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Costa Group
Holdings Limited
Annual Report
2019
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Contents
2
6
9
12
15
41
42
43
44
46
47
88
89
95
96
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 Statements
Directors’ Declaration
Independent Auditor’s Report
Shareholder Information
Corporate Directory
Corporate Governance Statement
Costa’s Corporate Governance Statement for the financial year is located at
http://investors.costagroup.com.au/investor-centre/?page=corporate-governance
Costa Group Holdings Limited ABN 68 151 363 129
Costa is Australia’s
leading grower, packer
and marketer of premium
quality fresh fruit and
vegetables.
Costa Group Holdings Limited
1
Annual Report 2019
Chairman’s Report
The Board and management team have remained
focused on building medium to long term profit
growth through a number of strategic initiatives.
These include our enlarged blueberry breeding
program aimed to underpin our operations in
Australia, Morocco and China, as well as licensing
programs in the Americas, South Africa and China.
Overview
The 2019 financial year saw Costa deliver a
$28.4million underlying Net Profit After Tax
(NPAT-S before material items) and in line
with our amended forecast from late October
2019. This result reflects what was a very
challenging year for the company in which we
faced issues relating to drought and weather,
and market conditions in some categories.
While it has clearly been important to address
the immediate short- term challenges of the
year just passed, the Board and management
team have remained focused on building
medium to long term profit growth through a
number of strategic initiatives. These include
our enlarged blueberry breeding program,
aimed at developing sub-tropical and
tropical varieties to underpin our operations
in Australia, Morocco and China, as well as
licensing programs in the Americas, South
Africa and China. The IP we continue to
develop, including the leading premium
variety, Arana, gives us the advantage of
superior product genetics and positions the
company as the world’s leading blueberry
company.
In avocados we are trialling high density,
trellised and protected cropping which
has shown promising early results. This
is designed to change the economic
farming model with improvement in crop
yield, quality, pollination, per unit water
consumption and early cropping. Continuing
automation of our citrus packing operations
has seen the doubling of our Spectrim vision
sorting line in our Renmark South Australia
packhouse to 16 lanes as well as installing
robotic carton consolidation and palletising.
The Spectrim technology is proving very
accurate with respect to colour and blemish
and the co located infra-red system grades the
quality of the fruit. This is crucial for markets
such as the US, Japan, Korea and China where
the appearance and taste of the fruit is a key
differentiator for consumer preference.
Our international operations continue to grow
both in plantings and market penetration.
In China demand for ‘super fruits’ such as
blueberries is gaining market share due to
increased consumer awareness particularly
amongst the Chinese middle class. Gaining
an advantage in Morocco through superior
varieties and seasonal extension in the south
of the country remains a priority and this is
where our varietal breeding program comes
to the fore.
The investments we are making across our
strategic priorities means we are confident
of not only meeting current challenges but
more importantly building a stronger and
more resilient company as a result. Costa
has undertaken five significant expansion
programs since our IPO in July 2015, where we
have invested over $400m in capex and M&A.
In order to ensure we continue to deliver
on these growth initiatives and maintain a
strong balance sheet, the company undertook
a $176 million capital raising in November
through a fully underwritten accelerated
renounceable pro-rata entitlement offer, with
retail rights trading. Although Costa’s strategy
is growth oriented, management maintains a
prudent and disciplined approach to capital
deployment and generally targets a minimum
return on capital of 20% on new investments
in three to five years and typically the
company targets a long term leverage range
of 1.5 to two times net debt to EBITDA.
2
Costa Group Holdings Limited Annual Report 2019 Costa Group Holdings Limited
3
Annual Report 2019
Chairman’s Report continued
Results
Costa generated $1,048 million in full
year revenue, a 5.8% increase on the prior
comparative period.
EBITDA-SL was $98.3 million, a 21.5%
reduction on the prior comparative period,
while NPAT-SL before material items was
$28.4 million.
Group cashflow from operations was solid for
the year with the year end debt level being
better than expected.
Dividends
The Board declared a fully franked final
dividend of 2.0 cents per share for the second
half of CY2019, bringing the total dividend
payment for CY2019 to 5.5 cents per share,
fully franked.
Our People
The Costa business relies on labour as the key
input, and we are committed to maintaining
a workplace that recognises, respects and
protects the human rights of our employees.
We strive to provide all employees and
others who work with us safe and healthy
working conditions. This includes providing
a workplace where all people are treated
without discrimination or harassment, and in
which employees are free to associate with
each other and participate or not participate
in unions or other labour organisations, free
from any coercion.
Costa is committed to respecting all
internationally recognised human rights
as relevant to our operations. Reflecting
this commitment, in early 2019 the Board
approved a Human Rights policy which
applies across all of our locations and
demonstrates our commitment to respecting
internationally recognised human rights in
a manner consistent with the UN Guiding
Principles on Business and Human Rights
and the International Labour Organisation’s
Declaration on Fundamental Principles and
Rights at Work. It sets out our expectations for
the conduct of our employees and suppliers.
Costa also takes human rights considerations
into account when selecting suppliers. We
expect our suppliers to comply with our
Supplier Code of Conduct, and we actively
seek to work with third parties who support
our approach and standards in this area.
The challenging 2019 year placed significant
and relentless strain on our management and
all employees, who were outstanding in their
leadership and dedication across all of the
business. On behalf of all of our stakeholders I
want to recognise the tremendous effort of all
who stood side by side to ensure our business
remained resilient throughout the year.
Community
Despite the challenging year it was more
important than ever to maintain a positive
presence in the communities in which
we operate. We not only owed this to our
employees, but also to the many local people
who rely on our company to have both a
positive economic and social impact on the
communities in which we operate.
There are always a number of great initiatives
that our business supports across the many
locations in which we have a presence.
Over the past year these included our berry
category employees in Corindi New South
Wales who donated funds raised from the
recycling of scrap metal, cans and drink
bottles to support the Woolgoolga OneWave
Fluro Friday mental health awareness project,
which involves getting together with friends
and talking about the importance of mental
health.
Our mushroom category sponsored the
Multicultural Centre for Women’s Health
(MCWH) 40th anniversary celebrations.
This was in recognition of the long-standing
partnership between Costa and the MCWH
through their Industry Visits Program at our
Mernda Victoria mushroom farm where 70%
of our 600 strong workforce are migrant
females with English as a second language.
The program is conducted in the workplace
and is specifically designed for women from
immigrant and refugee backgrounds. Using
bilingual health educators from different
countries, cultures and backgrounds who
understand the issues immigrant and refugee
women face when taking control of their own
health, the program delivers health education
sessions on many topics.
Our Far North Queensland avocado, banana
and berry employees came together to build
new vegetable gardens at the Walkamin State
School, in addition to providing fresh fruit for
the school’s breakfast club. More than 30 of
our employees volunteered their time and
labour to install 11 new garden beds and an
irrigation system. The school students use the
vegetables for cooking classes where they
learn about healthy eating and developing
good food habits.
It is activities such as these which the
company and our employees will continue to
actively support and promote across our more
than 50 sites located throughout regional and
rural areas.
4
Costa Group Holdings Limited Annual Report 2019 Board
Consistent with the Board’s view that
its interaction with the company’s
operations adds real value in furthering
our understanding of it at an operational
level, the Board visited the China operations
in April 2019 and the expanded Monarto
mushroom facility in October last year.
The Board visited each of the farms in China
and took the opportunity to talk to the local
management and staff. There was ample farm
activity for the Board to see, with harvest
staff being drawn mainly from local villages.
The Board also gained an appreciation of the
positive impact our farms are having on local
communities with respect to economic and
social benefits as well as the high level
of focus on workplace safety and training.
Meetings were also held with senior
government officials from the Prefecture
Government and the Provincial Government
of Yunnan, the province in which our farms
are located. It was clear to the Board that
our team in China has established a strong
and positive relationship with the various
levels of Government in the region, which is
the cornerstone of any successful operation
within China.
Our team in China has done a fantastic job
in establishing our farming presence in
Yunnan Province. The Board was very
impressed by what has been achieved in
such a short period of time, and the way
in which Costa’s world leading agronomic
practices and IP have been successfully
adapted to the local conditions.
Frank Costa and Kevin Schwartz retired from
the Board during the year. Frank spent a
lifetime’s work building Costa into a successful
company that is highly respected as a major
force in Australia’s fresh produce industry. On
behalf of the Board, I sincerely thank Frank for
his invaluable contribution to the Board and
the Costa business over so many decades.
Kevin’s deep understanding and insights into
our industry, together with his investment
skills, have been instrumental in guiding the
company’s growth agenda and establishing
a sustainable platform and the Board also
thanks him for his contribution.
Dr Jane Wilson was appointed to the Board
as an Independent Non-executive Director
in April 2019. Jane’s extensive business
experience across a range of sectors including
technology, health and horticulture will
provide valuable insights as the company
continues to implement its domestic and
international growth strategy.
Update for CY2020
Despite the challenges of 2019, trading for
January and February 2020 was in line with
our plans. With the onset of COVID-19, under
Federal and State government arrangements,
agriculture and food production have been
designated an essential service. The company
is focussed on providing quality fresh produce
to our markets, is committed to ensuring the
health and safety of our people and doing
all we can to prevent the further spread of
the virus. This includes temperature testing
of all employees, contractors and visitors to
our sites and enforcement of strict hygiene
protocols and social distancing measures.
In addition, the company is highly focussed
on supporting the communities in which we
operate, particularly by providing valuable
jobs at this critical time.
The company remains intent on delivering
value accretive growth, however given the
industry’s inherent forecasting challenges,
and as advised to the ASX at the time of
release of the annual financial statements,
the company intends to transition to
qualitative earnings guidance for future
earnings periods commencing from CY2021.
Neil Chatfield
Chairman
5
Costa Group Holdings Limited Annual Report 2019
Managing Director’s Review
In 2019, the company maintained its reputation
as a fresh produce market leader in the face of
a number of challenges. The Costa brand remains
synonymous with growing and supplying fresh
produce of the highest quality and consistency
to the Australian consumer.
The 2019 year was one in which Costa and
many other agricultural companies faced
significant challenges, in particular relating
to drought and other weather events.
Despite these challenges the company’s
fundamentals remain strong. Our portfolio
of market leading premium fresh produce,
the utilisation of protected cropping across
several categories and the geographical
diversity of our production footprint, together
with our growth program covering both
domestic and international operations, will
deliver meaningful benefits over the medium
to long term.
A number of events over the year relating to a
combination of cyclical, one off and structural
issues impacted our performance across
both our produce categories and the African
Blue (Morocco) operation. Many of these
events were unforeseen, including weather
that delayed the timing of our Moroccan
blueberry crop, a lack of rain reducing the
yield and fruit size in avocados, blueberries
and the later season citrus crop, discovery of
a fruit fly at one of our Riverland citrus farms
and a genetic issue with our leading Driscoll’s
raspberry variety which caused the berry to
crumble and be unsuitable for sale.
There were also other market related factors
which impacted our mushroom business,
with the seasonality of the category being
affected by a warmer autumn resulting in
lower demand and pricing through the
cooler months where mushroom demand
is historically higher. This situation has been
slow to recover and together with the full
commissioning of our expanded state of the
art production facility at Monarto in South
Australia occurring in early 2020, it was
decided to accelerate the closure of our
aged, higher cost mushroom facilities
in Queensland and Tasmania.
Blueberry performance was also impacted
by industry peak volumes remaining higher
than expected going into Costa’s own peak
volume period. These higher volumes resulted
in pricing pressure and impacted revenue,
however our premium Arana offering
provided a positive offset to this and the
pricing pressure also eased by year end.
Drought across much of Australia including in
our key growing locations remained the most
significant issue for the company to address
over 2019 and into 2020. The dry weather
resulted in significantly higher water costs
at our tomato glasshouses in Guyra, northern
New South Wales and our citrus operations
in the South Australian Riverland.
Our tomato team undertook extensive work
to ensure continued operations during the
year, including improving our use of recycled
water in the glasshouses and the utilisation
of bores. Due to water security concerns a
decision was made to pause the construction
of our new 10-hectare glasshouse until we
have determined that we have sufficient
water in order to supply the expanded site.
In our citrus category, a strong early and
mid-season harvest provided confidence for
the full year outcome, however extended dry
and hot conditions impaired fruit growth in
the late season navel orange and mandarins,
causing significantly lower fruit size and yield
with lower pricing outcomes from smaller
fruit grades. In avocados our New South Wales
crop volumes were impacted by both drought
conditions and a hail event at our Comboyne
(New South Wales) farm in September.
6
Finally, in December due to the rainfall
forecast at our Corindi New South Wales berry
farm being lower than the average for the
remainder of the 2019 year, it was decided to
remove the majority of the annual raspberry
crop and early prune some of the lower value
blueberry varieties to conserve the priority crop.
Despite the challenging conditions there are
also many positives to highlight particularly as
the company continues to execute its growth
program. Our strong export performance
in citrus remains a highlight, with over 70%
of our crop exported in 2019. Continued
reductions in tariffs in the Korean market
bodes well for greater volumes to be sold
into that market in to the future. Trialling
of protected citrus cropping continues to
develop positive results, particularly with
respect to fruit quality and water usage.
Our blackberry plantings are now of
sufficient scale where we anticipate achieving
52-week production coverage in 2020 and
the raspberry crumble issues have been
substantially mitigated. The long cane
raspberry and blackberry program is on track
for commercialisation, enabling us to better
match both supply and demand and level
out seasonal peaks from 2020 onwards.
We also look forward to improvement in our
Atherton Tableland (Far North Queensland)
blueberry production, with 42 hectares
replanted during 2019. The tropical variety
program at Atherton aims to create a new
range of blueberries suited to low latitude
environments such as Far North Queensland,
southern China, Agadir (Morocco) and central
Mexico. Only three years old, the first two
selections are undergoing early commercial
Costa Group Holdings Limited Annual Report 2019 evaluation. Expansion of our premium
Arana variety also continues, allowing us to
differentiate our blueberry offering during
both peak and shoulder periods.
The mushroom category in 2019 faced one of
its most challenging year’s in recent memory,
however we are well placed to capitalise when
the market rebounds with the expansion of
our Monarto facility, where weekly production
capacity will double from 120 tonne to 240
tonnes. A rationalisation of our mushroom
operations also means we will capitalise on
the Monarto facility having the lowest cost
of production.
In avocados the continuing tree maturity on
our farms will contribute to volume growth
and see tray volumes increase. Our 2 million
tray production target remains on course to
be achieved over the next three to four years.
Export opportunities continue to open up and
we are well positioned to capitalise on this,
including through upgrading of our Childers
(Central Queensland) avocado packing facility
which means greater packing capacity,
allowing both Costa and our third party
growers to expand production in the coming
years to meet customer demand.
Despite the water issues encountered by
our tomato category, it has performed
strongly and has achieved some success in
establishing a more diverse customer base.
Our Perino brand snacking tomatoes remain a
standout in their category and new branding
and marketing will help it retain and build
further on its market leading position.
Table grapes also made a positive
contribution during 2019 and we are seeing
the benefit of the investment and hard work
that has gone into developing the Sun World
proprietary table grape program. With respect
to our own plantings, a further 43 hectares
of permanent netting has been installed
over our early season table grape farm at
Mundubbera (Central Queensland) and by
the end of 2020, 100% of the table grape
crop is expected to be protected.
In our international segment, a varietal
breeding program and seasonal extension
program is well underway in Morocco. We
now have a production presence in the south
of the country at Agadir, with 66 hectares as at
the end of 2019. From this we are producing
a blueberry crop from December through
March which is ahead of other growing
regions and therefore provides an advantage
with respect to early season supply into the
European and UK markets. In total, we now
have 314 hectares of blueberries in Morocco.
Our China footprint continues to grow with
jumbo blueberries proving highly popular
and delivering a strong price premium. We
are working closely with our joint venture
partner Driscoll’s to better understand market
needs and conditions that drive strategic and
agronomic decision making. Overall our China
rollout is tracking to the initial five-year plan.
Although 2019 was a challenging and
disappointing year with performance
below expectations due to the factors I have
covered, the company will continue to work
on and invest in sustainable commercial
farming and major strategic initiatives. In
agriculture we can never fully eliminate
risk, only mitigate it and to this end we
remain focused on actively addressing the
risks associated with changing climatic
conditions, improving our water security and
efficiency of use, continuously implementing
yield improvement, developing superior
IP, removing waste from our harvest and
post-harvest practices and ensuring we have
a highly skilled workforce to execute our
growth strategy.
I conclude by acknowledging the work and
efforts of the entire Costa team who in the
face of such challenging circumstances during
2019 continued to ensure the company
maintained its reputation as a fresh produce
market leader and that the Costa name and
brand remains synonymous with growing and
supplying fresh produce of the highest quality
and consistency to the Australian consumer.
Harry Debney
Managing Director and CEO
7
Costa Group Holdings Limited Annual Report 2019 Company Profile
About Us
Costa is Australia’s leading horticultural company and is the largest fresh produce supplier to the
major Australian food retailers. For the 12 months financial year ended December 2019, Costa’s total
revenue was $1,047.8 million (CY20181: 990.2 million) and NPAT before SGARA2,3 was $28.5 million
(CY20181: $56.5 million).
Costa’s operations include approximately 4,500 planted hectares of farmland, 30 hectares of glasshouse
facilities and three mushroom growing facilities across Australia, as well as six blueberry farms in Morocco
and four berry farms in China.
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
high hygiene standards, quality control systems and post-harvest protocols.
Costa’s products are predominately grown and sourced from Costa’s expansive
foodprint of domestic and international farms, supplemented with produce
sourced through a diverse network of third party growers.
Figure 1: Costa’s revenue by segment for the
12 months financial year ended December 2019
(cid:31)(cid:30)(cid:29)(cid:30)(cid:28)(cid:27)(cid:30)
(cid:25)(cid:24)
(cid:23)(cid:22)(cid:24)
Produce
International
CF&L
(cid:26)(cid:25)(cid:24)
Where We Operate
China
Morocco
Bailang – Yunnan Province
Manlai – Yunnan Province
Guangmen – Yunnan Province
Manhong – Yunnan Province
Moulay Bousselham/Laaouamra
– Kenitra, Larache region
Massa – Agadir region
9
Western Australia
New South Wales
South Australia
Berry Farm, Gingin
Berry Farm, Corindi
Mushroom Farm,
Casuarina
Distribution Centre,
Jandakot
Compost Facility,
Mandurah
Tomato Glasshouse,
Guyra
Distribution Centre,
Eastern Creek
Distribution Centre
Grapes, Euston
Berry Farm, Tumbarumba
Berry Farm, Rosewood
Avocado Farm, Comboyne
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
Queensland
Victoria
Tasmania
Berry Farm, 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
Mushroom Farm,
Mernda
Compost Facility,
Nagambie
Melbourne Market,
Epping
Distribution Centre,
Derrimut
Business Support Centre,
Ravenhall
Mushroom Farm,
Yarrambat
Citrus Farm, Colignan
Citrus Farm, Lindsey Point
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
Berry Farm, Lebrina
Costa Group Holdings Limited Annual Report 2019 Company Profile continued
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
Costa Farms and Logistics (CF&L)
Incorporates interrelated logistics, wholesale
and marketing operations
Strategy and Growth
Our diversified portfolio of market leading
premium fresh produce, the utilisation of
protected cropping across several categories
and the geographical diversity of our
production footprint, together with our IP,
innovative agronomic practices and year-
round production will deliver meaningful
benefits over the medium to long term.
The Company is working to not only mitigate
the challenges we faced in 2019 but is also
focused on major initiatives to ensure strong
delivery from 2020, through 2022 and
beyond.
Berries
In our berry category, the raspberry and
blackberry long cane program will be
ramped up over 2020. Our premium Arana
blueberry variety will reach circa 30% of
Costa’s total blueberry production, during
Figure 2: Summary of Financial Performance
2020. The blueberry Variety Improvement
Program at our Atherton Tableland site in Far
North Queensland remains focused on the
development of low-latitude tropical varieties
for deployment into Far North Queensland,
China, Morocco and the US through licensing.
through our Lovacado brand. The upgrading
of our Childers Central Queensland avocado
packing facility will deliver greater packing
capacity, allowing both Costa and our third-
party growers to expand production in the
coming years, to meet customer demand.
Citrus
Over 70% of our citrus crop is exported
and continued reductions in Korean tariffs
is a positive sign for greater volumes to be
sold in that market into the future. Further
automation of our packing operations has
occurred, with robotic packing technology
having been installed in our citrus packhouse
at Renmark in South Australian Riverland.
The investment that has gone into the
development of our Sun World proprietary
table grape program will see rapid over
the coming years.
Mushrooms
In the mushroom category, 2020 will see
the completion of our Monarto facility
expansion, with a doubling of our production
capacity from 120 tonnes to 240 tonnes
per week. Closure of aged facilities in
Queensland and Tasmania in late 2019 have
enabled optimisation of the overall category
production base and sales planning. Our
brown mushroom sub-category will play
an important role in developing our overall
category offering and capitalising on the
premium pricing.
Avocados
Continuing tree maturity on our avocado
farms will contribute to volume growth,
as tray volumes increase. Trialing of high
density protected cropping is aimed at
increasing yield ad production efficiencies.
We are well positioned to capitalise on export
opportunities as they continue to open up
Tomatoes
While our Perino brand snacking tomatoes
remain a standout in that category, our new
branding and marketing will ensure it retains
and builds further on its market leading
position, ongoing R&D evaluation of snacking
and cocktail product lines continues, as well
as opening up new sales channels beyond the
retail setting.
International
In our international segment, a seasonal
extension program is well under way in
Morocco. We now have a production
presence in the south of the country, at
Agadir, with 66 hectares at the end of 2019,
producing a blueberry crop from December
through to March. This is ahead of other
growing regions, and therefore provides an
advantage with respect to us as a supplier in
both the European and UK markets. Early trials
in a few tropical varieties are promising.
Our China production footprint is currently
237 hectares inclusive of a new development
at Guangmen which is being planted and will
be our fourth farm location. A new region has
been selected for further expansion beyond
the initial five-year plan, land selection is
being finalised, with a likely production
footprint of 50 hectares for planting in
2021. Varietal selection and improvement
in agronomic practices for local conditions
will continue in order to optimise existing
operations.
Transacted Sales ($’m)
Total Revenue ($’m)
EBITDA-SL2,3 Before Material
Item($’m)
NPAT-SL2,3 before material
Item($’m)
(cid:31)(cid:30)(cid:29)(cid:30)(cid:28)(cid:27)
1464.5
(cid:31)(cid:23)(cid:30)(cid:22)(cid:28)(cid:25)
(cid:31)(cid:24)(cid:27)(cid:28)(cid:24)
(cid:27)(cid:29)(cid:28)(cid:27)
(cid:31)(cid:26)(cid:26)(cid:25)(cid:28)(cid:24)
(cid:21)(cid:25)(cid:28)(cid:26)
(cid:24)(cid:25)(cid:28)(cid:27)
(cid:21)(cid:21)(cid:23)(cid:28)(cid:24)
CY2019
CY20181
CY2019
CY20181
CY2019
CY20181
CY2019
CY20181
1 – Due to the change in financial year end, pro forma 12 months to December 2018 has been included as comparative to allow like-for-like analysis against CY2019.
2 – EBITDA before SGARA and leasing (EBITDA-SL) and NPAT before SGARA and leasing (NPAT-SL) are non-IFRS financial measures.
3 – EBITDA-SL and NPAT-SL are represented before material items.
10
Costa Group Holdings Limited Annual Report 2019
11
Costa Group Holdings Limited Annual Report 2019 Harvest Calendar
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
Sweet
Blood
Orange
Marsh
Ruby Red
Satsuma Clementines
Daisy
Imperial
Afourer
Ellendale
Ortanique
Jiro
Fuyu
Honey
Murcott
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
Avocados Avocados Avocados Avocados Avocados
Maluma
Shepard
Carmen
Reed
Hass
Bananas
Cavendish Lady Fingers
Bananas
Raspberries Raspberries Raspberries
Gingin
Corindi
TAS
Blackberries Blueberries
Blueberries
Blueberries
Blueberries
Blueberries Strawberries
Grapes
TAS
Corindi
FNQ
WA
TAS
Gingin
TAS
Red
Grapes
White
Grapes
Black
Raspberries
China
Blackberries
China
Blueberries
China
Blueberries
Morocco
12
Costa Group Holdings Limited Annual Report 2019 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
Bananas
Bananas
Raspberries Raspberries Raspberries
Hass
Reed
Shepard
Carmen
Maluma
Cavendish Lady Fingers
Corindi
Gingin
TAS
Blackberries Blueberries
TAS
Corindi
Blueberries
FNQ
Blueberries
WA
Blueberries
TAS
Blueberries Strawberries
Gingin
TAS
Grapes
Red
Grapes
White
Grapes
Black
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 Limited Annual Report 2019 Costa Group Holdings Limited
14
Annual Report 2019
Directors’ Report
For the year ended 29 December 2019
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 year ended 29 December 2019.
1. Directors
The directors of the Company at any time during or since the end of the period are:
Current directors
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 and Human
Resources Committee and Nomination Committee.
Neil is an established executive and non-executive director with extensive experience in company management,
and with specific expertise in high growth companies, financial management, capital markets, mergers and
acquisitions, and risk management.
Neil is currently a Non-executive director of Transurban Ltd (since 2009) and Non-executive Chairman of Aristocrat
Leisure (Director since November 2017 and Chairman since February 2019). He was previously the Chair and
Non-executive director of Seek Limited (to 31 December 2018), 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). He was also a Non-executive director of Atomos Ltd from September 2017 until 1 February 2019.
Neil previously served as an executive director and Chief Financial Officer of Toll Holdings Ltd (from 1997 to 2008).
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.
Tim Goldsmith BCom
Independent Non-Executive Director
Director since 1 September 2018, Chair of the Audit and Risk Committee and member of the Nomination Committee.
Tim has extensive corporate experience gained from over three decades of working in Australia and internationally.
Tim previously worked as a partner at PricewaterhouseCoopers (PwC) for over 20 years, which included leading
PwC’s National China desk.
Tim is currently President and CEO of Rincon Ltd, an unlisted mine development company, and Non-Executive
Chairman of Hazer Group Ltd and Angel Seafood Holdings Ltd.
Janette Kendall B.Bus (Marketing), FAICD
Independent Non-Executive Director
Director since 11 October 2016. Member of the Audit and Risk Committee (from 17 November 2016) 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 Vicinity Centres, Australian VenueCo and KM Property Funds and is
Chair of the Melbourne Theatre Company Foundation. Janette was previously a director of Nine Entertainment Ltd
(to December 2018) and Wellcom Group Ltd (to November 2019).
15
Costa Group Holdings Limited Annual Report 2019 Directors’ Report continued
For the year ended 29 December 2019
Peter Margin BSc (Hons), MBA
Independent Non-Executive Director
Director since 24 June 2015. Chair of the Remuneration and Human Resources 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 Chairman of Asahi Beverages ANZ.
Peter currently serves as a Non-executive director of Nufarm 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) and Bega Cheese Ltd
(to January 2019) and PACT Group Holdings Ltd (to August 2019).
Dr Jane Wilson
Independent Non-Executive Director
Director since 1 April 2019 and member of the Remuneration and Human Resources Committee.
Dr Wilson holds a medical degree from The University of Queensland and a Master of Business Administration from
Harvard Business School. She is Co-Chair of the Federal Government’s Australian Advisory Board on Technology
and Healthcare Competitiveness. She was also a director of the General Sir John Monash Foundation until
December 2019. In the early 2000s Dr Wilson was the Inaugural Chair of Horticulture Australia and served on
the Council of Rural Research & Development Corporations’ Chairs.
Dr Wilson serves as a Guardian of the Future Fund Board, Australia’s Sovereign Wealth Fund, in addition to serving
as a non-executive director of Transurban Ltd and Sonic Healthcare Ltd
Previous directors
Frank Costa AO OAM
Frank Costa was a director from 8 June 2011 and member of the Remuneration and Human Resources Committee
until his resignation on 4 July 2019.
Kevin Schwartz BSc (Accountancy)
Kevin Schwartz was a director from 7 October 2011 until his resignation on 28 February 2019.
16
Costa Group Holdings Limited Annual Report 2019 2. Company Secretary
David Thomas LLB (Hons), BSc, GAICD
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 25 years’ experience in legal practice.
3. Officers Who Were Previously Partners of the Audit Firm
There are no officers of the Company during the financial period 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 period are:
Board Meetings
Audit and Risk
Committee Meetings
Held
6
6
6
6
6
4
Attended
61
61
6
6
6
11
Remuneration and HR
Committee Meetings
Held
4
4
4
4
4
2
Attended
3
41
-
11
4
12
Nomination
Committee Meetings
Held
2
2
2
2
2
1
Attended
2
21
2
2
2
-
Attended
13
14
14
13
14
13
3
-
6
6
-
-
3
4
2
-
1
1
-
-
Director
Neil Chatfield
Harry Debney
Tim Goldsmith
Janette Kendall
Peter Margin
Jane Wilson2
Previous directors
Frank Costa3
Kevin Schwartz4
Notes:
Held
14
14
14
14
14
13
5
1
1. Not a member of the Committee. Attended the meeting as a guest.
2. Dr Jane Wilson was appointed as a director on 1 April 2019 and a member of the Remuneration and HR Committee on 4 July 2019. She attended all Remuneration and
HR Committee meetings that were held while she was a member of that Committee.
3. Frank Costa ceased to be a director on 4 July 2019.
4. Kevin Schwartz ceased to be a director on 28 February 2019
5. Principal Activities
Costa Group is Australia’s leading horticulture group and is the largest fresh produce supplier to the major Australian food retailers. The Group’s
principal activities during the period were:
• the growing of mushrooms, berries, 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 period.
6. Significant Changes in State of Affairs During the Period
Other than those matters referred to in the Financial Statements, there have been no other significant changes in the state of affairs of the Group
during the period.
17
Costa Group Holdings Limited Annual Report 2019 Directors’ Report continued
For the year ended 29 December 2019
7. Operating and Financial Review
Results for Financial Year Ended 29 December 2019
Summary of Group Performance
Transacted Sales
Revenue
EBITDA-SL3
CY2019
vs CY20181
1,464.5
1,047.8
9.4%
5.8%
• Revenue up on prior comparative period primarily due to citrus category with the
addition of the new Colignan farm and increased table grape marketing volume
• EBITDA-SL reduction due to lower Produce segment earnings led by the Mushroom
98.3
21.5%
and Berry categories
Table 1: Summary of results for the financial year ended 29 December 2019 compared to CY20181
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-S
EBITDA-S margin
Fair value movements in biological assets
EBITDA
Depreciation & amortisation
Profit/(loss) on sale of assets and investments
Impairment losses
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 Sales2
EBITDA-SL3
NPAT-SL3
Notes:
CY2019
1,030.8
17.1
1,047.9
(360.4)
(370.2)
(174.3)
4.1
147.0
14.2%
4.3
151.3
(89.4)
1.4
0.0
63.3
(26.0)
37.3
(9.2)
28.2
(70.2)
8.3
(1.6)
(35.4)
1,464.5
98.3
28.5
CY20181
972.5
17.8
990.3
(317.5)
(342.8)
(212.2)
7.4
125.2
12.6%
(6.1)
119.1
(39.0)
0.2
0.2
80.5
(8.4)
72.1
(17.5)
54.7
(9.1)
1.7
(2.3)
45.0
1,338.2
125.2
56.6
Change $
58.3
(0.7)
57.6
(42.9)
(27.4)
37.9
(3.3)
21.8
10.3
32.2
(50.4)
1.2
(0.2)
(17.2)
(17.6)
(34.8)
8.3
(26.5)
(61.1)
6.6
0.6
(80.4)
126.3
(26.9)
(28.1)
FP2018
468.7
8.9
477.6
(152.4)
(181.1)
(112.9)
4.1
35.3
7.4%
(1.5)
33.8
(20.2)
0.5
-
14.1
(4.2)
9.9
(2.8)
7.1
(3.9)
0.8
0.4
4.3
665.2
35.3
8.6
1. CY2018 has been included as a comparative to allow like-for-like period analysis against CY2019. Unless otherwise stated, all comparative references in the Operating and
Financial Review are against CY2018. The comparative period for the statutory financial statements is 6 months to December 2018 (FP2018).
2. Transacted Sales is a non-IFRS operating measure. See Table 9 for a reconciliation of Transacted Sales to revenue. Further details on Transacted Sales are provided in Table 8.
3. EBITDA-SL and NPAT-SL are non-IFRS financial measures and have been provided to allow for like-for-like comparison against CY2018 due to the implementation of the new
lease accounting standard (AASB16). Further details on EBITDA-SL and NPAT-SL are provided in Table 8.
18
Costa Group Holdings Limited Annual Report 2019 Financial Highlights
Revenue
Revenue increased by $57.6 million against prior comparative period (CY2018) driven by the Produce segment, primarily due to the citrus category
with the acquisition of the new Colignan farm and increased grape marketing volume. This was slightly offset by lower sales in the mushroom
category due to unfavourable channel mix with more volume sold into wholesale at reduced pricing.
Operating expenses
Raw materials, consumables and 3rd party purchases expenses increased by $42.9 million in line with the increase in revenue in the Produce
segment as described above.
Employee benefits expenses increased by $27.4 million from CY2018 driven by the incremental production growth across Produce and
International segments.
Other operating expenses decreased $37.9 million driven by the removal of operating lease expenses of $49.0 million with the adoption of the new
lease accounting standard (AASB16)1. This was moderately offset by an increase in:
• farm operating costs with the acquisition of the new Colignan farm in the citrus category; and
• costs associated with the procurement and securing of water in the Produce segment.
Share of associates profit
Profits from associates decreased by $3.3 million due to lower earnings contribution from the Driscoll’s Australia joint venture with the impact
of the raspberry crumble issue proving to be more significant than initially anticipated.
EBITDA before SGARA & leasing2
EBITDA before SGARA & leasing decreased by $26.9 million from CY2018 driven by the Produce segment with:
• soft consumer retail demand in the mushroom category resulting in an unfavourable sales channel mix with lower wholesale market pricing;
• prevailing drought conditions particularly in the second half of the year leading to reduced fruit sizing and yield in the late season citrus,
berry and avocado crops;
• higher costs associated with the procurement and securing of water; and
• raspberry crumble issue more costly than initially anticipated.
Fair value movements in biological assets
SGARA fair value movement was up $4.3 million during the year. Material fair value increases were recorded in the avocado category with higher
pricing and volumes forecasted as compared to prior year and Costa Asia with increased blueberry plantings in Yunnan.
Depreciation and amortisation
Depreciation and amortisation increased by $50.4 million with CY2019 including right-of-use asset depreciation of $40.7 million due to the initial
application of the new lease accounting standard1. Additionally, depreciation on property, plant and equipment increased by $9.6 million reflective
of the recent CAPEX investment in the Produce and International segments.
Net interest expense
Net interest costs up $17.6 million with CY2019 including interest on lease liabilities of $16.2 million due to the initial application of the new lease
accounting standard1. The balance of the increase reflects higher leverage during the year.
Tax expense
Lower tax expense in line with the reduction in earnings, with an effective tax rate of 24.6% compared to 24.2% for CY2018.
Material items & amortisation
Material items before tax were $70.2 million relating to:
• The mushroom impairment and restructuring provisions of $61.7 million; and
• Acquisition and integration expenses associated with the African Blue transaction. This includes amortisation of acquired intangibles
of $6.8 million which have been fully written off by December 2019.
19
Costa Group Holdings Limited Annual Report 2019 Directors’ Report continued
For the year ended 29 December 2019
NPAT-SL2
NPAT-SL decreased by $28.1 million from CY2018 due to the earnings drivers described above. The reduced EBITDA-SL and higher depreciation
and interest charges were partially offset by lower tax expense for the period.
Dividends
The Board has declared a final dividend of 2.0 cents per share on 26 February 2020 for the financial year ended 29 December 2019. Dividends are
fully franked.
Note:
1. The Group has initially applied AASB 16 Leases at 31 December 2018, using the modified retrospective approach. Under this approach, comparative information and retained
earnings is not restated at the date of initial application.
2. To enable like-for-like comparison against prior period, EBITDA-SL and NPAT-SL have been introduced as alternative performance measures. Refer Table 8 for further details.
Segment Information
Produce
Table 2: Selected financial information for the Produce segment
Produce
A$m
Transacted Sales
Revenue
EBITDA-SL
EBITDA-SL margin
CY2019
1,291.1
869.3
69.2
8.0%
CY2018
1,175.7
824.1
98.2
11.9%
Change
115.4
45.2
(29.0)
-3.9%
FP2018
615.7
425.6
38.8
9.1%
Revenue increased $45.2 million on CY2018 mainly driven by:
• acquisition of the new Colignan farm and increased grape marketing volume in the citrus category;
• berry category with volumetric growth in blackberries; and
• growth in the tomato category underpinned by consistent quality and production growth across all key product lines.
This was partially offset by reduction in the mushroom category due to unfavourable channel mix with more volume sold into wholesale
at reduced pricing.
EBITDA-SL decreased by $29.0 million against CY2018 led by:
• soft consumer retail demand in the mushroom category resulting in an unfavourable sales channel mix with lower wholesale market pricing;
• prevailing drought conditions particularly in the second half of the year leading to reduced fruit sizing and yield in the late season citrus,
berry and avocado crops;
• higher costs associated with the procurement and securing of water; and
• raspberry crumble issue more costly than initially anticipated in the Driscoll’s Australia joint venture.
Costa Farms & Logistics
Table 3: Selected financial information for the CF&L segment
Costa Farms and Logistics
A$m
Transacted sales
Revenue
EBITDA-SL
EBITDA-SL margin
CY2019
144.0
149.1
6.5
4.3%
CY2018
151.6
155.2
5.8
3.7%
Change
(7.7)
(6.0)
0.7
0.6%
FP2018
76.6
79.0
3.6
4.5%
Revenue decreased by $6.0 million compared to CY2018, mainly due to lower wholesale pricing across the mushroom and avocado product lines.
This was moderately offset by logistics revenue growth due to additional Sydney services leveraging the Eastern Creek facility.
EBITDA-SL increased a modest $0.7 million against CY2018. This was achieved through strong trading margin capture despite lower traded volume
and ongoing improvement across logistics sites.
20
Costa Group Holdings Limited Annual Report 2019 International
Table 4: Selected financial information for the International segment
International
A$m
Transacted sales
Revenue
EBITDA-SL
EBITDA-SL margin
CY2019
91.7
91.7
22.7
24.7%
CY2018
77.3
77.4
21.2
27.5%
Change
14.4
14.3
1.4
(2.7%)
FP2018
6.5
6.6
(7.1)
(107.5%)
Revenue up $14.3 million compared to CY2018 primarily due to additional 60 hectares under production this season in the Costa Asia joint venture
and increased harvest volumes in African Blue.
EBITDA-SL increased by $1.4 million against CY2018 driven mainly by volumetric growth in the Costa Asia joint venture. However, delay in the
African Blue harvest timing caused the majority of the crop to compete with peak Spanish production resulting in lower pricing and driving margin
reduction in the International Segment.
Balance Sheet
Table 5: Selected consolidated balance sheet as at 29 December 2019
Selected Balance Sheet
A$m
As at 29 December 2019
Cash and cash equivalents
Receivables
Inventories
Property, plant and equipment
ROU assets
Intangible assets
Biological assets
Equity accounted investments
Other assets
Total assets
Payables
Provisions
Lease liabilities
Borrowings
Other liabilities
Total liabilities
Net assets
Dec-19
36.0
92.4
24.4
498.9
285.2
213.4
49.2
16.7
33.5
1,249.7
113.5
31.6
293.7
214.8
18.6
672.2
577.4
Dec-18
45.8
94.7
25.4
414.2
-
255.6
48.3
14.4
38.6
937.0
130.2
27.0
-
290.4
26.3
474.0
463.0
Change
(9.8)
(2.3)
(0.9)
84.7
285.2
(42.3)
0.9
2.3
(5.1)
312.7
(16.7)
4.6
293.7
(75.6)
(7.7)
198.3
114.4
Net working capital
Net working capital increased by $1.6 million during the year, primarily driven by a decrease in trade payables due to timing of month-end
vendor payments.
Property, plant and equipment
Property, plant and equipment increased by $84.7 million driven by growth project expenditures across the Produce and International segments,
including Monarto mushroom farm expansion, Guyra tomato glasshouse and the domestic and international berry growth programs.
ROU assets
Right-of-use assets recognised in CY2019 of $285.2 million as a result of the Group adopting the new leasing accounting standard, AASB16.
This effectively represents the capitalisation of operating lease commitments. The Group applied the modified retrospective approach on adoption,
meaning the prior year comparative financial information is not adjusted.
Biological assets
Biological assets increased $0.9 million from the uplift in fair value of the Avocado and China berry crop.
21
Costa Group Holdings Limited Annual Report 2019 Directors’ Report continued
For the year ended 29 December 2019
Equity accounted investments
Equity accounted investment increased by $2.3 million due to earnings contribution from the Driscoll’s Australia marketing joint venture.
Other assets decreased by $5.1 million due primarily to a decrease in prepayments in the Costa Asia and African Blue categories.
Other liabilities decreased by $7.7 million mainly due to a decrease in deferred tax liability resulting from the impairment of assets in the mushroom
category and the unwinding of the put/call option liability associated with the African Blue transaction.
Net Debt
Table 6: Consolidated net debt as at 29 December 2019
Net debt
A$m
As at 29 Dec 2019
Bank loans
Capitalised loan establishment fees included in borrowings
Gross debt
Less: Cash and cash equivalents
Net debt
Leverage ratio1
Notes:
1. Leverage ratio defined as net debt divided by LTM EBITDA-SL.
Dec-19
216.4
(1.6)
214.8
(36.0)
178.9
1.82x
Dec-18
291.1
(0.7)
290.4
(45.8)
244.6
1.96x
Net debt as at 29 December 2019 decreased by $65.7 million to $178.9 million primarily driven by the equity raise of $176 million which completed
in November 2019. Net leverage decreased to 1.82x during the year which reflects the equity raise offset by the reduction in earnings contribution.
Under the existing domestic banking facilities in place during the year, the Group was required to meet set covenant compliance ratios which
included total leverage ratio (TLR) and interest coverage ratio (ICR). All covenants were comfortably met.
Cash Flow
Table 7: Cash flow before financing, tax, dividends and material items & amortisation
Consolidated cash flow
A$m
EBITDA-S before material items
Less: Share of profit of JVs
Dividends from JVs
Non-cash items in EBITDAS
Payment for leases
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
Acquisition of non-controlling interest in 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-S before material items & amortisation
CY2019
147.0
(4.1)
1.9
1.3
(50.1)
(1.3)
94.7
(26.0)
68.7
(121.1)
-
(0.7)
1.6
1.0
(50.6)
47%
CY2018
125.2
(7.4)
3.8
2.4
-
14.1
138.0
(21.0)
117.0
(99.9)
-
(0.0)
-
1.3
18.4
93%
Dividends from joint ventures
Dividends from JVs decreased by $1.9 million from CY2018 reflective of lower earnings and cash retained to fund nursery expansion.
Working capital
Increase in working capital mainly driven by reduction in trade payables with timing of month-end vendor payments.
22
Costa Group Holdings Limited Annual Report 2019
Capital expenditure
Maintenance capital expenditure increased by $5.0 million against CY2018, reflective of the increase in growth initiatives.
Productivity and growth capital expenditure was $121.1 million for the period and comprised mainly of:
• $38.7 million for the mushroom Monarto expansion project;
• $20.5 million for China joint venture;
• $40.4 million for the Tomato glasshouse project;
• $10.2 million for the domestic berry expansion projects; and
• $10.6 million for Morocco.
Other significant items in cash flow
Proceeds from sale of investments of $1.6 million from the disposal of shares in the Adelaide and Brisbane wholesale markets.
Material Business Risks
There are various risks that could have a material impact on the achievement of Costa’s strategies and future performance.
Set out in the table below are the risks that Costa considers to have greatest impact to the business and an outline of what Costa is doing
to mitigate these risks.
Risk
Description
Mitigation
Weather and climate: Changes in weather and climate can cause price
and yield volatility for Costa.
Water:
Water availability, whether due to drought or
otherwise, and fluctuating water prices have
the ability to impact on Costa’s business
Brand risk:
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.
Customer risk:
Costa’s top three customers comprised
approximately two thirds of sales revenue.
23
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 relevant. Changes in climate also have the potential to 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.
Costa has sought to manage the impact of this risk by increasing
the geographic diversity of its operations (both within Australia
and internationally). Costa also uses advanced irrigation
technology and processes to improve the efficiency of water use
and to minimise the amount of water required to grow its crops.
Costa has significantly increased the dam capacity at its Corindi
blueberry farm and is reviewing its available water sources and
current water storage capacity at other locations in Australia and
internationally. Costa actively monitors water prices and, where
appropriate, enters into forward water contracts to partially
protect against the effect of potential water price increases.
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. In order to achieve
these standards, Costa has a dedicated Food Safety & Quality
team, consisting of senior specialist managers from all Costa
categories. Costa has taken steps to ensure it is prepared to deal
with foreign object contamination risks through the development
and application of a foreign object control standard. Costa also
reviewed its recall and withdrawal program during 2019, resulting
in revised and new standards.
Costa enters into contractual arrangements where possible with
its major customers, with any such agreements typically having
supply periods typically for 1 season or 1 to 2 years. However,
the nature of the Australian market means that most customer
arrangements are uncontracted. Costa also continues to actively
explore alternative sales channels, both within Australia and
internationally with non-Australian customers now comprising
approximately one quarter of sales revenue.
Costa Group Holdings Limited Annual Report 2019 Directors’ Report continued
For the year ended 29 December 2019
Risk
Description
Mitigation
Labour
arrangements:
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.
Work health and
safety:
Competition from
new market entrants:
Foreign exchange
risk:
Risks associated
with international
operations:
Environmental risk:
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.
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.
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 has significant interests in the African Blue JV
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. 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.
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.
24
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 pay and conditions. In addition Costa
has communicated to each labour provider Costa’s Supplier
Code of Conduct. This Code seeks to ensure that human rights
issues are understood, respected and upheld. Labour providers
are contractually obliged to comply with the Code. Costa also
conducts routine audits and interviews with labour hire staff to
ensure compliance with Costa’s expected standards.
Costa has WHS Policy implemented with a strategic plan. A worker
entering a work site of Costa is inducted and made aware of Costa
WHS expectations and policy. Costa has implemented training
across sites to employees and supervisors on safety expectations.
Safe work instructions have been deployed through the workplace
to reduce risk and hazards. Costa employees undertake hazard
identification and near miss reporting, as well as tracking the time
taken to mitigate those hazards identified.
Costa maintains strong relationships with licensors of key genetic
varieties and regularly trials and assesses new varieties. Costa also
has an active blueberry breeding program at multiple locations
worldwide, which assists Costa to continually develop new and
superior varieties that are suitable for growing in key geographic
regions. Costa monitors new market entrants and actively employs
strategies to maintain its competitive advantage.
Costa actively employs hedging strategies to mitigate this risk.
As with its Australian 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. Costa has a program of close engagement with
local and regional governments and local advisers in relevant
jurisdictions to assist with any legal, regulatory and political
changes within those jurisdictions.
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. In line with Costa’s Sustainable Commercial Farming
objective, Costa continues to review its operations to identify
further ways in which it can minimise the environmental impact
of its operations.
Costa Group Holdings Limited Annual Report 2019 Risk
Community:
Information security/
Cyber Risk:
Restrictions on
movement of people
or goods:
Description
Mitigation
Costa operates in many regional communities
and a failure to successfully integrate with those
communities could impact on its operations.
Costa’s business relies on IT infrastructure, systems
and processes to support the operation and growth
of the business. Should such infrastructure, systems
and processes fail or become compromised then
there is a risk that the efficiencies and synergies
that give the business a competitive advantage
will be reduced or lost.
Unplanned restrictions, such as those imposed due
to widespread illness (eg Coronavirus) or the result
of armed conflict or sudden geopolitical changes,
have the potential to have a significant impact
on Costa’s 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.
Costa implements various strategies to mitigate cyber risk with a
focus on employee education, network defence, enterprise-wide
testing and disaster recovery. Costa also restricts and segregates
sensitive data. These strategies are periodically reviewed and
updated to maintain currency.
Costa seeks to maintain a diverse supplier base so that it is not
overly reliant on any one supplier. Costa also continues to actively
explore alternative sales and distribution channels, to minimise the
impact of this risk.
Non-IFRS measures
Throughout this report, Costa has included certain non-IFRS financial information, including EBITDA before SGARA & leasing, NPAT before SGARA
& leasing 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)
Earnings before interest and tax
Earnings before interest, tax, depreciation and amortisation
EBITDA adjusted for fair value movements in biological assets. For horticultural companies, EBITDA is
typically 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.
NPAT before SGARA (NPAT-S)
Net profit attributable to members of Costa before fair value movements in biological assets and material
items & amortisation.
EBITDA before SGARA & leasing;
and NPAT before SGARA & leasing
On 31 December 2018, the Group adopted the new lease accounting standard AASB 16. Costa applied
the modified retrospective approach which means that prior year comparatives were not adjusted for
the impact of AASB16. As such, two alternative performance measures were introduced to assist with
the transition year.
• EBITDA before SGARA & leasing (EBITDA-SL) is EBITDA-S as identified above adjusted for the impact
of AASB16 and includes operating lease expense; and
• NPAT before SGARA and leasing (NPAT-SL) is NPAT-S as identified above adjusted for the impact
of AASB16. It includes operating lease expense and excludes ROU asset depreciation and interest
on lease liability.
25
Costa Group Holdings Limited Annual Report 2019 Directors’ Report continued
For the year ended 29 December 2019
Non-IFRS operating measures
Transacted Sales
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;
• royalty income from the licensing of Costa blueberry varieties; and
• 100% of Driscoll’s JV sales after eliminating Costa produce sales to the Driscoll’s Australia 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
Driscoll's Australia Partnership consolidation adjustments
Other revenue
Total revenue
Notes:
Note
1
2
3
CY2019
1,464.5
(109.7)
(318.5)
11.6
1,047.9
CY2018
1,338.2
(92.6)
(267.9)
12.6
990.3
FP2018
665.2
(42.9)
(150.3)
5.6
477.6
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 owns 50% of the equity of Driscoll’s Australia JV. Transacted Sales includes 100% of Driscoll’s JV sales, after eliminating Costa produce sales to the Driscoll’s Australia JV.
3. Other revenue (with the exception of royalty income) not included in Transacted Sales.
8. Dividends
During the year ended 29 December 2019, Costa Group Holdings Ltd declared and paid a fully franked final dividend of 5.0 cents per share for the
6 month financial period ending on 30 December 2018 (as previously disclosed in the Directors Report for that period) and a fully franked interim
dividend of 3.5 cents per share for CY2019.
The Board has approved a final dividend for CY2019 of 2.0 cents per share with record date of 13 March 2020 and payment date of 8 April 2020.
This dividend will be fully franked. As this dividend was approved after year end, it has not been accrued for as at 29 December 2019.
This brings the total dividend payment for CY2019 to 5.5 cents per share, which is reflective of the lower earnings during the year. CY2020
dividends will be determined after taking into account earnings performance during CY2020 and 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 goals. 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.
26
Costa Group Holdings Limited Annual Report 2019 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 period.
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 importance of its sustainable farming initiatives, Costa’s Sustainability Report is 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
Harry Debney
Tim Goldsmith
Janette Kendall
Peter Margin
Dr Jane Wilson
12. Share Options
Ordinary shares
375,000
1,173,013
37,500
36,798
66,117
37,500
Options over
ordinary shares
-
1,109,658
-
-
-
-
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
397,201
1,521,700
702,248
2,339,5201
Notes:
Issue price of shares
$1.45
$2.25
$2.78
$4.82
$6.58
$7.42
Expiry date of the
options
October 2024
June 2020
December 2021
September 2022
March 2023
March 2024
1. These options represent unvested options granted to management (including the CEO) during the period under the Group’s LTI plan, including 483,378 options issued to Harry
Debney, 255,919 options issued to Linda Kow and 252,972 options issued to Sean Hallahan, as KMP of the Company, and 97,305 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 period, the Company issued 616,944 shares as a result of the exercise of options by Harry Debney. The Company also issued 75,498 shares
to members of its Executive management team (including the CEO) on the vesting of performance rights granted under the Company’s FY18 Short
Term Incentive Plan.
27
Costa Group Holdings Limited Annual Report 2019 Directors’ Report continued
For the year ended 29 December 2019
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 period, 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 period, for any person who is or has been an auditor
of the group.
15. Non-Audit Services
During the period 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 period by the auditor and is satisfied that the provision of those non-audit
services during the period 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.
• During CY2019, KPMG provided certain taxation services, which are not expected to be recurring.
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 period 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
Taxation compliance and other taxation advisory services (including R&D)
Other services
12 months financial
year ended
December 2019
6 month financial
period ended
December 2018
392
206
598
213
56
269
310
83
393
165
12
177
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 41 and forms part of the directors’ report for the financial period ended
29 December 2019.
28
Costa Group Holdings Limited Annual Report 2019 Remuneration Report (Audited)
1. Introduction
The directors are pleased to present the Remuneration Report for the financial year commencing on 31 December 2018 and ending 29 December 2019
(“CY2019”), 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
Tim Goldsmith
Janette Kendall
Peter Margin
Dr Jane Wilson
Harry Debney
Frank Costa
Kevin Schwartz
Executives
Linda Kow
Sean Hallahan
Position Held
Chairman, Non-executive director
Non-executive director
Non-executive director
Non-executive director
Non-executive director
Chief Executive Officer, Managing Director
Non-executive director (ceased 4 July 2019)
Non-executive director (ceased 28 February 2019)
Chief Financial Officer
Chief Operating Officer
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 Short Term Incentive Plan (”STI Plan”) and Long Term Incentive Plan (”LTI Plan”) for periods incorporating
CY2019. The objectives in the review included benchmarking and market positioning of the incentive plans to align participant performance with
the Group’s growth and business strategy delivering shareholder value. In addition, the review sought to structure the incentive plans in a manner
that best supported the 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 and Inclusion Policy, Disclosure Policy, Securities Trading Policy, Human Rights Policy, Supplier Code of Conduct 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.
29
Costa Group Holdings Limited Annual Report 2019 Directors’ Report continued
For the year ended 29 December 2019
Remuneration Report (Audited) continued
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
Objective
Application
Competitive
Remuneration
Reward employees fairly
and competitively for their
contributions to the Group’s
success.
• Total remuneration is set having regard to the individual’s capabilities and experience.
• Remuneration for CY2019 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.
• The Board may at times obtain independent advice on the appropriateness of total
remuneration package.
Performance
Driven
Executives are rewarded for
achieving strategic goals that
create sustainable growth in
shareholder wealth.
• 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 CY2019
The remuneration for CY2019 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 CY2019
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 CY2019, the Executive KMPs’ remuneration included 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 3.2.3,
as further outlined in Section 7 – Directors’ and Executive Officers’ Remuneration.
The remuneration potential for the Executive KMPs for CY2019 (with the total at risk remuneration, including the maximum potential stretch STI
benefit for CY2019) is set out below:
CEO
CFO
COO
49%
53%
53%
Fixed
At-Risk
51%
47%
47%
0%
20%
40%
60%
80%
100%
30
Costa Group Holdings Limited Annual Report 2019 As noted in section 3.2.2 below, the FY19 STI plan covered an 18 month period, finishing on 29 December 2019, and the performance hurdles were
not met, meaning that an STI payment was not made for that period. Additionally, part of the options issued to the CEO and CFO under the FY17 LTI
Plan lapsed during the year (refer Section 3.3), resulting in an accounting reversal of the share-based payments in CY2019 (and hence a reduction
in the amount of ‘at risk’ remuneration for those individuals). As a result, the mix of fixed versus variable ‘at risk’1 remuneration payable in respect
of CY2019 for the Executive KMP was as follows:
CEO
CFO
COO
90%
85%
10%
15%
Fixed
At-Risk
73%
27%
0%
20%
40%
60%
80%
100%
1. Includes share-based payments associated with unvested LTI arrangements (including those in section 3.3).
3.2 CY2019 Remuneration Components
3.2.1 Fixed Remuneration
Total fixed remuneration (“TFR”) for CY2019 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
FY2019 STI Plan Overview
The FY19 STI Plan covered CY2019 and the prior 6 month financial period (“FP2018”). The FY19 STI Plan was designed to enable Executive KMP
and other members of senior management to receive an incentive payment calculated as a percentage of 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-SL, ie. statutory EBIT
before the impact of movement in SGARA and before the impact of AASB 16 (Leases), which Costa adopted part way through the 18 month period
over which the STI was measured.
The Group EBIT hurdles were:
•
If the Group achieves less than 90% of budgeted Group EBIT for the 18 month period, 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.
Under the FY19 STI Plan, participants would have been entitled to an STI award which was calculated as a percentage of their current annual TFR
and then multiplied by 1.5 to take into account the 18 month performance period.
At the end of the 18 month period, performance was tested against the STI performance hurdles for the 18 month performance period. As the Group
achieved less than 90% of budgeted Group EBIT for the 18 month period, no STI payments were made. The STI outcome for the period is described
further below:
Participant
Harry Debney
Sean Hallahan
Linda Kow
CY2019 STI
payable at target
$689,850
$315,000
$324,653
CY2019 STI
payable if stretch
targets achieved
$1,073,100
$540,000
$486,979
CY2019 STI paid
based on Group
performance
$0
$0
$0
31
Costa Group Holdings Limited Annual Report 2019 Directors’ Report continued
For the year ended 29 December 2019
Remuneration Report (Audited) continued
3.2.3 CY2019 LTI Plan
The CY2019 LTI Plan that governs the LTI options issued during CY2019 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. The features of this LTI Plan are as follows:
Term
Eligibility
Description
CEO, CFO, COO and selected senior management
Consideration for grant
Nil
Instrument
Options to acquire ordinary shares in Costa Group Holdings Limited
Number of options granted
Exercise price
Performance Period
The number of options was determined based on a set percentage of the participant’s current 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.
$7.42 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 the day prior to the commencement of the
performance period.
The performance period is the 3 year period commencing from 31 December 2018 to the end of the Company’s
2021 financial year. The three year performance period is consistent with performance periods adopted for previous
LTI plans.
Performance Measure (EPS)
75% of the options (“EPS Options”) are 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 18%
18%
Between 18% and 22%
At or above 22%
Percentage of LTIP Options (subject to the EPS
hurdle) that will vest
0%
50%
50%-100%, on a straight line sliding scale
100%
In setting the EPS hurdle the Board noted that the proposed hurdle was reflective of the company’s target of
generating low double digit annual EPS growth over the longer term horizon and if measured over the 4 years
commencing calendar 2017, the hurdle is consistent with that target. 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). EPS will be measured using NPAT-SL and prior to the adoption of IFRS16.
25% of the options (“Growth Target Options”) are 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. 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.
Performance Measure
(Growth)
Entitlements
Options will not carry rights to dividends or voting rights prior to vesting.
32
Costa Group Holdings Limited Annual Report 2019 Term
Option exercise
Description
Vested options must be exercised prior to 1 March 2024 (“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/her 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 LTI Plan.
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 LTI Plan will be forfeitedwhere 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.
Change of Control
The Board has discretion to determine an appropriate treatment for unvested and/or vested, but unexercised, options.
3.3 Prior Period LTI Plans
LTI Plans for previous years are also tested over a 3 year performance period, meaning that the performance period for a prior LTI Plan will end, and
the associated performance hurdles will be tested, during each financial year. The performance period for the FY17 LTI Plan ended on 30 June 2019
and the relevant performance hurdles were measured as follows:
• 75% of the options issued under the FY17 LTI Plan were subject to a performance hurdle based on the Company’s Earnings Per Share (basic)
compound annual growth rate (“CAGR”) over the performance period. As the Company’s EPS CAGR over the performance period was below the
minimum 8% threshold that had been set at the time of the options being granted, all FY17 LTI Plan options subject to the EPS hurdle lapsed.
• 25% of the options issued under the FY17 LTI Plan were subject to a performance hurdle based on geographic and category diversification and
growth designed to support sustainable long term value creation. Diversification included two new domestic and/or international geographic
locations and one new major category pillar. For testing of the performance hurdle, the Board reviewed the current and expected investment
returns in relation to those diversification measures, including for the China berry business and the establishment of the avocado category. Over
the performance period, the China expansion progressed in line with Company’s strategic plan with a total of 174ha planted across 4 farms, and
plans well advanced to complete the 5th year of planting at Guangmen. The China operations became a meaningful contributor to EBITDA during
2019, and projected returns from established and projected expansions are above Costa’s 15% after tax target ROIC. In the Avocado category,
Costa had commenced the expansion into the category from 2017 with a number of completed acquisitions establishing a strategic footprint
across four regions providing Costa with near full year production coverage. With projected maturity of these farms the avocado category is also
expected to achieve returns in excess of Costa’s hurdle rates over the longer term, with 20% of the options lapsing due to the longer ramp up
timing of the Avocado investment returns. Based on this review of the performance hurdle, the Board (excluding the CEO) determined that 80%
of the options subject to the strategic growth hurdle would vest (being 20% of the overall options granted under the FY17 LTI plan), with the
balance to lapse.
33
Costa Group Holdings Limited Annual Report 2019
Directors’ Report continued
For the year ended 29 December 2019
Remuneration Report (Audited) continued
-The table below shows the vesting outcomes for the KMP’s options granted under the FY17 LTI plan. As these options have an exercise price of $2.78
and the closing price for the Company’s shares at the end of CY19 was $2.61, the KMP will only benefit from these options if the diversification and
growth initiatives implemented during the performance period drive an increase in shareholder value.
Harry Debney
Linda Kow
Sean Hallahan^
FY17 EPS
options held
455,954
195,365
Nil
FY17 EPS
options
vested
-
-
N/A
FY17 Growth
options held
151,984
65,121
N/A
FY17 Growth
options
vested
121,587
52,096
N/A
Total FY17
LTI options
lapsed
486,351
208,390
N/A
^ Sean Hallahan commenced employment with the Group after FY17 and hence did not receive options under the FY17 LTI Plan.
Section 8.3 below includes details of options that have been granted under prior period LTI Plans for which the performance periods have not yet ended.
4. Executive Remuneration Disclosure
4.1 Executives’ Contract Terms
A summary of the key terms of employment for executives as at 29 December 2019 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 CY2019 are included in Section 7 of this report. Non-executive directors’ fees were fixed and
they did not receive any performance based remuneration. There has been no change in fees paid during the course of CY2019.
The table below outlines the fee structure for non-executive directors in CY2019. The annual aggregate fee pool for non-executive directors remained
at $1,200,000. Board and committee fees, which are inclusive of statutory superannuation contributions, are included in this aggregate fee pool.
Board/Committee
Board base fee
Audit and Risk Committee
Remuneration and Human Resources Committee
Nomination Committee
Annual
Chairman
Fee ($)
249,921
(inclusive of
committee
fees)
21,712
16,284
-
Annual
Member Fee
($)
108,279
10,856
8,142
-
34
Costa Group Holdings Limited Annual Report 2019 6. Relationship Between Remuneration Policy and Group Performance
Key performance indicator
Revenue ($’000)
Statutory EBIT-S ($’000)
EBIT-SL before material items ($’000)
NPAT-SL before material items ($’000)
Dividend paid or declared to ordinary shareholders
(cents per ordinary share)
FY2018
1,002,027
156,064
115,797
76,551
FY2016
821,861
46,128
65,558
44,230
FY2017
909,108
79,651
87,711
60,713
11.0
13.5
9.0
CY20181
990,282
77,466
86,578
56,538
CY2019
1,047,873
(11,210)
51,035
28,488
13.5
5.5
1. CY2018 (Calendar year beginning 1 Jan 2018 ending 30 December 2018) has been included as a comparative to allow like for like analysis against CY2019. The 6 month financial
period ending 30 December 2018 has not been separately listed as it is included in CY2018.
CY2018 (pro-forma) vs CY2019 performance
Total revenue
($m)
NPAT (excluding material items and SGARA)
($m)
Total dividend paid or declared
to ordinary shareholders
(cents per share)
1200
1100
1000
900
800
700
600
500
400
300
200
100
0
CY18 Pro Forma
CY19
70
60
50
40
30
20
10
0
CY18 Pro Forma
CY19
16
14
12
10
8
6
4
2
0
CY18 Pro Forma
CY19
From the time of the Company’s ASX listing in FY2016, the Board adopted a remuneration framework that is designed to attract and retain key talent,
reward the achievement of strategic objectives and align reward with the creation of shareholder wealth. The table above sets out information about
the Group’s performance, earnings and dividend for CY2019 compared to CY2018 (pro forma).
As noted in section 3.2.2, the STI plan covering CY2019 commenced on 2 July 2018 and concluded on 29 December 2019. As performance hurdles
based on Group EBIT performance for that 18 month period were not met, an STI payment was not made to the CEO or other KMP.
35
Costa Group Holdings Limited Annual Report 2019 Directors’ Report continued
For the year ended 29 December 2019
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:
Non-executive Directors
Neil Chatfield
Peter Margin
Janette Kendall
Tim Goldsmith
Dr Jane Wilson (appointed 01.04.19)
Kevin Schwartz (ceased 28.02.19)
Frank Costa (ceased 04.07.19)
Managing Director and Executive Officers
Harry Debney
Linda Kow
Sean Hallahan
Notes:
Salary & fees
$
229,154
114,377
123,670
61,835
108,799
54,400
118,713
39,571
77,801
-
-
52,428
53,585
53,160
1,001,413
500,706
520,556
260,278
616,536
289,815
CY2019
FP2018
CY2019
FP2018
CY2019
FP2018
CY2019
FP2018
CY2019
FP2018
CY2019
FP2018
CY2019
FP2018
CY2019
FP2018
CY2019
FP2018
CY2019
FP2018
STI (cash)
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Short-term
Non-
monetary
benefits
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Other
Monetary
Benefits
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$
229,154
114,377
123,670
61,835
108,799
54,400
118,713
39,571
77,801
-
-
52,428
53,585
53,160
-
-
-
-
-
-
1,284
2,184
594
1,010
604
1,027
1,002,697
502,890
521,150
261,288
617,140
290,842
• 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.
• The financial year of the Group was changed from a June to December year-end in the prior period. As a result, the comparative information is for the transitional six-month
financial period ended 30 December 2018.
Post-employment
Long-term benefits
Termination
Share-based payments
Total
Superannuation
benefits
Long service
leave
$
Termination
benefits
$
20,767
10,266
11,749
5,874
10,336
5,168
11,278
3,759
7,391
-
-
-
5,050
5,050
25,232
12,498
25,232
12,498
20,767
10,266
-
-
-
-
-
-
-
-
-
-
-
-
-
-
16,677
11,586
8,669
6,903
10,549
4,859
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
119,327
248,818
94,863
121,810
240,696
96,571
$
249,921
124,642
135,419
67,710
119,135
59,568
129,991
43,330
85,192
-
-
52,428
58,635
58,210
1,163,933
775,793
649,914
402,499
889,152
402,537
36
Costa Group Holdings Limited Annual Report 2019 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:
Non-executive Directors
Neil Chatfield
Peter Margin
Janette Kendall
Tim Goldsmith
Dr Jane Wilson (appointed 01.04.19)
Kevin Schwartz (ceased 28.02.19)
Frank Costa (ceased 04.07.19)
Harry Debney
Linda Kow
Sean Hallahan
Notes:
Salary & fees
STI (cash)
Short-term
Non-
monetary
benefits
$
Other
Monetary
Benefits
CY2019
FP2018
CY2019
FP2018
CY2019
FP2018
CY2019
FP2018
CY2019
FP2018
CY2019
FP2018
CY2019
FP2018
FP2018
CY2019
FP2018
CY2019
FP2018
$
229,154
114,377
123,670
61,835
108,799
54,400
118,713
39,571
77,801
-
-
52,428
53,585
53,160
500,706
520,556
260,278
616,536
289,815
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$
229,154
114,377
123,670
61,835
108,799
54,400
118,713
39,571
77,801
-
-
52,428
53,585
53,160
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,284
2,184
594
1,010
604
1,027
1,002,697
502,890
521,150
261,288
617,140
290,842
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Managing Director and Executive Officers
CY2019
1,001,413
• 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.
• The financial year of the Group was changed from a June to December year-end in the prior period. As a result, the comparative information is for the transitional six-month
financial period ended 30 December 2018.
Post-employment
Long-term benefits
Termination
Share-based payments
Total
Superannuation
benefits
$
20,767
10,266
11,749
5,874
10,336
5,168
11,278
3,759
7,391
-
-
-
5,050
5,050
25,232
12,498
25,232
12,498
20,767
10,266
Long service
leave
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
16,677
11,586
8,669
6,903
10,549
4,859
Termination
benefits
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
119,327
248,818
94,863
121,810
240,696
96,571
$
249,921
124,642
135,419
67,710
119,135
59,568
129,991
43,330
85,192
-
-
52,428
58,635
58,210
1,163,933
775,793
649,914
402,499
889,152
402,537
37
Costa Group Holdings Limited Annual Report 2019 Directors’ Report continued
For the year ended 29 December 2019
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)
Frank Costa1 (ceased 4 July 2019)
Tim Goldsmith
Janette Kendall (indirectly held)
Peter Margin (indirectly held)
Dr Jane Wilson (appointed 1 April 2019)
Harry Debney (directly & indirectly held)
Linda Kow (directly & indirectly held)
Sean Hallahan
Notes in relation to Table 8.1 (Movement in shares)
Held at
31 December
2018
260,000
5,005,248
-
19,191
42,893
-
1,357,326
299,872
2,025
Shares
acquired
115,000
-
37,500
17,607
23,224
37,500
5,761
12,990
507
Shares sold
-
-
-
-
-
-
825,000
69,927
-
Shares
delivered
under STI or
LTI plans
-
-
-
-
-
-
634,926
8,318
8,458
Held at
29 December
2019
375,000
5,005,2482
37,500
36,798
66,117
37,500
1,173,013
251,253
10,990
1. Frank Costa‘s interests represented 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.
2. Frank Costa ceased to be a director on 4 July 2019. The table above does not reflect any change in his shareholding after his Appendix 3Z was lodged with the ASX on 11 July 2019.
8.2 Options over equity instruments granted as compensation
The number of options over ordinary shares granted as compensation to KMP during CY2019 was as set out below. Shareholder approval for the
issue of options to Harry Debney under the LTIP was obtained in accordance with ASX Listing Rule 10.14 at the Company’s AGM held in May 2019
prior to the options being issued.
Harry Debney
Linda Kow
Sean Hallahan
Options granted
during CY2019
483,378
255,919
252,972
Grant
date
30 May 20191
26 February 2019
26 February 2019
Fair Value
per option $
0.89
0.89
0.89
Exercise price
per option $
7.42
7.42
7.42
Expiry
date
1 March 2024
1 March 2024
1 March 2024
Notes in relation to Table 8.2 (Options over equity instruments granted as compensation)
1. The grant date for valuation purposes for all options granted to Executive KMP (including the CEO) during CY2019 was 26 February 2019, being the date on which the Board
approved the offer of the options.
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
Options
Options
Options
Options
Options
Options
Options
Options
Number
352,481
152,212
483,378
183,936
80,587
255,919
181,818
76,595
252,972
Grant date
Vesting date
20 November 20171 1 September 2020
17 December 20181
1 March 2021
30 May 20191
1 March 2022
24 August 2017 1 September 2020
1 March 2021
23 August 2018
1 March 2022
26 February 2019
9 October 2017 1 September 2020
1 March 2021
23 August 2018
1 March 2022
26 February 2019
Exercise price
$4.82
$6.58
$7.42
$4.82
$6.58
$7.42
$4.82
$6.58
$7.42
Notes in relation to Table 8.3
1. The grant date for valuation purposes for options granted to Executive KMP (including the CEO) during CY19 was 26 February 2019, for options granted during the prior 6 month
transitional financial period was 23 August 2018 and for options granted during FY2018 was 24 August 2017, in each case being the dates on which the Board approved the
respective offers of the options.
38
Costa Group Holdings Limited Annual Report 2019 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:
Held at
30 December
2018
1,729,575
525,009
258,413
Granted as
compen-
sation
483,378
255,919
252,972
Exercised
616,944
-
-
Harry Debney
Linda Kow
Sean Hallahan
Value of
exercised
options
(at time of
exercise) $
1,534,648
-
-
Held at
29 December
2019
1,109,658
572,538
511,385
Lapsed
486,351
208,390
-
Vested
during the
year
121,587
52,096
-
Vested and
exercisable
29 December
2019
121,587
52,096
-
8.5 Key Management personnel transactions
The Group incurred the following transactions during the financial year ended December 2019:
Mr Harry Debney
• Payment of membership fee of $200,000 to Australian Fresh Produce Alliance (AFPA) of which Harry Debney is a Director, representing the Group.
The AFPA is made up of Australia’s major fresh produce growers and suppliers and serves as the industry body that retailers and government go to
for discussion and outcomes on issues involving the growing and supply of fresh produce. Each member of AFPA is entitled to appoint a Director
and each member has only one vote under AFPA’s Constitution.
• Capital expenditure payment of $132,570 to The Yield Pty Ltd (6 months ended December 2018: $250,000), of which Harry Debney serves as
Chairman of the Board, representing the Group. The Yield is an Australian agricultural technology company that invests, builds and secures
scalable digital agriculture technology. The Yield’s services were provided pursuant to written contract on arm’s length terms and Harry
abstained from the negotiation and all board discussions and voting in relation to entry into the contract.
•
Income of $50,000 payable to the Group from the Yield Pty Ltd on behalf of Harry Debney’s services as Chairman of the Board.
Mr Frank Costa (Director for part of CY19)
• Payment of rent by Costa's Pty Ltd to Frank Costa for the lease of 1111 Aviation Road, Werribee of AUD $1 (2018: 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.
• Payment of services fees of $31,042 to Frank Costa for the provision of advisory services to the Board from the time of his resignation as a Director
(4 July 2019). The services were provided pursuant to a written contract on arms length terms and ceased on 1 December 2019.
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 and whether there was at least 3 years between ceasing such
employment and serving on the Board;
• receives performance-based remuneration (including options or performance rights) from, or participates in an employee incentive scheme
of the Group;
•
•
is, or has been within the last three years, in a material business relationship (eg as a supplier, professional adviser, consultant or customer)
with the Group or is an officer of, or otherwise associated with, someone with such a relationship;
is, represents, or is or has been within the last three years an officer or employee of, or professional adviser to, a substantial security holder
of the Company;
• 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 from management and substantial holders may have been compromised.
39
Costa Group Holdings Limited Annual Report 2019 Directors’ Report continued
For the year ended 29 December 2019
Remuneration Report (Audited) continued
On this basis the Board has made the following assessments in respect of the Company’s Directors:
•
Independent: Neil Chatfield, Tim Goldsmith, Janette Kendall, Peter Margin, and Dr Jane Wilson. 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. At the time of
his resignation on 28 February 2019, Kevin Schwartz was regarded as independent.
• Not independent: Harry Debney (due to his executive role). At the time of his resignation on 4 July 2019, Frank Costa was regarded as not
independent (due to his longstanding relationship with the Company).
This Directors’ Report is made in accordance with a resolution of the Directors.
Neil Chatfield
Chairman
Dated at Melbourne 26 February 2020
40
Costa Group Holdings Limited Annual Report 2019 Auditor’s Independence Declaration
41
Costa Group Holdings Limited Annual Report 2019 37 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Costa Group Holdings Ltd I declare that, to the best of my knowledge and belief, in relation to the audit of Costa Group Holdings Ltd for the financial year ended 29 December 2019 there have been: i.no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and ii.no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Gordon Sangster Partner Melbourne 26 February 2020 Consolidated Statement of Profit and Loss
and Other Comprehensive Income
For the financial year ended 29 December 2019
Revenue
Total revenue
Less: expenses
Raw materials, consumables and third party purchases
Depreciation and amortisation expenses
Employee benefits expenses
Occupancy expenses
Net finance costs
Profit on sale of assets
Freight and cartage
Leasing expenses
Other expenses
Gain/(loss) on fair value adjustments – biological assets
Loss on fair value of derivatives
Impairment loss on trade receivables
Impairment losses
Share of net profits of associates and joint ventures accounted for using the equity method
(Loss)/Profit before income tax expense
Income tax expense
(Loss)/Profit for the period
Other comprehensive income/(loss) for the period
Foreign currency translation differences
Cash flow hedges – reclassified to profit or loss
Cash flow hedges – effective portion of changes in fair value
Total other comprehensive income/(loss) for the period
Total comprehensive (loss)/income for the period
(Loss)/Profit attributable to:
Owners of Costa Group Holdings Ltd
Non-controlling interests
Total comprehensive (loss)/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
12 months
ended
December
2019
$ ‘000
6 months
ended
December
20181,2
$ ‘000
Notes
A2
1,047,873
477,604
A2
A2
A2
A3
D1
E2
C4
C4
(362,715)
(96,203)
(379,565)
(41,685)
(25,979)
1,397
(54,917)
(4,751)
(73,722)
4,270
-
-
(51,023)
(1,084,893)
4,101
(32,919)
(844)
(33,763)
248
-
392
640
(33,123)
(35,406)
1,643
(33,763)
(34,766)
1,643
(33,123)
(152,393)
(24,079)
(181,090)
(41,369)
(4,216)
454
(26,698)
(5,328)
(39,074)
(1,485)
(23)
(455)
-
(475,756)
4,119
5,967
(2,030)
3,937
4,046
39
(47)
4,038
7,975
4,325
(388)
3,937
8,363
(388)
7,975
12 months
ended
December
2019
Cents
6 months
ended
December
20181,2
Cents
A4
A4
(10.75)
(10.75)
1.35
1.35
1. The Group has initially applied AASB 16 Leases at 31 December 2018, using the modified retrospective approach. Under this approach, comparative information and retained
earnings are not restated at the date of initial application. Refer Note E6.
2. The financial year of the Group was changed from a June to December year-end in the prior period. As a result, the comparative information is for the transitional six-month
financial period ended 30 December 2018.
The above Consolidated Statement of Profit and Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes.
42
Costa Group Holdings Limited Annual Report 2019 Consolidated Statement of Financial Position
As at 29 December 2019
ASSETS
Current assets
Cash and cash equivalents
Receivables
Inventories
Biological assets
Other assets & financial assets
Current tax assets
Total current assets
Non-current assets
Receivables
Other financial assets
Equity accounted investments
Intangible assets
Deferred tax assets
Property, plant and equipment
Right-Of-Use assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Borrowings
Payables
Provisions
Other financial liabilities
Lease liabilities
Total current liabilities
Non-current liabilities
Borrowings
Provisions
Deferred tax liabilities
Other financial liabilities
Lease 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
December
2019
$ ‘000
December
20181
$ ‘000
B1
B2
B3
B6
B5
E2
B2
D1(b)
B8
E2
B7
E6
C1
B4
B10
B4
E6
C1
B10
E2
B4
E6
C2
E1, C4
C3
35,962
88,338
24,430
49,209
10,454
5,186
45,802
92,510
25,376
48,328
14,422
3,016
213,579
229,454
4,088
-
16,672
213,351
17,876
498,915
285,177
1,036,079
1,249,658
7,784
113,498
23,711
3,657
33,904
182,554
207,033
7,852
14,000
986
259,812
489,683
672,237
577,421
580,831
(13,093)
8,256
72,517
(92,027)
556,484
20,937
577,421
2,210
244
14,421
255,643
20,798
414,189
-
707,505
936,959
428
130,237
17,323
3,821
-
151,809
290,014
9,662
18,844
3,630
-
322,150
473,959
463,000
404,721
(11,558)
7,735
99,736
(56,621)
444,013
18,987
463,000
1. The Group has initially applied AASB 16 Leases at 31 December 2018, using the modified retrospective approach. Under this approach, comparative information and retained
earnings are not restated at the date of initial application. Refer Note E6.
The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.
43
Costa Group Holdings Limited Annual Report 2019 Consolidated Statement of Changes in Equity
For the financial year ended 29 December 2019
Consolidated
Balance as at 31 December 20181
Other equity
reserve
$ ‘000
(11,558)
Share-based
payment
reserve
$ ‘000
10,874
Share capital
$ ‘000
404,721
Other reserves
Foreign
currency
translation
reserve
$ ‘000
4,292
Hedge
reserve
$ ‘000
(643)
(Loss)/Profit for the year
Other comprehensive income/(loss)
Total comprehensive income for the year
-
-
-
-
-
-
-
-
-
-
248
248
-
392
392
Transactions with owners in their
capacity as owners:
Issue of shares (net of issue costs)
Share options exercised
Options granted during the year
Settlement of share-based payments
Dividend paid on ordinary shares
Tax effect of share plan payment through equity
Tax effect of equity raise
Exercise of put and call option
Capital injected by non-controlling interest
without change in control
Balance as at 29 December 2019
174,058
-
-
382
-
-
1,670
-
-
580,831
(3,270)
1,735
-
-
-
-
-
-
-
(13,093)
-
-
1,135
(382)
-
(2,930)
-
-
-
8,697
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,540
-
(251)
-
(4,730)
General
reserve
$ ‘000
(6,788)
-
-
-
-
-
-
-
-
-
-
2,058
Balance as at 2 July 20181
403,410
(11,558)
12,000
246
(635)
(7,272)
Profit for the period2
Other comprehensive income/(loss)
Transfer to profit reserve
Total comprehensive income for the year
Transactions with owners in their
capacity as owners:
Options granted during the year
Performance rights granted during the year
Settlement of share-based payments
Dividend paid on ordinary shares
Valuation of put & call option of subsidiary
Tax effect of share plan payment through equity
Exercise of put and call option
Capital injected by non-controlling interest
without change in control
Balance as at 30 December 20181,2
-
-
-
-
-
-
1,311
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,046
-
4,046
843
220
(1,311)
-
-
(878)
-
-
-
-
-
-
-
-
-
(8)
-
(8)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
484
-
-
-
404,721
-
(11,558)
-
10,874
-
4,292
-
(643)
-
(6,788)
99,736
(56,621)
444,013
1. The Group has initially applied AASB 16 Leases at 31 December 2018, using the modified retrospective approach. Under this approach, comparative information and retained
earnings are not restated at the date of initial application. Refer Note E6.
2. The financial year of the Group was changed from a June to December year-end in the prior period. As a result, the comparative information is for the transitional six-month
financial period ended 30 December 2018.
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
44
Profit
reserve
$ ‘000
99,736
(27,219)
72,517
122,600
4,325
4,325
(27,189)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Accumulated
Non-controlling
losses
$ ‘000
(56,621)
(35,406)
(35,406)
(92,027)
(56,621)
4,325
(4,325)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$ ‘000
444,013
(35,406)
640
(34,766)
170,788
1,735
1,135
(27,219)
(2,930)
1,670
2,058
556,484
462,170
4,325
4,038
8,363
843
220
(27,189)
484
(878)
-
-
-
-
-
-
interests
$ ‘000
18,987
1,643
1,643
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
307
20,937
17,097
(388)
(388)
(163)
2,441
18,987
Total
equity
$ ‘000
463,000
(33,763)
640
(33,123)
170,788
1,735
1,135
-
(27,219)
(2,930)
1,670
2,058
307
577,421
479,267
3,937
4,038
-
7,975
(27,189)
843
220
-
484
(878)
(163)
2,441
463,000
Costa Group Holdings Limited Annual Report 2019
Share-based
Other equity
payment
translation
Share capital
$ ‘000
404,721
reserve
$ ‘000
(11,558)
reserve
$ ‘000
10,874
General
reserve
$ ‘000
(6,788)
Other reserves
Foreign
currency
reserve
$ ‘000
4,292
-
248
248
Hedge
reserve
$ ‘000
(643)
-
392
392
174,058
(3,270)
1,735
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,135
(382)
(2,930)
843
220
(1,311)
(878)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,046
4,046
(8)
(8)
2,058
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
484
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
382
1,670
1,311
Consolidated
Balance as at 31 December 20181
(Loss)/Profit for the year
Other comprehensive income/(loss)
Total comprehensive income for the year
Transactions with owners in their
capacity as owners:
Issue of shares (net of issue costs)
Share options exercised
Options granted during the year
Settlement of share-based payments
Dividend paid on ordinary shares
Tax effect of share plan payment through equity
Tax effect of equity raise
Exercise of put and call option
Capital injected by non-controlling interest
without change in control
Balance as at 29 December 2019
Profit for the period2
Other comprehensive income/(loss)
Transfer to profit reserve
Total comprehensive income for the year
Transactions with owners in their
capacity as owners:
Options granted during the year
Performance rights granted during the year
Settlement of share-based payments
Dividend paid on ordinary shares
Valuation of put & call option of subsidiary
Tax effect of share plan payment through equity
Exercise of put and call option
Capital injected by non-controlling interest
without change in control
Balance as at 30 December 20181,2
Balance as at 2 July 20181
403,410
(11,558)
12,000
246
(635)
(7,272)
580,831
(13,093)
8,697
4,540
(251)
(4,730)
1. The Group has initially applied AASB 16 Leases at 31 December 2018, using the modified retrospective approach. Under this approach, comparative information and retained
earnings are not restated at the date of initial application. Refer Note E6.
2. The financial year of the Group was changed from a June to December year-end in the prior period. As a result, the comparative information is for the transitional six-month
financial period ended 30 December 2018.
404,721
(11,558)
10,874
4,292
(643)
(6,788)
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
Non-controlling
interests
$ ‘000
18,987
1,643
-
1,643
-
-
-
-
-
-
-
-
307
20,937
17,097
(388)
-
-
(388)
-
-
-
-
-
-
(163)
2,441
18,987
Total
equity
$ ‘000
463,000
(33,763)
640
(33,123)
170,788
1,735
1,135
-
(27,219)
(2,930)
1,670
2,058
307
577,421
479,267
3,937
4,038
-
7,975
843
220
-
(27,189)
484
(878)
(163)
2,441
463,000
Profit
reserve
$ ‘000
99,736
-
-
-
-
-
-
-
(27,219)
-
-
-
-
72,517
122,600
-
-
4,325
4,325
-
-
-
(27,189)
-
-
-
-
99,736
Accumulated
losses
$ ‘000
(56,621)
(35,406)
-
(35,406)
-
-
-
-
-
-
-
-
-
(92,027)
(56,621)
4,325
-
(4,325)
-
-
-
-
-
-
-
-
-
(56,621)
Total
$ ‘000
444,013
(35,406)
640
(34,766)
170,788
1,735
1,135
-
(27,219)
(2,930)
1,670
2,058
-
556,484
462,170
4,325
4,038
-
8,363
843
220
-
(27,189)
484
(878)
-
-
444,013
45
Costa Group Holdings Limited Annual Report 2019
Consolidated Statement of Cash Flows
For the financial year ended 29 December 2019
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 non-controlling interest of a subsidiary
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 share issue, net of issue costs
Purchase of treasury shares, net of share issue
Dividend payments on ordinary shares
Capital injection by non-controlling interest
Loans and advances
Proceeds from borrowings
Repayment of borrowings
Payment of lease liability
Net cash provided by financing activities
Reconciliation of cash
Cash at beginning of year
Net decrease in cash held
Effect of movement in foreign exchange rate
Cash at end of year
Notes
12 months
to December
2019
$ ‘000
6 months to
December
20181,2
$ ‘000
B1(a)
1,062,409
(931,948)
319
(26,587)
70
(5,735)
98,528
(147,064)
1,581
1,850
(742)
958
(143,417)
1,735
174,058
(3,270)
(27,219)
307
(2,113)
2,464,494
(2,539,000)
(33,917)
35,075
506,605
(461,487)
41
(5,838)
43
(17,356)
22,008
(67,403)
-
1,100
-
740
(65,563)
-
-
-
(27,189)
2,441
-
1,205,393
(1,152,000)
-
28,644
45,802
(9,814)
(26)
35,962
60,394
(14,911)
320
45,802
B1
1. The Group has initially applied AASB 16 Leases at 31 December 2018, using the modified retrospective approach. Under this approach, comparative information and retained
earnings is not restated at the date of initial application. Refer Note E6.
2. The financial year of the Group was changed from a June to December year-end in the prior period. As a result, the comparative information is for the transitional six-month
financial period ended 30 December 2018.
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
46
Costa Group Holdings Limited Annual Report 2019 Notes to the Consolidated Financial Statements
Index to Notes
Overview
Reporting entity
Basis of preparation
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.
B9.
B10. Provisions
B11. Contingent liabilities
Intangible assets
Impairments
48
48
49
50
50
52
53
54
54
55
55
56
56
57
57
57
59
61
64
65
66
67
67
68
68
68
69
69
75
75
76
77
78
79
81
81
82
84
85
85
85
Capital structure and financing
C.
C1. Borrowings
C2. Share capital
C3. Profit reserve
C4. Other reserve
C5. Dividends
C6.
Financial instruments
– fair values and risk management
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
E. Other
E1. Share-based payments
E2. Taxation
E3. New accounting standards
E4. Auditor’s remuneration
E5. Other accounting polices
E6. Change in accounting policies
47
Costa Group Holdings Limited Annual Report 2019 Notes to the Consolidated Financial Statements
continued
Overview
Reporting entity
Costa Group Holdings Ltd and its controlled entities (referred to as “the Group”) is a for-profit company limited by shares, incorporated and domiciled
in Australia, whose shares are publicly traded on the Australian Securities Exchange. The nature of the operations and principal activities of the
Group and its subsidiaries are described in the segment information.
The Group’s registered office is Unit 1, 275 Robinsons Road, Ravenhall, VIC, Australia, 3023.
Basis of preparation of the financial report
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 26 February 2020.
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 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.
This is the Group’s first annual financial report where AASB 16 Leases has been applied. Changes to significant accounting policies are described
in Note E6.
Comparative Period
The financial year of the Group was changed from a June to December year-end in prior period. As a result, the comparative in the consolidated
profit and loss and other comprehensive income, consolidated statement of changes in equity and the consolidated cash flow statement is for
the transitional six-month financial period to 30 December 2018.
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.
48
Costa Group Holdings Limited Annual Report 2019 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.
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
Leases
Note
B6 – Biological assets
B8 – Intangible assets
B8 – Intangible assets
C6 – Financial instruments – fair values and risk management
E2 – Taxation
E6 – Change in accounting policies
Page
57
61
61
69
82
85
49
Costa Group Holdings Limited Annual Report 2019 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 Self Generating and Regenerating Assets (“SGARA”), material items & amortisation
(“EBITDA-S”), as included in the internal management reports that are reviewed by the Group’s 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.
12 months ended December 2019
Produce
CF&L International
Adjustments
and
eliminations
$'000
$'000
$'000
$'000
Total
segment
$'000
1,047,873
-
-
1,047,873
Unallocated/
Corporate Consolidated
$'000
$'000
-
10
-
10
1,047,863
10
-
1,047,873
-
160,943
(13,898)
147,045
-
-
(62,276)
(62,276)
Revenue
External revenue
Other revenue
Intersegment revenue
Total revenue
EBITDA-S
818,253
137,922
91,688
-
51,062
869,315
119,829
-
11,214
149,136
15,219
-
-
91,688
25,895
50
Costa Group Holdings Limited Annual Report 2019 6 months ended December 2018
Revenue
External customers
Other revenue
Inter-segment
Total revenue
EBITDA-S1
Produce
$'000
396,811
-
28,751
425,562
48,557
CF&L International
$'000
$'000
Adjustments
and
eliminations
$'000
74,213
-
4,813
79,025
3,555
6,581
-
-
6,581
(7,073)
-
-
(33,563)
(33,563)
-
Total
segment
$'000
477,605
-
-
477,605
45,040
Unallocated/
Corporate Consolidated
$'000
$'000
-
(1)
-
-
(9,723)
477,605
(1)
-
477,604
35,316
1. The Group has initially applied AASB 16 Leases at 31 December 2018, using the modified retrospective approach. Under this approach, comparative information and retained
earnings is not restated at the date of initial application.
The Group principally supplies fresh produce to the major supermarkets in Australia, including Coles, Woolworths and ALDI, which collectively
comprise approximately 71% of the Group’s Australian based produce sales in the 12 months ended December 2019 (6 months ended
December 2018: 71%).
(c) Reconciliation of segment EBITDA-S to (loss)/profit after tax
EBITDA-S for reportable segments
Fair value movements in biological assets
Depreciation and amortisation
Material items (before tax)1
Profit on sale of assets
Net finance costs
Loss on fair value of derivatives
Income tax expense
(Loss)/Profit after tax
1. Included in Material items (before tax) are amortisation of African blue intangibles of $6.8m as disclosed in Note A3.
(d) Geographical segment of non-current assets
Non-current assets excluding financial assets (including equity
accounted investment) and deferred tax balance by geography
Australia
China
Morocco
12 months
ended
December
2019
$ ‘000
147,045
4,270
(89,405)
(70,247)
1,397
(25,979)
-
(844)
(33,763)
6 months
ended
December
2018
$ ‘000
35,316
(1,485)
(20,154)
(3,925)
454
(4,216)
(23)
(2,030)
3,937
Notes
B6
A3
E2
December
20191
$ ‘000
December
2018
$ ‘000
793,360
64,577
153,633
1,011,570
490,964
30,811
148,417
670,192
1. The Group has initially applied AASB 16 Leases at 31 December 2018, using the modified retrospective approach. Under this approach, comparative information are not restated
at the date of initial application for increase in right-of-use asset. Refer Note E6.
51
Costa Group Holdings Limited Annual Report 2019 Notes to the Consolidated Financial Statements
continued
A2. Revenue and expenses
Revenue
Sale of goods and commissions received
Rebates and discounts provided
Rendering of services
Other revenue
Total revenue
Sale of goods
12 months
ended
December
2019
$ ‘000
1,006,638
(14,953)
39,136
17,052
1,047,873
6 months
ended
December
2018
$ ‘000
455,410
(6,955)
20,261
8,888
477,604
Revenue from sale of goods is recognised when it transfers control over goods 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. These are for operating leases.
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).
Expenses
Net finance costs
Interest income
Interest expense on borrowings
Interest expense on lease liabilities1
Amortisation of borrowing costs
Note
E6
12 months
ended
December
2019
$ ‘000
6 months
ended
December
2018
$ ‘000
(132)
8,950
16,204
957
25,979
(211)
4,168
-
259
4,216
1. This relates to the interest expense on lease liabilities due to implementation of AASB 16 Leases – refer to Note E6 for further detail.
52
Costa Group Holdings Limited Annual Report 2019 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 of $2.7 million 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*
12 months
ended
December
2019
$ ‘000
6 months
ended
December
2018
$ ‘000
343,365
19,240
9,762
7,198
379,565
162,501
9,983
5,244
3,362
181,090
12 months
ended
December
2019
$ ‘000
6 months
ended
December
2018
$ ‘000
20,801
9,600
8,400
34,950
73,751
8,514
5,287
4,017
21,256
39,074
* Other expenses include telecommunications, marketing, information technology and general administration expenditure.
A3. Material items
Material items are those items where their nature and amount are considered material to the Financial Statements. Such items are included within
the Group’s consolidated statement of profit and loss and other comprehensive income, and are detailed below:
Individually material items included in profit before income tax:
African Blue acquisition and integration expenses1
Mushroom impairment and restructure provisions2
Total material items (before tax)
Tax effect of material items
Total material items (after tax)
1. African Blue acquisition and integration expenses
The following items associated with acquisition and integration are disclosed as material items:
12 months
ended
December
2019
$ ‘000
6 months
ended
December
2018
$ ‘000
(8,529)
(61,718)
(70,247)
8,329
(61,918)
(3,925)
-
(3,925)
785
(3,140)
•
•
transaction and integration related costs such as legal, consulting, travel and other expenses associated with the integration of the African Blue JV; and
amortisation of acquired intangibles relating to customer contracts and re-acquired rights arising from the acquisition. These amounts have been fully written-off by December
2019.
2. Mushroom impairment and restructure provisions
With the challenging trading conditions experienced by the mushroom category in 2019, a review of the category’s operations resulted in:
•
•
accelerated closure of its aging high cost sites in Queensland and Tasmania; and
optimisation of its Western Australia operations.
53
Costa Group Holdings Limited Annual Report 2019
Notes to the Consolidated Financial Statements
continued
The financial impact of this is summarised below, which has been disclosed as material items:
Impairment of goodwill
Impairment of assets1
Total impairment losses
Restructuring provision
Total Mushroom impairment and restructure provisions
Notes
B8
B7, E6
12 months
ended
December
2019
$'000
35,093
15,930
51,023
10,695
61,718
1. Included in the impairment of assets are $15.4m for impairment of property, plant and equipment (Note B7) and $0.5m for impairment of right-of-use asset (Note E6).
A4. Earnings per share
Basic EPS
Basic EPS (cents) based on net (loss)/profit attributable to members of Costa Group Holdings Limited
Diluted EPS
Diluted EPS (cents) based on net (loss)/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 (loss)/profit attributable to owners of Costa Group Holdings Limited
12 months
ended
December
2019
Cents per
share
6 months
ended
December
2018
Cents per
share
(10.75)
1.35
(10.75)
1.35
12 months
ended
December
2019
Number
(‘000)
6 months
ended
December
2018
Number
(‘000)
329,215
319,831
54
329,269
835
320,666
$ ‘000
$ ‘000
(35,406)
4,325
Calculation of earnings per share
Earnings per share is the amount of post-tax (loss)/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
Dividends
On 26 February 2020, the Directors declared a final dividend of 2.0 cents per ordinary shares payable on 8 April 2020. The dividends have not been
provided for and there are no income tax consequences.
Except for the matters disclosed in the preceding paragraph, there are no matters or circumstances that have arisen since the financial year ending
29 December 2019, 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.
54
Costa Group Holdings Limited Annual Report 2019 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
(Loss)/Profit for the year
Non-cash adjustments to reconcile (loss)/profit before tax to net cash flows:
Depreciation and amortisation
Profit on sale of assets
Borrowing cost written-off/amortised
Impairment loss
(Gain)/loss on fair value adjustments – biological assets
(Gain)/loss on fair value of derivatives
Share-based payments expense
Share of profit of equity-accounted investees, net of tax
Change in working capital and tax balances:
(Increase)/decrease in inventories
(Increase)/decrease in receivables
(Increase)/decrease in biological assets
(Increase)/decrease in other assets
Increase/(decrease) in interest payable
Increase/(decrease) in payables
Increase/(decrease) in provisions
(Increase)/decrease in deferred taxes
Increase/(decrease) in current tax payables
Net cash generated from operating activities
Recognition and measurement
December
2019
December
2018
$ ‘000
37
35,856
69
35,962
$ ‘000
129
45,615
58
45,802
12 months
ended
December
2019
$ ‘000
(33,763)
6 months
ended
December
2018
$ ‘000
3,937
96,203
(1,397)
595
51,023
(4,270)
-
1,135
(4,101)
105,425
933
4,149
3,296
3,093
(288)
(20,833)
7,619
(1,434)
(3,432)
98,528
24,078
(454)
259
-
1,485
23
1,063
(4,119)
26,272
606
17,633
(1,708)
(3,606)
(1,841)
(785)
862
331
(15,756)
22,008
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.
55
Costa Group Holdings Limited Annual Report 2019 Notes to the Consolidated Financial Statements
continued
B2. Receivables
CURRENT
Trade debtors
Less: Allowance for impairment losses on trade receivables
Other receivables
NON CURRENT
Other receivables
December
2019
$ ‘000
December
2018
$ ‘000
66,835
(482)
66,353
21,985
88,338
74,047
(678)
73,369
19,141
92,510
4,088
2,210
Other current and non-current receivables relates to sales tax receivable and amounts generally arising from transactions outside the usual operating
activities of the Group. They do not contain impaired assets and are not past due. It is expected that these other balances will be received when due.
A portion of the sales tax receivable includes 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 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.
Carrying amount of other receivables transferred to a bank
Carrying amount of associated liabilities
Note
C1
December
2019
$ ‘000
2,655
(2,655)
December
2018
$ ‘000
2,652
(2,652)
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
December
2019
$ ‘000
December
2018
$ ‘000
17,019
7,411
24,430
15,333
10,043
25,376
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.
56
Costa Group Holdings Limited Annual Report 2019 B4. Payables and other liabilities
CURRENT
Unsecured liabilities
Trade creditors
Sundry creditors and accruals
December
2019
$ ‘000
December
2018
$ ‘000
51,952
61,546
113,498
65,095
65,142
130,237
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 financial 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
Gain/(loss) arising from changes in fair value
Increases due to purchases
Decreases due to harvest
Increase resulting from acquisitions
Closing balance
57
December
2019
$ ‘000
December
2018
$ ‘000
-
3,657
3,657
986
-
986
415
3,406
3,821
251
3,379
3,630
December
2019
$ ‘000
December
2018
$ ‘000
9,742
712
10,454
14,422
-
14,422
December
2019
$ ‘000
December
2018
$ ‘000
43,625
5,584
49,209
42,137
6,191
48,328
48,328
4,270
187,108
(190,497)
-
49,209
47,839
(1,485)
132,367
(135,577)
5,184
48,328
Costa Group Holdings Limited Annual Report 2019 Notes to the Consolidated Financial Statements
continued
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 estimated 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.
Type
Description
Valuation technique
Hanging crop
(citrus, grapes,
avocados,
tomatoes,
blueberries,
raspberries,
blackberries
and bananas)
These are crops from
trees and bushes that
have an annual crop
production cycle and
a reasonably stable
development cycle.
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.
58
Costa Group Holdings Limited Annual Report 2019
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.
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
December
2019
$ ‘000
207,524
(54,363)
153,161
December
2018
$ ‘000
164,484
(52,932)
111,552
93,991
82,796
359,600
(170,401)
189,199
317,735
(145,543)
172,192
38,672
(10,966)
27,706
56,390
(21,532)
34,858
30,718
(9,087)
21,631
40,670
(14,652)
26,018
498,915
414,189
59
Costa Group Holdings Limited Annual Report 2019 Notes to the Consolidated Financial Statements
continued
(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
Disposals
Depreciation expense
Impairment of assets1
Transfers, reclassifications and adjustments and effect of movement in FX rate
Closing carrying amount
Assets Under Construction
Opening carrying amount
Additions
Disposals
Transfers, reclassifications and adjustments and effect of movement in FX rate
Closing carrying amount
Plant and equipment
Opening carrying amount
Additions
Acquisitions through business combinations
Disposals
Depreciation expense
Impairment of assets1
Transfers, reclassifications and adjustments and effect of movement in FX rate
Closing carrying amount
Leasehold Improvements
Opening carrying amount
Additions
Depreciation expense
Impairment of assets1
Transfers, reclassifications and adjustments and effect of movement in FX rate
Closing carrying amount
Bearer Plants
Opening carrying amount
Additions
Disposals
Depreciation expense
Transfers, reclassifications and adjustments and effect of movement in FX rate
Closing carrying amount
Total property, plant and equipment
Opening carrying amount
Additions
Acquisitions through business combinations
Disposals
Depreciation expense
Impairment of assets1
Transfers, reclassifications and adjustments and effect of movement in FX rate
Closing carrying amount
1. Impairment of assets are in relation to Mushroom impairment and restructure. Refer Note A3 for details.
60
December
2019
$ ‘000
December
2018
$ ‘000
111,552
677
(685)
(6,954)
(5,365)
53,936
153,161
82,796
145,452
-
(134,257)
93,991
172,191
8,389
-
(140)
(31,757)
(8,626)
49,142
189,199
21,631
666
(2,430)
(1,420)
9,259
27,706
26,018
4,978
(57)
(6,364)
10,283
34,858
414,188
160,162
-
(882)
(47,505)
(15,411)
(11,637)
498,915
113,675
472
-
(2,736)
-
141
111,552
43,184
59,632
(1,624)
(18,396)
82,796
165,693
8,458
(1,028)
(517)
(13,762)
-
13,348
172,191
21,467
133
(850)
-
881
21,631
20,564
1,453
-
(2,240)
6,241
26,018
364,583
70,147
(1,028)
(2,141)
(19,588)
-
2,215
414,188
Costa Group Holdings Limited Annual Report 2019 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
Bearer plants at cost
Depreciation rates
3% – 10%
4% – 33%
4% – 25%
Depreciation basis
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 29 December 2019, the Group has capital commitments amounting to $41,683,013 (December 2018: $19,706,827) 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
December
2019
$ ‘000
201,073
December
2018
$ ‘000
236,052
3,169
3,011
3,796
9,414
(7,112)
2,302
3,600
(3,600)
-
11,700
(11,700)
-
3,184
3,008
3,796
8,724
(5,917)
2,807
3,600
(2,167)
1,433
11,700
(6,337)
5,363
Total intangible assets
213,351
255,643
61
Costa Group Holdings Limited Annual Report 2019 Notes to the Consolidated Financial Statements
continued
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 combinations
Impairment loss1
Net exchange differences on translation of foreign subsidiaries
Closing balance
Capitalised software costs
Opening balance
Additions
Amortisation expense
Transfers, reclassifications and adjustments
Closing balance
Brand names
Opening balance
Additions
Net exchange differences on translation of foreign subsidiaries
Opening balance/closing balance
Lease premiums
Opening balance/closing balance
Net exchange differences on translation of foreign subsidiaries
Closing balance
Water rights
Opening balance
Additions
Closing balance
Reacquired rights
Opening balance
Amortisation expense2
Customer relationships
Opening balance
Amortisation expense2
Total Intangibles assets
Opening carrying amount
Additions
Impairment loss
Acquisitions through business combinations
Amortisation expense
Transfers, reclassifications and adjustments
Net exchange differences on translation of foreign subsidiaries
Closing carrying amount
December
2019
$ ‘000
December
2018
$ ‘000
236,052
-
(35,093)
114
201,073
232,704
999
-
2,349
236,052
2,807
-
(1,195)
690
2,302
3,184
-
(15)
3,169
3,008
3
3,011
3,796
-
3,796
1,433
(1,433)
-
5,363
(5,363)
-
3,373
-
(566)
-
2,807
3,182
2
-
3,184
2,924
84
3,008
2,924
872
3,796
2,433
(1,000)
1,433
8,287
(2,924)
5,363
255,643
-
(35,093)
-
(7,991)
690
102
213,351
255,827
874
-
999
(4,490)
-
2,433
255,643
1. Goodwill impairment relates to Mushroom impairment and restructure exercise. Refer Note A3 for details.
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. Amortisation expense on re-acquired rights and customer relationships associated with the African Blue acquisition has been treated as material items (refer Note A3).
62
Costa Group Holdings Limited Annual Report 2019 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.
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.
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.
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.
63
Costa Group Holdings Limited Annual Report 2019 Notes to the Consolidated Financial Statements
continued
Allocation of goodwill
The allocation of goodwill across the Group’s reportable segments is provided below:
December 2019
$'000
Goodwill
Carrying amount at start of year
Impairment loss
Net exchange differences on translation of foreign subsidiaries
Carrying amount at end of year
December 2018
$'000
Goodwill
Carrying amount at start of year
Acquisitions through business combinations
Net exchange differences on translation of foreign subsidiaries
Carrying amount at end of year
B9. Impairment
Produce
CF&L International
Total
131,483
(35,093)
-
96,390
1,674
-
-
1,674
102,895
-
114
103,009
236,052
(35,093)
114
201,073
Produce
CF&L International
Total
131,483
-
-
131,483
1,674
-
-
1,674
99,547
999
2,349
102,895
232,704
999
2,349
236,052
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.
Goodwill
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.
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.
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 flows through to CY2022. For
CY2023 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
Long-term growth rates are based on past experience, expectations of external market operating conditions and other assumptions which take
account of the specific feature of the Group or each business unit.
64
Costa Group Holdings Limited Annual Report 2019 Terminal growth rate
The terminal growth rate represents estimates of the CGU’s growth to perpetuity. This ranges between country’s inflation and GDP growth rate.
The Australian CGUs terminal growth rate has been lowered during the year to 2.5% (December 2018: 3.0%) to reflect current economic conditions.
The International CGUs terminal growth rate remains consistent with prior year at 3%.
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.
Recognised Impairment
Impairment of the mushroom category goodwill
Goodwill in the mushroom business is tested at the category CGU level. The mushroom category was tested for impairment at June 2019 with
Management indicating that any reasonable possible change in forecasted earnings growth rate could lead to a potential impairment.
Trading conditions for the remainder of 2019 continued to be challenging. Consequently, Management has tested the category for impairment
at December 2019, with the recoverable value calculated using probability weighted cash flows. It was determined that the carrying value of the
mushroom category of $172.2m, exceeded its recoverable value by approximately $35.1m, resulting in a goodwill impairment.
The key assumptions used in determining the mushroom category’s value in use are provided below:
• Projected cash flows have been calculated using the expected cash flow approach, which uses multiple scenario-based probability-weighted
cash flow forecasts.
• A pre-tax discount rate of 10.9% was used.
• A terminal value growth rate of 2.5% has been used for CY2024.
Following the impairment loss recognised in the Mushrooms CGU, the recoverable amount was equal to the carrying amount. Any adverse
movement in a key assumption or cash flows would lead to further impairment.
Sensitivity Analysis
Management has identified that a reasonable possible change in forecasted earnings growth rate, could cause the carrying amount to exceed the
recoverable amount for the African Blue CGU.
Percentage decrease required for carrying amount to equal recoverable amount
Forecasted EBITDA growth rate (CY2019 to CY2022)
African Blue CGU
(8.7%)
Other than as disclosed above, the Group believes that for the remaining CGUs, any reasonable possible change in the key assumptions would not
cause the carrying value of the CGUs to exceed their recoverable amount.
The ranges of rates used in determining recoverable amounts of the rest of the business are set out below:
Long term growth rate
Terminal growth rate
Pre-tax discount rate (domestic)
Pre-tax discount rate (international)
B10. Provisions
CURRENT
Employee benefits
Onerous leases
Other
NON-CURRENT
Employee benefits
Onerous leases
Other
2019
2.5%
2.5% – 3.0%
10.0% – 13.0%
12.0% – 15.0%
2018
2.5%
3.0%
10.0% – 13.0%
14.0% – 17.0%
December
2019
$ ‘000
December
2018
$ ‘000
(a)
(b)
(c)
(a)
(b)
(c)
16,220
-
7,491
23,711
5,807
-
2,045
7,852
16,095
1,228
-
17,323
5,906
1,812
1,944
9,662
65
Costa Group Holdings Limited Annual Report 2019 Notes to the Consolidated Financial Statements
continued
(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 CY2026. 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. Under AASB16, this has been reclassed to right-of-use assets
(refer to Note E6).
(c) Other provisions
This relates to provision for closure costs in relation to the Mushroom sites 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
Adjustment to ROU asset1
Closing balance
Other provisions
Opening balance
Amounts used
Additional amounts recognised
Closing balance
December
2019
$ ‘000
December
2018
$ ‘000
22,001
(5,772)
5,798
22,027
3,040
-
(3,040)
-
1,944
-
7,592
9,536
20,723
(4,387)
5,665
22,001
3,654
(614)
-
3,040
1,749
(4)
199
1,944
1. In accordance with the new lease accounting standard AASB 16, onerous lease liabilities are adjusted against right-of-use asset on transition.
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.
B11. 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 Limited Annual Report 2019 C. Capital Structure and Financing
C1. Borrowings
Current liabilities
Secured liabilities
Bank loans
Unsecured liabilities
Bank loans
Non-current liabilities
Secured liabilities
Bank loans
Unsecured liabilities
Bank loans
Total borrowings
December
2019
$ ‘000
December
2018
$ ‘000
-
428
7,784
7,784
-
428
8,227
9,669
198,806
207,033
280,345
290,014
214,817
290,442
Terms and conditions relating to the above financial instruments
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. The key terms of the Group’s banking facilities detailed as below:
Secured
• Secured bank loan with $7.5m facility that can be drawn upon as required. This facility matures in November 2023.
• Secured bank loan of $2.6m that matures in January 2023.
• The above secured bank loans are secured over buildings and VAT receivables (see Note B2).
Unsecured
During the year, the Group renewed and expanded its syndicated debt facility from a $350m facility maturing in 2020 and 2021 to a $450m facility
that is split as below:
• Facility A – $300m facility that can be drawn upon as required. This facility matures in August 2022.
• Facility B – $150m facility that can be drawn upon as required. This facility matures in August 2023.
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.
Bank guarantees
The Group maintains bank guarantees of $13.0 million (December 2018: $12.5 million) that could be called up at any time in the event of a breach
of our financial obligations. Costa does not expect any payments will eventuate under these financial guarantees as the Group expects to meet its
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 Limited Annual Report 2019 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 (net of issue costs)1
Settlement of share-based payment
At reporting date
December
2019
$ ‘000
December
2018
$ ‘000
578,030
(10,986)
3,566
10,221
580,831
401,673
(7,087)
3,566
6,569
404,721
December 2019
December 2018
Number ‘000
$ ‘000 Number ‘000
$ ‘000
319,937
80,162
693
400,792
404,721
175,728
382
580,831
319,698
-
239
319,937
403,410
-
1,311
404,721
1. During the year, the Group undertook a capital raising through a rights issue to all shareholders. An accelerated institutional offer closed on 30 October 2019 while the retail
entitlement offer closed on 22 November 2019, jointly issuing 80.2 million ordinary shares raising $174.1 million, net of issue cost (net tax).
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 $72,517 (December 2018: $99,736).
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 29 December 2019, 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 C6
for further details.
68
Costa Group Holdings Limited Annual Report 2019 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 12 months ended 29 December 2019
Final December 2018 ordinary
Interim December 2019 ordinary
Cents per
share
Total
amount
$'000
Date of
payment
5.0
3.5
15,997
12 April 2019
11,222 3 October 2019
Declared after end of year
After the balance sheet date, the following dividends were proposed by the directors. The dividends have not been provided for and there are no
income tax consequences.
Final December 2019 ordinary
Cents per
share
2.0
Total
amount
$'000
8,016
Date of
payment
8 April 2020
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
Amortised costs
Current receivables
Non-current receivables
Cash and cash equivalents
Fair value through profit & loss
Shares in other corporations
Fair value through other comprehensive income
Forward exchange contracts
Financial liabilities
Fair value through other comprehensive income
Forward exchange contracts
Interest rate swaps
Other financial liabilities not measured at fair value
Payables
Bank loans
Put and call options
Fair value
hierarchy
December
2019
$ ‘000
December
2018
$ ‘000
-
-
-
88,338
4,088
35,962
92,510
2,210
45,802
128,388
140,522
Level 2
-
244
Level 2
712
-
Level 2
Level 2
-
-
-
-
986
986
113,498
214,817
3,656
331,971
415
251
666
130,237
290,442
6,785
427,464
69
Costa Group Holdings Limited Annual Report 2019 Notes to the Consolidated Financial Statements
continued
Recognition, classification and measurement
On initial recognition, the Group classifies its financial assets and liabilities into the following categories: amortised costs, fair value through other
comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The classification depends on the purpose for which the instruments
were acquired. Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing
financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the
business model.
Amortised costs
Financial assets or liability with contractual cash flows that comprise the payment of principal and interest only and which are held in a business
model whose objective is to collect their cash flows are measured at amortised costs.
Fair value through other comprehensive income (FVOCI)
Financial assets or liability with contractual cash flows that comprise the payment of principal and interest only and which are held in a business
model whose objective is to both collect their cash flows and sell them are measured at FVOCI; and
Fair value through profit or loss (FVTPL)
Other financial assets or liability that do not fall in the above categories are measured at FVTPL
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
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 prescribed above.
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.
70
Costa Group Holdings Limited Annual Report 2019 Put and call options
On 27 November 2017, the Group acquired an 86% interest in African Blue SA (African Blue). As part of the agreement, the Group will make further
payments to the existing shareholders on reaching certain earnings targets over the three years from acquisition date, by way of a put and call
options, which also increases the Group’s interest in African Blue by 4% over three years.
The put and call option have 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 options, the liability does not form part of
the consideration transferred and is recognised against ‘general reserve’ in equity. The fair value of the put options recognised at 29 December 2019
is $3.6m (Dec 2018: $6.8m). 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.
Impairment
Non-derivative financial assets
Financial assets measured at amortised cost
The new impairment model using expected credit loss under AASB 9 applies to financial assets measured at amortised cost. The Group has applied
the required model as disclosed in credit risk section of this note. Any losses are recognised in the consolidated statement of profit and loss and
other 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 consolidated statement of profit and loss and other 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.
(i) 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 loans1
Net financial liabilities exposed to interest rate risk
December
2019
$ ‘000
December
2018
$ ‘000
35,962
45,802
(164,817)
(128,855)
(241,097)
(195,295)
71
Costa Group Holdings Limited Annual Report 2019 Notes to the Consolidated Financial Statements
continued
Sensitivity analysis for variable rate instruments
At 29 December 2019, 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 rate1
Decrease of 100 basis points in interest rate1
December
2019
$ ‘000
(1,289)
1,289
December
2018
$ ‘000
(1,953)
1,953
1. The Group has taken $50m of interest rate swaps to hedge a portion of the variable rate exposure on the bank loans. These have been excluded for the purpose of the above analysis.
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 these international subsidiaries. The Group also makes purchases and capital expenditure that expose it to movements in
exchange rates of USD, Euro (EUR), and British Pound (GBP). 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:
December 2019
Cash
Trade and other receivables
Trade and other payables
Derivative financial assets/(liabilities)
Net exposure
December 2018
Cash
Trade and other receivables
Trade and other payables
Derivative financial assets/(liabilities)
Net exposure
Sensitivity analysis
USD
$ ‘000
953
1,619
(9)
97
2,660
USD
$ ‘000
683
1,897
(51)
(71)
2,458
JPY
$ ‘000
1,028
41
-
609
1,678
JPY
$ ‘000
444
292
-
(272)
464
EUR
$ ‘000
1,317
176
(596)
-
897
EUR
$ ‘000
233
83
(175)
(54)
88
GBP
$ ‘000
122
400
-
-
522
GBP
$ ‘000
-
-
-
-
-
CNY
$ ‘000
4,552
3,300
(791)
-
7,061
CNY
$ ‘000
4,324
2,054
(2,088)
-
4,289
MAD
$ ‘000
3,342
2,046
(5,996)
-
(608)
MAD
$ ‘000
1,740
1,606
(11,007)
-
(7,661)
At 29 December 2019, 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 10%
(ii) Liquidity risk
USD
$ ‘000
266
(266)
JPY
$ ‘000
168
(168)
EUR
$ ‘000
90
(90)
GBP
$ ‘000
52
(52)
CNY
$ ‘000
706
(706)
MAD
$ ‘000
(61)
61
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 Australian credit facilities net of bank guarantees of the Group was $244.8 million. In addition, the Group maintains
a domestic overdraft facility of $3.0 million.
The Group is in compliance with all undertakings under its various financial arrangements.
72
Costa Group Holdings Limited Annual Report 2019 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.
December 2019
Non-derivative financial liabilities
Bank loans*
Trade payables
Derivative financial liabilities
Interest rate swaps
December 2018
Non-derivative financial liabilities
Bank loans*
Trade payables
Derivative financial liabilities
Forward exchange contracts
Interest rate swaps
Less than
6 months
$'000
6 – 12
months
$'000
1 – 5
years
$'000
Over
5 years
$'000
208,664
113,498
322,162
-
-
7,784
-
7,784
-
-
Less than
6 months
$'000
6 – 12
months
$'000
291,097
130,237
421,334
415
-
415
-
-
-
-
-
-
-
-
-
986
986
1 – 5
years
$'000
-
-
-
-
251
251
-
-
-
-
-
Over
5 years
$'000
-
-
-
-
-
-
Total
$'000
216,448
113,498
329,946
986
986
Total
$'000
291,097
130,237
421,334
415
-
415
* 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.
(iii) 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 Corporations
Receivables
December
2019
$ ‘000
35,962
-
88,338
December
2018
$ ‘000
45,802
244
92,510
124,300
138,556
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
December
2019
$ ‘000
49,749
13,924
1,259
1,903
December
2018
$ ‘000
56,702
10,172
2,352
4,821
66,835
74,047
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 41% of the Group’s trade debtors at 29 December 2019.
73
Costa Group Holdings Limited Annual Report 2019 Notes to the Consolidated Financial Statements
continued
Expected credit loss assessment for trade receivables
The Group uses an allowance matrix to measure the Expected Credit Losses (ECL) of trade receivables from individual customers. Loss rates are
calculated using combination of estimated potential bad debts for debts past due more than 90 days and actual write-offs in the past three years.
The movement in the allowance for impairment in respect of trade receivables during the year was as follows.
Movements in the accumulated impairment losses were:
Opening balance at 30 December 2018
Impairment loss (recognised)/reversed
Amounts written off
Closing balance at 29 December 2019
(iv) Capital management
December
2019
$ ‘000
December
2018
$ ‘000
(678)
124
72
(482)
(435)
(381)
138
(678)
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 Limited Annual Report 2019 D. Group Structure
D1. Joint ventures and associates
(a) Details of Associates and Joint Ventures
Equity
instrument
Ownership
interest
December
2019
%
Ownership
interest
December
2018
%
Measurement
basis
Principal place of business
and country of incorporation
Associates
Polar Fresh Partnership
Ordinary shares
Joint Ventures
Driscoll's Australia Partnership
Ordinary shares
50
50
50 Equity Accounted
Victoria, Australia
50 Equity Accounted
Victoria, Australia
(b) Summarised financial information for associates and joint ventures
Reconciliation of carrying amount in joint ventures and associates:
Opening balance at 31 December 2018
Total share of profit/(loss)
Dividends paid
Closing balance at 29 December 2019
(i) Polar Fresh Partnership
Polar Fresh
Partnership
$ ‘000
Driscoll's
Australia
Partnership
$ ‘000
92
-
-
92
14,329
4,101
(1,850)
16,580
Total
$ ‘000
14,421
4,101
(1,850)
16,672
The Polar Fresh Partnership is a provider of cold storage, warehousing and distribution solutions. As disclosed in prior year’s annual report, Polar Fresh
Partnership‘s final contract was completed in October 2017 and operations have now ceased and is in the process of winding down.
(ii) Driscoll’s Australia Partnership
In 2010, the Group entered into a partnership with Driscoll’s 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 the 12 months ended
December 2019, gross sales revenue for the Driscoll’s Australia Partnership was $482,668,026 (6 months ended December 2018: $234,749,373),
and net assets were $33,170,157 (6 months ended December 2018: $28,659,130).
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.
75
Costa Group Holdings Limited Annual Report 2019
Notes to the Consolidated Financial Statements
continued
D2. List of subsidiaries
The following are the Group’s significant subsidiaries:
Subsidiaries of Costa Group Holdings Ltd:
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
Blueberry Investments Africa Pty Ltd (formerly 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
Costa (Baoshan) Agricultural Development Co Ltd
African Blue S.A.
Sweet Berry S.A.
Blue Flavor
African Blue (UK) PLC
76
Country of
incorporation
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
China
Morocco
Morocco
Spain
United Kingdom
Ownership interest
held by the group
December
2019
%
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
70
89
89
80
80
December
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
-
Costa Group Holdings Limited Annual Report 2019 D3. Related party disclosures
(a) Transactions with associates and joint ventures
The Group transacted with jointly controlled entities during the 12 months ended December 2019 as follows:
• Driscoll’s Australia Partnership – Commission paid on sale of berries $24,014,775 (6 months ended December 2018: $11,231,680)
• Driscoll’s Australia Partnership – Sales of produce $178,780,029 (6 months ended December 2018: $92,855,626)
• Driscoll’s Australia Partnership – Receivable of $12,828,115 (6 months ended December 2018: $18,681,318) for sale of produce and logistic
services.
• Driscoll’s Australia Partnership – Dividends received amounting to $1,850,000 (6 months ended December 2018: $1,100,000)
(b) Transactions with key management personnel of the entity or its parent
The Group incurred the following transactions during the financial year ended December 2019:
Mr Harry Debney
• Payment of membership fee of $200,000 to Australian Fresh Produce Alliance (AFPA) of which Harry Debney is a Director, representing the Group.
The AFPA is made up of Australia’s major fresh produce growers and suppliers and serves as the industry body that retailers and government go to
for discussion and outcomes on issues involving the growing and supply of fresh produce. Each member of AFPA is entitled to appoint a Director
and each member has only one vote under AFPA’s Constitution.
• Capital expenditure payment of $132,570 to The Yield Pty Ltd (6 months ended December 2018: $250,000), of which Harry Debney serves as
Chairman of the Board, representing the Group. The Yield is an Australian agricultural technology company that invests, builds and secures
scalable digital agriculture technology. The Yield’s services were provided pursuant to written contract on arm’s length terms and Harry
abstained from the negotiation and all board discussions and voting in relation to entry into the contract.
•
Income of $50,000 payable to the Group from the Yield Pty Ltd on behalf of Harry Debney’s services as Chairman of the Board.
Mr Frank Costa (Director for part of the financial year ended December 2019)
• Payment of leasing fee to Frank Costa paid by Costa’s Pty Ltd for 1111 Aviation Road, Werribee of AUD $1 (6 months ended December 2018: $1).
This property is leased to Costa’s Pty Ltd until 2076 at $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.
• Payment of services fees of $31,042 to Frank Costa for the provision of advisory services to the Board from the time of his resignation as a Director
(4 July 2019). The services were provided pursuant to a written contract on arms length terms and ceased on 1 December 2019.
Key Management Personnel
Compensation received by executive key management personnel of the group:
• Short-term employee benefits
• Post-employment benefits
• Other monetary benefits
• Long-term employee benefits
• Share-based payment benefits
December
2019
$ ‘000
December
2018
$ ‘000
2,139
71
2
36
455
2,703
1,446
67
4
23
467
2,007
77
Costa Group Holdings Limited Annual Report 2019 Notes to the Consolidated Financial Statements
continued
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 profit/(loss) for the period
December
2019
December
2018
$ ‘000
$ ‘000
200
672,191
672,391
256
480,744
481,000
9,906
105,379
115,285
3,316
59,978
63,294
557,106
417,706
580,832
26,189
8,697
(58,612)
557,106
404,721
53,408
10,874
(51,297)
417,706
December
2019
December
2018
$ ‘000
(7,315)
(7,315)
$ ‘000
(2,895)
(2,895)
(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.
78
Costa Group Holdings Limited Annual Report 2019 D5. Deed of cross guarantee
The Australian 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.
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 financial
year ended 29 December 2019, 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
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 – reclassified to profit or loss
Cash flow hedges – effective portion of changes in fair value
Total other comprehensive income/(loss) for the period
Total comprehensive income for the year
12 months
ended
December
2019
$ ‘000
924,250
(971,195)
4,101
(42,844)
1,073
(41,771)
6 months
ended
December
2018
$ ‘000
474,389
(468,951)
4,119
9,557
(2,110)
7,447
248
-
392
640
-
39
(47)
(8)
(41,131)
7,439
79
Costa Group Holdings Limited Annual Report 2019 Notes to the Consolidated Financial Statements
continued
(b) Consolidated Statement of Financial Position of the closed group
ASSETS
Current assets
Cash and cash equivalents
Receivables
Inventories
Biological assets
Other assets & financial assets
Current tax assets
Total current assets
Non-current assets
Receivables
Other financial assets
Equity accounted investments
Intangible assets
Deferred tax assets
Property, plant and equipment
ROU assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Borrowings
Payables
Provisions
Other financial liabilities
Lease liabilities
Total current liabilities
Non-current liabilities
Borrowings
Provisions
Deferred tax liabilities
Other financial liabilities
Lease liabilities
Total non-current liabilities
Total liabilities
NET ASSETS
EQUITY
Share capital
Other equity reserve
Other reserves
Profit reserve
Accumulated losses
Total equity
80
December
2019
$ ‘000
December
2018
$ ‘000
27,261
125,605
19,625
36,199
7,686
8,270
224,646
3,963
95,343
35,602
106,921
17,442
404,355
265,854
929,480
1,154,126
-
92,542
22,863
-
32,314
147,719
190,369
7,852
14,000
986
243,197
456,404
604,122
38,951
131,420
21,076
39,241
6,731
4,479
241,898
1,850
125,361
14,421
142,519
3,266
345,402
-
632,819
874,717
-
116,044
17,323
415
-
133,782
280,300
9,662
-
253
-
290,215
423,997
550,005
450,720
569,253
(13,093)
8,445
42,022
(56,622)
550,005
404,721
(11,558)
10,231
105,992
(58,666)
450,720
Costa Group Holdings Limited Annual Report 2019 E. Other
E1. Share-based payments
Share-based payments reserve
December
2019
$ ‘000
December
2018
$ ‘000
8,697
10,874
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 the financial year ended December 2019, a total of 2,339,520 options (financial period ended December 2018: 784,762 options) have been
granted to key management personnel and the executive team under new option plans.
The Group granted nil (financial period ended December 2018: 75,498) performance rights to key management personnel and the executive team
during the year ended December 2019.
Recognition and measurement
The Group provides benefits to its employees and Executive 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
December 2019
December 2018
KMP and executives
KMP and executives
26/02/2019
23/08/2018
22/11/2018
2,339,520
$0.89
$5.20
$7.42
40%
2.80%
1.69%
739,975
$2.79
$8.74
$6.58
30%
2.20%
2.06%
44,787
$1.33
$6.59
$6.58
30%
2.20%
2.14%
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.
There were no performance rights issued under current year STI plan. Prior year fair value of the performance rights issued under STI plan was based
on the 10 day market volume weighted average price of the shares of Costa Group Holdings Ltd ending on 22 August 2018. Details are as follows:
Employee performance rights program
Numbers issued
Fair value at grant date
December
2019
KMP and
executives
-
-
December
2018
KMP and
executives
75,498
8.38
81
Costa Group Holdings Limited Annual Report 2019
Notes to the Consolidated Financial Statements
continued
Reconciliation of outstanding share options
The number and weighted average exercise prices of options under the employee share option program are as follows:
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
December 2019
December 2018
Number of
options
5,416,717
(616,944)
(1,766,720)
2,339,520
5,372,573
809,105
Weighted
average
exercise
price
$4.02
$2.81
$0.00
$7.42
$6.96
$2.46
Number of
options
4,798,546
-
(166,591)
784,762
5,416,717
1,028,848
Weighted
average
exercise
price
$3.46
-
-
$6.58
$4.02
$2.55
The options outstanding as at 29 December 2019, which have not been vested, have an average exercise price of $6.42 (Dec 2018: $4.06).
E2. Taxation
(a) Components of tax expense
Current tax
Deferred tax
Under/(Over) provision in prior years
Profit/(loss) before income tax
Prima facie income tax expense on profit before income tax at 30.0%
• Effect of tax rates in foreign jurisdictions1
Tax effect of:
Non-deductible goodwill impairment
Non-deductible expenses/assessable income
Net deferred tax asset unrecognised
Non-creditable foreign withholding tax
Under/(over) provision in prior years
Research and development tax credits
Non-assessable income
Income tax expense attributable to profit
(b) Current tax
Current tax relates to the following:
Current tax liabilities/(assets)
Opening balance
Current year tax expense
Tax payments
Foreign withholding tax credits claimable
Over provisions
Share plan payments – tax effect recognised through equity
Closing balance
82
12 months
to December
2019
$ ‘000
5,927
(4,819)
(264)
6 months
to December
2018
$ ‘000
5,246
(2,140)
(1,076)
844
2,030
(32,920)
5,967
(9,876)
(990)
1,790
730
10,528
1,974
189
95
(263)
(800)
(13)
844
-
1,164
-
(515)
(1,076)
-
(63)
2,030
December
2019
$ ‘000
December
2018
$ ‘000
(3,016)
5,927
(5,735)
(462)
(1,900)
-
(5,186)
12,709
5,246
(16,986)
(319)
(3,616)
(50)
(3,016)
Costa Group Holdings Limited Annual Report 2019 (c) Deferred tax
Deferred tax relates to the following:
Deferred tax assets
The balance comprises:
Provisions
Trade and other payables
Inventories
Capital (black hole) deductions (section 40-880)
Borrowings
Equity Accounted Investments
Other financial liabilities
Future deductible share plan trust payment
Tax losses – foreign subsidiaries
Lease assets and liabilities
Property, plant and equipment
Deferred tax liabilities
The balance comprises:
Biological assets
Property, plant and equipment
Intangible assets
Trade and other receivables
Other financial liabilities
Net deferred tax assets
(d) Deferred tax expense included in income tax comprises
(Increase)/decrease in deferred tax assets
Increase/(decrease) in deferred tax liabilities
(e) Deferred tax movement
Opening balance – net deferred tax asset
Over provision in prior years
Increase in deferred tax asset recognised in profit or loss
Increase/(decrease) in deferred tax liability as a result of acquisitions
Increase/(decrease) in deferred tax asset recognised in equity
FX revaluation
Closing balance – net deferred tax asset
December
2019
$ ‘000
December
2018
$ ‘000
9,530
2,962
39
1,376
-
488
-
39
244
2,728
470
8,299
3,821
39
2,899
73
588
9
4,831
239
-
-
17,876
20,798
9,625
-
1,919
2,266
190
14,000
3,876
9,421
3,413
3,432
2,578
-
18,844
1,954
December
2019
$ ‘000
928
(5,747)
December
2018
$ ‘000
(339)
(1,801)
(4,819)
(2,140)
December
2019
$ ‘000
1,954
(1,637)
4,819
December
2018
$ ‘000
2,897
(2,512)
2,140
-
(1,259)
(1)
3,876
382
(928)
(25)
1,954
1. Losses incurred in foreign jurisdictions with tax rates lower than 30% will result in an increasing tax effect to reflect the actual tax benefit available at a tax rate less than 30%.
The Group’s franking account balance as at 29 December 2019 is $11,166,958 (30 December 2018: $17,877,899).
83
Costa Group Holdings Limited Annual Report 2019 Notes to the Consolidated Financial Statements
continued
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.
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:
Reference
Framework
AASB 3
Various
Title
Amendments to References to Conceptual Framework in IFRS Standards
Definition of a Business (Amendments to AASB 3)
Definition of Material (Amendments to AASB 101 and AASB 108)
AASB 1059
Service Concession Arrangements: Grantor
AASB 17
AASB 128
Insurance Contracts
Sale or Contribution of Assets between and Investor and its Associate or Joint Venture
(Amendments to IFRS 10 and AASB 128)
The Group is currently assessing the impact of these standards on its financial position and performance.
Application
1 January 2020
1 January 2020
1 January 2020
1 January 2020
1 January 2021
1 January 2022
84
Costa Group Holdings Limited Annual Report 2019 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.
12 months
ended
December
2019
$’000
6 months
ended
December
2018
$’000
392
206
598
213
56
269
867
310
83
393
165
12
177
570
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.
E6. Change in accounting policies
The Group has initially adopted AASB 16 Leases from 31 December 2018. AASB 16 introduced a single, on-balance sheet accounting model for
lessees. As a result, the Group, as a lessee, has recognised right-of-use assets representing its right to use the underlying assets and lease liabilities
representing its obligation to make lease payments. Lessor accounting remains similar to previous accounting policies.
The Group has applied AASB 16 using the modified retrospective approach, under which and therefore the comparative information has not been
restated and continues to be reported under AASB 117 and AASB Interpretation 4.
In November 2019, the International Financial Reporting Standards Interpretations Committee (IFRIC) issued a final agenda decision, Lease Term and
Useful Life of Leasehold Improvements, on how lease term of a cancellable or renewable lease should be determined for both the lessor and lessee
when applying AASB 16 Leases. IFRIC clarifies that the broader economics and not only the contractual termination payments should be considered
in determining lease terms. The adoption of this clarification may increase ROUA and lease liabilities in the Statement of Financial Position as well as
an increase in depreciation and interest expense in the Statement of Comprehensive Income.
As at 29 December 2019, Costa has not adopted this IFRIC Agenda Decision. The impact of the change is not reasonably estimable as Costa has yet to
complete its assessment of the impact of the IFRIC Agenda Decision. Costa expects to adopt this Agenda Decision in its half year financial statements
ending on 28 June 2020.
The remaining details of the changes in accounting policies as a result of applying AASB 16 are disclosed below:
85
Costa Group Holdings Limited Annual Report 2019 Notes to the Consolidated Financial Statements
continued
(a) Definition of a lease
Previously, the Group determined at contract inception whether an arrangement was or contained a lease under Interpretation 4 Determining
Whether an Arrangement contains a Lease. The Group now assesses whether a contract is or contains a lease based on the new definition of a lease.
Under AASB 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in
exchange for consideration.
On transition to AASB 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions are leases.
It applies AASB 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under AASB 117 and
Interpretation 4 were not reassessed. Therefore, the definition of a lease under AASB 16 has been applied only to contracts entered into or changed
after 31 December 2018.
At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease
and non-lease component on the basis of their relative stand-alone prices. However, for leases of properties in which it is a lessee, the Group has
elected not to separate non-lease components and will instead account for the lease and non-lease components as a single lease component.
(b) As a lessee
The Group leases various properties, equipment and motor vehicles. Rental contracts are typically made for fixed periods and may have extension
options. Lease terms are negotiated on an individual basis and contains a wide range of different terms and conditions. The lease agreements do not
impose any covenants, but lease assets may not be used as security for borrowing purposes.
The Group recognises leases as a right-of-use asset and a corresponding lease liability at the date at which the leased asset is available for use. Each
lease payment is allocated between the liability and finance costs. The finance cost is charged to profit or loss over the lease period so as to produce
a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of
the asset’s useful life and the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following
lease payments:
• Fixed payments (including in-substance fixed payments), less any lease incentives receivable
• Variable lease payments that are based on an index or a rate
• Amounts expected to be payable by the lessee under residual value guarantees
• The exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
• Payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that options
The lease payments are discounted using the interest rate implicit in the lease, if that rate can be determined, or the group’s incremental borrowing
rate ranging between 5.2% to 6.3%.
Right-of-use assets are measured at cost comprising the following:
• The amount of the initial measurement of lease liability
• Any lease payments made at or before the commencement date less any lease incentives received
• Any initial direct costs; and
• Restoration costs
The Group used the following number of practical expedients when applying AASB 16 to leases, in particular:
• Did not recognise right-of-use assets and liabilities for leases for which the lease term ends within 12 months of the date of initial application
• Did not recognise right-of-use assets and liabilities for low value assets
• Adjusted the initial right-of-use asset by the amount of provision for onerous leases prior to date of initial application
• Applied a singled discount rate to portfolio of leases with reasonably similar characteristics
(c) Impact on financial statements
(i) Impact on transition on 30 December 2018
Right-of-use assets
Lease liabilities
Retained earnings
86
$'000
312,657
(313,736)
-
Costa Group Holdings Limited Annual Report 2019 (ii) Amounts recognised in the balance sheet
Right of use assets
Balance at 30 December 2018
Depreciation charge for the year
Additions to right-of-use assets
Impairment of right-of-use asset1
Effect of foreign exchange rates
Balance at 29 December 2019
Right of use asset consist of $268.8 million relating to property and $16.3 million relating to vehicle and equipment leases.
Lease liabilities
Current
Non-current
$’000
312,657
(40,708)
13,706
(519)
43
285,177
December
2019
$’000
33,904
259,811
293,715
1. Impairment of right-of-use assets relates to Mushroom impairment and restructure provisions. Refer Note A3 for details.
The following table sets out the maturity analysis of lease payments, showing the undiscounted lease payments to be received after the reporting date.
Lease liabilities
Payable
• not later than one year
•
•
later than one year and not later than five years
later than five years
December
2019
$'000
December
20181,2
$’000
33,904
109,999
149,812
293,715
48,962
178,016
278,556
505,534
1. Comparative information represents operating lease liabilities payable under AASB 17. The reconciliation of operating lease commitments to AASB 16 lease liability is detailed
in section (iii) below.
2. Lease payments for operating leases, where substantially all the risk and benefits remain with the lessor, are recognised as an expense on a straight line basis over the term
of the lease
(iii) Amounts recognised in the statement of profit and loss
Depreciation charge of right-of use-assets
Property
Non-property
Lease liabilities
Interest expense
Variable lease payments not included in the measurement of lease liabilities
Expenses relating to short-term leases and low value leases
(iv) Reconciliation of operating lease commitments to lease liability
Add/(Less):
Operating lease commitments disclosed as at 30 December 2018
Discounted using the rate implicit in the lease or the group's incremental borrowing rate
Short-term leases recognised on a straight-line basis as expense
Low-value leases recognised on a straight-line basis as expense
Adjustment as a result of different treatment of extension/termination options
Lease liability recognised as at 31 December 2018
87
December
2019
$’000
35,266
5,442
40,708
16,204
4,651
9,398
30,253
$’000
505,534
304,504
(600)
(61)
9,893
313,736
Costa Group Holdings Limited Annual Report 2019 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 E6 and the Remuneration Report in the Directors’ Report, are in accordance with the
Corporations Act 2001, including:
(i)
giving a true and fair view of the Group’s financial position as at 29 December 2019 and of its performance, for the financial period
year 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 12 months ended 29 December 2019.
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 26th day of February 2019.
Harry Debney
Managing Director & CEO
Neil Chatfield
Chairman
88
Costa Group Holdings Limited Annual Report 2019
Independent Auditor’s Report
89
Costa Group Holdings Limited Annual Report 2019 94 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. Independent Auditor’s Report To the shareholders of Costa Group Holdings Ltd Report on the audit of the Financial Report Opinion We have audited the Financial Report of Costa Group Holdings Ltd (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: • giving a true and fair view of the Group's financial position as at 29 December 2019 and of its financial performance for the year ended on that date; and • complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises: • Consolidated Statement of Financial Position as at 29 December 2019 • Consolidated Statement of Profit or Loss and Other Comprehensive Income, Consolidated Statement of Changes in Equity, and Consolidated Statement of Cash Flows for the year then ended • Notes including a summary of significant accounting policies • Directors' Declaration. The Group consists of Costa Group Holdings Ltd (the Company) and the entities it controlled at the year end or from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. Independent Auditor’s Report continued
90
Costa Group Holdings Limited Annual Report 2019 95 Key Audit Matters The Key Audit Matters we identified are: • Recoverability of non-current assets including property, plant and equipment and intangible assets • Valuation of biological assets Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current year. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Recoverability of non-current assets including property, plant and equipment ($498.9m) and intangible assets ($213.4m)Refer to note B7. Property, plant and equipment and note B8. Goodwill and Intangible AssetsThe key audit matterHow the matter was addressed in our auditA key audit matter for us was the Group’s assessment of the recoverability of non-current assets, including annual testing of goodwill for impairment. Certain conditions impacting the Group increased the judgement applied by us when evaluating the evidence available. We focussed on the significant forward-looking assumptions the Group applied in their value in use models, including: •forecast operating cash flows - the Group has experienced competitive trading, operating and environmental conditions in the current year across a number of Cash Generating Units (CGUs). These challenges have led to below forecast pricing and/or yield across CGUs, decreasing margins and sales volumes. These conditions increase the possibility of non-current assets being impaired, and the risk of inaccurate forecasts or a wider range of possible outcomes for us to consider. •forecast capital expenditure – delays in the Monarto mushroom farm expansion and the pause of the Guyra tomato expansion led to revisions in the Group’s forecast capital expenditure plan. Our testing focussed on the implications of these matters for consistent application and reasonableness given our industry experience. •forecast growth rates and terminal growth rates – in addition to the uncertainties described above, the Group’s models are highly sensitive to changes in these assumptions, potentially reducing available Our procedures included: •considering the appropriateness of the value in use method applied by the Group to perform testing of non-current assets for impairment against the requirements of the accounting standards. •assessing the integrity of the value in use models used, including the accuracy of the underlying calculation formulas. •comparing the forecast cash flows and capital expenditure contained in the value in use models to Board approved forecasts. •assessing the accuracy of previous Group forecasts to inform our evaluation of forecasts incorporated in the models. •considering the sensitivity of the models by varying key assumptions, such as forecast growth rates and terminal growth rates, pricing, and discount rates, within a reasonably possible range. We did this to identify those CGUs at higher risk of impairment, assumptions at higher risk of bias or inconsistency in application and to focus our further procedures. •challenging the Group’s significant forecast cash flow and growth assumptions in light of the competitive trading, operating and environmental conditions. We compared key events to the Board approved plan and strategy. We applied increased scepticism to forecasts in the areas where previous forecasts were not achieved. We compared forecast growth rates and terminal growth rates to published studies of industry trends and expectations, and considered differences for the Group’s operations. We used our knowledge of the Group, its past 91
Costa Group Holdings Limited Annual Report 2019 96 headroom or indicating possible impairment. This drives additional audit effort specific to their feasibility and consistency of application to the Group’s strategy. •Discount rates – these are complicated in nature and vary according to the conditions and environment the specific CGU is subject to from time to time. We involve our valuation specialists with this assessment. The Group uses complex models to assess non-current assets for impairment. The models are largely manually developed, use adjusted historical performance, and a range of internal and external sources as inputs to the assumptions. The Group’s CGUs have not always met prior forecasts, increasing our focus on the reliability of current forecasts. Complex modelling, using forward-looking assumptions tends to be prone to greater risk for potential bias, error and inconsistent application. These conditions necessitate additional scrutiny by us, in particular to address the objectivity of sources used for assumptions, and their consistent application. The Group recorded an impairment charge of $51m against goodwill and property, plant and equipment, resulting from the trading challenges within the Mushroom category during the year. This further increased our audit effort in this key audit area.performance, business and customers, and our industry experience. •checking the consistency of the growth rates to the Group’s stated plan and strategy, past performance of the Group, and our experience regarding the feasibility of these in the competitive environment in which they operate. •assessing the impact of competitive trading, operating and environmental conditions on the Group’s key assumptions, specifically on growth rates and pricing, for indicators of bias and inconsistent application, using our industry knowledge and published studies of industry trends and expectations. •working with our valuation specialists, we analysed the Group’s discount rates and terminal growth rates against publicly available data of a group of comparable entities. We independently developed a discount rate range considered comparable using publicly available market data for comparable entities, adjusted by risk factors to the Group and the industry it operates in. •recalculating the impairment charge for the Mushroom category against the recorded amount disclosed. •assessing the disclosures in the financial report using our understanding of the matter obtained from our testing and against the requirements of the accounting standards. Independent Auditor’s Report continued
92
Costa Group Holdings Limited Annual Report 2019 97 Valuation of biological assets ($49.2m)Refer to note B6. Biological AssetsThe key audit matterHow the matter was addressed in our auditThe valuation of biological assets at fair value less costs to sell is a key audit matter due to the judgement required by us in considering the complexities and assumptions adopted by the Group in its biological assets valuation models. Several assumptions used in the valuation models are not based on observable market data and are therefore subject to significant level of judgement by the Group. The Group’s valuation models are highly sensitive to changes in key assumptions which can have a significant impact on the valuation. The key forward looking assumptions we focussed on are: •Yield expectations and cash inflows from forecasted sales: the Group has a portfolio of product categories, each with unique agricultural characteristics. This requires us to consider a variety of factors relating to growth patterns and yield per hectare in the Group’s valuation models. •Extent of biological advancement: the crops are seasonal in nature and, at balance date, are at various stages in the development cycle. •Expectations of future market pricing: pricing for each product category fluctuates based on quality and supply. Final prices are negotiated when the produce is ready for sale, which may be some time from balance date.Our procedures included: •considering the appropriateness of the valuation models used by the Group to estimate the fair value of the biological assets against the requirements of the accounting standards. •considering the sensitivity of the valuation models by varying certain key forward looking assumptions. We did this to identify those assumptions at higher risk of bias or inconsistency in application and to focus our further procedures. •Challenging the forward looking assumptions, including pricing and yield in the Group’s valuation model, by comparing to historic and current trends, such as actual market price and yields. We considered events and impacts subsequent to the year end and compared these to the assumptions used by the Group. •performing site visits on a sample basis, to inspect the actual biological advancement of crops and comparing this to the assumptions used in the Group’s valuation models. •assessing the integrity of the valuation models used by the Group, including the accuracy of the underlying calculation formulas. •challenging the Group’s ability to reliably estimate the key assumptions by comparing previous assumptions to actual outcomes. •evaluating the consistency of key assumptions within the Group’s valuation models, including forecasted sales, against those used and tested by us, in the assessment of the recoverability of non-current assets, including property, plant and equipment and intangible assets as described in the above key audit matter. •assessing the specific disclosures required for biological assets in the financial report using our understanding obtained from our testing and against the requirements of relevant accounting standards. 93
Costa Group Holdings Limited Annual Report 2019 98 Other Information Other Information is financial and non-financial information in Costa Group Holdings Ltd’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information. The Other Information we obtained prior to the date of this Auditor’s Report was the Directors’ Report including the Remuneration Report. The Chairman’s Report, Managing Director’s Review, Company Profile, Harvest Calendar, Shareholder Information and Corporate Directory are expected to be made available to us after the date of the Auditor's Report. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not and will not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 • implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error • assessing the Group and Company's ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objective is: • to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and • to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our Auditor’s Report. Independent Auditor’s Report continued
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Costa Group Holdings Limited Annual Report 2019 99 Report on the Remuneration Report Opinion In our opinion, the Remuneration Report of Costa Group Holdings Ltd for the year ended 29 December 2019 complies with Section 300A of the Corporations Act 2001. Directors’ responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in the Directors’ report for the year ended 29 December 2019. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Gordon Sangster Partner Melbourne 26 February 2020 Shareholder Information
Twenty Largest Registered Shareholders (as at 11 March 2020)
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 Pty Limited
Citicorp Nominees Pty Limited
BNP Paribas Nominees Pty Ltd
Neweconomy Com Au Nominees Pty Limited
BNP Paribas Noms Pty Ltd
UBS Nominees Pty Ltd
National Nominees Limited
NMS Nominees Pty Ltd
Hoxton Pty Ltd
UBS Nominees Pty Ltd
3rd Wave Investors Ltd
HSBC Custody Nominees (Australia) Limited-Gsco Eca
Elaine Costa Superannuation Pty Ltd
Anthony Costa Superannuation Pty Ltd
BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd Drp
Netwealth Investments Limited
Sandhurst Trustees Ltd
Woodross Nominees Pty Ltd
Mcneil Nominees Pty Limited
Number of Shares % of Issued Capital
22.13
12.45
5.08
4.80
3.56
3.44
2.18
2.08
1.56
1.25
1.22
1.00
0.77
0.71
0.71
0.52
0.49
0.34
0.32
0.31
88,685,573
49,912,517
20,350,273
19,227,078
14,270,894
13,797,694
8,736,247
8,346,472
6,255,902
5,004,721
4,902,459
4,000,000
3,091,581
2,831,619
2,831,619
2,099,743
1,967,631
1,350,954
1,270,098
1,250,000
Distribution of Holdings (as at 11 March 2020)
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
116
2,683
3,204
9,630
6,913
22,546
Number of Shares
285,937,085
62,157,675
23,687,594
25,581,714
3,427,743
400,791,811
% of Issued Capital
71.34
15.51
5.91
6.38
0.86
100.00
The number of shareholders holding less than a marketable parcel of shares (as at 11 March 2020) is 1,136 and they hold 120,271 shares.
Substantial Shareholders (as at 11 March 2020)
Shareholder
Perpetual Limited and its related bodies corporate
Lazard Asset Management Pacific Co
Schroder Investment Management Australia Limited
ECP Asset Management Pty Ltd and its associated entities
Escrowed Shares
As at 11 March 2020, there are no shares subject to voluntary escrow arrangements.
Number of Shares % of Issued Capital
13.92
5.67
5.51
5.29
55,796,280
22,726,769
22,087,791
21,219,629
Unquoted Securities
As at 11 March 2020, there were 5,372,573 options over unissued shares of Costa Group Holdings Ltd, being the options described in item 12 of
the Directors’ Report. These options were held by 19 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.
As at 11 March 2020, there is no current on-market buy-back.
95
Costa Group Holdings Limited Annual Report 2019
Corporate Directory
Directors
Neil Chatfield (Chairman)
Harry Debney (CEO)
Tim Goldsmith
Janette Kendall
Peter Margin
Jane Wilson
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
Annual Report 2019
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