Select Harvests Limited Annual Report 2010

Plain-text annual report

Positioned for growth Annual Report 2010 Select Harvests Annual Report 2010 1 Contents INTRODUCTION BUSINESS MODEL KEY FINANCIAL RESULTS FROM THE CHAIRMAN OUR BOARD OF DIRECTORS FROM THE CEO THE GLOBAL ALMOND MARKET AUSTRALIAN ALMONDS GROWING OUR ORCHARDS OUR EXECUTIVE TEAM MARKETING OUR PRODUCTS ENVIRONMENT AND COMMUNITY STATISTICAL SUMMARY FINANCIAL REPORT CONTENTS DIRECTORS’ REPORT AUDITORS’ INDEPENDENCE DECLARATION CORPORATE GOVERNANCE STATEMENT FINANCIAL REPORT INCOME STATEMENT STATEMENT OF COMPREHENSIVE INCOME BALANCE SHEET STATEMENT OF CHANGES IN EQUITY STATEMENT OF CASH FLOWS NOTES TO THE FINANCIAL STATEMENTS DIRECTORS’ DECLARATION INDEPENDENT AUDITOR’S REPORT ASX ADDITIONAL INFORMATION 2 Select Harvests Annual Report 2010 1 2 3 4 5 6 8 9 10 11 12 13 14 15 16 27 28 33 34 35 36 37 38 39 78 79 81 Select Harvests “Select Harvests is one of the world’s largest almond orchard managers. We are committed to driving long-term sustained earnings growth for our shareholders by leveraging our expertise in establishing and managing almond orchards and processing, marketing and selling almonds.” “The fundamentals of the global almond industry remain very attractive with demand expected to outstrip supply within ﬁ ve years. Select Harvests is well positioned to grow and diversify its portfolio of owned, leased and managed orchards, and to increase its exposure to the whole almond value chain.” JOHN BIRD, CEO, SELECT HARVESTS Shareholder Information Annual General Meeting The annual general meeting will be held on 27th October 2010, at the RACV Club, 501 Bourke Street, Melbourne, Victoria at 11.00 am. A separate notice of meeting has been posted to all shareholders. 2011 Calendar • • • Feb Announcement of interim results Apr Payment of interim dividend Aug Announcement of preliminary full year results • • • Sep Annual report to shareholders Oct Payment of ﬁ nal dividend Oct Annual general meeting Select Harvests Annual Report 2010 1 Business model Select Harvests is a diverse almond growing, processing and marketing company. We are the leading orchard manager and marketer in Australia with best-in-class infrastructure, production and processing facilities. Select Harvests has leading capabilities across the whole almond value chain. We are well positioned to capture value from orchard development and management, primary and value added processing, and sales and marketing into growing domestic and export markets. We create value for our share holders through a combination of managing these activities for third party orchard owners on a fee for service basis in our Managed Orchards and through owning and leasing Company Orchards. OPERATING EBIT 2009: $30.0m 2010: $29.6m ORCHARD DEVELOPMENT — NURSERY — ORCHARD ESTABLISHMENT MANAGED ORCHARDS EBIT ORCHARD MANAGEMENT 2009: $13.7m 2010: $11.2m ACRES : 34,691 — ALMOND GROWING — HARVESTING ALMOND PROCESSING EBIT PROCESSING 2009: $9.2m 2010: $6.5m 2009 CROP: 19,400 mt 2010 CROP: 17,200 mt (est) — ALMOND PROCESSING — VALUE-ADDED PROCESSING SALES & MARKETING EBIT SALES & MARKETING 2009: $3.3m 2010: $1.9m — ALMOND POOL SALES — VALUE-ADDED PRODUCT SALES 2 Select Harvests Annual Report 2010 COMPANY ORCHARDS EBIT 2009: $2.7m 2010: $6.8m ACRES: 3,600 2009 CROP: 2,600 mt 2010 CROP: 2,800 mt (est) VALUE-ADDED PROCESSING EBIT 2009: $1.1m 2010: $3.2m Key ﬁ nancial results A $’000’s Sales revenue EBIT – Management services – Almond orchards Almond division Food division Operating EBIT Corporate costs EBIT Net proﬁ t after tax Year ended 30 June 2010 Year ended 30 June 2009 % increase (decrease) 238,376 248,581 17,717 6,791 24,508 5,104 29,612 (3,580) 26,032 17,253 22,902 2,706 25,608 4,459 30,067 (3,240) 26,827 16,712 EARNINGS PER SHARE -4.1% -22.6% 151.0% -4.3% 14.5% -1.5% 10.5% -3.0% 3.2% +6% +18% +42% -34% -9% 2% CENTS 70 60 50 40 30 20 10 0 2005 2006 2007 2008 2009 2010 ORDINARY DIVIDEND PER SHARE CENTS 60 50 40 30 20 10 0 +8% +26% +62% -21% 75% -73% 2005 2006 2007 2008 2009 2010 Select Harvests Annual Report 2010 3 I am also pleased to report that we have strengthened the Board of the Company with the appointment of Fred Grimwade as a Non-Executive Director. Mr Grimwade is a highly experienced director and corporate adviser and is a Non Executive Director of AWB and Chairman of CPT Global. His depth of experience in agribusiness and banking are highly complimentary to our existing board and will be invaluable in supporting Select Harvests through its next stage of growth and development. As the world’s second largest manager of almond orchards, the outlook for Select Harvests is positive. The demand for almonds globally remains strong and Australia continues to be highly competitive, particularly in premium export markets. The global demand and supply dynamics continue to support a stable almond market and strong almond price fundamentals. We have the business model, expertise and ﬁ nancial ﬂ exibility to continue to grow, diversify and broaden our income stream. Select Harvests is a world-class grower, processor and marketer and we are well positioned to leverage all of the expertise that comes with that. I would like to take this opportunity to thank all of our team for their hard work and commitment, and to extend the Board’s gratitude to our shareholders for their support during a challenging period. From the Chairman “We have a strong balance sheet, a clear strategy for growth, and are well positioned to take advantage of an attractive global almond market” CURT LEONARD, CHAIRMAN stream, increase control over future earnings and broaden access to the whole almond value chain. The fallout of the MIS sector is now presenting us with new opportunities as established orchards are becoming available for acquisition or long- lease at a discount to replacement value. Our strategy requires a capital structure which provides ﬂ exibility to take advantage of growth opportunities in Company Orchards. We have successfully concluded a review of our capital structure and we now have a strengthened balance sheet with the capacity to fund growth. In February, we reﬁ nanced our banking facilities with a $78 million debt facility comprising $40m of term debt. In September, we raised $48m from the capital markets through an equity raising. The proceeds of the equity raising and the new debt facilities will fund investment and development of existing projects as well as future opportunities. We will balance our investment between short term cash generating assets which include established orchards and longer term growth initiatives like our Western Australian greenﬁ eld development. We maintain disciplined return on investment criteria when considering new investments. During the year we have certainly not let the grass grow under our feet. We are already making very good progress with our strategy to expand our Company Orchards business. In March we entered into a long term lease for 3,000 acres of established orchards at Hillston in NSW and planted the ﬁ rst 2,000 acres of greenﬁ eld orchards in the Dandaragan Plateau region of Western Australia. As a result we more than doubled our Company Orchards from 3,600 acres to 8,600 acres and Company Orchards now comprise some 20% of the business. In addition we have recently acquired a further 530 acres at Lake Powell. This acquisition is due to complete in October 2010. This has been a year of signiﬁ cant transition for Select Harvests. I am pleased to report that we have successfully navigated the challenges presented to our business following the collapse of Timbercorp and we are now in good shape to put a period of uncertainty behind us and move forward with certainty and conﬁ dence. Following the transition of the 29,500 acres of Timbercorp orchards into new ownership in January of this year we secured a management agreement with the new owners, Olam, for an initial three year period, reﬂ ecting the strength of our credentials as professional farm managers. We delivered another year of solid earnings, with net proﬁ t after tax up 3.2% to $17.3 million and cashﬂ ow from operating activities of $25.5 million, an increase of almost 13% on last year. Our robust earnings performance, strong cash generation and the certainty provided by the Olam contract has enabled us to reinstate our full year dividend. We are pleased to be declaring a ﬁ nal fully franked dividend of 11c per share which will be payable on 4th October 2010. The Australian almond industry has undergone signiﬁ cant change following the demise of several large Managed Investment Schemes (MIS) and our strategy has evolved to reﬂ ect these changes and ensure that we leverage our strong capabilities in establishing and managing almond orchards as well as processing and selling almonds. When the MIS sector was strong it made sense for us to focus on managing orchards on behalf of third parties, a strategy which required minimal capital and delivered an annuity-like income stream. While we will continue to leverage our world-class orchard management, processing and marketing capabilities to grow our managed services business, we believe that growing Company Orchards will enable us to diversify our earnings 4 Select Harvests Annual Report 2010 Our Board of Directors CURT LEONARD—Chairman Curt joined the Board on 21 July 2004. He has held senior management positions with the Mars group of companies in Australia including General Manager of Mars Confectionery, Managing Director of Uncle Ben’s, and Managing Director of Mars Australia and New Zealand. In addition, he has served as President, Asia Paciﬁ c of all Mars businesses, and a Director of the Managing Board of Mars Incorporated global business. Curt is a Director of Patties Foods Limited. He is Chairman of the Board, a member of the Audit and Risk committee and Remuneration Committee. JOHN BIRD— CEO John became the CEO of Select Harvests Limited in January 1998. He has had many years’ experience in the food industry and international trade. Formerly Managing Director of Jorgenson Waring Foods. Appointed Managing Director and joined the Board in September 2001. Through his deep industry experience the company has developed over 30,000 acres of almond orchards during the last ten years. John is a member of the Nomination Committee. FRED GRIMWADE— Non- Executive Director Fred was appointed to the Board on 27 July, 2010. He works with a wide range of companies in a board or advisory capacity. He is a Non-Executive Director of AWB Limited and Chairman of CPT Global Limited, and is a Principal and Executive Director of Fawkner Capital. He has held General Management positions in Colonial Agricultural Company, Colonial Mutual Group, Colonial First State Investments Group, Western Mining Corporation and Goldman Sachs & Co. Fred is a member of the Remuneration Committee, Audit and Risk Committee and the Nomination Committee. MAX FREMDER — Non-Executive Director Max joined the Board in March 1996 Max joined the Board in March 1996 and from that time was Chairman of the and from that time was Chairman of the Board until retiring from this position Board until retiring from this position on 15 August, 2008. He is formerly a on 15 August, 2008. He is formerly a director of IAMA Limited, and founder of director of IAMA Limited, and founder of Nufarm, one of Australia’s largest chemical Nufarm, one of Australia’s largest chemical manufacturers for the rural industry. manufacturers for the rural industry. Mr Fremder also was a Non-Executive Mr Fremder also was a Non-Executive Director of Tassal Limited between 3 Director of Tassal Limited between 3 October 2003 and 18 March 2005. Member October 2003 and 18 March 2005. Member of the Remuneration Committee, Audit of the Remuneration Committee, Audit and Risk Committee and Chairman of the and Risk Committee and Chairman of the Nomination Committee. Nomination Committee. ROSS HERRON— Non-Executive Director Ross joined the Board on 27 January Ross joined 2005. A Chartered Accountant, Mr 2005. A Ch Herron retired as a Senior Partner Herron reti of PriceWa of PriceWaterhouseCoopers in December 2002. He was a member December of the Coopers & Lybrand (now of the Coop PriceWaterhouseCoopers) Board of PriceWater Partners where he was National Deputy Partners w Chairman and was the Melbourne Chairman a ofﬁ ce Managing Partner for six years. ofﬁ ce Man He also served on several international He also ser committees within Coopers & Lybrand. committee He is a Non-Executive Director of GUD He is a Non Holdings Ltd, Heemskirk Consolidated Holdings Lt Ltd, Royal A Ltd, Royal Automobile Club of Victoria (RACV) Ltd (RACV) Ltd and a major industry superannua superannuation fund. Ross is Chairman of the Audit and Risk Committee, and of the Audi member of the Remuneration and member of Nomination Nomination Committees. MICHAEL CARROLL— Non-Executive Director Michael joined the Board on 31 March, 2009. He works with a range of agribusiness companies in a board and advisory capacity, and has directorships with Meat and Livestock Australia, the Rural Finance Corporation, Rural Funds Management, and Warrnambool Cheese and Butter. He has 18 years’ experience in banking and ﬁ nance, having lead and established the Agribusiness division within the National Australia Bank. He has worked for a number of companies in the agricultural sector. He is Chairman of the Remuneration Committee, and a member of the Audit and Risk Committee and Nomination Committee. Select Harvests Annual Report 2010 5 From the CEO JOHN BIRD, CEO Over the last 12 months Select Harvests has laid ﬁ rm foundations for future growth. We have adapted our strategy to reﬂ ect the signiﬁ cant changes in our operating environment and hit the ground running, delivering on a number of important milestones during the year. We secured a three year contract with Olam to manage 29,500 acres of former Timbercorp orchards in Northern Victoria and have made good progress in expanding our Company Orchards business adding 3,000 acres at Hillston, NSW and planting 2,000 acres for our Western Australian orchard development. We have also agreed to acquire 530 acres of almond orchards at Lake Powell which become Company Orchards in October 2010. We have delivered a solid ﬁ nancial performance this year with net proﬁ t after tax improving by 3% to $17.3 million. The result was impacted by the revised fees from the new Olam contract, a lower crop tonnage, and the delay in the harvest causing a deferral of processing and marketing fee income into the next ﬁ nancial year. Our Company Orchards business performed strongly and the realignment of our Food Division continues to deliver improved returns. Importantly we now have the right capital structure to enable us to take advantage of growth opportunities where it makes ﬁ nancial sense for us to do so. 2010 Almond Crop The 2010 crop is estimated to be 20,000 metric tons, slightly down on the 2009 record crop of 22,000 metric tons. While crop estimates early in the growing cycle indicated another record yield for 2010, a number of factors impacted crop volumes. These included the exceptionally high levels and frequency of rainfall during harvest, lower than optimal investment in 6 Select Harvests Annual Report 2010 the younger orchards in the aftermath of Timbercorp going into administration, and the cumulative effect of three years of reduced water application. Managed Orchards The performance of the Managed Orchards division reﬂ ects a number of key events and developments. Following the demise of Timbercorp and other Managed Investment Schemes, we played a signiﬁ cant role in maintaining 29,500 acres of Timbercorp orchards as they were sold to Olam International. In January of this year we reached agreement to manage these assets for an initial period of three years. The agreement includes baseline fees for our services and incentives based on performance hurdles being achieved. EBIT from our Managed Orchards declined from $22.9 million in 2009 to $17.7 million in 2010. Managed Orchards EBIT was impacted by a number of factors including a lower crop than last year and the rebasing of terms for base fee income in the new Olam contract. Processing and marketing fee income was impacted by the volume and timing of the harvest which resulted in a lower proportion of income being recognized this year than last year. The total 2010 crop for Managed Orchards is estimated to be 17,200 metric tons compared to 19,400 metric tons last year. This is below earlier estimates primarily due to the exceptional high levels and frequency of rainfall during harvest, lower than optimal investment in the younger orchards in the aftermath of Timbercorp going into administration, and reduced water applications over the last three years. All orchards have returned to a full horticultural program including normal water applications following three years of drought management. It is expected yields will return to normal levels and that this, combined with an increase in the maturity proﬁ le of the trees will drive a further uplift in volumes which will increase our processing and marketing fee income. Company Orchards Company Orchards EBIT grew from $2.7m to $6.8m driven by the crop increasing to 2,800 metric tons, an improvement in the almond price, improved maturity proﬁ le of the orchards and a return to more normal water allocations, lowering the requirement for temporary water. 300 acres of orchards transitioned from Managed Orchards to Company Orchards during the year. This is a particularly encouraging performance given the company’s strategic focus to expand our Company Orchards in the future, and further demonstrates the opportunity to leverage our expertise across the almond value chain. During the year we increased Company Orchards from 3,600 acres to 8,600 acres. In March we signed a long term lease with Rural Funds Management covering 3,000 acres of almond orchards near Hillston in New South Wales. These orchards were planted in 2007 and 2008 and will start reaching maturity from 2014 with a ﬁ rst crop expected as soon as next year. They are in good condition and are serviced by bore water from a reliable groundwater source. In Western Australia we have begun Stage 1 of our greenﬁ elds development at the Dandaragan Plateau with the planting of 2,000 acres due to yield a ﬁ rst crop in 2013 and reach full maturity in 2017. Water I am pleased to report that there has been a signiﬁ cant improvement in water allocations in the Murray Darling as the impact of several years of drought has begun to abate. Following a number of years of drought, we implemented a drought management program which resulted in a 20% reduction in water applications over the last three years. We have made good progress on driving irrigation efﬁ ciencies in our business and will continue to do so. There have been unseasonably high levels of rainfall in Victoria during the course of this calendar year resulting in signiﬁ cant inﬂ ows into the Victorian Murray River system. Water allocations are at 94% compared to 13% last year while the Hume Dam is running at 77% capacity set against just 29 % in 2009. The improved water outlook has enabled us to return to full water applications in the 2011 crop which will support the orchards returning to normal yields in the future. More widely we have diversiﬁ ed water sources for almond production with our investment in greenﬁ eld developments in Western Australia, and our expansion of Company Orchards into New South Wales. Food Division The performance of our Food Division was particularly encouraging and demonstrated that we have begun to reap the rewards of realigning the business. The realisation of cost savings following consolidation of our manufacturing facilities in Melbourne has delivered an improved and more sustainable cost base. Almond sales increased by 10% over the year driven by strong selling initiatives in conjunction with the marketing program rolled out by the Almond Board of Australia. Market share in the cooking category reached its highest level for four years, through the continued strong performance of the “Lucky” brand. It is pleasing that overall our EBIT from value added processing rose from $1.1m to $3.1m. Investing for Growth Select Harvests is in great shape to take advantage of further growth opportunities to increase total acreage in Company Orchards and Managed Orchards. Our improved capital structure gives us the ﬂ exibility to pursue opportunities both as an acquirer and developer of orchards as well as a manager, marketer and processor of almonds. With this in mind we anticipate our future growth will come from: Outlook In our next ﬁ nancial year Select Harvests will beneﬁ t from an increase in Company Orchards acreage as well as an improved maturity proﬁ le and higher water applications across our Company Orchards and Managed Orchards businesses. The Olam orchards will beneﬁ t from a full horticultural program which has resumed following the transition of ownership from Timbercorp. Our growth strategy is supported in the medium term by volume growth as our existing orchards reach maturity. Based on standard industry yields our current 43,300 acres under management would be expected to produce 52,000 metric tons per annum at full maturity. This improving maturity proﬁ le puts us in a strong position to capitalise on increasing global demand for almonds. • • Leveraging our core competencies, capabilities and processing capacity to grow our share of managed services (farm management, processing and marketing) in relation to orchards not currently managed by Select Harvests. We will look to leverage the presence of Company Orchards in new regions to grow the management services business. Acquisition or long term lease of established orchards that are nearly or fully mature and therefore are, or soon will be, cash generative. Recent examples include the long lease agreement with Rural Funds Management for 3,000 acres at Hillston, NSW, and the agreed proposed acquisition of 530 acres at Lake Powell. • Leveraging our industry leading orchard establishment experience through greenﬁ eld developments. Select Harvests has now planted 2,000 acres of greenﬁ eld orchard development at our site in the Dandaragan Plateau region of Western Australia. Long-term there is the potential to develop up to 10,000 acres of almond orchards in this location, further diversifying our orchard portfolio. Select Harvests Annual Report 2010 7 The Global Almond Market WORLD ALMOND SUPPLY VS DEMAND ) S B L N O I L L I M ( 3,000 2,500 2,000 1,500 1,000 500 0 5 9 9 1 6 9 9 1 7 9 9 1 8 9 9 1 9 9 9 1 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 7 0 0 2 8 0 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 WORLD PRODUCTION ANNUAL SUPPLY DEMAND CARRY-OUT Global demand for almonds is expected to outstrip supply within the next ﬁ ve years USA ANNUAL PRODUCTION ) S B L N O I L L I M ( 1,800 1,500 1,200 900 600 300 0 2 8 9 1 3 8 9 1 4 8 9 1 5 8 9 1 6 8 9 1 7 8 9 1 8 8 9 1 9 8 9 1 0 9 9 1 1 9 9 1 2 9 9 1 3 9 9 1 4 9 9 1 5 9 9 1 6 9 9 1 7 9 9 1 8 9 9 1 9 9 9 1 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 7 0 0 2 8 0 0 2 9 0 0 2 0 1 0 2 CROP (MILLION LBS) BEARING ACRES KG/ACRE USA ALMOND CROP ANNUAL SHIPMENTS 180 150 120 90 ) S B L N O I L L I M ( 60 30 0 398 482 483 304 525 520 534 556 536 499 609 533 612 573 468 1,389 1,471 1,261 983 1024 984 1,066 914 822 713 740 4 8 9 1 5 8 9 1 6 8 9 1 7 8 9 1 8 8 9 1 9 8 9 1 0 9 9 1 1 9 9 1 2 9 9 1 3 9 9 1 4 9 9 1 5 9 9 1 6 9 9 1 7 9 9 1 8 9 9 1 9 9 9 1 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 7 0 0 2 8 0 0 2 9 0 0 2 The global almond market is currently worth an estimated US$4.5bn and has experienced consumption growth averaging 9% per annum since 2000. The underlying dynamics are attractive. In developed markets demand for almonds is driven by increasingly health conscious consumers, while rising afﬂ uence underpins demand from emerging markets including India, China and the Middle East. Almond supply is restricted by a slow-down in plantings by some major producers in recent years, a lack of suitable growing conditions globally and the relatively long-lead times from planting to full production. As a result demand is expected to exceed supply by 2013/14. USA Almond Supply and Demand The 2010 USA almond crop estimate projects a large crop, up 17% on the 2009 crop , and in line with the record crop of 1.6 billion lbs in 2008. After 4 years of falling supply (2002 – 2005) USA production increased from 2006 to 2008, as new acreage came into production. That growth will begin to plateau and with limited plantings in recent years the rate of growth will continue to slow and not match underlying consumption growth. Taking this estimate, consumption levels would need to grow approximately 5% to maintain a manageable carry over stock to 2011. This does not look particularly challenging based on annual growth rates achieved over the last 4 years. World almond consumption continues to grow with USA 2009 crop shipments tracking +10% above last year. USA shipments have increased 65% over the last 4 years comfortably matching supply increases over the same period. In the longer term lower planting activity in the USA and Australia will constrain future ure supply increases below the consumption mption growth achieved over the last 10 years. st 10 years. crop has The harvest of the USA 2010 crop has ceipts there is commenced. Based on early receipts there is rop estimate some expectation the original crop estimate will not be achieved. Accompanied by increased demand from emerging economies, with China the a the number 1 importer from the USA in 2009, 09, the fundamentals of supply and demand d remain intact, supportive of underlying pricing of almonds. 8 Select Harvests Annual Report 2010 Australian Almonds AUSTRALIAN ALMOND PRODUCTION FORECAST S E N N O T 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 SELECT HARVESTS ALMOND INDUSTRY Australia is projected to produce 82,000 metric tonnes of almonds by 2015, becoming the second largest producing country. Australia is already a signiﬁ cant global manager, processor and seller of almonds with a growing market share. Over 70% of Australia’s almond orchards have been planted since 2004, giving us an enviable maturity proﬁ le. Production in Australia is projected to grow 17.5% annually, and on that basis it is likely to exceed Spain as the number two producing country by 2015. What also sets Australia apart is the quality of our crop. 50% of Australian almonds are the premium nonpareil variety, which is highly sought after in many markets. We are particularly well positioned to serve fast growing emerging economies such as China and India. India is already Australia’s largest almond export market. We also continue to see growth in demand from the Middle East which in 2009 exceeded Europe as a market for Australian almonds. Select Harvests is a major driver of growth in the Australian almond industry. We have over 30 years’ experience at orchard development, management, processing and marketing. Globally we are the second largest manager of almond orchards, giving us unrivalled scale and expertise. At full maturity and based on our existing portfolio we expect to produce 52,000 metric tons per annum based on standard industry yields, equating to 62% of Australia’s almond crop. Our $35m almond processing plant at Robinvale is the most advanced facility in Australia enabling us to undertake shelling and packing of harvested almonds. This plant has sufﬁ cient capacity and room for future expansion to accommodate the growing crop. We believe these unique capabilities position the Company well for future growth. Select H Select Harvests’ $32 million processing facility near Robinvale, Victoria Select Harvests Annual Report 2010 9 Growing our orchards A core part of our strategy going forward is to increase our Company Orchards to enable us to diversify our earnings stream and broaden access to the whole of the almond value chain. Of 43,300 acres under management we now have 8,600 acres which are Company Orchards, representing 20% of our orchards. This compares to less than 10% a year ago. As we continue to grow our Company Orchards, our strategy will be to strike a balance between immediate or soon-to-be cash-generative investments and longer-term developments. Expanded footprint in Victoria and NSW WA Development The most signiﬁ cant addition to our orchard portfolio has been the 20 year lease agreement with Rural Funds Management (RFM) covering 3,000 acres near Hillston in NSW. These orchards were established in 2006/07 and were previously leased to a Managed Investment Scheme. The orchards are in good condition and serviced by bore water from the Lower Lachlan Groundwater Source, which has been a reliable source of water in recent drought conditions. The lease agreement with RFM represents a partnership with an investment fund with a history in almond ownership. It enables us to grow our Company Orchards without a large capital commitment and gives us the opportunity to beneﬁ t from the full almond value chain. The Hillston orchards are expected to deliver its ﬁ rst crop in 2011, reaching maturity by 2017. We continue to evaluate other opportunities to lease or buy established orchards in Victoria and New South Wales, and recently agreed to acquire 530 acres at Lake Powell, near Robinvale. These orchards were planted in 2006 and have been managed by Select Harvests since then. In the winter of 2010, and following a number of years of feasibility assessments, we completed Stage 1 of the establishment of Greenﬁ eld orchards in the Dandaragan Plateau. Dandaragan is attractive for a number of reasons, the climate and soil type indicate excellent growing potential, there is a reliable and cost effective long-term water source, and as a result development is below replacement cost in Victoria and New South Wales. We have secured 22,000 ML of water rights, sufﬁ cient to support the Stage 1 planting of 2,000 acres, and Stage 2 development of 2,300 acres. The ﬁ rst crop from Stage 1 plantings is expected in 2013, with full maturity by 2017. Over time we have the opportunity to grow the Western Australian almond footprint to 10,000 acres. 10 Select Harvests Annual Report 2010 Our executive team TIM MILLEN— Horticultural Manager PETER ROSS—Operations Manager Almond Division KIM MARTIN—Operations Manager Food Division Tim joined Select Harvests in 1996. Tim has over 18 years’ experience in horticulture. He has held senior horticultural positions in operations management, as well as holding the roles of Technical Ofﬁ cer and Horticulturist. Prior to commencing with Select Harvests, Tim was Orchard Manager for an Australian and New Zealand Nashi, Stonefruit and Pipfruit operation. Peter joined Select Harvests in 1999. Peter held the position of Plant and then Project Manager for the processing area of the Almond Division before being appointed to his current role in July of this year. Prior to commencing with Select Harvests, Peter ran his own maintenance and fabrication business servicing agriculture, mining and heavy industry. Kim joined Select Harvests in 2007. Kim has spent the majority of her career with Mars Confectionery and Masterfoods, part of Mars Inc. She started her career as an accountant before moving to manufacturing. In the last 10 years, Kim has held various senior manufacturing and supply chain management roles. Prior to joining Mars, Kim worked with PriceWaterhouseCoopers in the Audit division. LAURENCE VAN DRIEL— Trading Manager Laurence joined Select Harvests in 2000. Laurence has over 20 years’ experience in trading edible nuts and dried fruits. He has a comprehensive knowledge of international trade and deep insights into the trading cultures of the various countries in which these commodities are sold. He has held senior purchasing and sales management positions with internationally recognised companies. MATTHEW GRAHAM— Sales & Marketing Manager Food Division PAUL CHAMBERS— Chief Financial Ofﬁ cer & Company Secretary Matthew joined Select Harvests in August 2007 as Grocery Channel Manager, and moved into the Group Manager Sales & Marketing role in March 2009. Previously to this he has developed his multi channel FMCG experience through senior management roles at both Mars Food, and Nestle Confectionery. His experience includes Channel and Customer Management roles across our major Grocery customers. Paul joined Select Harvests in 2007. Paul is a Chartered Accountant and has over 20 years’ experience in senior ﬁ nancial management roles in Australian and European organisations. Most recently, he was CFO, Henkel ANZ and prior to that he held corporate positions with the Fosters Group. He has managed complex change, acquisition and business integration projects. CEO: JOHN BIRD Horticultural Manager: TIM MILLEN Operations Manager Almond Division: PETER ROSS Operations Manager Food Division: KIM MARTIN Trading Manager: LAURENCE VAN DRIEL Sales & Marketing Manager Food Division: MATTHEW GRAHAM CFO & Company Secretary: PAUL CHAMBERS Select Harvests Annual Report 2010 11 Marketing our products The improved performance of Select Harvests Food Division has also been driven by the an improved sales mix across the total business and the realisation of cost savings which have ﬂ owed from the rationalisation of production and warehouse facilities which commenced in 2008. Market share in the cooking category has reached its highest level for four years through strong performance of the Lucky brand. New product launches this year include the “Lucky Smart Snax” range and new Lucky Six pack snacking products into the major retailers. These new additions to the Lucky range aim to increase market share of the healthy snacking segment of the Dried Fruit & Nut category. Marketing our almonds directly into the major domestic consumer markets is key to Select Harvests’ coverage of the entire almond value chain. As a result, driving almond consumption is the central focus of Select Harvests’ Food Division. Sales of almonds into the Australian marketplace has increased by over 10% during the past year. This growth in almond consumption has been assisted by leveraging the promotional calendar of the Almond Board of Australia. Every quarter, the Australian almond industry promotes a key reason to purchase almonds: • • • • Improved heart health in January through the ‘New Year, New Heart’ promotion; Great taste of fresh almonds in the New Season promotion in April – May; The natural goodness of almonds via the August almond blossom season promotion; and Celebrating with almonds in our Christmas promotion. One of the most effective forms of promoting almonds has been the distribution of 30gm almond snack tins. These snack tins have featured in major almond promotions in Coles and Woolworths supermarkets nationally. 12 Select Harvests Annual Report 2010 Environment and community Contributing to the community As the largest employer in the Robinvale area, Select Harvests continues to play an important role in supporting a number of community activities and programs, including the Robinvale and Euston Football Clubs, and the Robinvale Secondary College Chaplaincy program. The company hosted the second Mallee Almond Blossom festival at the Kyndalyn Park Orchards attracting a large number of people from the local community and beyond to celebrate the beauty of the annual blossom, and sample a variety of local foods and wines. With over 50 stalls, this event is now becoming a highlight in the local community calendar as it showcases produce from the local area. Our Approach Select Harvests has continued to commit resources towards sustainability, ensuring our business remains a valuable partner in the communities in which we operate, and that we are contributing positively towards the environment. Our emphasis has been on responsible and proactive water management, and the management of wildlife in our almond orchards. Environmental commitment In conjunction with Charles Sturt University, the Victorian, New South Wales and South Australian Governments, Select Harvests has sponsored a number of projects aimed at ensuring native wildlife is not only protected in the orchard environment, but is able to be nurtured wherever possible. Current research projects are focusing speciﬁ cally on the Regent Parrot population. One project entitled, “The role of food resources in driving habitat occupancy and movement by Regent Parrots” involves the tracking of Regent Parrots in almonds and other foraging areas, and at breeding sites to determine home ranges and movement pathways. Dietary data has been collected along with surveying and mapping of available food sources. The projects involve the hiring of people from Select Harvests and the local Sunraysia community to work with PhD students to assist in the research. Regent Parrots Almond plantation, Robinvale Select Harvests Annual Report 2010 13 2010 2009 2008 2007 2006 2005 238,376 248,581 224,655 229,498 217,866 173,864 26,032 23,603 17,253 26,827 23,047 16,712 27,120 25,384 18,130 40,549 40,014 28,098 38,369 37,903 26,492 33,069 31,802 22,104 (cents) (%) (cents) (cents) (%) (%) (%) (times) (%) (times) 43.3 15.2 21 - 100 48.5 1.87 10.7 39.6 1.44 42.6 16.6 12 - 100 28.2 1.56 7.1 51.9 0.79 46.7 19.3 45 - 100 96.7 1.41 15.6 49.7 0.87 83,993 145,612 81,075 77,014 133,884 118,934 229,605 214,959 195,948 58,469 102,348 57,515 11,735 115,984 114,083 113,621 100,876 46,433 12,949 41,494 100,876 47,470 11,327 54,824 113,621 39,779 3,039 (000) 88,162 13,715 101,877 94,071 44,375 11,235 38,461 94,071 71.0 29.4 57 - 100 80.0 1.57 75.8 1.7 1.32 70,983 89,170 160,153 53,680 10,969 64,649 95,504 41,953 11,273 42,278 95,504 67.1 26.1 53 10 100 80.0 1.83 82.3 1.3 1.82 72,455 79,421 151,876 39,905 10,490 50,395 101,481 52,665 12,691 36,125 101,481 56.9 25.1 42 - 100 75.4 1.52 26.2 1.0 1.52 58,832 78,676 137,508 38,757 10,656 49,413 88,095 46,925 13,766 27,404 88,095 39,519 3,296 39,009 3,319 38,739 2,953 39,708 39,069 3,369 2,999 ($) 3.46 2.16 6.00 11.60 13.02 9.70 137,635 85,361 234,054 449,372 516,998 378,970 Satistical summary SELECT HARVESTS CONSOLIDATED RESULTS FOR YEARS ENDED 30 JUNE Total sales Earnings before interest and tax Operating proﬁ t before tax Net proﬁ t after tax Earnings per share (Basic) Return on shareholders’ equity Dividend per ordinary share Special dividend per ordinary share Dividend franking Dividend payout ratio Financial ratios Net tangible assets per share Net interest cover Net debt/equity ratio Current asset ratio Balance sheet data as at 30 June Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Shareholders’ equity Share capital Reserves Retained proﬁ ts Total shareholders’ equity Other data as at 30 June Fully paid shares Number of shareholders Select Harvests’ share price - close Market capitalization $ ‘000 (except where indicated) 14 Select Harvests Annual Report 2010 Contents DIRECTORS’ REPORT AUDITOR’S INDEPENDENCE DECLARATION CORPORATE GOVERNANCE STATEMENT INCOME STATEMENT STATEMENTS OF COMPREHENSIVE INCOME BALANCE SHEET STATEMENT OF CHANGES IN EQUITY STATEMENT OF CASH FLOWS NOTES TO THE FINANCIAL STATEMENTS DIRECTORS’ DECLARATION INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS ASX ADDITIONAL INFORMATION 16 27 28 34 35 36 37 38 39 78 79 81 Select Harvests Annual Report 2010 15 Directors’ Report The directors present their report together with the ﬁ nancial report of Select Harvests Limited and controlled entities (referred to hereafter as the “consolidated entity”) for the year ended 30 June 2010. Directors The qualiﬁ cations, experience and special responsibilities of each person who has been a director of Select Harvests Limited at any time during or since the end of the ﬁ nancial year is provided below, together with details of the company secretary as at the year end. Directors were in ofﬁ ce for this entire period unless otherwise stated. Names, qualiﬁ cations, experience and special responsibilities J C Leonard, B.Mktng & Bus. Admin, MBA (Chairman) Joined the Board on 21 July 2004. Has held senior management positions with the Mars group of companies in Australia including General Manager of Mars Confectionery, Managing Director of Uncle Bens, and Managing Director of Mars Australia and New Zealand. In addition, he has served as President, Asia Paciﬁ c of all Mars businesses, and a Director of the Managing Board of Mars Incorporated global business. Is a Director of Patties Foods Limited. He is Chairman of the Board, a member of the Audit and Risk Committee, Remuneration Committee and Nomination Committee. Interest in Shares and Options: 663,668 fully paid shares M A Fremder (Non – Executive Director) Joined the board in March 1996 and from that time was Chairman of The Board until retiring from this position on 15 August, 2008. Formerly a director of IAMA Limited, and founder of Nufarm, one of Australia’s largest chemical manufacturers for the rural industry. Mr Fremder also was a Non-Executive Director of Tassal Limited between 3 October 2003 and 18 March 2005. Member of the Remuneration Committee, Audit and Risk Committee, and Chairman of the Nomination Committee. Interest in Shares and Options: 5,835,234 fully paid shares. J Bird (Managing Director) Became the CEO of Select Harvests Limited in January 1998. Has had many years’ experience in the food industry and international trade. Formerly Managing Director of Jorgenson Waring Foods. Appointed Managing Director and joined the Board in September 2001. Member of the Nomination Committee. Interest in Shares and Options: 619,522 fully paid shares. R M Herron, FCA & FAICD (Non-Executive Director) Joined the Board on 27 January 2005. A Chartered Accountant, Mr Herron retired as a Senior Partner of PricewaterhouseCoopers in December 2002. He was a member of the Coopers & Lybrand (now PricewaterhouseCoopers) Board of Partners where he was National Deputy Chairman and was the Melbourne ofﬁ ce Managing Partner for six years. He also served on several international committees within Coopers & Lybrand. He is a Non-Executive Director of GUD Holdings Ltd, Heemskirk Consolidated Ltd, Royal Automobile Club Of Victoria (RACV) Ltd and a major industry superannuation fund. Chairman of the Audit and Risk Committee, and a member of the Remuneration Committee and Nomination Committee. Interest in Shares and Options: 18,772 fully paid shares. M Carroll, BSC, MBA (Non- Executive Director) Joined the board on 31 March, 2009. He works with a range of agribusiness companies in a board and advisory capacity, and has directorships with Meat and Livestock Australia, the Rural Finance Corporation, Rural Funds Management and Warnambool Cheese and Butter. He has 18 years’ experience in banking and ﬁ nance, having lead and established the Agribusiness division within the National Australia Bank. He has worked for a number of companies in the agricultural sector including Monsanto Agricultural Products and a venture capital biotechnology company. He is Chairman of the Remuneration Committee, and a member of the Audit and Risk Committee and Nominations Committee. Interest in Shares and Options: 0 fully paid shares. 16 Select Harvests Annual Report 2010 Directors’ Report F Grimwade, MBA, (Non- Executive Director) Appointed to the board on 27 July, 2010. He works with a wide range of companies in a board or advisory capacity. He is a Non- Executive Director of AWB Limited and Chairman of CPT Global Limited, and is a Principal and Executive Director of Fawkner Capital, a specialist corporate advisory ﬁ rm. He has held General Management positions in Colonial Agricultural Company, Colonial Mutual Group, Colonial First State Investments Group, Western Mining Corporation and Goldman Sachs & Co. He also has experience with a major management consulting ﬁ rm. Interest in shares and options: 2,000 fully paid shares. P Chambers, BSc Hons, ACA (Chief Financial Ofﬁ cer and Company Secretary) Joined Select Harvests as Chief Financial Ofﬁ cer and Company Secretary in September 2007. He is a Chartered Accountant and has over 20 years’ experience in senior ﬁ nancial management roles in Australian and European organisations, including corporate positions with the Fosters Group, and Henkel Australia and New Zealand. Interest in shares and options: 0 fully paid shares. Corporate Information Nature of operations and principal activities The principal activities during the year of entities within the consolidated entity were: • Processing, packaging, marketing and distribution of edible nuts, dried fruits, seeds, and a range of natural health foods, and • The growing, processing and sale of almonds to the food industry from company owned almond orchards, the provision of management services to external owners of almond orchards, including orchard development, tree supply, farm management, land rental and irrigation infrastructure, and the marketing and selling of almonds on behalf of external investors. There were no other signiﬁ cant changes in the nature of the activities of the consolidated entity in the ﬁ nancial year. Employees The consolidated entity employed 387 full time employees as at 30 June 2010 (2009: 366 employees). Review and results of operations Proﬁ t attributable to the members of Select Harvests Limited for the year ended 30 June 2010 was $17.3 million compared to $16.7 million in 2009. For additional information refer to the announcement lodged with the ASX and the report before the Appendix 4E. Signiﬁ cant changes in the state of affairs No signiﬁ cant changes in the state of affairs of the consolidated entity occurred during the ﬁ nancial year. Signiﬁ cant events after the balance date On 23 August 2010, the Directors declared a ﬁ nal dividend of 11 cents per share payable on 4 October 2010 to shareholders on the register on 26 August 2010. On 27 July 2010, the board announced the appointment of Mr Fred Grimwade to the position of Non-Executive Director. On 23 August 2010, the company announced a $48 million fully underwritten equity raising to existing shareholders. Likely developments and expected results For comments on the outlook period refer to the announcement lodged with the ASX and the report before Appendix 4E. Select Harvests Annual Report 2010 17 Directors’ Report Environmental regulation and performance The consolidated entity’s operations are subject to environmental regulations under laws of the Commonwealth or of a State or Territory. Details of the consolidated entity’s performance in relation to such environmental regulations follow: The consolidated entity holds licences issued by the Environmental Protection Authority which specify limits for discharges to the environment which are the result of the consolidated entity’s operations. These licences regulate the management of discharge to the air and stormwater run off associated with the operations. There have been no signiﬁ cant known breaches of the consolidated entity’s licence conditions. The company takes its environmental responsibilities seriously, has a good record in environmental management to date, and adheres to environmental plans that preserve the habitat of native species. Almond developments have had a positive environmental impact. The change in land use and the increase in food source have seen a rejuvenation of remnant native vegetation and an increase in the wildlife population, in particular bird species. The company has committed funding to the monitoring of Regent parrot populations around our orchards and the effectiveness of protecting native vegetation corridors in preserving wildlife. REMUNERATION REPORT The information provided in this Remuneration Report has been audited as required by section 308(3C) of the Corporations Act 2001. Principles used to determine the nature and amount of remuneration The objective of the Group’s executive reward framework is to set remuneration levels to attract and retain appropriately qualiﬁ ed and experienced directors and senior executives. The framework aligns executive reward with achievement of speciﬁ c business plans and performance indicators, which include ﬁ nancial and operational targets relevant to performance at the consolidated entity level, divisional level, or functional level, as applicable, for the ﬁ nancial year. Remuneration packages include a mix of ﬁ xed remuneration, performance based remuneration and equity based remuneration. Executive directors and key management personnel may receive short and long term incentives. The Board has established a Remuneration Committee which makes recommendations to the Board on remuneration packages and other terms of employment for executive and non-executive directors. The Remuneration Committee may obtain independent advice on the appropriateness of remuneration packages, given trends in the marketplace. The Group has structured an executive reward framework that is market competitive, performance driven and compliant with the Group’s reward strategy. Non-executive directors Non-executive directors receive fees but do not receive any performance related remuneration nor are they issued options on securities. This reﬂ ects the Group’s demands which are made on, and the responsibilities of, the directors. Non executive directors’ fees are reviewed by the Board annually to ensure that they are continually appropriate and in line with market expectations. The review also includes the remuneration of the Chairman, who typically receives up to twice the base fee of a Non Executive Director. Directors’ fees The current base fees were last reviewed with effect from July 1st, 2008. Non-executive directors each receive a base fee of $65,000 per annum. The Chairman receives up to twice the base fee. Non-executive directors do not receive any performance related remuneration nor are they issued options on securities. The following fees have applied: Base Fees Chair Other non-executive directors From 1 July 2008 From 1 July 2007 To 30 June 2008 $130,000 $ 65,000 $100,000 $ 50,000 18 Select Harvests Annual Report 2010 Directors’ Report Executive Pay The executive pay and reward framework has three components: 1. base pay and beneﬁ ts (including superannuation); 2. short term performance incentives; and 3. long term incentives involving the issue of options in the Select Harvests Limited executive Share Option Scheme. The combination of these three components forms the executive’s total remuneration. The group will review the remuneration packages as part of its annual review during the year ended 30 June 2011. Base pay and beneﬁ ts A total employment cost package which can be structured as a combination of cash and non cash beneﬁ ts at the discretion of the company. Executives receive a base pay that is reviewed annually to ensure market competitiveness in line with the objectives of the remuneration framework. There are no guaranteed base pay increases in any executives’ contracts. Executives receive beneﬁ ts including motor vehicle and certain private expense reimbursements. Superannuation Retirement beneﬁ ts are delivered under the Select Harvests Limited Employees’ Superannuation Fund. Short-term incentives Executive directors and senior executives may receive short term incentives based on achievement of speciﬁ c business plans and performance indicators, which include ﬁ nancial and operational targets relevant to performance at the consolidated entity level, divisional level, or functional level, as applicable, for the ﬁ nancial year. The Remuneration Committee is responsible for assessing whether the KPIs are met based on detailed reports on performance prepared by management. Financial targets ensure that variable reward is only available when value has been created for Shareholders. Operational targets allow for the recognition of efﬁ ciencies that will provide for future shareholder value. Long-term incentives The Group offers executive directors and senior executives the opportunity to participate in the long-term incentive scheme involving the issue of options to the employee under the executive share option scheme. The executive share option 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 set at the time the offer was made. The options are granted annually and have a three year life, with one third vesting in each year, upon achievement of a 10% increase in EPS. The Remuneration Committee is responsible for assessing whether the targets are met based on reports prepared by management. Performance of Select Harvests Limited The overall level of executive reward takes into account the performance of the consolidated entity over a number of years, with greater emphasis given to the current year. Over the past 5 years, the consolidated entity’s proﬁ t from ordinary activities after income tax has fallen at an average rate of 8% per annum and the EPS has fallen at an average rate of 9% over the last 5 years. These ﬁ gures were substantially impacted by events not in the ordinary course of business in 2008 and 2009. In determining the level of short term incentives for the 2008 – 2009 years, a lower weighting had been placed on ﬁ nancial targets given events arising during that period. Prior to 2008 EPS growth had signiﬁ cantly increased as shown in the below table: Earnings Per Share Cents Growth 2003 31.3 23% 2004 40.0 28% 2005 56.9 42% 2006 67.1 18% 2007 71.0 6% Negative growth in 2008 reﬂ ects the impact of three events: 1. almond price development; 2. restructuring costs for the close down of the Brisbane site; and 3. increasing water costs associated with the impact of drought. Select Harvests Annual Report 2010 19 Directors’ Report Further, 2009 includes before tax provisions of $4.7 million for the impact of lost revenues pertaining to the administration of Almond Management Pty Ltd, a subsidiary of Timbercorp Limited. EPS ﬁ gures for 2008 and 2009 have not been included as management believes there was no correlation between the payment of incentives and EPS growth during this period due to the events outlined above. Management instead opted to reward staff on strategic targets. Options, vesting proportionally one-third per year over a three year period, were issued in each of the last ﬁ ve years. All were based on the achievement of 10% growth in EPS. They were only exercised or vested in the years the growth target was achieved. Details of remuneration Details of the remuneration of the directors and the key management personnel as deﬁ ned in AASB 124 Related Party Disclosures of Select Harvests Limited and the consolidated entity are set out in the following tables. The key management personnel of the consolidated entity includes the directors as listed above and the following executive ofﬁ cers, which also includes the 5 highest paid executives of the consolidated entity: NAME P Ross K Martin T Millen L Van Driel P Chambers M Graham POSITION Operations Manager Almond Division EMPLOYER Kyndalyn Park Pty Ltd Operations Manager Food Products Division Select Harvests Limited Group Horticultural & Farm Operations Manager Kyndalyn Park Pty Ltd Group Trading Manager Select Harvests Food Products Pty Ltd Chief Financial Ofﬁ cer & Company Secretary Select Harvests Limited Sales & Marketing Manager Select Harvests Food Products Pty Ltd The nature and amount of each major element of the remuneration of each director of the Company and each of the key management personnel of the company and the consolidated entity for the ﬁ nancial year is detailed below. It should be noted that “share based payments” referred to in the remuneration details set out in this report comprise a proportion of share options which have not yet vested and are reﬂ ective of options that may be vested in the ﬁ nancial year. 2010 ANNUAL REMUNERATION LONG TERM REMUNERATION BASE FEE $ SHORT TERM INCENTIVES $ NON CASH BENEFITS $ SUPER CONTRI- BUTIONS $ LONG SERVICE LEAVE ACCRUED $ OPTIONS GRANTED $ 70,850 130,000 65,000 65,000 - - - - - - - - - 11,700 5,850 5,850 - - - - - - - - TOTAL $ 70,850 141,700 70,850 70,850 583,003 128,200 27,932 63,830 13,502 53,408 869,875 197,395 240,963 190,727 180,782 215,531 267,368 22,500 25,500 23,000 40,000 27,000 - 21,579 - 31,219 39,848 43,171 - 19,951 23,982 19,053 16,270 21,828 - 5,027 5,831 5,298 5,546 6,174 - - 12,750 11,500 11,500 13,500 12,500 266,452 309,026 280,797 293,946 327,204 279,868 Non Executive M A Fremder J C Leonard M Carroll R M Herron Executive J Bird Other key management personnel M Graham K Martin L Van Driel T Millen P Chambers P Ross 20 Select Harvests Annual Report 2010 Directors’ Report 2009 ANNUAL REMUNERATION LONG TERM REMUNERATION BASE FEE $ SHORT TERM INCENTIVES $ NON CASH BENEFITS $ SUPER CONTRI- BUTIONS $ LONG SERVICE LEAVE ACCRUED $ OPTIONS GRANTED $ 82,658 55,000 119,167 17,001 65,000 - - - - - - - - - - - 4,950 10,725 1,530 5,850 - - - - - - - - - - TOTAL $ 82,658 59,950 129,892 18,531 70,850 560,806 80,000 30,133 57,673 17,047 22,258 767,917 177,353 214,450 203,784 174,451 237,804 182,659 250,000 - - 30,000 40,000 20,000 - - 19,797 - 10,406 39,848 10,793 - - 15,962 19,300 20,832 15,701 23,202 15,829 - 5,135 5,350 7,426 10,108 5,987 - - - 5,313 4,792 5,000 5,625 - 5,208 218,247 244,413 277,240 285,108 303,411 198,488 255,208 Non Executive M A Fremder G F Dan O’Brien* J C Leonard M Carroll** R M Herron Executive J Bird Other key management personnel M Graham K Martin L Van Driel T Millen P Chambers K Bartholemew*** P Ross * Resigned from the role of Director 23 June 2009 ** Appointed as a Director on 31 March 2009 *** Resigned 9 April 2009 Notes The elements of remuneration have been determined on the basis of the cost to the company and the consolidated entity. Options granted as part of remuneration have been valued using the Black-Scholes option pricing model, which takes account of factors such as the option exercise price, the current level and volatility of the underlying share price and the time to maturity of the option. Key management personnel are those directly accountable and responsible for the operational management and strategic direction of the Company and the consolidated entity. Select Harvests Annual Report 2010 21 Directors’ Report 2010 FIXED REMUNERATION 2010 % 100.0 100.0 100.0 100.0 2009 % 100.0 100.0 100.0 100.0 AT RISK - STI 2010 % 2009 % AT RISK - LTI 2010 % 2009 % - - - - - - - - - - - - - - - - 86.7 87.0 10.4 10.0 2.9 3.0 91.4 87.4 87.5 82.1 87.4 95.5 100.0 97.8 87.5 84.2 91.6 98.0 8.6 8.4 8.3 13.9 8.4 - - - 10.8 14.0 6.6 - - 4.2 4.2 4.0 4.2 4.5 - 2.2 1.7 1.8 1.9 2.0 Non Executive M A Fremder J C Leonard M Carroll R M Herron Executive J Bird Other key management personnel M Graham K Martin L Van Driel T Millen P Chambers P Ross Service Agreements On appointment to the Board, all non executive directors enter into a service agreement with the company in the form of a letter of appointment. The letter summarises the Board policies and terms, including compensation, relevant to the ofﬁ ce of director. Remuneration and other terms of employment for the managing director and the other key management personnel are also formalized in service agreements. Each of these agreements provide for the provision of performance related cash bonuses, other beneﬁ ts and participation, when eligible, in the Select Harvests Limited Employee Option Plan. Other major provisions of the agreements are set out below. NAME J Bird M Graham K Martin T Millen P Chambers L Van Driel P Ross TERM OF AGREEMENT On-going On-going – 3 Month Notice On-going – 3 Month Notice On-going On-going – 3 Month Notice On-going On-going BASE SALARY INCL SUPER* 674,765 238,925 264,945 236,900 280,530 240,999 267,368 * Base salaries quoted are for year ended 30 June 2010; they are reviewed annually by the remuneration committee. ** There are no speciﬁ c termination beneﬁ ts applicable to the service agreements. Share-based compensation Executive Share Option Scheme The current executive share option 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 granted annually in three tranches on achievement of the performance hurdles. Individual parcels of options offered to participating employees are based on a percentage of ﬁ xed remuneration. The options are granted annually in three tranches on achievement of a 10% increase in EPS. Options granted as remuneration are subject to continuing service with the consolidated entity. Options granted as remuneration are valued at grant date in accordance with AASB 2 Share-based Payments. Options previously granted as remuneration, 57,798 shares, valued at $206,339 have lapsed during the year. 22 Select Harvests Annual Report 2010 Directors’ Report The assessed fair value at offer date is determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at offer date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. Options are granted under the plan for no consideration. The plan rules contain a restriction on removing the ‘at risk’ aspect of the instruments granted to executives. Plan participants may not enter into any transaction designed to remove the ‘at risk’ aspect of an instrument before it vests. The model inputs for options offered during the year ended 30 June 2010 included: 1. options are granted for no consideration, have a three year life, and one third of the options offered vest in each year, subject to meeting EPS hurdles 2. exercise price: $2.83 (2008 - $5.15) 3. offer date: 28 September 2009 (2009 – 20 September 2008) 4. expiry date: 29 October 2012 (2009 – 28 October 2011) 5. volume weighted average share price at offer date: $2.83 (2009 – $5.44) 6. expected price volatility of the company’s shares: 49% (2009 – 34%) 7. expected dividend yield: 6% (2009 – 7.5%) 8. risk free interest rate: 4.89% (2009 – 5.76%) During or since the end of the ﬁ nancial year, the Company granted options over unissued ordinary shares to the executive director and the following key management personnel of the Company as part of their remuneration. 2010 Executive J Bird Other key management personnel M Graham K Martin L Van Driel T Millen P Chambers P Ross NUMBER OF OPTIONS GRANTED DURING THE YEAR $ VALUE OF OPTIONS AT GRANT DATE NUMBER OF OPTIONS VESTED DURING THE YEAR NUMBER OF OPTIONS LAPSED DURING THE YEAR $ VALUE AT LAPSE DATE 190,744 160,225 nil (36,765) (131,251) - 45,536 41,071 41,071 48,214 44,643 - 38,250 34,500 34,500 40,500 37,500 - nil nil nil nil nil - - (7,563) (7,798) - - - - (27,000) (27,839) - - Details of ordinary shares in the company provided as a result of the exercise of remuneration options to each director of the consolidated entity and other key management personnel are set out below. No options were exercised in the ﬁ nancial year ended 30 June 2010 (and in 2009). Select Harvests Annual Report 2010 23 Directors’ Report Details of remuneration: Bonuses and share based compensation beneﬁ ts For each cash bonus and grant of options included above, the percentage of the available bonus or grant that was paid, or that vested, in the ﬁ nancial year, and the percentage that was forfeited because the person did not meet the service and performance criteria is set out below. No part of the bonuses is payable in future years. No options will vest if the conditions are not satisﬁ ed hence the minimum value of the option yet to vest is nil. The maximum value of the options yet to vest has been calculated based on the option price. NAME CASH BONUS OPTIONS PAID % 100 FORFEITED % - YEAR GRANTED 2007 VESTED % - FORFEITED % - FINANCIAL YEARS IN WHICH OPTIONS MAY VEST 2010 MINIMUM TOTAL VALUE OF GRANT YET TO VEST ($) Nil MAXIMUM TOTAL VALUE OF GRANT YET TO VEST ($) 50,875 100 100 100 - 100 - - - - - - - - - - - - - - - 2008 2009 2007 2008 2009 2007 2008 2009 2007 2008 2009 2008 2009 2007 2008 2009 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2010 2011 2012 Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil 53,419 53,408 3,731 11,500 11,500 10,000 12,000 11,500 12,750 12,750 15,482 12,500 12,500 13,000 13,500 13,500 J Bird L Van Driel T Millen K Martin P Ross P Chambers Loans to directors and executives Information on loans to directors and executives (if any), are set out in Note 32. Share options granted to directors and the most highly remunerated ofﬁ cers For options over unissued ordinary shares of Select Harvests Limited granted and not exercised during or since the end of the ﬁ nancial year to the ﬁ ve most highly remunerated ofﬁ cers of the company as part of their remuneration, see Page 23. No options have been granted since the end of the ﬁ nancial year. Unissued Ordinary shares Under Option At the date of this report there are 1,039,016 unissued ordinary shares of the company under option. Dividends – Select Harvests Limited DIVIDENDS Interim for the year • on ordinary shares Final for 2010 shown as recommended in the 2010 report • on ordinary shares Cents 2010 $ 10.0 3,922,387 11.0 4,375,642 24 Select Harvests Annual Report 2010 Directors’ Report Indemniﬁ cation and insurance of directors and ofﬁ cers During the year the Company entered into an agreement at a premium of $39,231 (incl GST) in respect to an insurance contract to indemnify directors and ofﬁ cers against liabilities that may arise from their position as directors and ofﬁ cers of the Company and its controlled entities. Ofﬁ cers indemniﬁ ed include the Company Secretary, all directors, and executive ofﬁ cers participating in the management of the Company and its controlled entities. Directors’ meetings The number of meetings of directors (including meetings of committees of directors) held during the ﬁ nancial year and the number of meetings attended by each director was as follows: MEETINGS OF COMMITTEES DIRECTORS’ MEETINGS AUDIT AND RISK REMUNERATION NOMINATION NUMBER ELIGIBLE TO ATTEND 12 NUMBER ATTENDED 12 NUMBER ELIGIBLE TO ATTEND 4 NUMBER ATTENDED 3 NUMBER ELIGIBLE TO ATTEND 1 NUMBER ATTENDED 1 NUMBER ELIGIBLE TO ATTEND 1 NUMBER ATTENDED 1 12 12 12 12 12 11 12 12 - 4 4 4 - 4 4 4 - 1 1 1 - 1 1 1 1 1 1 1 1 1 1 1 M A Fremder J Bird J C Leonard R M Herron M Carroll Committee membership During or since the end of the ﬁ nancial year, the company had an Audit and Risk Committee, a Remuneration Committee, and a Nomination Committee comprising members of the Board of Directors. Members acting on the committees of the Board during or since the end of the ﬁ nancial year were: AUDIT AND RISK R M Herron (Chairman) REMUNERATION M Carroll (Chairman) NOMINATION M A Fremder (Chairman) J C Leonard MA Fremder M Carroll F Grimwade M A Fremder J C Leonard R M Herron F Grimwade J Bird R M Herron J C Leonard M Carroll F Grimwade Directors’ interests in contracts Directors’ interest in contracts are disclosed in Note 32 to the ﬁ nancial statements. Select Harvests Annual Report 2010 25 Directors’ Report Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 27. Non-audit services Non-Audit services are approved by resolution of the Audit and Risk Committee and approval is provided in writing to the board of directors. Non-audit services provided by the auditors of the consolidated entity during the year are detailed in Note 31. The directors are satisﬁ ed that the provision of the non-audit services during the year by the auditor is compatible with the general standard of independence for auditors imposed by Corporations Act 2001 as non-audit services are reviewed by the Audit & Risk Committee to ensure they do not impact the impartiality and objectivity of the auditor. Rounding The amounts contained in this report and in the ﬁ nancial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the company under ASIC Class Order 98/100. The Company is an entity to which the Class Order applies. Proceedings on behalf of the company There are no material legal proceedings in place on behalf of the company as at the date of this report. Corporate Governance In recognising the need for the highest standards of corporate behaviour and accountability, the directors of Select Harvests Limited support and have adhered to the ASX principles of corporate governance. The Company’s corporate governance statement is contained in detail in the corporate governance section of this annual report. This report is made in accordance with a resolution of the directors. J C Leonard Chairman Melbourne, 23 August 2010 26 Select Harvests Annual Report 2010 PricewaterhouseCoopers ABN 52 780 433 757 Freshwater Place 2 Southbank Boulevard SOUTHBANK VIC 3006 GPO Box 1331L MELBOURNE VIC 3001 DX 77 Telephone 61 3 8603 1000 Facsimile 61 3 8603 1999 Website:www.pwc.com/au Auditor’s Independence Declaration As lead auditor for the audit of Select Harvests Limited for the year ended 30 June 2010, I declare that to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Select Harvests Limited and the entities it controlled during the period. Andrew Mill Partner PricewaterhouseCoopers Melbourne 23 August 2010 Liability limited by a scheme approved under Professional Standards Legislation Select Harvests Annual Report 2010 27 Corporate governance statement This statement outlines the key corporate governance practices of the consolidated entity which considers the ASX Principles of Good Corporate Governance and Best Practice Recommendations issued by the ASX Corporate Governance Council. During the reporting period, the company has been compliant with the ASX Guidelines. These principles are: Principle 1 – Lay solid foundations for management and oversight Principle 2 – Structure the board to add value Principle 3 – Promote ethical and responsible decision making Principle 4 – Safeguard integrity in ﬁ nancial reporting Principle 5 – Make timely and balanced disclosure Principle 6 – Respect the right of shareholders Principle 7 – Recognise and manage risk Principle 8 – Remunerate fairly and responsibly The statements set out below refer to the above Principles as applicable. Board of Directors and its Committees The role of the Board and Board Processes set out below are with reference to Principle 1, Lay solid foundations for management and oversight. Role of the Board The Board of Directors of Select Harvests Limited is responsible for the overall corporate governance of the consolidated 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. Details of the Board’s charter are located on the company’s website. 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 ensuring that management’s objectives and activities are aligned with the expectations and risks identiﬁ ed by the Board and ensuring arrangements are in place to adequately manage those risks. To ensure that the Board is well equipped to carry out its responsibilities it has established guidelines for the nomination and selection of Directors and for the operation of the Board. The Board has delegated responsibility for the operation and administration of the company to the Managing Director and the executive management team. The Board ensures that this team is appropriately qualiﬁ ed and experienced to carry out its responsibilities and has in place procedures to assess the performance of the Managing Director and the executive management team. Board Processes To assist in the execution of its responsibilities, the Board has established a Remuneration Committee, and an Audit and Risk Committee. The Board also performs, as part of its function, the role of Nomination Committee. These Committees have written charters, which are reviewed on a regular basis and are located on the company’s website. The Board has also established a framework for the management of the consolidated entity. The full Board holds twelve scheduled meetings each year, plus any additional meetings at such other times as may be necessary to address any speciﬁ c matters that may arise. The agenda for meetings is prepared and includes the Managing Director’s report, ﬁ nancial reports, business segment reports, strategic matters, governance and compliance. Submissions are circulated in advance. Executives are involved in Board discussions where appropriate, and Directors have other opportunities, including visits to operations, for contact with a wider group of employees. Set out below, Director Education, Independent Advice and Access to Company Information, Composition of The Board and the Nomination Committee, make reference to Principle 2, Structure the board to add value. 28 Select Harvests Annual Report 2010 Corporate governance statement Director Education The consolidated entity has a process to educate new Directors about the nature of the business, current issues, the corporate strategy, and the expectations of the consolidated entity concerning performance of Directors. Directors also have the opportunity to visit the facilities of the consolidated entity and to meet with management to gain a better understanding of business operations. Directors are able to access continuing education opportunities to update and enhance their skills and knowledge. Independent Professional Advice and Access to Company Information Each Director has the right of access to all relevant company information and to the Company’s executives and, subject to prior consultation with the Chairman, may seek independent professional advice at the consolidated entity’s expense. Composition of the Board The names of the Directors of the company in ofﬁ ce at the date of this report are set out in the Directors’ report. The composition of the Board is determined in accordance with the following ASX principles: • The Board should comprise at least four Directors; • The Board should maintain a majority of independent non-executive Directors; • The Chairperson must be a non-executive Director; and • The Board should comprise Directors with an appropriate range of qualiﬁ cations, skills and experience. The Board assesses the independence of each Director in light of interests known to the Board, as well as those disclosed by each Director. In accordance with the ASX Corporate Governance Council’s recommendations, the Board wishes to outline the following: • A non–executive Director of the Company, Mr M A Fremder, is a substantial shareholder, having a 14.43% shareholding at 30 June 2010. • A non–executive Director of the Company, Mr M A Fremder, owns (directly or indirectly) almond orchards totalling 2,082 acres in respect to which the consolidated entity provides orchard management services under contract at market rates. • The Chairman of the Company, Mr J C Leonard, owns (directly or indirectly) almond orchards totalling 1,782 acres in respect to which the consolidated entity provides orchard management services under contract at market rates. Nomination Committee The Board of Directors, as one of its important functions, performs the role of Nomination Committee. The Board’s role as Nomination Committee is to ensure that the composition of the Board of Directors is appropriate for the purpose of fulﬁ lling its responsibilities to shareholders. The duties and responsibilities of the Board in its role as Nomination Committee are as follows: • To access and develop the necessary and desirable competencies of Board members; • To develop and review Board succession plans; • To evaluate the performance of the Board; • To recommend to the Board, the appointment and removal of Directors; and • Where a vacancy exists, to determine the selection criteria based on the skills deemed necessary and to identify potential candidates with advice from external consultants. The Chairman of the Board evaluates the performance of each Board member annually in the last quarter of each ﬁ nancial year. The Chairman of the Audit Committee reviews the performance of the Chairman of the Board in the same period. The performance of each Board member is reviewed against the Board charter and any speciﬁ c objectives agreed and set by the Board for the consolidated entity. The Nomination Committee meets annually unless otherwise required. The Committee met once during the ﬁ nancial year and the Committee members’ attendance record is disclosed in the table of Directors’ meetings. The members of the Nomination Committee are disclosed in the Directors’ Report. Further details of the Nomination Committee’s charter are available on the Company’s website. The statements set out below in relation to Remuneration, the Remuneration Committee and Remuneration Policies are with reference to Principle 8, Remunerate fairly and responsibly. Select Harvests Annual Report 2010 29 Corporate governance statement Remuneration Remuneration Committee The Remuneration Committee reviews and makes recommendations to the Board on remuneration packages and policies applicable to the Managing Director, senior executives and the Directors themselves. It evaluates the performance of the Managing Director and is also responsible for share option schemes, incentive performance packages, superannuation entitlements and fringe beneﬁ ts policies. Remuneration levels are reviewed annually and the Remuneration Committee may obtain independent advice on the appropriateness of remuneration packages, given trends in the marketplace. The members of the Remuneration Committee are disclosed in the Directors’ Report. The Managing Director is invited to Remuneration Committee meetings as required to discuss senior executives’ performance and remuneration packages. The Remuneration Committee meets once a year or as required. The Committee met once during the ﬁ nancial year and the Committee members’ attendance record is disclosed in the table of Directors’ meetings. Further details of the Remuneration Committee’s charter are available on the company’s website. Remuneration Policies Remuneration levels are set to attract and retain appropriately qualiﬁ ed and experienced Directors and senior executives. The Remuneration Committee may obtain independent advice on the appropriateness of remuneration packages, given trends in the marketplace. Remuneration packages include a mix of ﬁ xed remuneration, performance based remuneration, and equity based remuneration. Executive Directors and senior executives may receive short term incentives based on achievement of speciﬁ c business plans and performance indicators, which include ﬁ nancial and operational targets relevant to performance at the consolidated entity level, divisional level, or functional level, as applicable, for the ﬁ nancial year. In addition, the consolidated entity offers executive Directors and senior executives participation in the long-term incentive scheme involving the issue of options to the employee under the executive share option scheme. The executive share option 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 set at the time the offer was made. The options are granted annually in three tranches on achievement of the performance hurdles. Non-executive Directors do not receive any performance related remuneration. Set out below are statements in relation to the Audit and Risk Committee and Risk Management, with reference to Principle 7, Recognise and Manage Risk, and Principle 4, Safeguard integrity in Financial Reporting. Audit and Risk Committee The Audit and Risk Committee has a documented charter, approved by the Board. All members of the Committee are non executive Directors with a majority being independent, and the Chairman of the Audit and Risk Committee is not the Chairman of the Board of Directors. The members of the Audit and Risk Committee during the ﬁ nancial year are disclosed in the Directors’ Report. The external auditors, the Managing Director and Chief Financial Ofﬁ cer are invited to Audit and Risk Committee meetings at the discretion of the Committee, and the external auditor also meets with the Audit Committee during the year without management being present. The Committee met four times during the year and the Committee members’ attendance record is disclosed in the table of Directors’ meetings. The Managing Director and the Chief Financial Ofﬁ cer have provided a statement in writing to the Board that the consolidated entity’s ﬁ nancial reports for the year ended 30 June 2010 present a true and fair view, in all material respects, of the consolidated entity’s ﬁ nancial condition and operational results and are in accordance with the relevant accounting standards. This statement is required annually. Further details of the Audit and Risk Committee’s charter are available on the Company’s website. 30 Select Harvests Annual Report 2010 Corporate governance statement The duties and responsibilities of the Audit and Risk Committee include: • Recommending to the Board the appointment of the external auditors; • Recommending to the Board the fee payable to the external auditors; • Reviewing the audit plan and performance of the external auditors; • Determining that no management restrictions are being placed upon the external auditors; • Evaluating the adequacy and effectiveness of the reporting and accounting controls of the company through active communication with operating management and the external auditors; • Reviewing all ﬁ nancial reports to shareholders and/or the public prior to their release; • Evaluating systems of internal control; • Monitoring the standard of corporate conduct in areas such as arms-length dealings and likely conﬂ icts of interest; • Requiring reports from management and the external auditors on any signiﬁ cant regulatory, accounting or reporting development to assess potential ﬁ nancial reporting interest; • Reviewing and approving all signiﬁ cant company accounting policy changes; • Reviewing the company’s taxation position; • Reviewing the annual ﬁ nancial statements with the Chief Financial Ofﬁ cer and the external auditors, and recommending acceptance to the Board; • Evaluating the adequacy and effectiveness of the company’s risk management policies and procedures including insurance; and • Directing any special projects or investigations deemed necessary by the Board or by the Committee. The Audit and Risk Committee is committed to ensuring that it carries out its functions in an effective manner. Accordingly, it reviews its charter at least once in each ﬁ nancial year. Risk Management The Board oversees the establishment, implementation, and review of a system of risk management within the consolidated entity. The consolidated entity’s areas of focus in respect of risk management practices include, but are not limited to, environment, occupational health and safety, property, ﬁ nancial reporting and internal control. The Board is responsible for the overall risk management and internal control framework, but recognises that no cost-effective risk management and internal control system will preclude all errors and irregularities. The Board has the following procedures in place to monitor performance and to identify areas of concern: • • • Strategic Planning; The Board reviews and approves the strategic plan that encompasses the consolidated entity’s strategy, designed to meet the 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 consolidated entity; Financial reporting; Monthly actual results are reported against budgets approved by the Directors and revised forecasts prepared during the year; Functional Reporting; Key areas subject to regular or periodical reporting to the Board include, but are not limited to, operational, treasury (including foreign exchange), environmental, occupational health & safety, insurance, and legal matters; • Continuous disclosure; A process is in place to identify matters that may have a material effect on the price of the Company’s securities and to notify them to the ASX; and • Investment appraisal; Guidelines for capital expenditure include annual budgets, appraisal and review procedures, due diligence requirements where businesses are being acquired or divested. The Managing Director and Chief Financial Ofﬁ cer have provided a statement in writing to the Board that the declaration made in respect of the consolidated entity’s ﬁ nancial reports is founded on a system of risk management and internal compliance and control which reﬂ ects the policies adopted to date by the Board, and that the consolidated entity’s risk management and internal control and compliance system is operating effectively in all material respects based on the criteria for effective internal control established by the Board. The statements set out below on Ethical standards, Conﬂ ict of Interest and Dealings in Company Shares are with reference to Principle 3, Promote ethical and responsible decision making. Select Harvests Annual Report 2010 31 Corporate governance statement Ethical Standards All Directors, managers and employees are expected to act with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of the consolidated entity. The consolidated entity’s code of conduct includes the following: Conﬂ ict of Interest Directors must keep the Board advised, on an ongoing basis, of any interest that could potentially conﬂ ict with those of the Company. Should a situation arise where the Board believes that a material conﬂ ict exists, the Director concerned shall not receive the relevant Board papers and will not be present at the meeting when the item is considered. Details of Director related entity transactions with the Company and consolidated entity are set out in the Notes to the ﬁ nancial statements. Dealings in Company Shares Directors and senior management are prohibited from dealing in Company shares except within a four week trading window that commences 48 hours after the release of the consolidated entity’s results at year end and half year on the basis that they are not in possession of any price sensitive information. Directors must advise the ASX of any transactions conducted by them in shares in the Company. The statement below in relation to Communication with Shareholders is with reference to Principle 5, Make timely and balanced disclosures and Principle 6, Respect the right of shareholders. Communication with Shareholders The Board of Directors aims to ensure that shareholders are informed of all major developments affecting the consolidated entity’s state of affairs. Information is communicated to shareholders as follows: • The annual report is distributed to all shareholders (unless a shareholder has speciﬁ cally requested not to receive the document), including relevant information about the operations of the consolidated entity during the year, changes in the state of affairs and details of future developments; • The half yearly report contains summarised ﬁ nancial information and a review of the operations of the consolidated entity during the period. The half year audited ﬁ nancial report is lodged with the Australian Securities and Investments Commission and the ASX, and sent to any shareholder who requests it; • The consolidated entity has nominated the Company Secretary to ensure compliance with the consolidated entity’s continuous disclosure requirements, and overseeing and co-ordinating disclosure of information to the ASX; • Information is posted on the consolidated entity’s website immediately after ASX conﬁ rms an announcement has been made to ensure that the information is made available to the widest audience. The consolidated entity’s website is www.selectharvests.com.au; • The Board encourages full participation of shareholders at the Annual General Meeting to ensure a high level of accountability and identiﬁ cation with the consolidated entity’s strategy and goals. It is the policy of the consolidated entity and the policy of the auditor for the lead engagement partner to be present at the Annual General Meeting to answer any questions about the conduct of the audit and the preparation and content of the auditor’s report; and • Occasional letters from the Chairman and Managing Director may be utilised to provide shareholders with key matters of interest. 32 Select Harvests Annual Report 2010 Financial Report This ﬁ nancial report covers the consolidated entity consisting of Select Harvests Limited and its subsidiaries. The ﬁ nancial report is presented in the Australian currency. Select Harvests Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered ofﬁ ce and principal place of business is: Select Harvests Limited 360 Settlement Road Thomastown Vic 3074 A description of the nature of the consolidated entity’s operations and its principal activities is included in the review of operations and activities and in the directors’ report, both of which are not part of this ﬁ nancial report. The ﬁ nancial report was authorised for issue by the directors on 23 August 2010. The company has the power to amend and reissue the ﬁ nancial report. Through the use of the internet, we have ensured that our corporate reporting is timely, complete, and available globally at minimum cost to the company. All ﬁ nancial reports and other information are available on our website: www.selectharvests.com.au. Select Harvests Annual Report 2010 33 Income Statement FOR THE YEAR ENDED 30 JUNE 2010 NOTES CONSOLIDATED Revenue Sales of goods and services Other revenue Total revenue Other income (expenses) Almond stock fair value adjustment Total other income (expenses) Expenses Cost of sales Distribution expenses Marketing expenses Occupancy expenses Administrative expenses Finance costs Other expenses PROFIT BEFORE INCOME TAX Income Tax Expense PROFIT ATTRIBUTABLE TO MEMBERS OF SELECT HARVESTS LIMITED Earnings per share for proﬁ t attributable to the ordinary equity holders of the company: Basic earnings per share (cents per share) Diluted earnings per share (cents per share) The above income statement should be read in conjunction with the accompanying Notes. 2010 $’ 000 2009 $’ 000 238,376 735 239,111 2,405 2,405 248,581 93 248,674 (1,951) (1,951) (200,651) (199,429) (6,890) (631) (1,331) (3,783) (2,946) (1,681) 23,603 (6,350) 17,253 (8,220) (901) (1,441) (3,718) (3,873) (6,094) 23,047 (6,335) 16,712 43.3 43.3 42.6 42.6 4 4 5 5 6 25(c) 29 29 34 Select Harvests Annual Report 2010 Statement of Comprehensive Income FOR THE YEAR ENDED 30 JUNE 2010 NOTES CONSOLIDATED Proﬁ t for the year Other comprehensive income Cash ﬂ ow hedges Intrinsic value movement – I/R cap Income Tax relating to components of other comprehensive income Other comprehensive income for the year TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO MEMBERS OF SELECT HARVESTS LIMITED The above statement of changes in equity should be read in conjunction with the accompanying Notes. 2010 $’ 000 17,253 (2,032) (213) 502 (1,743) 15,510 2009 $’ 000 16,712 2,181 - (652) 1,529 18,241 Select Harvests Annual Report 2010 35 Balance Sheet AS AT 30 JUNE 2010 NOTES CONSOLIDATED 2010 $’ 000 13,184 33,495 34,152 541 2,621 83,993 1,553 87,560 17,363 39,136 145,612 229,605 37,504 18,153 42 - 2,770 58,469 329 40,000 16,302 884 57,515 115,984 113,621 47,470 11,327 54,824 113,621 2009 $’ 000 6,945 43,128 28,680 2,322 - 81,075 - 80,487 14,261 39,136 133,884 214,959 36,764 59,293 149 3,566 2,576 102,348 - - 10,871 864 11,735 114,083 100,876 46,433 12,949 41,494 100,876 9 10 11 12 13 14 15 16 17 18 12 19 20 21 22 23 24 25 25 CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Derivative ﬁ nancial instruments Current tax receivables TOTAL CURRENT ASSETS NON CURRENT ASSETS Other Receivables Property, plant and equipment Biological assets – Almond Trees Intangible assets TOTAL NON CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Interest bearing liabilities Derivative ﬁ nancial instruments Current tax liabilities Provisions TOTAL CURRENT LIABILITIES NON CURRENT LIABILITIES Trade and other payables Interest bearing liabilities Deferred tax liabilities Provisions TOTAL NON CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Retained proﬁ ts TOTAL EQUITY The above balance sheet should be read in conjunction with the accompanying Notes. 36 Select Harvests Annual Report 2010 Statement of changes in equity CONSOLIDATED Balance at 1 July 2008 NOTES CONTRIBUTED EQUITY RESERVES RETAINED EARNINGS TOTAL 44,375 11,235 38,461 94,071 Total comprehensive income for the year - 1,529 16,712 18,241 Transactions with equity holders in their capacity as equity holders: Contributions of equity, net of transaction costs Employee share options Dividends paid or provided Balance at 30 June 2009 Total comprehensive income for the year Transactions with equity holders in their capacity as equity holders: Contributions of equity, net of transaction costs: Employee share options Dividends paid or provided Balance at 30 June 2010 24 25 8 24 25 8 2,058 - - - 185 - - - 2,058 185 (13,679) (13,679) 46,433 12,949 41,494 100,876 - (1,743) 17,253 15,510 1,037 - - - 120 - - - (3,922) 1,037 120 (3,922) 47,470 11,327 54,824 113,621 The above statement of changes in equity should be read in conjunction with the accompanying Notes. Select Harvests Annual Report 2010 37 Statement of Cash Flows FOR THE YEAR ENDED 30 JUNE 2010 NOTES CONSOLIDATED CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers (inclusive of goods and services tax) Payments to suppliers and employees (inclusive of goods and services tax) Interest received Interest paid Income tax paid Net Cash Inﬂ ow From Operating Activities 26 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property, plant and equipment Payment for property, plant and equipment Tree development costs Net Cash Outﬂ ow From Investing Activities CASH FLOWS FROM FINANCING ACTIVITIES Commercial bill draw downs Repayments of borrowings Dividends payment on ordinary shares, net of DRP Net Cash Outﬂ ow from ﬁ nancing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the ﬁ nancial year Cash and cash equivalents at the end of the ﬁ nancial year ﬁ nancial year 9(a) 9(a) onjunction with the accompanying Notes. The above cash ﬂ ow statement should be read in conjunction with the accompanying Notes. 2010 $’ 000 2009 $’ 000 298,694 330,408 (263,455) 35,239 (300,296) 30,112 517 (3,719) (6,542) 25,495 15 (12,143) (3,102) (15,230) - (1,500) (2,886) (4,386) 5,879 4,152 10,031 10,031 93 (3,873) (3,759) 22,573 161 (12,208) (4,510) (16,557) 6,000 (246) (11,622) (5,868) 148 4,004 4,152 4,152 38 Select Harvests Annual Report 2010 Notes to the Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these consolidated ﬁ nancial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The ﬁ nancial statements are for the consolidated entity consisting of Select Harvests Limited and its subsidiaries. (a) Basis of preparation This general purpose ﬁ nancial report has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001. Compliance with IFRS The consolidated ﬁ nancial statements of the Select Harvests Limited group and the separate ﬁ nancial statements of Select Harvests Limited also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Historical cost convention These ﬁ nancial statements have been prepared under the historical cost convention, as modiﬁ ed by the revaluation of available- for-sale ﬁ nancial assets, ﬁ nancial assets and liabilities (including derivative instruments) at fair value through proﬁ t and loss, and certain classes of property, plant and equipment. Critical Accounting Estimates The preparation of ﬁ nancial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the consolidated entity’s accounting policies. The areas involving a higher level of judgement or complexity, or areas where assumptions and estimates are signiﬁ cant to the ﬁ nancial statements are disclosed in Note 3. Going Concern Basis The ﬁ nancial report has been prepared on the basis that Select Harvests Limited (“the Group”), comprising the parent company and its subsidiaries, is a going concern. (b) Principles of consolidation The consolidated ﬁ nancial statements are those of the consolidated entity, comprising Select Harvests Limited (the parent entity) and all entities which Select Harvests Limited controlled at any point during the year and at balance date. Subsidiaries are all those entities (i Subsidiaries are all those entities (including special purpose entities) over which the consolidated entity has power to govern the ﬁ nancial and operating policies, ge ﬁ nancial and operating policies, generally accompanying of more than one-half of the voting rights. The existence and effect of potential voting rights that are cur potential voting rights that are currently exercisable or convertible are considered when assessing whether the consolidated entity controls another entity. controls another entity. Subsidiaries are fully consolidated f Subsidiaries are fully consolidated from the date at which control is transferred to the consolidated entity. They are deconsolidated from the date that control ceases. from the date that control ceases. The purchase method of accountin The purchase method of accounting is used to account for the acquisition of subsidiaries by the consolidated entity. The ﬁ nancial statements of subsidi The ﬁ nancial statements of subsidiaries are prepared for the same reporting period as the parent entity, using consistent accounting policies. Adjustments a accounting policies. Adjustments are made to bring into line any dissimilar accounting policies which may exist. All intercompany balances and tran All intercompany balances and transactions, including unrealised proﬁ ts arising from intra-group transactions, have been eliminated in full. eliminated in full. Investments in subsidiaries are acco Investments in subsidiaries are accounted for at cost in the individual ﬁ nancial statements of Select Harvests Limited. (c) Foreign currency translation (c) Foreign currency translation (i) Functional and presentation curre (i) Functional and presentation currency Items included in the ﬁ nancial state Items included in the ﬁ nancial statements of each entity comprising the consolidated entity are measured using the currency of the primary economic environment in w primary economic environment in which the entity operates (“the functional currency”). The consolidated ﬁ nancial statements are presented in Australian dollars, whi presented in Australian dollars, which is the functional and presentation currency of Select Harvests Limited. Select Harvests Annual Report 2010 39 Notes to the Financial Statements (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash ﬂ ow hedges. (d) Cash and cash equivalents For the purpose of presentation in the statement of cash ﬂ ows, cash and cash equivalents includes cash on hand, deposits held at call with ﬁ nancial institutions, money market investments readily convertible to cash within two working days, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet. (e) Inventories Inventories are valued at the lower of cost and net realisable value except for almond stocks which are measured at fair value less estimated cost to sell at the point of harvest, and subsequently Net Realisable Value under AASB 102 Inventories. 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 ﬁ rst in ﬁ rst out basis; • Finished goods and work in progress cost of direct material and labour and a proportion of manufacturing overheads based on normal operating capacity; and • Almond stocks are valued in accordance with AASB 141 Agriculture 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. • Other inventories comprise consumable stocks of chemicals, fertilisers and packaging materials. (f) Biological Assets Almond Trees Almond trees are classiﬁ ed as a biological asset and valued in accordance with AASB 141 Agriculture. Developing almond trees are valued at their growing cost until the year they bear their ﬁ rst commercial crop. The value of crop bearing almond trees is measured at fair value using a discounted cash ﬂ ow methodology. The discounted cash ﬂ ow 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 on long term average levels; • Cash ﬂ ows are discounted at a rate that takes into account the cost of capital plus a suitable risk factor; and • An appropriate rental charge is included to represent the use of the developed land on which the trees are planted. Nursery trees are grown by the consolidated entity for sale to external almond orchard owners and for use in almond orchards owned by the consolidated entity. Nursery trees are carried at fair value. Growing Almond Crop The growing almond crop is valued in accordance with AASB 141 Agriculture. 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 ﬁ rst 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. Almond trees are valued as described above once they commence bearing a commercial crop. 40 Select Harvests Annual Report 2010 Notes to the Financial Statements (g) Derivatives Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The consolidated entity designates derivatives as either; (1) hedges of the fair value of recognised assets or liabilities or a ﬁ rm commitment (fair value hedge); or (2) hedges of highly probable forecast transactions (cash ﬂ ow hedges). The consolidated entity documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The consolidated entity also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash ﬂ ows of hedged items. (i) Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. (ii) Cash ﬂ ow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash ﬂ ow hedges is recognised in equity in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item will affect proﬁ t or loss (for instance when the forecast sale that is hedged takes place). However, when the forecast transaction that is hedged results in the recognition of a non ﬁ nancial asset (for example, inventory) or a non ﬁ nancial liability, the gains and losses previously deferred in equity are transferred from equity and included in the measurement of the initial cost or carrying amount of the asset or liability. When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. (h) Property, plant and equipment Cost and valuation All classes of property, plant and equipment are measured at cost less accumulated depreciation. The carrying amount of property, 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 cash ﬂ ows which will be received from the assets’ employment and subsequent disposal. The expected net cash ﬂ ows have been discounted to present values in determining recoverable amounts. Where assets have been revalued, the potential effect of the capital gains tax on disposal has not been taken into account in the determination of the revalued carrying amount. Where it is expected that a liability for capital gains tax will arise, this expected amount is disclosed by way of Note. Depreciation The depreciable amount of all ﬁ xed assets including buildings and capitalised leased assets, but excluding freehold land water rights, and almond trees, 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. Select Harvests Annual Report 2010 41 Notes to the Financial Statements The useful lives for each class of assets are: Buildings: Leasehold improvements: Plant and equipment: Leased plant and equipment: Plantation land, irrigation systems: Capital works in progress 25 to 40 years 5 to 40 years 5 to 20 years 5 to 10 years 10 to 40 years Capital works in progress are valued at cost and relate to costs incurred for owned orchards and other assets under development. (i) Leases Leases are classiﬁ ed at their inception as either operating or ﬁ nance leases based on the economic substance of the agreement so as to reﬂ ect the risks and beneﬁ ts incidental to ownership. Operating leases The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and beneﬁ ts of ownership of the leased item, are recognised as an expense on a straight line basis over the term of the lease. Finance leases Leases which effectively transfer substantially all the risks and beneﬁ ts incidental to ownership of the leased item to the consolidated entity are capitalised at the present value of the minimum lease payments and disclosed as plant and equipment under lease. A lease liability of equal value is also recognised. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the assets and the lease term. Minimum lease payments are allocated between interest expense and reduction of the lease liability with the interest expense calculated using the interest rate implicit in the lease and charged directly to the income statement. The cost of improvements to or on leasehold property is capitalised, disclosed as leasehold improvements, and amortised over the unexpired period of the lease or the estimated useful lives of the improvements, whichever is the shorter. ( j) Intangibles Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the consolidated entity’s share of the net identiﬁ able assets of the acquired subsidiary/business at the date of acquisition. Goodwill is not amortised. Instead, goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less any accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. Brand names Brand names are measured at cost. Directors are of the view that brand names have an indeﬁ nite life. Brand names are therefore not depreciated. Instead, brand names are tested for impairment annually or more frequently if events or changes in circumstances indicate that they might be impaired, and are carried at cost less any accumulated impairment losses. Permanent water rights Permanent water rights are recorded at historical cost. Such rights have an indeﬁ nite life, and are not depreciated. As an integral component of the land and irrigation infrastructure required to grow almonds, the carrying value is tested annually for impairment. If events or changes in circumstances indicate impairment, the carrying value is adjusted to take account of any impairment losses. (k) Revenue Recognition Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances, and amounts collected on behalf of third parties. Revenue is recognised to the extent that it is probable that the economic beneﬁ ts will ﬂ ow to the entity, the revenue can be reliably measured, and the risks and rewards have passed to the buyer. The following speciﬁ c recognition criteria must also be met before revenue is recognised: 42 Select Harvests Annual Report 2010 Notes to the Financial Statements Sale of Goods Control of the goods has passed to the buyer. Rendering of Services Revenue from the rendering of services is recognised upon the delivery of the service to the customer. Certain clients may be invoiced in advance of provision of services. Interest Interest income is recognised using the effective interest method. When a receivable is impaired, the group reduces the carrying amount to its recoverable amount, being the estimated future cash ﬂ ow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate. Dividends Dividends are recognised as revenue when the right to receive payment is established. Almond Pool Revenue Under contractual arrangements, the company acts as an agent for external growers by simultaneously acquiring and selling the almonds and therefore, does not make a margin on those sales. As at 30 June 2010 the Company held almond inventory on behalf of external growers which was not recorded as inventory of the Company. All revenue is stated net of the amount of Goods and Services Tax (GST). (l) Other income Almond Stocks Increments or decrements in the net market value of almond stocks are recognised as income or expenses in the income statement in the ﬁ nancial year in which they occur. (m) Income Tax The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the ﬁ nancial statements, and to unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting proﬁ t or taxable proﬁ t or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST except: • Where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • Receivables and payables are stated with the amount of GST included. Select Harvests Annual Report 2010 43 Notes to the Financial Statements The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. Cash ﬂ ows are included in the cash ﬂ ow statement on a gross basis and the GST component of cash ﬂ ows arising from investing and ﬁ nancing activities, which is recoverable from, or payable to the taxation authority are classiﬁ ed as operating cash ﬂ ows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (n) Impairment of assets Goodwill and other Intangible assets that have an indeﬁ nite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identiﬁ able cash ﬂ ows (cash generating units). (o) Employee beneﬁ ts Provision is made for employee beneﬁ ts accumulated as a result of employees rendering services up to the reporting date. These beneﬁ ts include wages and salaries, annual leave and long service leave. Liabilities arising in respect of wages and salaries, annual leave and any other employee beneﬁ ts expected to be settled within twelve months of the reporting date are measured at their nominal amounts based on remuneration rates which are expected to be paid when the liability is settled. All other employee beneﬁ t liabilities are measured at the present value of the estimated future cash outﬂ ow to be made in respect of services provided by employees up to the reporting date. In determining the present value of future cash outﬂ ows, the market yield as at the reporting date on national government bonds, which have terms to maturity approximating the terms of the related liability, are used. Contributions are made by the consolidated entity to an employee superannuation fund and are charged as expenses when incurred. Share-based payments Share-based compensation beneﬁ ts are provided to employees via the Select Harvests Limited Executive Share Option Scheme. Information relating to this scheme is set out in Note 35. The fair value of options granted under the Select Harvests Limited Executive Share Option Scheme is recognised as an employee beneﬁ t expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options. The fair value at grant date is independently determined using a Black Scholes option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. The fair value of the options granted is adjusted to reﬂ ect market vesting conditions, but excludes the impact of any non market vesting conditions (for example, proﬁ tability and sales growth targets). Non market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the entity revises its estimate of the number of options that are expected to become exercisable. The employee beneﬁ t expense recognised each period takes into account the most recent estimate. The impact of the revision to original estimates, if any, is recognised in the income statement with a corresponding adjustment to equity. (p) Financial Instruments Financial Assets Collectability of trade receivables is reviewed on an ongoing basis. 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, and where there is objective evidence of impairment, debts which are known to be non collectible are written off immediately. 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 speciﬁ c contract which speciﬁ es an alternative date. Amounts receivable from related parties are carried at full amounts due. 44 Select Harvests Annual Report 2010 Notes to the Financial Statements Financial Liabilities The bank overdraft is carried at the principal amount and is part of the Net Cash balance in the Balance Sheet. Interest is charged as an expense as it accrues. Liabilities are recognised for amounts to be paid in the future for goods and services received, whether or not billed to the consolidated entity. Finance lease liability is accounted for in accordance with AASB 117 Leases. (q) Fair value estimation The fair value of certain ﬁ nancial assets and ﬁ nancial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair value of ﬁ nancial instruments traded in active markets, such as foreign exchange hedge contracts and the Interest Rate Cap, are based on quoted market prices at the balance sheet date. The quoted market price used for ﬁ nancial assets held by the consolidated entity is the current bid price; the appropriate quoted market price for ﬁ nancial liabilities is the current ask price. The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The fair value of ﬁ nancial liabilities for disclosure purposes is estimated by discounting the future contractual cash ﬂ ows at the current market interest rate that is available to the consolidated entity for similar instruments. (r) Borrowings Borrowings are recognised at their nominal value as at 30 June 2010. They are split between Current and Non-Current based on remaining settlement period. The short term portion of the debt facility, along with the AUD value of the Bank overdraft are recognised as Current Liabilities. The remaining balance of the debt facility is recognised as a Non-Current Liability. (s) Borrowing costs Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs, inclusive of all facility fees, bank charges, and interest, are expensed as incurred. (t) Earnings per share (i) Basic Earnings per share Basic earnings per share are calculated by dividing the proﬁ t attributable to equity holders of the company by the weighted average number of ordinary shares outstanding during the ﬁ nancial year. (ii) Diluted earnings per share Diluted earnings per share adjusts the ﬁ gures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other ﬁ nancing costs associated with dilutive potential ordinary shares. (u) Segment Reporting The Group has applied AASB 8 Operating Segments from 1 July 2009. AASB 8 requires a ‘management approach’ under which segment information is presented on the same basis as that used for internal reporting purposes. Operating segments are now reported in a manner that is consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been identiﬁ ed as the Chief Executive Ofﬁ cer. The adoption of AASB 8 did not result in any change to the previously identiﬁ ed segments. (v) New accounting standards and UIG interpretations Certain new accounting standards and UIG interpretations have been published that are not mandatory for 30 June 2010 reporting periods. The Group’s and the parent entity’s assessment of the impact of these new standards and interpretations is set out below: Select Harvests Annual Report 2010 45 Notes to the Financial Statements AASB 2009-10 Amendments to Australian Accounting Standards – Classiﬁ cation of Rights Issues [AASB 132] (effective from 1 February 2010) In October 2009 the AASB issued an amendment to AASB 132 Financial Instruments: Presentation which addresses the accounting for rights issues that are denominated in a currency other than the functional currency of the issuer. Provided certain conditions are met, such rights issues are now classiﬁ ed as equity regardless of the currency in which the exercise price is denominated. Previously, these issues had to be accounted for as derivative liabilities. The amendment must be applied retrospectively in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. The group will apply the amended standard from 1 July 2010. As the group has not made any such rights issues, the amendment will not have any effect on the group’s or the parent entity’s ﬁ nancial statements. This amendment has been reviewed and deemed not applicable by Select Harvests Limited. AASB 9 Financial Instruments and AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 (effective from 1 January 2013) AASB 9 Financial Instruments addresses the classiﬁ cation and measurement of ﬁ nancial assets and is likely to affect the group’s accounting for its ﬁ nancial assets. The standard is not applicable until 1 January 2013 but is available for early adoption. The group is yet to assess its full impact. However, initial indications are that it may affect the group’s accounting for its available-for-sale ﬁ nancial assets, since AASB 9 only permits the recognition of fair value gains and losses in other comprehensive income if they relate to equity investments that are not held for trading. Fair value gains and losses on available-for-sale debt investments, for example, will therefore have to be recognised directly in proﬁ t or loss. In the current reporting period, the group recognised $15,000 of such gains in other comprehensive income. The group has not yet decided when to adopt AASB 9. Revised AASB 124 Related Party Disclosures and AASB 2009-12 Amendments to Australian Accounting Standards (effective from 1 January 2011) In December 2009 the AASB issued a revised AASB 124 Related Party Disclosures. It is effective for accounting periods beginning on or after 1 January 2011 and must be applied retrospectively. The amendment removes the requirement for government-related entities to disclose details of all transactions with the government and other government-related entities and clariﬁ es and simpliﬁ es the deﬁ nition of a related party. The group will apply the amended standard from 1 July 2011. When the amendments are applied, the group and the parent will need to disclose any transactions between its subsidiaries and its associates. However, it has yet to put systems into place to capture the necessary information. It is therefore not possible to disclose the ﬁ nancial impact, if any, of the amendment on the related party disclosures. AASB 2010-3 Amendments to Australian Accounting Standards arising from the Annual Improvements Project (effective from 1 July 2010) and AASB 2010-4 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project (effective from 1 January 2011). In June 2010, the AASB made a number of amendments to Australian Accounting Standards as a result of the IASB’s annual improvements project. The amendments of particular relevance to Select Harvests Limited are those affecting IFRS 7 Financial Instruments: Disclosures; IAS 1 Presentation of Financial Statements; and IAS 27 Consolidated and Separate Financial Statements. (w) Provisions Provisions are recognised when the consolidated entity has a present legal or constructive obligation as a result of past events, it is probable that an outﬂ ow of resources will be required to settle the obligation, and the amount has been reliably estimated. (x) Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the ﬁ nancial year which are unpaid. These amounts are unsecured and are usually paid within 30 days of recognition. (y) Contributed equity Ordinary shares are classiﬁ ed as equity. The value of new shares or options issued is shown in equity. (z) Comparatives Where necessary, comparatives have been reclassiﬁ ed and repositioned for consistency with current year disclosures. 46 Select Harvests Annual Report 2010 Notes to the Financial Statements (aa) Rounding amounts The company is of a kind referred to in Class Order 98/100, issued by the Australian Securities & Investments Commission, relation to the “rounding off” of amounts in the ﬁ nancial report. Amounts in the ﬁ nancial report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar. (ab) Parent entity ﬁ nancial information The ﬁ nancial information for the parent entity, Select Harvests Limited, disclosed in note 37 has been prepared on the same basis as the consolidated ﬁ nancial statements, except as set out below. (i) Investments in subsidiaries, associates and joint venture entities Investments in subsidiaries, associates and joint venture entities are accounted for at cost in the ﬁ nancial statements of Select Harvests Limited. Dividends received from associates are recognised in the parent entity’s proﬁ t or loss, rather than being deducted from the carrying amount of these investments. (ii) Tax consolidation legislation Select Harvests Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. The head entity, Select Harvests Limited, and the controlled entities in the tax consolidated group account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a standalone taxpayer in its own right. In addition to its own current and deferred tax amounts, Select Harvests Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate Select Harvests Limited for any current tax payable assumed and are compensated by Select Harvests Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Select Harvests Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ ﬁ nancial statements. The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each ﬁ nancial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as current amounts receivable from or payable to other entities in the group. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities. 2. FINANCIAL RISK MANAGEMENT The Group’s activities expose it to a variety of ﬁ nancial risks: market risk (including currency risk, interest rate risk and commodity price risk), credit risk and liquidity risk. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate risk, foreign exchange and other price risks, and ageing analysis for credit risk. Risk management is carried out by management pursuant to policies approved by the Board of Directors. (a) Market risk (i) Foreign exchange risk Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the consolidated entity’s functional currency. The Group sells both almonds harvested from owned orchards through the almond pool and processed products internationally in United States dollars, and purchases raw materials and other inputs to the manufacturing and almond growing process from overseas suppliers predominantly in United States dollars. Select Harvests Annual Report 2010 47 Notes to the Financial Statements Management and the Board review the foreign exchange position of the Group and, where appropriate, take out forward exchange contracts, transacted with the Group’s banker, to manage foreign exchange risk. The exposure to foreign currency risk at the reporting date was as follows: GROUP Trade receivables net of payables Cash at bank/(overdraft) Foreign exchange contracts - buy foreign currency (cash ﬂ ow hedges) - sell foreign currency (cash ﬂ ow hedges) Group sensitivity analysis 30 JUNE 2010 USD $000’s 5,798 (2,377) 30 JUNE 2009 USD $000’s 9,186 (2,253) 5,367 6,874 3,740 14,464 Based on ﬁ nancial instruments held at the 30 June 2010, had the Australian dollar strengthened/weakened by 5% against the US dollar, with all other variable’s held constant, the Group’s post tax proﬁ t for the year would have been $136,000 lower/$150,000 higher (2009: $287,000 lower/$317,000 higher), mainly as a result of the US dollar denominated ﬁ nancial instruments as detailed in the above table. Other components of equity would have been $195,000 higher/$216,000 lower (2009:$730,000 higher/$806,000 lower), arising mainly from foreign forward exchange contracts designated as cash ﬂ ow hedges. (ii) Cash ﬂ ow interest rate risk The Group’s interest rate risk arises from borrowings issued at variable rates, which exposes the Group to cash ﬂ ow interest rate risk. The Group’s borrowings at variable interest rate are denominated in Australian dollars. At the reporting date the Group had the following variable rate borrowings: 30 JUNE 2010 WEIGHTED AVERAGE INTEREST RATE % Commercial bill facility Overdraft 8.00% 3.80% An analysis of maturities is provided in 2(c) below 30 JUNE 2009 WEIGHTED AVERAGE INTEREST RATE % 7.87% 3.80% BALANCE $000 55,000 3,153 BALANCE $000 56,500 2,793 The Group analyses interest rate exposure on an ongoing basis in conjunction with debt facility, cash ﬂ ow and capital management. As part of the Risk Management policy of Select Harvests Limited, the company has entered into an agreement to cap $30,000,000 of debt at a rate of 5.75% to reduce the risk that higher interest rates pose to the company’s cash ﬂ ows. Group sensitivity At 30 June 2010, if interest rates had changed by +/- 25 basis points from the year end rates with all other variables held constant, post tax proﬁ t for the year would have been $94,000 lower/higher (2009: $94,000 lower/higher). 48 Select Harvests Annual Report 2010 Notes to the Financial Statements , e t a d e c n a a b e h t l t a d e s i n g o c e r n u d n a d e s i n g o c e r h t o b , s e i t i l i b a i l l a i c n a n ﬁ d n a s t e s s a l a i c n a n ﬁ f o s e t a r t s e r e t n i e v i t c e f f e e h t d n a s k s i r e t a r t s e r e t n i o t e r u s o p x e s ’ y t i t n e d e t a d i l o s n o c e h T k s i r e t a r t s e r e t n I : N I I G N R U T A M E T A R T S E R E T N I D E X I F : s w o l l o f s a e r a D E T H G I E W I G N Y R R A C L A T O T R E P S A T N U O M A E V I T C E F F E E G A R E V A E C N A L A B E H T T S E R E T N I N O N 5 N A H T E R O M T S E R E T N I G N I T A O L F E T A R T S E R E T N I T E E H S I G N R A E B S R A E Y S R A E Y 5 O T 1 R E V O S S E L R O R A E Y 1 E T A R S T N E M U R T S N I I L A C N A N I F 9 % 0 0 2 0 % 1 0 2 9 0 0 2 0 0 0 ’ $ 0 1 0 2 0 0 0 ’ $ 9 0 0 2 0 0 0 ’ $ 0 1 0 2 0 0 0 ’ $ 9 0 0 2 0 0 0 ’ $ 0 1 0 2 0 0 0 ’ $ 9 0 0 2 0 0 0 ’ $ 0 1 0 2 0 0 0 ’ $ 9 0 0 2 0 0 0 ’ $ 0 1 0 2 0 0 0 ’ $ 9 0 0 2 0 0 0 ’ $ 0 1 0 2 0 0 0 ’ $ - - - - - 8 3 . 8 7 . - - - - - - - - - 8 3 . 0 8 . - - - - 5 4 9 6 , 4 8 1 , 3 1 - - 8 2 1 , 3 4 5 9 4 3 3 , 8 2 1 , 3 4 5 9 4 3 3 , 2 2 3 2 , 8 5 3 3 8 1 - 2 2 3 2 , 8 5 3 3 8 1 5 9 3 2 5 , 0 2 2 7 4 , 0 5 4 5 4 , 6 3 0 4 3 , 3 9 7 2 , 3 5 1 , 3 0 0 5 6 5 , 0 0 0 5 5 , - - - - 9 4 1 2 4 9 4 1 2 4 7 4 0 7 , 1 9 5 6 1 , 7 4 0 7 , 1 9 5 6 1 , 7 1 7 9 2 , 5 3 3 0 2 , 7 1 7 9 2 , 5 3 3 0 2 , 6 0 2 6 9 , 1 2 1 , 5 9 3 1 9 6 3 , 8 6 9 6 3 , - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5 4 9 6 , 4 8 1 , 3 1 - - - - - - 5 4 9 6 , 4 8 1 , 3 1 3 9 7 2 , 3 5 1 , 3 0 0 5 6 5 , 0 0 0 5 5 , - - - - - - 3 9 2 9 5 , 3 5 1 , 8 5 s e l b a v i e c e r r e h t o d n a e d a r T p a C e t a R t s e r e t n I s t c a r t n o c e g n a h c x e n g i e r o F s t e s s a l a i c n a n ﬁ l a t o T s e i t i l i b a i l l a i c n a n i F ) i i ( D U A @ D S U – t f a r d r e v o k n a B s t e s s a l a i c n a n i F ) i ( h s a C s t c a r t n o c e g n a h c x e n g i e r o F s l l i B l a i c r e m m o C s r o t i d e r c e d a r T s r o t i d e r c r e h t O s e i t i l i b a i l l a i c n a n ﬁ l a t o T Select Harvests Annual Report 2010 49 Notes to the Financial Statements (b) Credit risk Credit risk arises from cash and cash equivalents, derivative ﬁ nancial instruments and deposits with banks and ﬁ nancial institutions, as well as exposure to wholesale, retail and farm investor customers, including outstanding receivables and committed transactions. The Group has no signiﬁ cant concentrations of credit risk. The Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history. Derivative counterparties and cash transactions are limited to high credit quality ﬁ nancial institutions. The credit quality of ﬁ nancial assets that are neither past due or impaired can be assessed by reference to external credit ratings (if available) or to historical information about default rates. Given that the majority if income is derived from large, blue chip customers with no history of default, the provision raised against receivables is deemed to be satisfactory. The Group’s banking partner has a long-term credit rating of AAA (Standard & Poors). Refer to note 10 for a summary of aged receivables impaired, and past due but not impaired. (c) Liquidity risk The Group manages liquidity risk by continuously monitoring forecast and actual cash ﬂ ows and matching the maturity proﬁ les of ﬁ nancial assets and liabilities. Financing arrangements The Group had access to the following undrawn borrowing facilities at the reporting date: Floating rate - Commercial bill facility - Bank overdraft facility USD 2010 $’000 $A 25,000 $US 623 2009 $’000 $A 8,500 $US 747 The bank overdraft facility may be drawn at any time and may be terminated by the bank without notice. The commercial bill acceptance facility may be drawn at any time over a three year term. Fair Value Measurement The fair value of ﬁ nancial assets and ﬁ nancial liabilities must be estimated for recognition and measurement or for disclosure purposes. As of 1 July 2009, Select Harvests Limited has adopted the amendment to AASB 7 Financial Instruments: Disclosures which requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: (a) Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level one); (b) Inputs over than quoted prices included within level one that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level two); and (c) Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level three). 50 Select Harvests Annual Report 2010 Notes to the Financial Statements Maturities of ﬁ nancial liabilities The table below analyses the Group’s ﬁ nancial liabilities, net and gross settled derivative instruments into relevant maturity groupings based on the remaining period at the reporting date on the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash ﬂ ows and are all Level 2 inputs. LESS THAN 6 MONTHS $’000 6 – 12 MONTHS $’000 MORE THAN 12 MONTHS $’000 TOTAL CONTRACTUAL CASH FLOWS $’000 CARRYING AMOUNT (ASSETS)/ LIABILITIES $’000 - 3,153 (107) (5,367) 6,807 1,440 20,000 - (100) - 67 67 55,000 - (329) - - - 75,000 3,153 (536) (5,367) 6,874 1,507 LESS THAN 12 MONTHS $’000 MORE THAN 12 MONTHS $’000 TOTAL CONTRACTUAL CASH FLOWS $’000 56,500 2,793 (3,740) 7,884 4,144 - - - - - - - - 6,580 6,580 56,500 2,793 (3,740) 14,464 10,724 55,000 3,153 (536) (183) 42 (141) CARRYING AMOUNT (ASSETS)/ LIABILITIES $’000 56,500 2,793 149 2,322 2,173 Group at 30 June 2010 Non derivatives Variable Rate Bills payable Bank Overdraft Derivatives Interest Rate Cap USD buy - outﬂ ow USD sell - inﬂ ow USD net Group at 30 June 2009 Non derivatives Variable Rate Bills payable Derivatives Bank Overdraft USD buy - outﬂ ow USD sell - inﬂ ow USD net 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements are continually evaluated and are based on historical experience and other factors. Critical accounting estimates and assumptions The consolidated entity makes estimates and assumptions concerning the future. The resulting accounting estimates will, by deﬁ nition, seldom equal the related actual results. The estimates and assumptions that have a risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next ﬁ nancial year are discussed below. Almond Trees Almond trees are classiﬁ ed as a biological asset and valued in accordance with AASB 141 “Agriculture”. The consolidated entity’s accounting policies in relation to almond trees are detailed in Note 1(f). In applying this policy, the consolidated entity has made various assumptions. These are detailed in Note 15 of the ﬁ nancial statements. As at 30 June 2010, the value of almond trees carried in the ﬁ nancial statements of the consolidated entity is $17.4 million (2009:$14.3 million) Estimated impairment of intangible assets The Group tests annually whether intangible assets, has suffered any impairment, in accordance with the accounting policy stated in note 1(j). The recoverable amounts of cash generating units have been determined based on value-in-use calculations. Key assumptions are disclosed in note 16. Select Harvests Annual Report 2010 51 Notes to the Financial Statements 4. REVENUE Revenue from continuing operations - Management services - Sale of goods Other revenue Interest - Other persons/corporations Total interest Total other revenue Total revenue 5. EXPENSES Proﬁ t before tax includes the following speciﬁ c expenses: Cost of goods & services sold Depreciation of non current assets Buildings Plantation land and irrigation systems Leased plant and equipment Plant and equipment Total depreciation of non current assets Finance costs other persons capitalised Total ﬁ nance costs Impairment losses: trade receivables Foreign exchange (gain) Operating lease rental minimum lease payments Net loss (gain) on disposal of property, plant and equipment (a) Capitalised Borrowing Costs NOTES CONSOLIDATED 2010 $’000 2009 $’000 102,321 136,055 238,376 735 735 735 108,259 140,322 248,581 93 93 93 239,111 248,674 NOTES CONSOLIDATED 2010 $’000 2009 $’000 200,651 199,429 51 355 - 4,546 4,952 3,718 (772) 2,946 170 98 10,692 (15) 236 356 34 4,170 4,796 4,585 (712) 3,873 4,695 (279) 10,681 53 5a The capitalised rate used to determine the amount of borrowing costs to be capitalised is the weighted average interest rate applicable to the entity’s outstanding borrowings during the year, 8% (2009 – 7.87%) 52 Select Harvests Annual Report 2010 Notes to the Financial Statements 6. INCOME TAX (a) Income tax expense Current Tax Deferred tax (Over) provided in prior years Income tax expense is attributable to: Proﬁ t from continuing operations Aggregate income tax expense Deferred income tax (revenue) expense included in income tax expense comprises: Decrease (increase) in deferred tax assets (Decrease) increase in deferred tax liabilities (b) Numerical reconciliation of income tax expense to prima facie tax payable Proﬁ t from continuing operations before income tax expense Tax at the Australian tax rate of 30% (2009 – 30%) Tax effect of amounts that are not deductible (taxable) in calculating taxable income Other non allowable items Other non assessable items Under/(over) provision of previous year Income tax expense NOTES CONSOLIDATED 2010 $’000 2009 $’000 22 2,196 4,929 (775) 6,350 6,350 6,350 - 4,929 4,929 8,213 (1,439) (439) 6,335 6,335 6,335 55 (1,494) (1,439) 23,603 23,047 7,081 6,914 44 - (775) 6,350 10 (150) (439) 6,335 7. DISCONTINUED OPERATIONS There are no discontinued operations impacting the reported results in the current ﬁ nancial year or the prior ﬁ nancial year. Select Harvests Annual Report 2010 53 Notes to the Financial Statements 8. DIVIDENDS PAID OR PROPOSED FOR ON ORDINARY SHARES NOTES CONSOLIDATED 2010 $’000 2009 $’000 (a) Dividends paid during the year (i) Interim - paid 9 April 2010 (2009: 16 April 2009) Fully franked dividend (10c per share) (2009: 12c per share) (ii) Final – nil (2009: 1 October 2008) Fully franked dividend (nil c per share) (2008: 23c per share) (b) Dividends proposed and not recognised as a liability A ﬁ nal dividend of 11c per share has been declared by the directors ($4,375,642) (c) Franking credit balance Franking credits available for the subsequent ﬁ nancial year arising from: Franking account balance as at the beginning of the ﬁ nancial year Current year tax payment instalments and adjustments Interim dividends paid Franking account balance at end of ﬁ nancial year Current year income tax payable/(receivable) Dividend declared Franking account balance after payment of current year tax and dividends 3,922 3,922 - 3,922 42,730 17,009 (3,922) 55,817 (6,113) (4,376) 45,328 4,707 4,707 8,972 13,679 28,817 10,299 (4,707) 34,409 8,321 - 42,730 The impact on the franking account of the dividend recommended by the directors since year end, but not recognised as a liability at year end, is $4,375,642 (2009 - $nil). 9. CASH AND CASH EQUIVALENTS Cash at bank and in hand (a) Reconciliation to cash at the end of the year The above ﬁ gures are reconciled to cash at the end of the ﬁ nancial year as shown in the statement of cash ﬂ ow as follows: Balances as above Bank overdrafts 20 13,184 13,184 13,184 (3,153) 10,031 6,945 6,945 6,945 (2,793) 4,152 54 Select Harvests Annual Report 2010 Notes to the Financial Statements 10. RECEIVABLES (CURRENT) Trade receivables Provision for impairment of trade receivables Prepayments (a) Impaired trade receivables NOTES CONSOLIDATED 2010 $’000 33,000 (170) 32,830 665 33,495 As at 30 June 2010 current trade receivables of the Group with a value of $170,000 (2009: $4,668,000) were impaired. The amount of the provision was $170,000 (2009:$4,668,000). The aging of these receivables is as follows: Over 6 months Movements in the provision for impairment of receivables are as follows: At 1 July 2009 Provision for impairment recognised during the year Receivables written off during the year At 30 June 2010 CONSOLIDATED 2010 $’000 170 170 4,688 170 (4,688) 170 2009 $’000 46,126 (4,688) 41,438 1,690 43,128 2009 $’000 17 17 15 4,695 (22) 4,688 Provision for impairment recognised during the 2009 year includes $4,667 relating to revenues earned but not yet collected from Almond Management Pty Ltd, a subsidiary of Timbercorp Limited (b) Trade receivables past due but not impaired As at 30 June 2010, trade receivables of $4,094,787 (2009: $5,566,108) were past due but not impaired. These relate to a number of customers for whom there is no recent history of default. The ageing analysis of these receivables is as follows: Up to 3 months 3 to 6 months > 6 months (c) Effective interest rates and credit risk All receivables are non-interest bearing. CONSOLIDATED 2010 $’000 3,607 277 211 4,095 2009 $’000 5,165 183 218 5,566 The Company minimises concentrations of credit risk in relation to trade receivables by undertaking transactions with a large number of customers from across the range of business segments in which the consolidated entity operates. Refer to Note 2 for more information on the risk management policy of the consolidated entity. Information concerning the effective interest rate and credit risk of both current and non-current receivables is set out in Note 2. Select Harvests Annual Report 2010 55 Notes to the Financial Statements (d) Fair value and credit risk Due to the short-term nature of these receivables, their carrying amount is assumed to approximate their fair value. NOTES CONSOLIDATED 2010 $’000 2009 $’000 11. INVENTORIES (CURRENT) Raw Materials Raw materials at cost Finished goods Finished goods at cost Other inventory Other inventory at cost Almond stocks Almond stock at cost Almond stock fair value adjustment 1(f) 12. DERIVATIVE FINANCIAL INSTRUMENTS (CURRENT) Current Assets Forward exchange contracts – cash ﬂ ow hedges Interest rate cap – cash ﬂ ow hedges Total current derivative ﬁ nancial instrument assets Current Liabilities Forward exchange contracts – cash ﬂ ow hedges Total current derivative ﬁ nancial instrument liabilities 9,250 9,250 8,200 8,200 6,468 6,468 6,019 4,215 10,234 34,152 183 358 541 42 42 8,911 8,911 9,911 9,911 5,564 5,564 1,768 2,526 4,294 28,680 2,322 - 2,322 149 149 (i) Cash ﬂ ow hedges On 1 April 2010, the consolidated entity entered into an agreement to ﬁ x the interest rate applicable to $30m of debt at 5.75% for a term of 3 years. The market value of the cap is recognised as a current asset in the Balance Sheet. Movements in the fair value of the cap are treated similar to those of forward exchange contracts. Movements caused by changes in the intrinsic value of the cap are recognised in Other Comprehensive Income to the extent that the hedge is effective; those relating to a change in the time value of money are recognised in the income statement. The consolidated entity also enters into forward exchange contracts to buy and sell speciﬁ ed amounts of foreign currency in the future at stipulated exchange rates. The objective in entering the forward exchange contracts is to protect the consolidated entity against unfavourable exchange rate movements for highly probable contracted and forecasted sales and purchases undertaken in foreign currencies. 56 Select Harvests Annual Report 2010 Notes to the Financial Statements The net amount of the foreign currency the consolidated 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 was $1,506,736 (2009: $10,724,000). The accounting policy in regard to forward exchange contracts is detailed in Note 1(c). At balance date, the details of outstanding forward exchange contracts are: BUY UNITED STATES DOLLARS SETTLEMENT SELL AUSTRALIAN DOLLARS AVERAGE EXCHANGE RATE Less than 6 months 2010 $’000 5,367 5,367 2009 $’000 3,740 3,740 2010 $ 0.87 SELL UNITED STATES DOLLARS SETTLEMENT BUY AUSTRALIAN DOLLARS AVERAGE EXCHANGE RATE Less than 6 months 6 months to 1 year More than 1 year (ii) Credit risk exposures 2010 $’000 6,807 67 - 6,874 2009 $’000 7,884 - 6,580 14,464 2010 $ 0.85 0.89 - 2009 $ 0.78 2009 $ 0.73 - 0.67 The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised ﬁ nancial assets is the carrying amount of those assets, net of any provisions for doubtful debts of those assets, as disclosed in the balance sheet and Notes to the ﬁ nancial statements. Credit risk for derivative ﬁ nancial instruments arises from the potential failure by counterparties to the contract to meet their obligations at maturity. The credit risk exposure to forward exchange contracts and the interest rate cap are the net fair values of these instruments. The consolidated entity does not have any material credit risk exposure to any single debtor or group of debtors under ﬁ nancial instruments entered into by the consolidated entity. Select Harvests Annual Report 2010 57 NOTES CONSOLIDATED 2010 $’000 2009 $’000 1,553 1,553 - - 14(a) 14(a) 14(a) 14(a) 10,609 (753) 9,856 30,091 (3,084) 27,007 36,863 69,583 (30,841) 38,742 11,955 50,697 122,238 (34,678) 87,560 10,511 (702) 9,809 30,091 (2,729) 27,362 37,171 66,173 (26,295) 39,878 3,438 43,316 110,213 (29,726) 80,487 Notes to the Financial Statements 13. OTHER RECEIVABLES (NON-CURRENT) Prepayments 14. PROPERTY, PLANT AND EQUIPMENT Buildings At cost Accumulated depreciation Plantation Land and irrigation systems At cost Accumulated depreciation Total land and buildings Plant and equipment At cost Accumulated amortisation Capital works in progress At cost Total plant and equipment Total property, plant and equipment Cost Accumulated depreciation and amortisation Total written down amount 58 Select Harvests Annual Report 2010 Notes to the Financial Statements (a) Reconciliations Reconciliations of the carrying amounts of property, plant and equipment at the beginning and end of the current ﬁ nancial year. NOTES CONSOLIDATED Buildings Carrying amount at beginning Transfers between classes Depreciation expense Plantation land and irrigation systems Carrying amount at beginning Additions Transfers between classes Depreciation expense Plant and equipment under lease Carrying amount at beginning Disposals Transfer between classes Depreciation expense Plant and equipment Carrying amount at beginning Additions Disposals Transfers between classes Depreciation expense Capital works in progress Carrying amount at beginning Additions Reclassiﬁ cation from Trade & Other Receivables Expensed to proﬁ t & loss Transfers between classes Reclass to Biological Assets Total written down value 2010 $’000 9,809 98 (51) 9,856 27,362 - - (355) 27,007 - - - - - 39,878 - (94) 3,504 (4,546) 38,742 3,438 12,143 - (24) (3,602) - 11,955 87,560 2009 $’000 2,343 7,702 (236) 9,809 19,226 3 8,489 (356) 27,362 198 (164) - (34) - 14,256 2 (50) 29,840 (4,170) 39,878 37,112 12,208 3,867 (6) (46,031) (3,712) 3,438 80,487 Select Harvests Annual Report 2010 59 Notes to the Financial Statements 15. BIOLOGICAL ASSETS – ALMOND TREES The consolidated entity, as part of its operations, grows, harvests, and sells almonds. Harvesting of almonds occurs from February through to April each year. The almond orchards are located in the Robinvale area of North West Victoria. As at 30 June 2010 the consolidated entity owned a total of 4,142 acres of almond orchards (2009: 1,863 acres) and leased a total of 4,521 acres of almond orchards (2009: 1,505 acres). During the year ended 30 June 2010, 2,800 metric tonnes of almonds were harvested from these orchards (2009: 2,600 metric tonnes). These almonds had a fair value less estimated point of sale costs of $15.3 million (2009: $13.0 million). Carrying amount at 1 July Reclass to Biological Assets* Tree development costs Carrying amount at 30 June CONSOLIDATED 2010 $’000 14,261 - 3,102 17,363 2009 $’000 6,039 3,712 4,510 14,261 * Due to the reporting of leased orchard tree valuations in a consistent manner with owned orchards, a reclassiﬁ cation of Property, Plant & Equipment to Biological Assets has been retrospectively applied to the 2009 accounts. There is no impact on Net Assets as it is simply a reclass between two Non-Current Assets. Developing almond trees are valued at their growing cost until the year they bear their ﬁ rst commercial crop. The value of crop bearing almond trees is calculated using a discounted cash ﬂ ow methodology. The discounted cash ﬂ ow 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 on long term average levels; • Cash ﬂ ows are discounted at a rate of 14% (2009: 17%) which takes into account the cost of capital plus a suitable risk factor; and • An appropriate rental charge is included to represent the use of the developed land on which the trees are planted. Price risk The Group is exposed to commodity price risk in relation to its owned orchards. The Group sells almonds harvested from owned orchards domestically and overseas throughout the year based on an almond price which will ﬂ uctuate from time to time due to changes in international market conditions. The Group has an active and ongoing almond marketing and selling program in place which is continually monitored and adapted for changes in almond prices. The Group also purchases raw materials and other inputs to the manufacturing and almond growing process domestically and overseas. The price of such inputs will also ﬂ uctuate from time to time based on market forces. Where practical, the consolidated entity, through its procurement programs, contracts from time to time to acquire such quantity of inputs as is projected to be required at ﬁ xed prices. (a) Financial risk management strategies The consolidated entity is exposed to ﬁ nancial risks arising from changes in the price of almonds. The consolidated entity reviews its outlook for almond prices regularly in considering the need for active ﬁ nancial risk management. (b) Non-current assets pledged as security Refer to Note 21 for information on biological assets whose title is restricted and the carrying amounts of any biological assets pledged as security by the parent entity or its subsidiaries. 60 Select Harvests Annual Report 2010 Notes to the Financial Statements 16. INTANGIBLES Year ended 30 June 2009 Opening net book amount Closing net book amount Year ended 30 June 2010 Opening net book amount Closing net book amount CONSOLIDATED GOODWILL $’000 BRAND NAMES* $’000 PERMANENT WATER RIGHTS $’000 25,995 25,995 25,995 25,995 2,905 2,905 2,905 2,905 10,236 10,236 10,236 10,236 TOTAL $’000 39,136 39,136 39,136 39,136 * Brand name assets relate to the “Lucky” brand, which has been assessed as having an indeﬁ nite useful life. This assessment was based on the Lucky brand having been sold in the market place for over 50 years, is a market leader in the cooking nuts category and remains a heritage brand. (a) Impairment tests for goodwill and brand names Goodwill is allocated to the consolidated entity’s cash-generating units (CGU) identiﬁ ed according to operating segment. The total value of goodwill relates to the Food Products CGU. The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use cash ﬂ ow projections based on ﬁ nancial projections by management covering a ﬁ ve-year period assuming a 10% growth rate based on projected crop increases and other growth rates based on past performance and its expectations for the future. These do not exceed the long-term growth rate for the business in which the Food Products Division operates in. A weighted average cost of capital of 12.8% has been used to discount the cash ﬂ ow projections. (b) Impact of possible changes to key assumptions The recoverable amount of the goodwill in the Food Products Division exceeds the carrying amount of goodwill at 30 June 2010. If a pre-tax discount rate of 13.8% was used instead of 12.8% the recoverable amount of the goodwill in the Food Products Division would still exceed the carrying amount of goodwill at 30 June 2010. (c) Permanent water rights The value of permanent water rights relates to the almond division Cash Generating Unit (CGU) and is an integral part of land and irrigation infrastructures required to grow almond orchards. The fair value of permanent water rights is supported by the tradeable market value, which at current market prices is in excess of book value. NOTES CONSOLIDATED 17. TRADE AND OTHER PAYABLES (CURRENT) Trade creditors Other creditors and accruals 18. INTEREST BEARING LIABILITIES (CURRENT) Secured Bank overdraft Commercial Bills payable Total secured current borrowings 2010 $’000 17,168 20,336 37,504 3,153 15,000 18,153 2009 $’000 7,047 29,717 36,764 2,793 56,500 59,293 Select Harvests Annual Report 2010 61 Notes to the Financial Statements (a) Security Details of the security relating to each of the secured liabilities and further information on the bank overdrafts and bank loans are set out in Note 21. Bills Payable is the current portion of the interchangeable Debt. (b) Interest rate risk exposures Details of the consolidated entity’s exposure to interest rate changes on borrowings are set out in Note 2. NOTES CONSOLIDATED 19. PROVISIONS (CURRENT) Employee beneﬁ ts 20. TRADE AND OTHER PAYABLES (NON-CURRENT) Interest rate cap payable 21. INTEREST BEARING LIABILITIES (NON-CURRENT) Commercial Bills payable 2010 $’000 2,770 2,770 329 329 40,000 40,000 2009 $’000 2,576 2,576 - - - - 62 Select Harvests Annual Report 2010 Notes to the Financial Statements Assets pledged as security The bank overdraft and commercial bills of the parent entity and subsidiaries are secured by the following: (i). 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. (ii). A deed of cross guarantee exists between the entities of the wholly owned group. The carrying amounts of assets pledged as security for current and non-current borrowings are: NOTES CONSOLIDATED 2010 $’000 2009 $’000 Current Floating charge Cash and cash equivalents Receivables Inventories Current tax receivables Derivative ﬁ nancial instruments Total current assets pledged as security Non-current Floating charge Prepayments Property, plant and equipment Biological assets – almond trees Permanent water rights Total non-current assets pledged as security Total assets pledged as security Financing arrangements 13,184 33,495 34,152 2,621 541 83,993 1,553 87,560 17,363 10,236 116,712 200,705 6,945 43,128 28,680 - 2,322 81,075 - 80,487 14,261 10,236 104,960 186,035 The consolidated entity and the Company have bank overdraft facilities available to the extent of USD 3,000,000 (2009: USD 3,000,000). The consolidated entity and the Company have a commercial bill facility available to the extent of $75,000,000 (2009: $65,000,000). As at 30 June 2010 the consolidated entity and Company have used $55,000,000 (2009: $56,500,000). The split between current and no current liabilities has been based on the repayment requirements under the terms of the debt facility. The current interest rates are 5.76% on the commercial bill facility, and 2.41% on the United States dollar bank overdraft facility. A number of covenants and ﬁ nancial undertakings are associated with the company banking facilities, all of which have been met during the period and as at 30 June 2010. Select Harvests Annual Report 2010 63 Notes to the Financial Statements 22. DEFERRED TAX LIABILITIES (NON CURRENT) The balance comprises temporary differences attributable to: Amounts recognised in proﬁ t and loss Inventory Assets at cost Employee beneﬁ ts Accruals Provisions Intangibles Operating leases Amounts recognised directly in OCI Cash ﬂ ow hedges Movements: Opening balance 1 July Credited / (charged) to income statement Credited / (charged) to OCI Closing balance at 30 June Deferred tax liabilities to be settled after more than 12 months Deferred tax liabilities to be settled within 12 months 23. PROVISIONS (NON CURRENT) Employee entitlements (a) Aggregate employee entitlements liability (b) Number of full time employees at year end 24. CONTRIBUTED EQUITY (a) Issued and paid up capital Ordinary shares fully paid (b) Movements in shares on issue Beginning of the ﬁ nancial year Issued during the year • Dividend reinvestment scheme End of Financial year 64 Select Harvests Annual Report 2010 NOTES CONSOLIDATED 2010 $’000 2009 $’000 2,416 14,574 (1,208) (746) 245 871 - 16,152 150 16,302 10,871 4,929 502 16,302 13,523 2,779 16,302 884 3,654 387 1,338 10,709 (1,093) 898 (1,995) 870 (396) 10,331 540 10,871 13,020 (1,494) (655) 10,871 11,222 (351) 10,871 864 3,440 366 47,470 47,470 46,433 46,433 2010 NUMBER OF SHARES 39,518,915 259,652 39,778,567 2009 NUMBER OF SHARES 39,008,928 509,987 39,518,915 $’000 46,433 1,037 47,470 $’000 44,375 2,058 46,433 Notes to the Financial Statements (c) Share options Employee share scheme The company continued to offer employee participation in short term and long term incentive schemes as part of the remuneration packages for the employees of the companies. Both the short term and long term schemes involve payments up to an agreed proportion of the total ﬁ xed 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. During or since the end of the ﬁ nancial year, no options (2009: no options) have vested under this scheme (refer Note 35 and Directors’ Report for further details). The market value of ordinary Select Harvests Limited shares closed at $3.46 on 30 June 2010 ($2.16 on 30 June 2009). (d) Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. NOTES CONSOLIDATED 25. RESERVES AND RETAINED PROFITS Capital reserve Cash ﬂ ow hedge reserve Asset revaluation reserve Options reserve Retained proﬁ ts (a) Movements Capital reserve Balance at beginning of year Balance at end of year Cash ﬂ ow hedge reserve Balance at beginning of year Interest rate cap intrinsic Currency translation differences arising during the year Balance at end of year Asset revaluation reserve Balance at beginning of year Balance at end of year Options reserve Balance at beginning of year Option expense Balance at end of year 25(a) 25(a) 25(a) 25(a) 25(c) 2010 $’000 3,270 (222) 7,645 634 11,327 54,824 3,270 3,270 1,520 320 (2,062) (222) 7,645 7,645 514 120 634 2009 $’000 3,270 1,520 7,645 514 12,949 41,494 3,270 3,270 (9) - 1,529 1,520 7,645 7,645 329 185 514 Select Harvests Annual Report 2010 65 Notes to the Financial Statements (b) Nature and purpose of reserves (i) Capital reserve The capital reserve is used to isolate realised capital proﬁ ts from disposal of non-current assets. (ii) Asset revaluation reserve The asset revaluation reserve is used to record increments and decrements in the value of non current assets. The reserve can only be used to pay dividends in limited circumstances. This revaluation reserve is no longer in use given assets are now recorded at cost. This is in line with accounting policies within note 1. (iii) Options reserve The options reserve is used to recognise the fair value of options granted but not exercised. (iv) Cash ﬂ ow hedge reserve The cash ﬂ ow hedge reserve is used to record gains or losses on foreign exchange contracts in a cash ﬂ ow hedge that are recognised directly in equity. NOTES CONSOLIDATED (c) Retained proﬁ ts Balance at the beginning of year Proﬁ t attributable to members of Select Harvests Limited Total available for appropriation Dividends paid Balance at end of year 26.RECONCILIATON OF THE NET PROFIT AFTER INCOME TAX TO THE NET CASH FLOWS FROM OPERATING ACTIVITIES Net proﬁ t Non-cash items Depreciation and amortisation Almond stock fair value adjustment Net loss on disposal of property, plant and equipment Changes in assets and liabilities (Increase) / decrease in trade receivables (Increase) in inventory (Increase) in receivables and other assets Increase in trade and other payables (Decrease) / increase in income tax payable Increase/ (decrease) in deferred income tax liability (Increase) / decrease in deferred tax assets Increase in employee entitlements Net cash ﬂ ow from operating activities 2010 $’000 41,494 17,252 58,746 (3,922) 54,824 17,253 4,952 (1,629) - 8,249 (5,472) (528) 3,188 (6,187) 7,598 (2,143) 214 25,495 2009 $’000 38,461 16,712 55,173 (13,679) 41,494 16,712 4,796 1,951 53 (4,440) (1,401) (1,491) 3,516 4,127 (2,149) 600 299 22,573 Non cash ﬁ nancing activities During the current year the company issued $1,036,719 of new equity as part of the Dividend Reinvestment Plan (refer to note 24). 66 Select Harvests Annual Report 2010 Notes to the Financial Statements NOTES CONSOLIDATED 2010 $’000 2009 $’000 27. EXPENDITURE COMMITMENTS Lease commitments – Group company as lessee Commitments in relation to leases contracted for at the reporting date but not recognised as liabilities, payable: Within one year Later than one year but not later than ﬁ ve years Later than ﬁ ve years (i) Operating leases (non cancellable): Minimum lease payments • Not later than one year • Later than one year and not later than ﬁ ve years • Later than ﬁ ve years • Aggregate lease expenditure contracted for at reporting date Operating lease payments are for rental of premises, farming and factory equipment. (ii) Almond orchard leases: Minimum lease payments • Not later than one year • Later than one year and not later than ﬁ ve years • Later than ﬁ ve years Aggregate expenditure commitments comprise: Aggregate lease expenditure contracted for at reporting date 15,690 40,730 105,786 162,206 10,006 16,387 8,692 35,085 11,532 27,071 50,357 88,960 9,026 16,338 9,997 35,361 5,684 24,343 97,094 2,506 10,733 40,360 127,121 53,599 The almond orchard leases comprises the lease of a 512 acre almond orchard and a 1,002 acre lease from Sandhurst Trustees Limited in which the consolidated entity has the right to harvest the almonds from the trees owned by the lessor for the term of the agreement. The company also has ﬁ rst right of refusal to purchase the properties in the event that the lessor wished to sell. Other leases within Select have renewal and ﬁ rst right of refusal clauses. There is also a 20 year lease of 3,100 acres at Hillston with Rural Funds Management. 28. EVENTS OCCURING AFTER BALANCE DATE On 23 August 2010, the Directors declared a ﬁ nal dividend of 11 cents per share in relation to the ﬁ nancial year ended 30 June 2010 to be paid on 4 October 2010. On 27 July 2010, Mr F Grimwade was appointed to the board as a Non-Executive Director. On 23 August 2010, the company announced a $48 million fully underwritten equity raising to existing shareholders. There has been no other matter or circumstance, which has arisen since 30 June 2010 that has signiﬁ cantly affected or may signiﬁ cantly affect: a) the operations, in ﬁ nancial years subsequent to 30 June 2010, of the consolidated entity, or b) the results of those operations, or c) the state of affairs, in ﬁ nancial years subsequent to 30 June 2010, of the consolidated entity. Select Harvests Annual Report 2010 67 Notes to the Financial Statements 29. EARNINGS PER SHARE The following reﬂ ects the income and share data used in the calculations of basic and diluted earnings per share: Proﬁ t attributable to equity holders of the company used in calculating basic earnings per share Diluted earnings per share: Proﬁ t attributable to equity holders of the company used in calculating diluted earnings per share Weighted average number of ordinary shares used in calculating basic earnings per share Effect of dilutive securities: Adjusted weighted average number of ordinary shares used in calculating diluted earnings per share CONSOLIDATED 2010 $’000 17,253 2009 $’000 16,712 17,253 16,712 NUMBER OF SHARES 2010 2009 39,778,567 39,518,915 39,778,567 39,518,915 30. REMUNERATION OF DIRECTORS AND KEY MANAGEMENT PERSONNEL Principles used to determine the nature and amount of remuneration Remuneration levels are set to attract and retain appropriately qualiﬁ ed and experienced directors and key management personnel. The Remuneration Committee may obtain independent advice on the appropriateness of remuneration packages, given trends in the marketplace. Remuneration packages include a mix of ﬁ xed remuneration, performance based remuneration, and equity based remuneration. Executive directors and key management personnel may receive short term incentives based on achievement of speciﬁ c business plans and performance indicators, which include ﬁ nancial and operational targets relevant to performance at the consolidated entity level, divisional level, or functional level, as applicable, for the ﬁ nancial year. In addition, the consolidated entity offers executive directors and key management personnel participation in the long-term incentive scheme involving the issue of options to the employee under the executive share option scheme. The executive share option 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 set at the time the offer was made. The options are granted annually in three tranches on achievement of the performance hurdles. Non-executive directors each receive a base fee of $65,000 per annum. The Chairman receives up to twice the base fee. Non-executive directors do not receive any performance related remuneration nor are they issued options on securities. a) Directors The following persons were directors of Select Harvests Limited during the ﬁ nancial year: (i) Chairman – non-executive J C Leonard (ii) Executive director J Bird, Managing Director (iii) Non-executive directors M A Fremder R M Herron M Carroll 68 Select Harvests Annual Report 2010 Notes to the Financial Statements b) Other key management personnel The following persons also had authority and responsibility for planning, directing, and controlling the continuing activities of the consolidated entity, directly or indirectly, during the ﬁ nancial year: NAME K Martin T Millen L Van Driel P Chambers P Ross M Graham POSITION EMPLOYER Operations Manager, Food Products Division Select Harvests Limited Group Horticultural & Farm Operations Manager Kyndalyn Park Pty Ltd Group Trading Manager Select Harvests Food Products Pty Ltd Chief Financial Ofﬁ cer & Company Secretary Select Harvests Limited Operations Manager, Almond Division Kyndalyn Park Pty Ltd Manager Sales & Marketing Select Harvests Food Product Pty Ltd (c) Key management personnel compensation Short term employment beneﬁ ts Long service leave Share based payments NOTES CONSOLIDATED 2010 $ 2009 $ 2,824,882 2,755,075 41,378 115,158 51,053 48,196 2,981,418 2,854,324 (d) Equity instrument disclosures relating to key management personnel Number of options held by directors and key management personnel The movement during the ﬁ nancial year in the number of options over ordinary shares in the company held, directly or indirectly, by each director and key management personnel is as follows: 2010 Directors J Bird Key Management Personnel K Martin (Group Operations Manager) T Millen (Group Horticultural & Farm Operations Manager) L Van Driel (Group Trading Manager) P Chambers (Chief Financial Ofﬁ cer & Company Secretary) P Ross (Operations Manager Almond Division) HELD AT 1 JULY 2009 GRANTED AS COMPENSATION LAPSED HELD AT 30 JUNE 2010 UNVESTED AT 30 JUNE 2010 297,003 190,744 (36,765) 450,982 450,982 63,345 45,536 - 108,881 108,881 63,363 61,656 66,057 36,765 41,071 (7,798) 41,071 (7,563) 48,214 44,643 - - 96,635 95,164 114,271 81,408 96,635 95,164 114,271 81,408 Select Harvests Annual Report 2010 69 Notes to the Financial Statements 2009 Directors J Bird Key Management Personnel K Martin (Group Operations Manager) T Millen (Group Horticultural & Farm Operations Manager) L Van Driel (Group Trading Manager) P Chambers (Chief Financial Ofﬁ cer & Company Secretary) P Ross (Operations Manager Almond Division) HELD AT 1 JULY 2008 GRANTED AS COMPENSATION LAPSED HELD AT 30 JUNE 2009 UNVESTED AT 30 JUNE 2009 186,023 157,114 (46,134) 297,003 297,003 25,845 35,135 37,166 26,351 - 37,500 - 35,294 (7,066) 33,824 (9,334) 39,706 36,765 - - 63,345 63,363 61,656 66,057 36,765 63,345 63,363 61,656 66,057 36,765 No options held by directors or key management personnel are vested but not exercisable. Number of shares held by directors and key management personnel The movement during the ﬁ nancial year in the number of ordinary shares of the company held, directly or indirectly, by each director and key management personnel, including their personally related entities, is as follows: 2010 Directors – Non Executive M A Fremder J C Leonard R M Herron M Carroll Directors – Executive J Bird Key Management Personnel K Martin (Group Operations Manager) T Millen (Group Horticultural & Farm Operations Manager) L Van Driel (Group Trading Manager) P Chambers (Chief Financial Ofﬁ cer & Company Secretary) P Ross (Operations Manager, Almond Division) HELD AT 1 JULY 2009 RECEIVED ON EXERCISE OF OPTIONS OTHER – DRP, SALES & PURCHASES 5,777,234 615,628 18,772 - 619,522 - 45,444 - - - - - - - - - - - - - 58,000 48,040 - - - - - - - - TOTAL 5,835,234 663,668 18,772 - 619,522 - 45,444 - - - 70 Select Harvests Annual Report 2010 Notes to the Financial Statements 2009 Directors – Non Executive M A Fremder J C Leonard G F O’Brien R M Herron M Carroll Directors – Executive J Bird Key Management Personnel K Martin (Group Operations Manager) T Millen (Group Horticultural & Farm Operations Manager) L Van Driel (Group Trading Manager) P Chambers (Chief Financial Ofﬁ cer & Company Secretary) HELD AT 1 JULY 2008 RECEIVED ON EXERCISE OF OPTIONS OTHER – DRP, SALES & PURCHASES 5,777,234 581,779 54,769 8,772 - 619,522 - 45,444 - - - - - - - - - - - - - 33,849 4,580 10,000 - - - - - - TOTAL 5,777,234 615,628 59,349 18,772 - 619,522 - 45,444 - - (e) Other transactions with directors and key management personnel Transactions with directors and key management personnel that require disclosure in accordance with AASB 124 for the year ended 30 June 2010 are detailed in Note 32. 31. REMUNERATION OF AUDITORS Audit and other assurance services Audit and review of ﬁ nancial statements Other assurance services Total remuneration for audit and other assurance services Taxation services Tax compliance services Tax consulting Total remuneration for taxation services Total remuneration of PricewaterhouseCoopers 2010 $ 192,450 45,000 237,450 64,355 23,145 87,500 324,950 2009 $ 185,950 23,210 209,160 28,300 24,350 52,650 261,810 Select Harvests Annual Report 2010 71 Notes to the Financial Statements 32. RELATED PARTY DISCLOSURES (a) Parent entity The parent entity within the consolidated entity is Select Harvests Limited. (b) Subsidiaries Interests in subsidiaries are set out in Note 34. (c) Key management personnel Disclosures relating to key management personnel are set out in Note 30. (d) Director related entity transactions Services 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 300 acres 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 a 25 year period. The consolidated entity received an amount of $1,555,112 (2009: $1,805,723) during the ﬁ nancial year 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. Select Harvests Limited also has an Almond Orchard Management Agreement with Almas Almonds Pty Ltd, a company which manages the Almas Almonds Partnership in which both Mr M A Fremder and Mr J C Leonard have an indirect interest. Under the terms of the agreement, Select Harvests Limited is developing and shall manage 1,753 acres of almond orchard on a fee basis for Almas Almonds Pty Ltd. In addition, Select Harvests Limited will process and sell the entire production of the orchard for the entire 30 year life of the orchard. The consolidated entity received an amount of $4,851,165 (2009: $3,546,136) during the ﬁ nancial year 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. At 30 June 2010, the total amount receivable from director related entities in respect to the above transaction is $1,626,772. During the ﬁ nancial year the company entered into foreign exchange contracts on behalf of Almas Pty Limited and Maxdy Pty Ltd, under conditions which pass costs and beneﬁ ts to the related parties under normal commercial terms. A former non-executive director of the Company, Mr Dan O’Brien, acquired from Select Harvests, via an associated entity. $nil (2009: $146,974) worth of almond hull suitable for livestock feed. This was purchased at market prices. 33. SEGMENT INFORMATION Segment products and locations The consolidated group has adopted the new segment accounting standard AASB 8 Operating Segments from 1 July 2009. The segment reporting reﬂ ects the way information is reported internally to the Board of directors. The consolidated entity has the following business segments: • The food products division processes, markets, and distributes edible nuts, dried fruits, seeds, and a range of natural health foods. • The almond operation comprises the growing, processing and sale of almonds to the food industry from company owned almond orchards; the sale of a range of management services to external owners of almond orchards, including orchard development, tree supply, farm management, land rental and, irrigation infrastructure; and the sale of almonds on behalf of external investors. The consolidated entity operates predominantly within the geographical area of Australia. 72 Select Harvests Annual Report 2010 Notes to the Financial Statements Y T I T N E D E T A D I L O S N O C S N O I T A N M I I L E E T A R O P R O C S N O I T A R E P O D N O M L A S T C U D O R P D O O F 9 0 0 2 0 1 0 2 9 0 0 2 0 1 0 2 9 0 0 2 0 1 0 2 9 0 0 2 0 1 0 2 9 0 0 2 0 1 0 2 ) 0 0 0 ’ $ ( ) 0 0 0 ’ $ ( ) 0 0 0 ’ $ ( ) 0 0 0 ’ $ ( ) 0 0 0 ’ $ ( , 1 8 5 8 4 2 $ , 6 7 3 8 3 2 $ 0 $ 0 $ 3 9 $ 5 3 7 $ 0 $ 0 $ 0 $ , 2 9 9 3 2 $ - 1 8 5 , 8 4 2 $ , 6 7 3 8 3 2 $ , 2 9 9 3 2 $ - 0 $ , 4 7 7 6 2 $ - 4 7 7 , 6 2 $ - , 4 7 6 8 4 2 $ 1 1 1 , 9 3 2 $ , 2 9 9 3 2 $ - 4 7 7 , 6 2 $ - 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 7 1 5 $ 7 1 5 $ , 2 2 5 6 1 1 $ , 1 9 4 6 0 1 $ , 9 5 0 2 3 1 $ 5 8 8 , 1 3 1 $ 2 9 9 3 2 $ , , 4 7 7 6 2 $ 0 $ 0 $ 4 1 5 , 0 4 1 $ 5 6 2 , 3 3 1 $ , 9 5 0 2 3 1 $ 5 8 8 , 1 3 1 $ 3 9 $ 8 1 2 $ 0 $ 0 $ , 7 0 6 0 4 1 $ , 3 8 4 3 3 1 $ , 9 5 0 2 3 1 $ 5 8 8 , 1 3 1 $ , 7 2 8 6 2 $ 2 3 0 6 2 $ , 0 $ 3 7 8 3 $ - , 4 5 9 2 2 $ , 7 1 5 $ 6 4 9 2 $ - , 3 0 6 3 2 $ , , 9 5 9 4 1 2 $ , 3 8 0 4 1 1 $ , 5 0 6 9 2 2 $ 4 8 9 5 1 1 $ , 4 4 6 6 1 $ , 5 4 2 5 1 $ , 7 9 7 4 $ , 2 5 9 4 $ , 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 4 2 3 $ - , 0 8 5 3 $ - , 8 0 6 5 2 $ , 8 0 5 4 2 $ , 9 5 4 4 $ , 4 0 1 , 5 $ 0 $ 3 7 8 3 $ - , 3 1 1 , 7 $ - 7 1 5 $ 6 4 9 2 $ - , 9 0 0 6 $ - , 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 8 0 6 , 5 2 $ 8 0 5 , 4 2 $ 9 5 4 4 $ , 4 0 1 , 5 $ 2 8 8 5 $ , , 7 7 7 4 6 $ , 7 4 2 2 2 $ , 4 5 2 9 4 $ , 2 7 4 8 3 1 $ 6 0 9 0 4 $ , , 5 4 4 7 4 1 $ 6 8 2 5 5 $ , 5 0 6 0 7 $ , 0 0 4 8 $ , , 3 1 9 9 5 $ 4 4 4 , 1 1 $ 0 6 2 $ 8 4 1 $ 3 4 $ 7 6 1 $ 7 1 1 , 6 1 $ 5 9 8 4 1 $ , 7 6 2 $ 7 0 3 $ 9 4 1 , 3 $ 2 9 5 3 $ , 0 0 5 , 1 $ 3 9 1 , 1 $ l a n r e t x e m o r f e u n e v e r l a t o T e u n e v e r t n e m g e s r e t n I e u n e v e r t n e m g e s l a t o T s r e m o t s u c e u n e v e R e u n e v e r r e h t O e u n e v e r l a t o T d e s n e p x e s t s o c e c n a n i F x a t e m o c n i e r o f e b t ﬁ o r P d e v i e c e r t s e r e t n I I T B E s e i t i l i b a i l t n e m g e S s t e s s a t n e m g e S n o i t a s i t r o m a d n a n o i t a i c e r p e D s t e s s a t n e m g e s f o t n e r r u c - n o n f o n o i t i s i u q c A s t e s s a t n e m g e s : s e t o N . s t c u d o r P d o o F o t s n o i t a r e p o d n o m A m o r f l s e l a s f o t c a p m i e h t s e v o m e r t I . s e s o p r u p n o i t a d i l o s n o c r o f s e i r t n e n o i t a n m i i l e e h t l s w o h s n m u o c s n o i t a n m i i l E e h T . d e t i m i L s t s e v r a H t c e l e S y t i t n E t n e r a P e h t f o s l a i c n a n ﬁ y e k s t n e s e r p e r n m u o c e t a r o p r o C e h T l . 1 . 2 Select Harvests Annual Report 2010 73 Notes to the Financial Statements 34. CONTROLLED ENTITIES Parent Entity: Select Harvests Limited Subsidiaries of Select Harvests Limited: Kyndalyn Park Pty Ltd Select Harvests Food Products Pty Ltd Meriram Pty Ltd Kibley Pty Ltd 35. EMPLOYEE BENEFITS Executive share option scheme COUNTRY OF INCORPORATION PERCENTAGE OWNED (%) 2010 2009 Australia Australia Australia Australia Australia 100 100 100 100 100 100 100 100 100 100 The consolidated entity has in place an executive share option scheme. The scheme provides for the board to offer to eligible employees a parcel of options, which will be granted for no consideration in three equal tranches over a period of approximately three years from the date of each result announcement to the ASX in each ﬁ nancial year. Each option is convertible into one ordinary share. The exercise price of the options, determined in accordance with the rules of the scheme, is based on the weighted average price of the company’s shares over the ﬁ rst 50 sales of shares in the ordinary course of trading on the stock market of the ASX immediately following the result announcement. All options expire on the earlier of their expiry date or termination of the employee’s employment. The vesting of options is conditional upon the consolidated entity achieving growth of at least 10% in EPS in each ﬁ nancial year over the preceding ﬁ nancial year. Accordingly, the scheme does not represent remuneration for past services. There are no voting or dividend rights attached to the options. The assessed fair value at offer date is determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at offer date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. 74 Select Harvests Annual Report 2010 Notes to the Financial Statements E U L A V R A F I E U L A V R A F I E T A G E R G G A E R A H S R E P S E R A H S D E U S S I S D E E C O R P D E V I E C E R D N E T A E C N A L A B R A E Y E H T F O D E S I C R E X E D E T I E F R O F I G N R U D R A E Y E H T I G N R U D R A E Y E H T D E T N A R G I G N R U D R A E Y E H T E C N A L A B T R A T S T A E H T F O R A E Y E S I C R E X E I E C R P Y R I P X E E T A D E T A D T N A R G 0 1 0 2 $ $ R E B M U N $ D E T S E V E U S S I N O R E B M U N R E B M U N R E B M U N R E B M U N - - - - - - - - - - - - - - - - - - - - 9 7 3 0 1 2 , , 9 7 3 2 6 3 8 0 2 8 3 4 , 0 1 . 5 $ - - - - - - - - ) 8 9 7 7 5 ( , 8 0 2 8 3 4 , - 8 9 7 7 5 , 9 7 3 0 1 2 , , 9 7 3 2 6 3 3 1 . 3 1 $ . 4 7 9 $ 5 1 . 5 $ 3 8 2 $ . 9 0 0 2 / 0 1 / 1 3 0 1 0 2 / 0 1 / 1 3 1 1 0 2 / 0 1 / 1 3 2 1 0 2 / 0 1 / 9 2 6 0 0 2 / 9 0 / 2 2 7 0 0 2 / 8 0 / 7 2 8 0 0 2 / 9 0 / 0 2 9 0 0 2 / 9 0 / 8 2 3 1 . 3 1 $ 3 8 2 $ . . 1 4 7 $ e c i r P e s i c r e x E e g a r e v A d e t h g i e W E U L A V R A F I E U L A V R A F I E T A G E R G G A E R A H S R E P S E R A H S D E U S S I S D E E C O R P D E V I E C E R D N E T A E C N A L A B R A E Y E H T F O D E S I C R E X E D E T I E F R O F I G N R U D R A E Y E H T I G N R U D R A E Y E H T D E T N A R G I G N R U D R A E Y E H T E C N A L A B T R A T S T A E H T F O R A E Y E S I C R E X E I E C R P Y R I P X E E T A D E T A D T N A R G 9 0 0 2 $ $ R E B M U N $ D E T S E V E U S S I N O R E B M U N R E B M U N R E B M U N R E B M U N - - - - - - - - - - - - - - - - - - - - - 8 9 7 7 5 , 9 7 3 0 1 2 , , 9 7 3 2 6 3 . 1 4 7 $ - - - - - - - - ) 0 0 2 , 1 0 1 ( , 9 7 3 2 6 3 - - - - 0 0 2 , 1 0 1 8 9 7 7 5 , 9 7 3 0 1 2 , 5 0 . 1 1 $ 3 1 . 3 1 $ . 4 7 9 $ 5 1 . 5 $ 8 0 0 2 / 0 1 / 1 3 9 0 0 2 / 0 1 / 1 3 0 1 0 2 / 0 1 / 1 3 1 1 0 2 / 0 1 / 1 3 5 0 0 2 / 8 0 / 8 2 6 0 0 2 / 9 0 / 2 2 7 0 0 2 / 8 0 / 7 2 9 0 0 2 / 9 0 / 0 2 5 0 . 1 1 $ 5 1 . 5 $ . 3 6 0 1 $ e c i r P e s i c r e x E e g a r e v A d e t h g i e W e h t n o g n d a r t i f o e s o l c e h t t a s a X S A e h t n o s e r a h s s ’ y n a p m o c e h t f o e c i r p t e k r a m e h t s i d o i r e p g n i t r o p e r e h t g n i r u d s n o i t p o e h t g n i s i c r e x e f o t l u s e r a s a d e u s s i s e r a h s l f o e u a v r i a f e h T . e t a d e s i c r e x e Select Harvests Annual Report 2010 75 : w o l e b t u o t e s e r a r a e y e h t g n i r u d s t n e m e v o m d n a e t a d g n i t r o p e r e h t i f o g n d n e d n a g n n n g e b e h t i i i t a s e r a h s y r a n d r o d e u s s i n u r e v o s n o i t p o f o s l i a t e D i s e r a h s y r a n d r o d e u s s i n u r e v o s n o i t p o f o y r a m m u S ) . t n o c ( S T I F E N E B E E Y O L P M E . 5 3 Notes to the Financial Statements 35. EMPLOYEE BENEFITS (cont.) The amounts recognised in the ﬁ nancial statements of the consolidated entity in relation to executive share options exercised during the ﬁ nancial year were: Issued and Paid up Capital CONSOLIDATED 2010 $ - 2009 $ - (b) Expenses arising from share-based payment transactions Total expenses arising from share-based payment transactions recognised during the period as part of employee beneﬁ t expense were as follows: Options granted under employee option plan 36. CONTINGENT LIABILITIES Cross guarantees given by the entities comprising the consolidated entity are detailed in Note 37. 37. PARENT ENTITY FINANCIAL INFORMATION (a) Summary ﬁ nancial information The individual ﬁ nancial statements for the parent entity show the following aggregate amounts: BALANCE SHEET Current Assets Total Assets Current Liabilities Total Liabilities Shareholders’ Equity Issued Capital Reserves Capital Reserve Cash ﬂ ow hedge reserve Options Reserve Retained proﬁ ts Proﬁ t or Loss for the year Total comprehensive income (b) Tax consolidation legislation CONSOLIDATED 2010 $ 120,000 120,000 2009 $ 48,196 48,196 2010 $’ 000 13,641 206,891 16,532 155,042 47,470 3,270 (222) 633 696 51,847 4,121 2,378 2009 $’ 000 10,397 181,377 64,672 129,141 46,433 3,270 1,520 514 499 52,236 13,419 14,948 Select Harvests Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation as of 1 July 2003. The accounting policy in relation to this legislation is set out in Note 1(m). On adoption of the tax consolidation legislation, the entities in the tax consolidated group entered into a tax sharing agreement which limits the joint and several liability of the wholly-owned entities in the case of a default by the head entity, Select Harvests Limited. 76 Select Harvests Annual Report 2010 Notes to the Financial Statements The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate Select Harvests Limited for any current tax payable assumed and are compensated by Select Harvests Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Select Harvests Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ ﬁ nancial statements. The amounts receivable / payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each ﬁ nancial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. The funding amounts are recognised as current intercompany receivables or payables. (c) Guarantees entered into by parent entity Each entity within the consolidated group has entered into a cross deed of ﬁ nancial guarantee in respect of bank overdrafts and loans of the group. Loans are made by Select Harvests Limited to controlled entities under normal terms and conditions. Loans are made to Select Harvests Limited by controlled entities under normal terms and conditions. Select Harvests Annual Report 2010 77 Directors’ Declaration In the directors’ opinion: (a) the ﬁ nancial statements and Notes set out on pages 16 to 77 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) giving a true and fair view of the consolidated entity’s ﬁ nancial position as at 30 June 2010 and of its performance for the ﬁ nancial year ended on that date; and (b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and (c) at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed group identiﬁ ed in note 34 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 37. Note 1(a) conﬁ rms that the ﬁ nancial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The directors have been given the declarations by the Managing Director and Chief Financial Ofﬁ cer required under section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors. J C Leonard Chairman Melbourne, 23 August 2010 78 Select Harvests Annual Report 2010 PricewaterhouseCoopers ABN 52 780 433 757 Freshwater Place 2 Southbank Boulevard SOUTHBANK VIC 3006 GPO Box 1331L MELBOURNE VIC 3001 DX 77 Telephone 61 3 8603 1000 Facsimile 61 3 8603 1999 Website:www.pwc.com/au Independent auditor’s report to the members of Select Harvests Limited Report on the ﬁ nancial report We have audited the accompanying ﬁ nancial report of Select Harvests Limited (the company), which comprises the balance sheet as at 30 June 2010, and the income statement, the statement of comprehensive income, statement of changes in equity and statement of cash ﬂ ows for the year ended on that date, a summary of signiﬁ cant accounting policies, other explanatory notes and the directors’ declaration for the Select Harvests Limited Group (the consolidated entity). The consolidated entity comprises the company and the entities it controlled at the year’s end or from time to time during the ﬁ nancial year. Directors’ responsibility for the ﬁ nancial report The directors of the company are responsible for the preparation and fair presentation of the ﬁ nancial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the ﬁ nancial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the ﬁ nancial statements comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the ﬁ nancial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the ﬁ nancial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the ﬁ nancial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the ﬁ nancial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the ﬁ nancial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the ﬁ nancial report. Our procedures include reading the other information in the Annual Report to determine whether it contains any material inconsistencies with the ﬁ nancial report. Our audit did not involve an analysis of the prudence of business decisions made by directors or management. We believe that the audit evidence we have obtained is sufﬁ cient and appropriate to provide a basis for our audit opinions. Liability limited by a scheme approved under Professional Standards Legislation Select Harvests Annual Report 2010 79 Independent auditor’s report to the members of Select Harvests Limited (cont.) Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s opinion In our opinion: (a) the ﬁ nancial report of Select Harvests Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the company’s and consolidated entity’s ﬁ nancial position as at 30 June 2010 and of their performance for the year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and (b) the consolidated ﬁ nancial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the Remuneration Report included in pages 18 to 24 of the directors’ report for the year ended 30 June 2010. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s opinion In our opinion, the Remuneration Report of Select Harvests Limited for the year ended 30 June 2010, complies with section 300A of the Corporations Act 2001. PricewaterhouseCoopers Andrew Mill Partner PricewaterhouseCoopers Melbourne 23 August 2010 80 Select Harvests Annual Report 2010 ASX additional information Additional information required by the Australian Stock Exchange Limited and not shown elsewhere in this report is as follows. The information is current as at 31 July 2010. (a) Distribution of equity securities The number of shareholders, by size of holding, in each class of share is: NUMBER OF ORDINARY SHARES 1 to 1,000 NUMBER OF SHAREHOLDERS 1,197 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over 1,184 334 316 33 The number of shareholders holding less than a marketable parcel of shares is: NUMBER OF ORDINARY SHARES - NUMBER OF SHAREHOLDERS - (b) Twenty largest shareholders The names of the twenty largest holders of quoted shares are: 1 HSBC Custody Nominees (Australia) Limited 2 Maxdy Nominees Pty Ltd 3 ANZ Nominees Limited 4 Citicorp Nominees Pty Ltd 5 MF Custodians Ltd 6 National Nominees Limited 7 Mirrabooka Investments Limited 8 MF Custodians (account 10051001) 9 Le Grand Pty Ltd 10 Mid Manhattan Pty Ltd 11 Mr John Bird 12 National Australia Trustees Limited 13 Spectrok Pty Ltd 14 Mr Petrus Cornelius Nicolaas Middencorp 15 Longo Pty Ltd 16 RBC Dexia Investor Services Nominees Pty Limited 17 Mr Max Fremder 18 JP Morgan Nominees Australia Limited 19 Dr John Carey 20 RBC Dexia Investor Services Nominees Pty Limited LISTED ORDINARY SHARES NUMBER OF SHARES 6,781,633 PERCENTAGE OF ORDINARY 17.06 5,406,671 1,666,275 1,190,793 995,746 760,790 751,064 663,105 629,888 579,244 555,815 534,891 487,789 464,128 460,871 343,241 330,563 313,615 217,215 213,675 13.60 4.19 2.99 2.50 1.91 1.89 1.67 1.58 1.46 1.40 1.35 1.23 1.17 1.16 0.86 0.83 0.79 0.55 0.54 Select Harvests Annual Report 2010 81 ASX additional information (c) Substantial shareholders The names of substantial shareholders are: HSBC Custody Nominees (Australia) Limited Maxdy Nominees Pty Ltd ANZ Nominees Limited (d) Voting rights All ordinary shares (whether fully paid or not) carry one vote per share without restriction. (e) The Company is listed on the Australian Stock Exchange. The home exchange is Melbourne. NUMBER OF SHARES 6,781,633 5,406,671 1,666,275 82 Select Harvests Annual Report 2010 Corporate Information Select Harvests Limited ABN 87 000 721 380 Directors J C Leonard (Chairman) J Bird (Managing Director) M Carroll (Non-Executive Director) M Fremder (Non-Executive Director) R M Herron (Non-Executive Director) F Grimwade (Non-Executive Director) Company Secretary P Chambers Registered Ofﬁ ce – 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 Solicitors Minter Ellison Lawyers Bankers Australia and New Zealand Banking Group Limited Auditor PricewaterhouseCoopers Share Register Computershare Investor Services Pty Limited Yarra Falls 452 Johnston Street Abbotsford VIC 3067 Telephone (03) 9415 5040 Facsimile (03) 9473 2562 Internet Address www.selectharvests.com.au Select Harvests Annual Report 2010 15 Select Harvests Limited ABN 87 000 721 380 PO Box 5 THOMASTOWN VIC 3074 360 Settlement Road THOMASTOWN VIC 3074 Telephone (03) 9474 3544 Facsimile (03) 9474 3588 Email info@selectharvests.com.au www.selectharvests.com.au 14 Select Harvests Annual Report 2010

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