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S&W Seed CompanyHUON AQUACULTURE GROUP LIMITED
ABN 79 114 456 781
APPENDIX 4E
GIVEN TO ASX UNDER LISTING RULE 4.3A
PRELIMINARY FINAL REPORT
FOR THE YEAR ENDED 30 JUNE 2018
1. DETAILS OF THE REPORTING PERIOD
Reporting period:
Previous corresponding period:
For the year ended 30 June 2018
For the year ended 30 June 2017
2. RESULTS FOR ANNOUNCEMENT TO THE MARKET
Revenue from ordinary activities
Up/(down)
$’000
% change
Amount
$’000
58,403
18.37%
317,896
Profit from ordinary activities after tax for the period attributable to members
(15,773)
(59.78%)
Net Profit for the period attributable to members
(15,773)
(59.78%)
3. DIVIDENDS AND DISTRIBUTIONS
Dividends per security
Final dividend
Interim dividend
Record date for determining entitlements to dividends
•
•
Final dividend
Interim dividend
Dividend payment date
Final dividend
•
Interim dividend
•
Amount
per security
(cents)
5.00
5.00
26,387
26,387
Franked amount
per security
(cents)
2.50
2.50
14 September 2018
23 March 2018
11 October 2018
12 April 2018
Brief explanation of any of the figures reported above necessary to enable the figures to be understood:
Refer to the Directors’ Report within the attached Financial Report.
4. NET TANGIBLE ASSETS PER SECURITY
Net tangible assets per security
2018
$3.53
2017
$3.32
5. OTHER INFORMATION
This report is based on, and should be read in conjunction with the attached audited Financial Report.
Details of entities over which control has been gained or lost during the period: None
Details of associates and joint venture entities: None
Details of any dividend or distribution reinvestment plans in operation: None
Any other information required pursuant to ASX Listing Rule 4.3A not contained in this Appendix 4E is found in the attached
Financial Report.
www.huonaqua.com.au
Huon Aquaculture Group Limited
HUON AQUACULTURE GROUP LIMITEDANNUAL REPORT 2018GROWING HUONANNUAL REPORT 2018HUON AQUACULTURE GROUP LIMITED Board of Directors
Financial Summary
Contents
01 Highlights
02 Chairman’s Message
04 Managing Director’s Review
08 Managing Risk
09
12 Company and Industry Overview
20
23 Directors’ Report
40
41 Corporate Governance Statement
47
53 Notes to the Financial Statements
95 Director’s Declaration
96
102 Shareholder Information
104 Glossary of Terms
106 Corporate Directory
Independent Auditor’s Report
Financial Report
Auditor’s Independence Declaration
Annual General Meeting 2018
The Annual General Meeting of Huon Aquaculture Group Limited
will be held at The Stables, RACV/RACT Hobart Apartment Hotel
154–156 Collins Street Hobart, Tasmania on 31 October 2018.
Huon Aquaculture has delivered another
record operating profit as it increases production
volumes and prepares for a future of increased
farming in high-energy sites offshore.
Financial highlights
Sales Revenue
$317.9m
FY2017: $259.5m
23%
Operating EBITDA
Retail Market Sales
Dividend
$71.8m
FY2017: $62.8m
14.3%
58%
FY2018: 28% (FY2017: 22%)
Domestic: 24%
International: 4%
10.0c/s
FY2018: 5.0cps+5.0cps
FY2017: 5.0cps (final only)
FY18
FY17
FY15
FY16
FY17
FY18
FY15
FY16
FY17
FY18
% OF TOTAL REVENUE
FY17
FY18
Final
Half Year
Operational highlights
– Record revenues were once again achieved as a result
of increased volumes, improved pricing in the domestic
market and continued strength in the international
salmon price.
– Tonnages increased 25% on the previous year,
reflecting Huon’s next stage of planned expansion.
This was supported by an average fish harvest weight
of 4.78kg, matching that of the previous year despite
some significant challenges arising from the long
summer and the volume of warm water delivered to
Southern Tasmania via the East Australian Current.
This caused the rapid onset of amoebic gill disease
(AGD) throughout south-east Tasmanian salmon leases.
– Operating EBITDA increased by 14% largely
underpinned by continued strength in pricing both
domestically and offshore and a more balanced
channel mix. Operating margins were unable to
match the strong performance of the previous year
with an increase in growing costs during the year
(per HOG kg), but nevertheless remained robust.
– There was continued focus on the expansion of Huon’s
sales agreements with customers in Asia. This resulted
in sales into the international retail market accounting
for 4% of total revenue. This further adds to the
diversification of Huon’s sales mix, providing greater
certainty in planning future production.
– The fair value of Huon’s biomass at year end decreased
by $18.6 million, including a $12.9 million reduction in the
Fair Value Adjustment (FVA), to $169.4 million. This reflects
the significant reduction in biomass in the water, 12,960t
at 30 June 2018 compared to 16,663t 30 June 2017.
– Costs of production were affected by the difficult growing
conditions experienced in the second half. This was due
to the significant pressures placed on bathing and net
cleaning schedules due to the earlier than normal increase
in temperatures which persisted through to April. Despite
this, average costs of production (per HOG kg) for the year
were maintained at the same level as FY2017.
– Cash flow from operations increased during the year
to $57.9 million compared to $54.0 million in FY2017.
Huon’s capital expenditure budget for the year totalled
$87.7 million which included the construction of the
Whale Point Salmon Nursery and installation of more
Fortress Pens and infrastructure in its Storm Bay lease.
– The operating environment globally continues to be
supportive of salmon prices being sustained at current levels.
This is due to supply not being able to keep up with the
growth in demand as some of the major salmon producing
countries struggle to manage problems with sea lice and
algal bloom. A similar outlook is expected domestically in
FY2019 due to the reduction in stock levels arising from the
unusually long summer, and production constraints.
1
Chairman’s Message
Chairman’s Message
Neil Kearney
Chairman
It has been a particularly busy year for Huon on
a number of fronts so it is very pleasing that in
reviewing our performance for FY2018, I am able
to report another year of record operating earnings
for the Company.
Demand for salmon globally continues to grow at a
faster rate than those who produce it are able to supply.
As a result salmon prices are remaining firm. Huon is
focused on growing its business to meet not only the
steady growth in demand from Australians for our home
grown Tasmanian salmon, but also the increasing number
of markets in Asia that are prepared to pay a premium
price for a fresher, higher quality product.
Over the past year we have made some major
investments in building capacity that will underpin the
next phase of production growth. Growing salmon takes
three years from egg to market, so everything we do
in our business is done with a 3-5 year time horizon in
mind. The planning process and investments made over
the last two years have been done on the basis of where
we want Huon to be in 2020 and beyond.
Growing a business that relies on the health of the natural
environment does not happen in isolation. We are,
and always have been, very mindful of our place in the
community, our responsibility to operate sustainably
and to take care of the environment.
Business Performance
In FY2018 Huon delivered an operating EBITDA of
$71.8 million, an increase of $9.0 million on the previous
financial year’s result of $62.8 million. This was due
largely to a strong increase in production volumes and
continued focus on managing costs.
Huon’s statutory net profit after tax (NPAT) of
$26.4 million, represents a significant fall on the previous
year’s result of $42.2 million. The volatile nature of
Huon’s statutory profit is due to accounting standard
regulations that require the value of its biological assets
to be ‘marked to market’ as a Fair Value Adjustment.
2
As at 30 June 2018, this value declined by $18.6 million
as a result of reduced biomass compared to the previous
comparable period.
We are confident, however, that the underlying earnings
generated by the business will continue to grow and
deliver the cash flows needed to expand production
and pay dividends to our shareholders. We are always
mindful though that Huon, in common with all aquaculture
businesses, is subject to the changeable nature of local
and international growing conditions.
The Company’s balance sheet remained strong at the
end of FY2018 with gearing levels comfortable at 26.1%,
despite an increase in Huon’s net debt from $43.0 million
to $81.3 million as a result of its increased capital
expenditure programme.
Strategy
The Company’s over-arching business strategy remains
clear. Huon intends to:
– Capture growth in the market from 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 investments made via the Controlled
Growth Strategy 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.
Over the past year, the Board has committed to further
significant investments in the Company’s capacity to
expand production and operate its business more
sustainably in high-energy sites offshore. This includes
ongoing investment in research and development in
order to remain at the forefront of developments in
salmon farming and to secure our sustainable future.
Huon Aquaculture Group LimitedAnnual Report 2018 The Huon three pillar business strategy
Growing
the market
Growing production and
operational efficiency
Growing safely and
sustainability
We also welcome the Environment Protection Authority
(EPA) Tasmania’s recent decision to reduce Macquarie
Harbour’s biomass cap back to pre-expansion levels
and action by the industry to improve farming operations
in the Harbour.
Conclusion
Your Directors are confident that the continued growth
in Huon’s operating earnings in FY2018 reflects the
soundness of the Company’s business strategy. This is an
exciting time for Huon as the investments that are being
made now and in the year to come will provide a new
platform for the Company’s next phase of growth.
On behalf of the Board I wish to thank our customers,
suppliers, local communities, employees, and our
shareholders for their support.
Neil Kearney, Chairman
Huon continues to explore the potential of species
diversification that can apply the Company’s aquaculture
expertise more broadly, through its Yellowtail Kingfish
trial in NSW.
We are continually improving our business efficiencies
and seeking to maximise Huon’s channel marketing
opportunities. Over the past year we continued to establish
a foothold in the growing Asian market by securing sales
of Huon Salmon to retailers. We expect this international
retail channel to become a growing segment within
our channel mix over time.
Dividend Policy
Last year we stated, at the time of announcing Huon’s
inaugural dividend, 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. In light of the
strong performance of the business in FY2018, Directors
have declared a final dividend of 5.0 cents per share,
franked at 50%. This brings the total dividend payment for
the year to 10.0 cents per share. The final dividend will be
paid on 11 October 2018 to shareholders as at the record
date of 14 September 2018.
Litigation
In early 2017 Huon commenced legal proceedings in
the Federal Court of Australia questioning the validity
of the Commonwealth Minister’s 2012 decision that
permitted the expansion of salmon farming in Macquarie
Harbour. In July this year Huon received the Court’s
decision to dismiss our application.
While Justice Kerr dismissed the application and has
ordered Huon to pay respondent’s costs, the Company
firmly believes the action it took was necessary to focus
attention on the urgency of addressing the long-term
sustainability of Macquarie Harbour. This was vital in
order to protect the long-term reputation of the industry
and the jobs it supports.
3
Managing Director’s Review
Peter Bender
Managing Director and
Chief Executive Officer
Huon Aquaculture’s strong financial performance in FY2018 is testament
to the foresight of this Company and the resilience it has developed – a
direct consequence of the decision made four years ago to invest heavily
in the business. Over the past year Huon remained true to its strategic
objective of continuing to invest for growth whilst at the same time
managing a number of operational and regulatory challenges. It has
done this without losing momentum or its guiding sense of purpose, firmly
grounded in always doing what is right.
The 2018 financial year began with plans signed off
for a heavy capital expenditure program focused
on installing more Fortress Pens and supporting
infrastructure in Storm Bay and commencing
construction of the 1,400 tonne Whale Point Salmon
Nursery. While most of the key enablers for Huon’s
expansion into high-energy offshore sites had been
put in place through the Controlled Growth Strategy
(CGS), the Whale Point Salmon Nursery investment
represents one of the biggest step changes in core
product development and production process since
the completion of the CGS. This project is scheduled
for completion at the end of 2018.
While the year got off to a strong start with excellent
growing conditions and a record average fish harvest
weight, the tables quickly turned in November with water
temperatures rising rapidly above the level required
for optimal growth. Much of the summer was spent
adjusting our operations to manage these conditions,
including more frequent bathing schedules, as well as
dealing with a greater load on net cleaning schedules
due to the increased biofouling on the pens.
Meanwhile Huon continued to pursue its case through
the Federal Court for an improved regulatory regime
for Macquarie Harbour. The abnormal weather
patterns being experienced over the summer only
served to emphasise the critical importance of getting
the right regulatory oversight and control for this
unique waterway. It continued to be under severe
stress which hindered farming operations, and this
was further exacerbated by an outbreak of POMV (a
type of fish flu) across all salmon leases in December
2017. In May 2018, the Environmental Protection
Authority Tasmania determined that the biomass cap
would be set at the pre-2012 levels of 9,500 tonnes
for the following two years.
The litigation proceedings have a been a tough,
uncomfortable and very public process for all involved,
but I firmly believe these proceedings have been a
catalyst for positive change for our industry.
Overview of Financial Performance
Huon’s sales volumes (+24.5%) and revenue (22.5%)
both increased strongly in FY2018 as a consequence
of the continued strong biological performance
of the 2016 Year Class, expanded production
volumes and the sustained strength of salmon prices.
Nevertheless, tonnages were around 1,500 tonnes
less than the 24,500 tonnes that had been forecast
due to the abnormal shift in weather patterns in
November 2017. The early and rapid rise in water
temperature in south-east Tasmania significantly
increased the onset of amoebic gill disease (AGD)
across our leases, which contributed to higher
mortalities and lower fish weights as the fish failed
to thrive. As a result we have started FY2019 with a
lower biomass level than would otherwise have been
the case.
4
Huon Aquaculture Group LimitedAnnual Report 2018 Managing Director’s Review Operating NPAT Comparison
FY2017 – FY2018 ($/kg sold)
Average Daily Water Temperature
Oct 2017 – July 2018 (°C @ 5 metres)
2.0
1.5
1.0
0.5
0.0
1.55
7
1
0
2
Y
F
T
A
P
N
P
O
0.11
0.04
0.31
0.13
1.54
(0.22)
0.00
(0.17)
(0.20)
(0.00)
20
18
16
14
12
10
16 degrees is the
maximum temperature
for optimal growth
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Source: Australian Government Bureau of Meteorology Summary
Operating EBITDA of $71.8 million (+14%) was
generated from annual sales revenue of $317.9 million,
delivering a healthy margin of 22.6%. In contrast,
statutory EBITDA reduced from $82.0 million to
$58.9 million. This is a direct result of the turnaround in
the Fair Value Adjustment (FVA) of biological assets from
a $19.2 million profit to a decline of $12.9 million. This
is also reflected in the balance sheet with a reduction in
biological assets from $188.0 million to $169.4 million.
The movement in biological assets and the resulting FVA
has been primarily driven by the significant reduction in
biomass in the water compared to the previous year.
Despite the difficult growing conditions, the underlying
strength of our business is demonstrated by the increase
in Operating EBITDA. This together with careful
management of working capital, resulted in an increase
in Operating Cash Flow to $57.9 million compared with
$54.0 million in FY2017.
Overall net debt increased from $43.0 million in FY2017
to $81.3 million resulting in gearing rising to 26.1%.
This level of gearing (net debt/net assets) sits at a level
that management is comfortable with.
While the average cost of production per HOG kg
(excluding freight and distribution) for the year declined
slightly to $9.91, the extremely difficult operating
conditions in the second half drove costs up 11% (on pcp)
to $10.42/HOG kg. It is expected that higher costs of
production will also impact the first half of FY2019 as
the effects of lower growth in the remaining 2017 Year
Class fish are managed until they are fully harvested in
early CY2019.
Operating Overview
The three key drivers underlying Huon’s performance
during the year were:
– lower than expected tonnages and reduced harvest
fish weight in the second half due to challenging
growing conditions over last summer,
– further diversification of our channel mix by targeting
sales into the international retail market, and
– the continued strength in the international and
domestic salmon price.
While sales volumes rose 24.5% over the previous year
from 18,448 tonnes to 22,968 tonnes, as previously
mentioned, this masked the reality of the underlying
biological performance which deteriorated markedly
during the second half. The average fish harvest weight
fell to 4.27kg in the 6 months to 30 June 2018 (the lowest
since the 2H2016 average weight of 3.99kg) and 19%
below the 5.29kg recorded in the prior six month period.
This was offset by an increase in the average sale price
during the same period to $14.35/HOG kg compared to
$13.89/HOG kg in the previous corresponding period.
In addition to slower growth rates, the poor growing
conditions also increased mortalities, contributing to a
loss of around 1,500 tonnes in FY2018 from the projected
24,500 tonnes. Further flow-on effects can be anticipated
for FY2019 as a result of some of the 2017 Year Class
having been harvested earlier than anticipated.
Huon has been researching and testing equipment since
2011 to enable its vision to farm in high-energy offshore
sites. During the year our equipment was tested through
two particularly extreme weather events at our NSW trial
Kingfish site and in southern Tasmania. Both events led
to damaged equipment and fish escapes, but pleasingly
the core equipment and structure, including the Fortress
Pens, were not impacted. Lessons learned have already
been applied through modifications to net designs and
removal of the older style feeding bins from within pens
at high-energy offshore sites.
5
Channel mix
(% of total revenue)
Retail: Domestic
24% (22%)
Retail: International
4%
Export
14% (6%)
Wholesale
58% (72%)
Building greater depth and resilience into Huon’s
channel mix has continued to be a strategic priority
for Huon. In FY2017 we executed new retail sales
agreements in the domestic market, more than doubling
the proportion of revenue generated from the retail
channel from 10% to 22%.
With overall production tonnages higher in FY2018
compared to the previous year, 24% was allocated to
the supply of domestic retail contracts. Huon also shifted
its focus to supply salmon to premium retail outlets in
the Asian market. Sales through this international retail
channel accounted for 4% of revenue reducing the
volumes that would otherwise have been sold through
the export market at spot prices.
These successes in penetrating the retail segment both
domestically and offshore are consistent with Huon’s
stated strategic business objective of ‘growing the
market through increased consumption, better channel
mix and the enhancement of our sales and brand’.
Around 28% of production volume was sold through the
retail channel in FY2018, compared to an average of
10–11% prior to FY2017.
Over the year to June 2018 international salmon prices,
while volatile, have traded at elevated levels and despite
an expected increase in global supply it is not anticipated
to meet demand. Prices in the domestic market increased
in the second half of FY2018 and are expected to
continue to trade at similar levels in the coming year.
Checking salmon for pin bones at Parramatta Creek
People and Safety
Huon’s ‘Safety First’ ethos focuses on the
implementation of a range of safety strategies combined
with the continuous improvement of health and safety
systems, programs and processes.
A major focus on the Consultation, Cooperation and
Coordination Framework is ensuring Huon’s team
members and leaders are empowered to effectively
manage safety and health in their areas of responsibility.
Nevertheless, as a consequence of the expansion
of activities throughout the group and the growth in
employee numbers, the key safety measures weakened
slightly compared to the previous year.
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
FY18 FY17 FY16
4
3
7
14
12
16
1.0
0.6
1.3
Huon has a strong commitment to building the skills,
knowledge and capabilities of its people to deliver its
business strategy. During the year Huon launched its
‘People & Capability’ strategy which continues to build the
capability of the workforce. This strategy encompasses
workforce planning, the development of career pathways,
investing in lifting general literacy and numeracy skills as
well as information technology competence. A key plank
of the ‘People & Capability’ strategy is the development
of leadership capability across the business through the
‘Huon Leaders Program’ which was developed during the
year and is being launched in FY2019.
6
FY18FY17Huon Aquaculture Group LimitedAnnual Report 2018 Managing Director’s Review continued Outlook
Little has changed from last year with demand for salmon
from Australian consumers expected to continue growing
at around 10% per annum and the demand supply
dynamics internationally such that pricing is expected to
remain above the long-term average.
FY2019 has however commenced with a lower biomass
than originally projected due to the difficult growing
conditions in FY2018. Current estimates for FY2019
have our harvest volume at just under 20,000 tonnes
with an average HOG weight expected to be consistent
with that delivered over the past three years. While we
remain focused on driving operating efficiencies through
the business, the full impact of the reduced biomass
effect during FY2018 will be reflected in a higher cost of
production per HOG kg in FY2019.
While Huon’s primary focus will continue to be growing its
wholesale business, our increased exposure to the retail
market as a result of retail supply agreements entered
into early in FY2017, provides a valuable diversification in
Huon’s channel mix. We expect sales into this market to at
least reflect the growth in demand.
Particular opportunities in overseas markets have assumed
greater attention in the past year as Huon has taken
advantage of the strong demand for its brand in Asia.
While this strategy remains, Huon expects to continue
supplying only its longstanding customers in the Japanese
market during FY2019, as it is forced to ration the reduced
stock available. Increased volumes into the Asian market
are expected late in FY2019.
With production levels to remain low in Macquarie
Harbour, continued production expansion will occur at
our Storm Bay offshore sites. The first fish to sea from the
Whale Point Salmon Nursery are expected to be released
in May 2019 with associated benefits flowing into FY2020.
Some of the many products Huon Aquaculture produces
Capital expenditure in FY2019 is expected to be
around $70 million, down from $88 million in FY2018.
Beyond FY2019 capital expenditure it is expected to
be well below the levels of FY2018 and FY2019, unless
market opportunities dictate otherwise.
A corollary of reduced supply and growing demand is
that market pricing levels are expected to remain high
globally and this will be exacerbated in the domestic
market by the reduction in biomass levels across
the Tasmanian salmon industry. Huon is therefore
expecting its prices to remain elevated through FY2019
and as a result we are confident that profitability will
continue to grow.
Beyond FY2019, Huon’s investment in new infrastructure
and expanded capacity provides it with a significant
platform from which to launch its next phase of growth.
Lastly, at the start of FY2019 we were pleased to
announce that the majority of our salmon production
has been RSPCA Approved. This is something the
business has been working on for a number of
years and will stand us in good stead from both an
operational and brand positioning perspective.
Peter Bender, Managing Director
and Chief Executive Officer
7
Managing Risk
Managing Risk
Key risk areas
FY2018 measures
Huon team members on a Fortress Pen
Agricultural risk
(disease, algae,
fish growth)
Environmental risk
(weather, wildlife)
– Shore based farm control – feeding all Huon fish from a central feeding room in Hobart,
using software analysing live video feeds from the pens to detect pellets falling through
the water column and altering feed rates automatically. This ensures that feed wastage is
minimised, lowering the impact on the seabed and ultimately achieving optimal fish growth.
– Feed use and growth maximisation – moving to fully automated and unmanned feed
barges that will carry more feed, meaning less feed delivery trips, increased feed security
and no missed feed days.
– Continuous improvement in farming strategies – outcomes from summer have led
to improved bathing backup systems and better net cleaning. Huon is now using a split
collar liner and pump system that allows fish to be bathed efficiently from one 240m pen
to another without relying on the well-boat. More net cleaners with improved levels of
technology, have been acquired.
– Broodstock and smolt supply – along with participation in the industry-wide selective
breeding program, new brood stock facilities at Springfield and New Norfolk have been
completed to segregate holdings of broodstock.
– Fish health and biosecurity – continued support and resourcing for the expanded
research capability for vaccine development at the Aquatic Animal Health and Vaccine
Centre of Excellence (AAHVCE) in Launceston.
– Equipment design and use – following damage and loss during two significant storm
events during the year, there have been improvements to net design and the older style
feeding bin has been eliminated from use in high-energy sites.
– Remote monitoring – the team in the control room is monitoring and ensure that any
mortalities are pumped back to barges and ensiled, reducing disease risk and eliminating
the use of divers on this task.
Social and Market risk
(reputation, competition,
consumer preferences)
– Brand positioning – repositioning the Huon brand to more clearly articulate our points
of difference through the launch of the ‘Not all salmon is Huon’ and ‘Harvested By Night,
Fresher By Day’ programs.
– Stakeholder engagement – continued engagement with a wide range of stakeholders
regarding the social and environmental benefits of Huon’s operations occurred and is
ongoing during a period of increasing concern over industry practices.
– Channel mix – continuing the growth and penetration of the retail channel in the
domestic and international markets providing better balance to the sales portfolio.
Safety risk
– Improvement in people and safety – continued to build the skills, knowledge
and capabilities of employees through the ‘People & Capability’ and ‘Huon Leaders
Program’. This also encompasses workforce planning, the development of career
pathways, investing in lifting general literacy and numeracy skills as well as information
technology competence.
8
Huon Aquaculture Group LimitedAnnual Report 2018 Financial Summary
– Revenue of $317.9 million representing a 23% increase in turnover and 25% increase in production volume.
– Operating NPAT increased 23% on record revenues due to increased volumes and stronger prices.
Statutory NPAT decreased 37% pcp to $26.4 million driven by the decline in the Fair Value Adjustment
of Biological Assets.
– Average harvest weights improved marginally on the previous year as the record average fish weight in
the first half was offset by poor fish growth in the second half due to elevated water temperatures from
a long, hot summer.
– The 14% increase in operating EBITDA to $71.8 million combined with careful management of working
capital resulted in a 7% increase in operating cash flow in FY2018 to $57.9 million (FY2017: $54 million).
– Capex rose to $87.7 million as construction of the Whale Point Salmon Nursery commenced, a step change
in core product development and production processes, and operations at Storm Bay were expanded.
– Net debt increased to $81.3 million, however gearing continues to remain very manageable at 26.1%.
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
%
%
FY2018
FY2017
FY2016
22,968
317.9
13.84
58.9
2.56
18.5%
34.2
26.4
(12.9)
3.9
169.4
30.21
10.00
81.3
26.1%
6.7%
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%
Operating Earnings and Cash Flow
Revenue(1)
$317.9m
Operating
EBITDA(7)
$71.8m
Operating
NPAT(8)
$35.4m
Operating
Cash Flow
$57.9m
FY15
FY16
FY17
FY18
FY15
FY16
FY17
FY18
FY15
FY16
FY17
FY18
FY15
FY16
FY17
FY18
1
2
Revenue from the sale of goods.
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 debt 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
22,968t
(FY2017: 18,448t)
Sales Revenue
$317.9m
(FY2017: $259.5m)
Sales Revenue
by Channel:
Wholesale
58%
(FY2017: 72%)
Retail: Domestic
24%
(FY2017: 22%)
Retail: International
4%
Export
14%
(FY2017: 0%)
(FY2017: 6%)
Employees
600
(FY2017: 500)
9
Key Financials
Key Financials
Operational Performance
Six months ended
Harvest volume HOG
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
16.00
12.00
8.00
4.00
0.00
DEC 2015
JUN 2016
DEC 2016
JUN 2017
DEC 2017
JUN 2018
Operating EBITDA
Freight and distribution
Cost of production
Revenue
Sales Channel
Six months ended
Wholesale HOG kg
Retail Domestic HOG kg
Retail International HOG kg
Export HOG kg
Total HOG kg
Wholesale % of revenue
Retail Domestic % of revenue
Retail International % of revenue
Export % of revenue
Wholesale $/HOG kg
Retail Domestic $/HOG kg
Retail International $/HOG kg
Export $/HOG kg
t
$M
$/kg
$M
$/kg
$M
$/kg
$M
$/kg
%
$M
t
t
t
t
t
%
%
%
%
$/kg
$/kg
$/kg
$/kg
Distribution Channels by Price and Contribution to Sales
$/HOG kg
16.00
12.00
8.00
4.00
0.00
DEC 2015
JUN 2016
DEC 2016
JUN 2017
DEC 2017
JUN 2018
Export
Retail:
Wholesale Domestic
Retail:
International
100%
80%
60%
40%
20%
0%
$/HOG kg
% of sales
10
30 Jun
2018
10,275
147.4
14.35
(107.1)
(10.42)
(7.7)
(0.75)
32.6
3.17
22.1%
(25.2)
31 Dec
2017
12,693
170.5
13.43
(120.6)
(9.50)
(10.7)
(0.84)
39.2
3.09
23.0%
12.3
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
– Salmon prices continued to increase through FY2018 in
response to deteriorating supply in Australia. Globally, growth
in demand continues to outstrip supply supporting the view
that the current pricing environment is more reflective of a new
norm for the next 2-3 years
– Challenging growing conditions in Tasmania had a severe
impact on biomass levels, despite the year beginning with record
production volumes. Expectations of harvest volumes were cut
to just under 23,000 tonnes by year end.
– Average harvest weights reduced during the year, and the cost
of production per kg was also affected, increasing by 8% in the
second half.
– The impact of AGD (amoebic gill disease) together with higher
freight costs contributed to tighter operating margins which fell
from 29.0% in the second half of FY2017 to 22.1% (on pcp).
* Operating EBITDA excludes the impact of the Fair Value Adjustment
of Biological Assets.
30 Jun
2018
5,820
3,054
849
553
10,275
60%
28%
7%
5%
15.17
13.57
12.82
12.38
31 Dec
2017
6,372
2,611
191
3,518
12,693
55%
21%
1%
23%
14.69
13.62
12.23
11.08
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
– Continued strong demand from the domestic retail channel
resulted in volumes increasing by 31% and the proportion of
sales into this segment increasing to 24%.
– The wholesale market continues to be Huon’s dominant
segment by volume and sales (58%) with prices increasing
in the second half as supply was increasingly constrained by
pressures on the biomass.
– Sales into the international retail markets totalled
$13.2 million or 4% of revenue.
– Supply constraints saw Huon decrease its export volumes
from 3,518 tonnes in the first half to 553 tonnes in the second
half. Uncontracted export sales over the year accounted for
14% of revenue.
Huon Aquaculture Group LimitedAnnual Report 2018 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
16.00
14.50
13.00
11.50
10.00
DEC 2015
JUN 2016
DEC 2016
JUN 2017
DEC 2017
JUN 2018
Average price/HOG kg
Average HOG 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 2015
JUN 2016
DEC 2016
JUN 2017
DEC 2017
JUN 2018
Adjusted Cash Flow from Operations
EBITDA Conversion
30 Jun
2018
169.4
35.7
133.7
12,960
13.07
2.75
10.32
2,404
10,275
4.27
14.35
147.4
31 Dec
2017
195.3
60.9
134.4
17,475
11.18
3.48
7.69
2,398
12,693
5.29
13.43
170.5
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
– The $12.9 million decline in the Fair Value Adjustment for
FY2018 reflects the significant reduction in the biomass by
30 June 2018 compared to June 2017.
– The fair value of biological assets fell by 10% (over pcp)
to $169.4 million while biomass at sea dropped 22%
(over pcp). This reflects an increase in the assessed market
price of fish at reporting date, bringing the biological assets
value per kg to $13.07.
– Average harvest weight rose strongly in the first half to a
record 5.29kg. The rapid fall in harvest weight during the
second half to 4.27kg, while seasonal, also reflects the poor
growing conditions as fish struggled to thrive during the
abnormally warm summer.
– Biological assets per kg (excluding FVA) rose 23% (over pcp)
to $10.32, a reflection of the rise in per kg production costs
during the second half as bathing and net cleaning schedules
ramped up in response to the rising incidence of AGD.
30 Jun
2018
32.6
34.8
1.7
(4.2)
32.3
99%
44.5
2.8
31 Dec
2017
39.2
23.2
1.6
–
24.8
63%
43.2
7.4
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
$M
$M
$M
t
$/kg
$/kg
$/kg
000’s
t
kg
$/kg
$M
kg
6.00
5.50
5.00
4.50
4.00
3.50
3.00
$M
$M
$M
$M
$M
%
$M
$M
120%
100%
80%
60%
40%
20%
0%
– The increase in operating profit together with close
management of working capital resulted in operating
cash flow increasing from $54.0 million (in pcp) to
$57.9 million.
– EBITDA conversion averaged 79% across the year,
increasing in the second half as costs or production eased
– Huon spent $87.7 million in capex, which included funding
the continued expansion of marine farms in Storm Bay and
construction of the new Whale Point Salmon Nursery.
– Net debt almost doubled to $81.3 million, increasing
gearing to 26.1%, a level which sits at the lower end of
Huon’s planning range.
* Operating EBITDA excludes the impact of the Fair Value Adjustment
of Biological Assets.
11
Growing Salmon
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.
Huon’s fish are grown in three marine regions: Hideaway Bay (Huon River and D’Entrecasteaux
Channel), offshore in Storm Bay and Macquarie Harbour.
DEVONPORT
LAUNCESTON
Parramatta Creek
Processing Facility
Offices
Processing facilities
Farming regions
TA S M A N I A
Macquarie
Harbour
BRISBANE
AU S T R A L I A
PERTH
SYDNEY
MELBOURNE
Botany
Processing
Facility
TASMANIA
HOBART
HOBART
Storm
Bay
Hideaway
Bay
A Bridport Hatchery
B Springfield Hatchery
C Millybrook Hatchery
D SALTAS Hatchery
E Derwent Hatchery
F New Norfolk Facility
G Lonnavale Hatchery
H
Forest Home Hatchery
I
Whale Point
Salmon Nursery
Huon River and
D’Entrecasteaux Channel
Huon Aquaculture began in 1986
at Hideaway Bay, on the Huon
River with one pen of trout and one
employee. Today there are six farmed
leases, including high-energy sites in
the D’Entrecasteaux Channel.
Hideaway Bay on the Huon River
operates as the shore base for Huon’s
operations in the State’s south. This
sheltered bay, with its calm waters,
is where Huon manages its harvest
as well as undertaking Australia’s
experimental and pre-commercial
use fish feed trials.
Storm Bay
Storm Bay is located east of Bruny
Island and south of Hobart. Huon
began farming here in 2014 as part
of its long-term growth strategy
to shift salmon farming into high-
energy offshore sites. Over the
past 4 years Huon has invested
$200m into its business, preparing
for the reality that future expansion
in production will be in deep water,
several kilometres offshore. These
are conditions that closely mimic
salmon’s natural habitat, ensuring
a sustainable, growing business for
salmon farming in Tasmania. This
is the way of the future.
For more about Storm Bay’s
un-tapped capacity, see page 18.
Macquarie Harbour
Huon owns two of the 10 allocated
lease sites for fish farming in
Macquarie Harbour which is located
on the mid-west coast of Tasmania,
just below Strahan. The Gordon and
Franklin river systems deliver large
volumes of freshwater into Macquarie
Harbour providing a unique mix of
fresh and saltwater, ideal conditions
for growing Atlantic salmon and
Ocean trout. Both have been farmed
here for around 30 years.
Less than 10% of Huon’s production
comes from Macquarie Harbour
with stocking densities kept low
in order to manage sustainable
farming in this unique water system.
12
CDGHFBIAEHuon Aquaculture Group LimitedAnnual Report 2018 Company and Industry OverviewGrowing Salmon As a ‘vertically integrated’ salmon producer, Huon’s operations span hatcheries,
marine farming, maintenance, harvesting, processing, value adding, marketing,
sales, and distribution.
t c herie
s
a
H
u r series
N
M a r i n e Far
m
s
r vestin
g
a
H
P r o cessin
g
M arket
electi v e Bree
d
i
n
g
S
F e eding
l
l owing
a
F
V a l u e Add
e
d
Progr a m
Fish H usban
d
r
y
Maintenance
et M a nage
m
e
N
n
t
B a thing
Proces s i
n g
L i g hting
a
Pred
t o r Con
t
r
o
l
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
The hatchery allows the natural
lifecycle of salmon to be replicated,
as well as allowing growth to be
naturally synchronised in a way that
enables supply of fresh, healthy fish
all year round. Huon’s state-of-the-art
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 building Australia’s first onshore
Salmon Nursery at Whale Point in
Port Huon, the Company’s river adjacent
site. This facility will see smolt grown on
land to much larger sizes before being
transferred to sea. The aim is to reduce
the time salmon spend at sea from 14
to less than 12 months. This has several
benefits including better management of
existing leases, reduced environmental
impact, and minimisation of the risk
of predation. Huon expects the new
Salmon Nursery to be operational
by December 2018.
Marine Farms
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 constructed with delivery
expected in 2019.
Harvesting
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-
product. By focussing on low-stress,
humane, night-harvesting, using
RSPCA UK awarded equipment,
Huon consumers experience fresher,
higher quality salmon year-round.
Feeding
Huon continues to make advances
in feed systems that result in
improved fish performance. The
upgrade of its pellet recognition
software, increased automation
of feed delivery systems, and
implementation of remote, shore-
based feeding capabilities, over the
past 18 months has been the key to
feeding efficiency.
Processing
Huon’s investment in additional
processing equipment is delivering
further quality and efficiency
improvements at its state-of-the-
art Paramatta Creek processing
facility. Huon’s processing
capabilities support its increased
presence in the retail market and
specifically the chilled packaged
seafood category.
13
Growing Demand
Huon’s objective is to continue expanding production to meet local demand and also
tap into the growing appetite for salmon worldwide. Forecasts suggest by 2025 an additional
11.4 million tonnes of seafood will be required to satisfy the projected global market demand.
Demand for protein
The global population is forecast to include an
additional 1.0 billion people by 2030 and by 2050 the
population will have increased from 7.6 billion today
to an estimated 9.4 billion.
Feeding this growing population is one of the great
challenges of the 21st century. How do we ensure
that enough protein is produced when there is limited
scope to expand agriculture’s use of more land and
water resources and the world’s fisheries are already
under strain?
Protein is an essential component of the human diet, as
it helps the body repair cells and make new ones. About
one-third of the protein eaten around the world comes
from meat (18%), dairy (10%) and other animal products
(9%). Plant based foods dominate protein supply (57%)
with the majority coming from three grains—wheat, maize
and rice. And, despite the fact that oceans cover 70%
of the Earth’s surface, only 6% of protein for human
consumption comes from fish and other seafood.
The solution has to come from improvements in
productivity and resource-use efficiency. For Huon
and others in the salmon farming industry this means a
dedication to the development of sustainable aquaculture.
Since the 1990s the growth in demand for seafood has
been met entirely from aquaculture as capture from wild
fisheries has stagnated and is forecast to progressively
decline over the next 30 years. In the near term, by 2025,
it is estimated that the industry will need to produce
an additional 11.4 million tonnes of seafood to satisfy
projected market demand.
Projected global population growth
9.4 billion by 2050
Years when world population reached
increments of 1 billion
4
3
2
10
8 9
7
6
1
1800
1925 1960 1980
2000 2017
2025
2055
Increased consumption
The increasing demand for food is not just about
population growth. If consumption per capita of protein
stayed at current levels, this factor on its own would
increase demand by 35%. However the UN has estimated
that actual demand will double driven by economic
development and increased urbanization leading to major
transitions in population-level dietary patterns in low and
middle income countries.
Regular fish consumption is increasingly being promoted as
part of a healthy diet. Fish meat has a high protein content
compared to terrestrial animal meat and fish have a lower
feed conversion ratio (FCR) than land animals making
them a more efficient source of protein. Fish and shellfish
consumption has several reported health benefits including
decreased risk of heart diseases, inflammation and arthritis.
World per capita food fish consumption is projected to
reach 21.6kg in live weight equivalent by 2025, (20.3kg
average in 2014–2016). Per capita fish consumption is
forecast to rise in all continents, except in Africa, where
population growth will outstrip its increasing food
fish supply.
Demand/supply
While the increasing demand for seafood protein and the
expectation that aquaculture will have to meet all of that
growth is not in question, how the increase in supply will
be achieved is less clear. From 2004 to 2013 the industry
experienced a compound annual growth rate (CAGR) of
6% due to producers expanding operations. At present,
global demand is growing at 7%, with supply growth for
2018–2020 projected to be 3–4%pa due to problems with
production in Norway and Chile, the two major producers
of salmon, and new lease space becoming increasingly
harder to find.
Aquaculture is expanding to meet
world fish demand
S
N
O
T
N
O
I
L
L
I
M
220
200
180
160
140
120
100
80
60
40
20
0
Aquaculture
Wild (capture) Fisheries
1950
1960
1970
1980
1990
2000
2010
2020
2030
2040
2050
SOURCE: UNITED NATIONS, DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS
SOURCE: FAO
14
Huon Aquaculture Group LimitedAnnual Report 2018 Company and Industry OverviewGrowing Salmon
CHINA
KOREA
JAPAN
TAIWAN
Time from harvest
to Asian markets –
56 hours
Projected additional fish consumption in 2025
95% of additional fish consumed
in 2025 is forecast from developing
countries, with Asia accounting
for 73% of that growth, and about
50% of that from China.
CHINA
INDIA
INDONESIA
BANGLADESH
VIETNAM
OTHER ASIA
HUONAQUA.COM.AU
SOURCE: OECD AND FAO
73%
ASIA
12%
AFRICA
7%
LATIN
AMERICA
4%
EUROPE
3%
NORTH
AMERICA
1%
OCEANIA
Australia contributes approximately 2% of the global
harvest of Atlantic Salmon. Growing conditions for marine
pen farming (floating pens in coastal waters) in Australia
are only commercially suitable in Tasmania. While demand
in Australia has been growing at around 10%pa in recent
years, growth in salmon production has been tracking at
less than 9%pa and is expected to fall short of demand
growth over the next two years.
For Huon, the objective is to continue expanding
production to meet not only local demand but also to
satisfy premium niche markets for salmon worldwide.
Optimised channel mix
Huon has been progressively diversifying its channel
mix over the past three years, reducing the dominant
weighting of salmon sold through the wholesale market
and increasing its exposure to contracted sales into the
retail market. Initially this was achieved by boosting sales
into Australia’s supermarkets from 10% of total revenue in
FY2016 to 22% in FY2017.
Over the past financial year Huon secured a number of
supply agreements throughout the Asian market, removing
much of the uncertainty and volatility that has previously
been associated with sales into offshore markets. In
FY2018, international retail sales accounted for 4%
of revenue, bringing total sales into both the domestic
and international retail market to 28% of revenue.
This year, and into the future, Huon aims to reduce its
exposure to the volatility inherent in spot markets for
international salmon, ensuring it receives an appropriate
premium for the quality of its product sold in offshore
markets.
Access to Asian markets
Of the estimated 177 million tonnes of fish consumed
worldwide in 2025, Asia is projected to account for 73%.
Huon has spent many years laying the foundations for
the development of a sustainable, long-term client base
in Asia by nurturing relationships with retailers and
distributors who can open doors to opportunities that
would not otherwise be available. There are niche markets
in Asia that can deliver strong returns to the business and
Huon’s success this year securing supply of salmon to
Taiwan and China, proved that returns in this market can
be equivalent to those in the domestic market.
Brand value
This year Huon repositioned its brand in order to better
articulate its points of difference. ‘Not all salmon is
Huon’ is focused on telling stories about what makes
Huon salmon and this business different from every other
company and fish on the market. Targeted campaigns in
key markets have been driving consumer brand awareness
across Australia as well as community support for Huon
in Tasmania.
Huon will continue to invest in its business to business
and consumer brands over the next three to five years at
the same time as it expands production volumes. This will
ensure that Huon Salmon receives a premium price in both
the domestic and international market place.
15
Assistant Fish Health Manager Jasmine Knowles, (top) The Ronja Huon pulled up alongside a fortress pen, (above) Huon’s central feed control room.
Growing Operations
Investing back in the business
In the three years following listing, Huon invested
$200 million into the business upgrading its infrastructure
and processing capabilities via the Controlled Growth
Strategy. The objective of this strategy was to achieve a
step change in the way the business operated, radically
reshaping each part of the production chain in order
to transform its capacity to grow and process larger
volumes of fish.
Growth and continuous improvement are essential
elements to Huon’s strategic vision, and the Company
has a strong track record of delivering large-scale growth
projects requiring significant capital expenditure. Huon
is constantly improving its operations through major
R&D projects and fostering a culture of innovation. The
Company invests strategically for the long-term and has
developed a number of initiatives and processes that are
now being used across the industry, both domestically
and internationally. Examples of this include its patented
Fortress Pen design, automated feeding technology and
redesign of well-boats to enable fresh water bathing.
This commitment to operate at the cutting edge of
technology and continually innovate its farming methods,
continued in FY2018. Huon invested $88 million in a
capital investment program that will underpin its next
stage of growth in production. This includes construction
of the $45 million Whale Point Salmon Nursery and
the continuing expansion of farming at Storm Bay.
Further expenditure of around $70 million is planned for
FY2019 that will see the completion of the Whale Point
Salmon Nursery and further expansion of farming in its
high-energy sites. Capital expenditure into the future will
be managed in-line with market growth.
16
Bigger feed barges
Huon-designed 320 tonne feed barges, which ensure
fish are fed consistently and result in larger fish size at
harvest, have been operating across the company’s
marine farms since late 2015.
With more capacity at sea and larger production come
increased feed demands and Huon is in the process of
building its next generation of 600 tonne feed barges to
help carry this load. These will be fully automated and
unmanned, meaning less feed delivery trips, increased
feed security and no missed feed days. As Huon’s new
marine farms will all be located in high-energy sites
offshore, these new barges have been designed to
ensure that the fish can be fed in any weather, allowing
them to fully realise their growth potential.
Automated feeding
The move to unmanned feed barges enables
automated feeding of Huon fish from a central control
room in Hobart. Six feeders over two shifts are able to
feed Huon’s entire production volume. This is possible
due to bespoke Huon developed software that runs
over the top of the live video feeds from the pens.
Using Huon’s technology, the feed is spread throughout
the pen utilising an automated spreading system
monitored by video sensors. Huon worked alongside
Australian companies to develop the sensor and video
software that monitors the appetite of the fish and stops
feeding when the fish stop eating. Over the past year
this software has incorporated machine learning or
artificial intelligence into the process, creating a neural
network that allows the program to learn what is and
isn’t a pellet falling through the water column. Over time
its accuracy improves with the result that food wastage
is minimised, lowering the impact on the seabed and
ultimately getting optimal growth from the fish.
Huon Aquaculture Group LimitedAnnual Report 2018 Company and Industry OverviewGrowing Salmon The Ronja Huon, (top right) Hideaway Bay shore base operations, (right) Whale Point Salmon Nursery under construction.
Whale Point Salmon Nursery
During FY2018 Huon commenced construction of a new
land based salmon nursery at Whale Point. This 1400 tonne
facility will receive and grow out smolt sourced from Huon’s
recirculation hatcheries. It will enable smolt to be put to
sea when they are at a more advanced stage of growth
delivering a number of significant benefits. First, the time
that fish are at sea will be reduced from 14 months to under
12 months, reducing the risk of mortality and enabling
larger fish to be grown in the same time frame as current
production. Secondly it will increase total farming capacity
without having to expand existing lease area.
The Whale Point Salmon Nursery will come on stream at the
end of calendar 2018, representing the biggest step change
in core product development and process for the industry
since the implementation of Huon’s offshore farming.
Bigger well-boat
The increase in volume and capacity that will come
through Whale Point and at sea, requires a well-boat with
significantly greater capacity than the existing Ronja Huon
to bath and transport the growing number of fish. The
Ronja Storm is currently being built and is the next
generation of well-boat. It follows the commissioning of
the 75 meter Ronja Huon in late 2014 which pioneered
well-boat fresh water bathing in Australia.
The custom designed Ronja Storm has four times the
capacity of the Ronja Huon and will allow a fully stocked
240m fortress pen to be bathed in one go. It will also have
the ability to produce its own supply of fresh water through
a reverse osmosis plant on board. This will enable it to
stay at sea for much longer periods rather than having to
return to fill up with fresh water.
The Ronja Storm will be delivered in late 2019 and will be
the largest well-boat in the world, giving Huon significant
additional capacity to continue its expansion into the high-
energy sites offshore in Storm Bay and beyond.
Fortress Pens
Huon commenced farming in high-energy offshore sites
in 2014 with five pens in its Storm Bay lease. This move
would not have been possible without Huon’s development
of the Fortress Pen, a world first in that its design
specifications required it to operate in one of the roughest
farmable waters in the world.
An additional benefit of the pens is that the double
net system, made from a strong lightweight material
similar to that used in bullet-proof vests, has effectively
eliminated predator risk from seals. The Fortress Pens
were progressively introduced across Huon’s entire marine
operation through 2015 and 2016, and further refinements
and improvements have continued as more is learned
about the different and evolving environmental conditions
in which Huon is now operating.
In FY2018 Huon installed another eight Fortress Pens at
its Storm Bay lease site, bringing total production capacity
from Storm Bay up to over 6,000 tonnes.
Huon aquaculture systems
Over the past 30 years Huon has remained committed
to investing in product development, concept testing and
trialling innovations in farming technology that has put it at
the forefront of best practice in salmon farming globally.
The company now has a significant amount of IP relating
to salmon farming practices and aquaculture more
generally. The application of these systems, whether
as IP, hardware or software will create new revenue
opportunities for the Company to unlock in coming years.
17
Growing Capacity
PORT HUON
ENGINEERING
WORKSHOP
AND NET SLAB
WHALE POINT
SALMON NURSERY
H
u
o
n Riv
er
POLICE POINT
HIDEAWAY BAY
GARDEN ISLAND
FLATHEAD BAY
ROARING
ZUIDPOOL NORTH
ZUIDPOOL SOUTH
D’E
n
t
r
e
c
a
s
t
e
a
u
x
C
h
a
n
n
e
l
Proposed site at
East of Yellow Bluff
Storm
Bay
Storm Bay:
2 unused sites
Tasman
Sea
Lease zones
Unused lease zones
Land base facilities
Additional
capacity
13,500 tonnes
Growing Capacity
Huon currently operates across three main regions with
a total operational lease area of 750ha. Since 2014
these lease configurations have been arranged to farm
in high-energy sites and to move to offshore farming.
Over the past 20 years Huon has continually expanded
the business and operations. In that time production
has increased from 1,200 tonnes to 23,000 tonnes,
much of it as result of the enabling technologies that
Huon has conceived, designed, built and, in rare cases,
acquired and modified.
To increase production and at the same time farm
sustainably, requires access to more high-energy
marine sites located offshore.
Capacity to increase production
Huon has the capacity to double its lease area
under operation in Storm Bay. With the focus for
expansion solely on high-energy sites, the four Storm
Bay leases together with the proposed site at East of
Yellow Bluff provide Huon with the capacity to produce
an additional 13,500 tonnes on top of its existing
23,000 tonnes.
18
Currently Operational
Non-Operational
Current
production
23,000T
STORM BAY
HUON AND
CHANNEL
MACQUARIE
HARBOUR
13,500T
STORM BAY
(UNUSED)
Total
production
capacity
36,500T
Operational leases
Huon River & D’Entrecasteaux Channel
Storm Bay
Macquarie Harbour
Tonnes
14,000
6,500
2,500
23,000
Lease
Area
420ha
100ha
230ha
750ha
Huon Aquaculture Group LimitedAnnual Report 2018 Company and Industry Overview
Fortress Pens at Storm Bay
(From left) Sunrise in the Huon, The Ronja Huon, Feed makes its way out to pens via our in-house designed backbone system.
Weathering storms
In salmon farming, those companies that had the
foresight to identify and gain access to new marine
sites, have a unique competitive advantage.
In Australia there are only a limited number of sites
available that have the right environmental conditions,
temperature, depth, oxygen and seabed regeneration.
This particularly applies to potential new high-energy
marine sites located offshore.
Huon spent several years planning and researching
conditions in Storm Bay before commencing operations
there in 2014. It designed pens and the supporting
infrastructure to withstand a 1-in-50-year storm and
in May 2018 it was put to the test. While there was
damage across its leases, all core equipment and
structures, including the Fortress Pens, remained in
place. Lessons learned from that event have already
been applied through modifications to net designs and
the elimination of the older style feeding bins from
within pens at high-energy offshore sites.
Benefits of deeper offshore sites
Fish health and welfare:
Deeper, high-energy 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:
Offshore 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, as well as
seperating year classes, we are future-proofing
our farms and improving biosecurity.
19
Huon Board of Directors
Huon Board
of Directors
Neil Kearney B.Ec
Chairman
Peter Bender
Managing Director and
Chief Executive Director
Director since August 2014
Director since May 2005
Founder of Huon with over 30 years’
experience in fish farming operations.
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 Salmon Enterprises of Tasmania
Pty Ltd.
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 currently a Non-executive director
of Brainwave Australia, a charity,
Non-executive Chairman of Felton
Grimwade Bosisto’s Pty Ltd and a
Non-executive director of Simonds
Group Limited.
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
20
Huon Aquaculture Group LimitedAnnual Report 2018 Frances Bender
Non-independent
Executive Director
Director since May 2005
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.
Simon Lester CA, BCom,
MAppFinInv
Independent
Non-executive Director
Director since August 2014
Simon had previously 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 and previously held
the position of Board member of
CatholicCare Tasmania.
Simon is currently the Chief Risk
Officer of The Royal Automobile Club
of Tasmania.
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
Tony Dynon CPA
Independent
Non-executive Director
Director, since 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 LimitedAnnual Report 2018 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 2018.
Directors
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
The qualification, experiences and special
responsibilities of the Directors are provided on
pages 20 to 21.
Directors’ Interests
Particulars of Directors’ interests as at 30 June 2018 were:
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
6,080
277,662
–
–
–
–
(i)
Includes direct and indirect interests.
Company Secretary
Thomas Haselgrove B.Ec. CA
Thomas Haselgrove is the Chief Financial Officer and
Company Secretary with 26 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.
Principal Activities
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
Dividends paid to members during the financial year
were as follows:
Final ordinary dividend for the year ended
30 June 2017 of 5.0 cents (2016 – nil)
per ordinary share paid on 12 October 2017
Interim ordinary dividend for the year ended
30 June 2018 of 5.0 cents (2017 – nil)
per ordinary share paid on 12 April 2018
$’000
4,367
4,367
On 15 August 2018 the Directors recommended the
payment of a final ordinary dividend of $4.4m (5.0 cents
per ordinary share) to be paid on 11 October 2018 out of
retained earnings at 30 June 2018. The dividend will be
50% franked.
Review of Operations
Information on the operations and financial position
of the Consolidated Group, and the Business Strategy
and outlook are set out in the Chairman’s Message
on pages 2 to 3 and the Managing Director’s Review
on pages 4 to 7 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 15 August 2018, 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 2018 financial statements.
No other matter or circumstance has arisen since
30 June 2018 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 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
Management Committee
meetings
Remuneration and
Nominations Committee
meetings
Number
Held
Number
Attended
Number
Held
Number
Attended
Number
Held
Number
Attended
10
10
10
10
10
10
10
9
10
10
4
*
*
4
4
4
*
*
4
4
3
*
*
3
3
3
*
*
3
3
Director
Neil Kearney
Peter Bender
Frances Bender
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, 186,280
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
Huon Aquaculture Group LimitedAnnual Report 2018 Directors’ Report continued Remuneration Report
Introduction
This Remuneration Report for the financial year ended
30 June 2018 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
Non-executive Directors (NEDs), Executive Directors
(EDs), and Executive Management Group (EMG). 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 2018 unless otherwise indicated.
Following the resignation of a senior manager at the end
of FY2017, changes were made to the executive team
to support decision making and achieve the Company’s
strategic objectives. As a result David Morehead,
Charles Hughes, and David Mitchell became members
of the EMG from July 2017. Amounts disclosed in this
Remuneration Report reflects their service as members
of the EMG from July 2017 unless otherwise stated.
Executive Directors
– Peter Bender (Managing Director and
Chief Executive Officer)
– Frances Bender (Executive Director)
Non-executive Directors
– Neil Kearney (Chairman and Non-executive Director)
– Simon Lester (Non-executive Director)
– Tony Dynon (Non-executive Director)
Executive Management Group
– Philip Wiese (Deputy Chief Executive Officer)
– Thomas Haselgrove (Chief Financial Officer
and Company Secretary)
– David Morehead (General Manager Marine
Operations)
– Charles Hughes (General Manager Commercial
and Planning)
– David Mitchell (General Manager Freshwater
Operations)
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 2018 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
From time to time 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 2018.
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.
25
KMP Remuneration Arrangements – Executive Directors and Executive Management Group
The following information relates to the remuneration arrangements for the Executive Directors and Executive Management
Group 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
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.
Remuneration consists of Fixed Remuneration and performance based remuneration. Payments and awards of performance
based remuneration under the STI Cash bonus plan and, in certain circumstances, under the LTI Performance Rights plan, are
subject to Board discretion as well as being subject to performance targets being met.
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.
Components of Remuneration
In the financial year ended 30 June 2018, 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%
– EMG
Target = 30%
To provide short term incentive
for KMP 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%
– EMG
Target = 30%
The LTI plan provides a reward
to KMP for their contribution to
the achievement of forecasted
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.
26
Huon Aquaculture Group LimitedAnnual Report 2018 Directors’ Report Remuneration Report continued 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 2017 and 2018:
Chief Executive Officer
Executive Director
Deputy Chief Executive Officer
Executive Management Group
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.
Fixed Remuneration
Total Fixed Remuneration (TFR) includes base salary, superannuation contributions, long service and annual leave and other
benefits (such as termination 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 2017 and 2018 fixed remuneration levels are provided below:
KMP
Peter Bender
Frances Bender
Philip Wiese
Thomas Haselgrove
David Morehead (i)
Charles Hughes (i)
David Mitchell (i)
(i) Not KMP in 2017, therefore no comparative information has been provided.
Fixed remuneration
2018
$
551,923
191,594
428,802
317,814
302,567
283,024
267,747
2017
$
609,017
215,066
432,004
312,713
–
–
–
27
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 FY2018?
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 EMG.
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 FY2018 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 2017 and 2018.
KMP
Philip Wiese
Thomas Haselgrove
David Morehead (i)
Charles Hughes (i)
David Mitchell (i)
(i) Not KMP in 2017, therefore no comparative information has been provided.
STI value
as % of
TFR 2018
STI value
as % of
TFR 2017
40%
30%
30%
30%
30%
40%
30%
–
–
–
28
Huon Aquaculture Group LimitedAnnual Report 2018 Directors’ Report Remuneration Report continued 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 FY2018 LTI
performance rights
grant?
When do the FY2018 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 FY2018 LTI Plan are subject to two separate
performance measures:
– 50% of the performance rights will be subject to a vesting condition based on earnings per
share compound annual growth rate (EPS CAGR) 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 period for the 2018 LTI plan is the period from 1 July 2017 to 30 June
2020. The performance rights granted will vest subject to the performance hurdles associated
with the grant and to the extent that certain performance based conditions are achieved in
the relevant performance period.
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 2020.
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 2017 and 2018:
KMP
Peter Bender
Philip Wiese
Thomas Haselgrove
David Morehead (i)
Charles Hughes (i)
David Mitchell (i)
(i) Not KMP in 2017, therefore no comparative information has been provided.
LTI value
as % of
2018
LTI value
as % of
TFR 2017
100%
40%
30%
30%
30%
30%
100%
40%
30%
–
–
–
29
2018 LTI Plan Hurdles explained
Performance rights issued under the 2018 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’)
Vesting outcome
Less than 7.5% CAGR
7.5% CAGR
Above 7.5% CAGR but below 10% CAGR
10% CAGR or greater
Nil
50%
Pro-rata from 50-99%
100%
Earnings per share compound annual growth 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%
Return on Assets (ROA) is calculated as statutory earnings before interest and tax (EBIT) (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
2018
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 (Operating)
Share price (30 June)
$m
$m
hours/million
Cents
%
$m
%
$
71.8
57.9
4
40.53
10.4%
8.7
24.7%
4.46
62.8
54.0
3
32.90
10.2%
–
–
4.93
2016
26.4
16.3
7
5.13
2.4%
–
–
3.50
2015
40.5
17.3
27
25.64
10.7%
0.8
3.9%
3.40
(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.
Earnings per share compound annual growth 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) Return on Assets (ROA) is calculated as statutory earnings before interest and tax (EBIT) (excluding adjustment for biological assets), divided by total
assets excluding cash and fair value adjustment on biological assets (average of opening and closing balance).
30
Huon Aquaculture Group LimitedAnnual Report 2018 Directors’ Report Remuneration Report continued Consolidated Group performance and its link to STI
Performance against STI plan targets
The following table shows the Company’s 2018 STI performance scorecard measures, weightings and outcomes as applied to
the KMP.
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 not
achieved
Target
achieved
Target not
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 2018
The following table provides a summary of STI outcomes and payments for the 2018 performance year.
KMP
Philip Wiese
Thomas Haselgrove
David Morehead
Charles Hughes
David Mitchell
STI target
$
149,325
80,702
80,707
74,114
74,114
Target
STI as %
of TFR
40%
30%
30%
30%
30%
Total STI
Foregone(i)
$
44,798
24,211
24,212
22,234
22,234
Total STI
forfeited
$
104,527
56,491
56,495
51,880
51,880
Total STI
achieved
as % of
STI target
0%
0%
0%
0%
0%
(i) EMG agreed to forgo STI benefits for FY2018 due to certain KPI measures not being achieved during FY2018.
Consolidated Group performance and its link to LTI
Performance Against LTI Plan Targets
The following table shows the performance periods and outcomes for the 2015 LTI Plan which covers the performance period
1 July 2015 to 30 June 2018 and is assessed in FY2018. The total vesting outcome for the three year period is 43.6% of
performance rights issued. Any performance rights under the 2015 LTI Plan that do not vest as result of the vesting outcomes
will lapse.
The 2016 and 2017 LTI Plans will be assessed against their performance periods and outcomes at the completion of FY2019
and FY2020 respectively.
LTI Plan
Performance Period/Outcome
Measure
FY2016
2015
Measure
Outcome
1 July 2015 – 30 June 2016
Outcome
1 July 2015 – 30 June 2017
Outcome
1 July 2015 – 30 June 2018
EPS (cents)
EPS (GAGR)
ROA (%)
EPS
ROA
EPS
ROA
EPS
ROA
5.13c
(80.0%)
2.4%
0%
0%
N/A
0%
N/A
0%
FY2017
32.90c
13.3%
10.2%
–
–
100%
52%
N/A
52%
FY2018
Vesting %
40.53c
16.5%
10.4%
–
–
–
–
100%
54%
0%
0%
100%
26%
100%
35%
31
LTI transactions for KMP for 2018
The following table details the Performance Rights made to KMP during FY2018.
KMP – Performance rights granted
Peter Bender
Philip Wiese
Thomas Haselgrove
David Morehead
Charles Hughes
David Mitchell
(i) Fair value has been rounded to 2 decimal places
Grant date
30 Nov 2017
30 Nov 2017
30 Nov 2017
30 Nov 2017
30 Nov 2017
30 Nov 2017
Units
granted
96,575
29,186
15,773
15,774
14,486
14,486
Fair value (i)
$
4.01
4.01
4.01
4.01
4.01
4.01
KMP – Performance rights held
The following table details the Performance Rights held and the movement during FY2018.
Name
Grant Date
Peter Bender
– 25 November 2015
– 30 November 2016
– 30 November 2017
Philip Wiese
– 19 October 2015
– 30 November 2016
– 30 November 2017
Thomas Haselgrove
– 19 October 2015
– 30 November 2016
– 30 November 2017
David Morehead
– 19 October 2015
– 30 November 2016
– 30 November 2017
Charles Hughes
– 19 October 2015
– 30 November 2016
– 30 November 2017
David Mitchell
– 19 October 2015
– 30 November 2016
– 30 November 2017
Held
at Start
of Year
47,834
134,380
–
14,478
40,612
–
7,824
21,948
–
15,647
21,950
–
14,369
20,156
–
14,369
20,156
–
Granted
During
Year
Other(i)
Forfeited
Vested
47,834
–
–
14,478
–
–
7,823
–
–
–
–
–
–
–
–
–
–
–
–
–
96,575
–
–
29,186
–
–
15,773
–
–
15,774
–
–
14,486
–
–
14,486
(33,172)
(15,789)
–
(10,039)
(4,771)
–
(5,425)
(2,578)
–
(5,425)
(2,579)
–
(4,981)
(2,368)
–
(4,981)
(2,368)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(i) Amounts incorrectly shown as Forfeited in the 2017 Report
Total
fair value
of grant
2018
$
387,057
116,973
63,216
63,220
58,058
58,058
Unvested
at End
of Year
62,496
118,591
96,575
18,917
35,841
29,186
10,222
19,370
15,773
10,222
19,371
15,774
9,388
17,788
14,486
9,388
17,788
14,486
32
Huon Aquaculture Group LimitedAnnual Report 2018 Directors’ Report Remuneration Report continued KMP Contracts
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.
Contractual arrangements
The following table shows the key contractual arrangements for KMP:
KMP Member
Peter Bender
Frances Bender
Philip Wiese
Thomas Haselgrove
David Morehead
Charles Hughes
David Mitchell
Contract Type
Ongoing contract
Ongoing contract
Ongoing contract
Ongoing contract
Ongoing contract
Ongoing contract
Ongoing contract
Fixed Remuneration(i)
$
Access
to STI
Access
to LTI
494,107
160,551
373,312
269,006
269,023
247,045
247,045
No
No
Yes
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes
Yes
Yes
Yes
(i) Superannuation is paid in addition to fixed remuneration
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. 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
Unvested awards forfeited
Vested and unexercised
awards forfeited
Pro-rated for time and
remain on-foot subject
to original performance
hurdles
33
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. 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
Executive Management Group
Members of the executive management group are employed under ongoing contracts which can be terminated with notice by
either the Company or the employee. Termination provisions are as follows:
Notice Period
and/or
Notice in Lieu
Restraint
Period
Treatment
of STI
Treatment
of LTI
Resignation
3 months
3 months
Termination for cause
None
3 months
Unvested awards
forfeited
Unvested awards
forfeited
Unvested awards
forfeited
Unvested awards
forfeited
Vested and unexercised awards forfeited
Termination in cases of death, disablement,
redundancy or notice without cause
3 months
3 months
Pro-rated for time
and performance
Pro-rated for time
and remain on-foot
subject to original
performance
hurdles
34
Huon Aquaculture Group LimitedAnnual Report 2018 Directors’ Report Remuneration Report continued
KMP Remuneration for the Financial Year ended 30 June 2018
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
Non-
Monetary
$
Long Service
and Annual
Leave
$
Other
$
Variable
Remuneration
Super-
annuation
$
Cash
Bonus
$
Performance
Rights(i)
$
Performance
related
%
Total
$
Salary
and Fees
Year
$
Executive Directors
Peter Bender
2018
2017
Frances Bender
2018
2017
160,371
155,644
514,986
493,035
14,647
10,184
–
–
Key Management Personnel
–
–
Philip Wiese
398,681
2018
2017
362,677
Thomas Haselgrove
53,492
215,213
2018
2017
60,580
200,205
David Morehead (from July 2017)
–
268,722
2018
2017
–
–
Charles Hughes (from July 2017)
–
246,769
2018
2017
–
–
David Mitchell (from July 2017)
246,769
2018
–
2017
–
–
Total
2018
2017
2,051,511
1,211,561
68,139
70,764
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,815)
74,034
25,105
31,764
7,647
25,172
23,576
34,250
–
–
–
–
411,388
122,865
963,311
731,882
–
–
191,594
215,066
25,805
29,376
–
144,976
124,039
37,172
552,841
614,152
4,316
39,951
23,582
25,722
8,316
–
12,812
–
25,527
26,206
25,529
–
23,443
–
(2,465)
–
23,443
–
–
78,351
67,031
20,090
384,845
411,154
–
–
–
–
–
–
67,035
–
369,602
–
61,559
–
344,583
–
61,559
–
329,306
–
51,393
164,879
172,428
121,596
–
223,327
792,611 3,136,082
180,127 1,972,254
(i) Amounts recognised for Performance Rights relate to the expense recognised for the period.
43%
17%
–
–
22%
30%
17%
24%
18%
–
18%
–
19%
–
25%
20%
35
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 the Board 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
2017
$
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
– Neil Kearney (Chairman and Non-executive Director)
– Peter Margin (Chairman and Non-executive Director) (Retired 30 August 2016)
– Simon Lester (Non-executive Director)
– Tony Dynon (Non-executive Director)
The table below shows the actual NED remuneration for FY2017 and FY2018.
Base
$
146,119
132,131
–
21,020
61,324
61,758
61,324
51,104
268,767
266,013
ARC
$
–
3,333
–
–
10,000
8,333
20,000
16,667
30,000
28,333
RNC
$
–
–
–
3,333
20,000
16,667
10,000
8,333
30,000
28,333
Super
annuation
$
Total
$
13,881
12,869
160,000
148,333
–
2,314
8,676
8,242
8,676
7,230
31,233
30,655
–
26,667
100,000
95,000
100,000
83,334
360,000
353,334
Neil Kearney (Chairman)
2018
2017
Peter Margin (Chairman)
2018
2017
Simon Lester
2018
2017
Tony Dynon
2018
2017
Total Non-executive Director remuneration
2018
2017
36
Huon Aquaculture Group LimitedAnnual Report 2018 Directors’ Report Remuneration Report continued Director and KMP Shareholdings
The table below refers to direct shareholdings only.
Neil Kearney(i)
Simon Lester(i)
Tony Dynon(i)
Peter Bender
Frances Bender
Peter and Frances Bender(i)
Philip Wiese(i)
Thomas Haselgrove
David Morehead
Charles Hughes(i)
David Mitchell
(i)
Includes indirect holdings
Balance
at start of
FY2018
Acquired
during
FY2018
6,316
14,516
–
13,098,477
5,794
44,587,252
6,240
15,000
30,423
6,585
6,830
–
–
6,080
–
–
–
–
–
–
–
–
Other
changes
during
FY2018
–
–
–
–
–
–
–
–
(17,836)
–
–
Balance
at end of
FY2018
6,316
14,516
6,080
13,098,477
5,794
44,587,252
6,240
15,000
12,587
6,585
6,830
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
Amount transacted
during the financial
year period
$
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
454,091
82,909
* Based on commercial terms.
37
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 2018
financial year, Huon paid a total of $66,512 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 40 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
2018
$
Consolidated
2017
$
200,000
–
200,000
240,000
–
240,000
40,800
7,800
48,600
96,900
3,000
99,900
248,600
339,900
The Board of Directors has considered the position and, in accordance with advice received from the Audit and Risk Management
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 and Risk Management 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.
38
Huon Aquaculture Group LimitedAnnual Report 2018 Directors’ Report continued 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
15 August 2018
Peter Bender
Managing Director and CEO
15 August 2018
39
Auditor’s Independence Declaration
Auditor’s Independence Declaration
As lead auditor for the audit of Huon Aquaculture Group Limited for the year ended 30 June 2018, I
declare that to the best of my knowledge and belief, there have been:
(a)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
(b)
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
15 August 2018
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.
40
Huon Aquaculture Group LimitedAnnual Report 2018
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 15 August 2018.
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 Executive Management
performance; and
– establishing and monitoring executive succession
planning.
Monitoring of performance
– approving criteria for assessing performance of
Executive Management 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 Executive
Management when delegated authority. The CEO and
Executive Management 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
Executive Management
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.
Executive Management are also engaged under a written
agreement setting out the terms of their employment.
41
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
– monitoring the implementation of Board and
Committee policies and procedures; and
– statutory and other filings and communication
with 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.
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, Executive Management Group, Senior
Management team and employees critical to the success
of the Company.
Diversity objectives
– Foster an inclusive culture of workplace diversity
– Apply and promote 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 at 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.
42
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:
– Implementation of Paid Parental Leave and Domestic
Violence Leave
– Implementation of a Remuneration Framework to
ensure equitable remuneration across the business
– An overall increase of female representation in
Management positions across the business
– Promotions of female employees into management
positions increased by 19%
– A 26% participation rate of female employees in
Huon’s Leadership Program
– Facilitation of “Women on Water” Scholarship to
encourage and support a higher representation of
female employees in marine related roles.
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% (2017: 20%) female proportion on the Board
– 0% (2017: 0%) female proportion in Executive
Management Group
– 15% (2017: 13%) female proportion in Senior
Management
– 13% (2017: 13%) female proportion Management
– 19% (2017: 21%) 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 FY2018. 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.
Executive Management performance evaluation
Arrangements are in place by the Board to monitor
and assess the performance of the CEO and Executive
Management 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 Executive Management.
Huon Aquaculture Group LimitedAnnual Report 2018 Corporate Governance Statement continued 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. 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.
43
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.
The Code addresses issues including; ethics, personal
and business conduct, conflicts of interest, mutual respect
and business agreements and contracts.
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.
44
Huon Aquaculture Group LimitedAnnual Report 2018 Corporate Governance Statement continued 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 Management 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 FY2018.
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.
45
Policies and practices regarding the
remuneration of Non-executive Directors
and the remuneration of executive Directors
and other Executive Management
The Company is committed to attracting and retaining
the best people to work in the organisation including
Directors and Executive Management. 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 Executive
Management having regard to the Company’s
performance, the performance of the Executive
Management and the general pay environment; and
– comply with all relevant legal and regulatory provisions.
Remuneration for Executive Directors and Executive
Management 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 FY2018 is set out in the Remuneration Report
on pages 25 to 37 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
Economic
Environmental
Social
Identified Risk
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 threats
Weather and environmental
Fresh water supply
Regulation
Corporate image
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 8 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 Executive
Management and other employees; and
– the remuneration packages for Directors, the CEO
and Executive Management.
When needed, the Company has also sought advice
from external advisers in relation to the development
of appropriate incentive plans for Key Management
Personnel (KMP).
46
Huon Aquaculture Group LimitedAnnual Report 2018 Corporate Governance Statement continued
Financial Report
Financial Report
For the year ended 30 June 2018
Consolidated financial statements
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated statement of cashflows
48
49
50
51
52
Notes to the consolidated financial statements
About this report
Other
17. Financial assets
18. Other financial assets
19. Fair value measurements
20. Financial risk management
21. Parent information
22. Deed of cross guarantee
23. Income taxes
24. Key management personnel compensation
25. Share-based payment
26. Related party transactions
27. Remuneration of auditors
28. Goodwill
29. Other intangible assets
30. Interests in subsidiaries
31. Other financial liabilities
32. Provisions
33. Other liabilities
34. Contingent liabilities and contingent assets
35. Segment information
36. Subsequent events
37. Company details
Basis of preparation
Principles of consolidation
Application of new and revised Accounting Standards
53
53
53
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
Net debt and working capital
9. Notes to the statement of cashflows
10. Trade and other receivables
11. Inventories
12. Other assets
13. Trade and other payables
14. Borrowings
15. Issued capital
16. Other reserves
Signed reports
Directors’ Declaration
Independent Auditor’s Report to the Members
Shareholder information
56
57
58
59
60
61
63
64
65
66
67
67
67
68
70
71
95
96
102
72
72
72
74
78
79
80
82
83
86
87
88
90
91
91
92
93
93
94
94
94
47
Huon Aquaculture Group LimitedAnnual Report 2018 Consolidated income statement
For the year ended 30 June 2018
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)
Consolidated
2018
$’000
Consolidated
2017
$’000
Note
1(a)
318,252
259,650
1(b)
10,391
13,742
(12,867)
(5,765)
(154,309)
(58,304)
(24,455)
(3,659)
(18,442)
(20,296)
19,178
22,997
(146,299)
(56,422)
(22,665)
(3,609)
(11,749)
(18,331)
(298,097)
(216,900)
30,546
(4,159)
26,387
56,492
(14,332)
42,160
2
2
2
23
Cents
per share
2018
Cents
per share
2017
Note
4
4
30.21
30.21
48.27
48.27
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.
48
Huon Aquaculture Group LimitedAnnual Report 2018 Financial Statements Consolidated statement of comprehensive income
For the year ended 30 June 2018
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
2018
$’000
Consolidated
2017
$’000
26,387
–
26,387
42,160
–
42,160
26,387
26,387
42,160
42,160
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
49
Financial StatementsHuon Aquaculture Group LimitedAnnual Report 2018
Consolidated balance sheet
As at 30 June 2018
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Biological assets
Other financial assets
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
2018
$’000
Consolidated
2017
$’000
Note
9
10
11
3
18
12
2,787
32,923
12,397
169,361
571
4,970
23,004
29,855
12,375
188,015
–
3,089
223,009
256,338
17
6
7
28,29
1,342
286,323
9,295
2,995
1,341
223,129
9,736
2,995
299,955
237,201
522,964
493,539
13
14
31
23
32
33
14
23
32
33
15
16
52,311
39,160
–
6,432
6,572
464
67,811
11,188
679
–
5,665
464
104,939
85,807
44,961
57,577
1,358
2,424
54,812
55,650
1,161
2,887
106,320
114,510
211,259
200,317
311,705
293,222
164,302
1,374
146,029
164,302
544
128,376
311,705
293,222
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
50
Huon Aquaculture Group LimitedAnnual Report 2018 Financial Statements Consolidated statement of changes in equity
For the year ended 30 June 2018
Contributed
Equity
$’000
Retained
Earnings
$’000
Note
Share-based
Payment
Reserve
$’000
Balance at 1 July 2016
Profit for the period
164,302
–
86,216
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
255
–
–
–
289
–
544
Contributed
Equity
$’000
Retained
Earnings
$’000
Note
Share-based
Payment
Reserve
$’000
Balance at 1 July 2017
Profit for the period
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
164,302
–
128,376
26,387
–
–
–
–
–
–
–
(8,734)
544
–
–
–
830
–
Total
Equity
$’000
250,773
42,160
–
–
289
–
293,222
Total
Equity
$’000
293,222
26,387
–
–
830
(8,734)
Balance at 30 June 2018
164,302
146,029
1,374
311,705
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
51
Financial StatementsHuon Aquaculture Group LimitedAnnual Report 2018 Consolidated statement of cashflows
For the year ended 30 June 2018
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
2018
$’000
Consolidated
2017
$’000
Note
323,506
(266,479)
267,143
(209,710)
57,027
356
(3,659)
4,200
57,433
157
(3,609)
8
Net cash inflow/(outflow) from operating activities
9
57,924
53,989
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
Cash and cash equivalents at end of financial year
9
152
(87,679)
–
(1)
130
(35,045)
–
–
(87,528)
(34,915)
–
29,053
(10,932)
(8,734)
9,387
(20,217)
23,004
2,787
–
30,435
(30,292)
–
143
19,217
3,787
23,004
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
52
Huon Aquaculture Group LimitedAnnual Report 2018 Financial Statements Notes to the Consolidated Financial Statements
For the year ended 30 June 2018
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
15 August 2018 by the Directors of the Company.
All press releases and other information are available on our
website www.huonaqua.com.au.
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 Consolidated 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
2017, and therefore relevant for the current year end.
AASB 2016-1
‘Amendments to Australian Accounting Standards –
Recognition of Deferred Tax Assets for Unrealised Losses’
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 2018 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.
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.
AASB 2016-2
‘Amendments to Australian Accounting Standards –
Disclosure Initiative: Amendments to AAB 107’
The amendments to AASB 107 Statement of Cash Flows
are part of the IASB’s Disclosure Initiative to 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 arising
from cash flows and non-cash changes (such as foreign
exchange gains or losses).
AASB 2016-5
‘Amendments to Australian Accounting Standards –
Classification and Measurement of Share-based
Payment Transactions’
This Standard amends AASB 2 Share-based Payment,
clarifying how to account for certain types of share-based
payment transactions.
AASB 2016-6
‘Amendments to Australian Accounting Standards –
Applying AASB 9 Financial Instruments with AASB 4
Insurance Contracts’
This Standard amends AASB 4 Insurance Contracts to
permit issuers of insurance contracts to:
– Choose to apply the ‘overlay approach’ that involves
applying AASB 9 Financial Instruments and also
applying AASB 139 Financial Instruments: Recognition
and Measurement to eligible financial assets to
calculate a single line item adjustment to profit or
loss so that the overall impact on profit or loss is the
same as if AASB 9 had been applied; or
– Choose to be temporarily exempt from AASB 9 when
those issuers’ activities are predominantly connected
with insurance, provided they make additional
disclosures to enable users to make comparisons
with issuers applying AASB 9.
53
AASB 2017-3
‘Amendments to Australian Accounting Standards
– Amendments to Australian Accounting Standards –
Clarifications to AASB 4’
The amendments confirm that in Australia compliance
with AASB 1023 General Insurance Contracts and AASB
1038 Life Insurance Contracts ensures simultaneous
compliance with AASB 4.
The Standard also amends AASB 4 to ensure the relief
available to issuers of insurance contracts set out in
AASB 2016-6 can be applied by an entity applying either
AASB 1023 and AASB 1038 if the entity otherwise meets
the qualifying criteria.
AASB Interpretation 22
‘Foreign Currency Transactions and
Advance Consideration’
This Interpretation clarifies that in determining the spot
exchange rate to use on initial recognition of the related
asset, expense or income (or part of it) on the derecognition
of a non-monetary asset or non-monetary liability relating
to advance consideration, the date of the transaction is
the date on which and entity initially recognises the non-
monetary asset or non-monetary liability arising from the
advance consideration. If there are multiple payments or
receipts in advance, then the entity must determine a
date of the transaction for each payment or receipt of
advance consideration.
Standards and Interpretations in issue not yet adopted:
AASB 9 ‘Financial Instruments’, and the relevant amending standards
AASB 15 ‘Revenue from Contracts with Customers’ and relevant
amending standards
AASB 16 ‘Leases’
AASB 2017-6 ‘Amendments to Australian Accounting Standards –
Prepayment Features with Negative Compensation’
AASB 2017-7 ‘Amendments to Australian Accounting Standards –
Long-term Interests in Associates and Joint Ventures’
AASB 2018-1 ‘Amendments to Australian Accounting Standards –
Annual Improvements 2015-2017 Cycle’
AASB Interpretation 23 ‘Uncertainty over Income Tax Treatments,
and relevant amending standards’
Conceptual Framework for Financial Reporting
AASB 17 ‘Insurance Contracts’
AASB 2014-10 ‘Amendments to Australian Accounting Standards –
Sale of Contribution of Assets between an Investor and its Associate
or Joint Venture’
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
1 January 2019
1 January 2019
30 June 2019
30 June 2019
30 June 2020
30 June 2020
1 January 2019
30 June 2020
1 January 2019
30 June 2020
1 January 2019
30 June 2020
1 January 2020
1 January 2021
1 January 2022
30 June 2021
30 June 2022
30 June 2023
54
Huon Aquaculture Group LimitedAnnual Report 2018 Notes to the financial statements continued The Consolidated 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 financial assets
and financial liabilities, 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 Consolidated 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 Consolidated Group’s accounting
for financial liabilities that are designated at fair value
through profit or loss and the Consolidated 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 Consolidated 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.
The new impairment model is an expected credit loss
(ECL) model which may result in the earlier recognition
of credit losses.
The Consolidated Group has assessed how its own
financial instruments would be affected by the new
rules. At this stage the Consolidated Group does not
expect to identify any new hedge relationships. 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 Consolidated 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 Consolidated Group has performed a review of all
sales agreements with customers, including those under
specific contracts and those under the Consolidated
Group’s general terms of sale. The purpose was to identify
the differences between the existing AASB 118 and the
revised AASB 15, in terms of timing of recognition and
measurement of revenue.
The Consolidated Group sells products with various
shipping terms, resulting in the Consolidated Group being
responsible for providing transportation services after
control of the goods passes to the customer at the last
loading point. Under AASB 118 revenue was recognised
when control of the goods was passed to the customer,
however under AASB 15 revenue is recognised when the
goods have been delivered to their final destination and
acknowledged by the customer.
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 has assessed the impact of the new
standard, and determined that the adoption of the
standard will not have a material impact on the
Consolidated Group. The standard will be adopted from
1 July 2018.
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 Consolidated Group’s operating leases. As
at the reporting date, the Consolidated Group has
non-cancellable operating lease commitments of
$159,713,000. However, the Consolidated 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 Consolidated
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 Consolidated 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.
55
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
2018
$’000
Consolidated
2017
$’000
317,896
356
259,493
157
318,252
259,650
5,534
724
4,133
4,677
807
8,258
10,391
13,742
328,643
273,392
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.
56
Huon Aquaculture Group LimitedAnnual Report 2018 Notes to the financial statements continued 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
2018
$’000
Consolidated
2017
$’000
614
3,175
(804)
1,177
573
7,474
4,100
1,431
24,014
441
24,455
22,229
436
22,665
209
(748)
24,664
21,917
3,659
–
3,659
57,474
830
58,304
3,609
–
3,609
56,133
289
56,422
Net (gain)/loss on disposal of property, plant and equipment
319
47
57
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
2018
$’000
Consolidated
2017
$’000
188,015
224,968
(230,755)
(12,867)
147,217
208,349
(186,729)
19,178
169,361
188,015
35,676
12,960
48,543
16,663
(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 2018
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
–
–
–
–
169,631
169,631
169,631
169,631
30 June 2017
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
–
–
–
–
188,015
188,015
188,015
188,015
Fair value measurements using significant unobservable input
The following table summarises the quantitative information about the significant unobservable inputs used in level 3 fair value
measurements:
Description
30 June 2018
30 June 2017
Biological assets at fair value ($’000)
169,631
188,015
Unobservable Inputs
Adjusted weight of live finfish for fair
value measurement: 10,714 tonne
Adjusted weight of live finfish for fair
value measurement: 14,475 tonne
Price per HOG kg $14.86 to $15.36
Price per HOG kg $13.44 to $13.94
Relationship of Unobservable
Inputs to Fair value
Increase in price would increase
fair value
Increase in price would increase
fair value
58
Huon Aquaculture Group LimitedAnnual Report 2018 Notes to the financial statements continued 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 2018, 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 $929,761 higher/lower (2017: $1,285,181)
– A weight increase/decrease of 5% would have been a change of $1,783,821 higher/lower (2017: $2,427,135)
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
2018
cents per share
Consolidated
2017
cents per share
30.21
30.21
48.27
48.27
(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)
2018
2017
87,337,207
87,337,207
87,337,207
87,337,207
2018
$’000
26,387
26,387
2017
$’000
42,160
42,160
(i) Earnings used in the calculation of basic and diluted earnings per share is as per net profit in the consolidated income statement.
59
5. Dividends
Fully paid ordinary shares
Final dividend for the year ended 30 June 2017 of 5 cents
(2016 – 0 cents) per fully paid share
Interim dividend for the year ended 30 June 2018 of 5 cents
(2017 – 0 cents) per fully paid share
Total dividends provided for or paid
Consolidated
2018
$’000
Consolidated
2017
$’000
4,367
4,367
8,734
–
–
–
On 15 August 2018 the Directors recommended a final ordinary dividend of $4,367,000 (5 cents per fully paid share) to be paid
on 11 October 2018 out of retained earnings at 30 June 2018. The dividend will be 50% franked. The dividend has not been
provided for in the 30 June 2018 financial statements.
Franking credits available for subsequent reporting periods based
on a tax rate of 30% (2017: 30%)
Consolidated
2018
$’000
Consolidated
2017
$’000
15,977
15,977
15,617
15,617
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.
60
Huon Aquaculture Group LimitedAnnual Report 2018 Notes to the financial statements continued 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
2018
$’000
Consolidated
2017
$’000
5,256
5,256
5,412
5,412
42,690
(6,456)
36,234
41,490
42,176
(4,364)
37,812
43,224
305,948
(128,262)
261,841
(107,141)
177,686
154,700
67,147
67,147
25,205
25,205
–
–
–
–
–
–
244,833
179,905
286,323
223,129
61
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
5,256
–
5,256
42,690
(6,456)
305,948
(128,262)
36,234
177,686
5,412
–
(156)
–
–
–
–
–
37,812
–
–
–
(2,091)
–
513
–
154,700
1,025
(315)
–
(21,923)
–
44,199
–
5,256
36,234
177,686
–
–
–
–
–
–
–
–
–
–
–
–
67,147
–
421,041
(134,718)
67,147
286,323
25,205
–
–
86,654
–
–
(44,712)
–
223,129
1,025
(471)
86,654
(24,014)
–
–
–
67,147
286,323
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
Consolidated
Year ended 30 June 2018
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 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
62
Huon Aquaculture Group LimitedAnnual Report 2018 Notes to the financial statements continued 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 – 40 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
2018
$’000
Consolidated
2017
$’000
16,244
(6,949)
9,295
16,244
(6,508)
9,736
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.
63
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
2018
$’000
Consolidated
2017
$’000
14,612
64,714
79,954
159,280
14,108
47,878
6,889
68,875
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
2018
$’000
Consolidated
2017
$’000
–
–
–
–
–
–
–
8,984
8,984
8,984
–
–
8,984
–
–
–
–
–
–
–
–
–
–
–
–
–
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.
64
Huon Aquaculture Group LimitedAnnual Report 2018 Notes to the financial statements continued Net debt and working capital
9. 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
2018
$’000
Consolidated
2017
$’000
2,787
2,787
23,004
23,004
26,387
42,160
24,455
319
830
(3,639)
18,632
–
(1,881)
(16,179)
6,432
1,927
1,104
(463)
57,924
22,665
47
289
(6,308)
(42,175)
3
(474)
23,193
–
14,337
715
(463)
53,989
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.
65
10. 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
2018
$’000
Consolidated
2017
$’000
31,897
(296)
1,322
28,387
(242)
1,710
32,923
29,855
(242)
(54)
–
(296)
8,574
910
–
9,484
(260)
(402)
420
(242)
7,719
307
–
8,026
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.
66
Huon Aquaculture Group LimitedAnnual Report 2018 Notes to the financial statements continued 11. Inventories
Processed fish & finished goods
Feed and packaging
Inventory provisions
Consolidated
2018
$’000
Consolidated
2017
$’000
6,348
6,572
(523)
5,720
7,138
(483)
12,397
12,375
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.
12. Other assets
Prepayments
13. Trade and other payables
Trade payables
Other payables
Goods and services tax (GST) payable
Consolidated
2018
$’000
Consolidated
2017
$’000
4,970
4,970
3,089
3,089
Consolidated
2018
$’000
Consolidated
2017
$’000
48,466
3,845
–
52,311
58,433
9,378
–
67,811
Recognition and measurement
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.
67
14. 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
2018
$’000
Consolidated
2017
$’000
–
36,851
2,291
–
9,851
1,319
18
18
39,160
11,188
–
44,913
–
48
44,961
84,121
–
54,764
–
48
54,812
66,000
The weighted average effective interest rate on the bank loans is 3.49% per annum (2017: 3.45% per annum).
Term Loan
Term Loan
Working Capital
Bank Guarantee
Term Loan
Uncommitted foreign exchange contracts
Uncommitted interest rate swaps
2018
$’000
2017
$’000
Limit
Undrawn
Balance
Limit
Undrawn
Balance
–
55,000
24,000
50,000
5,000
6,000
200
2,500
–
–
– Discretionary
– Discretionary
–
65,000
30,000
30,000
6,000
6,000
200
2,500
–
–
– Discretionary
– Discretionary
Aggregate Facility Limit
Aggregate Undrawn Balance
113,500
29,200
103,500
–
–
36,200
68
Huon Aquaculture Group LimitedAnnual Report 2018 Notes to the financial statements continued
14. 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 Consolidated 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 Consolidated 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.
Facility Renewal:
The Consolidated Group entered into a facility agreement to refinance its debt facilities in October 2014 which are due to expire
in October 2018 and September 2019. The Consolidated Group is currently in the process of renewing these facilities with its
existing banking partners.
The Consolidated Group expects to secure renewal of the facilities on terms consistent with the existing agreement and with
a facility limit that is consistent with the Consolidated Group’s Capital Management strategy. It is expected the renewal will be
completed in the first half of FY2019.
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 Consolidated 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 2.00 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.
69
15. Issued capital
Consolidated
2018
Consolidated
2017
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.
2018
2017
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.
70
Huon Aquaculture Group LimitedAnnual Report 2018 Notes to the financial statements continued 15. 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
2018
$’000
Consolidated
2017
$’000
84,121
(2,787)
81,334
66,000
(23,004)
42,996
311,706
293,222
26.1%
14.7%
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.
16. 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
2018
$’000
Consolidated
2017
$’000
544
830
1,374
255
289
544
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 Management as part of the LTI plan. Refer to note 26 for
further details.
71
Other
17. Financial assets
Investment in Salmon Enterprises of Tasmania Pty Ltd (“Saltas”)(i)
Investment in Commercial Fishermans Co-operative
Consolidated
2018
$’000
Consolidated
2017
$’000
1,341
1
1,342
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.
18. Other financial assets
Derivatives carried at fair value
Foreign currency forward contracts
Consolidated
2018
$’000
Consolidated
2017
$’000
571
571
–
–
Refer to note 19 for fair value measurement and hierarchy.
19. 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.
72
Huon Aquaculture Group LimitedAnnual Report 2018 Notes to the financial statements continued 19. 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 AASB 139.
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.
73
19. 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.
20. 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
74
Consolidated
2018
$’000
Consolidated
2017
$’000
2,787
32,924
571
36,282
52,311
84,121
–
23,004
29,855
–
52,859
67,811
66,000
679
136,432
134,490
Huon Aquaculture Group LimitedAnnual Report 2018 Notes to the financial statements continued 20. 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 21 and 26(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 9) 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
2018
$’000
Consolidated
2017
$’000
5,000
24,000
29,000
–
6,000
30,000
36,000
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 2018
NON DERIVATIVES
Borrowings
Trade and other payables
Total expected outflows
DERIVATIVES
Net settled (forward foreign exchange contracts)
– (inflow)
– outflow
Total expected (inflow)/outflow
40,716
52,311
93,027
47,572
–
47,572
571
–
571
–
–
–
–
–
–
–
–
–
88,288
52,311
84,121
52,311
140,599
136,432
571
–
571
571
–
571
75
20. 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 2017
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
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
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 2018: 97% (2017: 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
2018
%
2017
%
2018
$’000
2017
$’000
3.49%
3.45%
82,000
82,000
65,000
65,000
76
Huon Aquaculture Group LimitedAnnual Report 2018 Notes to the financial statements continued 20. Financial risk management (continued)
Interest rate sensitivity analysis
At 30 June 2018, 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 $310,817 higher / $310,817 lower (2017
changes of 50bps/50bps: $214,453 higher/$214,453 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
2018
$’000
Consolidated
2017
$’000
15,887
11,232
12,984
6,167
40,363
4,417
Consolidated Group sensitivity
Based on the financial instruments held at 30 June 2018, had the Australian dollar strengthened/weakened by 10% against the
US dollar and the Japanese Yen with all other variables held constant, the Consolidated Group’s pre-tax profit for the period
would have been $1,536,863 higher/$1,108,976 lower (2017: $3,746,927 higher/$4,029,072 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.
77
21. 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
Profit/(loss) for the period
Total comprehensive income/(loss)
Consolidated
2018
$’000
Consolidated
2017
$’000
1
172,251
–
168,103
172,252
168,103
6,432
6,432
–
–
164,302
1,374
8,878
(8,734)
164,302
544
3,257
–
165,820
168,103
5,533
5,533
(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.
78
Huon Aquaculture Group LimitedAnnual Report 2018 Notes to the financial statements continued 21. Parent information (continued)
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 $11,557,574 (tax effected at 30%) (2017: $4,404,767 (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.
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.
22. Deed of cross guarantee
The wholly-owned subsidiaries disclosed in note 30 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 2017 and 2018 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 30 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’.
79
23. 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% (2017: 30%) for the Consolidated Group.
Adjustment recognised in the current year in relation to prior years:
Research and development tax credit
Other
Non-tax deductible items
Income tax (expense)
Consolidated
2018
$’000
Consolidated
2017
$’000
(6,432)
4,196
(5,244)
3,321
5
2,616
(2,647)
(14,306)
(4,159)
(14,332)
30,546
56,492
(9,164)
(16,948)
5,012
–
(7)
3,315
(691)
(8)
(4,159)
(14,332)
The applicable weighted average effective tax rates are as follows:
13.6%
25.4%
–
–
–
–
6,432
6,432
–
–
–
–
–
–
(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
80
Huon Aquaculture Group LimitedAnnual Report 2018 Notes to the financial statements continued
23. Income tax (continued)
(d) Deferred tax balances:
Taxable and deductible temporary differences, comprise of the following and arise from the following movements:
2018
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)
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)
Opening
balance
$’000
(52,811)
(9,749)
(21)
(2,069)
(350)
(65,000)
2,048
–
276
197
3
680
537
3,315
8
163
1,005
1,118
9,350
(55,650)
Opening
balance
$’000
(40,667)
(6,440)
(72)
(2,200)
(388)
Charged
to income
$’000
Adjustments
for current tax
of prior periods
$’000
Closing
balance
$’000
(46,597)
(12,821)
(146)
(1,937)
(300)
–
(122)
–
–
–
(122)
(61,801)
–
–
–
–
–
–
122
–
(4)
–
–
–
118
2,379
–
(82)
185
3
335
–
–
3
412
866
123
4,224
(4)
(57,577)
6,214
(2,950)
(125)
132
50
3,321
331
–
(358)
(12)
–
(345)
(659)
(3,315)
(1)
249
(139)
(995)
(5,244)
(1,923)
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
2,048
–
276
197
3
680
537
3,315
8
163
1,005
1,118
9,350
(55,650)
81
23. Income tax (continued)
Recognition and measurement
(Refer to note 21 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.
Companies within the Consolidated Group may be entitled to claim special tax deductions for investments in qualifying assets
or in relation to qualifying expenditure (e.g. the Research and Development Incentive regime in Australia). The Consolidated
Group accounts for such allowances as tax credits, which means that the allowance reduces income tax payable and current tax
expense. A deferred tax asset is recognised for unclaimed tax credits that are carried forward.
24. Key management personnel compensation
The totals of remuneration for key management personnel (KMP) of the Consolidated Group during the year are as follows:
Consolidated
2018
$
Consolidated
2017
$
2,499,810
203,661
–
–
792,611
1,993,210
152,251
–
–
180,127
3,496,082
2,325,588
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.
82
Huon Aquaculture Group LimitedAnnual Report 2018 Notes to the financial statements continued 25. Share-based payment
(a) Share-based payment arrangements
The Consolidated Group offers the Chief Executive Officer, Executive Management Group 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 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 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 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%
Earnings per share compound annual growth 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.
Return on Assets (ROA) is calculated as statutory earnings before interest and tax (EBIT) (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.
83
25. Share-based payment (continued)
(b) Performance rights granted
Set out below is a summary of performance rights granted under the LTI plan.
2018
Performance Period
Grant Date
From
To
25-Nov-15
25-Nov-15
19-Oct-15
19-Oct-15
30-Nov-16
30-Nov-16
30-Nov-17
1-Jul-15
1-Jul-15
1-Jul-15
1-Jul-15
1-Jul-16
1-Jul-16
1-Jul-17
30-Jun-17
30-Jun-18
30-Jun-17
30-Jun-18
30-Jun-18
30-Jun-19
30-Jun-20
2017
Performance Period
Grant Date
From
To
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
Balance
at Start
of Year
–
47,834
–
60,783
157,111
157,111
–
Other(i)
47,834
–
60,783
–
–
–
–
Granted
During
Year
–
–
–
–
–
–
210,429
Forfeited
Vested
Balance
at End
of Year
(17,698)
(15,474)
(28,222)
(25,819)
(46,687)
(12,771)
–
–
–
–
–
–
–
–
30,136
32,360
32,561
34,964
110,424
144,340
210,429
Balance
at Start
of Year
47,834
47,834
60,783
60,783
–
–
Granted
During
Year
–
–
–
–
157,111
157,111
Other
–
–
–
–
–
–
Forfeited
Vested
(47,834)
–
(60,783)
–
–
–
–
–
–
–
–
–
Balance
at End
of Year
–
47,834
–
60,783
157,111
157,111
FV per
Share
$4.04
$4.04
$4.01
$4.01
$3.71
$3.71
$4.01
FV per
Share
$4.04
$4.04
$4.01
$4.01
$3.71
$3.71
(i) Amounts incorrectly shown as forfeited in the 2017 Report
(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 2017 for those granted to the Chief Executive Officer and to 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
$4.32
2.5%
2.63%
28.5%
1-3 years
$4.01
$4.32
2.5%
2.63%
28.5%
1-3 years
$4.01
The expense recognised in relation to performance rights applicable to the Chief Executive Officer and management for the year
ended 30 June 2018 is $829,613 (2017: $289,032).
84
Huon Aquaculture Group LimitedAnnual Report 2018 Notes to the financial statements continued 25. Share-based payment (continued)
Recognition and measurement
The Consolidated Group provides benefits to the Chief Executive Officer and certain 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 Consolidated 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 Consolidated 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.
85
26. Related party transactions
Identity of related parties
The following persons and entities are regarded as related parties:
(a) Controlled entities:
Refer to note 30 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 24 to the financial statements.
(ii) Compensation of close family members
Other transactions
Short-term employee benefits
Superannuation Contributions
Consolidated
2018
$
Consolidated
2017
$
284,570
240,529
Contributions to superannuation funds on behalf of employees
24,355
21,051
(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
–
–
537,000
537,000
–
356,236
356,236
204,036
–
204,036
31,540
–
31,540
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
2018
$
Consolidated
2017
$
1,719,355
1,404,915
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 2018 financial year.
The Consolidated Group’s guarantee is for $0.98 million.
86
Huon Aquaculture Group LimitedAnnual Report 2018 Notes to the financial statements continued
27. 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
Consolidated
2018
$
Consolidated
2017
$
200,000
–
200,000
240,000
–
240,000
40,800
7,800
48,600
96,900
3,000
99,900
248,600
339,900
81,073
81,073
567,309
567,309
–
–
28,589
28,589
20,085
20,085
–
–
Total remuneration of non-PricewaterhouseCoopers firms
648,382
48,674
The Parent Entity’s audit fees were paid for by Huon Aquaculture Company Pty Ltd, a wholly owned subsidiary.
87
28. 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
2018
$’000
Consolidated
2017
$’000
4,496
–
4,496
4,496
–
4,496
(1,601)
–
(1,601)
(1,601)
–
(1,601)
2,895
2,895
2,895
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.
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.
88
Huon Aquaculture Group LimitedAnnual Report 2018 Notes to the financial statements continued 28. 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 FY2018, 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
Pre-tax discount rates
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.
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
Consolidated 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 2017 and 2018 reflect
changes in the anticipated timing of future cash flows.
Long-term growth rate
Pre-tax discount rate
2018
2017
3.0%
14.4%
3.0%
14.6%
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.
89
29. 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
2018
$’000
Consolidated
2017
$’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 28 for impairment tests for other intangible assets.
90
Huon Aquaculture Group LimitedAnnual Report 2018 Notes to the financial statements continued 30. 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
2018
%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
2017
%
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 22 for further details.
(i) Subsidiary became a party to the deed of cross guarantee on 28 June 2016.
31. Other Financial Liabilities
Derivatives carried at fair value
Foreign currency forward contracts
Refer to note 19 for fair value measurement and hierarchy.
Consolidated
2018
$’000
Consolidated
2017
$’000
–
–
679
679
91
32. Provisions
Provisions
Current
Employee benefits
Non-current
Employee benefits
Consolidated
2018
$’000
Consolidated
2017
$’000
6,572
5,665
1,358
7,930
1,161
6,826
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 $4,820 (2017:
$4,122) 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
2018
$’000
Consolidated
2017
$’000
Leave obligations expected to be settled after 12 months
5,285
4,648
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 cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
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.
92
Huon Aquaculture Group LimitedAnnual Report 2018 Notes to the financial statements continued 33. Other liabilities
Deferred government grants
Current
Non-Current
Consolidated
2018
$’000
Consolidated
2017
$’000
464
2,424
2,888
464
2,887
3,351
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
(2017: $463,000) 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.
34. Contingent liabilities and contingent assets
There are no contingent liabilities or contingent assets at the date of this Annual Financial Report.
93
35. 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
2018
$’000
Consolidated
2017
$’000
Note
258,842
59,054
243,751
15,742
1(a)
317,896
259,493
75,316
6,824
82,140
(1,064)
356
10,391
(12,867)
(24,455)
(3,659)
(20,296)
30,546
64,793
3,248
68,041
(21)
157
13,742
19,178
(22,665)
(3,609)
(18,331)
56,492
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 Consolidated 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.
36. Subsequent events
On 15 August 2018 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 11 October 2018 out of ordinary retained earnings at 30 June 2018. The Dividend will be 50%
franked. The dividend has not provided for in the 30 June 2018 financial statements.
37. 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
94
Huon Aquaculture Group LimitedAnnual Report 2018 Notes to the financial statements continued
Directors’ Declaration
In the directors’ opinion;
(a) The financial statements and notes set out on pages 47 to 94 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 2018 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 30 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 22.
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, deputy 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
15 August 2018
Peter Bender
Managing Director and CEO
15 August 2018
95
Independent auditor’s report
Independent auditor’s report
To the members 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)
giving a true and fair view of the Consolidated Group's financial position as at 30 June 2018 and
of its financial performance for the year then ended
(b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Consolidated Group financial report comprises:
the consolidated balance sheet as at 30 June 2018
the consolidated statement of comprehensive income for the year then ended
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the year then ended
the consolidated income statement for the year then ended
the notes to the consolidated financial statements, which include 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.
96
Huon Aquaculture Group LimitedAnnual Report 2018
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
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.
For the purpose of our audit we used overall
Consolidated Group materiality of $1,150,000,
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 applied this threshold, together with
qualitative considerations, to determine the scope
of our audit and the nature, timing and extent of
our audit procedures and to evaluate the effect of
misstatements on the financial report as a whole.
We chose 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
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Independent auditor’s report
continued
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.
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 Committee.
Key audit matter
How our audit addressed the key audit matter
Fair value of biological assets
(refer to note 3)
The Consolidated Group held biological assets
of $169 million at 30 June 2018. 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);
Our audit procedures in relation to the
Consolidated Group’s fair value calculation of live
finfish above 1kg, included:
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
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Huon Aquaculture Group LimitedAnnual Report 2018
Key audit matter
How our audit addressed the key audit matter
Expected mortalities of finfish prior to
harvesting;
assess the reasonableness of the number of
live finfish at year end.
Selling price per HOG/kg; and
Costs to sell of HOG/kg
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 and subsequent to year end.
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.
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Independent auditor’s report
continued
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.
Other information
The directors are responsible for the other information. The other information comprises the
information included in the annual report for the year ended 30 June 2018, including Highlights, the
Chairman's Message, Managing Director's Review, Managing Risk, Financial Summary, Company and
Industry Overview, Board of Directors, Directors' Report, Corporate Governance Statement,
Shareholder Information, Glossary of Terms and Corporate Directory, 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 Corporations Act 2001 and
for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
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Huon Aquaculture Group LimitedAnnual Report 2018
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:
http://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 37 of the directors’ report for the
year ended 30 June 2018.
In our opinion, the remuneration report of Huon Aquaculture Group Limited for the year ended 30
June 2018 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
15 August 2018
101
Shareholder information
The shareholder information set out below was applicable as at 10 August 2018.
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 JAMES BENDER
FRANCES ROBYN BENDER (spouse of Peter Bender)
SURVEYORS INVESTMENTS PTY LTD ACN 602 004 179
MR PETER BENDER & MRS FRANCES BENDER
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