S e l e c t H a r v e s t s L m i i t e d A n n u a l R e p o r t 2 0 0 2 Select Harvests Limited Select Harvests Limited ACN 000 721 380 360 Settlement Road Thomastown VIC 3074 www.selectharvests.com.au Annual Report 2002 Contents 1 2 5 8 10 11 12 43 44 45 46 48 The Year in Brief Chairman’s Report Managing Director’s Report Financial Highlights Board of Directors Index to Financial Reports Director’s Report Director’s Declaration Independent Audit Report Additional ASX Information Corporate Governance Directory Shareholder Information Annual General Meeting The Annual General Meeting will be held on Wednesday 30th October 2002 at the ASX Theatrette, 530 Collins Street, Melbourne, Victoria commencing at 3.30pm. A separate notice of meeting has been posted to all shareholders with a copy of this report. 2002/03 Calendar December Shareholder newsletter posted to all shareholders February Announcement of interim results March Shareholder newsletter posted to all shareholders April June Payment of interim dividend Shareholder newsletter posted to all shareholders August Announcement of preliminary full year results September Annual report mailed to shareholders October Payment of final dividend October Annual General Meeting y e n d y S n g i s e D c i h p a r g o f n I y b d e n g i s e D In 1998, we set ourselves a goal.The goal was to transform what was essentially a commodity based single revenue stream company into one of Australia’s best performing agri-food businesses. Strategically the decision was to diversify our income streams, to focus on our core strengths and to find ways of leveraging those strengths into businesses with a more stable income stream. Our approach had two parts; the first was the concept of developing and managing orchards for investors. Without doubt, this has been very successful. The second was to look at ways of adding value to our almonds and expanding our product range. Through three acquisitions Select Harvests has become a major processor and marketer of nuts and dried fruits to both retail and industrial markets. To date we have developed 5300 acres of managed orchards and our Processed and Marketing division has annual revenue of close to $50 million supplying a range of nuts, seeds, dried fruits, and rice snacks to retail and industrial markets throughout Australia. We are actively looking for ways to expand our distribution channels as well as the uses of our products. By focusing on the diversification of our revenue base, we aim to provide superior returns for our investors. S E L E C T H A R V E S T S L I M I T E D 1 A N N UA L R E P O RT 2 0 0 2 Chairman’s Report To the Shareholders of Select Harvests Limited Creating shareholder value is the underlying principle that drives the decision making process at Select Harvests. To create true sustainable value and wealth for shareholders means attention to strategy, and active management of the risks associated with managing a vertically integrated business. However, the real litmus test is in being able to make the earnings line improve year on year, and to extend with greater certainty into the future. By diversifying our income streams and making strategic acquisitions over the past three years, we have built a company with sustainable and recurring revenues. “…create true sustainable value and wealth for shareholders…” The Results In a year where sales grew 24% to $80.5m, earnings before interest and tax (EBIT) rose 21% to $14.7m, and net profit after tax grew 30%, we can say that it was a good result. The results did not just happen, they were the result of planning and doing. The results also mark the fifth consecutive year of earnings growth. While we do not always expect to achieve such strong growth, we are confident that the objective of creating one of Australia’s leading agri-food companies is well underway. As a result of such strong earnings growth, Earnings Per Share (fully diluted) increased 25% to 24.7 cents from 19.8 cents in 2001. As foreshadowed in last year’s annual report, our debt levels reduced during the year due to strong cash generation. Consequently our debt to equity ratio fell over the period from 70% to 39%. This gives the Balance Sheet the flexibility to fund further expansion. “…net profit after tax grew 30%…” Dividend The Directors have declared a fully franked final dividend of 8.0 cents per share, bringing the total dividend paid this year to 13.5 cents. This represents a 35% increase on the total dividend of 10 cents declared last year. Our Businesses Almond Orchards division - owns and manages 1,900 acres of mature almond orchards. Our almonds are pooled with the crops from our managed orchards and sold to domestic and international markets. Management Services division – establishes orchards and grows, harvests, processes and sells almonds for external investors. These services are provided under long-term fee arrangements. Processed and Marketing division – sources, processes and markets an extensive range of nuts and dried fruits to retail and industrial food markets. Pesticide Products division – manufactures a range of wheat-based pelletised snail, slug and rodent baits for the Australian and New Zealand markets. S E L E C T H A R V E S T S L I M I T E D 2 A N N UA L R E P O RT 2 0 0 2 “…state-of-the-art processing facility in Thomastown…” Our Markets World consumption of almonds continues to grow and is currently absorbing production increases out of the USA. As a result, prices have improved over the last year. A continuation of this growth will add upward pressure to prices as USA production levels out over the next few years. Nuts, and in particular almonds, are enjoying an increase in popularity. Regularly we are reminded of the benefits of eating nuts, and this has translated into an increase in the consumption of nuts both locally and internationally. Food manufacturers continue to develop new product lines which use our products as ingredients, and nuts and dried fruits continue to increase their presence on supermarket shelves. There is an increased awareness and interest in managed almond orchards as a long-term agricultural investment. This provides confidence for further development of our management services business. “…Farm Management team operates at world’s best practice…” The Year in Brief In essence, this was a year of both consolidation and further development. At the end of the year we commenced the commissioning of a state-of-the-art processing facility in Thomastown, designed to world’s best practice food processing and hygiene standards. For the first time, we have all of our food manufacturing operations under one roof with the capacity and operational efficiencies to facilitate our future growth. The facility was fully operational at the end of August 2002. Our Management Services division harvested its first crop of almonds and planted an additional 520 acres of investor-owned orchards. This brings the total number of acres under management to 5,300 acres out of a total of 7,200. We are planning to plant an additional 3,000 acres in the coming season, subject to land availability. Our own orchards continue to maintain the high yields of previous years. Likewise, our cost management and efficiency programs have ensured cost reductions have been maintained. Risk Management Risk Management is fundamental to the way we do business. Our Health and Safety Manager looks after the well-being of our staff. Our Management team has the skills and experience necessary to manage the risks associated with our various divisions. The Farm Management team operates at world’s best practice standards protecting our trees and crops, while the Trading Department manages commodity and currency exposures as well as developing our almond export markets. On the processing side, we have moved to a superior level of food hygiene and safety with the advent of the new manufacturing facility. All facilities from orchards to retail packing have third party accreditation for quality management systems (ISO9001:2000) and food safety programme (HACCP). S E L E C T H A R V E S T S L I M I T E D 3 A N N UA L R E P O RT 2 0 0 2 Going forward As I noted in my opening, our driving principle is the creation of shareholder value, which we have achieved this year. Even with the strong growth that your Management team has delivered, there are still many opportunities to expand our business. We have confidence in our ability to do so in the future. Max Fremder Chairman Dated this 17th day of September 2002 The Board I would like to acknowledge the contribution of my fellow Directors to the Company’s success, and the contribution of Brian Hanley who left the Board during the year. It was with great pleasure we welcomed John Bird to the Board in September 2001. His role in guiding Select Harvests over the last few years has been invaluable. His knowledge and understanding of the almond and food processing markets both locally and globally makes his appointment to the Board a natural progression. “…creating one of Australia’s leading agri-food companies…” Our people With the relocation of our factories to Thomastown, we unfortunately lost some good staff along the way. For most, the additional travelling time was the deciding factor although we actively sought ways to minimise the issues involved. To those who chose to leave, we thank them for their support, for those who stayed with us we look forward to many good years ahead. The almond growing business is very much dependent on numerous contractors and seasonal staff. Yet again, Management and Board are indebted to all those who have contributed to another successful year. On behalf of the Board, I would like to acknowledge the commitment of John Bird, his Management team and all members of staff who have contributed to the continued success of Select Harvests. S E L E C T H A R V E S T S L I M I T E D 4 A N N UA L R E P O RT 2 0 0 2 Managing Director’s Report The Development of Select Harvests In 1998 Select Harvests was a company with limited growth prospects and an earnings stream exposed to the price volatility of the international almond market. Since that time, by moving into the provision of orchard management services and upstream into food processing and marketing, we have been able to deliver a solid base of sustainable and reliable earnings. We recognised that Select Harvests must find ways of diversifying its earnings base if it was to grow earnings and dilute its exposure to commodity pricing. The reality was that while our orchard skills were world’s best practice, they did not provide the Company with stable earnings or a platform for growth. Since then our strategy has been to create a vertically integrated company that manages its own orchards, receives fees and income from establishing orchards and growing and selling of almonds for third parties, through to retail and industrial sales. This has allowed the Company to substantially diversify its earnings by building on its core strengths – almond growing and a detailed knowledge of edible nuts and their markets. “…to deliver a solid base of sustainable and reliable earnings…” As a result we have increased our almond tonnages, providing operating efficiencies, better utilisation of production capacity and an improved competitive position as an international almond seller. At the same time we have diversified our product range, become a major supplier of nuts and dried fruits to Australian supermarkets and food manufacturers, and created greater certainty for the sale of our almonds. Review of Operations The Chairman gave a brief overview of our businesses. Let me give you a more detailed understanding of them. “…manages 7,200 acres of almond orchards…” Almond Operations The Company manages 7,200 acres of almond orchards, of which 5,300 acres (74%) are owned by external parties. Our total intake from the 2002 crop increased 13% on the previous year to 2,860 metric tonnes, as we harvested the first crops from some of our managed orchards. The 2002 crop selling program has been very successful with 60% of the crop despatched by the end of June. With over 90% of the crop now processed and sold, we will have an empty store prior to the 2003 intake. Approximately 40% of the crop has been sold to export markets including India, Japan, Taiwan, Germany, Italy, Spain and the United Kingdom. Select Harvests is Australia’s largest grower producing 30% of Australia’s almond crop and managing over 50% of the orchards. The difference arises because at this stage the new orchards are not yet fully producing. Based on current plantings we expect to process over 8,000 metric tonnes by 2008. Owned Orchards In 1998, our owned orchards contributed 88% of our total EBIT of $5.9m. In the year ended 30 June 2002 the EBIT contribution was $6.3m or 39% of a total EBIT of $14.7m. After deducting non-recurring income of $629,000 generated from the sale of orchards into an investor- owned arrangement, EBIT increased 19% over the previous year. S E L E C T H A R V E S T S L I M I T E D 5 A N N UA L R E P O RT 2 0 0 2 “…low cost structure and world class standards in yields…” The important drivers of the result were a 12% rise in the average almond price achieved, and our ability to maintain the cost reductions and almond yield improvements that had been achieved in previous years. A low cost structure and world class standards in yields, together with expectations that recent almond price improvements will be maintained, indicate that we will continue to generate good returns. In June 2002 we replaced 160 acres of 30-year-old trees at our Boundary Bend property. Our remaining orchards are aged between 13 and 21 years, and as they are not showing any signs of declining tree health or yield reduction, we are not planning to replant any further acres in the foreseeable future. “…Select Harvests is Australia’s largest grower…” Management Services A further 520 acres of investor owned orchards were established during the year increasing the area under management to 5300 acres. The continued expansion of our Management Services division has created the right sort of challenges. From a zero base in 1998 this division now contributes 24% of total EBIT, and in the 2002 financial year achieved an EBIT of $3.96m, an increase of 50% over the previous year. The profit contribution from this division will continue to grow as existing orchards increase production and new orchards are established. Our objective has been to develop a long-term fee based income stream, which utilises our processing and marketing capacity and horticultural expertise. Our fees are generated initially as one-off establishment fees for the development of orchards. Recurring fees are derived from the work we do in managing the orchard, and commencing in year 3 from the processing and marketing of annual almond crops. We now have projects in place with private investors, companies, a superannuation fund, and a number of managed investment schemes. As a result of the work done over the last 4 years, managed almond orchards are now firmly established as an investment product. A major orchard development is to be undertaken in 2003 on behalf of Timbercorp Limited, with the plan to plant up to 3,000 acres, subject to the availability of suitable land. Global Scene Australia contributes around 2% of world production with USA growing 80% of world production. Australia has ideal growing conditions for almonds providing a clear competitive advantage in terms of yield and quality. Over the last 4 years we have produced consistent yields in excess of 50% above those achieved in USA. The quality of our almonds in terms of size, colour and appearance has allowed us to compete in export markets as an alternative to USA almonds. Therefore, Australia has a unique opportunity to substantially increase production of a product in which we are world competitive without adversely impacting on global supply. The outlook for almond prices looks buoyant over the next few years if current trends continue. World consumption continues to grow driven by an increased awareness of the health benefits, and emerging markets, particularly India and China. As a result, demand is keeping pace with production increases in USA. With lower new plantings and the ongoing retirement of older orchards, further production increases will be limited over the next few years. The international almond price increased by around 15% over the last year as increased world demand exhausted supplies from the USA 2001 crop, reducing world stock levels to a minimum. The USA 2002 crop currently being harvested will be a record, but given the low world supply position should not result in an unmanageable stock position. S E L E C T H A R V E S T S L I M I T E D 6 A N N UA L R E P O RT 2 0 0 2 Processed and Marketing The Processed & Marketing division’s EBIT of $5 million, representing 30% of total group EBIT, was impacted by non-recurring relocation costs of $260,000, and an increase in goodwill expense of $288,000. Operating profit excluding these items rose by 4% from $6.15 million to $6.39 million. Trading was impacted by lost sales from Franklins store closures, which were offset by gains in other areas, and a contribution from the Renshaw business above initial expectations. At the end of the year under review, we relocated our processing and packaging operations to one site. The new facility provides increased capacity and efficiency and meets the highest level of food hygiene standards, improving our competitiveness and positioning the division for future growth. We continue to develop our relationships with the supermarket chains seeking ways to improve sales and share of shelf, and at the same time increase our distribution outside the major retailers. As the supermarket landscape stabilises following the Franklins store closures, we aim to regain lost market share through the coming year. Overall, our products benefited from the increased publicity about the health benefits of their regular consumption, and the supermarket categories which we service generally experienced growth over the year. We aim to participate in this growth from both our existing product range, and by product and category expansion. Renshaw has continued to improve its contribution to the profitability of the division, and provides direct access to a growing industrial customer base. Our clients are food manufacturers, food service distributors, packers and other distributors. They in turn either sell to other companies or direct to the retail consumer. This means that our products will almost surely end up in every Australian home sooner or later. The key to our success to date has been the identification of appropriate acquisitions, which provide a market position and a fit with our core business, and the integration of these businesses to deliver operating efficiencies and competitiveness. We continue to pursue acquisitions, which fit the above criteria. Pesticide Products This division is the quiet earner, a remnant of our early days. In 2002, this division earned $1.2m EBIT and contributed 7% to group EBIT. This was a similar EBIT contribution to previous years, reflecting the steadiness of demand. Based in Yenda, NSW we supply an estimated 50% of all pelletised snail, slug and rodent baits in the Australian and New Zealand market. It is a division that requires little capital investment and we have a good Management team in place. The Year Ahead We approach the year ahead with confidence as our strategies are further developed. We expect an increase in almond tonnages as new orchards increase production, and are forecasting the maintenance of recent almond price increases. We are planning a major orchard project in 2003 of up to 3,000 acres, which will take our total area under Management to over 10,000 acres. We are also pursuing further growth of our processing and marketing business, both from our existing products and markets, and from further acquisition. We have bedded down our new production facility, and can commence capturing the available operating efficiencies. We anticipate another solid performance from our pesticide business. John Bird Managing Director September 2002 S E L E C T H A R V E S T S L I M I T E D 7 A N N UA L R E P O RT 2 0 0 2 Financial Highlights Highlights • Net Profit After Tax increase of 30.3% to $8.6m • Sales increase of 23.9% to $80.5m • 520 acres of investor owned orchards planted • Total Dividend paid 13.5 cents up 35% • Earnings Per Share (fully diluted) 24.7 cents up 25% • Consolidation of operations in new factory at Thomastown • Return on Equity increased from 15.5% to 17.3% • Earnings Before Interest and Tax up 21% to $14.7m • 2002 total almond crop intake up 13% to 2,860 metric tonnes Net Profit After Tax Earnings Per Share Dividend Per Ordinary Share S E L E C T H A R V E S T S L I M I T E D 8 A N N UA L R E P O RT 2 0 0 2 Ratios and Statistics Profitability Total sales Earnings before interest and tax Net profit after tax Balance Sheet Summary Total assets Total debt Total shareholders equity Financial Ratios Earnings per share Return on shareholders’ equity Net tangible assets per share Net interest cover Debt/equity ratio Current asset ratio Dividends Dividend per ordinary share Dividend franking Dividend payout ratio Almond Production Statistics Total annual production Yield per (mature) acre (cents) (% pa) ($) (times) (%) (times) (cents) (%) (%) (tonnes) (tonnes) June 2002 $’000s June 2001 $’000s June 2000 $’000s June 1999 $’000s June 1998 $’000s 80,530 14,739 8,554 85,689 19,233 49,337 25.4 17.3 0.77 7.6 38.9 1.30 13.5 100 53.1 64,996 12,196 6,564 89,989 29,765 42,373 20.0 15.5 0.56 6.3 70.2 1.31 10.0 100 50.0 43,002 8,389 5,239 71,537 18,039 32,865 16.0 15.9 0.43 10.4 54.9 0.87 8.0 100 50.0 29,412 7,096 4,198 45,371 8,971 29,961 13.4 14.0 0.81 12.0 29.9 1.88 6.0 100 47.3 15,751 5,922 3,763* 33,618 5,093 24,620 12.7* 15.3* 0.83 18.1 20.7 1.13 6.0 67 37.4 2,630 1.30 2,380 1.30 2,250 1.29 2,280 1.30 1,970 1.12 Note: * As Select Harvests was subject to full taxation only from financial year 1998/99, for comparative purposes some data from the prior year has been adjusted to reflect a full tax rate. Total Shareholders Equity Divisional EBIT - 1998 Divisional EBIT - 2002 S E L E C T H A R V E S T S L I M I T E D 9 A N N UA L R E P O RT 2 0 0 2 Board of Directors M A Fremder Experience Chairman, 72 Joined the Board in March 1996. Formerly a Director of IAMA Limited, and founder of Nufarm, one of Australia’s largest chemical manufacturers for the rural industry. Non-Executive Director, 64 B P Burns Qualifications AM, FCPA, FCIS, FAICD Experience Joined the Board in July 1999. Has had many years’ experience in the food and beverage industry. He is currently a Director of National Foods Limited and Codan Limited, and various other private companies. J Bird Experience Managing Director, 45 Joined the Board in September 2001. Has had many years experience in the food industry and international trade. Formerly Managing Director of Jorgenson Waring Foods and has been the Chief Executive Officer of Select Harvests Limited since January 1998. D J Williams Non-Executive Director, 48 Qualifications B. Ec (Hons), M. Ec, FAICS Experience Joined the Board in July 1997. Has had extensive experience in advising agri-food companies. He is the Head of Corporate Finance at Challenger International and Chairman of Austin Group Limited. Non-Executive Director, 58 C G Clark Qualifications B.Comm, Dip.Ag.Econ Experience Joined the Board in January 1998. Is currently a Director of Southern Cross Broadcasting (Australia) Limited, and CGU Insurance Australia Limited. He is deputy Chairman, Legal Practice Board of Victoria; Director, Myer Foundation; Trustee for the Buckland Foundation; and a Director of a number of other private companies. Non-Executive Director, 48 B J Hanley Qualifications B. Comm (Mktg) Experience Joined the Board in November 1998. Following a career in food industry management, he is currently Managing Director of Gresham Rabo Management Limited, managing diversified investments in food related industries. Resigned in August 2001. Top row: M A Fremder, B P Burns, C G Clark Bottom row: J Bird, D J Williams S E L E C T H A R V E S T S L I M I T E D 10 A N N UA L R E P O RT 2 0 0 2 Financial Report For the year ended 30 June 2002 Contents Directors’ Report Financial Report Statement of Financial Performance Statement of Financial Position Statement of Cashflows Notes to the Financial Statements Directors’ Declaration Independent Audit Report 12 16 17 18 19 - 42 43 44 S E L E C T H A R V E S T S L I M I T E D 11 A N N UA L R E P O RT 2 0 0 2 Directors’ Report The Directors present their report together with the financial report of Select Harvests Limited for the year ended 30 June 2002 and the auditors report there on. The names of Directors in office at any time during or since the end of the financial year are: M A Fremder B P Burns C G Clark D J Williams J Bird (Appointed 28 September 2001) B J Hanley (Resigned 30 August 2001) Directors have been in office since the start of the financial year to the date of this report unless otherwise stated. Operating Results The consolidated profit of the economic entity for the financial year after providing for income tax and eliminating outside equity interests amounted to $8,553,246. Review of Operations Refer to Chairman’s report and Managing Director’s report in the front section of the Annual Report. Significant Changes in Affairs No significant changes in the economic entity’s state of affairs occurred during the financial year. Principal Activities The principal activities of the economic entity during the financial year were the processing, packaging and marketing of edible nuts, dried fruit and seeds; the growing, processing, packaging and distributing of almonds; the provision of management services and the manufacture of chemically-based pelletised products. No significant change in the nature of these activities occurred during the year. After Balance Date Events Particulars of matters or circumstances that have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the economic entity, the results of those operations or the state of affairs of the economic entity in future financial years are as follows: In accordance with the strategic alliance with Timbercorp Limited, Almonds Australia Pty Ltd, a 75% owned subsidiary of Timbercorp Limited, became entitled to the issue of 466,500 options from 31 July 2002, each option relating to one ordinary share in Select Harvests Limited. The options have an exercise price of $2.10 per share, and an expiry date of 31 December 2002. No other matters or circumstances have arisen since the end of the financial year which significantly affected, or may significantly affect, the operations of the economic entity, the results of those operations, or the state of affairs of the economic entity in future financial years. Likely Developments Refer to Chairman’s report and Managing Director’s report in the front section of the Annual Report. Environmental Issues The economic entity’s operations are subject to environmental regulations under a law of the Commonwealth or of a State or Territory. Details of the economic entity’s performance in relation to such environmental regulation follows: The economic entity holds licenses issued by the Environmental Protection Authority which specify limits for discharges to the environment which are the result of the economic entity’s operations. These licenses regulate the management of discharge to the air and stormwater run-off associated with the operations. There have been no significant known breaches of the economic entity’s license conditions. Dividends Paid or Recommended The dividends paid or declared since the start of the financial year are as follows: (a) The Directors on 28 August 2002 declared a fully franked dividend of $0.08 per ordinary share to be paid on 30 September 2002 to members in the books of the Company as at close of business on 11 September 2002. (2001: $0.06 cents) $2,767,000 (b) A fully franked interim dividend of $0.055 per ordinary share was paid to members on 10 April 2002. (2001: $0.04 cents) $1,898,000 (c) The Directors on 1 October 2001 paid a fully franked dividend of $0.06 per ordinary share to members in the books of the Company as at the close of business on 12 September 2001. $1,970,477 S E L E C T H A R V E S T S L I M I T E D 12 A N N UA L R E P O RT 2 0 0 2 Share Options Employee Share Option Scheme The employee share option scheme implemented in November 1996 was valid for three years, and ceased to issue options in 1999. As at the date of this report, under this scheme there were 82,726 options to take up one ordinary share per option in Select Harvests Limited at an issue price of $1.00. The options expire on 30 September 2002. Executive Share Option Scheme At the 2000 annual general meeting, the current executive share option scheme was approved. The scheme provides for the offer of a parcel of options to participating employees on an annual basis, with a three-year expiry period, exercisable at the market price at the time the offer was made. The options are valued using the Black-Scholes valuation method and individual parcels are based on a percentage of fixed remuneration. The options are granted annually in three tranches on achievement of performance hurdles. Participating Employees Option Valuation Exercise No. of Options Offered Price Expiry Date Granted August 01 Granted August 02 20-Oct-03 20-Oct-04 112,300 - 112,300 120,500 112,300 232,800 353,300 Balance 112,300 241,000 2000 Offer 2001 Offer Total Options Issued 5 8 $0.33 $0.41 $1.55 $1.66 336,900 361,500 698,400 During or since the end of the financial year, the Company granted options over unissued ordinary shares to the following Executive Director, and the following five most highly remunerated officers of the Company as part of their remuneration. Director J Bird J Bird J Bird Officers D Sakkas C H Holland C H Holland C H Holland P A James P A James P A James L W Van Driel Number of Options Granted Date Granted Exercise Price Expiry Date 68,800 68,800 55,400 17,700 19,000 19,000 15,300 10,400 10,400 8,400 8,600 Aug-01 Aug-02 Aug-02 Aug-02 Aug-01 Aug-02 Aug-02 Aug-01 Aug-02 Aug-02 Aug-02 $1.55 $1.55 $1.66 $1.66 $1.55 $1.55 $1.66 $1.55 $1.55 $1.66 $1.66 20-Oct-03 20-Oct-03 20-Oct-04 20-Oct-04 20-Oct-03 20-Oct-03 20-Oct-04 20-Oct-03 20-Oct-03 20-Oct-04 20-Oct-04 Unissued Ordinary Shares Under Option At the date of this report unissued ordinary shares of the company under option are: Number of Shares 82,726 466,500 101,900 101,900 112,100 Date Granted Exercise Price Expiry Date Sept-99 Jul-02 Aug-01 Aug-02 Aug-02 $1.00 $2.10 $1.55 $1.55 $1.66 30-Sept-02 31-Dec-02 20-Oct-03 20-Oct-03 20-Oct-04 The market value of Select Harvests Limited shares closed at $3.10 on 28 June 2002. Current option holders do not have any right, by virtue of the option, to participate in any share issue of the Company or any related body corporate. S E L E C T H A R V E S T S L I M I T E D 13 A N N UA L R E P O RT 2 0 0 2 Shares Issued as a Result of the Exercise of Options During or since the end of the financial year, the Company issued ordinary shares as a result of the exercise of options as follows: Number of Shares 167,500 1,500,000 58,500 20,800 8,400 Amount Paid on Each Share $1.05 $1.80 $1.00 $1.55 $1.66 Expiry Date 14-Oct-01 31-Dec-01 30-Sept-02 20-Oct-03 20-Oct-04 There were no amounts unpaid on the shares issued. Directors’ and other Officers’ Emoluments Remuneration Policy The Remuneration Committee of the Board of Directors is responsible for determining and reviewing compensation arrangements for the Directors, the Managing Director and the executive team. The Remuneration Committee assesses the appropriateness of the nature and amount of emoluments of such officers on a periodic basis, by reference to relevant employment market conditions, with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and executive team. Executives are given the opportunity to receive their base emolument in a variety of forms including cash and fringe benefits such as motor vehicles. It is intended that the manner of payment chosen will be optimal for the recipient without creating any incremental cost for the Company. Emoluments1 of Directors of Select Harvests Limited Two years ago an independent consultant was recruited to determine the market value of the executives of Select Harvests Limited. Since that time remuneration packages for the senior executives have been aligned relative to the median remuneration package for the particular roles, adjusted for factors such as individual performance and the experience and knowledge of the employee. During the year, the Remuneration Committee implemented greater employee participation in the market-related Short-Term and Long-Term Incentive schemes as part of the remuneration packages for the employees of the Company, based on advice received from the independent consultant. Both the Short-Term and Long-Term schemes involve payments up to an agreed proportion of the total fixed remuneration of the employee, with the relevant proportions based on the market-relativity of employees with equivalent responsibilities. The employee is able to receive payments under the Short-Term Incentive scheme based on the achievement of agreed business plans by the individual. This performance is measured and reported by a balanced scorecard approach. The Long-Term Incentive scheme involves the issue of options to the employee, under the Executive Share Option scheme. Details of the nature and amount of each element of the emolument of each Director of the Company and each of the five executive officers of the Company and the consolidated entity, receiving the highest emolument, for the financial year are as follows: Base Fee Annual Emoluments Bonus Other4 M A Fremder B P Burns C G Clark D J Williams J Bird B J Hanley $ $ $ 65,432 32,716 32,716 32,716 213,198 5,000 - - - - 50,048 - - - - - 38,032 - Termination & Similar Payments $ Long Term Emoluments Options Granted2 Number $ - - - - 68,800 - - - - - 22,704 - - - - - - - Super- annuation $ 5,235 2,617 2,617 2,617 21,558 - Total $ 70,667 35,333 35,333 35,333 345,540 5,000 Emoluments1 of the five most highly paid executive officers3 of the Company and the consolidated entity Base Fee Annual Emoluments Bonus Other4 D Sakkas C W Greig C H Holland P A James L W Van Driel $ $ $ 117,699 104,094 97,760 80,278 97,590 3,401 7,705 8,730 9,569 - 19,400 21,500 19,488 16,800 - Termination & Similar Payments $ Long Term Emoluments Options Granted2 Number $ - 18,042 - - - - - 19,000 10,400 - - - 6,270 3,432 - Super- annuation $ 9,000 11,089 8,514 7,087 7,778 Total $ 149,500 162,430 140,762 117,166 105,368 S E L E C T H A R V E S T S L I M I T E D 14 A N N UA L R E P O RT 2 0 0 2 Notes The elements of emoluments have been determined on the basis of the cost to the Company and the consolidated entity. The terms ‘Director’ and ‘officer’ have been treated as mutually exclusive for the purposes of this disclosure. 1 2 Options granted to the five most highly paid officers were under the Long-Term Incentive scheme, see “Share Options” note above. The options are valued using the Black-Scholes valuation method and individual parcels are based on a percentage of fixed remuneration. 3 Executives are those directly accountable and responsible for the operational management and strategic direction of the Company and the consolidated entity. The category ‘Other’ includes the value of any non-cash benefits provided and includes FBT where applicable. 4 Meetings of Directors Directors Directors’ Meetings Audit Committee Remuneration Committee Committee Meetings Number Eligible to Attend Number Attended Number Eligible to Attend Number Attended Number Eligible to Attend Number Attended M A Fremder B P Burns C G Clark D J Williams J Bird (Appointed 28 September 2001) B J Hanley (Resigned 30 August 2001) 12 12 12 12 8 3 11 12 11 12 12 2 - 5 5 - - - - 5 5 - - - 2 - - 2 - - 2 - - 2 - - Director’s Interests in Securities Corporate Governance Directors’ interests in securities of the Company are disclosed at Note 28. Rounding of Amounts The parent entity has applied the relief available to it in ASIC Class Order 98/100 and accordingly amounts in the financial statements and the Directors’ report have been rounded off in accordance with the prescribed amounts as set out in the Class Order. Indemnification of Directors and Officers During the year the Company has paid a premium in respect of an insurance contract to indemnify Directors and officers against liabilities that may arise from their position as Directors and officers of the Company and its controlled entities. Officers indemnified include the Company Secretary, all Directors and all executive officers participating in the management of the Company and its controlled entities. Further disclosure required under section 300(9) of the Corporations Act 2001 is prohibited under the terms of the contract. The Company’s corporate governance statement is contained in detail in the corporate governance section of this annual report. Proceedings on Behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001. Signed in accordance with a resolution of the Directors: M A Fremder Chairman Dated 17th day of September 2002 S E L E C T H A R V E S T S L I M I T E D 15 A N N UA L R E P O RT 2 0 0 2 Statement of Financial Performance FOR THE YEAR ENDED 30 JUNE 2002 Revenues from ordinary activities Sales revenue Other revenues from ordinary activities Expenses from ordinary activities, excluding borrowing costs expense Cost of Sales Distribution expenses Marketing expenses Occupancy expenses Administrative expenses Other expenses from ordinary activities Borrowing costs expense Profit from ordinary activities before income tax expense Income tax expense relating to ordinary activities Net profit from ordinary activities after income tax Net profit from ordinary activities after income tax expense attributable to the members of the parent entity Increase in asset revaluation reserve Increase in retained profits on adoption of a new Standard Total revenues, expenses and valuation adjustments attributable to members of the entity and recognised directly in equity Total changes in equity other than those resulting from transactions with owners as owners Basic earnings per share: - Ordinary shares Diluted earnings per share: - Ordinary shares Note 2 2 21 3 26 17 19 32 Economic Entity Parent Entity 2002 $’000 80,530 4,787 85,317 (60,014) (1,584) (134) (630) (1,606) (6,519) (70,487) (2,027) 12,803 (4,249) 8,554 8,554 - - - 2001 $’000 64,996 325 65,321 (47,942) (674) (51) (594) (1,016) (2,788) (53,065) (1,996) 10,260 (3,696) 6,564 6,564 5,072 1,140 6,212 2002 $’000 - 12,070 12,070 - - - (5) (811) (960) (1,776) (2,412) 7,882 (422) 7,460 2001 $’000 - 9,103 9,103 - (5) - (5) (881) (899) (1,790) (2,528) 4,785 (261) 4,524 7,460 4,524 - - - - - - 8,554 12,776 7,460 4,524 0.25 0.25 0.20 0.20 - - - - The accompanying notes form part of these Financial Statements S E L E C T H A R V E S T S L I M I T E D 16 A N N UA L R E P O RT 2 0 0 2 Statement of Financial Position AS AT 30 JUNE 2002 Current Assets Cash assets Receivables Inventories Other Total Current Assets Non-Current Assets Receivables Other financial assets Property, plant and equipment Self-generating and regenerating assets Intangible assets Deferred tax assets Total Non-Current Assets Total Assets Current Liabilities Payables Interest-bearing liabilities Current tax liabilities Provisions Total Current Liabilities Non-Current Liabilities Payables Interest-bearing liabilities Deferred tax liabilities Provisions Total Non-Current Liabilities Total Liabilities Net Assets Equity Contributed equity Reserves Retained profits/(accumulated losses) Total Equity Economic Entity Parent Entity Note 4 5 6 7 5 8 9 10 11 25 12 13 14 15 12 13 14 15 16 26 17 19 2002 $’000 78 10,740 11,667 114 22,599 - 4 34,286 5,718 22,835 247 63,090 85,689 9,441 1,494 2,848 3,598 17,381 - 17,739 1,167 65 18,971 36,352 49,337 34,199 9,458 5,680 49,337 2001 $’000 5 10,309 11,461 1,809 23,584 - 4 33,494 8,843 23,966 98 66,405 89,989 11,120 2,136 2,107 2,685 18,048 - 27,629 1,939 - 29,568 47,616 42,373 31,124 9,458 1,791 42,373 2002 $’000 75 155 - - 230 35,887 12,199 385 - - 93 48,564 48,794 407 683 179 2,874 4,143 6,946 16,604 - - 23,550 27,693 21,101 2001 $’000 3 226 - 266 495 42,362 12,199 332 - - 368 55,261 55,756 1,046 1,394 289 2,105 4,834 9,692 26,000 - - 35,692 40,526 15,230 34,199 3,270 (16,368) 21,101 31,124 3,270 (19,164) 15,230 The accompanying notes form part of these Financial Statements S E L E C T H A R V E S T S L I M I T E D 17 A N N UA L R E P O RT 2 0 0 2 Statement of Cashflows FOR THE YEAR ENDED 30 JUNE 2002 Economic Entity Parent Entity Note 2002 $’000 2001 $’000 2002 $’000 Cashflow from Operating Activities Receipts from customers Payments to suppliers and employees Dividends received Interest received Borrowing costs paid Income tax paid 90,792 (68,926) 1 81 (2,027) (4,429) Net cash provided by operating activities 18(b) 15,492 Cashflow from Investing Activities Proceeds from sale of property, plant and equipment Proceeds from repayment of other debtors Payment for property, plant and equipment Payment for other non-current assets Net cash used in investing activities Cashflow from Financing Activities Proceeds from share issue Proceeds from borrowings Repayment of borrowings Dividends paid Net cash provided by/(used in) financing activities Net increase/(decrease) in cash held Cash at beginning of year Cash at end of year 18(a) The accompanying notes form part of these Financial Statements 4,696 - (3,865) (4,000) (3,169) 3,075 71 (10,485) (3,868) (11,207) 1,116 (1,724) (608) 68,141 (53,908) - 60 (1,996) (2,675) 9,622 233 329 (4,014) (14,722) (18,174) 16 10,600 (1,039) (3,119) 6,458 (2,094) 370 (1,724) - (1,160) 1 81 (1,796) (258) (3,132) 24 - (206) - (182) 3,075 15,138 (10,241) (3,868) 4,104 790 (1,373) (583) 2001 $’000 - (692) - 35 (1,796) (68) (2,521) 23 329 (36) - 316 16 10,600 (7,338) (3,119) 159 (2,046) 673 (1,373) S E L E C T H A R V E S T S L I M I T E D 18 A N N UA L R E P O RT 2 0 0 2 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2002 Note 1: Statement of Significant Accounting Policies (b) Income Tax The financial report is a general purpose financial report that has been prepared in accordance with Accounting Standards, Urgent Issues Group Consensus Views and other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The financial report covers Select Harvests Limited as an individual parent entity and Select Harvests Limited and controlled entities as an economic entity. Select Harvests Limited is a company limited by shares, incorporated and domiciled in Australia. The financial report has been prepared on an accruals basis and is based on historical costs (except where AASB 1037: “Self Generating and Regenerating Assets” has been applied) and does not take into account changing money values or, except where stated, current valuations of non-current assets. Cost is based on the fair value of consideration that would be given in exchange for assets. The following is a summary of the material accounting policies adopted by the economic entity in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated. The economic entity adopts the liability method of tax-effect accounting whereby the income tax expense shown is based on the profit from ordinary activities adjusted for any permanent differences. Timing differences which arise due to the different accounting periods in which items of revenue and expense are included in the determination of accounting profit and taxable income are brought to account as either a provision for deferred income tax or as a future income tax benefit at the rate of income tax applicable to the period in which the benefit will be received or the liability will become payable. Future income tax benefits are not brought to account unless realisation of the asset is assured beyond any reasonable doubt. Future income tax benefits in relation to tax losses are not brought to account unless there is virtual certainty of realisation of the benefit. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation, and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. (a) Principles of Consolidations (c) Inventories A controlled entity is any entity controlled by Select Harvests Limited. Control exists where Select Harvests Limited has the capacity to dominate the decision- making in relation to the financial and operating policies of another entity so that the other entity operates with Select Harvests Limited to achieve the objectives of Select Harvests Limited. Details of the controlled entities are contained in Note 24. All inter-company balances and transactions between entities in the economic entity, including any unrealised profits or losses, have been eliminated on consolidation. Where a controlled entity has entered or left the economic entity during the year its operating results have been included from the date control was obtained or until the date control ceased. Inventories are measured at the lower of cost and net realisable value except for almond stocks which are valued at net market value in accordance with AASB 1037: “Self Generating and Regenerating Assets” - refer to (d) below. Costs incurred in bringing each product to its present location and condition are accounted for as follows: • Raw Materials and Consumables – Purchase cost on a first-in-first-out basis. • Finished Goods – The cost of finished goods comprises direct manufacturing costs and an appropriate proportion of factory overheads based on normal operating capacity. • Almond stocks – Almond stocks are valued in accordance with AASB 1037 “Self Generating and Regenerating Assets” whereby the cost of the non-living (harvested) produce is deemed to be its net market value immediately after it becomes non-living. This valuation takes into account current almond selling prices and current processing and selling costs. S E L E C T H A R V E S T S L I M I T E D 19 A N N UA L R E P O RT 2 0 0 2 (d) Self Generating and Regenerating Assets (e) Property, Plant and Equipment Almond Trees Almond trees are classified as a self generating and regenerating asset and valued in accordance with AASB 1037 “Self Generating and Regenerating Assets”. Developing almond trees are valued at their growing cost until the year they achieve economic maturity. The values of economically mature almond trees are calculated using a discounted cashflow methodology. The discounted cashflow incorporates the following factors: • Almond trees have an estimated 30-year economic life, with crop yields consistent with long-term yield rates. • Selling prices are based on long-term average trend prices. • Growing, processing and selling costs are based Each class of property, plant and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation. Freehold Plantation Land, Water Rights, Irrigation Systems, Almond Trees and Buildings on Freehold Plantation Land Freehold plantation land, water rights, irrigation systems, and buildings on freehold plantation land are measured at fair value. Carrying amounts are regularly reviewed by the Directors and if considered necessary, write-downs or increments are made for any permanent changes in the recoverable amount determined on an existing use basis. The almond trees are valued in accordance with AASB: 1037: “Self Generating and Regenerating Assets”. Plant and Equipment on long-term average levels. Plant and equipment are measured on the cost basis. • Cashflows are discounted at a rate that takes into account the cost of capital plus a suitable risk factor. • Asset values to be deducted from the cumulative cashflow, to determine the tree value, are based on current valuation and then adjusted annually to account for capital expenditure, depreciation and utilised acreage. The carrying amount of plant and equipment is reviewed annually by Directors to ensure it is not in excess of the recoverable amount from those assets. The recoverable amount is assessed on the basis of the expected net cashflows which will be received from the assets employment and subsequent disposal. The expected net cashflows have not been discounted to present values in determining recoverable amounts. Growing Almond Crop The growing almond crop is valued in accordance with AASB 1037 “Self Generating and Regenerating Assets”. This valuation takes into account current almond selling prices and current growing, processing and selling costs. The calculated crop value is then discounted to take into account that it is only partly developed, and then further discounted by a suitable factor to take into account the agricultural risk until crop maturity. New Orchards -Growing Costs All costs associated with the establishment, planting and growing of almond trees for a new orchard are accumulated for the first three years of that orchard. Once immature trees commence bearing a commercial crop a proportion of the annual growing costs are expensed on the basis of yield achieved as a proportion of anticipated yield of a mature tree. At the end of the eighth year full maturation is deemed to occur, after which the tree is considered to be mature in terms of revenue generation and the annual growing costs are then expensed in full and the almond trees are valued as described above. Depreciation The depreciable amount of all fixed assets including buildings and capitalised leased assets, but excluding freehold land, are depreciated on a straight line basis over their estimated useful lives to the entity commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The useful lives used for each class of assets are: Class of Fixed Asset Useful Lives Depreciation Basis Buildings Leasehold improvements Plant and equipment Irrigation systems Leased plant and equipment 25 to 40 years 5 to 20 years 5 to 20 years 10 to 40 years 5 to 10 years Straight Line Straight Line Straight Line Straight Line Straight Line The revaluation of freehold land and buildings has not taken account of the potential capital gains tax on assets acquired after the introduction of capital gains tax. S E L E C T H A R V E S T S L I M I T E D 20 A N N UA L R E P O RT 2 0 0 2 (f) Leases Leases of fixed assets, where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership, are transferred to the entities within the economic entity are classified as finance leases. Finance leases are capitalised, recording an asset and a liability equal to the present value of the minimum lease payments, including any guaranteed residual values. Leased assets are depreciated on a straight line basis over their estimated useful lives where it is likely that the economic entity will obtain ownership of the asset or over the term of the lease. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred. (g) Intangibles Brand Names Brand names are measured at deemed cost on adoption of AASB 1041: “Revaluation of Non-current Assets”. Directors are of the view that brand names have an indefinite life and that the depreciable amounts of the Company’s brand names are either zero or a negligible amount. Brand names are therefore not depreciated. Goodwill Goodwill is measured at cost, representing the excess of the purchase consideration plus incidental costs over the fair value of the identifiable net assets acquired on the acquisition of a controlled entity or net assets of a business, is amortised over the period during which benefits are expected to arise. Goodwill is amortised on a straightline method over 20 years. (h) Foreign Currency Transactions and Balances Foreign currency transactions during the year are converted to Australian currency at the rates of exchange applicable at the dates of the transactions. Amounts receivable and payable in foreign currencies at balance date are converted at the rates of exchange ruling at that date. The gains and losses from conversion of short-term assets and liabilities, whether realised or unrealised, are included in profit from ordinary activities as they arise. Exchange differences arising on hedged transactions undertaken to hedge foreign currency exposures, other than those for the purchase and sale of goods and services, are brought to account in the profit from ordinary activities when the exchange rates change. Any material gain or loss arising at the time of entering into hedge transactions is deferred and brought to account in the profit from ordinary activities over the lives of the hedges. Costs or gains arising at the time of entering hedged transactions for the purchase and sale of goods and services, and exchange differences that occur up to the date of purchase or sale are deferred and included in the measurement of the purchase or sale. (i) Employee Entitlements Provision is made for the economic entity’s liability (including on costs) for employee entitlements arising from services rendered by employees to balance date. Employee entitlements expected to be settled within one year together with entitlements arising from wages and salaries, annual leave and sick leave which will be settled after one year, have been measured at their nominal amount. Other employee entitlements payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those entitlements. Contributions are made by the economic entity to an employee superannuation fund and are charged as expenses when incurred. (j) Cash For the purposes of the Statement of Cashflows, cash includes cash on hand and with banks or financial institutions, readily convertible to cash within two working days, net of outstanding bank overdraft amounts. S E L E C T H A R V E S T S L I M I T E D 21 A N N UA L R E P O RT 2 0 0 2 (k) Comparative Figures (m) Financial Instruments Where required by Accounting Standards, comparative figures have been adjusted to conform with changes in presentation for the current financial year. Terms and Conditions Financial Assets (l) Revenue Revenue Recognition Revenue is measured at fair value of consideration received or receivable. Revenue is recognised to the extent that is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Sale of Goods Control of the goods has passed to the buyer. Rendering of Services Revenue is brought to account where the contract outcome can be reliably measured and control of a right to be compensated for the services has been attained and the stage of completion can be reliably measured. Stage of completion is measured by reference to the labour hours incurred to date as a percentage of total estimated labour hours for each contract. Where the contract outcome cannot be reliably measured revenue is recognised only to the extent that costs have been incurred. Interest Interest revenue is recognised when it becomes receivable on a proportional basis taking into account the interest rates applicable to the financial assets. Trade receivables are carried at full amounts due less any provision for doubtful debts. A provision for doubtful debts is recognised when collection of the full amount is no longer probable. Amounts receivable from other debtors are carried at full amounts due. Other debtors are normally settled on 30 days from month end unless there is a specific contract which specifies an alternative date. Amounts receivable from related parties are carried at full amounts due. Details of the terms and conditions are set out in Note 28(b). Financial Liabilities The bank overdraft is carried at the principal amount. Interest is charged as an expense as it accrues. The bank overdraft is secured by a floating charge over the Company’s assets. Liabilities are recognised for amounts to be paid in the future for goods and services received, whether or not billed to the economic entity. Trade liabilities are normally settled on 30 days from month end. Dividends payable are recognised when declared by the Company. Finance lease liability is accounted for in accordance with AASB 1008: “Leases”. As at balance date, the Company had finance leases with an average lease term of 4 years. The average discount rate implicit in the leases is 7%. The lease liability is secured by a charge over the leased asset. Dividends Equity Control of a right to receive a dividend is evidenced by the approval of the dividend at a meeting of the Board of Directors in accordance with the Company’s Constitution. Ordinary share capital is recognised at the issue price. Details of shares issued and the terms and conditions of options outstanding over ordinary shares at balance date are set out in Note 16. Almond Stock Increments or decrements in the net market value of almond stocks are recognised as revenues or expenses in the Statement of Financial Performance in the financial year in which they occur. The net increment or decrement in the total market value of the almond stocks is determined as the difference between the net market value and quantities at the beginning of the year and at year end, less any further costs required to get the almonds stocks to a saleable state. All revenue is stated net of the amount of Goods and Services Tax (GST). (n) Rounding of Amounts The company is of a kind referred to in Class Order 98/0100, issued by the Australian Securities & Investments Commission, relating to the “rounding off” of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar. S E L E C T H A R V E S T S L I M I T E D 22 A N N UA L R E P O RT 2 0 0 2 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2002 Note Economic Entity Parent Entity 2002 $’000 2001 $’000 2002 $’000 2001 $’000 Note 2: Revenue Operating activities - sale of goods - sale of management services - dividends - interest - management fees - other revenue Non-operating activities - proceeds on disposal of property, plant and equipment Total revenue (a) Dividends from: - wholly owned entities - other dividend income (b) Interest from: - wholly owned entities - other interest income (c) Management fees from: - wholly owned entities - other management fees 67,117 13,413 80,530 1 81 - 9 80,621 4,696 4,696 85,317 - 1 1 - 81 81 - - - 58,064 6,932 64,996 - 60 - 32 65,088 233 233 - - - 7,251 2,657 2,130 8 12,046 24 24 - - - 4,250 2,617 2,213 - 9,080 23 23 65,321 12,070 9,103 - - - - 60 60 - - - 7,250 1 7,251 2,576 81 2,657 2,130 - 2,130 4,250 - 4,250 2,581 36 2,617 2,196 17 2,213 S E L E C T H A R V E S T S L I M I T E D 23 A N N UA L R E P O RT 2 0 0 2 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2002 Note Economic Entity Parent Entity 2002 $’000 2001 $’000 2002 $’000 2001 $’000 Note 3: Profit from Ordinary Activities Profit from ordinary activities before income tax expense has been determined after: (a) Expenses Borrowing costs - wholly owned entities - other persons Total of borrowing costs Depreciation of non-current assets - buildings - plant and equipment Amortisation of non-current assets - capitalised leased assets - goodwill Bad and doubtful debts - bad debts written off - trade debtors - movement in provisions for doubtful debts - trade debtors - wholly owned subsidiary Net expense of bad and doubtful debts Write downs - inventory Remuneration of the auditors of the parent and subsidiary entities - auditing services - other services Rental expense on operating leases - minimum lease payments Foreign currency translation losses (gains) Net loss on disposal of non-current assets - property, plant and equipment Net expense (revenue) for movement in provision for employee entitlements (b) Revenue and Net Gains - property, plant and equipment - 2,027 2,027 330 2,099 284 1,130 - 9 - 9 120 114 - 1,404 - 17 629 557 - 1,996 1,996 386 1,577 497 842 204 (19) - 185 255 91 49 906 (26) - 144 - 616 1,796 2,412 732 1,796 2,528 - 47 22 - - - 3 3 - 79 - - (7) 17 3 1 2 36 9 - 204 - - 204 - 91 49 - - - (17) - S E L E C T H A R V E S T S L I M I T E D 24 A N N UA L R E P O RT 2 0 0 2 Note 4: Cash Assets Cash on hand Cash at bank Total cash assets Note 5: Receivables Current Trade debtors Less provision for doubtful debts Other debtors Non-Current Amounts receivable from: - controlled entities - other controlled entities Less provision for doubtful debts Note 6: Inventories Current Raw materials at cost Less provision for obsolescence Finished goods at cost Less provision for obsolescence Other current inventory Almond stocks - at net market value Note 7: Other Assets Current Prepayments Other current assets Note Economic Entity Parent Entity 2002 $’000 2001 $’000 2002 $’000 2001 $’000 1 77 78 10,511 (9) 10,502 238 10,740 - - - 1,115 (30) 1,085 7,667 (342) 7,325 194 2 3 5 9,895 - 9,895 414 10,309 - 75 75 - - - 155 155 1 2 3 - - - 226 226 - - - 36,986 (1,099) 35,887 43,458 (1,096) 42,362 5,663 (31) 5,632 1,314 (532) 782 112 - - - - - - - - - - - - - - - - - - - - - 192 74 266 3,063 11,667 4,935 11,461 - 114 114 76 1,733 1,809 S E L E C T H A R V E S T S L I M I T E D 25 A N N UA L R E P O RT 2 0 0 2 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2002 Note 8: Other Financial Assets Non-Current Shares in other listed corporations at cost Shares in controlled entities at cost Less provision for write-down to recoverable amount Total other financial assets Note 9: Property, Plant and Equipment Land Plantation land: At fair value Buildings At fair value Less accumulated depreciation Freehold land and buildings - at fair value Less accumulated depreciation Leasehold Improvements At fair value Total property Plant and Equipment Plant and equipment At cost Less accumulated depreciation Capital works in progress - at cost Leased plant and equipment Less accumulated depreciation Total plant and equipment Total property, plant and equipment Note 24 Economic Entity Parent Entity 2002 $’000 2001 $’000 2002 $’000 2001 $’000 4 - - - 4 4 - - - 4 4 12,995 (800) 12,195 12,199 4 12,995 (800) 12,195 12,199 17,920 16,921 2,439 (76) 2,363 321 - 321 124 2,292 - 2,292 531 (86) 445 - 20,728 19,658 19,929 (8,923) 11,006 148 3,136 (732) 2,404 13,558 34,286 17,854 (7,097) 10,757 - 4,114 (1,035) 3,079 13,836 33,494 - - - - 150 - 150 - 150 486 (378) 108 - 144 (17) 127 235 385 - - - - 216 (20) 196 - 196 454 (335) 119 - 32 (15) 17 136 332 S E L E C T H A R V E S T S L I M I T E D 26 A N N UA L R E P O RT 2 0 0 2 Note 9: Property, Plant and Equipment (continued) (a) Movements in Carrying Amounts Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the year. 2002 Balance at the beginning of the year Additions Disposals Depreciation expense Carrying amount at end of year 2002 Balance at the beginning of the year Additions Disposals Revaluations Depreciation expense Carrying amount at the end of the year 2002 Balance at the beginning of the year Additions Disposals Depreciation expense Carrying amount at the end of the year 2002 Balance at the beginning of the year Additions Carrying amount at the end of the year Land Buildings Economic Entity $’000 Parent Entity $’000 Economic Entity $’000 Parent Entity $’000 16,921 1,962 (711) (252) 17,920 - - - - - 2,292 147 - (76) 2,363 - - - - - Freehold Land and Buildings Economic Entity $’000 Parent Entity $’000 Leasehold Improvements Parent Economic Entity Entity $’000 $’000 445 13 (77) (58) (2) 321 196 14 - (58) (2) 150 - 124 - - - 124 - - - - - - Plant and Equipment Economic Entity $’000 Parent Entity $’000 Leased Plant and Equipment Economic Entity $’000 Parent Entity $’000 10,757 2,640 (292) (2,099) 11,006 119 23 (3) (31) 108 3,079 1,207 (1,598) (284) 2,404 17 144 (20) (14) 127 Capital Works in Progress Parent Economic Entity Entity $’000 $’000 - 148 148 - - - S E L E C T H A R V E S T S L I M I T E D 27 A N N UA L R E P O RT 2 0 0 2 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2002 Note Economic Entity Parent Entity 2002 $’000 2001 $’000 2002 $’000 2001 $’000 Note 10: Self-Generating and Regenerating Assets At net market value SGARA Almond Trees SGARA assets Almond Trees 2002 Balance at the beginning of the year Additions - sale of SGARA assets - current year movement Carrying amount at the end of the year Note 11: Intangible Assets Goodwill at cost Less accumulated amortisation Brand names, at cost 5,718 5,718 8,843 8,843 - - - - Acres 2002 2001 Net change $ 2002 $’000 2001 $’000 1,832 2,250 (3,125) 377 SGARA Plantation $’000 8,843 244 (3,109) (260) 5,718 Economic Entity Parent Entity 2002 $’000 2001 $’000 2002 $’000 2001 $’000 22,314 (2,379) 19,935 2,900 22,835 22,314 (1,248) 21,066 2,900 23,966 - - - - - - - - - - S E L E C T H A R V E S T S L I M I T E D 28 A N N UA L R E P O RT 2 0 0 2 Note 12: Payables Current Unsecured liabilities - Trade creditors - Sundry creditors and accruals Secured liabilities - Trade finance loan Non-Current Unsecured liabilities Amounts payable to: - wholly owned entities Note 13: Interest Bearing Liabilities Current Secured liabilities - Finance lease liability Bank overdrafts Non-Current Secured liabilities - Bills of exchange and promissory notes - Finance Lease liability A registered mortgage debenture is held as security over all the assets and undertakings of Select Harvests Limited and the entities of the wholly owned group. A cross deed of guarantee exists between the entities of the wholly owned group. Note 14: Tax Liabilities Current Income tax Non-Current Deferred income tax Note Economic Entity Parent Entity 2002 $’000 2001 $’000 2002 $’000 2001 $’000 3,041 6,400 9,441 - 9,441 - - 808 686 1,494 16,500 1,239 17,739 3,498 6,771 10,269 851 11,120 115 292 407 - 407 - - 6,946 6,946 407 1,729 2,136 26,000 1,629 27,629 25 658 683 16,500 104 16,604 101 94 195 851 1,046 9,692 9,692 18 1,376 1,394 26,000 - 26,000 27 27 2,848 2,107 1,167 1,939 179 - 289 - S E L E C T H A R V E S T S L I M I T E D 29 A N N UA L R E P O RT 2 0 0 2 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2002 Note 15(a) 15(a) Economic Entity Parent Entity 2002 $’000 2001 $’000 2002 $’000 2001 $’000 2,767 831 3,598 65 896 174 1,970 715 2,685 - 715 202 2,767 107 2,874 - 107 10 1,970 135 2,105 - 135 7 Note 15: Provisions Current Dividends Employee entitlements Non-Current Employee entitlements (a) Aggregate employee entitlements liability (b) Number of employees at year end Employee Incentive Scheme During the year the Remuneration Committee implemented greater employee participation in the market related Short-Term and Long-Term Incentive schemes as part of the remuneration packages for the employees of the Companies, based on advice received from an independent consultant. Both the Short-Term and Long-Term schemes involve payments up to an agreed proportion of the total fixed remuneration of the employee, with relevant proportions based on market-relativity of employees with equivalent responsibilities. The employee is able to receive payments under the Short-Term Incentive scheme based on the achievement of agreed business plans by the individual. This performance is measured and reported by a balanced scorecard approach. The Long-Term scheme involves the issue of options to the employee, under the executive share option scheme. This year, 112,300 options have been issued under this scheme (refer Directors’ Report for further details). The market value of ordinary Select Harvests Limited shares closed at $3.10 on 28 June 2002 ($1.68, 30 June 2001). S E L E C T H A R V E S T S L I M I T E D 30 A N N UA L R E P O RT 2 0 0 2 Note 16: Contributed Equity Paid up Capital 34,584,891 (2001: 32,841,279) ordinary shares fully paid (a) Ordinary Shares At the beginning of the reporting period Shares issued during the year 3,000 on 4-Sept-01 6,000 on 7-Sept-01 155,000 on 11-Sept-01 1,000 on 12-Sept-01 6,000 on 31-Dec-01 1,500,000 on 31-Dec-01 72,612 on 10-Apr-02 Shares issued in prior year At reporting date Note Economic Entity Parent Entity 2002 $’000 2001 $’000 2002 $’000 2001 $’000 34,199 31,124 34,199 31,124 31,124 31,108 31,124 31,108 4 6 163 1 6 2,700 195 - - - - - - - - 16 4 6 163 1 6 2,700 195 - - - - - - - - 16 34,199 31,124 34,199 31,124 Movements in ordinary share capital: Number of shares Number of shares At the beginning of reporting period Shares issued during year 4-Sept-01 7-Sept-01 11-Sept-01 12-Sept-01 31-Dec-01 31-Dec-01 10-Apr-02 At reporting date 32,841,279 32,841,279 3,000 6,000 155,000 1,000 6,000 1,500,000 72,612 3,000 6,000 155,000 1,000 6,000 1,500,000 72,612 34,584,891 34,584,891 Note 17: Retained Profits Retained profits/(accumulated losses) at the beginning of the financial year Net profit attributable to members of the entity Net effect of adoption on new Standards Dividends provided for or paid Retained profits at reporting date Note Economic Entity Parent Entity 2002 $’000 2001 $’000 2002 $’000 2001 $’000 1,791 8,554 - (4,665) 5,680 (2,629) 6,564 1,140 (3,284) 1,791 (19,163) 7,460 - (4,665) (16,368) (20,404) 4,524 - (3,284) (19,164) 23 S E L E C T H A R V E S T S L I M I T E D 31 A N N UA L R E P O RT 2 0 0 2 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2002 Note Economic Entity Parent Entity 2002 $’000 2001 $’000 2002 $’000 2001 $’000 Note 18: Cashflow Information (a) Reconciliation of Cash Cash at the end of the financial year as shown in the statements of cashflows is reconciled to the related items in the statement of financial position as follows: Cash on hand Cash at bank Bank overdrafts (b) Reconciliation of Cashflow from Operations with Profit from Ordinary Activities Profit from ordinary activities after Income Tax Non-cashflows in profit from ordinary activities Amortisation of goodwill Depreciation and amortisation Charges to provisions Finance charges on leases SGARA Profit on sale of property, plant and equipment Controlled entities Dividends not received in cash Interest paid Interest received Management fees received Changes in assets and liabilities, net of effects of purchase and disposal of subsidiaries Increase in receivables Increase/(decrease) in other assets Increase/(decrease) in inventories Increase in payables Increase in income tax payable (Increase)/decrease in deferred taxes Net Cash provided by operations 1 77 (686) (608) 8,554 1,130 2,713 182 146 - (525) - - - - (607) 1,871 (207) 2,415 741 (921) 15,492 2 3 (1,729) (1,724) 6,564 842 2,375 380 163 36 - - - - - (3,885) (396) 1,429 1,144 642 328 9,622 - 75 (658) (583) 1 2 (1,376) (1,373) 7,460 4,524 - 69 (28) - - 16 (7,250) 616 (2,576) (2,130) - 18 - 508 (108) 273 - 47 (17) 2 - - (4,250) 732 (2,581) (2,196) - 306 - 720 182 10 (3,132) (2,521) (c) Credit stand-by arrangement and loan facilities The economic entity and the Company have a bank overdraft facility available to the extent of $1,000,000 (2001: 2,000,000). As at 30 June 2002 the economic entity and the Company had used $686,000 (2001: $1,729,000). The economic entity and the Company have a commercial bill facility available to the extent of $27,700,000 (2001: $29,500,000). As at 30 June 2002 the economic entity and the Company had used $16,500,000 (2001: $26,000,000). S E L E C T H A R V E S T S L I M I T E D 32 A N N UA L R E P O RT 2 0 0 2 Note 19: Equity Total equity at the beginning of the financial year Total changes in equity recognised in the Statement of Financial Performance Transactions with owners as owners - contributions of equity - dividends Total equity at the reporting date Note 20: Company Details The registered office of the Company is: Select Harvests Limited 360 Settlement Road THOMASTOWN VIC 3074 Note 21: Income Tax Expense The prima facie income tax payable on profit from ordinary activities is reconciled to the income tax expense as follows: Prima facie tax payable on profit from ordinary activities before income tax at 30% (2001 - 34%) Add: Tax effect of: - amortisation of goodwill - write-downs to recoverable amount - timing differences not previously brought to account - restatement of timing differences - other non-allowable items Under provision for income tax in prior year Less: Tax effect of: - rebateable dividends - timing differences which have arisen on adoption of new Accounting Standard - restatement of timing differences - other non-assessable items Overprovision for income tax in prior year Note Economic Entity Parent Entity 2002 $’000 2001 $’000 2002 $’000 2001 $’000 42,373 32,865 15,230 13,974 8,554 12,776 7,460 4,524 23 3,075 (4,665) 49,337 16 (3,284) 42,373 3,075 (4,665) 21,101 16 (3,284) 15,230 Note Economic Entity Parent Entity 2002 $’000 2001 $’000 2002 $’000 2001 $’000 3,841 3,488 2,365 1,627 339 17 - - 92 - 286 - - 211 - 8 - 17 213 - 2 - - - - - 80 - 4,289 3,993 2,597 1,707 - - - 17 23 - 173 - 124 - 2,175 1,445 - - - - - 1 - - Income tax expense attributable to profit from ordinary activities 4,249 3,696 422 261 S E L E C T H A R V E S T S L I M I T E D 33 A N N UA L R E P O RT 2 0 0 2 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2002 Note Economic Entity Parent Entity 2002 $’000 2001 $’000 2002 $’000 2001 $’000 527,206 505,896 - - - - 527,206 180,000 Number 2002 Number 2001 1 3 - 1 1 - 4 1 - - Note 22: Remuneration and Retirement Benefits (a) Directors’ Remuneration Income paid or payable to all Directors of each entity in the economic entity by the entities of which they are Directors Income paid or payable to all Directors of the parent entity by the parent entity and any related parties Number of parent entity Directors whose income from the parent entity or any related parties was within the following bands: $0 - $9,999 $30,000 - $39,999 $60,000 - $69,999 $70,000 - $79,999 $320,000 - $329,999 The names of Directors of the parent entity who have held office during the financial year are: M A Fremder B P Burns C G Clark D J Williams J Bird (Appointed 28 September 2001) B J Hanley (Resigned 30 August 2001) Note Economic Entity Parent Entity 2002 $’000 2001 $’000 2002 $’000 2001 $’000 (b) Executives’ Remuneration Amounts received or due and receivable by executive officers of the economic entity and the Company whose remuneration is $100,000 or more from the entities in the economic group, or a related party, in connection with the management of the affairs of the economic entity whether as an executive or otherwise. The number of executives of the economic entity and the company whose remuneration falls within the following bands: $100,000 - $109,999 $110,000 - $119,999 $120,000 - $129,999 $130,000 - $139,999 $140,000 - $149,999 $160,000 - $169,999 $320,000 - $329,999 1,418,707 993,655 505,606 682,111 4 2 - 1 1 1 1 10 3 2 2 - - - 1 8 1 - - 1 - - 1 3 - 2 2 - - - 1 5 S E L E C T H A R V E S T S L I M I T E D 34 A N N UA L R E P O RT 2 0 0 2 Note 23: Dividends The Directors on 28 August 2002 declared a fully franked dividend of $0.08 per ordinary share to be paid on 30 September 2002 to members in the books of the Company as at close of business on 11 September 2002. (2001: $0.06 cents) A fully franked interim dividend of $0.055 per ordinary share was paid to members on 10 April 2002. (2001: $0.04 cents) Balance of franking account at year-end adjusted for franking credits arising from payment of provision for income tax and dividends recognised as receivables, franking debits arising from payment of proposed dividends and any credits that may be prevented from distribution in subsequent years Note 24: Controlled Entities (a) Controlled entities Parent Entity: Select Harvests Ltd Subsidiaries of Select Harvests Ltd: Riverina Pelletising Services Pty Ltd Kyndalyn Park Pty Ltd Select Harvests Marketing Pty Ltd Select Home Garden Pty Ltd Allinga Farms Pty Ltd Note 25: Deferred Tax Assets The future income tax benefits comprise Timing differences Note Economic Entity Parent Entity 2002 $’000 2001 $’000 2002 $’000 2001 $’000 2,767 1,898 1,970 1,314 2,767 1,898 1,970 1,970 15,156 7,760 5,194 2,056 Country of Incorporation Percentage Owned (%) 2001 2002 Australia Australia Australia Australia Australia Australia - 100 100 100 100 100 - 100 100 100 100 100 Note Economic Entity Parent Entity 2002 $’000 2001 $’000 2002 $’000 2001 $’000 247 247 98 98 93 93 368 368 S E L E C T H A R V E S T S L I M I T E D 35 A N N UA L R E P O RT 2 0 0 2 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2002 Note 13 13 Note 26: Reserves Asset revaluation Capital reserve (a) Asset Revaluation Reserve Movements during the year: Opening balance Revaluation of freehold plantation land Closing balance The asset revaluation reserve records the revaluations of non-current assets. (b) Capital Reserve Movement during the year: Opening balance Closing balance Note 27: Capital and Leasing Commitments (a) Finance Leasing Commitments Payable - not later than one year - later than one year and not later than five years - later than five years Minimum lease payments Less future finance charges Total lease and hire purchase liability Represented by: Current liability Non-current liability (b) Operating Lease Commitments Non-cancellable operating leases contracted for but not capitalised in the accounts: Payable - not later than one year - later than one year and not later than five years - later than five years Economic Entity Parent Entity 2002 $’000 6,187 3,271 9,458 6,187 - 6,187 2001 $’000 6,187 3,271 9,458 1,115 5,072 6,187 2002 $’000 - 3,270 3,270 - - - 2001 $’000 - 3,270 3,270 - - - 3,271 3,271 3,271 3,271 3,270 3,270 3,270 3,270 1,311 939 79 2,329 (282) 2,047 808 1,239 2,047 1,302 4,370 16,566 22,238 1,246 997 - 2,243 (207) 2,036 407 1,629 2,036 982 2,562 2,100 5,644 32 32 79 143 (14) 129 25 104 129 - - - - 19 - - 19 (1) 18 18 - 18 - - - - S E L E C T H A R V E S T S L I M I T E D 36 A N N UA L R E P O RT 2 0 0 2 Note 28: Related Party Transactions (a) The Directors of Select Harvests Limited during the financial year were: M A Fremder B P Burns C G Clark D J Williams J Bird B J Hanley (b) The following related party transactions occurred during the financial year: Transactions with related parties in the wholly owned group which eliminate on consolidation: Loans made by Select Harvests Limited to controlled entities under normal terms and conditions. Loans made to Select Harvests Limited by controlled entities under normal terms and conditions. Management fees received by Select Harvests Limited from controlled entities under normal terms and conditions. Transactions with Director related entities: Select Harvests Limited has an Almond Orchard Management Agreement and a Land Lease agreement with Maxdy Nominees Pty Ltd, a company in which Mr M A Fremder is a Director. Under the terms of the agreements, Select Harvests Limited has developed and continues to manage 120 hectares of almond orchard, on a fee basis, for Maxdy Nominees Pty Ltd. In addition Select Harvests Limited will process and sell the entire production of the orchard for the 25-year life of the orchard. An amount of $857,436 was received during the year by Select Harvests Limited in relation to the above contract. The agreements are under normal terms and conditions no more favourable than those which it is reasonable to expect the entity would have adopted if dealing with the Director or Director-related entity at arms length in the same circumstances. Advisory Services were provided by Challenger International Ltd on matters of strategy and acquisition advice. D J Williams is an employee of Challenger International Ltd. An amount of $44,625 was paid during the year by Select Harvests Limited, under normal terms and conditions no more favourable than those which it is reasonable to expect the entity would have adopted if dealing with the Director or Director-related entity at arms length in the same circumstances. (c) Select Harvests Limited is the ultimate controlling entity. (d) Equity instruments of Directors: (i) Interests in the equity instruments of entities in the consolidated entity held by Directors of the reporting entity and their Director-related entities at balance date, being the number of instruments held: M A Fremder C G Clark B P Burns J Bird 5,832,187 2002 2001 5,529,458 20,408 102,044 180,277 6,012,368 5,872,091 10,000 100,000 30,277 (ii) Movements in Directors’ equity holdings: During the year the aggregate number of fully paid ordinary shares purchased by Directors or their Director-related entities was 319,819 shares (2001: 110,000). During the year the aggregate number of fully paid ordinary shares sold by Directors or their Director-related entities was 500,000 shares (2001: nil). (e) Share options of Directors: The interests of Directors of the reporting entity and their Director-related entities in share options of entities within the consolidated entity at year-end are set out below: Options over ordinary shares Note Economic Entity Parent Entity 2002 $’000 243,000 243,000 2001 $’000 - - 2002 $’000 - - 2001 $’000 - - S E L E C T H A R V E S T S L I M I T E D 37 A N N UA L R E P O RT 2 0 0 2 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2002 Note 29: Segment Reporting Primary Reporting - Business Segments The economic entity has the following four business segments: • The processing and marketing operation packs and markets edible nuts, dried fruits and seeds. • The almond orchards operation comprises the growing, processing and sale of almonds to the food industry, from company owned almond orchards. • The management services operation involves the sale of a range of management services to external owners of almond orchards, including consultancy, orchard development, tree supply, farm management, land rental, irrigation infrastructure and processing and marketing. • The pesticide products operation comprises the production of pelletised snail, slug and rodent baits for other marketers. Geographical Segments The economic entity operates predominantly within the geographical area of Australia. 2002 Revenue External Sales Other Segments Total Segment Revenue Unallocated revenue Total revenue from ordinary activities Result Segment result Unallocated expenses net of unallocated revenue Profit from ordinary activities before income tax expense Income tax expense Profit from ordinary activities after income tax expense Net Profit Segment assets Total assets Segment liabilities Total liabilities Processed and Marketing $’000 Almond Management Services $’000 Orchards $’000 Pesticide Eliminations Products and Corporate $’000 $’000 Total $’000 48,712 99 48,811 14,192 7,882 22,074 13,413 - 13,413 4,213 617 4,830 - (3,925) 80,530 4,673 (3,925) 85,203 5,003 6,350 3,959 1,175 (1,738) 14,749 114 85,317 (1,946) 12,803 (4,249) 8,554 8,554 42,481 31,051 9,205 2,219 733 85,689 2,591 6,710 1,993 406 24,652 36,352 85,689 36,352 3,865 3,843 Acquisition of non-current segment assets Depreciation and amortisation of segment assets 740 2,006 2,177 1,264 646 375 96 130 206 68 S E L E C T H A R V E S T S L I M I T E D 38 A N N UA L R E P O RT 2 0 0 2 2001 Revenue External Sales Other Segments Total Segment Revenue Unallocated revenue Total revenue from ordinary activities Result Segment result Unallocated expenses net of unallocated revenue Profit from ordinary activities before income tax expense Income tax expense Profit from ordinary activities after income tax expense Net Profit Segment assets Unallocated assets Total assets Segment liabilities Total liabilities Processed and Marketing $’000 Almond Management Services $’000 Orchards $’000 Pesticide Eliminations Products and Corporate $’000 $’000 Total $’000 46,189 5 46,194 8,191 3,796 11,987 6,932 - 6,932 3,684 732 4,416 - (4,308) 64,996 225 (4,308) 65,221 2,770 2,412 2,641 1,778 123 9,724 100 65,321 536 10,260 (3,696) 6,564 6,564 41,130 37,164 8,906 2,284 (50) 89,434 3,756 4,083 983 454 38,340 47,616 555 89,989 47,616 4,014 3,302 36 46 Acquisition of non-current segment assets Depreciation and amortisation of segment assets 473 1,541 2,699 1,278 647 307 159 130 S E L E C T H A R V E S T S L I M I T E D 39 A N N UA L R E P O RT 2 0 0 2 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2002 Note 30: Financial Instruments Forward Exchange Contracts The economic entity enters into forward exchange contracts to buy and sell specified amounts of foreign currency in the future at stipulated exchange rates. The objective in entering the forward exchange contracts is to protect the economic entity against unfavourable exchange rate movements for both the contracted and anticipated future sales and purchases undertaken in foreign currencies. The full amount of the foreign currency the economic entity will be required to pay or purchase when settling the brought forward exchange contracts should the counterparty not pay the currency it is committed to deliver to the Company. At balance date the net amount was $18,828,949 (2001: $1,227,000). The accounting policy in regard to forward exchange contracts is detailed in Note 1(h). At balance date, the details of outstanding forward exchange contracts are: Buy United States Dollars Settlement Less than 6 months Sell Australian Dollars 2001 2002 $’000 $’000 Average Exchange Rate 2001 $ 2002 $ 2,543 849 0.56 0.52 Buy Australian Dollars Sell United States Dollars Settlement Less than 6 months 6 months to 1 year 1 years to 2 years 2 years to 3 years 2002 $’000 3,612 - 9,960 7,719 2001 $’000 3,503 900 - - Average Exchange Rate 2001 $ 2002 $ 0.50 - 0.50 0.52 0.59 0.64 - - S E L E C T H A R V E S T S L I M I T E D 40 A N N UA L R E P O RT 2 0 0 2 (a) Interest rate risk The economic entity’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial liabilities, is as follows: 2002 Financial Instruments (i) Financial Assets Cash Trade and other receivables Listed shares Total financial assets (ii) Financial Liabilities Bank overdraft Trade creditors Other creditors Finance lease liability Bills of exchange and promissory notes Foreign exchange contracts Total financial liabilities 2001 Financial Instruments (iii) Financial Assets Cash Trade and other receivables Other debtors Listed shares Total financial assets (iv) Financial Liabilities Bank overdraft Trade creditors, accruals and Trade Finance loan Finance lease liability Bills of exchange and promissory notes Forward exchange contracts Total financial liabilities Floating Interest Rate $’000 Fixed Interest Rate Maturing in: 1 Year or Less $’000 Over 1 to More than Non-Interest Bearing 5 Years $’000 $’000 5 Years $’000 Total Carrying Weighted Amount as per Average Effective Interest Rate % the Balance Sheet $’000 77 - - 77 686 - - - 16,500 18,829 36,015 - - - - - - - 807 - - 807 - - - - - - - 1,239 - - 1,239 - - - - - - - - - - - 1 10,740 4 10,745 - 3,041 6,400 1 - - 9,442 78 10,740 4 10,822 686 3,041 6,400 2,047 16,500 - 28,674 2.0 - - 9.0 - - 7.0 7.0 - Floating Interest Rate $’000 Fixed Interest Rate Maturing in: 1 Year or Less $’000 Over 1 to More than Non-Interest Bearing 5 Years $’000 $’000 5 Years $’000 Total Carrying Weighted Amount as per Average Effective Interest Rate % the Balance Sheet $’000 - - - - - 1,729 - - 26,000 1,227 28,956 - - - - - - - - - - - - 851 407 - - 1,258 - 1,629 - - 1,629 - - - - - - - - - - - 5 9,895 414 4 5 9,895 414 4 10,318 10,318 - 1,729 10,269 - - - 10,269 11,120 2,036 26,000 - 40,885 - - - - 9.0 7.0 7.0 7.0 - S E L E C T H A R V E S T S L I M I T E D 41 A N N UA L R E P O RT 2 0 0 2 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2002 (b) Credit Risk Note 31: After Balance Date Events In accordance with the strategic alliance with Timbercorp Limited, Almonds Australia Pty Ltd, a 75% owned subsidiary of Timbercorp Limited, became entitled to the issue of 466,500 options from 31 July 2002, each option relating to one ordinary share in Select Harvests Limited. The options have an exercise price of $2.10 per share, and an expiry date of 31 December 2002. No other matters or circumstances have arisen since the end of the financial year which significantly affected, or may significantly affect, the operations of the economic entity, the results of those operations, or the state of affairs of the economic entity in future financial years. Note 32: Earnings Per Share Basic earnings per share Diluted earnings per share Weighted average number of ordinary shares on issue used in calculation of basic earnings per share Economic Entity 2002 2001 0.25 0.25 0.20 0.20 33,737,590 32,838,077 The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets is the carrying amount of those assets, net of any provisions for doubtful debts of those assets, as disclosed in the statement of financial position and notes to the financial statements. Credit risk for derivative financial instruments arises from the potential failure by counterparties to the contract to meet their obligations. The credit risk exposure to forward exchange contracts is the net fair value of these contracts. The economic entity does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments entered into by the economic entity. (c) Net Fair Values For unlisted investments where there is no organised financial market the net fair value has been based on a reasonable estimation of the underlying net assets or discounted cashflows of the investment. Bills of exchange and promissory notes which are traded on organised financial markets, the net fair value is based on the quoted market offer price at balance date adjusted for transaction costs expected to be incurred. For other assets and other liabilities the net fair approximates their carrying value. No financial assets and financial liabilities are readily traded on organised markets in standardised form other than listed investments and forward exchange contracts. The aggregate net fair values and carrying amounts of financial assets and financial liabilities are disclosed in the statement of financial position and in the notes the financial statements. S E L E C T H A R V E S T S L I M I T E D 42 A N N UA L R E P O RT 2 0 0 2 Directors’ Declaration The Directors of the Company declare that: 1. The Financial Statements and Notes, as set out on pages 16 to 42 are in accordance with the Corporations Act 2001: (a) comply with Accounting Standards in Australia and the Corporations Regulations 2001; and (b) give a true and fair view of the financial position as at 30 June 2002 and performance for the year ended on that date of the Company and economic entity. 2. In the Directors’ opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the Board of Directors. M A Fremder Chairman Melbourne, 17th September 2002 S E L E C T H A R V E S T S L I M I T E D 43 A N N UA L R E P O RT 2 0 0 2 Independent Audit Report TO THE MEMBERS OF SELECT HARVESTS LIMITED Scope We have audited the financial report of Select Harvests Limited for the financial year ended 30 June 2002 as set out on pages 16 to 43 including the Directors’ Declaration. The financial report includes the consolidated financial statements of the consolidated entity comprising the Company and the entities it controlled at the year’s end or from time to time during the financial year. The Company’s Directors are responsible for the financial report. We have conducted an independent audit of this financial report in order to express an opinion on it to the members of the Company. Our audit has been conducted in accordance with Australian Auditing Standards to provide reasonable assurance whether the financial report is free of material misstatement. Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial report, and the evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken to form an opinion whether, in all material respects, the financial report is presented fairly in accordance with Accounting Standards and other mandatory professional reporting requirements in Australia so as to present a view which is consistent with our understanding of the Company and the consolidated entity’s financial position and performance as represented by the results of their operations and their cashflows. The audit opinion expressed in this report has been formed on the above basis. Audit Opinion In our opinion, the financial report of Select Harvests Limited is in accordance with: (a) the Corporations Act 2001, including: (i) giving a true and fair view of the Company and the consolidated entity’s financial position as at 30 June 2002 and of their performance for the year ended on that date; and (ii) complying with Accounting Standards in Australia and the Corporations Regulations 2001; and (b) other mandatory professional reporting requirements in Australia. Pitcher Partners T J Benfold Partner Melbourne, 17th September 2002 S E L E C T H A R V E S T S L I M I T E D 44 A N N UA L R E P O RT 2 0 0 2 Additional ASX information In accordance with the listing requirements of the Australian Stock Exchange Ltd, the Directors state that as at 26 August 2002; (i) The number of holders of each class of quoted security and the voting rights attaching to each class is as follows: (iv) The names of the 20 largest shareholders, the number of shares held and the % held of issued capital are: Ordinary Shares 1,627 holders Names Voting Rights: On a show of hands every member present in person or by proxy shall have one vote. On a poll every member present in person or by proxy shall have one vote for each share held by him in the Company. (ii) A distribution schedule of the Ordinary Shares, setting out the number of holders by category, is as follows: (a) - 1,000 1 5,000 - 1,001 5,001 - 10,000 10,001 - 100,000 100,001 and over Number of Holders (b) Holding of less than a marketable parcel of 500 shares (iii) The names of substantial shareholders are: 331 652 284 319 41 1,627 70 Names Ordinary % Held of Issued Capital Shares 1. Maxdy Nominees Pty Ltd 2. MF Custodians Pty Ltd 5,382,022 3,321,968 15.56 9.60 1. Maxdy Nominees Pty Ltd 2. MF Custodians Ltd 3. National Nominees Limited 4. Almonds Australia Pty Ltd 5. Thurston Investments Pty Ltd 6. Frank Hadley Pty Ltd 7. Commonwealth Custodial 8. Services Limited Invia Custodian Pty Limited (WAM Equity Fund A/C) 9. Mr P.C.N. Middendorp 10. Mr J. R. Mackinnon 11. Longo Pty Ltd 12. Mirrabooka Investments Limited Ordinary % Held of Issued Capital Shares 5,382,022 3,321,968 1,542,687 1,500,000 1,189,788 805,000 15.56 9.60 4.46 4.34 3.44 2.33 749,900 2.17 435,000 408,076 402,003 356,893 1.26 1.18 1.16 1.03 (Investment Portfolio A/C) 320,000 0.93 13. Mutual Trust Pty Ltd (Charles Baillieu A/C) 14. Mid Manhattan Pty Ltd (Super Fund A/C) 15. Invia Custodian Pty Limited (WAM Capital Limited A/C) 16. Fitzwood Pty Ltd 17. Demidu Pty Ltd 18. B. A. Conway 19. Dr John Carey 20. Amsamac Pty Ltd 300,000 0.93 283,694 0.82 265,000 250,000 220,000 203,980 200,773 0.77 0.72 0.64 0.59 0.58 (Armstrong Superfund A/C) 199,786 0.58 (v) The Company is listed on the Australian Stock Exchange. The home exchange is Melbourne. S E L E C T H A R V E S T S L I M I T E D 45 A N N UA L R E P O RT 2 0 0 2 Corporate Governance The Board of Directors of Select Harvests Limited is responsible for the corporate governance of the economic entity. The Board guides and monitors the business and affairs of Select Harvests Limited on behalf of the shareholders by whom they are elected and to whom they are accountable. To ensure the Board is well equipped to discharge its responsibilities, it has established guidelines for the nomination and selection of Directors and for the operation of the Board. Composition of the Board The composition of the Board is determined in accordance with the following principles: • The Board should comprise at least four Directors and should maintain a majority of Non-Executive Directors. • The Chairperson must be a Non-Executive Director. • The Board should comprise Directors with an appropriate range of qualifications and experience. • The Board shall meet at least monthly and follow meeting guidelines set down to ensure all Directors are made aware of, and have available, all necessary information to participate in an informed discussion of all agenda items. The Directors in office at the date of this statement are: M A Fremder, Chairman, Non-Executive Director B P Burns, Non-Executive Director C G Clark, Non-Executive Director D J Williams, Non-Executive Director J Bird, Managing Director (appointed 28-Sep-01) B J Hanley, Non-Executive Director (resigned 30-Aug-01) Remuneration Committee The Board is responsible for determining and reviewing compensation arrangements for the Directors themselves, the Managing Director and the executive team. The Board has established a remuneration committee comprising three Non-Executive Directors. Members of the remuneration committee throughout the year were: D J Williams, (Chairman of remuneration committee) M A Fremder Audit Committee The Board has established an audit committee which operates under a charter approved by the Board. It is the Board’s responsibility to ensure that an effective internal control framework exists within the entity to deal with both the effectiveness and efficiency of significant business processes. This includes the safeguarding of assets, the maintenance of proper accounting records, and the reliability of financial information as well as non-financial considerations such as the benchmarking of operational key performance indicators. The primary objective of the committee is to assist the Board of Directors in fulfilling its responsibilities relating to accounting and reporting practices of the Company and each of its subsidiaries. The committee also provides the Board with additional assurance regarding the reliability of financial information for inclusion in the financial statements. The members of the audit committee during the year were: Charles G Clark, (Chairman of audit committee) Brian P Burns The audit committee is also responsible for: • directing and monitoring the internal audit function; and • nomination of the external auditor and reviewing the adequacy of the scope and quality of the annual statutory audit and half-yearly statutory audit or review. S E L E C T H A R V E S T S L I M I T E D 46 A N N UA L R E P O RT 2 0 0 2 Board Responsibilities As the Board acts on behalf of the shareholders and is accountable to the shareholders, the Board seeks to identify the expectations of the shareholders, as well as other regulatory and ethical expectations and obligations. In addition, the Board is responsible for identifying areas of significant business risk and ensuring that arrangements are in place to adequately manage those risks. The Board seeks to discharge these responsibilities in a number of ways. The responsibility for the operation and administration of the economic entity is delegated by the Board to the Managing Director and the executive team. The Board ensures that this team is appropriately qualified and experienced to discharge its responsibilities and has in place procedures to assess the performance of the Managing Director and the executive team. The Board is responsible for ensuring that Management’s objectives and activities are aligned with the expectations and risks identified by the Board. The Board has a number of mechanisms in place to ensure this is achieved. In addition to the establishment of the committees referred to above, these mechanisms include the following: • Board approval of a strategic plan, which encompasses the entity’s strategy, designed to meet stakeholders’ needs and manage business risk; • the strategic plan is dynamic and the Board is actively involved in developing and approving initiatives and strategies designed to ensure the continued growth and success of the entity; • implementation of operating plans and budgets by Management and Board monitoring of progress against budget. This includes the establishment and monitoring of key performance indicators (both financial and non-financial) for all significant business processes; • establishment of committees to report on quality concerns, and occupational health and safety; and • procedures to allow Directors, in the furtherance of their duties, to seek independent professional advice at the Company’s expense. Monitoring of the Board’s Performance and Communication to Shareholders In order to ensure that the Board continues to discharge its responsibilities in an appropriate manner, the performance of all Directors is reviewed annually by the Chairman. The Board of Directors aims to ensure that the shareholders, on behalf of whom they act, are informed of all information necessary to assess the performance of Directors. Information is communicated to the shareholders through: • • • • • the annual report which is distributed to all shareholders; the half-yearly report which is distributed to all shareholders; the annual general meeting and other meetings so called to obtain approval for Board action as appropriate; the Company’s website; and the Company’s shareholder newsletter, Select Now! S E L E C T H A R V E S T S L I M I T E D 47 A N N UA L R E P O RT 2 0 0 2 Directory Select Harvests Limited ACN 000 721 380 Registered and principal office Select Harvests Limited 360 Settlement Road Thomastown VIC 3074 Postal Address PO Box 5 Thomastown VIC 3074 Telephone (03) 9474 3544 Facsimile (03) 9474 3588 Email info@selectharvests.com.au Website www.selectharvests.com.au Board of Directors M A Fremder (Chairman) B P Burns C G Clark J Bird D J Williams Managing Director J Bird Company Secretary C Holland Auditors Pitcher Partners Level 6 161 Collins Street Melbourne VIC 3000 Telephone (03) 9289 9999 Facsimile (03) 9289 9977 Bankers Australia and New Zealand Banking Group Limited Share registry Computershare Investor Services Pty Limited Level 12 565 Bourke Street Melbourne VIC 3000 Telephone (03) 9611 5711 Facsimile (03) 9611 5710 Investor Relations Enquiries concerning this annual report may be directed to the Company Secretary in writing, by telephone or facsimile to the registered office, or by email to cholland@selectharvests.com.au This report, along with other information on Select Harvests, is available on our internet website at www.selectharvests.com.au Shareholder enquiries Matters relating to shares held, change of address and tax file numbers should be directed to the Share registry: Computershare Investor Services Pty Limited Level 12 565 Bourke Street Melbourne VIC 3000 Telephone (03) 9611 5711 Facsimile (03) 9611 5710 S E L E C T H A R V E S T S L I M I T E D 48 A N N UA L R E P O RT 2 0 0 2 Contents 1 2 5 8 10 11 12 43 44 45 46 48 The Year in Brief Chairman’s Report Managing Director’s Report Financial Highlights Board of Directors Index to Financial Reports Director’s Report Director’s Declaration Independent Audit Report Additional ASX Information Corporate Governance Directory Shareholder Information Annual General Meeting The Annual General Meeting will be held on Wednesday 30th October 2002 at the ASX Theatrette, 530 Collins Street, Melbourne, Victoria commencing at 3.30pm. A separate notice of meeting has been posted to all shareholders with a copy of this report. 2002/03 Calendar December Shareholder newsletter posted to all shareholders February Announcement of interim results March Shareholder newsletter posted to all shareholders April June Payment of interim dividend Shareholder newsletter posted to all shareholders August Announcement of preliminary full year results September Annual report mailed to shareholders October Payment of final dividend October Annual General Meeting y e n d y S n g i s e D c i h p a r g o f n I y b d e n g i s e D S e l e c t H a r v e s t s L m i i t e d A n n u a l R e p o r t 2 0 0 2 Select Harvests Limited Select Harvests Limited ACN 000 721 380 360 Settlement Road Thomastown VIC 3074 www.selectharvests.com.au Annual Report 2002