ANNUAL REPORT 2009
CONTENTS
ANNUAL MEETING OF SHAREHOLDERS
3 14 15 17 19 22 27 57 58 59
The 2009 Annual Meeting of Silver Fern Farms Limited Shareholders will be held on Wednesday, 27 January 2010.
Chairman and Chief Executive Review Board of Directors Senior Executive Team Governance Statutory Information Financial Statements Notes to the Financial Statements Auditor’s Report Five Year Historical Summary Directory
The Notice of Annual Meeting will be provided separately to Shareholders.
our market-led strategy We are linking customers to farmers via long term contract supply pricing options. We are committed to a suite of technological innovations and we are investing in a unique new brand – a brand that we believe will influence red meat consumer buying habits throughout our markets. It’s all part of our vision: to be a fully integrated market-led company investing in consumer products that will differentiate and add value to our farmer partners, our customers and our people.
2009 Annual Report
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2
Silver Fern Farms
chairman and chief executive review
THE 2009 FINANCIAL YEAR WILL BE RECORDED AS A WATERSHED YEAR FOR YOUR COMPANY, DURING WHICH WE MADE SUBSTANTIAL PROGRESS IN OUR TRANSFORMATION FROM A TRADITIONAL MEAT PROCESSOR/SALES ORIENTED CO-OPERATIVE TO A MARKET-LED FOOD COMPANY.
The need to invest in longer term value adding strategies is imperative if we are to position our company for the unprecedented global demand for red meat protein predicted immediately following recovery of the current global economic crisis. Under our plate to pasture strategy, Silver Fern Farms has this year: • Launched the Silver Fern Farms brand locally and internationally • Established the Backbone® contract procurement programme and developed a number of market based procurement contracts • Invested in innovation, technology and R&D projects including X-ray carcase analysis, robotics and radio frequency identification (RFID) • Recruited key marketing personnel to develop the in-market strategy • Formed joint ventures into non-core businesses, including:
Eoin Garden
Keith Cooper
Chairman
Chief Executive
• rendering through Farm Brands Limited • Livestock Logistics, a joint venture to create a more efficient transport model • Integrated supply chains between farmers and large customers to deliver specific genetics and product type. The past trading year has been dominated by the global credit crunch, the widespread recession in the majority of New Zealand’s key markets and a highly volatile New Zealand dollar exchange rate. Reflecting this trading environment, your company recorded a net operating profit before tax of $43.4 million, from total income of $2,015 million. In line with our focus on strengthening the balance sheet, total borrowings were reduced by $57.7 million to $184.5 million. This includes the SFF020 Bonds repayment of $50 million during March 2009. However it should be noted this result included a one off gain from the settlement with PGW of $37 million and other minor one off items, to deliver an actual operating profit of $5.1 million.
Rebates In view of the economic environment and the company’s recent focus on recapitalisation of the business, the directors have resolved that no shareholder distributions would be paid for the year ended August 2009. Whilst this will be disappointing, your directors believe it is prudent financial management and distributions should be looked at over the long term and not at each year in isolation.
2009 Annual Report
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Total debt 350
Capital restructuring
$334.1m
300
$242.2m
250
$184.5m
200 150
The approval of a new Constitution means that Silver Fern Farms now has the ability to introduce a modern capital structure which not only protects the company, but gives shareholders increased benefits over past structures.
100 50 0
On 30 July 2009 Silver Fern Farms’ shareholders voted in favour of constitutional changes which endorse the need to align the company’s capital and governance structure in support of our long term strategy, designed to ensure the co-operative’s longevity for future generations of New Zealand farmers.
2007
2008
2009
Clear benefits for your company include: • The new performance premium pools system
Equity Ratio
• Removal of redemption risk
60% 55
52.4%
50 45 40 35
41.3%
2007
2008
2009
$2,200m $1,990m
2,000 1,900
$2,015m
The Capital Restructuring, last year’s Project Rightsize and the proposed PGG Wrightson Partnership were all major business events in their own right, requiring significant Board and Management focus and resources. Despite those significant events, the need for best practice, at both governance and management level, is ever present.
$1,846m
1,800
Launched at the end of the 2009 financial year, Project ‘Optimal’ is focused on testing all parts of the current business model to ensure optimal efficiencies.
1,700 1,600 1,500
A total of 5,787 shareholders, holding 42.9 million shares and representing 75% of the total 57.5 million shares eligible for exchange, participated in the offer which closed on 9 October 2009. Shareholders elected to subscribe for a further 22.2 million shares under the associated rights offer. The results reflect a high level of positive shareholder engagement with the new structure of their company.
Project Optimal
Total Income
2,100
• Flexibility to raise capital if and when required in the future.
Exchange Offer
35.2%
30 25
• An enhanced governance structure, allowing for skills based governance, not restricted by wards or occupation
2007
2008
2009
The project is targeted at a number of core business areas: • Procurement • Marketing • Operations • Freight optimisation. The aim is to interrogate the way in which we do things, to ensure right resources are in place per business unit, while streamlining overheads and maximising margins to the benefit of our shareholders.
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Silver Fern Farms
LAUNCH OF BRANDED CONSUMER PRODUCTS
A cut you’d expect in a Restaurant (at a price you’d expect in a Supermarket)
Above: The recent launch at Intermarché with All Blacks® Ma’a Nonu, Tony Woodcock and Andrew Hore received wide international coverage.
As of November 2009 Silver Fern Farms’ branded consumer products for lamb and venison will be available at leading supermarkets throughout New Zealand and in international markets. In early October France’s biggest retail co-operative, Intermarché, rolled out a range of chilled, consumer ready Silver Fern™ branded lamb leg roasts, boneless rumps, French racks and lamb stir fry into their retail meat cabinets. This level of New Zealand branded product entry into supermarket shelf space is a first for France. As an endorsement to the launch, All Blacks® Ma’a Nonu, Tony Woodcock and Andrew Hore were part of the marketing launch. 2009 Annual Report
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SILVER FERN FARMS’ LAMB SALES BY COUNTRY for the year ended 31 August 2009
< $50m $50m+ $100m+ $150m+ $175m+
SILVER FERN FARMS’ LAMB SALES MIX
27%
22%
73%
78%
2009
2008 Frozen
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Silver Fern Farms
Chilled
AVERAGE COST COMPONENT OF LAMB RETAIL PRICE INTO STORE (UK) Calculated on chilled cuts destined for retail
Importer
Retailer
Processor (including seafreight)
$115
110 105
21%
12.5%
100 95
2.5%
90
19%
45%
85 80 75 70 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
Packer
Farmer
Market Outlook
LAMB PURCHASE PRICES PER HEAD 2009 Average prices for schedule only
Lamb and Mutton The global economic crisis had a significant impact on importer activity as uncertainty surrounded many market sectors. Hardest hit have been the high-end restaurant trade and tourism industries as consumers reduce their spending. Lamb products are an integral part of these two sectors and sales have been impacted as importers have adopted more conservative purchasing programmes. Despite the uncertainty, shipping flows have kept pace with seasonal production ensuring stocks, both in New Zealand and in-market, have been managed at low levels. Market signals suggest that lamb stocks at seasonâ&#x20AC;&#x2122;s end are low, setting a positive scene for the commencement of the 2009/10 season. Chilled retail growth continued during the 2008/09 season with programme expansions by our major retail partners. This business continues to develop year on year improving carcase returns back to New Zealand due to the premium for chilled over most frozen market prices. While we see continued increases in chilled volumes moving into 2010, lamb prices are at historically high levels in most markets in spite of the global economic crisis. Opportunities to lift retail prices further will be limited against a highly competitive retail environment and reductions in prices of most competing proteins. New Zealand will fully utilise its European Quota again this year, despite some early year uncertainty. With the 15% lamb slaughter reduction in 2009, and attendant lower lamb availability, a greater range of lamb cuts plus some quantities of mutton carried over from the higher 2008 slaughter were utilised to fulfil quota this year, providing increased overall returns. The 2010 season lamb forecasts from Meat and Wool New Zealand Economic Service suggest a further 2.2% drop in lamb production which will further tighten lamb availability and should keep demand firm. However with market prices at historical highs and with lamb continuing to be highly priced against other proteins, value extraction for lamb requires strategic direction. We are confident that our â&#x20AC;&#x153;plate to pastureâ&#x20AC;? strategy will continue to develop consumer focused products that will return additional value to our farmer partners. The main negative impact is the volatility of the New Zealand dollar against all major currencies. Approximately 75% of the increased lamb returns for 2009 were as a result of currency gains, which have been largely eroded in the last two months of the slaughter season. Continued New Zealand dollar strength would have an unfortunate and significant impact on our returns and therefore farmer payments in the 2010 season.
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SILVER FERN FARMSâ&#x20AC;&#x2122; STEER MARKETS for the year ended 31 August 2009 Wholesale
$950
31%
900 850
Foodservice / Retail
14% 39%
800
16%
750 700 650 600 550 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
STEER PURCHASE PRICES PER HEAD 2009 Average prices for schedule only
Ingredient
Grinding
Beef The New Zealand beef industry has been affected through 2009 by the ongoing negative recessionary sentiments. The downturn in tourism, of between 30 â&#x20AC;&#x201C; 40% in some of our major markets has seriously impacted on the food service hotel / restaurant sector, particularly for higher valued cuts. At the same time demand for manufacturing beef used in burgers remains steady to slightly firmer. The US market this year was dominated by a low domestic market price, dairy herd culls and general poor demand. Despite a small increase in overall imported beef entering the US the main focus for processors was the abundant and cheap supply of US domestic lean beef. This was supported by an increase of approximately 30% or 190,000 head of manufacturing cows from the dairy industry retrenchment. Currency, of course, is a key influence on the beef industry as not only does it affect the NZD net returns but also influences the global flow of New Zealand beef exports. There is also a concern that South American countries are making great progress in gaining access to markets that have traditionally been closed to them. Whilst tonnages from South America are forecast to be lower through 2010, low production costs will continue to see their beef very competitively priced. The Middle East has not escaped the effects of the recession and markets such as Dubai are under pressure particularly from the tourist and food service sector. In Taiwan, Japan and Korea all buyers are concentrating on reducing inventory levels and forward orders have been reduced accordingly. Silver Fern Farms and its supplier partners must therefore continue to focus on the quality of our grass fed beef. We must promote and preserve the global perception that we are established as world leaders in food safety to protect health conscious consumers.
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Silver Fern Farms
SILVER FERN FARMS’ VENISON MARKETS for the year ended 31 August 2009 Austria
USA
Italy UK
1% 4% 10% 5% 6%
3%
Others
Germany
9%
$490
35%
480 470
10%
14%
3%
460 450 440 430 420 410
Switzerland
Netherland
France
Sweden
Belgium
400
Venison The past 12 months have reflected the impacts of the economic crisis on key venison markets. However with the weaker exchange rates through much of the year, particularly against the Euro, and also the above-average market prices, average schedules were the highest on record.
Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
HIND PURCHASE PRICES PER HEAD 2009 – excludes feral Average prices for schedule only
Dry conditions and relatively large kills in early 2008, saw reduced production of chilled venison for the traditional Northern Hemisphere game season (July to early November 2008) by 31%, from the previous year. Whilst normally this would have created issues, the arrival of the global economic crisis brought consumer resistance to the high venison prices and the resulting lower demand balanced the reduced supply. Higher value frozen items, aimed at mid to top-tier restaurants, also slowed in demand, which led to a carry over into the 2009 year. Lower value items are still in firm demand, and this looks set to continue as processing numbers further decline. From 480,000 in the 2008/9 year, production in the coming 12 months is expected to be between 350,000 – 400,000 head. This is approximately two thirds of the 2007 production level, and will continue to impact market dynamics. For the coming year, there is caution as key markets remain in recession, with many customers impacted by current market and economic conditions. Silver Fern Farms supports initiatives that focus on improved farmer returns. Accordingly on your behalf we are supporting Johne’s disease research with a voluntary levy of $1 per head. For the sake of transparency we are deducting this on your purchase invoices as opposed to deducting within schedule calculations. Co-products Hides – The collapse of hide prices in September 2008, closely followed by the financial crisis which saw reduced credit limits for tanners resulted in the worst market conditions ever experienced by the industry. Whilst CIF prices fell to 50% of July 2008 prices, the market has now rebounded by 25% during October 2009 and the outlook is for stability and slightly increased prices during 2010. Skins – A sharp slump in October 2008 due to the financial crisis in the USA, was followed in February 2009 by greater stability as the Indian market emerged as a new supplier of leather garments to Europe. Stable prices have continued through to August 2009 and the outlook is for this to continue through 2010. Casings – Prices for natural casings increased by 45% in USD terms since October 2007 and shortages of supply have occurred during 2009 due to significant reduction in the New Zealand lamb kill. Added to this the significant improvement of the Euro against the USD also presented European casings distributors with a major advantage over their US competitors. Demand for natural casings is expected to be firm into 2010, however the use of synthetic casings is certainly increasing in the cheaper segment of the market as natural casings become more expensive. Tallow – As with most commodities there is expected to be good demand from China for tallow for the 2009/2010 season. 2009 Annual Report
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the backbone® partners’ supply programme continues to underpin our supply chain strategy, linking our supplier partners directly with our valued customers who require a guarantee of quality and a consistency of supply.
The Supply Model For 2009 the Backbone® programme has been simplified into two cornerstone programmes: • The Backbone® Committed Supplier Programme, providing suppliers with certainty of processing space, access to additional supplier premiums and flexibility • The Backbone® Integrated Value Chain Programme, offering certainty on prices for livestock and linking supplier partners directly to a group of key global customers, with supply into a strengthened customer programme.
Backbone® Partnership Club As part of its integrated value chain offering, Silver Fern Farms has established a new partnership between key suppliers and a select group of key retail and food service customers. This partnership will provide our farmers with specific information about the retail partners within the programme, enabling our farmer partners to grow livestock that meets the exact customer specification and delivery periods, provides rewards for meeting those criteria and allows a collective approach to maintain both consistency and continuity of supply.
Performance Premium Pools Farmer suppliers who wish to access premium prices for livestock may continue to participate in the marketing rebate scheme, which is now targeted at specific supply criteria as per Silver Fern Farms’ Backbone® supply programme. A key aspect of these ‘Performance Premium Pools’ is that participants will no longer be compelled to subscribe for shares in Silver Fern Farms using the proceeds of their rebates. Rather, eligibility to participate in the Marketing Rebate System will be determined based on the number of Rebate Shares, Supplier Investment Shares, and Ordinary Shares that are held. A supplier wishing to participate in a Performance Premium Pool must hold Ordinary Shares, Supplier Investment Shares, or Rebate Shares (in any combination) in a ratio of eight shares for each Production Equivalent (‘PE’) for the first 5,000 PEs and thereafter three shares for every subsequent PE up to a maximum requirement of 100,000 shares. Performance Premium Pools reflect market returns dependent upon: • Proportion of stock supplied meeting quality specification weights and grades • Meeting Backbone committed supply plan numbers • Quality attributes determined by X-ray carcase analysis • Other specific market related criteria as per customer requirements.
Meatpro As part of enhancing service levels to its supplier partners, Silver Fern Farms has recently installed Meatpro, a new back office system which co-ordinates livestock supply, kill sheet analysis, supplier payment and supplier management information, and integrates those functions with product inventory and sales information. This is an integrated financial solution for Silver Fern Farms and its suppliers, and will serve to significantly streamline administrative processes. As part of the change, all livestock payments have moved to a 14-day turnaround from kill date.
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Silver Fern Farms
Industry Good International Sheepmeat Forum The International Sheepmeat Forum for Producers and Industry was held in Brussels in early October. Meat & Wool New Zealand (M&WNZ), as a key organiser along with COPA-COGECA, UECBV, the European Meat Processing and Trading Union and Meat and Livestock Australia aimed to bring together the world’s sheepmeat producers to address common issues.
• Improved efficiency: new technology, ongoing investment in R&D and exchange and transfer of knowledge. Specifically the forum acknowledged the need for greater cooperation across different parts of the supply chain, and opportunities to capture the benefits of year round supply.
Cabinet Approval 2010
• The environment: from genetic selection, animal feed adaptation and efficiency, usage of by-products for energy production. The forum also encourages the adoption of new methodologies/technologies that increase productivity with a lower emission footprint.
Proposed NAIT Timelines 2009
Key conclusions of the forum were clearly aligned with Silver Fern Farms’ own ‘plate to pasture’ strategy, serving to endorse our own initiatives and commercial direction across:
• The consumer: recognised there is a need to focus on: New customers and market segments
•
Capturing the younger generation
•
Muslim markets
•
Trends for boneless meal solutions
•
Development of new products to fit convenience needs
•
Enhanced enjoyment of cooking and recognition of healthy benefits
•
Educating consumers about a product’s attributes and how to use it
•
Partnership with retailers with better pack presentation and training.
We support beef marketing programmes in North Asia, and can endorse the value M&WNZ staff in Korea, China and Japan have added to both generic and jointventure marketing programmes in these regions.
Mandated for Cattle
Mandated for Deer
2012
Meat & Wool NZ As an international exporter and marketer of meat products regularly working in partnership with M&WNZ, Silver Fern Farms believes M&WNZ plays a vital role in the pastoral sector.
Voluntary Use and Beta Testing
2012
Silver Fern Farms would lend support to the creation of the “International Lamb Meat Task Force” as a starting point for promoting cooperation, recommendations and designing common and global strategies aimed at increasing lamb consumption around the world.
Design and Build System 2011
•
We have also enjoyed good support from M&WNZ for our marketing initiatives in the Middle East, North America and Germany, promoting lamb and beef. M&WNZ brings meat marketing companies together, providing a more consultative approach to global market activities, which will be further enhanced with leveraged models with industry to grow in-market investment.
National Animal Identification and Tracing (NAIT) NAIT aims to provide New Zealand livestock owners, processors and government with timely and quality information on the current location, movement history and other key attributes associated with livestock. The industry remains strongly supportive of this initiative, particularly given the sentiment of large international customers towards improved traceability and food security. For New Zealand, the days of competitive advantage solely on the basis of price are over. Rather, we are competing on the same footing as a host of other global protein producers, so it is important that our product upholds not only the promise of quality, but also key measures such as bio-security, on-farm traceability and management systems. These are the true measures of NAIT’s worth to the industry.
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The Environment Silver Fern Farms appointed a Group Environmental Manager during the financial year, whose role is to manage group-wide initiatives which will enable the company to adhere to the many regulatory elements of compliance, respect the growing customer expectations and apply our own environmental disciplines implicit in a company of this size. Environmental initiatives during 2009 were largely focused on improving our operational impacts on the environment, and included: • Commissioning of the award winning bio-fuel boiler at Finegand with EFI. The boiler ensures the highest standards of waste treatment are maintained and it is expected to reduce coal use at the plant by 1,300 tonnes a year and cut carbon dioxide emissions by more than 2,000 tonnes annually • Use of an artificial wetlands at Shannon and Te Aroha, to ‘polish’ surface run off effluent from land based effluent treatment sites • The introduction of riparian ‘buffer zones’ at these sites to allow endemic vegetation to grow, also improving the quality of surface water run-off • Use of commercial crops such as grass, lucerne and a hemp trial, to remove nutrients from land-based effluent treatment sites at Fairton, Takapau and Pareora. The latter site is also trialling a land filtration trench whereby effluent moves into the underlying soil profile providing a natural filtering and treatment activity before reaching the sea nearby for further natural filtration. New man-made wetlands at Shannon provide a ‘natural’ solution to effluent treatment.
Innovation Silver Fern Farms continues to set new standards for industry innovation, and technology development. The company also plays a leadership role in the New Zealand meat industry to support industry-wide developments, including ‘Ovine Automation Limited’ – an R&D consortium including most New Zealand meat companies – which is investigating automation opportunities for sheep slaughter. Market Value Traceability System: As part of the company’s commitment to traceability, quality and innovation, it was announced during the financial year that Robotic Technologies Limited (RTL) – a joint venture between Silver Fern Farms and Scott Technology – has developed the world’s first X-ray grading system for lamb processing. This ‘Market Value Traceability System’ (MVTS), is being rolled out at all of the company’s sheep and lamb plants, as an important measure of quality and value. Information on yield is used to capture maximum value of carcases by using technology to make cutting decisions which optimise the size and shape of muscles to best suit customer requirements. Accurate yield information by cut will also enable better data to be reported to suppliers, helping on-farm improvements in animal productivity. The X-ray process also identifies optimal cutting points for the commercialised RTL automated carcase cutting machine and considerably improves the throughput and efficiency of our processing rooms. Traceability: RFID product tracking systems are currently being introduced at our plants from slaughter through to boning. Not only will these provide traceability to meet customer requirements, but gains are expected in boning yields and plant productivity.
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Silver Fern Farms
Human Resources Change within the business has been ongoing throughout the year and has presented a number of challenges. Our ability to recognise the need to change followed by the determination to implement is a key factor in having a successful business. Our â&#x20AC;&#x2DC;people focusâ&#x20AC;&#x2122; has been to continue to develop a sense of accountability for areas of responsibility through empowered leadership and the use of a variety of people management tools. These tools provide a strong foundation to meet the challenges in the business environment, now and in the future. We continue to strive for improvements in all areas of human resource management, such as health and safety, communication, performance management, and leadership training and personal development.
Dedication and Commitment On behalf of the Board and management of Silver Fern Farms we take this opportunity to express our gratitude to our shareholder partners who have backed their company through this past year, and the ongoing transformation of their business.
X-ray grading â&#x20AC;&#x201C; placing value on carcases and improving decision making through processing and information back to breeders.
We acknowledge the commitment and support of Messrs Borthwick, Curd, Lawson and Shaw, who retired as part of the governance review process and, in addition the contributions of Messrs Luff and Grogan who resigned during the year and Mr McNab who retired in January 2009. The commitment of these directors to the business has been highly constructive, in some cases over many years. Our staff have continued to show dedication and courage throughout this process of change, working towards achieving positive outcomes. With their continued support, as a proud progressive partnership, we will provide a long term sustainable future for all our stakeholders.
EOIN GARDEN Chairman
KEITH COOPER Chief Executive
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BOARD OF DIRECTORS
Eoin Garden
Richard Somerville
Tony Balfour
Trevor Burt
Chairman Joined Board in December 1998; appointed Chairman in 2008.
Deputy Chairman Independent Appointed to Board in 2004; Chairman of the Board’s Audit, Risk Assessment and Mitigation Committee.
Independent Joined Board in August 2009.
Independent Trevor joined the Board in August 2009 and is Chairman of the Remuneration and Appointments Committee.
Operates 2,500 ha of high country and finishing land at Millers Flat and another 290 ha in West Otago. His 12,000 su include sheep, cattle and deer.
Chartered Accountant. Chairman of Milford Asset Management Limited. Director of Southern Hemisphere Proving Ground Limited, Milford Dart Limited and a number of private companies.
A globally experienced senior executive with a strong track record of success in a wide diversity of industries and categories, and leading innovation and market/category development.
A former member of the Executive Board of the Munich based Linde Group.
GM Markets for Icebreaker, the world’s leading brand of merino apparel.
Has high level experience in the strategic leadership of large and complex corporate organisations and a proven record of implementing change and achieving results.
Joe Ferraby
Rob Hewett
Angus Mabin
Herstall Ulrich
Joined Board in 1988; Operates 600 ha in Marlborough and has interests in other farming operations.
Elected to Board in February 2008. Farms a 9,250 su, 960 ha sheep and beef breeding and finishing unit in Manuka Gorge, South Otago.
Appointed to Board in September 2007.
Elected to Board in February 2008.
Farms bull-beef on a 1,000 ha property in Waipukurau, Central Hawke’s Bay.
Farms 6,000 su near Cave in South Canterbury.
Graduate of Lincoln University, holding an M.Com in marketing and a B.Com (Ag) in Economics. Director of a number of private companies in New Zealand and Australia.
Held a number of positions in the deer industry during the 1990s. Graduate of Massey University.
Graduate of Lincoln University. Chairman of Northern South Island Sheep and Beef Council.
Chairman of Terra Vitae Vineyards Limited and Destination Marlborough. Director of Combined Rural Traders Limited, The Equitable Group of Companies and other private companies.
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Silver Fern Farms
Participant in the Kellogg leadership course for 2008.
SENIOR EXECUTIVE TEAM
Keith Cooper
Chief Executive Appointed Chief Executive in February 2007. Joined company in 1989. Previous roles include Chief Operating Officer (2001 – 2007) and Chief Executive of UK operations (1999 – 2001). Director of NZ Lamb Company Group North America, Meat Industry Association, NZ Meat Board, Meat & Wool NZ Ltd, Farmbrands Ltd, Robotic Technology Ltd and various Silver Fern Farms’ subsidiaries.
Grant Howie
Group Livestock Manager Responsible for the company’s livestock procurement and developing relationships with our farmer suppliers. Joined company in August 2008 after a Sales and Marketing career in a number of fast-moving consumer goods companies including Mainland Products, Fonterra and Cadbury Confectionery.
Kevin Winders
Steve Murphy
Has a strong financial and strategic skill set based on a wide exposure to a variety of sectors, along with a deep understanding of the Agribusiness sector. A Chartered Accountant, and past director of the NZ Merino Company.
Joined company in March 2004 from Richmond where he was General Manager Sheepmeats. Broad range of meat industry experience across livestock, operations and marketing; previously senior manager with the Mars Corporation in Australasia. Holds an Agricultural Economics degree and Diploma in Meat Technology.
Chief Financial Officer Appointed Chief Financial Officer in August after being with Silver Fern Farms for five months in a project role. Has significant experience as a senior executive, including roles with PGG Wrightson, Contact and KPMG.
Group Operations Manager Responsible for operations, industrial relations, health and safety, compliance,environmental and engineering.
Glenn Tyrrell
Group Sales and Marketing Manager Responsible for all Silver Fern Farms’ international and domestic brands and marketing including meat, wool, pelts and hides, pharmaceuticals, pet-food, by-products and processed products. Joined company in 1979. Has held a range of marketing roles since 1984 including venison marketing manager and two years in Silver Fern Farms’ London office (1987 – 1988).
Grant Pearson
Group Innovation Manager Responsible for the group R&D programme, crossbusiness innovation projects and major capital project work. Joined company in 1986 from Canterbury Frozen Meat, where he held various engineering, processing and planning roles. Holds Honours degree in Chemical Engineering, Diploma in Business Administration; Member of Institute of Professional Engineers New Zealand.
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Silver Fern Farms
GOVERNANCE
Silver Fern Farms’ governance policies are reviewed to ensure they are consistent with best practice. Silver Fern Farms Limited is a limited liability company registered under the New Zealand Companies Act 1993 and the Co-operative Companies Act 1996. The company is a co-operative owned by suppliers of livestock to the company. The company has secured bonds listed on the New Zealand Debt Securities Market (NZDX). The company’s bonds are listed under the code “SFF”. Ordinary Shares will commence trading under the code “SFF” on Unlisted from 27 October 2009. Unlisted is a cost efficient trading facility and is not a registered stock exchange under the Securities Markets Act 1988. Silver Fern Farms’ Constitution is available on the company’s website or on request.
Role of Board of Directors The Board of Directors is responsible for the company’s corporate governance and strategic direction. The Board is committed to undertaking this role in accordance with best practice appropriate to the company’s business. The Board is responsible for determining the company’s policies and objectives, managing risk, developing major strategies, and monitoring the performance of management. The Board has delegated certain of its powers to committees of the Board and the day-to-day management of the company to the Chief Executive.
Policies Silver Fern Farms’ policies are designed to enhance Silver Fern Farms’ overall performance and assist the company in reaching its objectives.
Director Independence Silver Fern Farms currently has three Independent Directors.
Board Composition The Board comprises five supplier-elected Directors and three Board-appointed Independent Directors. As at 31 August 2009 the Board comprises eight members as follows: Eoin Garden
Chairman, shareholder-elected
Richard Somerville Deputy Chairman, Independent Tony Balfour*
Independent
Trevor Burt*
Independent
Joe Ferraby
Shareholder-elected
Rob Hewett
Shareholder-elected
Angus Mabin
Shareholder-elected
Herstall Ulrich
Shareholder-elected
Biographies of current Directors are set out in the Board of Directors section of this report. *In light of Bill Luff’s retirement and the change in Constitution regarding Board composition in July 2009, the Board appointed Tony Balfour and Trevor Burt to the respective independent Board vacancies in August 2009.
Governance In line with the results of the special meeting of shareholders dated 30 July 2009, the Constitution has been amended to include provisions dealing with the appointment of directors. Specifically: a. Silver Fern Farms will have a Board of between six and eight directors b. five directors to be elected by holders of Ordinary Shares who are Current Suppliers and who have met the Minimum Supply Requirement prescribed by the Board (together with holders of Rebate Shares who are Current Suppliers and holders of Supplier Investments Shares) (“Farmer Elected Directors”) c. up to three directors may be appointed by the Board (“Board Appointed Directors”). To qualify for appointment, a director need only not be an employee of Silver Fern Farms or any of its subsidiaries.
Shareholder/Supplier – Director Interaction Silver Fern Farms acknowledges the importance of the supply base to the Co-operative. Accordingly a programme has been implemented that will see all Directors allocated a number of supplier/shareholder meetings to attend annually. The process will ensure that the need for supplier director interface is managed in a cost effective manner.
Director Nominee process As part of the Constitution and governance change process, which established the framework for “Skills” based governance rather than “Representative” governance, the Directors have commissioned independent advice on how to best facilitate such an emphasis in the future. Accordingly, the proposed Director nominee process will involve an independent evaluation of those nominated, against a range of skill set requirements for the business, with the independent evaluator advising shareholders of each candidate’s fit against that framework. The Board will not be involved in the process, apart from establishing the framework and appointing the independent evaluator. The Directors believe in encouraging the creation of a pool of director capability relevant to the business. In addition to working with organisations such as the NZ Co-operative Association and the Institute of Directors to encourage director training, during 2008/2009 the company established the Burnside-Hart Co-operative Education Trust to further such an outcome. Applications for funding should be addressed to: The Trustees c/o General Counsel PO Box 941 Dunedin.
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New Directors receive induction training which includes written and oral presentations by the Chairman, Chief Executive and senior management team on the key strategic and operational business issues facing Silver Fern Farms. External training providers are also utilised.
Committees The Board has appointed two committees, established to work on behalf of the board on specific issues, reporting back to the Board. The Audit, Risk Assessment and Mitigation committee assists the Board in matters relating to auditing, reporting and risk. It provides the Board with assurance regarding the credibility of financial reporting and assurance regarding the discharge of its responsibilities related to financial reporting and regulatory compliance. The Remuneration and Appointments committee reviews the performance of the Chief Executive, sets the remuneration of the executive team and recommends remuneration of Directors to the shareholders.
Auditor Independence The company requires its Auditor to maintain independence in accordance with best practice. The Audit, Risk Assessment and Mitigation Committee reviews the independence and objectivity of the Auditor.
Directors’ Fees The current total Directors’ fee pool is $492,000 per annum.
Operation of the Board
Public release of Material Information
The Silver Fern Farms Board meets formally 11 times each year, and as otherwise required. The Board’s Audit, Risk Assessment and Mitigation Committee is scheduled to meet quarterly or as otherwise required. The Remuneration and Appointments Committee meets at least once a year.
Silver Fern Farms has developed processes for release of material information to NZX and Unlisted markets under continuous disclosure requirements and for the public release of information and the publication of information on the company’s website.
The Chairman and Chief Executive establish the agenda for each Board meeting. The Chief Executive prepares a monthly management report that includes a summary of the company’s activities together with financial and other reports. The Board also receives regular briefings on key strategic issues from management.
DIRECTOR
A J Balfour (appointed Aug 2009)
Attendance at Meetings During the financial year ended 31 August 2009, the Board met 22 times (including telephone conferences but excluding the annual meeting) as follows:
BOARD BOARD ANNUAL (scheduled) (additional inc. MEETING teleconference)
NI FINANCE/ SUPPLIERS EXECUTIVE COUNCIL** (scheduled)
FINANCE/ AUDIT REMUNERATION EXECUTIVE AND (unscheduled) RISK
1
–
–
–
–
–
–
–
11
10
1
–
–
–
–
–
1
–
–
–
–
–
–
–
R P Curd (resigned Jul 09)
10
8
1
–
–
–
–
–
D S Ferraby
12
10
1
2
–
–
4
–
E R H Garden
12
10
1
–
8
1
–
1
9
9
1
2
–
–
2
–
12
8
1
–
–
–
–
–
R A Lawson (elected Feb 2008, resigned Jul 2009)
6
3
–
–
–
–
–
–
W J Luff (resigned Jul 2009)
10
7
–
–
7
1
4
–
A C Mabin
11
9
1
2
–
–
–
–
T B McNab (retired Jan 2009)
5
6
1
–
–
–
2
–
D A Shaw (resigned Jul 2009)
11
10
1
–
–
–
–
–
R J Somerville
11
6
1
–
7
1
–
1
P H Ulrich
12
9
1
–
–
–
–
–
M A Borthwick T J Burt (appointed Aug 2009)
I M Grogan (resigned Jun 2009) R J Hewett
*Note: Tony Balfour and Trevor Burt were appointed in August 2009 to fill the independent Director vacancies created by the resignation of Bill Luff and the change in constitution relating to Board structure. **The North Island Supplier council was dissolved August 2009.
18
Silver Fern Farms
STATUTORY INFORMATION Directors
Information Disclosure
The Directors of Silver Fern Farms as at 31 August 2009 are:
For the period ended 31 August 2009, no Director requested to use Company information received by them in their capacity as Directors.
• Eoin Reay Hamilton Garden (Chairman) • Richard John Somerville (Deputy Chairman) • Antony John Balfour • Trevor John Burt • David Scott Ferraby • Robert James Hewett • Angus Collis Mabin • Peter Herstall Ulrich. Persons who ceased to hold office as directors during the period were: • Murray Alexander Borthwick (on 30 July 2009)
Board Remuneration and Appointments Committee The Committee comprises T J Burt – Chairman, Board Chairman (Eoin Garden), and Board Deputy Chairman (Richard Somerville).
Audit, Risk Assessment and Mitigation Committee The Committee comprises R J Somerville – Chairman, T J Burt, D S Ferraby, A C Mabin.
• Rupert Philip Curd (on 30 July 2009)
Directors’ Insurance
• Ian Michael Grogan (on 11 June 2009)
Directors’ and officers’ liability insurance, together with cover for health and personal accident, is taken out and paid for by the company. In the event of a claim, the Directors may benefit under the terms of these policies.
• Robert Arthur Lawson (on 30 July 2009) • William James Luff (on 30 July 2009) • Thomas Bruce McNab (on 29 January 2009) • David Alfred Shaw (on 30 July 2009)
Directors’ Interest in Transactions For the period ended 31 August 2009, no Director caused to be entered in the company’s interest register any transaction or proposed transaction with the company. Also, no director of any subsidiary of the company disclosed any such interest. disclosed any such interest.
Co-operative Status The following resolution was unanimously passed by the Board on 22 October 2009:
Donations During the financial year ended 31 August 2009, neither Silver Fern Farms nor any of its subsidiaries made any donations.
Auditors The amount payable by the Silver Fern Farms Group to Ernst & Young as audit fees in respect of the financial year ended 31 August 2009 was $344,000. Fees payable to Ernst & Young for consulting services in respect of the financial year ended 31 August 2009 were $115,000.
“In the opinion of the Board, Silver Fern Farms Limited has throughout the year ended 31 August 2009 been a co-operative company under the Co-operative Companies Act 1996 for the following reasons: (a) More than 60% of the shareholders of the Company entitled to vote are transacting business with the Company and are transacting shareholders as set out in Section 4 of the said Act; (b) The Company carries on a co-operative activity as set out in Section 3 of the said Act.”
2009 Annual Report
19
Directors’ Interests in Silver Fern Farms Shares The shares held in Silver Fern Farms by each director and the relevant interests in Silver Fern Farms bonds of each director as at 31 August 2009 are set out in the following table. DIRECTOR REBATE SHARES SUPPLIER INVESTMENT SHARES Shares Holding Shares Holding Issued as at Issued as at 31 Aug 09 31 Aug 09
A J Balfour T J Burt D S Ferraby E R H Garden R J Hewett A C Mabin R J Somerville P H Ulrich
– – 13 – – – 2,346 315
– 10 15,550 17,500 17,500 17,500 4,148 17,210
– – – – – – – –
– 4,027 750 15,000 13,799 12,977 5,456 3,583
REDEEMABLE SECURED BONDS PREFERENCE SHARES Holding Bonds SFF030 Holding as at Issued as at 31 Aug 09 31 Aug 09
– – – – – – – –
– – – – – – – –
– – 15,000 6,000 – – – –
Directors’ Fees DIRECTOR
POSITION
A J Balfour M A Borthwick T J Burt R P Curd D S Ferraby E R H Garden I M Grogan R J Hewett R A Lawson W J Luff A C Mabin T B McNab D A Shaw R J Somerville P H Ulrich
Director Director Director Director Director and Chairman North Island Suppliers’ Council Director and Chairman Director and Director Representative North Island Suppliers’ Council Director Director Director and Chairman Audit Committee Director and Director Representative North Island Suppliers’ Council Director Director Director and Chairman Board Executive Committee Director
DIRECTORS’ FEES
$3,117 $32,867 $3,117 $32,867 $41,817 $86,460 $23,933 $35,983 $18,700 $38,367 $36,400 $14,167 $32,867 $44,983 $35,983
No Director of the Company has, since the end of the previous financial year, received or become entitled to receive a benefit other than superannuation contributions, Directors’ insurance and Directors’ fees. Various Directors were remunerated for additional duties as directors included in the figures above. No Director of any of the company’s subsidiaries received any fees or other remuneration arising from those directorships.
Remuneration of Employees The following table shows the number of Silver Fern Farms employees and former employees of Silver Fern Farms and its subsidiaries who in their capacity as employees received remuneration and other benefits or entitlements (including non-recurring payments to employees on leaving the Group) during the year ended 31 August 2008, the value of which was or exceeded $100,000. The Chief Executive’s salary has been determined based on advice from an external consultant and has been set at the median of the market for the role. It contains an at-risk element which is not paid unless certain criteria have been met. The total paid in the year ended 31 August 2009 contains a payment relating to performance at year end 31 August 2008. All directors’ fees earned by the Chief Executive from external organisations are paid to Silver Fern Farms and are included in revenue.
20
Silver Fern Farms
REMUNERATION RANGE
100,000 – 110,000 110,001 – 120,000 120,001 – 130,000 130,001 – 140,000 140,001 – 150,000 150,001 – 160,000 160,001 – 170,000 170,001 – 180,000 180,001 – 190,000 190,001 – 200,000 200,001 – 210,000 210,001 – 220,000 220,001 – 230,000 240,001 – 250,000 260,001 – 270,000 270,001 – 280,000 290,001 – 300,000 860,001 – 870,000
PARENT
SUBSIDIARIES
CESSATIONS
28 23 15 9 6 4 7 3 5 3 1 2 2 0 1 1 0 1
0 0 3 1 2 3 0 2 0 0 2 0 0 0 0 0 0 0
4 2 1 1 0 0 1 0 0 0 1 1 0 1 1 0 2 0
Directors’ Statement This Annual Report is dated 22 October 2009 and is signed on behalf of the Board by
E R H GARDEN Chairman
R J SOMERVILLE Deputy Chairman
2009 Annual Report
21
FINANCIAL STATEMENTS
CONTENTS 23
Financial Statements
27
Notes to the Financial Statements
27
Note 1
Corporate Information
27
Note 2
Summary of Significant Accounting Policies
33
Note 3
Significant Account Judgements, Estimates and Assumptions
33
Note 4
Segment Information
35
Note 5
Other Revenue
35
Note 6
Other Income
35
Note 7
Expenses
36
Note 8
Non-recurring items
36
Note 9
Income Tax
38
Note 10
Members’ Distributions Paid and Proposed
39
Note 11
Cash Flow Statement Reconciliation
39
Note 12
Inventories
40
Note 13
Livestock
40
Note 14
Trade and Other Receiveables
41
Note 15
Available For Sale Financial Assets
41
Note 16
Property, Plant and Equipment
43
Note 17
Trade and Other Payables
44
Note 18
Interest Bearing Loans and Borrowings
44
Note 19
Bonds Payable
45
Note 20
Provisions
46
Note 21
Members Shares
47
Note 22
Reserves
47
Note 23
Financial Risk Management Objectives and Policies
49
Note 24
Financial Instruments
52
Note 25
Derivative Financial Instruments
52
Note 26
Commitments and Contingencies
54
Note 27
Intangible Assets
54
Note 28
Investments in Associates
55
Note 29
Related Party Disclosure
56
Note 30
Key Management Personnel
56
Note 31
Events After the Balance Sheet Date
56
Note 32
Auditors’ Remuneration
57
Auditor’s Report
58
Five Year Historical Summary
59
Directory
22
Silver Fern Farms
INCOME STATEMENT for the year ended 31 August 2009
NZD IN THOUSANDS ($000)
Continuing Operations
PARENT NOTES
2009
2008
CONSOLIDATED 2009
2008
Sale of goods
1,962,057
1,898,267
2,001,614
1,962,820
5
850
368
320
390
Revenue
1,962,907
1,898,635
2,001,934
6
10,258
20,494
12,656
26,707
Total income
1,973,165
1,919,129
2,014,590
1,989,917
Raw materials and consumables used
Other revenue Other income
1,963,210
1,352,884
1,214,317
1,365,931
1,266,067
7
274,863
304,747
283,104
316,369
Depreciation and amortisation
24,197
26,043
24,679
27,025
Finance costs
7
24,184
32,050
24,257
32,389
Other operational expenses
7
300,226
263,225
312,610
273,080
Share of profits of associate
–
Employee benefits expense
Profit/(loss) from continuing operations before member distributions, income tax and non-recurring items Member distributions
(1,105)
(667)
(3,189) 78,747 5,114 75,654 153
14,478
153
14,478
Profit/(loss) before income tax and non-recurring items
(3,342)
64,269
4,961
61,176
Non-recurring items – income
8
48,476
7,956
48,476
14,403
Non-recurring items – costs
8
(9,851)
(51,610)
(10,078)
(38,961)
Total non-recurring items
38,625
(43,654)
38,398
(24,558)
Profit before income tax
35,283
20,615
43,359
36,618
9
66
(2,826)
(238)
(954)
Net profit for the period
35,217
23,441
43,597
37,572
Profit attributable to shareholders of the parent company
35,217
23,441
43,597
37,572
Income tax expense (benefit)
10
–
The above Income Statement should be read in conjunction with the accompanying notes. For and on behalf of the Board, who authorised the issue of these financial statements on 22 October 2009.
E R H GARDEN Chairman
R J SOMERVILLE Deputy Chairman
2009 Annual Report
23
BALANCE SHEET as at 31 August 2009
NZD IN THOUSANDS ($000)
NOTES
2009
PARENT CONSOLIDATED 2008
2009
2008
2,531
1,554
3,845
ASSETS – Current Assets Cash and cash equivalents
23
Derivative financial instruments
25
20,577
10,786
20,577
10,786
Trade and other receivables
14
111,863
171,058
105,439
158,407
Share of company superannuation scheme
593
–
7,222
–
7,222
Inventories
12
104,284
138,575
150,398
190,977
Livestock
13
26,416
3,149
26,416
3,149
–
164
218
360
15
7,200
–
7,200
–
16
191
12,175
191
12,175
271,124
345,660
311,993
386,921 884
Tax receivable
9
Available for sale financial assets Assets held for sale
Total Current Assets
ASSETS – Non-current Assets Available for sale financial assets
15
74
884
74
Investments in subsidiaries
29
71,553
71,553
–
–
Investment in associates
28
4,485
10
10,702
5,609
Property, plant and equipment
16
275,579
269,695
277,763
272,384
Intangible assets
27
2,645
2,896
2,665
2,907
Total Non-current Assets
354,336
345,038
291,204
281,784
Total Assets
625,460
690,698
603,197
668,705
LIABILITIES – Current Liabilities Bank overdraft
18
437
2,225
452
2,996
Derivative financial instruments
25
291
10,254
291
10,254
Trade and other payables
17
76,274
93,364
71,811
92,555
Provisions
20
14,972
29,002
15,094
29,108
8,543
8,543
Advances from subsidiaries
–
–
–
–
783
396
18
688
116,064
688
116,064
19
-–
50,780
–
50,780
101,205
310,232
Tax provision
9
Interest bearing loans and borrowings Bonds payable
Total Current Liabilities
89,119
302,153 10,932
LIABILITIES – Non-current Liabilities Provisions
20
11,340
10,931
11,340
Interest bearing loans & borrowings
18
108,183
332
108,183
332
Bonds payable
19
75,615
75,040
75,615
75,040
9
2,573
2,880
2,679
4,127
Total Non-current Liabilities Excluding Members’ Shares
197,711
89,183
197,817
90,431
Total Liabilities Excluding Members’ Shares
298,916
399,415
286,936
392,584
Net Assets Excluding Members’ Shares
326,544
291,283
316,261
276,121
Deferred income tax
Convertible redeemable preference shares
18,21
1,622
2,654
1,622
2,654
Supplier investment shares
21
24,754
23,937
24,754
23,937
Members’ ordinary shares
21
47,769
47,777
47,769
47,777
Total Members’ Shares
74,145
74,368
74,145
74,368
Net Assets
252,399
216,915
242,116
201,753
197,405
157,242
191,841
143,298
54,994
59,673
50,275
58,455
252,399
216,915
242,116
201,753
EQUITY – Equity Attributable to Equity Holders of the Parent Retained earnings Other reserves
22
Total Equity
The above Balance Sheet should be read in conjunction with the accompanying notes.
24
Silver Fern Farms
CASH FLOW STATEMENT for the year ended 31 August 2009 NZD IN THOUSANDS ($000)
PARENT NOTES
2009
2008
CONSOLIDATED 2009
2008
Cash flows from operating activities Receipts from customers Payments to suppliers and employees
2,031,703
1,902,802
2,065,388
1,931,077
(1,950,005) (1,799,072) (1,982,108) (1,837,133)
Interest received
297
278
299
Dividends received
552
90
552
Finance cost paid
(25,206)
(32,255)
(25,279)
Recovery from PGG Wrightson Ltd
30,000
–
30,000
–
Proceeds from wind up of company superannuation scheme
7,222
–
7,222
–
Tax refund received (Tax paid)
58
–
(414)
–
94,621
71,843
95,660
61,771
Net cash flows from operating activities
11
300 90 (32,563)
Cash flows from investing activities Proceeds from sale of property, plant and equipment
13,779
21,900
15,333
42,870
Proceeds from sale of investments
810
110
810
Purchase of property, plant and equipment and intangibles
(32,966)
(19,986)
(35,454)
110
Movement in subsidiaries’ advances
–
8,543
–
Advance to associate
(400)
(433)
(400)
Investment in associate
(266)
–
(266)
–
Investment in subsidiary
(300)
–
–
–
Purchase minority interest in subsidiary
–
(2,120)
–
–
Net cash flows used in investing activities
(19,343)
8,014
(19,977)
20,856
(21,691) – (433)
Cash flows from financing activities Proceeds from/(to) the issue of shares
–
–
11,315
Bond repayment
(50,000)
11,315 –
(50,000)
–
Repayment of borrowings
(10,658)
(89,862)
(10,658)
Distributions paid
(11,700)
(404)
(11,700)
(484)
Rebate shares surrendered
(1,638)
(1,803)
(1,638)
(1,803)
Supplier investment shares surrendered
(403)
(254)
(403)
(254)
(91,896)
Redeemable preference shares redeemed
(1,032)
(67)
(1,032)
(67)
Net cash flows used in financing activities
(75,431)
(81,075)
(75,431)
(83,189)
Net increase (decrease) in cash and cash equivalents
(153)
(1,218)
252
(562)
Effects of exchange rate changes on the balance of cash
3
(13)
1
(220)
Cash and cash equivalents at the beginning of the year
306
1,537
849
1,631
Cash and cash equivalents at end of the year
156
306
1,102
849
held in foreign currencies
Represented by Cash
24
593
2,531
1,554
3,845
Bank overdraft
24
(437)
(2,225)
(452)
(2,996)
156
306
1,102
Cash at the end of the year
849
During the year the Parent and the Group have changed the classification of retentions paid from a financing activity to an operating activity. 2008 comparatives have been restated. The impact of the reclassification is to decrease operating cashflows by $47,884,000 (2008: $26,595,000) and increase financing cashflows by the same amount. For both the Parent and the Group, retentions paid are defined as a cash payment to suppliers for goods and services. This activity is primarily a revenue producing activity. NZ IAS 7 Cash Flow Statements, states this activity is required to be classified as part of operating activities. The above Cash Flow Statement should be read in conjunction with the accompanying notes.
2009 Annual Report
25
STATEMENT OF CHANGES IN EQUITY for the year ended 31 August 2009
PARENT Retained NZD IN THOUSANDS ($000) Earnings
Asset Revaluation Reserve
Total Equity
Opening balance at 1 September 2007
129,200
64,188
Movement resulting from sale of land and buildings
4,601
(4,601)
–
Deferred tax
–
86
86
Total income and expense for the period recognised directly in equity
193,388
4,601
(4,515)
86
Net profit for the period
23,441
–
23,441
Total income and expense for the period
28,042
(4,515)
23,527
At 31 August 2008
157,242
59,673
216,915
Opening balance at 1 September 2008
157,242
59,673
216,915
Movement resulting from sale of land and buildings
4,946
(4,946)
–
Deferred tax
–
267
267
4,946
(4,679)
267
Total income and expense for the period recognised directly in equity Net profit for the period
35,217
–
35,217
Total income and expense for the period
40,163
(4,679)
35,484
At 31 August 2009
197,405
54,994
252,399
CONSOLIDATED Retained NZD IN THOUSANDS ($000) earnings
Opening balance at 1 September 2007 Movement resulting from sale of land and buildings
Foreign Currency Reserve
Asset Revaluation Reserve Total
114,576
733
51,746
Minority Interest
167,055
(35)
Total Equity 167,020
(7,440)
–
7,440
–
–
–
Deferred tax
–
–
86
86
–
86
Fair value revaluation of land and buildings
–
–
744
744
–
Translation of foreign operations
–
(2,294)
–
(2,294)
–
Transfer minority interest to retained earnings
744 (2,294)
(1,331)
–
–
(1,331)
1,331
–
–
–
–
(1,296)
(1,296)
Total income and expense for the period recognised directly in equity
(8,771)
(2,294)
8,270
(2,795)
35
(2,760)
Net proft for the period
37,572
–
–
37,572
–
37,572
Total income and expense for period
28,801
(2,294)
8,270
34,777
35
34,812
28,801
(2,294)
8,270
34,777
–
34,777
–
–
–
35
35
Purchase minority interest
–
Attributable to: Equity holders of the parent Minority interest
Equity transactions Distributions
(79)
–
–
(79)
–
At 31 August 2008
143,298
(1,561)
60,016
201,753
–
201,753
Opening balance at 1 September 2008
143,298
(1,561)
60,016
201,753
–
201,753
4,946
–
(4,946)
–
–
-
Deferred tax
–
–
267
267
–
267
Translation of foreign operations
–
(3,501)
–
(3,501)
–
(3,501)
4,946
(3,501)
(4,679)
(3,234)
–
(3,234)
Net profit for the period
43,597
–
–
43,597
–
43,597
Total income and expense for the period
48,543
(3,501)
(4,679)
40,363
–
40,363
191,841
(5,062)
55,337
242,116
–
242,116
Movement resulting from sale of land and buildings
Total income and expense for the period
(79)
recognised directly in equity
At 31 August 2009
There have been no movements through the Available for Sale Reserve in either of the 2008 or 2009 financial years. The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.
26
Silver Fern Farms
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 August 2009
1 Corporate Information The financial statements of Silver Fern Farms Limited for the year ended 31 August 2009 were authorised for issue in accordance with a resolution of the directors on 22 October 2009. Silver Fern Farms Limited (the Parent) is registered under the Companies Act 1993 and the Co-operative Companies Act 1996. Silver Fern Farms Limited is an issuer for the purposes of the Financial Reporting Act 1993 and a listed issuer on the NZ Debt Exchange. The nature of the operations and principal activities of the Group are described in note 4.
2 Summary of Significant Accounting Policies a
Basis of preparation The financial statements have been prepared in accordance with generally accepted accounting practice (NZ GAAP) in New Zealand and the requirements of the Companies Act 1993 and the Financial Reporting Act 1993. The financial statements have also been prepared on an historical cost basis, except for land and buildings which are measured at fair value. Derivative financial instruments and available for sale financial assets have been measured at fair value. The financial statements are presented in New Zealand dollars and all values are rounded to the nearest thousand dollars ($000).
b
Statement of compliance The financial statements have been prepared in accordance with NZ GAAP. They comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable Financial Reporting Standards, as appropriate for profitoriented entities. These financial statements comply with International Financial Reporting Standards (‘IFRS’).
c
New accounting standards and interpretations Standards and interpretations that have recently been issued or amended but are not yet effective have not been adopted by the Group for the annual reporting period ending 31 August 2009. These are outlined below. Summary of Policy
Date standard becomes effective
Impact on Group financial report
Application date for Group
NZ IFRS 7 Financial Instruments: Disclosure (Amendments)
Requires fair value measurements to be disclosed by the source of inputs.
Periods beginning on or after 1/1/09
The amendments are expected to only affect the presentation of the Group’s financial statements.
1/9/09
NZ IFRS 8 Operating Segments
New standard replacing NZ IAS 14 Segment Reporting, which adopts a management approach to segment reporting.
Periods beginning on or after 1/1/09
No direct impact on the amounts included in the Group’s financial statements. The amendments may have an impact on the Group’s segment disclosures.
1/9/09
NZ IAS 1 Presentation of Financial Statements (Revised)
Introduces a statement of comprehensive income along with other presentation revisions.
Periods beginning on or after 1/1/09
The amendments are expected to only affect the presentation of the Group’s financial statements.
1/9/09
NZ IAS 23 Borrowing Costs (Revised)
All borrowing costs associated with a qualifying asset must be capitalised.
Periods beginning on or after 1/1/09
The amendments are expected to only affect the presentation of the Group’s financial statements.
1/9/09
NZ IAS 27 Consolidated and Separate Financial Statements (Amendments)
Requires all dividends from a subsidiary, jointly controlled entity or associate to be recognised in profit or loss in its separate financial statements. The distinction between pre- and postacquisition profits is no longer required. Payment of such dividends require the entity to consider whether there is an indicator of impairment.
Periods beginning on or after 1/1/09
The Group does not expect these amendments to impact the financial statements of the Group.
1/9/09
NZ IAS 32 Financial Instruments: Presentation (Amendments)
Requires certain puttable financial instruments and obligations arising on liquidation to be classified as equity if certain criteria are met.
Periods beginning on or after 1/1/09
The Group does not expect these amendments to impact the financial statements of the Group.
1/9/09
2009 Annual Report
27
d
Basis of consolidation – Purchase Method
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
The consolidated financial statements comprise the financial statements of Silver Fern Farms Limited its subsidiaries and associates as at each period end (‘the Group’). Subsidiaries are all those entities over which the Group has the power to govern the financial and operating policies so as to obtain benefits from their activities. A list of subsidiaries appears in note 29 to the financial statements. The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.
All exchange differences in the consolidated financial statements are taken to the income statement for the period.
iii Foreign operations On consolidation, the assets and the liabilities of the Group’s overseas operations are translated into the presentation currency of Silver Fern Farms Limited at the exchange rates prevailing at the reporting date. Income and expense items are translated at the average exchange rates for the period. The exchange differences arising on the retranslation are taken directly to the foreign currency translation reserve, a separate component of equity.
In preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit and losses resulting from intra-group transactions have been eliminated in full. Investments in subsidiaries are accounted for at cost in the parent company financial statements. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group.
On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement.
g
Minority interests not held by the Group are allocated their share of net profit after tax in the income statement and are presented within equity in the consolidated balance sheet, separately from parent shareholder’s equity.
e
Business combinations The purchase method of accounting is used to account for all business combinations regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the combination. Except for non-current assets or disposal groups classified as held for sale (which are measured at fair value less costs to sell), all identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of the business combination over the net fair value of the Group’s share of the identifiable net assets is recognised as goodwill.
For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. Bank overdrafts are included within interest bearing loans and borrowings in current liabilities on the balance sheet.
h
Foreign currency translation
i
Functional and presentation currency Both the functional and presentation currency of Silver Fern Farms Limited and its New Zealand subsidiaries is New Zealand dollars ($). Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.
ii
Transactions and balances Foreign currency transactions are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rates of exchange ruling at the balance sheet date.
28
Silver Fern Farms
Trade and other receivables Accounts receivable is classified as a “loans and receivable” financial asset. Trade receivables, which generally have 30 – 90 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An allowance has been made for estimated impairments when there is objective evidence that the Group will not be able to collect the receivable. This is determined by reference to past default experience and certain other indicators that the receivable may be impaired, such as financial difficulties of the debtor or default payments or debts more than 60 days overdue. Trade receivables are monitored on a weekly basis by sales account managers. Individual debts that are known to be uncollectible are written off when identified.
If the cost of acquisition is less than the Group’s share of the identifiable assets of the subsidiary, the difference is recognised as a gain in the income statement, but only after a reassessment of the identification and measurement of the net assets acquired.
f
Cash and cash equivalents Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Cash and bank balances are categorised as a “fair value through profit and loss” asset.
i
Inventories Inventories are valued at the lower of cost and net realisable value. Cost is calculated on the first-in-first-out basis. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. The cost of meat and associated products includes the price of livestock, plus processing and other expenses incurred to bring it to a saleable condition and location. Costs include direct and indirect overheads.
j
Livestock (biological assets)
i
Livestock consists of sheep and cattle. The group purchases sheep and cattle for the following purposes: Lambplan/Beefplan – Lambs and cattle are purchased from breeders and are placed with finishers until they reach optimal weights. Finishers are paid on a liveweight gain basis as livestock is delivered within specification for processing. Other – Additional sheep and cattle are farmed on land owned or leased by Silver Fern Farms adjacent to processing facilities. Livestock is valued at fair value which is the prevailing market price less any point of sale costs, and resulting gains or losses are recognised in profit and loss. Point of sale costs include any necessary costs to dispose of livestock, excluding costs incurred to get the livestock to market.
k
ii
iii
Derivatives are initially recognised at fair value on the date the derivative contract is entered into, and are subsequently remeasured to fair value. Derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative. Derivatives are classified as a “fair value through profit and loss” financial asset or liability.
The fair value of investments that are actively traded in organised financial markets are determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments with no active market, fair values are determined using valuation techniques. Such techniques include: using recent arm’s length market transactions; reference to the current market value of another instrument that is substantially the same; discounted cash flow analysis and option pricing models making as much use of available and supportable market data as possible and keeping judgemental inputs to a minimum.
Any gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss for the year.
Non-current assets held for sale
An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of derecognition.
m
Investments and other financial assets Investments and financial assets are categorised as either financial assets at fair value through profit or loss, loans and receivables, held-to- maturity investments, or available for sale financial assets. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets after initial recognition and, when allowed and appropriate, re-evaluates this designation at each financial year end. Financial assets are derecognised when the right to receive the cash flows from the financial assets has expired or been transferred.
Available for sale investments Available for sale investments are those non-derivative financial assets that are designated as available for sale or are not classified as any of the two preceding categories. After initial recognition available for sale investments are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is recognised in profit or loss.
Derivative financial instruments
Non-current assets and disposal groups are classified as held for sale and measured at the lower of their carrying amount and fair value less costs to sell if their carrying amount will be recovered principally through a sale transaction. They are not depreciated or amortised. For an asset or disposal group to be classified as held for sale, it must be available for immediate sale in its present condition and its sale must be highly probable.
Loans and receivables Loans and receivables include amounts due from the reserve account of the company superannuation scheme are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process.
The group enters into foreign currency forward exchange contracts and options to hedge trading transactions to reduce the exposure to fluctuations in foreign currency exchange rates.
l
Financial assets at fair value through profit and loss Financial assets classified as held for trading are included in the category ‘financial assets at fair value through profit or loss’. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term with the intention of making a profit. Derivatives are also classified as held for trading. Gains or losses on investments held for trading are recognised in profit or loss.
n
Investment in associates The Group’s investments in associates are accounted for under the equity method of accounting in the consolidated financial statements. The associates are entities in which the Group has significant influence and which is neither a subsidiary nor a joint venture. Under the equity method, the investment in the associate is carried in the consolidated balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the associates (in the parent balance sheet, investments in associates are carried at cost). Goodwill relating to an associate is included in the carrying amount of the investment and is not amortised. After the application of the equity method, the Group determines whether it is necessary to recognise any impairment loss with respect to the Group’s net investment in associates. The Group’s share of its associates post acquisition profits or losses is recognised in the income statement, and its share of post acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised in the parent entity’s income statement, while in the consolidated financial statements they reduce the carrying amount of the investment.
2009 Annual Report
29
Where reporting dates of the associate and the Group are different, financial statements have been prepared by the associate for the same reporting dates as the group. Both the group and the associates use consistent accounting policies.
Where there has been a change recognised directly in the associate’s equity, the Group recognises its share of any changes and discloses this, when applicable in the consolidated statement of changes in equity.
o
Property, plant and equipment Plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts is incurred. Similarly, when each major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement only if it is eligible for capitalisation. All other repairs and maintenance are recognised in profit or loss as incurred. Land and buildings are measured at fair value, based on periodic but at least five yearly valuations by external independent valuers who apply the International Valuations Standards Committee International Valuation Standards, less accumulated depreciation on buildings and less any impairment losses recognised after the date of the revaluation.
Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term. These assets are measured at cost. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term.
Land Improvements – 5 to 50 years
•
Buildings – 5 to 50 years
•
Plant and Equipment – 4 to 20 years
•
Motor Vehicles – 5 to 8 years
q
For an asset that does not generate largely independent inflows, the recoverable amount is determined for the cashgenerating unit to which the asset belongs. The recoverable amount is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
Revaluations Following initial recognition at cost, operational land and buildings are carried at a revalued amount which is the fair value at the date of the revaluation less any subsequent accumulated depreciation on buildings and accumulated impairment losses.
If the recoverable amount of an asset (cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.
Revaluations are performed on a five year cycle therefore land and buildings purchased inside the revaluation cycle are recognised at cost until they are subsequently revalued. Fair value is determined by reference to market-based evidence, which is the amount for which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction as at the valuation date.
r
Disposals
Trade payables and other payables are recognised at amortised cost. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the cost of goods and services. The amounts are unsecured and usually paid within 30 days of recognition.
Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the year the item is derecognised.
Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.
30
Silver Fern Farms
Trade and other payables Trade payables, other accounts payable and accrued expenses are recognised when the Group becomes obliged to make future payments resulting from the purchase of goods and services.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset.
p
Impairment At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).
Certain assets are depreciated on a diminishing value basis.
Group as lessor Leases in which the Group retains substantially all the risks and benefits of ownership of the leased assets are classified as operating leases.
Depreciation is calculated on a straight-line basis over the estimated useful life of the specific assets as follows: •
Group as lessee Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are included in the income statement as finance costs.
s
Intangible assets Intangible assets acquired separately or in a business combination are initially measured at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is recognised in profit or loss in the year in which the expenditure is incurred.
Silver Fern Farms Limited bonds are measured initially at fair value net of transaction costs. Subsequent to initial recognition, liabilities are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in the income statement over the period of the borrowing using the effective interest rate method. Interest expense is measured in the income statement using the effective interest rate method.
Intangible assets acquired are initially measured at cost. Following initial recognition, all intangible assets are carried at cost less accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful life and tested for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial year-end. Currently finite life intangible assets are amortised over a period of 3 to 4 years on a straight line basis. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for prospectively by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible asset. Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cashgenerating unit level. Such intangible assets are not amortised. The useful life of an intangible asset with an indefinite life is reviewed each reporting period to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for as a change in an accounting estimate and is thus accounted for on a prospective basis.
u
Interest-bearing loans and borrowings Loans and borrowings are measured initially at the fair value of the consideration received net of transaction costs. Subsequent to initial recognition, loans and borrowings are measured at amortised cost using the effective interest method which allocates the cost through the expected life of the loan or borrowing. Amortised cost is calculated taking into account any issue costs. Bank loans are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.
Provisions and employee leave benefits Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
Wages, salaries, annual leave and sick leave Liabilities for wages and salaries, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in respect of employeeâ&#x20AC;&#x2122;s services up to the reporting date. They are measured at the amounts expected to be paid when liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable.
Long service leave The liability for long service leave is recognised and measured in the balance sheet at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to the expected future wage and salary levels, experience of employee departures, and periods of service.
Research and software development costs Research costs are expensed as incurred. An intangible asset arising from development expenditure on an internal project is recognised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its development. Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure so capitalised is amortised over the period of expected benefit from the related project. The carrying value of an intangible asset arising from development expenditure is tested for impairment annually when the asset is not yet available for use, or more frequently when an indication of impairment arises during the reporting period.
t
Borrowing costs are expensed as incurred except when they are directly attributable to the acquisition or construction of a qualifying asset. When this is the case, they are capitalised as part of the cost of that asset.
v
Convertible redeemable preference shares The convertible preference shares exhibit characteristics of a liability, and are therefore recognised as a liability in the balance sheet. The convertible redeemable preference shares are measured initially at cost, being the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, these shares are subsequently measured at amortised cost using the effective interest method which allocates the cost through the expected life of the loan or borrowing. Amortised cost is calculated taking into account any issue costs.
w
Membersâ&#x20AC;&#x2122; ordinary shares The Co-operativeâ&#x20AC;&#x2122;s share capital includes the amount of shares issued to the members of the Co-operative. From time to time, existing members leave the Co-operative and new members join the Co-operative. Members who leave the Co-operative are entitled, after a length of time, to have their share capital amounts repaid to them. New members are required to subscribe to shares in the Co-operative. Silver Fern Farms Limited has two classes of ordinary shares: Rebate Shares, which are issued to suppliers who supply stock under Silver Fern Farms rebate system and Supplier Investment Shares, which are issued to all suppliers of stock to Silver Fern Farms (subject to certain restrictions).
2009 Annual Report
31
All ordinary shares have a nominal value of one dollar per share. Supplier Investment Shares are paid to ninety cents by the supplier with the balance of ten cents being paid by way of a dividend from retained earnings.
Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Rebate Shares carry full voting rights subject to the shareholder being a Current Supplier (as defined in Silver Fern Farms’ Constitution) at the time of voting. Supplier Investment Shares carry voting rights in relation to director elections only. Ordinary shares participate equally on winding up.
Deferred income tax liabilities are recognised for all taxable temporary differences except: •
The current maximum shareholding for Rebate Shares and Supplier Investment Shares is 17,500 and 15,000 respectively.
where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
•
when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Silver Fern Farms’ ordinary shares are eligible to receive a dividend subject to profitability, although any such dividend is likely to be restricted to fully paid Supplier Investment Shares. Rebate shareholders are eligible to receive a rebate based on the profit earned from stock supplied. Due to the Co-operative’s above obligations, the Co-operative share capital meets the definition of a financial liability as per NZ IAS 32: Financial Instruments Disclosure and Presentation, and hence, the issued and paid up capital is classified as a financial liability.
x
Segment reporting A business segment is a distinguishable component of the entity that is engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. Management has assessed the reportable business segments under NZ IAS 14 Segment Reporting. A geographical segment is a distinguishable component of the equity that is engaged in providing products or services within a particular economic environment and is subject to risks and returns that are different than those of segments operating in other economic environments.
y
Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:
i
Sale of goods Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be measured reliably. Risks and rewards are considered passed to the buyer at the time of shipment.
ii
Interest income Revenue is recognised as the interest accrues (using the effective interest rate). This is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset.
iii
Dividends Revenue is recognised when the shareholders’ right to receive the payment is established.
z
Income tax and other taxes Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.
32
Silver Fern Farms
Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax assets and unused tax losses can be utilised except: •
when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or
•
when the deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Income tax relating to items recognised directly in equity are recognised in equity and not in the income statement. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.
aa Other taxes
Revenues, expenses and assets are recognised net of the amount of GST except: •
When 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, which 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. Cash flows are included in the cash flow statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority as part of operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.
3 Significant Accounting Judgements, Estimates and Assumptions In applying the Group’s accounting policies, management continually evaluates judgements, estimates and assumptions based on experience and other factors, including expectations of future events that may have an impact on the Group. All judgements, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances available to management. Actual results may differ from the judgements, estimates and assumptions. Significant judgements, estimates and assumptions made by management in the preparation of these financial statements are outlined below:
i
Significant accounting judgements Recovery to deferred tax assets Deferred tax assets are recognised for deductible temporary differences as management considers that it is probable that future taxable profits will be available to utilise these temporary differences.
Estimate of useful lives of assets The estimation of useful lives of assets has been based on historical experience as well as manufacturers’ warranties (for plant and equipment), lease terms (for leased equipment) and turnover policies (for motor vehicles). In addition, the condition of the assets is assessed at least once a year and considered against the remaining useful life. Adjustments to useful life are made when considered necessary.
Stock margin calculation At each half and full year accounting period meat inventory is valued using the discounted selling price method. This method uses the last sales price, or committed sales price, and converts these factors back to New Zealand dollars, less expenses incurred to bring the inventory to a saleable location. A margin deduction is made from stock on hand based on the margin achieved on sales during the year.
4 Segment Information The Group’s primary segment reporting format is business segments as the Group’s risks and rates of return are affected predominantly by differences in the products produced. Secondary format is geographical segments. The operating businesses are organised and managed separately according to the nature of the products provided, with each segment representing a strategic business unit that offers different products and serves different markets. The meat segment is a producer of beef, lamb, mutton and venison products for the international and domestic market. The associated products segment produces by-products that are sold locally and internationally. Prices between business segments are set at an arm’s length basis in a manner similar to transactions with third parties.
Impairment of non-financial assets The Group assesses impairment of all assets at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. These include product performance, technology, economic and political environment and future product expectations. If an impairment trigger exists, the recoverable amount of the asset is determined. This involves value in use calculations which incorporate a number of key estimates and assumptions.
ii
Significant accounting estimates and assumptions Long service leave provision As discussed in note 2(u), the liability for the long service leave is recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at balance date. In determining the present value of the liability, attrition rates and pay increases through promotion and inflation have been taken into account.
2009 Annual Report
33
i
Business segments The following tables present revenue and profit information and certain asset and liability information regarding business segments for the years ended 31 August 2009 and 2008.
NZD IN THOUSANDS ($000) Meat
2009 Associated Associated Products Total Meat Products
2008 Total
Revenue Sales to external customers
1,661,340
340,274
2,001,614
1,601,971
Unallocated revenue
–
–
61,452
–
–
41,500
Share of associate income
–
–
1,105
–
–
667
2,064,171
2,004,987
Total consolidated revenue Result Finance costs
360,849 1,962,820
24,378
4,993
29,371
87,919
20,124
108,043
(20,133)
(4,124)
(24,257)
(26,356)
(6,033)
(32,389)
Members’ distributions
(153)
(14,478)
Profit before income tax and non-recurring items
4,961
61,176
Non-recurring items
38,398
(24,558)
Profit before income tax
43,359
36,618
Income tax expense/(benefit)
(238)
Net profit for the year
43,597
(954) 37,572
Assets and liabilities Investments in associates
7,766
2,936
10,702
5,609
–
5,609
Segment assets
552,649
39,846
592,495
539,588
123,508
663,096
Total assets
560,415
42,782
603,197
545,197
123,508
668,705
Segment liabilities
267,639
19,297
286,936
319,461
73,123
392,584
Total liabilities
267,639
19,297
286,936
319,461
73,123
392,584
Other segment information Capital expenditure
34,105
1,476
35,581
18,397
4,211
22,608
Depreciation and amortisation
23,655
1,024
24,679
21,991
5,034
27,025
7,492
1,715
9,207
Impairment losses
ii
–
–
–
Geographical segments The Group’s geographical segments are determined by the Group’s assets and operations. The following table presents revenue, expenditure and certain asset information regarding geographical segments for the years ended 31 August 2009 and 2008.
NZD IN THOUSANDS ($000) New Zealand Other
2009 Total New Zealand Other
2008 Total
Revenue Sales to external customers Unallocated revenue and share of associate income Total consolidated revenue
1,652,410 349,204
2,001,614
1,629,841
11,746
62,557
33,398
1,703,221 360,950
2,064,171
1,663,239
50,811
332,979 1,962,820 8,769
42,167
341,748 2,004,987
Other segment information 3,787
6,915
10,702
16
5,593
5,609
Segment assets
Investment in associate
562,339
30,156
592,495
608,714
54,382
663,096
Total assets
566,126
37,071
603,197
608,730
59,975
668,705
35,712
139
35,851
22,608
–
22,608
Capital expenditure
34
Silver Fern Farms
5 Other Revenue
PARENT NZD IN THOUSANDS ($000)
2009
2008
CONSOLIDATED 2009
2008
Interest revenue
298
278
299
300
Dividend revenue
552
90
21
90
Total other revenue
850
368
320
390
6 Other Income
PARENT NZD IN THOUSANDS ($000)
Rental revenue
2009
372
2008
313
CONSOLIDATED 2009
2008
372
313
Net foreign exchange gains
–
17,699
–
18,023
Net gain on disposal of available for sale investments
–
18
–
18
Gain on sale of property, plant and equipment
298
–
1,068
–
Sundry income
9,588
2,464
11,216
8,353
Total other income
10,258
20,494
12,656
26,707
7 Expenses
PARENT NZD IN THOUSANDS ($000)
2009
2008
CONSOLIDATED 2009
2008
Employee benefits expense Wages and salaries
262,254
288,500
270,473
Wages and salaries capitalised
(1,662)
(1,296)
(1,662)
299,249 (1,296)
Workers’ compensation costs
10,997
13,690
11,005
14,492
Superannuation costs
3,274
3,853
3,288
3,924
Total employee benefits expense
274,863
304,747
283,104
316,369
Finance costs Bank facility fees
4,800
4,636
4,800
4,640
Bank interest cost
13,746
18,651
13,819
18,986
Other interest cost
3,298
–
3,298
Interest in forward points
(8,519)
(4,166)
(8,519)
(4,166)
–
Bond interest cost and similar expenses
10,859
12,929
10,859
12,929
Total finance costs
24,184
32,050
24,257
32,389
330
Other operational expenses Audit fees
205
198
344
Bad debt expense
281
129
385
367
Energy costs
25,877
32,529
26,847
33,318
Internal freight
7,144
7,331
11,823
7,331
Leasing costs
3,234
4,152
3,536
4,152
Loss on sale of plant, property and equipment
91
51
(445)
1,202
Loss on fair value of financial instruments
339
–
339
–
Loss on foreign exchange
36,428
–
36,435
6 74
Management fee
–
57
–
Redundancy costs
718
–
718
–
Rental costs
2,810
3,083
3,455
4,021
Research and development
280
210
280
233
Write-down of assets
–
–
–
13
Other operating costs
222,819
215,485
228,893
222,033
Total other operational expenses
300,226
263,225
312,610
273,080
2009 Annual Report
35
8 Non-recurring items
PARENT NZD IN THOUSANDS ($000)
2009
2008
Gains on disposal
4,976
Settlement received from PGG Wrightson Ltd
42,000
Other income
CONSOLIDATED 2009
2008
7,956
4,976
14,403
–
42,000
1,500
–
1,500
–
Total income
48,476
7,956
48,476
14,403
Restructuring costs
767
–
4,568
767
Plant closure costs
–
165
527
Plant closure costs – terminating payments
–
22,682
Impairment of investments
4,800
–
4,800
Loss on disposal
3,984
–
3,984
Assets written down in value
300
24,195
–
9,207
Total expenses
9,851
51,610
10,078
38,961
Total non-recurring items income (expense)
38,625
(43,654)
38,398
(24,558)
–
6,907 165 22,682 – –
Settlement of PGG Wrightson Limited Liability The 2008 Annual Report Note 29 Events after the Balance Sheet date described a liability owed to the Company by PGG Wrightson (PGW) as a result of PGW’s inability to perform its obligations under an agreement to subscribe for a 50% shareholding in Silver Fern Farms Limited and enter into various related contracts. On 24 April 2009 Silver Fern Farms and PGW agreed terms of a full and final settlement following PGW’s default on the equity transaction agreed in 2008. PGW paid the Company $30m in cash and issued the Company ten million ordinary shares in PGW (fully paid and ranking equally with all other PGW shares on issue). At balance date the ten million ordinary shares in PGW have been recorded at market value. An impairment of $4,800,000 has been recognised within impairment of investments, reflecting the fall in value of the shares from $1.20 per share issue price to $0.72 per share market value.
9 Income Tax The major components of income tax expense are income statement, current income tax, deferred income tax and amounts charged or credited directly to equity.
PARENT NZD IN THOUSANDS ($000)
2009
2008
CONSOLIDATED 2009
2008
Income tax expense Current income tax charge Adjustments in respect of current income tax of previous years
243
–
1,210
624
–
108
(130)
108
Deferred income tax Relating to origination and reversal of temporary differences Income tax expense/(benefit) reported in the income statement
(177)
(2,934)
(1,318)
(1,686)
66
(2,826)
(238)
(954)
Amounts charged or credited directly to equity
36
Revaluation of buildings
(267)
(86)
(267)
(86)
Income tax expense reported in equity
(267)
(86)
(267)
(86)
Silver Fern Farms
Numerical reconciliation between aggregate tax expense recognised in the income statement and tax expense calculated per the statutory income tax rate. A reconciliation between the tax expense and the product of accounting profit before income tax multiplied by the Group’s applicable income tax rate is as follows:
PARENT NZD IN THOUSANDS ($000)
2009
CONSOLIDATED
2008
2009
2008
Accounting profit/(loss) before non-recurring items and tax
(3,342)
64,269
4,961
61,176
Non-recurring items
38,625
(43,654)
38,398
(24,558)
Total accounting profit before income tax
35,283
20,615
43,359
36,618
At the parent entity’s statutory income tax rate of 30% (2008: 33%)
10,585
6,803
13,008
12,084
Adjustments in respect of current income tax of previous years
–
108
(130)
108
Interest, dividends and tax thereon
–
17
–
18
Capital gain on sale of asset
(2,361)
(3,332)
(2,361)
Non-deductible loss on sale of buildings
837
1,146
837
1,146
Non-deductible entertainment expenditure, legal expense and rebates
506
1,588
506
1,588
Other non-deductibles
(10,973)
7,719
(10,973)
5,296
Non assessable investment in associate
(450)
–
(450)
–
Attributable foreign income
(3)
–
(3)
–
Write off of foreign withholding tax
243
–
–
–
(16,875)
–
(19,840)
Losses not recognised for deferred tax
–
–
–
1,978
Other differences
1,682
–
(672)
–
Aggregate income tax expense
66
(2,826)
(238)
Utilisation of previously unrecognised losses
(3,332)
–
(954)
Recognised deferred tax assets and liabilities
2009
NZD IN THOUSANDS ($000)
Opening asset/(liability) Charged to income Charged to equity Other payments/movements
Current Income Tax
2009
Deferred Income Tax
2008
Current Income Tax
PARENT 2008
Deferred Income Tax
2009
Current Income Tax
CONSOLIDATED 2008 2008
2009
Deferred Income Tax
Current Income Tax
Deferred Income Tax
164
(2,880)
272
(5,899)
(36)
(4,127)
387
(5,899)
(243)
177
(108)
2,933
(1,080)
1,318
(732)
1,686
–
267
–
86
–
267
–
86
(137)
–
–
551
309
–
79
(137)
Closing asset/(liability)
–
(2,573)
164
(2,880)
(565)
(2,679)
(36)
(4,127)
Tax expense in income statement
–
66
–
(2,826)
–
(238)
–
(954)
Amounts recognised in the balance sheet: Deferred tax asset
–
Deferred tax liability
– (18,249)
15,676
– (16,512)
– (18,355)
– (17,759)
Closing asset/(liability)
–
–
–
–
(2,573)
–
13,632 (2,880)
–
15,676 (2,679)
–
13,632 (4,127)
2009 Annual Report
37
Deferred income tax at 31 August 2009 relates to the following: BALANCE SHEET
PARENT
NZD IN THOUSANDS ($000)
CONSOLIDATED 2009
2008
2009
2008
i Deferred tax liabilities Property, plant and equipment
17,425
17,531
17,759
Fair value of promissory note recognised
824
16,512 –
824
–
Gross deferred tax liabilities
18,249
16,512
18,355
17,759
Set-off of deferred tax assets
(15,676)
(13,632)
(15,676)
(13,632)
Net deferred tax liabilities
2,573
2,880
2,679
4,127
ii Deferred tax assets
Livestock procurement provision
225
353
225
353
ACC provision
3,101
3,299
3,101
3,299
Bad debts provision
169
87
169
87
Restructure accruals
243
960
243
960
Annual/long service leave
4,120
3,724
4,120
3,724
IRD investigation adjustments
232
275
232
275
Stock provision
67
682
67
682
Bonus adjustment/administration provision
81
150
81
150
Livestock fair value adjustment
37
–
37
–
Other accruals
331
–
331
–
Losses carried forward
7,070
4,102
7,070
4,102
Gross deferred tax assets
15,676
13,632
15,676
13,632
Set-off of deferred tax liabilities
(15,676)
(13,632)
(15,676)
(13,632)
Net deferred tax assets
–
–
–
–
Unrecognised temporary differences At 31 August 2009, there are no unrecognised temporary differences associated with the Group’s investments in subsidiaries or associates, as the Group has no liability for additional taxation should unremitted earnings be remitted (2008: $nil).
10 Members’ Distributions Paid and Proposed NZD IN THOUSANDS ($000)
PARENT AND CONSOLIDATED 2009
2008
Recognised amounts Declared and paid during the year: Dividends on redeemable preference shares
127
166
Dividends on supplier investment shares
–
2,560
Rebate shares issued
26
11,752
Total members’ distributions paid and proposed
153
14,478
PARENT
NZD IN THOUSANDS ($000)
2009
2008
Balance at beginning of the year
40,358
40,133
Imputation credits attached to dividends received during the year
–
29
Income tax payments during the year
–
–
Other adjustments
(591)
198
Imputation credit balance
38
Resident withholding tax interest received
–
Income tax refund during the year
(72)
Imputation credits attached to dividends paid during the year
(1,318)
–
Bonus adjustment/administration provision
–
–
Losses carried forward
–
–
Balance at end of the year
38,377
Silver Fern Farms
– (2)
40,358
At balance date the imputation credits available to the shareholders of the parent were:
NZD IN THOUSANDS ($000)
PARENT
2009
2008
Through direct shareholding in the parent
38,377
40,358
Through indirect interest in subsidiaries
170
170
11 Cash Flow Statement Reconciliation
Reconciliation from the net profit after tax to the net cash flows from operations
NZD IN THOUSANDS ($000)
Net profit for the period
PARENT 2009
35,217
2008
23,441
CONSOLIDATED 2009
2008
43,597
37,572
Adjustments for: Depreciation and amortisation
24,197
26,043
24,679
27,025
Non cash portion bond interest
802
307
802
308
Foreign exchange movements in cash
–
13
–
220
PGG Wrightson Ltd shares in settlement
(12,000)
–
(12,000)
–
Impairment of investments
5,100
–
4,800
–
Non-cash investment in associate
(1,500)
–
(1,500)
–
Interest accrual
1,622
–
1,622
–
Net (gain)/loss on disposal of property, plant and equipment
268
(7,956)
46
(12,699)
Net (gain)/loss on changes in fair market value of derivatives
(19,755)
(2,913)
(19,755)
(2,913)
Write down of land and buildings
–
6,912
–
6,912
Company superannuation contributions
–
810
–
810
Gain on sale of shares
–
(18)
–
(18)
Movement in minority interest
–
–
–
35
Research and development charge - associate
–
130
–
130
Share of associate income
–
–
(617)
(667)
Members’ distribution
153
2,962
153
2,962
Write-down/(reversal of impairment) of investment in subsidiary and associate
(1,059)
12,180
(1,059)
–
33,045
61,911
40,768
59,677
Changes in assets and liabilities: (Increase)/decrease in inventories
11,024
(17,298)
16,145
(59,495)
(Increase)/decrease in trade and other receivables
66,817
(13,041)
59,423
16,030
(Decrease)/increase in tax balance
124
(2,825)
(652)
(16,389)
43,096
(20,024)
46,512
61,576
9,932
54,892
2,094
Net cash flows from operating activities
94,621
71,843
95,660
61,771
(Decrease)/increase in provisions, trade and other payables
(953)
12 Inventories NZD IN THOUSANDS ($000)
PARENT 2009
2008
CONSOLIDATED 2009
2008
Meat and associated product inventory
93,519
130,068
139,633
182,470
Consumables and packaging
10,765
8,507
10,765
8,507
Total inventories
104,284
138,575
150,398
190,977
The amount expensed in other operating costs for obsolete packaging, including that resulting from Project Rightsize, was nil (2008: $533k) for the Parent and Group.
2009 Annual Report
39
13 Livestock
PARENT AND CONSOLIDATED
NZD IN THOUSANDS ($000)
2009
2008
Opening balance
3,149
3,758
Net movements in livestock
23,392
Changes in livestock fair value less estimated selling cost
(125)
–
Closing balance
26,416
3,149
(609)
Livestock consists of sheep and cattle. The Group purchases sheep and cattle through Lambplan and Beefplan as part of its normal operations and also carries livestock on its own works’ farms. Sheep and cattle are valued at fair value which is the market price for procurement. Lambplan and Beefplan are described in the accounting policy for livestock note 2(j). At the end of the year 145,246 (2008: 12,305) head of livestock were held.
14 Trade and Other Receivables
PARENT
NZD IN THOUSANDS ($000)
2009
2008
CONSOLIDATED 2009
2008
Trade receivables
57,544
108,754
83,550
142,658
Allowance for impairment loss
(562)
(292)
(658)
56,982
108,462
82,892
142,366
1,290
890
(292)
Related party receivables Associates
1,290
890
Subsidiaries
33,052
47,667
–
–
34,342
48,557
1,290
890
Other prepayments and receivables
20,539
14,039
21,257
15,151
Total trade and other receivables
111,863
171,058
105,439
158,407
Trade receivables are non-interest bearing and are generally on 30-90 day terms. An allowance has been made for estimated impairments from the sale of goods, determined by reference to past default experience. Included in the above balance is an amount receivable for vendor finance on a property that was sold during the year. The principal of the receivable will be received in August 2011, with interest payable quarterly from August 2010 at a rate of 12% per annum. The carrying amount of trade receivables disclosed above is a reasonable approximation of fair value.
a
Share of company superannuation scheme On 16 May 2008 the Board of Silver Fern Farms Limited resolved to wind up the company superannuation scheme. The superannuation scheme was terminated on 23 August 2008. It was resolved that the reserve account of the scheme would be split on a 50:50 basis amongst the members and the company. At balance date $7,222,000 due from the wind up of the superannuation scheme had been received, leaving no balance outstanding at 31 August 2009.
b
Allowance for impairment loss An impairment loss of $281,000 (2008: $315,000) and $385,000 (2008: $315,000) has been recognised by the Parent and Group respectively in the current year. These amounts have been included in the other expenses (note 7). Movements in the provision for impairment loss were as follows:
PARENT 2008
2009
Opening balance
292
582
292
582
Charge for the year
281
315
385
315
Amounts written off
(11)
(605)
(19)
(605)
Closing balance
562
292
658
292
40
CONSOLIDATED
NZD IN THOUSANDS ($000)
Silver Fern Farms
2009
2008
At 31 August, the aging analysis of trade receivables is as follows: NZD IN THOUSANDS ($000) Total
0 – 30 Days
31 – 60 Days
61 – 90 PDNI*
+91 Days PDNI*
2009 Consolidated
82,892 82,504
363
–
Parent
56,982 56,828
154
–
25 –
2008 Consolidated
142,366 113,952
22,091
4,885
1,438
Parent
108,462 81,814
20,903
4,431
1,314
* Past due not impaired (‘PDNI’). Receivables past due but not considered impaired are: Consolidated $25,000 (2008: $6,323,000); Parent ($nil) (2008: $5,745,000). Payment terms on these amounts have not been re-negotiated however credit has been stopped until full payment is made. Each operating unit has been in direct contact with the relevant debtor and is satisfied that payment will be received in full. Other balances within trade and other receivables do not contain impaired assets and are not past due. It is expected that these other balances will be received when due. The maximum exposure to credit risk is the fair value of receivables. Collateral is not held as security, nor is it the Group’s policy to transfer (on sell) receivables to special purpose entities. Detail regarding foreign exchange exposure and interest rate risk exposure is disclosed in note 23.
15 Available For Sale Financial Assets
PARENT AND CONSOLIDATED
NZD IN THOUSANDS ($000)
2009
2008
At fair value Shares – New Zealand unlisted
74
884
Shares – New Zealand listed
7,200
–
Total available for sale financial assets
7,274
884
Current
7,200
–
Non-Current
74
884
Total available for sale financial assets
7,274
884
Available for sale financial assets consist of investments in ordinary shares, and therefore have no fixed maturity date or coupon rate. The fair value of unlisted available for sale investments has been estimated based upon an assessment of the underlying net asset value of the company and its future prospects. The fair value of listed available for sale investments has been determined directly by reference to published price quotations in an active market.
16 Property, Plant and Equipment a Reconciliation of the carrying amounts at the beginning and end of the period PARENT NZD IN THOUSANDS ($000) Land Buildings
Plant and Equipment Vehicles
Work in progress
Total
Year ended 31 August 2009 At 1 September 2008, net of accumulated depreciation
39,461
119,807
97,157
707
12,563
269,695
Additions
1,083
10,408
24,032
189
–
35,712
Disposals
(38)
(531)
(12,845)
(1,328)
–
(14,742)
–
–
–
–
(5,622)
(5,622)
1,072
–
–
–
–
(74)
(5,538)
(17,108)
(272)
(88)
10
180
11,058
1,296
–
12,544
41,514
124,326
102,294
592
6,853
275,579
51,680
225,464
365,079
7,061
6,853
656,137
(10,166) (101,138) (262,785)
(6,469)
Assets capitalised during the year Transfers (to)/from assets held for sale Depreciation charge for the year Depreciation on disposals At 31 August 2009, net of accumulated depreciation Cost or fair value Accumulated depreciation and impairment Net carrying value
41,514
124,326
102,294
592
1,072 (23,080)
– (380,558) 6,853
275,579
2009 Annual Report
41
b
Reconciliation of the carrying amounts at the beginning and end of the period CONSOLIDATED NZD IN THOUSANDS ($000) Land Buildings
Plant and Equipment Vehicles
Work in progress
Total
Year ended 31 August 2009 At 1 September 2008, net of accumulated depreciation 39,124
99,061
943
12,563
272,384
Additions
3,340
8,606
23,654
251
–
35,851
Disposals
(38)
(639)
(13,624)
(1,774)
–
(16,075) (5,622)
Assets capitalised during the year
–
–
–
–
(5,622)
1,072
–
–
–
–
(74)
(5,599)
(17,391)
(329)
(88)
10
311
11,807
1,588
–
–
(20)
(47)
(15)
–
At 31 August 2009, net of accumulated depreciation 43,434
123,352
103,460
664
6,853
277,763
Cost or fair value
224,240
372,532
7,226
6,853
664,682
(10,397) (100,888) (269,072)
(6,562)
Transfers (to)/ from assets held for sale Depreciation charge for the year Depreciation on disposals Exchange adjustment
Accumulated depreciation and impairment Net carrying value
c
120,693
53,831 43,434
123,352
103,460
664
1,072 (23,481) 13,716 (82)
– (386,919) 6,853
277,763
Reconciliation of the carrying amounts at the beginning and end of the period PARENT NZD IN THOUSANDS ($000) Land Buildings
Plant and Equipment Vehicles
Work in progress
Total
Year ended 31 August 2008 At 1 September 2007, net of accumulated depreciation 50,985
130,216
112,190
1,082
13,370
Additions
1,430
4,685
15,254
102
–
Disposals
(5,109)
(7,805)
(18,147)
(903)
(496)
(32,460)
Transfers (to)/ from assets held for sale
(7,773)
(1,945)
(2,457)
–
–
(12,175)
–
–
(6,912)
–
–
(6,912)
(149)
(5,940)
(17,948)
(394)
(311)
(24,742)
77
596
15,177
820
–
16,670
At 31 August 2008, net of accumulated depreciation 39,461
119,807
97,157
707
12,563
269,695
Cost or fair value
214,774
355,424
8,200
12,563
640,740
(94,967) (258,267)
(7,493)
Impairment Depreciation charge for the year Depreciation on disposals
Accumulated depreciation and impairment Net carrying value
d
49,779 (10,318) 39,461
119,807
97,157
707
307,843 21,471
– (371,045) 12,563
269,695
Reconciliation of the carrying amounts at the beginning and end of the period CONSOLIDATED NZD IN THOUSANDS ($000) Land Buildings
Plant and Equipment Vehicles
Work in progress
Total
Year ended 31 August 2008 At 1 September 2007, net of accumulated depreciation 53,828
134,065
115,069
1,373
13,370
Additions
1,430
4,897
15,786
186
–
Disposals
(8,316)
(13,756)
(27,986)
(1,608)
Transfers (to)/ from assets held for sale
(7,773)
(1,945)
Impairment Depreciation charge for the year
–
(2,457)
–
–
(6,912)
–
–
(149)
(6,129)
(18,470)
(501)
Depreciation on disposals
77
3,534
23,893
1,493
Exchange adjustment
27
27
138
At 31 August 2008, net of accumulated depreciation 39,124
120,693
99,061
Cost or fair value
222,019
Accumulated depreciation and impairment Net carrying value
42
–
Silver Fern Farms
(332)
(475)
317,705 22,299 (51,998) (12,175) (6,912) (25,724)
–
28,997
–
192
943
12,563
272,384
357,351
8,765
12,563
651,200
(11,378) (101,326) (258,290)
(7,822)
50,502 39,124
120,693
99,061
–
943
– (378,816) 12,563
272,384
e
Assets held for sale
PARENT / CONSOLIDATED
NZD IN THOUSANDS ($000)
Cost/ Accum. Valuation Deprec. Writedown
Freehold land (at valuation)
2009 Book Cost/ Accum. Value Valuation Deprec. Writedown
2008 Book Value
191
–
–
191
7,788
(15)
–
7,773
Freehold buildings (at valuation)
–
–
–
–
3,484
(1,539)
–
1,945
Plant and equipment
–
–
–
–
8,370
(5,132)
(781)
2,457
Vehicles
–
–
–
–
–
–
–
–
191
–
–
191
19,642
(6,686)
Total assets held for sale
f
PARENT/CONSOLIDATED
(781) 12,175
Impairment
PARENT/CONSOLIDATED
PARENT/ CONSOLIDATED
NZD IN THOUSANDS ($000)
2009
2008
Impairment loss recognised
–
6,912
The impairment recognised in 2008 related to plant and equipment identified as a result of Project Rightsize. An independent valuation was obtained to determine fair value. All impaired plant and equipment was sold during the year which crystallised the impairment loss. Land and buildings were valued by an independent valuer, F Spencer BBS (VPM) SPINZ, ANZIV, AREINZ of Logan Stone, with an effective date of 1 September 2006. If land and buildings were measured using the cost model the carrying amounts would be as follows: NZD IN THOUSANDS ($000)
g
PARENT 2009
2008
CONSOLIDATED 2009
2008
Cost
222,471
199,959
223,913
200,741
Accumulated depreciation
(111,303)
(113,072)
(111,841)
(113,305)
Net carrying amount
111,168
86,887
112,072
87,436
Carrying value of plant and equipment under finance leases The carrying value of plant and equipment held under finance leases and hire purchase contracts at 31 August 2009 is $531,000 (2008: $575,000).
h
Expenditure recognised in the course of construction Included in Work in Progress at 31 August 2009 is an amount of $4,158,000 (2008: $1,700,000) relating to buildings and site developments currently under construction.
17 Trade and Other Payables NZD IN THOUSANDS ($000)
PARENT 2009
2008
CONSOLIDATED 2009
2008
Trade payables
46,498
42,228
48,587
47,386
Other payables
21,060
42,555
23,224
45,169
Subsidiaries
8,716
8,581
–
–
Total trade and other payables
76,274
93,364
71,811
92,555
Trade payables are non-interest bearing and are normally settled on 30 day terms. Livestock purchases are paid in 6-11 days, except for 10% of the purchase price under the rebate system which is paid 120 days after purchase. Other payables are noninterest bearing and have an average term of 3 months. Interest payable is normally settled quarterly throughout the financial year.
2009 Annual Report
43
18 Interest Bearing Loans and Borrowings
PARENT
NZD IN THOUSANDS ($000)
CONSOLIDATED
Average Effective Interest Rate (%)
Maturity
11.36%
On demand
7.20%
On demand
–
–
–
771
Total overdrafts (current)
437
2,225
452
2,996
Current
146
145
146
145
2009
2008
2009
2008
Overdrafts NZ bank overdraft (9.5m) GBP bank overdraft (GBP 1.5m)
437
2,225
452
2,225
Current Obligations under finance leases Secured loan
4.51%
Current
542
–
542
–
Secured bank loan (USD 55.0m)
4.19%
Nov-08
–
78,014
–
78,014
Secured bank loan (EUR 9.0m)
5.99%
Nov-08
–
18,833
–
18,833
Secured bank loan (19.0m)
9.80%
Nov-08
–
19,000
–
19,000
South Taranaki District Council loan
7.50%
Apr-09
–
72
–
72
688 116,064
688
116,064
183
183
332
– 108,000
–
Total interest bearing loans and borrowings – current Non-current Obligations under finance leases Secured loan
4.51%
Sep-10
108,000
Total interest bearing loans and borrowings – non-current
108,183
332 332
108,183
332
Redeemable preference shares Redeemable preference shares
a
8.95%
Dec-11
1,622
2,654
1,622
2,654
Fair values and security The carrying amount of the Group’s current and non-current borrowings approximate their fair value. For interest rate, foreign exchange and liquidity risk, refer note 23. The Group grants to Westpac Banking Corporation, as security agent for the banking syndicate, a security interest in all of its personal property and a fixed charge over all of its non-personal property, as security for the due payment of the secured money and for the due performance and observance of, and compliance with, the secured obligations. The security interest and the fixed charge created by the deed are each first ranking charges except where the security agent otherwise consents in writing. Each group company jointly and severally guarantees to the security agent unconditionally and irrevocably the due payment of the secured money, and the due performance of, and compliance with, the secured obligations. Each group company acknowledges and agrees with the provisions set out in the terms the General Security deed.
b
Defaults and breaches There were no breaches of covenants as at 31 August 2009. The shareholders funds covenant was in breach at December 2008 as a result of the rapid decline of the New Zealand dollar against the US dollar and resulting mark to market adjustments on foreign exchange contracts. The non-compliance related only to banking facilities and not to either of the SFF020 or SFF030 Bonds on issue at the time. A waiver was received for this breach. During the 2008 financial year, the company received automatic bank waivers in the event that earnings over interest coverage ratios were not met up to and including 31 August 2008.
19 Bonds Payable NZD IN THOUSANDS ($000)
Average Effective Interest Rate (%)
Maturity
Bond issue SFF020 (50.0m)
9.00%
Mar-09
Bond issue SFF030 (75.0m)
11.35%
Dec-10
Total bonds payable Current
PARENT 2009 2008
– 50,780
CONSOLIDATED 2009 2008
–
50,780
75,040
75,615
75,040
75,615 125,820
75,615
125,820
75,615
–
50,780
Non-Current
75,615
– 50,780 75,040
75,615
75,040
Total bonds payable
75,615 125,820
75,615
125,820
The carrying amount of the Group’s current and non-current bonds payable approximate their fair value. For interest rate and liquidity risk, refer note 23.
44
Silver Fern Farms
During the 2008 financial year, the company received a waiver from the bond Trustee in the event that earnings over interest coverage ratios were not met up to and including 31 August 2008. During the 2008 financial year, the Earnings Before Interest and Taxation (EBIT) covenants in respect to the bank facilities and SFF020 bond were in breach until August 2008. The Earnings Before Interest, Taxation, Depreciation and Amortisation (EBITDA) ratio on the SFF030 bond however, was compliant from 29 February 2008. During the 2008 financial year, the SFF030 bond covenant was in breach and in accordance with the terms of the SFF030 bond issue the interest stepped up by 1.25% to 11.50% from 15 September 2007. Having satisfied the covenant at 29 February 2008 the interest rate then reverted to 10.25% from 15 March 2008. There was no change to interest applicable to the SFF020 bond as a result of the breach. There were no breaches of covenants as at 31 August 2009.
20 Provisions PARENT Accident NZD IN THOUSANDS ($000) Future Costs
Livestock Procurement Employee Provision Entitlements Restructuring
Total
At 1 September 2008
6,225
1,175
21,188
11,345
Arising during the year
343
750
2,035
600
39,933
Utilised
(1,343)
(1,175)
(2,700)
(11,334)
(14,517)
Excess provision released
–
–
(797)
–
(797)
At 31 August 2009
5,225
750
19,726
611
26,312
1,693
Current 2009
–
750
13,611
611
14,972
Non-Current 2009
5,225
–
6,115
–
11,340
Total provisions
5,225
750
19,726
611
26,312
Current 2008
–
1,175
16,482
11,345
29,002
Non-current 2008
6,225
–
4,706
–
10,931
Total provisions
6,225
1,175
21,188
11,345
39,933
CONSOLIDATED Accident NZD IN THOUSANDS ($000) Future Costs
a
Livestock Procurement Employee Provision Entitlements Restructuring
Total
At 1 September 2008
6,225
1,175
21,295
11,345
Arising during the year
343
750
2,050
600
40,040
Utilised
(1,343)
(1,175)
(2,700)
(11,334)
(14,502)
Excess provision released
–
–
(797)
–
(797)
At 31 August 2009
5,225
750
19,848
611
26,434
1,693
Current 2009
–
750
13,733
611
15,094
Non-Current 2009
5,225
–
6,115
–
11,340
Total provisions
5,225
750
19,848
611
26,434
Current 2008
–
1,175
16,588
11,345
29,108
Non-current 2008
6,225
–
4,707
–
10,932
Total provisions
6,225
1,175
21,295
11,345
40,040
Accident future cost provision The Group participates in the ACC Partnership Programme, Full Self Cover Plan. The provision for the future cost of accidents relates to the estimated future cost of accidents incurred by employees that the Group will have to bear. These payments are ongoing throughout the lifetime of the rehabilitation period.
ACC Partnership Programme: Overview Responsibilities and Accountabilities The General Manager Human Resources is responsible for the development and ongoing review of injury management policy and procedures in consultation with relevant parties. This includes the establishment and monitoring of the partnership programme contract with ACC and notification to them of changes in the Silver Fern Farms Limited injury management operations or personnel. Risks are managed by ensuring the manager has a working knowledge of the relevant legislation and information and communication requirements. Rehabilitation is managed as soon as practicable through liaising with treatment providers, claims administrators and the claimant.
2009 Annual Report
45
Assumptions and methodology used: The chain ladder is used to project the ultimate number of claims expected from each accident period using historic cumulative rations of claims. An approach called the Payments Per Claim Incurred (PPCI) Method has been used to determine suitable expected claim payment patterns for the average claim. In the development of Claim Payment Patterns and projecting claim payment liabilities the following economic assumptions have been made:
b
•
re valuation date claim inflation has been taken as 50% (2008: 50%) of movements in the Consumer Price Index (CPI) and P 50% (2008: 50%) of the movements in the Average Weekly Earnings (AWE) Index. This assumes that increases in claim costs are equally affected by general price increases and by wage increases.
•
Post valuation date claim inflation has been taken as 4% (2008: 4%) pa. Most claims are of a short to medium term duration and we are currently in an environment where inflation and wage increases are likely to run above the norm in the short to medium term.
•
T he Discount Rate used is 4.5% (2008: 6.8%) pa. This is approximately the average gross yield on Government Bonds of short to medium term duration consistent with the duration of the liabilities.
•
The actuarial assessment of the provision for future claims was prepared by Marcelo Lardies (BSc Hons) of AON New Zealand Limited, effective 31 August 2009. The assessment is dated 14 September 2009 (2008: 5 September 2008).
Employee entitlements Included in employee entitlements is wages and salaries payable, annual leave due and long service leave payable. Wages, salaries and annual leave are measured at the amounts expected to be paid when liabilities are settled. Long service leave is recognised at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. These provisions will reduce as the entitlements fall due. An independent actuarial valuation was undertaken as at 31 August 2009 to estimate the present value of long service leave. The present value of the long service leave obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. Two key assumptions used in calculating the liability include the discount rate and the salary inflation factor. Any changes in these assumptions will impact on the carrying amount of the liability. The interest rates on NZ Government bonds with terms of maturity that match closely to the estimated future cash outflows have been considered in determining the discount rate. The historical salary patterns have been considered in determining the salary inflation factor after obtaining advice from an independent actuary. The actuarial assessment of the provision for the long service leave liability was prepared by Greg R Lee (BSc FIA, Fellow of the New Zealand Society of Actuaries) of AON New Zealand Limited, effective 31 August 2009. The assessment is dated October 2009.
c
Other provisions The livestock procurement provision relates to incentive payments made in addition to schedule payments for certain classes of livestock. Payments are made on a six monthly basis and annual basis. The restructuring provision was established for restructuring costs relating to the reconfiguration of plants embarked upon under Project Rightsize. The residual in the restructuring provision will be utilised during the 2009/2010 financial year.
21 Members’ Shares Ordinary NZD IN THOUSANDS ($000) Shares
Balance as at 1 September 2007
49,581
Redeemable Preference Shares
Supplier Investment Shares
Total
2,720
12,876
65,177 11,450
Shares issued during the year
76
7
11,367
Shares surrendered
(1,880)
(73)
(306)
Balance as at 31 August 2008
47,777
2,654
23,937
(2,259) 74,368
Shares issued during the year
1,631
–
1,283
2,914
Shares surrendered
(1,639)
(1,032)
(466)
(3,137)
Balance as at 31 August 2009
47,769
1,622
24,754
74,145
Called / uncalled
46
47,769m Ordinary Shares of $1 each
47,769
–
–
47,769
Uncalled Shares
–
–
–
–
Issued and fully paid
47,769
–
–
47,769
Silver Fern Farms
Silver Fern Farms Limited has two classes of ordinary shares: Rebate shares which are issued to suppliers who supply stock under Silver Fern Farms Limited’s rebate system and Supplier Investment Shares, which are issued to all suppliers of stock to Silver Fern Farms (subject to certain restrictions). All ordinary shares have a nominal value of one dollar per share. Supplier Investment Shares are paid to ninety cents by the supplier with the balance of ten cents being paid by way of a dividend from retained earnings. Ordinary shares are currently classified as a financial liability as Silver Fern Farms does not have the unconditional right to refuse redemption. Rebate Shares carry full voting rights subject to the shareholder being a Current Supplier (as defined in Silver Fern Farms Limited’s constitution) at the time of voting. Supplier Investment Shares carry voting rights in relation to director elections only. Ordinary Shares participate equally on winding up. The maximum shareholding for Rebate Shares and Supplier Investment Shares is 17,500 (2008: 17,500) and 15,000 (2008: 15,000) respectively. Silver Fern Farms Limited’s ordinary shares are eligible to receive a dividend subject to profitability, although any such dividend is likely to be restricted to fully paid Supplier Investment Shares. Rebate shareholders are eligible to receive a rebate based on the profit earned from stock supplied. Redeemable Preference Shares were issued on 1 December 2002. A dividend of 6% (or as otherwise determined by the board) plus any available imputation credits, is paid on the anniversary of their issue. Redeemable Preference Shares may next be redeemed at the option of the holder on 1 December 2011 and every three years thereafter. Shareholders contribute to the company by way of $1 ordinary and $1 redeemable preference shares. Redeemable Preference Shares are currently finite and subject to a fixed term with rights of renewal. Refer to note 31 for details of changes to the Capital base of the company subsequent to balance date.
22 Reserves
Nature and purpose of reserves The asset revaluation reserve is used to record increments and decrements in the fair value of land and buildings to the extent that they offset one another. The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. The available for sale reserve is used to record increments and decrements in the fair value of available for sale financial assets such as shares.
23 Financial Risk Management Objectives and Policies The Group’s principal financial instruments, other than derivatives, comprise trade debtors, trade creditors, bank loans, redeemable preference shares, finance leases, and cash. The Group also enters into derivative transactions consisting principally of forward currency contracts. The purpose is to manage the foreign currency risks arising from the Group’s operations. It is, and has been throughout the period under review, the Group’s policy that no trading in financial instruments shall be undertaken. The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign currency risk and credit risk. The board reviews and agrees policies for managing each of these risks and they are summarised below. The Group also monitors the market price risk arising from all financial instruments. The Group’s accounting policies in relation to derivatives are set out in note 2k.
a
Interest rate risk Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. The Group’s exposure to market risk for changes in interest rates relates primarily to the Group’s long-term debt obligations. The Group’s policy is to manage its interest cost using a mix of fixed and variable rate debt. Interest rate swaps have not been used to manage interest rate risk. The Group’s policy is to keep between 30% and 100% of its borrowings at fixed rates of interest. At 31 August 2009, approximately 79% (2008: 46%) of the Group’s borrowings were at a fixed rate of interest. If interest rates on borrowings as at 31 August 2009 had fluctuated by plus or minus 0.5%, the effect would have been to increase or decrease the surplus after tax and equity for both the parent and group by $540,000 (2008: $738,000). At balance date, the Group had the following mix of financial assets and liabilities exposed to New Zealand variable interest rate risk that are not designated in cash flow hedges:
NZD IN THOUSANDS ($000)
Financial Assets Cash and cash equivalents
PARENT CONSOLIDATED
2009
2008
2009
2008
1,554
3,845
593
2,531
Financial Liabilities Bank overdrafts
(437)
(2,225)
(452)
(2,996)
Bank loans
(108,542)
(115,847)
(108,542)
(115,847)
Advance from subsidiary
(8,543)
(8,543)
–
Net exposure to interest rate risk
(116,929)
(124,084)
(107,440)
– (114,998)
2009 Annual Report
47
b
Foreign currency risk Foreign Currency Risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Group has exposure to foreign currency risk as a result of transactions denominated in foreign currencies arising from normal trading activities. Where exposures are certain, or able to be forecast with reasonable accuracy, it is the Group’s policy to hedge these risks as they arise. The Group uses foreign exchange contracts to manage these exposures. If exchange rates on the foreign currency balances of derivatives and other financial instruments as at 31 August 2009 had fluctuated by plus or minus 0.5%, the effect would have been to increase or decrease the surplus after tax by $447,000 (2008: $215,000) for both the Parent and the Group. The impact upon net exposures of other financial instruments is detailed below: CONSOLIDATED NZD IN THOUSANDS ($000)
AUD
CAD
EUR
GBP
JPY
SGD
USD
As at 31 August 2009 Cash
7
2
95
233
12
233
160
383
2,068
22,535
39,460
–
495
26,755
Foreign debt
–
–
–
–
–
–
Foreign payables – marine freight and commission
–
–
(1,307)
(925)
–
–
390
2,070
21,323
38,768
12
728
–
17,450
66,100
32,470
–
Debtors
Net exposure to currency risk Foreign exchange cover
– (1,521) 25,394
– 194,490
As at 31 August 2008 Cash Debtors
58
125
71
5
7
–
136
499
5,012
28,653
135
27
616
56,419
Foreign debt
–
–
(18,832)
–
–
– (78,014)
(2)
–
(1,367)
–
–
–
(6,084)
555
5,137
8,525
140
34
616
(27,543)
–
8,318
134,207
10,300
–
Foreign payables – marine freight and commission Net exposure to currency risk Foreign exchange cover
– 189,790
As part of Silver Fern Farms Limited’s normal business operations the company engages in forward exchange cover. This cover also manages the company’s foreign currency risk in relation to inventory.
c
Credit risk Credit risk is the risk that a third party will default on its obligation to the Group, causing the Group to incur a loss. Financial instruments which potentially subject the Group to credit risk consist of bank balances, accounts receivable, foreign exchange contracts and other instruments. The Group manages this risk by only trading with recognised, creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, trade and other receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. There are no significant concentrations of credit risk within the Group. The carrying amount of financial assets that would otherwise be past due or impaired, whose terms have been negotiated is $266,000 (2008 : $100,000). No collateral is held on the above amounts. At balance date, the Group had the following net financial assets and liabilities exposed to credit risk:
NZD IN THOUSANDS ($000)
d
2009
PARENT CONSOLIDATED 2008
2009
2008
Bank balances
156
306
1,102
849
Accounts receivable
111,863
171,058
105,439
158,407
Foreign exchange contracts
20,286
532
20,286
Amount due from superannuation scheme
–
7,222
–
7,222
Net exposure to credit risk
132,305
179,118
126,827
167,010
532
Liquidity risk Liquidity risk is the risk that Silver Fern Farms will encounter difficulty raising liquid funds to meet commitments as they fall due. Liquidity risk is managed to meet known and reasonable unforeseen funding requirements by arranging and structuring long term funding for the company from debt lenders and optimising flexibility and spread of debt maturity within the funding risk limits established by the treasury policy statement. Refer to note 24(b) for a contractual analysis of financial liabilities.
48
Silver Fern Farms
e
Price risk The Group is exposed to equity price risks arising from equity investments. Equity investments are held for strategic rather than trading purposes. The Group does not actively trade these investments. If equity prices had been 5% higher or lower the impairment for the year ended 31 August 2009 would have increased or decreased by $360,000 (2008: nil).
f
Capital management The company recognises its corporate and financial governance responsibilities for the efficient and prudent management of capital to ensure sufficient cashflow (internal or external) is available to execute business strategy and plans, despite potential periods of unfavourable cashflow movement whilst maximising shareholder returns and profitability of the business. Capital management includes consideration of appropriate levels of issued ordinary, rebate, supplier investment and redeemable preference shares, retained earnings and reserves together with bank and other borrowing initiatives. Capital optimisation is considered in light of industry â&#x20AC;&#x153;best practicesâ&#x20AC;? for a company the size and business type of Silver Fern Farms and the risk bearing ability and tolerance levels of the underlying business, shareholders and lenders. Financial risk management actions are undertaken to minimise the cost of funds through proactive interest rate risk management within approved treasury policy risk control limits that meet debt lender(s) and shareholder requirements. Certain capital requirements are imposed on the Company by the banking syndicate. Minimum Shareholder Funds and Debt to Equity ratios are regularly monitored. Refer to note 18b for details of breaches of these covenants in the current year.
24 Financial Instruments Detail of the significant accounting policies and methods adopted, including the criteria for recognition and the basis in which income and expenses are recognised, in respect of each class of financial asset and financial liability instrument, are disclosed in the Statement of Accounting Policies.
a
Categories of Financial Instruments
NZD IN THOUSANDS ($000)
Category
2009
PARENT CONSOLIDATED 2008
2009
2008
Financial Assets
Cash and bank
Fair value through profit and loss
593
2,531
1,554
3,845
Derivatives
Fair value through profit and loss
20,577
10,786
20,577
10,786
Trade & other receivables
Loans and receivables 111,863
178,280
105,439
Available for sale financial assets
Available for sale financial assets
7,274
884
7,274
884
140,307
192,481
134,844
181,144
Total financial assets
165,629
Financial Liabilities Bank overdraft
Fair value through profit and loss
Derivatives
Fair value through profit and loss
Trade & other payables
Recorded at amortised cost
Membersâ&#x20AC;&#x2122; shares
Recorded at amortised cost
Bonds payable
Recorded at amortised cost
Borrowings
437
2,225
452
2,996
291 76,274
10,254
291
10,254
93,364
71,811
92,555
74,145
74,368
74,145
74,368
75,615
125,820
75,615
125,820
Recorded at amortised cost
108,871
116,396
108,871
116,396
Total financial liabilities
335,633
422,427
331,185
422,389
Net Exposure
(195,326)
(229,946)
(196,341)
(241,245)
2009 Annual Report
49
b
Maturity Profile in Contractual Cashflow Order PARENT 6 months NZD IN THOUSANDS ($000) or less
Between 6 – 12 months
Between 1 – 5 >5 years years
Total
As at 31 August 2009 Financial Assets Cash and cash equivalents Derivatives
593
–
–
–
593
20,577
–
–
–
20,577
107,102
1,400
4,260
–
112,762
7,200
–
74
–
7,274
135,472
1,400
4,334
–
141,206
Bank overdraft
437
–
–
–
437
Derivatives
291
–
–
–
291
Trade and other receivables Available for sale financial assets Total financial assets Financial Liabilities
Trade and other payables
76,274
–
–
–
76,274
Secured loans
2,437
2,437
108,203
–
113,077
Bonds payable
3,844
3,844
78,843
–
86,531
Redeemable preference shares
1,622
–
–
–
1,622
Supplier investment shares
–
–
–
24,754
24,754
Members’ ordinary shares
–
–
–
47,769
47,769
Total financial liabilities
84,905
6,281
187,046
72,523
350,755
Net maturity
50,567
(4,881)
(182,712)
(72,523)
(209,549)
CONSOLIDATED As at 31 August 2009 Financial Assets Cash and cash equivalents Derivatives Trade and other receivables
1,554
–
–
–
1,554
20,577
–
–
–
20,577
100,678
1,400
4,260
–
106,338
7,200
–
74
–
7,274
130,009
1,400
4,334
–
135,743
Bank overdraft
452
–
–
–
452
Derivatives
291
–
–
–
291
Available for sale financial assets Total financial assets Financial Liabilities
Trade and other payables
50
71,811
–
–
–
71,811
Secured loans
2,437
2,437
108,203
–
113,077
Bonds payable
3,844
3,844
78,843
–
86,531
Redeemable preference shares
1,622
–
–
–
1,622
Supplier investment shares
–
–
–
24,754
24,754
Members’ ordinary shares
–
–
–
47,769
47,769
Total financial liabilities
80,457
6,281
187,046
72,523
346,307
Net maturity
49,552
(4,881)
(182,712)
(72,523)
(210,564)
Silver Fern Farms
PARENT 6 months NZD IN THOUSANDS ($000) or less
Between 6 – 12 months
Between 1 – 5 >5 years years
Total
As at 31 August 2008 Financial Assets Cash and cash equivalents Derivatives Trade and other receivables Available for sale financial assets Total financial assets
2,531
–
–
–
2,531
10,786
–
–
–
10,786
171,058
–
7,222
–
178,280
–
–
884
–
884
184,375
–
8,106
–
192,481
Financial Liabilities Bank overdraft
2,225
–
–
–
2,225
Derivatives
10,254
–
–
–
10,254
Trade and other payables
93,364
–
–
–
93,364
Secured loans
116,396
–
–
–
116,396
Bonds payable
6,094
56,094
86,531
–
148,719
Redeemable preference shares
–
–
2,654
–
2,654
Supplier investment shares
–
–
–
23,937
23,937
Members’ ordinary shares
–
–
–
47,777
47,777
Total financial liabilities
228,333
56,094
89,185
71,714
445,326
Net maturity
(43,958)
(56,094)
(81,079)
(71,714)
(252,845)
CONSOLIDATED
As at 31 August 2008 Financial Assets Cash and cash equivalents Derivatives Trade and other receivables Available for sale financial assets Total financial assets
3,845
–
–
–
3,845
10,786
–
–
–
10,786
158,407
–
7,222
–
165,629
–
–
884
–
884
173,038
–
8,106
–
181,144
Financial Liabilities NZ bank overdraft Derivatives Trade and other payables
2,996
–
–
–
2,996
10,254
–
–
–
10,254
92,555
–
–
–
92,555
Secured loans
116,396
–
–
–
116,396
Bonds payable
148,719
6,094
56,094
86,531
–
Redeemable preference shares
–
–
2,654
–
2,654
Supplier investment shares
–
–
–
23,937
23,937
Members’ ordinary shares
–
–
–
47,777
47,777
Total financial liabilities
228,295
56,094
89,185
71,714
445,288
Net maturity
(55,257)
(56,094)
(81,079)
(71,714)
(264,144)
As at 31 August 2009 the Parent and Group each reported financial liabilities in excess of financial assets. Over time, inventory that is not recorded as a financial asset will convert to trade receivables. Bank funding facilities will be rolled over at their expiry date. Longer term members’ ordinary shares, classified as financial liabilities by virtue of their terms of issue will remain on issue, convert to ordinary shares or be redeemed and replaced based on a shareholder’s livestock supply. The financial instruments in the table above are prioritised in order of payment. Members who leave the Co-operative are entitled, after a length of time, to have their share capital amounts repaid to them. This requires the recognition of the outstanding shares as a financial liability. Due to the uncertain timing of the surrender of shares, and the small levels of redemption each year, Members’ Ordinary Shares have been classified as having a maturity date of over five years.
c
Fair values of financial instruments Set out below is a comparison of carrying amounts and fair values of all of the Group’s financial instruments that are carried in the financial statements at other than fair values. The Fair Value for Members’ Ordinary Shares has been calculated by applying a discount factor of 10% (2008: 10%), with an estimated repayment date of 10 years (2008: 10 years). The carrying values of all other financial assets and financial liabilities recorded in the financial statements approximates their fair values. 2009 Annual Report
51
PARENT AND CONSOLIDATED NZD IN THOUSANDS ($000)
Carrying amount 2009 2008
Fair value 2008
2009
Financial liabilities Members’ ordinary shares
47,769
47,777
18,417
18,420
SFF030 Bonds
75,615
75,040
74,839
68,466
Silver Fern Farm bonds were issued and are redeemable at $1 per unit, however at balance date the fair value is represented by the market price as traded through the New Zealand Debt Securities market.
25 Derivative Financial Instruments NZD IN THOUSANDS ($000)
PARENT AND CONSOLIDATED 2009
2008
Current Assets Forward currency contracts
20,577
10,786
Current Liabilities Forward currency contracts Net derivative financial instruments
(291)
(10,254)
20,286
532
Derivative financial instruments are used by the Group in the normal course of business in order to hedge exposure to foreign exchange rates. The Group has entered into forward exchange contracts and options which are economic hedges but do not satisfy the requirements for hedge accounting.
Foreign currency risk Information regarding foreign currency risk exposure is set out in note 23.
Credit risk Credit risk arises from the potential failure of counterparties to meet their obligations at maturity of contracts. This arises on derivative financial instruments with unrealised gains. PARENT AND CONSOLIDATED NZD IN THOUSANDS ($000)
Sell USD / Buy NZD
Maturity 0 – 12 months
2009
Notional Amounts 2008
194,490
189,790
Average forward exchange rate 2009 2008
0.6306
0.7232
Sell NZD / Buy USD
Maturity 0 – 12 months
–
169,112
–
0.7327
Sell GBP / Buy NZD
Maturity 0 – 12 months
42,470
10,300
0.4056
0.3700
Sell CAD / Buy NZD
Maturity 0 – 12 months
17,450
8,318
0.7197
0.7326
Buy EUR / Sell NZD
Maturity 0 – 12 months
–
149,697
–
0.4906
Sell EUR / Buy NZD
Maturity 0 – 12 months
86,100
202,207
0.4575
0.4885
USD IN THOUSANDS ($000) Buy USD / Sell EUR
Maturity 0 – 12 months
–
74,000
–
0.7100
Buy EUR / Sell USD
Maturity 0 – 12 months
–
148,000
–
0.6891
These contracts are fair valued by comparing the contracted rate to the market rates for contracts with the same length of maturity. All movements in fair value are recognised in profit or loss in the period they occur.
26 Commitments and Contingencies a
Operating lease commitments – Group as lessee The Group has entered into commercial leases on certain motor vehicles and items of machinery, office space, processing and coolstore facilities where it is not in the best interest of the Group to purchase these assets. These leases have an average life of between 4 and 15 years with renewal terms included in the contracts. Renewals are at the option of the specific entity that holds the lease. There are no restrictions placed upon the lessee by entering into these leases. Future minimum rentals payable under non-cancellable operating leases as at 31 August are as follows:
NZD IN THOUSANDS ($000)
52
PARENT 2009
2008
CONSOLIDATED 2009
2008
Within one year
7,402
7,240
7,501
7,288
After one year but not more than five years
14,015
16,880
14,521
16,915
More than five years
10,789
11,956
10,896
11,956
Total operating lease commitments
32,206
36,076
32,918
36,159
Silver Fern Farms
b
Finance lease and hire purchase commitments
The Group has finance leases for various items of plant and machinery, these leases have no terms of renewal or purchase options and escalation clauses. Future minimum lease payments under finance leases and hire purchase contracts together with the present value of the net minimum lease payments are as follows: NZD IN THOUSANDS ($000) 2009
c
PARENT AND CONSOLIDATED 2008
Minimum payments
Minimum payments
Within one year
146
145
After one year but not more than five years
215
396
Total minimum lease payments
361
541
Less amounts representing finance charges
(32)
(64)
Present value of minimum payments
329
477
Operating lease commitments – Group as lessor The Group has entered into commercial property leases of the Group’s surplus office and manufacturing buildings. These properties held under operating leases are measured under the fair value model as the properties are held to earn rentals. These noncancellable leases have remaining non-cancellable lease terms of between one and six years. Future minimum rentals receivable under non-cancellable operating leases at 31 August are as follows:
PARENT
NZD IN THOUSANDS ($000)
d
2009
CONSOLIDATED
2008
2009
2008
Within one year
185
199
185
199
After one year but not more than five years
58
301
58
301
More than five years
–
–
–
–
Total operating lease commitments
243
500
243
500
Contingent asset At 31 August 2009 the Parent and Group had no contingent assets. At 31 August 2008 there was a contingent asset due from PGG Wrightson Limited. Refer note 8 for additional details of funds received.
e
Capital commitments At 31 August 2009 the Parent and Group have capital commitments of $7,890,000 (2008: $11,089,000) principally relating to the completion of operating facilities.
f
Contingent liabilities Silver Fern Farms Limited has the following contingent liabilities at 31 August 2009: Discounted bills of exchange for the Group and Parent at 31 August were $27,485,000 (2008: $31,781,000). Subsequent to balance date $24,910,000 (2008: $31,781,000) of cash has been received leaving discounted bills of $2,575,000 (2008: $nil) for the Group and Parent as at the date of these financial statements. At the end of the year the company had received various ACC claims which the company disputes. If the claims are pursued and are successful then the company will be liable, though the sum is currently non-quantifiable and has therefore not been provided for.
g
Guarantees The Group has the following bank guarantees at 31 August 2009: Details
Entity
Issuer
Stock Exchange bond
Parent
Westpac
NZSX
NZD $75,000
Shipping guarantee
Parent
HSBC
CMA CGM
USD $72,000
Parent
NZD $4,750,000
Guarantee of overdraft facility for SFF(UK) Limited
In favour of
Amount
HSBC
HSBC Bank PLC
Import guarantee
Subsidiary
RP Agency
GBP $40,000
Import VAT guarantee
Subsidiary
VAT Authority
EUR $38,000
2009 Annual Report
53
27 Intangible Assets
PARENT SOFTWARE
NZD IN THOUSANDS ($000)
2009
2008
GROUP SOFTWARE
2009
2008
Opening balance net of accumulated amortisation and impairment
2,896
3,092
2,907
3,092
Additions – internal development
1,271
1,105
1,323
1,116
Disposals
(21)
–
(21)
–
Amortisation
(1,522)
(1,301)
(1,565)
Amortisation on disposals
21
–
21
-–
Closing balance net of accumulated amortisation and impairment
(1,301)
2,645
2,896
2,665
2,907
Cost (gross carrying amount)
11,756
10,507
12,119
10,518
Accumulated amortisation and impairment
(9,111)
(7,611)
(9,454)
(7,611)
Net carrying amount
2,645
2,896
2,665
2,907
28 Investments in Associates The Group has ownership in the following companies: CONSOLIDATED
Principal Activity
Place of Incorporation
2009
2008
NZ Lamb Group New Zealand Lamb Company (North America) Limited Holding company New Zealand Lamb Holdings Limited
Sale of lamb
New Zealand
31.5%
31.5%
Canada
31.5%
31.5%
New Zealand Lamb Company Limited
Sale of lamb
Canada
27.2%
27.4%
Australian Lamb Company Limited
Sale of lamb
Canada
10.9%
10.9%
Australian Lamb Company, Incorporated
Sale of lamb
USA
10.9%
10.9%
New Zealand Lamb Co-operative, Incorporated
Sale of lamb
USA
29.0%
29.4%
New Zealand Lamb Processing, Incorporated
Sale of lamb
USA
37.7%
37.7%
Other Associates Robotic Technologies Limited
Manufacturing
Livestock Logistics Nationwide Limited Farm Brands Limited
a
New Zealand
50.0%
50.0%
Transport
New Zealand
50.0%
–
Processing
New Zealand
50.0%
–
Investment details
PARENT NZD IN THOUSANDS ($000)
2009
2008
CONSOLIDATED 2009
2008
7,709
5,593
57
16
Unlisted NZ Lamb Group
1,325
Robotic Technologies Limited
10
Livestock Logistics Nationwide Limited
–
Farm Brands Limited
3,150
Total investments in associates
4,485
– 10 – – 10
–
–
2,936
–
10,702
5,609
b
Movements in the carrying amount of the Group’s investment in associates CONSOLIDATED
54
NZD IN THOUSANDS ($000)
2009
2008
Opening balance
5,609
4,751
Share of profits of associate
1,105
667
New investments
3,150
–
Exchange revaluations
44
704
Partial reversal of impairment
1,059
–
Share of dividends
(531)
Increase/(decrease) in shareholding
266
Closing balance
10,702
Silver Fern Farms
– (513) 5,609
c
Summarised financial information The following table illustrates summarised financial information relating to the Group’s associates: CONSOLIDATED NZD IN THOUSANDS ($000)
2009
2008
Current assets
109,924
84,800
Non-current assets
18,671
15,342
Total assets
128,595
100,142
Current liabilities
73,770
44,408
Extract from the associates’ balance sheets:
Non-current liabilities
–
11,339
Total liabilities
73,770
55,747
Net assets
54,825
44,395
Share of associates’ net assets
15,005
10,970
Less impairments
(4,303)
(5,361)
Total investment in associates
10,702
5,609
Extract from the associates’ income statements: Revenue
519,950
435,942
Net Profit
4,558
3,308
Share of associates’ net profit
1,105
667
29 Related Party Disclosure a
Subsidiaries The consolidated financial statements include the financial statements of Silver Fern Farms Limited (the parent entity) and the significant subsidiaries listed in the following table.
b
NAME
Country of % Equity interest Incorporation 2009 2008
Richmond Group Holdings
New Zealand
100%
100%
Richmond (NZ) Singapore Pte Ltd
Singapore
100%
100%
Richmond New Zealand Ltd
UK
100%
100%
Silver Fern Farms NV
Belgium
100%
100%
Silver Fern Farms GmbH
Belgium
100%
100%
Venison Rotorua Limited
New Zealand
100%
100%
Farm Enterprises Limited
New Zealand
100%
100%
Waitotara Europe BV
New Zealand
100%
100%
Silver Fern Farms (UK) Limited
UK
100%
100%
B. Brooks (Norwich) Limited
UK
100%
100%
PPCS USA Inc
USA
100%
100%
Global Technologies Limited
New Zealand
100%
50%
Ultimate Parent Silver Fern Farms Limited is the ultimate New Zealand parent entity and the ultimate parent of the Group. Silver Fern Farms Limited is incorporated in New Zealand.
2009 Annual Report
55
c
Transactions with related parties The following table provides the total amount of transactions that were entered into with related parties for the relevant financial year (for information regarding outstanding balances on related party trade receivables and payables at year-end, refer to notes 14 and 17 respectively): PARENT 2009 2008 Purchases Purchases Sales to from Sales to from related related Other related related Other NZD IN THOUSANDS ($000) parties parties transactions parties parties transactions
Subsidiaries
309,647
–
– 287,348
–
–
–
–
–
–
–
8,543
Farm Enterprises Limited – advance to parent Farm Enterprises Limited – rent paid
–
–
–
–
–
210
Global Technologies Limited – forgiveness of debt
–
–
–
–
–
2,988
Directors – current
–
4,992
–
–
6,621
–
Directors – resigned during the year
–
3,776
–
–
532
–
97,610
–
400
44,770
317
–
Associates
The transactions with Directors are conducted on the same terms and conditions as all other suppliers.
Terms and conditions of transactions with related parties Sales to and purchases from related parties are made in arm’s length transactions at both normal market prices and normal commercial terms. There have been no guarantees provided or received for any related party receivables. Related party receivables are non interest bearing. There have been no related party bad debts throughout the year.
30 Key Management Personnel
Compensation for Key Management Personnel
PARENT CONSOLIDATED
NZD IN THOUSANDS ($000)
2009
2008
2009
2008
Short-term employee benefits
2,708
2,093
2,708
2,093
Directors’ fees
482
513
482
513
Contributions to defined contribution plans
23
208
23
208
The composition of the key management personnel group has changed during the current year.
31 Events After the Balance Sheet Date
Associates Restructure Effective 27 September 2009, certain companies in the NZ Lamb Group restructured their activities. The restructure results in Silver Fern Farms taking ownership in the new “Super Co-ops” which are the new vehicles for trading in USA and Canada. Silver Fern Farms was not required to provide additional capital as a result of the restructure.
Capital Raising Subsequent to year end, the deadline for the conversion of Rebate Shares and Suppliers Investment Shares to Ordinary Shares closed. 42.9 million shares were converted to Ordinary Shares and an additional $22,200,000, less transactions costs, was raised in new capital. The new Ordinary Shares will commence trading on the Unlisted Exchange on 27 October 2009.
Sale of PGG Wrightson Limited Shares On 15 October 2009 Silver Fern Farms sold 10,000,000 shares held in PGG Wrightson Limited for total consideration of $7,300,000.
32 Auditor’s Remuneration NZD IN THOUSANDS ($000)
Ernst & Young New Zealand: Audit/review of consolidated entities
PARENT CONSOLIDATED 2008
2009
2008
205
198
344
Ernst & Young New Zealand: Tax compliance
30
18
30
–
Ernst & Young New Zealand: Assurance related
115
28
115
72
Total remuneration to Ernst & Young
350
244
489
402
–
–
–
4
Total remuneration to auditors other than Ernst & Young
56
2009
Silver Fern Farms
330
AUDITOR’S REPORT To the Shareholders of Silver Fern Farms Limited We have audited the financial statements on pages 23 to 56. The financial statements provide information about the past financial performance of the company and group and their financial position as at 31 August 2009. This information is stated in accordance with the accounting policies set out on pages 27 to 33. This report is made solely to the company’s shareholders, as a body, in accordance with Section 205(1) of the Companies Act 1993. Our audit has been undertaken so that we might state to the company’s shareholders those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s shareholders as a body, for our audit work, for this report, or for the opinions we have formed. Directors’ Responsibilities The directors are responsible for the preparation of financial statements which comply with generally accepted accounting practice in New Zealand and give a true and fair view of the financial position of the company and group as at 31 August 2009 and of their financial performance and cash flows for the year ended on that date. Auditor’s Responsibilities It is our responsibility to express an independent opinion on the financial statements presented by the directors and report our opinion to you. Basis of Opinion An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial statements. It also includes assessing: • the significant estimates and judgements made by the directors in the preparation of the financial statements; and • whether the accounting policies are appropriate to the circumstances of the company and group, consistently applied and adequately disclosed. We conducted our audit in accordance with generally accepted auditing standards in New Zealand. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Ernst & Young provides taxation and other assurance services to the company and group. Unqualified Opinion We have obtained all the information and explanations we have required. In our opinion: • proper accounting records have been kept by the company as far as appears from our examination of those records; and • the financial statements on pages 23 to 56: • comply with generally accepted accounting practice in New Zealand; and • comply with International Financial Reporting Standards; and • give a true and fair view of the financial position of the company and group as at 31 August 2009 and their financial performance and cash flows for the year ended on that date. Our audit was completed on 22 October 2009 and our unqualified opinion is expressed as at that date.
Christchurch
2009 Annual Report
57
FIVE YEAR HISTORICAL SUMMARY as at 31 August 2009
NZD IN MILLIONS ($m)
NOTES
2009
2008
2007
Total income
2,014.6
1,989.9
1,846.2
2006
2005
Income Statement 2,027.6
2,029.7 31.6
Operating earnings before interest and tax (EBIT)
29.4
108.0
(6.6)
43.2
Net operating profit before tax
5.1
75.7
(36.9)
11.4
8.3
Non-recurring items
38.4
(24.6)
(31.9)
17.7
12.8
Income tax benefit
0.2
1.0
(7.1)
2.1
(1.3)
Net profit after tax
43.8
52.1
(75.7)
31.4
19.9
Less member distributions
(0.2)
(14.5)
(3.4)
(11.9)
(14.3)
Net profit after member distributions
43.6
37.6
(79.1)
19.5
5.6
603.2
668.7
658.9
762.1
741.5
Financial Position Total assets Net working capital
1
222.5
250.8
244.8
326.1
276.8
Net debt
2
183.4
241.4
332.2
393.2
381.0
316.3
276.1
232.2
261.8
237.1
95.7
61.8
85.4
35.2
19.5
Total equity including members’ shares Cash flow Net cash flows from operating activities Key Ratios EBIT to total income
3
1.5%
5.4%
-0.4%
2.1%
1.6%
Return on assets
4
4.9%
16.2%
-1.0%
5.7%
4.3%
Return on equity
5
13.8%
18.9%
-32.6%
12.0%
8.4%
Equity ratio
6
52.4%
41.3%
35.2%
34.3%
32.0%
NOTES: 1 Current assets less current liabilities (exclusive of net debt items) 2 Total interest bearing debt debt less cash and cash equivalents 3 EBIT / total income 4 EBIT / total assets 5 Net profit after tax / closing equity (including members’ shares) 6 Equity (including members’ shares) / total assets Certain comparatives within the five year historical summary have been reclassified for comparative purposes, to ensure consistency with the current year. The Group adopted NZ IFRS on 1 September 2007. Only information from 2007 onwards is compliant with NZ IFRS. In accordance with exemptions available under NZ IFRS 1, all previous information is compliant with previous NZ GAAP.
58
Silver Fern Farms
DIRECTORY
Board of Directors
Operations Centre
NZDX Listed Securities
• Eoin Garden Chairman
Silver Fern Farms Hastings Plunket Street, PO Box 940, Hastings 4156, New Zealand T: +64 6 872 6660 F: +64 6 872 6715
SFF030 (previously PPCS030) issued in December 2006 a total of $75 million bonds maturing December 2010.
• Trevor Burt
Innovation Centre
• Joe Ferraby
Silver Fern Farms Christchurch 199 – 201 Cashel Street, PO Box 283, Christchurch 8140, New Zealand T: +64 3 379 6900 F: +64 3 366 4412
Unlisted PO Box 5422 Lambton Quay Wellington 6145 T: 0508 UNLISTED (0508 865478)
• Richard Somerville Deputy Chairman • Tony Balfour
• Rob Hewett • Angus Mabin • Herstall Ulrich.
Senior Management • Keith Cooper Chief Executive • Kevin Winders Chief Financial Officer • Glenn Tyrrell Group Sales and Marketing Manager • Grant Howie Group Livestock Manager • Steve Murphy Group Operations Manager • Grant Pearson Group Innovation Manager
Head Office Silver Fern Farms Limited 218 George Street, PO Box 941, Dunedin 9054, New Zealand T: +64 3 477 3980 F: +64 3 474 1087 E: info@silverfernfarms.co.nz
Listed Securities
Share Registrar
Brent Melville T: +64 3 474 6595 E: brent.melville@silverfernfarms.co.nz
Link Market Services PO Box 91976 Auckland 1142 T: +64 9 375 5993 F: +64 9 375 5990
Website
Bondholder Enquiries
www.silverfernfarms.co.nz
Bond Registrar Computershare Investor Services Limited Private Bag 92119, Auckland 1020, New Zealand T: +64 9 488 8777 F: +64 9 488 8787 E: enquiry@computershare.co.nz
Group Communications
International Offices Silver Fern Farms has an international marketing network including offices or representatives in Belgium, Germany, Greece, Hong Kong, Italy, Japan, Korea, Middle East and UK. Contact details are available on the company’s website www.silverfernfarms.co.nz
Shareholder Enquiries For enquiries regarding Ordinary Shares, Supplier Investment Shares, Rebate Shares and Redeemable Preference Shares, contact: Silver Fern Farms Limited PO Box 941, Dunedin 9054, New Zealand T: 0800 362 362 F: +64 3 474 1087 E: shares@silverfernfarms.co.nz
Bankers The Hongkong and Shanghai Banking Corporation Limited Westpac New Zealand Limited Rabobank New Zealand Branch Commonwealth Bank of Australia The Bank of Tokyo-Mitsubishi UFJ Limited
Auditor Ernst & Young
Tax Advisors PricewaterhouseCoopers
Legal Advisors Harmos Horton Lusk
2009 Annual Report
59
62
Silver Fern Farms