Select Harvests Limited Annual Report 2012

Plain-text annual report

Annual Report 2012 Contents Company proﬁ le Performance summary Select Harvests: Unique business model Letter from the Chairman 1 2 3 4 Managing Director’s Review 6 In Australia our direct access to the whole food industry encompassing the retail, food service and food manufacturing The almond opportunity: sectors and ensures that we capture the Strong global fundamentals 8 maximum value from the almond value chain. Australian almonds well placed to meet demand Internationally we are a major exporter of almonds to Asia, Europe and the Middle- 9 East with strong relationships in rapidly growing emerging markets such as India. 10 The almond life cycle A leading almond supplier With almonds at the core of the Food Products business, the overarching objective is to put more almonds into the 12 hands of more consumers. To achieve this objective, we work closely with the Almond Board of Australia to partner with our Select Harvests in the major retail customers. community: Environment 14 In each quarter, we developed promotions in line with the seasonal advertising calendar of the Australian almond industry: Select Harvests in the community: People 15 • The Australian almond blossom season in August: highlighting the natural goodness of almonds; Our Board of Directors • Celebrate Christmas with Australian 16 almonds in November and December: promoting the versatility of almonds for 18 Statistical summary Christmas cooking; • The “New Year, New Heart” promotion Financial Report Contents in January and February: communicating 19 the heart health benefits of eating a handful of almonds everyday; Financial Report • The “New Season” promotion in April and May: focusing on the enjoyment of Australian almonds fresh from the orchards. 20 One of the features of this year’s promotional campaign was the giveaway of over 150,000 of the heart-shaped almond snack tins. These are extremely popular with consumers and an effective tool in driving incremental almond consumption. Company proﬁ le Select Harvests is a leading Australian almond producer. The Company owns and manages a portfolio of 17,151 acres (6,940 hectares) of almond orchards in New South Wales, Victoria and Western Australia. Select Harvests is Australia’s leading manufacturer, processor and marketer of nut products to the Australian retail and industrial markets. Our value-added brands, including Lucky and Soland in retail and Renshaw and Allinga Farms in wholesale and industrial markets, are market-leading. As one of Australia’s largest almond exporters, Select Harvests has strong relationships in rapidly growing emerging markets including India and China, plus established routes to market in Asia, Europe and the Middle East. Shareholder Information Annual General Meeting The Annual General Meeting will be held on 20th November 2012, at the Soﬁ tel Melbourne, Collins Street, Melbourne, Victoria at 2pm. A separate notice of meeting has been posted to all shareholders. 2013 Calendar February Announcement of interim results April Payment of interim dividend August Announcement of preliminary full year results September Annual report to shareholders October Payment of ﬁ nal dividend November Annual General Meeting Select Harvests Annual Report 2012 1 Performance summary Financial year 2012 was a challenging year for the industry and this was reﬂ ected in the performance of the business. The reported full year result was impacted by non-cash write downs totalling $24.9 million related to the value of the Western Australian greenﬁ eld almond development and a legacy processing facility. On an underlying basis the ﬁ nancial performance was an improvement on the prior year, despite below average yields which were experienced across the industry, and wet harvesting conditions impacting the quality of the almond crop. Encouragingly the Food Division delivered a 27% improvement in underlying Earnings Before Interest and Tax (EBIT), reﬂ ecting the beneﬁ ts of increased operational discipline and a strong performance from our value-added brands such as Lucky. A number of initiatives are in place to improve performance across the business with a focus on capital efﬁ ciency, driving operational improvements and efﬁ ciency programs to reduce costs and improve quality, plus leveraging Select Harvests’ scale, expertise and unique integrated business model. Reported Results Underlying Results* FY11 11,644 2,334 13,978 4,739 (3,310) 15,407 (3,389) 12,018 (3,113) 8,905 17.0 – – FY12 14,240 3,076 17,316 6,027 (3,721) 19,622 (6,248) 13,374 (3,860) 9,514 16.8 – – FY12 9,332 (12,883) (3,551) 6,027 (4,971) (2,495) (6,248) (8,743) 4,274 (4,469) (7.9) 22,031 8.0 EBIT ($’000’s) Managed Orchards Company Orchards Almond Division Food Division Corporate Costs Operating EBIT Interest Expense Net Proﬁ t Before Tax Tax (Expense)/Income Net Proﬁ t After Tax Earnings Per Share Operating Cash Flow Dividend per Share (cents) FY11 11,644 9,819 21,463 3,709 (3,310) 21,862 (3,389) 18,473 (799) 17,674 33.7 547 13.0 * FY11 excludes $7.5 million discount on acquisition of almond orchards and $1 million of costs associated with product recall. FY12 excludes $20 million write down to the value of the Western Australian greenﬁ eld development, $4.9 million write down of a legacy processing facility, $4 million gain on sale of permanent water rights and $1.2 million restructuring and research and development tax consulting costs. 2 Select Harvests Annual Report 2012 Select Harvests: Unique business model Select Harvests is Australia’s largest vertically integrated nut and health food company with a business model which is unique in the Australian almond industry. The company has three core capabilities – farming, processing and sales & marketing which enable it to capture value at each stage of the value chain. Select Harvests is a major owner and manager of Australian almond orchards. We have a diversiﬁ ed portfolio of orchards including orchards which are at or near maturity in Victoria and New South Wales, and greenﬁ eld orchards in Western Australia established to meet future global demand for almonds. Select Harvests is Australia’s largest vertically integrated nuts and health food company with core capabilities across farming, processing and sales & marketing. The state-of-the art processing facility at Carina West in Victoria has the capacity to process 30,000 metric tonnes of almonds annually. The plant is capable of meeting the ever increasing demand for both in-shell and kernel. Select Harvests’ Food Division provides a route to market domestically and around the world, supplying both branded and private label products to the key retailers and industrial users. Wheatbelt Region, WA: Company Orchards: (acs/ha) 3,949/1,590 greenﬁ eld development, ﬁ rst crop 2013 Sunraysia Region, VIC: Company Orchards: (acs/ha) 4,253/1721 mature and approaching maturity Managed Orchards: (acs/ha) 4,421/1789 Total planted orchards: (acs/ha) 17,151/6940 Company Orchards: (acs/ha) 12,730/5151 Managed Orchards: (acs/ha) 4,421/1789 Almond processing capacity: 30,000mt Riverina Region, NSW: Company Orchards: (acs/ha) 4,528/1832 approaching maturity Sunraysia Region, VIC: KW Processing Facility – capacity 30,000mt Thomastown, VIC: Value added production facility Select Harvests Annual Report 2012 3 Letter from the Chairman MICHAEL IWANIW, CHAIRMAN Dear shareholder Financial results Asset write-downs I am pleased to present your board’s ﬁ rst annual report with me as Chairman of Select Harvests. My overwhelming impression since being appointed Chairman in November is that this is a business with great potential and valuable assets in a compelling industry. Over the last 12 months there have been signiﬁ cant changes within the business to help realise this potential. We have brought in new leadership focussed on driving a performance culture. Good progress has been made in initiatives to strengthen the balance sheet, reduce working capital and costs, and implement operational improvements. Benchmarking of our orchard operations is well progressed to ensure top quartile horticultural and management practices. In July we appointed Paul Thompson as Select Harvests’ new Managing Director. In the short time that Paul has been on board, he has identiﬁ ed a range of initiatives to improve performance and put the company on track to being a leading, internationally competitive, horticulture and food business. Operationally 2012 was a challenging year for Select Harvests, and the ﬁ nancial performance of the business reﬂ ected those challenges. On a reported basis the Company produced a Net Loss After Tax for the year of $4.5 million. This was after net adjustments of $22.1 million including non-cash write downs totalling $24.9 million. On an underlying basis the performance was better. Underlying NPAT was $9.5 million compared to $8.9 million in the prior year. While this was an improvement, the performance of our Almond Division was disappointing, with below average yields experienced across the industry and wet harvesting conditions impacting almond quality. Encouragingly, the Food Division reported a signiﬁ cantly improved performance. Underlying EBIT increased 27% to $6 million compared to $4.7 million in ﬁ nancial year 2011; largely a reﬂ ection of improved operational discipline. Orchards On 1 July 2012 the management of 29,500 acres of orchards in Robinvale reverted to Olam, in a process that was well executed by the team. This change will have an impact on part of the 2013 ﬁ nancial year earnings as the remainder of the 2012 crop is processed. Select Harvests now manages a portfolio of 17,151 acres (6,940 hectares) orchards over three states. 12,730 acres (5,151 hectares) of these are owned by Select Harvests and 4,421 acres (1,789 hectares) of these orchards are managed for other owners. The portfolio has an attractive maturity proﬁ le and is well placed to meet growing demand. Following a review of the Company’s assets, the Board took the decision to write- down the value of the Western Australian greenﬁ eld development by $20 million. This included feasibility costs and land and infrastructure impairment provisions associated with the development. The 3,949 acres of orchards planted have 22GL of water rights, which have no value apportioned to them. While many of the base assumptions for the development remain valid, the project has experienced higher infrastructure and planting costs than originally expected. The WA development was predicated on 10,000 acres being developed with the support of other investors. A full review of the WA development is being undertaken. The Company also incurred a $4.9 million write down on the former Kyndalyn Park processing facility which is now redundant. The state-of-the-art Carina West processing facility with 30,000 metric tonnes of processing capacity, is well placed to meet future needs. Funding and capital management In-line with the Board’s focus on funding and capital management, we have undertaken a number of initiatives to strengthen the Company’s Balance Sheet. These include scheduled debt reductions and the continuation of a long-term debt funding agreement with NAB comprising $60 million term debt and a $35 million working capital facility. We are also well progressed with a program to realign our asset base and strengthen the Balance Sheet through the sale of non-core assets. To this end we announced the sale of 11GL of water entitlements for $18 million in June, 2012. We continue to examine a range of alternatives to optimise our assets. 4 Select Harvests Annual Report 2012 Global supply and demand Board & Management The fundamentals in the almond industry continue to be attractive. Globally, almond demand has grown at a compound annual growth rate of 8% over the last decade and growth looks set to continue. Rapid urbanisation and growing afﬂ uence in China and India is driving strong demand from those markets. In developed markets the nutritional beneﬁ ts of almonds and nut categories are becoming better understood and demand for almonds, and other nuts, continues to grow. The strength of global demand was well illustrated by another record year of almond shipments from the United States, which produces over 80% of global almond supply. Shipments increased by 14% with strong demand from Asia and Europe underpinning an increase in the almond price. The strong growth in demand is coupled with supply constraints due to a lack of recent plantings globally. The long lead time to get almond trees to mature production, favourable supply and demand dynamics and the long term growth in almond consumption, bodes well for Select Harvests’ maturing orchards and integrated business model. In June Curt Leonard retired from the board of Select Harvests after eight years as a director of the Company and three years as Chairman. I extend my personal gratitude to Curt. Not only did he steer the Company through a period of signiﬁ cant and challenging change, he has been extremely supportive of me in my new role. The board wishes Curt well in his retirement. This year saw the departure of John Bird as our Chief Executive after 14 years in the role. I would like to thank him for his contribution to Select Harvests. Dividend At the full year results the board declared a ﬁ nal fully franked dividend of 3 cents per share, resulting in a total dividend for the year of 8 cents per share. This was payable on 22 October to shareholders based on their holding at 11 September 2012. Conclusion The outlook for Select Harvests is positive. Global fundamentals are strong and volumes are expected to increase as orchards mature. We have made progress in initiatives to strengthen the Balance Sheet and will be focussing on the following areas: • Utilising our assets to their best advantage to make Select Harvests an internationally competitive food and horticulture business • Ensuring we have the right people, management structures and processes in place • Becoming more collaborative and working in mutually beneficial partnerships that add value to Select Harvests’ assets and enable us to free up capital • Improving our orchard management practices and yields to ensure we optimise their profitability • Targeting additional volumes for the Robinvale processing facility • Reducing corporate and operating costs • Further improving the financial performance and increasing the market share of our Food Division • Improving communication with stakeholders • Investigating and progressing business growth opportunities On behalf of the board I would like to take this opportunity to thank the management team and staff for their professionalism, hard work and commitment, and to thank you, our shareholders, for your ongoing support. We look forward to updating you on the Company’s continued progress in the future. Michael Iwaniw, Chairman Select Harvests Annual Report 2012 5 Managing Director’s Review I joined Select Harvest in July this year and I believe it’s a business with strong potential, operating in an industry which has compelling fundamentals. Global demand for almonds has grown at an average compound annual rate of 8% for the last decade. A lack of plantings globally in recent years, and the long lead times to bringing orchards to production, means that demand is expected to exceed supply in the near term. Furthermore the world’s largest almond producer, the USA, with over 80% the global market, is constrained by a lack of appropriate land and water availability. In developed markets consumers are becoming more aware of the health and nutritional beneﬁ ts of almonds. There is growing evidence that consumers are choosing nuts as a healthy option over traditional snacks. In fact almond consumption has grown from 0.492 kg per person in 2007 to 0.735kg in 2011. With nutritionists recommending a daily nut intake of 30g, the size of one of our Lucky six-packs, we see plenty of opportunity for that trend to continue. Equally exciting is the demand for almonds from emerging markets such as India and China. Shipments from the USA to Asia now exceed those to Western Europe. Put simply demand continues to grow as almonds are replacing traditional snacks, like biscuits, across the globe. PAUL THOMPSON, MANAGING DIRECTOR Australian almond growers have not beneﬁ ted as much as they should have done from these strong fundamentals in recent years. Three consecutive years of unseasonably wet growing and harvesting conditions have resulted in below average crop volumes. Crop quality has also been impacted by the wet weather. This combined with an Australian dollar at historic highs against the US dollar, has in turn impacted the price Australian growers have achieved. The Australian industry’s proﬁ tability has been signiﬁ cantly impacted. Select Harvests is Australia’s largest vertically integrated nut and health food company with expertise and core capabilities across the almond value chain from farming and processing to sales and marketing. The business has a geographically diversiﬁ ed portfolio of Company Orchards with a signiﬁ cant proportion of those orchards at or near maturity, and it has market leading brands. The challenge for me and the leadership team, is to manage and grow the business as effectively and efﬁ ciently as possible to ensure that it is well positioned to beneﬁ t from the ongoing demand for almonds and other health food products. We are in the process of building: • A cash generating business that will be positioned to invest in the growth of our industry • A company of passionate people • A strong and trusted company • A business that can manage the dynamic agricultural cycle and can mitigate the inherent risks • A company that responds to challenges and learns from experience Financial Performance The 2012 ﬁ nancial year was challenging for the industry and for Select Harvests. Despite this the underlying performance of the business improved on the prior year with strong contributions from the Food Division and from the New South Wales Belvedere orchards purchased in June 2011. Almond Division EBIT from our Almond Division was $17.3 million after adjusting for the asset write downs and the gain on sale of water rights, up from $14 million in the prior year. Despite a promising early crop set, the Almond Division was impacted by below average yields which have been experienced across the Australian almond industry. These poor yields were the result of a third year of unseasonably wet weather during the harvest impacting on product quality, processing and price. On an underlying basis, Managed Orchards EBIT was $14.2 million, up from $11.6 million a year ago. This primarily reﬂ ects higher year-on-year processing volumes, due to increasing maturity of the managed orchards. EBIT in the previous year was impacted by lower volumes and higher costs due to wet harvesting conditions. Underlying Company Orchards EBIT was $3.1 million, up from $2.3 million in ﬁ nancial year 2011. The Company Orchards crop increased by 43 percent to 5,830 metric tonnes. This included a strong performance from the recently acquired Belvedere orchards which contributed 1,000 metric tonnes. Despite wet weather during the harvest impacting the quality of the crop, and the continued strength of the Australian dollar, the almond price achieved was 4.8 % higher than last year. Importantly the working capital 6 Select Harvests Annual Report 2012 requirements for the Company Orchards have plateaued reﬂ ecting the maturity proﬁ le of the orchards. We now have 3,949 acres of orchards in Western Australia. As the Chairman states in his letter we are conducting a review of the Western Australian development and investor partners may be required to realise the potential of the project. Food Division The Food Division provides us with a route to domestic and international markets. The division delivered a solid performance this year with an underlying EBIT of $6 million, representing improved operational discipline in the business and the continued strong performance of our market leading, value-added brands including Lucky and industrial supplies brands Alinga Farms and Renshaw. Marketing revenues beneﬁ ted from increased volumes from our Managed Orchards. In March the Company appointed Kidder Williams to oversee the sale of the non-core health and snack food brands; SunSol, Soland and Nu-Vit. A number of expressions of interest have been received, however the Company will only proceed with a sale if sufﬁ cient value can be realised for shareholders. These brands are market leaders in the health food category and there remains signiﬁ cant potential to unlock value by introducing further operating efﬁ ciencies. Outlook and opportunities I am optimistic about the outlook for Select Harvests. There are signiﬁ cant opportunities to unlock value by driving operational improvements and efﬁ ciencies, reduce costs and leverage the business’s scale, expertise and unique integrated business model. We have quality assets and an extremely passionate and experienced workforce who understand the industry, our opportunities, and who are determined to succeed. Our focus for the near term will be driving the One Select program – a number of initiatives to improve performance across the business, optimise our assets and to drive a uniﬁ ed performance culture. The business stands to beneﬁ t from the improved maturity proﬁ le of our orchards and improvements in yields and crop quality. Full horticultural programs are underway across our established orchards. We have engaged independent experts to conduct a benchmarking of our orchard operations against international best practice to ensure top quartile horticultural and management practices. We are reﬁ ning a number of our processes, including tracking of crop data through the growing cycle, to empower individuals at the coalface to better inform our management decisions. Our Carina West Processing Facility at Euston in Victoria is a truly world-class asset. With capacity of 30,000 metric tonnes it is well placed to service Select Harvests needs and an anticipated shortfall in processing capacity across the industry. Post Olam we are endeavouring to secure additional processing volumes from independent growers by focussing on quality and service. Our Food Division has great potential to improve its proﬁ tability. It is clear, post an extensive range review, that opportunities exist in the following areas: range rationalisation, product redesign, go to market resources and ongoing brand development. In the past two years we have seen a signiﬁ cant turnaround in this business, it will continue over the next couple of years. The fundamentals underpinning the global almond industry remain compelling. Demand for almonds continues to grow domestically and internationally and demand is on track to exceed supply. I, along with the other Board members and employees of Select Harvests, are committed to ensuring the business captures the beneﬁ t from attractive long-term fundamentals by improving our executional capability. Paul Thompson, Managing Director Select Harvests Annual Report 2012 7 The almond opportunity: Strong global fundamentals The global almond market continues to demonstrate strong and attractive fundamentals. World demand for almonds has grown at a compound annual growth rate of 8% annually over the past decade and demand is on track to signiﬁ cantly exceed available supply in the future (see ﬁ g. 1). Growing awareness of the health beneﬁ ts and an increasingly afﬂ uent middle class in emerging markets such as India and China has resulted in strong growth in consumption. 45% of consumers worldwide reported eating almonds several times a month or more in 2011, an increase of 36% from 2009.1 Almonds are the number one nut used in new products worldwide, and the preferred nut choice among consumers as a food ingredient.1 s b l n o i l l i m Statistics from the United States, which grows over 80% of global almond supply, provide a good indication of global trends and demand. Despite record US almond crops in four of the last ﬁ ve years, the carryout rate has fallen and the almond price over the last year has increased. US shipments this year grew 14%. As in recent years, US exports to emerging markets including the Asia-Paciﬁ c and Middle Eastern regions grew in 2012, with exports to Asia surpassing those to Western Europe for the ﬁ rst time (see ﬁ g. 2). China, India and the United Arab Emirates made up three of the top ﬁ ve US export destinations, demonstrating the exceptional long term opportunities presented in these markets. 8 Select Harvests Annual Report 2012 WORLD ALMOND SUPPLY VS DEMAND – FIG. 1 s e n n o t d n a s u o h t 1,200 800 400 0 8 9 1 9 9 9 1 9 0 0 0 2 0 1 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 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 SUPPLY PRODUCTION DEMAND CARRY OUT CALIFORNIA ALMONDS – SHIPMENTS BY DESTINATION – FIG. 2 700 600 500 400 300 200 100 0 AMERICAS WESTERN EUROPE ASIA PACIFIC MIDDLE EAST/AFRICA EASTERN EUROPE 2009 2010 2011 Almond consumption per capita in China has more than tripled since 2007.2 The Middle East is a fast growing export market. The region has an ancient tradition of almond consumption, with almonds playing a key role in breaking of the Ramadan feast.2 Australian almonds well placed to meet demand AUSTRALIA’S CONTRIBUTION TO GLOBAL ALMOND PRODUCTION1 s e n n o t n o i l l i m 1.5 1 0.5 0 9 1 1 9 3 9 1 9 5 9 1 9 7 9 1 9 9 9 1 9 0 1 0 2 3 0 0 2 5 0 0 2 7 0 0 2 9 0 0 2 0 1 1 2 AUSTRALIA US OTHER AUSTRALIAN ALMOND EXPORTS BY REGION (2011/12 MARKETING YEAR)1 MIDDLE EAST & AFRICA 11% EUROPE 33% NTH AMERICA 4% ASIA PACIFIC 52% The Australian almond industry holds a signiﬁ cant and growing position in global almond production. Just 34% of Australian almond plantings are currently at full maturity. Future production increases in Australia put us on track to overtake Spain as the world’s second largest almond producer. At full maturity Australia will account for around 8% of world production leaving the industry well placed to beneﬁ t from increases in global consumption and demand. Australia already exports almonds to more than 40 countries. Our largest export market, representing more than $40 million in 2011/12, is India, where almond consumption has experienced phenomenal growth in recent years. Consumption trends in Australia are similarly positive, with domestic per capita consumption increasing from 492g per person in the 2007/08 marketing year to 735g per person in 2011/12. Page 8 1. 2010 Innova Market Insights, Global New Product Report 2. Australian Almond Board Page 9 1. Australian Almond Board India is one of Australia’s biggest almond export markets. Almonds are an important part of India’s cultural heritage, especially during festive periods and weddings.1 Australians are eating nearly double the amount of almonds they were ﬁ ve years ago. The average Australian eats 735g a year.1 Select Harvests Annual Report 2012 9 The almond life cycle Almond trees do not produce fruit until they are around three or four years old and reach maturity at seven years old. Almond trees have a life span of about 25 to 35 years. Select Harvests orchards in Victoria and New South Wales are at, or nearing, full maturity. maturing nuts bloom hull split dormancy the almond lifecycle harvest products processing storage Source: Australian Almond Board 10 Select Harvests Annual Report 2012 Almonds require cold winters and hot summers. Almond trees typically lie dormant over the winter period with blossom occurring from late July to early September. Non-pareil almond trees, which make up 50% of plantings in Australia, require pollination from other almond varieties known as pollinators. Bees are transported to orchards speciﬁ cally to carry pollen between the pollinators and other trees to achieve fertilisation which leads to bloom. From Autumn to February the blossom matures to develop into nuts, it is important during this period that the trees get sufﬁ cient water and nutrients to optimise the growing nuts. A sign of the winter harvest, which generally occurs from February until March, is when the hull splits and the almond shell, which contains the kernel, becomes exposed. Some of the product is de-hulled for in-shell sales to Asia. Select Harvests has a market share in excess of 50% of the in-shell export market. During processing, the almond hull is removed and the fruit is used to make a wide variety of products including kernels (natural, roasted, ﬂ avoured), blanched, slivered or sliced almonds. Cooking products including almond meal, ﬂ our and pastes are also produced, meaning there is very little wastage during processing. The by-product from manufacturing, almond hulls and skins, have potential to be used for compost or as animal feed. In shell Kernal Whole blanched Natural Sliced Blanched sliced Slivered Chopped Meal Source: Australian Almond Board Select Harvests Annual Report 2012 11 A leading almond supplier Select Harvests processes, markets and supplies almonds in Australia and around the world. Our marketing program has the overarching objective of encouraging almond consumption growth and ensuring we are best placed to beneﬁ t from favourable industry dynamics. We work closely with the Australian Almond Board and other industry bodies on a domestic and international basis to achieve this objective. In Australia our direct access to the whole food industry encompasses the retail, food service and food manufacturing sectors. This year our promotional program, undertaken in partnership with the Australian Almond Board, focussed on educating and informing stakeholders, including consumers, manufacturers, retailers and health professionals, about the nutritional proﬁ le and versatility of almond consumption. An example of this was the “New Year, New Heart” promotion in January and February, and the “Hearts for Life” campaign in April and May, both of which highlighted the beneﬁ ts of almonds in assisting heart health. The promotion was bolstered by a giveaway of over 80,000 heart shaped almond snack tins which have been an effective tool in increasing customer numbers and almond consumption. The tins hold 30 grams of almonds, the recommended daily serving for optimum heart health. Following a detailed review of the Food Division during the year, we have renewed our focus on our core retail and ingredient almond products which will be reﬂ ected in our promotional program in ﬁ scal 2013. Key to this approach is driving the success of our market leading brands in both core and growth categories including snacks and baking and ingredients. Our suite of brands in the Food Division continues to perform well. Lucky is a market leading brand in the dried fruit and nuts category, and SunSol, Nu-Vit and Soland are strong brands in the health foods category. Our other brands including Renshaw and Allinga Farms are leaders in the food service and wholesale nuts categories. Every year we process in excess of 14,000 metric tonnes across a varied group of commodities. Over 30% of this volume sits with almonds, where we take natural product to pack, or convert almonds into diced, ﬂ aked, slivered or meal product. In addition to almonds we can process over 2,500 metric tonnes of cashews and approximately 1,000 metric tonnes of peanuts. The ‘Lucky’ brand Our Lucky nut brand continues to grow, consolidating its leading position in the dried fruit and nuts category. Our marketing team focusses on driving the brand to new heights, increasing its contemporary feel and its relevance for consumers. Market growth continues to be driven by an increasing awareness of the health properties of nuts and the popularity of home cooking and baking as a result of popular cooking shows. To this end, we continue to see positive consumer responses to new products such as the Lucky Traditional Fruit & Nut Cake Mix, a blend of premium quality nuts and fruit in one pack, making it quick and easy for the home cook to make a perfect fruit cake. 12 Select Harvests Annual Report 2012 In snacks, our Lucky 6 packs – nut snacks in portion controlled packs of 30g – continue to drive growth. The snacking range also includes resealable Lucky tubs and the range of Lucky Smart Snax – developed in consultation with nutritionists – which have been extremely popular with consumers. Lucky was promoted at the 2011 MasterChef Live show, which was held in Sydney in October. Enthusiastic consumers visited the show to meet their favourite celebrity chefs, partake in cooking demonstrations and sample quality products, including Lucky cooking and snacking products. Over summer, Lucky Smart Snax were promoted on beaches around Australia as part of the Australian Surf Rowers’ League national competition carnival. Our healthy snacking credentials led us to be invited to advertise in the Australian Olympic Committee licensed “Ofﬁ cial Australian Team Guide to the 2012 Olympic Games”, which was distributed to all members of the 2012 Australian Olympic team, various sporting organisations and sold to the general public. Lucky has been driving growth in the Dried Fruit and Nut category for over 50 years. Almond exports Gulfoods, Dubai With over 70% of sales in international markets, Select Harvests works closely with the Australian Almond Board to promote the industry, build on established relationships and improve market access particularly in regions with favourable demand trends. These efforts are supported by the counter seasonal timing and traditional premium quality of the Australian Almond Crop. This year, Select Harvests held exhibits in conjunction with the Australian Almond Board at major international food expos, helping to develop our presence in important trading regions. There is a growing appreciation and recognition of the quality of Australian almonds at these events which helps to drive growth in exports. Anuga, Germany The Australian almond industry has been exhibiting at Anuga since 2005 and the event has proved an important platform for developing customer relationships within the key European market, and in particular Germany which is Australia’s second biggest almond export market. Anuga is a biennial fair which was attended by almost 7,000 companies from 100 countries and attracted over 155,000 trade visitors from 180 countries in 2011. As the largest annual food fair in the Middle East, Gulfoods is an important opportunity to build on our established relationships with major customers in these markets. At this year’s Gulfoods, the Australian almond industry held an Industry Forum at the conference centre which was attended by over 50 almond customers. The event attracted over 70,000 visitors largely from emerging markets such as the Middle East, North Africa and India. International Nut Congress, Singapore The major annual Congress of the International Nut and Dried Fruit Council was held in Singapore in May 2012 and attracted the major nut traders from around the world. The timing of this Congress provided the Australian almond industry with the opportunity to give a 2012 crop update to major trading customers. We will look to build on the success of our international marketing program in 2012-13 with exhibits at major world food trade exhibitions currently scheduled in Paris, Dubai and Hong Kong. We will also be exhibiting in Russia for the ﬁ rst time; almond consumption in Eastern Europe has grown signiﬁ cantly in the past three years. Select Harvests Annual Report 2012 13 Select Harvests in the community: Environment Our Environment Select Harvests recognises that sustainable business performance is intrinsically linked with how the business interacts with its communities and the environment. We take our commitment to being environmentally responsible very seriously and work hard across all areas of our business to operate efﬁ ciently and minimise waste, thereby reducing the impact our business has on the environment. The focus during 2012 was on efﬁ ciency and minimising waste in all forms. During the year we undertook to improve our standard and new product development processes to optimise our packaging utilisation and recycling programs. As a long term signatory to the Australian Packaging Covenant, this year we submitted a detailed Action Plan (2012–2015). We have undertaken to: • Review on-site recycling and identify opportunities for improvement • Review all existing and future packaging against sustainable packaging guidelines with a view to meeting minimum standards as set out by the covenant • Implement a plan of recycling non- product related waste • Review our current water usage on site and identify possible opportunities for reduction or recycling The business will submit an annual progress report in March 2013, and we look forward to sharing our achievements with you in next year’s Annual Report. Water efﬁ ciency also remains a top priority. We recognise that we are a large consumer of water and water is a scarce and valuable resource. We have sophisticated systems and technology in place to ensure that water is conserved. We continually monitor soil moisture and our water use and work to develop strategies to better meter the volumes of water we draw and use on our farms. Our water-wise approach, and the availability of economically viable temporary water solutions, meant that we were able to sell 11GL of high security Victorian and New South Wales water rights assets for $18 million in June of this year. Regent Parrot Project research with Charles Sturt University Select Harvests remains a major funding partner of a Charles Sturt University research project in conjunction with the Victorian Department of Sustainability and Environment, NSW Ofﬁ ce of Environment and Heritage and the Mallee Catchment Management Authority. The PhD students who have been conducting research since 2011 on the project titled “Managing agricultural landscapes to maximise production and conservation outcomes; the case of the Regent Parrot”, are analysing the data collected and are in the process of completing their thesis. The thesis focusses on assessing the positive and negative interaction of native birds, and in particular the endangered Regent Parrot, with crops with a view to providing guidelines to maximise biodiversity and production gains. The project is scheduled to complete at the end of this year. Minimising wastage Virtually none of the almond goes to waste during processing. Almonds not sold as whole kernels are blanched, slivered or sliced, or used to produce cooking products including almond meal, ﬂ our and pastes. We are currently investigating further sustainable uses for almond hulls so that this by-product is not wasted. 14 Select Harvests Annual Report 2012 Select Harvests in the community: People Occupational Health and Safety (OHS) Select Harvests is committed to facilitating an organisational culture that actively seeks to improve work practices and to foster attitudes which sustain healthy and safe work environments. We are committed to safety in all areas of our business and it remains a key performance measure. We have a health and safety programme that provides the structural framework within which OHS is managed and outlines the responsibilities of management, supervisors, employees, contactors, visitors and their representatives. During the year various initiatives were implemented. The Almond Division designed and developed an automated process for mixing fertiliser which has been very successful in the reduction of manual handling. At the Thomastown site, supporting frames for bulk bags were speciﬁ cally designed to hold product over hoppers for a safer system of work. We also improved our safety hazard identiﬁ cation process throughout the company and have a structured safety audit inspection programme in place to identify hazards and implement controls. The Thomastown site reported a 20% reduction of accidents compared with the previous year. The Almond Division has reported the lowest lost time injuries for the year since the 2007/2008 ﬁ scal year. Training programmes are considered a priority to maintain safe systems of work and reinforce safe practices. Key areas of training during the year included ﬁ rst aid, OHS 5-Day for Health and Safety Representatives, emergency procedures, forklift training, safe handling and storage of chemicals, manual handling and hearing protection. Speciﬁ c training has also been conducted for some sites, such as bee safety awareness, ﬁ rearms training and vermin control. Looking ahead, we will be conducting a full review of employee and contractor inductions with the intent to simplify this process across the company, improving internal and external trafﬁ c management for all sites and focussing on efﬁ ciencies including reducing manual handling activities. Training 150 orchard staff undertook their Certiﬁ cate III in Production Horticulture this year. The qualiﬁ cation provides a vocational outcome in production horticulture and equips participants to develop skills in areas such as emergency disease or plant pest response, drainage systems performance and irrigation maintenance. Students also develop practical skills including problem solving, interdependence and initiative. Health and Wellbeing This year, we also took a special interest in the broader health and wellbeing of our staff. With a signiﬁ cant number of female employees at our Thomastown processing facility, we felt it important to provide access to women’s health services on site. The Multicultural Centre for Women’s Health visited Select Harvests’ Thomastown ofﬁ ces on seven different occasions during April and May of 2012 and delivered high quality multilingual health information and education on various topics. The program was very successful and we hope to run it again next year. We also invited Robinvale District Health Services to conduct health screenings for staff at the Carina West Processing Facility. Select Harvests Annual Report 2012 15 Our Board of Directors MICHAEL IWANIW—CHAIRMAN PAUL THOMPSON— MANAGING DIRECTOR FRED GRIMWADE— NON-EXECUTIVE DIRECTOR Michael Iwaniw was appointed as Chairman of Select Harvests in November 2011 following a career spanning 40 years in Australian agribusiness. He became Managing Director of the Australian Barley Board (ABB) in 1989, retiring from the role some 20 years later. As Managing Director he led the transition from a statutory authority to a publicly listed company, growing the business into an ASX 100 company with a market capitalisation of A$1.6 billion. Michael has acted as a Non Executive Director of a number of Companies. He is currently a Non Executive Director of Australian Grain Growers Cooperative. Paul Thompson joined Select Harvests as Managing Director in July 2012. He is an experienced executive with over 30 years in management. Before joining Select Harvests Paul was President of SCA Hygiene Australasia responsible for a $600 million turnover business across all of its divisions (FMCG, Pharmacy, Industrial/ Foodservice & Healthcare) and overseeing leading brands including Sorbent and Handee. Paul is a member of the Australian Institute of Company Directors and has formerly held positions as a Director of the Australian Food & Grocery Council and on other industry bodies. Fred Grimwade 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 Chairman of CPT Global Limited, and is a Principal and Executive Director of Fawkner Capital and is also a director of Troy Resources Ltd, XRF Scientiﬁ c Limited and Fusion Retail Brands Pty Ltd. 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. ROSS HERRON— NON-EXECUTIVE DIRECTOR MICHAEL CARROLL— NON-EXECUTIVE DIRECTOR PAUL RIORDAN— NON-EXECUTIVE DIRECTOR Ross Herron joined the Board on 27 January 2005. A Chartered Accountant, he 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 Melbourne ofﬁ ce Managing Partner and served on several international committees within Coopers & Lybrand. He is Chairman of GUD Holdings Ltd, and Royal Automobile Club of Victoria (RACV) Ltd and a non-executive director of a major industry superannuation fund. Ross is Chairman of the Audit and Risk Committee, and member of the Remuneration and Nomination Committees. Michael Carroll 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. Paul Riordan was appointed to the Board in October 2012. He has worked in various rural enterprises during his career, in Australia and the United States, including small seed production, large-scale sheep and grain organisations, and beef cattle. Paul is a co-founder and executive director (operations) of Boundary Bend Olives, Australia’s largest vertically integrated olive company. Paul has a Diploma of Farm Management from Marcus Oldham Agricultural College, Geelong and has extensive operational and business experience in vertically integrated agribusinesses, including in horticultural operations and risk management. 16 Select Harvests Annual Report 2012 Select Harvests Annual Report 2012 17 Statistical summary *2012 2011 2010 2009 2008 2007 2006 246,766 248,316 238,376 248,581 224,655 229,498 217,866 22,612 18,473 17,674 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 (2,495) (8,743) (4,469) (7.9) (2.8) 8 0 100 (101.3) 2.19 (0.4) 41.7 1.42 (cents) (%) (cents) (cents) (%) (%) ($) (times) (%) (times) 33.7 10.5 13 – 100 38.6 2.17 6.7 43.3 1.96 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 76,936 91,228 202,371 214,352 83,993 145,612 81,075 77,014 133,884 118,934 279,307 305,580 229,605 214,959 195,948 54,369 64,608 118,977 160,330 95,957 10,472 53,901 160,330 46,454 90,311 136,765 168,815 95,066 11,201 62,548 168,815 (000) 56,813 3,359 56,227 3,227 47,470 11,327 54,824 113,621 39,779 3,039 58,469 102,348 57,515 11,735 88,162 13,715 115,984 114,083 101,877 64,649 113,621 100,876 94,071 95,504 46,433 12,949 41,494 100,876 44,375 11,235 38,461 94,071 41,953 11,273 42,278 95,504 39,519 3,296 39,009 3,319 38,739 2,953 39,708 3,369 ($) 1.30 1.84 3.46 2.16 6.00 11.60 13.02 73,857 103,458 137,635 85,361 234,054 449,372 516,998 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 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 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 capitalisation $ ‘000 (except where indicated) *Includes $24.9 million of pre-tax net asset write downs 18 Select Harvests Annual Report 2012 Contents Directors’ Report Auditor’s Independence Declaration Corporate Governance Statement 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 to the Members ASX Additional Information 20 33 34 40 41 42 43 44 45 85 86 88 Select Harvests Annual Report 2012 19 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 2012. 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 M Iwaniw (Chariman) Appointed to the board on 27 June 2011 and appointed Chairman 3 November 2011. He began his career as a chemist with the Australian Barley Board (ABB), became managing director in 1989 and retired 20 years later. During these years he accumulated extensive experience in all facets of the company’s operations, including leading the transition from a statutory authority and growing the business from a small base to an ASX 100 listed company. Helped orchestrate the merger of ABB Grain, AusBulk Ltd and United Grower Holdings Limited to form one of Australia’s largest agri-businesses. He has a Bachelor of Science, a graduate diploma in business administration and is a member of the Australian Institute of Company Directors. He has acted as a Non-executive director for a number of companies including Toepfer International, New World Grain, Australian Bulk Alliance and 5-star ﬂ our mill, and is currently a non-executive director of Australian Grain Growers Cooperative. Interest in shares and options: 100,000 fully paid shares. P Thompson (Managing Director) Appointed the Managing Director and Chief Executive Ofﬁ cer of Select Harvests Limited on 9 July 2012. Has over 30 years of management experience. Formerly President of SCA Australasia, part of the SCA Group, one of the world’s largest personal care and tissue products manufacturers. Member of the Australian Institute of Company Directors and has formerly held positions as a Director of the Food & Grocery Council and councillor in the Australian Industry Group. Member of the Nomination Committee. Interest in Shares and Options: 0 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 Chairman of Royal Automobile Club Of Victoria (RACV) Ltd, Chairman of GUD Holdings 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: 41,965 fully paid shares. M Carroll, BAgSc, MBA & FAICD (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 Queensland Sugar Limited, Sunny Queen Farms, Meat and Livestock Australia, Rural Finance Corporation, Rural Funds Management and Warnambool Cheese and Butter. He has 18 years experience in banking and ﬁ nance, having established and led 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. 20 Select Harvests Annual Report 2012 F S Grimwade, B.Com, LLB (Hons), 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 Chairman of CPT Global Limited, a Principal and Executive Director of Fawkner Capital, a specialist corporate advisory ﬁ rm, and is also a director of Troy Resources Ltd, XRF Scientiﬁ c Limited and Fusion Retail Brands Pty Ltd. 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. Interest in shares and options: 100,000 fully paid shares. J C Leonard, B.Mktng & Bus. Admin, MBA (Former 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 was Chairman of the Board, a member of the Audit and Risk Committee, Remuneration Committee and Nomination Committee. Curt Leonard retired 1 June 2012. J Bird (Former 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. John Bird retired 1 March 2012. P Chambers, BSc Hons, CA (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 25 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: 22,000 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. Employees The consolidated entity employed 571 full time employees as at 30 June 2012 (2011: 633 employees). Select Harvests Annual Report 2012 21 21 Select Harvests Annual Report 2012 Directors’ Report Review and results of operations Loss attributable to the members of Select Harvests Limited for the year ended 30 June 2012 was $4.5 million compared to a proﬁ t of $17.7 million in 2011. The Company has recognised impairment losses of $24.9 million in relation to property, plant and equipment during the period. $20.0 million of the impairment losses relate to the Company’s orchards in Western Australia with the remaining $4.9 million relating to almond processing plant and equipment assets. For additional information refer to the announcement lodged with the ASX. Signiﬁ cant changes in the state of affairs There have been no signiﬁ cant changes in the state of affairs of the Company. Signiﬁ cant events after the balance date On 31 August 2012, the Directors declared a ﬁ nal dividend of 3 cents per share payable on 22 October 2012 to shareholders on the register on 11 September 2012. On 22 August 2012 the annual review of the company’s debt facility agreement with the National Australia Bank (NAB) was completed with the total debt facility limit being amended from $115,000,000 to $95,000,000. Likely developments and expected results In 2013, the Company will consolidate its investments in almond orchards, continue to pursue new growth opportunities, and review operations to enhance proﬁ tability. 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. 22 Select Harvests Annual Report 2012 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 or performance rights on securities. This reﬂ ects the responsibilities and the Group’s demands of directors. Non-executive directors’ fees are periodically reviewed by the Board to ensure that they are continually appropriate and in line with market expectations. Directors’ fees The current directors’ fees were last reviewed with effect from 1 July 2011 and are as follows: Base Fees (excluding superannuation) Chairman Other non-executive directors Additional Fees (excluding superannuation) Chair of the Audit and Risk Committee Chair of the Remuneration Committee From 1 July 2011 $145,000 $72,267 $10,000 $8,000 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 performance rights in the Select Harvests Limited executive Long Term Incentive Plan. The combination of these three components forms the executive’s total remuneration. 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 may receive beneﬁ ts including motor vehicle and certain private expense reimbursements. Select Harvests Annual Report 2012 23 23 Select Harvests Annual Report 2012 Remuneration Report Short-term incentives Executive directors and senior executives may receive short term incentives based on achievement of 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 plan (LTI Plan) involving the issue of performance rights to the employee under the LTI Plan. The LTI Plan provides for the offer of a parcel of performance rights that vest proportionately over three years, with half of the rights vesting upon achievement of earnings per share (EPS) growth targets and the other half vesting upon achievement of total shareholder return (TSR) targets. The EPS growth targets are based on the average growth of the company’s EPS over the three years prior to vesting. The TSR targets are measured based on the company’s average TSR compared to the TSR of a peer group of ASX listed companies over the three years prior to vesting. The performance targets and vesting proportions are as follows: MEASURE EPS Below 5% growth 5% growth 5.1% – 6.9% growth 7% or higher growth TSR Below the 60th percentile* 60th percentile* 61st – 74th percentile* At or above 75th percentile* * Of the peer group of ASX listed companies PROPORTION OF RIGHTS TO VEST Nil 25% Pro rata vesting 50% Nil 25% Pro rata vesting 50% 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 EPS has fallen 117%. Earnings Per Share Cents Growth 2008 46.7 (34%) 2009 42.6 (9%) 2010 43.3 2% 2011 33.7 (22%) 2012 (7.9) (123%) 24 Select Harvests Annual Report 2012 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 senior executives: NAME P Ross T Millen L Van Driel P Chambers M Graham POSITION General Manager Almond Processing General Manager Horticultural & Farm Operations EMPLOYER Select Harvests Limited Select Harvests Limited Group Trading Manager Select Harvests Food Products Pty Ltd Chief Financial Ofﬁ cer & Company Secretary Select Harvests Limited General Manager Food Division 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 performance rights granted referred to in the remuneration details set out in this report comprise a proportion of rights which have not yet vested and are reﬂ ective of rights that may vest in future years. 2012 ANNUAL REMUNERATION LONG TERM Base Fee $ Short Term Incentives $ Non Cash Beneﬁ ts $ Long Service Leave Accrued $ Performance Rights Granted $ Termination Beneﬁ ts $ Non Executive Directors F Grimwade J C Leonard M Carroll R M Herron M Iwaniw* Executive Director J Bird 66,300 83,017 73,639 75,474 223,307 467,204 Other key management personnel P Chambers M Graham L Van Driel T Millen P Ross 252,574 229,222 231,900 223,980 255,046 - - - - - - - - - - - Super- annuation Contri- butions $ 5,967 7,472 6,628 6,793 - - - - - - 20,949 41,619 46,171 38,462 18,211 16,497 - 23,001 20,716 20,081 18,382 22,954 - - - - - - - - 6,377 7,352 - - - - - - - - - - - - Total $ 72,267 90,489 80,267 82,267 223,307 - - - - - 686,745 1,216,517 - - - - - 321,746 288,400 276,569 266,211 278,000 * Includes fees of $108,412 received for fulﬁ lling the Executive Chairman role for the period 5 March 2012 to 9 July 2012. Notes The elements of remuneration have been determined on the basis of the cost to the company and the consolidated entity. Performance rights granted as part of 2012 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 2012 25 25 Select Harvests Annual Report 2012 Remuneration Report 2011 ANNUAL REMUNERATION LONG TERM Base Fee $ Short Term Incentives+ $ Non Cash Beneﬁ ts $ Super- annuation Contri- butions $ Long Service Leave Accrued $ Options Granted++ $ 27,083 59,583 130,000 65,000 65,000 - - - - - - - - - - - - - 2,438 5,363 11,700 5,850 5,850 - - - - - - - - - - - - - Total $ 29,521 64,946 141,700 70,850 70,850 - Non Executive Directors M A Fremder* F Grimwade** J C Leonard M Carroll R M Herron M Iwaniw*** Executive Director J Bird 642,874 105,000 27,932 36,995 10,885 (106,827) 716,858 Other key management personnel M Graham K Martin**** L Van Driel T Millen P Chambers P Ross 224,047 336,922 206,499 196,791 226,449 248,073 28,000 26,265 37,950 25,300 43,500 27,040 23,465 - 31,219 11,899 43,171 - 23,443 17,026 21,510 19,448 24,135 22,327 4,333 - 3,964 3,604 4,494 4,135 - 303,288 (25,500) (23,000) (23,500) (27,000) (25,000) 354,713 278,142 233,541 314,749 276,575 * Retired 27 October 2010 ** Commenced 27 July 2010 *** Commenced 27 June 2011 **** Departed 25 February 2011 (Base fee includes Termination Payments of $174,007) + Amounts have been restated to reﬂ ect the actual bonus for 2011 ++ Options granted includes a negative adjustment for options previously recognised as remuneration that will not vest 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 2011 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. 26 Select Harvests Annual Report 2012 The actual relative proportions of remuneration that are linked to performance and those that are ﬁ xed are as follows: 2012 Fixed Remuneration Non Executive Directors J C Leonard M Carroll R M Herron F Grimwade M Iwaniw 2012 % 100.0 100.0 100.0 100.0 100.0 2011 % 100.0 100.0 100.0 100.0 100.0 Executive Director J Bird 100.0 78.4 Other key management personnel P Chambers M Graham L Van Driel T Millen P Ross Service Agreements 100.0 100.0 100.0 100.0 100.0 87.7 88.6 88.1 86.7 100.0 At risk – STI 2012 % - - - - - - - - - - - 2011 % - - - - - 21.6 12.3 11.4 11.9 13.3 - At risk – LTI 2012 % 2011 % - - - - - - - - - - - - - - - - - - - - - - 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, chief ﬁ nancial ofﬁ cer and other key management personnel are also formalised in service agreements. Each of these agreements provide for provision of performance related cash bonuses. The major provisions of the agreements are set out below. NAME P Thompson P Chambers* M Graham* T Millen* L Van Driel* P Ross* TERM OF AGREEMENT On-going – 6 Months Notice On-going – 3 Months Notice On-going – 3 Months Notice On-going – 3 Months Notice On-going On-going – 3 Months Notice BASE SALARY INCL SUPERANNUATION 450,000 305,080 288,400 263,803 264,098 278,000 * Base salaries quoted are for the year ended 30 June 2012. They are reviewed annually by the Remuneration Committee, however the review for the 30 June 2013 year is yet to be completed. Other than the notice periods noted above there are no speciﬁ c termination beneﬁ ts applicable to the service agreements. Select Harvests Annual Report 2012 27 27 Select Harvests Annual Report 2012 Remuneration Report Share-based compensation Long Term Incentive Plan The current LTI Plan provides for the offer of a parcel of performance rights with a three year expiry period to participating employees on an annual basis. The rights vest annually in three tranches on achievement of the performance hurdles as described previously. Individual parcels of rights offered to participating employees are based on a percentage of ﬁ xed remuneration. Performance rights granted as remuneration are subject to continuing service with the consolidated entity. Performance rights granted as remuneration are valued at grant date in accordance with AASB 2 Share-based Payments. Options previously granted as remuneration under the former executive share option scheme in relation to 409,742 shares, valued at $117,459 have lapsed during the year. The assessed fair value at grant date is determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the rights, 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 right. Performance rights 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. During or since the end of the ﬁ nancial year, the Company granted 655,740 performance rights to unissued ordinary shares to the key management personnel of the company as part of their remuneration. Number of rights granted during the year $ Value of rights at grant date Number of rights/options vested during the year Number of options lapsed during the year $ Value at lapse date Other key management personnel P Chambers M Graham L Van Driel T Millen P Ross - - 173,880 167,940 - 151,740 162,180 198,708 191,919 - 173,406 185,337 - - - - - - 539,784 136,426 41,320 116,214 117,685 126,757 - - - - - - 2012 Executive J Bird No options or performance rights were exercised in the ﬁ nancial year ended 30 June 2012 (and in 2011). 28 Select Harvests Annual Report 2012 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 J Bird P Chambers M Graham L Van Driel T Millen P Ross Paid % - - - - - - Forfeited % 100% 100% 100% 100% 100% 100% Year granted 2009 Vested % - Forfeited %* 100 Financial years in which options/rights may vest 2012 2010 2009 2010 2012 2012 2012 2010 2012 2012 2012 2009 2010 2009 2010 2012 2012 2012 2009 2010 2012 2012 2012 - - - - - - - - - - - - - - - - - - - - - - 100 100 100 - - - 100 - - - 100 100 100 100 - - - 100 100 - - - 2013 2012 2013 2014 2015 2016 2013 2014 2015 2016 2012 2013 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 * These options are not legally forfeited, but they have been deemed unlikely to vest. Use of Remuneration Consultants During the year the remuneration committee employed the services of Oppeus International Pty Ltd (Oppeus) to provide recommendations in relation to the senior executive long term incentive plan design, incorporating the company’s key management personnel. Under the terms of the engagement, Oppeus provided remuneration recommendations as deﬁ ned in section 9B of the Corporations Act 2001 and was paid $9,500 for these services. Oppeus has conﬁ rmed the recommendations have been made free from undue inﬂ uence by members of the company’s key management personnel. The following arrangements were made to ensure remuneration recommendations were free from undue inﬂ uence: • Oppeus was engaged by the Board and reported directly to the chair of the Remuneration Committee; and • The report containing the remuneration recommendations was provided by Oppeus directly to the chair of the Remuneration Committee. As a consequence the Board is satisﬁ ed that the recommendations were made free from undue inﬂ uence from any members of the key management personnel. Select Harvests Annual Report 2012 29 29 Select Harvests Annual Report 2012 Directors’ Report Dividends Interim for the year • on ordinary shares Final for 2012 shown as recommended in the 2012 report • on ordinary shares Cents 5.0 3.0 2012 $000’S 2,820 1,704 Indemniﬁ cation and insurance of directors and ofﬁ cers During the year the Company entered into 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. The terms of the contract do not permit disclosure of the premium paid. 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 14 Number Attended 14 Number Eligible to Attend 4 Number Attended 4 Number Eligible to Attend 2 Number Attended 2 Number Eligible to Attend 1 Number Attended 1 14 14 14 13 7 14 14 14 12 7 4 4 4 4 - 4 4 4 4 - 2 2 2 2 - 2 2 2 2 - 1 1 1 1 - 1 1 1 1 - M Iwaniw R M Herron M Carroll F Grimwade J C Leonard J Bird 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 Iwaniw (Chairman) F Grimwade M Carroll M Iwaniw J C Leonard F Grimwade R M Herron M Iwaniw J C Leonard M Iwaniw joined the Board 27 July 2011 P Thompson joined the Board 9 July 2012 J Bird resigned from the Board 1 March 2012 J C Leonard resigned from the Board 1 June 2012 30 Select Harvests Annual Report 2012 P Thompson R M Herron M Carroll F Grimwade J C Leonard J Bird Director’s interests in contracts Directors’ interests in contracts are disclosed in Note 32 to the ﬁ nancial statements. 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 16. 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 and 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. Select Harvests Annual Report 2012 31 31 Select Harvests Annual Report 2012 Directors’ 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. M Iwaniw Chairman Melbourne, 31 August 2012 32 Select Harvests Annual Report 2012 Auditor’s Independence Declaration As lead auditor for the audit of Select Harvests Limited for the year ended 30 June 2012, 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. John O’Donoghue Partner PricewaterhouseCoopers Melbourne 31 August 2012 PricewaterhouseCoopers, ABN 52 780 433 757 Freshwater Place, 2 Southbank Boulevard, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation Select Harvests Annual Report 2012 33 33 Select Harvests Annual Report 2012 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. A number of channels are used to source candidates to ensure the company beneﬁ ts from a diverse range of individuals during the selection process. 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. 34 Select Harvests Annual Report 2012 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. 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 of 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 former non–executive director of the company (resigned 1 June 2012), 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 2012 35 35 Select Harvests Annual Report 2012 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 each year and vest over three years 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 2012 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. 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; 36 Select Harvests Annual Report 2012 • 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; The Board reviews actual results 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. 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: Diversity Selects Harvests is an equal opportunity employer and recruits people from a diverse range of backgrounds. Workplace diversity encompasses the full variety of differences between people in the organisation. It includes differences in gender, race, ethnicity, age, disability and cultural background. Select Harvests recognises that embracing such diversity in its workforce contributes to the achievement of the Group’s objectives and enhances its reputation as an employer. Select Harvests Annual Report 2012 37 37 Select Harvests Annual Report 2012 Corporate Governance Statement Select Harvests is committed to achieving the goals of providing access to equal opportunities at work based on merit and fostering a culture that embraces the value of diversity. To support this goal, the Board has developed a Diversity Policy which is available on the Group’s website. While Select Harvest has a rich diversity of ethnicities and cultural backgrounds amongst its employees, we recognise the need to improve diversity at senior executive and board level and to make stronger progress on our commitment to building a gender diverse workforce. At 30 June 2012 there were 131 female employees within the Group (24% of total employees). There were no female senior executives or Board members. In order to enhance the commitment to gender and broader diversity principles, we are working to achieve objectives which include: OBJECTIVE: MEASURABLE ACTION: Review and communicate the company’s core values Increased focus on gender participation and distribution across the Group Review the means by which the Group recruits, develops and retains females across the Group Continue to build on our current workplace ﬂ exibility options Regular reporting to the Board on gender diversity New Company Values Statement to be developed and rolled out Survey management and employee attitudes to diversity Review, refresh and re communicate the Diversity Policy Review Recruitment Policy & Procedures Review and enhance position ﬂ exibility and Employment Terms and Conditions Enhance Board Reports to provide greater insight on diversity 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. 38 Select Harvests Annual Report 2012 Annual 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 31 August 2012. 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 2012 39 39 Select Harvests Annual Report 2012 Income Statement For the year ended 30 June 2012 Notes CONSOLIDATED Revenue Sales of goods and services Gain on sale of permanent water rights Other revenue Total revenue Other income (expenses) Biological asset fair value adjustment Total other income (expenses) excluding discount on acquisition Expenses Cost of sales Distribution expenses Marketing expenses Occupancy expenses Administrative expenses Finance costs Other expenses Impairment of property, plant and equipment Discount on acquisition PROFIT/(LOSS) BEFORE INCOME TAX Income tax beneﬁ t/(expense) PROFIT/(LOSS) 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) 4 4 4 15 5 5 5 7 6 25(c) 29 29 The above income statement should be read in conjunction with the accompanying Notes. 2012 $’000 246,766 4,041 515 251,322 2,508 2,508 (215,212) (6,936) (614) (1,308) (4,383) (6,489) (2,723) (24,908) - (8,743) 4,274 (4,469) (7.9) (7.9) 2011 $’000 248,316 - 1,642 249,958 2,397 2,397 (222,939) (7,249) (1,114) (1,276) (3,544) (3,774) (2,247) - 8,261 18,473 (799) 17,674 33.7 33.7 40 Select Harvests Annual Report 2012 Statement of Comprehensive Income For the year ended 30 June 2012 CONSOLIDATED Proﬁ t/(Loss) for the year Other comprehensive income Changes in fair value of cash ﬂ ow hedges, net of tax Other comprehensive income/(expense) for the year TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO MEMBERS OF SELECT HARVESTS LIMITED 2012 $’000 (4,469) (401) (401) (4,870) 2011 $’000 17,674 179 179 17,853 Select Harvests Annual Report 2012 41 41 Select Harvests Annual Report 2012 Balance Sheet As at 30 June 2012 Notes CONSOLIDATED 2012 $’000 1,061 37,398 36,644 375 1,458 76,936 1,047 90,970 74,171 36,183 202,371 279,307 25,365 25,495 818 2,691 54,369 - 42,500 21,171 937 64,608 118,977 160,330 95,957 10,472 53,901 160,330 2011 $’000 7,398 39,565 37,618 348 6,299 91,228 1,283 116,523 49,585 46,961 214,352 305,580 26,721 16,458 79 3,196 46,454 137 64,000 25,123 1,051 90,311 136,765 168,815 95,066 11,201 62,548 168,815 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 assets 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 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. 42 Select Harvests Annual Report 2012 Statement of Changes in Equity CONSOLIDATED Balance at 1 July 2010 Proﬁ t for the year Other comprehensive income Total comprehensive income for the year Transactions with equity holders in their capacity as equity holders: Contributions of equity, net of transaction costs and deferred tax Dividends paid or provided Employee share options Balance at 30 June 2011 Proﬁ t for the year Other comprehensive income/(expense) Total comprehensive income for the year Transactions with equity holders in their capacity as equity holders: Contributions of equity, net of transaction costs and deferred tax Dividends paid or provided Employee share options Transfer to retained earnings Balance at 30 June 2012 Notes Contributed Equity Reserves Retained Earnings Total 47,470 11,327 54,824 113,621 - - - 47,596 - - - 179 179 - - (305) 17,674 - 17,674 - (9,950) - 17,674 179 17,853 47,596 (9,950) (305) 95,066 11,201 62,548 168,815 - - - 891 - - - 95,957 - (401) (401) - - - (328) 10,472 (4,469) - (4,469) - (4,506) - 328 53,901 (4,469) (401) (4,870) 891 (4,506) 120 - 160,450 24 8 24 8 The above statement of changes in equity should be read in conjunction with the accompanying Notes. Select Harvests Annual Report 2012 43 43 Select Harvests Annual Report 2012 Statement of Cash Flows For the year ended 30 June 2012 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 received/(paid) Net Cash Inﬂ ow From Operating Activities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of water rights Proceeds from sale of property, plant and equipment Payment for property, plant and equipment Acquisition of almond orchards Tree development costs Net Cash Outﬂ ow From Investing Activities CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from equity raising Commercial bill draw downs Repayments of borrowings Dividends payment on ordinary shares, net of DRP Net Cash Inﬂ ow (Outﬂ ow) from ﬁ nancing activities 26 7 24 Net increase/(decrease) 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 9(a) The above cash ﬂ ow statement should be read in conjunction with the accompanying Notes. 2012 $’000 260,748 (239,533) 21,215 241 (4,415) 4,990 22,031 15,689 357 (9,641) - (18,694) (12,289) - - (12,000) (3,616) (15,616) (5,874) 5,940 66 2011 $’000 318,352 (314,120) 4,232 385 (5,911) 1,841 547 - - (21,087) (24,991) (19,415) (65,493) 45,057 79,000 (55,000) (8,202) 60,855 (4,091) 10,031 5,940 44 Select Harvests Annual Report 2012 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. Select Harvests Limited is a for proﬁ t entity for the purpose of preparing the ﬁ nancial statements. Restatement of prior period As disclosed in the interim ﬁ nancial report for the half-year reporting period ended 31 December 2011, the 2011 ﬁ nancial statements have been restated to reﬂ ect the following: (i) Accounting for the acquisition of the Belvedere orchard in the Company Orchards Division was provisional at 30 June 2011. Since the 30 June 2011 ﬁ nancial report, further information was obtained about the valuation of the 2011 almond crop proceeds at the acquisition date. As a result, in the balance sheet the provisional acquired receivables balance was restated upwards by $2,500,000 with corresponding increases in the deferred tax liability of $750,000 and retained earnings of $1,750,000. In the income statement discount on acquisition has been restated upwards by $1,750,000. (ii) The company identiﬁ ed that total almond processing cost accruals in the Managed Orchard Division were understated by $2,500,000 as at 30 June 2011. The company has therefore restated the prior period balance sheet to reﬂ ect this adjustment, with a corresponding increase in the tax receivable of $750,000 and a decrease in retained earnings of $1,750,000. In the income statement cost of sales has been restated upwards by $2,500,000 and income tax expense has been restated downwards by $750,000. Compliance with IFRS The consolidated ﬁ nancial statements of the Select Harvests Limited group 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 the income statement, biological assets, 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. (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 (including special purpose entities) over which the consolidated entity has power to govern the 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 currently exercisable or convertible are considered when assessing whether the consolidated entity controls another entity. 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. The acquisition method of accounting is used to account for the acquisition of subsidiaries by the consolidated entity. The ﬁ nancial statements of subsidiaries are prepared for the same reporting period as the parent entity, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies which may exist. All intercompany balances and transactions, including unrealised proﬁ ts arising from intra-group transactions, have been eliminated in full. Investments in subsidiaries are accounted for at cost in the individual ﬁ nancial statements of Select Harvests Limited. Select Harvests Annual Report 2012 45 45 Select Harvests Annual Report 2012 Notes to the Financial Statements (c) Foreign currency translation (i) Functional and presentation currency 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 which the entity operates (“the functional currency”). The consolidated ﬁ nancial statements are presented in Australian dollars, which is the functional and presentation currency of Select Harvests Limited. (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 at 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. A fair value review is completed at each period end to ensure compliance with AASB 141. The value of almond trees is measured at fair value using a discounted cash ﬂ ow methodology. The discounted cash ﬂ ows incorporate the following factors: • Almond trees have an estimated 30 year economic life, with crop yields consistent with long term almond industry yield rates; • Selling prices are based on long term average trend prices being $6 per Kg; • Growing, processing and selling costs are based on long term average levels; • Temporary water costs are based on long term average market prices where assets have no permanent water rights attached; • Cash ﬂ ows are discounted at a post tax rate of 13%, 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. 46 Select Harvests Annual Report 2012 New orchards growing costs All costs associated with the establishment, planting and growing of almond trees for an orchard in a new area where there is no previous experience of commercial almond production are accumulated for the ﬁ rst three years of that orchard. Once the fair value of this orchard becomes reliably measurable, the orchard is measured in accordance with the almond trees policy noted above. (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 cash ﬂ ow hedge 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 historical 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. Depreciation The depreciable amount of all ﬁ xed assets including buildings and capitalised leased assets, but excluding freehold land water rights are depreciated on a straight line basis over their estimated useful lives to the entity commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The useful lives for each class of assets are: Buildings: 25 to 40 years Leasehold improvements: 5 to 40 years Plant and equipment: 5 to 20 years Leased plant and equipment: 5 to 10 years Irrigation systems: 10 to 40 years Select Harvests Annual Report 2012 47 47 Select Harvests Annual Report 2012 Notes to the Financial Statements Capital works in progress 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) Business Combinations The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the group. The consideration transferred also includes the fair value of any asset or liability resulting from a contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition-related costs are expensed as incurred. Identiﬁ able assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identiﬁ able assets. The excess of the consideration transferred the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the group’s share of the net identiﬁ able assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identiﬁ able assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in the income statement as a discount on acquisition. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent ﬁ nancier under comparable terms and conditions. Contingent consideration is classiﬁ ed either as equity or a ﬁ nancial liability. Amounts classiﬁ ed as a ﬁ nancial liability are subsequently remeasured to fair value with changes in fair value recognised in proﬁ t or loss. (k) 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. 48 Select Harvests Annual Report 2012 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. (l) 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: Sale of Goods Control of the goods has passed to the buyer. 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 group acts as an agent for external growers by simultaneously acquiring and selling the almonds and therefore, does not make a margin on those sales. These amounts are not included in the group’s revenue. As at 30 June 2012 the group 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). (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 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. 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. 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. Select Harvests Annual Report 2012 49 49 Select Harvests Annual Report 2012 Notes to the Financial Statements 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 (i) Short-term obligations: Liabilities for wages and salaries, including non-monetary beneﬁ ts and annual leave expected to be settled within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liability for annual leave is recognised in the provision for employee beneﬁ ts. All other short-term employee beneﬁ t obligations are presented as payables. (ii) Other long-term beneﬁ t obligations The liability for long service leave and annual leave which is not expected to be settled within 12 months after the end of the period in which the employees render the related service is recognised in the provision for employee beneﬁ ts and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outﬂ ows. 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 Long Term Incentive Plan (LTIP). Information relating to this scheme is set out in Note 35. The fair value of performance rights granted under the Select Harvests Limited LTIP 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 performance rights. The fair value at grant date is independently determined using a Black Scholes option pricing model that takes into account the term of the right, 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 right. The fair value of the performance rights 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 rights that are expected to vest. At each balance sheet date, the entity revises its estimate of the number of rights that are expected to vest. 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. 50 Select Harvests Annual Report 2012 Financial Liabilities The bank overdraft is carried at the principal amount and is part of the Net Cash balance in the Statement of Cash Flows. 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 liabilities are 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 initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates. Borrowings are classiﬁ ed as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. (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 Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identiﬁ ed as the Chief Executive Ofﬁ cer. (v) New accounting standards and UIG pronouncements Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2012 reporting periods. The group’s assessment of the impact of these new standards and interpretations is set out below. AASB 9 Financial Instruments, AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 and AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) (effective from 1 January 2013) AASB 9 Financial Instruments addresses the classiﬁ cation, measurement and derecognition of ﬁ nancial assets and ﬁ nancial liabilities. The standard is not applicable until 1 January 2013 but is available for early adoption. There will be no impact on the group’s accounting for ﬁ nancial liabilities, as the new requirements only affect the accounting for ﬁ nancial liabilities that are designated at fair value through the Select Harvests Annual Report 2012 51 51 Select Harvests Annual Report 2012 Notes to the Financial Statements income statement and the group does not have any such liabilities. The derecognition rules have been transferred from AASB 139 Financial Instruments: Recognition and Measurement and have not been changed. The group has not yet decided when to adopt AASB 9. AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements, AASB 12 Disclosure of Interests in Other Entities, revised AASB 127 Separate Financial Statements and AASB 128 Investments in Associates and Joint Ventures and AASB 2011-7 Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements Standards (effective 1 January 2013). In August 2011 the AASB issued a suite of ﬁ ve new and amended standards which address the accounting for joint arrangements, consolidated ﬁ nancial statements and associated disclosures. AASB 10 replaces all of the guidance on control and consolidation in AASB 127 Consolidated and Separate Financial Statements, and Interpretation 12 Consolidation – Special Purpose Entities. The core principle that a consolidated entity presents a parent and its subsidiaries as if they are a single economic entity remains unchanged, as do the mechanics of consolidation. However, the standard introduces a single deﬁ nition of control that applies to all entities. The group does not expect the standard to have an impact on its composition. AASB 11 introduces a principle based approach to accounting for joint arrangements. As the group does not have any joint arrangements no impact is expected from this standard. AASB 12 sets out the required disclosures for entities reporting under the two new standards, AASB 10 and AASB 11, and replaces the disclosure requirements currently found in AASB 127 and AASB 128. Application of the standard by the group will not affect any of the amounts recognised in the ﬁ nancial statements. Amendments to AASB 128 will not impact the group as the group does not have any joint venture arrangements or associated entities. The group does not expect to adopt the new standards before their operative date, therefore they will be ﬁ rst applied in the ﬁ nancial statements for the annual reporting period ending 30 June 2014. IFRS 13 Fair Value Measurement (effective 1 January 2013) IFRS 13 was released in May 2011. The AASB is expected to issue an equivalent Australian standard shortly. IFRS 13 explains how to measure fair value and aims to enhance fair value disclosures. The group has yet to determine which, if any, of its current measurement techniques will have to change as a result of the new guidance. It is therefore not possible to state the impact, if any, of the new rules on any of the amounts recognised in the ﬁ nancial statements. However, application of the new standard will impact the type of information disclosed in the notes to the ﬁ nancial statements. The group does not intend to adopt the new standard before its operative date, which means that it would be ﬁ rst applied in the annual reporting period ending 30 June 2014. There are no other standards that are not yet effective and that are expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. (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. (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. 52 Select Harvests Annual Report 2012 (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. (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. 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) 30 June 2012 USD $000’s 7,131 (1,019) 4,813 9,547 30 June 2011 USD $000’s 6,034 (1,344) 3,000 2,186 Select Harvests Annual Report 2012 53 53 Select Harvests Annual Report 2012 Notes to the Financial Statements Group sensitivity analysis Based on ﬁ nancial instruments held at the 30 June 2012, had the Australian dollar strengthened/weakened by 5% against the US dollar, with all other variables held constant, the Group’s post tax proﬁ t for the year would have been $200,000 lower/$221,000 higher (2011: $147,000 lower/$162,000 higher), mainly as a result of the US dollar denominated ﬁ nancial instruments as detailed in the above table. Equity would have been $354,000 lower/$391,000 higher (2011: $121,000 lower/$134,000 higher), 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 2012 Weighted Average Interest Rate % 7.14% 1.18% 30 June 2011 Weighted Average Interest Rate % 8.48% 3.80% Balance $’000 67,000 995 Balance $’000 79,000 1,458 Debt facilities Overdraft (USD) An analysis of maturities is provided in 2(c) below 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 swap $30,000,000 of debt at a rate of 5.12% to reduce the risk that higher interest rates pose to the company’s cash ﬂ ows. The weighted average interest rate of 7.14% in the table above is inclusive of the interest rate swap. Group sensitivity At 30 June 2012, 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 $116,000 lower/higher (2011: $136,000 lower/higher. 54 Select Harvests Annual Report 2012 , 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 : s w o l l o f s a e r a k s i r e t a r t s e r e t n I 1 % 1 0 2 2 % 1 0 2 1 1 0 2 0 0 0 $ ’ 2 1 0 2 0 0 0 $ ’ 1 1 0 2 0 0 0 $ ’ 2 1 0 2 0 0 0 $ ’ 1 1 0 2 0 0 0 $ ’ 2 1 0 2 0 0 0 $ ’ 1 1 0 2 0 0 0 $ ’ 2 1 0 2 0 0 0 $ ’ 1 1 0 2 0 0 0 $ ’ 2 1 0 2 0 0 0 $ ’ 1 1 0 2 0 0 0 $ ’ 2 1 0 2 0 0 0 $ ’ d e t h g i e W e v i t c e f f e e g a r e v a e t a r t s e r e t n i g n i y r r a c l a t o T t n u o m a e h t r e p s a t e e h s e c n a l a b g n i r a e b t s e r e t n i n o N s r a e y 5 n a h t e r o M s r a e y 5 o t 1 r e v O s s e l r o r a e y 1 g n i t a o l F e t a r t s e r e t n i s t n e m u r t s n I l a i c n a n i F - - - - - 8 3 . . 5 8 - - - - - - - - - - 2 . 1 1 . 7 - - - - - 8 9 3 7 , 1 6 0 , 1 - - 6 9 9 6 3 , 1 0 0 7 3 , 6 9 9 6 3 , 1 0 0 7 3 , 0 2 3 8 2 - 5 7 3 0 2 3 8 2 - 5 7 3 2 4 7 4 4 , 7 3 4 8 3 , 4 4 3 7 3 , 6 7 3 7 3 , 8 5 4 , 1 5 9 9 0 0 0 9 7 , 0 0 0 7 6 , - - - - 3 4 4 2 1 , 5 7 0 3 1 , 3 4 4 2 1 , 5 7 0 3 1 , 4 7 8 0 1 , 0 9 2 2 1 , 4 7 8 0 1 , 0 7 1 , 2 1 - 9 7 4 6 6 4 5 1 - 9 7 4 6 6 4 5 1 4 5 8 3 0 1 , 8 7 1 , 4 9 6 9 3 3 2 , 3 6 0 6 2 , - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 8 9 3 7 , 1 6 0 , 1 8 9 3 7 , 1 6 0 , 1 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 d r a w 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 ( s t e s s a l a i c n a n i F ) i ( h s a C 8 5 4 , 1 5 9 9 D U A @ D S U – t f a r d r e v o k n a B 0 0 0 9 7 , 0 0 0 7 6 , - - - - - - - - 8 5 4 0 8 , 5 9 9 7 6 , s t c a r t n o c e g n a h c x e d r a w 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 p a w S e t a R t s e r e t n I 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 2012 55 55 Select Harvests Annual Report 2012 : n i g n i r u t a m e t a r t s e r e t n i d e x i F 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 of 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 AA (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 As outlined in note 28, on 22 August 2012 a review of the company’s debt facility agreement with the NAB was completed with various facility limits being revised as a result. The following contains the NAB facility limits both at 30 June 2012 and following the review: Debt Facilities Review Date 1. Core debt 21/06/2016 2. Working capital Annual Review 3. Acquisition Annual Review 4. USD Overdraft Annual Review 30 June 2012 Facility Limit Post Balance Date Adjusted Facility Limit $50,000,000 $60,000,000 $32,000,000 $32,000,000 $30,000,000 - $3,000,000 $3,000,000 $115,000,000 $95,000,000 The debt margin above is based on a margin above BBSY or LIBOR. The Group had access to the following undrawn borrowing facilities at the reporting date: Floating rate - Working capital/Acquisition facility - Bank overdraft facility USD 2012 $’000 2011 $’000 $A 45,000 $US 1,981 $A 34,542 $US 2,119 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. (d) 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 other 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). At both 30 June 2012 and 30 June 2011, the group’s assets and liabilities measured and recognised at fair value comprised the interest rate swap derivative, interest rate cap derivative and foreign exchange forward contracts. Both are measured with reference to level 2. 56 Select Harvests Annual Report 2012 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. Group at 30 June 2012 Non derivatives Variable Rate Debt facilities Bank Overdraft Derivatives Interest Rate Swap USD buy – outﬂ ow USD sell – (inﬂ ow) USD net Group at 30 June 2011 Non derivatives Variable Rate Debt facilities Bank Overdraft Derivatives Interest Rate Cap USD buy – outﬂ ow USD sell – (inﬂ ow) USD net Less than 6 months $’000 6 – 12 months $’000 More than 12 months $’000 Total contractual cash ﬂ ows $’000 Carrying Amount (assets)/liabilities $’000 20,750 995 285 4,490 (9,547) (5,057) 3,750 42,500 - 285 323 - 323 - 94 - - - 67,000 995 664 4,813 (9,547) (4,734) 67,000 995 664 154 (375) (221) Less than 6 months $’000 6 – 12 months $’000 More than 12 months $’000 Total contractual cash ﬂ ows $’000 Carrying Amount (assets)/liabilities $’000 2,500 1,458 (99) 3,000 (2,186) 814 17,500 - (94) - - - 74,000 - (137) - - - 94,000 1,458 (330) 3,000 (2,186) 814 79,000 1,458 (320) 79 (28) 51 Select Harvests Annual Report 2012 57 57 Select Harvests Annual Report 2012 Notes to the Financial Statements 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 2012, the value of almond trees carried in the ﬁ nancial statements of the consolidated entity is $74.2 million (2011:$49.6 million). The valuation of almond trees is very sensitive to the assumption of the long term almond price. Any change to the long term almond price may have a material impact on these valuations. 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(k). The recoverable amounts of cash generating units have been determined based on value-in-use calculations. Key assumptions are disclosed in note 16. Income taxes The income tax provision is developed at Balance Sheet date based on a preliminary estimate of the tax payable or receivable. This includes an estimate of allowable R&D tax concession credits. The tax return in relation to the ﬁ nancial year ended 30 June 2012 will be prepared and submitted during the ﬁ nancial year ended 30 June 2013. Due to uncertainties associated with changes to the R&D tax concession rules, no accrual has been made for possible R&D credits in 2012. WA Project expenditure Costs in relation to the Western Australia Greenﬁ eld orchard development have been capitalised. Impairment losses of $20 million have been recognised in relation to this project as a result of the reassessment of its recoverable amount, with the remaining amount capitalised on the balance sheet of $41m, consisting of land and irrigation infrastructure, plant and equipment and almond trees. A discounted cash ﬂ ow analysis is prepared to determine the value in use of the project, which reﬂ ects its recoverable amount. A number of estimates are made in determining the value in use in accordance with AASB 136 “Impairment of Assets”. These include: • Estimated remaining capital expenditure to bring the project to maturity • Estimated future crop yields and selling prices • Estimated future growing, processing and selling costs A pre-tax discount rate of 17% is applied to the calculation. The project is currently subject to a Strategic Review. It is reasonably possible, on the basis of existing knowledge, that outcomes within the next ﬁ nancial year that are different from the assumptions could require a material adjustment to the carrying amount. Almond processing plant and equipment The Company has reviewed the carrying value of all assets at the almond processing plant. This review identiﬁ ed some assets which no longer have a future use, resulting in an impairment loss of $4.9 million being recognised, The remaining amount capitalised on the balance sheet for the hulling and cracking plant and equipment is $38.8m. A discounted cash ﬂ ow analysis is prepared to determine the value in use of the remaining plant and this supports the carrying value of these assets. A number of estimates are made in determining the value in use in accordance with AASB 136 “Impairment of Assets”. These include: • Estimated future processing volumes • Estimated future capital expenditure and operating costs It is reasonably possible, on the basis of existing knowledge, that outcomes within the next ﬁ nancial year that are different from the assumptions could require a material adjustment to the carrying amount. A pre-tax discount rate of 13% was applied to the calculation. 58 Select Harvests Annual Report 2012 4. REVENUE Revenue from continuing operations - Management services - Sale of goods Other revenue - Gain on sale of permanent water rights - Bank interest - Other revenue 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 Plant and equipment Total depreciation of non current assets Finance costs other persons Total ﬁ nance costs Impairment losses: trade receivables Foreign exchange loss/(gain) Operating lease rental minimum lease payments Net loss/(gain) on disposal of property, plant and equipment Net loss (gain) on disposal of property, plant and equipment Impairment of property, plant and equipment (a) Land and irrigation systems Plant and equipment Notes Consolidated 2012 $’000 2011 $’000 95,445 151,321 246,766 4,041 241 274 4,556 104,801 143,515 248,316 - 385 1,257 1,642 251,322 249,958 215,212 222,939 51 338 5,724 6,113 6,489 6,489 34 (111) 13,013 254 20,000 4,908 24,908 46 406 4,760 5,212 3,774 3,774 3 47 11,990 (16) - - - Select Harvests Annual Report 2012 59 59 Select Harvests Annual Report 2012 Notes to the Financial Statements (a) Impairment of property, plant and equipment Impairment of land and irrigation systems relates to impairment losses recognised in relation to the Company’s orchards in Western Australia. Impairment of plant and equipment relates to impairment losses recognised in relation to almond processing plant and equipment. WA impairment The WA impairment arose as a result of a re-evaluation of the project, due to the fact that less acres were planted than planned, infrastructure and planting costs were higher than initially expected and future costs are now considered likely to be higher than originally planned. The recoverable amount for the WA project is determined on a value in use basis, using a 17% pre-tax discount rate. Almond processing plant impairment This impairment arose as a result of a re-assessment of future operations and the likelihood of utilising equipment which had been maintained as an overrun facility. Notes Consolidated 2012 $’000 2011 $’000 6. INCOME TAX (a) Income tax expense/(beneﬁ t) 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 22 22 (b) Numerical reconciliation of income tax expense to prima facie tax payable Proﬁ t (loss) from continuing operations before income tax expense Tax at the Australian tax rate of 30% (2011 – 30%) Tax effect of amounts that are not deductible (taxable) in calculating taxable income Other non assessable items Current year R&D estimate (Over) provided in prior years Income tax expense (3,006) 387 (1,655) (4,274) (4,274) (4,274) (7,977) 6,709 (1,268) (8,743) (2,623) 4 - (1,655) (4,274) (3,375) 4,835 (661) 799 799 799 439 4,396 4,835 18,473 5,542 (2,507) (1,575) (661) 799 60 Select Harvests Annual Report 2012 7. BUSINESS COMBINATIONS Summary of Acquisitions On 2 December 2010, Select Harvests acquired 532 acres of established almond orchards at Lake Powell, Northern Victoria. On 19 January 2011, Select Harvests purchased 116 acres of established almond orchards at Bannerton Park, Northern Victoria. On 22 June 2011, Select Harvests purchased 1,500 acres of established almond orchards near Narranderra, New South Wales. Accounting for the acquisitions was provisional at 30 June 2011. Since the 30 June 2011 ﬁ nancial report further information was obtained about the valuation of the 2011 almond crop proceeds at the acquisition date. No changes have been made to the provisional balances of the other assets and liabilities acquired. Details of the purchase consideration, the net assets acquired and discount on acquisition are as follows: Purchase consideration Cash paid $’000s 24,991 The provisional and ﬁ nal fair values of assets and liabilities recognised as a result of the acquisitions are as follows: Property, Plant and Equipment Biological Assets – Almond Trees Inventory Water Rights Annual leave liability Deferred tax liability Net Identiﬁ able Assets Discount arising on acquisition Net Cash outﬂ ow on acquisition Provisional Fair Value $’000 Final Fair Value $’000 14,052 12,248 197 7,825 (30) (2,790) 31,502 6,511 24,991 14,052 12,248 2,697 7,825 (30) (3,540) 33,252 8,261 24,991 The change in fair value of inventory, deferred tax liability and discount on acquisition relates to the Belvedere orchard acquisition (on 22 June 2011) and this amount has been reﬂ ected in the restated 30 June 2011 ﬁ nancial statement comparatives as outlined in note 1 (a). Select Harvests Annual Report 2012 61 61 Select Harvests Annual Report 2012 Notes to the Financial Statements 8. DIVIDENDS PAID OR PROPOSED ON ORDINARY SHARES (a) Dividends paid during the year (i) Interim – paid 16 April 2012 (2011: 22 April 2011) Fully franked dividend (5c per share) (2011: 10c per share) (ii) Final – paid 13 October 2011 (2011: 4 October 2010) Fully franked dividend (3c per share) (2011: 11c per share) (b) Dividends proposed and not recognised as a liability. A ﬁ nal dividend of 3c per share has been declared by the directors ($1,704,381) (c) Franking credit balance Franking credits available for the subsequent ﬁ nancial year arising from: Franking credits available for subsequent reporting periods Notes Consolidated 2012 $’000 2011 $’000 2,820 2,820 1,686 4,506 5,566 5,566 4,384 9,950 13,865 13,865 18,717 18,717 The above amounts represent the balance of the franking account (presented as the gross dividend value) as at the end of the reporting period, adjusted for franking debits that will arise from the receipt of the amount of the tax receivable. 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 $1,704,381 (2011 $1,686,809). 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 18 10. TRADE AND OTHER RECEIVABLES (CURRENT) Trade receivables Provision for impairment of trade receivables Prepayments 1,061 1,061 1,061 (995) 66 37,001 (24) 36,977 421 37,398 7,398 7,398 7,398 (1,458) 5,940 36,996 (3) 36,993 2,572 39,565 62 Select Harvests Annual Report 2012 As at 30 June 2012 current trade receivables of the Group with a value of $24,446 (2011: $3,305) were impaired. The amount of the provision was $24,446 (2011:$3,305). The ageing of these receivables is as follows: Over 6 months Movements in the provision for impairment of receivables are as follows: At 1 July Provision for impairment recognised during the year Receivables written off during the year At 30 June (b) Trade receivables past due but not impaired Consolidated 2012 $’000 24 24 3 34 (13) 24 2011 $’000 3 3 170 3 (170) 3 As at 30 June 2012, trade receivables of $3,970,002 (2011: $4,457,660) 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 2012 $’000 3,600 370 - 3,970 2011 $’000 4,099 227 132 4,458 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. (d) Fair value Due to the short-term nature of these receivables, their carrying amount is assumed to approximate their fair value. Select Harvests Annual Report 2012 63 63 Select Harvests Annual Report 2012 Notes to the Financial Statements Notes Consolidated 2012 $’000 2011 $’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 net realisable value 1(e) 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 Interest rate swap – cash ﬂ ow hedges Forward exchange contracts – cash ﬂ ow hedges Total current derivative ﬁ nancial instrument liabilities (i) Cash ﬂ ow hedges 6,296 6,296 7,450 7,450 5,707 5,707 17,191 36,644 375 - 375 664 154 818 6,587 6,587 5,610 5,610 9,817 9,817 15,604 37,618 28 320 348 - 79 79 On 5 August 2011, the consolidated entity entered into an agreement to ﬁ x the interest rate applicable to $30m of debt at 5.12% until 25 August 2013. The market value of the cap is recognised as a current liability in the balance sheet. Movements in the fair value of the cap are treated similarly 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 of 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. The accounting policy in regard to forward exchange contracts is detailed in Note 1(c). 64 Select Harvests Annual Report 2012 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 6 months to 1 year 2012 $’000 4,490 323 4,813 2011 $’000 3,000 - 3,000 2012 $ 0.99 0.97 Sell United States Dollars Settlement Buy Australian Dollars Average Exchange Rate Less than 6 months (ii) Credit risk exposures 2012 $’000 9,547 9,547 2011 $’000 2,186 2,186 2012 $ 0.97 2011 $ 1.04 - 2011 $ 1.05 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 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 $4,733,901 (2011: $813,858). 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 2012 65 65 Select Harvests Annual Report 2012 Notes to the Financial Statements Notes Consolidated 2012 $’000 13. OTHER ASSETS (NON-CURRENT) Prepayments 14. PROPERTY, PLANT AND EQUIPMENT Buildings At cost Accumulated depreciation Plantation land and irrigation systems (i) At cost Accumulated depreciation and impairment Total land and buildings Plant and equipment (i) At cost Accumulated depreciation and impairment Capital works in progress At cost Total plant and equipment Total property, plant and equipment Cost Accumulated depreciation Total written down amount 1,047 1,047 11,910 (851) 11,059 75,230 (23,714) 51,516 62,575 70,257 (42,902) 27,355 1,040 28,395 158,437 (67,467) 90,970 14(a) 14(a) 14(a) 14(a) 2011 $’000 1,283 1,283 11,909 (799) 11,110 58,068 (3,490) 54,578 65,688 71,297 (35,601) 35,696 15,139 50,835 156,413 (39,890) 116,523 (i) Items have been reclassiﬁ ed between the plantation land and irrigation systems and plant and equipment asset categories in the 30 June 2011 comparatives. 66 Select Harvests Annual Report 2012 (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 2012 $’000 Buildings Carrying amount at beginning Acquired through business combinations Depreciation expense Plantation land and irrigation systems Carrying amount at beginning Acquired through business combinations Impairment of land and irrigation systems Disposals Depreciation expense Transfers between classes Plant and equipment Carrying amount at beginning Acquired through business combinations Additions Impairment of plant and equipment Disposals Transfers between classes Depreciation expense Capital works in progress Carrying amount at beginning Additions Transfers between classes Total written down value 11,110 - (51) 11,059 54,578 - (20,000) (3,211) (338) 20,487 51,516 35,696 - 349 (4,908) (1,399) 3,341 (5,724) 27,355 15,139 9,729 (23,828) 1,040 90,970 2011 $’000 9,856 1,300 (46) 11,110 35,974 10,756 - - (406) 8,254 54,578 29,775 1,996 - - (16) 8,701 (4,760) 35,696 11,955 20,139 (16,955) 15,139 116,523 Select Harvests Annual Report 2012 67 67 Select Harvests Annual Report 2012 Notes to the Financial Statements 15. BIOLOGICAL ASSETS – ALMOND TREES (NON-CURRENT) 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 Victoria NSW and WA. As at 30 June 2012 the consolidated entity owned a total of 8,232 acres of almond orchards (2011: 6,254 acres) and leased a total of 4,521 acres of almond orchards (2011: 4,521 acres). For almond trees on orchards leased on a long term basis by the company, the future economic risks and rewards associated with these trees remain with Select Harvests. Accordingly, the trees are deemed to be an asset of the company. During the year ended 30 June 2012, 5,830 metric tonnes of almonds were harvested from these orchards (2011: 4,173 metric tonnes). These almonds had a fair value less estimated point of sale costs of $24.3 million (2011: $19.8 million). Carrying amount at 1 July Transferred to inventory Change in fair value Acquired through business combinations Additions Carrying amount at 30 June Consolidated 2012 $’000 49,585 (1,066) 2,508 - 23,144 74,171 2011 $’000 17,363 (1,838) 2,397 12,248 19,415 49,585 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, which are in line with almond industry sourced data; • Selling prices are based on long term average trend prices being $6 per kg; • Growing, processing and selling costs are based on expected future costs; • Temporary water costs are based on long term average market prices where assets have no permanent water rights attached; • Cash ﬂ ows are discounted at a rate of 13% (2011: 14%) which takes into account the cost of capital plus an appropriate 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 and leased orchards. The Group sells almonds harvested from owned and leased 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 Australian dollar price of almonds because export sales are denominated in US dollars. 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. 68 Select Harvests Annual Report 2012 16. INTANGIBLES (NON-CURRENT) Year ended 30 June 2011 Opening net book amount Acquired through business combinations Closing net book amount Year ended 30 June 2012 Opening net book amount Disposal of permanent water rights Closing net book amount Consolidated Brand Names* $’000 Permanent Water Rights $’000 Goodwill $’000 25,995 - 25,995 25,995 - 25,995 2,905 - 2,905 2,905 - 2,905 10,236 7,825 18,061 18,061 (10,778) 7,283 Total $’000 39,136 7,825 46,961 46,961 (10,778) 36,183 * Brand name assets relate to the “Lucky” brand, which has been assessed as having an indeﬁ nite useful life. This assessment is based on the Lucky brand having been sold in the market place for over 50 years, being a market leader in the cooking nuts category and remaining 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 forecasts 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 pre-tax weighted average cost of capital of 13% (2011:13%) 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 2012. If a pre-tax discount rate of 14% was used instead of 13% the recoverable amount of the goodwill in the Food Products Division would still exceed the carrying amount of goodwill at 30 June 2012. (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. 17. TRADE AND OTHER PAYABLES (CURRENT) Trade creditors Other creditors and accruals 18. INTEREST BEARING LIABILITIES (CURRENT) Secured Bank overdraft Working capital facility Total secured current borrowings Notes Consolidated 2012 $’000 13,075 12,290 25,365 995 24,500 25,495 2011 $’000 12,443 14,278 26,721 1,458 15,000 16,458 Select Harvests Annual Report 2012 69 69 Select Harvests Annual Report 2012 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 facilities are set out in Note 21. (b) Interest rate risk exposures Details of the consolidated entity’s exposure to interest rate changes on borrowings are set out in Note 2. 19. PROVISIONS (CURRENT) Employee beneﬁ ts 20. TRADE AND OTHER PAYABLES (NON-CURRENT) Interest rate cap payable 21. INTEREST BEARING LIABILITIES (NON-CURRENT) Term debt facility Acquisition facility Assets pledged as security Consolidated 2012 $’000 2,691 2,691 - - 42,500 - 42,500 2011 $’000 3,196 3,196 137 137 50,000 14,000 64,000 The bank overdraft and facilities 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: 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 70 Select Harvests Annual Report 2012 Consolidated 2012 $’000 1,061 37,398 36,644 1,458 375 76,936 1,047 90,970 74,171 7,283 173,471 250,407 2011 $’000 7,398 39,565 37,618 6,299 348 91,228 1,283 116,523 49,585 18,061 185,452 276,680 Financing arrangements The consolidated entity and the Company have bank overdraft facilities available to the extent of USD 3,000,000 (2011: USD 3,000,000). The consolidated entity and the company have a debt facility available to the extent of $115,000,000 as at 30 June 2012 (2011: $115,000,000). As outlined in note 28, on 22 August 2012 a review of the company’s debt facility agreement with the NAB was completed with the total debt facility being reduced to $95,000,000 as a result. As at 30 June 2012 the consolidated entity and company have utilised $67,000,000 (2011: $79,000,000) of the total facility. The split between current and non-current liabilities has been based on the repayment requirements under the terms of the debt facility. The current interest rates at balance date are 5.76% on the debt facility, and 0.92% 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 2012. Consolidated 2012 $’000 2011 $’000 22. DEFERRED TAX LIABILITIES (NON CURRENT) The balance comprises temporary differences attributable to: Amounts recognised in proﬁ t and loss Inventory Assets at cost Accruals and provisions Intangibles Amounts recognised directly in OCI Cash ﬂ ow hedges Amounts recognised directly in equity Equity raising costs Total deferred tax liabilities Carry forward tax losses Net deferred tax liabilities Movements: Opening balance 1 July Prior period over provision Charged/(credited) to income statement Business combination Charged/(credited) to equity Carry forward tax losses Closing balance at 30 June 23. PROVISIONS (NON CURRENT) Employee entitlements (a) Aggregate employee entitlements liability Including current liabilities in Note 19) (b) Number of full time employees at year end 1,679 28,268 10 871 30,828 153 (632) 30,349 (9,178) 21,171 25,123 1,655 (387) - 244 (5,464) 21 ,171 937 3,628 571 1,542 28,748 (1,515) 871 29,646 (18) (791) 28,837 (3,714) 25,123 16,302 4,183 5,585 3,540 (773) (3,714) 25,123 1,051 4,218 633 Select Harvests Annual Report 2012 71 71 Select Harvests Annual Report 2012 Notes to the Financial Statements Consolidated 2012 $’000 95,957 95,957 2012 Number of Shares 56,226,960 585,739 - 56,812,699 $’000 95,066 891 - 95,957 2011 Number of Shares 39,761,768 559,917 15,905,275 56,226,960 2011 $’000 95,066 95,066 $’000 47,470 1,748 45,848 95,066 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 plan • Rights issue End of Financial year (c) Performance Rights Long Term Incentive Plan The company offered employee participation in short term and long term incentive schemes as part of the remuneration packages for the employees. 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 long term scheme involves the issue of performance rights to the employee, under the Long Term Incentive Plan. During or since the end of the ﬁ nancial year, no performance rights (2011: no options) have vested under this plan (refer Note 35 and Directors’ Report for further details). The market value of ordinary Select Harvests Limited shares closed at $1.30 on 30 June 2012 ($1.84 on 30 June 2011). (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. (e) Capital risk management The group’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and beneﬁ ts for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. 72 Select Harvests Annual Report 2012 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 Fair value movement in interest rate swap Fair value movement in interest rate cap Fair value movement in foreign currency dealings 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 Transfer to retained earnings Balance at end of year (b) Nature and purpose of reserves (i) Capital reserve 25(a) 25(a) 25(a) 25(a) 25(c) Consolidated 2012 $’000 3,270 (444) 7,645 - 10,471 2011 $’000 3,270 (43) 7,645 329 11,201 53,901 62,548 3,270 3,270 (43) (664) 7 256 (444) 7,645 7,645 328 - (328) - 3,270 3,270 (222) - 315 (136) (43) 7,645 7,645 633 (305) - 328 The capital reserve was previously used to isolate realised capital proﬁ ts from disposal of non-current assets. (ii) Asset revaluation reserve The asset revaluation reserve was used to record increments and decrements in the value of non-current assets. 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 and expensed but not exercised. (iv) Cash ﬂ ow hedge reserve The cash ﬂ ow hedge reserve is used to record gains or losses on the fair value movements in the interest rate cap and foreign currency contracts in a cash ﬂ ow hedge that are recognised directly in equity. Select Harvests Annual Report 2012 73 73 Select Harvests Annual Report 2012 Notes to the Financial Statements (c) Retained proﬁ ts Balance at the beginning of year (i) Proﬁ t/(loss) attributable to members of Select Harvests Limited Total available for appropriation Dividends paid Transfer from reserves Balance at end of year (i) Refer to Note 1 (a) 26. RECONCILIATON OF THE NET PROFIT AFTER INCOME TAX TO THE NET CASH FLOWS FROM OPERATING ACTIVITIES Net proﬁ t/(loss) Non-cash items Depreciation and amortisation Biological asset fair value adjustment Impairment of property, plant and equipment Discount on acquisition Net gain on sale of assets Changes in assets and liabilities (Increase)/decrease in trade receivables (Increase) in inventory (Increase)/decrease in other assets Increase/(decrease) in trade and other payables (Increase)/decrease in income tax receivable Increase/(decrease) in deferred tax liability (Increase) in deferred tax assets Increase in employee entitlements Net cash ﬂ ow from operating activities Consolidated 2012 $’000 62,548 (4,469) 58,079 (4,506) 328 53,901 (4,469) 6,113 (2,508) 24,908 - (3,787) 3,118 (2,819) 2,575 (1,352) 4,841 (3,970) - (619) 22,031 2011 $’000 54,824 17,674 72,498 (9,950) - 62,548 17,674 5,212 (2,397) - (6,511) - (1,663) (3,269) (920) (13,283) (2,928) 11,785 (3,714) 561 547 Non cash ﬁ nancing activities During the current year the company issued $890,813 of new equity as part of the Dividend Reinvestment Plan. 74 Select Harvests Annual Report 2012 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 lease expenditure contracted for at reporting date Consolidated 2012 $’000 2011 $’000 9,412 33,173 98,484 141,069 3,411 7,473 7,569 18,453 6,001 25,700 90,915 122,616 15,203 33,413 99,537 148,153 9,408 8,402 8,952 26,762 5,795 25,012 90,584 121,391 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 the consolidated entity 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 31 August 2012, the Directors declared a ﬁ nal dividend of 3 cents per share in relation to the ﬁ nancial year ended 30 June 2012 to be paid on 22 October 2012. On 22 August 2012 a review of the company’s debt facility agreement with the NAB was completed with the total debt facility being reduced from $115,000,000 to $95,000,000 as a result. There has been no other matter or circumstance, which has arisen since 30 June 2012 that has signiﬁ cantly affected or may signiﬁ cantly affect: a) the operations, in ﬁ nancial years subsequent to 30 June 2012, 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 2012, of the consolidated entity. Select Harvests Annual Report 2012 75 75 Select Harvests Annual Report 2012 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: CONSOLIDATED 2012 $’000 (4,469) 2011 $’000 17,674 (4,469) 17,674 Number of shares 2012 2011 56,429,488 52,462,405 56,429,488 52,462,405 Proﬁ t/(loss) attributable to equity holders of the company used in calculating basic earnings per share Diluted earnings per share: Proﬁ t/(loss) 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 30. REMUNERATION OF DIRECTORS AND KEY MANAGEMENT PERSONNEL a) Directors The following persons were directors of Select Harvests Limited during the ﬁ nancial year: (i) Chairman – non-executive M Iwaniw J C Leonard* (ii) Executive director J Bird, Managing Director** (iii) Non-executive directors F Grimwade R M Herron M Carroll * Retired ** Retired 1 March 2012. Paul Thompson was appointed Managing Director 9 July 2012 1 June 2012 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 P Chambers M Graham L Van Driel T Millen P Ross Position Employer Chief Financial Ofﬁ cer & Company Secretary Select Harvests Limited Manager Sales & Marketing Group Trading Manager Select Harvests Food Products Pty Ltd Select Harvests Food Products Pty Ltd Group Horticultural & Farm Operations Manager Select Harvests Limited Operations Manager, Almond Division Select Harvests Limited 76 Select Harvests Annual Report 2012 (c) Key management personnel compensation Short term employment beneﬁ ts Termination beneﬁ ts Long service leave Share based payments Notes Consolidated 2012 $’000 2,495,566 686,745 13,729 - 3,196,041 2011 $’000 2,677,279 - 31,415 (230,827) 2,477,867 (d) Equity instrument disclosures relating to key management personnel Number of options/performance rights held by directors and key management personnel The movement during the ﬁ nancial year in the number of options/performance rights over ordinary shares in the company held, directly or indirectly, by each director and member of key management personnel is as follows: 2012 Directors J Bird* Key Management Personnel P Chambers M Graham L Van Driel T Millen P Ross * Retired 1 March 2012 2011 Directors J Bird Key Management Personnel K Martin (Group Operations Manager) T Millen L Van Driel P Chambers M Graham P Ross Held at 1 July 2011 Granted as Compensation Lapsed Held at 30 June 2012 Unvested at 30 June 2012 539,784 136,426 41,320 116,214 117,685 126,757 - (539,784) - - 173,880 167,940 - 151,740 162,180 (136,426) (41,320) (116,214) (117,685) (126,757) 173,880 167,940 - 151,740 162,180 173,880 167,940 - 151,740 162,180 Held at 1 July 2010 Granted as Compensation Lapsed Held at 30 June 2011 Unvested at 30 June 2011 450,982 191,927 (103,125) 539,784 539,784 108,881 96,635 95,164 114,271 - 81,408 45,811 41,320 41,320 48,506 41,320 45,349 (154,692) (20,270) (20,270) (26,351) - - - 117,685 116,214 136,426 41,320 126,757 - 117,685 116,214 136,426 41,320 126,757 No performance rights held by directors or key management personnel are vested but not exercisable. Select Harvests Annual Report 2012 77 77 Select Harvests Annual Report 2012 Notes to the Financial Statements 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: 2012 Directors – Non executive J C Leonard* R M Herron M Carroll F Grimwade M Iwaniw Directors – Executive J Bird** Key Management Personnel M Graham T Millen L Van Driel P Chambers P Ross Held at 1 July 2011 Received on exercise Other – DRP, sales & purchases 947,099 40,672 - 30,000 3,000 645,005 - 45,444 - 8,000 - - - - - - - - - - - - - 1,293 - 70,000 97,000 - - - - 14,000 - * Retired 1 June 2012. Total number of shares shown is as at retirement. ** Retired 1 March 2012. Total number of shares shown is as at retirement. Held at 1 July 2010 Received on exercise Other – DRP, sales & purchases Total 947,099 41,965 - 100,000 100,000 645,005 - 45,444 - 22,000 - Total 5,835,234 947,099 40,672 - 30,000 3,000 5,835,234 663,668 18,772 - - - 619,522 - 45,444 - - - - - - - - - - - - - - - - 283,431 21,900 - 30,000 3,000 25,483 645,005 - - - 8,000 - - 45,444 - 8,000 - 2011 Directors – Non executive M A Fremder* J C Leonard R M Herron M Carroll F Grimwade** M Iwaniw*** Directors – Executive J Bird Key Management Personnel M Graham T Millen L Van Driel P Chambers P Ross * Retired 27 October 2010 ** Commenced 27 July 2010 *** Commenced 27 June 2011 (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 2012 are detailed in Note 32. 78 Select Harvests Annual Report 2012 2012 $ 236,750 60,000 296,750 41,500 548,247 589,747 886,497 2011 $ 192,450 25,000 217,450 98,530 9,000 107,530 324,980 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 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 with Almas Almonds Pty Ltd, a company which manages the Almas Almonds Partnership in which Mr J C Leonard has an indirect interest. Under the terms of the agreement, Select Harvests Limited is developing and shall manage 1,782 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 $6,739,958 (2011: $6,409,370) up until 1 June 2012 when the entity ceased to be a related party, 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. During the ﬁ nancial year the company entered into foreign exchange contracts on behalf of Almas Pty Limited, under conditions which pass costs and beneﬁ ts to the related parties under normal commercial terms. 33. SEGMENT INFORMATION Segment products and locations The segment reporting reﬂ ects the way information is reported internally to the Chief Executive Ofﬁ cer. 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 is split into two segments: » Company Orchards - the growing, processing and sale of almonds to the food industry from company owned almond orchards; and » Managed 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. Select Harvests Annual Report 2012 79 79 Select Harvests Annual Report 2012 Notes to the Financial Statements y t i t n E d e t a d i l o s n o C ) 0 0 0 $ ( ’ d n a s n o i t a n m i i l E e t a r o p r o C ) 0 0 0 $ ( ’ n o i s i v i D d n o m A l l a t o T s d r a h c r O y n a p m o C n o i s i v i D d n o m A l s d r a h c r O d e g a n a M n o i s i v i D d n o m A l s t c u d o r P d o o F ) 0 0 0 $ ( ’ ) 0 0 0 $ ( ’ ) 0 0 0 $ ( ’ ) 0 0 0 $ ( ’ , 6 1 3 8 4 2 , 6 6 7 6 4 2 - - 8 3 3 3 1 1 , 2 7 6 9 0 1 , 8 3 5 8 , 7 2 2 4 1 , 0 0 8 4 0 1 , 5 4 4 5 9 , 8 7 9 4 3 1 , 4 9 0 7 3 1 , - - 0 0 , 6 1 3 8 4 2 6 6 7 , 6 4 2 ) 4 9 5 6 ( , ) 4 9 5 , 6 ( ) 8 8 8 9 ( , ) 8 8 8 9 ( , 4 9 5 6 , 8 8 8 9 , 2 3 9 9 1 1 , 0 6 5 , 9 1 1 4 9 5 6 , 2 3 1 , 5 1 8 8 8 9 , 5 1 1 , 4 2 - - - - 0 0 8 4 0 1 , 5 4 4 , 5 9 8 7 9 4 3 1 , 4 9 0 , 7 3 1 1 1 0 2 2 1 0 2 1 1 0 2 2 1 0 2 1 1 0 2 2 1 0 2 1 1 0 2 2 1 0 2 1 1 0 2 2 1 0 2 1 1 0 2 2 1 0 2 2 4 6 , 1 6 5 5 4 , 5 8 3 2 4 2 7 5 2 , 1 4 1 3 4 , 5 6 4 4 1 3 4 , 2 9 7 - - - 8 5 9 9 4 2 , 2 2 3 , 1 5 2 ) 9 0 2 6 ( , ) 6 4 6 9 ( , 9 8 1 , 1 2 1 4 7 8 3 2 1 , 7 9 5 , 5 1 9 2 4 8 2 , 2 9 5 , 5 0 1 5 4 4 , 5 9 8 7 9 4 3 1 , 4 9 0 , 7 3 1 2 6 8 , 1 2 ) 5 9 4 2 ( , ) 0 1 3 3 ( , ) 1 7 9 4 ( , 3 6 4 , 1 2 ) 1 5 5 3 ( , 9 1 8 9 , ) 3 8 8 2 1 ( , 4 4 6 , 1 1 2 3 3 9 , 9 0 7 3 , 7 2 0 6 , 0 0 5 8 3 ) 4 7 7 3 ( , 3 7 4 8 1 , 0 0 1 4 2 ) 9 8 4 6 ( , ) 3 4 7 , 8 ( 5 8 3 ) 4 7 7 3 ( , ) 9 9 6 6 ( , 1 4 2 ) 9 8 4 6 ( , ) 9 1 2 , 1 1 ( 0 0 - - 0 0 - - - - - - - - - - - - - - 3 6 4 , 1 2 ) 1 5 5 , 3 ( 9 1 8 9 , ) 3 8 8 , 2 1 ( 4 4 6 , 1 1 2 3 3 9 , 9 0 7 , 3 7 2 0 6 , 0 8 5 5 0 3 , 8 0 3 9 7 2 , 7 6 0 , 1 1 ) 4 7 3 ( 7 2 0 5 2 2 , 0 3 8 , 1 1 2 5 6 7 6 3 1 , 7 7 9 8 1 1 , 4 7 0 3 8 , 0 7 2 4 6 , 5 5 2 3 4 , 8 0 9 2 4 , 1 9 1 , 4 3 5 3 3 8 2 , 8 4 2 1 2 5 , 3 1 1 , 6 8 4 1 5 3 1 0 0 1 5 2 7 3 3 , 3 2 9 7 2 , 0 4 3 4 , 4 3 3 5 , . 6 8 4 9 6 , 2 5 8 7 6 , 6 3 4 0 1 , 9 9 7 , 1 1 8 1 4 4 2 7 7 7 2 9 7 6 l a n r e t x e m o r f e u n e v e r l a t o T s r e m o t s u c 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 o t s e c i v r e s f o s e l a S y r i t n e c i m o n o c e e h t e d i s t u o 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 T B E I x a t e r o f e b t ﬁ o r p g n i t a r e p O 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 ) s t b e d y n a p m o c - r e t n i i g n d u l c x e ( ) s t b e d y n a p m o c - r e t n i i g n d u l c x e ( s e i t i l i b a i l 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 t e s s a t n e m g e S 80 Select Harvests Annual Report 2012 : e l b a t g n w o i l l o f e h t n i d e c n e r e f e r s i r e c ﬁ f O e v i t u c e x E f e i h C e h t o t d e d i v o r p n o i t a m r o f n i t n e m g e s e h T ) . t n o c ( N O I T A M R O F N I T N E M G E S . 3 3 . s t s o c n o i t c a s n a r t n i k 6 7 7 $ d n a , s d r a h c r o d e h s i l b a t s e f o s n o i t i s i u q c a e h t m o r f g n i s i r a t n u o c s i d m 3 8 $ a s e d u l c n . i s d r a h c r o n a i l a r t s u A n r e t s e W s ’ y n a p m o C e h t o t n o i t a l e r n i s s o l t n e m r i a p m i . m 0 0 2 $ a s e d u l c n i . s t e s s a g n i s s e c o r p d n o m a o t n o i t a l e r n l i s s o l t n e m r i a p m i . m 9 4 $ a s e d u l c n i I T B E s d r a h c r o d e g a n a M 2 1 0 2 I T B E s d r a h c r o y n a p m o C 2 1 0 2 I T B E s d r a h c r o y n a p m o C 1 1 0 2 . l e v e l n o i s i v i d d n o m a l l a t o t e h t t a d e t r o p e r d n a d e g a n a m e r a n o i s i v i d d n o m a e h t n l i s e i t i l i b a i l d n a s t e s s A . s e l a s l a t o t l f o % 2 1 s h t r o w o o W d n a % 7 1 s e l o C , l % 3 3 m a O e d u l c n i s r e m o t s u c r o j a m o t s e l a S 34. CONTROLLED ENTITIES Parent Entity: Select Harvests Limited (i) Subsidiaries of Select Harvests Limited: Kyndalyn Park Pty Ltd (i) Select Harvests Food Products Pty Ltd (i) Meriram Pty Ltd (i) Kibley Pty Ltd (i) (i) Members of extended closed group 35. EMPLOYEE BENEFITS Long Term Incentive Plan Country of Incorporation Percentage Owned (%) 2012 2011 Australia Australia Australia Australia Australia 100 100 100 100 100 100 100 100 100 100 The Group offers executive directors and senior executives the opportunity to participate in the long term incentive plan (LTI Plan) involving the issue of performance rights to the employee under the LTI Plan. The LTI Plan provides for the offer of a parcel of performance rights with a three year life to participating employees on an annual basis. One third of the rights vest in each year, with half of the rights vesting upon achievement of earnings per share (EPS) growth targets and the other half vesting upon achievement of total shareholder return (TSR) targets. The EPS growth targets are based on the average growth of the company’s EPS over the three years prior to vesting. The TSR targets are measured based on the company’s average TSR compared to the TSR of a peer group of ASX listed companies over the three years prior to vesting. The performance targets and vesting proportions are as follows: MEASURE EPS Below 5% growth 5% growth 5.1% – 6.9% growth 7% or higher growth TSR Below the 60th percentile* 60th percentile* 61st – 74th percentile* At or above 75th percentile* * Of the peer group of ASX listed companies PROPORTION OF RIGHTS TO VEST Nil 25% Pro rata vesting 50% Nil 25% Pro rata vesting 50% The assessed fair value at grant date is determined using a Black-Scholes option pricing model that takes into account the term of the rights, 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 right. Select Harvests Annual Report 2012 81 81 Select Harvests Annual Report 2012 Notes to the Financial Statements $ $ 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 e u l a v r i a F e t a g e r g g a e u l a v r i a F 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 e h t g n i r u d r a e y d e t i e f r o F e h t g n i r u d r a e y d e t n a r G e h t g n i r u d t a e c n a l a B e h t f o t r a t s r a e y r a e y e s i c r e x E e c i r P e t a d y r i p x E e t a d t n a r G - - - 0 4 7 5 5 6 , - - - - - 0 4 7 5 5 6 , - ) 9 7 8 4 2 3 ( , , ) 2 7 6 2 9 3 ( , ) 1 4 7 9 0 4 ( - - - 9 7 8 4 2 3 , , 2 7 6 2 9 3 , 1 4 7 9 0 4 - 5 1 . 5 $ 3 8 2 $ . . 7 2 3 $ 1 1 0 2 / 0 1 / 1 3 8 0 0 2 / 9 0 / 0 2 2 1 0 2 / 0 1 / 9 2 9 0 0 2 / 9 0 / 8 2 3 1 0 2 / 0 1 / 8 2 0 1 0 2 / 9 0 / 7 2 5 1 0 2 / 6 0 / 9 2 2 1 0 2 / 6 0 / 9 2 : 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 t h g i r e c n a m r o f r e p / 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 t h g i r e c n a m r o f r e p / 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 - - - - - - - - e u l a v r i a F e t a g e r g g a $ - - - - - - - - e u l a v r i a F e r a h s r e p $ - - - - - - - - s e r a h S d e u s s i r e b m u N - - - - - - - - s d e e c o r P d e v i e c e r $ - - - - - - - - . e t a d e s i c r e x e 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 f o e u a v r i a f e h T l 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 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 e h t g n i r u d r a e y d e t i e f r o F e h t g n i r u d r a e y d e t n a r G e h t g n i r u d t a e c n a l a B e h t f o t r a t s r a e y r a e y e s i c r e x E e c i r P e t a d y r i p x E e t a d t n a r G - 9 7 8 4 2 3 , , 2 7 6 2 9 3 , 1 4 7 9 0 4 6 6 3 $ . - - - - - ) 9 7 3 0 1 2 ( , ) 0 0 5 7 3 ( , ) 6 3 5 5 4 ( , ) 1 1 8 5 4 ( , , 2 5 5 5 5 4 - - - - 9 7 3 0 1 2 , , 9 7 3 2 6 3 8 0 2 8 3 4 , . 4 7 9 $ 5 1 . 5 $ 3 8 2 $ . . 7 2 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 3 1 0 2 / 0 1 / 8 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 0 1 0 2 / 9 0 / 7 2 3 4 7 $ . . 7 2 3 $ 0 1 . 5 $ 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 2 1 0 2 1 1 0 2 82 Select Harvests Annual Report 2012 35. EMPLOYEE BENEFITS (continued) 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 (b) Expenses arising from share-based payment transactions Consolidated 2012 $ - 2011 $ - Total expenses arising from share-based payment transactions recognised during the period as part of employee beneﬁ t expense were as follows: Performance rights/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 Consolidated 2012 $ - - 2011 $ (305,000) (305,000) 2012 $’000 1,726 2011 $’000 19,266 329,885 308,226 19,768 17,987 226,249 206,887 95,957 3,270 (444) 121 4,732 103,636 2,015 1,614 95,066 3,270 (43) 329 2,717 101,339 1,842 2,021 Select Harvests Annual Report 2012 83 83 Select Harvests Annual Report 2012 Notes to the Financial Statements (b) Tax consolidation legislation 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. 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. 84 Select Harvests Annual Report 2012 Directors’ Declaration In the directors’ opinion: (a) the ﬁ nancial statements and Notes set out on pages 39 to 84 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 2012 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. M Iwaniw Chairman Melbourne, 31 August 2012 Select Harvests Annual Report 2012 85 85 Select Harvests Annual Report 2012 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 2012, 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 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 of the ﬁ nancial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the ﬁ nancial report that is free from material misstatement, whether due to fraud or error. In Note1, 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. We believe that the audit evidence we have obtained is sufﬁ cient and appropriate to provide a basis for our audit opinions. PricewaterhouseCoopers, ABN 52 780 433 757 Freshwater Place, 2 Southbank Boulevard, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation 86 Select Harvests Annual Report 2012 Independent auditor’s report to the members of Select Harvests Limited (continued) 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 consolidated entity’s ﬁ nancial position as at 30 June 2012 and of its 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 ﬁ nancial report 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 the directors’ report for the year ended 30 June 2012. 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 2012 complies with section 300A of the Corporations Act 2001. PricewaterhouseCoopers John O’Donoghue Partner Melbourne 31 August 2012 Select Harvests Annual Report 2012 87 87 Select Harvests Annual Report 2012 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 2012. (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 1,026 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over 1,239 482 569 43 The number of shareholders holding less than a marketable parcel of shares is: Number of Ordinary Shares 72,888 Number of Shareholders 457 (b) Twenty largest shareholders The names of the twenty largest holders of quoted shares are: 1 2 Thorney Investments Fidelity Mgt & Research 3 Credit Suisse Asset Mgt 4 Deutsche Bank Private Wealth Mgt 5 Deutsche Asset Mgt Americas 6 Mr Maxwell Fremder 7 Dimensional Fund Advisors 8 Myer Family Company 9 Wilson Asset Mgt 10 Mr Curt Leonard 11 Hadley Family 12 Hayberry Investments 13 Mr Rodney M Fitzroy 14 Mr Petrus Middendorp 15 Realindex Investments 16 Mr & Mrs Franklyn R Brazil 17 Mr William M Matthes 18 Mr & Mrs Gabriel M Ripka 19 Mr John O Lawless 20 Mr Anton K Middendorp (c) Substantial shareholders The names of substantial shareholders are: Thorney Investments Fidelity Mgt & Research (d) Voting rights Listed Ordinary Shares Number of Shares 6,200,190 Percentage of Ordinary 10.9 5,529,973 2,384,000 2,261,754 2,149,246 1,936,671 1,591,703 1,578,215 1,558,209 947,099 881,844 727,421 579,244 541,878 500,318 500,000 500,000 286,000 285,000 280,945 9.7 4.2 4.0 3.8 3.4 2.8 2.8 2.7 1.7 1.6 1.3 1.0 1.0 0.9 0.9 0.9 0.5 0.5 0.5 Number of Shares 6,200,190 5,529,973 All ordinary shares (whether fully paid or not) carry one vote per share without restriction. The Company is listed on the Australian Stock Exchange. The home exchange is Melbourne. 88 Select Harvests Annual Report 2012 Corporate Information Select Harvests Limited ABN 87 000 721 380 Directors M Iwaniw (Chairman) P Thompson (Managing Director) M Carroll (Non-Executive Director) R M Herron (Non-Executive Director) F Grimwade (Non-Executive Director) P Riordan (Non-Executive Director) Company Secretary P Chambers Registered Ofﬁ ce 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 National Australia Bank Limited Auditor PricewaterhouseCoopers Share Register Computershare Investor Services Pty Limited GPO Box 242 MELBOURNE VIC 3001 Telephone (03) 9415 4000 Facsimile (03) 9473 2555 www.investorcentre.com Internet Address www.selectharvests.com.au 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

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