Annual Report
Costa Group Holdings Limited
2022
Contents
Corporate Governance Statement
Costa’s Corporate Governance Statement
for the financial year is located at
investors.costagroup.com.au/investor-
centre/?page=corporate-governance
02
Chairman and Interim CEO Report
52
Consolidated Statement
of Changes in Equity
08
Company Profile
54
Consolidated Statement
of Cash Flows
14
Harvest Calendar
55
Notes to the Consolidated
Financial Statements
17
Directors’ Report
99
Directors’ Declaration
49
Lead Auditor’s Independence
Declaration
100
Independent Auditor’s Report
50
Consolidated Statement of Profit and
Loss and Other Comprehensive Income
105
Shareholder Information
51
Consolidated Statement
of Financial Position
106
Corporate Directory
Front cover image
Tomato glasshouse, Guyra,
New South Wales
Annual Report 2022
Costa Group Holdings Limited ABN 68 151 363 129
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 Group Holdings Limited
01
Annual Report 2022
Chairman and Interim CEO Report
Overview
The 2022 year was one which highlighted the resilience of
our company’s business model and our ability to realise its
competitive advantages under a number of different operating
conditions, including extremely challenging weather.
Those things that contribute to making our portfolio truly
unique, including our expansive protected cropping footprint,
geographical diversity and market leading presence, both
domestically and internationally, our world leading proprietary
blueberry genetics, and the access we have to premium varieties
across our other categories, meant Costa was able to perform
well, relative to other industry participants in the face of such
challenges, and the result achieved reflects this.
The 2022 financial year saw Costa deliver EBITDA-S (before
fair value movements in biological assets and material items
EBITDA-S) of $214.8 million (1.6% decrease on CY21) and a
$30.2 million Net Profit After Tax (before fair value movements
in biological assets and material items – NPAT-S).
Our international segment, domestic berry, mushroom
and tomato categories all delivered continued earnings
improvements, with each showing strong revenue growth
year on year. Our citrus category performance saw favourable
volumes and pricing in export markets however adverse weather
impacts outweighed these benefits by affecting the quality of
the fruit, and combined with higher crop input and freight costs,
resulted in revenue well below expectations.
Costa is the clear industry leader
in utilising protected cropping and
the development of proprietary
and licensed genetics.
Neil Chatfield
Chairman and Independent
Non-Executive Director
Harry Debney
Director and
Interim CEO
Costa Group Holdings Limited
Annual Report 2022
02
The contribution from our international segment continues
to build year on year, with an outstanding China performance
driving solid profit growth with a 34% increase in revenue versus
the prior year. This reflected increased volumes, strong quality
and demand, and higher pricing, even taking into consideration
major city Covid lockdowns toward the end of the China season.
Pleasingly our premium Jumbo Arana variety volumes continue
to build and attract higher pricing, in CY22 its volume as a
percentage of total crop volumes in China was 44%, an 11%
increase on CY21.
Operations in Morocco proved more challenging, and although
volumes were 4% higher year on year, delayed crop timing
due to weather impacted revenue. Our northern Morocco
farm replanting program is proceeding to plan, with the Mayra
variety’s progressive replacement by other Costa Variety
Improvement Program (VIP) purpose bred, premium genetics
blueberry varieties on track.
We continue to expand our year-round African blueberry supply
offering, with third party grower volumes increasing versus the
prior year. This was mainly reflected through increased volumes
from southern African growers, notably in South Africa and
Zimbabwe.
Our capital expenditure over recent years is also delivering to
plan, reflected in the fact that our lowest cost of production
mushroom facility at Monarto in South Australia, generated
consistent above capacity volume (average 240+ tonnes per
week) across the entire year, further cementing Costa’s industry
leading position.
Costa also benefited from increased opportunity to supply more
prepack mushrooms to retailers. The benefits from this were
especially seen during Covid and this has continued. Costa is the
leader in the development of the prepack mushroom segment in
Australia, with a circa 60% volume share.
The performance of our additional 10 hectares of tomato
glasshouse which came online at the beginning of CY22 and 2.5
hectare state of the art nursery both met expectations and will
enable Costa to further develop its snacking and cocktail tomato
variety offering. This has already been highlighted by the roll out
of our Perino brand range extension across 2022.
The contribution
from our international
segment continues to
build year on year, with
an outstanding China
performance driving
solid profit growth.
Costa Group Holdings Limited
Annual Report 2022
03
The tomato nursery which is divided into seven different
compartments to allow for maximum flexibility to ensure
seedlings can be produced at the best time to coincide with
market demand, has between 80-90 varieties in trial, scheduled
to deliver circa 700,000 plants over a 12 month period for Costa’s
own production and that of its third party growers.
Although the performance of our citrus category was ultimately
affected by extreme weather conditions and cost impacts, we
remain positive about the growth opportunities in this category.
This includes the fact that we have access to premium varieties,
notably Amorette and Phoenix mandarins, which strongly
position the company to supply the increasing demand for
premium quality fresh produce in Asian markets.
Costa citrus exports to China more than doubled to circa 10%
of volume as a result of our acquisition of 2PH. This provides a
significant opportunity to further build on growth in this market
through a premium brand offering, with China continuing to be
the largest market for Australian citrus exports.
Our domestic berry footprint, much of which is grown under
protective coverings and spans five growing locations across four
states, delivers 52 week supply of blueberries and raspberries.
Our premium blueberry varieties, including our latest exciting
variety Delight, which was purpose bred for growing in the
tropical climate of Far North Queensland, help to consolidate and
build on Costa’s position as the leading grower in the Australian
berry market.
Costa is the clear industry leader in Australia in utilising
protected cropping and the development of proprietary
and licensed genetics. We have done so to our competitive
advantage and in CY22, the evidence of this was especially seen
in the performance of our domestic Berry category. While other
growers in the main growing region on the north coast of New
South Wales were severely impacted by rain and as a result
suffered from reduced quality and volume, the benefit of our
expansive protected cropping infrastructure and the premium
varieties we grow, came to the fore enabling us to maintain
market supply into the peak season.
The performance of our avocado category continued to prove
challenging, a combination of a prolonged Western Australian
crop and our own lower volumes due to weather impacts over
the second half of the year, saw a disappointing result for the full
year. On a brighter note, bigger fruit size and improved packouts
drove better pricing over the latter part of the year, providing
some impetus for a more positive start to 2023.
The lack of any real progress in opening access to key avocado
export markets, including Japan for the eastern seaboard of
Australia is disappointing and continues to be a source of
frustration. This is affecting all industry participants, resulting in
difficult avocado trading conditions. It is hoped the Australian
government can maintain the required focus and make further
progress on this over 2023 in time for the 2024 season.
There were significant cost inflation pressures through the year,
which included above CPI increases for the cost of transport,
fertilisers, and packaging. Fixed pricing arrangements for
energy meant we were shielded from further increasing gas and
electricity prices over the second half of the year. Rainfall across
the eastern seaboard due to La Niña had a positive effect on
water pricing, resulting in cost savings.
Chairman and Interim CEO Report continued
$1,357.6m
Costa generated $1,357.6 million in full year
revenue, a 11.2% increase on the prior
comparative period.
$214.8m
EBITDA-S was $214.8 million, down 1.6%
on CY21, NPAT-S was $30.2 million, while
statutory NPAT-S was $47.0 million.
$351.7m
Net debt was $351.7 million with a leverage
ratio of 2.46x as at end of December 2022.
Full year revenue
EBITDA-S
Net debt
CY22 Results
Monarto mushroom
production facility,
South Australia
Costa Group Holdings Limited
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Annual Report 2022
Even as some input cost inflation pressures are expected to
moderate in 2023, the company is focused on cost reduction and
price maximising initiatives. This includes insourcing of seasonal
labour to reduce third party costs, investing in progressive
automation of harvesting, leveraging our scale through
procurement of key inputs, capping input price increases in line
with CPI where possible, and improving yield and quality, plus
extending season length for premium varieties to maximise
pricing opportunities, especially in export markets.
Despite the challenges of the past year in which adverse weather
conditions impacted multiple growing regions, the diversity of
our portfolio, our leading market position in attractive produce
categories, supported by proprietary genetics, leading growing
techniques and the utilization of best in class technology meant
we were able to deliver a result that points to a positive long
term future.
This includes:
• Further maturing of our 2PH and Sunraysia citrus tree age
profile, which will result in corresponding yield increases;
• Expedite plantings of premium berry varieties, including VIP
plantings across domestic and international operations to
build out volume and supply window offering;
• Enhancing the depth and strength of our proprietary VIP
blueberry breeding program through commercialising
new varieties;
• Building further on the success of our Monarto mushroom
expansion with the aim of increasing production to an
average of 250+ tonnes per week;
• Optimising our increased tomato production capacity and
nursery capability through growing a higher returning
varietal mix; and
• Pursuing further opportunities to increase our protected
cropping capacity, including across citrus and table grapes.
Dividends
The Board declared a fully franked final dividend of 5.0 cents per
share for the second half of CY22, 40% franked. This brought the
total dividend payment for CY22 to 9.0 cents per share.
Our People
The health and safety of our workforce is a priority for our
company, with a focus on applying the same high standards
across both our domestic and international operations. This
has included transparency in the reporting of key metrics and
performance data in our Sustainability Report. Sadly, during the
year one of our China based employees was killed in a traffic
accident. The way in which the Costa China team responded to
the accident was reflective of the sense of responsibility and care
they have for each other. They cooperated fully with the relevant
authorities as they carried out an external investigation into the
accident, while also providing appropriate ongoing support for
the worker’s family.
In 2022, the company established its own Costa Labour
Standards which set out the commitment to ensure we actively
manage the engagement and oversight of all labour, whether
sourced directly by Costa or through third parties, to safeguard
employment conditions and worker wellbeing.
Costa takes its legal obligations to comply with workplace and
migration laws extremely seriously and operates to the highest
ethical standards. This included supporting the establishment of
the Modern Slavery Act (Aust) and the framework it provides to
increase transparency of actions to reduce the risks of modern
slavery and human trafficking in company supply chains.
Building further on
the success of our
Monarto mushroom
expansion with the
aim of increasing
production to an
average of 250+
tonnes per week.
Annual Report 2022
Costa Group Holdings Limited
05
Chairman and Interim CEO Report continued
The company will release its third modern slavery report in
2023. Specific modern slavery risks that have been identified
include the outsourcing of labour recruitment, including in our
partner grower base. Adding to our due diligence measures, our
contracts for labour hire providers have been updated to include
specific reference to Costa’s expectations for all such providers,
including that they are registered, and linked to Costa on Sedex
and comply with Costa’s Supplier Code of Conduct.
Developing our people is crucial to both retaining and building
a skilled and productive workforce. It is also important in
enshrining our sustainable commercial farming objectives
as part of our everyday operations. During the year a Vertical
Farming Training Academy was established within the business
to provide a training platform for growers, agronomists and
operations staff working across our tomato operations. Training
sessions are offered fortnightly on a range of topics including
water use, energy savings, integrated pest management and
irrigation strategies.
The take up and interest from employees has been
overwhelmingly positive, reflecting the genuine interest and
passion within the company for all matters sustainability related
and a willingness to both enhance and improve the sustainability
of our farming practices.
Community
The lingering effects of Covid, combined with the impact of
weather events and cost of living challenges brought into focus
the important role Costa plays in the many communities in which
we operate. Over 2022 there were yet again practical examples
of Costa actively providing support and assistance, across all
parts of our business.
The devastating earthquake and tsunami that hit the island
nation of Tonga in early 2022 demonstrates the commitment of
Costa and its employees to helping those in need. In recognition
of the close relationship the company has through its
employment of Tongans in our Australian operations, Costa and
our workforce committed funding to the relief effort and worked
together with Coles to coordinate a shipping container being
sent to Tonga filled with essential supplies.
Contributing to the health and wellbeing of local communities
and especially those in need has always been a strong focus for
Costa, and 2022 was no different. Our Berry team in Tasmania
began donating punnets of fresh berries to the Loaves and Fishes
school food program which provides free emergency food relief
that is available to all Tasmanians. Costa’s donations helped to
supply half the fruit needed to serve around 60 schools state wide.
Since September 2018, Costa has donated mushrooms to
FareShare, a not-for-profit organisation that partners with local
producers, Oz Harvest and Second Bite rescuing food from waste
to make nutritious meals that feed those most in need. Costa also
recently provided a $5,000 donation to support the development
of a third kitchen at the FareShare Melbourne facility, to expand
their capacity to cook and provide more healthy and nutritious
meals within the community.
Board
With the easing of Covid restrictions over late 2021 and early
2022, the Board was able to once again undertake site visits,
providing an invaluable opportunity to both experience first
hand the company’s operations and to also engage with
operational staff.
In 2022 Board members visited the 2PH operations in Central
Queensland and we also participated in the investor site tour
of the Monarto mushroom facility. The thing that always stands
out with such visits is the passion and professionalism of our
workforce. It is clear to see they are both industry leaders with
respect to their skills and agronomic expertise, while also
working closely as a team to achieve the best possible outcomes,
including in the face of challenges which may come their way,
such as unexpected weather and climate impacts.
Costa Group Holdings Limited
Annual Report 2022
06
The Board continues to focus on ensuring the company
optimises shareholder returns, by delivering an appropriate
return on invested capital. This includes working with the
Executive team to develop strategy and thoroughly assessing
opportunities for further expansion, be it building on existing
operations, or through M&A across domestic and international
markets. Identifying and driving innovation across our operations
also remains a key activity, in particular through the Board’s
Horticultural Innovation and Technology (HIT) Committee.
In response to the cyber incident in August 2022, and also due
to the heightened cyber threat landscape being experienced
by many Australian corporates, the Board has continued to
increase its oversight of the organisation’s cyber security
program and, through the Audit & Risk Committee, undertaking
an independent assessment of Costa’s overall cyber security
resilience and plans.
In September our CEO Sean Hallahan departed the business.
During Sean’s five years with the organisation including as
Chief Operating Officer and from March 2021 as CEO and
Managing Director, he played a pivotal role in Costa’s
development and growth.
Following Sean’s departure, Harry Debney was appointed Interim
CEO. Harry previously served as our CEO for 10 years and his
breadth of knowledge, experience and understanding of our
business and the fresh produce industry meant that he was the
best person to perform the Interim CEO role while a search for a
permanent CEO is ongoing.
The company also appointed a Chief Operating Officer, Marc
Werner and a General Manager, Strategy and M&A, Kirsty Deglas.
These important appointments add to the strength and depth of
our Executive team, providing a focus on managing operations
and the development and execution of a clear strategy. Both of
these roles commenced in the second half of 2022.
Update for CY23
As we entered 2023, there was an improved weather outlook,
indicating more favourable growing conditions across our
farming portfolio. We also expect a recovery in the Citrus
category’s performance, which will be enhanced by maturing
orchards in Central QLD and Sunraysia (Vic). The International
season including new China berry plantings started positively
and our focus across the business remains on yield, quality and
further premium product roll out to offset input
cost inflation.
Labour availability is improving significantly, contrasted with
shortages over the past two years. We are also benefiting from
our continuing program of insourcing Pacific seasonal labour.
Return on capital and strong cashflow generation remain
priorities.
Beyond this, CY24 and CY25 are expected to benefit from a
number of key developments, including continued maturing
of citrus tree age profile resulting in corresponding production
increases, additional volumes from the Conaghans land at
2PH (additional circa 450 hectares), further growth in the
International segment from new plantings in China and Agadir
and replantings that will take advantage of new VIP blueberry
varieties, future improvement in domestic berry returns through
VIP blueberry premiumisation and targeted capital expenditure
to improve harvest productivity in all categories.
Developing
our people is
crucial to both
retaining and
building a skilled
and productive
workforce.
Neil Chatfield
Chairman and Independent
Non-Executive Director
Harry Debney
Director and
Interim CEO
Costa Group Holdings Limited
Annual Report 2022
07
Company Profile
Costa is Australia’s leading grower,
packer and marketer of fresh fruit
and vegetables and operates
principally in five core categories:
berries, mushrooms, glasshouse
tomatoes, citrus and avocados.
Produce
International
CF&L
73%
14%
13%
Business Model
The Costa business model is built on the optimisation of a diverse
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 the
company’s expansive footprint of domestic and international
farms, supplemented with produce sourced through a diverse
network of third-party growers.
Operations include approximately 7,200+ planted hectares of
farmland, 40 hectares of glasshouse facilities and three main
mushroom growing facilities across Australia. Costa also has
strategic foreign interests, with majority owned joint ventures
covering six blueberry farms in Morocco and four berry farms
in China, covering approximately 750 planted hectares.
For the 12 months financial year ended December 2022, Costa’s
total revenue was $1,357.6 million (CY21: $1,220.6 million),
EBITDA-S was $214.8 million (CY21: $218.2 million) and
NPAT - S was $30.2 million (CY21: $64.0 million).
7,200+
planted hectares of
farmland as at end of
December 2022
40
hectares of tomato
glasshouse
3
major mushroom
production facilities
750
approximately planted
hectares of berries
across Morocco
and China
Figure 1: Costa’s revenue by
segment for the 12 months
calendar financial year ended
1 January 2023.
Guangmen berry farm, China
Tomato glasshouse, Guyra, New South Wales
Costa Group Holdings Limited
Annual Report 2022
08
Western Australia
Berry Farms
Gingin, Neergabby
Compost Facility
Mandurah
Distribution Centre
Jandakot
Mushroom Farm
Casuarina
South Australia
Adelaide Wholesale Market
Pooraka
Citrus Farms
Amaroo - Murtho, Pike Creek - Lyrup,
Solora - Loxton, Bookpurnong
Kangara Citrus Farm and Packhouse
Murtho
Mushroom Farm
Monarto
Yandilla Citrus Farm and Packhouse
Renmark
Victoria
Business Support Centre
Ravenhall
Citrus and Table Grape Farm
Colignan
Citrus Farm
Lindsay Point
Compost Facility
Nagambie
Distribution Centre
Derrimut
Melbourne Wholesale Market
Melbourne
Mushroom Farms
Mernda, Yarrambat
New South Wales
Avocado Farms
Comboyne, Fishermans Reach
Berry Farms
Corindi, Rosewood, Tumbarumba
Citrus Farm
Trentham Cliffs
Distribution Centre
Eastern Creek
Table Grape Distribution Centre
Euston
Tomato Glasshouses
Guyra
Queensland
Avocado Farms
Atherton, Paddys Green, Dimbulah, Childers
Banana Farms
Tully, Walkamin
Berry Farms
Atherton, Tolga, Walkamin
Brisbane Wholesale Market
Rocklea
Citrus Farms
Emerald, Dimbulah
Table Grape Farm
Mundubbera
Tasmania
Berry Farms
Dunorlan, East Devonport, Lebrina,
Nine Mile, Wesley Vale
Berry Distribution Centre and
Packhouse
East Devonport
Devonport Distribution Centre
Quoiba
Morocco
China
Bailang – Yunnan Province
Manlai – Yunnan Province
Guangmen – Yunnan Province
Manhong – Yunnan Province
Baoshan - Yunnan Province
Bousselham/Laaouamra
Kenitra, Larache region Massa
Agadir (southern) region
Where We Operate
WA
NT
SA
QLD
NSW
VIC
TAS
Costa Group Holdings Limited
Annual Report 2022
09
Costa operates across three
reportable segments
Produce
Operates principally in five vertically integrated core categories;
berries, mushrooms, citrus, glasshouse-grown tomatoes, and
avocados. Growing locations are situated across multiple states.
International
Comprises berry farming in Morocco (product exported to
Europe, UK and Asia) and China (product sold in China). Also
licensing of our proprietary blueberry varieties across several
regions, including the Americas and Africa.
Costa Farms & Logistics (CF&L)
Incorporates interrelated logistics, wholesale, and marketing
operations.
Key Growth Drivers
Since Costa’s IPO in 2015, we have concentrated on both
building existing operations, and strategic capital acquisitions
to drive expansion.
This has been targeted, including investing in the expansion
of our international footprint most notably the establishment
of operations in China, the acquisition of quality citrus assets,
including 2PH, which expanded our key growing regions to
three, enhancing the value and yields from our protected
cropping assets across berries, tomatoes and mushrooms and by
maintaining an unrelenting focus on our customer and consumer
needs, supported by the premium quality and diversity of our
product offering.
Our genetics, both proprietary and licensed, also give Costa a
market leading position. Costa’s Variety Improvement Program
(VIP), which is Costa’s own 25+ years successful proprietary
blueberry breeding program is globally recognised as an
industry leader, with a capacity to trial 20,000 seedlings per
annum, augmented by a cross breeding platform across both
tropical and sub tropical locations.
Our purpose bred Delight variety is grown in the tropical climate
of Far North Queensland, and other VIP varieties are being grown
in China and Morocco with a high degree of commercial success.
We have the next leading candidate from our premium Arana
blueberry crosses, which is currently called Variety C18-051. It has
exhibited high yield potential, improved berry texture, mid to
late season timing and a large percentage of the crop has a fruit
diameter of greater than 20 mm, which is export grade quality.
In citrus and table grapes, we also have access to premium
genetics. Through our acquisition of the 2PH citrus business,
Costa has exclusive perpetual and royalty free rights to
commercialise Amorette and Phoenix mandarin varieties
in Australia, China, India and Africa. We also have first right to
commercialise future varieties developed by the 2PH breeding
program in Australia, China, India and Africa.
Circa 50%+ of our total table grape supply is currently sourced
from licensed proprietary varieties, with 75% of this licensed
from Sunworld, which operates one of the largest and longest
running proprietary table grape breeding and licensing
enterprises in the world. These varieties are in high demand in
export markets and there are further opportunities to expand
our offering and the number of markets to which we export.
In our Tomato category, we operate a substantial tomato varietal
testing and development platform, the centrepiece of which is
our 2.5 hectare state of the art nursery facility. We are testing
and trialling between 80-90 varieties per annum from which
700,000+ plants are produced.
Company Profile continued
CY21
CY22
1,658.9
1,811.8
CY21
CY22
1,220.6
1,357.6
CY21
CY22
218.2
214.8
CY21
CY22
64.0
30.2
Transacted Sales ($m)
EBITDA-S ($m)
Total Revenue ($m)
NPAT-S ($m)
Since Costa’s IPO in 2015
we have concentrated
on both building existing
operations, and strategic
capital acquisitions
to drive expansion.
Costa Group Holdings Limited
10
Annual Report 2022
This is supported by strategic relationships with global leading
seed breeding companies, meaning we have exclusive access
to snacking and cocktail varieties including our premium Perino
offering, Bellino, various golden snacking varieties, Cocktail truss,
non-drip Roma plum and red snacking.
In the mushroom category, Costa has a long standing
relationship with Amycel USA, a global industry leader
in mushroom genetics development.
This includes exclusivity with Amycel in Australia to use
strain genetics from which Costa produces its own spawn for
mushroom production and growing two of Amycel’s most
popular propriety premium brown hybrid strains, namely
Heirloom and Brawn. Amycel is currently investing in advancing
their genetics development which Costa expects to benefit from.
Our proprietary genetics and the exclusive access we have
to other genetics is a distinct competitive advantage and
something that makes Costa’s diverse portfolio, including our
premium offerings truly unique and a major asset in driving
further growth.
Vision
‘To be the leader in sustainable commercial
farming of premium quality fresh produce’
APABILITY
BJECTIVE
USTAINABLE
COMMERCIAL FARMING
ECHNICAL
SUPERIORITY
MBITION
Investing in technology,
leadership & capability
development to deliver
our vision.
Driving long term ROIC
and maintaining a
strong balance sheet.
Executing our optimized yield
program on our proprietary
technology platform.
Leveraging our superior
agronomic expertise
and genetics to deliver
competitive advantage.
Expanding our leading go-to
market models to win
in international markets.
Costa Group Holdings Limited
Annual Report 2022
11
4,764
hectares – of planted
citrus across three growing
regions as at the end
of CY221
+27.4%
CY22 Arana export
revenue versus the
prior year
100%
2PH high security and
medium priority water
allocation2
+44.3%
Full year China blueberry
volume versus CY21
157,391
tonnes of citrus produced
across our three main growing
regions in CY22
+27.1%
Increase in glasshouse
tomato tonnes produced
versus the prior year
Highlights
Planted and production hectares as at end Dec 2022
Trees and Vines
Hectares
Avocado/Banana 1,050
Avocado1
773
Bananas
277
Citrus2
5,575
Citrus
4,764
Table grapes
550
Wine grapes
261
Vertical Farming
Mushrooms
Casuarina (WA)
Mernda (VIC)
Monarto (SA)
Tomato
40
Glasshouse
40
Morocco
349
Blueberry
349
China
400
Blueberry
368
Raspberry
22
Blackberry
10
Berry Domestic and International
Berry (Aust)
727 hectares
Berry type
Hectares
Soil
Substrate
Blueberry
480
246
234
Raspberry
166
33
133
Blackberry
56
8
48
Strawberry
25
0
25
1. Includes 113 hectares of Riverland/Sunraysia plantings.
2. Includes prospective 2PH 2023 Conaghans planting.
Costa Group Holdings Limited
Annual Report 2022
12
At Costa we are committed to ensuring we meet
the needs of our customers and the supply
of quality fresh nutritious produce.
1. Includes prospective 2PH 2023 Conaghans planting.
2. For the financial year 22/23.
Costa Group Holdings Limited
Annual Report 2022
13
Mushrooms
Mushrooms
Tomatoes
Tomatoes
Tomatoes
Oranges
Browns
Whites
Truss
Cocktail
Sweet Snacking
Valencia
January
February
March
April
May
June
July
August
September
October
November
December
Avocados
Avocados
Avocados
Bananas
Bananas
Raspberries
Raspberries
Blackberries
Hass
Reed
Shepard
Cavendish
Lady Fingers
Corindi
TAS
Corindi
January
February
March
April
May
June
July
August
September
October
November
December
Raspberries
Blackberries
Blueberries
Blueberries
China
China
China
Morocco/
African Blue
January
February
March
April
May
June
July
1
August
1
September
1
October
1
November
December
1. Denotes South Africa and Zimbabwe partner growers blueberry production – June - November.
Harvest Calendar
Costa Group Holdings Limited
14
Annual Report 2022
Oranges
Oranges
Mandarins
Mandarins
Mandarins
Mandarins
Mandarins
Navels
Red flesh Navels
Amorette
Phoenix
Murcotts
Seedless
Afourer
Blackberries
Blueberries
Blueberries
Blueberries
Blueberries
Blueberries
Strawberries
Grapes
Grapes
Grapes
TAS
Corindi
FNQ
WA
TAS
Tumbarumba
TAS
Red
White
Black
15
Costa Group Holdings Limited
Annual Report 2022
Costa Group Holdings Limited
Annual Report 2022
16
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 1 January 2023 (“CY2022”).
1. Directors
The directors of the Company at any time during or since the end of the period are set out below.
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, Audit and Risk Committee and Horticultural Innovation and Technology Committee
and Chair of the 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 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 Transurban Ltd (to October 2021), 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). Neil previously served as an executive director and Chief Financial Officer of Toll
Holdings Ltd (from 1997 to 2008).
Harry Debney BAppSc (Hons)
Director and Interim CEO
Appointed as a Non-Executive Director from 1 July 2021 and Interim CEO of the Company from
26 September 2022. Member of the Horticultural Innovation and Technology Committee and the
Nomination Committee.
Harry was formerly the Company’s CEO (from 2010) and Managing Director (from 2015) until his retirement
from the Company’s executive team in March 2021. During his time as CEO, Harry oversaw 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 Lite n’ Easy 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 Remuneration
and Human Resources Committee and 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 Non-Executive Chairman of Hazer Group Ltd and a non-executive director of New Energy
Technology Ltd. Tim was formerly the Chairman of Angel Seafood Holdings and the CEO of Rincon Mining.
Directors’ Report
For the year ended 1 January 2023
Costa Group Holdings Limited
Annual Report 2022
17
Janette Kendall B.Bus (Marketing), FAICD
Independent Non-Executive Director
Director since 11 October 2016. Chair of the Horticultural Innovation and Technology Committee and a
member of the Audit and Risk Committee and Nomination Committee.
Janette has held various senior management roles in her career including Senior Vice President of Marketing
at Galaxy Entertainment Group in Macau, China; Executive General Manager of Marketing at Crown Melbourne;
General Manager, Pacific Brands; Managing Director of emitch Limited; and Managing Director of Clemenger
Digital and Clemenger Proximity.
Janette is currently a non-executive director of Vicinity Centres, Tabcorp Holdings, Visit Victoria,
KM Property Funds and the Melbourne Football Club. Janette was previously a director of Nine Entertainment Ltd
(to December 2018), Wellcom Group Ltd (to November 2019) and Australian VenueCo (to December 2021)
and Chair of the Melbourne Theatre Company Foundation (to December 2020).
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 Executive Chairman of Asahi Beverages ANZ, Chief Executive of Goodman Fielder Ltd and 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.
Peter currently serves as a non-executive director of Nufarm Ltd and Deputy Chair of Bega Cheese Ltd.
Peter was previously a non-executive director of the NSX listed company Ricegrowers Ltd (to August 2015),
Chairman and Non-executive director of Huon Aquaculture Ltd (to August 2016), and a non-executive
director of PMP Ltd (to August 2016) and PACT Group Holdings Ltd (to August 2019).
Dr Jane Wilson AO
Independent Non-Executive Director
Director since 1 April 2019 and member of the Remuneration and Human Resources Committee, Horticultural
Innovation and Technology Committee and Nomination 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 is also a director of Rugby Australia and ASX listed
Transurban Ltd. In the early 2000s Dr Wilson was the Inaugural Chair of Horticulture Australia and served
on the Council of Rural Research & Development Corporations’ Chairs.
Former directors
Sean Hallahan was the Company’s Managing Director and CEO from 31 March 2021 to 26 September 2022.
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 29 years’ experience in legal practice.
Directors’ Report continued
For the year ended 1 January 2023
Costa Group Holdings Limited
Annual Report 2022
18
3. 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
Audit and Risk
Committee
Remuneration and
HR Committee
Horticultural
Innovation and
Technology
Committee
Nomination
Committee
Director
Held
Attended
Held
Attended
Held
Attended
Held
Attended
Held
Attended
Neil Chatfield
11
11
6
6
5
5
4
4
2
2
Harry Debney
11
11
6
41
5
21
4
4
2
2
Tim Goldsmith
11
11
6
6
5
4
4
11
2
2
Janette Kendall
11
11
6
6
5
21
4
4
2
2
Peter Margin
11
11
6
6
5
5
4
21
2
2
Jane Wilson
11
10
6
41
5
5
4
4
2
2
Sean Hallahan
82
7
52
51
42
41
32
31
12
11
Notes:
1. Not a member of the Committee at the time that meetings were held and attended the meeting as a guest.
2. Sean Hallahan was not a director between 27 September 2022 and 1 January 2023. Only the meetings held while he was a director are shown.
4. 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 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.
5. Significant changes in state of affairs during the period
Other than those matters referred to in the ‘Strategy and Growth’ section of the operating and financial review and the financial
statements, there have been no other significant changes in the state of affairs of the Group during the period.
6. Operating and financial review
Financial and business headlines:
• Transacted sales1 of $1,811.8 million, an increase of 9.2%
• Revenue of $1,357.6 million, an increase of 11.2%
• Net profit before SGARA and material items (NPAT-S2) of $30.2 million decrease of 53%
• EBITDA before SGARA and material items (EBITDA-S2) of $214.8 million a decrease of 1.6%
• Operating cashflows of $95.2 million, a $19.5 million decrease
• Net debt of $352 million at 1 January 2023, Leverage ratio 2.46x
• New 100Ha farm in Agripark, China, with first Blueberry harvest commencing towards end of year
• First complete 2PH season delivered over 46,000 harvested tonnes
• New 10 hectare tomato glasshouse and 2.5 hectare nursery facility contributed first full year of production, seeing Tomato category
revenues up 17% on pcp.
• Very challenging weather conditions across three Citrus growing regions impacting quality, and incurring higher input costs to mitigate
• Continuing high avocado industry volumes kept prices at low levels
• Significant cost inflation impacts on operating margins
Costa Group Holdings Limited
Annual Report 2022
19
Summary of financial performance
Table 1: Summary of results for the financial year ended 1 January 2023 compared to CY2021
Consolidated income statement
A$m
CY2022
CY2021
Change $
Revenue
1,328.7
1,183.6
145.1
Other revenue
28.9
37.0
(8.1)
Total Revenue
1,357.6
1,220.6
137.0
Raw materials, consumables and third party purchases
(418.6)
(407.7)
(10.9)
Employee benefits expense
(491.6)
(419.0)
(72.6)
Other operating expense
(243.3)
(185.6)
(57.7)
Share of associates profit
10.7
9.9
0.8
EBITDA-S2
214.8
218.2
(3.4)
EBITDA-S margin
15.8%
17.9%
-2.1 pts
Fair value movements in biological assets
8.7
(7.5)
16.2
EBITDA
223.5
210.7
12.8
Depreciation and amortisation
(129.4)
(108.5)
(20.9)
Profit/(loss) on sale of assets and investments
(0.1)
0.5
(0.6)
Impairment reversal
–
2.4
(2.4)
EBIT
94.0
105.1
(11.1)
Net interest expense
(42.6)
(25.0)
(17.6)
Net profit before tax
51.5
80.1
(28.6)
Income tax expense
(1.8)
(10.4)
8.6
Net profit after tax (before material items)
49.7
69.7
(20.0)
Material items (before tax)
(2.9)
(19.2)
16.3
Tax on material items
0.2
1.7
(1.5)
Non-controlling interest
(13.4)
(10.8)
(2.6)
Net profit after tax attributable to shareholders
33.6
41.4
(7.8)
Transacted sales1
1,811.8
1,658.9
152.9
NPAT-S2
30.2
64.0
(33.8)
Notes:
1. 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.
2. EBITDA-S and NPAT-S are non-IFRS financial measures. Further details on EBITDA-S and NPAT-S are provided in Table 8.
Review of financial performance
CY2022 revenue grew by 11.2% on the previous period, however due to weather related quality issues in Citrus and cost pressures the
earnings result was marginally behind CY2021, with EBITDA-S of $214.8 million.
The International segment delivered another strong performance, with China posting revenue growth of 34% on the prior year. This was
mainly attributable to larger volumes (+40%) from increased plantings, and higher pricing, especially for premium jumbo Arana blueberries.
This was achieved despite the COVID lockdowns seen across China which toward the back end of the season restricted access to Tier 1
cities. Morocco saw volumes increase on the prior year, but due to weather related delays part of the harvest coincided with the main
Spanish season resulting in lower pricing achieved for product sold into European markets.
In the Produce segment, the berry, mushroom, and tomato categories all delivered strong revenue growth year on year. Berry industry
volumes were impacted by weather, resulting in higher blueberry and raspberry pricing. Mushroom sales also benefitted from strong
pricing over the year and the Monarto production facility delivered an average of 240 tonnes+ per week. This production consistency
helped drive 11% revenue growth for the category. The first full year of operations of the new 10-hectare glasshouse and 2.5 hectare
nursery facility delivered to expectations and saw solid growth for the category on the prior year despite periods of lower than normal
light levels which at times affected yield. Citrus volumes were up on the prior year with favourable pricing in export markets, however
adverse weather across the three main growing regions ultimately impacted quality resulting in disappointing returns. High avocado
volumes from West Australian growers in the first half of the year contributed to pricing remaining at low levels which negatively
impacted the category’s result despite some recovery in retail pricing toward the end of the year.
All Produce categories were impacted by additional costs from minimum wage increases, and a change to the Horticulture Award
by the Fair Work Commission which inserted a guaranteed minimum hourly rate for piece workers. Other inflationary pressures
which impacted operations included higher fertiliser and chemical costs as the war in Ukraine and COVID in China impacted global
production and supply, increased packaging costs and continuing high sea freight costs, which also impacted the Citrus export margin.
Directors’ Report continued
For the year ended 1 January 2023
Costa Group Holdings Limited
Annual Report 2022
20
Revenue
Revenue increased by $137.0 million against the prior comparative period (CY2021) reflecting the first full year of 2PH ownership,
but also strong domestic revenue growth across the Tomato, Berry and Mushroom categories, while only the Avocado category
contracted versus the prior year. The International segment experienced revenue growth of 7.4% on the prior year, driven by the strong
China performance, while the lower revenues from African Blue largely reflected weather impacts resulting in missing the optimal
harvest and sales windows.
Operating expenses
Raw materials, consumables and third-party purchase expenses increased by $10.9 million due to higher volumes and cost inflation impacts.
Employee related expenses remain the Group’s largest expense, with an increase of 17.3% in CY2022, which was driven largely by the
domestic operations. The increase was due to the first full year operations of both the new tomato glasshouse and nursery, and 2PH Farms,
higher labour cost inflation through changes to the minimum wage and Horticulture Award, and increased harvest activity across the
produce categories reflecting significantly greater yields in some categories.
Of the $58.0m increase in other expenses, $31.0m was related to freight, with sea freight a key contributor. The remaining increase was
due to a mix of inflation and operational output, with chemical and fertiliser costs, insurance, and diesel costs up significantly on the
previous year. Travel costs also saw a return to pre-pandemic levels reflecting the easing of lockdown restrictions.
Share of associates profit
Profits increased by 8%, as the Driscoll’s Australia Joint Venture benefited from a general increase in blueberry pricing seen in the industry.
EBITDA before SGARA (EBITDA-S1)
EBITDA-S decrease of $3.4 million from CY2021 was mainly driven by:
• Quality issues and export costs in Citrus
• Low Avocado pricing continuing from prior year
• Lower pricing from African Blue
Although this was largely offset by increases from the other domestic produce categories.
Fair value movements in biological assets
The SGARA fair value movement was a gain of $8.7 million for the year, due largely to the impact in China from the new 100Ha farm at
AgriPark commencing its first harvest late in CY2022. Additional maturing citrus orchards, and delays in grape harvest timing resulted
in SGARA gains in the Citrus category as compared to the prior year.
Depreciation and amortisation
The $20.9 million increase in depreciation and amortisation expense is attributed to the additional right of use (ROU) asset depreciation
relating to the Macquarie Asset Management leases for the Vitalharvest properties which were entered into at the end of last year.
Fixed asset depreciation increased due to the full year impact of the new tomato glasshouse facility in Guyra and 2PH Farms, as well as
commencement of depreciation of the new 100Ha farm in China.
Net interest expense
Net interest costs were up on last year by $17.6 million from CY2021, $10 million of which was due to increased interest on lease
liabilities which included the above-mentioned Macquarie Asset Management leases. Bank interest increased to $14.4 million due to
increases in cash rates and higher domestic debt levels. At year end the group had $75 million of derivatives to protect against further
interest rate rises.
Tax expense
A lower tax expense is reflective of a higher mix of International earnings which attracts a lower average effective tax rate.
NPAT-S1
NPAT-S decreased by $33.8 million from CY2021 due to the earnings drivers described above. The increase in the mix of International
earnings resulted in an increase in profits to non-controlling interests.
Dividends
The Board has determined a 40% franked, final dividend of 5.0 cents per share for the financial year ended 1 January 2023. This brings
the full year dividend payout to 9.0 cents per share (CY2021: 9.0 cents per share).
Notes:
1. EBITDA-S and NPAT-S are non-IFRS financial measures. Further details on EBITDA-S and NPAT-S are provided in Table 8.
Costa Group Holdings Limited
Annual Report 2022
21
Segment information
Produce
Table 2: Selected financial information for the Produce segment
Produce
A$m
CY2022
CY2021
Change
Transacted Sales
1,490.0
1,374.8
115.2
Revenue
1,028.9
929.5
99.4
EBITDA-S
117.8
126.6
(8.8)
EBITDA-S margin
11.4%
13.6%
-2.2pts
Key factors impacting the revenue and profit drivers for the year were:
• Adverse weather events impacting Citrus quality.
• A positive full year impact of operating the new 10 hectare tomato glasshouse and 2.5 hectare nursery facility, and first full year
of ownership and harvest from 2PH.
• Cost inflation pressures particularly on key inputs including fertilisers and chemicals, and domestic and international freight costs.
• Domestic labour cost increases due to minimum wage increases and changes to the Horticulture Award.
• Strong pricing in berries, in particular premium blueberry varieties as industry supply was subdued by weather impacts.
• Low avocado pricing as a result of high industry yields from Western Australian growers.
Costa Farms and logistics
Table 3: Selected financial information for the CF&L segment
Costa Farms and Logistics
A$m
CY2022
CY2021
Change
Transacted sales
178.6
155.4
23.2
Revenue
184.6
159.4
25.2
EBITDA-S
15.2
14.6
0.6
EBITDA-S margin
8.2%
9.2%
-1.0pts
Revenue and earnings growth was from the full year impact of the ownership of Select Fresh.
International
Table 4: Selected financial information for the International segment
International
A$m
CY2022
CY2021
Change
Transacted sales
188.5
174.6
13.9
Revenue
190.9
177.7
13.2
EBITDA-S
81.8
77.0
4.8
EBITDA-S margin
42.8%
43.3%
-0.5pts
The International segment grew earnings to $81.8 million for the year, following a positive harvest result in China and strong blueberry
pricing, despite the COVID lockdowns across Tier 1 cities over the back end of the season. The Group’s Moroccan business experienced
a more challenging result as cooler weather delayed the season past the optimal harvest window resulting in lower average pricing.
On a constant currency basis EBITDA-S improved $2.5 million and revenue improved $12.7 million compared to CY2021.
Directors’ Report continued
For the year ended 1 January 2023
Costa Group Holdings Limited
Annual Report 2022
22
Balance Sheet
Table 5: Selected consolidated balance sheet as at 1 January 2023
Selected Balance Sheet
A$m
As at 1 January 2023
Dec-22
Dec-21
Change
Cash and cash equivalents
85.2
61.9
23.3
Receivables
101.9
109.3
(7.4)
Inventories
40.0
30.5
9.5
Biological assets
79.8
70.5
9.2
Equity accounted investments
31.3
27.2
4.0
Intangibles
282.9
289.1
(6.3)
Property, plant and equipment
814.3
799.9
14.4
ROU Assets
552.9
568.8
(15.8)
Other assets
69.3
45.4
23.9
Total Assets
2,057.6
2,002.6
55.0
Payables
149.4
149.3
(0.1)
Borrowings
437.2
361.1
(76.0)
Provisions
45.9
46.7
0.7
Lease Liabilities
571.0
583.0
12.0
Other liabilities
38.5
34.5
4.0
Total Liabilities
1,242.0
1,174.6
67.4
Net Assets
815.6
828.0
(12.4)
Net working capital1
Net working capital increased marginally by $2.8 million during the year, with lower receivables being offset by higher inventory balances.
Property, plant and equipment
Property, plant and equipment increased by $14.4 million during the year and was largely driven by capital expenditure growth from
continued international expansions and berry redevelopment programs.
ROU assets and lease liabilities
The decrease in Right of use assets of $15.9 million was due to depreciation charges being only partially offset by additions that were
largely from the impact of rent increases during the year.
Biological assets
Biological assets increasing by $9.3 million is primarily driven by the new 100Ha farm in China.
Equity accounted investments
Equity accounted investment increased by $4.1 million due to earnings contributions (net of dividends received) from the Driscoll’s
Australia marketing joint venture.
Intangible assets
Intangible assets decreased by $6.2 million due to amortisation of non-indefinite life assets and exchange movements of goodwill
denominated in foreign currency.
Other assets, liabilities and provisions
The increase in other assets is largely driven by the increase in the current tax asset balance, while the increase in deferred tax liabilities
resulted in the movement in other liabilities.
Notes:
1. Net working capital calculated as receivables and inventories less payables.
Costa Group Holdings Limited
Annual Report 2022
23
Net debt
Table 6: Consolidated net debt as at 1 January 2023
Net debt
A$m
As at 1 Jan 2023
Dec-22
Dec-21
Bank loans
439.6
361.7
Capitalised loan establishment fees included in borrowings
(2.7)
(0.6)
Gross debt
436.9
361.1
Less: Cash and cash equivalents
(85.2)
(61.9)
Net debt
351.7
299.2
Leverage ratio1
2.46x
1.85x
Notes:
1. Leverage ratio defined as net debt divided by EBITDA-S excluding lease expenses calculated under the pre AASB 16 methodology.
Net debt as at 1 January 2023 increased by $52.5 million to $351.7 million as existing debt facilities were used to fund growth and operating
capex. The impact of the increased debt levels resulted in the leverage ratio increase from 1.85x to 2.46x.
Under the existing domestic banking facilities in place during the year, the Group was required to meet set covenant compliance ratio’s
which included total leverage ratio (TLR) and interest coverage ratio (ICR). The Group remains in compliance with all covenant ratio
measures and requirements.
Cash flow
Table 7: Cash flow showing movement in net debt
Consolidated cash flow
A$m
CY2022
CY2021
EBITDA-S before material items
214.8
218.2
Less: share of profit of JVs
(10.7)
(9.9)
Dividends from JVs
6.7
4.2
Non-cash items in EBITDA-S
–
1.1
Payment for leases
(79.3)
(61.5)
Change in working capital
(3.2)
(8.0)
Tax payments
(24.5)
(23.1)
Borrowing costs (excluding amortised costs)
(8.6)
(6.3)
Cashflow from Operating Activities
95.2
114.7
Maintenance capital expenditure
(67.8)
(43.2)
Productivity and growth capital expenditure
(38.7)
(84.4)
Payments for business acquisitions (incl material items)
(1.6)
(291.4)
Acquisition of non-controlling interest in subsidiary
–
(0.1)
Payment of dividends to non-controlling interest holders
(4.5)
–
Disposal of property, plant and equipment
4.3
1.1
Cashflow from Investing Activities
(108.3)
(418.0)
Proceeds from issue of shares
–
185.2
Payment of dividends
(41.8)
(38.6)
Loans and Advances
2.2
1.7
Cashflow from Financing Activities
(39.6)
148.3
Total Net Debt Movement
(52.7)
(155.0)
Directors’ Report continued
For the year ended 1 January 2023
Costa Group Holdings Limited
Annual Report 2022
24
Dividends from joint ventures
Dividends from joint ventures increased by $2.5 million compared to last year.
Working capital
The outflow in working capital of $3.2 million for the year reflects increased activity as higher inventory balances were offset by lower
debtors outstanding at year end.
Capital expenditure and acquisitions
Maintenance expenditure was driven by continued capitalisation of costs related to immature bearer plants particularly in 2PH,
while there was also capital spend on berry replanting and conversion of soil to substrate in Australia and in the international businesses.
Growth capex focussed on redevelopment and replanting’s in Morocco, and the completion of the new 100Ha blueberry farm in China.
Domestically, capex was primarily related to the final completion of growth projects. The $1.6 million of cashflow related to acquisitions
was due to deferred consideration from the 2PH acquisition in the prior year.
Figure 1: Growth capital expenditure and acquisitions (A$m)
Domestic
12.8
International
25.9
$38.7m
CY22 Growth Capex Projects
Costa Group Holdings Limited
Annual Report 2022
25
Non-IFRS measures
Throughout this report, the Group has included certain non-IFRS financial information, including EBITDA before SGARA & leasing,
NPAT before SGARA and leasing, and Transacted Sales. The Group believes that these non-IFRS measures provide useful information
to recipients for measuring the underlying operating performance of the 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
Earnings before interest and tax
EBITDA
Earnings before interest, tax, depreciation, and amortisation
EBITDA before SGARA
(EBITDA-S)
EBITDA adjusted for fair value movements in biological assets (SGARA) and material items. 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 SGARA is non-cash; therefore, EBITDA before SGARA is used in
preference to EBITDA for Costa. Material items relating to EBIDTA are for redundancy costs in the current
year, and in the prior year relating to acquisition and integration costs.
NPAT before SGARA
(NPAT-S)
Net profit attributable to members of Costa before fair value movements in biological assets and
material items. This also excludes material costs in relation to the impairment of goodwill.
Non-IFRS operating measures
Transacted Sales
Transacted Sales are used by management as a key measure to assess the Group’s sales and marketing
performance and market share. Transacted sales represent the aggregate volume of sales in which
the Group 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 the Group to be a revenue measure. There are material differences between the calculation of
Transacted Sales and the way in which revenue is determined under IFRS.
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 in Australia, the Americas and Africa; and
• 100% of the Driscoll’s Australia joint venture sales after eliminating the Group’s produce sales to
the Driscoll’s Australia JV. Prior to the formation of Driscoll’s Australia JV in 2010, all of the Group’s
domestic sales and marketing activities for the berry category were managed by the Group.
Directors’ Report continued
For the year ended 1 January 2023
Costa Group Holdings Limited
Annual Report 2022
26
Table 9: Reconciliation of Transacted Sales to revenue
Reconciliation of Transacted Sales
A$m
Note
CY2022
CY2021
Transacted Sales
1,811.8
1,658.9
Agency revenue adjustments
1
(77.2)
(93.0)
Driscoll’s Australia Partnership consolidation adjustments
2
(394.5)
(373.4)
Other revenue
3
17.5
28.1
Total revenue
1,357.6
1,220.6
Notes:
1. Under IFRS, 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 JV. Transacted Sales includes 100% of Driscoll’s Australia 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.
Table 10: Reconciliation EBITDA-S to profit for the period
Reconciliation of EBITDA-S to profit for the period
A$m
CY2022
CY2021
EBITDA-S
214.8
218.2
Fair value movements in biological assets
8.7
(7.5)
Material Items (before tax)
(0.7)
(19.2)
EBITDA
222.8
191.5
Depreciation and amortisation
(129.4)
(108.5)
(Loss)/profit on sale of assets
(0.1)
0.5
Impairment reversal on assets held for sale
–
2.4
Impairment of goodwill
(2.2)
–
Net finance costs
(42.5)
(25.0)
Income tax expense
(1.6)
(8.7)
Profit for the period
47.0
52.2
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 having the greatest potential impact to the business and an outline of what
Costa is doing to mitigate these risks.
Similar to the peak of COVID pandemic years of 2020 and 2021,CY2022 was another unprecedented year for global events disrupting or
otherwise negatively impacting many different industries and organisations, with Costa being no exception. In particular, the following
material risks elevated in focus for Costa CY2022:
• Climate and Environment in domestic operations with the unusual third consecutive La Nina weather pattern giving rise to weather
volatility, impacting harvest timing, yield, quality, and pest and disease pressures.
• Political and Supply, with the impacts of geopolitical tensions and uncertainty, global inflation is being closely monitored, and where
possible managed, for its resulting impact on key supply inputs across the organisation.
• Cyber security incidents being prevalent across the Australian corporate landscape in the second half of 2022, in addition to Costa
being impacted by a cyber-attack in August 2022.
• People, Capability and Culture as historical patterns of transient workers continued to change and there was high competition
in the labour market.
Costa Group Holdings Limited
Annual Report 2022
27
Risk
Description
Mitigation
Strategic Risks: Risks that threaten or disrupt Costa’s strategic objectives
Climate & Environment
Changes in climate present physical
risk to Costa’s business primarily
in the form of weather volatility,
water security and plant and
crop quality which could have
an impact on Costa’s production,
assets (own and third-party) and
financial performance.
Risk associated with transitioning
to a low-carbon economy such as
government actions to reduce the
impacts of climate change may also
impact Costa’s operational costs.
Costa’s operations are subject
to various environmental laws
and regulations, and a range of
licences and permits are required
for Costa to operate its farming
operations. If Costa is responsible
for any environmental pollution
or contamination or is found to be
in breach of any of its licences or
permits, Costa may incur substantial
costs (including fines and remediation
costs), its operations may be
interrupted, and it may suffer
reputational damage.
Costa’s geographic diversification of its operations and third party
grower network (both within Australia and internationally) is a key
strategy in minimising the impact of the physical risks of climate
change. This is in addition to developing new crop varieties more
suited to a changing climate, continually improving water security
and management practices, finding new technological solutions,
prioritising the use of integrated pest management and adopting
the use of renewable energy sources.
Costa partially mitigates against weather risk by investing in
weather protective growing environments and equipment.
While protected cropping reduces the risk of disease and the
impact of weather, this risk is still relevant.
Costa’s Board committee – the Horticultural Innovation and
Technology Committee – oversees strategies relating to horticultural
innovation, with one of its areas of focus being the company’s
adaptation to the impacts of climate change. Costa utilises the
TCFD framework as a tool to aid the analysis of the impacts of
climate change and is continually developing and implementing
strategies to manage this risk.
Costa actively seeks to reduce its environmental impact, including
by applying measures across its business designed to reduce waste,
reduce migration of any nutrients applied to crops, improve water
usage efficiency and reduce chemical usage. In line with Costa’s
Sustainable Commercial Farming objective, Costa continually
reviews its operations to identify ways in which it can minimise
the environmental impact of its operations.
Disruption Event
Disruption events such as
unplanned restrictions imposed
due to widespread illness (e.g.
COVID-19) or the result of armed
conflict or sudden geopolitical
changes, have the potential to
have a significant impact on Costa’s
operations.
Additionally, prolonged supply
chain disruptions could impact on
Costa’s operations.
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.
To minimise the impacts from a major disruption event, Costa has
a Crisis Management Plan which includes a strategy to be followed
in the event of a crisis, as well as establishing roles, responsibilities
and key activities to be undertaken to effectively manage any
type of crisis.
Political risk
Jurisdictions in which Costa operates
may in the future experience
unrest or major change to their
government or political or legal
systems. Additionally, the nature
of the legal and regulatory systems
in some of those jurisdictions
can result in a lack of certainty
regarding, and/or sudden
and material changes to the
interpretation and enforcement
of local laws and regulations which
could impact a number of facets
of Costa’s business including
contractual arrangements, land
ownership and lease arrangements.
Costa has significant interests in
the African Blue JV in Morocco
and has a joint venture with
Driscoll’s Inc in China.
As with its Australian operations, Costa has instituted certain
internal controls to regulate the operations of its activities
outside Australia, and 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’s Board maintains
oversight of any new lines of business or changes to the nature
or scale of the Costa Group business, including expansions into
foreign jurisdictions.
Directors’ Report continued
For the year ended 1 January 2023
Costa Group Holdings Limited
Annual Report 2022
28
Risk
Description
Mitigation
Growth and Mergers
& Acquisitions
Costa recognises that any inability
to grow and innovate to remain
a market leader will significantly
impact on the Group’s ability
to meet its strategic objectives.
Similarly, if major projects do not
meet business case objectives,
this could have negative impacts
to financial outcomes and overall
Group objectives.
Costa recognises that genuine technological and market
innovation is a core element of ensuring that the company
continues its progressive transformation, growth and creation
of shareholder value. Costa has a formalised cross-disciplinary
Agronomy team which is responsible for driving agronomic
innovation. In addition, Costa has an Agricultural Technology
framework it harnesses to evaluate opportunities in and the
application of new technologies. Costa’s Board subcommittee,
the Horticultural Innovation and Technology Committee,
provides oversight on strategy, policies and procedures that
relate to the Company’s assessment and adoption of technology
and that could otherwise affect the Company’s approach to
horticultural innovation.
Costa has a business case process for all major capital projects,
which includes a post-investment review to evaluate the outcomes
of the investment and to garner learnings for future projects.
Business cases for all major projects are reviewed by Costa’s Board.
People, Capability
and Culture
Costa’s people, capability
and culture are critical to the
organisation achieving near- and
long-term business objectives.
An inability to attract, retain and
develop the required skills and
people, and a failure to foster the
right organisational culture may
impact Costa’s performance.
Additionally, due to the nature of
growing and harvesting a product
that is perishable there is a risk that
the Group is unable to source the
appropriate volume of labour at the
appropriate time to meet demand
and quality standards.
Costa prides itself on its organisational values and its commitment
to a culture of care to its people, produce and communities.
Costa recognises talent as a strategic asset and understands
the need for constant focus in order to minimise skills gaps and
develop a pipeline of leaders and talent required for critical roles.
Accordingly, Costa undertakes structured capability reviews
to ensure development and succession plans are in place in
key areas of the business.
Labour planning is a foundational component of Costa’s operational
planning to ensure adequate people resources are available,
and sufficiently trained and engaged, to harvest produce, at
the right time, to meet quality standards and customer and
consumer demand. To manage the risk of insufficient labour,
Costa continually assesses and proactively utilises multiple
employment models including direct hire, labour hire firms
and being an Approved Employer under the Australian Federal
Government’s Pacific Australia Labour Mobility programme.
In recent years, to reduce reliance on labour hire providers
the Group is employing more harvest workers for Australian
operations directly.
Strategic Partnerships
Costa has a number of strategic
partnerships including joint
ventures, third-party growers,
and other alliances. If any of
these key relationships break down,
or agreements are terminated
or amended in a manner
unfavourable to Costa there could
be an adverse impact on Costa’s
financial performance.
By their nature, joint ventures, partnerships and alliances present
the possibility of diverging objectives between members. With key
joint ventures and partnerships Costa aims to maintain close and
mutually prosperous relationships through ongoing formal and
informal communications and strong governance structures.
Costa Group Holdings Limited
Annual Report 2022
29
Risk
Description
Mitigation
Operating Risks: Risks associated with the conduct and success of Costa’s day-to-day operations
Adequate Water Supply
Inadequate supply of good quality
water, whether due to drought or
otherwise, and fluctuating water
prices have the ability to impact
on Costa’s business.
Costa has primarily sought to manage the impact of this risk
by increasing the geographic diversity of its operations (both
within Australia and internationally). Costa proactively forecasts
water usage and availability and maintains a focus on reducing
water inputs per unit of crop output through efficiency of water
use, water capture and recycling. Costa also actively monitors
the Group’s water security position and water prices. Where
appropriate forward water contracts are entered into to partially
protect against the effect of potential water price increases.
Customer, Consumer
and Pricing
Costa’s top three customers
comprised just over two thirds
of Australian produce revenue,
thus making Costa heavily reliant
on those customers.
An inability to anticipate or
respond to changes in the supply,
demand and price landscape
would have an adverse impact
on Costa’s business (for example:
changes in consumption habits,
preferences of consumers, industry
supply dynamics, or changes in
economic outlook and inflation).
Costa enters into contractual arrangements where possible
with its major customers, with any such agreements typically
having supply periods for 1 season or 1 to 2 years. However,
within Australia, the nature of the market means that most
customer arrangements are uncontracted. Costa actively
explores alternative sales channels, both within Australia
and internationally, with non-Australian customers comprising
around one third of sales revenue.
Costa utilises multiple mechanisms to quantitatively and
qualitatively analyse consumer demands to identify emerging
trends. The Group has systems in place to continuously review
panel insights and focus group information, transactional
and questionnaire data and domestic and international
industry research.
The results of this analysis not only inform strategic planning,
but also allow Costa to adjust and tailor existing initiatives
and operational processes to quickly respond to changes
in demand patterns.
Cyber Security
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 sensitive or personally
identifiable data is accessed or
stolen, data is lost, or data and
systems are unable to be accessed
which may result in reputational
damage, legal penalties, and
ongoing disruptions to operations
and competitive advantage.
Costa implements various strategies to mitigate cyber risk across our
applications, networks and websites. Costa focuses on employee
education, network defence, enterprise-wide testing, disaster
recovery and the segregation of sensitive data. These strategies
are internally and externally periodically reviewed, audited
and updated.
In response to a cyber attack experienced by Costa in August
2022, additional processes have been implemented to further
protect against malicious attacks, including limiting traffic to
servers, increasing the level of end point protection, scheduling
additional employee awareness training and reviewing data
retention, identification, access and availability practices.
Directors’ Report continued
For the year ended 1 January 2023
Costa Group Holdings Limited
Annual Report 2022
30
Risk
Description
Mitigation
Food Safety
Quality issues, product recall,
contamination or public health
issues, could damage Costa’s
brands or reputation which
could adversely impact Costa’s
financial performance.
Costa has zero tolerance for circumstances which may result
in food safety concerns and employs strict food safety and
quality assurance standards across its business. 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 foreign object control standards
and processes to ensure it is well prepared to deal with foreign
object contamination risks.
Costa also operates a culture program named Costa Care
which builds on the Costa Values and People First ethos of the
Company which is about all employees doing their very best
for Costa’s people, its produce and the community.
Intellectual Property
(“IP”) and Licences
Costa’s superior genetics are a key
driver of competitive advantage
in some produce segments in
which it operates. An inability
to protect, maintain or capitalise
on this IP would have adverse
impacts on financial outcomes
and growth aspirations.
Costa licenses its superior blueberry genetics to third parties in
Australia and internationally. Before commercialising varieties in a
new jurisdiction there is an analysis of the protection mechanisms
that exist in that jurisdiction to manage the protection of our
competitive IP. Costa’s primary mechanism for the management
of IP is through registration of patents or plant breeders’ rights
(PBRs). Additionally, Costa imposes strict physical security
requirements and physical access to and inspection of
growing facilities.
People Safety
Given the nature of the industry in
which Costa operates, workers at
Costa sites are at risk of workplace
incidents. In addition to the
potential for harm to any worker,
the occurrence of workplace
incidents has the potential to
harm both the reputation and
financial performance of Costa.
All workers entering a Costa work site are inducted and made
aware of Costa’s WHS expectations and policies. Costa conducts
training across sites for contractors, workers, employees and
leaders on safety expectations. Costa’s critical safety rules
are communicated at all sites, informing workers of high-risk
areas and safe work instructions are deployed throughout the
workplace to reduce risk and hazards. Workers are encouraged
and expected to undertake hazard identification and near miss
reporting for both physical and psychosocial hazards, as well as
tracking the time taken to mitigate those hazards identified.
In 2022, in response to a traffic accident which resulted in a
fatality on the Shuangqiao, China site, Costa has implemented
a “stop-think-resume” program at all locations which aims to
heighten awareness and minimise the risks associated with
the operation of heavy equipment.
Plant and crop quality
Plant and crop health is vital to
Costa’s ability to grow and harvest
high quality produce to meet the
demands of consumers. If the
quality of seeds, spawn, nursery
plants or crops were compromised
this could have a major impact
on Costa’s production output and
in turn reputation and financial
outcomes. Threats to plant and crop
quality can include plant diseases,
pests, or vandalism.
Through expert personnel and leading technology, Costa
utilises a number of agronomic practices across the business
to manage the quality of seeds, spawn, nursery plants and crop
health. Seed, tree and fruit tests and assessments are conducted
prior to commercial-scale planting to monitor the integrity of
plant material. Once planted, Costa conducts constant quality
monitoring through systematic inspection processes, tree health
assessments, and rigorous irrigation management. Weather sensing
and yield assessment technology is deployed to optimise water
application rates and yield outcomes.
A key component of plant health is the ability to provide necessary
water inputs, and Costas first sustainable commercial farming
principle centres around this need – focusing on efficiency of
water use and improving water security.
Costa Group Holdings Limited
Annual Report 2022
31
Risk
Description
Mitigation
Social Licence to Operate
Costa’s inability to align its practices,
or those of its supply chain, to
social expectations of employees,
communities, stakeholders, and
the general public may adversely
impact Costa’s reputation and/or
financial performance.
Through the Group’s Ethical Sourcing Programme Costa is focused
on understanding the social sustainability practices of our supply
chain (including labour hire firms). The programme requires key
suppliers to complete self-assessment questionnaires to enable
systematic monitoring of risk indicators within our supply chain
in relation to labour (including Modern Slavery), health and safety,
environmental and business ethics. Additionally, third-party
audits are conducted for selected suppliers to better understand,
and remediate where necessary, standards and practices.
Costa is also actively involved in supporting the social fabric of the
many regional communities in which it operates, both in Australia
and internationally. Costa works closely with communities so that
they can benefit both economically and socially from Costa’s
presence and community is one of three core elements of the
Costa Care culture program which aims to build on community
engagement activity across our sites.
Third party labour hire firms are subject to a rigorous pre-
qualification process. Costa requires their employment practices
and instruments satisfy all applicable employment laws and
pay conditions and Costa monitors their compliance. In addition,
Costa communicates Costa’s Supplier Code of Conduct to each
labour provider, and contractually obliges compliance with the
Code. This Code seeks to ensure that human rights issues are
understood, respected and upheld. Costa conducts routine audits
and interviews with labour hire staff to ensure compliance with
Costa’s expected standards.
In CY2022, Costa conducted its first ESG Materiality Assessment
to identify the items of greatest importance and priority to our
stakeholders. This work will inform updates to Costa’s Sustainable
Commercial Farming Strategy.
Supply
Costa relies on a number of suppliers
to support the achievement of its
objectives and therefore inability
to access key supply inputs at the
right time and on desirable terms
could impact harvest outcomes
and Costa’s financial performance.
Procurement, operations and Costa’s Ethical Sourcing group
work closely to manage and mitigate risks related to key supply
inputs. To manage the delivery of the right product, at the right
time and cost, from the right suppliers Costa primarily utilises the
following mechanisms: sharing of operational plans and forecasts
with key suppliers and ongoing engagement and relationship
management; diversification of supply base to reduce
dependency; pre-engagement requirements and defined terms
of engagement and periodic supplier performance reviews.
Liquidity and capital
management
If Costa is unable to access
sufficient and desirable funding to
meet financial obligations and/or
operational and strategic objectives
this could have material impacts
on Costa’s growth aspirations
and ongoing operations.
Liquidity and capital management
is impacted by multiple factors such
as climatic conditions influencing
quality, harvest timing and price,
supply constraints, changing customer
demands, and fluctuations in
exchange rates.
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.
Costa actively employs financial hedging strategies, such as
entering into forward contracts, to manage foreign exchange risk.
Directors’ Report continued
For the year ended 1 January 2023
Costa Group Holdings Limited
Annual Report 2022
32
Risk
Description
Mitigation
Fraud, bribery,
and corruption
If Costa staff, contractors, customers
or suppliers are involved with fraud,
bribery or corruption there could
be negative legal, reputational
and financial outcomes for Costa.
Costa manages its exposure to this risk through policy, training
and process. Costa covers expectations with its Code of Conduct
and employment agreements, has in place a whistleblower
policy and independent reporting hotline, an operating internal
audit function complemented by procedures undertaken by the
external auditor, and a suite of mandatory training for employees,
including anti-bribery and anti-corruption.
Legal and regulatory
compliance
Changes in the legal landscape or
government policy and regulation
could have impacts on Costa’s ability
to deliver its strategic objectives.
A failure to comply with laws or
regulations could also have major
negative reputational and financial
outcomes for Costa.
In addition to Costa’s overarching expectations outlined in its
Code of Conduct, Costa has multiple policies and procedures in
place to support compliance with relevant laws and regulations.
Costa engages with multiple levels of government to
understand policy positions and Costa also contributes to
policy discussions on relevant topics to ensure horticultural
perspectives are considered.
7. Dividends
During the year ended 1 January 2023, Costa Group Holdings Ltd declared and paid a fully franked final dividend of 5.0 cents per share
for CY2021 (as previously disclosed in the Directors Report for that period) and a fully franked interim dividend of 4.0 cents per share
for CY2022.
The Board has approved a final dividend for CY2022 of 5.0 cents per share with a record date of 9 March 2023 and payment date
of 6 April 2023. This dividend will be 40% franked. As this dividend was approved after year end, it has not been accrued for as at
1 January 2023.
This brings the total dividend payment for CY2022 to 9.0 cents per share. CY2023 dividends will be determined after taking into
account earnings performance during CY2023 and will be balanced against the company’s need to fund growth objectives.
8. Likely developments
The Company will continue to explore opportunities that meet the Company’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.
9. 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, suppliers and communities in which the
Group conducts business.
The Group is subject to environmental regulations under various federal, state and local laws relating predominantly to water use
and air and noise emission levels. The Group’s operations are also subject to conditions of 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) and the key emissions target Costa is committed to
achieving is net-zero carbon emissions by 2050. To assist in progressing towards this commitment, Costa plans to pledge to the Science
Based Target Initiative (SBTi) and subsequently work with SBTi to have our emission reduction targets validated.
Costa Group Holdings Limited
Annual Report 2022
33
Costa has been closely monitoring the development of the new SBTi Forest, Land and Agriculture Science Based Target-Setting Guidance
(FLAG) targets which were launched in September 2022. FLAG defines standardised methodologies with respect to land use change
emissions, land management emissions and carbon removals and storage. Costa is classified as Food Production – Agricultural Production
company and under SBTi will be required to create FLAG targets. Costa is currently working through the relevant FLAG framework and
will outline targets in 2023 which ensure that our emissions reduction progress is in-line with what is deemed necessary to meet the
goals of the Paris Agreement.
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 2022 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.
10. 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:
Ordinary shares
Options over
ordinary shares
Neil Chatfield
464,242
–
Harry Debney
379,900
170,472
Tim Goldsmith
73,425
–
Janette Kendall
42,612
–
Peter Margin
94,721
–
Dr Jane Wilson
43,425
–
11. Share options
Unissued ordinary shares under options
Unissued ordinary shares of Costa Group Holdings Ltd under option at the date of this report are as follows:
Number of unissued ordinary shares under option
Issue price
of shares
Expiry date
of the options
50,000
$1.45
October 2024
67,905
$6.53
March 2023
1,094,3351
$2.39
March 2025
810,173
$3.95
March 2026
1,179,8742
$2.96
March 2027
Notes:
1. This represents the number of outstanding options under the Company’s CY20 LTI Plan as at the date of this report. However, the Board has determined that the vesting
conditions have not been satisfied and accordingly all of these CY20 options will lapse on 1 March 2023.
2. These options represent unvested options granted to management during the period under the Group’s CY22 LTI plan, including 198,315 options issued to Wayne Johnston,
179,212 options issued to Marc Werner and 107,443 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 did not issue any shares as a result of the exercise of options by current and former members of the
Company’s Executive management team. The Company issued 167,845 shares on the vesting of performance rights granted under the
Company’s CY20 Short Term Incentive Plan.
Directors’ Report continued
For the year ended 1 January 2023
Costa Group Holdings Limited
Annual Report 2022
34
12. 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.
13. 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.
14. Non-audit services
During the year KPMG, the Group’s auditors, has performed certain other services in addition to the audit and review of the
financial statements.
The Board has considered the non-audit services provided during the 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.
Details of the amounts paid to the Group’s auditors, KPMG, and its network firms for audit and non-audit services provided during the
period are set out below.
CY20221
$ ‘000
CY2021
$ ‘000
Audit and review services
Services provided by KPMG Australia
569
524
Services provided by associate firms of KPMG Australia
150
259
719
783
Other services provided by KPMG
Taxation compliance and other taxation advisory services (including R&D)
208
210
Other services
–
148
208
358
1. Excludes audit fees paid to the auditor of the Group’s Moroccan subsidiaries that ceased to be affiliated with KPMG in CY2022.
15. Rounding off
The Consolidated 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.
16. Lead auditor’s independence declaration
The Lead auditor’s independence declaration is set out on page 49 and forms part of the Directors’ report for the financial period ended
1 January 2023.
Costa Group Holdings Limited
Annual Report 2022
35
Remuneration report (audited)
1. Introduction
The directors are pleased to present the Remuneration Report for the financial year commencing on 29 December 2021 and ending
1 January 2023 (“CY2022”), 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
Position Held
Non-executive Directors
Neil Chatfield
Chair, Non-executive director
Tim Goldsmith
Non-executive director
Janette Kendall
Non-executive director
Peter Margin
Non-executive director
Dr Jane Wilson AO
Non-executive director
Harry Debney1
Non-executive director
Executive KMP
Harry Debney1
Interim Chief Executive Officer (commenced on 26 September 2022)
Sean Hallahan2
Chief Executive Officer, Managing Director (ceased on 26 September 2022)
Wayne Johnston
Chief Financial Officer
Marc Werner
Chief Operating Officer (commenced 1 September 2022)
Notes in relation to Table
1. Harry Debney was a non-executive director until 26 September 2022, at which time he assumed the role of interim CEO and formed part of Executive KMP.
2. Sean Hallahan ceased as Chief Executive Officer and Managing Director on 26 September 2022.
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 Company has established a Remuneration and Human Resources Committee that is comprised of Non-executive Directors,
all 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 and inclusion;
• human resource policy and practices across the Group;
• 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. During CY2022, Costa did not receive any
remuneration recommendations as defined in section 9B of the Corporations Act 2021.
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.
Directors’ Report continued
For the year ended 1 January 2023
Costa Group Holdings Limited
Annual Report 2022
36
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 CY2022 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 executives’ interests remain aligned with
creation of shareholder value.
• 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 CY2022
The remuneration for CY2022 for the Executive KMP comprised fixed remuneration, short-term incentives (STI) and long-term incentives
(LTI) in the form of options over shares.
3.1.2 Remuneration Mix for CY2022
The terms of Harry Debney’s employment as interim CEO include a total fixed annual salary (including superannuation) of $850,000
with no short or long term incentives applying. During his tenure as interim CEO, Mr Debney will not receive any director fees.
In CY2022, total remuneration for the other Executive KMP included both fixed and ‘at risk’ reward components. The ‘at risk’ reward
components included STIs (as outlined in section 3.2.2) and LTIs (as outlined in section 3.2.3), which are based on individual and group
performance outcomes. Further details of the remuneration mix are outlined in Section 7 – Directors’ and Executive Officers’ Remuneration.
The remuneration potential for the Executive KMP for CY2022 (with the total at risk remuneration, being the value of the options
granted under the CY22 LTI Plan and the maximum potential stretch benefit under the CY22 STI Plan) is set out in Figure 3.1.2 below.
The actual at risk remuneration payable for the Executive KMP for CY2022 is also set out below and reflects that the STI minimum
performance threshold for CY2022 was not met and no STI payment was made to any of the Executive KMP for that period (as noted
in section 3.2.2 below). In relation to the former CEO (Sean Hallahan), it also reflects that all of his options granted under the CY22 LTI
Plan were forfeited on his departure. The Interim CEO (Harry Debney) did not participate in the short term or long term incentive plans
for CY2022, as mentioned above.
21%
33%
Fixed
46%
46%
54%
Former CEO
remuneration
– at potential
100%
Former CEO
remuneration
– at actual
At risk
STI
LTI
Costa Group Holdings Limited
Annual Report 2022
37
18%
31%
Fixed
51%
51%
49%
CFO remuneration
– at potential
26%
74%
74%
26%
CFO remuneration
– at actual
At risk
STI
LTI
Fixed
At risk
STI
LTI
16%
31%
53%
53%
47%
COO remuneration
– at potential
43%
0%
57%
57%
43%
COO remuneration
– at actual
Notes in relation to Figure 3.1.2: Includes share-based payments associated with unvested CY22 LTI arrangements.
3.2 CY2022 Remuneration Components
3.2.1 Fixed Remuneration
Total fixed remuneration (“TFR”) for CY2022 comprised 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
CY22 STI Plan Overview
The CY22 STI Plan was designed to enable Executive KMP and other members of senior management to receive a performance-based
incentive payment calculated as a percentage of TFR conditional on achieving Group EBIT-S hurdles as set out below.
The Group EBIT-S hurdles were:
• If the Group achieves less than 90% of budgeted Group EBIT-S for the 12 month period, no STI will be paid.
• Target STI is paid to a participant on the Group achieving 100% of budgeted Group EBIT-S and the participant satisfying their other
STI performance measures, with pro rata payments for the EBIT-S component if Group EBIT-S is between 90% and 100% of budgeted
Group EBIT-S.
• Stretch STI is payable if the Group achieves over 100% of budgeted Group EBIT-S, with the maximum STI being payable at 110%
of budgeted Group EBIT-S (and the participant meets expectations of their individual performance STI measures). The stretch STI
component is measured solely on Group EBIT-S and is calculated on a straight line basis between 100% and 110% of budgeted
Group EBIT-S.
EBIT-S is a non-IFRS measure, which is calculated as earnings before interest, tax, fair value movement in biological assets (SGARA)
and material items. The Company used the EBIT-S hurdle for executive performance assessments as it believes it has a more direct
correlation to the financial performance of the Group than other statutory earnings measures by removing the impact of SGARA and
material items. SGARA is an area of estimates and judgements and allows for profit to be recognised on produce that is not yet in a
saleable condition, harvested or sold. As such, a pre-SGARA measure is chosen as the relevant hurdle metric as it rewards executives
on earnings that have been ‘realised’.
Directors’ Report continued
For the year ended 1 January 2023
Costa Group Holdings Limited
Annual Report 2022
38
Following the end of CY2022, performance was tested against the STI performance hurdles for the performance period. As the
Group achieved less than 90% of budgeted Group EBIT for the period, no STI payments were made. The STI outcome for the period
is described further below:
Participant
CY22 STI payable at target
CY22 STI payable if full
stretch targets achieved
CY22 STI paid based on
performance against Group
and individual measures
Sean Hallahan
$382,500
$595,000
$0
Wayne Johnston
$173,040
$296,640
$0
Marc Werner
$78,216
$134,084
$0
3.2.3 CY22 LTI Plan
The CY22 LTI Plan that governs the LTI options issued during CY2022 is designed to reward the Executive KMP and other senior executives
for long term performance and long term value creation for shareholders. While the table below refers to the CEO’s participation,
as noted previously, the former CEO (Sean Hallahan) forfeited all of his options under the CY22 LTI Plan on ceasing to be an employee
of the Company and the Interim CEO (Harry Debney) is not a participant in the CY22 LTI Plan. The features of this LTI Plan are as follows:
Term
Description
Eligibility
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
The number of options was determined based on a set percentage of the participant’s current TFR (“LTI
Incentive Amount”), being 35% for each of the CEO, 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.
Exercise price
$2.96 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 as subsequently adjusted to reflect the impact of the Company’s entitlement offer
in CY2021 (in accordance with the ASX announcement lodged on 29 November 2021).
Performance Period The performance period is the three-year period consisting of the CY22, CY23 and CY24 financial years.
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
Percentage of LTIP
Options (subject
to the EPS hurdle)
that will vest
Less than the minimum EPS growth threshold
0%
Equal to the minimum EPS growth threshold
50%
Greater than the minimum EPS growth threshold, up to the maximum EPS threshold
50%-100%,
on a straight line
sliding scale
At or above the maximum EPS growth threshold
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. 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-S. The EPS growth threshold is considered commercially
sensitive and will be disclosed following the end of the Performance Period.
Costa Group Holdings Limited
Annual Report 2022
39
Term
Description
Performance
Measure (Growth)
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 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.
Entitlements
Options will not carry rights to dividends or voting rights prior to vesting.
Option exercise
Vested options must be exercised prior to 1 March 2027 (“expiry date”). Prior to the expiry date, an option
holder 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 option holder provides the exercise price, he/she will be issued with one share per exercised option.
If an option holder 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 (i.e. 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.
Service conditions
Any unvested options granted under the LTI Plan will be forfeited where the participant is dismissed during
the Performance Period, or resigns in circumstances where they are not considered to be a ‘good leaver’.
Where the participant is considered a ‘good leaver’ (which includes death, disability or redundancy), a pro
rata proportion of the unvested options (reflecting the portion of the Performance Period served) will remain
on foot subject to Board discretion and be tested at the end of the original vesting date against the relevant
performance conditions.
Change of Control
The Board has discretion to determine an appropriate treatment for unvested and/or vested, but unexercised, options.
Directors’ Report continued
For the year ended 1 January 2023
Costa Group Holdings Limited
Annual Report 2022
40
3.3 Prior Period LTI Plans
LTI Plans for previous years are also tested over a three-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
CY20 LTI Plan ended during CY2022.
3.3.1 CY20 LTI Plan
The performance period for the CY20 LTI Plan ended on 1 January 2023 and details of the relevant performance hurdles are as follows:
• 75% of the options issued under the CY20 LTI Plan were subject to a performance hurdle based on the Company’s EPS (basic) compound
annual growth rate (“CAGR”) over the performance period. As the Company’s EPS CAGR over the performance period was below
the minimum 13% threshold that had been set at the time of the options being granted, all CY20 LTI Plan options subject to the EPS
hurdle will lapse.
• 25% of the options issued under the CY20 LTI Plan were subject to a performance hurdle based on geographic and category
diversification and growth designed to support sustainable long term value creation. For testing of the performance hurdle, the
Board reviewed the current and expected investment returns in relation to the Company’s key strategic growth and diversification
measures implemented over the performance period. The Board noted that the Company had continued its growth agenda during
the performance period, including the integration of new citrus businesses (including the 2PH Farms business) and continued growth in
the China berry business, the expansion of capacity to 100% at the Monarto mushroom farm and completion of Tomato Glasshouse
4 and expanded nursery at the New England site. While the Board remains confident that solid foundations for continued earnings
growth have been established, the Board recognised that despite strong earnings growth in the China berry business, expected
returns from capital investment in the domestic business during the period have not yet been consistently achieved. Accordingly,
the Board (excluding the Interim CEO, who is a participant in the CY20 LTI Plan) determined that all CY20 LTI Plan options subject
to the growth hurdle will lapse.
The table below shows the vesting outcomes for the KMP’s options granted under the CY20 LTI plan.
CY20 EPS
options held
CY20 EPS
options
vesting
CY20 Growth
options held
CY20 Growth
options
vesting
Total CY20
LTI options
lapsing
Harry Debney1
279,453
–
93,151
–
372,604
Sean Hallahan2
149,906
–
49,969
–
199,875
Wayne Johnston
93,750
–
31,250
–
125,000
Marc Werner3
N/A
N/A
N/A
N/A
N/A
Notes in relation to Table 3.3.1
1. Harry Debney was granted 279,453 EPS options and 93,151 growth options under the CY20 LTI Plan and forfeited 58%% of those options upon his retirement in 2021.
2. Sean Hallahan was granted 149,906 EPS options and 49,969 growth options under the CY20 LTI Plan and forfeited 5.5% of those options upon his employment ceasing
in 2022. Options were granted to Sean Hallahan under the CY20 LTI Plan in February 2020, in his capacity as COO.
3. Marc Werner commenced employment with the Group after 2020 and hence did not receive options under the CY20 LTI Plan.
Costa Group Holdings Limited
Annual Report 2022
41
3.3.2 FY18 LTI Plan
The exercise period for the FY18 LTI Plan ended during CY2022 and all remaining unexercised vested options that had been issued
under that plan lapsed on 1 September 2022. The exercise price for the lapsed options was $4.77.
The table below shows the number of options issued under the FY18 LTI Plan that were held by KMP and lapsed during CY2022.
Total FY18
LTI options
lapsed
Harry Debney
35,248
Sean Hallahan
18,181
Wayne Johnston
N/A
Marc Werner
N/A
Notes in relation to Table 3.3.2
1. Wayne Johnston and Marc Werner commenced employment with the Group after 2018 and hence did not receive options under the FY18 LTI Plan.
3.3.3 Current LTI Plans
Section 8.3 below includes details of unvested options that have been granted under prior period LTI Plans for which the performance
periods have not yet ended. Table 3.3.3 below sets out LTI options for KMP granted under prior period LTI schemes that have vested
and are exercisable as at the end of CY2022
Number
Expiry Date
Exercise price
Harry Debney
15,221
1 March 2023
$6.53
Sean Hallahan
7,659
1 March 2023
$6.53
Wayne Johnston
N/A
N/A
N/A
Marc Werner
N/A
N/A
N/A
4. Executive KMP Contract Terms
a. Executive KMP Contract Terms
A summary of the key terms of employment for Executive KMP as at 1 January 2023 is presented in the below table:
Executive
Role
Notice by the Group
Notice on Resignation
Harry Debney
Interim Chief Executive Officer
Employment ends without the need
for notice on commencement of a
new permanent CEO
Employment ends without the need
for notice on commencement of a
new permanent CEO
Wayne Johnston
Chief Financial Officer
6 Months
6 Months
Marc Werner
Chief Operating Officer
3 Months
3 Months
Directors’ Report continued
For the year ended 1 January 2023
Costa Group Holdings Limited
Annual Report 2022
42
5. Non-executive Directors
The details of fees paid to Non-executive Directors in CY2022 are included in Section 7 of this report. Non-executive Directors’ fees
were fixed and they did not receive any performance-based remuneration.
The annual fees for non-executive directors did not increase in CY2022 and the table below outlines the annual fees for non-executive
directors for CY2022. The annual aggregate fee pool for non-executive directors was increased with shareholder approval at the AGM
on 25 May 2022 by $400,000 to $1,600,000. Board and committee fees, which are inclusive of statutory superannuation contributions,
are included in this aggregate fee pool.
As explained in section 3.1.2 above, Harry Debney will not be receiving director fees whilst acting in the capacity as Interim CEO.
Board/Committee
Annual Chairman Fee
($)
Annual Member Fee
($)
Board base fee
275,000 (inclusive of committee fees)
130,000
Audit and Risk Committee
28,000
14,000
Remuneration and Human Resources Committee
25,000
12,500
Horticultural Innovation and Technology Committee
20,000
10,000
Nomination Committee
–
–
6. Relationship between remuneration policy and Group performance
Key performance indicator
CY2019
CY2020
CY2021
CY2022
Revenue ($’000)
1,047,873
1,164,916
1,220,597
1,357,556
Statutory EBIT1 ($’000)
(10,142)
106,787
85,813
91,133
EBIT-S1 ($’000)
59,037
98,774
112,593
85,279
NPAT-S2 ($’000)
22,664
55,065
63,989
30,244
Dividend paid or determined to ordinary shareholders ($’000)
19,238
36,075
41,794
41,809
Notes in relation to Table 6
1. EBIT is defined as earnings before interest and tax. EBIT-S is calculated as EBIT before fair value movements in biological assets and material items.
2. NPAT-S is net profit after tax attributable to ordinary shareholders but excluding impacts of fair value movements in biological assets and material items.
CY2019 to CY2022 performance
0
200
400
600
800
1,000
1,200
1,400
1,600
CY21
CY22
CY20
CY19
Total Revenue
($’m)
0
10
20
30
40
50
60
70
CY21
CY22
CY20
CY19
NPAT-S
($’m)
0
5
10
15
20
25
30
35
40
45
CY21
CY22
CY20
CY19
Total dividend to ordinary shareholders
($’m)
From the time of the Company’s ASX listing in FY2016, the Board has 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 and charts above set out information about the Group’s performance, earnings and dividend from CY2019 onwards.
Group EBIT-S performance for CY2022 was less than the 90% threshold, so no STI payment was made to the Executive KMP for this
period. This highlights a close alignment between the Group’s financial performance and remuneration policy for Executive KMP.
Costa Group Holdings Limited
Annual Report 2022
43
7. Directors’ and Executive Officers’ Remuneration Outcomes
Details of the nature and amount of each major element of remuneration1 of each director of the Company, and other KMP of the
consolidated entity are:
Short-term
Salary and
fees
STI (cash)
Non-
monetary
benefits
Other
Monetary
Benefits
Total
Non-executive Directors
$
$
$
$
$
Neil Chatfield
CY2022
269,108
–
–
–
269,108
CY2021
252,404
–
–
–
252,404
Harry Debney2
CY2022
321,023
–
–
–
321,023
CY2021
313,532
–
4,983
–
318,515
Peter Margin
CY2022
149,448
–
–
–
149,448
CY2021
134,862
–
–
–
134,862
Janette Kendall
CY2022
137,692
–
–
–
137,692
CY2021
125,544
–
–
–
125,544
Tim Goldsmith
CY2022
162,399
–
–
–
162,399
CY2021
144,132
–
–
–
144,132
Jane Wilson
CY2022
134,857
–
–
–
134,857
CY2021
123,313
123,313
Current
Executive Officers
Wayne Johnston
CY2022
478,858
–
–
1,677
481,535
CY2021
477,191
78,254
–
943
556,388
Marc Werner
CY2022
199,425
–
–
–
199,425
CY2021
–
–
–
–
–
Former
Executive Officers
Sean Hallahan
CY2022
522,177
–
–
3,543
525,720
CY2021
792,365
165,328
–
2,615
960,309
Notes in relation to table 7:
1. Reasonable travel, accommodation and other costs incurred by Directors in the course of their duties are reimbursed to Directors, in addition to the remuneration noted above.
2. Harry Debney’s remuneration is a combination of fees as non-executive director for the period until 25 September 2022 and salary as interim CEO for the period from
26 September 2022.
Directors’ Report continued
For the year ended 1 January 2023
Costa Group Holdings Limited
Annual Report 2022
44
Post-employment
Long-term benefits
Termination
Share-based payments
Total
Superannuation
benefits
Long service
leave
Termination
benefits
$
$
$
$
$
–
–
–
–
269,108
9,679
–
–
–
262,083
16,391
3,612
–
(209,462)
131,565
12,858
4,074
–
(74,350)
261,097
15,327
–
–
–
164,775
13,177
–
–
–
148,039
14,125
–
–
–
151,817
12,264
–
–
–
137,808
8,101
–
–
–
170,500
2,093
–
–
–
146,225
13,831
148,688
12,047
135,360
24,430
8,184
–
(12,235)
501,901
22,631
7,943
–
130,709
717,671
8,431
3,664
–
15,586
227,106
–
–
–
–
–
24,430
(58,222)
428,181
(445,135)
474,674
22,631
25,019
–
99,711
1,107,670
Costa Group Holdings Limited
Annual Report 2022
45
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 KMP, that constitutes a notifiable interest, is set out below:
Held at
26 December 2021
Shares
acquired
Shares
delivered under
STI or LTI plans
Shares sold
Held at
1 January 2023
Neil Chatfield
464,242
–
–
–
464,242
Tim Goldsmith (indirectly held)
73,425
–
–
–
73,425
Janette Kendall (indirectly held)
42,612
–
–
–
42,612
Peter Margin (indirectly held)
86,986
7,735
–
–
94,721
Dr Jane Wilson
43,425
–
–
–
43,425
Harry Debney (directly and indirectly held)
341,142
–
38,758
–
379,900
Sean Hallahan (directly and indirectly held)
30,118
–
20,337
–
50,4551
Wayne Johnston
–
–
7,337
7,337
–
Marc Werner
–
–
–
–
–
Notes in relation to Table 8.1:
1. Sean Hallahan ceased to be a KMP on 26 September 2022. The table above does not reflect any change in his shareholding after he ceased to be a KMP, as he was no longer
bound by the Company’s Securities Trading Policy and was not obliged to notify the Company of trading in the Company’s shares.
8.2 Options over equity instruments granted as compensation
The number of options over ordinary shares granted as compensation to KMP during CY2022 was as set out below. Shareholder
approval for the issue of options to Sean Hallahan under the LTIP was obtained in accordance with ASX Listing Rule 10.14 at the
Company’s AGM held in May 2022 prior to the options being issued.
Options granted
during CY2022
Grant date1
Fair Value per
option $
Exercise price
per option $
Expiry date
Sean Hallahan
340,9552
21 July 2022
0.89
2.96
1 March 2027
Wayne Johnston
198,315
21 February 2022
0.89
2.96
1 March 2027
Marc Werner
179,212
16 September 2022
0.72
2.96
1 March 2027
Notes in relation to Table 8.2:
1. The grant date for valuation purposes for options granted to the CFO and former CEO was 21 February 2022, being the date on which the Board approved the
establishment of the CY22 LTI Plan, and in the case of the COO was 25 August 2022, being the date on which the Board approved the issue of options to the COO.
2. The options granted to Sean Hallahan during 2022 were all forfeited on him ceasing to be an employee during CY2022.
Directors’ Report continued
For the year ended 1 January 2023
Costa Group Holdings Limited
Annual Report 2022
46
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:
Instrument
Number1
Grant date2
Vesting date
Exercise price
Harry Debney
Options
155,251
29 May 2020
1 March 2023
$2.39
Sean Hallahan
Options
188,770
26 February 2020
1 March 2023
$2.39
Options
158,091
1 June 2021
1 March 2024
$3.95
Performance Rights
27,554
1 March 2022
1 March 2023
N/A
Wayne Johnston
Options
125,000
20 July 2020
1 March 2023
$2.39
Options
198,315
21 July 2022
1 March 2025
$2.96
Options
150,469
29 March 2021
1 March 2024
$3.95
Performance Rights
13,042
1 March 2022
1 March 2023
N/A
Marc Werner
Options
179,212
16 September 2022
1 March 2025
$3.95
Notes in relation to Table 8.3
1. This Table sets out the options held as at the end of the reporting period. However, as set out in Section 3.3.1, the Board has determined that all of the options that were
due to vest on 1 March 2023 will lapse on that date.
2. The grant date for valuation purposes for options granted to Executive KMP (other than the COO) during CY2022 was 21 February 2022, during CY2021 was 19 February
2021, for options granted during CY2020 was 26 February 2020 and for options granted during CY2019 was 26 February 2019. The grant date for valuation purposes for
options granted to the COO was 25 August 2022, being the date on which the Board approved the issue of options to the COO.
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
27 December
2021
Granted as
compensation
Exercised
Value of
exercised
options
(at time of
exercise) $
Forfeited
/ lapsed
during
the year
Held at
1 January
2023
Vested
during
the year
Vested and
exercisable
at 1 January
2023
Harry Debney
568,253
–
–
–
397,781
170,472
–
15,221
Sean Hallahan
737,382
340,955
–
–
723,817
354,520
–
7,659
Wayne Johnston
275,469
198,315
–
–
–
473,784
–
–
Marc Werner
–
179,212
–
–
–
179,212
–
–
8.5 Key Management personnel transactions
There were no transactions between members of the Group and any KMP (or their related parties) that resulted in any personal financial
benefit to the KMP. The Group had certain transactions during the financial year with companies of which the KMP were directors.
These transactions were on arm’s length terms and were entered into for the benefit of the Group. These are disclosed in note D4
of the financial statements.
Costa Group Holdings Limited
Annual Report 2022
47
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 (e.g. 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.
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.
• Not independent: Harry Debney (due to his interim executive role).
This Directors’ Report is made in accordance with a resolution of the Directors.
Neil Chatfield
Chairman
Dated at Melbourne 20 February 2023
Directors’ Report continued
For the year ended 1 January 2023
Costa Group Holdings Limited
Annual Report 2022
48
Lead Auditor’s Independent Declaration
37
KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used
under license by the independent member firms of the KPMG global organisation. 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 Limited
I declare that, to the best of my knowledge and belief, in relation to the audit of Costa Group Holdings
Limited for the financial year ended 1 January 2023 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.
KPM_INI_01
PAR_SIG_01
PAR_NAM_01
PAR_POS_01
PAR_DAT_01
PAR_CIT_01
KPMG
Gordon Sangster
Partner
Melbourne
20 February 2023
Costa Group Holdings Limited
Annual Report 2022
49
Consolidated Statement of Profit
and Other Comprehensive Income
For the financial year ended 1 January 2023
Notes
December
2022
December
2021
$ ‘000
$ ‘000
Revenue
Total revenue
A2
1,357,556
1,220,597
Less: expenses
Raw materials, consumables and third-party purchases
(418,578)
(407,710)
Depreciation and amortisation expenses
(129,436)
(108,459)
Impairment reversal
B7
–
2,357
Impairment of goodwill
A3, B9
(2,167)
–
Employee benefits expenses
A2
(491,572)
(420,284)
Occupancy expenses
(30,080)
(30,630)
Net finance costs
A2
(42,554)
(24,986)
(Loss)/profit on sale of assets
(90)
484
Freight and cartage
(100,271)
(69,600)
Leasing expenses
(6,543)
(5,264)
Other expenses
A2
(106,155)
(78,582)
Gain/(loss) on fair value adjustments – biological assets
8,737
(7,498)
Impairment loss on trade receivables
(294)
(198)
Business acquisitions, restructure, and integration costs
A3, D3
(717)
(19,188)
(1,319,720)
(1,169,558)
Share of net profits of joint ventures and associates accounted for using the equity method
D1
10,743
9,881
Profit before income tax expense
48,579
60,920
Income tax expense
E2
(1,578)
(8,696)
Profit for the period
47,001
52,224
Other comprehensive (loss)/income for the period
Foreign currency translation differences
(12,664)
12,335
Cash flow hedges – effective portion of changes in fair value
375
(2,292)
Total other comprehensive (loss)/income for the period
(12,289)
10,043
Total comprehensive income for the period
34,712
62,267
Profit attributable to:
Owners of Costa Group Holdings Ltd
33,630
41,396
Non-controlling interests
13,371
10,828
47,001
52,224
Total comprehensive income attributable to:
Owners of Costa Group Holdings Ltd
21,341
51,439
Non-controlling interests
13,371
10,828
34,712
62,267
December
2022
December
2021
Cents
Cents
Earnings per share for profit attributable to ordinary equity holders:
Basic earnings per share
A4
7.24
9.47
Diluted earnings per share
A4
7.24
9.47
The above Consolidated Statement of Profit and Other Comprehensive Income should be read in conjunction with the accompanying notes.
Costa Group Holdings Limited
Annual Report 2022
50
Consolidated Statement of Financial Position
As at 1 January 2023
Notes
December
2022
December
2021
$ ‘000
$ ‘000
ASSETS
Current assets
Cash and cash equivalents
B1
85,212
61,887
Receivables
B2
101,589
108,032
Inventories
B3
40,045
30,538
Biological assets
B6
79,785
70,543
Other assets and financial assets
B5
12,597
12,700
Current tax assets
E2
30,856
8,554
Assets held for sale
B8
–
3,207
Total current assets
350,084
295,461
Non-current assets
Receivables
B2
–
1,274
Other assets and financial assets
B5
773
–
Equity accounted investments
D1
31,291
27,248
Intangible assets
B9
282,859
289,146
Deferred tax assets
E2
25,291
21,302
Property, plant and equipment
B7
814,349
799,933
Right of use assets
B11
552,942
568,751
Total non-current assets
1,707,505
1,707,654
Total assets
2,057,589
2,003,115
LIABILITIES
Current liabilities
Borrowings
C1
12,189
13,704
Payables
B4
149,418
149,310
Provisions
B12
37,009
21,011
Current tax liabilities
E2
88
542
Lease liabilities
B11
61,016
64,125
Total current liabilities
259,720
248,692
Non-current liabilities
Borrowings
C1
424,964
347,419
Provisions
B12
8,908
25,652
Deferred tax liabilities
E2
38,403
34,467
Lease liabilities
B11
510,033
518,927
Total non-current liabilities
982,308
926,465
Total liabilities
1,242,028
1,175,157
NET ASSETS
815,561
827,958
EQUITY
Share capital
C2
768,532
768,074
Other equity reserve
C2
(13,422)
(13,422)
Other reserves
C4
2,543
15,602
Profit reserve
C3
103,397
112,021
Accumulated losses
(92,692)
(92,692)
Equity attributable to owners of the parent
768,358
789,583
Non-controlling interests
47,203
38,375
Total equity
815,561
827,958
The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.
Costa Group Holdings Limited
Annual Report 2022
51
Consolidated Statement of Changes in Equity
For the financial year ended 1 January 2023
Other reserves
Consolidated
Share
capital
Other
equity
reserve
Share
based
payment
reserve
Foreign
currency
translation
reserve
Hedge
reserve
General
reserve
$ ‘000
$ ‘000
$ ‘000
$ ‘000
$ ‘000
$ ‘000
Balance as at 26 December 2021
768,074
(13,422)
8,895
8,102
177
(1,572)
Profit for the year
–
–
–
–
–
–
Other comprehensive income/(loss)
–
–
–
(12,664)
375
–
Transfer to profit reserve
–
–
–
–
–
–
Total comprehensive income for the year
–
–
–
(12,664)
375
–
Transactions with owners in their capacity
as owners:
Shared-based payment benefit during the period
–
–
(765)
–
–
–
Share options exercised
458
–
(458)
–
–
–
Dividend paid on ordinary shares
–
–
–
–
–
–
Dividend paid to NCI
–
–
–
–
–
–
Transfer to general reserve
–
–
–
–
–
453
Balance as at 1 January 2023
768,532
(13,422)
7,672
(4,562)
552
(1,119)
Balance as at 27 December 2020
580,734
(13,117)
8,119
(4,233)
2,469
(1,572)
Profit for the year
–
–
–
–
–
–
Other comprehensive income/(loss)
–
–
–
12,335
(2,292)
–
Transfer to profit reserve
–
–
–
–
–
–
Total comprehensive income for the year
–
–
–
12,335
(2,292)
–
Transactions with owners in their capacity
as owners:
Issue of shares (gross)
190,083
–
–
–
–
–
Costs of equity raise (net of tax)
(3,680)
–
–
–
–
–
Shared-based payment expense during the period
–
–
1,056
–
–
–
Share options exercised
937
(305)
(300)
–
–
–
Dividend paid on ordinary shares
–
–
–
–
–
–
Dividend paid to NCI
–
–
–
–
–
–
Tax effect of share plan payment through equity
–
–
20
–
–
–
Balance as at 26 December 2021
768,074
(13,422)
8,895
8,102
177
(1,572)
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
Costa Group Holdings Limited
Annual Report 2022
52
Profit reserve
Accumulated
losses
Total
Non-controlling
interests
Total equity
$ ‘000
$ ‘000
$ ‘000
$ ‘000
$ ‘000
112,021
(92,692)
789,583
38,375
827,958
–
33,630
33,630
13,371
47,001
–
–
(12,289)
–
(12,289)
33,630
(33,630)
–
–
–
33,630
–
21,341
13,371
34,712
–
–
(765)
–
(765)
–
–
–
–
–
(41,801)
–
(41,801)
–
(41,801)
–
–
–
(4,543)
(4,543)
(453)
–
–
–
–
103,397
(92,692)
768,358
47,203
815,561
109,242
(92,692)
588,950
27,612
616,562
–
41,396
41,396
10,828
52,224
–
–
10,043
–
10,043
41,396
(41,396)
–
–
–
41,396
–
51,439
10,828
62,267
–
–
190,083
–
190,083
–
–
(3,680)
–
(3,680)
–
–
1,056
–
1,056
–
–
332
–
332
(38,617)
–
(38,617)
–
(38,617)
–
–
–
(65)
(65)
–
–
20
–
20
112,021
(92,692)
789,583
38,375
827,958
Costa Group Holdings Limited
Annual Report 2022
53
Notes
December
2022
December
20211
$ ‘000
$ ‘000
Cash flow from operating activities
Receipts from customers
1,363,851
1,223,442
Payments to suppliers and employees
(1,161,089)
(1,022,071)
Interest received
334
66
Interest paid
(40,178)
(24,553)
Income taxes paid
(24,672)
(23,090)
Net cash provided by operating activities
B1
138,246
153,794
Cash flow from investing activities
Payments for property, plant and equipment
(106,546)
(127,583)
Dividends from equity accounted investments
6,700
4,200
Dividends paid to non-controlling interest
(4,543)
(65)
Acquisition of businesses
D3
(1,620)
(291,387)
Proceeds from sale of property, plant and equipment
4,293
1,134
Net cash used in investing activities
(101,716)
(413,701)
Cash flow from financing activities
Proceeds from share issue, net of issue costs
–
185,167
Dividend payments on ordinary shares
(41,801)
(38,617)
Loans and advances
2,216
1,722
Proceeds from borrowings
331,343
545,459
Repayment of borrowings
(252,484)
(362,584)
Payment of lease liability
(50,890)
(43,341)
Net cash (used in)/ provided by financing activities
(11,616)
287,806
Reconciliation of cash
Cash at beginning of year
61,887
32,450
Net increase in cash held
24,915
27,899
Effect of movement in foreign exchange rate
(1,590)
1,538
Cash at end of year
B1
85,212
61,887
1. The proceeds and repayment of borrowings have been updated to reflect net drawdowns and repayments as opposed to gross drawdowns and repayments (on maturity).
As a result, prior year comparative has been reclassed accordingly. There is no change in overall net borrowings in the cash flow.
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
Consolidated Statement of Cash Flows
For the financial year ended 1 January 2023
Costa Group Holdings Limited
Annual Report 2022
54
Notes to the Consolidated Financial Statements
Contents
Overview
Reporting entity
56
Basis of preparation of the consolidated financial report
56
Basis of consolidation
57
Foreign currency translations and balances
57
Critical accounting estimates and judgements
58
Note Index
A.
Group Performance
58
A1. Segment performance
58
A2. Revenue and expenses
60
A3. Material items
62
A4. Earnings per share
62
A5. Subsequent events
62
B.
Operating Assets and Liabilities
63
B1. Cash and cash equivalents
63
B2. Receivables
64
B3. Inventories
65
B4. Payables
65
B5. Other assets and financial assets
65
B6. Biological assets
66
B7. Property, plant, and equipment
67
B8. Assets held for sale
69
B9. Intangible assets
70
B10. Impairment
72
B11. Leases
74
B12. Provisions
76
B13. Contingent Liabilities
77
C.
Capital Structure and Financing
78
C1. Borrowings
78
C2. Share Capital
79
C3. Profit reserve
79
C4. Other reserves
79
C5. Dividends
80
C6. Financial instruments
– fair values and risk management
80
D.
Group Structure
86
D1. Joint ventures and associates
86
D2. List of subsidiaries
87
D3. Business Acquisitions
88
D4. Related party disclosures
90
D5. Parent entity disclosures
91
D6. Deed of cross guarantee
92
E.
Other
94
E1. Share based payments
94
E2. Taxation
95
E3. New accounting standards
97
E4. Auditor’s remuneration
98
E5. Other accounting policies
98
Costa Group Holdings Limited
Annual Report 2022
55
Notes to the Consolidated Financial Statements continued
Overview
Reporting entity
Costa Group Holdings Ltd (“the Company”) is a company limited by shares, incorporated and domiciled in Australia. The Company’s shares
are publicly traded on the Australian Securities Exchange (ASX: CGC). The Company and its controlled entities (referred to as “the Group”)
is a for profit entity. The nature of the operations and principal activities of the Group 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 consolidated financial report
The consolidated financial report is a general-purpose financial report which has been prepared in accordance with Australian Accounting
Standards (AAS) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial
report complies with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board.
The consolidated financial report was authorised for issue by the directors on 20 February 2023.
The notes to the consolidated 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.
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 Consolidated Financial Statements.
Historical Cost Convention
The consolidated 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 and the business acquisitions that are required to be recorded
on acquisition at fair value.
Rounding
The consolidated 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 consolidated financial report has been prepared on a going concern basis.
Goods and services tax (GST)/Value Added Tax (VAT)
Revenues, expenses, liabilities and assets are recognised net of the amount of GST/VAT, except where the amount of GST/VAT incurred
is not recoverable from the relevant tax office. In these circumstances the GST/VAT 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 Consolidated Statement of Financial Position are shown
inclusive of GST/VAT.
Cash flows are presented in the Consolidated Statement of Cash Flows on a gross basis.
Costa Group Holdings Limited
Annual Report 2022
56
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 consolidated financial report from the date that control commences until the date that control ceases.
Investments in joint ventures and associates (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 joint ventures and associates are accounted for under the equity method and are initially recognised at cost. The cost
of the investment includes transaction costs. The consolidated 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 consolidated 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 consolidated 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 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.
Subsidiaries 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.
Costa Group Holdings Limited
Annual Report 2022
57
Notes to the Consolidated Financial Statements continued
Critical accounting estimates and judgements
The preparation of the consolidated financial report requires management to make, estimates, judgements, and assumptions that
affect the application of accounting policies and the reported amounts in the financial statements. Actual results may differ from
these estimates.
These estimates, judgements and assumptions are continually evaluated, and are based on forecasts of economic conditions which reflect
expectations and assumptions as at 1 January 2023 about future events that the Directors believe are reasonable in the circumstances.
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
Note
Page
Valuation of biological assets
B6 – Biological assets
66
Estimation of useful lives of property, plant and equipment
B7 – Property, plant, and equipment
67
Recoverability of goodwill
B9 – Intangible assets
70
Recoverability of non-financial assets other than goodwill
B9 – Intangible assets
70
Estimation of useful lives of intangible assets
B9 – Intangible assets
70
Estimation of useful lives of right of use assets
B11 – Leases
74
Leases
B11 – Leases
74
Employee benefits provision
B12 – Provisions
76
Fair value measurement of financial instruments
C6 – Financial instruments – fair values and risk management
81
Allowance for expected credit losses
C6 – Financial instruments – fair values and risk management
81
Fair value measurement of business acquisitions
D3 – Business acquisitions
88
Fair value measurement of share based payments
E1 – Share based payments
94
Income tax
E2 – Taxation
95
Income tax deferrals and recovery of deferred tax assets
E2 – Taxation
95
A. Group Performance
A1. Segment performance
Segment information is reported in a manner consistent with internal reporting provided to the chief operating decision maker (“CODM”).
The CODM, who is responsible for allocating resources and assessing performance of the operating segments, is the Chief Executive
Officer (“CEO”) of the Group.
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 and
bananas. 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 and 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 the Group’s blueberry varietals in Australia, the Americas,
China and Africa, and international berry farming operations in Morocco and China.
Costa Group Holdings Limited
Annual Report 2022
58
Information about reportable segments
Performance is measured based on segment Earnings Before Interest, Tax, Depreciation, and Amortisation (“EBITDA”) before Self
Generating and Regenerating Assets (“SGARA”) and material items (“EBITDA-S”), as included in the internal management reports
that are reviewed by the CEO.
Group financing costs and income taxes are managed at the Group level and are not allocated to operating segments. The information
presented to the CEO does not report on segment assets and liabilities and as such is not presented in this report.
It is the Group’s policy to allocate any direct attributable Business Support costs to the respective segment. Any unallocated or not
directly attributable costs are allocated to the produce segment.
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.
December 2022
Notes
Produce
CF&L International
Adjustments
and
eliminations
Total
$’000
$’000
$’000
$’000
$’000
Revenue
External customers
990,225
176,390
190,941
–
1,357,556
Inter-segment
38,631
8,256
–
(46,887)
–
Total revenue
1,028,856
184,646
190,941
(46,887)
1,357,556
EBITDA-S
117,840
15,178
81,788
–
214,806
Fair value movements in biological assets
B6
1,221
–
7,516
–
8,737
Material items (before tax)
A3
(717)
–
–
–
(717)
EBITDA
118,344
15,178
89,304
–
222,826
December 2021
Revenue
External customers
891,195
151,745
177,657
–
1,220,597
Inter-segment
38,304
7,644
–
(45,948)
–
Total revenue
929,499
159,389
177,657
(45,948)
1,220,597
EBITDA-S
126,640
14,577
76,993
–
218,210
Fair value movements in biological assets
B6
(12,634)
–
5,136
–
(7,498)
Material items (before tax)
A3
(18,376)
(812)
–
–
(19,188)
EBITDA
95,630
13,765
82,129
–
191,524
Reconciliation of segment EBITDA to profit for the period
Notes
December
2022
December
2021
$ ‘000
$ ‘000
EBITDA for reportable segments
222,826
191,524
Depreciation and amortisation
(129,436)
(108,459)
(Loss)/profit on sale of assets
(90)
484
Impairment reversal
B7
–
2,357
Impairment of goodwill
A3,B9
(2,167)
–
Net finance costs
A2
(42,554)
(24,986)
Income tax expense
E2
(1,578)
(8,696)
Profit for the period
47,001
52,224
Costa Group Holdings Limited
Annual Report 2022
59
Notes to the Consolidated Financial Statements continued
Geographical segment of non-current assets
December
2022
December
2021
$ ‘000
$ ‘000
Non-current assets excluding financial assets (including equity accounted investment)
and deferred tax balance by geography
Australia
1,388,669
1,399,662
China
107,294
102,622
Morocco
154,187
155,546
1,650,150
1,657,830
Reconciliation of segment non-current assets to Statement of Financial Position
Non-current assets
1,707,505
1,707,654
Deduct:
Equity accounted investments
(31,291)
(27,248)
Deferred tax assets
(25,291)
(21,302)
Receivables, other assets and financial assets
(773)
(1,274)
1,650,150
1,657,830
A2. Revenue and expenses
Revenue
December
2022
December
2021
$ ‘000
$ ‘000
Sale of goods and commissions income received
1,311,402
1,158,028
Rendering of services
36,280
41,937
Rebates and discounts provided
(18,978)
(16,408)
Other income
28,852
37,040
Total revenue
1,357,556
1,220,597
Sale of goods and commissions received
Revenue from sale of goods is measured at the fair value of the consideration received or receivable. Revenue is recognised when
performance obligations are satisfied, and control of the goods or services have passed or provided to the buyer.
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 factors indicate 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.
Rendering of services
Rendering of services revenue relates to logistics, farm and ripening services provided to customers. Similarly, revenue is recognised
when performance obligation is satisfied or upon the delivery of the service to the customers.
Rebates and discounts provided
Rebates and discounts include volume-based rebates and discounts, and payment settlement discounts, which are recognised
when earned.
Other income
Other income includes dividends, rental income, insurance income, royalty income, and net foreign exchange gains or losses.
Dividend income is recognised when the right to receive a dividend has been established. Dividends received from joint ventures
and associates are accounted for in accordance with the equity method of accounting.
Rental income is recognised on a straight line basis over the rental term. These are for operating leases.
Insurance income is recognised when recovery is virtually certain.
Costa Group Holdings Limited
Annual Report 2022
60
Royalty income is recognised on an accruals 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.
Foreign exchange gains or losses are recognised when monetary assets or liabilities denominated in foreign currency are settled or are
translated at rates different from those at which they were translated when initially recognised.
All revenue is stated net of the amount of GST/VAT.
Expenses
Net finance costs
Note
December
2022
December
2021
$’000
$’000
Interest income
(334)
(72)
Interest expense on borrowings
13,773
6,113
Interest expense on lease liabilities
B11
28,234
18,191
Amortisation of borrowing costs
881
754
42,554
24,986
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.
Borrowing costs
Borrowing costs can include interest, amortisation of discounts or premiums relating to borrowings, interest on lease liabilities,
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. To determine the amount of borrowing costs to be capitalised,
the Group uses the interest rate applicable to its outstanding borrowings during the period. For the year ended December 2022,
the borrowing costs capitalised as part of property, plant and equipment was $1.3 million using a weighted average interest rate
of 3.60% (December 2021: $0.8 million, 2.54%).
Loan establishment costs of $3.0 million have been capitalised in the current year and amortised over the life of the loan facility
(2021: $0.3 million).
Employee benefits expenses
December
2022
December
2021
$’000
$’000
Salaries, contractors and wages (including on costs)
446,148
383,961
Superannuation costs
27,454
19,508
Leave entitlements
12,212
11,194
Other employee expenses
5,758
5,621
491,572
420,284
Other expenses
December
2022
December
2021
$‘000
$ ‘000
Repair and maintenance expenses
26,485
23,826
Legal and consulting expenditure
8,993
6,709
Insurance
17,229
12,715
Other1
53,448
35,332
106,155
78,582
Notes:
1. Other expenses include telecommunications, marketing, information technology and general administration expenditure.
Costa Group Holdings Limited
Annual Report 2022
61
Notes to the Consolidated Financial Statements continued
A3. Material items
The before-tax and after-tax impact of material items are as follows:
December
2022
December
2021
$’000
$’000
Individually material items included in profit before income tax:
Acquisition and integration expenses1
–
(19,188)
Impairment losses2
(2,167)
–
Restructure costs3
(717)
–
Total material items (before tax)
(2,884)
(19,188)
Tax effect of material items
209
1,728
Total material items (after tax)
(2,675)
(17,460)
Notes:
1. During the prior year acquisition and integration expenses related to 2PH Farms, KW Orchards and Select Fresh acquisitions, refer to note D3.
2. Impairment of goodwill related to the avocado CGU, refer to note B10.
3. Restructure costs relating to staff redundancies incurred during the year.
A4. Earnings per share
December
2022
December
2021
Cents per
share
Cents per
share
Basic EPS
Basic EPS (cents) based on net profit attributable to members of Costa Group Holdings Limited
7.24
9.47
Diluted EPS
Diluted EPS (cents) based on net profit attributable to members of Costa Group Holdings Limited
7.24
9.47
Number
(‘000)
Number
(‘000)
Weighted average number of shares
Weighted average number of ordinary shares on issue used in the calculation of basic EPS
464,518
437,291
Effect of potentially dilutive securities
Equity-settled share options
24
30
Weighted average number of ordinary shares on issue used in the calculation of diluted EPS
464,542
437,321
$ ‘000
$ ‘000
Earnings reconciliation
Basic and diluted EPS
Net profit attributable to owners of Costa Group Holdings Limited
33,630
41,396
Calculation of earnings per share
Earnings per share is the amount of post-tax profit attributable to each share. Basic earnings per share is computed using the weighted
average number of shares outstanding during the period.
Diluted earnings per share is computed using the weighted average number of shares outstanding during the period plus the dilutive
effect of share options outstanding during the period.
A5. Subsequent events
Dividends
On 20 February 2023, the directors determined a final dividend of 5.0 cents per ordinary share. The dividends have not been provided
for and there are no income tax consequences. The Company expects to pay the dividend on 6 April 2023.
Except for the matters disclosed in the preceding paragraph, there are no matters or circumstances that have arisen since the financial
year ending 1 January 2023, 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.
Costa Group Holdings Limited
Annual Report 2022
62
B. Operating Assets and Liabilities
B1. Cash and cash equivalents
December
2022
December
2021
$ ‘000
$ ‘000
Cash on hand
24
42
Cash at bank
85,124
61,781
Cash on deposit
64
64
85,212
61,887
Reconciliation of profit after tax to net cash flows from operating activities
December
2022
December
2021
$ ‘000
$ ‘000
Profit for the period
47,001
52,224
Costs associated with non-operating activities
Acquisition and integration costs
–
19,188
Non-cash adjustments to reconcile profit for the period to net cash flows:
Depreciation and amortisation
129,436
108,459
Loss/(profit) on sale of assets
90
(484)
Borrowing costs amortised
881
605
Impairment reversal
–
(2,357)
Impairment of goodwill
2,167
–
Foreign exchange differences
(404)
1,840
(Gain)/loss on fair value adjustments – biological assets
(8,737)
7,498
Share based payments (benefit)/expense
(765)
1,056
Share of profit of equity-accounted investees, net of tax
(10,743)
(9,881)
Change in working capital and tax balances:
Increase in inventories
(9,507)
(1,167)
Decrease/(increase) in receivables
1,977
(5,882)
Increase in biological assets
(602)
(964)
Decrease/(increase) in other assets
26
(1,912)
Increase/(decrease) in interest payable
1,835
(72)
Increase in payables
9,146
918
Decrease in provisions
(746)
(1,003)
(Decrease)/increase in deferred taxes
(53)
2,250
Increase in net current tax receivables
(22,756)
(16,522)
Net cash generated from operating activities
138,246
153,794
Recognition and measurement
Cash comprises cash on hand and demand deposits. Cash equivalents comprise short term and highly liquid cash deposits that are
readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. For the purposes of the
Consolidated Statement of Cash Flows, cash includes cash on hand and at bank, and cash equivalents.
Costa Group Holdings Limited
Annual Report 2022
63
Notes to the Consolidated Financial Statements continued
B2. Receivables
December
2022
December
2021
$ ‘000
$ ‘000
CURRENT
Trade debtors
78,308
74,669
Less: Allowance for impairment losses on trade receivables
(631)
(582)
77,677
74,087
Other receivables
23,912
33,945
101,589
108,032
NON-CURRENT
Other receivables
–
1,274
Recognition and measurement
Trade receivables
Trade receivables are recognised initially at invoice value (fair value) and subsequently measured at amortised cost, using the effective
interest method, less a loss allowance. They generally have credit terms between 15-60 days depending on the nature of the transaction.
Impairment of trade and other receivables.
The Group assesses the expected credit losses associated with its trade and other receivables on a forward-looking basis. The Group
applies the simplified approach to measuring expected credit losses, as disclosed in detail in note C6.
Other receivables
Other current and non-current receivables relate to amounts generally arising from transactions outside the usual operating activities
of the Group. It is expected that these other receivables will be received when due.
Also included in other receivables is sales tax receivable. 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 Moroccan subsidiary, African Blue. These value added tax credits have not
been derecognised from the Consolidated 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.
Note
December
2022
December
2021
$ ‘000
$ ‘000
Carrying amount of other receivables transferred to a bank
2,498
2,660
Carrying amount of associated liabilities
C1
(2,498)
(2,660)
Costa Group Holdings Limited
Annual Report 2022
64
B3. Inventories
December
2022
December
2021
$ ‘000
$ ‘000
CURRENT
At cost
Raw materials
29,488
23,740
Finished goods
10,557
6,798
40,045
30,538
Recognition and measurement
Inventories are measured at the lower of cost and net realisable value.
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.
B4. Payables
Payables
December
2022
December
2021
$ ‘000
$ ‘000
CURRENT
Unsecured liabilities
Trade creditors
78,293
68,929
Sundry creditors and accruals1
71,125
80,381
149,418
149,310
Notes:
1. Includes deferred consideration for business acquisitions of $1.5 million (December 2021: $3.1 million), refer to note D3 for further details.
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).
B5. Other assets and financial assets
December
2022
December
2021
$ ‘000
$ ‘000
CURRENT
Prepayments
12,353
12,448
Forward exchange contracts
244
252
12,597
12,700
NON-CURRENT
Prepayments
277
–
Interest rate swaps
496
–
773
–
Costa Group Holdings Limited
Annual Report 2022
65
Notes to the Consolidated Financial Statements continued
B6. Biological assets
Note
December
2022
December
2021
$ ‘000
$ ‘000
CURRENT
Produce at fair value
72,911
64,201
Produce at cost
6,874
6,342
Total biological assets
79,785
70,543
Reconciliation of changes in carrying amount of biological assets:
Opening balance
70,543
58,312
Gain/(loss) arising from changes in fair value
8,737
(7,498)
Additions from purchases
253,809
211,539
Additions from business acquisitions
D3
–
18,839
Decreases due to harvest
(253,304)
(210,649)
Closing balance
79,785
70,543
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 Consolidated
Statement of Profit 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
Significant
unobservable inputs
Inter-relationship between
key unobservable inputs
and fair value measurement
Hanging crop
(citrus, grapes,
avocados,
tomatoes,
blueberries,
raspberries 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.
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.
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).
Costa Group Holdings Limited
Annual Report 2022
66
Measurement of biological assets at cost
Short lived crops (mushrooms and strawberries) are measured at cost. These crops typically have a short term development cycle of
less than three months. The calculation of market value for these crops is based on total cost due to the inherent difficulty in accurately
determining the biological advancement percentage of the crop. As such, the cost approach takes into account actual costs for
preparation and cultivation.
Risk management strategy related to biological activities
Regulatory and environmental risks
The Group is subject to laws and regulations in the various locations in which it operates. The Group has established environmental
policies and procedures aimed at compliance with local environmental and other laws.
Supply and demand risk
The Group is exposed to risks arising from fluctuations in the price and sales volume of all its produce. 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
December
2022
December
2021
$ ‘000
$ ‘000
Land and buildings at cost
393,087
398,878
Accumulated depreciation and impairment
(82,816)
(73,292)
310,271
325,586
Assets under construction at cost
60,584
88,309
Plant and equipment at cost
553,317
505,788
Accumulated depreciation and impairment
(288,143)
(238,251)
265,174
267,537
Improvements at cost
77,634
46,338
Accumulated depreciation and impairment
(21,717)
(17,044)
55,917
29,294
Bearer plants at cost
132,457
100,664
Bearer plants in progress at cost
33,837
25,167
Accumulated depreciation and impairment
(43,891)
(36,624)
122,403
89,207
Total property, plant, and equipment
814,349
799,933
Costa Group Holdings Limited
Annual Report 2022
67
Notes to the Consolidated Financial Statements continued
Reconciliations
Reconciliation of the carrying amounts of property, plant and equipment at the beginning and end of the current financial year.
Note
December
2022
December
2021
$ ‘000
$ ‘000
Land and buildings
Opening carrying amount
325,586
165,166
Additions
–
15,115
Assets acquired through business combination
D3
–
106,848
Disposals
–
(17)
Depreciation expense
(8,928)
(9,202)
Impairment reversal
–
1,370
Transfers to assets held for sale
B8
–
(2,220)
Other transfers, reclassifications and adjustments and effect of movement in FX rate3
(6,387)
48,526
Closing carrying amount
310,271
325,586
Assets under construction
Opening carrying amount
88,309
82,464
Additions1,2
47,625
89,783
Disposals
–
(10)
Other transfers, reclassifications and adjustments and effect of movement in FX rate3
(75,350)
(83,928)
Closing carrying amount4
60,584
88,309
Plant and equipment
Opening carrying amount
267,537
202,061
Additions
12,927
27,054
Assets acquired through business combination
D3
–
39,611
Disposals
–
(596)
Depreciation expense
(46,390)
(42,472)
Impairment reversal
–
987
Transfers to assets held for sale
B8
–
(987)
Other transfers, reclassifications and adjustments and effect of movement in FX rate3
31,100
41,879
Closing carrying amount
265,174
267,537
Leasehold Improvements
Opening carrying amount
29,294
28,386
Additions
5,016
3,212
Assets acquired through business combination
D3
–
311
Disposals
(2)
–
Depreciation expense
(4,864)
(3,239)
Transfers, reclassifications and adjustments and effect of movement in FX rate
26,473
624
Closing carrying amount
55,917
29,294
Bearer plants
Opening carrying amount
89,207
37,611
Additions
30,936
13,132
Mature bearer plants acquired through business combination
D3
–
21,280
Immature bearer plants, acquired through business combination
D3
–
25,167
Disposals
(854)
(214)
Depreciation expense
(11,319)
(8,913)
Transfers, reclassifications and adjustments and effect of movement in FX rate
14,433
1,144
Closing carrying amount1
122,403
89,207
Notes:
1. The prior year includes Conaghans asset acquisition $15.9 million. Refer note D3 for details.
2. Includes capitalised borrowing costs of $1.3 million (December 2021: $0.8 million). Refer note A2 for details.
3. The prior year includes completion and transfer of a new tomato glasshouse facility of $79.5m from assets under construction to buildings, plant, and equipment.
4. Assets under construction relate to Conaghans stage 1, immature bearer plants, and other growth projects.
Costa Group Holdings Limited
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68
Note
December
2022
December
2021
$ ‘000
$ ‘000
Total property, plant, and equipment
Opening carrying amount
799,933
515,688
Additions1,2
A2, D3
96,504
148,296
Assets acquired through business combination
D3
–
193,217
Disposals
(856)
(837)
Depreciation expense
(71,501)
(63,826)
Impairment reversal
–
2,357
Transfers to assets held for sale
–
(3,207)
Transfers, reclassifications and adjustments and effect of movement in FX rate
(9,731)
8,245
Closing carrying amount
814,349
799,933
Notes:
1. The prior year includes Conaghans asset acquisition $15.9 million. Refer note D3 for details.
2. Includes capitalised borrowing costs of $1.3 million (December 2021: $0.8 million). Refer note A2 for details.
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
Depreciation rates
Depreciation basis
Land and buildings at cost
0% – 10%
Straight line
Plant and equipment at cost
4% – 33%
Straight line
Bearer plants at cost
4% – 25%
Straight line
Assets under construction are measured at cost and not depreciated until the assets are ready for use.
Capital and other commitments
As at 1 January 2023, the Group has capital commitments amounting to $25.5 million (December 2021: $52.1 million) in relation to
the purchase of property, plant and equipment, which are contracted for but not provided for. Note that included in the above capital
commitment amount is:
a.
Deferred consideration relating to business acquisitions of $1.5 million (December 2021: $3.1 million), refer to note D3 for
further details.
b.
Conaghans property put and call option of $31.4 million. Management believes the put and call option is highly probable and
likely to be exercised. The put and call option is exercisable in July 2023 and the value subject to certain conditions. $15.9 million
of the value has been recognised as a provision under other commitments and balance to be recognised when option is exercised.
Refer note D3 for further details.
B8. Assets held for sale
Note
December
2022
December
2021
$ ‘000
$ ‘000
Assets held for sale
B7
–
3,207
During the year, the property which was classified as assets held for sale in the prior year was sold for an amount in excess of the
carrying value and recognised a profit on sale of $0.3m in the Consolidated Statement of Profit and Other Comprehensive Income.
Costa Group Holdings Limited
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69
Notes to the Consolidated Financial Statements continued
B9. Intangible assets
December
2022
December
2021
$ ‘000
$ ‘000
Goodwill at cost, less accumulated impairment
241,610
250,060
Brand names and trademarks at cost
14,184
14,984
Lease premiums at cost
2,894
3,015
Water rights at cost
11,631
11,631
Capitalised software costs
15,443
10,068
Accumulated amortisation and impairment
(10,158)
(9,057)
5,285
1,011
Reacquired rights at cost
3,600
3,600
Accumulated amortisation and impairment
(3,600)
(3,600)
–
–
Customer relationships at cost
20,700
20,700
Accumulated amortisation and impairment
(13,445)
(12,255)
7,255
8,445
Total intangible assets
282,859
289,146
Reconciliations
Reconciliation of the carrying amounts of intangible assets at the beginning and end of the current financial year.
Note
December
2022
December
2021
$ ‘000
$ ‘000
Goodwill
Opening balance
250,060
198,165
Acquired through business combinations
D3
–
48,778
Impairment
(2,167)
–
Net exchange differences on translation of foreign subsidiaries
(6,283)
3,117
Closing balance
241,610
250,060
Capitalised software costs
Opening balance
1,011
1,397
Additions
–
213
Amortisation expense
(1,060)
(598)
Transfers, reclassifications, and adjustments
5,334
(1)
Closing balance
5,285
1,011
Brand names and trademarks
Opening balance
14,984
3,137
Acquired through business combinations
D3
–
12,200
Amortisation expense
(800)
(353)
Closing balance
14,184
14,984
Lease premiums
Opening balance
3,015
2,955
Net exchange differences on translation of foreign subsidiaries
(121)
60
Closing balance
2,894
3,015
Costa Group Holdings Limited
Annual Report 2022
70
Note
December
2022
December
2021
$ ‘000
$ ‘000
Water rights
Opening balance
11,631
3,796
Additions
–
35
Acquired through business combinations
D3
–
7,800
Closing balance
11,631
11,631
Customer relationships
Opening balance
8,445
–
Acquired through business combinations
D3
–
9,000
Amortisation expense
(1,190)
(555)
Closing balance
7,255
8,445
Total intangible assets
Opening carrying amount
289,146
209,450
Additions
–
248
Acquired through business combinations
D3
–
77,778
Amortisation expense
(3,050)
(1,506)
Transfers, reclassifications and adjustments
5,334
(1)
Impairment expense
(2,167)
–
Net exchange differences on translation of foreign subsidiaries
(6,404)
3,101
Closing carrying amount
282,859
289,146
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 and trademarks
Brand names are measured initially at their cost of acquisition. Brand names, except for trademarks, 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. Trademarks are amortised on a straight line basis over their useful lives
ranging between 15 to 25 years and tested for impairment whenever there is an indication that they may be impaired.
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. Lease premiums are not tested as individual assets but instead are tested
under their respective CGU.
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. Water rights are not tested as
individual assets but instead are tested under their respective CGU.
Capitalised software costs
Capitalised software costs 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.
Costa Group Holdings Limited
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71
Notes to the Consolidated Financial Statements continued
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 software development expenditure
is recognised as an expense when incurred.
Customer relationships
Customer relationships assets are measured at cost less accumulated amortisation and impairment losses. Where acquired in a business
combination, cost represents the fair value at the date of acquisition. The Group customer relationships assets are amortised over
period ranging between five to ten years.
Acquisitions
Intangible assets acquired separately are capitalised at cost. Intangible assets acquired through a business combination are recognised
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 recognised 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
Consolidated Statement of Profit and Other 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 Consolidated Statement of Profit and Other Comprehensive Income in the
expense category consistent with the nature of the intangible asset.
Allocation of goodwill and intangible assets with an indefinite life
The allocation of goodwill and intangible assets by cash generating unit with an indefinite life across the Group is provided below:
Goodwill
Other intangible assets
with an indefinite life
December
2022
December
2021
December
2022
December
2021
$ ‘000
$ ‘000
$ ‘000
$ ‘000
African Blue
96,941
103,218
2,894
3,015
Citrus
63,460
63,460
23,538
23,538
Berry farming
31,993
31,993
–
–
Mushroom
27,757
27,757
–
–
Other
21,459
23,632
300
300
241,610
250,060
26,732
26,853
B10. Impairment
Recoverability of non-financial assets other than goodwill
All non-current 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 Group. 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 or 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 discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset or CGU. Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants in its principal or most advantageous market at
the measurement date. It is measured using the assumptions that market participants would use when pricing the asset or liability,
assuming that market participants act in their economic best interest. A fair value measurement of a non-financial item assumes
it is put to its highest and best use.
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72
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 of other assets or CGU’s. Subject to an operating segment ceiling test, CGU’s 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 Consolidated Statement of Profit and Other Comprehensive Income. Impairment losses
recognised in respect of CGU’s 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 CGU’s) 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 CGU’s according to applicable business operations. The recoverable amount of the Group’s Australian CGU’s
are based on value in use calculations.
The recoverable amounts are based on financial budgets approved by the Company’s Board for 2023 together with detailed
management forecasts for future years:
• For the Australian CGU’s, cash flow forecasts are projected over a 5 year period
• For the African Blue CGU, cash flow forecasts are projected over a 5 year period (December 2021: 10 year period)
For the African Blue CGU, the recoverable amount was determined through a fair value less costs to sell calculation using a detailed
5 year cash flow financial model. The fair value measurement was categorised as a Level 3 fair value based on the inputs in the valuation
technique used (refer note C6 for further details on fair value measurements). The compounded annual growth rate of earnings used
in the African Blue model was 7.8%.
Management’s determination of cash flow projections and gross margins are based on past performance and its expectation for the
future, as at 1 January 2023.
Key assumptions
Key assumptions are those to which the recoverable amount of an asset or cash-generating units is most sensitive.
The ranges of rates used in determining recoverable amounts are set out below:
Australian CGU’s
African Blue CGU
December
2022
December
2021
December
2022
December
2021
Terminal growth rate
2.5%
2.5%
3.0%
3.0%
Pre-tax discount rate
8.8%
8.5%
10.4%
10.0%
The terminal growth rate represents estimates of the CGU’s growth to perpetuity. This ranges between the country’s inflation and GDP
growth 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.
Pricing and volume have been identified as other key assumptions. Pricing and volume achieved during the period is a reflection
of past experience, and improvements from efficiencies and market factors.
There are no other key assumptions used in any of the CGU model’s.
Exchange rates
Cash flow forecasts in foreign currency are forecast in that currency and discounted using the applicable regional discount rates
(predominantly Moroccan Dirham and Chinese Yuan).
Costa Group Holdings Limited
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73
Notes to the Consolidated Financial Statements continued
Avocado CGU impairment recognition
The volatility in Avocado pricing seen in the last 12 months has presented challenges for Australian avocado growers. Whilst there is
continued uncertainty on domestic avocado pricing, the Group believes that the anticipated access of East Australian avocado growers
to export markets, including Japan, in the medium term presents the most likely scenario of sustainable price recovery.
Given the continued uncertainty, the Group concluded that it would be appropriate to impair the goodwill associated with this CGU.
As a result, an impairment charge of $2.2 million was recognised in the Consolidated Statement of Profit and Other Comprehensive
Income and disclosed as a material item, refer to note A3.
Sensitivity Analysis
Increases in discount rates or changes in other key assumptions, such as operating conditions or financial performance, may cause
the recoverable amount to fall below carrying values.
For the African Blue CGU, the recoverable amount exceeds the carrying value by $60.4 million. A reasonable possible change to
the financial performance above in terms of key assumptions could lead to an impairment. Should these judgements and estimates
not occur the resulting goodwill carrying amount may decrease. The sensitivities are as follows:
• Pricing would need to decrease by more than 4% before goodwill would need to be impaired, with all other assumptions
remaining constant.
• The discount rate would be required to increase by 3% before goodwill would need to be impaired, with all other assumptions
remaining constant.
• The growth rate would be required to decrease by 4% before goodwill would need to be impaired, with all other assumptions
remaining constant.
For the Avocado CGU, the recoverable amount exceeds the carrying value by $3.2 million. A reasonable possible change to the financial
performance above in terms of key assumptions could lead to a further impairment. Should these judgements and estimates not occur
the resulting recoverable amount of assets may decrease. The sensitivities are as follows:
• Pricing would need to decrease by more than 1% before the CGU assets would need to be impaired, with all other assumptions
remaining constant.
• The discount rate would be required to increase by 1% before the CGU assets would need to be impaired, with all other assumptions
remaining constant.
• The growth rate would be required to decrease by 1% before the CGU assets would need to be impaired, with all other assumptions
remaining constant.
For the Group’s remaining CGU’s, based on current economic conditions and CGU performances, there are no reasonably possible
changes to key assumptions used in the determination of CGU recoverable amounts that would result in an impairment to the Group
other than what has been mentioned for the Avocado CGU.
B11. Leases
The Group leases various properties, equipment, and motor vehicles. Leases are typically made for fixed periods and may have extension
options. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease
agreements do not impose any covenants but leased assets may not be used as security for borrowing purposes.
The Group assesses whether a contract is or contains a lease at inception of the contract. A contract is, or contains, a lease if the contract
conveys a right to control the use of an identified asset for a period in exchange for consideration.
The Group allocates the consideration in the contract to each lease and non-lease component on the basis of their relative standalone
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.
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.
Assets and liabilities arising from a lease are initially measured on a present value basis.
Costa Group Holdings Limited
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74
Right of use assets
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 and lease premiums, less any lease incentives received;
• Any initial direct costs; and
• Restoration or dismantling costs
Subsequently, 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.
The assets are tested for impairment in accordance with policy adopted for non-financial assets as disclosed in note B10.
Right of use assets
Note
December
2022
December
2021
$’000
$’000
Opening carrying amount
568,751
302,803
Depreciation expenses
(54,884)
(43,127)
Additions1
41,303
270,822
Acquired through business combination
D3
–
36,668
Disposals
(860)
–
Effect of foreign exchange rates
(1,368)
1,585
Closing carrying amount
552,942
568,751
Right of use assets consist of $536.5 million (December 2021: $554.9 million) relating to property and $16.4 million (December 2021:
$13.9 million) relating to vehicle and equipment leases.
Lease liabilities
Lease liabilities include the net present value of the following lease payments:
• Fixed payments (including in-substance fixed payments) and lease premiums, less any lease incentives receivable;
• 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 those options
The lease payments are discounted using the Group’s incremental borrowing rate, adjusted for geographical risk, asset type and tenure
and is reviewed on an annual basis.
The lease liability is subsequently measured at amortised cost using the effective interest method. It is remeasured when there is:
• Change in future lease payments arising from a change in an index or rate;
• Change in the Group’s estimate of the amount expected to be payable under a residual value guarantee;
• Changes in Group’s assessment of whether it will exercise a purchase, extension or termination option; or
• Revision of in-substance fixed lease payments.
Lease liabilities
Note
December
2022
December
2021
$’000
$’000
Opening carrying amount
583,052
318,068
Interest expense
28,234
18,191
Additions1
39,678
270,822
Acquired through business combination
D3
–
36,151
Repayments
(79,124)
(62,145)
Effect of foreign exchange rates
(791)
1,965
Closing carrying amount
571,049
583,052
Costa Group Holdings Limited
Annual Report 2022
75
Notes to the Consolidated Financial Statements continued
Lease liabilities
December
2022
December
2021
$’000
$’000
Current
61,016
64,125
Non-current
510,033
518,927
571,049
583,052
Notes:
1. During the prior year Macquarie Asset Management acquired 100% of Vitalharvest Unit Trust. The Group renegotiated the existing leases with Vitalharvest that resulted
in the old leases being surrendered and replaced with fixed rent lease agreements. The lease modification resulted in an addition of $252.2 million during the prior period
of right of use assets and lease liabilities.
The following table sets out the maturity analysis of lease payments, showing the undiscounted lease payments to be paid after the
reporting date.
Lease liabilities
December
2022
December
2021
$’000
$’000
Payable
– not later than one year
88,612
92,996
– later than one year and not later than five years
227,517
207,779
– later than five years
489,442
533,226
805,571
834,001
Short term leases, low value assets and variable lease payments not based on index or rate
The Group has elected not to recognise right of use assets and lease liabilities for leases of low value assets and short term leases,
including technology equipment. The Group recognises the lease payments associated with these leases as an expense on a straight line
basis over the lease term. Variable lease payments not based on index or rate are expensed when incurred. The amounts recognised
as at 1 January 2023 are $4.7 million (December 2021: $5.3 million).
B12. Provisions
December
2022
December
2021
$ ‘000
$ ‘000
CURRENT
Employee benefits
20,883
20,093
Other commitments
15,941
–
Other
185
918
37,009
21,011
NON-CURRENT
Employee benefits
6,315
6,909
Other commitments
–
15,941
Other
2,593
2,802
8,908
25,652
Employee benefits liability
These consist of liabilities recognised for benefits accruing to employees in respect of annual leave and long service leave.
Other commitments
Other commitments relate to the Conaghans property put and call options. Although put and call options are yet to be exercised, the
Group has recognised an asset and provision for Stage 1 of this development given it has control of this stage. Refer note D3 for details.
Other provisions
This relates to closure costs in relation to the Mushroom sites and lease make good.
Costa Group Holdings Limited
Annual Report 2022
76
Reconciliations
Reconciliation of the carrying amounts of provisions at the beginning and end of the current financial year:
Note
December
2022
December
2021
$ ‘000
$ ‘000
Employee benefits
Opening balance
27,002
25,256
Amounts used
(13,761)
(10,753)
Acquired through business acquisitions
D3
–
818
Additional amounts recognised
13,957
11,681
Closing balance
27,198
27,002
Other commitments1
Opening balance
15,941
–
Additional amounts recognised
–
15,941
Closing balance
15,941
15,941
Other provisions
Opening balance
3,720
5,633
Amounts used
(942)
(2,745)
Additional amounts recognised
–
832
Closing balance
2,778
3,720
Notes:
1. Relates to Conaghans asset acquisition of $15.9 million. Refer notes B7 and D3 for details.
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 and/or supplier 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.
B13. 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.
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77
Notes to the Consolidated Financial Statements continued
C. Capital Structure and Financing
C1. Borrowings
December
2022
December
2021
$ ‘000
$ ‘000
CURRENT
Secured liabilities
Bank loans
2,499
1,863
Unsecured liabilities
Bank loans – Other
9,690
11,841
12,189
13,704
NON-CURRENT
Secured liabilities
Bank loans
4,195
2,660
Unsecured liabilities
Bank loans – Australian syndicate facilities
416,317
336,439
Bank loans – Other
4,452
8,320
424,964
347,419
Total borrowings
437,153
361,123
Terms and conditions relating to the above financial instruments
The key terms of the Group’s banking facilities detailed as below:
Secured
• Current secured bank loan of $2.5 million that is currently fully drawn and matures in January 2023 (December 2021: $1.9 million)
• Non-current secured bank loan of $14.0 million facility drawn down to $4.2 million as at 1 January 2023 (December 2021: $2.7 million)
and can be further drawn upon as required. This facility matures in March 2027.
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 Australian syndicated debt facility from a $450 million facility maturing
in August 2023 to a $650 million facility that is split as per below:
i. Facility A – $255 million facility that can be drawn upon as required, maturing in June 2025
ii. Facility B – $255 million facility that can be drawn upon as required, maturing in June 2026
iii. Facility C – $140 million facility that can be drawn upon as required, maturing in June 2027
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 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 Leverage Ratio.
• A $14.1 million term loan facility with $9.7 million maturing in July 2023 and $4.5 million maturing in July 2024.
Bank guarantees
The Group maintains bank guarantees of $12.0 million (December 2021: $12.0 million) that could be called up at any time in the event
of a breach of our financial obligations. The Group 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 of the Australian syndicated facility as detailed above. The predominant use of the
bank guarantees is to support leased properties.
Costa Group Holdings Limited
Annual Report 2022
78
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 Consolidated Statement of
Profit 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.
C2. Share Capital
December 2022
December 2021
Number
$ ‘000
Number
$ ‘000
Ordinary shares
Opening balance
464,378,621
768,074
400,830,387
580,734
Ordinary shares issued (net of issue costs)1
–
–
63,360,845
186,403
Settlement of share based payments
167,845
458
187,389
937
At reporting date
464,546,466
768,532
464,378,621
768,074
Note:
1. During the prior period, the Company undertook a capital raising through a rights issue to all shareholders. A fully underwritten pro rata accelerated institutional entitlement
offer, retail entitlement offer and retail shortfall bookbuild completed, jointly issuing 63.4 million ordinary shares and, raising $186.4 million (net of issue costs and tax).
Ordinary shares
Ordinary shares participate in dividends and the proceeds on winding up of the Company in proportion to the number of shares held.
At members’ meetings, each ordinary share is entitled to one vote when a poll is called; otherwise, each member 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.
Other equity reserve
The other equity reserve comprises the payments made to meet the Group’s obligation through acquisition of shares on market
for the purpose of options or performance rights exercised by eligible executives under the long term and short term incentive plans.
C3. Profit reserve
The profit reserve comprises the transfer of net profit of $33.6 million for the period and characterises available profits to enable payment
of dividends in future years. The profit reserve balance as at balance sheet date is $103.4 million (December 2021: $112.0 million).
C4. Other reserves
The nature and purpose of other reserves is as follows:
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 note 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
The general reserve consists of put and call option as part of the acquisition of African Blue measured under the present-access method
and legal reserve. Refer note C6 for further details.
Costa Group Holdings Limited
Annual Report 2022
79
Notes to the Consolidated Financial Statements continued
C5. Dividends
Dividends paid or determined by the Company to members since the end of the previous financial year were:
Declared and paid during the 12 months ended 1 January 2023
Cents
per share
Total amount
$’000
Date of
payment
Final December 2021 ordinary
5.0
23,219
7 April 2022
Interim December 2022 ordinary
4.0
18,582
6 October 2022
Determined after end of year
After the balance sheet date, the following dividends were determined by the directors of the Company. The dividends have not been
provided for and there are no income tax consequences.
Cents
per share
Total amount
$’000
Date of
payment
Final December 2022 ordinary
5.0
23,227
6 April 2023
C6. Financial instruments – fair values and risk management
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.
Fair value
hierarchy
December
2022
December
2021
$ ‘000
$ ‘000
Financial assets
Amortised costs
Current receivables
–
101,589
108,032
Non-current receivables
–
–
1,274
Cash and cash equivalents
–
85,212
61,887
186,801
171,193
Fair value through other comprehensive income
Interest rate swaps
Level 2
496
–
Forward exchange contracts
Level 2
244
252
740
252
Financial liabilities
Financial liabilities not measured at fair value
Payables
–
149,418
149,310
Bank loans
–
437,153
361,123
Lease liabilities
–
571,049
583,052
1,157,620
1,093,485
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. The Group has not made any changes to its business model
in the current year.
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.
Costa Group Holdings Limited
Annual Report 2022
80
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.
Fair value through profit or loss (FVTPL)
Other financial assets or liability that do not fall in the above categories are measured at FVTPL.
Measurement of fair values
When measuring the fair value of an asset or a liability, the Group uses observable market data as far as possible. Fair values
are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
• 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.
Impairment
Non-derivative financial assets
Financial assets measured at amortised cost
At each reporting date, the Group assesses whether a loss allowance is required for financial assets carried at amortised costs, using
the expected credit loss model. Any losses are recognised in the Consolidated Statement of Profit 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 Other Comprehensive Income.
Costa Group Holdings Limited
Annual Report 2022
81
Notes to the Consolidated Financial Statements continued
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 monitors the Group’s exposure to any of these financial risks and regularly 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.
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 manages 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:
December
2022
December
2021
$ ‘000
$ ‘000
Variable rate instruments
Assets
Cash and cash equivalents
85,212
61,887
Liabilities
Bank loans
(437,153)
(361,123)
(351,941)
(299,236)
Effect of interest rate swaps1
75,000
–
Net financial liabilities exposed to interest rate risk
(276,941)
(299,326)
Note:
1. During the year, the Group entered into interest rate swaps agreements. $50 million of the interest rate swaps are capped at an interest rate of 4%, which thereon would
convert into a variable rate, which is determined as the current reference rate less 0.61%.
Sensitivity analysis for variable rate instruments
At 1 January 2023, if interest rates had changed by -/+ 100 basis points from the year end rates with all other variables held constant,
profit would have increased/(decreased) by:
December
2022
December
2021
$ ‘000
$ ‘000
Increase of 100 basis points in interest rate
(2,769)
(2,992)
Decrease of 100 basis points in interest rate
2,769
2,992
Costa Group Holdings Limited
Annual Report 2022
82
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). The Group also makes purchases and capital expenditure that expose
it to primarily movements in exchange rates of USD, Euro (EUR), British Pound (GBP), and New Zealand Dollar (NZD). The Group enters
into forward contracts to hedge some of its exposure against foreign currency risk. In addition, it is also exposed to exchange rate
movements in Moroccan Dirhams (MAD) and Chinese Yuan (CNY) through its investment in its international subsidiaries.
The Group’s exposure to foreign exchange risk at the end of the reporting period, expressed in Australian dollars, was as follows:
December 2022
USD
JPY
EUR
GBP
CNY
MAD
NZD
$ ‘000
$ ‘000
$ ‘000
$ ‘000
$ ‘000
$ ‘000
$’000
Cash and cash equivalents
5,159
672
3,201
793
23,361
15,176
–
Trade and other receivables
1,988
404
1,371
–
7,106
2,472
–
Trade and other payables
(642)
–
(842)
(1)
(1,587)
(7,638)
(13)
Derivative financial assets
167
(7)
84
–
–
–
–
Bank loans
–
–
–
–
(14,142)
(6,694)
–
Lease liabilities
–
–
–
–
(22,195)
(5,945)
–
Net exposure
6,672
1,069
3,814
792
(7,457)
(2,629)
(13)
December 2021
USD
JPY
EUR
GBP
CNY
MAD
NZD
$ ‘000
$ ‘000
$ ‘000
$ ‘000
$ ‘000
$ ‘000
$’000
Cash and cash equivalents
3,542
131
507
927
18,474
18,915
–
Trade and other receivables
4,531
138
103
2,416
6,741
1,310
–
Trade and other payables
(291)
–
(320)
(59)
(249)
(6,778)
–
Derivative financial assets
90
162
–
–
–
–
–
Bank loans
–
–
–
–
(20,161)
(4,523)
–
Lease liabilities
–
–
–
–
(19,922)
(5,332)
–
Net exposure
7,872
431
290
3,284
(15,117)
3,592
–
Sensitivity analysis
At 1 January 2023, 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:
USD
JPY
EUR
GBP
CNY
MAD
NZD
$ ‘000
$ ‘000
$ ‘000
$ ‘000
$ ‘000
$ ‘000
$’000
Australian Dollar
Weakened by 10%
667
107
381
79
(746)
(263)
1
Australian Dollar
Strengthened 10%
(667)
(107)
(381)
(79)
746
263
(1)
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are
settled by delivering cash or another financial asset. The Group’s approach to managing liquidity risk is to ensure it always has sufficient
liquidity to meet its liabilities when due without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group manages its liquidity risk using a recurring planning tool, and maintaining, at all times, an appropriate minimum level of
liquidity, comprising committed, unused bank facilities and cash resources, to meet the Group’s financial obligations as and when they
fall due.
As at reporting date, unused Australian credit facilities net of bank guarantees of the Group was $219.0 million. In addition, the Group
maintains a domestic overdraft facility of $3.0 million.
During the year, the Group renewed and expanded its Australian syndicated facilities from $450 million maturing in August 2023,
to $650 million maturing in 2025 to 2027 as outlined in note C1.
The Group is in compliance with all undertakings under its various financial arrangements.
Costa Group Holdings Limited
Annual Report 2022
83
Notes to the Consolidated Financial Statements continued
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 2022
Less than
6 months
6 – 12
months
1 – 5
years
Over
5 years
Total
$’000
$’000
$’000
$’000
$’000
Non-derivative financial liabilities
Bank loans
2,499
9,690
424,964
–
437,153
Trade payables
143,725
–
–
–
143,725
Interest payable
5,693
–
–
–
5,693
151,917
9,690
424,964
–
586,571
December 2021
Less than
6 months
6 – 12
months
1 – 5
years
Over
5 years
Total
$’000
$’000
$’000
$’000
$’000
Non-derivative financial liabilities
Bank loans1
–
9,288
351,835
–
361,123
Trade payables
149,310
–
–
–
149,310
Interest payable
865
–
–
–
865
150,175
9,288
351,835
–
511,298
Note:
1. Bank loans maturity has been updated to reflect the underlying facility expiry.
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 continually monitored. 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:
December
2022
December
2021
$ ‘000
$ ‘000
Cash and cash equivalents
85,212
61,887
Receivables
101,589
109,306
Interest rate swaps
496
–
Forward exchange contracts
244
252
187,541
171,445
Costa Group Holdings Limited
Annual Report 2022
84
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.
December
2022
December
2021
$ ‘000
$ ‘000
Neither past due nor impaired
57,871
58,928
Past due 1 – 30 days
12,375
6,832
Past due 31 – 60 days
2,447
1,105
Past due over 60 days
5,615
7,804
78,308
74,669
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.
At 1 January 2023, major Australian retailers, including Coles, Woolworths, Aldi and IGA comprise approximately 41% of the Group’s
trade debtors.
Expected credit loss assessment for trade receivables
The Group uses an allowance matrix to measure the expected credit losses 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 period was as follows:
December
2022
December
2021
$ ‘000
$ ‘000
Movements in the accumulated impairment losses were:
Opening balance
(582)
(652)
Impairment loss recognised
(263)
(1)
Amounts written off
214
71
Closing balance
(631)
(582)
Capital management
The primary objective of the Group’s capital management is to maintain investor, creditor and market confidence and a strong credit
rating and healthy capital ratios to support its business and maximise shareholder value. Capital includes equity attributable to the
equity holders of the Company.
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.
Costa Group Holdings Limited
Annual Report 2022
85
Notes to the Consolidated Financial Statements continued
D. Group Structure
D1. Joint ventures and associates
Details of joint ventures and associates
Equity instrument
Ownership
interest
Ownership
interest
Measurement basis
Principal place of
business and country
of incorporation
December
2022
December
2021
%
%
Joint Ventures
Driscoll’s Australia Partnership
Ordinary shares
50
50
Equity Accounted
Victoria, Australia
Associates
Polar Fresh Partnership
Ordinary shares
50
50
Equity Accounted
Victoria, Australia
Summarised financial information for joint ventures and associates
December
2022
December
2021
$ ‘000
$ ‘000
Reconciliation of carrying amount in joint ventures and associates:
Opening balance
27,248
21,567
Total share of profit
10,743
9,881
Dividends received
(6,700)
(4,200)
Closing balance
31,291
27,248
Driscoll’s Australia Partnership
In 2010, an entity of the Group entered 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
by this joint venture. In the period, gross sales revenue for the Driscoll’s Australia Partnership was $577.5 million (12 months ended
December 2021: $542.5 million), and net assets were $62.4 million (December 2021: $54.3 million).
Polar Fresh Partnership
The Polar Fresh Partnership was a provider of cold storage, warehousing and distribution solutions. As previously disclosed,
Polar Fresh Partnership’s final service contract was completed in October 2017 and operations have now ceased and is in the process
of winding down.
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.
Costa Group Holdings Limited
Annual Report 2022
86
D2. List of subsidiaries
The following are the Group’s subsidiaries:
Subsidiaries of Costa Group Holdings Ltd:
Country of incorporation
Ownership interest
held by the Group
December
2022
December
2021
%
%
Costa Group Holdings (Finance) Pty Ltd
Australia
100
100
Costa’s Pty Ltd
Australia
100
100
ACN 151 702 251 Pty Ltd
Australia
100
100
Costa Exchange Holdings Pty Ltd
Australia
100
100
Costa Asia Pty Ltd (formerly ACN 125 158 741 Pty Ltd)
Australia
100
100
Grape Exchange Management Euston Pty Ltd
Australia
100
100
North Fresh Pty Ltd
Australia
100
100
Vinefresh Pty Ltd
Australia
100
100
Costa Berry International Pty Ltd (formerly Southern Cross Overseas Pty Ltd)
Australia
100
100
CostaExchange Pty Ltd (formerly CostaExchange Ltd)
Australia
100
100
Costa Berry Holdings Pty Ltd
Australia
100
100
Costa Berry Pty Ltd
Australia
100
100
Blueberry Investments Morocco Pty Ltd
Australia
100
100
Raspberry Fresh Pty Ltd
Australia
100
100
CBSP Pty Ltd
Australia
100
100
FruitExpress Pty Ltd
Australia
100
100
Blueberry Investments Africa Pty Ltd (formerly ACN 057 689 246 Pty Ltd)
Australia
100
100
Exchange Innisfail Pty Ltd
Australia
100
100
FreshExchange Pty Ltd
Australia
100
100
Yandilla Park Pty Ltd
Australia
100
100
East African Coffee Plantations Pty Ltd
Australia
100
100
AgriExchange Pty Ltd
Australia
100
100
Vitor Marketing Pty Ltd
Australia
100
100
AgriExchange Farm Management Pty Ltd
Australia
100
100
Mushroom Holdings Exchange Pty Ltd
Australia
100
100
MushroomExchange Pty Ltd
Australia
100
100
Costa Fresh Logistics Pty Ltd
Australia
100
100
Tomato Exchange Pty Ltd
Australia
100
100
Grape Exchange Farming Pty Ltd
Australia
100
100
Grape Exchange Farming Mundubbera Pty Ltd
Australia
100
100
Grape Exchange Pty Ltd
Australia
100
100
Costa Group Finance Pty Ltd
Australia
100
100
Costa Farms Pty Ltd
Australia
100
100
Costa Logistics Pty Ltd
Australia
100
100
AgriExchange Murtho Pty Ltd
Australia
100
100
Hillston Investments Pty Ltd
Australia
100
100
BananaExchange Pty Ltd
Australia
100
100
Innisfail Holdings Pty Ltd
Australia
100
100
Exchange Brisbane Pty Ltd
Australia
100
100
Costa Asia Ltd
Hong Kong
100
100
Costa China (Hong Kong) Ltd
Hong Kong
70
70
Costa (Honghe) Fruit Planting Co. Ltd
China
70
70
Costa (Yunnan) Agricultural Development Co. Ltd
China
70
70
Costa (Baoshan) Agricultural Development Co Ltd
China
70
70
African Blue S.A.
Morocco
90
90
Sweet Berry S.A.
Morocco
90
90
Blue Flavor
Spain
81
81
African Blue (UK) Ltd
United Kingdom
81
81
Costa Group Holdings Limited
Annual Report 2022
87
Notes to the Consolidated Financial Statements continued
D3. Business Acquisitions
The Group did not enter into any business acquisitions in the current year. During the prior year the Group entered into a series
of acquisitions as follows:
Acquisition of 2PH Farms
On 23 June 2021, the Group entered into a binding agreement with the Pressler group of entities (Vendor) to acquire the business
and assets of 2PH Farms Pty Ltd and related entities (“2PH Farms”), a leading Central Queensland based citrus grower for an upfront
consideration of $220.8 million. The transaction was funded by $190.0 million (pre costs) in equity by way of a fully underwritten 1
for 6.33 pro rata accelerated renounceable entitlement offer, and the balance by existing debt facilities. The acquisition completed
on 19 July 2021.
Deferred consideration of $1.6 million relating to plantings for the 2PH Farms was settled during the year.
Acquisition of KW Orchards
On 19 April 2021, the Group acquired the farming operations of KW Orchards and an associated packing operation, EJT citrus packing
facility for a total consideration of $40.0 million. The acquired business represents an institutional scale citrus farming business
located in Trentham Cliffs, NSW Australia and further adds to the Group’s citrus category’s growing footprint in the Sunraysia region.
The acquisition completed on 19 April 2021.
Deferred consideration of $1.5 million relating to pending land subdivision is still ongoing and has not settled during the period.
Acquisition of Select Fresh
On 7 June 2021, the Group entered into an agreement to acquire Select Fresh, a leading Western Australian based wholesale and
distribution business specialising in the supply of fresh produce to foodservice and independent supermarkets for a total consideration
of $12.9 million. The acquisition completed on 1 July 2021
These acquisitions involve taking control of the assets and operations of the acquired businesses (including land and buildings, plant
and equipment, intangible assets (brand names and customer relationships), biological assets, organised workforce amongst others).
The acquisitions did not involve acquiring any equity interest of the Vendor companies.
There have been no changes to provisional values of the assets and liabilities of 2PH, KW Orchards and Select Fresh at the date
of acquisition that were disclosed at 26 December 2022. The accounting for the acquisition is now final
Measurement of fair values
The valuation techniques used for measuring the fair value of material assets acquired were as follows:
Property, plant, and equipment (excluding bearer plants) and Intangible assets (water licenses)
For property, plant and equipment and intangible assets, the market comparison technique and cost technique were used. The valuation
considers market prices for similar items when they are available, and depreciated replacement costs when appropriate. Depreciated
replacement cost reflects adjustment for physical deterioration as well as functional and economic obsolescence.
Bearer plants
For bearer plants, the valuation model considers cost of acquiring the plants as well as any directly attributable cost incurred for planting.
These include soil preparation, labour, costs of pots and soil mix. Further, the aging profile of the plants are taken into consideration
to arrive at final valuations.
Intangible assets
For brand names and customer relationships, the relief-from-royalty method (“RRM”) and multi-period excess earnings method (“MEEM”)
is used respectively. RRM considers the discounted estimated royalty payments that are expected to be avoided as a result of the patents
being owned. The MEEM considers the present value of net cash flows expected to be generated by the customer relationships, by
excluding any cash flows related to contributory assets.
Biological assets
For biological assets, the valuation is based on fair value less cost to sell determined as the net present value of cash flows expected
to be generated by the crops. Where fair value cannot be measured reliably, biological assets are measured at costs.
Costa Group Holdings Limited
Annual Report 2022
88
Inventories
Market comparison technique where the fair value is determined based on the estimate selling price in the ordinary course of
business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort require to complete
and sell the inventories.
Receivables
Trade receivables comprises gross contractual amounts due, net of claims provisions (export) at date of acquisition.
Goodwill
The goodwill is attributable mainly to the skills and technical talent of the acquirees workforce and the synergies expected to be
achieved from integrating the respective farms and businesses into the Group’s existing category portfolio. None of the goodwill
recognised is expected to be deductible for tax purposes.
The asset and liabilities acquired were provisionally accounted and were subject to review for up to 12 months from the date of
the acquisition. The acquisitions are now finalised and no changes to the original provisional acquisition accounting were made.
Conaghans property and put and call options
On the same day the 2PH Farms were acquired, the Group entered into a put and call deed (“Deed”) with the Vendor for the potential
future acquisition of the Conaghans property. The Deed specifies that the purchase price payable upon exercise of the put and call option
is $31.4 million exercisable in 2023. This value is further subject to certain conditions including that the development of activities are
to be performed by the Vendor in accordance with the Deed.
The put and call option of the Conaghans property does not meet the definition of a financial derivative or financial instrument and
will be accounted as an asset acquisition separately from the business acquisition of 2PH Farms above. The Deed further distinguishes
Stage 1 and Stage 2 of the property as follows:
• Stage 1: Developed portion of the property covering 216 hectares of immature citrus trees planted and includes the associated
water and ancillary infrastructure works; and
• Stage 2: In-development portion of the property whereby the vendor will plant an additional 210 hectares of Citrus and includes
the associated water and ancillary infrastructure works required to support the plantings.
The Group has been given access and control by the Vendor over Stage 1 plantings and is responsible for maintaining the plantings
and infrastructure, even though the Deed will be exercisable in 2023. Resultingly, the Group has accounted for Stage 1 as a stand-alone
asset acquisition with estimated value of $15.9 million and a corresponding other commitment as disclosed in note B11.
Material items – Acquisition related costs
During the prior year a charge of $19.2m for acquisition related costs was recognised as material items, these included one-off costs
such as stamp duty, consulting and valuation costs and salaries for time spend on integration activities refer note A3.
Costa Group Holdings Limited
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89
Notes to the Consolidated Financial Statements continued
D4. Related party disclosures
Transactions with joint ventures and associates
The Group transacted with jointly controlled entities during the period as follows:
• Driscoll’s Australia Partnership – Commission paid on sale of berries $27.6 million (December 2021: $25.3 million)
• Driscoll’s Australia Partnership – Sale of produce $208.8 million (December 2021: $189.2 million)
• Driscoll’s Australia Partnership – Receivable of $10.3 million (December 2021: $7.5 million) for sale of produce and logistic services.
• Driscoll’s Australia Partnership – Dividends received amounting to $6.7 million (December 2021: $4.2 million)
Transactions with key management personnel (KMP) of the entity or its parent and their personally
related entities
There were no transactions between members of the Group and any KMP (or their related parties) that resulted in any personal financial
benefit to the KMP. The Group had the following transactions during the financial year ended December 2022, all of which were on
arm’s length terms and were entered into for the benefit of the Company, at the request of the Company’s Board of Directors:
Mr Harry Debney
• Mr Debney became a director of Lite-’n-Easy Group on 25 January 2022. The Group has an established commercial relationship with
Lite-’n-Easy and continues to trade at arm’s length terms. Sales made to Lite-’n-Easy in the year were $4.1 million (CY21 $4.3 million).
At year end the trade receivable due by Lite-’n-Easy to the Group was $0.3 million (CY21 $0.1 million).
• Payment of membership fee of $0.2 million to Australian Fresh Produce Alliance (AFPA) (CY2021: $0.2 million) 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.
In the prior year, Sean Hallahan, the previous CEO, was a director of the AFPA representing the Group.
• In the prior year, capital expenditure payments were made to The Yield Technology Solutions Pty Ltd of $1.7 million of which
Mr Debney served as chairman of the board, no payments were made in the current year. The Yield is an Australian agricultural
technology company that invest, builds and secure scalable digital agriculture technology. The Yield’s services were provided
pursuant to written contract on arm’s length terms and Mr Debney abstained from the negotiation and all board discussions
and voting in relation to entry into the contract. Mr Debney resigned as chairman of The Yield in April 2021.
Key Management Personnel
December
2022
December
2021
$ ‘000
$ ‘000
Compensation received by key management personnel of the group:
– Short term employee benefits
1,424
1,767
– Post employment benefits
63
46
– Other monetary benefits
2
4
– Long term employee benefits
(47)
33
– Share based payment (expenses)/benefits1
(442)
230
– Termination benefits2
428
–
1,428
2,080
Notes:
1. In the current year the share based payment benefits includes reversal of previously accrued share based payment expense, due to the non-achievement performance
hurdles of prior years’ long term incentive plans.
2. During the year, termination benefits were paid to the former CEO, Mr Sean Hallahan, upon his departure from the Group.
Costa Group Holdings Limited
Annual Report 2022
90
D5. Parent entity disclosures
Summarised presentation of the parent entity, Costa Group Holdings Ltd
December
2022
December
2021
$ ‘000
$ ‘000
Assets
Current assets
738,531
8,754
Non-current assets
260,675
990,835
Total assets
999,206
999,589
Liabilities
Current liabilities
228,192
630
Non-current liabilities
–
186,273
Total liabilities
228,192
186,903
Net assets
771,014
812,686
Equity
Contributed equity
768,532
768,074
Share based payment reserve
7,672
8,895
Profit reserve
53,422
94,329
Accumulated losses
(58,612)
(58,612)
Total equity
771,014
812,686
Summarised statement of comprehensive income
December
2022
December
2021
$ ‘000
$ ‘000
Profit for the period1
902
94,188
Total comprehensive profit for the period
902
94,188
Note:
1. The prior period includes internal dividends received by the parent entity from the members of the Group.
Parent entity guarantees in respect of debts of its subsidiaries
The Company 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 D6.
Costa Group Holdings Limited
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91
Notes to the Consolidated Financial Statements continued
D6. Deed of cross guarantee
The Australian wholly owned subsidiaries listed in note D2 (excluding Hillston Investments Pty Ltd, Agri Exchange Farm Management
Pty Ltd, and Costa Group Finance 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 Hillston Investments Pty Ltd, Agri Exchange Farm Management Pty Ltd, and Costa Group Finance Pty Ltd) are relieved
from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports, and directors’ report.
Hillston Investments Pty Ltd, Agri Exchange Farm Management Pty Ltd, and Costa Group Finance Pty Ltd are non-trading,
dormant subsidiaries.
A Consolidated Statement of Profit and Other Comprehensive Income and a Consolidated Statement of Financial Position for the financial
year ended 1 January 2023 for the deed of cross guarantee group are set out below:
Consolidated Statement of Profit or Loss and Other Comprehensive Income of the deed of cross
guarantee group
December
2022
December
2021
$ ‘000
$ ‘000
Revenue
1,190,107
1,006,237
Less: Expenses
(1,193,829)
(1,007,674)
Share of net profits of joint ventures and associates accounted for using the equity method
10,743
9,881
Profit before income tax expense
7,021
8,444
Income tax benefit/(expense)
902
(5,811)
Profit for the year
7,923
2,633
Other comprehensive income/(loss) for the year
Cash flow hedges – effective portion of changes in fair value
375
(2,292)
Total other comprehensive income/(loss) for the year
375
(2,292)
Total comprehensive income for the year
8,298
341
Costa Group Holdings Limited
Annual Report 2022
92
Consolidated Statement of Financial Position of the deed of cross guarantee group
December
2022
December
2021
$ ‘000
$ ‘000
ASSETS
Current assets
Cash and cash equivalents
40,345
23,064
Receivables
103,999
109,911
Inventories
32,971
23,050
Biological assets
52,305
50,389
Other assets and financial assets
10,326
8,084
Current tax asset
28,783
8,554
Asset held for sale
–
3,207
Total current assets
268,729
226,259
Non-current assets
Receivables
141
1,177
Other financial assets
114,770
114,274
Equity accounted investments
31,291
27,248
Intangible assets
182,591
182,421
Deferred tax assets
24,165
20,353
Property, plant and equipment
682,508
675,030
Right of use assets
523,571
542,162
Total non-current assets
1,559,037
1,562,665
Total assets
1,827,766
1,788,924
LIABILITIES
Current liabilities
Payables
105,842
101,667
Provisions
37,009
20,404
Lease liabilities
57,191
64,125
Total current liabilities
200,042
186,196
Non-current liabilities
Borrowings
416,317
336,439
Provisions
8,908
25,652
Deferred tax liabilities
37,259
33,205
Lease liabilities
485,718
493,673
Total non-current liabilities
948,202
888,969
Total liabilities
1,148,244
1,075,165
NET ASSETS
679,522
713,759
EQUITY
Share capital
768,532
768,074
Other equity reserve
(13,422)
(13,422)
Other reserves
8,231
9,041
Profit reserve
28,965
70,773
Accumulated losses
(112,784)
(120,707)
Total equity
679,522
713,759
Costa Group Holdings Limited
Annual Report 2022
93
Notes to the Consolidated Financial Statements continued
E. Other
E1. Share based payments
December
2022
December
2021
$ ‘000
$ ‘000
Share based payments reserve
7,672
8,895
The share based payments reserve is used to record the fair value of shares or equity-settled share based payment options issued
to employees.
The Group continued to offer equity-settled share based payments via employee participation in long term and short term incentive
plans as part of the remuneration packages for the key management personnel and other executives of the Company.
Recognition and measurement
The Group provides benefits to its employees in the form of share based payment transactions, whereby services are rendered
in exchange for shares or options.
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.
The amount recognised as expense over the vesting period is adjusted to reflect the actual number of options and performance rights
that vest except where forfeiture is due to failure to achieve market-based performance indicators.
Share based Payment Plan – Employee Share Option Plan
During the period, a total of 1,729,851 options (December 2021: 1,542,433 options) have been granted under new option plans.
Measurement of fair values of options
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
December 2022
December 2021
KMP and
executives
Tranche 1
KMP and
executives
Tranche 2
KMP and
executives
Grant date
21/02/2022
25/08/2022
19/02/2021
Number issued
1,373,751
356,100
1,542,433
Fair value at grant date
$0.89
$0.72
$1.15
Share price at grant date
$3.00
$2.74
$4.01
Exercise price
$2.96
$2.96
$3.95
Expected volatility
44%
44%
44%
Expected dividend yield
1.77%
3.30%
2.80%
Risk-free rate
3.1%
3.5%
0.35%
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.
Measurement of fair values of performance rights
The fair value of the performance rights issued in the period under the short term incentive plan was based on the 5 day market
volume weighted average price of the shares of the Costa Group Holdings Ltd starting on 22 February 2022. Details are as follows:
December 2022
December 2021
KMP and Executives
KMP and Executives
Numbers issued
163,327
167,845
Fair value at grant date
$2.97
$4.49
Costa Group Holdings Limited
Annual Report 2022
94
Reconciliation of outstanding share options
The number and weighted average exercise prices of options under the employee share option program are as follows:
December 2022
December 2021
Number of
options
Weighted
average
exercise
price
Number of
options
Weighted
average
exercise
price
Opening balance
4,975,221
$4.88
5,009,277
$5.08
Disposed for cash or settled for shares during the year
–
–
(342,348)
$2.73
Forfeited during the year
(3,502,785)
$5.50
(1,234,141)
$5.11
Granted during the year
1,729,851
$2.96
1,542,433
$3.95
Closing balance
3,202,287
$3.07
4,975,221
$4.88
Exercisable at year end
117,905
$4.18
269,046
$4.60
The options outstanding as at 1 January 2023, which have not vested, have an average exercise price of $3.11 (December 2021: $4.83).
E2. Taxation
Components of tax expense
December
2022
December
2021
$ ‘000
$ ‘000
Current tax
4,299
8,145
Deferred tax
(2,271)
2,451
Over provision in prior years
(450)
(1,900)
Income tax expense
1,578
8,696
Profit before income tax
48,579
60,920
Prima facie income tax expense on profit before income tax at 30.0%
14,574
18,276
– Effect of tax rates in foreign jurisdictions
(14,249)
(11,649)
Tax effect of:
Non-deductible expenses
927
5,957
Net deferred tax asset recognised
13
(596)
Non-creditable foreign withholding tax
1,663
115
Over provision in prior years
(450)
(1,900)
Research and development tax credits
(900)
(800)
Non-assessable income
–
(707)
Income tax expense
1,578
8,696
Current tax
December
2022
December
2021
$ ‘000
$ ‘000
Current tax relates to the following:
Current tax (assets)/liabilities
Opening balance
(8,012)
10,526
Current year tax expense
4,299
8,145
Tax payments
(23,183)
(21,718)
Foreign withholding tax credits paid and claimable
(1,489)
(1,372)
Tax benefits recognised against equity
–
(2)
Over provisions
(2,383)
(3,591)
Closing balance
(30,768)
(8,012)
Costa Group Holdings Limited
Annual Report 2022
95
Notes to the Consolidated Financial Statements continued
Deferred tax
Deferred tax relates to the following:
December
2022
December
2021
$ ‘000
$ ‘000
Deferred tax assets
The balance comprises:
Provisions
9,621
9,899
Trade and other payables
3,359
3,786
Inventories
50
105
Capital deductions (section 40-880)
1,599
2,089
Borrowings
–
30
Equity Accounted Investments
572
423
Future deductible share plan trust payment
131
281
Leased assets and liabilities
5,714
4,537
Tax offset carried forward
3,666
–
Tax losses carried forward
310
–
Property, plant and equipment
269
152
25,291
21,302
Deferred tax liabilities
The balance comprises:
Biological assets
(14,402)
(14,125)
Property, plant and equipment
(15,618)
(10,978)
Intangible assets
(7,051)
(7,644)
Trade and other receivables
(1,064)
(1,645)
Other financial liabilities
(236)
(75)
Borrowings
(32)
–
(38,403)
(34,467)
Net deferred tax liability
(13,112)
(13,165)
Deferred tax expense included in income tax comprises
Decrease/(increase) in deferred tax assets
(2,533)
2,784
Increase/(decrease) in deferred tax liabilities
262
(333)
(2,271)
2,451
Deferred tax movement
Opening balance – net deferred tax (liability)/asset
(13,165)
6,918
Underprovision in prior years
(2,079)
(1,777)
Increase in net deferred tax asset recognised in profit or loss
2,271
(2,451)
Increase in net deferred tax liability as a result of acquisitions
–
(17,285)
(Decrease)/increase in deferred tax asset recognised in equity
(161)
1,516
FX revaluation
22
(86)
Closing balance – net deferred tax liability
(13,112)
(13,165)
The Company’s franking account balance as at 1 January 2023 is $969,488 (December 2021: $1,128,845).
The Company has recognised a deferred tax asset relating to carried forward research and development tax offset, because it is
probable that future taxable profit will be available against which the Company can use the benefits therefrom. On the other hand,
the Company has not recognised a deferred tax asset relating to carried forward capital losses in Australia, as the Company is not
expecting any significant CGT events in foreseeable future. The unrecognised deferred tax asset on capital losses in Australia is
$2.1 million (2021: $2.5 million).
The Company has recognised a deferred tax asset on the carried forward revenue losses in China of $0.3 million (2021: Nil), because
it is probable that future taxable profits will be available against which the Group can use the benefits therefrom.
Costa Group Holdings Limited
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96
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 Company and its Australian wholly owned subsidiaries have formed a tax consolidated group. The Company 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 Company 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 Company
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 Company 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.
Effective Date
New Standards or amendments
Reference
1 January 2023
Classification of liabilities as current or non-current (Amendments to AASB 1)
AASB 1
Disclosure of Accounting Policies (Amendments to AASB 1 and IFRS Practice Statement 2)
Various
Definition of accounting estimates (Amendments to AASB 108)
AASB 108
Deferred tax related to Assets and Liabilities arising from a single transaction
(Amendments to AASB 112)
AASB 112
1 January 2024
Lease Liability in a Sale and Leaseback – Amendments to AASB 16 Leases
AASB 16
1 January 2025
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
(Amendments to AASB 10 and AASB 128 )
AASB 10
AASB 128
The Group is currently assessing the impact of these standards on its financial position and performance.
Costa Group Holdings Limited
Annual Report 2022
97
Notes to the Consolidated Financial Statements continued
E4. Auditor’s remuneration
December
2022
December
2021
$ ‘000
$ ‘000
Audit and review services
Services provided by KPMG Australia
569
524
Services provided by associate firms of KPMG Australia
150
259
Services provided by other firms
89
–
808
783
Other services provided by KPMG Australia
Taxation compliance and other taxation advisory services (including R&D)
208
210
Other services1
–
148
208
358
Total remuneration of KPMG
1,016
1,141
Note:
1. The prior year includes business acquisition due diligence services of $138,297.
E5. Other accounting policies
Research and development expenditure
Expenditure on research activities is recognised as an expense when incurred.
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 Consolidated
Statement of Profit and Other Comprehensive Income to offset the applicable expenses incurred by the Group as stated in the provisions
of the government grant.
Costa Group Holdings Limited
Annual Report 2022
98
1.
In the opinion of the directors of Costa Group Holdings Ltd (“the Company”):
(a)
the consolidated financial report and notes A1 to E5 and the Remuneration Report in the Directors’ Report, are in accordance
with the Corporations Act 2001, including:
(i)
giving a true and fair view of the Group’s financial position as at 1 January 2023 and of its performance, for the financial
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 D6 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 year ended 1 January 2023.
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 20th day of February 2023.
Neil Chatfield
Chairman
Harry Debney
Director and Interim CEO
Director’s Declaration
Costa Group Holdings Limited
Annual Report 2022
99
Independent Auditor’s Report
91
Independent Auditor’s Report
To the shareholders of Costa Group Holdings Limited
Report on the audit of the Financial Report
Opinion
We have audited the Financial Report of
Costa
Group
Holdings
Limited
(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 1
January 2023 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 1
January 2023
• 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 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.
KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated
with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and
logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by
a scheme approved under Professional Standards Legislation.
Costa Group Holdings Limited
Annual Report 2022
100
Key Audit Matters
Key Audit Matters are those matters that, in our professional judgement, were of most significance in
our audit of the Financial Report of the current period.
This matter was 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 this matter.
Recoverability of non-current assets including property, plant and equipment ($814.3m AUD)
and intangible assets ($282.9m AUD)
Refer to Note B7. Property, plant and equipment and Note B9. Goodwill and Intangible Assets to the
Financial Report.
The key audit matter
How the matter was addressed in our audit
A key audit matter for us was the Group’s
assessment of the recoverability of non-
current assets, including annual testing of
goodwill for impairment, given the size of the
balances (being 53% of total assets) and the
level of judgement required by us when
evaluating the evidence available. In addition,
the ongoing uncertainty around inflationary
expectations and its impact on market
conditions increases estimation uncertainty
when applying forward-looking assumptions.
We focussed on the significant forward-
looking assumptions the Group applied in their
Value in Use (VIU) and Fair Value Less Costs
of Disposal (FVLCD) models (the cash flow
models), including:
•
forecast operating cash flows, impacted by
pricing, yield and growth rates - the
Group’s models are sensitive to changes in
these assumptions, potentially reducing
available headroom or indicating possible
impairment. This drives additional audit
effort specific to their feasibility and
consistency of application.
•
Discount and terminal growth rates – these
are complicated in nature and vary
according
to
the
conditions
and
environment the specific CGU is subject to
from time to time. The Group’s modelling
is sensitive to small changes in these rates.
We involved our valuation specialists with
this assessment.
Our procedures included:
•
We considered the appropriateness of the VIU
and FVLCD methods applied by the Group to
perform the test of non-current assets for
impairment against the requirements of the
accounting standards.
•
We assessed the integrity of the cash flow
models used, including the accuracy of the
underlying calculation formulas.
•
We compared the forecast cash flows and
capital expenditure contained in the cash
flow models to Board approved forecasts.
•
We challenged the Group’s significant
forecast cash flow and growth assumptions
considering past performance of each CGU,
and the forecast impact on cash flows from
the
Moroccan
growth
and
replanting
strategy. We compared key events to the
Board approved plan and strategy. 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
performance, business and customers, and
our experience regarding the feasibility of
these in the industry in which they operate.
Costa Group Holdings Limited
Annual Report 2022
101
The key audit matter
How the matter was addressed in our audit
•
forecast capital expenditure – the African
Blue CGU recoverable amount
was
determined through a FVLCS model,
inclusive of significant forecast capital
expenditure to reflect the Morocco growth
strategy and replanting program. Our
testing focussed on the implications of
these plans and their impact on the cash
flow model.
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, to address the objectivity of sources used
for
assumptions,
and
their
consistent
application.
In addition to the above, the Group recorded
an impairment charge against goodwill,
resulting
from
the
Avocado
industry
challenges, increasing the sensitivity of the
model to small changes. This further
increased our audit effort in this key audit area.
•
We assessed the accuracy of previous Group
forecasts to inform our evaluation of
forecasts incorporated in the cash flow
models.
•
We considered 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.
•
Working with our valuation specialists, we:
•
analysed the Group’s discount 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 specific to the Group and the
industry it operates in;
•
compared the implied multiples from
comparable market transactions to the
implied multiple from the Group’s fair
value less costs of disposal model; and
•
compared the Group’s terminal growth
rates against publicly available market
data for each relevant geography.
•
We recalculated the impairment charge
against the recorded amount
•
We assessed 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
Costa Group Holdings Limited
Annual Report 2022
102
Other Information
Other Information is financial and non-financial information in Costa Group Holdings Limited’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
Costa Group Holdings Limited
Annual Report 2022
103
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:
https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our
Auditor’s Report.
Report on the Remuneration Report
Opinion
In our opinion, the Remuneration Report of
Costa Group Holdings Limited for the year
ended 1 January 2023 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 1 January 2023.
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
20 February 2023
Independent Auditor’s Report continued
Costa Group Holdings Limited
Annual Report 2022
104
Twenty Largest Registered Shareholders (as at 13 March 2023)
Rank
Name of shareholder
No. of shares
% of issued capital
1
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
119,833,736
25.79
2
CITICORP NOMINEES PTY LIMITED
87,698,166
18.87
3
JP MORGAN NOMINEES AUSTRALIA PTY LIMITED
56,111,025
12.07
4
NEWECONOMY COM AU NOMINEES PTY LIMITED
21,505,156
4.63
5
NATIONAL NOMINEES LIMITED
9,834,075
2.12
6
BNP PARIBAS NOMS PTY LTD
8,994,576
1.94
7
HOXTON PTY LTD
5,004,721
1.08
8
3RD WAVE INVESTORS PTY LTD
4,500,000
0.97
9
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD
4,444,464
0.96
10
UBS NOMINEES PTY LTD
3,947,351
0.85
11
FIRST SAMUEL LTD ACN 086243567
3,304,891
0.71
12
WARBONT NOMINEES PTY LTD
2,779,285
0.60
13
NETWEALTH INVESTMENTS LIMITED
1,590,859
0.34
14
NETWEALTH INVESTMENTS LIMITED
1,436,328
0.31
15
CITICORP NOMINEES PTY LIMITED
1,149,911
0.25
16
MR JOHN PATERSON
1,000,000
0.22
17
MR LEENDERT HOEKSEMA + MRS AALTJE HOEKSEMA
780,000
0.17
18
MR IVAN ALFRED PELLIZZER + MRS ELIZABETH JEAN PELLIZZER
734,998
0.16
19
BNP PARIBAS NOMINEES PTY LTD
688,328
0.15
20
ABN AMRO CLEARING SYDNEY NOMINEES PTY LTD
680,614
0.15
Distribution of Holdings (as at 13 March 2023)
Range
No. of holders
No. of shares
% of issued capital
100,001 and Over
117
356,300,001
76.67
10,001 to 100,000
2,703
63,035,198
13.56
5,001 to 10,000
2,897
21,404,468
4.61
1,001 to 5,000
7,939
20,899,224
4.50
1 to 1,000
6,390
3,070,902
0.66
Total
20,046
464,709,793
100.00
The number of shareholders holding less than a marketable parcel of shares (as at 13 March 2023) is 1,658 and they hold 223,378 shares.
Substantial Shareholders (as disclosed in substantial holder notices given to the Company as at 13 March 2023)
Shareholder
No. of shares
% of issued capital
Australian Football Holdings LLC, an entity managed by
Paine Schwartz Food Chain Fund VI GP LP and its associated entities
64,018,511
13.78
Perpetual Limited and its related bodies corporate
48,871,450
10.52
Citigroup Global Markets Australia Pty Ltd and its related bodies corporate
31,601,201
6.80
State Street Corporation and subsidiaries
29,183,223
6.28
Escrowed Shares
As at 13 March 2023, there are no shares subject to voluntary escrow arrangements.
Unquoted Securities
As at 13 March 2023, there are 2,040,047 options over unissued shares of Costa Group Holdings Ltd. These options are held by
12 current and former members of management 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. More details of these options are set out below.
Number of unissued ordinary shares under option
Issue price of shares
Expiry date of the options
50,000
$1.45
October 2024
810,173
$3.95
March 2026
1,179,874
$2.96
March 2027
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 13 March 2023, there is no current on-market buy-back.
Shareholder Information
Costa Group Holdings Limited
Annual Report 2022
105
Directors
Neil Chatfield (Chairman)
Harry Debney (Interim CEO)
Tim Goldsmith
Janette Kendall
Peter Margin
Dr Jane Wilson AO
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).
Corporate Directory
Costa Group Holdings Limited
Annual Report 2022
106