SUSTAINABLE GROWTHDELIVERINGANNUAL REPORT 2017HUON AQUACULTURE GROUP LIMITEDHUON AQUACULTURE GROUP LIMITEDANNUAL REPORT 2017 Contents
Auditor’s Independence Declaration
Financial Summary
Board of Directors
04 Chairman’s Message
12 Managing Director’s Review
17
20
23 Directors’ Report
38
39 Corporate Governance Statement
46
51 Notes to the Financial Statements
94 Director’s Declaration
95
102 Shareholder Information
104 Glossary of Terms
106 Corporate Directory
Independent Auditor’s Report
Financial Statements
Annual General Meeting
The 2017 Annual General Meeting
of Huon Aquaculture Group Limited
will be held at The Henry Jones Art Hotel
25 Hunter St, Hobart,
November 30, 2017
Huon Aquaculture Group Limited Annual Report 2017 Huon Aquaculture has delivered its strongest
profit on record with the full productivity
benefits from the Controlled Growth Strategy
on track to start delivering in FY2018.
Financial highlights
Sales Revenue
$259.5M
2016: $233.7m
11%
Operating EBITDA
Retail Market Sales
Inaugural Dividend
$62.8M
2016: $26.4m
138%
22%
2016: 10%
5c/s
Dividend of 5 cents per share
totaling $4.4m franked to 50%.
FY14
FY15
FY16
FY17
FY14
FY15
FY16
FY17
% OF TOTAL REVENUE
FY16
FY17
Operational highlights
– Record revenues as a result of continued stable pricing
in the domestic market supported by the sustained
uplift in international salmon pricing.
– While tonnages were slightly down this year as a
result of the accelerated harvest in FY2016, average
fish weight improved significantly as a result of
improved fish feed diets combined with ideal growing
conditions during a mild winter and a cooler than
average summer.
– Operating EBITDA increased 138% underpinned by
stronger prices, a more balanced channel mix and
improved margins compared to the previous two years.
– New sales agreements resulted in 23% of production
volume being directed into the retail market, providing
a better balance to Huon’s sales channel mix and
greater certainty in planning future production.
– Despite starting the year with a lower biomass than
normal, the value of Huon’s biomass at year end
increased by $40.8 million, including a fair value uplift
of $19.2 million, to a record level of $188.0 million,
reflecting the return to higher fish weights and
improved pricing environment and channel mix.
– Operating costs continued to be affected by the
difficult growing conditions experienced in the
second half of FY2016 and the additional efforts
required to rebuild the 2015 Year Class which had
been impacted by the issues associated with poor
feed. Average production costs (per HOG kg) in
the second half of FY2017, however fell by 12%
compared to the previous corresponding period
(pcp), supporting the forecasted trend of declining
costs as productivity benefits start to flow through
into FY2018.
– Cash flow from operations increased during the
year to $54.0 million compared to $16.3 million
in FY2016 delivering a strong cash balance of
$23.0 million at year end.
– The operating environment globally continues to
be supportive of salmon prices being sustained
at current levels due to the fundamental supply
demand imbalance as some of the major salmon
producing countries struggle to manage problems
such as sea lice.
1
OPERATING IN LOCATIONS
WHERE SALMON THRIVE
Huon is fortunate to farm in Tasmania’s unique environment, allowing
the Company to raise salmon in locations in which they thrive. From the
time Huon salmon start their life in hatcheries up until they are harvested
their environment plays a vital role in their health, growth and quality.
Offices
Hatcheries
Processing facilities
Biosecure zones
Bridport Hatchery
Devonport
Parramatta Creek
Processing Facility
Launceston
Springfield Hatchery
Millybrook Hatchery
TA SM A N I A
Strahan/
Macquarie Harbour
(3 farm sites)
Brisbane
A U S T R A L I A
Perth
Sydney
Botany
Processing
Facility
Melbourne
TA S M A N I A
SALTAS Hatchery
Derwent Hatchery
Lonnavale Hatchery
Forest Home Hatchery
Whale Point
Salmon Nursery
Port Huon Engineering
Workshop and Net Slab
Hobart
Norfolk Bay
2 farm sites
(unused)
Storm Bay
4 farm sites
Hideaway Bay
8 farm sites
Huon carefully manages lease sites to minimise the environmental impact
Benefits of deeper off-shore sites
Fish health and
welfare:
Deeper, higher energy
(wave and wind) sites
mean that pens are
located in areas with
stronger currents
and greater water
movement. The result is
more oxygen, which is
much better for the fish
and the environment.
Reduced
environmental
impact:
More environmentally
appropriate locations.
Reduced visual
and noise
impact on the
community:
Off-shore sites are less
visible from the land
and the sound of boats
is less, as boat traffic
has both decreased
and is further away
from shore.
Improved
biosecurity:
By moving individual
leases further away
from one another and
from other sites, we
are future-proofing our
farms and improving
biosecurity.
2
Huon Aquaculture Group Limited Annual Report 2017
WHAT WE DO
As a vertically integrated salmon producer, Huon’s operations span hatcheries,
marine farming, maintenance, harvesting, processing, value adding, marketing,
sales and distribution.
Hatcheries
Nurseries
Marine Farms
Harvesting
Processing
Market
Selective
Breeding
Program
Feeding
Fallowing
Value Added
Processing
Maintenance
Lighting
Fish
Husbandry
Net
Management
Bathing
Predator
Control
The lifecycle of a Huon salmon is two to
three years and at each stage the Company’s
operations are underpinned by a commitment
to the highest level of animal husbandry,
environmental management and quality.
Hatcheries:
Marine Farms:
Harvesting:
The hatchery allows us to mirror
the natural life-cycle of salmon,
as well as allowing us to naturally
synchronise growth in a way that
enables supply of fresh, healthy fish
all year round.
Huon’s new Forest Home
Hatchery is a second generation
recirculation hatchery that delivers
outstanding smolt quality and
larger smolt sizes with a reduced
environmental footprint.
Nurseries:
Huon is proposing to build Australia’s first onshore
Salmon Nursery. This facility will see smolt grown on
land to much larger sizes before being transferred to
sea and will be built at the Company’s industrial site
at Whale Point in Port Huon.
The aim is to reduce the time salmon spend at sea
to less than 12 months. This has several benefits
including better managing of existing leases,
reducing our environmental impact, reducing the
potential for marine debris, and minimising the risk
of predation. Huon is expecting the new Salmon
Nursery to be operational in FY2019.
Huon’s fish are grown in three
marine regions: the Huon and
D’Entrecasteaux Channel;
Macquarie Harbour; and offshore
in Storm Bay.
FY2017 was the first full year
farming with Fortress Pens at all
marine sites. Building on their
success, Huon continues to develop
its offshore farming capabilities,
particularly in Storm Bay, which
will be supported by a new second
generation well-boat, the Ronja
Storm, which is currently being
designed with delivery expected
in 2019.
Feeding:
Huon continues to make
advancements in feed systems that
result in improved fish performance
and has; recently upgraded its pellet
recognition software, increased
automation of feed delivery systems
and developed remote, shore-based
feeding capabilities.
Harvesting is the last step in the
farming of our salmon and is
one of the most critical. There
is a direct relationship between
harvesting and the quality and
freshness of the end-products
and by focussing on low-stress,
humane, night-harvesting, using
RSPCA certified equipment, Huon
consumers experience fresher,
higher quality salmon year-round.
Processing:
Huon’s investment in additional
processing equipment is delivering
further speed and efficiency
improvements at its state of the
art Paramatta Creek processing
facility. Huon’s processing
capabilities support the
increased presence in retail and
specifically the chilled package
seafood category.
3
CHAIRMAN’S MESSAGE
– Investing for long-term growth
– Managing risk in a volatile environment
– Securing our sustainable future
In August 2016, I was honoured to succeed
Peter Margin as Chairman of the Board of Huon
Aquaculture (Huon), having served as a Director
of the Company since ASX listing in 2014.
As founding Chairman of Huon, Peter guided
the business through a volatile period and
having co-operated closely together around the
Board table for nearly two years, my transition
to the role of Chairman has been smooth.
It is a pleasure to review our performance
in FY2017, a year of record earnings for
the Company. Our financial performance
improved significantly over that of FY2016, as
the positive impacts of the full implementation
of the Controlled Growth Strategy (CGS) and
strong increases in market demand enabled
us to improve margins significantly, resulting
in substantial growth in Operating EBITDA.
The completion of the CGS in FY2016
substantially de-risked the business and
introduced long-term and sustainable
efficiency gains. Domestic demand for salmon
continues to grow at around 10% p.a. and,
with strengthening margins and stable market
conditions, Huon has sound prospects for
further healthy earnings growth in FY2018
and FY2019.
However, the Company believes that, if it
is to grow and prosper over the long term,
it must maintain broad social acceptance of
its operations. Consistent with that approach,
a key goal of the CGS was the introduction of
new hatcheries, seal-proof offshore Fortress
Pens, feed barges and mooring systems and
lease site optimisation to reduce Huon’s
impact on the environment.
Business Performance
In FY2017 Huon’s operating EBITDA, at
$62.8 million, was $36.4 million higher than
in the previous corresponding period (pcp), as
ongoing efficiency savings and strong sales
growth led to substantial margin improvement.
Huon achieved a statutory net profit after
tax (NPAT) of $42.2 million, a substantial
improvement on the unsatisfactory FY2016
NPAT result of $3.4 million, which was
severely affected by that year’s early harvest
(necessitated by climatic factors), poor feed
performance and by adverse market conditions.
We believe that the earnings volatility that has
affected our business in recent years is now
largely behind us, although Huon, in common
with all aquaculture businesses, is subject to
the effect of local and international growing
conditions.
Board and management expect that the
combined effect of buoyant prices, strong
performance from the 2016 Year Class and
productivity gains being delivered as forecast
from the CGS will underpin further growth
in profit in FY2018.
The Company’s balance sheet remained
strong at the end of FY2017, with Huon’s total
gearing ratio declining to a comfortable 14.7%
(net debt/net assets) from 24.8% a year earlier.
Strategy
It is hard to overstate the importance of our
2014-16 CGS investment, which has
strengthened each stage of our production
process, including our ability to respond quickly
to extreme weather events and other risks.
Neil Kearney
Chairman
4
Huon Aquaculture Group Limited Annual Report 2017 The Huon three pillar business strategy
Growing
the market
Growing production and
operational efficiency
Growing safely and
sustainability
However, the Company is not resting on its
laurels and we are continuing to invest significantly
in research and development to secure our
sustainable future. Huon is not only getting
the production basics right but is also creating
opportunities through technical and market
development and innovative efficiency projects.
Huon is currently considering the potential of
greater species diversification that leverages the
Company’s technological advancements and
applies its aquaculture expertise, demonstrated
by Huon’s current Yellowtail Kingfish trial in NSW.
The production of high quality farmed salmon
remains Huon’s core business and we will ensure
that our salmon farming production techniques
continue to be benchmarked to the world’s
best. We will continually improve our business
efficiencies and maximise Huon’s channel
marketing opportunities.
In this context, it is pleasing that in FY2017 the
proportion of our salmon production sold into
the Australian retail market channel increased
to 22% from less than 10% in the pcp.
The Company’s over-arching business strategy
remains clear. Huon intends to:
– Grow the market through increased
consumption, better channel mix,
enhancement of sales and brand value, and
innovative species diversification;
– Build production and enhance operational
efficiency as a result of investment made
via the CGS program and marine lease
optimisation; and
– Safely and sustainably grow the Huon
business through development of our people,
a strong safety culture and unwavering
commitment to continuous improvement and
community participation.
Dividend Policy
In light of the significant turnaround in
Huon’s earnings performance in FY2017 and
following consideration of the capital needs
of the business, Directors have declared an
inaugural dividend of 5 cents per share for
2017, franked at 50%. The dividend will be
paid on 12 October 2017 to shareholders
as at the record date of 22 September 2017.
It is the Board’s intention to maintain an
annual dividend payout ratio of up to 35% of
net operating profit after tax, subject to the
financing and capital expenditure requirements
of the Company.
Huon’s ability to pay dividends and the extent to
which they are franked, will depend on a number
of external factors, such as extreme climatic
conditions and issues relating to animal husbandry
which are beyond the Company’s control.
At Huon’s current stage of growth, it is likely that
tax payable by the Company will remain low. As
a result, it is expected that future franking rates
will remain consistent with the 50% rate provided
in the current dividend.
Litigation
My review would not be complete without a brief
comment on recent and ongoing legal matters.
The Board is pleased that the commercial dispute
with Ridley AgriProducts was resolved through
a mediated settlement agreed in June 2017.
This resulted in compensation payable to Huon
of $4.5 million, which was recognised in the
FY2017 accounts.
Early in 2017 Huon commenced proceedings
in the Supreme Court of Tasmania and in the
Federal Court of Australia seeking review of
the decisions of the Tasmanian Environmental
Authority that set biomass levels for the Harbour
and for declarations that the current Federal
Minister’s decision is invalid in that it leaves
the determination of biomass to the Tasmanian
Government and the Tasmanian Environmental
Protection Authority and that they are failing
in their duty to protect World Heritage listed
Macquarie Harbour (and the endangered
Maugean skate) by permitting biomass levels in
the Harbour to remain at unsustainable levels.
Huon’s view, based on publicly available reports
from the Institute of Marine and Antarctic Studies
(the best available scientific evidence), is that
the Harbour cannot currently sustain a biomass
of greater than 10,000 tonnes and we are
continuing to pursue the legal means available
to us to protect this precious Tasmanian water
resource and the endangered species that it
contains whilst ensuring its long-term viability
for salmon-farming.
The litigation is ongoing.
Conclusion
Your Directors are confident that the turnaround
in Huon’s earnings performance in FY2017
reflects the soundness of the Company’s business
strategy and that continuing growth in revenue
and earnings is sustainable.
The full impact of our CGS investment, as
measured by substantially improved operating
efficiencies, is expected to deliver further
earnings growth in the current year and beyond.
On behalf of the Board I wish to thank our
customers, suppliers, local communities, employees,
and our shareholders for their support.
Neil Kearney, Chairman
5
GROW
THE MARKET THROUGH INCREASED
CONSUMPTION, OPTIMISED CHANNEL
MIX AND ENHANCEMENT OF SALES
AND BRAND VALUE.
Optimised channel mix
Increased consumption
Balancing Huon’s channel mix has been a
strategic objective for the business for some
time. The wholesale and export markets have
been the primary channels through which the
majority of our production has been sold in the
past. The retail market has rarely accounted
for more than 10% of total sales. However a
key development at the beginning of the year
was the execution of new sales agreements
resulting in 23% of production volume being
directed into the retail market.
While the wholesale market will continue to
be Huon’s primary sales channel, we now
have a better balance in relation to sales
through both the retail and export markets
which provides a level of certainty in planning
future production.
The domestic salmon market has been
averaging growth of around 10% p.a. over
the past decade and this rate is expected to
continue in coming years due to increasing cost
of other proteins relative to salmon, stagnation
in wild caught seafood supply and healthy
eating trends. Average per head consumption
of salmon in Australia is around 1.9kg, well
below other developed countries such as
France, UK, Germany, Belgium and Holland
(2.1–3.2kg) and 6.3–8.3kg for Scandinavian
countries. A big part of rapid market growth in
those countries in recent years has been in the
fresh modified atmospheric packaging (MAP)
salmon market.
Huon has been supplying the MAP/chilled
packaged salmon market in Australia for
the past 5 years and is well placed to take
advantage of the growth potential offered by
this segment, based on trends offshore. Huon
currently supplies an estimated 47% of the
Australian chilled packaged salmon market.
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Consumption
Average per person
consumption of salmon
6
Huon Aquaculture Group Limited Annual Report 2017
4
5
6
7
1
2
3
1. Newly launched
Premium Gin and
Kaffir Lime Cured
salmon
2. Newly launched
Premium Thai
Lemongrass Wood
Roasted salmon
3. Fresh salmon fillet
4. Reserve Selection
salmon caviar
5. Masaki Kayama
making fresh salmon
ngiri
6. Versatile Wood
Roasted salmon
7. MAP/chilled
packaged salmon
Brand value
Huon branded salmon is available in pre-
packed, MAP, frozen, smoked or cured formats
in over 2000 retail outlets across the country
including Coles, Woolworths, Aldi, Costco
and independent retailers. The Huon name is
also displayed proudly on countless restaurant
and food service menus throughout Australia
as a signifier of superior quality and pride
in provenance.
In addition, our salmon can also be bought
under the Coles, John West, Almare and
Created With Jamie (Woolworths) private
label brands.
Continued focus will be placed on
differentiating the Huon brand from generic
Atlantic salmon in the market (both domestic
and imported) in the coming year to ensure
that consumers, as well as wholesalers and
chefs, understand the quality promise that
comes with the Huon name.
7
EXPAND
PRODUCTION AND ENHANCE
OPERATIONAL EFFICIENCY THROUGH
LONG-TERM INVESTMENT AND
MARINE LEASE OPTIMISATION.
Sustainability through innovation
Huon’s primary focus since 2014 has been
on reinvesting in the business to drive
operational efficiency. We have upgraded
every facet of our operation to ensure we
are accessing the latest technologies and
delivering best practice farming methods.
– Custom designed fortress pens have
been introduced across all our lease
sites, reducing mortality rates from seal
incursions to minimal levels and improving
worker safety, particularly in high energy,
offshore sites.
– Mooring systems specifically designed
for the Fortress Pens to be safely moored
in high energy sites like Storm Bay.
– Feed barges have been installed with
innovative feed delivery systems that
improve feeding of fish to appetite and
results in improved growth and reduced
feed wasteage. Over the past year this
process has been automated creating a
safer working environment under certain
weather conditions in our offshore sites.
– The introduction of the well-boat, the
‘Ronja Huon’, in 2015 has revolutionised
the way we farm our fish, from
transporting smolt to sea and bathing, to
transporting them to harvest. As a result,
we no longer need to tow pens, a process
which has a high associated cost and safety
risk to staff particularly when servicing
our offshore sites in Storm Bay.
– Construction of a state of the art
recirculation hatchery (Forest Home)
on the Huon River has increased our smolt
capacity by 50%, producing larger and
better quality smolt and enabling more
efficient transfer of smolt to sea.
These investments have also created
a robust platform for planned production
expansion to supply the increasing demand
for our product in Australia and overseas.
8
Huon Aquaculture Group Limited Annual Report 2017 1
2
3
1. Parramatta Creek
processing facility
2. Huon Premium range
packaging
3. Smolt tanks at Forest
Home Hatchery
4. Feedbardge
5. Ronja Huon well-boat
Further expansion
Huon Aquaculture are already looking
ahead to the next five years.
– Making plans for the construction of a
large, onshore grow out facility, known
as a salmon nursery, at our existing
industrial site at Whale Point in Port
Huon which will see smolt grown on
land to much larger sizes before being
transferred to sea.
– We are also preparing for the next
generation well boat which will be double
in size and built to Huon’s specifications.
The ‘Ronja Storm’ will be ready for
delivery in 2019.
The growth of Huon’s business is tied to an
increased commitment to moving its operations
offshore to Storm Bay reducing our exposure
to fragile waterways such as Macquarie
Harbour, whilst fully utilising the Company’s
existing intermediate sites in the Huon River
and D’Entrecasteaux Channel to support the
off-shore expansion.
4
5
Huon River
el
ntrec a ste a ux Chann
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’
D
Whale Point
Salmon Nursery,
Port Huon
Storm Bay
Hideaway Bay
TASMAN SEA
Biosecurity zones
9
ENSURE
THE BUSINESS REMAINS STRONG BY
ACTIVELY MANAGING THE RISKS INHERENT
IN AQUACULTURE AND MANAGING
ENVIRONMENTS SUSTAINABLY.
Biosecure farming regions
Over many years, Huon has worked
proactively and consistently to mitigate
environmental and agricultural risk to
its business by developing three discrete
biosecure growing regions for growing
salmon.
This has been a deliberate strategy as
Huon has long recognised the significant
risk posed by disease outbreak and
environmental factors outside its control.
It enables us to provide a continuous supply
to market, over a 12-month period, of
appropriate market size fish and also the
ability to grow and market rainbow trout.
Macquarie Harbour
An important growing region that helps
Huon provide continuous 12 month supply
to market, Macquarie Harbour is a unique
waterway that requires careful, conservative
management. Huon has reduced production
in Macquarie Harbour and implemented
a range of other measures in response to
changing environmental conditions.
Huon River and D’Entrecasteaux
In 2014-15 Huon undertook a major
reorganisation of leases in the Huon and
Channel to place them in higher energy
locations that suit Huon’s style of farming
including Fortress Pens.
Storm Bay
Huon has pioneered the Australian salmon
industry’s first efforts into offshore farming
at its leases in Storm Bay. Early off-shore
experience is helping shape Huon’s vision
for long-term offshore growth.
10
Huon Aquaculture Group Limited Annual Report 2017 4
5
6
1
2
3
1. Shore based fish
feeding technology
2. Fish bathing from a
Fortress Pen
3. Feed delivery system
inside a Fortress Pen
4. Fortress Pens in
Hideaway Bay
5. Storm Bay’s deeper,
higher energy offshore
sites are better for
the fish and the
environment
6. Inspecting eggs at
the hatchery
Fish performance
Fish performance is a combination of
growing conditions, husbandry and feeding.
In FY2017, Huon spread its feed supply
contracts over a number of companies
and implemented new feed systems and
technology designed to improve feed
efficiency and performance in a range of
environmental conditions. This is particularly
important as the likelihood of extreme
weather events increases as a result of
climate change as well as facilitating Huon’s
expansion in offshore farming sites.
People and safety
Huon’s aim is to develop “leaders at all levels”
and targeted training and development is
building strong capability within the business.
Culturally, Huon remains clearly focussed
on development of a safety first culture. This
steadfast approach has seen safety improving
at all sites demonstrated by improvements
across a range of safety indicators.
11
MANAGING DIRECTOR’S REVIEW
Huon Aquaculture’s third year as a
listed company has undoubtedly been
our most successful on record. Focussing
on strong fish growth and delivering
on strategic objectives has generated a
significant turnaround in performance
from the previous year.
Peter Bender
Managing Director and
Chief Executive Officer
With the implementation of our three year
Controlled Growth Strategy (CGS) behind us,
we are now focused on delivering the efficiency
benefits that will come from integrating the
latest technology and innovation throughout
the business whilst at the same time supporting
our capacity to grow production over the next
5 years, particularly in our offshore locations.
Our experience of a severe weather event
through the summer of 2015-16, confirmed
that the Company’s push into offshore farming
in Storm Bay was and continues to be the right
strategy to mitigate risk from climate change
and severe weather events. This experience
also underpinned our resolve to protect
waterways, like Macquarie Harbour, that are
under increasing stress through inadequate
regulatory oversight and control. This has
meant moving from engaging proactively with
government to present our concerns, to one of
direct action through the courts. This was never
our preferred approach but the sustainability
of our industry is vital not only to our business
and the jobs it supports but to Tasmania’s
reputation as leading the way in promoting
environmentally sustainable growth.
Performance Overview
While sales volumes declined and overall
revenue increased modestly in FY2017,
profitability increased strongly due to;
continuous improvement in farming and
feeding strategies, better feed performance
combined with ideal growing conditions during
a mild winter and a cooler than average
summer, and continued strength in the
domestic salmon price. Reduced production
tonnages, when compared to last year, reflect
the decision in 2015 to bring forward the
harvest of the 2014 Year Class due to the
impending El Niño. As a result we started the
2017 financial year with much lower biomass
levels than would normally be the case.
Operating EBITDA of $62.8 million was derived
from annual sales revenue of $259.5 million.
This compares with $26.4 million operating
EBITDA from $233.7 million annual sales
revenue in the previous corresponding period
(pcp). The statutory profit (NPAT) of $42.2 million
represents a significant turnaround from the
previous year’s reported NPAT of $3.4 million.
The uplift in profit together with close
management of working capital resulted in
operating cash flow of $54.0 million. This figure
was also influenced by the decision to hold back
a payment of $17.6 million for feed quality issues
supplied by Ridley AgriProducts, a matter which
subsequently led to Huon pursuing a claim for
damages. This was settled in the week prior to
30 June 2017 with payment made in July 2017.
Feed performance in a range of environmental
conditions coupled with good fish husbandry
is the foundation of successful and profitable
production. This is evidenced in part by the
dramatic improvement in fish growth once our
fish were put on improved fish feed diets with
the average fish harvest weight increasing 21%
to 4.84kg in the 6 months to 31 December
2016 compared with 3.99kg in the prior six
month period.
Whilst we measure performance using
operating EBITDA, the Fair Value and
Adjustment of Biological Assets can have a
significant impact on the statutory results.
This adjustment in FY2017 was a $19.2 million
increase in the Fair Value Adjustment of Huon’s
Biological Assets reflecting the increased
biomass levels from the recovery in fish weight
and improved pricing conditions. The higher
12
Huon Aquaculture Group Limited Annual Report 2017 Operating NPAT Comparison FY2016 – FY2017 ($/kg sold)
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
0.21
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2.64
0.02
0.15
(0.42
(0.04)
(0.23)
(0.33)
(0.04)
1.56
(0.40)
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market value was due to the price increases
and the improved sales channel mix, resulting
in an increased average sale price.
Balancing Huon’s channel mix has been a
strategic objective for the business for some
time. The wholesale and export markets have
been the primary channels through which the
majority of our production has always been
sold. However, a key development during the
year was the execution of new sales agreements
resulting in 22% of revenue being generated in
the retail channel. This delivers a better balance
to Huon’s sales channel mix and also provides a
level of certainty in planning future production.
Channel mix (% OF TOTAL REVENUE)
FY15
FY16
FY17
Retail
Export
Wholesale
FY17
FY16
FY15
22%
6%
72%
10%
25%
65%
10%
15%
75%
Overall net debt decreased from $62.1 million
in FY2016 to $43.0 million. While this includes
the $17.6 million payment withheld from Ridley
which has subsequently been repaid (net of
a $4.5 million settlement), gearing adjusted
to include this repayment remains conservative
at 21%.
Huon continued to bear the increased costs from
the impact of El Niño and feed quality issues on
its 2015 Year Class fish through the first half of
FY2017. While this impacted the average cost
of production per HOG kg for the year (+7.2%),
the strong performance of the 2016 Year Class
in the second half has driven a reduction in the
cost of production (-12.3% on pcp) which is
expected to continue in FY2018, underwritten
by the productivity benefits from the Controlled
Growth Strategy.
Operating Overview
The three key drivers underlying Huon’s
performance during the year were:
– better than average growth in fish weight
due to a combination of ideal growing
conditions and the improved fish feed diets,
– better balance of our channel mix by selling
a greater proportion of production to
retail, and
– the continued strength in the international
and domestic salmon price.
There is no question, in our view, that Huon was
in a better position to capitalize on each of these
factors as a result of the commitment made in
previous years to invest heavily in upgrading
every stage of the production process.
Sales volumes fell 10% as the tonnage of whole
fish sold declined from the record harvest of
20,463 kg in FY2016 to 18,448 kg. While we
had planned for and flagged that production
levels in FY2017 would be affected by the
accelerated harvest, overall biomass growth
was better than expected. A warm winter and
cool start to summer supported ideal growing
conditions during the first half which continued
right through to the end of summer. The success
of the Fortress Pens in reducing stocking
densities and wildlife interactions at all sites,
has given the fish a better environment in which
to grow. More significantly the introduction
of improved fish feed diets has delivered a
rapid recovery in fish weight resulting in a
strong improvement in performance between
13
Managing Director’s Review
1
International Salmon Prices
July 2012–June 2017
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
Lost Time Injury Frequency Rate (LTIFR)
Number of injuries per 1 million hours worked
Average Lost Time Rate (ALTR)
Hours lost per employee
Incident Rate (IR)
Number of Lost Time Injuries per 100 employees
FY17
FY16
FY15
3
12
7
16
27
19
0.6
1.3
5.2
the first and second halves, as stated earlier.
Over FY2017 the average fish harvest weight
increased by 16% to 4.64kg compared with the
second half of FY2016 (3.99kg) when fish were
under the greatest stress.
Creating a more balanced and sustainable
channel mix in which the retail market is a key
contributor to long term, stable returns has been
one of Huon’s strategic priorities. In August
2016 Huon signed a three-year agreement
with a major food manufacturer for the supply
of chilled packaged seafood. It increased
the Company’s market share of the growing
chilled packaged fresh salmon category in
retail stores across Australia. This is a category
that is currently trading well below its potential
in the Australian market when compared with
penetration internationally.
This represented a significant milestone in
Huon’s execution of one of its three strategic
business objectives: to grow the market
through increased consumption, better channel
mix and the enhancement of our sales and
brand. Around 23% of production volume is
now being sold through the retail channel,
compared to an average of 10-12% in
prior years.
International salmon prices rose strongly in the
first half of FY2017 from the low experienced
in November 2015. Severe outbreaks of
sea lice in Norway and Scotland, as well
as a deadly algae bloom that hit Chile in
early 2016, meant supplies of global farmed
salmon fell almost 9% from the previous year,
the first decline in six years and the steepest
fall in a quarter of a century. Over the year to
June 2017 international salmon prices, while
volatile, have traded at elevated levels and
despite an expected increased global supply
it is anticipated to fall below meeting demand.
Prices in the domestic market are expected
to continue to trade at similar levels to those
experienced in the past year.
With production tonnages down on FY2016
and 23% being allocated to the supply of new
retail contracts, Huon effectively exited the
export market in FY2017. However we expect
to increase our export activity over the next two
years as we consolidate some new and longer
term relationships in the Asian market. At the
same time we remain focused on supplying
the rising domestic demand for salmon across
both the retail and wholesale market.
People and Safety
Huon’s “Safety First” ethos has resulted in
continued improvement in its Loss Time Injury
Frequency Rate (LTIFR) in FY2017, from 7 in
the previous corresponding period to 3.
Building our people’s capability through
workforce planning and targeted development
is playing a critical role in Huon delivering its
business strategy. Recruiting and retaining high
calibre employees is a core people strategy
and succession planning is also a high priority.
Huon has a strong commitment to building
the skills, knowledge and capabilities of
its people to ensure the business reaches
its full potential. This commitment is not
only building the capability of the current
workforce but preparing the business for future
opportunities. It is recognised within Huon
that having a strong leadership capacity and
a well-trained work force underpins a business
that is productive, profitable, sustainable,
and allows us to embrace emerging
technological advances.
1. Fortress Pens in
Storm Bay
14
Huon Aquaculture Group Limited Annual Report 2017 Managing Risk
Key risk areas:
FY2017 measures:
Agricultural risk
(disease, algae)
– Continuous improvement in farming and feeding strategies, transfer of fish onto improved feed
diets, resulting in rapid recovery in fish weight in the second half following feed performance
issues and severe weather conditions. New feed supply contracts in place and ongoing feed diet
trials. Participation in the industry-wide selective breeding program and support for the rapidly
expanded research capability for vaccine development at the Aquatic Animal Health and Vaccine
Centre of Excellence (AAHVCE) in Launceston.
Environmental risk
(weather, wildlife)
– Decreased stocking densities and installation of oxygenation system in Macquarie Harbour, legal
action against the Tasmanian Government and the EPA through the Federal and the Tasmanian
Supreme Court in relation to mismanagement of Macquarie Harbour. Increased utilisation of
offshore sites to mitigate impact of severe weather events.
Social and Market
risk (reputation,
competition, consumer
preferences)
– Significantly increased penetration of the retail channel providing better balance to sales
portfolio. Increased market share of the growing chilled packaged salmon category supported
by use of well-known brands such as John West. Continuing to research innovative product
extensions.
– Deep understanding of broad social and local community expectations of Huon’s operations are
reflected in decision making across the business, including the CGS. Effective engagement with
a wide range of stakeholders regarding the social and environmental benefits of Huon’s CGS
occurred and is ongoing during a period of increasing concern over industry practices.
Safety risk
– Improvement in lost time injury frequency rate
Taking responsibility for the
salmon industry’s management
of environmental risk
Constantly monitoring and managing risk is
core to the way Huon operates its business each
and every day. Effective risk management is
fundamental to the creation of sustainable long
term revenues in aquaculture. For the most part,
our activities go unnoticed to those outside the
business however, in FY2017 that changed when
we decided to take our concerns public regarding
the specific risks Huon was facing as a result of
the environmental threat to Macquarie Harbour.
Macquarie Harbour is particularly important as
it provides a discrete biosecure region where
the disease status is uniquely different to other
growing areas in the state. For this reason,
together with its natural beauty and World
Heritage listing, protection of this waterway is
of paramount importance not only to Huon and
the salmon industry, but to all Tasmanians.
Since 2014 the Tasmanian government, as
regulator of the Harbour, has set increasing
biomass limits and applied other management
controls that have led to, or caused, deteriorating
environmental conditions. There was no change
to this practice in 2016 when conditions in the
Harbour deteriorated to levels that threatened
its environmental values and yet the government
lifted the biomass cap to an unprecedented level
of 21,500 tonnes.
In July 2016, the Tasmanian Government
handed control of Macquarie Harbour over
to the independent Director of the Tasmanian
Environmental Protection Authority (EPA) at which
time a review of environmental conditions in the
Harbour was undertaken. In February 2017, the
EPA Director made a final biomass determination
of 14,000 tonnes that, based on the available
scientific evidence, set a limit that, in Huon’s view,
was still well in excess of the level the waterway
could support. It was at this point that Huon made
the decision to commence legal proceedings in
the Supreme Court and Federal Court challenging
the EPA Director’s and Tasmanian Government’s
management of Macquarie Harbour.
Undertaking legal proceedings was not our
preferred approach and has only come after
years of engaging directly with government and
exhausting all other avenues at our disposal.
In the end we felt it was the only way to draw
attention to and hopefully remedy, an issue
that has the potential to seriously damage the
reputation of our industry and the long-term
security of the waterway for salmonid farming.
The first component of these actions will be heard
in the Federal Court in November 2017.
A summary (Macquarie Harbour Timeline) of
key regulatory, biomass, scientific findings and
legal proceedings regarding Macquarie Harbour
since the approval to expand salmon farming was
granted in 2012 is available from the sustainability
section of our website.
Huon believes that to maintain social acceptance
both in local communities and the wider
public, the Company must farm ethically and
transparently. Huon achieves this by taking a long-
term view and this is reflected in the Company’s
planning and decision making, particularly as
15
Managing Director’s Review
it relates to Macquarie Harbour. Broad social
acceptance is needed to ensure the safe,
sustainable growth of the Company over time.
While environmental risk is only one of Huon’s
key areas of risk which are actively monitored
and regularly assessed as part of our operational
management strategy, it is one that has
undoubtedly received a greater proportion of
Huon’s attention during the past year.
Capital expenditure will increase to around
$65 million from $35 million in FY2017.
With production levels likely to remain low in
Macquarie Harbour, continued production
expansion will occur at our Storm Bay offshore
sites. Planning is also underway for our land
based growout nursery, with construction
expected to commence during FY2018, with
first fish to sea expected in FY2019.
Outlook
Demand for salmon from Australian consumers
is expected to continue growing at around 10%
per annum and the demand supply dynamics
internationally are such that pricing is expected
to remain above the long term average.
Huon is well placed to take advantage of
demand increases with lease space availability,
particularly in offshore locations, allowing the
Company to grow in-line with demand.
While Huon’s primary focus will continue to be
growth of the wholesale business, our increased
exposure to the retail market as a result of the
new retail supply agreements entered into early
in FY2017, provide a valuable diversification in
Huon’s channel mix. We expect sales into this
market to at least reflect the growth in demand,
with a particular focus on the fresh component
of the retail sector.
Particular opportunities in the export market
remain of interest to us and we intend to
take advantage of the strong demand for the
Huon brand in Asia. Huon expects to increase
sales penetration of the Japanese market and
harness new opportunities that will assist Huon
to further leverage its sales into a range of
other key high-performing Asian markets.
FY2018 has started well with favourable
growing conditions and fish responding well
to improved fish feed diets and the fortress
pens. While we still have the higher risk
growing cycle of summer ahead of us for
FY2018, current estimates have our harvest
volume around 24.5 thousand tonnes. While
market pricing levels are expected to be
similar to FY2017, we are forecasting higher
export sales during FY2018, as a result of the
significant increase in production tonnes. This
is expected to result in overall lower average
prices than in FY2017. The full impact of the
CGS investment expected to be reflected in
substantially improved operating efficiencies
in FY2018. As a result we are confident that
profitability will continue to grow over the
coming years.
Peter Bender, Managing Director
and Chief Executive Officer
16
Huon Aquaculture Group Limited Annual Report 2017
FINANCIAL SUMMARY
Statutory Earnings
– Harvest tonnage fell by 10% as a result of the accelerated harvest in FY2016, however this was offset by
improved salmon pricing throughout the year, delivering an 11% increase in overall sales revenue.
– EBITDA increased to $82.0m from $24.9m largely due to better fish growth and higher prices which
contributed directly to a tripling in margins from 10.7% to 31.6%.
– Volume sold into the retail market increased 170% to 4,308 tonnes, more than doubling the revenue from
this channel to 22%.
– Operating cash flow increased to $54.0m from $16.3m, with EBITDA conversion averaging 92% in FY2017.
– The increase in Fair Value Adjustment of Biological Assets to $19.2m highlights the impact of the recovery
in stock levels during the year as well as the improved pricing and altered channel mix.
– Strong balance sheet with comfortable gearing of 15%.
– Capital expenditure declined by 22% to $35.0m but remained focused on supporting long term growth
and efficiency.
Tonnage
Revenue(1)
Revenue per HOG kg
EBITDA(2)
EBITDA per HOG kg
EBITDA margin
EBIT
NPAT
Fair value adjustment
Related income tax (expense)/refund(3)
Biological assets
Earnings per share
Dividend per share
Net debt(4)
Total gearing ratio(5)
Return on assets(6)
t
$M
$/kg
$M
$/kg
%
$M
$M
$M
$M
$M
c
c
$M
%
%
FY2017
FY2016
FY2015
18,448
259.5
14.07
82.0
4.44
31.6%
60.1
42.2
19.2
(5.8)
188.0
48.27
5.00
43.0
14.7%
12.2%
20,463
233.7
11.42
24.9
1.22
10.7%
7.3
3.4
(1.5)
0.5
147.2
3.92
–
62.1
24.8%
1.8%
16,536
191.7
11.59
35.2
2.13
18.4%
25.8
16.6
(5.3)
1.6
151.8
20.99
–
33.0
13.3%
6.4%
Operating Earnings and Cash Flow
Revenue(1)
$million
+11%
Operating
EBITDA(7)
$million
+138%
Operating
NPAT(8)
$million
+545%
Operating
Cash Flow
$million
+231%
FY14
FY15
FY16
FY17
FY14
FY15
FY16
FY17
FY14
FY15
FY16
FY17
FY14
FY15
FY16
FY17
1
2
Revenue from the sale of goods.
Statutory EBITDA is a non-IFRS financial measure which is used to measure business performance,
using net depreciation and amortisation recognised in the income statement.
Related income tax at current tax rate.
3
4 Net Debt is total net of cash and cash equivalents.
5
6
7 Operating EBITDA excludes the impact of the Fair Value Adjustment of Biological Assets.
8 Operating NPAT excludes the impact of the Fair Value Adjustment of Biological Assets and related tax impact.
Total Gearing Ratio is measured as debt (net of cash)/net assets.
Return on Assets is measured as statutory EBIT/total assets.
Tonnage
18,448t
(FY2016: 20,463t)
Sales Revenue
$259.5m
(FY2016: $233.7m)
Sales Revenue
by Channel:
Wholesale
72%
(FY2016: 65%)
Export
6%
(FY2016: 25%)
Retail
22%
(FY2016: 10%)
Employees
500
(FY2016: 524)
17
KEY FINANCIALS
Operational Performance
Six months ended
Harvest volume HOG t
Revenue from operations
Revenue $/HOG kg
Cost of production
Cost of production $/HOG kg
Freight and distribution
Freight and distribution $/HOG kg
Operating EBITDA*
Operating EBITDA $/HOG kg
Margin
Fair value adjustment
Operational Performance
$/HOG kg
15.0
12.0
9.0
6.0
3.0
0.0
DEC 14
JUN 15
DEC 15
JUN 16
DEC 16
JUN 17
Operating EBITDA
Freight and distribution
Cost of production
Revenue
Sales Channel
Six months ended
Wholesale HOG kg
Retail HOG kg
Export HOG kg
Total HOG kg
Wholesale % of revenue
Retail % of revenue
Export % of revenue
Wholesale $/HOG kg
Retail $/HOG kg
Export $/HOG kg
30 Jun
2017
9,071
126.0
13.89
(83.7)
(9.23)
(5.8)
(0.64)
36.5
4.02
29.0%
(12.4)
31 Dec
2016
9,377
133.5
14.24
(101.3)
(10.80)
(5.9)
(0.63)
26.4
2.82
19.8%
31.6
30 Jun
2016
8,175
102.6
12.55
(86.0)
(10.52)
(6.0)
(0.73)
10.7
1.31
10.4%
6.1
31 Dec
2015
12,288
131.1
10.67
(105.3)
(8.57)
(10.1)
(0.82)
15.8
1.29
12.1%
(7.6)
t
$M
$/kg
$M
$/kg
$M
$/kg
$M
$/kg
%
$M
– The recovery in salmon prices that began in late FY2016,
continued to hold through FY2017 supporting the view that
current pricing reflects a return to more normal market dynamics.
– Improved feed performance combined with ideal growing
conditions restored fish stock biomass levels despite the
low starting biomass.
– Average harvest weights improved as a result, and the cost
of production per kg also benefited, reducing by 15% in the
second half.
– Processing efficiencies and lower freight costs also contributed,
resulting in production and freight costs reducing 12% from
$11.25 to $9.87/kg.
* Operating EBITDA excludes the impact of the Fair Value Adjustment
of Biological Assets.
30 Jun
2017
6,053
2,204
814
9,071
69%
23%
8%
14.28
13.17
12.88
31 Dec
2016
6,898
2,104
375
9,377
75%
21%
4%
14.54
13.30
14.02
30 Jun
2016
6,127
886
1,162
8,175
75%
13%
12%
12.64
14.67
10.51
31 Dec
2015
6,517
701
5,070
12,288
57%
8%
35%
11.49
14.10
9.14
t
t
t
t
%
%
%
$/kg
$/kg
$/kg
Distribution Channels by Price and Contribution to Sales
$/HOG kg
15.00
12.00
9.00
6.00
3.00
0.00
18
DEC 14
JUN 15
DEC 15
JUN 16
DEC 16
JUN 17
Wholesale
$/HOG kg
% of sales
Retail
$/HOG kg
% of sales
Export
$/HOG kg
% of sales
100%
80%
60%
40%
20%
0%
– New retail sales contracts that commenced in FY2017 more
than doubled sales into the retail segment from 10% to 22%
providing much greater pricing and production certainty.
– The wholesale market continues to be Huon’s dominant
segment and prices have remained consistent since
late FY2016. We continue to see demand growth in the
domestic channels, driving both retail and wholesale sales.
– Export pricing has historically been weaker than that
achieved in the domestic market however supply constraints
globally saw this discount diminish. As supply pressure
dropped in the first half, Huon increased exports to just
under 10% of production in the second half.
Huon Aquaculture Group Limited Annual Report 2017 Biological Assets
Six months ended
Biological assets at fair value
Fair value adjustment (FVA)
Biological assets (excluding FVA)
Total weight of live finfish at sea
Biological asset value/kg (live)
Fair value adjustment/kg (live)
Biological assets/kg (live) (excluding FVA)
Number of fish (harvest)
Sales volume (HOG kg)
Average HOG weight
Average price/HOG kg (net sales)
Net sales
Fish weight and price
$/HOG kg
15.00
14.00
13.00
12.00
11.00
10.00
DEC 14
JUN 15
DEC 15
JUN 16
DEC 16
JUN 17
Average price/HOG kg
Average weight (kg)
Cash Generation
Six months ended
Operating EBITDA*
Cash flow from operations
Add – net interest paid
– tax paid/(refunded)
Adjusted cash flow from operations
EBITDA conversion
Capex
Cash at end of period
Operational Cash Flow
$M
40.0
30.0
20.0
10.0
0.0
DEC 14
JUN 15
DEC 15
JUN 16
DEC 16
JUN 17
Adjusted Cash Flow from Operations
EDITDA Conversion
30 Jun
2017
188.0
48.5
139.5
16,663
11.28
2.91
8.37
2,037
9,071
4.45
13.89
126.0
31 Dec
2016
190.3
60.9
129.4
17,078
11.14
3.57
7.58
1,936
9,377
4.84
14.24
133.5
30 Jun
2016
147.2
29.4
117.8
12,075
12.19
2.43
9.76
2,047
8,175
3.99
12.55
102.6
31 Dec
2015
135.5
23.3
112.2
14,499
9.35
1.61
7.74
2,390
12,288
5.14
10.67
131.1
$M
$M
$M
t
$/kg
$/kg
$/kg
000’s
t
kg
$/kg
$M
kg
5.50
5.00
4.50
4.00
3.50
3.00
– The $19.2m increase in the Fair Value Adjustment over
FY2017 reflects the higher biomass level and improved pricing
environment and altered channel mix compared to June 2016.
– The fair value of biological assets increased by 28% (over
pcp) to $188.0m while biomass at sea increased by 38%
(over pcp). This reflects the proportion of fish at marketable
size at reporting date having returned to more normal stock
levels and brings the biological assets value per kg to $11.28.
– Average harvest weight recovered strongly in the first half to
4.84kg from 3.99kg (2H2016). The seasonal fall in harvest
weight during the second half is recovering as growth rates
for the 2016 Year Class continue to perform strongly.
– Biological assets per kg (excluding FVA) reduced by 14%
(over pcp) to $8.37, a further indication that production costs
are on a downward trend.
30 Jun
2017
36.5
33.1
1.6
–
34.7
95%
22.3
23.0
31 Dec
2016
26.4
20.9
1.8
–
22.7
86%
12.7
21.0
30 Jun
2016
10.7
(0.9)
1.6
–
0.7
7%
14.3
3.8
31 Dec
2015
15.8
17.2
1.6
(4.4)
14.4
91%
30.2
10.8
$M
$M
$M
$M
$M
%
$M
$M
%
120%
100%
80%
60%
40%
20%
0%
– The uplift in profit together with close management of
working capital resulted in operating cash flow of $54.0m,
up from $16.3m (pcp).
– EBITDA conversion averaged over 90% throughout the year,
continuing to improve in the second half.
– Huon spent $35.0m in capex on the continued expansion
of marine farms in Storm Bay, marine fleet upgrades, and
efficiency projects covering fish monitoring, feeding and
processing facilities.
– Net debt eased and gearing reduced to 15% at year end,
but was positively impacted by the $17.6m Ridley payment
held back (otherwise gearing would be 21%).
* Operating EBITDA excludes the impact of the Fair Value Adjustment of Biological Assets.
19
BOARD OF DIRECTORS
Examining the growout tanks at
the official opening of the Forest
Home recirculation hatchery.
Neil Kearney B.Ec
Chairman
Simon Lester CA, BCom, MAppFinInv
Independent
Non-executive Director
Director since August 2014
Director since August 2014
Neil has significant leadership
experience in major Australian and
international food companies with prior
senior roles at Goodman Fielder Limited
and National Foods Limited. He is a
Non-executive director of Brainwave
Australia, a charity and Non-executive
Chairman of Felton Grimwade Bosisto’s
Pty Ltd.
Neil’s most recent executive role was
Chief Strategy Officer of ASX-listed
company Goodman Fielder Limited
from 2011–2014 and before that he was
Chief Executive Officer and Managing
Director of Warrnambool Cheese &
Butter Factory Co. Holdings Limited
from 2007–2009.
Neil has previously been a Board
member for Warrnambool Cheese &
Butter Factory Co. Holdings Limited
and Colorpak Limited as well as being
a Director of National Foods Holdings
Ltd 2005–2007 and Vitasoy Australia
Products Pty Ltd 1999–2007.
Special Responsibilities
– Independent Non-executive Director
– Member of the Audit and
Risk Management Committee
– Member of the Remuneration and
Nomination Committee
Simon had peviously been an adviser
to Huon and has extensive experience
within the salmon industry.
He has 30 years’ experience in
corporate finance and corporate
tax, having advised the Tasmanian
Government and State owned business
enterprises.
His former roles include Partner at
Deloitte Touche Tohmatsu and PBS
Partners as well as senior management
roles at Price Waterhouse and KPMG.
Simon is currently the Chief Risk
Officer of The Royal Automobile Club
of Tasmania, a Board member of
CatholicCare Tasmania, and a Director
of the Australian Risk Policy Institute
(APRI) Inc.
He is a member of the Financial
Services Institute of Australasia, Institute
of Chartered Accountants in Australia,
the Tax Institute and the Australian Risk
Policy Institute.
Special Responsibilities
– Chairman of the Remuneration
and Nomination Committee
– Member of the Audit and
Risk Management Committee
20
Huon Aquaculture Group Limited Annual Report 2017 Frances Bender
Non-independent
Executive Director
Director since May 2005
Peter Bender
Managing Director and
Chief Executive Director
Director since May 2005
Founder of Huon with over 30 years’
experience in fish farming operations.
Founder of Huon with over 30 years’
experience in fish farming operations.
Frances has been instrumental in the
design of the Huon brand and its
marketing direction and continues to
be responsible for these areas.
Frances is currently a Member of the
New South Wales Primary Industry
Ministerial Advisor Council.
Frances’ former directorships and
committees include Board member
of Tasmanian Aquaculture and
Fisheries Institute, member of the
Huon Valley Economic Development
Advisory Committee, member of Huon
Valley Council Rural Health Advisory
Committee, member of Tasmanian
Food Industry Council and member
of Tasmanian Regional Reference
Group – South.
Peter is responsible for the leadership,
operations and strategic direction of
Huon and has always been committed
to delivering high quality salmon that
is raised responsibly. He sets business
strategy and leads the executive team
to deliver growth.
He is well recognised for farming
innovation both in Australia and
internationally and his extensive
knowledge of aquaculture coupled
with a strong continuous improvement
ethic is the foundation on which Huon’s
success is built.
Peter is a Non-executive Director of
the Tasmanian Salmonid Growers
Association Ltd and Salmon Enterprises
of Tasmania Pty Ltd.
Tony Dynon CPA
Independent
Non-executive Director
Director, appointed 30 August 2016
Tony has extensive leadership
and finance experience gained
largely in food, beverage and
stockfeed businesses with senior
roles in international and ASX-listed
companies.
The majority of Tony’s career was
with international food company
H J Heinz, covering a 20 year period,
including roles for Heinz Australia as
Joint Managing director from 1994 to
1997 and Chief Financial Officer from
1988 to 1994. He was also Managing
Director of Farm Pride Foods Ltd and
Executive Chairman of Palm Springs
Ltd, both ASX listed companies.
More recently Tony has had leadership
roles in privately owned stockfeed
businesses based in Australia, New
Zealand and the UK. Tony was also a
non-executive director for Colorpak Ltd
from 2004 to 2010.
Tony is a member of CPA Australia.
Special Responsibilities
– Chairman of the Audit and
Risk Management Committee
– Member of the Remuneration
and Nomination Committee
21
22
Huon Aquaculture Group Limited Annual Report 2017 DIRECTORS’ REPORT
The Directors of Huon present the annual financial report
of the consolidated entity consisting of the Company
and the entities it controlled (Consolidated Group) for
the financial year ended 30 June 2017.
Directors
Principal Activities
The Directors of the Company during the whole of the
financial year and up to the date of this report are as follows:
– Neil Kearney, Chairman
– Peter Bender, Managing Director and
Chief Executive Officer
– Frances Bender
– Simon Lester
Tony Dynon was appointed as a director on 30 August 2016
and continues in office at the date of this report.
Peter Margin was a director from the beginning of the
financial year until his resignation on 30 August 2016.
The qualification, experiences and special responsibilities
of the Directors are provided on pages 20 to 21.
During the year the principal activities of the Consolidated
Group were hatching, farming, processing, sales and
marketing of Atlantic salmon and ocean trout.
There were no significant changes in the nature of the
activities of the Consolidated Group during the year.
Dividends
There have been no dividends declared or paid during
the year ended 30 June 2017.
On 24 August 2017 the Directors recommended the
payment of a final ordinary dividend of $4.4m (5 cents
per fully paid share) to be paid on 12 October 2017 out
of retained earnings at 30 June 2017. The dividend will
be 50% franked.
Directors’ Interests
Particulars of Directors’ interests as at 30 June 2017 were:
Review of Operations
Shareholdings
Peter Bender(i)
Frances Bender(i)
Neil Kearney
Simon Lester
Tony Dynon
Ordinary
Shares
Performance
Rights
57,691,523
57,691,523
6,316
14,516
–
182,214
–
–
–
–
(i)
Includes direct and indirect interests.
Company Secretary
Thomas Haselgrove B.Ec. CA
Thomas Haselgrove is the Chief Financial Officer and
Company Secretary with 25 years’ experience in audit,
statutory accounting and commerce across a number of
organisations in the food, beverage and FMCG sectors
including Chiquita Brands, Southcorp and Ernst & Young.
Thomas was appointed Company Secretary in 2006.
Information on the operations and financial position of the
Consolidated Group, and the Group’s Controlled Growth
Strategy, Business Strategy and outlook are set out in the
Chairman’s Message on pages 4 to 5 and the Managing
Director’s Review on pages 12 to 16 of this Annual Report.
Changes in State of Affairs
There have been no significant changes in the state of affairs
of the Consolidated Group during the financial year.
Matters Subsequent to the end of the
Financial Year
On 24 August 2017, the Directors of the Company
recommended the payment of a final ordinary dividend
(refer Dividends above). The dividend has not been provided
for in the 30 June 2017 financial statements.
No other matter or circumstance has arisen since 30 June
2017 that has significantly affected the group’s operations,
results or state of affairs, or may do so in future years.
23
Future Developments
Likely developments for the Consolidated Group are
addressed through the Company’s Controlled Growth
Strategy and Business Strategy.
Further information on these developments are
included in the Chairman’s Message and the Managing
Director’s Review.
Directors’ and Directors’ Meetings
The following table sets out the number of Directors’
meetings (including meetings of Committees of Directors)
held during the financial year and the number of meetings
attended by each Director (while they were a Director or
Committee Member).
Board of Directors
meetings
Audit and Risk
Committee meetings
Remuneration and
Nominations Committee
meetings
Number
Held
Number
Attended
Number
Held
Number
Attended
Number
Held
Number
Attended
2
11
11
11
11
10
2
11
11
11
11
10
1
*
*
4
4
3
1
*
*
4
4
3
–
*
*
3
3
3
–
*
*
3
3
3
Director
Peter Margin
Peter Bender
Frances Bender
Neil Kearney
Simon Lester
Tony Dynon
* Not a member of the Committee
The Consolidated Group employs a cross-functional team
to manage compliance within the regulatory framework
and guide a strategy of continuous improvement in
environmental management and sustainability.
Further details regarding the Consolidated Group’s
sustainability and environmental management credentials
and policies are outlined in the Chairman’s Message and
Managing Director’s Review. The Directors are not aware
of any significant environmental incidents arising from the
operations of the Consolidated Group during the financial
year and believe that all regulations have been materially
met during the period covered by the Annual Report.
Share Options and Performance Rights
During or since the end of the financial year, 196,940
performance rights were granted to Directors and Key
Management Personnel. Refer to the remuneration report
for further details of the performance rights granted and
outstanding.
Environmental Regulation
The Consolidated Group is subject to significant regulation
at both State and Commonwealth levels in respect of its
hatchery operations, marine operations, land and use tenure
and environmental requirements. This includes specific
environmental permits, licences and statutory authorisations,
trade and export and workplace health and safety.
The Consolidated Group has well established management
frameworks for routinely and regularly monitoring
compliance with the relevant regulatory requirements and to
monitor and manage environmental compliance in relation
to new regulations as they come into effect. Compliance
within the regulatory framework is routinely reported to
the Board.
24
Directors’ Report (continued)Huon Aquaculture Group Limited Annual Report 2017 REMUNERATION REPORT
Introduction
This Remuneration Report for the financial year ended
30 June 2017 outlines the Company’s remuneration
structure in accordance with the requirements of the
Corporations Act 2001 (Cth) (the Act), and the Corporations
Regulations 2001 (Cth). This report provides remuneration
information in relation to the Company’s Key Management
Personnel (KMP) including for the Executive Directors, the
Managing Director (who is also the Chief Executive Officer
(CEO)), the Non-executive Directors (NEDs), the Deputy
Chief Executive Officer (DCEO) and the Chief Financial
Officer (CFO) (who is also the Company Secretary). KMP
are those persons having authority and responsibility for
planning, directing and controlling the activities of the
Company, directly or indirectly, including any director
(whether executive or otherwise) of the Company. This
Remuneration Report has been audited as required by
section 308(3C) of the Act.
Key Management Personnel (KMP)
The table below outlines the KMP for the financial year
ended 30 June 2017 unless otherwise indicated.
Executive Directors
– Peter Bender (Managing Director and
Chief Executive Officer)
– Frances Bender (Executive Director)
Non-executive Directors
– Peter Margin (Chairman and Non-executive Director)
(Retired 30 August 2016)
– Neil Kearney (Chairman and Non-executive Director)
– Simon Lester (Non-executive Director)
– Tony Dynon (Non-executive Director)
(Appointed 30 August 2016)
Senior Management
– Philip Wiese (Deputy Chief Executive Officer)
– Thomas Haselgrove (Chief Financial Officer
and Company Secretary)
Remuneration Governance
Huon’s remuneration framework, policies and practices
are designed to create value for shareholders by ensuring
the Company attracts, rewards and retains employees
responsibly and fairly, with a focus on business outcomes,
individual performance, the organisation’s risk management
framework, and applicable regulations. Remuneration
Policy is reviewed annually. Further information on the
Company’s Remuneration Policy can be viewed on the
Company website.
Remuneration and Nomination Committee (RNC)
The Remuneration and Nomination Committee (RNC)
comprises of three independent NEDs (including the
Chairman). As at 30 June 2017 the RNC comprised Simon
Lester (Chairman), Neil Kearney and Tony Dynon.
The RNC has the responsibility for delivering remuneration
recommendations to the Board to ensure that the Company
is adopting appropriate and coherent remuneration
policies that will attract, motivate and retain qualified and
experienced KMP of the highest calibre.
The Board reviews and, where appropriate, approves the
remuneration arrangements of the KMP after considering
the recommendations of the RNC (including awards made
under the short term incentive (STI) plans and long term
incentive (LTI) plans). The Board also sets the combined
remuneration pool for NEDs which is subject to shareholder
approval. The RNC approves the level of the Consolidated
Group’s STI plan pool, having regard to recommendations
made by the CEO. The RNC meets throughout the year and
the CEO and/or DCEO attends these meetings (by invitation
only) when management input is required. The CEO is not
present during discussions relating to his own remuneration.
The RNC reviews the performance of KMP and reviews the
assessment processes to ensure alignment of assessments
towards the execution of the Company’s strategy. The RNC’s
Charter can be viewed on the Company website.
Use Remuneration Consultants
The Board directly engage external advisers to provide
input into the Company’s remuneration policies and into the
process of reviewing KMP remuneration arrangements. No
advice was sought or provided by external advisers during
the financial year ended 30 June 2017.
Securities Trading Policy
A Securities Trading Policy is in place to ensure that employees
understand their obligation in relation to dealing in Huon
shares. Huon Directors and all employees must comply with
the insider trading prohibitions of the Corporations Act 2001.
The policy imposes share trading blackouts on Directors and
Restricted Employees prior to financial results announcements
and other times as required. In addition, Directors and
Restricted Employees with potential access to inside
information are required to seek approval before dealing in
Huon shares. The policy also restricts employees from entering
into transactions which limit their economic risks, including in
relation to the long term incentive (LTI) plans. The Securities
Trading Policy can be viewed on the Company website.
KMP Remuneration Arrangements –
Executive Directors and Senior Management
The following information relates to the remuneration
arrangements for the Executive Directors and Senior
Management KMP. The NEDs remuneration structure is a
separate and distinct framework in accordance with best
practice corporate governance and is detailed in a separate
section of this Remuneration Report.
Remuneration Principles and Strategy (RPS)
Huon’s Remuneration Strategy is designed to attract, motivate
and retain qualified and experienced KMP and align the
interests of KMP with Huon’s shareholders. Huon’s objective
is to build long-term shareholder value by continuing to
be a recognised leader in the aquaculture industry though
sustained growth and continuous improvement as a
Tasmanian producer of world class salmon. Huon sees the
retention of KMP as crucial to achieving this objective.
In the event of serious misconduct or a material
misstatement in the Company’s financial statements the
Remuneration Committee can cancel or defer performance
based remuneration and may also claw back performance-
based remuneration paid in previous financial years.
25
Components of Remuneration
In the financial year ended 30 June 2017, the KMP remuneration structure comprised of market competitive fixed and variable
remuneration including STI and LTI plans as detailed in the following table:
Component
Performance Measures
Fixed remuneration
includes base salary,
superannuation
contributions, long service
and annual leave and
other benefits
STI Cash bonus
Multiple sources of data used to
determine annual changes in fixed
remuneration including competitive
market data and each individuals
performance and contribution
during the year
– Operating earnings (earnings
excluding adjustments for
biological assets) before
interest, tax, depreciation and
amortisation (50%)
– Cash flow from operations (30%)
– Lost time injury frequency
rate (20%)
Weighting as
% of TFR
N/A
Link to Performance
Consolidated Group performance
as well as individual performance
are considered during the annual
remuneration review of fixed
remuneration
– DCEO
Target = 40%
– CFO
Target = 30%
To provide short term incentive
for employee to remain in the
Company and to recognise and
reward contribution to short-term
Company outcomes
LTI Performance Rights
– Earnings (earnings excluding
– MD/CEO
adjustments for biological assets)
per share growth (50%)
– Return on assets (50%)
Target = 100%
– DCEO
Target = 40%
– CFO
Target = 30%
The LTI plan provides a reward
to KMP for their contribution to
the achievement of forecasted
FY objectives and long term
shareholder value. The LTI plan also
rewards KMP for their continued
service with the Company and seeks
to retain KMP in the long-term.
Remuneration Overview
Huon aims to attract, motivate and retain qualified and experienced KMP by aligning KMP interests with those of shareholders and
by providing reward through market competitive fixed and variable remuneration. The proportion of fixed and variable remuneration
is established for KMP by Board approval following recommendations from the RNC.
The following summarises the target remuneration mix of KMP for the financial year ended 30 June 2016 and 2017:
Chief Executive Officer
Executive Director
Deputy Chief Executive Officer
Chief Financial Officer
Fixed
50%
100%
56%
62%
Target STI
Target LTI
Total %
–
–
22%
19%
50%
–
22%
19%
100%
100%
100%
100%
The percentages in this table are based on a split of fixed remuneration and incentives for achieving STI and LTI plan targets as
determined by the Board.
26
Directors’ Report / Remuneration Report (continued)Huon Aquaculture Group Limited Annual Report 2017 Fixed Remuneration
Fixed Remuneration (TFR) includes base salary, superannuation contributions, long service and annual leave and other benefits.
Remuneration levels are reviewed annually to ensure KMP are offered market competitive fixed remuneration that reflects the
responsibility, qualifications and experience required of the KMP.
There are a range of fringe benefits which KMP can incorporate into the total cost of their remuneration package. These fringe
benefits may include, but are not limited to, motor vehicles and car parking. Whatever the cash component and fringe benefit value,
the total employment cost of any KMP remuneration package is taken into account when determining fixed annual remuneration
for KMP.
Details of 2016 and 2017 fixed remuneration levels are provided below:
KMP
Peter Bender
Frances Bender
Philip Wiese
Thomas Haselgrove
Fixed remuneration
2017
$
609,017
215,066
432,004
312,713
2016
$
516,246
188,573
380,770
295,996
Variable Remuneration – STI Plan
KMP except for the CEO and Executive Director are eligible to participate in Huon’s STI plan. Huon’s annual STI plan is designed to
recognise the contribution and achievement of financial and operational targets as determined by the Board and CEO. The target
annual STI that may be awarded to KMP is expressed as a percentage of their respective TFR.
Key Features of STI Plan
Who participates?
How is STI plan
delivered?
What is the STI plan
opportunity?
What are the
performance conditions
for FY2017?
Why the financial
measures were chosen?
How is performance
assessed?
What happens if KMP
leave?
KMP (Except for the CEO and Executive Director)
Payment of cash incentive.
Payment will be made subject to Board discretion and subject to performance targets being met.
An opportunity for KMP (except CEO and Executive Director) to earn an annual incentive payment
calculated as a percentage of their annual fixed remuneration conditional on the achievement
of financial and non-financial measures. Target STI maximum opportunity of 40% of fixed
remuneration for the DCEO and maximum opportunity of 30% of fixed remuneration for the CFO.
Actual STI plan payments awarded to each member of KMP depend on the extent to which
specific targets set at the beginning of the financial year are met. The CEO and Executive
Director do not participate in the STI Plan. The target consists of key performance indicators
(KPIs) including financial objectives. For FY2017 the performance measures under the STI plan
were as follows:
– Operating earnings (earnings excluding adjustment for biological assets) before interest, tax,
depreciation and amortisation
– Cashflow from operations
– Lost time injury frequency rate
The financial and operational measures were chosen as they represent the key drivers for the
short term success of Huon’s business and provide a framework for delivery of long term value
to shareholders from Huon’s strategy.
The RNC considers the performance against financial and operational targets at the end of the
financial year (with the financial targets verified by the auditors) and makes recommendations to
the Board for the amount, if any, to be paid to the KMP.
Where cessation of employment occurs, the Board may determine the treatment of any award
that has been granted to KMP in accordance with Plan Rules which may include forfeiture.
The Board has discretion to award an STI plan amount on a pro-rata basis taking into account
time and current level of performance of the KMP against the performance hurdles.
The following table represents the target annual STI opportunity as a percentage of TFR for KMP in 2016 and 2017.
KMP
Philip Wiese
Thomas Haselgrove
STI value
as % of
TFR 2017
40%
30%
STI value
as % of
TFR 2016
40%
30%
27
Variable Remuneration – LTI Plan
Huon’s LTI plan applies to KMP (except for the Executive Director) and is designed to align remuneration with long term shareholder
value and assist in the motivation, retention and reward of KMP. The RNC reviews all LTI plan offers made to KMP. Shareholder
approval is obtained before any LTI plan grants are made to the CEO in accordance with ASX Listing Rules.
Key Features of the LTI Plan
Who participates?
How is the LTI plan
delivered?
What are the
performance hurdles
under the FY2017 LTI
performance rights
grant?
When do the FY2017 LTI
plan performance rights
vest?
How are grants treated
on termination?
How are grants treated
if a change of control
occurs?
Do participants receive
distributions or dividends
on unvested LTI grants?
KMP (except for the Executive Director)
Granting of performance rights to KMP. These rights provide the KMP with the ability to convert
the rights to ordinary shares of the Group upon meeting the performance conditions.
Performance rights issued under the FY2017 LTI Plan are subject to two separate performance
measures:
– 50% of the performance rights will be subject to a vesting condition based on EPS CAGR
(earnings per share compound annual growth rate) over the performance period; and
– 50% of the performance rights will be subject to a vesting condition based on Return on
Assets (ROA) over the performance period.
Both performance hurdles have threshold levels which need to be achieved before vesting
commences. Details of these hurdles and thresholds are outlined in the following section.
The performance rights granted will vest in two equal tranches over three years with each
tranche subject to the performance hurdles associated with the grant. The performance rights
allocated in each tranche will vest on the applicable Vesting Date to the extent that certain
performance based conditions are achieved in the relevant performance period.
Tranche
Performance Period
1 July 2016 – 30 June 2018
1 July 2016 – 30 June 2019
– Tranche 1
– Tranche 2
Performance rights that have vested may be exercised until the applicable expiry date. If any
shares are issued following exercise of a vested performance right prior to the applicable expiry
date then they may not be sold or transferred before 1 July 2019.
Where cessation of a KMP’s employment occurs, any unvested LTI plan performance rights
(or vested and unexercised performance rights) are forfeited, unless deemed otherwise by the
Board.
For any other reason, the Board may at its discretion retain a pro-rated (based on time) portion
of awards on-foot and subject to original performance hurdles.
In the event of a change of control, the performance rights may vest at the Board’s discretion.
In determining whether to exercise its discretion, the Board will have regard to all relevant
circumstances, including the level of satisfaction of the performance conditions over the
performance period from the grant date to the date of the relevant change in control event.
If a company obtains control of the Company as a result of a takeover bid or another corporate
action, the company acquiring control (Acquiring Company) and the KMPs may agree together
that on the vesting of performance rights, the KMP receive shares in the Acquiring Company in
lieu of shares in the Company, on substantially the same terms as before.
Participants do not receive distribution or dividends on unvested LTI plan grants.
The following table represents the annual LTI allocation as a percentage of TFR for KMP in 2016 and 2017:
LTI value
as % of
2017
100%
40%
30%
LTI value
as % of
TFR 2016
100%
40%
30%
KMP
Peter Bender
Philip Wiese
Thomas Haselgrove
28
Directors’ Report / Remuneration Report (continued)Huon Aquaculture Group Limited Annual Report 2017 2017 LTI Plan Hurdles explained
Performance rights issued under the 2017 LTI Plan are subject to two separate performance measures: 50 percent of the
performance rights will be subject to an EPS CAGR vesting condition; and 50 percent will be subject to a ROA vesting condition.
These performance hurdles were chosen by the Board as they believe both EPS CAGR and ROA are transparent, well understood
and appropriate mechanisms to measure performance and provide a strong link between KMP reward and shareholder wealth
creation. Both hurdles are explained in more detail below:
EPS compound annual growth rate (‘CAGR’)
Less than 7.5% CAGR
7.5% CAGR
Above 7.5% CAGR but below 10% CAGR
10% CAGR or greater
Vesting outcome
Nil
50%
Pro-rata from 50-99%
100%
The relationship between earnings and the number of shares issued is calculated as the net profit after income tax (NPAT) (excluding
adjustment for biological assets) divided by the weighted average number of ordinary shares on issue. Compared to an absolute
profit measure, EPS takes into account changes in the equity base and for this reason it is preferred to other profit based metrics.
ROA (return for the reporting period)
Less than 10% return
10% return
Above 10% return but below 15% return
15% return or greater
Vesting outcome
Nil
50%
Pro-rata from 50-99%
100%
The Return on Assets is calculated as statutory earnings before interest and tax (excluding adjustment for biological assets), divided
by total assets excluding cash and fair value adjustment on biological assets (average of opening and closing balance). ROA is
an appropriate measure for asset intensive industries which reinforces the need to invest capital on projects with a superior return.
KMP Remuneration Outcomes (Including Link to Performance)
Huon’s Financial and Operational Performance
Performance measure
Unit
2017
Operating earnings before interest, tax,
depreciation and amortisation (EBITDA)
Cash flow from operations (CF)
Lost Time Injury Frequency Rate (LTIFR)(i)
Earnings per share (EPS) (Operating)(ii)
Return on Assets (ROA) (Operating)(iii)
Dividend
Dividend payout ratio
Share price (30 June)
$m
$m
hours/million
Cents
%
$m
%
$
62.8
54.0
3
32.90
9.9%
–
–
4.93
2016
26.5
16.3
7
5.13
2.3%
–
–
3.50
2015
2014
40.5
17.3
27
25.64
10.3%
0.8
4.8%
3.40
54.7
42.9
20
50.26
24.8%
–
–
–
(i)
(ii)
Long term injury frequency rate is the number of lost time injuries within a given year relative to the total number of hours worked in the same period
multiplied by 1 million.
The relationship between earnings and the number of shares issued is calculated as the net profit after income tax (NPAT) (excluding adjustment for
biological assets) divided by the weighted average number of ordinary shares on issue.
(iii) The Return on Assets is calculated as statutory earnings before interest and tax (excluding adjustment for biological assets), divided by total assets excluding
cash and fair value adjustment on biological assets (average of opening and closing balance).
29
Consolidated Group performance and its link to STI
The following table outlines the Company’s 2017 STI performance scorecard measures, weightings and outcomes as applied to
the KMP.
Performance against STI plan targets
Performance Measures
Description
Weighting
Outcome
Comment
Operating earnings
before interest,
tax, depreciation
and amortisation
(Operating EBITDA)
Cash flow from
operation (CF)
Statutory EBITDA excluding
adjustment for biological
assets.
Statutory cashflow from
operations.
Lost time injury
frequency rate (LTIFR)
Lost time injury frequency rates
are the number of lost time
injuries within a given year
relative to the total number
of hours worked in the same
period multiplied by 1 million.
50%
30%
20%
Target
achieved
Target
achieved
Target
achieved
Operating EBITDA is seen as a
good guide of the current trading
performance of the Company as it is
the profitability adjusted for finance
cost and reinvestment in assets
Cashflow from operations is an
important driver of flexibility for the
Company to continue to develop its
farming systems and to capitalise on
opportunities in the market.
Staff are a key asset to Huon and
as such their safety is paramount.
A reduction in LTIFR is a key part
of the safety program.
STI Outcomes for KMP for 2017
The following table provides a summary of STI outcomes and payments for the 2017 performance year.
KMP
Philip Wiese
Thomas Haselgrove
KMP 2017 LTI Grants
STI target
$
144,976
78,351
Target
STI as %
of TFR
40%
30%
Total STI
achieved
$
144,976
78,351
Total STI
forfeited
$
–
–
Total STI
achieved
as % of
STI target
100%
100%
LTI outcomes for KMP for 2017 – Performance against Tranche 2 LTI plan targets
The following table shows the performance of Tranche 2 FY2016 performance rights against the targets.
Performance Measures
Description
Weighting
Outcome
% Vested
EPS compound annual growth
rate
ROA
Earnings per share growth
Return on Assets
50%
50%
Less than 7.5% CAGR
Less than 10% ROA
0%
0%
LTI outcomes for KMP for 2017
Details of the awards made to KMP as part of the LTI performance rights grant are provided in the following tables:
Grant date
30 Nov 2016
30 Nov 2016
30 Nov 2016
Units
granted
134,380
40,612
21,948
Fair value
$
Total fair value
of grant 2017
$
3.71
3.71
3.71
498,550
150,671
81,427
KMP – Performance rights granted
Peter Bender
Philip Wiese
Thomas Haselgrove
30
Directors’ Report / Remuneration Report (continued)Huon Aquaculture Group Limited Annual Report 2017 KMP – Performance rights held
Name
Grant Date
Peter Bender
– 25 November 2015
– 30 November 2016
Philip Wiese
– 19 October 2015
– 30 November 2016
Thomas Haselgrove
– 19 October 2015
– 30 November 2016
KMP Contracts
Balance
at Start
of Year
95,668
–
28,956
–
15,647
–
Granted
During
Year
–
134,380
–
40,612
–
21,948
Forfeited
Vested
(47,834)
–
(14,478)
–
(7,823)
–
–
–
–
–
–
–
Balance
at End
of Year
47,834
134,380
14,478
40,612
7,824
21,948
Remuneration arrangements for KMP (excluding NEDs) are formalised in employment agreements. The following section of this
Remuneration Report outlines key contractual details for Executives and KMP.
Managing Director (MD) and CEO
The MD and CEO (the CEO) is employed under an ongoing contract which can be terminated with notice by either the Company
or the CEO. Under the terms of the present contract, the CEO receives fixed remuneration of $479,716 p.a. plus superannuation
and access to the LTI plans. Termination provisions are as follows:
Resignation
Termination for cause
Notice Period
and/or
Notice in Lieu
12 months
None
Restraint
Period
3 months
3 months
Nil
Nil
Treatment
of STI
Treatment
of LTI
Termination in cases of death, disablement,
redundancy or notice without cause
12 months
3 months
Nil
Unvested awards forfeited
Unvested awards forfeited
Vested and unexercised
awards forfeited
Pro-rated for time and
remain on-foot subject
to original performance
hurdles
Executive Director (ED)
The Executive Director (ED) is employed under an ongoing contract which can be terminated with notice by either the Company or
the ED. Under the terms of the present contract the ED receives fixed remuneration of $155,875 p.a. plus superannuation. The ED
may be entitled to receive incentive payments or additional benefits (such as performance rights under the Long Term Incentive Plan
in the future, subject to law and compliance with Listing Rules). Termination provisions are as follows:
Resignation
Termination for cause
Termination in cases of death, disablement,
redundancy or notice without cause
Notice Period
and/or
Notice in Lieu
12 months
None
Restraint
Period
3 months
3 months
12 months
3 months
Treatment
of STI
Treatment
of LTI
Nil
Nil
Nil
Nil
Nil
Nil
31
Deputy Chief Executive Officer (DCEO)
The Deputy Chief Executive Officer (DCEO) is employed under an ongoing contract which can be terminated with notice by either
the Company or the DCEO. Under the terms of the present contract the DCEO receives fixed remuneration of $362,439 p.a. plus
superannuation. The DCEO’s target STI plan maximum opportunity is 40% of fixed remuneration. The DCEO’s target LTI plan
maximum opportunity is 40% of fixed remuneration. Termination provisions are as follows:
Notice Period
and/or
Notice in Lieu
Restraint
Period
Treatment
of STI
Resignation
3 months
3 months
Termination for cause
None
3 months
Vested and unexercised awards forfeited
Termination in cases of death, disablement,
redundancy or notice without cause
3 months
3 months
Unvested awards
forfeited
Unvested awards
forfeited
Pro-rated for time
and performance
Treatment
of LTI
Unvested awards
forfeited
Unvested awards
forfeited
Pro-rated for time
and remain on-foot
subject to original
performance
hurdles
Chief Financial Officer (CFO)
The Chief Financial Officer (CFO) is employed under an ongoing contract which can be terminated with notice by either the Company
or the CFO. Under the terms of the present contract the CFO receives fixed remuneration of $261,171 p.a. plus superannuation.
The CFO’s target STI maximum opportunity is 30% of fixed remuneration. The CFO’s target LTI maximum opportunity is 30% of
fixed remuneration. Termination provisions are as follows:
Notice Period
and/or
Notice in Lieu
Restraint
Period
Treatment
of STI
Resignation
3 months
3 months
Termination for cause
None
3 months
Vested and unexercised awards forfeited
Termination in cases of death, disablement,
redundancy or notice without cause
3 months
3 months
Unvested awards
forfeited
Unvested awards
forfeited
Pro-rated for time
and performance
Treatment
of LTI
Unvested awards
forfeited
Unvested awards
forfeited
Pro-rated for time
and remain on-foot
subject to original
performance
hurdles
32
Directors’ Report / Remuneration Report (continued)Huon Aquaculture Group Limited Annual Report 2017
KMP Remuneration for the Financial Year ended 30 June 2017
The following table of KMP remuneration has been prepared in accordance with accounting standards and the Corporations Act
2001 requirements. The amounts shown relating to share based remuneration are equal to the accounting expense recognised in
the Company’s financial statements in respect of the LTI grants to KMP. The amounts disclosed do not reflect the actual cash amount
received in this year or in future years.
Fixed Remuneration
Variable
Remuneration
Long Service
and Annual
Leave
$
Other
$
Super-
annuation
$
Cash
Bonus
$
Performance
Rights(i)
$
Performance
related
%
Total
$
Salary
and Fees
$
Non-
Monetary
$
Year
Executive Directors
Managing Director and CEO Peter Bender
493,035
2017
2016
461,265
Executive Director Frances Bender
155,644
2017
149,880
2016
10,184
15,859
–
7,875
Key Management Personnel
362,677
348,499
Deputy CEO Philip Wiese
2017
2016
Chief Financial Officer Thomas Haselgrove
2017
2016
200,205
217,965
60,580
44,980
–
–
Total
2017
2016
1,211,561
1,177,609
70,764
68,714
–
–
–
–
–
–
–
–
–
–
74,034
(4,699)
31,764
43,820
25,172
(2,477)
34,250
33,295
–
–
–
–
122,865
112,729
731,882
628,974
–
–
215,066
188,573
39,951
(836)
29,376
33,107
144,976
27,884
37,172
33,866
614,152
442,520
25,722
8,072
26,206
24,979
78,351
15,068
20,090
18,300
411,154
329,364
164,879
60
121,596
135,201
223,327
42,952
180,127 1,972,254
164,895 1,424,536
(i) Amounts recognised for Performance Rights relate to the expense recognised for the period.
17%
18%
–
–
30%
14%
24%
10%
20%
15%
33
Non-executive Director (NED) Remuneration
The RNC seeks to set a combined remuneration level that provides the Company with the capability to attract and retain NEDs of
the highest calibre and meets acceptable costing levels for shareholders.
The combined remuneration level sought to be approved by shareholders and the NED fee structure will be reviewed annually
against fees paid to NEDs from equivalent companies (S&P ASX 200 listed companies with market capitalisation of 50% to 200%
of the Company as well as similar sized industry comparators). The RNC may also take advice from independent remuneration
consultants when undertaking the annual review process.
The Company’s Constitution stipulates that Executive Directors shall determine the total amount paid to each NED as remuneration
for their services to the Company. Under the ASX Listing Rules, the total amount of fees paid to NEDs must not, in any financial year,
exceed the amount determined by the Company in a general meeting or until so determined by the Board. This amount has been
determined by the Board to be $800,000.
NEDs receive a Board fee and fees for chairing or participating on Board Committees (refer table below). NEDs do not receive
remuneration that is calculated as a commission or a percentage of operating revenue or profits. Superannuation is included in all
NED remuneration. NEDs do not participate in any incentive programs.
From
1 September
2016
$
From
1 August
2014
$
160,000
70,000
160,000
70,000
20,000
10,000
20,000
10,000
20,000
–
20,000
–
Base fee
Chair (no other fees receivable)
Other non-executive directors
Additional fees
Audit and Risk Management Committee – Chair
Audit and Risk Management Committee – member
Remuneration and Nomination Committee – Chair
Remuneration and Nomination Committee – member
Non-executive Directors
– Peter Margin (Chairman and Non-executive Director) (Retired 30 August 2016)
– Neil Kearney (Chairman and Non-executive Director)
– Simon Lester (Non-executive Director)
– Tony Dynon (Non-executive Director) (Appointed 30 August 2016)
The table below shows the actual NED remuneration for FY2017.
Peter Margin (Chairman)
Neil Kearney (Chairman)
Simon Lester
Tony Dynon
Total Non-executive Director remuneration
Base
$
21,020
132,131
61,758
51,104
266,013
ARC
$
–
3,333
8,333
16,667
28,333
RNC
$
3,333
–
16,667
8,333
28,333
The table below shows the actual NED remuneration for FY2016.
Peter Margin (Chairman)
Neil Kearney
Simon Lester
Total Non-executive Director remuneration
Base
$
126,519
62,417
58,673
247,609
ARC
$
–
20,000
–
20,000
RNC
$
20,000
–
–
20,000
Super
annuation
$
2,314
12,869
8,242
7,230
30,655
Super
annuation
$
13,919
7,830
11,519
33,268
Total
$
26,667
148,333
95,000
83,334
353,334
Total
$
160,438
90,247
70,192
320,877
34
Directors’ Report / Remuneration Report (continued)Huon Aquaculture Group Limited Annual Report 2017 Director and KMP Shareholdings
The table below refers to direct shareholdings only.
Peter Margin (Chairman)
Neil Kearney
Simon Lester
Peter Bender
Frances Bender
Philip Wiese
Thomas Haselgrove
Balance
at start of
FY2017
$
Acquired
during
FY2017
$
Other
changes
during
FY2017
$
Balance
at end of
FY2017
$
–
–
–
14,848,477
5,794
210
15,000
–
–
–
–
–
–
–
–
–
–
(1,750,000)
–
–
–
–
–
–
13,098,477
5,794
210
15,000
Loans to KMP and their Related Parties
The Company has not issued any loans to its Directors or KMP or their related parties.
Other Transactions and Balances with KMP and their Related Parties
Related Entity Name
Relevant KMP
Nature of transaction
James Bender Contracting Pty Ltd (JBC)*
PAB Contracting Pty Ltd (PAB)*
Peter, Frances Bender
Peter, Frances Bender
Lease of equipment to Huon
Lease of equipment to Huon
* Based on commercial terms.
Amount transacted
during the financial
year period
$
258,055
98,182
35
Indemnification of Directors, Officers and Auditors
The Company indemnifies current and former Directors and officers for any loss arising from any claim by reason of any wrongful
act committed by them in their capacity as a director or officer (subject to certain exclusions as required by law). During the 2017
financial year, Huon paid a total of $51,164 in premiums for Directors and Officers Liability insurance. The Company has not
otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify
an officer or auditor of the Company or of any related body corporate against a liability incurred as such by an officer or auditor.
Auditor’s Independence Declaration
There were no former partners or directors of PricewaterhouseCoopers, the Company’s auditor, who are or were at any time during
the financial year an officer of the Company.
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page
35 and forms part of this Directors’ Report.
Non-Audit Services
The Company may decide to employ the auditor for assignments additional to their statutory audit duties where the auditor’s
expertise and experience with the Company and/or the Consolidated Group are important.
During the year the following fees were paid or payable for non-audit services provided by the auditor (PricewaterhouseCoopers
Australia), its related practices and non-related audit firms are set out below:
PricewaterhouseCoopers Australia
Audit and other assurance services
Audit and review of financial statements
Other assurance services - Audit of grant acquittal
Total remuneration for audit services
Taxation & other advisory services
Taxation & other advisory services
Other advisory services
Total remuneration for taxation & other advisory services
Total remuneration of PricewaterhouseCoopers Australia
Consolidated
2017
$
Consolidated
2016
$
240,000
–
240,000
240,000
–
240,000
96,900
3,000
99,900
5,100
5,142
10,242
339,900
250,242
The Board of Directors has considered the position and, in accordance with advice received from the audit Committee, is satisfied
that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the
Corporations Act 2001.
The Directors are satisfied that the provision of non-audit services by the auditor, as set out above, did not compromise the auditor
independence requirements of the Corporations Act 2001 for the following reasons:
(i) All non-audit services have been reviewed by the Audit Committee to ensure they do not impact the impartiality and objectivity
of the auditor.
(ii) None of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics
for Professional Accountants.
36
Directors’ Report (continued)Huon Aquaculture Group Limited Annual Report 2017 Proceedings on Behalf of the Company
There were no proceedings brought, or intervened in, on behalf of the Company with
leave under section 237 of the Corporations Act 2001.
Rounding of Amounts
The Company is of a kind referred to in ASIC Corporations Instrument 2016/191,
issued by the Australian Securities and Investments Commission, relating to the
‘rounding off’ of amounts in the directors’ report and financial report. Amounts in the
directors’ report and financial report have been rounded off to the nearest thousand
dollars in accordance with that Class Order, or in certain cases, to the nearest dollar.
This report is made in accordance with a resolution of Directors.
Neil Kearney
Chairman
Date: 24 August 2017
Peter Bender
Managing Director and CEO
Date: 24 August 2017
37
Auditor’s Independence Declaration
As lead auditor for the audit of Huon Aquaculture Group Limited for the year ended 30 June 2017, I
declare that to the best of my knowledge and belief, there have been:
(a)
(b)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Huon Aquaculture Group Limited and the entities it controlled during
the period.
Daniel Rosenberg
Partner
PricewaterhouseCoopers
Melbourne
24 August 2017
PricewaterhouseCoopers, ABN 52 780 433 757
2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001
T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
38
Huon Aquaculture Group Limited Annual Report 2017
CORPORATE GOVERNANCE STATEMENT
The Board of Directors (Board) of Huon Aquaculture
Group Limited (Huon) is responsible for the corporate
governance of the Company. The Board guides and
monitors the business and affairs of the Company
on behalf of the shareholders. Strong corporate
governance is an important aspect in ensuring that
Huon creates sustainable long-term value for its
shareholders.
Huon is committed to ensuring high standards of
corporate governance. This statement outlines the key
aspects of Huon’s governance framework and its principal
governance practices.
The Board believes that Huon’s policies and practices
comply in all material respects with the ASX Corporate
Governance Council’s Corporate Governance Principles
(3rd Edition) (ASX Principles and Recommendations) with
the exception of Recommendation 7.3 (Internal Audit
function) as detailed in this Statement.
This Corporate Governance Statement was approved by
the Board and is current as at 24 August 2017.
Further information about Huon’s corporate governance
practices and policies can be found on the Company’s
website.
Principle 1:
Lay solid foundations for management
and oversight
Role of Board and Management
The Board represents shareholders’ interests and is
accountable for the overall operation and stewardship of
the Company and, in particular, for its long-term growth
and profitability. The Board is responsible for evaluating
and setting the strategic direction of the Company,
establishing goals for management and monitoring the
achievement of these goals.
Huon’s Board Charter sets out the Board’s key
responsibilities as follows:
Strategy
– providing input to, and approval of, the Company’s
strategic direction and budgets as developed by
management;
– directing, monitoring and assessing the Company’s
performance against strategic and business plans;
– reviewing the adequacy of resources for management
to properly carry out approved strategies and business
plans; and
– approving and monitoring capital management and
major capital expenditure, acquisitions and divestments.
Risk management and reporting
– identifying the principal risks and overseeing appropriate
control and management systems for them;
– reviewing and ratifying the Company’s system of risk
management and internal compliance and control;
– determining that satisfactory arrangements are in place
for auditing the Company’s financial affairs; and
– approving and monitoring material internal and external
financial and other reporting.
Relationship with management
– appointment and removal of the Chief Executive Officer
(CEO) and Company Secretary;
– approving the remuneration framework and
overseeing remuneration policies and senior executive
performance; and
– establishing and monitoring executive succession
planning.
Monitoring of performance
– approving criteria for assessing performance of
Senior Executives and monitoring and evaluating their
performance; and
– undertaking an annual evaluation of the performance
of the Board.
Corporate governance
The Board is responsible for ensuring that policies and
compliance systems are in place consistent with the
Company’s objectives and best practice and that the
Company and its employees act legally, ethically and
responsibly on all matters.
The Board has adopted a Delegated Authority Policy which
outlines the reserved and delegated responsibilities of the
Board and the responsibilities of the Senior Executive when
delegated authority. The CEO and Senior Executives are
responsible for matters primarily relating to the day-to-day
operations and management of the Company and are
accountable to the Board.
The Board’s role and the Company’s corporate governance
practices and policies are being continually reviewed and
improved as the business grows and develops.
Board appointments
The responsibility for the selection of potential Directors lies
with the Board of the Company. Appropriate background
and other checks are undertaken before candidates
are considered and appointed by the Board. Directors
are initially appointed by the Board subject to election
by shareholders at the next Annual General Meeting.
Shareholders are provided with all material information
on whether or not to elect or re-elect a person as a
Director including whether the person will qualify as an
independent Director.
Under the Company’s Constitution the tenure of Directors
is subject to reappointment by shareholders not later than
the third anniversary following his/her appointment.
Written agreements with Directors and
Senior Executives
Directors have a formal letter of appointment that sets
out the key terms and conditions of their appointment.
All Directors also sign a Deed which covers issues including
indemnity, directors’ and officers’ liability insurance, the
right to obtain independent advice and requirements
concerning confidential information. Senior Executives are
also engaged under a written agreement setting out the
terms of their employment.
39
Company Secretary
The Company Secretary is accountable to the Board,
through the Chairman of the Board, on all matters to
do with the proper functioning of the Board and Board
Committees. This includes:
– Board agendas
– Board papers and minutes
– advising the Board and its Committees on governance
matters
Progress with diversity objectives
There has been steady progress towards achieving the
diversity objectives with systems and structured programs
in place to support employees from early career stages in
developing the necessary skills and relevant experience
for leadership roles.
Progress for this reporting period is as follows:
– Huon’s Flexible Work Practices Policy has been
implemented by the Company
– monitoring the implementation of Board and Committee
– Data specific to gender split is included in the Company’s
policies and procedures; and
Sustainability Dashboard
– statutory and other filings and communication with
– Huon’s Board includes an industry prominent and well
regulatory bodies and the ASX.
Diversity policy
In 2014, Huon’s Board endorsed its Diversity Policy.
The Diversity Policy reflects the Company’s approach to
managing its greatest asset, its people.
Huon is recognised as an Employer of Choice by the
Tasmanian Government in acknowledgement of the highly
innovative working culture, opportunities for career growth
and the family culture within the workforce.
Huon’s workforce is made up of many individuals with
diverse skills, values, experiences and backgrounds and
the Company is committed to supporting and further
developing this diversity through attracting, recruiting,
engaging and retaining diverse talent and aligning its
culture and systems with this commitment.
The Company believes that commitment to diversity
creates competitive advantage and enhances employee
participation which is essential to the success of the
business. The Board has set measurable objectives and
the aim of these is to create an environment conducive to
the appointment of well qualified and experienced Board
members, Senior Executives, Senior Management team
and employees critical to the success of the Company.
Diversity objectives
– Foster an inclusive culture of workplace diversity
– Apply a Flexible Work Practices Policy
– Present diversity data on Huon’s Sustainability Dashboard
– Ensure appropriately qualified and relevantly experienced
women are considered at short list stage for Board
appointments
– Progressively increase female representation where the
business unit is less than 20% with specific focus on
operational areas
– Progressively increase female participation in Huon’s
Leadership Education and Development Programs
– Align selection practices to deliver an equal mix of male
and females students for school based apprenticeships.
experienced female Executive Director
– Huon increased its female representation in Management
positions across the business.
The Company continues to prioritise merit and competency
base selection criteria at the same time recognising diversity
in each application of its recruitment and promotion
methods. The Company anticipates a long and steady
increase in female workforce proportion particularly in
relevant key roles and as such has not set a gender target.
Diversity outcomes
– 20% (2016: 20%) female proportion on the Board
– 0% (2016: 0%) female proportion in
Key Management Personnel and Senior Management
– 13% (2016: 11%) female proportion Management
– 21% (2016: 19%) female proportion Company wide
Workplace Gender Equality Agency WGEA Report
The Company lodged its annual public report with the
Workplace Gender Equality Agency (WGEA) including
gender pay equity and achieved compliance status. A copy
of the report can be viewed on the Company website.
Board performance evaluation
The Board adopted a self-evaluation process to review its
own, its Committees’ and individual Directors performance
during FY2017. The Board also reviews the composition
and skills mix of the Directors on an ongoing basis to
ensure that the Board has the necessary and desirable
competencies to govern effectively.
Senior Executive performance evaluation
Arrangements are in place by the Board to monitor and
assess the performance of the CEO and Senior Executives
each financial year. These include:
– a review of the Company’s financial and operating
performance against targets; and
– performance appraisals incorporating an analysis of the
key performance indicators with each individual.
The Board conducts the performance evaluation of the
CEO and the CEO conducts the performance evaluations
of the Senior Executives.
40
Corporate Governance Statement (continued)Huon Aquaculture Group Limited Annual Report 2017 Principle 2:
Structure the Board to add value
Remuneration and Nominations Committee
The Board has a Remuneration and Nomination Committee
(RNC) comprising three Non-executive Directors, with the
Chairman being an independent Non-executive Director.
The RNC Charter outlines the Committee’s role in assisting
the Board with decisions regarding the composition and
structure of the Board. It does this by reviewing and making
recommendations to the Board in relation to:
– the appointment and re-election of Directors;
– the induction and continuing professional development
of Directors;
– Board succession planning;
– the recruitment process for a new Director;
– Board, Committees and Director performance
evaluation; and
– succession plans for the CEO and other
Senior Management.
Board composition, skills and experience
The Constitution of the Company provides that the number
of Directors must at any time be no more than ten and no
less than three. The Huon Board is currently comprised of
five Directors. A profile of each Director can be found in the
on pages 20 to 21 of this Annual Report.
In order to govern effectively, Directors must have a
clear understanding of the Company’s overall strategy,
together with knowledge of the Company and the industry
it operates in. Directors must collectively possess the
appropriate skills and experience to enable the Board to
effectively discharge its responsibilities.
The current skills matrix of the Directors of the Board brings
together extensive expertise and experience in relation to
all areas of the day-to-day and commercial elements of the
Company including:
– industry knowledge – salmon, aquaculture and food;
– international and domestic food markets;
– senior corporate leadership;
– strategy and business development;
– governance and risk management;
– corporate finance;
– brand and marketing; and
– sustainability practices.
The Company actively seeks a variety of skills, experience
and expertise to ensure the Board can meet its current and
future needs.
Board and Director independence
Huon has adopted a definition of independence which is
consistent with the ASX Principles and Recommendations.
The Non-executive Chairman of the Board, Neil Kearney, and
Non-executive Directors, Simon Lester and Tony Dynon, are
considered to be independent, meaning that each is free from
any management role or business interest or other relationship
that could materially interfere with their ability to act in the
best interests of Huon as a whole. The Board is confident that
each of the Non-executive Directors brings objectivity and
makes sound individual contributions to the Company through
their deep understanding of Huon’s business.
The two Executive Directors, Peter Bender (CEO and
Managing Director) and Frances Bender are not independent
by virtue of being substantial shareholders in the Company
and employed by the Company in an executive capacity.
The Directors are satisfied that there is no individual or group
of individuals who dominate the Board’s decision-making,
and that the current composition of the Board maximises the
likelihood that the decisions of the Board will reflect the best
interests of the Company and its shareholders.
Only those transactions permitted by Huon’s Constitution
and the Corporations Act are conducted with Directors
or their related parties. These are on the same terms and
conditions applying to any other external party, supplier or
customer. Directors are required to disclose in writing any
related party transactions.
Directors are also required to identify any conflicts of
interest they may have in dealing with Huon’s affairs and
subsequently to refrain from participating in any discussion
or voting on those matters. If a potential conflict of interest is
likely to arise, the Director concerned does not receive copies
of relevant Board papers and withdraws from the Board
meeting while those matters are considered. The Director
concerned therefore takes no part in the discussion and does
not exercise any influence over other members of the Board.
The Board has determined that individual Directors have
the right in connection with their duties and responsibilities
as Directors to seek independent professional advice at
the Company’s expense. The engagement of an outside
adviser is subject to prior approval of the Chairman. If
appropriate, any advice received will be made available to
all Board members.
Director induction and ongoing professional
development
The induction of Directors is the role of the Remuneration
and Nomination Committee and includes ensuring an
effective orientation program is in place. Mr Tony Dynon
was appointed a Director during FY2017 and undertook an
appropriate induction. Directors are encouraged to engage
in professional development activities and to develop and
maintain the skills and knowledge needed to perform their
role as a Director effectively.
Principle 3:
Act ethically and responsibly
The Company is committed to maintaining ethical
standards in the conduct of its business activities. The
Company strongly believes that its reputation as an ethical
business organisation is important to its ongoing success.
Code of Conduct
The Board has adopted a Code of Conduct which applies
to all Directors and employees of the Company and where
relevant and to the extent possible, consultants, secondees
and contractors of the Company.
The Code addresses issues including; ethics, personal and
business conduct, conflicts of interest, mutual respect and
business agreements and contracts.
41
All suspected breaches of the Code will be thoroughly
investigated by the Company. If these investigations reveal
breaches of the Code appropriate disciplinary and remedial
action will be taken depending on the nature of the breach.
If an employee suspects that a breach of the Code
has occurred or will occur, he or she must report that
breach to the appropriate person. No employee will be
disadvantaged or prejudiced if he or she reports, in good
faith, a suspected breach. All reports will be acted upon
and kept confidential where appropriate.
The Huon Code of Conduct can be viewed on the
Company website.
Principle 4:
Safeguard integrity in corporate reporting
Audit and Risk Management Committee
An Audit and Risk Management Committee is in place to
assist the Board of the Company in fulfilling its corporate
governance and oversight responsibilities in relation to the
Company’s financial reports and financial reporting process
and internal control structure, risk management systems
(financial and non-financial), and the internal and external
audit process. The Audit and Risk Management Committee
Charter outlines its key responsibilities as follows:
– review and approve internal audit and external audit
plans;
– update the internal and external audit plans;
– review and approve financial reports; and
– review the effectiveness of the Company’s compliance
and risk management functions.
The Committee consists of three Non-executive Directors
and a majority of independent Directors. The Chairman
of the Committee is an independent Director and is not
the Chairman of the Board.
Integrity of Financial Reporting –
CEO and CFO Certification
The CEO, Deputy CEO and CFO respectively provide
assurance to the Board that:
– Huon’s financial reports for each half year and full year
present a true and fair view of the financial position and
performance of the Company and are in accordance
with the accounting standards;
– their opinion is based on a sound system of risk
management and internal compliance and control; and
– the Company’s risk management and internal
compliance and control system is operating effectively.
Role of the External Auditor at the AGM
The Company’s external auditor attends the Company’s
AGM and is available to answer questions about the
conduct of the audit and the preparation and content
of the auditor’s report.
Principle 5:
Make timely and balanced disclosure
Continuous Disclosure
The Company is committed to effective communication
with its customers, shareholders, market participants,
employees, suppliers, financiers, creditors, other
stakeholders and the wider community. The Company
will ensure that all stakeholders, market participants and
the wider community are informed of its activities and
performance on a timely basis.
Subject to the ASX Listing Rules, the Company will make
publicly available all information to ensure that trading
in its shares takes place in an efficient, competitive and
informed market.
The Board has adopted a Continuous Disclosure Policy
to ensure the Company complies with all disclosure
obligations. The Policy addresses all continuous disclosure
requirements under the Listing Rules and Corporations Act
and incorporates best practice guidelines recommended
by ASX, ASIC and the Australasian Investor Relations
Association (AIRA). The Company Secretary is responsible
for the overall administration and monitoring of the
Continuous Disclosure Policy.
Huon’s Continuous Disclosure Policy can be viewed on
the Company website.
Principle 6:
Respect the rights of security holders
Information about Huon and its
Governance for Investors
Huon places considerable importance on effective
engagement and communications with shareholders. It
recognises the value of providing current and relevant
information to its shareholders. The Board has adopted a
Communications Policy which is designed to ensure that
the Company:
– provides timely and accurate information equally to all
shareholders and market participants regarding the
Company including its financial situation, performance,
ownership, strategies, activities and governance; and
– adopts channels for disseminating information that are
fair, timely and cost efficient.
This information is made available through:
– the Company’s website;
– the Huon Aquaculture Sustainability Dashboard;
– briefings and the investor relations program;
– the media;
– continuous disclosure to the ASX;
– Company meetings; and
– the Annual Report.
The Annual Report (which includes Huon’s Corporate
Governance Statement) can be viewed on the Company
website.
42
Corporate Governance Statement (continued)Huon Aquaculture Group Limited Annual Report 2017 Investor Relations Program
Huon is committed to the promotion of investor confidence
by ensuring trading in the Company’s shares takes place in
an efficient, competitive and informed market. The Deputy
CEO of the Company leads the investor relations program
and is responsible for the Company’s relationship with
major shareholders, institutional investors and analysts
and is the primary point of contact for those parties.
A key component of leading this program is ongoing
availability. Huon’s Continuous Disclosure Policy and its
Communications Policy are integral elements of the investor
relations program.
Any written material containing new price-sensitive
information to be used in briefing the media, institutional
investors and analysts are lodged with ASX prior to the
briefing commencing. On confirmation of receipt by ASX,
the briefing material is posted to Huon’s website. Briefing
materials may also include information that may not strictly
be required under the continuous disclosure requirements.
Huon will not disclose price-sensitive information in any
meeting with investors or analysts before formally disclosing
it to the market. The Company considers that one-on-one
discussions and meeting with investors and analysts are an
important part of pro-active investor relations.
Policies and processes to facilitate and encourage
participation at meetings of security holders
The Company strongly encourages all shareholders to
attend meetings and uses and relies on its Communications
Policy to ensure awareness and accessibility of those
meetings. The Board encourages full participation of
shareholders at the Annual General Meeting to ensure
a high level of accountability and understanding of the
Company’s strategy and goals. Shareholders are able to
submit questions prior to the Annual General Meeting if
they are unable to attend.
Give security holders the option to receive
communications from, and send communications
to, the entity and its security registry electronically
Shareholders are able to receive and send communications
to the Company and its share registry electronically via the
Link Investor Centre. Shareholders are also able to sign
up for regular email alerts which include notification of
announcements, reports, presentations and summaries.
Huon posts all reports, ASX and media releases and copies
of significant business presentations on its website. Both
email alerts and the Link Investor Centre can be accessed
via the Investor section of the Company website.
Principle 7:
Recognise and manage risk
Committee to oversee Risk
The Board is responsible for risk oversight and the
management and internal control of the processes by
which risk is considered for both ongoing operations
and prospective actions. In specific areas the Board is
assisted by the Audit and Risk Management Committee
which is responsible for establishing procedures which
provide assurance that major business risks are identified,
consistently assessed and appropriately addressed. The
Committee’s focus is on risk assessment, including the
identification and management of risks as they relate to:
– operational and environmental risk;
– workplace health and safety management; and
– financial risk.
The Committee consists of three Non-executive Directors
and a majority of independent Directors. The Chairman of
the Committee is an independent Director and is not the
Chairman of the Board.
Review Huon’s Risk Management Framework
The Risk Management Policy and Risk Management
Framework are reviewed on an annual basis. Any
amendments to the Policy and/or Risk Management
Framework must be approved by the Board. In addition the
Board reviews the Company’s risk management at Board
meetings, and where required, makes improvements to its
risk management and internal compliance control systems.
Internal Audit Function
The Company does not have an internal audit function
due to the nature and size of the Company and the
extent of its Risk Management Framework. The Company
currently relies on oversight by management, the Audit and
Risk Management Committee and the Board to ensure
compliance with Huon’s Risk Management Policy. The
Audit and Risk Committee has decided not to introduce
an internal audit function, but has engaged the services of
a third party to further support the internal audit function
during FY2017.
Management of material exposure to economic,
environmental and social sustainability risks
A key pillar of the Company’s business strategy is to grow
safely and sustainably. Sustainability and environmental
measures continue to be a priority for Huon with significant
time invested in community consultation and the refinement
of systems and procedures directed at positive economic,
environmental, animal welfare and social outcomes across
the business operations. Risk recognition and management
are viewed by the Company as integral to its objectives
of creating and maintaining shareholder value and to the
successful execution of the Company’s strategies.
43
Policies and practices regarding the remuneration
of Non-executive Directors and the remuneration
of executive Directors and other Senior Executives
The Company is committed to attracting and retaining the
best people to work in the organisation including Directors
and Senior Executives. The Board adopted a Remuneration
Policy which aims to:
– ensure that coherent remuneration policies and practices
are observed which enable the attraction and retention
of Directors and management who will create value for
shareholders;
– fairly and responsibly reward Directors and Senior
Executives having regard to the Company’s performance,
the performance of the Senior Executives and the general
pay environment; and
– comply with all relevant legal and regulatory provisions.
Remuneration for Executive Directors and Senior Executives
incorporates fixed and variable pay performance elements
with both a short and long term focus. Remuneration
packages may contain any or all of the following:
– annual base salary;
– performance based remuneration;
– equity based remuneration;
– other benefits such as holidays, sickness benefits,
superannuation payments and long service benefits;
– expense reimbursement; and
– termination payments.
The remuneration of Non-executive Directors is
determined by the Board as a whole reflecting the value
of the individual’s time commitment and responsibilities.
Remuneration packages may contain any or all of annual
fees, equity based remuneration and other benefits such as
superannuation payments. The total remuneration of Non-
executive Directors must not exceed the maximum annual
amount approved by Company’s shareholders (currently
$800,000). Detailed information on the Company’s
remuneration policy and key principles and also the
remuneration received by Directors and Key Management
Personnel in FY2017 is set out in the Remuneration Report
on pages 25 to 35 in this Annual Report.
Equity based remuneration
Both the Remuneration and Nomination Committee Charter
and the Remuneration Policy contain oversight regarding
equity-based remuneration. Huon’s long term incentive (LTI)
plan is delivered through the granting of performance rights
which convert to shares in the Company on achievement
of specified performance conditions. Participants in the LTI
plan are not permitted to enter into transactions which limit
the economic risk of participating in the plan.
There are a number of risks, both specific to Huon and of a
general nature which may threaten the future operating and
financial performance of the Company and its investment
value including:
Risk Type
Identified Risk
Economic
Environmental
Social
Market and credit risk
Fish feed prices, supply and quality
Broodstock and smolt supply
People and safety
Fuel and energy prices
Key facility reliance
Legal and contractual
IT reliability and reliance
Brand and reputation
Agricultural – disease, algae
Predator
Weather and environmental
Fresh water supply
Regulation
Reputation
People and safety
These risks may change over time as the external
environment changes and as the Company expands its
operations. The Company’s Risk Management Policy
outlines processes Huon has adopted for the regular
assessment and identification of risks as well as providing
a management and response framework including the
mitigation of risks where appropriate. Further information
on Huon’s assessment of the principal risks which could
have a material impact on the Company are set out on
page 15 in this Annual Report.
Principle 8:
Remunerate fairly and responsibly
Remuneration and Nominations Committee
The Remuneration and Nomination Committee
(RNC) assists the Board by reviewing and making
recommendations on remuneration arrangements for
Directors and Executives of the Company including:
– the Company’s remuneration framework;
– the Company’s recruitment, retention and termination
policies;
– the Company’s remuneration policies including as
they apply to Directors;
– equity based remuneration plans for Senior Executives
and other employees; and
– the remuneration packages for Directors, the CEO
and Senior Executives.
When needed, the Company has also sought advice from
PricewaterhouseCoopers in relation to the development
of appropriate incentive plans for Key Management
Personnel (KMP).
44
Corporate Governance Statement (continued)Huon Aquaculture Group Limited Annual Report 2017 FINANCIAL REPORT
For the year ended 30 June 2017
Financial statements
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated statement of cashflows
46
47
48
49
50
Notes to the financial statements
About this report
Other
18. Financial assets
19. Other financial assets
20. Fair value measurements
21. Financial risk management
22. Parent information
23. Deed of cross guarantee
24. Income taxes
25. Key management personnel compensation
26. Share-based payment
27. Related party transactions
28. Remuneration of auditors
29. Goodwill
30. Other intangible assets
31. Interests in subsidiaries
32. Other financial liabilities
33. Provisions
34. Other liabilities
35. Contingent liabilities and contingent assets
36. Segment information
37. Subsequent events
38. Company details
71
71
71
73
77
78
79
81
82
85
86
87
89
90
90
91
92
92
93
93
93
Basis of preparation
Principles of consolidation
Application of new and revised Accounting Standards
51
51
51
Performance
1. Revenue
2. Profit for the year before tax
3. Biological assets
4. Earnings per share (EPS)
5. Dividends
Investment in controlled growth strategy
6. Property, plant and equipment
7. Other non-current assets
8. Capital and leasing commitments
9. Business combination
Net debt and working capital
10. Notes to the statement of cashflows
11. Trade and other receivables
12. Inventories
13. Other assets
14. Trade and other payables
15. Borrowings
16. Issued capital
17. Other reserves
Signed reports
Directors’ Declaration
Independent Auditor’s Report to the Members
Shareholder information
54
55
56
57
58
59
61
62
63
64
65
66
66
66
67
69
70
94
95
102
45
CONSOLIDATED INCOME STATEMENT
For the year ended 30 June 2017
Revenue from operations
Other income
Expenses
Fair value adjustment of biological assets
Changes in inventories of finished goods and work in progress
Raw materials and consumables used
Employee benefits expense
Depreciation and amortisation expense
Finance costs
Freight & distribution expenses
Other expenses
Total expenses
Profit before income tax expense
Income tax expense
Net profit for the period attributable to members of the Company
Earnings per ordinary share
Basic (cents per share)
Diluted (cents per share)
Note
1(a)
1(b)
2
2
2
24
Consolidated
2017
$’000
Consolidated
2016
$’000
259,650
233,809
13,742
7,404
19,178
22,997
(146,299)
(56,422)
(22,665)
(3,609)
(11,749)
(18,331)
(1,505)
(3,552)
(130,804)
(49,122)
(19,666)
(3,259)
(16,009)
(13,242)
(216,900)
(237,159)
56,492
(14,332)
4,054
(627)
42,160
3,427
Cents
per share
2017
Cents
per share
2016
Note
4
4
48.27
48.27
3.92
3.92
The number of shares used to determine earnings per ordinary share (EPS) is disclosed in note 4 to the accounts.
The above consolidated income statement should be read in conjunction with the accompanying notes.
46
Huon Aquaculture Group Limited Annual Report 2017 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 June 2017
Profit for the period
Other comprehensive income
Total comprehensive income for the period (net of tax)
Total comprehensive income attributable to:
Owners of Huon Aquaculture Group Limited
Consolidated
2017
$’000
Consolidated
2016
$’000
42,160
–
42,160
3,427
–
3,427
42,160
42,160
3,427
3,427
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
47
CONSOLIDATED BALANCE SHEET
As at 30 June 2017
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Biological assets
Other financial assets
Current tax receivable
Other assets
Total current assets
Non-current assets
Financial assets
Property, plant and equipment
Other assets
Intangible assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Borrowings
Other financial liabilities
Current tax liabilities
Provisions
Other current liabilities
Total current liabilities
Non-current liabilities
Borrowings
Deferred tax liabilities
Provisions
Other non-current liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Other reserves
Retained earnings
Total equity
Consolidated
2017
$’000
Consolidated
2016
$’000
Note
10
11
12
3
19
24
13
18
6
7
29,30
14
15
32
24
33
34
15
24
33
34
16
17
23,004
29,855
12,375
188,015
–
–
3,089
3,787
23,476
10,998
147,217
71
3
2,615
256,338
188,167
1,341
223,129
9,736
2,995
1,341
210,490
10,172
2,995
237,201
224,998
493,539
413,165
67,811
11,188
679
–
5,665
464
45,297
13,878
–
–
4,800
464
85,807
64,439
54,812
55,650
1,161
2,887
51,979
41,313
1,311
3,350
114,510
97,953
200,317
162,392
293,222
250,773
164,302
544
128,376
164,302
255
86,216
293,222
250,773
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
48
Huon Aquaculture Group Limited Annual Report 2017 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2017
Contributed
Equity
$’000
Retained
Earnings
$’000
Note
Share-based
Payment
Reserve
$’000
Balance at 1 July 2015
Profit for the period
164,302
–
82,789
3,427
Total other comprehensive income for the year, net of tax
Contributions of equity, net of transactions costs
Share-based payment expense
Dividends paid or provided for
2(b)
5
–
–
–
–
–
–
–
–
–
–
–
–
255
–
Total
Equity
$’000
247,091
3,427
–
–
255
–
Balance at 30 June 2016
164,302
86,216
255
250,773
Contributed
Equity
$’000
Retained
Earnings
$’000
Note
Share-based
Payment
Reserve
$’000
Total
Equity
$’000
Balance at 1 July 2016
Profit for the period
164,302
–
86,216
42,160
255
–
250,773
42,160
Total other comprehensive income for the year, net of tax
Contributions of equity, net of transactions costs
Share-based payment expense
Dividends paid or provided for
2(b)
5
–
–
–
–
–
–
–
–
Balance at 30 June 2017
164,302
128,376
–
–
289
–
544
–
–
289
–
293,222
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
49
CONSOLIDATED STATEMENT OF CASHFLOWS
For the year ended 30 June 2017
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest and other costs of finance paid
Income tax (paid)/refunded
Consolidated
2017
$’000
Consolidated
2016
$’000
Note
267,143
(209,710)
236,858
(221,696)
57,433
157
(3,609)
8
15,162
66
(3,259)
4,355
Net cash inflow/(outflow) from operating activities
10
53,989
16,324
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Payments for property, plant and equipment
Payment for business
Payments for other assets
Net cash inflow/(outflow) from investing activities
Cash flows from financing activities
Proceeds from issues of shares
Proceeds from borrowings
Repayment of borrowings
Dividends paid to company’s shareholders
Net cash inflow/(outflow) from financing activities
Net increase/(decrease) in cash held
Cash and cash equivalents at beginning of financial year
9
130
(35,045)
–
–
226
(44,563)
(1,073)
–
(34,915)
(45,410)
–
30,435
(30,292)
–
–
44,688
(25,614)
–
143
19,074
19,217
3,787
23,004
(10,012)
13,799
3,787
Cash and cash equivalents at end of financial year
10
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
50
Huon Aquaculture Group Limited Annual Report 2017 NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2017
About this report
These consolidated financial statements and notes represent
those of Huon Aquaculture Group Limited and Controlled
Entities (the ‘Consolidated Group’). Huon Aquaculture
Group Limited is a company incorporated in Australia, and
whose shares are publicly traded on the Australian Securities
Exchange (ASX).
The separate financial statements and notes of Huon
Aquaculture Group Limited have been presented within this
financial report as an individual Parent Entity (‘Parent Entity’).
The financial statements were authorised for issue on
24 August 2017 by the Directors of the Company.
All press releases and other information are available on our
website www.huonaqua.com.au.
Basis of preparation
These general purpose financial statements have been
prepared in accordance with the Corporations Act 2001,
Australian Accounting Standards and Interpretations of the
Australian Accounting Standards Board and also comply with
International Financial Reporting Standards as issued by the
International Accounting Standards Board. The Consolidated
Group is a for-profit entity for financial reporting purposes
under Australian Accounting Standards. Material accounting
policies adopted in the preparation of these financial
statements are presented below and have been consistently
applied unless stated otherwise.
The financial statements except for cash flow information,
have been prepared on an accruals basis and are based on
historical costs (unless otherwise stated).
The functional currency of each group entity is measured
using the currency of the primary economic environment
in which that entity operates. The consolidated financial
statements are presented in Australian dollars which is the
Parent Entity’s functional and presentation currency.
Principles of consolidation
The consolidated financial statements incorporate the assets
and liabilities of all subsidiaries of Huon Aquaculture Group
Limited (Parent Entity) as at 30 June 2017 and the results of
all subsidiaries for the year then ended. Huon Aquaculture
Group Limited and its subsidiaries together are referred to in
this financial report as the Consolidated Group.
Subsidiaries are all entities over which the group has control.
The group controls an entity when the group is exposed to,
or has rights to, variable returns from its involvement with
the entity and has the ability to affect those returns through
its power to direct the activities of the entity. Subsidiaries
are fully consolidated from the date on which control is
transferred to the group. They are deconsolidated from the
date that control ceases.
The acquisition method of accounting is used to account for
business combinations by the group.
Intercompany transactions, balances and unrealised gains
on transactions between group companies are eliminated.
Unrealised losses are also eliminated unless the transaction
provides evidence of an impairment of the transferred asset.
Accounting policies of subsidiaries have been changed where
necessary to ensure consistency with the policies adopted
by the group.
Application of new and revised
Accounting Standards
Amendments to AASBs and the new
Interpretation that are mandatorily effective
for the current year:
In the current year, the Group has applied a number of
amendments to AASB’s and new Interpretations issued by
the Australian Accounting Standards Board (AASB) that
are mandatorily effective for an accounting period that
begins on or after 1 July 2016, and therefore relevant for
the current year end.
AASB 2014-3
‘Amendments to Australian Accounting Standards
– Accounting for Acquisitions of Interests in
Joint Operations’
The amendments require an entity acquiring an interest
in a joint operation, in which the activity of the joint
operation constitutes a business, to apply, to the extent
of its share, all of the principles in AASB 3 Business
Combinations and other Australian Accounting Standards
that do not conflict with the requirements of AASB 11
Joint Arrangements.
AASB 2014-4
‘Amendments to Australian Accounting Standards –
Clarification of Acceptable Methods of Depreciation
and Amortisation’
The amendments clarify the principle in AASB 116
Property, Plant and Equipment and AASB 138 Intangible
Assets that revenue reflects a pattern of economic benefits
that are generated from operating a business (of which
the asset is part) rather than the economic benefits that
are consumed through use of the asset. As a result, the
ratio of revenue generated to total revenue expected to
be generated cannot be used to depreciate property,
plant and equipment and may only be used in very limited
circumstances to amortise intangible assets.
AASB 2014-9 ‘
Amendments to Australian Accounting Standards –
Equity Method in Separate Financial Statements’
The amendments to AASB 127 Separate Financial
Statements allow an entity to use the equity method as
described in AASB 128 to account for its investments in
subsidiaries, joint ventures and associates in its separate
financial statements.
AASB 2015-1
‘Amendments to Australian Accounting Standards –
Annual Improvements to Australian Accounting Standards
2012-2014 Cycle’
The amendments clarify certain requirements in:
– AASB 5 Non-current Assets Held for Sale and
Discontinued Operations – Changes in methods of
disposal
– AASB 7 Financial Instruments: Disclosures – servicing
contracts; applicability of the amendments to AASB 7
to condensed interim financial statements
– AASB 119 Employee Benefits – regional market issue
regarding discount rate
– AASB 134 Interim Financial Reporting – disclosure of
information ‘elsewhere in the interim financial report’
51
AASB 2016-2
‘Amendments to Australian Accounting Standards –
Disclosure Initiative: Amendments to AASB 107’
The amendments to AASB 107 Statement of Cash Flows
are part of the IASB’s Disclosure Initiative and help users
of financial statements better understand changes in an
entity’s debt. The amendments require entities to provide
disclosures about changes in their liabilities arising from
financing activities, including both changes from arising
from cash flows and non-cash changes (such as foreign
exchange gains or losses).
AASB 2017-2
‘Amendments to Australian Accounting Standards –
Further Annual Improvements 2014-2016 Cycle’
This Standard clarifies the scope of AASB 12 Disclosure
of Interests in Other Entities by specifying that the
disclosure requirements apply to an entity’s interests
in other entities that are classified as held for sale or
discontinued operations in accordance with AASB 5 Non-
Current Assets Held for Sale and Discontinued Operations.
Effective for annual
reporting periods
beginning on or after
Expected to be
initially applied in the
financial year ending
1 January 2018
1 January 2018
30 June 2019
30 June 2019
1 January 2018
30 June 2019
1 January 2018
30 June 2019
1 January 2018
30 June 2019
1 January 2018
30 June 2019
1 January 2018
30 June 2019
1 January 2018
30 June 2019
1 January 2019
1 January 2019
30 June 2020
30 June 2020
AASB 2015-2
‘Amendments to Australian Accounting Standards –
Disclosure Initiative: Amendments to AASB 101’
This Standard amends AASB 101 Presentation of Financial
Statements to clarify existing presentation and disclosure
requirements and to ensure entities are able to use
judgement when applying the Standard in determining
what information to disclose, where and in what order
information is presented in their financial statements.
AASB 2015-5
‘Amendments to Australian Accounting Standards –
Investment Entities: Applying the Consolidation Exemption
This Standard amends AASB 10 Consolidated Financial
Statements, AASB 12 Disclosure in Interests in Other Entities
and AASB 128 Investments in Associates in Joint Ventures to
clarify how investment entities and their subsidiaries apply
the consolidation exemption.
AASB 2016-1
‘Amendments to Australian Accounting Standards –
Recognition of Deferred Tax Assets for Unrealised Losses’
This Standard makes amendments to AASB 112 Income
Taxes to clarify the accounting for deferred tax assets
for unrealised losses on debt instruments measured at
fair value.
Standards and Interpretations in issue not yet adopted:
AASB 2 ‘Share-based Payments’
AASB 9 ‘Financial Instruments’, and the relevant
amending standards
AASB 15 ‘Revenue from Contracts with Customers’
and relevant amending standards
AASB 2014-10 ‘Amendments to Australian Accounting
Standards – Sale or Contribution of Assets between
and Investor and its Associate or Joint Venture’
AASB 2016-5 ‘Amendments to Australian Accounting
Standards – Classification and Measurement of Share-based
Payment Transactions’
AASB 2016-6 ‘Amendments to Australian Accounting
Standards – Applying AASB 9 Financial Instruments with
AASB 4 Insurance Contracts’
AASB 2017-1 ‘Amendments to Australian Accounting
Standards – Transfers of Investments Property, Annual
Improvements 2014-2016 Cycle and Other Amendments’
AASB Interpretation 22 ‘Foreign Currency Transactions
and Advance Consideration’
AASB 16 ‘Leases’
Interpretation 23 ‘Uncertainty over Income Tax Treatments’
(Australian-equivalent pronouncement not yet issued)
52
Notes to the financial statements (continued)Huon Aquaculture Group Limited Annual Report 2017 The group’s assessment of the impact of these new standards
and interpretations is set out below:
AASB 9 Financial Instruments
AASB 9 Financial Instruments addresses the classification,
measurement and derecognition of finanical assets
and financial liabilties, introduces new rules for hedge
accounting and a new impairment model. The standard
is not applicable until 1 January 2018 but is available for
early adoption.
Following the changes approved by the AASB in December
2014, the Group no longer expects any impact from the
new classification, measurement and derecognition rules
on the group’s financial assets and financial liabilities.
There will be no impact on the Group’s accounting for
financial liabilities that are designated at fair value through
profit or loss and the Group does not have any such
liabilities. The derecognition rules have been transferred
from AASB 139 Financial Instruments: Recognition and
Measurement and have not been changed.
The new hedging rules align hedge accounting more
closely with the group’s risk management practices.
As a general rule, it will be easier to apply hedge
accounting going forward as the standard introduces
a more principles-based approach. The new standard
also introduces expanded disclosure requirements and
changes in presentation. However, at this stage the group
does not expect to identify any new hedge relationships.
The new impairment model is an expected credit loss
(ECL) model which may result in the earlier recognition
of credit losses.
The Group has assessed how its own financial
instruments would be affected by the new rules. Based
on the transitional provisions in the completed AASB 9,
early adoption in phases was only permitted for annual
reporting periods beginning before 1 February 2015.
The Group will adopt the standard at its application date.
AASB 15 Revenue from Contracts with Customers
The AASB has issued a new standard for the recognition
of revenue. This will replace AASB 118 which covers
contracts for goods and services and AASB 111 which
covers construction contracts.
The new standard is based on the principle that revenue
is recognised when control of a good or service transfers
to a customer – so the notion of control replaces the
existing notion of risks and rewards.
The standard permits a modified retrospective approach
for the adoption. Under this approach entities will
recognise transitional adjustments in retained earnings
on the date of initial application (e.g. 1 July 2018),
i.e. without restating the comparative period. They will
only need to apply the new rules to contracts that are not
completed as of the date of initial application.
Management is currently assessing the impact of the
new rules and has identified the following areas that are
likely to be affected:
– Consignment sales where recognition of revenue will
depend on the passing of control rather than the
passing of risks and rewards.
The Group is currently assessing the impact of the
new rules on the Group’s financial statements and will
assess the likely impact leading up to the adoption of
the standard.
AASB 16 Leases
The AASB has issued a new standard to govern
accounting for leases. This will replace AASB 117 which
previously governed the accounting and disclosure
of leases.
AASB 16 was issued in February 2016. It will result
in almost all leases being recognised on the balance
sheet, as the distinction between operating and finance
leases is removed. Under the new standard, an asset
(the right to use the leased item) and a financial liability
to pay rentals are recognised. The only exceptions are
short-term and low-value leases. The accounting for
lessors will not significantly change.
The standard will affect primarily the accounting for the
group’s operating leases. As at the reporting date, the
group has non-cancellable operating lease commitments
of $68,875,000. However, the group has not yet
determined to what extent these commitments will result
in the recognition of an asset and a liability for future
payments and how this will affect the group’s profit and
classification of cash flows.
Some of the commitments may be covered by the
exception for short-term and low-value leases and some
commitments may relate to arrangements that will not
qualify as leases under AASB 16.
The standard is mandatory for first interim periods within
annual reporting periods beginning on or after 1 January
2019. At this stage, the group does not intend to adopt
the standard before its effective date.
AASB 2 Share-based Payments
In July 2016, the AASB made amendments to AASB
2 Share-based payments which clarified the effect of
vesting conditions on the measurement of cash-settled
share-based payment transactions, the classification of
share-based payment transactions with net settlement
features and the accounting for a modification of the
terms and conditions that changes the classification of
the transaction from cash settled to equity-settled.
The amendments do not have to be applied until
reporting periods commencing on or after 1 January
2018. Management is currently assessing the impact
of the amendments, and has decided not to early
adopt them.
There are no other standards or interpretations that are not
yet effective and that would be expected to have a material
impact on the entity in the current or future reporting periods
and on foreseeable future transactions.
53
Performance
1. Revenue
(a) Revenue from operations
Revenue from the sale of goods
Interest income
Total revenue
(b) Other Income
Supplier rebates and freight income
Government grants
Other
Total other income
Total revenue and other income
Consolidated
2017
$’000
Consolidated
2016
$’000
259,493
157
233,743
66
259,650
233,809
4,677
807
8,258
6,302
783
319
13,742
7,404
273,392
241,213
Revenue recognition and measurement
Sale of goods
Revenue from the sale of goods is measured at the fair value of the consideration received or receivable after taking into account
any trade discounts and volume rebates allowed.
The Consolidated Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future
economic benefits will flow to the Consolidated Group and specific criteria have been met for each of the Consolidated Group’s
activities as described below. The Consolidated Group bases its estimates on historical results, taking into consideration the type
of customer, the type of transaction and the specifics of each arrangement.
Revenue from the sale of goods is recognised at the point of delivery as this corresponds to the transfer of significant risks and
rewards of ownership of the goods and the cessation of all involvement in those goods.
All revenue is stated net of the amount of goods and services tax.
Interest income
Interest income is recognised using the effective interest method. When a receivable is impaired, the Consolidated Group reduces
the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate
of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using
the original effective interest rate.
Rebates and freight income
Rebates and freight income are recognised as income when the right to receive the payment has been established. This is generally
when the Company has satisfied the necessary regulatory requirements.
Government grants
Government grants are assistance by the government in the form of transfers of resources to the Consolidated Group in return for
past or future compliance with certain conditions relating to the operating activities of the Consolidated Group. Government grants
include government assistance where there are no conditions specifically relating to the operating activities of the Consolidated
Group other than the requirement to operate in certain regions or industry sectors.
Government grants relating to income are recognised as income over the periods necessary to match them with the related costs
which they are intended to compensate. Government grants that are receivable as compensation for expenses or losses already
incurred or for the purpose of giving immediate financial support to the Consolidated Group with no future related costs are
recognised as income of the period in which it becomes receivable.
Government grants relating to assets are treated as deferred income and recognised in profit and loss over the expected useful
lives of the assets concerned.
54
Notes to the financial statements (continued)Huon Aquaculture Group Limited Annual Report 2017 2. Profit for the year before tax
Profit before income tax from continuing operations includes the following items of revenue and expense:
(a) Significant revenue and expenses
The following significant revenue and expense items are relevant in explaining
the financial performance:
Revenue:
–
–
Expense:
–
–
supplier rebates and claims
Insurance and supplier claims
accrued employee incentives
legal fees
(b) Expenses
Gross Depreciation of non-current assets
Gross Amortisation of non-current assets
Total Gross depreciation and amortisation
Depreciation – net impact recognised in changes in inventories
of finished goods and work in progress
Net depreciation and amortisation
Interest & fees
Finance lease charges
Total finance costs
Employee benefits expense
Share-based payment expense
Total employee benefits costs
Consolidated
2017
$’000
Consolidated
2016
$’000
573
7,474
4,100
1,431
1,650
421
181
419
22,229
436
19,246
420
22,665
19,666
(748)
(2,032)
21,917
17,634
3,609
–
3,609
56,133
289
3,259
–
3,259
48,867
255
56,422
49,122
Net (gain)/loss on disposal of property, plant and equipment
47
(190)
55
3. Biological assets
Biological assets at fair value (i)
Opening balance
Increase due to production
Decrease due to sales/harvest/mortality
Movement in fair value of biological assets
Closing fair value adjustment on biological assets
Total weight of live finfish at sea (kg 000’s)
Consolidated
2017
$’000
Consolidated
2016
$’000
147,217
208,349
(186,729)
19,178
151,837
180,974
(184,089)
(1,505)
188,015
147,217
48,543
16,663
29,365
12,075
(i)
Members of the Consolidated Group, Huon Aquaculture Company Pty Ltd and Springfield Hatcheries Pty Ltd grow fish from juveniles through to harvest.
Fair value measurement
Recurring fair value measurements
Biological Assets
Total financial assets recognised at fair value
Recurring fair value measurements
Biological Assets
Total financial assets recognised at fair value
30 June 2017
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
–
–
–
–
188,015
188,015
188,015
188,015
30 June 2016
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
–
–
–
–
147,217
147,217
147,217
147,217
Fair value measurements using significant unobservable input
The following table summarises the quantitative information about the significant unobservable inputs used in level 3 fair value
measurements:
Description
30 June 2017
30 June 2016
Biological assets at fair value ($’000)
188,015
147,217
Unobservable Inputs
Adjusted weight of live finfish for fair
value measurement: 14,475 tonne
Adjusted weight of live finfish for fair
value measurement: 10,179 tonne
Price per HOG kg $13.44 to $13.94
Price per HOG kg $14.22 to $14.72
Relationship of Unobservable
Inputs to Fair value
Increase in price would increase
fair value
Increase in price would increase
fair value
56
Notes to the financial statements (continued)Huon Aquaculture Group Limited Annual Report 2017 3. Biological assets (continued)
Recognition and measurement
Biological assets include broodstock, eggs, juveniles, smolt and live finfish. Biological assets are measured at fair value less costs
to sell in accordance with AASB 141. Where fair value cannot be reliably measured biological assets are measured at cost less
impairment losses.
For broodstock, eggs, juveniles, smolt and live finfish below 1kg, these biological assets are measured at cost, as the fair value
cannot be measured reliably. Live finfish between 1kg and 4kg are measured at fair value less cost to sell, including a proportionate
expected net profit at harvest. Live finfish above 4kg are measured at fair value less cost to sell.
The valuation is completed for each year class of finfish, for each species and, each significant location and takes into consideration
input based on biomass in sea, estimated growth rate and mortality. The market prices are derived from observable market prices
(when available), achieved prices and estimated future prices for harvest finfish. The prices are reduced for harvesting costs and
freight costs to market, to arrive at a net fair value at farm gate.
The change in estimated fair value is charged to the income statement on a separate line as fair value adjustment of biological assets.
Sensitivity analysis – Biological assets
Based on the market prices and weights utilised at 30 June 2017, with all other variables held constant, the consolidated group’s
pre-tax profit for the period would have been impacted as follows:
– A pricing increase/decrease of $0.10 would have been a change of $1,285,181 higher/lower (2016: $856,860)
– A weight increase/decrease of 5% would have been a change of $2,427,135 higher/lower (2016: $1,468,226)
Critical accounting estimates
Biological assets are measured at fair value less costs to sell in accordance with AASB 141. Broodstock, eggs, juveniles, smolt and
live fish below 1kg are measured at cost, as the fair value cannot be measured reliably. Biomass beyond this is measured at fair
value in accordance with AASB 141, and the measurement is categorised into Level 3 in the fair value hierarchy, as the input is
an unobservable input. Live fish over 4kg are measured to fair value less cost to sell, while a proportionate expected net profit at
harvest is incorporated for live fish between 1kg and 4kg. The valuation is completed for each year class of finfish, for each species
and, each significant location.
The valuation is based on a market approach and takes into consideration inputs based on biomass in sea for each significant
location, estimated growth rates, mortality and market price. There is no effective market for live finfish produced by the Consolidated
Group so market price is determined on a model based on market prices for both salmon and trout, derived from observable
market prices (when available), achieved prices and estimated future prices for harvest finfish.
4. Earnings per share (EPS)
Earnings per ordinary share
Basic (cents per share) (i)
Diluted (cents per share) (ii)
Consolidated
2017
cents per share
Consolidated
2016
cents per share
48.27
48.27
3.92
3.92
(i)
Basic earnings per share is calculated by dividing the profit attributable to owners of the company by the weighted average number of ordinary shares
of the company.
(ii) Diluted earnings per share is calculated by dividing the profit attributable to owners of the company by the weighted average number of ordinary shares
outstanding including dilutive potential ordinary shares.
Weighted average number of ordinary shares used as the denominator in the calculation of EPS
Number for basic EPS
Number for diluted EPS
Earnings used as the numerator in the calculation of EPS
Earnings for basic EPS (i)
Earnings for diluted EPS (i)
2017
2016
87,337,207
87,337,207
87,337,207
87,337,207
2017
$’000
42,160
42,160
2016
$’000
3,427
3,427
(i) Earnings used in the calculation of basic and diluted earnings per share is as per net profit in the consolidated income statement.
57
5. Dividends
Fully paid ordinary shares
Dividend at the rate of nil cents per fully paid share
Total dividends provided for or paid
Consolidated
2017
$’000
Consolidated
2016
$’000
–
–
–
–
On 24 August 2017 the Directors recommended a final ordinary dividend of $4,367,000 (5 cents per fully paid share) to be paid on
12 October 2017 out of retained earnings at 30 June 2017. The dividend will be 50% franked. The dividend has not been provided
for in the 30 June 2017 financial statements.
Franking credits available for subsequent reporting periods based
on a tax rate of 30% (2016: 30%)
Consolidated
2017
$’000
Consolidated
2016
$’000
15,617
15,617
15,625
15,625
The above amounts represent the balance of the franking account as at the end of the reporting period, adjusted for:
(a) franking credits that will arise from the payment of the amount of the provision for income tax
(b) franking debits that will arise from the payment of dividends recognised as a liability at the reporting date, and
(c) franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.
The consolidated amounts include franking credits that would be available to the Parent Entity if distributable profits of subsidiaries
were paid as dividends.
Recognition and measurement
Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the
Consolidated Group, on or before the end of the reporting period but not distributed at the end of the reporting period.
58
Notes to the financial statements (continued)Huon Aquaculture Group Limited Annual Report 2017 Investment in controlled growth strategy
6. Property, plant and equipment
Land and buildings
Freehold land
Cost
Total land
Buildings
Cost
Accumulated depreciation
Total buildings
Total land and buildings
Plant and equipment
Plant and equipment
Cost
Accumulated depreciation
Total plant and equipment
Capital work in progress
Cost
Total capital work in progress
Leased plant and equipment
Cost
Accumulated depreciation
Total leased plant and equipment
Total plant and equipment
Total property, plant and equipment
Consolidated
2017
$’000
Consolidated
2016
$’000
5,412
5,412
5,512
5,512
42,176
(4,364)
37,812
43,224
39,994
(2,342)
37,652
43,164
261,841
(107,141)
245,368
(87,111)
154,700
158,257
25,205
25,205
9,069
9,069
–
–
–
–
–
–
179,905
167,326
223,129
210,490
59
6. Property, plant and equipment (continued)
Land and Buildings
Plant and Equipment
Freehold
$’000
Buildings
$’000
Plant and
equipment
$’000
Leased
plant and
equipment
$’000
Capital
work in
progress
$’000
Total
$’000
5,412
–
5,412
42,176
(4,364)
261,841
(107,141)
37,812
154,700
5,512
(100)
–
–
–
–
–
37,652
114
–
–
(2,022)
–
2,065
3
158,257
637
(77)
–
(20,207)
–
16,093
(3)
5,412
37,812
154,700
–
–
–
–
–
–
–
–
–
–
–
–
25,205
–
334,634
(111,505)
25,205
223,129
9,069
–
–
34,294
–
–
(18,158)
–
210,490
751
(177)
34,294
(22,229)
–
–
–
25,205
223,129
Land and Buildings
Plant and Equipment
Freehold
$’000
Buildings
$’000
Plant and
equipment
$’000
Leased
plant and
equipment
$’000
Capital
work in
progress
$’000
Total
$’000
Consolidated
Year ended 30 June 2017
Cost
Accumulated depreciation
Net Carrying amount
Movement
Net carrying amount at the
beginning of the year
Additions
Disposals and write-offs
Work In Progress Additions
Depreciation and amortisation
Acquisition in business combination
Capitalisation to asset categories
Transfers between classes
Net carrying amount at the
end of the year
Consolidated
Year ended 30 June 2016
Cost
Accumulated depreciation
5,512
–
39,994
(2,342)
245,368
(87,111)
Net Carrying amount
5,512
37,652
158,257
Movement
Net carrying amount at the
beginning of the year
Additions
Disposals and write-offs
Work In Progress Additions
Depreciation and amortisation
Acquisition in business combination
Capitalisation to asset categories
Transfers between classes
Net carrying amount at the
end of the year
3,898
764
–
–
–
–
850
–
18,258
1,600
–
–
(1,287)
–
19,081
–
120,786
635
(37)
–
(17,959)
715
54,117
–
5,512
37,652
158,257
60
–
–
–
–
–
–
–
–
–
–
–
–
9,069
–
299,943
(89,453)
9,069
210,490
41,552
–
–
41,565
–
–
(74,048)
–
184,494
2,999
(37)
41,565
(19,246)
715
–
–
9,069
210,490
Notes to the financial statements (continued)Huon Aquaculture Group Limited Annual Report 2017 6. Property, plant and equipment (continued)
Recognition and measurement
Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a
separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the
Consolidated Group and the cost of the item can be measured reliably.
Assets are derecognised when replaced. All other repairs and maintenance are charged to the profit and loss during the period in
which they are incurred.
Assets are depreciated on a straight line basis. Land is not depreciated.
The following estimated useful lives are used in the calculation of depreciation:
Class of Fixed Asset
Buildings
Leasehold improvements
Plant and equipment
Useful Life
10 – 20 years
5 – 20 years
2 – 30 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its
estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains or losses are
recognised in consolidated income statement when the item is derecognised. When revalued assets are sold, amounts included in
the revaluation surplus relating to that asset are transferred to retained earnings.
7. Other non-current assets
Marine farming leases
Cost
Accumulated amortisation
Consolidated
2017
$’000
Consolidated
2016
$’000
16,244
(6,508)
16,244
(6,072)
9,736
10,172
Recognition and measurement
Marine farming leases are recorded at cost. Amortisation is based on the term of the lease and the expense is charged through the
consolidated income statement. All marine leases are held for a term of 30 years.
61
8. Capital and leasing commitments
Non-cancellable operating leases
Not longer than 1 year
Longer than 1 year and not longer than 5 years
Longer than 5 years
Consolidated
2017
$’000
Consolidated
2016
$’000
14,108
47,878
6,889
68,875
13,913
48,730
16,832
79,475
The group has operating lease commitments relating to a range of equipment, the most significant portion relating to marine vessels.
The commitments are principally driven by the operating lease entered into for the well-boat ‘Ronja Huon’.
Finance lease liabilities
Not longer than 1 year
Longer than 1 year and not longer than 5 years
Longer than 5 years
Less future finance charges
Present value of minimum lease payments
Capital expenditure commitments
Plant and equipment
Capital expenditure projects
Payable:
Not longer than 1 year
Longer than 1 year and not longer than 5 years
Longer than 5 years
Consolidated
2017
$’000
Consolidated
2016
$’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,192
1,192
1,192
–
–
1,192
Recognition and measurement
Leases of fixed assets, where substantially all the risks and benefits incidental to the ownership of the asset – but not the legal ownership
– are transferred to entities in the Consolidated Group, are classified as finance leases.
Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased
property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated
between the reduction of the lease liability and the lease interest expense for the period.
Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term.
Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are recognised as expenses on
a straight-line basis over the lease term.
Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the life of the lease term.
62
Notes to the financial statements (continued)Huon Aquaculture Group Limited Annual Report 2017 9. Business combination
On 2 July 2015 Huon Aquaculture Group Limited acquired a small processing operation in outer Sydney for cash consideration of
$1,073,000, which has expanded the group’s distribution capability to deliver fresh product across Australia.
Details of the purchase consideration, the net assets acquired and goodwill are as follows:
Purchase consideration
Purchase consideration – cash paid
Acquisition values
The fair values of the assets and liabilities of the operation at the date of acquisition are:
Property, plant and equipment
Raw material and consumables
Goodwill
(i) Acquisition related costs
$’000
1,073
715
71
287
1,073
Acquisition related costs of $60,850 are included in other expenses in the consolidated income statement and in operating
cash flows in the consolidated statement of cash flows.
(ii) Goodwill
The goodwill is attributable to the operations existing distributions network, and synergies expected to arise after the group’s
acquisition of the operation. None of the goodwill is expected to be deducted for tax purposes. See note 29 for the changes
in goodwill as a result of the acquisition.
(iii) Revenue and profit contribution
The acquired business contributed revenues of $6,130,108 and net profit of $810,558 before tax to the group for the period from
2 July 2015 to 30 June 2016. If the acquisition had occurred on 1 July 2015, consolidated revenue and consolidated profit for the
year ended 30 June 2016 would not have been different from the amounts disclosed in the consolidated income statement.
There were no acquisitions in the year ended 30 June 2017.
Recognition and measurement
The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or
other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the:
–
–
–
–
–
fair values of the assets transferred
liabilities incurred to the former owners of the acquired business
equity interests issued by the group
fair value of any asset or liability resulting from a contingent consideration amount arrangement; and
fair value of any pre-existing equity interest in the subsidiary
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions,
measured initially at their fair values at the acquisition date. The group recognises any non-controlling interest in the acquired entity
on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired
entity’s net identifiable assets.
Acquisition-related costs are expensed as incurred.
The excess of the:
–
–
–
consideration transferred,
amount of any non-controlling interest in the acquired entity; and
acquisition-date fair value of any previous equity interest in the acquired entity
over the fair value of the net identifiable assets is recorded as goodwill. If those amounts are less than the fair value of the net
identifiable assets of the subsidiary acquired, the difference is recognised directly in profit or loss as a bargain purchase.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present
value as at the date of the exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a
similar borrowing could be obtained from an independent financier under comparable terms and conditions.
Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently
remeasured to fair value with changes in fair value recognised in profit or loss.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity
interest in the acquire is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are
recognised in profit or loss.
63
Net debt and working capital
10. Notes to the statement of cashflows
(a) Cash and cash equivalents as at the end of the financial year
as shown in the Statement of Cashflows is reconciled to the related
items in the Statement of Financial Position as follows:
Cash and cash equivalents
(b) Reconciliation of profit for the period to net cash inflow
from operating activities:
Profit for the period
Non-cash items
Depreciation and amortisation
Net (gain)/loss on disposal of non-current assets
Share-based payment expense
(Increase)/decrease in assets
Trade and other receivables
Biological assets and inventories
Current tax receivable
Prepayments
Increase/(decrease) in liabilities
Trade and other payables
Current tax liabilities
Deferred tax liabilities
Provisions
Other liabilities
Net cash inflow from operations
Recognition and measurement
Consolidated
2017
$’000
Consolidated
2016
$’000
23,004
23,004
3,787
3,787
42,160
3,427
22,665
47
289
(6,308)
(42,175)
3
(474)
23,193
–
14,337
715
(463)
53,989
19,666
(190)
255
(3,825)
5,128
4,354
1,710
(14,331)
–
628
(34)
(464)
16,324
For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held
at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are
readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
64
Notes to the financial statements (continued)Huon Aquaculture Group Limited Annual Report 2017
11. Trade and other receivables
Trade receivables
Provision for impairment
Other receivables
Provision for impairment
Movements in the provision for impairment were as follows:
Carrying value at the beginning of the year
Provision for impairment recognised
Receivables written off as uncollectable
Provision for impairment at year end
Trade receivables past due but not impaired
Under one month
One to three months
Over three months
Consolidated
2017
$’000
Consolidated
2016
$’000
28,387
(242)
1,710
20,468
(260)
3,268
29,855
23,476
(260)
(402)
420
(242)
7,719
307
–
8,026
(212)
(48)
–
(260)
6,109
122
16
6,247
Recognition and measurement
Trade receivables include amounts due from customers for goods sold and services performed in the ordinary course of business.
Receivables expected to be collected within 12 months of the end of the reporting period are classified as current assets. All other
receivables are classified as non-current assets. Trade and other receivables are initially recognised at fair value and subsequently
measured at amortised cost using the effective interest method, less any provision for impairment.
Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by
reducing the carrying amount directly. An allowance account (provision for impairment of trade receivables) is used when there
is objective evidence that the Consolidated Group will not be able to collect all amounts due according to the original terms
of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial
reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade
receivable is impaired. The amount of the impairment allowance is the difference between the asset’s carrying amount and the
present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term
receivables are not discounted if the effect of discounting is immaterial.
The amount of the impairment loss is recognised in consolidated income statement within other expenses. When a trade receivable
for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the
allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses.
Fair values of trade and other receivables
Due to the short-term nature of the current receivables, their carrying amount approximates to fair value.
Credit risk
The Consolidated Group has no significant concentration of credit risk with respect to any single counterparty or group of
counterparties other than those receivables specifically provided for and mentioned above. The main source of credit risk to the
Consolidated Group is considered to relate to the class of assets described as ‘trade and other receivables’.
The above table details the Consolidated Group’s trade and other receivables exposed to credit risk (prior to collateral and other
credit enhancements) with ageing analysis and impairment provided for thereon. Amounts are considered as ‘past due’ when the
debt has not been settled within the terms and conditions agreed between the Consolidated Group and the customer or counterparty
to the transaction. Receivables that are past due are assessed for impairment by ascertaining solvency of the debtors and are
provided for where there are specific circumstances indicating that the debt may not be fully repaid to the Consolidated Group.
The balances of receivables that remain within initial trade terms (as detailed in the above table) are considered to be of high
credit quality.
65
12. Inventories
Processed fish & finished goods
Feed and packaging
Inventory provisions
Consolidated
2017
$’000
Consolidated
2016
$’000
5,720
7,138
(483)
5,722
5,509
(233)
12,375
10,998
Recognition and measurement
Inventories are measured at the lower of cost and net realisable value. The cost of manufactured products includes direct materials,
direct labour and an appropriate portion of variable and fixed overheads. Overheads are applied on the basis of normal operating
capacity. Costs are assigned on the basis of weighted average costs.
13. Other assets
Prepayments
14. Trade and other payables
Trade payables
Other payables
Goods and services tax (GST) payable
Recognition and measurement
Consolidated
2017
$’000
Consolidated
2016
$’000
3,089
3,089
2,615
2,615
Consolidated
2017
$’000
Consolidated
2016
$’000
58,433
9,378
–
42,080
3,217
–
67,811
45,297
Trade and other payables represent the liabilities for goods and services received by the Consolidated Group that remain unpaid
at the end of the reporting period. The balance is recognised as a current liability with the amounts normally paid within 45 days
of recognition of the liability.
Fair values of trade and other payables
Due to the short-term nature of trade and other payables, their carrying amount approximates to fair value.
66
Notes to the financial statements (continued)Huon Aquaculture Group Limited Annual Report 2017 15. Borrowings
Current
Secured
Finance lease liabilities
Bank Loans
Other Loans
Unsecured
Other loans
Non-current
Secured
Finance lease liabilities
Bank Loans
Other Loans
Unsecured
Other loans
Consolidated
2017
$’000
Consolidated
2016
$’000
–
9,851
1,319
–
12,867
993
18
18
11,188
13,878
–
54,764
–
48
54,812
66,000
–
51,931
–
48
51,979
65,857
The weighted average effective interest rate on the bank loans is 3.45% per annum (2016: 3.40% per annum).
Term Loan
Term Loan
Working Capital
Bank Guarantee
Term Loan
Uncommitted foreign exchange contracts
Uncommitted interest rate swaps
Aggregate Facility Limit
Aggregate Undrawn Balance
2017
$’000
2016
$’000
Limit
Undrawn
Balance
Limit
Undrawn
Balance
–
65,000
30,000
30,000
6,000
6,000
200
2,500
–
–
– Discretionary
– Discretionary
28,750
75,000
14,000
30,000
3,000
6,000
200
2,500
–
–
– Discretionary
– Discretionary
103,500
–
–
36,200
113,500
–
–
45,950
67
15. Borrowings (continued)
The borrowings are secured by means of a charge over the Consolidated Group’s assets. The carrying amounts of assets pledged
as security are as recognised in the Consolidated Group’s balance sheet.
The group has facility agreements (“Facilities”) in place with its key banking partners to source debt and working capital funding.
The Facilities, together with certain proceeds from the issue of shares under the Initial Public Offering, are being utilised to fund
operations and Huon’s Controlled Growth Strategy. The Facilities are reviewed periodically to maintain an optimal capital structure
consistent with the group’s Capital Management strategy.
The Facilities have a variable interest rate on amounts drawn calculated at a variable rate by reference to the Australian dollar BBSY
and are subject to line fees on drawn and undrawn facilities.
Loan covenants:
Under the terms of the Facilities, the group is required to comply with certain financial covenants. During the financial year as part
of the annual review of the Group’s Facilities, the covenants were updated to the following:
–
–
–
Equity Ratio (Tangible Net Worth/Total Tangible Assets) greater than 50% (measured annually on 30 June);
Leverage Ratio (Gross Debt/Operating EBITDA) not greater than a maximum of 2.75 times (measured quarterly on a rolling
12 month basis);
Interest Cover Ratio (Operating EBITDA/Total Finance Costs) greater than 3.5 times (measured quarterly on a rolling 12 month
basis); and
– Actual capital expenditure not more than 110% of the annual capital expenditure budget approved by financiers.
The group complied with the financial covenants throughout the reporting period.
Recognition and measurement
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at
amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in
consolidated income statement over the period of the borrowings using the effective interest method. Fees paid on the establishment
of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will
be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable
that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over
the period of the facility to which it relates.
Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired.
The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and
the consideration paid, including any non cash assets transferred or liabilities assumed, is recognised in consolidated income
statement as other income or finance costs.
Borrowings are classified as current liabilities unless the Consolidated Group has an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period.
Borrowing Costs
General and specific borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying
asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale.
Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale.
All other borrowing costs are recognised in consolidated income statement in the period in which they are incurred.
68
Notes to the financial statements (continued)Huon Aquaculture Group Limited Annual Report 2017 16. Issued capital
Consolidated
2017
Consolidated
2016
No.
$’000
No.
$’000
(a) Ordinary share capital (fully paid):
Ordinary shares
87,337,207
164,302
87,337,207
164,302
The Company has authorised share capital amounting to 87,337,207 ordinary shares of no par value.
2017
2016
Note
No.
$’000
No.
$’000
(b) Movements in ordinary share capital
At the beginning of the reporting period
Share subdivision
Issue of new shares
Less: Transaction costs arising on share issues
(i)
87,337,207
–
–
–
164,302
–
–
–
87,337,207
–
–
–
164,302
–
–
–
At the end of the reporting period
87,337,207
164,302 87,337,207
164,302
(i) Ordinary shares have no par value and the Company does not have a limited amount of authorised capital.
Ordinary shares participate in dividends and the proceeds on winding up of the Parent Entity in proportion to the number of
shares held.
The voting rights attaching to ordinary shares are, on a show of hands every member present at a meeting in person or by proxy
shall have one vote, and upon a poll each share shall have one vote.
There are no unquoted equity securities on issue.
There is no current on-market buy-back in respect of the Company’s ordinary shares.
(c) Capital Management
Management controls the capital of the Consolidated Group in order to maintain a good debt to equity ratio, provide the shareholders
with adequate returns and ensure that the Consolidated Group can fund its operations and continue as a going concern.
The Consolidated Group’s debt and capital include ordinary share capital and financial liabilities, supported by financial assets.
There are no externally imposed capital requirements.
Management effectively manages the Consolidated Group’s capital by assessing the Consolidated Group’s financial risks and
adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of
debt levels, distributions to shareholders and share issues.
There have been no changes in the strategy adopted by management to control the capital of the Consolidated Group since the
prior year.
69
16. Issued capital (continued)
Total borrowings
Less cash and cash equivalents
Net debt
Total equity
Gearing ratio
Recognition and measurement
Ordinary shares are classified as equity.
Consolidated
2017
$’000
Consolidated
2016
$’000
66,000
(23,004)
65,857
(3,787)
42,996
62,070
293,222
250,773
14.7%
24.8%
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the
proceeds.
Where any group company purchases the Company’s equity instruments, for example as the result of a share buy-back or a
share based payment plan, the consideration paid, including any directly attributable incremental costs (net of income taxes) is
deducted from equity attributable to the owners of Huon Aquaculture Group Limited as ordinary share capital until the shares
are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received, net of any directly
attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the owners of
Huon Aquaculture Group Limited.
17. Other reserves
Share-based payment reserve
Balance at the beginning of financial year
Share-based payment expense
Balance at the end of financial year
Consolidated
2017
$’000
Consolidated
2016
$’000
255
289
544
–
255
255
The share-based payment reserve is used to recognise the grant date fair value of performance rights issued to employees. The
performance rights are issued to the Chief Executive Officer and Senior Management as part of the LTI plan. Refer to note 26 for
further details.
70
Notes to the financial statements (continued)Huon Aquaculture Group Limited Annual Report 2017 Other
18. Financial assets
Consolidated
2017
$’000
Consolidated
2016
$’000
Investment in Salmon Enterprises of Tasmania Pty Ltd (“Saltas”) (i)
1,341
1,341
(i) The Consolidated Group holds ordinary share capital of Salmon Enterprises of Tasmania Pty Ltd (“Saltas”).
The directors of Huon Aquaculture Group Limited do not believe that the Consolidated Group is able to exert significant influence
over Saltas.
Recognition and Measurement
Investments are initially recorded at cost or fair value. Individual investments are assessed for any impairment in value.
19. Other financial assets
Derivatives carried at fair value
Foreign currency forward contracts
Consolidated
2017
$’000
Consolidated
2016
$’000
–
–
71
71
Refer to note 20 for fair value measurement and hierarchy.
20. Fair value measurements
The Consolidated Group measures and recognises the following assets at fair value on a recurring basis after initial recognition:
–
Biological assets (refer to note 3)
The Consolidated Group does not subsequently measure any liabilities at fair value on a recurring basis, or any assets or liabilities
at fair value on a non-recurring basis.
Fair value hierarchy
AASB 13 requires the disclosure of fair value information by level of the fair value hierarchy, which categorises fair value
measurements into one of three possible levels based on the lowest level that an input that is significant to the measurement can
be categorised into as follows:
Level 1: Measurements based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can
access at the measurement date.
Level 2: Measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability,
either directly or indirectly.
Level 3: Measurements based on unobservable inputs for the asset or liability.
The fair values of assets and liabilities that are not traded in an active market are determined using one or more valuation
techniques. These valuation techniques maximise, to the extent possible, the use of observable market data. If all significant inputs
required to measure fair value are observable, the asset or liability is included in Level 2. If one or more significant inputs are not
based on observable market data, the asset or liability is included in Level 3.
Valuation techniques
The Consolidated Group selects a valuation technique that is appropriate in the circumstances and for which sufficient data is
available to measure fair value. The availability of sufficient and relevant data primarily depends on the specific characteristics of
the asset or liability being measured.
There has been no change in the valuation technique(s) used to calculate the fair values disclosed in the financial statements.
There has been no transfers between the fair value measurement levels during the financial year.
71
20. Fair value measurements (continued)
Recognition and measurement
Financial instruments
The Consolidated Group enters into a variety of derivative financial instruments to manage its exposure to foreign exchange
rate risk, including forward foreign exchange contracts. The derivative financial instruments do not qualify for hedge accounting.
Changes in the fair value of the derivative financial instruments are recognised immediately in consolidated income statement.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured
to their fair value at each reporting date.
Initial recognition and measurement
Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions of the
instrument. For financial assets, this is equivalent to the date that the Company commits itself to either purchase or sell the asset
(i.e. trade date accounting is adopted).
Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classified ‘at fair
value through consolidated income statement’ in which case transaction costs are recognised as expenses in consolidated income
statement immediately.
Classification and Subsequent Measurement
Financial instruments are classified at fair value or amortised cost depending on their classification in accordance with AASB139.
Where available, quoted prices in an active market are used to determine fair value.
Amortised cost is calculated as the amount at which the financial asset or financial liability is measured at initial recognition less
principal repayments and any reduction for impairment, and adjusted for any cumulative amortisation of the difference between
that initial amount and the maturity amount calculated using the effective interest method.
The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to
the rate that exactly discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or
discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to
the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an
adjustment to the carrying amount with a consequential recognition of an income or expense item in consolidated income statement.
(i) FINANCIAL ASSETS AT FAIR VALUE THROUGH CONSOLIDATED INCOME STATEMENT
Financial assets are classified at “fair value through consolidated income statement” when they are held for trading for the
purpose of short-term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an
accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management
personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are
subsequently measured at fair value with changes in carrying amount being included in consolidated income statement.
(ii) LOANS AND RECEIVABLES
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market and are subsequently measured at amortised cost. Gains or losses are recognised in consolidated income statement
through the amortisation process and when the financial asset is derecognised.
(iii) HELD-TO-MATURITY INVESTMENTS
Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments,
and it is the Consolidated Group’s intention to hold these investments to maturity. They are subsequently measured at amortised
cost. Gains or losses are recognised in consolidated income statement through the amortisation process and when the financial
asset is derecognised.
(iv) FINANCIAL LIABILITIES
Non-derivative financial liabilities other than financial guarantees are subsequently measured at amortised cost. Gains or
losses are recognised in consolidated income statement through the amortisation process and when the financial liability
is derecognised.
72
Notes to the financial statements (continued)Huon Aquaculture Group Limited Annual Report 2017 20. Fair value measurements (continued)
Impairment
At the end of each reporting period, the Consolidated Group assesses whether there is objective evidence that a financial asset has
been impaired. A financial asset (or a group of financial assets) is deemed to be impaired if, and only if, there is objective evidence
of impairment as a result of one or more events (a “loss event”) having occurred, which has an impact on the estimated future cash
flows of the financial asset(s).
In the case of available-for-sale financial assets, a significant or prolonged decline in the market value of the instrument is considered
to constitute a loss event. Impairment losses are recognised in consolidated income statement immediately. Also, any cumulative
decline in fair value previously recognised in other comprehensive income is reclassified to consolidated income statement at this point.
In the case of financial assets carried at amortised cost, loss events may include: indications that the debtors or a group of debtors
are experiencing significant financial difficulty, default or delinquency in interest or principal payments; indications that they will
enter bankruptcy or other financial reorganisation; and changes in arrears or economic conditions that correlate with defaults.
For financial assets carried at amortised cost (including loans and receivables), a separate allowance account is used to reduce the
carrying amount of financial assets impaired by credit losses. After having taken all possible measures of recovery, if management
establishes that the carrying amount cannot be recovered by any means, at that point the written-off amounts are charged to the
allowance account or the carrying amount of impaired financial assets is reduced directly if no impairment amount was previously
recognised in the allowance account.
When the terms of financial assets that would otherwise have been past due or impaired have been renegotiated, the Consolidated
Group recognises the impairment for such financial assets by taking into account the original terms as if the terms have not been
renegotiated so that the loss events that have occurred are duly considered.
Derecognition
Financial assets are derecognised when the contractual rights to receipt of cash flows expire or the asset is transferred to another
party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset.
Financial liabilities are derecognised when the related obligations are discharged, cancelled or have expired. The difference
between the carrying amount of the financial liability extinguished or transferred to another party and the fair value of consideration
paid, including the transfer of non-cash assets or liabilities assumed, is recognised in consolidated income statement.
21. Financial risk management
The Consolidated Group’s activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and
price risk), credit risk and liquidity risk. The Consolidated Group’s overall risk management program focuses on the unpredictability
of financial markets and seeks to minimise potential adverse effects on the financial performance of the Consolidated Group. The
Consolidated Group uses derivative financial instruments such as foreign exchange contracts and interest rate swaps to manage
certain risk exposures. i.e. - not used as trading or other speculative instruments. The Consolidated Group uses different methods
to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign
exchange and other price risks, aging analysis for credit risk and beta analysis in respect of investment portfolios to determine
market risk.
Risk management is carried out under policies approved by the Board.
The Consolidated Group holds the following financial instruments:
Financial Assets
Cash and cash equivalents
Trade and other receivables
Derivative financial instruments
Total Financial Assets
Financial Liabilities
Trade and other payables
Borrowings
Derivative financial instruments
Total Financial Liabilities
Consolidated
2017
$’000
Consolidated
2016
$’000
23,004
29,855
–
3,787
23,476
71
52,859
27,334
67,811
66,000
679
45,297
65,857
–
134,490
111,154
73
21. Financial risk management (continued)
(a) Credit risk
Credit risk is managed on a Consolidated Group basis. Credit risk arises from cash and cash equivalents, favourable derivative
financial instruments and deposits with banks exposures to wholesale, commercial and retail customers, including outstanding
receivables and committed transactions.
Credit risk also arises in relation to financial guarantees given to certain parties (see notes 22 and 27(c)(ii) for details). Such
guarantees are only provided in exceptional circumstances and are subject to specific Board approval.
(b) Liquidity risk
Management monitors rolling forecasts of the Consolidated Group’s liquidity reserve (comprising the undrawn borrowing facilities
below) and cash and cash equivalents (note 10) on the basis of expected cash flows.
Financing arrangements
The Consolidated Group had access to the following undrawn borrowing facilities at the end of the reporting period:
Floating rate
Expiring within one year (bank loans)
Expiring beyond one year (bank loans)
Consolidated
2017
$’000
Consolidated
2016
$’000
–
6,000
30,000
36,000
–
3,000
42,750
45,750
Maturities of financial liabilities
The table below analyses the Consolidated Group’s financial liabilities into relevant maturity groupings as follows:
(a) based on their contractual maturities:
(i) all non derivative financial liabilities
(ii) net and gross settled derivative financial instruments for which the contractual maturities are essential for an understanding
of the timing of cash flows.
(b) based on the remaining period to the expected settlement date:
(i) derivative financial liabilities for which the contractual maturities are not essential for an understanding of the timing of
cash flows.
The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying
balances as the impact of discounting is not significant.
Contractual maturities of financial liabilities
Within
1 year
$’000
1 to 5
years
$’000
Over
5 years
$’000
Total
$’000
Carrying
Amount
$’000
At 30 June 2017
NON DERIVATIVES
Borrowings
Trade and other payables
Total expected outflows
DERIVATIVES
Net settled (forward foreign exchange contracts)
– (inflow)
– outflow
Total expected (inflow)/outflow
13,675
67,811
81,486
59,518
–
59,518
–
679
679
–
–
–
–
–
–
–
–
–
73,193
67,811
66,000
67,811
141,004
133,811
–
679
679
–
679
679
74
Notes to the financial statements (continued)Huon Aquaculture Group Limited Annual Report 2017 21. Financial risk management (continued)
Contractual maturities of financial liabilities
Within
1 year
$’000
1 to 5
years
$’000
Over
5 years
$’000
Total
$’000
Carrying
Amount
$’000
At 30 June 2016
NON DERIVATIVES
Borrowings
Trade and other payables
Total expected outflows
DERIVATIVES
Net settled (forward foreign exchange contracts)
– (inflow)
– outflow
Total expected (inflow)/outflow
(c) Market risk management
32,480
45,297
77,777
70,159
–
70,159
(71)
–
(71)
–
–
–
–
–
–
–
–
–
102,639
45,297
65,857
45,297
147,936
111,154
(71)
–
(71)
(71)
–
(71)
INTEREST RATE RISK MANAGEMENT
(i)
The Consolidated Group is exposed to interest rate risk as it borrows funds at both floating and fixed interest rates. The financial
instruments that expose the Consolidated Group to interest rate risk are limited to borrowings, cash and cash equivalents.
Interest rate risk is managed by using a mix of fixed and floating rate debt and the Consolidated Group enters into interest
rate swaps from time to time to convert debt to a fixed rate. At 30 June 2017: 98% (2016: 98%) of Consolidated Group debt is
floating. The Consolidated Group also manages interest rate risk by ensuring that, whenever possible, payables are paid within
any pre-agreed credit terms.
The net effective variable interest rate borrowings (i.e. unhedged debt) expose the Consolidated Group to interest rate risk which
will impact future cash flows and interest charges and is indicated by the following floating interest rate financial liabilities:
The following table details the notional principle amounts at the end of the reporting period.
Floating rate instruments
Bank Loans
Weighted average
interest rate
Consolidated notional
principal value
2017
%
2016
%
2017
$’000
2016
$’000
3.45%
3.40%
65,000
65,000
65,250
65,250
75
21. Financial risk management (continued)
Interest rate sensitivity analysis
At 30 June 2017, if interest rates had increased by 50 basis points or decreased by 50 basis points from the year end rates with all
other variables held constant, pre tax profit for the period would have been $214,453 higher/$214,453 lower (2016 changes of
50bps/50bps: $108,144 higher/$75,553 lower), mainly as a result of higher/lower interest income from cash and cash equivalents.
(ii) FOREIGN EXCHANGE RISK
The Consolidated Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures,
predominantly with respect to the US Dollar and Japanese Yen.
Foreign exchange risk arises when future commercial transactions and recognised financial assets and financial liabilities are
denominated in a currency that is not the entity’s functional currency. The risk is measured using sensitivity analysis and cash flow
forecasting.
The Consolidated Group hedges its foreign exchange risk exposure arising from future commercial transactions and recognised
assets and liabilities using forward contracts. The Consolidated Group’s risk management policy is to hedge between 75% – 125%
of cash flows arising from known inventory purchase commitments, mainly denominated in US dollars for the subsequent six months.
The Consolidated Group’s exposure to foreign currency risk at the end of the reporting period, expressed in Australian dollar, was
as follows:
Trade payables (import creditors)
Forward exchange contracts
Buy foreign currency (cash flow hedges)
Sell foreign currency (cash flow hedges)
Consolidated
2017
$’000
Consolidated
2016
$’000
11,232
2,040
40,363
4,417
22,579
2,906
Consolidated Group sensitivity
Based on the financial instruments held at 30 June 2017, had the Australian dollar strengthened/weakened by 10% against the US
dollar and the Euro with all other variables held constant, the Consolidated Group’s pre-tax profit for the period would have been
$3,746,927 higher/$4,029,072 lower (2016: $2,192,527 higher/$1,793,886 lower), mainly as a result of foreign exchange gains/
losses on translation of US dollar denominated financial instruments as detailed in the above table.
Recognition and measurement
Foreign Currency Transactions and Balances
FUNCTIONAL AND PRESENTATION CURRENCY
The functional currency of each group entity is measured using the currency of the primary economic environment in which that
entity operates. The consolidated financial statements are presented in Australian dollars which is the Parent Entity’s functional and
presentation currency.
TRANSACTIONS AND BALANCES
Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the
transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at
historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value
are reported at the exchange rate at the date when fair values were determined.
Exchange differences arising on the translation of monetary items are recognised in consolidated income statement, except where
deferred in equity as a qualifying cash flow or net investment hedge.
Exchange differences arising on the translation of non-monetary items are recognised directly in other comprehensive income to
the extent that the underlying gain or loss is directly recognised in other comprehensive income, otherwise the exchange difference
is recognised in consolidated income statement.
76
Notes to the financial statements (continued)Huon Aquaculture Group Limited Annual Report 2017 22. Parent information
The following information has been extracted from the books and records of the parent and has been prepared in accordance with
Australian Accounting Standards.
Statement of financial position
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Total liabilities
Equity
Issued capital
Share-based payment reserve
Retained earnings
Dividends provided for or paid
Total equity
Financial performance
Loss for the period
Total comprehensive income
Consolidated
2017
$’000
Consolidated
2016
$’000
–
168,103
167
167,936
168,103
168,103
–
–
–
–
164,302
544
3,257
–
164,302
255
3,546
–
168,103
168,103
289
289
–
–
Parent Entity financial information
The financial information for the Parent Entity, Huon Aquaculture Group Limited, disclosed above has been prepared on the
same basis as the consolidated financial statements, except as set out below. Huon Aquaculture Group Limited is the ultimate
parent entity.
Transactions with related entities
The loss of the Parent Entity shown above is due to the recognition of expenditure in relation to performance rights limited to share-
based remuneration.
Investments in subsidiaries, associates, and joint venture entities are accounted for at cost in the financial statements of Huon
Aquaculture Group Limited. Dividends received from associates are recognised in the Parent Entity’s consolidated income statement
when its right to receive the dividend is established.
Tax consolidation legislation
Huon Aquaculture Group Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation
legislation.
The head entity, Huon Aquaculture Group Limited, and the controlled entities in the tax Consolidated Group account for their own
current and deferred tax amounts. These tax amounts are measured as if each entity in the tax Consolidated Group continues to
be a stand alone taxpayer in its own right.
In addition to its own current and deferred tax amounts, Huon Aquaculture Group Limited also recognises the current tax liabilities
(or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in
the tax Consolidated Group. In the current year tax losses of $4,404,767 (tax effected at 30%) (2016: $1,225,809 (tax effected at
30%)) have been assumed from controlled entities in the tax Consolidated Group.
The entities have also entered a tax funding agreement under which the wholly-owned entities fully compensate Huon Aquaculture
Group Limited for any current tax payable assumed and are compensated by Huon Aquaculture Group Limited for any current
tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Huon Aquaculture
Group Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised
in the wholly-owned entities’ financial statements.
77
22. Parent information (continued)
The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity,
which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim
funding amounts to assist with its obligations to pay tax instalments.
Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as current amounts
receivable from or payable to other entities in the Consolidated Group.
Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised
as a contribution to (or distribution from) wholly-owned tax consolidated entities.
23. Deed of cross guarantee
The wholly-owned subsidiaries disclosed in note 31 are parties to a deed of cross guarantee under which each company guarantees
the debts of the others. By entering into the deed, the wholly-owned entities have been relieved from the requirement to prepare a
financial report and directors’ report under Instrument 2016/785 issued by the Australian Securities and Investments Commission.
The closed group financial information for 2016 and 2017 is identical to the financial information included in the consolidated
financial statements. The wholly-owned subsidiaries became a party to the deed of cross guarantee dated 28 June 2016.
The companies disclosed in note 31 represent a ‘closed group’ for the purposes of the Instrument, and as there are no other
parties to the deed of cross guarantee that are controlled by Huon Aquaculture Group Limited, they also represent the ‘extended
closed group’.
78
Notes to the financial statements (continued)Huon Aquaculture Group Limited Annual Report 2017 24. Income tax
(a) Income tax recognised in profit or loss:
Tax (expense)/income comprises:
Current tax (expense)/income
Adjustments for current tax of prior periods
Increase in deferred tax assets
Increase in deferred tax liabilities
Total tax expense
The prima facie tax on profit from ordinary activities before income tax
is reconciled to the income tax expense as follows:
Profit from continuing operations before income tax expense
Prima facie tax payable on profit from ordinary activities before income tax
at 30% (2016: 30%) for the Consolidated Group.
Adjustment recognised in the current year in relation to prior years:
Research and development
Other
Non-tax deductible items
Income tax (expense)
Consolidated
2017
$’000
Consolidated
2016
$’000
5
2,616
(2,647)
(14,306)
(14,332)
1,387
(1,386)
1,701
(2,329)
(627)
56,492
4,054
(16,948)
(1,216)
3,315
(691)
(8)
(14,332)
599
–
(10)
(627)
The applicable weighted average effective tax rates are as follows:
25.4%
15.5%
(b) Income tax recognised directly in equity:
Deferred tax:
Share issue costs
(c) Current tax balances:
Current tax receivables comprise:
Income tax receivable attributable to:
Entities in the tax-Consolidated Group
Net current tax balance
Current tax liabilities comprise:
Income tax payable attributable to:
Entities in the tax-Consolidated Group
Net current tax balance
–
–
–
–
–
–
–
–
3
3
–
–
79
24. Income tax (continued)
(d) Deferred tax balances:
Taxable and deductible temporary differences, comprise of the following and arise from the following movements:
2017
Gross deferred tax liabilities:
Biological assets
Property, plant and equipment
Trade and other receivables
Other non-current assets
Other financial assets
Gross deferred tax assets:
Provisions
Other financial assets
Trade and other receivables
Property, plant and equipment
Other intangibles
Share issue expenses
Tax Losses
Research and development
Borrowing costs
Share-based payments
Deferred Revenue
Trade and other payables
Net deferred tax asset/(liability)
2016
Gross deferred tax liabilities:
Biological assets
Property, plant and equipment
Trade and other receivables
Other non-current assets
Other financial assets
Gross deferred tax assets:
Provisions
Other financial assets
Trade and other receivables
Property, plant and equipment
Other intangibles
Share issue expenses
Tax Losses
Borrowing costs
Share-based payments
Deferred Revenue
Trade and other payables
Net deferred tax asset/(liability)
80
Opening
balance
$’000
(40,667)
(6,440)
(72)
(2,200)
(388)
Charged
to income
$’000
Adjustments
for current tax
of prior periods
$’000
(12,144)
(2,382)
51
131
38
–
(927)
–
–
–
Closing
balance
$’000
(52,811)
(9,749)
(21)
(2,069)
(350)
(49,767)
(14,306)
(927)
(65,000)
1,833
–
57
214
3
1,026
4,010
–
4
76
1,144
87
215
–
219
(17)
–
(346)
(3,697)
–
–
87
(139)
1,031
8,454
(2,647)
(41,313)
(16,953)
–
–
–
–
–
–
224
3,315
4
–
–
–
3,543
2,616
Charged
to income
$’000
Adjustments
for current tax
of prior periods
$’000
Opening
balance
$’000
(42,655)
(2,022)
–
(2,326)
(435)
1,988
(4,418)
(72)
126
47
(47,438)
(2,329)
1,843
–
20
297
2
1,265
1,831
–
–
1,283
212
6,753
(40,685)
(10)
–
37
(83)
1
(239)
2,179
4
76
(139)
(125)
1,701
(628)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,048
–
276
197
3
680
537
3,315
8
163
1,005
1,118
9.350
(55,650)
Closing
balance
$’000
(40,667)
(6,440)
(72)
(2,200)
(388)
(49,767)
1,833
–
57
214
3
1,026
4,010
4
76
1,144
87
8,454
(41,313)
Notes to the financial statements (continued)Huon Aquaculture Group Limited Annual Report 2017 24. Income tax (continued)
Recognition and measurement
(Refer to note 22 for Tax Consolidation legislation)
The income tax expense/income for the year comprises current income tax expense/income and deferred tax expense/income.
Current income tax expense charged to the consolidated income statement is the tax payable on taxable income. Current tax
liabilities/assets are measured at the amounts expected to be paid to/recovered from the relevant taxation authority.
Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well
as unused tax losses.
Huon Aquaculture Group Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation
legislation. As a consequence, these entities are taxed as a single entity and the deferred tax assets and liabilities of these entities
are set off in the consolidated financial statements.
Current and deferred tax is recognised in consolidated income statement, except to the extent that it relates to items recognised in
other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly
in equity, respectively.
Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or liability, excluding
a business combination, where there is no effect on accounting or taxable consolidated income statement.
Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or
the liability is settled and their measurement also reflects the manner in which management expects to recover or settle the carrying
amount of the related asset or liability. With respect to non-depreciable items of property, plant and equipment measured at fair
value and marine leases, the related deferred tax liability or deferred tax asset is measured on the basis that the carrying amount
of the asset will be recovered entirely through sale. When an investment property that is depreciable is held by the Company in
a business model whose objective is to consume substantially all of the economic benefits embodied in the property through use
over time (rather than through sale), the related deferred tax liability or deferred tax asset is measured on the basis that the carrying
amount of such property will be recovered entirely through use.
Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that
future taxable profit will be available against which the benefits of the deferred tax asset can be utilised.
Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax
assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not
probable that the reversal will occur in the foreseeable future.
Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or
simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset
where: (a) a legally enforceable right of set-off exists; and (b) the deferred tax assets and liabilities relate to income taxes levied by
the same taxation authority on either the same taxable entity or different taxable entities, where it is intended that net settlement or
simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts
of deferred tax assets or liabilities are expected to be recovered or settled.
25. Key management personnel compensation
The totals of remuneration for key management personnel (KMP) of the Consolidated Group during the year are as follows:
Short-term employee benefits
Post-employment benefits
Long-term benefits
Termination benefits
Share-based payments
No remuneration was paid by the Parent Entity to the KMP.
Consolidated
2017
$
Consolidated
2016
$
1,993,210
152,251
–
–
180,127
1,576,944
168,469
–
–
164,895
2,325,588
1,910,308
81
26. Share-based payment
(a) Share-based payment arrangements
The Group offers the Chief Executive Officer and senior management the opportunity to participate in the Long-Term Incentive
Plan (“the Plan”), which involves performance rights to acquire shares in Huon Aquaculture Group Limited. The Plan is designed to:
–
–
assist in the motivation, retention and reward of employees, including the Chief Executive Officer and members of senior management;
and
align the interests of employees participating in the Plan more closely with the interests of shareholders by providing an
opportunity for those employees to receive an equity interest in the Huon Aquaculture Group through the granting of
performance rights.
Performance period
Under the Plan, performance rights were issued to the Chief Executive Officer and members of senior management as the LTI
component of their remuneration. Performance rights granted under the LTI offer have the following vesting conditions:
–
–
50% of the performance rights will be subject to a vesting condition based on the Company’s earnings per share (EPS); and
50% of the performance rights will be subject to a vesting condition based on the Company’s return on assets (ROA)
If the specific performance criteria are satisfied, the Board has resolved to issue, or procure the transfer of Shares, or alternatively
pay the cash amount of equivalent value, to Mr Bender and senior management on the vesting of those performance rights.
In the event that a performance right holder ceases to be an employee prior to the completion of the performance period due to
a qualifying reason (i.e. other than for dismissal for cause) and such cessation occurs within the first twelve months of the grant of
the performance rights, then the performance rights will be forfeited on a pro-rata basis for the number of months employed in
the full year.
Performance rights that have vested may be exercised until the applicable expiry date. If any shares are issued following exercise
of a vested performance right prior to the applicable expiry date then they may not be sold or transferred before three years after
the beginning of the performance period.
Number of Shares to be Allocated
The percentage of performance rights that vest at the end of each applicable performance period will be determined by reference
to the following schedule:
Earnings Per Share (EPS) – 50% of LTI
EPS compound annual growth rate (‘CAGR’)
Less than 7.5% CAGR
7.5% CAGR
Above 7.5% CAGR but below 10% CAGR
10% CAGR or greater
Return On Assets (ROA) – 50% of LTI
ROA (return for the reporting period)
Less than 10% return
10% return
Above 10% return but below 15% return
15% return or greater
Vesting outcome
Nil
50%
Pro-rata from 50-99%
100%
Vesting outcome
Nil
50%
Pro-rata from 50-99%
100%
The relationship between earnings and the number of shares issued is calculated as the net profit after income tax (NPAT) (excluding
adjustment for biological assets) divided by the weighted average number of ordinary shares on issue. Compared to an absolute
profit measure, EPS takes into account changes in the equity base and for this reason it is preferred to other profit based metrics.
The Return on Assets is calculated as statutory earnings before interest and tax (excluding adjustment for biological assets), divided
by total assets excluding cash and fair value adjustment on biological assets (average of opening and closing balance). ROA is
an appropriate measure for asset intensive industries which reinforces the need to invest capital on projects with a superior return.
82
Notes to the financial statements (continued)Huon Aquaculture Group Limited Annual Report 2017 26. Share-based payment (continued)
(b) Performance rights granted
Set out below is a summary of performance rights granted under the LTI plan.
2017
Performance Period
Grant Date
From
To
Balance
at Start
of Year
Granted
During
Year
Forfeited
Vested
25-Nov-15
25-Nov-15
19-Oct-15
19-Oct-15
30-Nov-16
30-Nov-16
1-Jul-15
1-Jul-15
1-Jul-15
1-Jul-15
1-Jul-16
1-Jul-16
30-Jun-17
30-Jun-18
30-Jun-17
30-Jun-18
30-Jun-18
30-Jun-19
47,834
47,834
60,783
60,783
–
–
–
–
–
–
157,111
157,111
(47,834)
–
(60,783)
–
–
–
–
–
–
–
–
–
2016
Performance Period
Grant Date
From
To
Balance
at Start
of Year
Granted
During
Year
Forfeited
Vested
25-Nov-15
25-Nov-15
25-Nov-15
19-Oct-15
19-Oct-15
19-Oct-15
1-Jul-15
1-Jul-15
1-Jul-15
1-Jul-15
1-Jul-15
1-Jul-15
30-Jun-16
30-Jun-17
30-Jun-18
30-Jun-16
30-Jun-17
30-Jun-18
–
–
–
–
–
–
47,834
47,834
47,834
60,783
60,783
60,783
(47,834)
–
–
(60,783)
–
–
–
–
–
–
–
–
Balance
at End
of Year
–
47,834
–
60,783
157,111
157,111
Balance
at End
of Year
–
47,834
47,834
–
60,783
60,783
FV per
Share
$4.04
$4.04
$4.01
$4.01
$3.71
$3.71
FV per
Share
$4.04
$4.04
$4.04
$4.01
$4.01
$4.01
(c) Fair value of performance rights granted
For the performance rights granted during the current financial year, the fair values were measured at the grant date of 30 November
2016 for those granted to the Chief Executive Officer and to senior management.
The fair value of the performance rights granted under the Plan was calculated using the Black-Scholes option pricing methodology.
The fair value of these performance rights do not take into account the EPS and ROA hurdles being met, as they are non-market
related vesting conditions.
The following were the key assumptions used in determining the valuation:
Share price at grant date
Dividend yield (per annum effective)
Risk free discount rate (per annum)
Expected price volatility
Term of performance right
Fair value of performance right
Chief Executive
Officer
Senior
Management
$3.71
0%
2.80%
24.0%
1-3 years
$3.71
$3.71
0%
2.80%
24.0%
1-3 years
$3.71
The expense recognised in relation to performance rights applicable to the Chief Executive Officer and senior management for the
year ended 30 June 2017 is $289,032 (2016: $254,910).
83
26. Share-based payment (continued)
Recognition and measurement
The Group provides benefits to the Chief Executive Officer and certain senior management in the form of share-based payment,
whereby services are rendered in exchange for rights over shares (performance rights). These benefits are provided as part of the
Group’s long-term incentive plan.
The fair value of the performance rights is recognised as an employee benefits expense, with a corresponding increase in equity.
The total amount to be expensed is determined by reference to the fair value of the performance rights granted, which includes
any market performance conditions and the impact of any non-vesting conditions, but excludes the impact of any service and
non-market performance vesting conditions. Non-market vesting conditions are included in assumptions about the number of
performance rights that are expected to vest.
The total expense is recognised over the period in which the performance and/or service conditions are fulfilled (the vesting period),
ending on the date on which the relevant employees become fully entitled to the award (the vesting date).
At the end of each reporting period, the Group revises its estimates of the number of awards that are expected to vest based on
the non-market vesting conditions. The impact of the revision to original estimates, if any, is recognised in profit or loss, with a
corresponding adjustment to equity.
84
Notes to the financial statements (continued)Huon Aquaculture Group Limited Annual Report 2017 27. Related party transactions
Identity of related parties
The following persons and entities are regarded as related parties:
(a) Controlled entities:
Refer to note 31 for details of equity interests in entities controlled by Huon Aquaculture Group Limited.
(b) Key Management Personnel:
Directors and other Key Management Personnel (KMP) also include close members of the families of Directors and other KMP.
In determining the disclosures noted below, the KMP have made appropriate enquiries to the best of their ability and the information
presented reflects their knowledge.
All transactions entered into during the year were on normal commercial terms and conditions no more favourable than those if the
entity was dealing with an unrelated party at on an arm’s length basis.
(i) Compensation of KMP
Details of KMP compensation are disclosed in the Remuneration Report
and in note 25 to the financial statements.
(ii) Compensation of close family members
Other transactions
Short-term employee benefits
Superannuation Contributions
Consolidated
2017
$
Consolidated
2016
$
240,529
125,726
Contributions to superannuation funds on behalf of employees
21,051
8,890
(iii) Dividend revenue
Key Management Personnel
(iv) Purchases from entities controlled by Key Management Personnel
The group acquired the following goods and services from entities that are controlled
by members of the group’s Key Management Personnel:
Land, Buildings and Property, Plant and Equipment
Leases of assets
(v) Outstanding balances arising from sales/purchases of goods and services
Current Payables:
Entities controlled by close family members
Entities controlled by key management personnel
(c) Investments
(i) Purchase (sales) of goods and services
–
–
–
356,236
–
402,982
356,236
402,982
31,540
–
31,540
126,160
–
126,160
The Consolidated Group entered into transactions with Salmon Enterprises of Tasmania Pty Ltd for the supply of smolt (juvenile
salmon) and the sale of other goods and services. These transactions were conducted on normal commercial terms and conditions.
Salmon Enterprises of Tasmania Pty Ltd
(ii) Financial guarantee contract
Consolidated
2017
$
Consolidated
2016
$
1,404,915
698,043
During the 2012 financial year the Consolidated Group became party to a $7.02 million facility that Salmon Enterprises of Tasmania
Pty Ltd entered into with BankWest through a financial guarantee contract. The facility was amended during the 2017 financial year.
The Consolidated Group’s guarantee is for $0.98 million.
85
28. Remuneration of auditors
During the year the following fees were paid or payable for services provided by the auditor of the Parent Entity, its related practices
and non-related audit firms:
(a) PricewaterhouseCoopers Australia
(i) Audit and other assurance services
Audit and review of financial statements
Other assurance services – audit of grant acquittal
Total remuneration for audit and other assurance services
(ii) Taxation & other advisory services
Taxation & other advisory services
Other advisory services
Total remuneration for taxation and other advisory services
Total remuneration of PricewaterhouseCoopers Australia
(b) Non PricewaterhouseCoopers firms
(i) Audit and other assurance services
Other assurance services
Total remuneration for audit and other assurance services
(ii) Taxation services
Taxation advisory services
Total remuneration for taxation services
(iii) Other services
Legal services
Total remuneration for other services
Total remuneration of non-PricewaterhouseCoopers firms
Consolidated
2017
$
Consolidated
2016
$
240,000
–
240,000
–
240,000
240,000
96,900
3,000
99,900
5,100
5,142
10,242
339,900
250,242
28,589
28,589
37,890
37,890
20,085
20,085
209,312
209,312
–
–
–
–
48,674
247,202
The Parent Entity’s audit fees were paid for by Huon Aquaculture Company Pty Ltd, a wholly owned subsidiary.
86
Notes to the financial statements (continued)Huon Aquaculture Group Limited Annual Report 2017 29. Goodwill
Gross carrying amount
Balance at the beginning of financial year
Additions
Balance at the end of financial year
Accumulated impairment losses
Balance at the beginning of financial year
Impairment losses for the year
Balance at the end of financial year
Net book value
Balance at the beginning of financial year
Balance at the end of financial year
Consolidated
2017
$’000
Consolidated
2016
$’000
Note
9
4,496
–
4,496
(1,601)
–
(1,601)
4,209
287
4,496
(1,601)
–
(1,601)
2,895
2,895
2,608
2,895
Goodwill relates to the Consolidated Group’s acquisition of the wholly-owned controlled entities, Huon Ocean Trout Pty Ltd, Southern
Ocean Trout Pty Ltd, Morrison’s Seafood Pty Ltd, Meadowbank Hatchery Pty Ltd.
Goodwill acquired during the 2016 financial year relates to the acquisition of the processing plant in Sydney. Refer to note 9 for further
details of the acquisition.
Recognition and measurement
Goodwill
Goodwill acquired in a business combination is initially measured at fair value, being the excess of the cost of the business combination
over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. Goodwill is
subsequently measured at its deemed cost less any impairment losses.
Goodwill is not amortised but is reviewed for impairment at least annually, or more frequently if events or changes in circumstances
indicate that they might be impaired. For the purpose of impairment testing, goodwill is allocated to each of the Consolidated Group’s
cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been
allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the
recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the
carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying
amount of each asset in the unit. An impairment loss recognised for goodwill is recognised immediately in consolidated income
statement and is not reversed in a subsequent period.
Impairment testing is performed annually for goodwill and intangible assets with indefinite lives.
87
29. Goodwill (continued)
Impairment tests for goodwill
All goodwill relates to the domestic operating segment and is tested annually for impairment using a value-in-use calculation.
The calculation uses cash flow projections based on financial budgets approved by the Board, over a 5 year period, before any fair
value adjustments of biological assets.
The Directors and management have considered and assessed reasonably possible changes in key assumptions and have not
identified any instances that could cause the carrying amount of the Domestic operating segment to exceed its recoverable amount.
The following table sets out the key assumptions used in the calculations:
Quantity
Price
Production costs
Projections in line with, but below the expected industry growth rate of 10%.
In line with the last quarter of FY2017, but below current market prices.
Projections of conservative cost savings and recognising efficiencies post the Controlled Growth
Strategy implementation.
Annual Capital Expenditure Capital spend requirements estimated to meet growth projections.
Long-term growth rate
This is the weighted average growth rate used to extrapolate cash flows beyond the budget period.
The rates are consistent with forecasts included in industry reports.
Pre-tax discount rates
Discount rates represent the current market assessment of the risks relating to the relevant segment.
In performing the value-in-use calculations for each cash-generating unit, the Group has applied
post-tax discount rates to discount the forecast future attributable post-tax cash flows. The equivalent
pre-tax discount rates are disclosed in the table below. The movement in the pre-tax discount rates
between 2016 and 2017 reflect changes in the anticipated timing of future cash flows.
Long-term growth rate
Pre-tax discount rate
2017
2016
3.0%
14.6%
3.0%
15.0%
Impairment of assets
At the end of each reporting period, the Consolidated Group assesses whether there is any indication that an asset may be impaired.
The assessment will include considering external sources of information and internal sources of information, including dividends
received from subsidiaries, associates or jointly controlled entities deemed to be out of pre-acquisition profits. If such an indication
exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s
fair value less costs of disposal and value in use to the asset’s carrying amount. Any excess of the asset’s carrying amount over its
recoverable amount is recognised immediately in consolidated income statement, unless the asset is carried at a revalued amount in
accordance with another Standard (e.g. in accordance with the revaluation model in AASB 116). Any impairment loss of a revalued
asset is treated as a revaluation decrease in accordance with that other Standard.
Where it is not possible to estimate the recoverable amount of an individual asset, the Consolidated Group estimates the recoverable
amount of the cash-generating unit to which the asset belongs.
Critical accounting estimates
The Consolidated Group tests annually whether goodwill has suffered any impairment. The recoverable amounts of cash generating
units have been determined based on value in use calculations. These calculations require the use of assumptions regarding gross
margins growth rates and discount rates applicable to each CGU.
88
Notes to the financial statements (continued)Huon Aquaculture Group Limited Annual Report 2017 30. Other Intangible Assets
Gross carrying amount
Balance at the beginning of financial year
Additions
Balance at the end of financial year
Accumulated impairment losses
Balance at the beginning of financial year
Impairment losses for the year
Balance at the end of financial year
Net book value
Balance at the beginning of financial year
Balance at the end of financial year
Consolidated
2017
$’000
Consolidated
2016
$’000
100
–
100
–
–
–
100
–
100
–
–
–
100
100
100
100
Other intangible assets relate to hatchery establishment costs and trademarks.
Licences and trademarks recognised by the Consolidated Group have an indefinite useful life and are not amortised. They are
recorded at cost less any impairment.
Refer to note 29 for impairment tests for other intangible assets.
89
31. Interests in subsidiaries
The subsidiaries listed below have share capital consisting solely of ordinary shares, which are held directly by the Consolidated
Group. The proportion of ownership interests held equals the voting rights held by the Consolidated Group. Each subsidiary’s
principal place of business is also its country of incorporation or registration.
Name of subsidiary
Principal place of business
Note
Huon Aquaculture Company Pty Ltd
Springs Smoked Seafoods Pty Ltd
Springfield Hatcheries Pty Ltd
Huon Ocean Trout Pty Ltd
Huon Shellfish Co Pty Ltd
Huon Salmon Pty Ltd
Huon Smoked Seafoods Pty Ltd
Huon Smoked Salmon Pty Ltd
Huon Seafoods Pty Ltd
Huon Tasmanian Salmon Pty Ltd
Springs Smoked Salmon Pty Ltd
Southern Ocean Trout Pty Ltd
Morrison's Seafood Pty Ltd
Meadowbank Hatchery Pty Ltd
961 Esperance Coast Road, Dover, TAS, 7117
961 Esperance Coast Road, Dover, TAS, 7117
32-36 Headquarters Road, South Springfield, TAS, 7260
961 Esperance Coast Road, Dover, TAS, 7117
961 Esperance Coast Road, Dover, TAS, 7117
961 Esperance Coast Road, Dover, TAS, 7117
961 Esperance Coast Road, Dover, TAS, 7117
961 Esperance Coast Road, Dover, TAS, 7117
961 Esperance Coast Road, Dover, TAS, 7117
961 Esperance Coast Road, Dover, TAS, 7117
961 Esperance Coast Road, Dover, TAS, 7117
2 Esplanade, Strahan, TAS, 7468
2 Esplanade, Strahan, TAS, 7468
2 Esplanade, Strahan, TAS, 7468
(i)
(i)
(i)
(i)
(i)
(i)
(i)
(i)
(i)
(i)
(i)
(i)
(i)
Ownership interest
held by the
Consolidated Group
2017
%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
2016
%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Significant restrictions
There are no significant restrictions over the Consolidated Group’s ability to access or use assets, and settle liabilities, of the
Consolidated Group.
The wholly-owned subsidiaries above are relieved from the Corporations Act 2001 requirements for the preparation, audit and
lodgement of financial reports. Refer to Note 23 for further details.
(i) Subsidiary became a party to the deed of cross guarantee on 28 June 2016.
32. Other Financial Liabilities
Derivatives carried at fair value
Foreign currency forward contracts
Refer to note 20 for fair value measurement and hierarchy.
Consolidated
2017
$’000
Consolidated
2016
$’000
679
679
–
–
90
Notes to the financial statements (continued)Huon Aquaculture Group Limited Annual Report 2017 33. Provisions
Provisions
Current
Employee benefits
Non-current
Employee benefits
Consolidated
2017
$’000
Consolidated
2016
$’000
5,665
4,800
1,161
6,826
1,311
6,111
Amounts not expected to be settled within the next 12 months
The current provision for employee benefits includes accrued annual leave and long service leave. For long service leave it covers
all unconditional entitlements where employees have completed the required period of service and also those where employees are
entitled to pro-rata payments in certain circumstances. The entire amount of the annual leave provision of $4,122 (2016: $3,599)
is presented as current, since the Consolidated Group does not have an unconditional right to defer settlement for any of these
obligations. However, based on past experience, the Consolidated Group does not expect all employees to take the full amount of
accrued leave or require payment within the next 12 months. The following amounts reflect leave that is not to be expected to be
taken or paid within the next 12 months.
Consolidated
2017
$’000
Consolidated
2016
$’000
Leave obligations expected to be settled after 12 months
4,648
3,628
Recognition and measurement
Provisions are recognised when the Consolidated Group has a present obligation (legal or constructive) as a result of a past event,
it is probable that the Consolidated Group will be required to settle the obligation, and a reliable estimate can be made of the
amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting
date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cashflows
estimated to settle the present obligation, its carrying amount is the present value of those cashflows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the
receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable
can be measured reliably.
Employee Benefits
Short-term employee benefits
Provision is made for the Consolidated Group’s obligation for short-term employee benefits. Short-term employee benefits are
benefits (other than termination benefits) that are expected to be settled wholly before 12 months after the end of the annual
reporting period in which the employees render the related service, including wages, salaries and sick leave. Short-term employee
benefits are measured at the (undiscounted) amounts expected to be paid when the obligation is settled.
The Consolidated Group’s obligations for short-term employee benefits such as wages, salaries and sick leave are recognised as
a part of current trade and other payables in the statement of financial position.
Other long-term employee benefits
Provision is made for employees’ long service leave and annual leave entitlements not expected to be settled wholly within 12 months
after the end of the annual reporting period in which the employees render the related service. Other long-term employee benefits
are measured at the present value of the expected future payments to be made to employees. Expected future payments incorporate
anticipated future wage and salary levels, durations of service and employee departures and are discounted at rates determined
by reference to market yields at the end of the reporting period on corporate bond rates that have maturity dates that approximate
the terms of the obligations. Upon the remeasurement of obligations for other long-term employee benefits, the net change in the
obligation is recognised in consolidated income statement as a part of employee benefits expense.
The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer
settlement for at least twelve months after the reporting period, regardless of when the actual settlement is expected to occur.
The Consolidated Group’s obligations for long-term employee benefits are presented as non-current provisions in its statement
of financial position, except where the Consolidated Group does not have an unconditional right to defer settlement for at least
12 months after the end of the reporting period, in which case the obligations are presented as current provisions.
91
34. Other liabilities
Deferred government grants
Current
Non-Current
Consolidated
2017
$’000
Consolidated
2016
$’000
464
2,887
3,351
464
3,350
3,814
During the 2015 financial year government grants of $5,000,000 were received relating to the Parramatta Creek Smokehouse
and Product Innovation Centre. The nature of the grants related to both income and to assets. During the financial year $463,000
(2016: $464,000) was recognised in the income statement. Future compliance with certain conditions relating to jobs creation
could impact $1,237,000 of the deferred government grants amount.
35. Contingent liabilities and contingent assets
There are no contingent liabilities or contingent assets at the date of this Annual Financial Report.
92
Notes to the financial statements (continued)Huon Aquaculture Group Limited Annual Report 2017 36. Segment information
The chief operating decision maker for the Consolidated Group is the Chief Executive Officer of the Parent Entity. The Parent
Entity determines operating segments based on information provided to the Chief Executive Officer in assessing performance
and determining the allocation of resources within the Consolidated Group. Consideration is given to the Consolidated Group’s
products, the manner in which they are sold, the organisational structure of the Consolidated Group and the nature of customers.
The Consolidated Group hatches, farms, processes, markets and sells Atlantic salmon and ocean trout. Revenue associated with
exports meets the quantitative thresholds and management concludes that this segment is reportable.
Revenue from the sale of goods
Domestic market
Export market
Total revenue from the sale of goods
Results from segment activities
Domestic market
Export market
Total results from segment activities
Unallocated
Interest income
Other income
Fair value adjustment of biological assets
Depreciation and amortisation expense
Finance costs
Other expenses
Profit before income tax expense
Consolidated
2017
$’000
Consolidated
2016
$’000
Note
243,751
15,742
175,123
58,620
1(a)
259,493
233,743
64,793
3,248
68,041
(21)
157
13,742
19,178
(22,665)
(3,609)
(18,331)
56,492
34,289
1,566
35,855
(1,599)
66
7,404
(1,505)
(19,666)
(3,259)
(13,242)
4,054
The total of the reportable segments’ profit, assets and liabilities is the same as that of the Consolidated Group as a whole and
as disclosed in the consolidated income statement, the consolidated statement of comprehensive income and the consolidated
balance sheet.
All of the non current assets are located in Australia being the domicile country of the group.
The chief operating decision maker only reviews export market sales.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision
maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating
segments, has been identified as the Chief Executive Officer.
37. Subsequent events
On 24 August 2017 the Directors of the Company recommended the payment of a final ordinary dividend of $4.4m (5 cents per
fully paid share) to be paid on 12 October 2017 out of ordinary retained earnings at 30 June 2017. The Dividend will be 50%
franked. The dividend has not provided for in the 30 June 2017 financial statements.
38. Company details
The registered office of the company is:
Huon Aquaculture Group Limited
Level 13, 188 Collins Street
Hobart
Tasmania 7000
The principal place of business is:
Huon Aquaculture Group Limited
961 Esperance Coast Road
Dover
Tasmania 7109
93
DIRECTORS’ DECLARATION
In the directors’ opinion;
(a) The financial statements and notes set out on pages 45 to 93 are in accordance with
the Corporations Act 2001 including:
a. Complying with Accounting Standards, the Corporations Regulations 2001
and other mandatory professional reporting requirements; and
b. Giving a true and fair view of the Consolidated Group’s financial position as at
30 June 2017 and of its performance for the financial year ended on that date; and
(b) There are reasonable grounds to believe that the company will be able to pay its debts
as and when they become due and payable; and
(c) At the date of this declaration, there are reasonable grounds to believe that the members
of the extended closed group identified in note 31 will be able to meet any obligations or
liabilities to which they are, or may become subject by virtue of the deed to cross guarantee
described in note 23.
The Basis of Preparation note in the notes to the financial statements confirms that the
financial statements also comply with International Financial Reporting Standards as issued
by the International Accounting Standards Board.
The directors have been given the declarations by the chief executive officer and the
chief financial officer required by section 295A of the Corporations Act 2001.
Signed in accordance with a resolution of the Directors made pursuant to section 298(2)
of the Corporations Act 2001.
On behalf of the Directors
Neil Kearney
Chairman
Date: 24 August 2017
Peter Bender
Managing Director and CEO
Date: 24 August 2017
94
Huon Aquaculture Group Limited Annual Report 2017
Independent auditor’s report
To the shareholders of Huon Aquaculture Group Limited
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of Huon Aquaculture Group Limited (the Company) and its
controlled entities (together the Consolidated Group) is in accordance with the Corporations Act 2001,
including:
(a)
(b)
giving a true and fair view of the Consolidated Group's financial position as at 30 June 2017 and
of its financial performance for the year then ended
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Consolidated Group financial report comprises:
•
•
•
•
•
•
•
the consolidated balance sheet as at 30 June 2017
the consolidated statement of comprehensive income for the year then ended
the consolidated statement of changes in equity for the year then ended
consolidated statement of cashflows
the consolidated income statement for the year then ended
the notes to the consolidated financial statements, which include a summary of significant
accounting policies
the directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial
report section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Consolidated Group in accordance with the auditor independence
requirements of the Corporations Act 2001 and the ethical requirements of the Accounting
Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the
Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
ethical responsibilities in accordance with the Code.
PricewaterhouseCoopers, ABN 52 780 433 757
2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001
T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
95
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from
material misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an
opinion on the financial report as a whole, taking into account the geographic and management
structure of the Consolidated Group, its accounting processes and controls and the industry in which it
operates.
The Consolidated Group is a vertically integrated salmon producer whose operations span all aspects
of the supply chain, from hatcheries and marine farming to harvesting and processing, as well as sales
and marketing.
Materiality
•
For the purpose of our audit we used overall Consolidated Group materiality of $1,170,000, which represents
approximately 2.5% of the earnings before interest, tax, depreciation and amortisation (EBITDA) adjusted for
the fair value adjustment for biological assets and averaged for the current and two previous financial years.
The depreciation and amortisation was calculated as outlined in note 2(b) to the financial report.
• We chose EBITDA prior to any fair value adjustment for biological assets because, in our view, it is the metric
against which the performance of the Consolidated Group is most commonly measured. An average was used
due to fluctuations in EBITDA from year to year caused by a number of factors, which include (but are not
limited to) environmental conditions and domestic and export pricing and demand.
• We utilised a 2.5% threshold based on our professional judgement, noting it is within the range of commonly
acceptable thresholds.
• We applied this threshold, together with qualitative considerations, to determine the scope of our audit and
the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the
financial report as a whole.
96
Huon Aquaculture Group Limited Annual Report 2017
Audit Scope
• Our audit focused on where the Consolidated Group made subjective judgements; for example, significant
accounting estimates involving assumptions and inherently uncertain future events.
•
The Consolidated Group’s accounting processes are performed by a central finance function at the corporate
head office in Hobart, where we predominately performed our audit procedures.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report for the current period. The key audit matters were addressed in the
context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters. Further, any commentary on the outcomes of a
particular audit procedure is made in that context. We communicated the key audit matters to the
Audit and Risk Management Committee.
Key audit matter
How our audit addressed the key audit matter
Accounting for biological assets
(refer to note 3)
Our audit procedures in relation to the
Consolidated Group’s fair value calculation of live
finfish above 1kg, included:
The Consolidated Group held biological assets of
$188 million at 30 June 2017. The biological
assets include broodstock, eggs, juveniles, smolt
and live finfish.
Australian Accounting Standards require
biological assets to be measured at fair value less
costs to sell or, in the absence of a fair value, at
cost less impairment.
The Consolidated Group has valued each of the
biological assets. We considered the valuation of
live finfish above 1kg to be a key audit matter due
to the significant judgement involved in
estimating:
The total weight of live finfish at sea (based on
number of fish and weight);
Expected mortalities of finfish prior to harvesting;
Selling price per HOG/kg; and
Costs to sell of HOG/kg
• Considering the valuation methodology
against the relevant Australian
Accounting Standard
• Testing the mathematical accuracy of the
calculations
• Assessing the historical accuracy of
forecasting and estimation by comparing
prior year estimate to actual performance
Our audit procedures over specific valuation
inputs included:
Number of live finfish at sea
• We performed a reconciliation of the
number of live finfish by obtaining the
opening balance and comparing the
known movements (fish intakes, harvest
and mortalities for the year) to
supporting documentation on a sample
basis in order to assess the
reasonableness of the number of live
finfish at year end.
97
Key audit matter
How our audit addressed the key audit matter
The Consolidated Group considered the estimated
harvest kgs of finfish based on historical data,
growth rates, and mortality rates. The selling
price per HOG/kg has been based on observable
market prices (when available), achieved prices
and estimated future prices for finfish. The costs
to sell of HOG/kg has been based on selling costs
(harvesting, processing and freight).
• We assessed the year end fish loss
adjustment by comparing it to the actual
fish loss data recorded on the close out of
pens that were harvested post year end.
Weight of live finfish at sea
• We assessed the weight assumption based
on actual weights of finfish harvested
subsequent to the year end and bath
weight data recorded during the year
(independently of the finance function).
We assessed the sensitivity of the
calculations to changes in the
Consolidated Group’s estimate of weight
by applying other values within a
reasonably possible range.
•
Expected mortalities of finfish
• We assessed the expected mortalities
input by comparing it to the actual
mortality rates recorded by the
Consolidated Group over the year.
Selling price per HOG/kg
• We agreed the historical domestic and
export selling prices to actual selling
prices achieved by reference to invoices to
customers and relevant sales contracts,
on a sample basis.
• We compared estimated future selling
prices to available pricing information in
the market (competitor information,
overseas fish prices in the market) and
any known price changes formally
communicated to customers.
• We considered the domestic/export sales
channel mix based on the mix in the
current year taking into account any
known agreements or market conditions
expected to impact the export market.
98
Huon Aquaculture Group Limited Annual Report 2017
Key audit matter
How our audit addressed the key audit matter
• We assessed the sensitivity of the
calculations to changes in the
Consolidated Group’s estimate of selling
price by applying other values within a
reasonably possible range.
Costs to sell of HOG/kg
• We compared the estimated costs to sell
to the actual costs incurred in the year
taking into account any known changes to
such costs in the future.
Impairment - tangible assets
(refer to note 6
Our audit procedures over relevant impairment
indicators included:
-
-
-
assessing the historical accuracy of
forecasting and estimation by comparing
prior year forecast to actual performance;
sighting of tangible assets on a sample
basis and assessment of obsolescence or
physical damage (in conjunction with
discussions with management
independent to the finance function); and
comparing the value of the net assets of
the entity at year end to the market
capitalisation based on the actual share
price at that date
The Consolidated Group operates a capital
intensive business and has undertaken significant
capital investment since listing in October 2014.
This has resulted in the Consolidated Group
having a significant value of property, plant and
equipment of $223,129,000 at 30 June 2017. The
Consolidated Group’s results since listing have
been variable.
Australian Accounting Standards require the
Consolidated Group to consider whether there
have been any events or circumstances that
indicate that the carrying amount of assets may
be impaired. This consideration takes into
account impairment indicators such as:
-
-
-
-
actual or forecast net cash outflows or
operating profits or losses may be
significantly worse than expected;
evidence of obsolescence or physical
damage to an asset;
significant adverse changes impacting the
manner in which an asset is used or is
expected to be used; and
net assets of the entity exceeding its
market capitalisation.
As these assets are subject to depreciation, there
is no requirement to perform formal testing in the
absence of indicators of impairment.
99
Key audit matter
How our audit addressed the key audit matter
The assessment for impairment indicators of
tangible assets was considered a key audit matter
due to the property, plant and equipment
totalling $223,129,000 at 30 June 2017
(representing the largest asset in the balance
sheet) and the judgement required in estimating
future performance for the Consolidated Group.
Other information
The directors are responsible for the other information. The other information comprises the
Chairman's Message, Managing Director's Review, Financial Summary, Key Financials, Board of
Directors, Directors' Report, Corporate Governance Statement, Shareholder Information and Glossary
of Terms included in the Consolidated Group’s annual report for the year ended 30 June 2017 but does
not include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent
with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the
Consolidated Group to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the directors either intend to liquidate
the Consolidated Group or to cease operations, or have no realistic alternative but to do so.
100
Huon Aquaculture Group Limited Annual Report 2017
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:
www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our auditor's
report.
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 25 to 35 of the directors’ report for the
year ended 30 June 2017.
In our opinion, the remuneration report of Huon Aquaculture Group Limited for the year ended 30
June 2017 complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility
is to express an opinion on the remuneration report, based on our audit conducted in accordance with
Australian Auditing Standards.
PricewaterhouseCoopers
Daniel Rosenberg
Partner
Melbourne
24 August 2017
101
SHAREHOLDER INFORMATION
The shareholder information set out below was applicable as at 24 August 2017.
Voting rights
The voting rights attaching to ordinary shares fully paid are, on a show of hands every member present at a meeting in person or
by proxy shall have one vote, and upon a poll each share shall have one vote.
Substantial shareholders
Substantial shareholders in the Company pursuant to notices lodged with the ASX in accordance with section 671B of the
Corporations Act:
Ordinary shares
Peter Bender
Frances Bender (spouse of Peter Bender)
Surveyors Investments Pty Ltd
Mr Peter Bender & Mrs Frances Bender
Distribution of securities
Range
100,001 and Over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
Number
of shares
Percentage
13,098,477
5,794
44,527,252
60,000
15.00%
0.01%
50.98%
0.07%
No. of
holders
Number of
shares
Percentage
15
77
129
438
856
83,014,801
1,926,788
961,603
1,110,532
323,483
95.05%
2.21%
1.10%
1.27%
0.37%
1,515
87,337,207
100.00%
The number of holders of less than a marketable parcel of ordinary shares, equivalent to 99 ordinary shares, was 33 and they held
89 shares (based on a market price of $5.04 at the close of trading on 24 August 2017).
102
Huon Aquaculture Group Limited Annual Report 2017
Top 20 largest shareholders
Rank Name
SURVEYORS INVESTMENTS PTY LTD ACN 602 004 179
PETER JAMES BENDER
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
UBS NOMINEES PTY LTD
NATIONAL NOMINEES LIMITED
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
BNP PARIBAS NOMS PTY LTD
BRISPOT NOMINEES PTY LTD
CITICORP NOMINEES PTY LIMITED
BNP PARIBAS NOMINEES PTY LTD
BOND STREET CUSTODIANS LTD
BOND STREET CUSTODIANS LTD
NEWECONOMY COM AU NOMINEES PTY LIMITED <900 ACCOUNT>
CS THIRD NOMINEES PTY LIMITED
CS FOURTH NOMINEES PTY LIMITED
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18 WAL ASSETS PTY LTD
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20 MR ALEC HERBERT PURVES
CHRISTOPHER CHONG
Total
Balance of register
Grand total
24 Aug 2017
%IC
44,527,252
13,098,477
7,261,611
4,318,173
3,977,959
3,111,510
1,987,429
1,039,762
853,837
771,300
702,577
599,454
532,090
118,230
115,140
94,532
93,733
77,632
73,700
61,022
83,415,420
3,921,787
50.98%
15.00%
8.31%
4.94%
4.55%
3.56%
2.28%
1.19%
0.98%
0.88%
0.80%
0.69%
0.61%
0.14%
0.13%
0.11%
0.11%
0.09%
0.08%
0.07%
95.51%
4.49%
87,337,207
100.00%
Restricted equity securities
Company employees were offered the right to subscribe for $1000 worth of shares for nil consideration during the Initial Public
Offer. In accordance with the requirements of Australian tax legislation, shares acquired under the Tax Exempt Plan cannot be
transferred, assigned or otherwise dealt with until the earlier of three years after the date of issue and the date on which the holder
of those Shares ceases to be an employee of the Company. The number of shares restricted is 60,060.
Unquoted equity securities
There are no unquoted equity securities on issue.
On market buy-back
There is no current on-market buy-back in respect of the Company’s ordinary shares.
Managing shareholding online
Shareholders are able to manage their shareholdings online through the Link Investor Centre which is available on the Investor
section of the Huon website, http://investors.huonaqua.com.au/investors/?page=My-Shareholding.
The Link Investor Centre can be contacted on 1300 554 474 or registrars@linkmarketservices.com.au.
103
GLOSSARY OF TERMS
$
AASB
AASBs or Australian Accounting
Standards or Accounting Standards
Australian dollars
Australian Accounting Standards Board
Australian Accounting Standards
AASB141
Relates to the fair value adjustment of biological assets required by AASB 141
ABS
AGD
ASIC
ASX
Australian Bureau of Statistics
Amoebic Gill Disease, a fish disease that compromises gill function
Australian Securities and Investments Commission
ASX Limited (ABN 98 008 624 691) and, where the context requires,
the Australian Securities Exchange operated by ASX Limited
Atlantic salmon or salmon
A fish in the family Salmonidae, which is typically found in the northern Atlantic Ocean
and in rivers that flow into the north Atlantic
Bender Family
Biological assets
Bonus Plan
Peter Bender and Frances Bender, the founders of Huon and (as applicable)
Surveyors Investments Pty Ltd (an entity controlled by Peter and Frances Bender)
Farm animals that are classified as assets which, according to International
Accounting Standards, must be recorded on balance sheets at their market value.
Once the assets have either been slaughtered or harvested, then the assets will
become agricultural produce
A component of the LTI plan whereby the Board may determine to offer
KMP LTI plan performance rights in lieu of a bonus where the Employee agrees
to contractually forgo part of their future pre-tax bonus.
British Retail Consortium (BRC)
BRC Global Standard A leading safety and quality certification program
Broodstock
CAGR
CBA
Constitution
A group of mature fish used in aquaculture for breeding purposes
Compound annual growth rate
Commonwealth Bank of Australia
The constitution of the Company
Control event refers to:
(a)
A Court orders a meeting to be convened in relation to a proposed compromise
or arrangement for the purposes of, or in connection with:
a.
a scheme which would, if it becomes effective, result in any person
(either alone or together with its related bodies corporate) owning all of the
shares in the Company; or
a scheme for the reconstruction of the Company or its amalgamation with
any other company or companies;
b.
(b) members of the Company approve any compromise or arrangement referred
to in paragraph (a);
(c) any person becomes bound or entitled to acquire shares in the Company under:
a.
any compromise or arrangement referred to in paragraph (a) which has
been approved by the Court;
section 414 of the Corporations Act; or
b.
c. Part 6A.1 or Part 6A.2 of the Corporations Act;
Controlled Growth Strategy
(d) a resolution is proposed to be put to shareholders proposing a voluntary
winding up; or
(e) an order is sought for the compulsory winding up of the Company.
The strategy under which Huon planned to roll out a number of strategic capital
projects across its operations which are intended to expand production, increase
efficiency and maintain the consistency and high quality of fish produced
Corporations Act
Corporations Act 2001 (Cth)
Tasmanian Department of Primary Industries, Parks, Water and Environment
Earnings before interest and tax. This is a non-IFRS measure
Earnings before interest, tax, depreciation and amortisation.
This is a non-IFRS measure
DPIPWE
EBIT
EBITDA
104
Huon Aquaculture Group Limited Annual Report 2017 Fortress Pens
GLOBALG.A.P.
GSI
GST
Hatchery
HOG
Fish pens which have been designed by Huon in order to be predator resistant
and incorporate a patented stanchion design
Non-governmental organisation that sets voluntary standards for the certification
of agricultural products around the globe
Global Salmon Initiative, a leadership initiative by global farmed salmon producers
focused on making significant progress towards a shared goal of providing a highly
sustainable source of healthy protein to feed a growing global population, whilst
minimising the environmental footprint and continuing to improve our social contribution
Goods and services tax
A facility where eggs are hatched under artificial conditions
Head-on gutted fish
Huon or the Company or
the Consolidated Group
Huon Aquaculture Group Limited (ACN 114 456 781) and its subsidiaries
as the context requires
Huon Method
Huon’s unique method of farming salmon which places the welfare
of fish at the centre of operations and ensures salmon are provided
an environment which mimics their natural habitat and are raised
i) stress free; ii) well nourished; iii) clean and healthy; and iv) responsibly
Husbandry
The care, cultivation and breeding of crops and animals
IASB
IFRSs
Listing
NPAT
Operating EBITDA
Performance Right
Plan
PwC
R&D
International Accounting Standards Board
International Financial Reporting Standards
Admission to the official list of the ASX, 23 October 2014
Net profit after tax
Operating EBITDA refers to Earnings Before Interest, Tax, Depreciation and
Amortisation exclusive of the fair value adjustment of biological assets.
Performance Right means a right to acquire one Share in the capital of
the Company in accordance with Plan Rules and an Invitation
Plan refers to the Huon Aquaculture Group Ltd Long Term Incentive Plan
and Bonus Plan as set out in the Plan Rules
PricewaterhouseCoopers
Research and development
Rabobank
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
Related Body Corporate
Has the meaning given by section 50 of the Corporations Act
Rules
Salmonids
Smolt
Sustainability Dashboard
TPD
TPDNO
TSGA
Rules refer to the terms and conditions of the Plan
Collective name for all salmon fish species, including trout
A young salmon
A dashboard on Huon’s website which provides information concerning
Huon’s salmon farming practices, management of the welfare of its fish and
the impact on the environment
Total permanent disability
Total Permissible Dissolved Nitrogen Output
Tasmanian Salmonid Growers’ Association, Tasmania’s peak body
representing salmon growers throughout Tasmania
Value added products
Raw fish which undergo processing in order to be turned into other products such
as skin-on or skin-off fillets, portions, cutlets, smoked products, pate or caviar
WFE
Year Class
Whole fish equivalent
The calendar year in which the smolt (salmon) or fingerling (trout)
enters the sea for on-growing
105
Directors
Neil Kearney, Chairman
Peter Bender, Managing Director and CEO
Frances Bender, Executive Director
Tony Dynon, Non-executive Director
Simon Lester, Non-executive Director
Senior Executives
Peter Bender, Managing Director and CEO
Frances Bender, Executive Director
Philip Wiese, Deputy CEO
Thomas Haselgrove, CFO
Company Secretary
Thomas Haselgrove
Registered Office
Huon Aquaculture Group Limited
Level 13, 188 Collins Street
Hobart TAS 7000
+61 3 6295 4200
huonaqua@huonaqua.com.au
www.huonaqua.com.au
Principal Place of Business
Huon Aquaculture Group Limited
961 Esperance Coast Road
Dover TAS 7109
Auditor
PricewaterhouseCoopers
2 Riverside Quay
Southbank VIC 3006
Bankers
Commonwealth Bank of Australia
Level 20, Tower One
Collins Square, 727 Collins Street
Melbourne VIC 3008
Rabobank
Darling Park Tower 3
Level 13, 201 Sussex Street
Sydney NSW 2000
Stock Exchange Listing
Huon Aquaculture Group Limited is listed
on the Australian Securities Exchange (ASX)
The Home Exchange is
Melbourne, Victoria
ASX Code: HUO
Share Registry
Link Market Services
Level 12, 680 George Street
Sydney NSW 2000
106
CORPORATE DIRECTORYHuon Aquaculture Group Limited Annual Report 2017
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www.huonaqua.com.auHuon Aquaculture Group Limited