Season Overview. Contents

Transcription

1 Annual Report /14

2 Season Overview /14 was the year Psa had the biggest impact on the New Zealand kiwifruit industry. Fruit and service payments were down 17 percent to $800.8 million due to a 55 percent fall in Gold volumes. However, the reduced volumes, combined with strong market pricing, resulted in grower returns at record or near-record levels across all categories. More broadly, this past year looks likely to have been the bottom of the Psa cycle with Gold3 looking positive on orchards volumes are projected to reach over 50 million trays by 2018 and orchard values recovering. This favourable position is backed up by a positive market outlook strong growth in developing economies, a growing global middle class and increasing demand for healthy food which presents significant long-term growth opportunities. New Zealand kiwifruit is the global category leader, thanks to our integrated industry model, which enables us to deliver a high-quality product reinforced by a leading brand. As the kiwifruit category leader, Zespri earns a significant premium over its competitors a premium which Zespri returns to its growers and shareholders each year. However, we compete not just in the kiwifruit category but across the global fruit industry and our challenge is to grow kiwifruit s share of the global fruit bowl. Our future is not without risk. We face continued pressure from the New Zealand dollar and volatility in the global economy, the ever-present threat of pests and diseases, and continued consolidation in global supply chains, which create both competitive and regulatory pressures. At orchard level, it is important that growers factor these risks into their business planning. At industry level, the best way for us to manage these risks is to retain and strengthen our integrated structure, as well as continually innovating to develop our branded, high-quality product offering. Contents Financial Highlights...1 Zespri Chairman & CEO s Report... 2 Industry Performance Zespri Alternative Revenue Statement New Zealand Pool Costs as a Percentage of Pool Revenue Corporate Governance...12 Financial Statements and Statutory Information Auditor s Report...17 Income Statements and Statements of Comprehensive Income Balance Sheets Statements of Changes in Equity...20 Statements of Cash Flows Notes to the Financial Statements Statutory Information Shareholder Information Directors Disclosures Employee Remuneration...68

3 Financial Highlights / /13 Variance New Zealand-grown fruit and service payments (including loyalty premium) $800.8 million $959.1 million (17%) Per tray supplied $9.26 $9.32 (1%) Net profit after tax $17.2 million $7.6 million 128% New Zealand-grown Orchard Gate Return (OGR) per hectare $49,385 (average) $51,153 (average) (3%) Green $42,659 $37,959 12% Organic Green $40,989 $34,846 18% Gold $90,813 $101,973 (11%) Green14 $25,438 $18,916 34% Equity $89.4 million $78.2 million 14% Dividend per share (cents) Interim Final Total Percentage of available profit 80% 84% Zespri global kiwifruit sales $1.349 billion $1.561 billion (23%) Export earnings (New Zealand-grown) $0.921 billion $1.100 billion (16%) Zespri global volume (trays sold) 97.3 million million (12%) New Zealand-grown 86.1 million million (15%) Green 68.9 million 70.4 million (2%) Organic Green 3.1 million 3.2 million (1%) Gold 11.1 million 24.6 million (55%) Green million 0.4 million (16%) Other 2.5 million 2.8 million (12%) Non-New Zealand-grown 11.2 million 8.8 million 27% Green 9.0 million 6.7 million 35% Gold 2.2 million 2.1 million 7% Financial Calendar Financial year-end: 31 March Annual Report circulated: 23 June Deadline for receipt of proxies for Annual Meeting: 1pm, 21 July Annual Meeting: 23 July Notice of Annual Meeting The Annual Meeting of Shareholders of Zespri Limited will take place at 1pm on Wednesday 23 July at Baycourt Theatre, Durham Street, Tauranga. Indicative dates for dividend payments: December (interim) and August (final) 1

4 Zespri Chairman & CEO s Report Peter McBride CHAIRMAN Lain Jager CHIEF EXECUTIVE OFFICER Annual Report for the year ended 31 March This past year, the New Zealand kiwifruit industry has delivered extraordinarily good results in the face of some very unfavourable factors. A 55 percent reduction in Gold volumes due to Psa and ongoing foreign exchange volatility cost the industry around $280 million. This was partially offset by strong pricing and a favourable market mix, which meant at an individual level growers received record or near-record returns. From last year, Green per-tray OGR is up 13 percent from $4.62 to $5.23 and Organic Green is up 14 percent from $6.18 to $7.07. Gold per-tray returns are at record levels $12.91 a tray, $90,813 a hectare due to the short supply this year with the changeover to Gold3. These strong returns are due to actions right across the supply chain growers delivering high-taste fruit that our consumers value, the lowest onshore fruit loss ever recorded for Green, solid post-harvest performance, and strong pricing and tailored marketing strategies in each of the 53 countries where we sell our fruit. With only around 500 hectares of Hort16A remaining at March, growers have grafted or planted more than 4,000 hectares of Gold3, showing their confidence in this new Gold variety. More than 60 percent of growers now grow a licensed variety. It is heartening to see a sense of optimism return to the industry after three tough years in the wake of Psa in New Zealand. However, Psa is now with us for the long term and there will be good and bad years with the disease. As an industry, we should be proud of how we have worked together to manage a dire threat to our shared future collective livelihoods. Results and global economic environment Despite continued economic pressure on consumers around the world, demand for our premium-branded Zespri Kiwifruit remains strong. A dry summer in 2012/13 delivered smaller-profile, high-taste fruit, that was well received around the world. Importantly, Gold3 was well received by markets and our learning over the past year positions us well to deliver great tasting fruit to markets in and beyond. On the supply side, the impact of Psa on Gold volumes was significant in /14. Gold volumes were down 55 percent from 24.6 million trays in 2012/13 to 11 million trays. With the majority of Hort16A growers grafted over to Gold3 and a significant number of growers also choosing to graft from Green to Gold3, we now have more than 4,000 hectares of this variety in the ground. This means that total Gold volumes are forecast to increase dramatically over coming seasons to build to 50 million trays by Green volumes were almost unchanged at 68.9 million trays in /14, slightly down from 70.4 million trays last year, with Organic Green volumes unchanged at 3.1 million trays. Orchard gate return per hectare OGR per hectare NZD ' / / / / / /13 /14 Green Organic Green Gold Green14 All figures are NZ IFRS figures Note: 2012/13 and /14 season results for Green14 and Gold reflect lower yields from new orchard production. 2 Zespri Annual Report /14

5 Zespri Chairman & CEO s Report (continued) Annual Report for the year ended 31 March Strong collaboration supported significant gains in supply chain efficiencies. Since 2009, the cost of quality has halved in fx-adjusted total dollar terms; $60.9 million has been saved over this period. On a per-tray basis, this is an average saving of 48 cents or 46 percent across all varieties and a standout 58 cents a tray for Green; this is significant and a major contributor to the increasing OGR over this period. Fruit loss was the lowest ever recorded in Europe and Japan. There are many contributors to this improvement, not the least being the shorter crop which allowed for sales to finish earlier than they did in previous years. However, there have been many incremental and significant improvements made across the supply chain, which have also contributed. These include: optimising the length of the selling season industry focusing on picking quality harvesting fruit for optimal storage improving coolchain management, particularly in New Zealand coolstores implementing more sophistication in New Zealand and in-market inventory management significantly enhancing and extending suppliers accountability for the quality of fruit being sold in Europe and Japan. Total volume was down 15 percent from million trays to 86.1 million trays. Following on from this, fruit and service payments were down 17 percent to $800.8 million from $959.1 million in 2012/13, with a significant part of this due to the reduction in Gold volume of 13.5 million trays and a drop of $252 million in overall revenue. The /14 corporate profit after tax is $17.2 millon, which is more than double the $7.6 million profit recorded in 2012/13. The previous year s profit was affected by a provision for a legal penalty in China and the effects of Psa funding. Collaborative marketing update Collaborative marketing continues to play an important role in the ongoing structure of the industry. In /14, 16 companies operated 20 market sales programmes, selling around 2 million trays of non-zespri New Zealand kiwifruit. Thirteen companies operated as sales agents for the Hayward and Hayward Organic grower pools for a mix of Zespri and own-branded programmes. Another three companies obtained export authorisation from Kiwifruit New Zealand to export their Gold PVR varieties to 10 locations. Zespri supports maximising the wealth of New Zealand kiwifruit growers, as well as innovation in cultivar development in New Zealand. Accordingly, we continue to support the role collaborative marketing plays in providing a channel to market third-party cultivars. Green quality costs (10yr average FX) Per submit tray $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $ Discounts Quality claims Condition checking Repacking Offshore fruit loss Repacking and condition checking Onshore fruit loss New Zealand-grown Total volume sold Tray equivalents (m) / / / / / / /13 /14 Green Organic Green Gold Other Green14 3

6 Zespri Chairman & CEO s Report (continued) Annual Report for the year ended 31 March Movements NZD per TE supplied Green OGR: vs 2008 $0.10 $0.25 $1.23 $ Season Price Mix Freight $0.08 $0.12 Promotion Other Costs $0.37 $0.08 Onshore Fruit Loss/ Other Income Loyalty Movements NZD per TE supplied $ Season FX Post-harvest costs $0.32 $0.19 $0.08 $0.22 Other Costs FX Onshore Fruit Loss/ Other Income Post-harvest costs $1.79 $0.65 $0.36 FX Onshore Fruit Loss/ Other Income Post-harvest costs season $7.07 $0.25 Price Gold OGR: vs 2008 Movements NZD per TE supplied -$0.07 $5.23 $0.45 Organic Green OGR: vs 2008 $0.31 $0.18 $5.27 Mix Promotion $0.74 $0.42 season $12.91 $0.87 $ Season Price Mix Promotion Other Costs season Movements NZD per TE supplied Green14 OGR: vs 2012 $3.03 $0.72 $0.64 $ Season Price 4 Zespri Annual Report /14 Mix Promotion $1.11 $0.12 $0.12 Other Costs FX Onshore Fruit Loss/ Other Income $0.09 Post-harvest costs $9.77 season

7 Zespri Chairman & CEO s Report (continued) Annual Report for the year ended 31 March /14 issues In the past few seasons, several non-compliance issues have arisen around the world in relation to the distribution of New Zealand kiwifruit. While these issues have primarily resulted from the improper actions of independent third parties, the Board is committed to ensuring that the Zespri reputation and business is not adversely affected by such types of incidents, and that the company and our business partners are legally compliant. This means improving internal processes and transparency of the legal obligations throughout the distribution chain to ensure that opportunities for unlawful conduct by third parties are mitigated as far as possible. This will also ensure that Zespri s business and culture are consistent with the operations of multinational businesses and the laws of the countries in which Zespri Kiwifruit is sold. In this regard, the company is working with external professional advisors to develop an in-depth understanding of the applicable customs and duty compliance regimes in all markets where Zespri is not the importer of record. We have conducted duty audits on a number of customers in relation to the season ahead of appointing customers for. This type of compliance audit and other control improvements through areas of risk in the global supply chain are being, and will continue to be, incorporated into standard business practices going forward to mitigate against future non-compliance issues. Specific issues in this past financial year include: SFO investigation: The Serious Fraud Office (SFO) launched an investigation into Zespri in October. The investigation is ongoing. Taiwan: Zespri has appointed two new importers in Taiwan, as well as selling directly to retail. We will operate a direct sales model in Taiwan for the season as we have done in previous seasons. Changing distribution arrangements in our seventh-largest market so close to the season start was challenging and we thank the Taiwan trade for working with us collaboratively through the process. Changing partners after many years may have some impact on Taiwan volumes but, in the context of global supply and demand, we are confident this will not adversely impact grower returns. Market access Compliance-related requirements have become increasingly complicated as authorities, retailers and consumers around the world focus on food safety and sustainability. In a time of unrelenting scrutiny and social media pressure, retailers have become extremely risk averse and require more compliance assurance from suppliers, with a resulting cost in time and money for the industry. However, the scale of the New Zealand kiwifruit industry offers growers a significant competitive advantage by providing major retailers with systems of secure supply and safe, socially responsible food production. This is why Zespri again ran a comprehensive residue-testing programme in /14 to test every New Zealand-supplying orchard for residues of over 300 agrichemicals and to detect any potential issues before fruit entered the Zespri inventory. Zespri Global Supply Serving our customers and consumers with Zespri-branded kiwifruit all year round continues to be a vital part of our marketing strategy. Globally, non-new Zealand volumes increased from 8.8 million trays in 2012/13 to 11.2 million trays this year and Zespri Global Supply profit increased from $5.3 million last year to $9.9 million in /14. This is a 87 percent increase in profit from a 27 percent increase in volume. Zespri Gold supply from Italy and France has been impacted by Psa and the changeover to Zespri SunGold. However, it is pleasing to report that this year saw the first volumes of Italian-origin Zespri SunGold with 100,000 trays of great-quality fruit. Volumes are set to increase strongly over time. Meanwhile, Green volumes from Italy increased strongly, from 6.6 million trays last season to 8.9 million trays this season an increase of 36 percent. A particular highlight was the massive increase in sales of Italian-sourced Zespri Green Kiwifruit in China from 90,000 trays last year to 1.3 million trays this season. Global kiwifruit sales marketed by Zespri 2004/ / / / / / / / /13 /14 New Zealand-grown kiwifruit $997.3 $24.9 $945.2 $ $1,045.0 $1,082.2 Non-New Zealand-grown kiwifruit $80.4 $81.6 $1,299.8 $151.6 $1,359.3 $141.8 $1,505.0 $ $ $ ,204.5 $144.4 NZD (m) NZ FRS figures to 2005/06 and NZ IFRS figures from 2006/07 5

8 Zespri Chairman & CEO s Report (continued) Annual Report for the year ended 31 March Foreign exchange Zespri operates a hedging policy, progressively taking cover on behalf of New Zealand kiwifruit growers up to three years into the future. While we sell in 53 markets around the world, Zespri is exposed primarily to three currencies the Yen, Euro and US dollar. The New Zealand dollar is strong relative to all these currencies at present. Foreign exchange (FX) movements subtracted $21.3 million from grower returns in /14, compared to the previous year. However, grower returns would have been a further $88.5 million lower without the hedging policy for this period, which shielded returns from FX movements compared to the spot rate. Hedging Gain/Loss $ millions Zespri has operated within its hedging policy for the /14 year. While we cannot know the future, we anticipate that the relatively strong performance of the New Zealand economy this year will see the Kiwi dollar continue at high levels through. Ongoing global volatility makes future years very hard to predict, other than noting that FX rates have historically tended to cycle. We are nearing the high point of historical rates for the Yen, US dollar and Euro so there is reason to hope for some relief. Zespri in the context of the global economy Demand for Zespri products remained robust through the downturn following the 2008 global financial crisis. The world s economy is slowly emerging from the global financial crisis, although that recovery is characterised by significant volatility and risks on a variety of fronts. While the International Monetary Fund is predicting global growth to be slightly higher in when compared with that of, at around 3.7 percent and rising to 3.9 percent in 2015, our own planning factors in the potential for continued global uncertainty Hedging Gain/Loss Zespri Limited Equity and dividend returned Equity NZD (m) $90 $85.2 $8 9.4 $0.40 $77.0 $72.8 $72.8 $7 4.0 $77.9 $ $7 1.9 $0.35 $75 $0.31 * $ 67.8 $0.30 $60 $0.20 * $0.25 $45 $0.16 * $0.16 * $0.14 * $0.20 $0.10 $0.11 $0.15 $30 $0.10 * $0.08 $0.10 $0.05 $15 $0.05 $0 $ / / / / / / / / /13 /14 Equity NZD (m) Dividend NZD *(adjusted for 5 for 1 share split in 2010) NZ FRS figures to 2005/06 and NZ IFRS figures from 2006/07 Dividend NZD 6 Zespri Annual Report /14

9 Zespri Chairman & CEO s Report (continued) Annual Report for the year ended 31 March Zespri strategy The core of our strategy is to develop demand for our products ahead of supply coming on and avoid overexposure to particular markets. So we are investing heavily in developing markets in China, Southeast Asia and the Middle East, while we have also increased our focus on Brazil, India and France. While more established markets such as Japan, Korea, Taiwan, Spain, Germany, Belgium and the Netherlands will grow more slowly, they remain an integral part of our future. We are excited about the growth prospects for Zespri SunGold3 in these traditional markets. Long-term challenges The New Zealand kiwifruit industry faces a number of challenges it must overcome to achieve the sustainable competitive advantage we need in the global market to underpin long-term grower wealth. These challenges can be broadly divided into two areas: firstly, the challenges common to growing in New Zealand; and, secondly, challenges specific to the global kiwifruit category. Growing in New Zealand challenges New Zealand kiwifruit producers face significant challenges, specifically distance-to-market, relatively high production costs, a small domestic market, a lack of scale and the relatively high cost of capital. The global food business also continues to become more challenging as international trends mean continuing consolidation of supply chains shipping, distribution, logistics providers and retail which pushes risk and compliance costs back onto fragmented suppliers. The global kiwifruit category challenges Kiwifruit remains a niche product in the global fruit bowl, which brings significant challenges for winning shelf space and consumer attention in markets. Globally, the kiwifruit industry is seeing a significant shift in production as volumes in China increase, while Psa impacts on production outside of China. The growth in volumes in China and an increasing number of new varieties in particular competitor gold varieties means that, at some point in the next decade, China is likely to become a significant exporter of kiwifruit, particularly to Asia, and a competitor to northern hemisphere kiwifruit-growing countries. More broadly, the global kiwifruit industry is evolving with a strong focus on quality improvements and increased use of storage technologies to lengthen selling windows. Despite efforts to improve quality and storage, the kiwifruit category remains a commodity category. Around 70 percent of the global volume of kiwifruit is sold in the same continent in which it is grown, with over 80 percent of globally traded kiwifruit consumed in the northern hemisphere. In our opinion, the greatest constraint to the growth of the global kiwifruit category is that kiwifruit products are characterised by variable quality, with around 45 brands of kiwifruit sold internationally (not including in China). Very simply, this means that many consumers have disappointing eating experiences with kiwifruit, and are discouraged from buying kiwifruit again. Often, the kiwifruit on the shelf is of very poor quality or the taste is unsatisfactory. High quality and taste are core to Zespri s brand strength, providing a key competitive advantage that supports our premium price position. Because of this, New Zealand kiwifruit producers struggle to compete globally on a commodity/lowest-cost basis and instead have adopted a branded value-added strategy. New Zealand-grown kiwifruit (excluding loyalty payments) Total fruit and service payments NZD (m) / / / / / / /13 /14 Green Organic Green Gold Other Green14 All figures are NZ IFRS figures 7

10 Zespri Chairman & CEO s Report (continued) Annual Report for the year ended 31 March New varieties The value of investing in the new variety breeding programme was demonstrated by the success of Hort16A before Psa was confirmed in New Zealand, and the speed at which Gold3 has become the leading Gold variety for the future. Growers have embraced a multi-cultivar future, with over 60 percent of New Zealand kiwifruit growers now growing at least one licensed variety. By adding new products alongside our leading Zespri Green offering, we can attract new consumers into the category, earn supermarket shelf space, and offer growers the opportunity to diversify or grow their businesses by grafting or planting part of their orchards in higher-risk but higher-returning new varieties. The success of the New Zealand kiwifruit industry will be reflected in its rate of innovation as compared to that of its competitors. Continued investment in Zespri s new variety breeding programme, in partnership with Plant & Food Research, is critical as the New Zealand kiwifruit industry competes in a rapidly evolving global market place. Internationally, a tremendous amount of work is under way in the kiwifruit breeding space. Our challenge is to go faster. As well as investing in the breeding programme, Zespri is actively monitoring what third-party varieties are being developed around the world. As part of this, we will continue to explore partnering opportunities globally. Organisational development Zespri is a relatively small organisation with around 160 employees based in Mount Maunganui, New Zealand, and around 120 people based in markets around the world. We have just four significant offices Mount Maunganui, China, Japan and Belgium. Our other operations around the world are very small, each usually comprising of a Market Manager and a small support team. Despite being relatively small from a resourcing and human capability perspective, Zespri has many of the characteristics of a much larger business; it operates in 53 markets, with complex information systems and associated legal and taxation complexity. The company has moved from a regional structure to a global structure in recent years and the Global Sales and Marketing team is now led by Daniel Mathieson, President of Global Sales and Marketing. As we move to big company disciplines, we are working to strengthen our internal processes, systems and culture. Despite the extent of this change, our focus remains on sustainable partnerships that grow value for all supply chain participants. This organisational development lays the foundation for the future as Gold3 volumes increase to 50 million trays by 2018, we develop our 12-month supply, and we introduce new products and markets. This will empower decision-making at a market level and encourage employees globally to own and continuously improve processes, while simultaneously strengthening core global legal and financial controls. Zespri is not driving radical change overnight. These improvements will be part of business as usual and link to Zespri s strategic vision and values. Outlook While not without its challenges, the future is bright. We expect relatively stable Green volume combined with strong demand should support Green returns over the next several seasons, even in the face of adverse foreign exchange conditions. As the industry recovers from Psa, we anticipate Gold volume will grow strongly over the next several seasons. Market mix and moderating pricing will see Gold returns trend back towards the $7 range, depending on foreign exchange rates and seasonal factors, as we head towards 50 million trays. To achieve this it is important that we develop demand across a range of markets ahead of supply coming on and it is for this reason that we continue to support our traditional markets, as well as investing heavily across a number of high-growth emerging markets. Bigger picture, committing to a premium/branded strategy, rather than a commodity/lowest-cost strategy, is the only realistic sustainable option for the New Zealand kiwifruit industry. The competitive disadvantage of our high cost of production, distance-to-market and lack of scale leave us no other option. This means our strategy must remain to develop and market the world s leading portfolio of kiwifruit products for 12 months of the year. Our industry structure, combined with a clear market strategy, allows us to collectively take a long-term view of the future and invest with confidence in the sustainable, competitive advantages that will underpin our future. Lain Jager CHIEF EXECUTIVE OFFICER Peter McBride CHAIRMAN 8 Zespri Annual Report /14

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12 Industry Performance Annual Report for the year ended 31 March Zespri Alternative Revenue Statement / / /12 Gross sales of New Zealand-grown kiwifruit 1,256,298 1,519,707 1,596,943 Promotional rebates, claims and discounts (62,305) (78,417) (96,586) Net sales of New Zealand-grown kiwifruit 1,193,993 1,441,290 1,500,357 Net fruit return through collaborative marketers 10,528 14,437 21,886 Other pool income 922 2,120 1,793 Revenue attributable to New Zealand pools 1 1,205,443 1,457,847 1,524,036 Less pool costs: Freight 114, , ,429 Insurance (onshore and offshore excluding hail) 1,873 2,551 2,512 Hail self-insurance Duty and customs 58,917 76,143 87,167 Other direct pool costs offshore 40,867 55,019 70,794 Other direct pool costs onshore 5 24,286 30,302 31,331 KVH funding Gold Psa levy Promotion 68,549 89,288 92,949 Interest income 2 (867) (373) (899) KNZ fees NZKGI funding Total pool costs 310, , ,315 Return from fruit sales 895,361 1,068,797 1,089,721 New Zealand fruit and service payments 779, , ,762 Zespri margin 4 115, , ,959 Other non-pool revenue 623 1,012 1,137 Psa funding ,200 Royalty income from new cultivars Research grant co-funding 3,059 4,311 5,523 Zespri income attributable to New Zealand-grown kiwifruit 120, , ,819 Onshore costs: Innovation 12,381 13,198 18,018 Class 2 Mainpack Subsidy/Green 46 top-up Psa funding - 4,205 8,498 Amortisation of new cultivars 1, Onshore overheads 35,749 32,205 36,305 49,321 50,294 63,327 Offshore costs 40,434 57,454 46,865 30,339 32,676 47,627 Add operating surplus from other business units: Non-New Zealand-grown supply (before taxation) 7 9,853 5,266 4,591 Gold Defence fund Income from sale of Zespri licences (before taxation) 3,660 3,537 3,554 EBIT before loyalty premium 44,657 42,003 56,079 Net interest income 3,443 4,355 3,277 Zespri profit before tax and loyalty premium 48,100 46,358 59,356 Loyalty premium 20,999 24,991 27,658 Zespri profit before taxation 27,101 21,367 31,698 Tax expense 9,856 13,798 11,170 Zespri profit after taxation 17,245 7,569 20,528 Total fruit and service payments 779, , ,762 Loyalty premium 20,999 24,991 27,658 Total fruit and service payments (including loyalty premium) 800, , ,420 The Alternative Revenue Statement is used for management information and is the basis for the calculation of the Supplier Return. Foreign exchange gains and losses are allocated differently from the way that they are allocated in the Financial Statements in that they are apportioned to the relevant line items above. The Alternative Revenue Statement is consistent with the business segment analysis in Note 31 of the Financial Statements. Notes 1 to 8: Refer to page 11. A reconciliation of key measures included above to amounts disclosed in the Financial Statements is available on the company website. 10 Zespri Annual Report /14

13 Industry Performance (continued) Annual Report for the year ended 31 March Cause of Change /14 vs 2012/13 $m Sales price/size profile/offshore fruit loss Volume Foreign exchange 21.3 Other income/costs New Zealand Psa funding Taxation Total The Cause of Change chart outlines the decrease in the return to the industry in /14 to $818 million from $967 million in 2012/13. Total fruit and service payments 2012/13 (including loyalty premium) 959,148 Add Zespri net profit after tax 2012/13 7,569 Return to industry 2012/13 966,717 Movements due to change in: Sales price/size profile 118,324 Volume (258,791) Foreign exchange (21,288) Other income/costs 4,930 New Zealand Psa funding 4,203 Taxation 3,942 Return to industry /14 818,037 Total fruit and service payments /14 779,793 Add Zespri loyalty premium /14 20,999 Total including loyalty premium /14 800,792 1 Net revenue attributable to the pools includes sales of New Zealand-grown kiwifruit, income from collaborative programmes and other pool income as noted in the Alternative Revenue Statement. 2 The interest income is made up of the following: interest income of $1.72 million, interest paid of $0.79 million and an interest charge from Zespri of $0.06 million. This results in an overall interest income to the pools of $0.87 million. 3 Kiwifruit New Zealand (KNZ) is the statutory board funded under regulation 39 of the Kiwifruit Export Regulations New Zealand Kiwifruit Growers Incorporated (NZKGI) is the kiwifruit grower representation body and Zespri Limited is required by The Commodity Levies (Kiwifruit) Order 2012 to pay a levy to NZKGI on behalf of New Zealand growers. The rate for the /14 year was $0.009 per tray of kiwifruit exported to markets other than Australia. In 2011/12 NZKGI was funded directly from the National Pool rather than through a levy as in 2012/13 and /14. 4 Zespri margin is calculated in accordance with the New Zealand Supply Agreement, being 5.00 percent of net sales (excluding collaborative marketing programmes) and 7.75 percent of fruit payments to suppliers for /14. For 2012/13 and 2011/12 the Zespri margin was calculated as 6.00 percent of net sales (excluding collaborative marketing programmes) and 6.00 percent of fruit payments to suppliers. Add Zespri net profit after tax /14 17,245 Return to industry /14 818,037 New Zealand Pool Costs as a Percentage of Pool Revenue / / /12 Zespri margin (net of loyalty premium) 4 7.8% 7.5% 7.2% Freight 9.5% 9.2% 9.7% Insurance 0.2% 0.2% 0.2% Duty and customs 4.9% 5.2% 5.7% Other onshore direct costs 2.0% 2.1% 2.1% Other offshore direct costs 3.4% 3.8% 4.6% Gold Psa Levy 0.1% 0.0% 0.1% Promotion 5.7% 6.1% 6.1% Interest 2 (0.1%) 0.0% (0.1%) KNZ/NZKGI 3 0.1% 0.1% 0.1% Total fruit and service payments (including loyalty premium) 66.4% 65.8% 64.3% 100.0% 100.0% 100.0% Revenue attributable to New Zealand pools () 1 1,205,443 1,457,847 1,524,036 5 Within other direct pool costs onshore is the 3.00 percent royalty on net sales for Gold3, Gold9 and Green14 pools. This royalty is made up of three components: 1.35 percent of this royalty is paid to The New Zealand Institute for Plant & Food Research Limited, 0.65 percent transferred to a defence fund reserve in Zespri, and 1.00 percent royalty income in Zespri. The 1.00 percent royalty income from new cultivars is included in the Zespri profit. 6 In /14, the pool funded Kiwifruit Vine Health Inc (KVH). The rate was $0.01 per tray Class 1 Green and $0.02 per tray Class 1 Gold exported to markets other then Australia. 7 Further analysis of non-new Zealandgrown supply is available within the segment reporting in Note 31 of the Financial Statements. 8 Green 46 top-up only applied to 2012/13 season. 11

14 Corporate Governance Annual Report for the year ended 31 March Good corporate governance is not only about written policies and procedures it is about acting and leading with integrity and maintaining a high standard of business ethics. The Board considers it essential that a high standard of corporate governance practices are in place across the organisation, starting with the Directors and Executive team. This section provides an overview of the key elements of the Company s corporate governance framework. Legislative and regulatory framework Zespri Limited is regulated by the provisions of the Companies Act 1993 and other relevant legislation governing the duties of directors, including financial reporting obligations, offering and trading in securities, employment, environment, and health and safety. As the Company also issues shares, it is required to comply with all requirements of the Securities Act 1978 and therefore share transactions and some company publications are subject to scrutiny by the Financial Markets Authority. The Company and its Directors are bound by the Zespri Limited Constitution, which contains more detail regarding shares in the Company, transfer and voting of shares, procedures for shareholder meetings, and director election and tenure (among other matters). The Kiwifruit Export Regulations 1999 contain provisions that also impact on the governance of the Company, which are monitored and enforced by the industry regulator, Kiwifruit New Zealand. Under the Regulations: Zespri must not discriminate between suppliers and potential suppliers in relation to the decision to purchase kiwifruit or the terms of purchase, other than on commercially justifiable grounds; Zespri must not carry out any activity, nor own nor operate assets, that are not necessary for the core business of exporting kiwifruit, unless approved by the majority of providers of capital (being the shareholders or the kiwifruit suppliers as the case may be), and only if the risks of the activity are minimised for those who have not given approval; Zespri must comply with certain specific information disclosure requirements regarding its activities; and Zespri must publish disclosure accounts which are audited and available on request. The Company has policies and procedures in place to ensure compliance with all of the aforementioned obligations and, at the end of each financial year, both the Chief Financial Officer and the General Counsel provide an assurance to the Board regarding legislative and regulatory compliance. The Zespri Limited Constitution also contains provisions regarding confidentiality of shareholder proxy and voting information which exceed legal and regulatory requirements, and reflect standards of corporate governance in relation to shareholder democracy that go beyond those required of publicly listed companies. The Board The Company s eight-member Board is made up of five Directors drawn from the kiwifruit industry and three independent Directors. The convention of having at least three independent Directors is in line with good governance practice, and collectively the eight Directors bring together a wide range of experience, from international marketing and agribusiness, to kiwifruit industry knowledge and financial expertise. Background profiles of each Director are included in the /14 Annual Review document, on the Company s corporate website ( and the Company s grower website, The Canopy ( The Board s task is to govern the Company, in particular by providing strong strategic direction to sustainably maximise returns for shareholders and growers, while at the same time safeguarding the interests of shareholders and other relevant stakeholders as appropriate. Each Board member is issued with a comprehensive Director s Manual which contains detailed information on the corporate governance regime that applies to the Company, and the Directors duties and responsibilities in that regard. This Manual is kept up to date by the General Counsel and recirculated to Directors periodically. Under the Company s Constitution, at least one-third of the Directors must retire by rotation at each Annual Meeting. The Board has generally sought to organise the rotation of directors so that one independent and two grower Directors retire each year. For the past several years, the Board has focused on succession planning, particularly for independent Directors, and adopted a policy of formally reviewing the contribution of each independent Director, the desired mix of skills for the future that should be contributed by the independent Directors and the general desirability of rotation among the independent Directors. The intention for the future is that where an independent Director intends to step down, such retirement would occur in sufficient time to enable the Board to recruit and appoint a new independent director with the desired skills as assessed by the Board. Any Director appointed by the Board to fill a vacancy is required by the Constitution to be confirmed by shareholders at the subsequent Annual Meeting. Where the Board considers that an incumbent independent Director should continue on the Board then this assessment will be conveyed to shareholders. Details of Directors remuneration and interests are recorded on pages 63 to 67, under Directors Disclosures and Director and Employee Remuneration. Board committees The Board has an Audit and Risk Management Committee which reviews and monitors the Company s overall risk (both financial and non-financial) and its risk management strategies. It reviews the effectiveness of, and monitors compliance with, all internal controls including those relevant to finance and treasury and supports management in reviewing key accounting judgements and that the financial statements are consistent with New Zealand Generally Accepted Accounting Practice (NZ GAAP). The Committee also reviews and monitors both the internal and external audit processes. Jonathan Mason has chaired this Committee since January. Mr Mason has 30 years of work experience as a finance executive with multinational companies including Exxon Mobil, International Paper, and Fonterra (see full biography in Annual Review). The Board s Organisation and Administration Committee oversees the appointment and remuneration of senior executives and strategic employment matters, such as general employee remuneration and incentive policies, and organisational development strategies. This Committee also maintains oversight of health and safety issues and compliance. Tony Marks has been Chairman of this Committee since In 2011, the Board determined that much of the work of the Innovation Advisory Forum was overlapping with the Psa R&D Steering, and accordingly adopted a smaller subcommittee for Board oversight of Innovation activities in areas other than Psa. This subcommittee is known as the Board Innovation Subcommittee. David Pilkington was Chairman of the Innovation Advisory Forum and is Chairman of the Board Innovation Subcommittee. In 2012, the Board created the Supply Chain Committee to oversee the multi-year supply chain change programme to develop the best kiwifruit supply chains globally by drawing on world-class supply chain knowledge and practice to optimise the New Zealand Kiwifruit supply chains, both globally and by market, for the purpose of 12 Zespri Annual Report /14

15 Corporate Governance (continued) Annual Report for the year ended 31 March maximising grower returns. This Committee is chaired by Tony De Farias and consists of at least three Zespri Directors and up to five external members appointed for their expertise in supply chain, logistics, consultancy, post-harvest, growing, or fruit handling. David Pilkington and Craig Greenlees are current Board representatives, and external members of this committee are Tim Chrisp, Michael Franks, Tony Hawken, Alister Hawkey and John Shaskey. Minutes are kept of all Board and Board Committee meetings, and all Directors receive copies of the Board Committee papers. A table showing frequency of meetings of the Board and its Committees, and attendance by Directors at those meetings, is shown on page 63. Directors also represent the Company in other industry bodies including the Industry Advisory Council (IAC) and Kiwifruit Vine Health Incorporated (KVH). Conflicts of interest With five industry Directors on the Board, governance of the Company is partly in the hands of individuals who have their own private interests in the wider kiwifruit industry. The Company benefits greatly from the industry experience and knowledge that these Directors bring to the boardroom table. However, it also means that conflicts of interest need to be managed carefully. The Company has comprehensive policies and practices to manage actual and potential conflicts of interest that meet, and in some cases exceed, Companies Act 1993 requirements: All Directors, including independent Directors, are required to declare actual or potential conflicts of interest as soon as they arise. These are discussed and managed as necessary at the beginning of each Board meeting, and are recorded in the Company s Interests Register. Details of all relevant matters to 31 March which have been entered in the Interests Register by individual Directors are set out under Directors Disclosures on pages 63 to 67. As a matter of good governance practice at Board meetings, Directors with any relevant interests excuse themselves from the meeting while issues which may present significant conflicts are discussed or decided upon. Board papers and minutes are edited for each Director to remove references to any matters on which they have a significant conflict. A Conflicts of Interest Policy is also in place for Zespri employees. Like Directors, employees are required to declare actual or potential conflicts of interest on a regular basis to ensure these are managed appropriately, and an interests register is maintained and monitored. In certain circumstances, a conflict of interest may not be manageable using the steps noted above. In these cases, Directors may need to choose between continuing as a Director and their other business interests. Share trading Comprehensive approval and disclosure policies and procedures are in place for trading in Zespri Limited shares by Directors and employees. This ensures that Directors and employees only complete such transactions in a market where potential stakeholders have had a reasonable opportunity to be fairly informed of knowledge which may affect the price of shares. Pursuant to these policies and procedures, Directors may transact: only with the approval of an independent Director acting as Approval Officer (currently David Pilkington); and only when no information which may impact on the share price is known to Directors or employees but not known to the industry as a whole. At the end of each Board meeting, the Board considers whether there is any price-sensitive information known to the Board which should preclude Directors or employees from transacting in securities. Any approvals previously granted are suspended where the Board believes that there may be price-sensitive information known to the Directors or employees. In the /14 financial year, Director trading was suspended a number of times due to various issues such as new variety licence allocations, forecasts, margin discussions and issues in China. Details of shares held by Directors and their relevant interests are published on the Company s grower website, the Canopy ( Ethics High ethical standards are of critical importance to the Company, and the Board periodically receives presentations and/or training in respect of ethical issues for Directors. In addition to these sessions, the Director s Manual addresses ethical issues across a number of areas such as legislative requirements, conflicts of interest and best practice guidance. Directors and employees are governed by a Code of Conduct which is periodically reviewed and updated to ensure the maintenance of high standards. Confidentiality In order to support compliance for both Directors and employees with their obligations under law, comprehensive policies on confidential information and privacy are in place. Delegation of Board power Under the Companies Act 1993, the business and affairs of a company must be managed by, or under the direction or supervision of, the Board of the company; however, decisionmaking on all but a few critical matters may be delegated to management. Given the size and complexity of the Company s operations, many activities are delegated to management, pursuant to a comprehensive Delegated Authorities Policy which specifies the kinds of decisions and approvals that can be made by managers at various levels within the Company, and those which are reserved for the Board or one of its Committees. A number of other internal policies are in place which guide certain aspects of day-to-day management of the business and sit below the Delegated Authorities Policy. Evaluating Board performance The Board undertakes a comprehensive self-evaluation process to assess performance on an annual basis, and works with the Institute of Directors to provide training and evaluation of individual Directors. Feedback from both the self-evaluation and the Institute of Directors is discussed with a view to continuously improving performance. Any individual Director s training requirements may be identified at this time also. Director remuneration The Company s Constitution provides that shareholders shall from time to time set the maximum total amount payable to Directors as Directors fees. The amount actually paid to Directors is determined by the Board up to the maximum set by shareholders, and the total Directors fees may be distributed among them in such manner as the Board determines periodically. Details of Director remuneration are set out on page

16 Corporate Governance (continued) Annual Report for the year ended 31 March Consideration of Director s fees is undertaken by the Director Remuneration Committee (DRC), which comprises three elected shareholder members John Bourke (Chair), John Cook and John Griffin and one independent member appointed by the Board, Warren Larsen. The Director Remuneration Committee considers Director remuneration and governance succession issues, including mechanisms for the identification and guidance of future industry leaders. The /14 report of this Committee is included with the Annual Report. The Board works closely with the DRC in respect of initiatives around succession planning for the industry as a whole, including supporting participation by future young leaders in governance and leadership programmes such as the Kellogg Rural Leaders Programme operated by Lincoln University and the Fonterra Governance Development Programme. Insurance During the year, the Board resolved to continue with Directors and Officers liability insurance cover, with the premium costs met by Zespri Limited. Approval of major transactions At the 2010 Annual Meeting, the Company obtained a five-year approval to enter into certain major transactions. Such transactions are: acquisitions or disposal of assets whose value is more than half the value of the Company s assets before the transaction; or a transaction that has the effect of the Company acquiring rights or interests or incurring obligations or liabilities, the value of which is more than half the value of the Company s assets before the transaction. Transactions identified under this authority include entering into the seasonal funding facility with our banking syndicate, conversion of foreign currency into New Zealand dollars, entering into the annual New Zealand Supply Agreement and entering into freight contracts with shipping companies. Information disclosure requirements under the Kiwifruit Export Regulations Regulation 12 of the Kiwifruit Export Regulations 1999 requires that the Company must publicly disclose financial statements as defined in the Kiwifruit Export Information Disclosure Handbook. The principal disclosures required are included within the Industry Performance section of the Annual Review or within the Financial Statements of the Annual Report. A full copy of the special-purpose Financial Statements, including the certificate from the auditor, are available from the Company s offices as required under the regulations. Compliance issues Zespri maintains an internal audit function which regularly monitors compliance with all of the above policies and procedures, with any exceptions being reported to the Audit and Risk Management Committee. In the past few seasons, several non-compliance issues have arisen around the world in relation to the distribution of New Zealand kiwifruit (see notes below under China Customs litigation and Taiwan distribution channels below). While these issues have primarily resulted from the improper actions of independent third parties, the Board is committed to ensuring that the Zespri reputation and business is not adversely affected by such types of incidents, and that the Company and the business partners are legally compliant. This means improving internal processes and understanding of the legal obligations throughout the distribution chain to ensure that opportunities for unlawful conduct by third parties are mitigated as far as possible, and that the Company s business and culture are consistent with the operations of multinational businesses and the laws of the countries in which Zespri Kiwifruit is sold. In this regard, the Company is working with external professional advisors to develop an in-depth understanding of the applicable customs and duty compliance regimes in all markets where Zespri is not the importer of record, and conducted duty audits on a number of customers in relation to the season ahead of appointing customers for. This type of compliance audit and other control improvements through areas of risk in the global supply chain are being, and will continue to be, incorporated into standard business practices of the Company going forward to mitigate against future non-compliance issues. China Customs litigation The financial results for the 2012/13 financial year were significantly impacted by provisions for potential penalties and legal costs relating to litigation in China arising from failures by Zespri s former Chinese importers to pay import duty on Zespri Kiwifruit in prior seasons. In addition, an employee of Zespri s Chinese subsidiary company, Zespri Jia Pei Fruit (Shanghai) Co.,Ltd, was convicted and jailed in relation to some of these matters. Zespri s subsidiary company and the employee appealed the Court decisions but were unsuccessful and thus the penalties remain applicable and are reflected in the financial accounts for /14. These penalties included a fine in the amount of RMB5M, and a statement that an unspecified amount of illegal gains should be repaid. As a consequence of our assessment of the risks following the China Customs matters but also in consideration of the context of industry growth, global financial markets and the industry s exposure to emerging markets, the Company is moving to rebalance the emphasis in systems and authorities to strengthen the global compliance framework without losing our execution capability. Initiatives which form part of this workstream include a customs audit of all direct sale markets/customers to ensure that all Zespri importers are acting in accordance with international best customs practice, and an organisational development initiative to ensure there is improved oversight of the intersections between different business teams and their functions. Serious Fraud Office (SFO) investigation In October, the New Zealand SFO advised that it had commenced an investigation into Zespri Limited, and served the Company with two very broad-ranging notices requiring the production of electronic and physical information. The Company has engaged experienced senior counsel in respect of this matter, and a subcommittee of the Board has been established to oversee this issue together with the Company s General Counsel. Beyond such information requests, the SFO has not provided any further information or details regarding the focus or timeframes for their inquiry; however, advice from independent experts suggests that, based on the breadth of the information requests, work on this issue could continue for a further 12 to 18 months. Taiwan distribution channels In the course of a routine audit by Taiwan Customs authorities, the Company learned that its former Taiwanese importers had been fraudulently creating documentation for customs purposes; such documentation included Zespri logos and forged signatures of Zespri personnel. Upon learning of this situation, the Company terminated the relationships with the importers and conducted a review of its Taiwan operations. New distributors have been appointed for the season following an extensive due diligence process, and the Company does not anticipate any material impact on returns as a result of this issue. 14 Zespri Annual Report /14

17 Financial Statements and Statutory Information For the year ended 31 March Your Directors take pleasure in presenting the Financial Statements of the Company and its subsidiaries (collectively Zespri ) and Statutory Information for the year ended 31 March. For and on behalf of the Board of Directors P J McBride CHAIRMAN J P Mason DIRECTOR 15

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19 Auditor s Report Report on the Company and financial statements We have audited the accompanying financial statements of Zespri Limited ( the Company ) and the group, comprising the Company and its subsidiaries, on pages 18 to 61. The financial statements comprise the balance sheets as at 31 March, the income statements and statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information, for both the Company and the. Directors responsibility for the Company and financial statements The directors are responsible for the preparation of Company and financial statements in accordance with generally accepted accounting practice in New Zealand and International Financial Reporting Standards that give a true and fair view of the matters to which they relate, and for such internal control as the directors determine is necessary to enable the preparation of Company and financial statements that are free from material misstatement whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these Company and financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (New Zealand). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Company and financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Company and financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company and s preparation of the financial statements that give a true and fair view of the matters to which they relate in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company and s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Our firm has also provided other services to the Company and in relation to advisory, compliance and regulatory services. Subject to certain restrictions, partners and employees of our firm may also deal with the Company and on normal terms within the ordinary course of trading activities of the business of the Company and. These matters have not impaired our independence as auditor of the Company and. The firm has no other relationship with, or interest in, the Company and. Opinion In our opinion the financial statements on pages 18 to 61: comply with generally accepted accounting practice in New Zealand; comply with International Financial Reporting Standards; give a true and fair view of the financial position of the Company and the as at 31 March and of the financial performance and cash flows of the company and the group for the year then ended. Report on other legal and regulatory requirements In accordance with the requirements of sections 16(1)(d) and 16(1)(e) of the Financial Reporting Act 1993, we report that: we have obtained all the information and explanations that we have required; and in our opinion, proper accounting records have been kept by Zespri Limited as far as appears from our examination of those records. 21 May Auckland 17

20 Income Statements and Statements of Comprehensive Income Annual Report for the year ended 31 March Income Statements Note Parent Operating revenue 2(a) 1,218,641 1,448, ,630 1,014,884 Other revenue 2(b) 6,383 6,614 2,074 1,448 Operating expenses 3 (1,309,794) (1,530,856) (839,839) (1,006,928) Other net gains/(losses) 5 108,228 93,114 (622) (441) Operating profit/(loss) before taxation 23,458 17,346 (1,757) 8,963 Finance revenue 6(a) 5,188 5,818 4,848 25,252 Finance expense 6(b) (1,545) (1,797) (14) (374) Net profit before taxation 27,101 21,367 3,077 33,841 Taxation (expense)/income 7(a) (9,856) (13,798) (878) (3,929) Net profit after taxation 17,245 7,569 2,199 29,912 Earnings per share: basic and diluted 8 $0.143 $0.063 $0.018 $0.248 Statements of Comprehensive Income Parent Profit for the year 17,245 7,569 2,199 29,912 Other comprehensive income in the year Total comprehensive income for the year 17,245 7,569 2,199 29,912 The above Income Statements and Statements of Comprehensive Income should be read in conjunction with the accompanying notes. 18 Zespri Annual Report /14

21 Balance Sheets Annual Report for the year ended 31 March Balance Sheets at 31 March Parent Note Current assets Cash and cash equivalents 24(b) 132, , , ,316 Accounts receivable 12 36,071 28,880 96,259 72,576 Income tax receivable 7,933 5, Other financial assets 15(a) 106, , , ,394 Prepayments 13 20,076 10,454 14,745 5,290 Inventories 16 16,973 12, , , , ,576 Non-current assets Accounts receivable 12 2,898 2,077 2,898 2,077 Other financial assets 15(a) 97, ,272 97, ,894 Property, plant and equipment 17 2,649 3, Intangibles 18 16,422 9,256 5,279 5,151 Deferred tax assets 7(b) 3,616 4, Investments in subsidiary companies Prepayments , , , ,715 Total assets 444, , , ,291 Current liabilities Accounts payable and accruals , , , ,071 Income tax payable 4,620 7,073 2,456 2,280 Provisions 21 30,222 34,429 15,458 19,787 Other financial liabilities 15(b) 106, , , , , , , ,532 Non-current liabilities Accounts payable and accruals 20 1,322 1, Provisions Deferred tax liabilities 7(b) 2,886 2, Other financial liabilities 15(b) 97, ,272 97, , , ,865 98, ,894 Equity Share capital 10(b) 18,017 18,017 18,017 18,017 Other reserves 9(a) 1, , Retained earnings 9(b) 70,148 59,525 33,742 38,165 89,428 78,225 53,022 56,865 Total liabilities and equity 444, , , ,291 The above Balance Sheets should be read in conjunction with the accompanying notes. The Financial Statements were authorised for issue by the Directors of Zespri Limited on 20 May. Authorised for, and on behalf of, the Board: P J McBride J P Mason Chairman Director 19

22 Statements of Changes in Equity Annual Report for the year ended 31 March Statements of Changes in Equity Notes Share capital Retained earnings Other reserves Total Attributable to owners of the parent: Balance at 1 April 18,017 18,017 59,525 66, ,225 85,158 Comprehensive income: Net profit after taxation ,245 7, ,245 7,569 Transfers to/(from) retained earnings (580) (334) Total comprehensive income for the year ,665 7, ,245 7,569 Transactions with owners: Dividends paid during the year (6,042) (14,502) - - (6,042) (14,502) Total transactions with owners in their capacity as owners - - (6,042) (14,502) - - (6,042) (14,502) Balance at 31 March 18,017 18,017 70,148 59,525 1, ,428 78,225 Notes Share capital Retained earnings Other reserves Total Parent Attributable to owners of the parent: Balance at 1 April 18,017 18,017 38,165 23, ,865 41,455 Comprehensive income: Net profit after taxation - - 2,199 29, ,199 29,912 Transfers to/(from) retained earnings (580) (334) Total comprehensive income for the year - - 1,619 29, ,199 29,912 Transactions with owners: Dividends paid during the year (6,042) (14,502) - - (6,042) (14,502) Total transactions with owners in their capacity as owners - - (6,042) (14,502) - - (6,042) (14,502) Balance at 31 March 18,017 18,017 33,742 38,165 1, ,022 56,865 The above Statements of Changes in Equity should be read in conjunction with the accompanying notes. 20 Zespri Annual Report /14

23 Statements of Cash Flows Annual Report for the year ended 31 March Statements of Cash Flows Note Parent Cash flows from operating activities Cash was provided from: Receipts from sales 1 1,207,948 1,436, ,236 1,012,377 Receipts from sales of Zespri licences 4,117 4,452 4,117 4,452 Receipts from Psa co-funding - 13,351-13,351 Receipts from research co-funding 2,563 4, Other sundry items 3,201 5,962 2,320 1,844 Insurance receipts reinsurance assets 14(a) 518 1, Proceeds from derivatives 5 107,483 88, Proceeds from inter-company derivatives ,483 88,983 1,325,830 1,555, ,156 1,121,007 Cash was applied to: Payments to contracted suppliers New Zealand-grown fruit 811, , , ,793 Payments to contracted suppliers non-new Zealand-grown fruit 114,764 85, Payments to other suppliers and employees 387, , , ,052 Insurance claims Taxation paid 13,047 10,045-2,959 1,326,725 1,535, ,735 1,109,183 Net cash available from/(used in) operating activities 23 (895) 20,496 (24,579) 11,824 Cash flows from investing activities Cash was provided from: Dividends received ,007 Proceeds from sale of property, plant and equipment and intangibles ,007 Cash was applied to: Investments in subsidiaries Purchase of intangible assets 13,121 2,099 5, Purchase of property, plant and equipment ,803 3,036 5, Net cash (used in)/available from investing activities (13,774) (2,974) (5,621) 19,316 Cash flows from financing activities Cash was provided from: Interest received 5,070 5,584 4,730 5,011 5,070 5,584 4,730 5,011 Cash was applied to: Interest paid Dividend payments 11 6,042 14,502 6,042 14,502 6,132 14,731 6,044 14,688 Net cash used in financing activities (1,062) (9,147) (1,314) (9,677) Net increase in/(decrease) cash held (15,731) 8,375 (31,514) 21,463 Effect of exchange rate changes on foreign currency cash balances (7,232) 3, Add opening cash brought forward 155, , , ,853 Ending cash carried forward 132, , , ,316 Represented by: Cash and cash equivalents 24(b) 132, , , , , , , ,316 1 Cash receipts from sales includes inter-company sales for the parent. The above Statements of Cash Flows should be read in conjunction with the accompanying notes. 21

24 Annual Report for the year ended 31 March 1. Summary of significant accounting policies Statement of compliance The Financial Statements are those of the parent company, Zespri Limited (the Company), and its subsidiaries (collectively Zespri ). The Company is domiciled in New Zealand and is a profit-oriented entity incorporated under the Companies Act 1993 of New Zealand. Zespri s primary activity is the purchase, export and marketing of fresh kiwifruit. The Financial Statements of the Company have been prepared in accordance with the Financial Reporting Act The Financial Statements have been prepared in accordance with Generally Accepted Accounting Practice in New Zealand (NZ GAAP). They comply with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) and with International Financial Reporting Standards (IFRS). The Financial Statements and Notes to the Financial Statements are presented in New Zealand dollars, the functional currency of the Company and presentational currency of the. Basis of preparation The following accounting principles have been followed in the preparation of the consolidated Financial Statements: historical cost basis, modified by the revaluation of certain items as identified in the specific accounting policies below; accrual accounting. Considering the current situation and developments in the industry regarding Psa (Pseudomonas syringae pv actinidiae) (see Note 20), the Directors and management have reviewed the Zespri current business plans, financial forecasts and related assumptions for the next 12 months and beyond, and are satisfied that it is appropriate for reliance to be placed on the fact that Zespri is a going concern. Use of estimates and judgements The preparation of Financial Statements and related disclosures that conform with NZ IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Financial Statements. Judgement is applied in determining estimates. Critical accounting estimates in applying significant accounting policies The makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Judgements and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Because judgement is applied, actual results could differ from estimates made. Estimates and assumptions are reviewed periodically and the effects of any changes are reflected immediately in the Income Statements. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are in accounting for new variety licence revenue, insurance, provisions, derivatives and contingent liabilities. Assumptions applied, methods used and uncertainties pertaining to these areas are discussed in the related specific accounting policies below, and in Notes 2, 7, 14, 15, 21, 24, 25 and 28. Specific accounting policies The principal accounting policies adopted in the preparation of the Financial Statements are set out below: (a) Basis of consolidation The consolidated Financial Statements include the results and balances of all entities over which the Company and its subsidiary companies (refer Note 19) have control. All companies in Zespri are wholly owned by companies within the and, as such, are ultimately fully controlled by the Company. All subsidiaries have been incorporated and consolidated at inception by Zespri companies. No subsidiaries have been obtained by acquisition. The results and balances of subsidiaries are included in consolidated Financial Statements of Zespri from the date of inception. All significant inter-company transactions are eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Company. (b) Indirect tax The Income Statements, Statements of Comprehensive Income, Statements of Cash Flows, Statements of Changes in Equity and Balance Sheets have been presented so that all components are stated net of indirect tax (such as Goods and Services Tax (GST) and Value Added Tax (VAT)) where such taxes can be reclaimed from the relevant authorities with the exception of receivables and payables, which include indirect tax invoiced. (c) Revenue recognition Revenue is recognised as follows: (i) Sale of goods and licences: Sales revenue (including collaborative marketing sales) is recognised when the risks and rewards of ownership of the goods or licences have passed to the customer. Sales revenue reflects the fair value of the sale of goods, net of rebates and discounts. (ii) Interest: Interest income is recognised on a time-proportion basis using the effective interest method. 22 Zespri Annual Report /14

25 Annual Report for the year ended 31 March 1. Summary of significant accounting policies (continued) (d) (e) (f) (g) (h) (iii) (iv) Dividends: Dividend income is recognised when the right to receive payment is established. Sale of services: Revenue from the provision of services is recognised to the extent that the service has been provided. Services revenue reflects the fair value for the sale of services, net of rebates and discounts. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to prepare for the intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in the Income Statements in the period in which they have been incurred. Co-funding Co-funding is recognised as follows: (i) Research co-funding relating to research and development costs is recognised over the period necessary to match it with the costs that it is intended to compensate. Where research and development (R&D) expenditure is expensed in the Income Statements, co-funding income to which it relates is shown separately as income. Where R&D costs are capitalised as intangible assets, co-funding income is netted off the expenses being capitalised. (ii) In 2012/13, co-funding was received from the New Zealand Kiwifruit Industry to contribute to the cost of Psa in New Zealand. Expenditure relating to Psa is expensed in the Income Statements; co-funding income is shown separately as income. Co-funding income is recognised only when there is reasonable assurance that any conditions attached to the co-funding have been complied with, and that the co-funding will be received. Earnings per share Basic earnings per share are calculated by dividing net profit after tax by the weighted average number of shares outstanding during the year. In the calculation of diluted earnings per share, the weighted average number of shares outstanding is adjusted assuming conversion of all potential dilutive shares. Taxation (i) Current tax payable or receivable: Current tax is calculated by reference to the amount of income taxes payable or receivable in respect of the taxable profit or tax loss for the period in the tax jurisdictions in which Zespri s companies operate. It is calculated using tax rates and laws that have been enacted or substantively enacted by the reporting date. Current tax for the current and prior period is recognised as a liability (or asset) to the extent that it is unpaid (or refundable). Income taxes payable or receivable are shown net where there is a legal right of offset for balances recognised in the same tax jurisdiction. (ii) Deferred tax: Deferred income tax is provided in full using the liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts. Deferred income tax is determined using tax rates and laws that have been enacted or substantially enacted by balance date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except when the timing of the reversal of the temporary difference is controlled by Zespri and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets or liabilities are shown net where there is a legal right of offset for balances recognised in the same tax jurisdiction. (iii) Current and deferred tax for the period: Current and deferred tax is recognised as an expense or income in the Income Statements, except when it relates to items credited or debited directly to equity, in which case the related tax is also recognised directly in equity. Foreign currency translation (i) Functional and presentation currency: Transactions in each of Zespri s entities are measured using the currency of the primary economic environment in which the entity operates. The functional currency of foreign operations is also considered in light of its dependence on the Company. All Zespri companies are currently deemed to have New Zealand dollars as both their functional and presentational currencies. (ii) Transactions and balances in functional currency: Foreign currency transactions are translated into the functional currency of each entity using the exchange rates prevailing at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of transactions during the year and from the translation of monetary assets and liabilities at balance date are recognised in the Income Statements. Non-monetary items held at historical cost are translated using the historical exchange rate at the date of the transaction. 23

26 Annual Report for the year ended 31 March 1. Summary of significant accounting policies (continued) (i) (j) (k) (l) (m) (n) (o) Share capital On the issue of shares, the value of the shares issued at the issue price is recognised in shareholders equity. Costs associated with the issue of shares are recognised (net of any tax deduction) as a deduction from the amount collected from the share issue. Dividends Dividends are reported as a movement in shareholders equity in the period in which they are declared by the Board of Directors. Other reserves Retained earnings are set aside in other reserves where the Board of Directors resolves to separate certain funds from those able to be distributed from retained earnings. A separate Defence Fund Reserve has been transferred from retained earnings to hold funds for use in defending any challenges on Plant Variety Rights (PVRs). This fund will be increased by a royalty equivalent of between 0.50 percent and 0.65 percent of the sales value of the fruit from new cultivars. This reserve transfer will be reviewed by the Directors on a yearly basis. Any movement in other reserves is by transfer to or from retained earnings as related revenues are earned and costs are incurred. Cash and cash equivalents Cash and cash equivalents include cash on hand and demand deposits, and short-term investments that are readily convertible to known amounts of cash. Bank overdrafts are shown within borrowings in current liabilities. Accounts receivable and payable Accounts receivable are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for doubtful debts. Collectability of accounts receivable is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off. A provision for doubtful debts is established when there is objective evidence that the will not be able to collect all amounts due according to the original terms of the receivable. The movement in the provision is recognised in the Income Statements. When a receivable is uncollectable, it is written off against the provision. Subsequent recoveries of amounts previously written off are credited against other expenses in the Income Statements. Accounts payable are initially measured at fair value and subsequently measured at amortised cost. Inventories Inventories are valued at the lower of cost or net realisable value. Costs incurred in bringing inventory to its present location and condition are accounted for at purchased cost on a first-in first-out basis. Borrowing costs are excluded. Derivatives Zespri may reduce its exposure to fluctuations in foreign currency exchange rates, interest rates and commodity prices affecting operating costs, through the use of derivatives. Derivatives are not entered into for speculative purposes. Derivatives able to be utilised under the Treasury Management Policy include interest rate swaps, oil swaps, foreign exchange options and forward contracts. Zespri s policy is to manage risk from an economic perspective. As a result, Zespri manages the risks of net positions subject to market risks. Hedge accounting has not been applied. Therefore, all derivatives are required to be classified as held for trading, and are measured at fair value with changes recognised through the Income Statements. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedging derivative is for more than 12 months, and as a current asset or liability when the remaining maturity of the hedging derivative is for less than 12 months. (i) Recognition and de-recognition: Derivatives are recognised initially and subsequently measured at fair value. Revenues and expenses relating to changes in fair value of derivatives are recognised in the Income Statements. The fair value of all financial instruments is recorded in the Balance Sheets. Derivatives are de-recognised when the contractual rights or obligations relating to the cash flow expire. (ii) Embedded derivatives: Embedded derivatives are derivatives that are included within the terms of a non-derivative host contract. They affect the cash flows of the combined instrument in a way similar to a stand-alone derivative. An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified index, price, rate or other variable. Companies within Zespri enter into contracts in the normal course of their operations. Within some of these contracts are embedded derivatives. Where the embedded derivatives are deemed to be closely related to the host contract, they are not valued or recognised separately from the accounting required for the host contract in the Financial Statements. Embedded derivatives deemed to not be closely related to the host contract are accounted for as if they were stand-alone derivatives. 24 Zespri Annual Report /14

27 Annual Report for the year ended 31 March 1. Summary of significant accounting policies (continued) (p) (q) (r) (s) (t) (iii) Fair value estimation: The fair value of derivatives traded in an active market is based on the current bid price for assets, and the current ask price for liabilities (refer Note 15). The fair value of forward foreign exchange contracts is determined using forward foreign exchange market rates at balance date. The fair value of derivatives that are not traded in an active market is determined by using valuation techniques as specified at Note 24 adjusted for credit risk of the counter-party. Equity investments Investments in subsidiaries are stated at cost or, where a decline in the value has occurred, at recoverable amount. Property, plant and equipment The cost of purchased property, plant and equipment is the value of the consideration given to acquire the assets and the value of other directly attributable costs which have been incurred in bringing the assets to the location and condition necessary for their intended use. The cost of assets constructed by Zespri includes the cost of all materials used in construction and direct labour on the project, and financing costs that are directly attributable to the project. Costs cease to be capitalised as soon as the asset is ready for productive use. The major asset classes are leasehold improvements, plant and equipment, motor vehicles and capital work in progress. Depreciation Depreciation is provided on a straight-line basis at rates calculated to allocate the cost of assets over their estimated useful lives. Capital work in progress is not depreciated until the work is complete and the asset is fit for its intended use. The estimated useful lives used for depreciation purposes are as follows: Leasehold improvements Lower of 10 years or unexpired portion of lease Property, plant and equipment 2 10 years Motor vehicles 5 years The useful life and residual value of property, plant and equipment are reviewed annually. Any change required as a result of alterations to these estimates is recognised in the Income Statements during the period. Intangibles (i) Research and development costs: Research expenditure is expensed in the period incurred. Development costs are capitalised as internally generated intangible assets where future benefits are expected to exceed those costs; otherwise, development costs are expensed in the period incurred. Development costs include costs relating to the development of markets and production for Zespri-developed cultivars. Costs capitalised include those of budwood, legal fees and costs of obtaining Plant Variety Rights less any research co-funding received in respect of this expenditure. Development costs capitalised as an internally generated intangible asset have finite useful lives and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost over the estimated useful life of five years. (ii) Computer software: Zespri purchases and develops software for use in its own business only. Because the software is without physical substance and is not linked to a producing asset with substance, it is classified as an intangible asset. The cost of computer software acquired is the value of the purchase price to acquire the assets and the value of other directly attributable costs which have been incurred in bringing the assets to the location and condition necessary for their intended use. The cost of software developed by, and for the use of, Zespri includes the cost of all materials used in construction and direct labour on the project, and financing costs that are directly attributable to the project. Computer software has a definite useful life and is carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost over the estimated useful life of three to five years. (iii) Intangibles work in progress: Intangibles work in progress is not amortised until work is complete and the asset is fit for its intended use. The useful life and residual value of intangibles are reviewed annually. Any change required as a result of alterations to these estimates is recognised in the Income Statements during the period. Impairment of non-financial assets Non-financial assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An impairment loss is recognised when an asset s carrying amount exceeds its recoverable amount. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. 25

28 Annual Report for the year ended 31 March 1. Summary of significant accounting policies (continued) (u) (v) (w) (x) (y) (z) Employee benefits Employee entitlements to salaries and wages, bonuses, annual leave, contributions to defined-contribution pension schemes and other accumulating benefits are recognised when they accrue to employees. Liabilities for employee benefits are carried at the value of the estimated future cash flows required to settle the obligation arising from services rendered by employees up until balance date. Termination benefits are payable whenever an employee s employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The recognises termination benefits when it is demonstrably committed to either terminate the employment of current employees, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Provisions Zespri records provisions when: it has a legal or constructive obligation to satisfy a claim as the result of a past event; it is more likely than not that an outflow of resources will be required to satisfy the obligation; and a reliable estimate of the amount can be made. The amount recognised as a provision is the net present value of the best estimate of the outflows required to settle the obligation. Insurance cover offered (i) Marine cargo insurance: The Company insures New Zealand contractors to the New Zealand Supply Agreement for loss of kiwifruit resulting from specific risks between picking and Free on board stowed (FOBS). The annual period of cover is from 1 April to 31 March the following year. Zespri purchases marine cargo insurance as reinsurance of this risk. An insurance liability is recognised to the extent of the estimated future cash flows that may be required to settle claims to New Zealand-contracted suppliers and related costs. An expense is recognised for known liabilities under the terms of insurance, and estimated for claims made but not yet settled. Claims are expected to be settled within one year. There is no discounting or inflation adjustment in measuring the liability because of the short settlement period. An insurance asset and resultant revenue, relating to claims made pre-fobs, are recognised to the extent of the estimated future cash flows that may be receivable from Zespri s insurer as a result of known claims made against the reinsurance policy. (ii) Hail insurance: The Company insures New Zealand contractors to the New Zealand Supply Agreement annually for kiwifruit lost as a result of hail during the New Zealand growing period. The period of cover is from 1 August to 30 June the following year. An insurance liability is recognised to the extent of the estimated future cash flows that may be required to settle claims and related costs. An expense is recognised for known liabilities under the terms of insurance, and estimated for claims made but not yet settled. Claims are settled at the end of the insurance period. There is no discounting or inflation adjustment in measuring the liability because of the short settlement period. Leases Zespri leases land, buildings, certain plant and equipment, and motor vehicles. Operating lease payments, where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item, are included in the Income Statements in equal instalments over the lease term. Lease payments are shown net of any receipts earned from the subleases of these assets. The cost of improvements to leasehold property is capitalised, disclosed as leasehold improvements and depreciated over the unexpired period of the lease or the estimated useful life of the improvements, whichever is the shorter. Statements of Cash Flows The following definitions are the terms used in the Statements of Cash Flows: (i) Cash and cash equivalents are considered to be cash on hand, current accounts and short-term money market deposits in banks, net of bank overdrafts. (ii) Investing activities are those activities relating to the acquisition, holding and disposal of property, plant and equipment and investments. Investments can include securities not falling within the definition of cash. (iii) Financing activities are those activities which result in changes in the size and composition of the capital structure of Zespri. This includes both equity and debt not falling within the definition of cash. Dividends paid in relation to the capital structure are included in financing activities. (iv) Operating activities include all transactions and other events that are not investing or financing activities. Segment reporting Zespri determines its reportable segments by reference to the internal reporting of the activities of the to the Board of Directors, the chief operating decision-maker, as defined in NZ IFRS 8 (Operating Segments). Reportable segments have been determined to follow the strategic business lines of the, which also reflect groups of similar products and services. Zespri has four reportable segments: (i) New Zealand fresh kiwifruit: the marketing and sale of New Zealand-grown kiwifruit; (ii) Non-New Zealand fresh kiwifruit: the marketing and sale of kiwifruit supplied from countries other than New Zealand; (iii) Research and development: research activities undertaken by Zespri to develop new cultivars and to improve kiwifruit production, storage and handling practices; and 26 Zespri Annual Report /14

29 Annual Report for the year ended 31 March 1. Summary of significant accounting policies (continued) (iv) Corporate services: the servicing and administration of all of the activities above, including the operation and support of supply chain functions, grower and shareholder services, legal and secretarial services, information systems, central treasury and cash management, finance and other typical head-office-type functions. (aa) Discontinued operations Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. (ab) Changes in accounting policies and disclosures The following standards came into effect during the reporting period: NZ IFRS 13 (Fair Value Measurement) Effective for periods beginning on or after 1 January. This revised standard defines fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements. Zespri has adopted NZ IFRS 13 (Fair Value Measurement) with a date of initial application of the 1 April. The nature and effects of the changes are explained in the following paragraph. NZ IFRS 13 establishes a single framework for measuring fair value and making disclosures about fair value measurements when such measurements are required or permitted by other NZ IFRSs. It unifies the definition of fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It replaces and expands the disclosure requirements about fair value measurements in other NZ IFRSs, including NZ IFRS 7. As a result Zespri has included additional disclosures in this regard (see Notes 15 and 24). In accordance with the transitional provisions of NZ IFRS 13, Zespri has applied the new fair value measurement guidance prospectively and has not provided any comparative information for new disclosures. Notwithstanding the above, the change had no significant impact on the measurement of Zespri s assets and liabilities. NZ IAS 19 Employee Benefits This amended standard revises the definition of short-term and other long-term benefits resulting in the provision for annual leave being classified as other long-term benefits if the leave is not expected to be taken in two years. There are a number of other standards that became effective during the period which have no significant effect on the financial statements as a result of applying the standard. Certain new standards, amendments and interpretations issued by the International Accounting Standards Board (IASB) and the Accounting Standards Review Board in New Zealand (ASRB) have been published which will be mandatory for the Company in the accounting period beginning on or after 1 April. The following standards are not yet effective and have not been early adopted by the but will be applicable to the : NZ IFRS 9 (Financial Instruments) Effective on or after 1 January This standard will eventually replace NZ IAS 39 (Financial Instruments: Recognition and Measurement), and is expected to be adopted by the in the Financial Statements for the year ending 31 March This standard simplifies how an entity should classify and measure financial assets. This will result in revised disclosure but does not affect recognition or measurement of any balances within the Financial Statements. Management has not yet completed its full assessment of the impact of the above-mentioned accounting policies but it is expected that these changes will not materially affect the s Financial Statements. The does not intend to adopt these standards early. A number of other new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 April, and have not been applied in preparing these consolidated Financial Statements. None of these are expected to have a significant effect on the consolidated Financial Statements of the. 27

30 Annual Report for the year ended 31 March 2. Revenue (a) Operating revenue Parent Sale of kiwifruit (at spot foreign exchange rates): New Zealand-grown kiwifruit 1,058,209 1,322, Inter-company New Zealand-grown kiwifruit , ,071 Non-New Zealand-grown kiwifruit 144, , Collaborative marketing 10,652 13,618 10,505 13,276 Total revenue from kiwifruit product sales 1,213,796 1,442, ,970 1,011,347 Sale of Zespri variety licences 1 3,660 3,537 3,660 3,537 Revenue from royalties Insurance revenue 2 1,147 2, ,218,641 1,448, ,630 1,014,884 1 The sale of Zespri variety licences is recognised when the risks and rewards of ownership of the licences have passed to the customer. In /14 additional licences were issued for new varieties that were commercialised in previous financial years. The total receivable under these licences was $12,313,754 (: $18,295,648) with payment due over five years. Revenue from the sale of new variety licences that include deferred payments, hardship or surrender clauses which result in uncertainty as to the collectability of the outstanding consideration, will not be recognised until the time that the uncertainty is removed. Net revenue of $3,659,860 (: $3,536,924) after issuance costs of $456,798 (: $914,939) has been received and recognised in /14. As at 31 March $22,073,139 (: $13,843,786) of licence fee revenue has been deferred and will not be recognised until the uncertainty as to collectability is removed. 2 Insurance revenue includes revenue received or receivable on policies taken out for pre-fobs (refer Note 14) and post-fobs kiwifruit losses. Parent (b) Other revenue Gain on sale of assets Co-funding for new cultivar research 1 2,426 2, Co-funding from Kiwifruit Vine Health Incorporated for Psa research 496 2, Co-funding for other projects Other income 3,295 2,301 2,074 1,448 6,383 6,614 2,074 1,448 1 On 1 October 2009, Zespri International Limited entered into a co-funding research agreement with the New Zealand Government entity Foundation for Research, Science and Technology (FRST). The agreement for new cultivar pre-commercial R&D co-funding has a term of seven years, and a FRST contribution value of up to $13,511,111 (excluding GST). The Zespri recognises FRST contributions as co-funding sundry revenue only when all the contractual conditions have been met. As at 31 March, $8,555,542 has been recognised over the life of the agreement by the Zespri (: $6,129,905), and $130,176 has been received from FRST for which contractual obligations are outstanding (: $625,655). As such, the amount for which contractual obligations are outstanding is recorded as income in advance (refer Note 20). 28 Zespri Annual Report /14

31 Annual Report for the year ended 31 March 3. Operating expenses Parent Notes Zespri s operating expenses include the following (at spot foreign exchange rates): Amortisation 18 2,615 2,061 1, Bad debts written off/provision for doubtful debts 12(a) (12) 1, Commissions 12,840 16, Depreciation 17 1,576 1, Directors fees Employee benefits 39,321 40, Employee benefits defined contribution plan Freight, distribution and insurance 139, , ,295 Inter-company charges ,880 24,262 Litigation/dispute settlements Loss on sale of assets Other selling and direct costs 97, ,020 7,906 11,327 Payments for kiwifruit including: Fruit and service payments New Zealand-grown kiwifruit 1 779, , , ,108 Fruit purchases non-new Zealand-grown kiwifruit 114,987 82, Loyalty premium New Zealand-grown kiwifruit 21 20,999 24,991 20,999 24,991 Penalties provision 21-12, Promotion 63,454 83, Psa funding New Zealand ,204-4,204 Italy France Research New Zealand-grown kiwifruit 12,381 13, Restructuring cost Serious Fraud Office (SFO) investigation costs 2, Contracted-supplier fruit returns by means of fruit and service payments reflect the value of sales from New Zealand-grown kiwifruit after deducting those expenses defined under the annual New Zealand Supply Agreement, including derivative gains and losses. The expense in the Parent includes inter-company inventory movements for the future season s kiwifruit shipped prior to year-end. 2 For /14, Psa research conducted in conjunction with KVH of $496,027 (: $2,111,628) is included in the New Zealand-grown kiwifruit research figure. 4. Fees to auditors Fees are paid to the auditors of the Company and its subsidiaries for the audit of the Financial Statements and for other services. The auditor of the Company is KPMG. Parent Audit of the Financial Statements of the Audit of the Financial Statements of the 's Subsidiaries Regulatory compliance Electronic discovery services Financial reporting advisory Other advisory Total fees paid to the Company s auditors Other audit fees of $103,227 (: $70,751) have been paid to other auditors to meet local audit requirements. 1 Electronic discovery services relates to the provision of documents relating to the Serious Fraud Office investigation. 29

32 Annual Report for the year ended 31 March 5. Other net gains/(losses) Parent Net gains from derivatives 107,483 88, Net foreign exchange gains/(losses) from non-derivatives 745 4,131 (622) (441) Total other net gains/(losses) 108,228 93,114 (622) (441) 6. Finance revenue and expense Parent (a) Finance revenue Interest revenue 5,188 5,818 4,848 5,245 Inter-company dividend income ,007 Total finance revenue 5,188 5,818 4,848 25,252 Parent (b) Finance expense Interest expense Fee expense 1,455 1, Total finance expense 1,545 1, Taxation Parent (a) Taxation expense Net profit before taxation 27,101 21,367 3,077 33,841 Taxation at 28% 7,588 5, ,475 Tax effect of: Non-deductible or non-assessable items 1,195 4, (5,497) Translation differences on foreign tax (125) Tax under/(over)-provided in prior year (477) 318 (123) (49) Foreign income at different tax rates 1,561 2, Movement in distribution of accumulated retained earnings of subsidiaries Taxation expense 9,856 13, ,929 Effective tax rate (%) 36.4% 64.6% 28.5% 11.6% Taxation expense is represented by: Current taxation expense: Current income tax charge 9,263 12, ,941 Adjustments of prior years (477) 318 (123) (49) Deferred taxation expense: Origination and reversal of temporary differences 1,070 1, ,037 Taxation expense 9,856 13, ,929 The 28 percent tax rate used above is the corporate tax rate payable by New Zealand corporate entities on taxable profit under New Zealand tax law. 30 Zespri Annual Report /14

33 Annual Report for the year ended 31 March 7. Taxation (continued) Parent (b) Components of deferred taxation Property, plant and equipment, and intangibles (557) (760) (1,041) (967) Inventories and receivables (112) (220) (41) - Retained earnings in subsidiaries (2,622) (2,507) - - Provisions and accruals 2,829 3, ,466 Other financial assets and liabilities (27) (1) - Employee entitlements 1,219 1,555 - Net deferred assets 730 1,974 (203) 499 Deferred tax assets 3,616 4, Deferred tax liabilities (2,886) (2,507) (203) - Net deferred assets 730 1,974 (203) 499 Parent (c) Net change in deferred tax balances Net deferred assets at 1 April 1,974 3, ,537 Charged to Income Statements (1,063) (1,132) (702) (2,038) Exchange differences and other (181) (202) - - Net deferred assets at 31 March 730 1,974 (203) 499 All movements have been charged to the Income Statements. No movements have been recorded directly within equity. (d) Tax credits available to shareholders Imputation credit account Balance at 1 April credit 1,256 7,349 Income tax payments made during the year 3,050 2,900 Imputation credits attached to dividends paid (2,341) (6,000) Transfers/refunds (1,206) (2,993) Other credits 1 7,897 - Balance at 31 March credit 8,656 1,256 Adjustments required under FRS-44: Imputation credits available to refund excess tax (4,932) (1,256) Total tax credits available for use at 31 March 3,724-1 The Other credits relates to the elimination of a debit balance upon removal of a subsidiary from the Company Register, increasing the imputation credits available for use. The debit balance did not give rise to further tax payments or tax penalties. On 20 May, the Board of Directors announced an intention to declare a dividend of 7.0 cents which will not be recognised in the Financial Statements until August. It is intended that the dividend will be fully imputed. On payment, $3,285,443 of imputation credits will be attached to dividends paid from income tax refunds due as at 31 March as a result of those refunds due being applied to 2015 provisional tax due and therefore not refunded. 31

34 Annual Report for the year ended 31 March 8. Earnings per share Parent Net profit after taxation attributable to shareholders () 17,245 7,569 2,199 29,912 Weighted average shares ( 000) 120, , , ,717 Basic and diluted earnings per share ($) Reconciliation of movements in reserves (a) Other reserves and Parent Defence fund reserve Balance at 1 April Revenue transferred from retained earnings Expenses transferred from retained earnings - (60) Income tax effect on items transferred from retained earnings (225) (130) Balance at 31 March 1, In /14, $579,658 (: $333,862) was transferred from retained earnings to the Defence Fund Reserve. The transfer amounts to the net after-taxation levied amount from new cultivar royalties and offshore Hort16A proceeds less costs incurred defending Zespri PVRs. (b) Retained earnings Note Parent Balance at 1 April 59,525 66,792 38,165 23,089 Dividend paid during the year 11 (6,042) (14,502) (6,042) (14,502) Net profit after taxation attributable to shareholders 17,245 7,569 2,199 29,912 Revenue attributed to defence fund transferred to other reserves (805) (524) (805) (524) Expenses attributed to defence fund transferred to other reserves Income tax effect on items transferred to other reserves Balance at 31 March 70,148 59,525 33,742 38, Share capital and Parent (a) Number of shares issued No. of shares No. of shares Number of authorised and fully paid issued ordinary shares at 31 March, at no par value 120,717, ,717,335 and Parent (b) Share capital value Balance at 31 March 18,017 18,017 Ordinary shares: All ordinary shares rank equally, subject to the voting cap. Each shareholder is entitled to one vote per ordinary share up to a maximum that is calculated by reference to that shareholder s share of total New Zealand production supplied to Zespri. 32 Zespri Annual Report /14

35 Annual Report for the year ended 31 March 10. Share capital (continued) (c) Capital management The Company s activities are restricted under the Kiwifruit Export Regulations 1999 in order to protect shareholders and contracted suppliers. The providers of capital must agree to the use of capital for any non-core activities and those who have not agreed cannot be exposed to more than minimal risk. Because Zespri is a short-term borrower, capital management is restricted to the management of authorised and issued share capital, retained earnings and other reserves. Under its Constitution, the Company may issue, buy-back, consolidate or subdivide shares. Since incorporation in 2000, the Company has: issued shares under the Kiwifruit Industry Restructuring Act 1999 in line with the production of New Zealand kiwifruit vines existing at the time; issued shares in a pro-rata offer in 2001 to obtain equity required to support activities stemming from increases in new plantings in New Zealand; issued shares in 2005 in a targeted offer to growers to realign shareholdings with levels of production of growers, while offering a voluntary share buy-back to dry shareholders or growers holding more shares than their proportion of production; transferred retained earnings to other reserves (refer Notes 1(k) and 9(a)) to separate funds from those available for distribution to shareholders; performed a share split in September 2010 to achieve a better alignment between trays supplied and total shares; and transferred other reserves to retained earnings (refer Note 9(a)) to cover Psa-related funding. Share capital The Regulations do not restrict the levels of share capital able to be authorised for issue by the Company. The Company s Constitution provides some restriction over the scale of individual offers for shares. To date, in line with the Kiwifruit Export Regulations 1999, shares have been issued by the Company to producing New Zealand kiwifruit growers. As noted in (b) above, voting rights of shareholders are capped by reference to the shareholder s share of total New Zealand production supplied to the Company during the year. Divergence between shareholdings and production can occur through the production impact of new plantings, ownership of shares and orchards, and as growers enter or exit the industry in New Zealand. This divergence is monitored by the Company at least annually, through the process of determining the voting caps of shareholders prior to the Annual Meeting of the Company. Future issues or buy-backs may occur to support increases in core or other approved activities, or to achieve a closer alignment between production levels and shareholdings of shareholders. Payment of dividends Capital levels are monitored as part of the solvency tests required under the Companies Act 1993 to approve the payment of dividends to shareholders. Capital retained in the Company is measured for solvency purposes, and to determine whether the minimum level of equity retained in Zespri, as agreed by the Board of Directors, is maintained. Information provided to the Board of Directors includes a measure of liquidity, a balance sheet test and a cash flow forecast to 31 March. A summary of the liquidity test and balance sheet test at 31 March is set out below: Parent Liquidity test: Current assets 320, , , ,576 Less non-liquid items (28,009) (16,405) (14,745) (5,290) Less current liabilities (252,965) (272,387) (281,080) (290,532) Current assets in excess of current obligations 39,637 46,987 30,259 43,754 Balance sheet test: Net assets 89,428 78,225 53,022 56,865 Less estimated value of contingent liabilities (29,728) (25,569) (29,394) (24,929) Net assets in excess of contingent liabilities 59,700 52,656 23,628 31,936 There has been no change in the requirements, policies or processes from the prior year. 33

36 Annual Report for the year ended 31 March 11. Dividends paid and Parent Ordinary dividends: On ordinary shares final (refer below) 1,207 9,657 On ordinary shares interim (current year) 4,829 4,829 Supplementary dividends (to non-residents) 6 16 Total dividends paid 6,042 14,502 The dividends are fully imputed. Supplementary dividends of $6,119 (: $16,333) were paid to shareholders not tax resident in New Zealand, for which Zespri received a foreign investor tax credit entitlement. On 20 May, the Board of Directors announced an intention to pay a fully imputed final dividend of 7.0 cents per share (: 1.0 cents per share), totalling $8,450,213 (: $1,207,173). This dividend will be paid in August. Because the intention was announced after balance date, the financial effect has not been recognised in the Financial Statements. During the year, the final dividend declared on 23 July of 1.0 cents per share and the interim dividend declared on 23 October of 4.0 cents per share were paid and recognised in the Financial Statements. 12. Accounts receivable Parent Current: Trade receivables 25,027 20,519 1, Other receivables 1, Less: Provision for doubtful debts - (1,440) ,357 19,630 1, Receivables from subsidiaries ,501 67,093 Indirect taxation 9,714 9,250 6,416 4,747 Total current receivables 36,071 28,880 96,259 72,576 Non-current: Trade receivables 2,898 2,077 2,898 2,077 Total non-current receivables 2,898 2,077 2,898 2,077 Total gross receivables 38,969 32,397 99,157 74,653 Less: Total provision for doubtful debts - (1,440) - - Total receivables 38,969 30,957 99,157 74,653 The carrying value of the items above has been determined by the Board of Directors as being representative of the fair value of the assets. Amounts receivable from related parties are disclosed at Note 28. A provision for doubtful debts is recognised where there is evidence that an individual trade receivable is impaired. As at 31 March, $Nil trade receivables (: $1,439,590) were impaired and provided for. 34 Zespri Annual Report /14

37 Annual Report for the year ended 31 March 12. Accounts receivable (continued) Parent (a) Movement in provision for doubtful debts Balance at 1 April 1, Bad Debts written off (1,428) Reversal of provision (12) (51) - - Additional provision - 1, Balance at 31 March - 1, Parent (b) Accounts receivable past due but not impaired Less than 3 months overdue 7,039 5, Between 3 and 6 months overdue Between 6 and 12 months overdue More than 12 months overdue Accounts receivable past due but not impaired at 31 March 7,473 5, The amount outstanding for more than 12 months is subject to an insurance claim by one of Zespri s suppliers and is still considered collectable. In certain regions, accounts receivable amounts are secured by bank guarantees or other collateral, with all others being unsecured. 13. Prepayments Parent Current: Prepaid submit payments for /15 season fruit 14,543 5,163 14,543 5,163 Insurance 2,238 1, Other 3,295 3, Total current prepayments 20,076 10,454 14,745 5,290 Non-current: Other Total non-current prepayments Total prepayments 20,481 10,499 14,745 5,290 35

38 Annual Report for the year ended 31 March 14. Insurance cover offered Parent (a) Insurance offered revenue and insurance offered expense Insurance revenue from insurance offered: 1 Included in operating revenue: Marine cargo pre-fobs for current season 27 1, Marine cargo pre-fobs for prior season , Insurance expense from insurance offered: 1 Included in operating expenses freight, distribution and insurance : Insurance claims and costs for current season: Marine cargo pre-fobs (981) (965) (981) (965) Insurance claims and costs for next season: Hail (813) (965) (813) (965) Net insurance income/(expense) from insurance cover offered 2 (295) 802 (813) (965) 1 The disclosures above relate only to the pre-fobs activities of the Company with the New Zealand-contracted suppliers. As such, the balances exclude any effect of insurance purchased by Zespri to cover risks post-fobs whether ultimately attributed to New Zealand-contracted suppliers fruit return under the New Zealand Supply Agreement or to the results of Zespri. 2 The net insurance expense is a cost to the New Zealand-contracted suppliers under the New Zealand Supply Agreement. Parent (b) Insurance assets and insurance liabilities from insurance offered Movements in assets: Balance at 1 April Additional claims 27 1, Amounts received (27) (1,520) - - Insurance assets from insurance offered at 31 March Movements in liabilities: Balance at 1 April Additional claims and costs Claims and costs settled (168) (379) (168) (379) Insurance liabilities from insurance offered at 31 March (c) Objectives in managing risks The insurance offered to New Zealand-contracted suppliers for hail and marine cargo pre-fobs is agreed annually and is set out in the New Zealand Supply Agreement. The Company s objective in managing these risks is to protect the New Zealand-contracted suppliers for losses that would otherwise be compensated by the Company s sale of their fruit: i.e. to cover costs incurred by the contracted supplier up to the date of the loss. The Company s ultimate financial exposure to the risks of insurance offered and related reinsurance is limited because the cost of the insurance is a deductible item in calculating the final fruit return payable to New Zealandcontracted suppliers. 36 Zespri Annual Report /14

39 Annual Report for the year ended 31 March 14. Insurance cover offered (continued) (d) (e) Terms and conditions of insurance Hail cover An annual policy is offered to New Zealand-contracted suppliers on approval by the Company s Board of Directors and the Industry Advisory Council (IAC). The terms of cover are contained in the Insurance Update published annually circa August, and the annual New Zealand Supply Agreement. The insurance period is 1 August to 30 June the following year. Subject to the policy terms, the Company covers contracted suppliers in New Zealand for loss of Class 1 yield of kiwifruit which is directly struck by hail and whose kiwifruit on the vine is destined for the Company s export markets. The Company s cover limit per policy period is $3.0 million for each of the Green (including Green Organic) and other varieties pools. In addition to the indemnity offered by the Company, each of the Green and other varieties pools is covered by $3.0 million (: $3.0 million) of commercially purchased insurance. The commercial cover is activated only if the $3.0 million self-insurance provided by the Company is exceeded. Claims are paid at the end of the insurance period. In the event of the agreed value of all claims from hail exceeding $6.0 million (: $6.0 million) for either the Green or other varieties pools, the payment to all Zespri growers who have suffered hail losses after the deductible percentage is limited to $6.0 million (: $6.0 million) per variety. All claims for the variety in which the limit has been exceeded will be pro-rated in proportion to that limit. Marine cargo cover pre-fobs Cover for marine cargo insurance offered to New Zealand-contracted suppliers is dependent on the terms of cover able to be obtained annually by the Company as reinsurance. The terms of cover are contained in the annual New Zealand Supply Agreement issued every year to New Zealand-contracted suppliers and in April s edition of Kiwiflier. The basis of valuation is the agreed FOBS value, as declared by the insurer in monthly Kiwiflier declarations, less costs not incurred after discovery of the loss or damage. Claims are paid when the value of the loss is agreed upon, net of a deductible amount disclosed in the annual New Zealand Supply Agreement. Assumptions The Company s assumptions are: volume assessed as lost: actual agreed volumes plus assessor estimate where settlement is pending; settlement timing: within 12 months of the claim therefore no interest rate or inflation adjustment is applied; claim unit value; hail as documented in Insurance Update published in August each year; and marine cargo pre-fobs as published in Kiwiflier at the time of the claim. Insurance and reinsurance risks Credit risk No premiums are charged directly by the Company to the parties covered by hail and marine cargo insurance pre-fobs. Instead, certain costs of cover are deducted from the calculation of the fruit return payable to New Zealand-contracted suppliers. The Company is exposed to credit risk in relation to the reinsurance taken out with its insurer of marine cargo. Its insurer has a Standard & Poor s credit rating of A+ and is not considered by the Board of Directors to pose a credit risk should significant claims be made by the Company under the terms of the cover. Interest rate risk Because of the short life of the insurance cover, there is no material interest rate risk associated with the cover offered by or to the Company. Concentration of insurance risks Hail cover: The risk of a hail event is concentrated from 1 August each season until harvest is complete, which is normally mid-june. The contracted suppliers kiwifruit orchards are situated throughout New Zealand but a significant proportion are located in the Bay of Plenty. Marine cargo cover pre-fobs: The risk of a pre-fobs insurance claim is concentrated from the beginning of each season s harvest, normally in March, until all produce is shipped, which is normally in November. Produce at risk is situated throughout New Zealand, but a significant proportion of the produce is located in the Bay of Plenty prior to shipping. In addition, produce is concentrated within individual post-harvest facilities prior to shipping. 37

40 Annual Report for the year ended 31 March 14. Insurance cover offered (continued) (f) Sensitivity of results to changes in variables Hail cover The quantum of hail insurance expense is dependent on three variables, which are: the volume assessed as lost as a result of a hail event; whether the hail event occurred pre or post the setting of kiwifruit on the vines; and the claims history of the insured. A movement in any one of these factors could cause a change in the insurance expense, reinsurance revenue, insurance asset or liability balances. The results are contingent on weather variables and growing conditions prevailing during the season of cover. By 31 March, however, most of these variables are measurable because of the annual nature of the insurance cover, the timing of the activities covered and the requirement of claim notification within 48 hours. The Company s hail insurance exposure is limited to a total of $6.0 million (: $6.0 million) per insurance period, as documented in the insurance policy terms, plus any related costs such as loss assessment fees. Any sensitivity in the above factors is, therefore, not deemed by the Board of Directors to be material to the results of the Company. Marine cargo cover pre-fobs The quantum of marine cargo insurance expense is dependent on: the volume assessed as lost as a result of an insurable event; the grade of kiwifruit assessed as lost; and the forecast return published. The return is dependent on the market mix of export volumes, offshore office predictions of revenues and costs, foreign exchange movements and hedge cover. A movement in any one of these factors could cause a change in the insurance expense, reinsurance revenue, insurance asset or liability balances. By 31 March, however, most of these variables are measurable because of the annual nature of the insurance cover and the timing of the activities covered. Any sensitivity in the above factors is, therefore, not deemed by the Board of Directors to be material to the results of the Company. 15. Financial assets and liabilities (a) Financial assets per Balance Sheets Notes Loans and receivables Assets designated at fair value through the Income Statements Total Derivatives held for trading , , , ,218 Accounts receivable 12 38,969 30, ,969 30,957 Cash and cash equivalents 24(b) 132, , , ,688 Total other financial assets 171, , , , , ,863 Represented by: Current 168, , , , , ,514 Non-current 2,898 2,077 97, , , ,349 Total other financial assets 171, , , , , ,863 (b) Financial liabilities per Balance Sheets Notes Liabilities at amortised cost Liabilities designated at fair value through the Income Statements Total Derivatives held for trading - - 1, , Contracted future suppliers , , , ,288 Accounts payable and accruals , , , ,574 Total other financial liabilities 113, , , , , ,488 Represented by: Current 111, , , , , ,885 Non-current 1,322 1,331 97, ,272 99, ,603 Total other financial liabilities 113, , , , , , Zespri Annual Report /14

41 Annual Report for the year ended 31 March 15. Financial assets and liabilities (continued) Parent (a) Financial assets per Balance Sheets Notes Loans and receivables Assets designated at fair value through the Income Statements Total Inter-company derivatives held for trading , , , ,288 Accounts receivable 12 99,157 74, ,157 74,653 Cash and cash equivalents 24(b) 109, , , ,316 Total other financial assets 208, , , , , ,257 Represented by: Current 206, , , , , ,286 Non-current 2,898 2,077 97, , , ,971 Total other financial assets 208, , , , , ,257 (b) Financial liabilities per Balance Sheets Notes Liabilities at amortised cost Liabilities designated at fair value through the Income Statements Total Contracted future suppliers , , , ,288 Accounts payable and accruals , , , ,071 Total other financial liabilities 157, , , , , ,359 Represented by: Current 157, , , , , ,465 Non-current , ,894 97, ,894 Total other financial liabilities 157, , , , , ,359 Fair value of financial assets and liabilities The fair value of financial instruments is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity-specific estimates. Where necessary, estimated future cash flows are calculated using forward prices and interest rate yield curves. Forward prices and interest rate yields are sourced from the relevant published market-observable exchange rates and interest rates applicable to the remaining life of the instrument, at the valuation date. The derivative financial instruments below have been valued using a discounted cash flow valuation methodology. The table below presents assets and liabilities that are measured at fair value by the following fair value measurement hierarchy: Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); Level 3 Inputs for the asset or liability that are not based on market-observable data (i.e. unobservable inputs). 39

42 Annual Report for the year ended 31 March 15. Financial assets and liabilities (continued) Fair value of financial assets and liabilities valuation hierarchy Level 2 Total Assets Derivatives held for trading 204, , , , , , , ,218 Liabilities Derivatives held for trading 1, , Contracted future suppliers 203, , , , , , , ,914 Parent Assets Inter-company derivatives held for trading 203, , , , , , , ,288 Liabilities Contracted future suppliers 203, , , , , , , , Inventories New Zealand kiwifruit inventory (future season) 7,752 5,953 Non-New Zealand kiwifruit inventory 3,835 2,444 Packaging materials 5,276 4,399 Other Total inventories 16,973 12,860 Security pledged Refer to Note 26 for details of security pledged by Zespri. 40 Zespri Annual Report /14

43 Annual Report for the year ended 31 March 17. Property, plant and equipment Leasehold improvements Plant and equipment Motor vehicles Work in progress Total Cost as at 1 April 2,635 7, ,487 Accumulated depreciation (1,798) (5,440) (682) - (7,920) Net book value 1 April 837 2, ,567 Depreciation expense (227) (1,249) (100) - (1,576) Additions Disposals (net) - (4) - - (4) Transfers (34) - Net book value 31 March 642 1, ,649 Cost as at 31 March 2,667 7, ,625 Accumulated depreciation (2,025) (6,360) (591) - (8,976) Net book value 31 March 642 1, ,649 Cost as at 1 April 2,705 8, ,295 Accumulated depreciation (1,554) (4,995) (583) - (7,132) Net book value 1 April 1,151 3, ,163 Depreciation expense (268) (1,432) (99) - (1,799) Additions Disposals (net) (49) (96) - - (145) Transfers (217) - Net book value 31 March 837 2, ,567 Cost as at 31 March 2,635 7, ,487 Accumulated depreciation (1,798) (5,440) (682) - (7,920) Net book value 31 March 837 2, ,567 Security pledged Refer to Note 26 for details of security pledged by Zespri. 41

44 Annual Report for the year ended 31 March 18. Intangibles Development costs Computer software Work in progress Total Cost as at 1 April 11,835 12,773 1,248 25,856 Accumulated amortisation (6,758) (9,842) - (16,600) Net book value 1 April 5,077 2,931 1,248 9,256 Amortisation expense (1,148) (1,467) - (2,615) Additions 1, ,332 9,819 Disposals (net) - (38) - (38) Transfers (784) - Net book value 31 March 5,178 2,448 8,796 16,422 Cost as at 31 March 13,084 13,488 8,796 35,368 Accumulated amortisation (7,906) (11,040) - (18,946) Net book value 31 March 5,178 2,448 8,796 16,422 Cost as at 1 April 7,242 11,992 1,131 20,365 Accumulated amortisation (6,454) (8,865) - (15,319) Net book value 1 April 788 3,127 1,131 5,046 Amortisation expense (304) (1,757) - (2,061) Additions 4, ,248 6,347 Disposals (net) - (76) - (76) Transfers - 1,131 (1,131) - Net book value 31 March 5,077 2,931 1,248 9,256 Cost as at 31 March 11,835 12,773 1,248 25,856 Accumulated amortisation (6,758) (9,842) - (16,600) Net book value 31 March 5,077 2,931 1,248 9, Zespri Annual Report /14

45 Annual Report for the year ended 31 March 18. Intangibles (continued) Development costs Work in progress Total Parent Cost as at 1 April 11, ,909 Accumulated amortisation (6,758) - (6,758) Net book value 1 April 5, ,151 Amortisation expense (1,148) - (1,148) Additions 1, ,276 Transfers 74 (74) - Net book value 31 March 5, ,279 Cost as at 31 March 13, ,185 Accumulated amortisation (7,906) - (7,906) Net book value 31 March 5, ,279 Parent Cost as at 1 April 7,242-7,242 Accumulated amortisation (6,454) - (6,454) Net book value 1 April Amortisation expense (304) - (304) Additions 4, ,667 Net book value 31 March 5, ,151 Cost as at 31 March 11, ,909 Accumulated amortisation (6,758) - (6,758) Net book value 31 March 5, ,151 Development costs The Company has applied for PVRs for the three new varieties (Gold3, Gold9 and Green14) which were commercialised for production in mid The corresponding development costs have been capitalised since commercialisation and will be amortised at a rate of 20 percent per annum. The development costs include, but are not limited to, legal fees, PVR application fees, budwood collection and GPS mapping. Once granted, a PVR will establish exclusive intellectual property rights in the jurisdictions where they apply. On all post-commercialisation sales of the new cultivars a royalty is payable to The New Zealand Institute for Plant & Food Research Limited. The Company purchased Hort16A PVRs from The New Zealand Institute for Plant & Food Research Limited, effective 1 April The purchase of the PVRs gives the Company the exclusive intellectual property rights on all Hort16A kiwifruit in the jurisdictions in which the PVRs apply. As part of the purchase, the Company will continue to pay a royalty to The New Zealand Institute for Plant & Food Research Limited, and as collateral for these future royalty payments, The New Zealand Institute for Plant & Food Research Limited holds a security interest in the Hort16A PVRs and all Hort16A intellectual property. In addition, the assignment of the Hort16A PVRs and its associated rights and obligations outside Zespri requires the consent of The New Zealand Institute for Plant & Food Research Limited. In New Zealand, the Company holds the exclusive right to propagate and distribute plant material, and market and sell the variety of kiwifruit known in New Zealand as Hort16A, until 14 November As at 31 March, the book value of development costs relating to new cultivars is $5,178,126 (: $5,076,868). Intangibles work in progress As at 31 March, 99 percent (: 94 percent) of the intangibles work in progress relates to ongoing computer software projects. Security pledged In addition to The New Zealand Institute for Plant & Food Research Limited security interest mentioned above, refer to Note 26 for further details of security pledged by Zespri. 43

46 Annual Report for the year ended 31 March 19. Investment in subsidiary companies Parent Investment in subsidiary companies Balance at 1 April Additions Impairment/write-off (520) - Value at 31 March Zespri Limited is the ultimate holding company for the Zespri of companies. All subsidiaries have a 31 March balance date with the exception of Zespri Jia Pei Fruit (Shanghai) Co.,Ltd and Zespri Fruit (Shanghai) Co. Limited 1 which both have a 31 December balance date due to local requirements. The results of the operations of the following wholly owned subsidiaries have been included in the consolidated Financial Statements: Subsidiary Incorporated Nature of activities Zespri International Limited New Zealand Management of the export and marketing of New Zealand-grown kiwifruit and management of the sale and marketing of non-new Zealand-grown kiwifruit Aragorn Limited New Zealand Non-trading company Kiwifruit Marketing NZ Limited 1 New Zealand Non-trading company (de-registered 10 February ) Zespri Innovation Company Limited New Zealand Research Zespri International (Asia) Limited New Zealand Marketing and promotion services Zespri International (Japan) Limited New Zealand Non-trading company Zespri International Trading Limited New Zealand Investment company Zespri New Zealand Limited New Zealand Investment company Zespri International (Australia) Pty Limited Australia Management of the growing, sourcing and sale of Zespri Gold Kiwifruit grown in Australia Zespri International (Europe) N.V. Belgium Management of sales and marketing in Europe of all New Zealand-grown kiwifruit and non-new Zealandgrown Zespri Gold Kiwifruit. Management of trading in non-new Zealand-grown Zespri Green Kiwifruit in Europe Zespri Service Centre N.V. Belgium Service provision to Zespri companies Zespri Jia Pei Fruit (Shanghai) Co.,Ltd China Management of sales and marketing of all New Zealand and non-new Zealand-grown kiwifruit Zespri Fruit (Shanghai) Co Limited 1 China In-market support, sales and marketing Zespri Fresh Produce France S.A.R.L. France Management of the growing, sourcing and sale of Zespri Gold Kiwifruit grown in France Zespri International France S.A.R.L. France In-market support of Belgian companies Zespri International Germany GmbH Germany In-market support of Belgian companies Zespri Fresh Produce Italy S.r.l. Italy Management of the growing, sourcing and sale of Zespri Gold Kiwifruit grown in Italy Zespri International Italy S.r.l. Italy In-market support of Belgian companies Zespri International (Japan) K.K. Japan Management of the growing, sourcing and sale of Zespri Gold Kiwifruit grown in Japan, and management of the sale of New Zealand-grown kiwifruit Zespri International (Korea) Co. Limited Korea Management of the growing, sourcing and sale of Zespri Gold Kiwifruit grown in Korea, and management of the sale of New Zealand-grown kiwifruit Zespri International (Singapore) Pte Limited Singapore Marketing and promotion services Zespri International Iberica SL Spain In-market support of Belgian companies Zespri International Nordic AB Sweden In-market support of Belgian companies (non-trading from January ) Zespri International (United Kingdom) Limited United Kingdom In-market support of Belgian companies Zespri Fresh Produce North America Inc. United States of America Non-trading company New Zealand Kiwi Holdings Inc. United States of America Marketing and promotion services New Zealand Kiwi Corporation Inc. United States of America Non-trading company 1 A new entity was incorporated in China, including the capability to import, manage sales and marketing in China of New Zealand and Non-New Zealand-grown kiwifruit. 44 Zespri Annual Report /14

47 Annual Report for the year ended 31 March 20. Accounts payable and accruals Parent Current: Trade creditors 25,330 16, Accrued expenses 36,248 40,316 1,581 1,491 New Zealand fruit and service payments accrued current season 1 33,553 27,222 33,553 27,222 New Zealand fruit and service payments accrued future season 8,560 12,188 8,560 12,188 Amounts payable to subsidiaries , ,170 Advances received from customers - 3, Income in advance Payroll tax deductions payable 1, Employee entitlements 6,852 9, Total current accounts payable and accruals 111, , , ,071 Non-current: Employee entitlements 1,322 1, Total non-current accounts payable and accruals 1,322 1, Total accounts payable and accruals 113, , , ,071 1 Relates to contracted suppliers of New Zealand-grown kiwifruit. As at 31 March, 97 percent (: 97 percent) of fruit and service payments had been made. 2 As at 31 March, $130,176 (: $625,655) relates to funding received from the Foundation for Research, Science and Technology (FRST) for new cultivar pre-commercial R&D, discussed in Note 2(b). Contractual conditions to allow recognition of the FRST co-funding as sundry revenue had not been met at 31 March. The carrying value of the items above has been determined by the Board of Directors as representative of the fair value of the liabilities. Amounts payable to, or accrued to, related parties are disclosed at Note

48 Annual Report for the year ended 31 March 21. Provisions Loyalty premium Psa provision Other provisions Total Value at 1 April 15,004 16,613 4,784 5,192 15,396 5,433 35,184 27,238 Amounts charged (23,381) (26,600) (1,947) (4,612) (2,685) (3,512) (28,013) (34,724) Reversal of provision (181) (1,015) (181) (1,015) Additional provision 20,999 24,991-4,204 2,555 14,656 23,554 43,851 Exchange differences (322) (166) (322) (166) Value at 31 March 12,622 15,004 2,837 4,784 14,763 15,396 30,222 35,184 Represented by: Current 12,622 15,004 2,837 4,784 14,763 14,641 30,222 34,429 Non-current ,622 15,004 2,837 4,784 14,763 15,396 30,222 35,184 Parent Value at 1 April 15,004 16,613 4,783 5, ,787 21,805 Amounts charged (23,381) (26,600) (1,947) (4,613) - - (25,328) (31,213) Additional provision 20,999 24,991-4, ,999 29,195 Value at 31 March 12,622 15,004 2,836 4, ,458 19,787 Represented by: Current 12,622 15,004 2,836 4, ,458 19,787 Non-current ,622 15,004 2,836 4, ,458 19,787 Loyalty premium A loyalty premium is paid to each New Zealand grower who has signed a three-year rolling grower contract and met the conditions of that contract. The loyalty premium is 25 cents (: 25 cents) per tray equivalent of New Zealand Class 1 kiwifruit supplied to the Company. The premium is paid in two instalments. The first instalment of 10 cents per Class 1 tray equivalent was paid on 17 January (: 18 January ). The remaining 15 cents of loyalty premium per Class 1 tray equivalent will be paid on 13 June (: 14 June ). Psa (Pseudomonas syringae pv actinidiae) provision In November 2010, Psa was first found on a New Zealand orchard and has since developed into a serious challenge for the New Zealand kiwifruit industry. Psa is an airborne bacterial disease of kiwifruit vines that can significantly impact the orchard productivity. In February 2011, the Company and MPI Biosecurity NZ (formerly MAF Biosecurity NZ) entered into a funding agreement with Kiwifruit Vine Health Incorporated (KVH) which provides for funding to be paid to KVH. This agreement requires the Company to at least match funding provided by MPI Biosecurity NZ to KVH, up to a maximum of $25.0 million (excluding GST). This contract was extended during the 2012/13 financial year. The provision recognises that Zespri has received the co-funding from the growers and will fund KVH for the balance of the $25.0 million commitment, being $2.8 million (: $4.8 million). 46 Zespri Annual Report /14

49 Annual Report for the year ended 31 March 21. Provisions (continued) Other provisions In the normal course of business, the is party to various lawsuits and claims (refer Note 25). Zespri Jia Pei Fruit (Shanghai) Co.,Ltd was found guilty of being an accessory to the underpayment of customs duties in China in. This follows the failure by independent Chinese importers to pay import duty on Zespri Kiwifruit in the 2008 to 2010 sales seasons. As at 31 March, $12.1 million (: 12.6 million) has been included in other provisions in recognition of the fine imposed and illegal gains alleged by the court. Included in other provisions as at 31 March was $805,444 representing the estimate of legal costs and amounts payable in identified claims or penalties. The SFO has issued notices to the company seeking company documents and information pursuant to Section 9 of the Serious Fraud Act This information is being compiled and provided to the SFO as required. As at 31 March, an amount of $1.5 million representing the estimate of legal and other costs to be incurred to meet the requirements of the SFO investigation is included in other provisions. As at 31 March, an amount of $1,134,005 (: $2,401,942) recorded in other provisions relates to restructuring and represents obligations under employment and signed termination contracts. 22. Operating lease and other commitments (a) Operating lease commitments Non-cancellable operating leases payments: Payable within one year 2,562 1,973 Payable between one and five years 3,198 2,313 5,760 4,286 Total future non-cancellable operating sublease receipts: Receivable within one year (18) (16) (18) (16) Lease expense recognised in the Income Statements under operating expenses: Minimum lease payments 1,975 1,973 Sublease receipts (22) (20) 1,953 1,953 Zespri leases premises, motor vehicles and office equipment under operating leases, and sublets excess office capacity. Operating leases for premises give Zespri companies, in most cases, the right to renew the lease subject to a redetermination of the lease rental by the lessor. There is no option to purchase any of the leased assets at the expiry of the lease period. 47

50 Annual Report for the year ended 31 March 23. Reconciliation of net profit after taxation with net cash from operating activities Notes Parent Net profit after taxation 17,245 7,569 2,199 29,912 Non-cash items: Net loss on sale of property, plant and equipment and intangibles Write-down of investment in subsidiary Net loss/(gain) on foreign currency cash balances 7,232 (3,763) - - Additional provisions net of reversals and foreign exchange differences 23,051 42,670 20,999 29,195 Depreciation of plant, property and equipment 17 1,576 1, Amortisation of intangibles 18 2,615 2,061 1, Movement in deferred taxation 1,244 1, ,038 35,730 44,260 23,369 31,537 Movement in working capital: Increase in inter-company receivables - - (21,408) (19,879) Decrease/(increase) in receivables and prepayments (17,994) 12,236 (12,551) 17,353 Decrease/(increase) in net current income tax (4,435) 2, (1,068) Decrease/(increase) in other financial assets 39,422 (57,938) 39,182 (59,855) Increase in inventories (4,113) (6,498) - - Increase in inter-company payables - - 7,024 11,475 (Decrease)/increase in payables to contracted suppliers (1,543) Decrease in accounts payable, accruals, provisions and employee entitlements (23,787) (32,070) (18,981) (33,045) Decrease in insurance liability - (275) - (275) (Decrease)/increase in other financial liabilities (38,528) 57,691 (39,182) 59,855 (48,890) (25,978) (45,419) (24,793) Items classified as investing activities (20,007) Items classified as financing activities (4,980) (5,355) (4,728) (4,825) Net cash available from/(utilised by) operating activities (895) 20,496 (24,579) 11,824 1 totals include amounts payable to contracted suppliers of non-new Zealand-grown kiwifruit. 48 Zespri Annual Report /14

51 Annual Report for the year ended 31 March 24. Financial instruments Zespri is subject to a number of financial risks that arise as a result of its operational activities. To manage and limit the effect of these financial risks, the Board of Directors has approved policy guidelines and authorised the use of various financial instruments. The policies and financial instruments permitted are documented in the Treasury Management Policy which is reviewed and approved annually. The policies and financial instruments being utilised at balance date are discussed under the sections Liquidity risk, Credit risk and Market risk below. (a) Liquidity risk The liquidity risk to which Zespri is exposed is managed under the Treasury Management Policy. The objective is to ensure that cash is available to pay obligations as they fall due. There are three forms of liquidity management recognised: day-to-day cash management to ensure funds are available for short-term requirements; long-term going-concern liquidity management to ensure facilities are in place to meet future requirements; and short-term liquidity crisis management to cover unforeseen crisis events. Contractual maturities as at 31 March < 1 year 1-2 years 2-5 years Total Notes Non-derivative liabilities Trade creditors 20 25, ,330 Accruals and other payables 20 78, , , ,821 Derivatives: Derivatives held for trading 15(b) 1, ,280 Contracted future suppliers 15(b) 105,278 71,875 25, , ,423 72,010 25, ,386 Total contractual maturities 210,244 72,010 25, ,207 Non-derivative liabilities Trade creditors 20 16, ,433 Accruals and other payables 20 83, , , ,141 Derivative liabilities Derivatives held for trading 15(b) Contracted future suppliers 15(b) 120,394 65,835 56, , ,642 66,213 56, ,914 Total contractual maturities 220,783 66,213 56, ,055 49

52 Annual Report for the year ended 31 March 24. Financial instruments (continued) (a) Liquidity risk (continued) Contractual maturities as at 31 March < 1 year 1-2 years 2-5 years Total Notes Parent Non-derivative liabilities Accounts payable to subsidiaries , ,194 Accruals and other payables 20 43, , , ,888 Derivative liabilities Contracted future suppliers 15(b) 105,278 71,875 25, , ,278 71,875 25, ,106 Total contractual maturities 263,166 71,875 25, ,994 Parent Non-derivative liabilities Accounts payable to subsidiaries , ,170 Accruals and other payables 20 40, , , ,071 Derivative liabilities Contracted future suppliers 15(b) 120,394 65,835 56, , ,394 65,835 56, ,288 Total contractual maturities 268,465 65,835 56, ,359 (b) Credit risk Zespri is exposed to credit risk from transactions with trade debtors and financial institutions in the normal course of business. Zespri has a credit approval policy which restricts the exposure to individual debtors and the Board of Directors reviews exposures to trade debtors on a regular basis. In certain regions amounts owed by trade debtors are secured by way of bank guarantees or other collateral, with all others being unsecured. Zespri does not require any collateral or security from financial institutions to support its transactions with those institutions. The counter-parties used for banking and finance activities are financial institutions with high credit ratings, ranging from A to A-. (i) Credit risk counter-parties: Financial instruments to which Zespri is exposed to credit risk consist principally of bank balances, short-term deposits, inter-company receivables, accounts receivable and foreign exchange contracts with banks. Zespri does not consider balances owed by government tax authorities to be a credit risk. Zespri continuously monitors the credit quality of the counter-parties to its financial instruments. Zespri does not anticipate non-performance by any of its counter-parties. 50 Zespri Annual Report /14

53 Annual Report for the year ended 31 March 24. Financial instruments (continued) (b) Credit risk (continued) (ii) Maximum exposures to credit risk at 31 March: Parent Maximum exposures to credit risk Notes Bank balances 22,943 14, Short-term deposits 109, , , ,314 Cash and cash equivalents 132, , , ,316 Accounts receivable 12 29,255 21,707 4,240 2,813 Receivables from subsidiaries ,501 67,093 Derivative assets held for trading 15(a) 204, , Inter-company derivative assets held for trading 15(a) , ,288 Total maximum exposures to credit risk 366, , , ,510 (iii) The amounts above have been determined by the Board of Directors to be the fair value of these classes of financial instruments. Exposure risk on guarantees pledged is further disclosed in Note 25. Refer to Note 12 for further information on credit risk of accounts receivable. Concentration of credit risk: Concentration of credit risk by geographical location is indicated below: Europe Japan Other USA New Australia Other Total Asia Canada Zealand Location of counter-party Bank balances 4, ,352 4, ,943 Short-term deposits , ,782 Cash and cash equivalents 4, ,352 4, , ,725 Accounts receivable 18, ,334-6, ,255 Derivative assets held for trading 17, ,473 8, ,796 Total location of counter-party 39, ,686 4, ,591 8, ,776 Bank balances 2, , ,374 Short-term deposits , ,314 Cash and cash equivalents 2, , , ,688 Accounts receivable 15, ,170-3, ,707 Derivative assets held for trading 19, ,092 13, ,218 Total location of counter-party 37, , ,078 14, ,613 51

54 Annual Report for the year ended 31 March 24. Financial instruments (continued) (b) Credit risk (continued) (iii) Concentration of credit risk (continued): Europe Japan Other USA New Australia Other Total Asia Canada Zealand Location of counter-party Parent Bank balances Short-term deposits , ,782 Cash and cash equivalents , ,802 Accounts receivable , ,240 Receivables from subsidiaries , ,501 Inter-company derivative assets held for trading 16, ,200 8, ,106 17, ,470 8, ,649 Parent Bank balances Short-term deposits , ,314 Cash and cash equivalents , ,316 Accounts receivable , ,813 Receivables from subsidiaries , ,093 Inter-company derivative assets held for trading 18, ,477 13, ,288 18, ,983 14, ,510 (c) Market risk Zespri is subject to market risks that arise as a result of its operational activities. The key types of market risk that Zespri is exposed to include interest rate risk, currency risk and commodity price risk. (i) Interest rate risk: Zespri s policy relating to interest rate risk management aims to achieve the lowest cost of funds while meeting seasonal funding needs. Zespri may put in place seasonal funding facilities if required (refer Note 26). Zespri is primarily a short-term borrower and investor and generally carries any interest rate risk itself. Investments consist of on-call funds and short-term deposits. Interest rate derivative instruments may be used at Zespri s discretion. No interest rate derivative contracts were entered into during the year (: Nil). (ii) Currency risk: During the course of business, Zespri procures and exports fruit, incurs selling, marketing and administrative costs, and carries cash denominated in foreign currencies. As a result of these transactions, exposures to fluctuations in foreign currency exchange rates occur. The foreign currencies in which Zespri primarily deals are Euro (EUR), Japanese Yen (JPY), United States Dollars (USD) and Korean Won (KRW). Zespri s primary objective in managing foreign exchange risk is to mitigate excess volatility in the New Zealand dollar return to shareholders and the New Zealand kiwifruit industry arising from foreign currency movements. Net exposures of expected foreign currency income and expenditures are estimated. The Treasury Management Policy provides guidelines within which Zespri may enter into contracts to manage the expected net exposures. Based on these guidelines, contracts are taken out for the current year and up to two years in advance. With express Board approval, the Company can take out contracts that are in excess of two years in advance. The Treasury Management Policy is reviewed by the Board of Directors and is approved annually. 52 Zespri Annual Report /14

55 Annual Report for the year ended 31 March 24. Financial instruments (continued) (c) Market risk (continued) (ii) Currency risk (continued): Foreign exchange contracts As part of the foreign currency hedging strategy, Zespri has entered into forward foreign exchange contracts and options. The value of these contracts held at balance date were: At fair value through the Income Statements held for trading Notional value Fair value gain/(loss) Sell forward exchange contracts 1,001,336 1,088, , ,994 Currency option contracts 277, ,365 14,949 9,538 1,278,695 1,238, , ,532 Represented by: Other financial assets 204, ,946 Other financial liabilities (1,108) (414) 203, ,532 By currency: EUR/NZD 391, ,494 20,067 41,385 JPY/NZD 604, , , ,661 USD/NZD 226, ,192 5,566 7,486 USD/KRW 55,579-2,361-1,278,695 1,238, , ,532 Maturity of foreign exchange contracts Notional value Fair value gain/(loss) Less than one year 750, , , ,639 Within one to two years 351, ,584 71,876 65,835 More than two years 176, ,193 25,953 56,058 1,278,695 1,238, , ,532 (iii) Commodity price risk: During the course of business, Zespri exports fruit incurring significant freight expenses which are impacted by fluctuations in the price of oil. As part of the commodity hedging strategy, oil forward contracts were entered into during the year. The value of these contracts held at balance date were: At fair value through the Income Statements held for trading Notional value Fair value gain/(loss) Oil price forward contracts 26,884 29,684 (59) 1,059 26,884 29,684 (59) 1,059 Represented by: Other financial assets 113 1,272 Other financial liabilities (172) (213) (59) 1,059 53

56 Annual Report for the year ended 31 March 24. Financial instruments (continued) (c) Market risk (continued) (iii) Commodity price risk (continued): Maturity of oil price forward contracts Notional value Fair value gain/(loss) Less than one year 26,884 29,684 (59) 1,059 (d) (e) Fair value estimation The fair value of forward exchange, currency option and oil price forward contracts is determined using valuation techniques with observable inputs. The fair values of financial assets and financial liabilities are measured by discounting future cash flows at the current market interest rate plus an estimated credit margin that are available for similar financial instruments. (refer Note 15). Market risk sensitivity as at 31 March Zespri is exposed to various market risks in relation to balances held at 31 March. Due to the seasonal nature of the business, the impact on the Income Statements and Equity resulting from movements in foreign exchange rates and interest rates that could have occurred at 31 March is unrepresentative of the exposure during the year and is immaterial to the results for the year ended 31 March. Management has considered the seasonal risk to the business and the sensitivity using average balances held during the year. Under the terms of the New Zealand Supply Agreement, the supplier assumes the risk of foreign exchange, and any change in foreign currency rates on average balances would not be material to the pre-tax profit of the. The effect of exchange rate movements is managed by the use of forward contracts and options to mitigate excess volatility. Under the terms of the New Zealand Supply Agreement, interest costs incurred on the funding facility and interest income earned on short-term deposits are largely assumed by the supplier. A change in interest rates using average funding facility and short-term deposit balances for the year would not be material to the pre-tax profit of the. Embedded derivatives Zespri International Limited acts as treasury agent for Zespri. The Company is responsible for paying New Zealand-contracted suppliers based on the net results earned by Zespri. The Company has entered into back-to-back arrangements with New Zealand-contracted suppliers (supply entities which have signed the New Zealand Supply Agreement) and Zespri International Limited, primarily reflecting the results of any derivatives taken out for the purposes of managing risk to the New Zealand fruit return. Notional value Fair value gain/(loss) Contracted future suppliers 1,305,579 1,267,770 (203,517) (243,591) Parent Notional value Fair value gain/(loss) Contracted future suppliers 1,305,579 1,267,770 (203,517) (243,591) Inter-company derivatives held for trading 1,305,579 1,267, , , Guarantees and contingent liabilities (a) Guarantees Zespri International Limited has secured, by letter of intent, a credit facility with Belfius Bank (formerly Dexia Bank) for Zespri Service Centre N.V. The maximum exposure level is $1,171,926 (: $1,184,470). Under this letter of intent, the current exposure level is: Zespri Service Centre N.V. has provided a guarantee in favour of Cofinimmo N.V. for a lease guarantee on an office building Zespri Service Centre N.V. has provided a guarantee in favour of LeasePlan Servicios S.A. Spain for a lease guarantee on company vehicles 2 11 Zespri International Limited has guaranteed, by way of three bank guarantees, an Italian VAT recovery Zespri Annual Report /14

57 Annual Report for the year ended 31 March 25. Guarantees and contingent liabilities (continued) No settlement relating to any of the above guarantees has occurred since their inception. The likelihood and value of any future outflow resulting from these guarantees is uncertain. (b) Contingent liabilities New cultivars A contingent liability exists for licences issued under the variety licence agreement signed by Zespri and the growers in /14, 2012/13, 2011/12 and 2010/11. During this financial year Zespri issued in total 1, hectares (: 2, hectares) of Gold3 and hectares of Gold9 licences were transferred to Gold3. No Gold9 or Green14 hectares were issued during /14. In 2012/ hectares of Gold9 and hectares of Green14 were issued. The variety licence agreement commits Zespri to a possible obligation under two different scenarios, these being as follows: Zespri chooses to de-commercialise a variety Under the variety licence agreement, should the Company decide to withdraw any variety for any reason, the Company is required to reimburse the tenderers a calculated rate of $5,000 (including GST) per hectare, provided that no more than four whole years have elapsed. In addition, the Company is required to refund a percentage of the original licence price. Plant Variety Right (PVR) not granted In the event that a decision is made by the relevant New Zealand authorities not to grant a PVR for any of the new cultivars, then the full original licence fee for that cultivar will be refunded to the relevant tenderers, regardless of time elapsed from commercialisation. Furthermore, if the Company decides to remove all plant material for the respective variety for which a PVR has not been granted, it will pay an additional fee of $5,000 (including GST) per hectare. The Company has not yet been granted a PVR in New Zealand for any of the three cultivars commercialised in 2010 but has provisional protection, pending determination of these applications. As at 31 March, the maximum exposure for each variety under the two scenarios is the same, as the PVR application is still pending. The total combined new cultivar contingent liability as at 31 March is $29.4 million (: $24.9 million), this being new cultivar licence proceeds received and refundable under the terms of the licence of $9.0 million (gross of licence costs), and $20.4 million for the GST exclusive flat fee per hectare for 4,690 hectares. By variety the total contingent liability is $25.9 million (: $19.8 million) for Gold3, $1.13 million (: $2.5 million) for Gold9 and $2.36 million (: $2.6 million) for Green14. New Variety succumbs to Psa For licences granted in /14 in the event that a new variety has, in the opinion of the Company, succumbed to Psa a licence holder may elect to surrender the licence and the Company will refund 80 percent of the purchase price of the licence. The company will have a contingent liability to the extent that more than 20 percent of the purchase price of the licence has been paid. As at 31 March, the maximum exposure is $1.2 million being the amount received in excess of 20 percent of the purchase price of licences issued in /14. For licences issued in earlier periods, the refund is limited to the unpaid portion of the licence fee. As licence fee income is not recognised until received, there is no contingent liability in relation to new variety licences issued in 2012/13 and earlier succumbing to Psa. Serious Fraud Office The Serious Fraud Office (SFO) has issued notices to the company seeking company documents and information pursuant to Section 9 of the Serious Fraud Act This information is being provided to the SFO as required, and it is uncertain whether any claim will be made against the Company. It is therefore unknown what the impact if any will ultimately be. Provision for legal and other costs in relation to meeting the requirements of the SFO investigation have been included in other provisions (refer Note 21). China Provision for penalties relating to litigation as a result of a failure by independent Chinese importers based in Shanghai to pay import duty on Zespri Kiwifruit in the sales seasons has been included in other provisions (see Note 21). Investigations by local customs authorities in relation to two other importers in China have not resulted in any proceedings or any Zespri company being named as a suspect or defendant in relation to the potential under declaration of customs duty in these other China jurisdictions. Given that there is currently no claim being made against Zespri, and there is uncertainty around possible outcomes, it is not considered possible to reliably quantify the impact of any potential claim, if any, by the Chinese Customs authorities against Zespri. Other During the course of the year Zespri has terminated customer relationships in certain countries due to irregularities in import documentation relating to Zespri Kiwifruit. Compliance with import laws and regulations is the legal responsibility of the importer of record. It is not possible to determine or reliably quantify any potential claim if any that may be made against Zespri arising from such termination. In the normal course of business, Zespri is party to various lawsuits and claims, both as a plaintiff and as a defendant. It is not possible to predict with certainty whether Zespri will ultimately be successful in defending lawsuits and claims taken against it or, if not, what the impact might ultimately be. Provisions are made in accordance with the accounting policy and disclosed in Note

58 Annual Report for the year ended 31 March 26. Funding facilities Funding arrangements for Zespri Limited are made when required following the assessment of cash requirements for the season. The security for day-to-day operational treasury activities and potential funding arrangements is a first-ranking general security deed dated 30 April 2007, registered to the ANZ Bank Limited for Zespri Companies that form a Guaranteeing. Pursuant to the general security deed under which debt certificates have been issued, the collateral at risk is all property for those entities within the Guaranteeing, except where The New Zealand Institute for Plant & Food Research Limited has a higher priority security interest in the Hort16A PVR and Hort16A intellectual property (refer Note 18). Property within the definition of collateral includes (but is not limited to) cash balances, inventory, accounts receivable, other financial assets, intangible assets, and property, plant and equipment. As at 31 March, the members of the Guaranteeing are: Zespri Limited Aragorn Limited (non-trading) Zespri Innovation Company Limited Zespri International Limited Zespri International (Asia) Limited Zespri International (Japan) Limited Zespri International Trading Limited Zespri New Zealand Limited As at 31 March, the outstanding borrowing under the funding facility is $Nil (: $Nil). The maximum exposure relating to the operational treasury activities as at 31 March is $1,279,499 (: $627,069). This exposure relates entirely to the unrealised mark-to-market losses on derivatives as at 31 March. 27. Capital commitments (a) (b) Property, plant and equipment commitments As at 31 March, there are outstanding capital commitments totalling $684,834 for property, plant and equipment (: $58,147). Intangibles commitments As at 31 March, there are outstanding capital commitments totalling $7,588,924 for intangible assets relating to ongoing computer software projects (: $848,337). 28. Related party transactions (a) Key management personnel Zespri s key management personnel include: Directors of the Company; and Members of the global executive of Zespri. During the year, key management personnel received the following compensation: Short-term employee benefits (including Directors fees) 1 9,081 8,807 Short-term employee benefits outstanding as at 31 March 1 1,204 1,485 1 As at 31 March, provision for restructuring, to complete the global restructuring process begun in 2012, is $1.1 million (: $2.4 million) (refer Note 21). Amounts relating to this restructure paid to key management personnel in /14 are $1,442,296 (: $1,333,023) and are included in short-term employee benefits expense above. No amount under the provision is payable as at 31 March and as such, the /14 employee benefits outstanding for key management personnel does not include amounts provided for in the restructuring provision (: $Nil). Certain Directors, including C S Greenlees, P J McBride, A E de Farias, N W Flowerday and B L Cameron, conduct business with the Company and its subsidiaries in the normal course of their business activities as growers and as shareholders. All these transactions are conducted on commercial terms and conditions. Directors are required to record all interests in the Company s Interests Register. 56 Zespri Annual Report /14

59 Annual Report for the year ended 31 March 28. Related party transactions (continued) (b) External related parties through common directorship, control or significant influence by key management personnel During the year ended 31 March, the Company conducted transactions with the following entities in the normal course of business: Aronia Corporation Limited, DMS Progrowers Limited, Golf Course Orchard Limited Partnership, G3 Kiwi Supply Limited, High Fives Orchard Limited, Kiwifruit Vine Health Incorporated, Mainland Kiwi Growers Entity Limited, Mangatarata Orchards Limited, Opotiki Packing and Coolstorage Limited, Port of Tauranga Limited, Trinity Lands Limited and Waterview Downs Orchards Limited. (: Aronia Corporation Limited, DMS Progrowers Limited, House of Travel Limited, G3 Kiwi Supply Limited, High Fives Orchard Limited, Kiwifruit Vine Health Incorporated, Mainland Kiwi Growers Entity Limited, Mangatarata Orchards Limited, Opotiki Packing and Coolstorage Limited, Port of Tauranga Limited and Trinity Lands Limited.) These entities are, or were, related to the Company by virtue of shareholding, common directorship, control or significant influence. (i) Types of transactions with external related parties include: The Company pays fruit and service payments under the terms of the New Zealand Supply Agreement; The entities are charged penalties and other charges under the terms of the New Zealand Supply Agreement and the Quality Manual. There are standard dispute procedures which may be enacted if the entities receiving the charges do not agree with these charges. Under the terms of the New Zealand Supply Agreement, growers and contracted suppliers are able to make insurance claims to the Company for specific risks (refer Note 14). In certain cases, the Company pays out insurance for losses under these claims. The Company may, at its discretion, sell licences for kiwifruit varieties for which it controls the PVRs. All of the transactions above, including any disputes, were entered into under the same contracted and commercial terms as for all other growers and contracted suppliers in New Zealand. (ii) Transactions during the year and balances outstanding as at 31 March with external related parties. All related party disclosures are GST exclusive. Parent Revenue/(expenses): Sale of Zespri variety licences Income received from KVH 549 4, Sundry income Fruit and service payments 2 (105,549) (134,711) (105,549) (134,711) Loyalty premium (2,845) (3,589) (2,845) (3,589) Psa expenses paid to KVH 3 (3,110) (4,430) (3,110) (4,430) Other expenses (3,326) (3,164) (2,003) (1,369) Balances receivable/(payable): Fruit and service payments outstanding (1,943) (4,228) (1,943) (4,228) Loyalty premium payable (1,707) (2,154) (1,707) (2,154) Provision for KVH funding (2,873) (4,783) (2,837) (4,783) Sundry accounts payable (includes research and royalty) 1 (62) (25) In /14, interests directly associated with Directors purchased hectares of new variety licences (: hectares). Revenue of $37,296 (: $121,824) has been recognised which in the current year consists of licence deposits. Hardship status was given to a licence for 8.30 hectares (: 6.60 hectares) with a total value of $57,391 of which $11,478 would have otherwise been paid as a deposit in /14. In /14, hectares (2012/13: Nil) of new variety licences were issued for no consideration to related parties who conducted block trials. As at 31 March, $814,637 of licence fee revenue is due in future years (: $616,344). 2 Includes payments for various monitoring and research projects being carried out on orchards directly associated with Directors. In /14, interests directly associated with Directors conducted new variety block trials on 1.25 hectares (: 0.80 hectares) of orchards. Upon commercialisation trial orchards are eligible, at no cost, to obtain a licence to cultivate a new variety or an existing variety in the event a trial is terminated. 3 Psa expenses recognised during the financial year relating to KVH, which became a related party during 2010/11 with the appointment of a Director of the Company (P J McBride) and a global executive member to the KVH Board. P J McBride resigned from directorship as at March and N W Flowerday was appointed a new Director as at May. 57

60 Annual Report for the year ended 31 March 28. Related party transactions (continued) (c) Subsidiaries Subsidiaries, listed at Note 19, are considered to be related parties to the Company. The Company has recorded the following material related party transactions: Inter-company sale of New Zealand kiwifruit to Zespri International Limited, $822,464,955 (: $998,070,999) Funding to Zespri Innovation Company Limited for research and development, $9,647,719 (: $9,186,631) Service fee and expense for the recharge of overheads incurred on its behalf, $17,232,567 (: $15,075,103) Payment or receipt of GST on behalf of the GST tax group in New Zealand Dividend income from subsidiaries, $Nil (: $20,000,000) (refer Note 6(a)). The total of balances owing to or from the Company s subsidiaries is disclosed in Notes 12, 15, 20 and 24. All of these balances are unsecured and payable on demand. 29. Events occurring after balance date On 20 May, the Board of Directors of Zespri Limited announced its intention to pay a final dividend of 7.0 cents per fully paid ordinary share (: 1.0 cent), to be paid in August. As the intention was announced after balance date, the financial effect has not been recognised in the Financial Statements. Subsequent to 31 March, no events have occurred that require disclosure in the Financial Statements. 30. Statutory board and grower representation funding The Company is required, under Regulation 39 of the Kiwifruit Export Regulations 1999, to fund the statutory board, Kiwifruit New Zealand. Zespri Limited is required by The Commodity Levies (Kiwifruit) Order 2012 to pay a levy to New Zealand Kiwifruit Growers Incorporated on behalf of growers. The rate for the /14 year was $0.009 per tray of kiwifruit exported to markets other than Australia (: $0.009 per tray). The total amount of Commodity Levy paid during the year was $770,216 (: $902,000). and Parent Kiwifruit New Zealand New Zealand Kiwifruit Growers Incorporated General funding The financial statements of New Zealand Kiwifruit Growers Incorporated are available for viewing on request. 58 Zespri Annual Report /14

61 Annual Report for the year ended 31 March 31. segment results Revenues, direct costs, promotion and overheads are identified and recognised for each business unit under the application of NZ IFRS. The internal management information on which segment results are based uses a different method for allocating realised gains and losses on treasury activities. For internal management reporting, realised gains and losses from the management of foreign exchange risk are allocated to the business unit s individual revenue and expense lines, based on the underlying currencies of the transactions to effect what would be a hedged rate on the cumulative transactions. For financial reporting purposes, these net realised foreign exchange gains/(losses) on derivatives are disclosed separately from the operating revenue and operating expense within other net gains/(losses) (refer Note 5). New Zealand fresh kiwifruit Non- New Zealand fresh kiwifruit Research and development Corporate services Eliminations Total Total sales revenue external customers 1,204, , ,348,756 Inter-segment revenue - - 9,460 1,393 (10,853) - Inter-segment commission ,567 (115,567) - Interest revenue ,100-5,188 Other revenue ,921 4,677-8,627 Total revenue 1,205, ,430 12, ,737 (126,420) 1,362,571 Freight 114,221 3, ,996 Insurance (onshore and offshore) 2, ,136 Duty and customs 58, ,917 Promotion 68,549 3, ,767 Other direct costs offshore 40,867 4, ,427 Other direct costs onshore 22, ,893 Gold Psa levy expense Interest expense KNZ/NZKGI costs 1, ,088 Fruit and service payments 779, , ,068 Loyalty premium ,999-20,999 Research , ,381 New cultivar amortisation ,148-1,148 Inter-segment expense 1 116, ,460 (126,420) - Inter-segment interest (income)/expense (1,656) - - 1, Other offshore costs - 3,076-40,435-43,511 Other onshore costs - 4,579-35,748-40,327 Green Class 2 subsidy Total expense 1,205, ,577 12, ,489 (126,420) 1,335,470 Segment profit before taxation - 9,853-17,248-27,101 1 The total New Zealand-grown supply research cost is $12,380,687. This is funded $9,460,283 from corporate services and $2,920,664 from external co-funders (refer Note 2(b)). The non-new Zealand-grown supply research is funded from the non-new Zealand-grown supply segment. 59

62 Annual Report for the year ended 31 March 31. segment results (continued) New Zealand fresh kiwifruit Non- New Zealand fresh kiwifruit Research and development Corporate services Eliminations Total Total sales revenue external customers 1,455, , ,561,213 Inter-segment revenue 41-9, (9,879) - Inter-segment commission ,640 (134,640) - Interest revenue ,773-5,818 Other revenue 2, ,120 4,662-10,961 Total revenue 1 1,457, ,631 13, ,835 (144,519) 1,577,992 Freight 134,555 3, ,763 Insurance (onshore and offshore) 2, ,008 Duty and customs 76, ,153 Promotion 89,288 2, ,812 Other direct costs offshore 55,019 4, ,176 Other direct costs onshore 29, ,542 New Zealand Psa funding ,205-4,205 Interest expense 1, ,045 KNZ/NZKGI costs 1, ,188 Fruit and service payments 934,157 83, ,017,890 Loyalty premium ,991-24,991 Research , ,156 New cultivar amortisation Inter-segment expense 1 135, ,078 (144,519) 1 Inter-segment interest (income)/expense (1,419) - - 1, Other offshore costs - 2,075-57,454-59,529 Other onshore costs - 4,579-31,901-36,784 Green class 2 subsidy Total expense 1,457, ,365 13, ,734 (144,519) 1,556,625 Segment profit before taxation - 5,266-16,101-21,367 1 The total New Zealand-grown supply research cost is $13,198,489. This is funded $9,077,855 from corporate services and $4,120,634 from external co-funders (refer Note 2(b)). The non-new Zealand-grown supply research is funded from the non-new Zealand-grown supply segment. 60 Zespri Annual Report /14

63 Annual Report for the year ended 31 March 31. segment results (continued) Methods and assumptions Zespri allocates assets, and any related depreciation and amortisation, on a basis which reflects where the assets are generated or utilised. Zespri employs a central treasury function and does not allocate cash between the segments because it is managed centrally. Interest revenue and expense has been allocated on the basis of where funds are being utilised. Inter-company debtor and creditor accounts are settled through the central treasury function. Any other outstanding balances created between companies as part of this settlement process, or any other intra-group borrowing or lending transactions, are not allocated to any segment but form part of the centrally managed funding of Zespri. Zespri does not allocate income tax to reportable segments. sales revenue by location of external customers Local currency 000 Local currency 000 Japan JPY 27,111,099 JPY 27,358, , ,054 Spain EUR 92,591 EUR 92, , ,410 China USD 78,529 USD 107,493 98, ,856 The Netherlands EUR 47,807 EUR 50,391 82,462 90,568 South Korea KRW 70,410,462 KRW 105,819,565 80, ,366 Italy EUR 40,947 EUR 32,548 70,819 59,184 Taiwan USD 53,249 USD 88,518 66, ,281 Germany EUR 36,165 EUR 53,285 63,039 96,185 France EUR 32,711 EUR 33,130 57,130 59,895 Belgium EUR 26,837 EUR 26,270 46,340 46,674 Hong Kong USD 18,644 USD 27,333 23,439 34,537 New Zealand NZD 877 NZD Other various 149, ,293 Total revenue from product sales 1,348,756 1,561,213 Individual customers account for less than 10 percent of sales across the. Non-current assets by location of asset New Zealand 20,548 11,946 Belgium 1,066 2,241 Japan Other ,374 14,944 Other non-current assets (no assigned location): Deferred tax 3,616 4,481 Non-current other financial assets 97, ,273 Total non-current assets 123, ,698 61

64 Statutory Information Annual Report for the year ended 31 March Shareholder Information Top 20 shareholders at 31 March Number of shares % Hopai Holdings Limited 2,073, % Christopher Warren Dunstan & Shirley Margaret Dunstan & Murray Crossman Trustee Company Limited 1,634, % Mark Lionel William Gardiner & Robyn Anne Gardiner 1,418, % DMS Horticulture Limited 1,407, % Trinity Lands Limited 1,372, % Maketu Estates Limited 1,283, % Mangatarata Orchards Ltd 1,085, % South-East Hort Limited 850, % Anaru Timutimu & Carlos Jason Ellis & Mere Lambert & Te Timatanga Neil Te Kani & Ngawa Hall & Riri Te Whara Ellis & Peter Cross 816, % Seeka Kiwifruit Industries Ltd 740, % Kiwi Green New Zealand Limited 690, % Birdhurst Limited 675, % John David Anderson & IML Aerocool Trustee Company Limited 605, % Beverley Ann Reid & David Murray Reid & John Alexander Stewart 596, % Matai Pacific Limited 591, % Sunnyvale Enterprises Limited 568, % Eastpack Limited 548, % Stephen John Brennan & Baats Trustee 2004 Limited & Susanna Mary Wild & Holland Beckett Trustee No 7 Limited 545, % Aronia Corporation Limited 535, % Wakatu Incorporation 531, % 18,571, % Distribution of ordinary shares and registered shareholders at 31 March Size of holding Number of shareholders Number of shares % % 1 5, % 475, % 5,001 25, % 11,776, % 25,001 50, % 18,288, % 50, , % 55,573, % Over 250, % 34,604, % Total 2, % 120,717, % 62 Zespri Annual Report /14

65 Statutory Information Annual Report for the year ended 31 March Shareholder Information (continued) Shareholder statistics 2012 Number of shares ( 000) 1 120, , ,717 Interim and final dividend (per share) fully imputed $0.11 $0.05 $0.10 Share price at year-end $0.77 $0.48 $0. 50 Earnings per share $0.14 $0.06 $0.17 Net dividend yield % 10.4% 20.0% Gross dividend yield at 28% tax rate (2012: 30%/33%) % 14.5% 28.6% Share trading Number of shares sold: on-market trades 2,156, , ,795 Number of shares sold: off-market 2,237, ,948 47,842 Number of shares transferred with sale of property 454,097 51,975 1,398,395 Family Trust share transfers 1,366,095 2,469,685 1,215,303 Equity ratio 20.1% 16.4% 20.5% Net tangible assets value per share $0.60 $0.57 $ The dividend paid in August 2012 and prior dividends referred to above were imputed at a 30/70 Ratio. All subsequent dividends have been imputed at a 28/72 ratio, including those eligible under IRD transition rules. Directors Disclosures Directors meeting attendances and business travel overseas Zespri Limited Board 1 Audit and Risk Management Committee Organisation and Administration Committee Industry Advisory Council Supply Chain Committee Board Innovation Subcommittee Number of business trips overseas Regions visited B L Cameron Europe, China and East Asia A E de Farias Americas N W Flowerday Japan, East Asia, China and Europe C S Greenlees Europe and China J J Loughlin A J Marks Southeast Asia J P Mason P J McBride China, Europe and Japan D A Pilkington In addition to the scheduled Board meetings, three special purpose Board meetings were convened at short notice as a consequence of industry-wide events that required immediate consideration by the Board. 2 J P Mason was appointed in 22 May and attended Board meetings from June. 3 J J Loughlin resigned on 17 April and attended Board meetings to April. All Directors have a standing invitation to attend meetings of all committees, irrespective of whether or not they are a member of that committee. In addition to the meetings detailed above, the Directors attendances included planning meetings, Directors conferences and grower meetings. 63

66 Statutory Information Annual Report for the year ended 31 March Directors Disclosures (continued) Remuneration of Directors $ $ B L Cameron 88,750 75,000 A E de Farias 75,000 75,000 N W Flowerday 70,000 46,667 C S Greenlees 78,333 80,000 J J Loughlin (resigned 17 April ) 13, ,000 A J Marks 70,000 80,000 J P Mason (appointed 22 May ) 65,833 - P J McBride 154,583 95,000 D A Pilkington 75,000 75,000 Total 690, ,667 Directors interests shareholdings The following table sets out the shareholdings in Zespri Limited held by each Director as at 31 March : Shareholding as at 31 March Date of transaction Share price Number purchased/ transferred Number sold Interest Shareholding commenced/ as at (ceased) 31 March B L Cameron 101, ,619 A E de Farias 233, ,545 N W Flowerday 105,705 1/11/ , ,615 C S Greenlees 2,725, /07/ ,790 8/08/ ,835 19/11/ ,780 19/11/ ,000 19/11/ ,780 28/11/ ,555 10/02/ ,200 3,447,840 J J Loughlin (resigned April ) - - A J Marks - - J P Mason - - P J McBride 850, ,000 D A Pilkington Shareholding of 947,930 in relation to two entities were omitted from shareholding as at 31 March in the Annual Report. Shares above are held personally by Directors or are held by way of relevant interest. Industry Directors may also hold indirect minority interests in companies holding Zespri shares which are not significant. 64 Zespri Annual Report /14