short-term
STI
Non-monetary
(cash)
benefits
Other
Monetary
Benefits
Non-executive Directors1
Neil Chatfield
Frank Costa
Kevin Schwartz
Peter Margin
Tiffany Fuller
Janette Kendall (appointed 11.10.16)
Managing Director and Executive KMP
Harry Debney
Linda Kow
Sean Hallahan
(commenced 2.10.17)
Salary
& fees
$
221,124
215,674
102,942
100,431
104,856
100,000
119,700
116,781
114,912
112,110
105,336
67,673
976,970
953,011
500,228
466,549
434,963
–
$
–
–
–
–
–
–
–
–
–
–
–
–
304,504
453,927
140,994
194,496
143,249
–
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
$
221,124
215,674
102,942
100,431
104,856
100,000
119,700
116,781
114,912
112,110
105,336
67,673
7,973
7,677
3,416
3,062
1,289,447
1,414,615
644,638
664,107
578,212
–
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Notes in relation to the table of Directors’ and Executive KMP’s remuneration
1. Reasonable travel, accommodation and other costs incurred by Directors in the course of their duties are reimbursed to Directors, in addition to the remuneration noted above.
Post-employment
Long-term benefits
Termination
Share-based payments
Total
Superannuation
benefits
$
20,049
19,616
9,780
9,541
–
–
11,372
11,094
10,917
10,650
10,007
6,429
25,036
19,616
25,036
19,616
15,037
–
Long service
leave
$
–
–
–
–
–
–
–
–
–
–
–
–
18,976
13,164
11,955
8,767
7,197
–
Termination
benefits
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
–
–
473,077
508,168
202,060
194,014
100,007
–
$
241,173
235,290
112,722
109,972
104,856
100,000
131,072
127,875
125,829
122,760
115,343
74,102
1,806,536
1,955,563
883,689
886,504
700,453
–
37
Costa Group Holdings LimitedAnnual Report 2018
Directors’ Report continued
For the year ended 1 July 2018
Remuneration report (Audited) continued
8. Equity Instruments
8.1 Movements in shares
The movement during the reporting period in the number of ordinary shares in Costa Group Holdings Ltd held, directly, indirectly or beneficially,
by each key management person, together with shares held by their close family members, is set out below:
Neil Chatfield (directly held)
Neil Chatfield (close family members)
Peter Margin (indirectly held)
Tiffany Fuller (directly held)
Frank Costa1
Kevin Schwartz
Janette Kendall (indirectly held)
Harry Debney (directly & indirectly held)
Linda Kow (directly & indirectly held)
Sean Hallahan
Held at
25 June 2017
372,222
14,000
24,988
10,000
10,432,099
–
10,000
632,078
213,404
–
Shares
acquired
–
–
13,805
–
–
–
5,870
–
–
2,025
Shares sold
112,222
14,000
–
–
5,426,851
–
–
650,000
150,000
–
Shares
delivered
under STI or
LTI plans
–
–
–
–
–
–
–
1,328,740
216,541
–
Held at
1 July 2018
260,000
–
38,793
10,000
5,005,248
–
15,870
1,310,818
279,945
2,025
Notes in relation to Table 8.1 (Movement in shares)
1. Frank Costa‘s interests represent an indirect interest in approximately 31.67% of the ordinary shares held by Costa AFR Pty Ltd as trustee for the Costa AFR Unit Trust as a result of his
shareholding in a series of other entities.
8.2 Options over equity instruments granted as compensation
The number of options over ordinary shares granted as compensation to KMP during FY18 was as follows:
Harry Debney
Linda Kow
Sean Hallahan
Number
of options
granted
during 2018
352,481
183,936
181,818
Grant date
24 August 2017
24 August 2017
9 October 2017
Fair Value
per option
$
1.37
1.37
1.51
Exercise price per
option
$
4.82
4.82
4.82
Expiry date
1 September 2022
1 September 2022
1 September 2022
8.3 Details of equity incentives affecting current and future remuneration
The table below outlines each KMP’s unvested options and performance rights at the end of the reporting period. Details of vesting profiles of the
options and performance rights held by each KMP are detailed below:
Harry Debney
Linda Kow
Sean Hallahan
Instrument
Options
Performance rights
Options
Options
Performance rights
Options
Options
Number
607,938
46,5081
352,481
260,486
19,9271
183,936
181,818
Grant date
6 December 2016
1 September 2017
24 August 2017
6 December 2016
1 September 2017
24 August 2017
9 October 2017
Vesting date
August 2019
September 2018
September 2020
August 2019
September 2018
September 2020
September 2020
Notes in relation to Table 8.3
1. Subject to certain conditions, the performance rights will vest on 1 September 2018 and the holders of those rights will receive one share per vested performance right. At the time of grant,
each performance right was valued at $4.88 (based on the 10 day volume weighted average share price of Costa shares). The value at the time of vesting will depend on the price of Costa
shares at that time.
38
Costa Group Holdings LimitedAnnual Report 2018 8.4 LTI grants and movement during the year
The movement during the reporting period, of options over ordinary shares held, directly, indirectly or beneficially, by each KMP, including their
related parties, is as follows:
Harry Debney
Linda Kow
Sean Hallahan
Held at
25 June 2017
2,499,882
543,224
–
Granted as
compensation
352,481
183,936
181,818
Exercised
1,275,000
282,738
–
Value of
exercised
options (at time
of exercise)
$
5,012,5621
1,416,5171
–
Held at
1 July 2018
1,577,363
444,422
181,818
Vested during
the year
1,891,944
282,738
–
Vested and
exercisable
1 July 2018
616,944
–
–
Notes in relation to Table 8.4
1. Option value is based on the 5 day volume weighted average share price of Costa shares. Approximately 74% of the resulting shares issued to Harry Debney and 50% of the resulting shares
issued to Linda Kow are subject to escrow arrangements until after release of the FY2018 results.
8.5 Key Management Personnel transactions
Mr Frank Costa (Director)
Payment of rent by Costa’s Pty Ltd to Frank Costa for the lease of 1111 Aviation Road, Werribee of AUD $1 (2017: AUD $1). This property is leased
to Costa’s Pty Ltd until 2076 at AUD $1 per annum and is subleased to an unrelated third party on standard commercial terms, with an arms-length
commercial rent payable to Costa’s Pty Ltd. The Board considers this arrangement to be beneficial, given that it generates revenue greater than
the expenses that are incurred in respect of the property.
8.6 Director independence
The Board regularly monitors and assesses the independence of each Director by considering whether the Director is allied with management or a
substantial securityholder or other stakeholder and whether the Director is free of any other interest, position, association or relationship that might
influence, or reasonably be perceived to influence, in a material respect his or her capacity to bring an independent judgement to bear on issues
before the Board and to act in the best interests of the entity and its securityholders generally. The Board considers numerous factors as part of this
process, including those identified by the ASX Corporate Governance Council, namely whether the Director:
•
•
•
•
is, or recently has been, employed by the Group in an executive capacity;
is or recently has been, a director, partner or senior employee of a provider of material professional services to the Business;
is, or recently has been (or is associated with someone who is or recently has been), in a material business relationship with the Group;
is, or is associated with, as substantial security holder of the Company;
• has a material contractual relationship with the Group;
• has close family ties with someone who falls within the above categories; or
• has been a Director for such a period that his or her independence may have been compromised.
On this basis the Board has made the following assessments in respect of the Company’s Directors:
•
Independent: Neil Chatfield, Peter Margin, Tiffany Fuller, Janette Kendall, Kevin Schwartz. Specifically, it is noted that none of these directors is a
related party of any substantial shareholder of the Company (or any entities associated with substantial shareholders), nor have they provided any
services to the company (other than in their capacity as director) nor been an employee or officer of any such service provider. It is noted that Kevin
Schwartz was previously considered to be not independent due to shares held by P&P COS Holdings BV, which was a substantial shareholder of the
Company from the date of the Company’s listing until September 2017. As P&P COS Holdings BV is no longer a substantial shareholder of the
Company, Kevin is now considered by the Company to be independent.
• Not independent: Frank Costa (due to his longstanding relationship with the Company) and Harry Debney (due to his executive role). Specifically,
it is noted that Frank Costa has no interest in properties occupied by the Group other than the lease referred to in section 8.5. Frank Costa has no
legal or beneficial interest in Vitalharvest Pty Ltd (from which the Group leases various berry and citrus properties) or its shareholder Costa Asset
Management Pty Ltd (or the Costa Asset Management Unit Trust), nor has he been employed by or an officer of either of those companies.
Non-dependant family members of Frank Costa are directors of Costa Asset Management Pty Ltd and collectively have a significant interest in
the Costa Asset Management Unit Trust, but Frank has no control over, and does not seek to exert any influence over, the decisions made by them
in relation to the leases between the Company and either Vitalharvest or Costa Asset Management. Notwithstanding that he is not a related party of
Vitalharvest or Costa Asset Management, Frank Costa intends to abstain from voting on any significant decisions that are to be made in relation
to the Company’s dealings with Vitalharvest or Costa Asset Management.
This Directors’ Report is made in accordance with a resolution of the Directors.
Neil Chatfield
Chairman
Dated at Melbourne 23 August 2018
39
Costa Group Holdings LimitedAnnual Report 2018
Auditor’s Independence Declaration
40
Costa Group Holdings LimitedAnnual Report 2018 Consolidated Statement of Profit
and Loss and Other Comprehensive Income
For the financial year ended 1 July 2018
Revenue
Total revenue
Other income
Less: expenses
Raw materials, consumables and third party purchases
Depreciation and amortisation expenses
Employee benefits expenses
Occupancy expenses
Net finance costs
Profit/(loss) on sale of assets
Freight and cartage
Leasing expenses
Gain/(loss) on fair value adjustments – biological assets
Gain/(loss) on fair value of derivatives
Other expenses
Share of net profits of associates and joint ventures accounted for using the equity method
Profit before income tax expense
Income tax expense
Profit for the period
Other comprehensive income/(loss) for the period
Foreign currency translation differences
Cash flow hedges – effective portion of changes in fair value
Total other comprehensive income/(loss) for the period
Total comprehensive income for the period
Profit attributable to:
Owners of Costa Group Holdings Ltd
Non-controlling interests
Total comprehensive income attributable to:
Owners of Costa Group Holdings Ltd
Non-controlling interests
Earnings per share for profit attributable to ordinary equity holders:
Basic earnings per share
Diluted earnings per share
Notes
A2
D6
2018
$ ‘000
2017
$ ‘000
1,002,027
48,317
1,050,344
909,054
–
909,054
(320,978)
(39,230)
(331,251)
(71,931)
(7,167)
(345)
(53,002)
(9,639)
(3,973)
(270)
(74,452)
(912,238)
6,818
144,924
(27,146)
117,778
(335,991)
(27,793)
(300,434)
(53,867)
(5,267)
1,107
(47,483)
(15,269)
5,878
512
(65,430)
(844,037)
15,245
80,262
(22,620)
57,642
681
(635)
46
(435)
–
(435)
117,824
57,207
115,162
2,616
117,778
115,208
2,616
117,824
2018
Cents
36.04
35.95
57,713
(71)
57,642
57,278
(71)
57,207
2017
Cents
18.09
18.02
A2
A2
A2
D1
E2
C6
A4
A4
The above Consolidated Statement of Profit and Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes.
41
Costa Group Holdings LimitedAnnual Report 2018
Consolidated Statement of Financial Position
As at 1 July 2018
ASSETS
Current assets
Cash and cash equivalents
Receivables
Inventories
Biological assets
Other assets
Total current assets
Non-current assets
Other financial assets
Equity accounted investments
Intangible assets
Deferred tax assets
Property, plant and equipment
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Payables
Provisions
Other financial liabilities
Current tax liabilities
Total current liabilities
Non-current liabilities
Borrowings
Provisions
Other financial liabilities
Total non-current liabilities
Total liabilities
NET ASSETS
EQUITY
Share capital
Other equity reserve
Other Reserves
Profit reserve
Accumulated losses
Equity attributable to owners of the parent
Non-controlling interests
TOTAL EQUITY
Notes
2018
$ ‘000
2017
$ ‘000
B1
B2
B3
B6
B5
C6
D1(b)
B8
E2
B7
B4
B9
B4
E2
C1
B9
B4
C2
E1, E2
C3
60,394
109,780
25,998
47,839
10,603
254,614
244
11,402
255,827
2,896
364,583
634,952
889,566
127,039
16,461
769
12,709
156,978
236,467
9,665
7,189
253,321
410,299
22,582
87,434
18,076
46,042
12,849
186,983
327
32,354
143,101
3,517
281,949
461,248
648,231
102,733
15,761
–
17,561
136,055
106,775
9,223
–
115,998
252,053
479,267
396,178
403,410
(11,558)
4,339
122,600
(56,621)
462,170
17,097
479,267
399,902
–
2,066
45,802
(56,621)
391,149
5,029
396,178
The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.
42
Costa Group Holdings LimitedAnnual Report 2018
Non-
controlling
interests
$ ‘000
–
(71)
–
–
(71)
–
–
–
–
–
–
Total
$ ‘000
359,595
57,713
(435)
–
57,278
1,090
956
580
–
(31,916)
3,566
Total
equity
$ ‘000
359,595
57,642
(435)
–
57,207
1,090
956
580
–
(31,916)
3,566
Consolidated Statement of Changes in Equity
As at 1 July 2018
Consolidated
Balance as at 27 June 2016
Profit for the year
Other comprehensive income/(loss)
Transfer to profit reserve
Total comprehensive income for the year
Reserves
Share
based
payment
reserve
$ ‘000
Foreign
currency
translation
reserve
$ ‘000
523
–
–
–
–
–
–
(435)
–
(435)
Share
capital
$ ‘000
395,688
–
–
–
–
Profit
reserve
‘000
20,005
–
–
57,713
57,713
Accum-
ulated
losses
$ ‘000
(56,621)
57,713
–
(57,713)
–
Transactions with owners in their capacity as owners:
Options granted during the year
Performance rights granted
during the year
Share options exercised
Settlement of share-based payments
Dividend paid on ordinary shares
Tax effect on legacy share options
Sale of subsidiary with non-controlling
interest
Balance as at 25 June 2017
–
1,090
–
580
68
–
3,566
956
–
(68)
–
–
–
–
–
–
–
–
–
–
–
–
(31,916)
–
–
–
–
–
–
–
–
399,902
–
2,501
–
(435)
–
45,802
–
(56,621)
–
391,149
5,100
5,029
5,100
396,178
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
43
Costa Group Holdings LimitedAnnual Report 2018
Consolidated Statement of Changes in Equity
As at 1 July 2018
Other reserves
Other reserves
Consolidated
Balance as at 26 June 2017
Profit for the year
Other comprehensive income/(loss)
Transfer to profit reserve
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Issue of shares
Own shares acquired
Options granted during the year
Performance rights granted during the year
Share options exercised
Settlement of share-based payments
Dividend paid on ordinary shares
Tax effect of share plan payment through equity
Acquisition of subsidiary
Capital injected by non-controlling interest without change in control
Balance as at 1 July 2018
Share capital
$ ‘000
399,902
–
Other equity
reserve
$ ‘000
–
–
Share based
payment
reserve
$ ‘000
2,501
–
Foreign
currency
translation
reserve
$ ‘000
(435)
–
–
–
–
–
–
–
–
–
–
2,228
–
–
–
–
1,280
–
–
–
–
403,410
–
(15,144)
–
–
3,586
–
–
–
–
–
(11,558)
–
–
1,016
732
–
(1,280)
–
9,031
–
–
12,000
681
–
681
–
–
–
–
–
–
–
–
–
–
246
1.
Included in general reserve is the put and call option as part of the acquisition of African Blue, measured under the present-access method. Refer Note D6 for details.
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
Hedge reserve
General reserve¹
Profit reserve
$ ‘000
$ ‘000
Accumulated
Non-controlling
interests
Total equity
(635)
(635)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$ ‘000
45,802
115,162
115,162
–
–
–
–
–
–
–
–
–
–
–
(38,364)
(7,272)
losses
$ ‘000
(56,621)
115,162
(115,162)
–
–
–
–
–
–
–
–
–
–
–
–
Total
$ ‘000
391,149
115,162
46
–
2,228
(15,144)
1,016
732
3,586
(38,364)
9,031
(7,272)
–
–
(635)
(7,272)
122,600
(56,621)
462,170
$ ‘000
5,029
2,616
–
–
–
–
–
–
–
–
–
–
5,901
3,551
17,097
$ ‘000
396,178
117,778
46
–
2,228
(15,144)
1,016
732
3,586
–
(38,364)
9,031
(1,371)
3,551
479,267
115,208
2,616
117,824
44
Costa Group Holdings LimitedAnnual Report 2018
Other reserves
Other reserves
Consolidated
Balance as at 26 June 2017
Profit for the year
Other comprehensive income/(loss)
Transfer to profit reserve
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Issue of shares
Own shares acquired
Options granted during the year
Performance rights granted during the year
Share options exercised
Settlement of share-based payments
Dividend paid on ordinary shares
Tax effect of share plan payment through equity
Acquisition of subsidiary
Other equity
reserve
$ ‘000
Share capital
$ ‘000
399,902
Share based
payment
reserve
$ ‘000
2,501
Foreign
currency
translation
reserve
$ ‘000
(435)
–
–
–
–
–
–
–
–
–
–
–
–
2,228
1,280
–
–
–
–
–
–
–
–
–
–
–
–
–
(15,144)
3,586
–
–
–
–
–
–
–
–
–
–
1,016
732
(1,280)
9,031
–
–
681
681
–
–
–
–
–
–
–
–
–
–
Capital injected by non-controlling interest without change in control
Balance as at 1 July 2018
403,410
(11,558)
12,000
246
1.
Included in general reserve is the put and call option as part of the acquisition of African Blue, measured under the present-access method. Refer Note D6 for details.
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
Hedge reserve
$ ‘000
–
–
General reserve¹
$ ‘000
–
–
Profit reserve
$ ‘000
45,802
–
(635)
(635)
–
–
–
–
–
–
–
–
–
–
(635)
–
–
–
–
–
–
–
–
–
–
–
(7,272)
–
(7,272)
–
115,162
115,162
–
–
–
–
–
–
(38,364)
–
–
–
122,600
Accumulated
losses
$ ‘000
(56,621)
115,162
–
(115,162)
–
–
–
–
–
–
–
–
–
–
–
(56,621)
Total
$ ‘000
391,149
115,162
46
–
115,208
2,228
(15,144)
1,016
732
3,586
–
(38,364)
9,031
(7,272)
–
462,170
Non-controlling
interests
$ ‘000
5,029
2,616
–
–
2,616
–
–
–
–
–
–
–
–
5,901
3,551
17,097
Total equity
$ ‘000
396,178
117,778
46
–
117,824
2,228
(15,144)
1,016
732
3,586
–
(38,364)
9,031
(1,371)
3,551
479,267
45
Costa Group Holdings LimitedAnnual Report 2018
Consolidated Statement of Cash Flows
For the year ended 1 July 2018
Cash flow from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Dividends received
Income taxes paid
Net cash provided by operating activities
Cash flow from investing activities
Payments for property, plant and equipment
Proceeds from sale of investments
Dividends from equity accounted investments
Acquisition of subsidiary (net of cash acquired)
Acquisition of business (net of cash acquired)
Proceeds from sale of property, plant and equipment
Net cash used in investing activities
Cash flow from financing activities
Proceeds from exercise of share options
Proceeds from loans from related party associates
Dividend payments on ordinary shares
Dividend payment to non-controlling interest
Capital injection by non-controlling interest
Purchase of treasury shares, net of share issue
Proceeds from borrowings
Repayment of borrowings
Net cash provided by/(used in) financing activities
Reconciliation of cash
Cash at beginning of year
Net increase in cash held
Effect of movement in foreign exchange rate
Cash at end of year
Notes
2018
$ ‘000
2017
$ ‘000
990,501
(851,952)
173
(6,073)
121
(28,568)
104,202
(89,629)
–
5,450
(57,411)
(4,170)
691
(145,069)
3,586
88
(38,364)
(3,678)
3,551
(12,916)
867,922
(742,000)
78,189
22,582
37,322
490
60,394
898,945
(799,476)
54
(4,655)
170
(5,962)
89,076
(57,147)
3,579
9,156
–
(3,815)
880
(47,347)
580
–
(31,916)
–
5,100
–
206,500
(203,000)
(22,736)
4,002
18,993
(413)
22,582
B1(a)
B1
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
46
Costa Group Holdings LimitedAnnual Report 2018
Notes to the Consolidated Financial Statements
Index to Notes
Overview
Reporting entity
Basis of preparation of the financial report
Critical accounting estimates and judgements
Note Index
A. Group Performance
A1. Segment performance
A2. Revenue and expenses
A3. Material items
A4. Earnings per share
A5. Subsequent events
B. Operating Assets and Liabilities
B1. Cash and cash equivalents
B2. Receivables
B3. Inventories
B4. Payables and other liabilities
B5. Other assets and financial assets
B6. Biological assets
B7. Property, plant and equipment
B8. Intangible assets
B9. Provisions
B10. Contingent Liabilities
48
48
48
49
50
50
51
52
53
53
54
54
55
55
56
56
56
58
60
65
66
C. Capital Structure and Financing
C1. Borrowings
C2. Share Capital
C3. Profit reserve
C4. Other reserves
C5. Dividends
C6. Financial instruments
– fair values and risk management
C7. Capital and leasing commitments
D. Group Structure
D1. Joint ventures and associates
D2. List of subsidiaries
D3. Related party disclosures
D4. Parent entity disclosures
D5. Deed of cross guarantee
D6. Acquisition of subsidiary
E. Other
E1. Share-based payments
E2. Taxation
E3. New accounting standards
E4. Auditor’s remuneration
E5. Other accounting policies
67
67
68
68
68
69
69
75
76
76
77
78
79
79
81
82
82
84
86
87
87
47
Costa Group Holdings LimitedAnnual Report 2018 Notes to the Consolidated Financial Statements continued
Overview
Reporting entity
The financial report is for Costa Group Holdings Ltd and its controlled entities (the “Group”). Costa Group Holdings Ltd (the “Company”) is a company
limited by shares, incorporated and domiciled in Australia. Costa Group Holdings Ltd is a for profit entity for the purpose of preparing the financial
statements.
The Group’s registered office is Unit 1, 275 Robinsons Road, Ravenhall, VIC, Australia, 3023.
The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards (AASBs)
adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The financial report complies with International
Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB).
The financial report was authorised for issue by the directors on 23 August 2018.
Basis of preparation of the financial report
The notes to the financial report include additional information required to understand the Group’s financial statements that is material and relevant
to its operations, financial position and performance. Information is considered material and relevant if the amount in question is significant because
of its size or nature or it helps to explain the impact of significant changes in the business, for example, acquisitions and asset write-downs.
The notes are organised into the following sections:
Group Performance: focuses on the Group’s financial results and performance. It provides disclosures relating to income, expenses, segment
information, material items and earnings per share.
Operating assets and liabilities: provides information regarding the physical assets and non-physical assets used by the Group to generate
revenues and profits. This section also explains the accounting policies applied and specific judgements and estimates made by management in
arriving at the value of these assets and liabilities.
Capital structure and financing: provides information about capital management practices. Particularly, how much capital is raised from
shareholders (equity) and how much is borrowed from financial institutions (debt) in order to finance our activities both now and in the future.
Group structure: explains aspects of the Group’s structure, including acquisitions and divestments during the period.
Other: provides information on other items relevant to the Financial Report.
Historical Cost Convention
The financial report has been prepared under the historical cost convention, except for revaluations to fair value for certain classes of assets and
liabilities as described in the accounting policies.
Rounding
The financial report is presented in Australian dollars with all values rounded to the nearest thousand unless otherwise stated, in accordance with
ASIC Corporations Instrument 2016/191.
Going concern
The financial report has been prepared on a going concern basis.
Goods and services tax (GST)
Revenues, expenses, liabilities and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from
the Tax 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 the expense.
Receivables and payables in the statement of financial position are shown inclusive of GST.
Cash flows are presented in the statement of cash flows on a gross basis.
Basis of consolidation
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are
included in the financial report from the date that control commences until the date that control ceases.
48
Costa Group Holdings LimitedAnnual Report 2018 Investments in associates and joint ventures (equity accounted investments)
Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies.
Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of another entity. Joint ventures are
those entities over whose activities the Group has joint control established by contractual agreement and requiring unanimous consent for strategic,
financial and operating activities.
Investments in associates and joint ventures are accounted for under the equity method and are initially recognised at cost. The cost of the
investment includes transaction costs. The financial report includes the Group’s share of the profit or loss and other comprehensive income of equity
accounted investments after adjustments to align the accounting policies with those of the Group, from the date that significant influence
commences until the date that significant influence ceases.
Transactions eliminated on consolidation
Intercompany balances and transactions, and any unrealised income and expenses arising from intercompany transactions, are eliminated in
preparing the financial report. Unrealised gains arising from transactions with equity accounted investments are eliminated against the investment to
the extent of the Group’s interest in the investments. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that
there is no evidence of impairment.
Foreign currency translations and balances
Functional and presentation currency
The financial statements of each entity within the Group are measured using the currency of the primary economic environment in which that entity
operates (the functional currency). The financial report is presented in Australian dollars which is the Group’s functional and presentation currency.
Transactions and balances
Transactions in foreign currencies of entities within the consolidated Group are translated into functional currency at the applicable exchange rate at
the date of the transaction.
Foreign currency monetary items that are outstanding at the reporting date (other than monetary items arising under foreign currency contracts
where the exchange rate for that monetary item is fixed in the contract) are translated using the spot rate at the end of the reporting period.
All resulting exchange differences arising on settlement or restatement are recognised as revenues and expenses for the reporting period.
Entities that have a functional currency different from the presentation currency are translated as follows:
• Assets and liabilities are translated at reporting period end exchange rates prevailing at that reporting date;
•
Income and expenses are translated at actual exchange rates or average exchange rates for the reporting period, where appropriate; and
• All resulting exchange differences are recognised as a separate component of equity.
Critical accounting estimates and judgements
The preparation of the financial report requires management to make judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected.
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial
year can be found in the following notes:
Accounting estimates and judgements
Valuation of biological assets
Recoverability of goodwill
Recoverability of non-financial assets other than goodwill
Fair value measurement
Income tax
Note
B6 – Biological assets
B8 – Intangible assets
B8 – Intangible assets
C6 – Financial instruments – fair values and risk management
E2 – Taxation
Page
56
60
60
69
84
49
Costa Group Holdings LimitedAnnual Report 2018 Notes to the Consolidated Financial Statements continued
A. Group performance
A1. Segment performance
Segment information is reported in a manner consistent with internal reporting provided to the chief operating decision maker. The chief operating
decision maker, who is responsible for allocating resources and assessing performance of the operating segments, is the Chief Executive Officer (CEO).
(a) Basis for segmentation
The reportable segments are based on the aggregation of operating segments determined by the similarity of the nature of products, the production
process, types of customers and the method used to distribute the products.
The Group has three reportable segments, as described below, based on the internal reports that are reviewed and used by the CEO in assessing
performance and in determining the allocation of resources. The following summary describes the operations in each of the Group’s reportable
segments:
Produce
The Produce segment operates in five core categories: berries, mushrooms, glasshouse grown tomatoes, citrus and avocados. These operations are
vertically integrated in terms of farming, packing and marketing, with the primary domestic sales channel being the major Australian food retailers.
Costa Farms & Logistics (“CF&L”)
The CF&L segment incorporates interrelated logistics, wholesale, and marketing operations within Australia. These categories share common
infrastructure, such as warehousing and ripening facilities, and are trading and services focused.
International
The International segment comprises royalty income from licensing of Costa’s blueberry varietals in Australia, the Americas, China and Africa,
and international berry farming operations in Morocco and China.
(b) Information about reportable segments
Performance is measured based on segment EBITDA before SGARA, as included in the internal management reports that are reviewed by the CEO.
Group financing costs and income taxes are managed at the group level and are not allocated to operating segments. The information presented to
the CEO does not report on segment assets and liabilities and as such is not presented in this report. It is the Group’s policy that business support
costs that are not directly attributable to a specific segment are allocated to the Produce segment, which is the Group’s largest reportable segment,
on the basis that it utilises the majority of these resources. Inter-segment revenue is eliminated on consolidation, however, is shown within the segment
revenue to reflect segment level performance. Inter-segment transactions are on commercial terms. Information regarding the results of each
reportable segment is included below.
2018
Revenue
External customers
Inter-segment
Total revenue
CF&L
$’000
International
$’000
Adjustments
and
eliminations
$’000
Total
$’000
142,953
9,287
152,240
74,380
–
74,380
–
(67,938)
(67,938)
1,002,027
–
1,002,027
Produce
$’000
784,694
58,651
843,345
EBITDA before SGARA
119,279
5,680
25,834
–
150,793
2017
Revenue
External customers
Inter-segment
Total revenue
Produce
$’000
CF&L
$’000
International
$’000
Adjustments
and
eliminations
$’000
750,906
35,304
786,210
146,225
5,394
151,619
11,923
–
11,923
–
(40,698)
(40,698)
Total
$’000
909,054
–
909,054
EBITDA before SGARA
96,686
4,332
14,179
–
115,197
The Group principally supplies fresh produce to the major supermarkets in Australia, including Coles, Woolworths and ALDI, which collectively
comprise approximately 75% of the Group’s Australian based produce sales in the 2018 financial year (2017: 73%).
50
Costa Group Holdings LimitedAnnual Report 2018
(c) Reconciliation of segment EBITDA before SGARA to profit after tax
EBITDA before SGARA for reportable segments
Fair value movements in biological assets
Depreciation and amortisation
Material items (before tax)
Profit/(loss) on sale of assets
Net finance costs
Income tax expense
Profit after tax
A2. Revenue and expenses
Revenue
Sale of goods and commissions received
Rebates and discounts provided
Rendering of services
Other revenue
Total revenue
Notes
A3
2018
$ ‘000
150,793
(3,973)
(34,652)
40,268
(345)
(7,167)
(27,146)
117,778
2018
$ ‘000
970,297
(15,063)
30,317
16,476
1,002,027
2017
$ ‘000
115,197
5,878
(27,793)
(8,860)
1,107
(5,267)
(22,620)
57,642
2017
$ ‘000
873,595
(14,244)
35,990
13,713
909,054
Recognition and measurement
Sale of goods and commissions received
Revenue from sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the costs
incurred or to be incurred in respect of the transaction can be measured reliably. Revenue is usually recognised when goods are despatched or at the
time of delivery of the goods to the customer when the title is transferred.
Rendering of services
Revenue from the rendering of services is recognised upon the delivery of the service to the customers.
Dividends
Dividend income is recognised when the right to receive a dividend has been established. Dividends received from associates and joint ventures are
accounted for in accordance with the equity method of accounting.
Interest income
Interest income is recognised when it becomes receivable on a proportional basis taking into account the interest rates applicable to the financial
assets.
Rental income
Rental income is recognised on a straight line basis over the rental term.
Royalty income
Royalty income is recognised on an accrual basis in accordance with the substance of the relevant agreements. Royalty income is recognised in
relation to rights provided to entities external to the Group to sell plants and produce that arise from the Group’s operations.
Commission income
Commission income is recognised by the Group for sale of goods undertaken by the Group in its capacity as an agent of the transaction. In respect
of commissions, management considers that the following factor indicates that the Group acts as an agent:
• the Group neither takes title to nor is exposed to inventory risk related to the goods; and
• has no significant responsibility in respect of the goods sold.
All revenue is stated net of the amount of goods and services tax (GST).
51
Costa Group Holdings LimitedAnnual Report 2018
Notes to the Consolidated Financial Statements continued
Expenses
Net finance costs
Interest income
Interest expense on borrowings
Amortisation/write off of borrowing costs
2018
$ ‘000
(172)
6,845
494
7,167
2017
$ ‘000
(54)
4,219
1,102
5,267
Borrowing costs
Borrowing costs can include interest, amortisation of discounts or premiums relating to borrowings, ancillary costs incurred in connection with
arrangement of borrowings and foreign exchange losses net of hedged amounts on borrowings.
Borrowing costs are expensed as incurred, except for borrowing costs incurred as part of the cost of the construction of a qualifying asset which are
capitalised until the asset is ready for its intended use or sale.
Loan establishment costs have been capitalised and amortised over the life of the loan facility. Establishment costs relating to loans extinguished
during the reporting period have been expensed.
Employee benefits expenses
Salaries, contractors and wages (including on costs)
Superannuation costs
Leave entitlements
Other employee expenses
Other expenses
Repair and maintenance expenses
Legal and consulting expenditure
Insurance
Other*
2018
$ ‘000
2017
$ ‘000
299,541
18,107
9,138
4,465
331,251
2018
$ ‘000
16,721
9,395
6,000
42,336
74,452
270,711
15,525
9,623
4,575
300,434
2017
$ ‘000
16,941
7,472
6,340
34,677
65,430
* Other expenses include telecommunications, marketing, information technology and general administration expenditure. In FY2018, this also includes $3.5 million of transaction costs
associated with the African Blue acquisition. Refer to Note A3 for more information.
A3. Material items
Individually material items included in profit before income tax:
Gain on disposal of 49% equity-accounted investment in African Blue1
Amortisation of intangibles on acquisition of African Blue2
Transaction costs associated with the acquisition of African Blue3
Site Closures4
Polar Fresh closure provisions5
Total material items (before tax)
Tax effect of material items
Total material items (after tax)
2018
$ ‘000
48,317
(4,579)
(3,470)
–
–
40,268
960
41,228
2017
$ ‘000
–
–
–
800
(8,860)
(8,060)
945
(7,115)
1. During the year, the Group acquired an additional 37% interest in African Blue, giving it control over the company. AASB 3 requires that the original 49% investment is revalued to fair value in
the income statement when the Group gained control of African Blue, which resulted in a gain of $48.3m. This gain has been included in ‘Other income’ in the Statement of Profit or Loss. Refer
to Note D6 for further details.
2. Amortisation of customer relationships and reacquired rights recognised as part of the acquisition of African Blue. These assets are expected to be fully amortised by December 2019.
3. Acquisition related costs associated with the African Blue transaction. Refer to Note D6 for further details.
4. These adjustments represent the removal of gain/loss on disposal of closed sites and divested businesses.
5. Represents the impairment loss and closure costs associated with the wind down of the Polar Fresh joint venture.
52
Costa Group Holdings LimitedAnnual Report 2018
A4. Earnings per share
Basic EPS
Basic EPS (cents) based on net profit attributable to members of Costa Group Holdings Limited
Diluted EPS
Diluted EPS (cents) based on net profit attributable to members of Costa Group Holdings Limited
Weighted average number of shares
Weighted average number of ordinary shares on issue used in the calculation of basic EPS
Effect of potentially dilutive securities
Equity-settled share options
Weighted average number of ordinary shares on issue used in the calculation of diluted EPS
Earnings reconciliation
Basic and diluted EPS
Net profit attributable to owners of Costa Group Holdings Limited
2018
Cents per share
2017
Cents per share
36.04
18.09
35.95
18.02
319,553
319,102
785
320,338
1,140
320,242
115,162
57,713
Calculation of earnings per share
Earnings per share is the amount of post-tax profit attributable to each share. Basic earnings per share is computed using the weighted average
number of shares outstanding during the period.
Diluted earnings per share is computed using the weighted average number of shares outstanding during the period plus the dilutive effect of share
options outstanding during the period.
A5. Subsequent events
There have been no matters or circumstances other than those referred to in the financial statements or notes thereto, that have arisen since the
period ending 1 July 2018, that have significantly affected, or may affect, the operations of the Group, the results of those operations, or the state of
affairs of the Group in subsequent financial years.
53
Costa Group Holdings LimitedAnnual Report 2018
Notes to the Consolidated Financial Statements continued
B. Operating Assets and Liabilities
B1. Cash and cash equivalents
Cash on hand
Cash at bank
Cash on deposit
(a) Reconciliation of profit after tax to net cash flows from operating activities
Profit for the year
Non-cash adjustments to reconcile profit before tax to net cash flows:
Depreciation and amortisation
(Profit)/loss on sale of assets
Borrowing costs written-off/amortised
Fair value gain on disposal of investment
(Gain)/loss on fair value adjustments – biological assets
(Gain)/loss on fair value of derivatives
Share-based payments expense
Impairment provisions on equity accounted investees, net of tax
Share of profit of equity-accounted investees, net of tax
Change in working capital and tax balances:
(Increase) in inventories
(Increase) in receivables
(Increase) in biological assets
(Increase)/decrease in other assets
Increase/(decrease) in interest payable
Increase in payables
Increase in provisions
Decrease in deferred taxes
Increase/(decrease) in current tax payables
Net cash generated from operating activities
2018
$ ‘000
80
57,166
3,148
60,394
2018
$ ’000
117,778
39,230
345
494
(48,317)
3,973
270
1,748
–
(6,818)
108,703
(6,225)
(19,784)
(776)
4,329
918
17,327
690
4,797
(5,777)
104,202
2017
$ ‘000
22
22,512
48
22,582
2017
$ ’000
57,642
27,793
(1,107)
734
–
(5,878)
(512)
1,518
7,400
(15,245)
72,345
(644)
(16,832)
(2,740)
(7,618)
(67)
20,111
7,937
4,902
11,682
89,076
Recognition and measurement
Cash comprises cash on hand and demand deposits. Cash equivalents comprise short-term and highly liquid cash deposits that are readily
convertible to known amounts of cash and which are subject to an insignificant risk of change in value. For the purposes of the Statement of
Cash Flows, cash includes cash on hand, demand deposits and cash equivalents. All cash on deposit has maturing terms of less than 90 days.
54
Costa Group Holdings LimitedAnnual Report 2018
B2. Receivables
CURRENT
Trade debtors
Less: Allowance for impairment losses on trade receivables
Other receivables
2018
$ ‘000
93,421
(435)
92,986
16,794
109,780
2017
$ ‘000
76,920
(538)
76,382
11,052
87,434
(i) Other receivables comprise GST/VAT receivable and accrued income.
(ii) Also included in other receivables are value added tax credits sold with recourse to a bank for cash proceeds by the Group’s subsidiary,
African Blue. These value added tax credits have not been derecognised from the statement of financial position, because African Blue retains
substantially all of the risk and rewards – primarily credit risk. The amount received on transfer has been recognised as a secured bank loan (refer note
C1). The arrangement with the bank is such that value added tax credits received by African Blue will be remitted to bank.
The following information shows the carrying amount of other receivables at reporting date that have been transferred but have not been
derecognised and the associated liabilities.
In AUD$’000
Carrying amount of other receivables transferred to a bank
Carrying amount of associated liabilities
Note
C1
2018
2,261
(2,539)
Recognition and measurement
Trade receivables are recognised initially at invoice value (fair value) and subsequently measured at amortised cost, less allowance for doubtful debts.
Credit terms are generally between 15-60 days depending on the nature of the transaction. An allowance for doubtful debt is raised to reduce the
carrying amount of trade receivables based on a review of outstanding amounts at reporting date where there is credit risk.
B3. Inventories
CURRENT
At cost
Raw materials
Finished goods
2018
$ ‘000
2017
$ ‘000
15,409
10,589
25,998
11,449
6,627
18,076
Recognition and measurement
Inventories are measured at the lower of cost and net realisable value.
Costs incurred in bringing each product to its present location and condition are accounted for as follows:
• Raw materials and consumables: purchase cost on a first in, first out basis and weighted average; and
• Finished goods and work in progress: cost of direct material and labour and a proportion of manufacturing overheads based on normal operating
capacity.
Raw materials and consumables include packaging, supplies and other materials not consumed in the production or growing processes. Finished
goods include purchased agricultural produce and own farm fruit held for sale and other stock held for sale.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of production and the estimated costs
necessary to complete the sale.
55
Costa Group Holdings LimitedAnnual Report 2018
Notes to the Consolidated Financial Statements continued
B4. Payables and other liabilities
Payables
CURRENT
Unsecured liabilities
Trade creditors
Sundry creditors and accruals
2018
$ ‘000
2017
$ ‘000
69,614
57,425
127,039
53,409
49,324
102,733
Recognition and measurement
Trade and other payables including accruals are recorded as future payments required to be made as a result of purchases of goods or services. Trade
and other payables are carried at cost less accumulated amortisation (if applicable).
Other financial liabilities
CURRENT
Forward exchange contracts
Put and call options liability
NON-CURRENT
Interest rate swap
Put and call options liability
Recognition and measurement
Recognition and measurement of other liabilities above are further detailed in note C6.
B5. Other assets and financial assets
CURRENT
Prepayments
Forward exchange contracts
B6. Biological assets
CURRENT
Produce at fair value
Produce – at cost
Total biological assets
Reconciliation of changes in carrying amount of biological assets
Opening balance
(Loss)/Gain arising from changes in fair value
Increases due to purchases
Decreases due to harvest
Increase resulting from acquisitions1
Closing balance
1.
Includes fair value of biological assets acquired as part of the African Blue acquisition (refer note D6) and other farm acquisition that are not material.
56
2018
$ ‘000
2017
$ ‘000
368
401
769
267
6,922
7,189
2018
$ ‘000
10,603
–
10,603
2018
$ ‘000
41,771
6,068
47,839
–
–
–
–
–
–
2017
$ ‘000
12,579
270
12,849
2017
$ ‘000
40,164
5,878
46,042
46,042
(3,973)
281,182
(281,605)
6,193
47,839
37,408
5,878
204,994
(204,451)
2,213
46,042
Costa Group Holdings LimitedAnnual Report 2018
Recognition and measurement
Biological assets are measured at their fair value less costs to sell at each reporting date. The fair value is determined as the net present value of cash
flows expected to be generated by these crops (including a risk adjustment factor). Where fair value cannot be measured reliably, biological assets are
measured at cost.
Net increments and decrements in the fair value of the growing assets are recognised as income or expense in the statement of profit/loss and other
comprehensive income, determined as:
• The difference between the total fair value of the biological assets recognised at the beginning of the reporting period and the total fair value
of the biological assets recognised at reporting date.
• Costs incurred in maintaining or enhancing the biological assets recognised at the beginning of the reporting period and the total fair value
of the biological assets recognised at the reporting date.
• The market value of the produce picked during the reporting period is measured at their fair value less estimated costs to be incurred up until
the time of picking. Market price is determined based on underlying market prices of the product.
Critical accounting estimate and judgement
Valuation of biological assets
The valuation takes into account expected sales prices, yields, growth profile, picked fruit quality and expected direct costs related to the production
and sale of the assets and management must make a judgement as to the trend in these factors.
Measurement of fair values
Fair value hierarchy
The fair value measurements for the Group’s hanging crop have been categorised as Level 3 fair values based on the inputs to the valuation
techniques used, which are not based on observable market data.
Valuation techniques and significant unobservable inputs
The following table provides a description of the various biological asset types, shows the valuation techniques used in measuring Level 3 fair values,
as well as the significant unobservable inputs used. Refer to note C5 for further detail on Level 3 fair value measurement.
Type
Hanging crop
(citrus, grapes,
avocados, tomatoes,
blueberries,
raspberries
and bananas)
Description
These are crops
from trees and
bushes that have
an annual crop
production cycle
and a reasonably
stable development
cycle.
Valuation technique
Discounted cash flows:
The valuation model considers
the present value of the net cash
flows expected to be generated
by the plantation. The cash flow
projections include specific
estimates for one year. The
expected net cash flows are
discounted using a risk-adjustment
factor to factor in volatility for
weather, production and pricing
and future farming costs.
Significant unobservable
inputs
Inclusive of:
• Estimated future crop prices.
• Estimated cash inflows based
on forecasted sales.
• Estimated yields per hectare.
• Estimated remaining
farming, harvest and
transportation costs.
• Risk adjustment factor.
Inter-relationship between key
unobservable inputs and fair
value measurement
The estimated fair value would
increase (decrease) if:
• the estimated fruit prices were
higher (lower);
• the estimated yields per
hectare were higher (lower);
• the estimated harvest and
transportation costs were
lower (higher); or
• the risk-adjusted discount
rates were lower (higher).
Measurement of biological assets at cost
Short lived crops (mushrooms) are measured at cost. These crops typically have a short term development cycle of less than three months. The calculation
of market value for these crops is based on total cost due to the inherent difficulty in accurately determining the biological advancement percentage
of the crop. As such, the cost approach takes into account actual costs for preparation and cultivation.
Risk management strategy related to biological activities
Regulatory and environmental risks
The Group is subject to laws and regulations in the various locations in which it operates. The Group has established environmental policies
and procedures aimed at compliance with local environmental and other laws.
Supply and demand risk
The Group is exposed to risks arising from fluctuations in the price and sales volume of all its fruit and vegetables. Management performs regular
industry trend analysis to project harvest volumes and pricing. Where possible, the Group manages this risk by aligning its harvest volume to market
supply and demand.
Climate and other risks
The Group’s biological assets are exposed to the risk of damage from climatic changes, diseases and other natural forces. The Group has extensive
processes in place aimed at monitoring and mitigating these risks, including protected cropping techniques across most crops, and geographical
diversification.
57
Costa Group Holdings LimitedAnnual Report 2018 Notes to the Consolidated Financial Statements continued
B7. Property, plant and equipment
Land and buildings at cost
Accumulated depreciation and impairment
Assets Under Construction at cost
Plant and equipment at cost
Accumulated depreciation and impairment
Improvements at cost
Accumulated depreciation and impairment
Bearer plants at cost
Accumulated depreciation and impairment
Total property, plant and equipment
2018
$ ‘000
163,867
(50,192)
113,675
2017
$ ‘000
156,143
(44,849)
111,294
43,184
17,426
304,537
(138,844)
165,693
231,704
(104,610)
127,094
29,595
(8,128)
21,467
32,632
(12,068)
20,564
22,915
(6,144)
16,771
15,917
(6,553)
9,364
364,583
281,949
58
Costa Group Holdings LimitedAnnual Report 2018
(a) Reconciliations
Reconciliation of the carrying amounts of property, plant and equipment at the beginning and end of the current financial year.
Land and buildings
Opening carrying amount
Additions
Acquisitions through business combinations1
Disposals
Depreciation expense
Transfers, reclassifications, adjustments and effect of movement in FX rate
Closing carrying amount
Assets Under Construction
Opening carrying amount
Additions
Acquisitions through business combinations1
Transfers, reclassifications, adjustments and effect of movement in FX rate
Closing carrying amount
Plant and equipment
Opening carrying amount
Additions
Acquisitions through business combinations1
Disposals
Depreciation expense
Transfers, reclassifications, adjustments and effect of movement in FX rate
Closing carrying amount
Leasehold Improvements
Opening carrying amount
Additions
Acquisitions through business combinations1
Depreciation expense
Transfers, reclassifications, adjustments and effect of movement in FX rate
Closing carrying amount
Bearer Plants
Opening carrying amount
Additions
Acquisitions through business combinations1
Disposals
Depreciation expense
Transfers, reclassifications, adjustments and effect of movement in FX rate
Closing carrying amount
Total property, plant and equipment
Opening carrying amount
Additions
Acquisitions through business combinations1
Disposals
Depreciation expense
Transfers, reclassifications, adjustments and effect of movement in FX rate
Closing carrying amount
1.
Includes property, plant and equipment acquired as part of the African Blue acquisition (refer Note D6) and other farm acquisition that are not material.
2018
$ ‘000
111,294
4,265
1,785
(9)
(5,401)
1,741
113,675
17,426
48,189
5,848
(28,279)
43,184
127,094
25,169
11,330
(518)
(23,019)
25,638
165,693
16,771
3,532
1,395
(1,447)
1,216
21,467
9,364
7,410
5,876
(517)
(3,554)
1,985
20,564
281,949
88,564
26,234
(1,044)
(33,421)
2,301
364,583
2017
$ ‘000
106,613
9,232
–
141
(5,238)
546
111,294
13,996
26,623
–
(23,193)
17,426
106,849
18,302
–
(982)
(17,600)
20,525
127,094
15,086
1,363
–
(1,096)
1,418
16,771
6,780
4,819
–
(17)
(2,196)
(22)
9,364
249,324
60,339
–
(859)
(26,130)
(725)
281,949
59
Costa Group Holdings LimitedAnnual Report 2018
Notes to the Consolidated Financial Statements continued
Recognition and measurement
Each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation and any accumulated impairment
losses.
Depreciation
The depreciable amount of all fixed assets is depreciated over their estimated useful lives commencing from the time the asset is held ready for use.
Land owned by the Group is freehold land and accordingly is not depreciated.
Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the
improvements.
Class of fixed asset
Land and buildings at cost
Plant and equipment at cost
Leased plant and equipment at cost
Bearer plants at cost
Depreciation rates
3% –10%
4%–33%
10%–20%
4%–25%
Depreciation basis
Straight line
Straight line
Straight line
Straight line
Assets under construction are measured at cost and not depreciated until the assets are ready for use.
Capital commitments
As at 1 July 2018, the Group has capital commitments amounting to $21,495,372 (2017: $24,939,230) in relation to the purchase of property,
plant and equipment, which are contracted for but not provided for.
B8. Intangible assets
Goodwill at cost
Brand names at cost
Lease premiums at cost
Water rights at cost
Capitalised software costs
Accumulated amortisation and impairment
Reacquired rights at cost
Accumulated amortisation and impairment
Customer relationships at cost
Accumulated amortisation and impairment
2018
$ ‘000
232,704
3,182
2,924
2,924
8,724
(5,351)
3,373
3,600
(1,167)
2,433
11,700
(3,413)
8,287
2017
$ ‘000
133,007
1,730
1,022
2,741
8,724
(4,123)
4,601
–
–
–
–
–
–
Total intangible assets
255,827
143,101
60
Costa Group Holdings LimitedAnnual Report 2018
Reconciliations
Reconciliation of the carrying amounts of intangible assets at the beginning and end of the current financial year.
Goodwill
Opening balance
Acquisitions through business combinations1
Closing balance
Capitalised software costs
Opening balance
Amortisation expense2
Disposals
Transfers, reclassifications and adjustments
Closing balance
Brand names
Opening balance
Acquisition through business combinations1
Closing balance
Lease premiums
Opening balance
Acquisitions through business combinations1
Closing balance
Water rights
Opening balance
Additions
Closing balance
Reacquired rights
Acquisitions through business combinations1
Amortisation expense2
Closing balance
Customer relationships
Acquisitions through business combinations1
Amortisation expense2
Closing balance
Total Intangibles assets
Opening carrying amount
Additions
Acquisitions through business combinations1
Disposals
Amortisation expense2
Transfers, reclassification and adjustments
Closing carrying amount
2018
$ ‘000
2017
$ ‘000
133,007
99,697
232,704
131,495
1,512
133,007
4,601
(1,228)
–
–
3,373
1,730
1,452
3,182
1,022
1,902
2,924
2,741
183
2,924
3,600
(1,167)
2,433
11,700
(3,413)
8,287
5,814
(1,354)
(311)
452
4,601
1,730
–
1,730
1,022
–
1,022
2,721
20
2,741
–
–
–
–
–
–
143,101
183
118,351
–
(5,808)
–
255,827
142,782
20
1,512
(311)
(1,354)
452
143,101
Includes intangibles acquired as part of the African Blue acquisition and other farm acquisitions that are not material (refer Note D6).
1.
2. Amortisation expense in relation to intangible assets is included within depreciation and amortisation expenses in the statement of profit or loss and other comprehensive income.
61
Costa Group Holdings LimitedAnnual Report 2018
Notes to the Consolidated Financial Statements continued
Recognition and measurement
Goodwill
Goodwill is recognised initially as the excess over the aggregate of the consideration transferred, the fair value of the non-controlling interest, and the
acquisition date fair value of the acquirer’s previously held equity interest (in case of step acquisition), less the fair value of the identifiable assets acquired
and liabilities assumed.
Goodwill is not amortised, but is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be
impaired, and is carried at cost less accumulated impairment losses.
Brand names
Brand names are measured initially at their cost of acquisition. Brand names are an indefinite useful life intangible asset as there is no expiry date
associated with the underlying assets in terms of its generation of future economic benefits to the Group, and are therefore tested for impairment annually.
The carrying amount of brand names is supported by a value in use calculation.
Lease premiums
The value of market lease premiums is recorded in the financial report at cost. Market lease premiums are an indefinite life intangible asset as
there is no expiry date associated with the underlying assets in terms of its generation of future economic benefits to the Group, and are therefore
tested for impairment annually. The carrying amount of market lease premiums is supported by a value in use calculation.
Water rights
Water rights are measured initially at their cost of acquisition. Water rights are an indefinite life intangible asset as there is no expiry date associated
with the underlying assets in terms of its generation of future economic benefits to the Group, and are therefore tested for impairment annually. The
carrying amount of water rights is supported by a value in use calculation.
Software
Software is measured initially at the cost of acquisition and amortised over the useful life of the software. Expenditure on software development
activities is capitalised only when it is expected that future benefits will exceed the deferred costs, and these benefits can be reliably measured.
Capitalised development expenditure is stated at cost less accumulated amortisation. Amortisation is calculated using the straight line method to
allocate the cost of the intangible asset over its estimated useful life (not exceeding seven years) commencing when the intangible asset is available
for use. Other development expenditure is recognised as an expense when incurred.
Reacquired rights
Reacquired rights arise when the acquirer has granted a right to the acquiree to use one or more of the acquirer’s asset, such as intellectual property.
Reacquired rights are measured initially at fair value of the remaining contractual term of the contract and amortised over the remaining contractual
period. The carrying amount of reacquired rights is supported by a value in use calculation.
Customer relationship assets
Customer relationship assets are measured initially at fair value and amortised over the period of the associated contracts. The carrying amount of
customer relationship asset is supported by a value in use calculation.
Acquisitions
Intangible assets acquired separately are capitalised at cost. Intangible assets acquired through a business combination are capitalised at fair value
as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any
accumulated impairment losses.
Internally generated intangible assets are capitalised when the Group is certain that there are future economic benefits that will arise from these
assets. Other internally generated intangible assets that do not fit this recognition criteria are charged against the statement of comprehensive
income in the reporting period in which the expenditure is incurred.
The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful life
and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation
method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Changes in the expected useful life or the
expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period
or method, as appropriate, which is a change in accounting estimate. The amortisation expense on intangible assets with finite lives is recognised
in the statement of comprehensive income in the expense category consistent with the nature of the intangible asset.
62
Costa Group Holdings LimitedAnnual Report 2018 Allocation of goodwill
The allocation of goodwill across the Group’s reportable segments is provided below:
2018
$ ’000
Goodwill
Carrying amount at start of year
Acquisitions through business combinations
Carrying amount at end of year
2017
$ ’000
Goodwill
Carrying amount at start of year
Transfers between segments*
Acquisitions through business combinations
Carrying amount at end of year
Produce
CF&L International
Total
131,333
150
131,483
1,674
–
1,674
–
99,547
99,547
133,007
99,697
232,704
Produce
CF&L International
Total
127,654
2,167
1,512
131,333
3,841
(2,167)
–
1,674
–
–
–
–
131,495
–
1,512
133,007
* Goodwill relating to the Avocado CGU has been transferred to the Produce segment as the Avocado category now forms part of Produce.
Impairment testing
Goodwill and indefinite life intangible assets are tested annually for impairment. An impairment loss is recognised if the carrying amount of an asset
or cash-generating unit (CGU) exceeds its recoverable amount.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of
money and the risks specific to the asset or CGU. For impairment testing, assets are grouped together into the smallest group of assets that generates
cash inflows from continuing use that are largely independent of the cash inflows or other assets or CGUs. Subject to an operating segment ceiling test,
CGUs to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at
which goodwill is monitored for internal reporting purposes.
Impairment losses are recognised in the statement of comprehensive income. Impairment losses recognised in respect of CGUs are allocated first to
reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs), and then to reduce the carrying amounts of the other assets in the
CGU (group of CGUs) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset’s carrying
amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss has been
recognised.
In FY2018, the recoverable amount of our CGUs exceeds their carrying values and as a result no impairment loss has been recognised (2017: Nil impairment).
Useful life
Intangibles with indefinite useful life are not amortised. The useful life of an intangible asset with an indefinite life is reviewed each reporting period
to determine whether indefinite life assessment continues to be supportable. If not, the change in useful life assessment from indefinite to finite is
accounted for as a change in an accounting estimate and is thus accounted for on a prospective basis.
63
Costa Group Holdings LimitedAnnual Report 2018
Notes to the Consolidated Financial Statements continued
Critical accounting estimate and judgement
Projected cash flows
Goodwill is allocated to CGUs according to applicable business operations. The recoverable amount of a CGU is based on value in use calculations
that are based on the board approved budget covering a one year period together with management prepared cash flow through to FY2021.
For FY2022 onwards, the Group assumes a long-term growth rate to allow for organic growth on the existing asset base. Management’s
determination of cash flow projections and gross margins are based on past performance and its expectation for the future.
Long-term growth rate
An average growth rate of 2.5% (2017: 2.5%) has been used for cash flows for FY2022 onwards with a terminal value growth rate of 3.0% (2017: 3.0%).
Discount rate
A post-tax discount rate to post-tax cash flows has been applied as the valuation calculated using this method closely approximates applying pre-tax
discount rates to pre-tax cash flows. The Group used a pre-tax discount rate of 10.0% to 13.0% for domestic and 14% to 17% for International for
financial year 2018 (2017: 10.0% to 13.0%).
Sensitivity Analysis
The Group believes that for all CGUs, any reasonable possible change in the key assumptions would not cause the carrying value of the CGUs
to exceed their recoverable amount.
Critical accounting estimates and judgements
Recoverability of non-financial assets other than goodwill
All assets are assessed for impairment at each reporting date by evaluating whether indicators of impairment exist in relation to the continued use
of the asset by the consolidated entity. Impairment triggers include declining product or manufacturing performance, technology changes, adverse
changes in the economic or political environment or future product expectations. If an indicator of impairment exists, the recoverable amount of the asset
is determined.
64
Costa Group Holdings LimitedAnnual Report 2018 B9. Provisions
CURRENT
Employee benefits
Onerous leases
Other
NON CURRENT
Employee benefits
Onerous leases
Other
2018
$ ‘000
15,233
1,228
–
16,461
5,490
2,426
1,749
9,665
2017
$ ‘000
14,185
1,500
76
15,761
5,343
3,500
380
9,223
(a)
(b)
(c)
(a)
(b)
(c)
(a) Employee benefits liability
These consist of provisions for annual leave and long service leave.
(b) Onerous leases
The group currently holds a long-term lease for the Eastern Creek warehouse in New South Wales. The lease expires in FY2026. A provision has been
recognised for the fact that the unavoidable lease expenses are higher than the economic benefits available from the site. The obligation for the
discounted future payments, net of expected economic benefits, has been provided for.
(c) Other provisions
This relates to provision for warranty and lease make good.
(d) Reconciliations
Reconciliation of the carrying amounts of provisions at the beginning and end of the current financial year:
Employee benefits
Opening balance
Amounts used
Additional amounts recognised
Closing balance
Onerous leases
Opening balance
Amounts used
Additional amounts recognised
Closing balance
Other provisions
Opening balance
Amounts used
Additional amounts recognised
Closing balance
2018
$ ‘000
19,528
(7,352)
8,547
20,723
5,000
(1,346)
–
3,654
456
(9)
1,302
1,749
2017
$ ‘000
17,259
(5,824)
8,093
19,528
–
–
5,000
5,000
130
–
326
456
65
Costa Group Holdings LimitedAnnual Report 2018
Notes to the Consolidated Financial Statements continued
Recognition and measurement
Provisions are recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is
probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future
cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. When discounting
is used, the increase in the provision due to the passage of time is recognised as a finance cost.
Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised
as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of
comprehensive income net of any reimbursement.
Short-term employee benefit obligations
Liabilities arising in respect of wages and salaries, annual leave, long service leave and any other employee benefits expected to be settled within
twelve months of the reporting date are measured at their nominal amounts based on remuneration rates which are expected to be paid when
the liability is settled. The expected cost of short term employee benefits in the form of compensated absences such as annual leave is recognised
in the provision for employee benefits. All other short term employee benefit obligations are presented as payables.
Long-term employee benefit obligations
Liabilities arising in respect of long service leave and annual leave which is not expected to be settled within twelve months of the reporting date are
measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date.
Termination benefits
Termination benefits are payable when employment of an employee or group of employees is terminated before the normal retirement date, or
when the Group provides termination benefits as a result of an offer made and accepted in order to encourage voluntary redundancy. The Group
recognises a provision for termination benefits when the entity can no longer withdraw the offer of those benefits, or if earlier, when the termination
benefits are included in a formal restructuring plan that has been announced to those affected by it.
B10. Contingent Liabilities
From time to time the Group is party to claims from customers and suppliers arising from operations in the ordinary course of business. At the date of
this report there are no claims or contingent liabilities that are expected to materially impact, either individually or in aggregate, the Group’s financial
position or results from operations.
66
Costa Group Holdings LimitedAnnual Report 2018 C. Capital Structure and Financing
C1. Borrowings
Non-current liabilities
Secured liabilities
Bank loans
Unsecured liabilities
Bank loans
2018
$ ‘000
2017
$ ‘000
8,290
–
228,177
236,467
106,775
106,775
Terms and conditions relating to the above financial instruments
The key terms of the Group’s banking facilities detailed as below:
Secured
• Secured bank loan with $2.1m facility that can be drawn upon as required. This facility matures on July 2019.
• Secured bank loan with $7.1m facility that can be drawn upon as required. This facility matures on November 2023.
• Secured bank loan of $2.5m that matures on January 2023.
• The above secured bank loans are secured over buildings and trade receivables (see Note B2).
Unsecured
• Facility A – $175m facility that can be drawn upon as required. This facility matures 3 years from August 2017.
• Facility B – $175m facility that can be drawn upon as required. This facility matures 4 years from August 2017.
• The nominal rate for each facility consists of a floating cash rate plus a margin dependant on the amount of leverage.
• Lending covenants for both facilities include Interest Cover Ratio and Total Gearing Ratio.
•
It is noted that the banking facility is unsecured.
The Group has financial guarantees to other persons of $11.5 million that could be called up at any time in the event of a breach of our financial
obligations. We do not expect any payments will eventuate under these financial guarantees as we expect to meet our respective obligations
to the beneficiaries of these guarantees. The financial guarantees are applied against the available drawdown limit for Facility A as detailed above.
Recognition and measurement
Borrowings are initially recognised at fair value of the consideration received, net of directly attributable costs.
After initial recognition, borrowings are measured at amortised cost, using the effective interest rate method. Amortised cost is calculated by taking
into account any issue costs, and any discount or premium on issuance. Gains and losses are recognised in the statement of profit or loss and other
comprehensive income if borrowings are derecognised. The fair value approximates carrying value as borrowings are fully variable.
Borrowings are presented net of capitalised loan establishment costs.
67
Costa Group Holdings LimitedAnnual Report 2018
Notes to the Consolidated Financial Statements continued
C2. Share Capital
Issued and paid up capital
Ordinary shares
Transaction costs directly transferred to equity (net of tax)
Tax effect on legacy share options
Settlement of share-based payments
Ordinary shares
Opening balance
Ordinary shares issued
Settlement of share-based payment
Tax effect on legacy share options
At reporting date
2018
$ ‘000
401,673
(7,087)
3,566
5,258
403,410
2018
2017
Number
‘000
319,280
418
–
–
319,698
$ ‘000
399,902
2,228
1,280
–
403,410
Number
‘000
318,880
400
–
–
319,280
2017
$ ‘000
401,673
(7,087)
3,566
1,750
399,902
$ ‘000
395,688
580
68
3,566
399,902
Ordinary shares
Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of shares held.
At shareholders’ meetings, each ordinary share is entitled to one vote when a poll is called; otherwise each shareholder has one vote on a show
of hands.
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from
equity, net of any tax effects.
C3. Profit reserve
The profit reserve comprises the transfer of net profit for the year and characterises profits available for distribution as dividends in future years.
The profit reserve balance as at balance sheet date (in thousands) is $122,600 (2017: $45,802).
C4. Other reserves
The nature and purpose of other equity reserves is as follows:
Other equity reserve
Other equity reserve comprises the treasury shares in Costa Group Holdings Limited that are held by the Employee share Trust for the purpose
of issuing shares under the employee share scheme and the executive short-term incentive (STI) scheme. Shares issued to employees are recognised
on first-in-first out basis. As at 1 July 2018, no shares were held by the Trust.
Share based payment reserve
The share based payment reserve is used to recognise the value of equity-settled share based payments provided to employees, including key
management personnel, as part of their remuneration. Refer to E1 for further details of these plans.
Foreign currency translation reserve
The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign
subsidiaries.
Cash flow hedge reserve
The hedging reserve records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective
hedge relationship.
General reserve
General reserve consists of put and call option as part of the acquisition of African Blue, measured under the present-access method. Refer note D6
for further details.
68
Costa Group Holdings LimitedAnnual Report 2018
C5. Dividends
Dividends paid or declared by the Company to members since the end of the previous financial year were:
Declared and paid during the year 2018
Final 2017 ordinary
Interim 2018 ordinary
Total amount
Cents per
share
7.0
5.0
Total amount
$ ’000
22,379
15,985
38,364
Date of payment
2 October 2017
3 April 2018
Declared after end of year
After the balance sheet date, the following dividends were proposed by the directors. The dividends have not been provided and there are no income
tax consequences.
Final 2018 ordinary
Total amount
Cents per
share
8.5
Total amount
$ ’000
27,174
27,174
Date of payment
4 October 2018
C6. Financial instruments – fair values and risk management
(A) Valuation of financial instruments
The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value
hierarchy. It does not include fair value information for financial assets and liabilities not measured at fair value if the carrying amount is a reasonable
approximation of fair value.
Financial assets
Loans and receivables
Current receivables
Cash and cash equivalents
Loans to related party associates
Available for sale
Shares in other corporations
Designated at fair value
Forward exchange contracts
Financial liabilities
Designated at fair value
Forward exchange contracts
Interest rate swaps
Other financial liabilities not measured at fair value
Payables
Bank loans
Put and call options
Fair value
hierarchy
2018
$ ‘000
2017
$ ‘000
–
–
–
109,780
60,394
–
170,174
87,434
22,582
80
110,096
Level 2
Level 2
Level 2
Level 2
–
Level 2
–
244
244
–
–
368
267
635
247
247
270
270
–
–
–
127,040
236,467
7,322
370,829
102,733
106,775
–
209,508
69
Costa Group Holdings LimitedAnnual Report 2018
Notes to the Consolidated Financial Statements continued
For all fair value measurement and disclosures, the Group uses the following to categorise the method used:
• Level 1: the fair value is calculated using quoted prices in active markets
• Level 2: the fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either
directly (as prices) or indirectly (derived from prices)
• Level 3: the fair value is estimated using inputs for the asset or liability that are not based on observable market data
Recognition, classification and measurement
The Group classifies its financial assets into the following categories: financial assets at fair value through profit and loss, loans and receivables and
available for sale financial assets. The classification depends on the purpose for which the instruments were acquired. Management determines the
classification of its financial instruments at initial recognition.
Derivative financial instruments
The Group enters into derivative financial instruments with various counterparties, principally financial institutions with investment grade credit
ratings. Foreign exchange forward contracts and interest rate swap contracts are all valued using forward pricing techniques. This includes the use
of market observable inputs, such as foreign exchange spot, forward rates and interest rate curves. Accordingly, these derivatives are classified as
Level 2.
Cash flow hedges
When a derivative is designated as a cash flow hedging instrument, the effective portion of the fair value of the derivative is recognised in other
comprehensive income and accumulated in the hedging reserve. Any ineffective portion of the fair value of the derivative is recognised immediately
in the profit or loss.
The amount accumulated in equity is retained in other comprehensive income and reclassified to profit or loss in the same period or periods during
which the hedge forecast cash flow affect profit or loss or the hedged item affects profit or loss.
If the forecast transaction is no longer expected to occur, the hedge no longer meets the criteria for hedge accounting, the hedging instrument
expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. If the forecast
transaction is no longer expected to occur, then the amount accumulated in equity is reclassified to profit or loss.
Non-derivative financial instruments
Non-derivative financial instruments consist of investments in equity securities, trade and other receivables, cash and cash equivalents, borrowings,
and trade and other payables.
Non-derivative financial instruments are initially recognised at fair value, plus directly attributable transaction costs (if any). After initial recognition,
non-derivative financial instruments are measured as described below.
Loans and receivables
Loans and receivables are measured at fair value at inception and subsequently at amortised cost using the effective interest rate method. Loan and
receivables include trade receivables.
Available-for-sale
Available-for-sale financial assets include any financial assets not included in the above categories and are measured at fair value. Unrealised gains
and losses arising from changes in fair value, other than impairment losses, are recognised in other comprehensive income and presented in equity.
The cumulative gain or loss is held in equity until the financial asset is disposed of, at which time the cumulative gain or loss held in equity is
recognised in profit and loss.
Other Financial liabilities
Financial liabilities include trade payables, other creditors and loans from third parties and loans from or other amounts due to related entities.
Non-derivative financial liabilities are recognised at amortised cost, comprising original debt less principal payments and amortisation.
Financial liabilities are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve
months after the reporting period.
Put and call options
The Group has put and call options arising as a result of business acquisition. Recognition and subsequent measurement are detailed in Note D6.
70
Costa Group Holdings LimitedAnnual Report 2018 Impairment
Non-derivative financial assets
Financial assets measured at amortised cost
The Group considers evidence of impairment for financial assets measured at amortised cost (loans and receivables) at both a specific asset and collective
level. All individually significant assets are assessed for specific impairment. Those found not to be specifically impaired are then collectively assessed
for any impairment that has been incurred but not yet identified. Assets that are not individually significant are collectively assessed for impairment
by grouping together assets with similar risk characteristics.
In assessing collective impairment, the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred,
adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or
lesser than suggested by historical trends.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the
present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in the statement of
comprehensive income and reflected in an allowance account against loans and receivables. Interest on the impaired asset continues to be
recognised. When an event occurring after the impairment was recognised causing the amount of the impairment loss to decrease, the decrease
in impairment loss is reversed through the statement of comprehensive income.
(B) Risk management
The Group’s financial risk management objective is to minimise the potential adverse effects of financial performance arising from changes in
financial risk. Financial risks are managed centrally by the Group’s finance team under the direction of the directors and the Board’s Risk and Audit
Committee. Management regularly monitors the Group’s exposure to any of these financial risks and reports to the Board.
The Group’s activities expose it to a number of financial risks, including market risk (interest rate risk and foreign currency risk), liquidity risk and credit risk.
The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.
(a) Market risk
Market risk is the risk that changes in market prices, such as interest rates, foreign exchange rates and equity prices will affect the Group’s income
or the value of its holdings of financial instruments.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial asset or financial liability will change as a result of changes in market
interest rates. The Group’s exposure to market interest rate risk relates primarily to its borrowings. The Group has historically managed its cash flow
interest rate risk by using floating to fixed interest rate swaps for a portion of variable rate borrowings. Such interest rate swaps have the economic
effect of converting borrowings from floating rates to fixed rates.
As at reporting date, the Group had the following financial assets and liabilities exposed to variable interest rate risk:
Variable rate instruments
Assets
Cash and cash equivalents
Liabilities
Bank loans
Total financial liabilities
2018
$ ‘000
2017
$ ‘000
60,394
22,582
237,290
108,000
176,896
85,418
Sensitivity analysis for variable rate instruments
At 1 July 2018, if interest rates had changed by -/+ 100 basis points from the year end rates with all other variables held constant, profit or loss would
have increased/(decreased) by:
Increase of 100 basis points in interest rate
Decrease of 100 basis points in interest rate
2018
$ ‘000
(1,769)
1,769
2017
$ ‘000
(854)
854
71
Costa Group Holdings LimitedAnnual Report 2018
Notes to the Consolidated Financial Statements continued
Foreign currency risk
The Group’s exposure to the risk of changes in foreign exchanges rates relates to the Group’s operating activities and investments in foreign joint
ventures. The Group imports and exports produce and is exposed to foreign exchange risk, primarily movements in exchange rates of US dollar (USD)
and Japanese Yen (JPY). In addition, it is also exposed to exchange rate movements in Moroccan Dirhams (MAD) and Chinese Yuan (CNY) through its
investment in the International subsidiaries. The Group also makes purchases and capital expenditure that expose it to movements in exchange rates
of USD, Euro (EUR), British Pound (GPB) and New Zealand dollar (NZD). The Group enters into forward contracts to hedge some of its exposure against
foreign currency risk.
The Group’s exposure to foreign exchange risk at the end of the reporting period, expressed in Australian dollars, was as follows:
2018
Cash
Trade and other receivables
Trade and other payables
Derivative financial assets/(liabilities)
Net exposure
2017
Cash
Trade and other receivables
Trade and other payables
Derivative financial assets/(liabilities)
Net exposure
USD
$ ‘000
417
9,254
–
(190)
9,481
JPY
$ ‘000
1,342
4,461
–
152
5,955
JPY
$ ‘000
1,475
7,789
–
(155)
9,109
EUR
$ ‘000
–
–
(6)
(5)
(11)
EUR
$ ‘000
432
2,727
(739)
(23)
2,397
CNY
$ ‘000
6,194
842
(452)
–
6,584
CNY
$ ‘000
8,073
600
(1,252)
–
7,421
GBP
$ ‘000
–
–
(10)
–
(10)
MAD
19,816
14,991
(25,582)
–
9,225
NZD
$ ‘000
–
–
(20)
–
(20)
USD
$ ‘000
1,619
6,077
(92)
123
7,727
Sensitivity analysis
At 1 July 2018, had the Australian dollar weakened/strengthened by 10% against these currencies with all other variables held constant, the impact
to profit or loss and equity would be an increase/(decrease) of:
Australian dollar weakened by 10%
Australian dollar strengthened by 10%
USD
$ ‘000
948
(948)
JPY
$ ‘000
911
(911)
EUR
$ ‘000
240
(240)
CNY
$ ‘000
742
(742)
MAD
$ ‘000
922
(922)
72
Costa Group Holdings LimitedAnnual Report 2018
(b) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by
delivering cash or another financial asset. The Group’s approach to managing liquidity risk is to ensure it always has sufficient liquidity to meet its
liabilities when due without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group manages its liquidity risk using a recurring planning tool, and maintaining, at all times, an appropriate minimum level of liquidity,
comprising committed, unused bank facilities and cash resources, to meet the Group’s financial obligations as and when they fall due.
As at reporting date, unused credit facilities net of bank guarantees of the Group were $112.8 million. In addition, the Group maintains an overdraft
facility of $3.0 million.
The Group is in compliance with all undertakings under its various financial arrangements.
The following are the remaining contractual maturities at the end of the reporting period of financial liabilities, including estimated interest payments
and excluding the impact of netting agreements.
2018
Non-derivative financial liabilities
Bank loans*
Trade payables
Derivative financial liabilities
Forward exchange contracts
Interest rate swaps
2017
Non-derivative financial liabilities
Bank loans*
Trade payables
Less than
6 months
6 – 12
months
1 – 5 years Over 5 years
Total
237,290
127,039
364,329
368
–
368
–
–
–
–
–
–
–
–
267
267
–
–
–
–
–
237,290
127,039
364,329
368
267
635
Less than
6 months
6 – 12
months
1 – 5 years Over 5 years
Total
108,000
102,733
210,733
–
–
–
–
–
–
–
–
–
108,000
102,733
210,733
* Bank loans consist of commercial bills. The Group expects to and has the discretion to refinance or rollover the bank loans for at least 12 months after the end of the reporting period under the
existing banking facility. Refer to note C1 for details of terms and conditions on bank loans.
73
Costa Group Holdings LimitedAnnual Report 2018
Notes to the Consolidated Financial Statements continued
(c) Credit Risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations, resulting in financial loss to the Group.
The Group is exposed to counterparty credit risk arising from its operating activities, primarily from trade receivables. Trade receivable balances
are monitored on a weekly basis. The finance function assesses the credit quality of the customer, taking into account its financial position, past
experience and other factors. Individual risk limits are set based on internal or external ratings and regularly monitored by management. The Group
also takes out trade credit insurance in relation to its citrus export sales.
The maximum exposure to credit risk is as follows:
Cash and cash equivalents
Shares in other corporation
Receivables
Forward exchange contracts
2018
$ ‘000
60,394
244
109,780
–
170,418
2017
$ ‘000
22,582
247
87,434
270
110,533
The ageing analysis of trade receivables is set out in the table below. The credit quality of financial assets that are neither past due nor impaired is
assessed based on the application of the credit risk policies described above.
Neither past due nor impaired
Past due 1 – 30 days
Past due 31 – 60 days
Past due over 60 days
2018
$ ‘000
68,322
18,119
3,540
3,440
93,421
2017
$ ‘000
61,239
14,378
1,108
195
76,920
Management believes that the unimpaired amounts that are past due by more than 30 days are still collectible in full, based on historical payment
behaviour and extensive analysis of customer credit risk, including underlying customers’ credit ratings if they are available. Major Australian
supermarkets, including Coles, Woolworths, Aldi and IGA comprise approximately 38% of the Group’s trade debtors at 1 July 2018.
Impairment losses on trade receivables
Trade receivables are non-interest bearing with credit terms generally between 15 and 60 day terms. An impairment loss is recognised when there is
objective evidence that an individual trade receivable is impaired. The impairment losses have been included within other expenses in the statement
of profit or loss and other comprehensive income. All trade receivables that are not impaired are expected to be received.
Movements in the accumulated impairment losses were:
Opening balance at 26 June 2017
Impairment loss (recognised)/reversed
Amounts written off
Closing balance at 1 July 2018
2018
$ ‘000
2017
$ ‘000
(538)
(144)
247
(435)
(419)
(204)
85
(538)
(d) Capital management
The primary objective of the Group’s capital management is to maintain investor, creditor and market confidence and a strong credit rating and
healthy capital ratios to support its business and maximise shareholder value. Capital includes equity attributable to the equity holders of the parent.
The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital
structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.
Various financial ratios and internal targets are assessed and reported to the Board on a regular basis by management to monitor and support the key
objectives as set out above. These ratios and targets include;
• an earnings to net interest expense ratio;
• a total net indebtedness to earnings ratio; and
• adjusted earnings to interest expense ratio.
74
Costa Group Holdings LimitedAnnual Report 2018
C7. Capital and leasing commitments
(a) Operating lease commitments
Non cancellable operating leases contracted for but not capitalised in the financial statements:
Payable
– not later than one year
– later than one year and not later than five years
– later than five years
2018
$ ‘000
2017
$ ‘000
45,386
162,394
246,514
454,294
36,094
133,989
149,215
319,298
Operating lease commitments are in relation to property rentals and various rentals of plant and equipment.
(b) Bank guarantees
The Group maintains bank guarantees of $11,537,591 (2017: $11,623,007).
In addition to the above, bank guarantees of $2.5 million are committed in relation to an overdraft facility for the Driscoll’s Australia joint venture.
(c) Leases
Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the
risks and benefits incidental to ownership.
Finance leases
Leases of fixed assets, where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership, are
transferred to the Group are classified as finance leases. Finance leases are capitalised, recording an asset and a liability equal to the present value of
the minimum lease payments, including any guaranteed residual values. The interest expense is calculated using the interest rate implicit in the lease
and is included in finance costs in the statement of profit and loss and other comprehensive income. Leased assets are depreciated on a straight line
basis over their estimated useful lives where it is likely that the group will obtain ownership of the asset, or over the term of the lease. Lease payments
are allocated between the reduction of the lease liability and the lease interest expense for the period.
Operating leases
Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are recognised as an expense on a straight
line basis over the term of the lease.
Lease incentives received under operating leases are recognised as a liability and amortised on a straight line basis over the life of the lease term.
AASB 16 replaces existing lease guidance, including AASB 117 Leases. The standard is effective for annual periods beginning on or after 1 January
2019. Further details of the Group’s assessment and position of the standard is disclosed in Note E3.
75
Costa Group Holdings LimitedAnnual Report 2018
Notes to the Consolidated Financial Statements continued
D. Group Structure
D1. Joint ventures and associates
(a) Details of Associates and Joint Ventures
Associates
African Blue SA1
Equity instrument
Ordinary shares
Polar Fresh Partnership
Ordinary shares
Joint Ventures
Driscoll’s Australia Partnership
Ordinary shares
Ownership
interest
2018
%
Ownership
interest
2017
% Measurement basis
Principal place of business
and country of incorporation
–
50
50
49
50
Equity Accounted Moulay-Bousselham, Morocco
Equity Accounted
Victoria, Australia
50
Equity Accounted
Victoria, Australia
1
The Group acquired additional shares in African Blue SA on 27 November 2017 giving Costa control over the company. From the date of this transaction, African Blue is accounted for as a
subsidiary of the Group. Refer Note D6 for further details.
(b) Summarised financial information for associates and joint ventures
Reconciliation of carrying amount in joint ventures and associates:
Opening balance at 26 June 2017
Total share of profit/(loss)
Dividends paid
Dividend receivable pre AB acquisition
Disposal of equity accounted investment
Closing balance at 1 July 2018
African Blue
SA
$ ‘000
Polar Fresh
Partnership
$ ‘000
Driscoll’s
Australia
Partnership
$ ‘000
22,909
(589)
–
(3,390)
(18,930)
–
585
607
(1,100)
–
–
92
8,860
6,800
(4,350)
–
–
11,310
Total
$ ‘000
32,354
6,818
(5,450)
(3,390)
(18,930)
11,402
(a) African Blue SA
In 2007, the Group entered into a joint venture to establish African Blue, a Moroccan-based grower and marketer of blueberries. The African Blue
subsidiary holds an exclusive licence to grow Costa blueberry varieties in Morocco for sale worldwide (excluding Americas). In November 2017,
the Group acquired an additional 37% interest in African Blue giving it control over the company – refer to note D6 for further detail.
(b) Polar Fresh Partnership
The Polar Fresh Partnership is a provider of cold storage, warehousing and distribution solutions. Polar Fresh Partnership currently operates one cold
storage site throughout Australia. In FY2018, sales revenue for the Polar Fresh Partnership was $1,696,191 (2017: $5,486,569), and net assets were
$2,521,167 (2017: $1,307,332).
During FY2017, a decision was made to wind down the Polar Fresh JV following Coles’ decision not to renew the Parkinson and Eastern Creek
contract. As such, the carrying value of the investment in Polar Fresh was impaired by $7.4m. Refer to Note A3 for further information. The final
contract was completed in October 2017 and operations have now ceased.
(c) Driscoll’s Australia Partnership
In 2010, the Group entered into a partnership with Driscoll’s Strawberry Associates Inc. to form Driscoll’s Australia Partnership, which is an Australian
berry marketing business. The majority of the Group’s Australian grown berries are marketed in Australia through the Driscoll’s brand. In FY2018, sales
revenue for the Driscoll’s Australia Partnership was $48,112,741 (2017: $99,629,160), and net assets were $22,620,736 (2017: $18,068,876).
Recognition and measurement
Investments in joint ventures
Investments in joint ventures are accounted for using the equity method of accounting.
Investments in associates
Investments in entities over which the Group has the ability to exercise significant influence, but not control, are accounted for using equity method
of accounting. The investment in associates is carried at cost plus post-acquisition changes in the Group’s share of the associates’ net assets, less any
impairment in value.
76
Costa Group Holdings LimitedAnnual Report 2018
D2. List of subsidiaries
The following are the Group’s significant subsidiaries:
Subsidiaries of Costa Group Holdings Ltd:
Country of incorporation
Costa Group Holdings (Finance) Pty Ltd
Costa’s Pty Ltd
ACN 151 702 251 Pty Ltd
Costa Exchange Holdings Pty Ltd
Costa Asia Pty Ltd (formerly ACN 125 158 741 Pty Ltd)
Grape Exchange Management Euston Pty Ltd
North Fresh Pty Ltd
Vinefresh Pty Ltd
Costa Berry International Pty Ltd (formerly Southern Cross Overseas Pty Ltd)
CostaExchange Pty Ltd (formerly CostaExchange Ltd)
Costa Berry Holdings Pty Ltd
Costa Berry Pty Ltd
Blueberry Investments Morocco Pty Ltd
Raspberry Fresh Pty Ltd
CBSP Pty Ltd
FruitExpress Pty Ltd
ACN 057 689 246 Pty Ltd
Exchange Innisfail Pty Ltd
FreshExchange Pty Ltd
Yandilla Park Pty Ltd
East African Coffee Plantations Pty Ltd
AgriExchange Pty Ltd
Vitor Marketing Pty Ltd
AgriExchange Farm Management Pty Ltd
Mushroom Holdings Exchange Pty Ltd
Mushroom Exchange Pty Ltd
Costa Fresh Logistics Pty Ltd
Tomato Exchange Pty Ltd
Grape Exchange Farming Pty Ltd
Grape Exchange Farming Mundubbera Pty Ltd
Grape Exchange Pty Ltd
Costa Group Finance Pty Ltd
Costa Farms Pty Ltd
Costa Logistics Pty Ltd
AgriExchange Murtho Pty Ltd
Hillston Investments Pty Ltd
Banana Exchange Pty Ltd
Innisfail Holdings Pty Ltd
Exchange Brisbane Pty Ltd
Costa Asia Ltd
Costa China (Hong Kong) Ltd
Costa (Honghe) Fruit Planting Co. Ltd
Costa (Yunnan) Agricultural Development Co. Ltd
African Blue S.A.*
Sweet Berry*
Blue Flavor*
* Ownership interest obtained as a result of the African Blue acquisition – refer to note D6 for more information
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Hong Kong
Hong Kong
China
China
Morocco
Morocco
Spain
Ownership interest
held by the group
2017
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
70
70
70
–
–
–
2018
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
70
70
70
86
86
77
77
Costa Group Holdings LimitedAnnual Report 2018 Notes to the Consolidated Financial Statements continued
D3. Related party disclosures
(a) Transactions with associates and joint ventures
The Group transacted with jointly controlled entities during the 2018 financial period as follows:
• Polar Fresh Partnership – Dividends received amounting to $1,100,000 (2017: $1,370,958) and $24,000 (2017: $104,000) for transactional
and management services provided.
• Polar Fresh Partnership – Receivable of $3,819 (2017: $3,819) for management fees.
• Driscoll’s Australia Partnership – Commission paid on sale of berries $21,691,745 (2017: $22,118,278)
• Driscoll’s Australia Partnership – Sales of produce $166,354,252 (2017: $173,480,884)
• Driscoll’s Australia Partnership – Receivable of $6,834,103 (2017: $6,011,073) for sale of produce.
• Driscoll’s Australia Partnership – Dividends received amounting to $4,350,000 (2017: $5,000,000)
(b) Transactions with key management personnel of the entity or its parent and their personally related entities
Mr Frank Costa (Director)
• Payment of leasing fee to Frank Costa paid by Costa’s Pty Ltd for 111 Aviation Road, Werribee of AUD $1 (2017: AUD $1)
Compensation received by key management personnel of the group:
– Short-term employee benefits
– Post-employment benefits
– Other monetary benefits
– Long-term employee benefits
– Share-based payment benefits
2018
$ ‘000
3,281
127
11
38
775
4,232
2017
$ ‘000
3,742
116
15
40
1067
4,980
78
Costa Group Holdings LimitedAnnual Report 2018
D4. Parent entity disclosures
(a) Summarised presentation of the parent entity, Costa Group Holdings Ltd
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Profit reserve
Share-based payment reserve
Accumulated losses
Total equity
(b) Summarised statement of comprehensive income
Profit/(Loss) for the period
Total comprehensive loss for the year
2018
$ ‘000
2017
$ ‘000
171
506,998
507,169
15,928
43,635
59,563
2,306
455,857
458,163
17,558
43,697
61,255
447,606
396,908
403,410
83,493
12,000
(51,297)
447,606
2018
$ ‘000
76,055
76,055
399,902
45,802
2,501
(51,297)
396,908
2017
$ ‘000
(23,556)
(23,556)
(c) Parent entity guarantees in respect of debts of its subsidiaries
The parent entity has entered into a Deed of Cross Guarantee with the effect that the Company guarantees debts in respect of certain subsidiaries.
Further details of the Deed of Cross Guarantee and the subsidiaries subject to the Deed are disclosed in Note D5.
D5. Deed of cross guarantee
The wholly owned subsidiaries listed in Note D2 (excluding Hillston Investments Pty Ltd and Innisfail Holdings Pty Ltd) are parties to a deed of cross
guarantee under which each company guarantees the debts of the others. These parties to the deed of cross guarantee consist of only the Australian
wholly owned subsidiaries.
Pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785, the wholly-owned subsidiaries listed in Note D2 (excluding Hilston
Investments Pty Ltd and Innisfail Holdings Pty Ltd) are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement
of financial reports, and Directors’ report.
A consolidated statement of profit or loss and other comprehensive income and a consolidated statement of financial position for the year ended
1 July 2018, comprising the above listed parties to the deed which represent the “closed group”, are set out below:
(a) Consolidated Statement of Comprehensive Income of the closed group
Revenue
Less: Expense
Profit before income tax expense
Income tax expense
Total comprehensive income for the year
2018
$ ‘000
1,050,344
(912,238)
138,106
2017
$ ‘000
901,997
(837,635)
64,362
(27,146)
(22,611)
110,960
41,751
79
Costa Group Holdings LimitedAnnual Report 2018
Notes to the Consolidated Financial Statements continued
(b) Consolidated Statement of Financial Position of the closed group
2018
$ ‘000
2017
$ ‘000
31,582
134,660
21,729
47,663
7,496
243,130
89,159
30,332
145,250
3,583
310,137
578,461
821,591
98,154
16,461
369
12,017
127,001
228,125
9,665
267
238,057
365,058
16,387
86,180
17,705
45,958
10,282
176,512
12,374
32,354
143,101
3,517
273,863
465,209
641,721
100,999
15,761
–
17,557
134,317
106,775
9,223
–
115,998
250,315
456,533
391,406
391,831
(193)
110,107
(45,212)
456,533
388,313
2,501
45,972
(45,380)
391,406
ASSETS
Current assets
Cash and cash equivalents
Receivables
Inventories
Biological assets
Other assets
Total current assets
Non-current assets
Other financial assets
Equity accounted investments
Intangible assets
Deferred tax assets
Property, plant and equipment
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Payables
Provisions
Financial liabilities
Current tax liabilities
Total current liabilities
Non-current liabilities
Borrowings
Provisions
Financial liabilities
Total non-current liabilities
Total liabilities
NET ASSETS
EQUITY
Share capital
Reserves
Profit reserve
Accumulated losses
Total equity
80
Costa Group Holdings LimitedAnnual Report 2018
D6. Acquisition of subsidiary
Acquisition of African Blue SARL
On 2 November 2017, the Group signed an agreement to acquire an additional 41% of the shares and voting interests in African Blue SARL (African
Blue). The transaction involved the Group initially acquiring 37% of the issued shares, with options enabling it to acquire an additional 4% over the
next 3 years. As a result, the Group’s equity interest in African Blue increased from 49% to 86%, giving it control over the company. The transaction
settled on 27 November 2017, which is also the deemed acquisition date for accounting purposes.
African Blue is an integral part of Costa’s International segment with the blueberry varieties grown in Morocco coming from genetics developed by
Costa originally in Australia. This gives the Group a distinct competitive advantage in the UK and European markets as it is able to deliver a premium
product into those markets.
From the date of acquisition to 1 July 2018, African Blue contributed revenue of $58.4m and a net profit before SGARA and material items of $13.5m
to the Group’s results. If the acquisition had occurred on 26 June 2017, Management estimates that the African Blue would have contributed revenue
of $58.5m, and contributed profit before SGARA and material items for the full-year of $9.3m. Costa consolidated revenue would then be $1,002.1m
and consolidated profit before SGARA and material items of $74.5m.
In determining these amounts, management has assumed that the fair value adjustments, determined provisionally, that arose on the date of
acquisition would have been the same if the acquisition had occurred on 26 June 2017.
For the June 2018 reporting period, the assets and liabilities have been determined on a provisional basis. The only changes since December 2017
reporting is in respect of the valuation of bearer plants and intangible assets such as customer relationship, brand names, re-acquired rights and deferred
tax liability which have now been recognised separate from goodwill. In addition, a further adjustment to the re-measurement of 49% interest on
acquisition was made.
(a) Consideration transferred
The following table summarises the acquisition date fair value of the cash consideration transferred.
Cash
Total consideration
$ ‘000
68,551
68,551
(b) Put and call option
As part of the agreement, the Group will make further payments to the existing shareholders on reaching certain earnings targets over the next three
years by way of a put and call option. The put and call option has been measured at present value using management best estimates of these targets
being met and has been treated as a financial liability. Since Costa has applied the present-access method to account for the put and call option,
the liability does not form part of the consideration transferred and is recognised against ‘general reserve’ in equity. The fair value of the put option
recognised on acquisition was $9.1m. The value as at 1 July 2018 has reduced to $7.3m. Any subsequent changes to the fair value of these
options will be recognised in equity in accordance with Costa’s policy on accounting for such options.
(c) Acquisition related costs
The Group incurred acquisition related costs of $3.5m which included legal fees, due diligence costs and stamp duty on transfer of shares. These costs
have been included in ‘Other expenses’ and are treated as material items.
(d) Identifiable assets acquired and liabilities assumed
The following table summarises the recognition amounts, on a provisional basis of acquired and liabilities assumed since date of acquisition:
27 November 2017
Property, plant and equipment
Intangible assets
Other assets
Inventories
Receivables
Biological assets
Cash and cash equivalents
Borrowings
Payables
Dividends payable
Contingent liabilities
Deferred tax liability
Total identifiable net assets acquired
Provisional
$ ‘000
23,044
18,586
1,911
1,658
7,683
3,263
11,141
(2,118)
(11,243)
(7,357)
(174)
(4,240)
42,154
81
Costa Group Holdings LimitedAnnual Report 2018
Notes to the Consolidated Financial Statements continued
(i) Measurement of fair values
The measurement valuation techniques used for measuring the fair value of material assets acquired were as follows:
Asset Acquired
Property, plant and
equipment (Bearer assets)
Intangible assets (customer
relationships, reacquired
rights and African Blue
brand name)
Valuation technique
The valuation model considers cost of acquiring the plants as well as any directly attributable cost incurred for
planting. These include soil preparation, labour, cost of pots and pelemix for substrate planting. From thereon,
the aging profile of the plants are estimated and have also been taken into consideration to arrive at the final
valuations.
Relief-from-royalty method (“RRM”) and multi-period excess earnings method (“MEEM”):
RRM method considers the discounted estimated royalty payments that are expected to be avoided as a result
of rights and brand being owned.
MEEM method considers the present value of net cash flows expected to be generated by the customer
relationship, by excluding any contributory assets.
(e) Goodwill
Goodwill arising from the acquisition has been recognised as follows:
Consideration transferred
Non-controlling interest based on their proportionate interest in the recognised amounts of the assets and liabilities of African Blue
Fair value of pre-existing interest in African Blue
Fair value of net identifiable net assets
Goodwill
Provisional
1-Jul-18
$ ‘000
68,551
5,901
67,247
(42,154)
99,545
Goodwill primarily comprises the skills and technical talent of African Blue’s workforce and the synergies expected to be achieved from integrating
the company into the Group’s operations and existing governance and risk mitigating practices. Goodwill is not deductible for tax purposes.
(f ) Re-measurement of existing 49% interest in African Blue
Since the interim December 2017 reporting period, an adjustment has been made to the calculation of the control premium of the existing 49% interest
in African Blue. As the acquisition happened during the financial period, no retrospective adjustment is required in accordance with AASB 108.
The following table summarises changes:
Fair value of 49% interest (adjusted for control premium)
Carrying value of the equity-accounted investee
Gain of fair value of investment
Note
Original
31-Dec-17
$ ‘000
59,010
(18,930)
40,080
Revised
1 July 2018
$ ‘000
67,247
(18,930)
48,317
The gain on fair value of the Group’s existing 49% interest has been included in ‘Other income’ and has been classified as a material item. The fair value
of $67.2m has been adjusted for any control premium paid on the current transaction.
Other acquisitions
The Group acquired other domestic farms during the year which are not considered material for disclosure.
E. Other
E1. Share-based payments
Share-based payments reserve
2018
$ ‘000
12,000
2017
$ ‘000
2,501
The share-based payments reserve is used to record the fair value of shares or equity-settled share-based payment options issued to employees.
Share-Based Payment Plan – Employee Share Option Plan
The Group continued to offer equity-settled share-based payments via employee participation in long term and short term incentive schemes as part
of the remuneration packages for the key management personnel and executives of the Company.
During FY2018, 1,706,229 (2017: 2,313,851) options have been granted to key management personnel and the executive team under new option plans.
The Group also granted 142,689 (2017: 181,885) performance rights to key management personnel and the executive team during FY2018.
82
Costa Group Holdings LimitedAnnual Report 2018
Recognition and measurement
The Group provides benefits to its employees and Directors in the form of share-based payment transactions, whereby services are rendered in
exchange for shares or options (“equity-settled transactions”).
The fair value of options and performance rights is recognised as an expense with the corresponding increase in equity (share-based payments
reserve). The fair value is measured at grant date and recognised over the period during which the holder becomes unconditionally entitled to the
options and performance rights.
Measurement of Fair Values
The fair value of the options issued under this Option Plan was measured on using a Binomial tree pricing model. The inputs used in the
measurement of the fair values at grant date of the options were as follows:
Employee share option programs
Grant date
Number issued
Fair value at grant date
Share price at grant date
Exercise price
Expected volatility
Expected dividend yield
Risk-free rate
2018
KMP and
executives
9/10/2017
265,151
$1.51
$5.40
$4.82
30%
2.50%
2.10%
24/08/2017
1,441,078
$1.37
$5.62
$4.82
30%
2.50%
2.21%
2017
KMP and
executives
1/07/2016
2,313,851
$0.67
$3.06
$2.78
30%
3.80%
2.07%
The expected volatility has been based on an evaluation of the historical volatility using comparable companies to the Group. The Group has
accounted for the options as equity settled share based payments.
The fair value of the performance rights issued under this STI plan was based on the 10 day market volume weighted average price of the shares of
Costa Group Holdings Ltd ending on 23 August 2017. Details are as follows:
Employee performance right program
Number issued
Fair value at grant date
Reconciliation of outstanding share options
The number and weighted average exercise prices of options under the employee share option program are as follows:
2018
KMP and
executives
142,689
4.88
2017
KMP and
executives
181,885
2.91
Opening balance
Disposed for cash or settled for shares during the year
Forfeited during the year
Granted during the year
Closing balance
Exercisable at year end
2018
2017
Number of
options
5,877,223
(2,534,524)
(250,382)
1,706,229
4,798,546
1,028,848
Weighted
average
exercise
price
$2.63
$2.53
–
$4.82
$3.46
$2.55
Number of
options
3,963,372
(400,000)
–
2,313,851
5,877,223
50,000
Weighted
average
exercise
price
$2.39
$1.45
–
$2.78
$2.63
$1.45
The options outstanding as at 1 July 2018, which have not been vested, have an average exercise price of $3.70 (2017: $2.64).
83
Costa Group Holdings LimitedAnnual Report 2018
Notes to the Consolidated Financial Statements continued
E2. Taxation
(a) Components of tax expense
Current tax
Deferred tax
Over provision in prior years
(b) Prima facie tax payable
The prima facie tax payable on profit before income tax is reconciled to the income tax expense as follows:
Profit before income tax
Prima facie income tax expense on profit before income tax at 30.0%
– Effect of tax rates in foreign jurisdiction
Tax effect of:
non-deductible expenses
deferred tax asset previously not recognised
impairment of Polar Fresh carrying value
– non-creditable foreign withholding tax
– under/(over) provision in prior years
– research and development tax credits
– utilisation of deferred tax asset not recognised
– non-assessable income
– deductible/(non-deductible) share plan trust payments/expense
2018
$ ‘000
27,442
(351)
55
27,146
2017
$ ‘000
20,932
2,456
(768)
22,620
144,924
80,262
43,477
(1,304)
24,078
9
1,942
(1,081)
–
774
55
(710)
–
(15,302)
(705)
159
–
2,220
–
(768)
(434)
(307)
(2,905)
568
Income tax expense attributable to profit
27,146
22,620
(c) Current tax
Current tax relates to the following:
Current tax liabilities/(assets)
Opening balance
Current year tax expense
Tax payments
Tax provision acquired from business combination
Foreign withholding tax credits claimable
Under/(over) provisions
Share plan payments – tax effect recognised through equity
Closing balance
17,561
27,442
(28,567)
895
(180)
(1,170)
(3,272)
12,709
5,879
20,932
(5,787)
–
(238)
(3,225)
–
17,561
84
Costa Group Holdings LimitedAnnual Report 2018
(d) Deferred tax
Deferred tax relates to the following:
Deferred tax assets
The balance comprises:
Property, plant and equipment
Provisions
Trade and other payables
Capital (black hole) deductions (section 40 880)
Borrowings
Equity Accounted Investments
Other financial liabilities
Future deductible share plan trust payment – tax effect through equity
Deferred tax liabilities
The balance comprises:
Biological assets
Property, plant and equipment
Intangible assets
Trade and other receivables
Other financial assets
Net deferred tax assets
(e) Deferred tax expense included in income tax comprises
(Increase)/decrease in deferred tax assets
Increase/(decrease) in deferred tax liabilities
(f ) Deferred tax movement
Opening balance – net deferred tax asset
Under/(over) Provision in Prior Years
Increase/(decrease) in deferred tax asset recognised in profit or loss
Increase in deferred tax liability as a result of acquisitions (1)
Increase in deferred tax asset recognised in equity
Closing balance – net deferred tax asset
2018
$ ‘000
2017
$ ‘000
–
7,969
2,917
3,986
92
553
191
5,759
21,467
12,478
1,076
4,315
700
1
18,570
2,897
1,224
(1,575)
(351)
3,518
(1,279)
351
(5,452)
5,759
2,897
157
7,657
3,195
6,463
131
636
–
–
18,239
12,024
–
1,856
762
80
14,722
3,517
(357)
2,813
2,456
4,957
1,119
(2,456)
(103)
–
3,517
1
Includes intangibles acquired as part of the African Blue acquisition and other farm acquisitions that are not material (refer Note D6).
The Group’s franking account balance as at 1 July 2018 is $12,495,941 (2017: $3,434,435).
Recognition and measurement
Current income tax expense or benefit is the tax payable or receivable on the current period’s taxable income based on the applicable income tax rate
adjusted by changes in deferred tax assets and liabilities.
Deferred tax assets and liabilities are recognised for temporary differences at the applicable tax rates when the assets are expected to be recovered
or liabilities are settled. No deferred tax asset or liability is recognised in relation to temporary differences if they arose in a transaction, other than a
business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will
be available to utilise those temporary differences and losses.
Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.
85
Costa Group Holdings LimitedAnnual Report 2018
Notes to the Consolidated Financial Statements continued
Tax Consolidation
The parent entity Costa Group Holdings Ltd and its subsidiaries have implemented the tax consolidation legislation and have formed a tax
consolidated Group. The parent entity and subsidiaries in the tax consolidated Group have entered into a tax funding agreement such that each
entity in the tax consolidated Group recognises the assets, liabilities, expenses and revenues in relation to its own transactions, events and balances only.
This means that:
• the parent entity recognises all current and deferred tax amounts relating to its own transactions, events and balances only;
• the subsidiaries recognise current or deferred tax amounts arising in respect of their own transactions, events and balances; and
• current tax liabilities and deferred tax assets arising in respect of tax losses are transferred from the subsidiary to the head entity as inter-company
payables or receivables.
The tax consolidated Group also has a tax sharing agreement in place to limit the liability of subsidiaries in the tax consolidated Group arising under
the joint and several liability requirements of the tax consolidation system, in the event of default by the parent entity to meet its payment
obligations.
Critical accounting estimate and judgement
Income Tax
Income tax benefits are based on the assumption that no adverse change will occur in the income tax legislation and the anticipation that the group
will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.
Deferred tax assets are recognised for deductible temporary differences as management considers that it is probable that future taxable profits will
be available to utilise those temporary differences.
E3. New accounting standards
Recently issued or amended Accounting Standards
The following relevant Australian Accounting Standards and Interpretations have been issued or amended but are not yet effective and the Group
has not yet adopted them:
• AASB 16 Leases
• AASB 9 Financial Instruments
• AASB 15 Revenue from Contracts with Customers
• AASB 2014-10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
• AASB 2017-6 Amendments to Australian Accounting Standards – Prepayment Features with Negative Compensation
• AASB 2017-3 Amendments to Australian Accounting Standards – Clarifications to AASB 4
• AASB 2017-7 Amendments to Australian Accounting Standards – Long-term Interests in Associates and Joint Ventures
• AASB 2018-1 Amendments to Australian Accounting Standards – Annual Improvements 2015-2017 Cycle
• AASB 2018-2 Amendments to Australian Accounting Standards – Plan Amendment, Curtailment or Settlement
• AAB 2016-5 Amendments to Australian Accounting Standards – Classification and Measurement of Share-based Payment Transactions
• AASB 2017-1 Amendments to Australian Accounting Standards – Transfers of Investment Property, Annual Improvements 2014-2016 Cycle and Other
Amendments
•
Interpretation 22 Foreign Currency Transactions and Advance Consideration
• AASB 2016-6 Amendments to Australian Accounting Standards – Applying AASB 9 Financial Instruments with AASB 4 Insurance Contracts
•
Interpretation 23 Uncertainty over Income Tax Treatments
• AASB 2017-4 Amendments to Australian Accounting Standards – Uncertainty over Income Tax Treatments
• AASB 1059 Service Concession Arrangements: Grantors
• AASB 17 Insurance Contracts
The Group is currently assessing the impact of these standards on its financial position and performance.
AASB 9 Financial Instrument
The Group has performed a high level assessment of current bad debts and expected losses under the credit loss model, the deemed change will not
be material to the Group. The Group does not hold any other investment in debt security at the end of the reporting period and, as a result, does not
expect to be impacted by the introduction of the new measurement category in the standard.
86
Costa Group Holdings LimitedAnnual Report 2018 AASB 15 Revenue from Contracts with Customers
The Group has undertaken an assessment of its key revenue streams to identify potential changes in: timing of revenue recognition, measurement
of the amount of revenue and note disclosure between the current standard and AASB 118. The Group has noted potential impact to the
classification of rebates, claims and pricing adjustments recognised for sale of export goods. However, this classification is not expected to have
any impact to the Group’s net profit after tax.
It is estimated that the transition to AASB 15 will not have a material impact to the Group’s financial statements. The Group plans to use the
retrospective method for transitioning to the new revenue standard. Under this method, AASB 15 is applied retrospectively to the comparative
reporting period presented in the financial statements.
AASB 16 Leases
A project has been established to ensure high quality implementation in compliance with the accounting standard. The project has members from
finance, IT, legal, procurement and property functions with oversight from the Chief Financial Officer. Key responsibilities of the project group include
setting accounting policy, impact assessment of the new standard, identifying data and system requirements, and operational implementation.
As at the end of the reporting period, the group has non-cancellable undiscounted operating lease commitments of $454 million as disclosed in C7.
These commitments predominantly relate to the farmlands, infrastructure assets, farm machinery, fleet vehicles, and office equipment which will
require recognition of right-of-use assets and associated lease liabilities.
The group is currently assessing the impact of the requirements on the Group’s Consolidated Financial Statements; however, the impact is expected
to materially ‘gross-up’ the Group’s Consolidated Statement of Financial Position impacting key financial ratios. As the project develops further,
quantitative and qualitative disclosure will be provided.
E4. Auditor’s remuneration
Audit and review services
Services provided by KPMG Australia
Services provided by associate firms of KPMG Australia
Other services provided by KPMG Australia
Taxation compliance and other taxation advisory services (including R&D)
Other services
Total remuneration of KPMG
E5. Other accounting policies
Research and development expenditure
Expenditure on research activities is recognised as an expense when incurred.
2018
$ ‘000
2017
$ ‘000
394,808
160,838
555,646
247,584
10,000
257,584
394,756
17,422
412,178
245,700
10,000
255,700
813,230
667,878
Expenditure on development activities is capitalised only when technical feasibility studies demonstrate that the project will deliver future economic
benefits and these benefits can be measured reliably. Capitalised development expenditure is stated at cost less accumulated amortisation.
Amortisation is calculated using the straight line method to allocate the cost of its estimated useful life commencing when the intangible asset
is available for use.
Other development expenditure is recognised as an expense when incurred.
Bonus plan
The Group recognises a provision when a bonus is payable in accordance with the employee’s contract of employment, and the amount can
be reliably measured.
Government grants
Government grants are initially recognised as deferred income at fair value when there is reasonable assurance that they will be received and that
the Group will comply with the conditions associated with the grant. Subsequently, they are recognised in the statement of comprehensive income
to offset the applicable expenses incurred by the Group as stated in the provisions of the government grant.
87
Costa Group Holdings LimitedAnnual Report 2018
Directors’ Declaration
Directors’ Declaration
1. In the opinion of the Directors of Costa Group Holdings Ltd (“the Company”):
(a) the consolidated financial report and notes A1 to E5 and the Remuneration Report in the Directors’ Report, are in accordance with the
Corporations ct 2001, including:
(i) giving a true and fair view of the Group’s financial position as at 1 July 2018 and of its performance, for the financial year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
2. There are reasonable grounds to believe that the Company and the Group entities identified in Note D5 will be able to meet any obligations or
liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between the Company and those Group entities
pursuant to ASIC Corporations (Wholly owned Companies) Instrument 2016/785.
3. The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief Executive Officer and Chief
Financial Officer for the financial year ended 1 July 2018.
4. The Directors draw attention to the “Overview” section of the consolidated financial report, which includes a statement of compliance with
International Financial Reporting Standards.
Signed in accordance with a resolution of the Directors:
Dated at Melbourne 23rd day of August 2018.
Harry Debney
Managing Director & CEO
Neil Chatfield
Chairman
88
Costa Group Holdings LimitedAnnual Report 2018 Independent Auditor’s Report
89
Costa Group Holdings LimitedAnnual Report 2018 This is the original version of the audit report over the financial statements signed by the Directors on 23 August 2018. Page
references should be read as follows to reflect the correct references now that the financial statements have been presented
in the context of the annual report in its entirety:
– the Remuneration Report is now set out on pages 30 to 39 as opposed to pages 22 to 35 below.
90
Independent Auditor’s Report continuedCosta Group Holdings LimitedAnnual Report 2018 91
Costa Group Holdings LimitedAnnual Report 2018 92
Independent Auditor’s Report continuedCosta Group Holdings LimitedAnnual Report 2018 93
Costa Group Holdings LimitedAnnual Report 2018 94
Independent Auditor’s Report continuedCosta Group Holdings LimitedAnnual Report 2018 Shareholder Information
Twenty Largest Registered Shareholders (as at 6 September 2018)
Rank Name of Shareholder
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
National Nominees Limited
Costa Afr Pty Ltd
Costa Afr Pty Ltd
BNP Paribas Nominees Pty Ltd
Citicorp Nominees Pty Limited
BNP Paribas Noms Pty Ltd
HSBC Custody Nominees (Australia) Limited-Gsco Eca
Mr Harry Debney
Netwealth Investments Limited
Amp Life Limited
Brispot Nominees Pty Ltd
BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd Drp
HSBC Custody Nominees (Australia) Limited
UBS Nominees Pty Ltd
Mirrabooka Investments Limited
HSBC Custody Nominees (Australia) Limited
Bainpro Nominees Pty Limited
Number of Shares
122,981,813
46,081,516
30,742,438
17,750,083
9,000,000
6,804,382
4,813,088
3,690,416
2,851,010
1,606,200
1,334,285
1,189,475
1,160,038
949,241
811,386
577,766
564,600
500,000
477,817
451,086
Distribution of Holdings (as at 6 September 2018)
Range
100,001 and Over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
Number of holders
60
1,313
1,542
5,586
4,308
12,809
Number of Shares
261,809,280
29,759,399
11,408,739
14,745,840
2,146,744
319,870,002
% of Issued Capital
38.45
14.41
9.61
5.55
2.81
2.13
1.50
1.15
0.89
0.50
0.42
0.37
0.36
0.30
0.25
0.18
0.18
0.16
0.15
0.14
% of Issued Capital
81.85
9.30
3.57
4.61
0.67
100.00
The number of shareholders holding less than a marketable parcel of shares (as at 6 September 2018) is 194 and they hold 7,527 shares.
Substantial Shareholders (as disclosed in substantial holder notices given to the Company at 6 September 2018)
Shareholder
Bennelong Funds Management Group Pty Ltd
Commonwealth Bank of Australia and its related bodies corporate
No. of shares
32,644,109
19,802,549
% of issued capital
10.21
6.19
Escrow Shares
As at 6 September 2018, there are no shares subject to voluntary escrow arrangements.
Unquoted Securities
As at 6 September 2018, there were 4,798,546 options over unissued shares of Costa Group Holdings Ltd, as described in item 12 of the Directors’ Report.
These options were held by 16 current and former members of management (including the CEO) and a former director of the Company. All of the
unissued shares which are the subject of these options are ordinary shares in the Company, or will be converted into ordinary shares immediately after
exercise of the relevant option.
Shares and Voting Rights
All issued shares in the Company are ordinary shares. Voting rights for ordinary shares are:
•
•
on a show of hands, one vote for each shareholder; and
on a poll, one vote for each fully paid ordinary share.
There is no current on-market buy-back.
95
Costa Group Holdings LimitedAnnual Report 2018 Corporate Directory
Directors
Neil Chatfield (Chairman)
Frank Costa
Harry Debney (CEO)
Tim Goldsmith
Janette Kendall
Peter Margin
Kevin Schwartz
Company Secretary
David Thomas
Registered Office
Unit 1, 275 Robinsons Road
Ravenhall
Victoria 3023
Australia
T +613 8363 9000
E investors@costagroup.com.au
Share Registry
Link Market Services Limited
Level 12, 680 George Street
Sydney NSW 2000
Locked Bag A14,
Sydney South NSW 1235
T +61 1300 554 474 (toll free within Australia)
F +61 2 9287 0303
F +61 2 9287 0309 (for proxy voting)
E registrars@linkmarketservices.com.au
www.linkmarketservices.com.au
Auditor
KPMG
Tower Two, Collins Square
727 Collins Street Melbourne
Victoria 3008
Australia
Australian Securities Exchange
Costa Group Holdings Limited shares
are quoted on the Australian Securities
Exchange (ASX code: CGC)
96
Costa Group Holdings LimitedAnnual Report 2018
Renmark citrus packhouse, Riverland, South Australia
97
Costa Group Holdings LimitedAnnual Report 2018 C
o
s
t
a
G
r
o
u
p
H
o
l
d
i
n
g
s
L
i
m
i
t
e
d
–
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
8