12 ANNUAL REPORT GROWING THE FUTURE TOGETHER

ZESPRI Group Limited — ANNUAL REPORT 2011/12 GROWING THE FUTURE TOGETHER www.zespri.com 2011/12 ANNUAL REPORT ANNUAL REPORT ABOUT Contents ZES...
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ZESPRI Group Limited — ANNUAL REPORT 2011/12

GROWING THE FUTURE TOGETHER

www.zespri.com

2011/12 ANNUAL REPORT

ANNUAL REPORT

ABOUT

Contents

ZESPRI

Financial Highlights and Season Overview Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . .  1

In 1999, the Government created new kiwifruit industry and export legislation and, in 2000, ZESPRI Group Limited was created, thereby establishing the modern industry structure we know today.

Notice of Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1 Financial Calendar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1 ZESPRI Chairman and Chief Executive Officer’s Report  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2

New Zealand Industry Performance ZESPRI Alternative Revenue Statement . . . . . . . . . . . . . . . . . . . . . . . . . .  7 Cause of Change - 2011/12 vs 2010/11. .  . . . . . . . . . . . . . . . . . . . . . . . . . .  8 New Zealand Pool Costs as a Percentage of Pool Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8

Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9

Financial Statements Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15 Income Statements and Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . .  16 Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17 Statements of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18 Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19 Notes to the Financial Statements  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20

Statutory Information Shareholder Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  61 Directors’ Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  62 Employee Remuneration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  68 ZESPRI Offices and Contact Details . . . . . . . . . . . . . . . . . . . . . . . . . . . .  69

ZESPRI is a limited liability company owned by current and former New Zealand kiwifruit growers and cooperatively controlled solely by producing kiwifruit growers. ZESPRI’s headquarters are located at Mount Maunganui in the Bay of Plenty, the heart of New Zealand’s kiwifruit industry. The ZESPRI® Brand was established in 1997 and since then global volumes sold have grown from 61.5 million trays to 116.5 million trays and revenues have increased from $746.2 million to $1.62 billion. ZESPRI, as we know it today, is not only a leading global fruit brand; it is an integrated marketing system, comprising long-term partnerships between growers, post-harvest operators, port and shipping companies, distributors, wholesalers and retailers, all focused on delivering the highest-quality kiwifruit to consumers. When combined with the commitment of ZESPRI® Kiwifruit growers to delivering a consistently excellent eating experience with stable storage attributes, this integrated supply chain ensures proven reliability which is the foundation for future growth. This consistent performance creates the confidence for investment in orchards, infrastructure, innovation, promotion and the people necessary to drive future growth and deliver sustainable returns to growers and their partners. ZESPRI, in partnership with Plant & Food Research and the New Zealand Government, invests around $25 million a year in kiwifruit-related research and innovation. This investment is a crucial driver in maintaining the long-term growth of the industry. The ZESPRI system, owned and controlled by New Zealand kiwifruit growers, creates the environment that makes ZESPRI® Kiwifruit the world’s best. Together, we are creating the future which is about delivering consistently great-tasting, nutritious kiwifruit to global consumers, marketing health benefits, developing new markets and creating new products.

ZESPRI Annual Report 2011/12

FINANCIAL

Highlights Since ZESPRI Group Limited was created in 2000, ZESPRI’s success, which has seen it grow into a world-leading horticultural marketing company, has relied on a strong industry network of supportive and committed growers, post-harvest operators and other suppliers, distributors and customers – with a focus on continued global growth and success.

New Zealand-grown fruit and service payments (including the loyalty premium) – Per tray supplied Net profit after tax

New Zealand-grown Orchard Gate Return (OGR) per hectare

ZESPRI global kiwifruit sales increased by

7.2 percent to $1.62 billion, from $1.51 billion in 2010/11.

Volumes of kiwifruit sold during 2011/12 were

116.5 million trays, 109.1 million from New Zealand and 7.4 million from other production regions.

New Zealand-grown fruit and service payments (including the loyalty premium) increased from

$883.3 million to $980.4 million.

New Zealand average Orchard Gate Return (OGR) per hectare increased by

8.1 percent to $45,206.

2010/11

$980.4 million

$883.3 million

11%

$8.61

$8.68

-1%

$20.5 million

$7.3 million

181%

Variance

$45,206 (average)

$41,830 (average)

8%

– GREEN

$33,125

$32,234

3%

– ORGANIC GREEN

$35,527

$37,541

-5%

– GOLD

$90,911

$83,785

9%

$85.2 million

$71.9 million

18%

2.0

4.0

– Final

8.0

4.0

– Total

10.0

8.0

Equity

Season Overview

2011/12

Dividend per share (cents) – Interim

Percentage of available profit

71%

70%

ZESPRI global kiwifruit sales

$1.620 billion

$1.511 billion

7%

Export earnings (New Zealand-grown) 1

$1.122 billion

$1.014 billion

11%

ZESPRI global volume (trays sold)

116.5 million

106.8 million

9%

109.1 million

98.1 million

11%

73.3 million

69.9 million

5%

3.5 million

3.3 million

6%

– GOLD

29.1 million

21.1 million

38%

– OTHER

3.2 million

3.8 million

-16% -15%

New Zealand-grown – GREEN – ORGANIC GREEN

Non-New Zealand-grown

7.4 million

8.7 million

– GREEN

4.5 million

4.7 million

-4%

– GOLD

2.9 million

4.0 million

-28%

1

Export earnings reflect offshore revenues less offshore costs from sales of New Zealand-grown kiwifruit sold by ZESPRI and Kiwifruit New Zealand-approved collaborative marketing programmes.

Notice of Annual Meeting The Annual Meeting of shareholders of ZESPRI Group Limited will take place at 1.00pm on Wednesday 18 July 2012 at Baycourt Theatre, Durham Street, Tauranga.

Financial Calendar Financial year-end:

31 March

Annual Report issued:

15 June 2012

Deadline for receipt of proxies for Annual Meeting:

1.00pm, 16 July 2012

Annual Meeting:

18 July 2012

Indicative dates for dividend payments:

December (interim) and August (final)

ZESPRI Annual Report 2011/12

1

Report ZESPRI CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S

John Loughlin and Lain Jager

This past year will be remembered as one of significant challenge as the industry contended with Psa (Pseudomonas syringae pv. actinidiae), a kiwifruit vine disease, a large crop of lower-dry-matter fruit and continued market weakness following on from the 2008 global financial crisis. It is in the tougher years that the integrated industry structure has its greatest value and this was proven again as resilient returns per hectare reflected price and promotion stability, the value of ZESPRI’s foreign exchange policy and an orderly approach to the longer selling season. This relative stability would not be achievable without our single point of entry structure. Change is inevitable and healthy. The New Zealand kiwifruit industry is currently undergoing a substantial shift as we steadily transition to a multi-variety future with its risks and rewards. Postharvest consolidation continues and we are beginning to see some generational movement as older industry members reduce their participation and newer industry entrants take an increasing role. With its significant impact on industry asset values, Psa has challenged our self-belief and fortitude in this changing environment. Even in this time of uncertainty the recipe for our future success remains clear. We must innovate faster than the competition to rapidly recover from the impact of Psa and restore confidence; we must pull together to leverage the tremendous strength of our unity; and we must continue to invest in delivering the highest-quality kiwifruit through the premium ZESPRI® Brand.

Marketing the health benefits of kiwifruit to consumers with a particular focus on more developed markets to recruit a greater number of regular kiwifruit eaters to the category and increase the consumption level of current regular eaters.

Psa

Introducing high-quality ZESPRI® Kiwifruit to consumers in high-growth markets such as China, Southeast Asia, India, Brazil and Russia.

We estimate that around 800 hectares of Psa-infected Hort16A canopy will have been cut out by the end of the 2012 harvest. In addition, over a third of New Zealand’s kiwifruit orchards now have some level of Psa infection and the vine disease is primarily responsible for a forecast 30 percent fall in the ZESPRI® GOLD volume in 2012.

Bringing new kiwifruit products to market, which will offer consumers an exciting portfolio of product choices and bring growth and vitality to the kiwifruit category. Working with leading retailers and trade partners to consistently deliver the best ready-to-eat kiwifruit eating experience available to consumers globally.

This clear, high-level strategy is supported by a number of global trends:

2

ZESPRI Annual Report 2011/12

Every level of the kiwifruit industry has been affected and we are all currently working to survive in the new operating reality imposed by Psa. Proportionally, the highest cost burden is carried at orchard level, whether it is from lost production, increased operating costs to protect an orchard from Psa, or significantly devalued assets.

The forecast growth of the world’s population from 7 billion people currently to over 9 billion people by 2050.

While the impact of Psa has been every bit as severe as we feared, it is important to balance our collective sense of crisis by focusing on some of the positive aspects of the situation:

A rising middle class across much of Asia, India, Brazil and Russia.

The Hayward variety appears to be relatively robust to the disease.

An increased focus on health by an ageing population and a population battling obesity, diabetes and other weight-related problems.

Within 18 months, the global Psa research and development programme managed by ZESPRI on behalf of Kiwifruit Vine Health Inc (KVH) has begun to deliver. We have a much deeper understanding of the disease and the tools to progressively support the proactive management programme that will be required in the future.

Pressure on food production systems globally as a function of climate change and resource depletion.

A Glance at Our Strategy As the global category leader, ZESPRI’s objective is to grow kiwifruit from less than 1 percent of global fruit consumption to be a mainstream product eaten regularly by consumers globally. We are working towards this by:

The 2011 year will be remembered as one when Hort16A orchards in the Bay of Plenty were devastated by Psa and industry confidence was overshadowed by this crippling disease.

With the combination of our unified industry structure, a clear long-term strategy and a global environment which will support demand for high-quality ZESPRI® Kiwifruit, the long-term outlook is bright.

At this early stage, it appears that three of ZESPRI’s new varieties, including two gold varieties, are relatively less sensitive to Psa than Hort16A.

ORCHARD GATE RETURN PER HECTARE – New Zealand-grown 100 90.9

Ironically, as the industry focused on falling volumes and asset values as a consequence of Psa, ZESPRI had its hands full selling a record volume crop in a challenging market environment. Global revenue increased by 7.2 percent, from $1.51 billion to $1.62 billion in 2011/12, on the back of a 9 percent rise in ZESPRI’s global kiwifruit volume from 106.8 million trays in 2010/11 to 116.5 million trays in 2011/12. Total fruit and service payments for New Zealand fruit (including the loyalty premium) increased from $883.3 million in 2010/11 to $980.4 million in 2011/12. ZESPRI’s net profit after tax was $20.5 million, compared to $7.3 million

2005/06 2006/07 2007/08 2008/09 2009/10

GOLD

2010/11

33.1

GREEN

GREEN

ORGANIC

37.5 32.2

35.5

ORGANIC

GOLD

GOLD ORGANIC

GREEN

GOLD

ORGANIC

GREEN

GOLD ORGANIC

GREEN

29.6

2011/12

NZ FRS figures to 2005/06 and NZ IFRS figures from 2006/07. ORGANIC figures are for ORGANIC GREEN only.

in 2010/11. There was a mix of both upside and downside factors which influenced the net profit result, as outlined below:

increased from $24.4 million to $27.7 million. Funding for the New Zealand industry’s $25 million contribution to KVH is being spread over three financial years. The $25 million industry contribution is funded by $10.8 million from ZESPRI corporate, and $14.2 million collected from the industry. The total industry contribution of $14.2 million was collected in the 2011/12 season; however, only $8.5 million was committed as an expense to KVH during that year. The different timing between industry funding (shown as ZESPRI corporate revenue) and KVH committed costs (shown as ZESPRI corporate expenses) has had a significant timing effect on the corporate profit over the last two years. This timing effect will also continue into future years. A summary of the Psa funding-related inflows and outflows is shown below:

The ZESPRI margin from New Zealand-grown kiwifruit increased by $9.3 million, from $127.6 million to $136.9 million. This growth was mainly due to the increase in volume, particularly from the New Zealand GOLD pool, although this was offset by unfavourable foreign exchange movements. As a percentage of New Zealand-grown kiwifruit net pool revenue, this reflects a slight decrease from 9.2 percent to 9 percent or, on a net basis (net of loyalty premium), a drop from 7.4 percent to 7.2 percent. Research and innovation investment increased by $5.6 million. This was mainly a result of focusing available scientific resources to work on projects to help the industry cope with the presence of Psa. This increase in expenditure was partly offset by an additional $3 million of research co-funding, predominately co-funded by KVH.

Table 1.

Psa NZ industry co-funding (income to ZESPRI)

To secure sufficient volumes of New Zealand GREEN Class 2 kiwifruit, ZESPRI corporate paid a subsidy to encourage supply. This subsidy was new in 2011/12 and cost ZESPRI corporate $0.5 million. Total overheads relating to New Zealand-grown kiwifruit remained stable at $83.2 million, however as a percentage of New Zealand-grown revenue this dropped from 6 percent to 5.5 percent. The loyalty premium is at the same rate as 2010/11 of $0.25 per Class 1 tray. Because of the increase in volume, total loyalty premiums



-

14.2

-

Total      $m

Results Overview and Global Economic Environment

30.1

39.4

Future years $m

When KVH was established the New Zealand kiwifruit industry committed $25 million in funding, matching a $25 million contribution from the New Zealand Government. As at 31 March 2012, $20.75 million of that industry funding had been spent or committed. The $25 million of industry funding comprised $10.8 million from ZESPRI corporate and $14.2 million funded from New Zealand kiwifruit growers.

24.1

39.4

2011/12      $m

On a similar note, ZESPRI acknowledges the work of New Zealand Kiwifruit Growers Incorporated (NZKGI) in developing support networks, which will assist in keeping growers and other experienced and skilled people in our industry through this time of challenge.

30.0 29.0

34.7

2010/11    $m

It is important that we take this opportunity to acknowledge the work of KVH in leading the Psa response effort and, particularly, the outstanding leadership contributions of KVH Chairman Peter McBride and former KVH General Manager John Burke.

46.1

35.2

GREEN

25.6

GOLD ORGANIC

48.5 42.5

40

0

In this context, we are optimistic that we have the means of our recovery at hand.

60.9

GREEN GOLD ORGANIC

OGR per hectare NZD ‘000

60

20

83.8

83.1

80

14.2

Psa funding paid to KVH (expense to ZESPRI)

(12.2)

(8.5)

(4.3) (25.0)

Net income/ (expense) before tax to ZESPRI

(12.2)

5.7

(4.3) (10.8)

Therefore, the timing of the KVH funding has lowered ZESPRI corporate profit before tax by $12.2 million in the 2010/11 year, but has increased corporate profit before tax in 2011/12 by $5.7 million. This KVH funding timing effect on ZESPRI’s before tax profit is a positive $17.9 million when

ZESPRI Annual Report 2011/12

3

ZESPRI CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S REPORT

Table 2.

2010/11 2011/12 $m $m



7.3

20.5

After-tax impact of Psa-related expense/ (income)

8.5

(4.1)

15.8

16.4

Therefore without the effect of Psa, the underlying ‘normalised’ profit after tax was similar in both the 2010/11 and 2011/12 financial years. Net revenue from new variety licences decreased from $5 million to $3.5 million due to a lower number of hectares being issued in 2011/12, mainly as a result of the uncertainty created by Psa. Also impacting net profit was a fall in 12-month supply profitability of 19.6 percent to $4.6 million, due to Italian and French Gold volumes being impacted by Psa, a delay to the start of the European Green season and unfavourable exchange rates.

Market Performance It is clear that the global economy has yet to emerge from the grip of the 2008 global financial crisis. Global trade and industrial production lost momentum during the second quarter of 2011 and, as a result, global growth in 2011 was weaker than forecast. While consumption in emerging market economies remained strong due to expanding employment and incomes, consumption and consumer demand continued to be soft in developed economies. Japan delivered a modest improvement in sales volumes and returns despite the challenging trading conditions due to the 2011 earthquake and subsequent tsunami.

4

ZESPRI Annual Report 2011/12

GOLD

5.53

ORGANIC

3.80

GREEN

ORGANIC

4.21

GREEN

GOLD 3.70

7.66

6.07

5.67

ORGANIC

3.68

GREEN

4.45

3.11

GOLD ORGANIC

4.09

5.41

5.32

5.18

GREEN

3.47

6.27

GREEN GOLD ORGANIC

2

5.48 5.34

GREEN GOLD ORGANIC

6.54

6

4

GOLD

7.73

8

0

2005/06 2006/07 2007/08 2008/09 2009/10

2010/11

2011/12

NZ FRS figures to 2005/06 and NZ IFRS figures from 2006/07. ORGANIC figures are for ORGANIC GREEN only.

Actual reported net profit after tax

Profit after tax excluding Psa expense/(income)

8.89

GOLD ORGANIC

A further cost to ZESPRI for KVH funding of up to $4.3 million will be recorded in future years. If the above mentioned timing effect of Psa was removed from both the 2010/11 and 2011/12 financial results, then the ‘normalised’ profit after tax would have been approximately $16 million, as shown below:

10

GREEN



ORCHARD GATE RETURN PER TRAY SUBMITTED – New Zealand-grown

OGR per tray NZD

comparing the 2010/11 and 2011/12 years. This positive movement of $17.9 million almost solely explains the increase in ZESPRI corporate profit before tax of $17.5 million between the two years.

Europe and the United States continue to wrestle with long-term structural debt, high unemployment and weak short-term economic growth forecasts. Therefore, the global economy remains fragile and this vulnerability, particularly in Europe where 46.4 percent of ZESPRI’s volume is sold, continues to weigh on customer confidence and spending. In Europe, an impact of this consumer uncertainty is a fall in demand for fresh fruit, with fruit consumption diminishing per capita. The E. coli outbreak in May 2011 also dampened the demand for fresh products. This instability will continue to be a significant headwind for our business, impacting on customer confidence, spending in our markets and the volatility of foreign exchange rates. Against this global backdrop, ZESPRI sold 5 percent more trays of New Zealandgrown GREEN and 38 percent more trays of New Zealand-grown GOLD in 2011/12 than it did in 2010/11. The large volume did create some pressure, which had to be carefully managed to ensure pricing remained strong. A summary of performance of New Zealand-grown kiwifruit by region is as follows: Europe: European sales were steady in the context of pressure on the broader fruit market. Despite early storage concerns, the quality was better than for 2010/11, resulting in a 3.1 percent increase in the volume of trays sold. Total market return from the region increased by 5.1 percent. Spain, the largest European market, increased from 10.8 million to 11.5 million. Other European markets with strong increases in sales volumes

included Belgium 9 percent, Germany 6.8 percent and Italy 5 percent. Japan: The devastating March 2011 earthquake and resulting tsunami caused great uncertainty at the start of the season and delayed shipments of fruit. The volume of fruit shipped increased by 2.9 percent, and market returns increased by 3 percent. Korea: This market continues to grow strongly. Volumes sold increased by 12.5 percent and market returns by 24.4 percent. China: A customs investigation into one of ZESPRI’s independent importers meant we had to work closely with all parties concerned to ensure fruit supply was not adversely impacted. This was achieved, and sales volumes increased by 26.3 percent (a record amount of sales into China) and market returns by 45.2 percent. Taiwan: This was another strong performer and as such absorbed a large amount of the increased crop volume. Despite a 29 percent increase in volume, pricing held firm, resulting in an increase of 30.3 percent in total market returns. Southeast Asia: The focus on this region as a developing market continues to deliver strong growth. Sales volumes increased by 37.2 percent and market returns by 57.1 percent. North America: This area had a robust yet challenging season as North America has traditionally been a consignment market although, in 2011/12, the structure was changed to

ZESPRI CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S REPORT

one of fixed-price sales. The volume of sales increased by 8.8 percent and market returns by 21.7 percent.

The 2011 allocation for licensed varieties saw the allocation of 283 hectares of Gold3 licences and 180 hectares of Green14 licences. In May 2011, ZESPRI and the wider New Zealand kiwifruit industry went to Parliament to formally thank the New Zealand Government for its long-term support of the kiwifruit industry. The event, held in Wellington at Parliament’s Beehive Banquet Hall, was hosted by Tauranga MP Simon Bridges and attended by Prime Minister John Key, cross-party Members of Parliament, senior government officials, business leaders and kiwifruit industry leaders.

Other Industry Achievements An agreement between the New Zealand and Mexico Governments to end the tariff on New Zealand kiwifruit exports to Mexico will return more than $1 million per annum to the kiwifruit industry. Until the agreement was signed in November 2011, New Zealand was the only kiwifruitproducing country to face a tariff on its kiwifruit exports to Mexico. ZESPRI closely supported the work of the New Zealand Government in achieving this goal. During the 2011 season, ZESPRI filled 63 chartered vessels as well as a further 7,845 containers, with 111.5 million trays of New Zealandgrown kiwifruit. In June 2011, a New Zealand kiwifruit industry record was set with the loading of 160 refrigerated containers, containing 832,000 trays of kiwifruit, for export, in a 12-hour period. This new shipping record for the industry meant that over the 12-hour period, a container was loaded with kiwifruit every four-anda-half minutes. The Momentum Kiwifruit Industry Conference 2011, Overcoming Challenges Through Innovation, attracted an outstanding turnout and was a rare opportunity to stand back from our day-to-day work to develop perspective and insight into the challenge of Psa. The international presenters gave the industry an opportunity to look outwards to learn from other industries and to draw on expertise from around the world.

2011 Challenges As always, every season brings specific challenges and 2011/12 was no different. In May 2011, confirmation that a New Zealand kiwifruit orchard worker had contracted typhoid led to around 100,000 trays of kiwifruit being withdrawn from market. While the fruit presented an extremely low risk to ZESPRI consumers, the decision was made to contain and dispose of all potentially contaminated fruit in New Zealand to give full confidence to consumers in ZESPRI’s commitment to food safety. A small amount of fruit which had been exported, was also contained and disposed of in-market prior to delivery to customers. The majority of the estimated $1 million loss incurred from the disposal of the fruit was met by insurers, with a small component met by the New Zealand Grower Pool following industry discussions and agreement by the New Zealand Industry Advisory Council (NZIAC). The arrest of one of ZESPRI’s independent import partners in China

ZESPRI Group Limited

EQUITY AND DIVIDEND RETURNED Dividend per share NZD Equity NZD (million) 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12

$35.2

$0.04* $0.10* $0.10* $0.31*

NZ FRS figures to 2005/06 and NZ IFRS figures from 2006/07.

In November, the Korea Fair Trade Commission found ZESPRI to have wrongly sought favourable positioning from certain supermarket chains for its products, in comparison to kiwifruit from competing producers. As a result, our company was fined approximately KRW424 million (NZ$457,250). ZESPRI will never deliberately contravene any international or local laws, some of which vary from one jurisdiction to another. On this occasion, we were deemed to have overstepped the mark and have adjusted the way our business is conducted as a result. We remain committed to competing as hard as we can in every market to ensure the best return is made for our growers.

Supply Chain In 2011, ZESPRI embarked on what is expected to be a multi-year supply chain change programme. The aim of this initiative is to develop the best kiwifruit supply chain globally by drawing on world-class knowledge and practice. This will optimise the New Zealand kiwifruit supply chain both globally and by market for the purpose of maximising grower returns. The programme will cover all aspects of the supply chain including: point of purchase, quality management responsibility, cool chain design and integrity, shipping modes and arrangements, measurement and metrics reporting, the in-market fruit-handling process, facilities and infrastructure.

Adapting to the Psa Environment

$53.9

$0.16* $0.16* $0.20* $0.14* $0.08 $0.10

attracted significant public attention, particularly with the erroneous claim that 30,000 tonnes of New Zealand kiwifruit had been seized by Chinese customs officials. ZESPRI cooperated with Chinese officials and no fruit was seized as part of the inquiry, although on occasion there were small delays in fruit being cleared off the wharves in China due in part to the investigation. All accounts receivables from China have been collected for the 2011/12 season. ZESPRI exported a record amount of fruit into China in 2011/12, up from 7.3 million trays in 2010/11 to 9.2 million trays.

$77.0 $72.8 $67.8 $68.3 $74.0 $77.9 $71.9 $85.2 * Adjusted for 5:1 share split in 2010.

As ZESPRI positions itself for the volume contraction expected in the 2012 and 2013 seasons, we have set a target to achieve savings of $10 million across the business (11 percent of annual corporate overhead costs) for the 2012 season. This will be achieved largely through

ZESPRI Annual Report 2011/12

5

ZESPRI CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S REPORT

reductions in employee-related costs, investment budgets, and lower and deferred expenditure on information processes and systems.

NET REVENUE TO ORCHARD GATE RETURN – New Zealand-grown ZESPRI-controlled costs ZESPRI margin less loyalty NZ kiwifruit industry Psa co-funding Post-harvest costs Orchard gate return

Thirty positions have been disestablished across the business (from a total of approximately 300 global staff). The reduction in personnel was achieved mostly through a combination of redundancies (some voluntary) and natural attrition.

Market Development

274.9

NZD (million)

93.2 248.4 328.9

2005/06

Percentage

The ZESPRI Board and Executive Team remain focused on the need to continue to adapt to the changing Psa environment, while maintaining the core strengths of the business to ensure capacity for future growth.

945.4

34.7% 26.3%

29.1%

1,082.4

304.2

333.7

92.1

88.1

264.6

317.3

In 2012/13, recognising the huge growth potential in these markets as well as the other BRIC (Brazil, Russia, India and China) countries, ZESPRI will continue to intensify our investment to build an appropriate resource base and capability to make sure the most is made of these increasing opportunities.

Health Platform Marketing ZESPRI® Kiwifruit based on health benefits forms the fundamental core of our marketing campaigns. The nutrient density of kiwifruit, its ability to support natural digestive health and its role as part of a healthy diet are all messages that resonate with ZESPRI consumers across mature and developing markets. The relevance of our health messaging has increased consumption rates and purchase frequency. Global growth of the kiwifruit category will continue to be driven in the future by marketing the health benefits of kiwifruit. People who are aware of these benefits are among our most loyal consumers, are most likely to include kiwifruit as a daily part of their diet, and appreciate the high quality and superior taste attributes of ZESPRI® Kiwifruit.

6

ZESPRI Annual Report 2011/12

355.6 439.9

343.3

2006/07

2007/08

37.0% 25.2%

9.9%

8.8%

31.8% 30.8%

29.3%

2008/09 33.8% 27.3%

31.2%

8.1%

1,391.8

433.4

405.3

403.5

407.3 100.7

389.7

29.0%

1,360.7

1,303.5

1,050.6

Taking the many opportunities in highgrowth markets is one of the key pillars of ZESPRI’s long-term growth strategy. In 2011/12, we continued to invest and drive hard to expand our presence in developing markets with very pleasing results. In China and Southeast Asia, despite a number of challenges, sales again grew sharply, while good sales in Mexico and Brazil gave us a very positive indication of what the future holds for ZESPRI® Kiwifruit in this region.

1,524.0

109.3

14.2

108.2

103.2

358.7

346.8

490.3

536.5

565.1

2009/10

2010/11

2011/12

35.9% 26.4%

29.7%

7.7%

38.6% 24.9%

29.1%

8.0%

402.0

37.1% 26.4%

28.4%

7.4%

7.2% 0.9%

NZ FRS figures to 2005/06 and NZ IFRS figures from 2006/07.

ZESPRI® Brand Research results from 2010 demonstrate that our consumers remain committed to the ZESPRI® Brand. This is because the brand consistently delivers on its promise of premium quality, enabling ZESPRI to capture the premium end of the market. The visual recognition of the ZESPRI® Brand on our fruit labels is a trigger for purchase for our loyal consumers and, in 2012, this will be further enhanced through a new fruit label design and a packaging redesign. Promotional support of the ZESPRI Brand remains a key focus, to drive sales and further increase consumer demand. In all markets, this has included seasonal programmes of in-store sampling, roadshows, and consumer and trade promotions. There has also been strong consumer advertising on television, in magazines and online, as well as outdoor media and public relations programmes in our more significant and developing markets. ®

Outlook While the future remains bright, it is important we recognise a number of challenges which will confront us in the coming seasons, as described below: The strong New Zealand Dollar relative to the currencies of our major trading partners. The strength of the New Zealand Dollar is currently supported by weakness in the United States Dollar and the Euro, resilient commodity prices supported by growth in developing economies,

and relatively high interest rates in New Zealand. Implementing the recovery pathway from the Psa vine disease and managing rapidly recovering GOLD volumes. Potential market weakness, particularly in the important European region. Growing through the inevitable and expensive learning curve associated with commercialising our three new varieties, Gold3, Gold9 and Green14. Anticipated green and gold volume growth from both Chile and Italy, resulting in associated supply pressure and potential pricing weakness by these suppliers. In summary, ZESPRI faces the future with some confidence while acknowledging there are considerable obstacles to navigate in the short term. However, there continues to be robust demand for our high-quality products. This, combined with talented, passionate people at all levels of our industry, means we have the foundation, flexibility and strength to pursue long-term growth opportunities.

John Loughlin

Lain Jager

CHAIRMAN

CHIEF EXECUTIVE OFFICER

Industry Performance ZESPRI New Zealand

ZESPRI ALTERNATIVE REVENUE STATEMENT

ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

2011/12 $’000

Gross sales of New Zealand-grown kiwifruit Promotional rebates, claims and discounts Net sales of New Zealand-grown kiwifruit Net fruit return through collaborative marketers Other pool income Revenue attributable to New Zealand pools 1 Less pool costs: Freight Insurance (onshore and offshore excluding hail) Hail self-insurance 2 IAC-approved additional hail funding 2 Duty and customs Other direct pool costs – onshore Other direct pool costs – offshore Gold Psa levy Promotion Interest income 3 KNZ fees 4 NZKGI funding 4 Total pool costs

2010/11 $’000

2009/10 $’000

1,458,853 (84,097) 1,374,756 16,721 363 1,391,840

1,596,943 (96,586) 1,500,357 21,886 1,793 1,524,036

145,582 2,279 584 78,463 26,021 66,217 85,664 (606) 234 899

148,429 2,512 188 87,167 31,331 70,794 849 92,949 (899) 244 751

1,421,923 (74,833) 1,347,090 11,714 1,863 1,360,667

138,335 2,141 2,801 1,351 76,120 27,834 67,952 86,271 (277) 244 722

434,315

405,337

403,494

1,089,721

986,503

957,173

New Zealand fruit and service payments ZESPRI margin 5

952,762 136,959

858,870 127,633

833,922 123,251

Other non-pool revenue New Zealand kiwifruit industry Psa co-funding 6, 9 Research grant co-funding 7 ZESPRI income attributable to New Zealand-grown kiwifruit Onshore costs: Innovation New Zealand Psa funding 7 ZESPRI® GREEN Class 2 subsidy Corporate hail funding 2 Onshore overheads

1,444 14,200 5,523 158,126

2,695 2,485 132,813

1,340 171 124,762

Return from fruit sales

12,420 12,875 32,750

18,018 8,498 506 36,305

9,062 500 31,962

63,327 46,865 47,934

58,045 50,436 24,332

41,524 44,403 38,835

Add operating surplus/(deficit) from other business units: Processed fruit product (before taxation) 8 Non-New Zealand-grown supply (before taxation) 8 Income from sale of ZESPRI® licences (before taxation) EBIT before loyalty premium

4,591 3,554 56,079

103 5,710 4,979 35,124

(553) 8,552 5,701 52,535

Net interest income ZESPRI profit before tax and loyalty premium

3,276 59,355

3,501 38,625

4,238 56,773

Loyalty premium 9

27,658

24,415

15,090

ZESPRI Group profit before taxation Tax expense ZESPRI Group profit after taxation

31,697 11,170 20,527

14,210 6,953 7,257

41,683 15,793 25,890

952,762 27,658 980,420

858,870 24,415 883,285

833,922 15,090 849,012

Offshore costs

Total fruit and service payments Loyalty premium Total fruit and service payments (including loyalty premium)

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 30 of the Financial Statements. Notes 1 to 9: Refer to page 8. ZESPRI Annual Report 2011/12

7

NEW ZEALAND INDUSTRY PERFORMANCE

CAUSE OF CHANGE – 2011/12 vs 2010/11

ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

Sales price/size profile/fruit loss (41.9) Volume

162.4

Foreign exchange

(25.5)

Other income/costs

19.6

Taxation

(4.2) 110.4

Total NZD (million)

$’000

Total fruit and service payments 2010/11 (including loyalty premium)

883,285

Add ZESPRI net profit after tax 2010/11

7,257

Return to industry 2010/11

890,542

Sales price/size profile/fruit loss

(41,865)

Volume

162,458



Foreign exchange

(25,530)



Other income/costs

19,559

Taxation

(4,217)

Return to industry 2011/12

1,000,947

Total fruit and service payments 2011/12

952,762

Add ZESPRI loyalty premium 2011/12

27,658

Total including loyalty premium 2011/12

980,420

Add ZESPRI net profit after tax 2011/12

20,527

Return to industry 2011/12

1,000,947

New Zealand pool costs as a percentage of pool revenue ZESPRI margin (net of loyalty premium)

2010/11 (%)

2009/10 (%)

7.4%

7.9%

9.7%

10.4%

10.2%

Insurance

0.2%

0.2%

0.5%

Duty and customs

5.7%

5.6%

5.6%

Other onshore direct costs

2.1%

1.9%

2.0%

Other offshore direct costs

4.6%

4.8%

5.0%

Gold Psa levy

0.1%

-

-

Promotion

6.1%

6.2%

6.3%

(0.1%)

0.0%

0.0%

4

Total fruit and service payments (including loyalty premium) Revenue attributable to New Zealand pools ($’000) 1

ZESPRI Annual Report 2011/12

The 2011/12 interest income is made up of the following: interest income of $1.5 million, interest paid of $0.1 million and an interest charge from ZESPRI of $0.5 million. This results in an overall interest income to the pools of $0.9 million.

3

Kiwifruit New Zealand (KNZ) is the statutory board funded under regulation 39 of the Kiwifruit Export Regulations 1999. New Zealand Kiwifruit Growers Incorporated (NZKGI) is the kiwifruit grower representation body. NZKGI funding includes industry-good activities of $70,229. Refer to Note 29 of the Financial Statements.

4

The ZESPRI margin is calculated in accordance with the New Zealand Supply Agreement, being 6 percent of net sales (excluding collaborative marketing programmes) and 6 percent of fruit payments to suppliers for all three years.

5

7.2%

5

Interest 3

8

2011/12 (%)

Freight

KNZ/NZKGI

In 2009/10, pool and corporate contributions to hail-affected growers came from the following three sources: $2.8 million from the self-insured facility, $1.4 million additional pool funding approved by the Industry Advisory Council (IAC) and a ZGL Corporate contribution of $0.5 million.

2

Movement due to change:

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.

1

0.1%

0.1%

0.1%

64.3%

63.4%

62.4%

100.0%

100.0%

100.0%

1,524,036

1,391,840

1,360,667

Co-funding collected from the New Zealand kiwifruit industry to support the New Zealand response to Psa.

6

Costs to contain Psa in New Zealand (refer Note 20 of the Financial Statements).

7

Further analyses of non-New Zealandgrown supply and Aragorn (processed fruit product) are available within the segment reporting in Note 30 of the Financial Statements. ZESPRI Group wound down its direct involvement in the processed fruit business in 2010/11.

8

9

Gross contracted loyalty premium due to growers. For 2011/12 and 2010/11, this was paid at 25 cents per Class 1 tray supplied. For 2009/10 the applicable rate was 15 cents per Class 1 tray supplied. The loyalty premium and 2011/12 Psa co-funding from the New Zealand industry are contractually separate items, and are recorded separately in the Alternative Revenue Statement.

CORPORATE GOVERNANCE ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

The Board considers it essential that a high standard of corporate governance practices are in place across the organisation, starting with the Directors themselves at Board level. 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. Set out in this section is an overview of the key elements of ZESPRI’s corporate governance framework. Legislative and regulatory framework At the highest level, ZESPRI Group 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 Group 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 also contain provisions that 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. ZESPRI 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 Group 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 ZESPRI’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. ZESPRI’s 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 appear on ZESPRI’s website (www.zespri.com) and on the Company’s grower website, The Canopy (www.zespricanopy.com). The Board’s task is to govern the Company, in particular by providing strong strategic direction to achieve maximum returns for shareholders, while at the same time safeguarding the interests of shareholders and other relevant stakeholders as appropriate. The Directors are elected by the shareholders. Under the Company’s Constitution, at least one-third of the Directors must retire by rotation at each Annual Meeting. 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. The Committee also reviews and monitors both the internal and external audit processes. The Committee has been chaired by Craig Greenlees since August 2008. 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. Tony de Farias chaired this Committee from August 2009 until March 2012. Tony Marks is the new Chairman of this Committee. In 2011, the Board determined that much of the work of the Innovation Advisory Forum was overlapping with the Psa R&D Steering Group, and accordingly has 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 is Chairman of both the Innovation Advisory Forum and the Board Innovation Subcommittee. In 2012, as part of industry discussions regarding supply chain design, the Board approved the creation of a new Supply Chain Committee with a view to providing oversight of a multi-year supply chain change program to develop the best global kiwifruit supply chain by drawing on world class supply chain knowledge and practice to optimise the New Zealand Kiwifruit supply chain both globally and by market for the purpose of maximising grower returns. Tony de Farias will be the first Chairman of the Supply Chain Committee. 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 ZESPRI Board and its Committees, and attendance by ZESPRI Directors at those meetings, is shown on page 62. ZESPRI Annual Report 2011/12

9

CORPORATE GOVERNANCE

ZESPRI Directors also represent ZESPRI Group Limited 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 that these Directors bring to the boardroom table. However, it also means that conflicts of interest need to be managed carefully. ZESPRI 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 2012 which have been entered in the Interests Register by individual Directors are set out under Directors’ Disclosures on pages 64 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 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.

10

ZESPRI Annual Report 2011/12

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 ZESPRI Director and their other business interests. In 2012, Ray Sharp resigned as a ZESPRI Director following identification of a conflict between ZESPRI policies and orchard management practices employed in his orchard interests. Share trading Comprehensive approval and disclosure policies and procedures are in place for trading in ZESPRI Group Limited shares by Directors and employees, which ensure that Directors/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 ZESPRI shares. Pursuant to the policy, 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. Details of all share trading by Directors and their relevant interests are published on ZESPRI’s website (www.zespri.com) and on the Company’s grower website, The Canopy (www.zespricanopy.com). 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 Directors 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. In late 2011, allegations were made regarding potential misuse of confidential information by a ZESPRI Director. After meeting with the complainant to fully understand the allegations, the Board determined that it was appropriate to commission an independent investigation to determine whether the allegations were founded. Sir Peter Trapski conducted a robust investigation to ascertain the facts and concluded that there was no evidence of misuse of information or breach of trust on the part of the Director. Delegation of Board power Under the Companies Act 1993, management of a company rests with its Directors. However, decision-making on all but a few critical matters may be delegated to management. ZESPRI maintains a comprehensive Delegated Authorities Policy which is a key governance document specifying the kinds of decisions and approvals that can be made by managers at various levels within the Company, and identifies 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-today management of the business and sit below the Delegated Authorities Policy. Evaluating Board performance The Board reviews its performance at the end of each of its meetings, so that it may continuously monitor and improve the quality of its meetings and meeting support. The Board also 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.

CORPORATE GOVERNANCE

Director remuneration

Collaborative marketing

ZESPRI’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.

The Kiwifruit Export Regulations 1999 allow for any person to undertake collaborative marketing, pursuant to an approval issued by Kiwifruit New Zealand (KNZ). KNZ may grant approval for a third party to export and market kiwifruit in collaboration with the Company provided that this is likely to increase the overall wealth of New Zealand kiwifruit suppliers (growers). In the 2011/12 season, 13 collaborative marketers and 24 collaborative marketing programmes were approved by KNZ, representing 3.3 percent of total kiwifruit export volumes sold.

At the 2011 Annual Meeting, the Director Remuneration Committee recommended that the maximum remuneration authorised for payment to Directors in the 2011/2012 financial year be increased to $750,000, the first increase since 2003. This recommendation was accepted by shareholders, but in recognition of the circumstances facing the industry, the Board elected to implement only a portion of the increase. The Board also implemented a number of changes to the way in which director remuneration is paid as recommended by the Director Remuneration Committee, including introducing a flat annual fee rather than having additional fees payable for offshore travel or Committee membership. Additional fees continue to be paid to those Directors who chair Board Committees, in recognition of the additional effort required of these Directors. Compliance 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. Each Board member is issued with a comprehensive Director’s Manual which contains detailed information on the corporate governance regime that applies to ZESPRI, and the Directors’ duties and responsibilities in that regard. This Manual is kept up to date by the General Counsel and re-circulated to Directors periodically.

Approval of diversified activities Regulation 11 of the Kiwifruit Export Regulations 1999 requires that ZESPRI does not carry out activities that are not necessary for core business (i.e. the purchase and export of New Zealandgrown kiwifruit) unless the providers of the capital used (or to be used) have agreed to their capital being used for those activities.

Approval of major transactions At the 2010 Annual Meeting ZESPRI 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 Supply Agreement and entering into freight contracts with shipping companies.

Insurance During the year, the Board resolved to continue with Directors and Officers’ liability insurance cover, with the premium costs met by ZESPRI Group Limited.

ZESPRI Annual Report 2011/12

11

12

ZESPRI Annual Report 2011/12

ZESPRI

Financial Statements for the year ended 31 March 2012 ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

ZESPRI Annual Report 2011/12

13

14

ZESPRI Annual Report 2011/12

Independent Auditors’ Report to the shareholders of ZESPRI Group Limited ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

Report on the Company and Group financial statements

We have audited the accompanying financial statements of ZESPRI Group Limited (‘’the Company’’) and the Group, comprising the Company and its subsidiaries, on pages 16 to 60. The financial statements comprise the balance sheets as at 31 March 2012, 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 Group. Directors’ responsibility for the Company and Group financial statements

The directors are responsible for the preparation of Company and Group 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 Group 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 Group 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 Group 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 Group 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 Group’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 Group’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 Group in relation to advisory services. Partners and employees of our firm may also deal with the Company and Group on normal terms within the ordinary course of trading activities of the business of the Company and Group. These matters have not impaired our independence as auditor of the Company and Group. The firm has no other relationship with, or interest in, the Company and Group. Opinion

In our opinion the financial statements on pages 16 to 60: •

comply with generally accepted accounting practice in New Zealand;



comply with International Financial Reporting Standards; and



give a true and fair view of the financial position of the Company and the Group as at 31 March 2012 and of the financial performance and cash flows of the Company and the Group for the year then ended.

Other matter

The financial statements of ZESPRI Group Limited and the Group, for the year ended 31 March 2011, were audited by another auditor who expressed an unmodified opinion on those statements on 18 May 2011. 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 Group Limited as far as appears from our examination of those records.

23 May 2012 Auckland

ZESPRI Annual Report 2011/12

15

Income Statements and Statements of Comprehensive Income ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

  Income Statements

Notes

Group 2012 $’000

Parent 2012 $’000

2011 $’000

2011 $’000

Operating revenue

2(a)

1,486,577

1,414,757

1,016,283

Other revenue

2(b)

23,230

6,109

15,567

1,472

(1,591,085)

(1,489,946)

(1,022,907)

(908,814)

Operating expenses

900,028

Other net gains/(losses)

5

110,959

81,468

(2,231)

206

Operating profit/(loss) before taxation

 

29,681

12,388

6,712

(7,108) 14,138

Finance revenue

6(a)

4,337

4,220

9,246

Finance expense

6(b)

(2,321)

(2,398)

(516)

(475)

Net profit before taxation

 

31,697

14,210

15,442

6,555

Taxation (expense)/income

7(a)

(11,170)

(6,953)

(3,042)

846

20,527

7,257

12,400

7,401

Net profit after taxation Attributable to: Owners of the parent

 

20,527

7,257

12,400

7,401

Earnings per share: basic and diluted

8

$0.170

$0.060

$0.103

$0.061

Group 2012 $’000

Statements of Comprehensive Income Profit for the year Other comprehensive income in the year Total comprehensive income for the year

Parent 2012 $’000

2011 $’000

2011 $’000

20,527

7,257

12,400

-

-

-

7,401 -

20,527

7,257

12,400

7,401

20,527

7,257

12,400

7,401

Attributable to: Owners of the parent

 

The above Income Statements and Statements of Comprehensive Income should be read in conjunction with the accompanying notes.

16

ZESPRI Annual Report 2011/12

Balance Sheets ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

  Balance Sheets at 31 March

Group

Parent

Notes

2012 $’000

2011 $’000

2012 $’000

2011 $’000

23(b)

143,550

121,260

119,853

102,906

12

42,198

21,920

70,516

60,740

9,438

7,183

-

-

Current assets Cash and cash equivalents Accounts receivable Income tax receivable Insurance assets from insurance offered

13(b)

-

-

-

-

Other financial assets

14(a)

97,193

81,976

95,266

78,540

10,951

18,474

6,901

12,681

6,362

13,449

-

-

309,692

264,262

292,536

254,867

Prepayments Inventories

15

  Non-current assets Accounts receivable

12

Other financial assets

14(a)

-

15

-

-

89,087

61,281

87,169

59,765

Property, plant and equipment

16

5,163

5,095

-

-

Intangibles

17

5,046

4,837

788

494

Deferred tax assets

7(b)

5,527

4,887

2,537

2,035

Investments in subsidiary companies

18





94

94

543

520

-

-

 

105,366

76,635

90,588

62,388

 

415,058

340,897

383,124

317,255

105,494

94,879

133,806

121,943

8,141

2,684

3,348

353

24,736

20,005

21,805

17,592

Prepayments

Current liabilities Accounts payable and accruals

19

Income tax payable Provisions

20

Insurance liabilities from insurance offered

13(b)

275

93

275

93

Other financial liabilities

14(b)

96,136

80,657

95,266

78,540

234,782

198,318

254,500

218,521

  Non-current liabilities Accounts payable and accruals

19

1,310

1,226

-

-

Provisions

20

2,502

6,330

-

2,663

Deferred tax liabilities

7(b)

2,219

1,896

-

-

Other financial liabilities

14(b)

89,087

61,245

87,169

59,765

95,118

70,697

87,169

62,428 18,017

  Equity

18,017

18,017

18,017

Other reserves

Share capital

10(b) 9(a)

349

195

349

195

Retained earnings

9(b)

66,792

53,670

23,089

18,094

 

85,158

71,882

41,455

36,306

 

415,058

340,897

383,124

317,255

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 Group Limited on 23 May 2012. Authorised for, and on behalf of, the Board:

J J Loughlin C S Greenlees Chairman Director

ZESPRI Annual Report 2011/12

17

Statements of Changes in Equity ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

Share capital

Retained earnings

Other reserves

2011 $’000

7,577

71,882

77,920

-

-

20,527

7,257

7,382

154

(7,382)

-

-

20,373

14,639

154

(7,382)

20,527

7,257

-

(7,251)

(13,295)

-

-

(7,251)

(13,295)

-

-

(7,251)

(13,295)

-

-

(7,251)

(13,295)

Balance at 31 March

18,017

18,017

66,792

53,670

349

195

85,158

71,882

Parent

2012 $’000

2011 $’000

2012 $’000

2011 $’000

18,017

18,017

18,094

16,606

195

-

-

12,400

7,401

-

-

(154)

-

-

-

Notes

2011 $’000

2012 $’000

2011 $’000

2012 $’000

18,017

18,017

53,670

52,326

195

-

-

20,527

7,257

-

-

(154)

-

-

-

Total 2012 $’000

Statements of Changes in Equity

2012 $’000

2011 $’000

Group Attributable to owners of the parent: Balance at 1 April Comprehensive income: Net profit after taxation attributable to owners Revenue and (expenses) transfer, net of tax

9

Total comprehensive income for the year Transactions with owners: Dividends paid during the year

11

Total transactions with owners in their capacity as owners

Share capital

Notes

Retained earnings

Other reserves 2012 $’000

Total 2012 $’000

2011 $’000

7,577

36,306

42,200

-

-

12,400

7,401

7,382

154

(7,382)

-

-

12,246

14,783

154

(7,382)

12,400

7,401

-

(7,251)

(13,295)

-

-

(7,251)

(13,295)

-

-

(7,251)

(13,295)

-

-

(7,251)

(13,295)

18,017

18,017

23,089

18,094

349

195

41,455

36,306

2011 $’000

Attributable to owners of the parent: Balance at 1 April Comprehensive income: Net profit after taxation attributable to owners Revenue and (expenses) transfer, net of tax

9

Total comprehensive income for the year Transactions with owners: Dividends paid during the year Total transactions with owners in their capacity as owners Balance at 31 March

11

The above Statements of Changes in Equity should be read in conjunction with the accompanying notes.

18

ZESPRI Annual Report 2011/12

Statements of Cash Flows ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

  Statements of Cash Flows

Notes

Group 2012 $’000

Parent 2012 $’000

2011 $’000

2011 $’000

Cash flows from operating activities Cash was provided from: Receipts from sales 1

1,478,594

1,410,244

1,011,557

894,764

3,739

4,194

3,739

4,194

849

-

849

-

Receipts from research co-funding

2,497

3,000

-

-

Other sundry items

6,437

6,458

1,002

2,562 51

Receipts from sales of ZESPRI licences Receipts from Psa co-funding

Insurance receipts – reinsurance assets Proceeds from derivatives

13(b) 5

Proceeds from inter-company derivatives Taxation refunded  

1,027

125

-

119,758

86,535

-

-

-

-

119,758

86,535

151

83

-

83

1,613,052

1,510,639

1,136,905

988,189

965,824

883,416

959,303

883,510

78,761

90,758

-

-

530,821

519,506

161,551

117,864

Cash was applied to: Payments to contracted suppliers – New Zealand-grown fruit Payments to contracted suppliers – non-New Zealand-grown fruit Payments to other suppliers and employees Insurance claims Taxation paid   Net cash available from/(used in) operating activities

22

241

624

241

624

8,436

18,048

549

1,649

1,584,083

1,512,352

1,121,644

1,003,647

28,969

(1,713)

15,261

(15,458)

10,283

Cash flows from investing activities Cash was provided from: Dividends received

-

-

5,000

Proceeds from sale of property, plant and equipment and intangibles

3

21

-

-

 

3

21

5,000

10,283

Purchase of intangible assets

2,798

2,689

494

471

Purchase of property, plant and equipment

2,118

1,526

-

-

4,916

4,215

494

471

(4,913)

(4,194)

4,506

9,812

Cash was applied to:

Net cash (used in)/available from investing activities Cash flows from financing activities Cash was provided from: Interest received

4,474

4,372

4,535

4,290

Proceeds of bank loans

60,000

32,000

60,000

32,000

 

64,474

36,372

64,535

36,290

60,000

32,000

60,000

32,000

171

244

104

71

7,251

13,295

7,251

13,295

Cash was applied to: Repayment of bank loans Interest paid Dividend payments

11

 

67,422

45,539

67,355

45,366

Net cash used in financing activities

(2,948)

(9,167)

(2,820)

(9,076)

Net increase in cash held

21,108

(15,074)

16,947

(14,722)

1,182

5,340

-

-

Add opening cash brought forward

121,260

130,994

102,906

117,628

Ending cash carried forward

143,550

121,260

119,853

102,906

Effect of exchange rate changes on foreign currency cash balances

Represented by: Cash and cash equivalents



1

23(b)

143,550

121,260

119,853

102,906

143,550

121,260

119,853

102,906

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.

ZESPRI Annual Report 2011/12

19

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

1. Summary of significant accounting policies Statement of compliance The Financial Statements are those of the parent company, ZESPRI Group Limited (the Company), and its subsidiaries (collectively ZESPRI Group). The Company is domiciled in New Zealand and is a profit-oriented entity incorporated under the Companies Act 1993 of New Zealand. ZESPRI Group’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 1993. 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 Group. 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; and



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 Group 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 Group 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 Group 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 Statement. 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 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 13, 14, 20, 23 and 24. 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 18) have control. All companies in ZESPRI Group are wholly owned by companies within the Group and, as such, are ultimately fully controlled by the Company. All subsidiaries have been incorporated and consolidated at inception by ZESPRI Group companies. No subsidiaries have been obtained by acquisition. The results and balances of subsidiaries are included in consolidated Financial Statements of ZESPRI Group 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.

20

ZESPRI Annual Report 2011/12

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

1. Summary of significant accounting policies (continued) (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.

(iii) Dividends: Dividend income is recognised when the right to receive payment is established. (iv) 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. (d)

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 get ready 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 Statement in the period in which they have been incurred. (e) Co-funding

Co-funding is recognised as follows: (i)

Research co-funding relating to research and development costs are recognised over the period necessary to match them with the costs that they are intended to compensate. Where research and development expenditure is expensed in the Income Statement, co-funding income to which it relates is shown separately as income. Where research and development costs are capitalised as intangible assets, co-funding income is netted off the expenses being capitalised.

(ii)

In 2011/12, 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 Statement, co-funding income is shown separately as income.

Co-funding income is only recognised 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. (f)

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. (g) 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 Group’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 Group 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 Statement, except when it relates to items credited or debited directly to equity, in which case the related tax is also recognised directly in equity. (h)

Foreign currency translation

(i)

Functional and presentation currency: Transactions in each of ZESPRI Group’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 Group companies are currently deemed to have New Zealand Dollars as both their functional and presentational currencies.

ZESPRI Annual Report 2011/12

21

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

1. Summary of significant accounting policies (continued) (h)

Foreign currency translation (continued)

(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 Statement. Non-monetary items held at historical cost are translated using the historical exchange rate at the date of the transaction.

(i)

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. (j) Dividends

Dividends are reported as a movement in shareholders’ equity in the period in which they are declared by the Board of Directors. (k)

Other reserves

Retained earnings are set aside in other reserves where the Board of Directors resolve 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. A separate GOLD Promotion Reserve was set aside for future promotion funded from the sale of ZESPRI® GOLD licences in New Zealand. In November 2010, the Board of the Company resolved that the current outstanding balances of both reserves be transferred to retained earnings in response to the discovery of the kiwifruit vine bacteria Psa in New Zealand. Refer to Notes 9 (Reserves) and 20 (Provisions) for further information on Psa in New Zealand. Any movement in other reserves is by transfer to or from retained earnings as related revenues are earned and costs are incurred. (l)

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. (m) 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 Group 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 Statement. 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 Statement. Accounts payable are initially measured at fair value and subsequently measured at amortised cost. (n) 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. (o) Derivatives

ZESPRI Group 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 trading or speculative purposes. Derivatives able to be utilised under the Treasury Management Policy include interest rate swaps, oil options, foreign exchange options and forward contracts. ZESPRI Group’s policy is to manage risk from an economic perspective. As a result, ZESPRI Group manages the risks of net positions subject to market risks. Hedge accounting has not been applied. As a result, all derivatives are required to be classified as ‘held for trading’, and are measured at fair value with changes recognised through the Income Statement. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining hedged item is for more than 12 months, and as a current asset or liability when the remaining maturity of the hedged item is for less than 12 months. (i)

Recognition and derecognition: Derivatives are recognised initially at cost. Subsequently, they are stated at fair value. Revenues and expenses relating to changes in fair value of derivatives are recognised in the Income Statement. The fair value of all financial instruments is recorded in the Balance Sheet. Derivatives are de-recognised when the contractual rights or obligations relating to the cash flow expire.

22

ZESPRI Annual Report 2011/12

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

1. Summary of significant accounting policies (continued) (o)

Derivatives (continued)

(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 Group 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 not to be closely related to the host contract are accounted for as if they were stand-alone derivatives.

(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 14). The fair value of interest rate swaps is the present value of the estimated future cash flows. 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. (p)

Equity investments

Investments in subsidiaries are stated at cost or, where a decline in the value has occurred, at recoverable amount. (q)

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 Group 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. (r) 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 period of lease

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 in the change of these estimates is recognised in the Income Statement during the period. (s) 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 graftwood, 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. No internal costs are capitalised. Amortisation is calculated using the straight-line method to allocate the cost over the estimated useful life of five years.

(ii)

Computer software: ZESPRI Group 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.

ZESPRI Annual Report 2011/12

23

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

1. Summary of significant accounting policies (continued) (s)

Intangibles (continued)

(ii)

Computer software: (continued) The cost of software developed by, and for the use of, ZESPRI Group 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 in the change of these estimates is recognised in the Income Statement during the period. (t)

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. (u)

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 Group 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. (v) Provisions

ZESPRI Group 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. (w)

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 Group 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 Group’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 annual period of cover is from 1 August to 30 June the following year (2011: 1 September to 31 August). 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.

(x) Leases

ZESPRI Group 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 Statement 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 amortised over the unexpired period of the lease or the estimated useful life of the improvements, whichever is the shorter.

24

ZESPRI Annual Report 2011/12

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

1. Summary of significant accounting policies (continued) (y)

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 Group. 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. (z)

Segment reporting

ZESPRI Group determines its reportable segments by reference to the internal reporting of the activities of the Group 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 Group, which also reflect groups of similar products and services. ZESPRI Group has five 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 Group to develop new cultivars and to improve kiwifruit production, storage and handling practices; (iv) Processed fruit product: The sourcing and sale of processed product derived from kiwifruit (discontinued in 2011); and (v)

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. The results of discontinued operations are presented in Note 31. (ab) Changes in accounting policies and disclosures

The following standards came into effect during the reporting period but did not impact the Group: —

NZ IAS 24 supersedes IAS 24 (Related party disclosures) issued in 2003. IAS 24 (revised) is mandatory for periods beginning on or after 1 January 2011. The revised standard clarifies and simplifies the definition of a related party.

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 accounting period beginning on or after 1 April 2012. The following standards are not yet effective and have not been early adopted by the Group but will be applicable to the Group: —

FRS 44 (Harmonisation Amendments) – Effective for periods beginning on or after 1 July 2011. This standard prescribes the New Zealand specific disclosures which are required in addition to those required under NZ IFRS. This standard amends various NZ IFRS for the purpose of harmonising with the source IFRS and Australian Accounting Standards. The significant amendments include the option to use the indirect method of reporting cash flows that is not currently in NZ IAS 7. In addition, various disclosure requirements have been deleted.



NZ IFRS 13 (Fair Value Measurement) – Effective for periods beginning on or after 1 January 2013. This revised standard defines fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements.



NZ IFRS 9 (Financial Instruments) – Effective on or after 1 January 2015. This standard will eventually replace NZ IAS 39 (Financial Instruments: Recognition and Measurement), and is expected to be adopted by the Group in the Financial Statements for the year ending 31 March 2016. 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 not expected that these changes will materially affect the Group’s Financial Statements. (ac) Comparative information

During the year the Company reviewed its disclosure of other net gains and losses on derivatives and non derivatives, and as a result has simplified its disclosures in Note 5. These changes are related to disclosure only.

ZESPRI Annual Report 2011/12

25

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

2. Revenue Group

(a)

Operating revenue

2012 $’000

Parent 2012 $’000

2011 $’000

2011 $’000

Sale of kiwifruit (at spot foreign exchange rates): - New Zealand-grown kiwifruit

1,358,766

1,270,637

-

-

-

-

992,677

879,172

101,874

119,894

-

-

20,052

15,877

20,052

15,877

1,480,692

1,406,408

1,012,729

895,049

-

352

-

-

1,480,692

1,406,760

1,012,729

895,049

3,554

4,979

3,554

4,979

43

50

-

-

2,288

2,968

-

-

1,486,577

1,414,757

1,016,283

900,028

- Inter-company New Zealand-grown kiwifruit - Non-New Zealand-grown kiwifruit - Collaborative marketing Total global fresh kiwifruit sales Sale of processed product Total revenue from kiwifruit product sales Sale of ZESPRI variety licences 1 Revenue from royalties Insurance revenue 2

1



The sale of ZESPRI variety licences is recognised on the issue of the licence to the tenderer. In 2011/12 additional licences were issued for two of the three new varieties that were commercialised in the previous financial year, totalling a net revenue of $3,251,643 (2011: $3,622,900) after issuance costs of $486,355 (2011: $486,727). The remainder of licence revenue relates to Tranche 3 of the Hort16A licences. As at 31 March 2012 no Hort16A licences, tendered in July 2008, were un-issued (2011: $302,391).

2



Insurance revenue includes revenue received or receivable on policies taken out for pre-FOBS (refer Note 13) and post-FOBS kiwifruit losses. Group

(b)

Other revenue

Gain on sale of assets

Parent 2012 $’000

2011 $’000

2011 $’000

1

2

-

-

14,200

-

14,200

-

Co-funding for new cultivar research 2

2,026

2,095

-

-

Co-funding from Kiwifruit Vine Health Incorporated for Psa research

3,155

-

-

-

267

389

-

-

3,581

3,623

1,367

1,472

23,230

6,109

15,567

1,472

Co-funding from the New Zealand industry for Psa response 1

Co-funding for other projects Other income



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 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 MAF Biosecurity NZ to KVH, up to a maximum of $25,000,000 (excluding GST) before 31 March 2013. The Company has received a commitment from New Zealand kiwifruit growers that supply the Company to contribute $14,200,000 of the contracted $25,000,000.



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 research and development co-funding has a term of seven years, and a FRST contribution value of up to $13,511,111 (excluding GST). The Group only recognises FRST contributions as co-funding sundry revenue when all the contractual conditions have been met. As at 31 March 2012, $678,308 (2011: $642,750) has been received from FRST for which contractual obligations are outstanding. As such, this amount is recorded as income in advance (refer Note 19).

1

2

26

2012 $’000

ZESPRI Annual Report 2011/12

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

3. Operating expenses Group

Notes

2012 $’000

Parent 2012 $’000

2011 $’000

2011 $’000

ZESPRI Group’s operating expenses include the following (at spot foreign exchange rates): Amortisation Bad debts written off

17 12(a)

Commissions Depreciation

16

Directors’ fees Donations 1 Employee benefits Employee benefits – defined contribution plan Freight, distribution and insurance Impairment of intangible assets 2

17

Inter-company charges

1,663

1,435

122

54

-

16

-

-

17,792

19,764

-

-

1,822

1,711

-

-

600

572

-

-

1,483

249

-

-

41,266

40,416

-

-

882

890

-

-

186,735

183,381

242

637

1,222

-

-

-

-

-

28,760

23,825

 1 -

Inventory write-down of consumables

110

Litigation/dispute settlements

605

-

-

Loss on sale of assets

105

18

-

-

Other selling and direct costs

148,214

136,967

10,987

9,539

- Fruit and service payments – New Zealand-grown kiwifruit 3

952,762

858,870

946,335

837,578

75,637

90,370

-

-

27,658

24,415

27,658

24,415

88,281

84,142

-

-

- Fruit purchases – non-New Zealand-grown kiwifruit - Loyalty premium – New Zealand-grown kiwifruit

20

Payments for kiwifruit including: Promotion Psa funding - New Zealand 4

20

8,498

12,875

8,498

12,875

- Italy

20

(186)

381

-

-

- France

20

-

56

-

-

18,018

12,420

-

-

219

461

-

-

1,221

4,983

-

-

Research – New Zealand-grown kiwifruit Research – non-New Zealand-grown kiwifruit Restructuring cost



Donations in 2011/12 include a payment of 90 million Japanese Yen (NZD 1,415,985) to the Japanese Red Cross for disaster relief following the earthquake and tsunami that struck Japan on 11 March 2011.



In December 2011 the Board resolved to halt the Sales and Operations software project due to the current industry conditions with Psa, and reducing crop volumes. This resulted in an impairment loss of $1,222,081 (2011: $Nil) (refer Note 17).



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 intercompany inventory movements for future season’s kiwifruit shipped prior to year end.



Included in the New Zealand Psa contribution is $Nil (2011: $448,570) of Psa related research projects funded by the Company on behalf of Kiwifruit Vine Health Incorporated (KVH) (refer Note 20). For 2011/12, Psa research conducted in conjunction with KVH of $3,154,563 is included in the New Zealand-grown kiwifruit research figure.

1

2

3

4

ZESPRI Annual Report 2011/12

27

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

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 auditors of the Company are KPMG (2011: PricewaterhouseCoopers). Group 2012 $’000

Audit of the Financial Statements

Parent 2012 $’000

2011 $’000

2011 $’000

208

257

67

83

-

8

-

-

Regulatory compliance

12

14

-

-

Other services 1

37

3

-

-

257

282

67

83

Regulatory and related services – Annual Meeting

Total fees paid to the Company’s auditors



1

Relates to advisory and electronic discovery services (2011: fee related to electronic discovery services).

Other audit fees of $39,286 (2011: $61,802) have been paid to other auditors to meet local audit requirements.

5. Other net gains/(losses) Group 2012 $’000

Net gains from derivatives Net foreign exchange (losses)/gains from non-derivatives Total other net gains/(losses)

Parent 2012 $’000

2011 $’000

2011 $’000

119,758

86,535

-

-

(8,799)

(5,067)

(2,231)

206

110,959

81,468

(2,231)

206

6. Finance revenue and expense Group

(a)

Finance revenue

Interest revenue

2012 $’000

2012 $’000

2011 $’000

4,220

4,246

4,138

-

-

5,000

10,000

4,337

4,220

9,246

14,138

Group

(b)

Finance expense

Interest expense

28

2011 $’000

4,337

Inter-company dividend income Total finance revenue

Parent

2012 $’000

Parent 2011 $’000

2012 $’000

2011 $’000

171

113

105

71

Fee expense

2,150

2,285

411

404

Total finance expense

2,321

2,398

516

475

ZESPRI Annual Report 2011/12

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

7. Taxation Group

(a)

Taxation expense

Net profit before taxation

2012 $’000

Parent 2012 $’000

2011 $’000

2011 $’000

31,697

14,210

15,442

6,555

8,875

4,263

4,324

1,967

1,227

1,896

(1,374)

(2,986)

580

(31)

-

-

- Tax (over)/under provided in prior year 1

(2,072)

(38)

92

173

- Foreign income at different tax rates

2,237

955

-

-

323

(92)

-

-

Taxation expense/(income)

11,170

6,953

3,042

(846)

Effective tax rate (%)

35.2%

48.9%

19.7%

(12.9%)

- Current income tax charge

13,693

8,762

3,451

223

- Adjustments of prior years

(2,072)

(40)

93

173

(451)

(1,769)

(502)

(1,242)

11,170

6,953

3,042

(846)

Taxation at 28% (2011: 30%) Tax effect of: - Non-deductible or non-assessable items - Translation differences on foreign tax

- Movement in distribution of accumulated retained earnings of subsidiaries

Taxation expense is represented by: Current taxation expense:

Deferred taxation expense: - Origination and reversal of temporary differences Taxation expense/(income)



1

Mainly the result of correcting differences between the estimated tax and expense in the prior year and the actual tax expense that transpired primarily in relation to foreign subsidiaries.

The 28 percent (2011: 30 percent) tax rate used above is the corporate tax rate payable by New Zealand corporate entities on taxable profit under New Zealand tax law. The New Zealand corporate tax rate has changed from 30 to 28 percent effective from 1 April 2011. Group

(b)

Components of deferred taxation

2012 $’000

Parent 2012 $’000

2011 $’000

2011 $’000

Property, plant and equipment, and intangibles

840

401

408

476

Inventories and receivables

(245)

353

(77)

(26)

Retained earnings in subsidiaries

(2,219)

(1,896)

-

-

Provisions and accruals

3,467

2,864

2,206

1,585 -

Other financial assets and liabilities

-

(380)

-

Employee entitlements

1,465

1,649

-

-

Net deferred assets

3,308

2,991

2,537

2,035 2,035

Deferred tax assets

5,527

4,887

2,537

Deferred tax liabilities

(2,219)

(1,896)

-

-

Net deferred assets

3,308

2,991

2,537

2,035

Group

(c)

Net change in deferred tax balances

Net deferred assets at 1 April Charged to Income Statement Effect of changes in tax rates

2012 $’000

Parent 2012 $’000

2011 $’000

2011 $’000

2,991

1,188

2,035

793

451

1,998

502

1,387 (145)

-

(216)

-

Exchange differences and other

(134)

21

-

-

Net deferred assets at 31 March

3,308

2,991

2,537

2,035

All movements have been charged to the Income Statements. No movements have been recorded directly within equity.

ZESPRI Annual Report 2011/12

29

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

7. Taxation (continued) Group

(d)

2012 $’000

Tax credits available to shareholders

2011 $’000

Imputation credit account: Balance at 1 April credit

7,612

Income tax payments made during the year

2,800

8,300

Imputation credits attached to dividends paid

(3,096)

(5,674)

33

(2,225)

7,349

7,612

Transfers/refunds and other adjustments Balance at 31 March credit

7,211

Foreign tax withholding credit account: Balance at 31 March credit

-

-

7,349

7,612

- ZESPRI Group consolidated account 1

2,363

2,626

- ZESPRI Group Limited – pre 1 April 2005 1

6,695

6,695

- ZESPRI Group subsidiary companies – pre 1 April 2005 1

(1,709)2

(1,709)2

Total tax credits available to shareholders at 31 March

7,349

7,612

Total tax credits available to shareholders at 31 March Credits available directly and indirectly to shareholders of the parent company through:



The Inland Revenue Department in New Zealand approved the operation of a consolidated imputation account by ZESPRI Group from 1 April 2005. Consequently, the Company no longer operates separate imputation accounts. However, ZESPRI Group Limited and subsidiaries’ imputation account balances existing before 1 April 2005 could not be transferred to the consolidated account upon its creation, and are allowed to be transferred to the consolidated account only as they are utilised. All imputation credits held within the accounts dated before 1 April 2005 are available to the consolidated account for future utilisation.



There is a debit balance in one subsidiary of the ZESPRI Group which does not give rise to a requirement to make further tax payments nor does it give rise to tax penalties. This debit balance will eliminate upon liquidation of the subsidiary or removal from the Company Register.

1

2

On 23 May 2012, the Board of Directors announced an intention to declare a dividend of 8.0 cents which will not be recognised in the Financial Statements until August 2012. It is intended that the dividend will be fully imputed. On payment, $4,138,880 of imputation credits will be attached to dividends paid, decreasing the 31 March 2012 closing balance.

8. Earnings per share Group 2012

Net profit after taxation attributable to shareholders ($’000) Weighted average shares (’000) Basic and diluted earnings per share ($)

30

ZESPRI Annual Report 2011/12

Parent 2011

2012

2011

20,527

7,257

12,400

7,401

120,717

120,717

120,717

120,717

0.170

0.060

0.103

0.061

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

9. Reconciliation of movements in reserves Group and Parent Defence fund reserve

(a)

Other reserves

2012 $’000

GOLD promotion reserve

2011 $’000

2012 $’000

Total 2012 $’000

2011 $’000

2011 $’000

Balance at 1 April

195

2,729

-

4,848

195

7,577

Revenue transferred from retained earnings

307

362

-

-

307

362

Expenses transferred from retained earnings

(93)

(84)

-

-

(93)

(84)

Income tax effect on items transferred from retained earnings

(60)

(83)

-

-

(60)

(83)

-

(2,729)

-

(4,848)

-

(7,577)

349

195

-

-

349

195

Transfers to retained earnings Balance at 31 March

In 2011/12, $153,767 (2011: $194,901) was transferred from retained earnings to the defence fund reserve. The transfer amounts to the net after taxation levied amount from offshore Hort16A proceeds less costs incurred defending ZESPRI Plant Variety Rights. In 2010/11 the Board approved the use of the defence fund reserve and the GOLD promotion reserve balances as at 31 March 2010 to partly fund the New Zealand Psa response (refer Note 20). These balances were transferred to retained earnings during the previous financial year. Group

(b)

Retained earnings

Notes

Balance at 1 April Dividend paid during the year

11

Net profit after taxation attributable to shareholders

2012 $’000

Parent 2011 $’000

2012 $’000

53,670

52,326

18,094

16,606

(7,251)

(13,295)

(7,251)

(13,295)

2011 $’000

20,527

7,257

12,400

7,401

Revenue attributed to defence fund transferred to other reserves

(307)

(362)

(307)

(362)

Expenses attributed to defence fund transferred to other reserves

93

84

93

84

Income tax effect on items transferred to other reserves

60

83

60

83

Transfers from other reserves

9(a)

Balance at 31 March

-

7,577

-

7,577

66,792

53,670

23,089

18,094

10. Share capital Group and Parent

(a)

Number of shares issued

Number of authorised and fully paid issued ordinary shares at 31 March, at no par value

2012 No. of shares

2011 No. of shares

120,717,335

120,717,335

Group and Parent

(b)

Share capital value

Balance at 31 March

2012 $’000

18,017

2011 $’000

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 Group.

ZESPRI Annual Report 2011/12

31

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

10. Share capital (continued) (c)

Capital management

The Company’s shareholders are or have been kiwifruit growers in New Zealand. 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 Group 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 share. 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, 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 Group, 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: Group

Parent

2012 $’000

2011 $’000

2012 $’000

2011 $’000

254,867

Liquidity test: Current assets

309,692

264,262

292,536

Less non-liquid items

(20,389)

(25,657)

(6,901)

(12,681)

Less current liabilities

(234,782)

(198,318)

(254,500)

(218,521)

54,521

40,287

31,135

23,665

Current assets in excess of current obligations Balance sheet test: Net assets

85,158

71,882

41,455

36,306

Less estimated value of contingent liabilities

(13,272)

(7,589)

(12,568)

(6,776)

Net assets in excess of contingent liabilities

71,886

64,293

28,887

29,530

There has been no change in the requirements, policies or processes from the prior year.

32

ZESPRI Annual Report 2011/12

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

11. Dividends paid Group and Parent 2012 $’000

2011 $’000

Ordinary dividends: On ordinary shares – final (prior year)

4,829

8,450

On ordinary shares – interim (current year)

2,414

4,828

Supplementary dividends (to non-residents) Total dividends paid

8

17

7,251

13,295

The dividends are fully imputed. Supplementary dividends of $8,109 (2011: $16,576) were paid to shareholders not tax resident in New Zealand, for which ZESPRI Group received a foreign investor tax credit entitlement. On 23 May 2012, the Board of Directors announced an intention to pay a fully imputed final dividend of 8.0 cents per share (2011: 4.0 cents per share), totalling $9,657,387 (2011: $4,828,693). This dividend will be paid in August 2012. Because the intention was announced after balance date, the financial effect has not been recognised in the Financial Statements. During the year, the 2011 final dividend declared on 20 July 2011 of 4.0 cents per share and the 2012 interim dividend declared on 19 October 2011 of 2.0 cents per share were paid and recognised in the Financial Statements.

12. Accounts receivable Group 2012 $’000

Parent 2012 $’000

2011 $’000

2011 $’000

Current: Trade receivables

13,158

10,954

1,518

346

Other receivables 1

16,547

1,954

13,760

332

Less: Provision for doubtful debts Receivables from subsidiaries

(51)

-

-

-

29,654

12,908

15,278

678 56,603

-

-

47,214

Indirect taxation

12,544

9,012

8,024

3,459

Total current receivables

42,198

21,920

70,516

60,740

Trade receivables

-

15

-

-

Total non-current receivables

-

15

-

-

42,249

21,935

70,516

60,740

(51)

-

-

-

42,198

21,935

70,516

60,740

Non-current:

Total gross receivables Less: Total provision for doubtful debts Total receivables



1

Included in other receivables is a $13,351,037 (2011: $Nil) receivable from the New Zealand kiwifruit industry with respect to Psa co-funding.

The carrying value of the items above has been determined by the Board of Directors as representative of the fair value of the assets. Amounts receivable from related parties are disclosed at Note 27. A provision for doubtful debts is recognised where there is evidence that an individual trade receivable is impaired. As at 31 March 2012, $50,926 trade receivables (2011: $Nil) were impaired and provided for.

ZESPRI Annual Report 2011/12

33

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

12. Accounts receivable (continued) Group

(a)

Movement in provision for doubtful debts

2012 $’000

Parent 2012 $’000

2011 $’000

2011 $’000

Balance at 1 April

-

126

-

Receivables written off as uncollectable

-

(16)

-

-

Reversal of provision

-

(110)

-

(110)

Additional provision

51

-

-

-

Balance at 31 March

51

-

-

-

Group

(b)

Accounts receivable past due but not impaired

Less than 3 months overdue Between 3 and 6 months overdue

2012 $’000

Parent 2012 $’000

2011 $’000

2011 $’000

1,691

1,389

62

56

169

75

35

71

9

57

9

56

62

123

62

123

1,931

1,644

168

306

Between 6 and 12 months overdue More than 12 months overdue Accounts receivable past due but not impaired at 31 March

110

No collateral is held for the above accounts receivable past due but not impaired.

13. Insurance cover offered Group

(a)

Insurance offered revenue and insurance offered expense

2012 $’000

Parent 2012 $’000

2011 $’000

2011 $’000

Insurance revenue from insurance offered 1: Included in operating revenue: - Marine cargo pre-FOBS for current season

1,027

74

-

-

1,027

74

-

-

Insurance claims and costs for current season: - Hail

(95)

(306)

(95)

(306)

- Marine cargo pre-FOBS

(53)

(40)

(53)

(40)

(275)

(93)

(275)

(93)

(423)

(439)

(423)

(439)

604

(365)

(423)

(439)

Insurance expense from insurance offered 1: Included in operating expenses ‘freight, distribution and insurance’:

Insurance claims and costs for next season: - Hail Net insurance income/(expense) from insurance cover offered 2



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 Group 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 Group.



The net insurance expense is a cost to the New Zealand-contracted suppliers under the New Zealand Supply Agreement.

1

2

34

ZESPRI Annual Report 2011/12

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

13. Insurance cover offered (continued) Group

(b)

Insurance assets and insurance liabilities from insurance offered

2012 $’000

Parent 2012 $’000

2011 $’000

2011 $’000

Movements in assets: -

51

-

Additional claims

Balance at 1 April

1,027

74

-

-

Amounts received

(1,027)

(125)

-

(51)

-

-

-

-

Insurance assets from insurance offered at 31 March

51

Movements in liabilities: 93

278

93

278

Additional claims and costs

Balance at 1 April

423

399

423

399

Claims and costs settled

(241)

(584)

(241)

(584)

Insurance liabilities from insurance offered at 31 March

275

93

275

93

275

93

275

93

Consisting of: - Hail (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 Zealand-contracted suppliers. (d)

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 GOLD (including GOLD ORGANIC) pools. In addition to the indemnity offered by the Company, each of the GREEN and GOLD pools is covered by $3.0 million (2011: $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 (2011: $6.0 million) for either the GREEN and the GOLD pool, the payment to all ZESPRI growers that have suffered hail losses after the deductible percentage is limited to $6.0 million (2011: $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 annually 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.

ZESPRI Annual Report 2011/12

35

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

13. Insurance cover offered (continued) (d)

Terms and conditions of insurance (continued)

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; and — claim unit value:

(e)



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 March, until all produce is shipped, which is normally 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. (f)

Sensitivity of results to changes in variables

Hail cover

The quantum of hail insurance expense is dependent on three variables: — 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 (2011: $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.

36

ZESPRI Annual Report 2011/12

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

14. Financial assets and liabilities Loans and receivables

Group

Notes

2012 $’000

Assets designated at fair value 2012 $’000

2011 $’000

Total

2011 $’000

2012 $’000

2011 $’000

143,257

(a) Financial assets per Balance Sheet Derivatives – held for trading Accounts receivable Cash and cash equivalents

-

-

186,280

143,257

186,280

12

42,198

21,935

-

-

42,198

21,935

23(b)

143,550

121,260

-

-

143,550

121,260

185,748

143,195

186,280

143,257

372,028

286,452

185,748

143,180

97,193

81,976

282,941

225,156

-

15

89,087

61,281

89,087

61,296

185,748

143,195

186,280

143,257

372,028

286,452

Total other financial assets Represented by: Current Non-current Total other financial assets

Liabilities at amortised cost

Notes

2012 $’000

Liabilities designated at fair value 2012 $’000

2011 $’000

Total 2012 $’000

2011 $’000

2011 $’000

(b) Financial liabilities per Balance Sheet Derivatives – held for trading

-

-

2,788

3,597

2,788

3,597

Contracted future suppliers

-

-

182,435

138,305

182,435

138,305

Insurance liabilities from insurance offered Accounts payable and accruals

13(b) 19

Total other financial liabilities

275

93

-

-

275

93

106,804

96,105

-

-

106,804

96,105

107,079

96,198

185,223

141,902

292,302

238,100

105,769

94,972

96,136

80,657

201,905

175,629

1,310

1,226

89,087

61,245

90,397

62,471

107,079

96,198

185,223

141,902

292,302

238,100

Represented by: Current Non-current Total other financial liabilities

Loans and receivables

Parent

Notes

2012 $’000

Assets designated at fair value 2012 $’000

2011 $’000

Total

2011 $’000

2012 $’000

2011 $’000

138,305

(a) Financial assets per Balance Sheet Inter-company derivatives – held for trading Accounts receivable Cash and cash equivalents

-

-

182,435

138,305

182,435

12

70,516

60,740

-

-

70,516

60,740

23(b)

119,853

102,906

-

-

119,853

102,906

190,369

163,646

182,435

138,305

372,804

301,951

190,369

163,646

95,266

78,540

285,635

242,186

-

-

87,169

59,765

87,169

59,765

190,369

163,646

182,435

138,305

372,804

301,951

Total other financial assets Represented by: Current Non-current Total other financial assets

Liabilities at amortised cost

Notes (b)

2012 $’000

Liabilities designated at fair value 2012 $’000

2011 $’000

2011 $’000

Total 2012 $’000

2011 $’000

138,305

Financial liabilities per Balance Sheet

Contracted future suppliers Insurance liabilities from insurance offered Accounts payable and accruals Total other financial liabilities

13(b) 19

-

-

182,435

138,305

182,435

275

93

-

-

275

93

133,806

121,943

-

-

133,806

121,943

134,081

122,036

182,435

138,305

316,516

260,341

134,081

122,036

95,266

78,540

229,347

200,576

-

-

87,169

59,765

87,169

59,765

134,081

122,036

182,435

138,305

316,516

260,341

Represented by: Current Non-current Total other financial liabilities

ZESPRI Annual Report 2011/12

37

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

14. Financial assets and liabilities (continued) 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 prepared by counterparty banks using market-observable data, and the resulting valuation estimates were compared to valuations provided by an external treasury agent as at 31 March. 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); and Level 3 — Inputs for the asset or liability that are not based on market-observable data (i.e. unobservable inputs). Fair value of financial assets and liabilities valuation hierarchy Group

Level 2 2012 $’000

Total 2011 $’000

2012 $’000

2011 $’000

Assets Derivatives – held for trading

186,280

143,257

186,280

143,257

186,280

143,257

186,280

143,257

Liabilities Derivatives – held for trading Contracted future suppliers

2,788

3,597

2,788

3,597

182,435

138,305

182,435

138,305

185,223

141,902

185,223

141,902

Parent Assets Inter-company derivatives – held for trading

182,435

138,305

182,435

138,305

182,435

138,305

182,435

138,305

Liabilities Contracted future suppliers

182,435

138,305

182,435

138,305

182,435

138,305

182,435

138,305

The specific valuation technique used to value the above financial instruments was based on dealer quotes for similar instruments and was independently calculated by the counterparty banks as at 31 March.

38

ZESPRI Annual Report 2011/12

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

15. Inventories Group 2012 $’000

2011 $’000

New Zealand kiwifruit inventory (future season)

2

6,428

Non-New Zealand kiwifruit inventory

1,670

1,810

Packaging materials

4,619

5,164

Other Total inventories

71

47

6,362

13,449

Security pledged

Refer to Note 25 for details of security pledged by ZESPRI Group.

16. Property, plant and equipment Leasehold improvements $’000

Plant and equipment $’000

Motor vehicles $’000

Work in progress $’000

Total $’000

Group – 2012 Cost as at 1 April

2,703

9,702

636

281

13,322

Accumulated depreciation

(1,292)

(6,459)

(476)

-

(8,227)

Net book value 1 April

1,411

3,243

160

281

5,095

Depreciation expense

(270)

(1,445)

(107)

-

(1,822)

10

1,517

249

217

1,993

Disposals (net)

-

(103)

-

-

(103)

Transfers

-

281

-

(281)

-

1,151

3,493

302

217

5,163

Additions

Net book value 31 March Cost as at 31 March

2,705

8,488

885

217

12,295

Accumulated depreciation

(1,554)

(4,995)

(583)

-

(7,132)

Net book value 31 March

1,151

3,493

302

217

5,163

Group – 2011 Cost as at 1 April

2,576

8,921

636

518

12,651

Accumulated depreciation

(1,027)

(5,760)

(373)

-

(7,160)

Net book value 1 April

1,549

3,161

263

518

5,491

Depreciation expense

(265)

(1,343)

(103)

-

(1,711)

Additions

138

928

-

281

1,347

(11)

(21)

-

-

(32)

-

518

-

(518)

-

1,411

3,243

160

281

5,095

Disposals (net) Transfers Net book value 31 March Cost as at 31 March

2,703

9,702

636

281

13,322

Accumulated depreciation

(1,292)

(6,459)

(476)

-

(8,227)

Net book value 31 March

1,411

3,243

160

281

5,095

Security pledged

Refer to Note 25 for details of security pledged by ZESPRI Group.

ZESPRI Annual Report 2011/12

39

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

17. Intangibles Development costs $’000

Computer software $’000

Work in progress $’000

Total $’000

Group – 2012 Cost as at 1 April

6,749

9,519

1,127

17,395

Accumulated depreciation

(6,333)

(6,225)

-

(12,558)

Net book value 1 April

416

3,294

1,127

4,837

Amortisation expense

(122)

(1,541)

-

(1,663)

-

(1,222)

-

(1,222)

416

1,551

1,131

3,098

-

(4)

-

(4)

78

1,049

(1,127)

-

788

3,127

1,131

5,046

Cost as at 31 March

7,242

11,992

1,131

20,365

Accumulated depreciation

(6,454)

(8,865)

-

(15,319)

788

3,127

1,131

5,046

Impairment expense Additions Disposals (net) Transfers Net book value 31 March

Net book value 31 March Group – 2011 Cost as at 1 April

6,278

8,617

112

15,007

Accumulated depreciation

(6,278)

(5,220)

-

(11,498)

-

3,397

112

3,509

Net book value 1 April Amortisation expense

(54)

(1,381)

-

(1,435)

470

1,169

1,127

2,766

Disposals (net)

-

(3)

-

(3)

Transfers

-

112

(112)

-

416

3,294

1,127

4,837

Additions

Net book value 31 March Cost as at 31 March

6,749

9,519

1,127

17,395

Accumulated depreciation

(6,333)

(6,225)

-

(12,558)

416

3,294

1,127

4,837

Net book value 31 March

Development costs $’000

Work in progress $’000

Total $’000

Parent – 2012 Cost as at 1 April

6,749

78

6,827

Accumulated depreciation

(6,333)

-

(6,333)

Net book value 1 April

416

78

494

Amortisation expense

(122)

-

(122)

Additions

416

-

416

Transfers

78

(78)

-

788

-

788

Cost as at 31 March

7,242

-

7,242

Accumulated depreciation

(6,454)

-

(6,454)

788

-

788

Net book value 31 March

Net book value 31 March

40

ZESPRI Annual Report 2011/12

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

17. Intangibles (continued) Development costs $’000

Work in progress $’000

Total $’000

Parent – 2011 Cost as at 1 April

6,278

-

6,278

Accumulated depreciation

(6,278)

-

(6,278)

-

-

-

Net book value 1 April Amortisation expense

(54)

-

(54)

Additions

470

78

548

Net book value 31 March

416

78

494

Cost as at 31 March

6,749

78

6,827

Accumulated depreciation

(6,333)

-

(6,333)

416

78

494

Net book value 31 March Development costs

The Company purchased Hort16A Plant Variety Rights (PVR) from The New Zealand Institute for Plant & Food Research Limited, effective 1 April 2004. The purchase of the PVR gives the Company the exclusive intellectual property rights on all Hort16A kiwifruit in the jurisdictions in which the PVR applies. 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 PVR and all Hort16A intellectual property. In addition, the assignment of the Hort16A PVR and its associated rights and obligations outside ZESPRI Group 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 2018. The Company has applied for PVRs for the three new varieties (Gold3, Gold9 and Green14) which were commercialised for production in mid-2010. The corresponding development costs have been capitalised during the year 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 postcommercialisation sales of the new cultivars a royalty will be payable to The New Zealand Institute for Plant & Food Research Limited. As at 31 March 2012, the book value of development costs relating to new cultivars is $787,693 (2011: $416,348). Intangibles work in progress

As at 31 March 2012, 100 percent (2011: 93 percent) of the Group 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 25 for additional detail of security pledged by ZESPRI Group.

ZESPRI Annual Report 2011/12

41

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

18. Investment in subsidiary companies Parent 2012 $’000

2011 $’000

Investment in subsidiary companies Value at 31 March

94

94

ZESPRI Group Limited is the ultimate holding company for the ZESPRI Group of companies. All subsidiaries have a 31 March balance date with the exception of ZESPRI Management Consulting (Shanghai) Co. Ltd which has 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:

42

Subsidiary

Incorporated

Nature of activities

ZESPRI International Limited

New Zealand

Management of the export and marketing of New Zealandgrown kiwifruit and management of the sale and marketing of non-New Zealand-grown kiwifruit

Aragorn Limited

New Zealand

Non-trading company (refer Note 31)

Kiwifruit Marketing NZ Limited

New Zealand

Non-trading company

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

Sales agent in Europe for marketing of all New Zealand-grown kiwifruit and non-New Zealand-grown 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 Group companies

ZESPRI Management Consulting (Shanghai) Co. Limited China

Brand consulting and promotional services

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 2012)

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

ZESPRI Annual Report 2011/12

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

19. Accounts payable and accruals Group 2012 $’000

Parent 2012 $’000

2011 $’000

2011 $’000

Current: Trade creditors

15,251

14,453

-

-

Accrued expenses

41,122

33,588

956

1,017

New Zealand fruit and service payments accrued – current season 1

31,357

21,296

31,357

21,202

5,798

15,488

5,798

15,488 83,934

New Zealand fruit and service payments accrued – future season Amounts payable to subsidiaries Advances received from customers Income in advance 2 Payroll tax deductions payable Employee entitlements Total current accounts payable and accruals

-

-

95,695

3,433

-

-

-

678

945

-

302

626

864

-

-

7,229

8,245

-

-

105,494

94,879

133,806

121,943

Non-current: Employee entitlements

1,310

1,226

-

-

Total non-current accounts payable and accruals

1,310

1,226

-

-

 

 

 

106,804

96,105

133,806

Total accounts payable and accruals

  121,943



Relates to contracted suppliers of New Zealand-grown kiwifruit. As at 31 March 2012, 97 percent (2011: 98 percent) of fruit and service payments had been made.



As at 31 March 2012, all Tranche 3 Hort16A licences have been issued therefore no income in advance for this item has been recognised (2011: $302,391) (refer Note 2(a)). Also, $678,306 (2011: $642,750) relates to funding received from the Foundation for Research, Science and Technology (FRST) for new cultivar pre-commercial research and development, 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 2012.

1

2

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 27.

ZESPRI Annual Report 2011/12

43

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

20. Provisions Loyalty premium 2012 $’000

Psa provision 2012 $’000

2011 $’000

Other provisions 2012 $’000

2011 $’000

Total 2012 $’000

2011 $’000

2011 $’000

Group Balance at 1 April

14,647

15,090

5,850

1,889

5,838

1,490

26,335

18,469

Amounts charged

(25,692)

(24,858)

(8,970)

(9,351)

(3,847)

(1,796)

(38,509)

(36,005)

Reversal of provision Additional provision

-

-

(186)

-

-

(239)

(186)

(239)

27,658

24,415

8,498

13,312

3,985

6,383

40,141

44,110

Exchange differences

-

-

-

-

(543)

-

(543)

-

Balance at 31 March

16,613

14,647

5,192

5,850

5,433

5,838

27,238

26,335

16,613

14,647

5,192

3,187

2,931

2,171

24,736

20,005

-

-

-

2,663

2,502

3,667

2,502

6,330

16,613

14,647

5,192

5,850

5,433

5,838

27,238

26,335

Represented by: Current Non-current Balance at 31 March Parent Balance at 1 April

14,647

15,090

5,608

-

-

-

20,255

15,090

Amounts charged

(25,692)

(24,858)

(8,914)

(7,267)

-

-

(34,606)

(32,125)

Additional provision

27,658

24,415

8,498

12,875

-

-

36,156

37,290

Balance at 31 March

16,613

14,647

5,192

5,608

-

-

21,805

20,255

16,613

14,647

5,192

2,945

-

-

21,805

17,592

-

-

-

2,663

-

-

-

2,663

16,613

14,647

5,192

5,608

-

-

21,805

20,255

Represented by: Current Non-current Balance at 31 March Loyalty premium

A loyalty premium is paid to New Zealand growers who have signed a three-year rolling grower contract and met the conditions of that contract. The loyalty premium is 25 cents (2011: 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 20 January 2012 (2011: 20 January 2011). The remaining 15 cents of loyalty premium per Class 1 tray equivalent will be paid on 15 June 2012 (2011: 15 June 2011), the remaining Psa levy will be deducted where appropriate. 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 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 MAF Biosecurity NZ to KVH, up to a maximum of $25.0 million (excluding GST) before 31 March 2013. The provision includes the best estimate for grower obligations relating to support packages committed by KVH as at 31 March 2012. No provision has been made by the Company for the future ongoing operational costs of KVH, or for the future implementation costs of the long-term pest management strategy. The Psa provision of $5.2m (2011: $5.6m) at 31 March 2012 is the Company’s share of this expenditure for obligations yet to be funded to KVH. As at 31 March 2012, the Company is committed to fund a maximum further $4.3m (2011: $12.3m) of additional funding costs in accordance with the KVH funding agreement; refer Note 21. A portion of the New Zealand response to Psa costs has been funded through a reduction in 2011/12 season New Zealand grower payments, as agreed between the Company and the New Zealand Industry Advisory Council. In Italy and France, ZESPRI Group has partnered with post-harvest operators to encourage kiwifruit growers to adhere to strict appropriate orchard hygiene practices such as sterilising equipment, disinfecting hands and shoes, and not moving infected plant material from one site to another. Also, research is being conducted in Europe in an attempt to find appropriate control and mitigation measures applicable to conditions experienced in Europe. As at 31 March 2012, the Psa provision includes no amounts for Italy (2011: $186,057) nor for France (2011: $55,631).

44

ZESPRI Annual Report 2011/12

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

20. Provisions (continued) Other provisions

In the normal course of business, the Group is party to various lawsuits and claims (refer Note 24). Included in other provisions is an amount of $805,444 (2011: $854,565) representing the estimate of legal costs and amounts payable in identified claims. Of the $805,444 provision for legal claims, $230,444 (2011: $604,565) relates to legal actions initiated by Turners & Growers Limited with respect to the Company’s operation under the Kiwifruit Export Regulations 1999 and the Commerce Act 1986. The Company believes the Turners & Growers Limited claims are without merit, and the provision relates solely to the cost of defending legal proceedings scheduled for the remainder of 2012. As at 31 March 2012, an amount of $4,628,129 (2011: $4,982,602) recorded in other provisions relates to restructuring and represents obligations under employment and signed termination contracts.

21. Operating lease and other commitments Group

(a)

Operating lease commitments

2012 $’000

2011 $’000

Non-cancellable operating leases payments: Payable within one year

1,814

2,226

Payable between one and five years

2,301

3,320

Payable after five years

538

-

4,653

5,546

(16)

(25)

(16)

(25)

2,020

2,188

Total future non-cancellable operating sublease receipts: Receivable within one year Lease expense recognised in the Income Statement under operating expenses: - Minimum lease payments - Sublease receipts

(26)

(25)

1,994

2,163

ZESPRI Group leases premises, motor vehicles and office equipment under operating leases, and sublets excess office capacity. Operating leases for premises give ZESPRI Group 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. (b)

Other commitments

Refer to Note 20 for the Company’s obligation to fund Kiwifruit Vine Health Incorporated (KVH). Under the signed funding agreement the Company has a future operating funding commitment of up to $4,250,000 (2011: $12,295,362) which can be requested by KVH up to 31 March 2013.

ZESPRI Annual Report 2011/12

45

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

22. Reconciliation of net profit after taxation with net cash from operating activities Group

Notes Net profit after taxation

2012 $’000

Parent 2012 $’000

2011 $’000

2011 $’000

20,527

7,257

12,400

7,401

Non-cash items: Net loss on sale of property, plant and equipment and intangibles

104

16

-

-

Impairment of intangible assets

17

1,222

-

-

-

Impairment of consumables inventory

3

110

1

-

-

Net gain on foreign currency cash balances

(1,182)

(5,340)

-

-

Additional provisions net of reversals and foreign exchange differences

39,412

43,871

36,156

37,290

Depreciation of property, plant and equipment

16

1,822

1,711

-

-

Amortisation of intangibles

17

1,663

1,435

122

54

Movement in deferred taxation

(317)

(1,803)

(501)

(1,242)

42,834

39,891

35,777

36,102

Movement in working capital: Decrease/(increase) in inter-company receivables (Increase)/decrease in receivables and prepayments Decrease/(increase) in net current income tax Decrease in insurance assets Increase in other financial assets Decrease in inventories Increase in inter-company payables (Decrease)/increase in payables to contracted suppliers 1 Decrease in accounts payable, accruals and employee entitlements Increase/(decrease) in insurance liability Increase in other financial liabilities

-

9,388

(1,702)

12,370

(13,384)

11,883

3,202

(9,209)

2,995

(1,170)

-

51

-

51

(43,023)

(5,659)

(44,130)

(1,378)

6,977

22,270

-

-

-

-

11,761

10,515

(787)

(30,911)

2,431

(31,005)

(27,198)

(38,399)

(36,858)

(32,846)

182

(185)

182

(185)

43,321

4,939

44,130

1,378

(30,089)

(44,733)

(23,485)

(44,459)

Items classified as investing activities

-

-

(5,000)

(10,283)

Items classified as financing activities

(4,303)

(4,128)

(4,431)

(4,219)

Net cash available from/(utilised by) operating activities

28,969

(1,713)

15,261

(15,458)



1

46

(12,763)

Group totals include amounts payable to contracted suppliers of non-New Zealand-grown kiwifruit.

ZESPRI Annual Report 2011/12

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

23. Financial instruments ZESPRI Group 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

Notes

< 1 year $’000

1-2 years $’000

2-5 years $’000

Total $’000

Group – 2012 Non-derivatives: Trade creditors

19

15,251

-

-

15,251

Accruals and other payables

19

90,243

-

1,310

91,553

275

-

-

275

24,736

1,651

851

27,238

130,505

1,651

2,161

134,317

Insurance liabilities from insurance offered Provisions

13(b) 20

Derivatives: Derivatives – held for trading

14(b)

870

482

1,436

2,788

Contracted future suppliers

14(b)

95,266

52,370

34,799

182,435

96,136

52,852

36,235

185,223

226,641

54,503

38,396

319,540

Total contractual maturities Group – 2011 Non-derivatives: Trade creditors

19

14,453

-

-

14,453

Accruals and other payables

19

80,426

-

1,226

81,652

Insurance liabilities from insurance offered Provisions

13(b) 20

93

-

-

93

20,005

4,037

2,293

26,335

114,977

4,037

3,519

122,533

Derivatives: Derivatives – held for trading

14(b)

2,117

1,480

-

3,597

Contracted future suppliers

14(b)

78,540

34,031

25,734

138,305

80,657

35,511

25,734

141,902

195,634

39,548

29,253

264,435

Total contractual maturities

ZESPRI Annual Report 2011/12

47

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

23. Financial instruments (continued) Contractual maturities as at 31 March

Notes

< 1 year $’000

1-2 years $’000

2-5 years $’000

Total $’000

Parent – 2012 Non-derivatives: Accounts payable to subsidiaries

19

95,695

-

-

95,695

Accruals and other payables

19

38,111

-

-

38,111

275

-

-

275

21,805

-

-

21,805

155,886

-

-

155,886

Insurance liabilities from insurance offered Provisions

13(b) 20

Derivatives: Contracted future suppliers

14(b)

Total contractual maturities

95,266

52,370

34,799

182,435

95,266

52,370

34,799

182,435

251,152

52,370

34,799

338,321

Parent – 2011 Non-derivatives: Accounts payable to subsidiaries

19

83,934

-

-

83,934

Accruals and other payables

19

38,009

-

-

38,009

Insurance liabilities from insurance offered Provisions

13(b) 20

93

-

-

93

17,592

2,663

-

20,255

139,628

2,663

-

142,291

Derivatives: Contracted future suppliers

Total contractual maturities (b)

14(b)

78,540

34,031

25,734

138,305

78,540

34,031

25,734

138,305

218,168

36,694

25,734

280,596

Credit risk

ZESPRI Group is exposed to credit risk from transactions with trade debtors and financial institutions in the normal course of business. ZESPRI Group has a credit approval policy which restricts the exposure to individual receivables and the Board of Directors reviews exposures to trade debtors on a regular basis. Amounts owed by trade debtors are secured by way of bank guarantees or other collateral in certain regions, with all others being unsecured. ZESPRI Group does not require any collateral or security from financial institutions to support its transactions with those institutions. The counterparties used for banking and finance activities are financial institutions with high credit ratings. (i)

Credit risk counterparties: Financial instruments to which ZESPRI Group is exposed for credit risk consist principally of bank balances, short-term deposits, inter-company receivables, accounts receivable and foreign exchange contracts with banks. ZESPRI Group does not consider balances owed by government tax authorities to be a credit risk. ZESPRI Group continuously monitors the credit quality of the counterparties to its financial instruments. ZESPRI Group does not anticipate non-performance by any of its counterparties.

48

ZESPRI Annual Report 2011/12

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

23. Financial instruments (continued) (b)

Credit risk (continued)

(ii)

Maximum exposures to credit risk at 31 March: Group

Maximum exposures to credit risk

2012 $’000

Notes

Bank balances

Parent 2012 $’000

2011 $’000

2011 $’000

16,522

18,844

389

490

Short-term deposits

127,028

102,416

119,464

102,416

Cash and cash equivalents

143,550

121,260

119,853

102,906

Accounts receivable

12

29,654

12,923

15,278

678

Receivables from subsidiaries

12

-

-

47,214

56,603

Derivatives – held for trading

14(a)

186,280

143,257

-

-

Inter-company derivatives – held for trading

14(a)

-

-

182,435

138,305

359,484

277,440

364,780

298,492

Total maximum exposures to credit risk

The amounts above have been determined by the Board of Directors to be the fair value of these classes of financial instruments. No collateral is held on the above amounts. Exposure risk on guarantees pledged is further disclosed in Note 24. Refer to Note 12 for further information on credit risk of accounts receivable. (iii) Concentration of credit risk: Concentration of credit risk by geographical location is indicated below: Location of counterparty

Europe $’000

Other Asia $’000

Japan $’000

USA Canada $’000

New Zealand $’000

Australia $’000

Other $’000

Total $’000

Group – 2012 Bank balances Short-term deposits Cash and cash equivalents Accounts receivable

3,155

239

11,793

785

451

53

46

16,522

-

-

-

-

112,628

14,400

-

127,028

3,155

239

11,793

785

113,079

14,453

46

143,550

8,754

1

2,121

83

18,695

-

-

29,654

Derivatives – held for trading

18,001

-

-

-

157,883

10,396

-

186,280

Total location of counterparty

29,910

240

13,914

868

289,657

24,849

46

359,484

2,407

206

14,998

73

1,144

5

11

18,844

-

-

-

-

96,449

5,967

-

102,416

2,407

206

14,998

73

97,593

5,972

11

121,260

-

Group – 2011 Bank balances Short-term deposits Cash and cash equivalents Accounts receivable

10,421

355

226

-

1,921

-

Derivatives – held for trading

30,891

-

-

-

107,318

5,048

Total location of counterparty

43,719

561

15,224

73

206,832

11,020

12,923 143,257

11

277,440

ZESPRI Annual Report 2011/12

49

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

23. Financial instruments (continued) (b)

Credit risk (continued)

(iii) Concentration of credit risk: (continued) Location of counterparty

Europe $’000

Other Asia $’000

Japan $’000

New Zealand $’000

Australia $’000

Total $’000

Parent – 2012 Bank balances

-

-

-

389

-

389

Short-term deposits

-

-

-

105,064

14,400

119,464

Cash and cash equivalents

-

-

-

105,453

14,400

119,853

Accounts receivable

-

-

-

15,278

-

15,278

Receivables from subsidiaries

-

12

151

47,051

-

47,214

Inter-company derivatives – held for trading

16,906

-

-

155,248

10,281

182,435

Total location of counterparty

16,906

12

151

323,030

24,681

364,780

Parent – 2011

(c)

Bank balances

-

-

-

490

-

490

Short-term deposits

-

-

-

96,449

5,967

102,416

Cash and cash equivalents

-

-

-

96,939

5,967

102,906

Accounts receivable

-

-

-

678

-

678

Receivables from subsidiaries

-

12

164

56,427

-

56,603

Inter-company derivatives – held for trading

30,377

-

-

103,211

4,717

138,305

Total location of counterparty

30,377

12

164

257,255

10,684

298,492

Market risk

ZESPRI Group is subject to market risks that arise as a result of its operational activities. The types of market risk that ZESPRI Group is exposed to include interest rate risk, currency risk and commodity price risk. (i)

Interest rate risk: ZESPRI Group’s policy relating to interest rate risk management aims to achieve the lowest cost of funds while meeting seasonal funding needs. ZESPRI Group has a seasonal funding facility (refer Note 25) which is negotiated annually. ZESPRI Group 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 Group’s discretion. No interest rate derivative contracts were entered into during the year (2011: $Nil).

(ii)

Currency risk: During the course of business, ZESPRI Group 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 Group primarily deals are Euro (EUR), Japanese Yen (JPY), United States Dollars (USD) and Korean Won (KRW). ZESPRI Group’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 Group 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.

50

ZESPRI Annual Report 2011/12

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

23. Financial instruments (continued) (c)

Market risk (continued)

(ii)

Currency risk (continued): Foreign exchange contracts

As part of the foreign currency hedging strategy, ZESPRI Group has entered into forward foreign exchange contracts and options. The value of these contracts held at balance date were: Group Notional value

At fair value through the Income Statement – held for trading Sell forward exchange contracts Currency option contracts

2012 $’000

Fair value gain/(loss)

2011 $’000

2012 $’000

2011 $’000

123,373

1,172,626

1,570,940

167,307

250,356

344,756

11,152

8,959

1,422,982

1,915,696

178,459

132,332

181,178

135,929

Represented by: Other financial assets Other financial liabilities

(2,719)

(3,597)

178,459

132,332

By currency: AUD/NZD

4,499

4,065

82

16

EUR/NZD

419,708

719,273

63,546

62,661

JPY/NZD

791,863

922,922

101,860

55,856

USD/NZD

206,912

247,386

12,971

13,890

USD/KRW

-

22,050

-

(91)

1,422,982

1,915,696

178,459

132,332

Group Notional value

Fair value gain/(loss)

Maturity of foreign exchange contracts

2012 $’000

2011 $’000

2012 $’000

Less than one year

755,796

941,923

91,291

72,532

Within one to two years

376,104

546,687

52,369

34,066

More than two years

291,082

427,086

34,799

25,734

1,422,982

1,915,696

178,459

132,332

2011 $’000

Fair value estimation

The fair value of forward exchange contracts and currency option contracts is determined using valuation techniques. All significant inputs required to fair value these instruments are observable, and the instruments are deemed to be Level 2 in the fair value hierarchy defined in NZ IFRS 7 (Financial Instruments: Disclosures) (refer to Note 14). (iii) Commodity price risk: During the course of business, ZESPRI Group 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: Group Notional value

At fair value through the Income Statement – held for trading Oil price forward contracts

2012 $’000

2011 $’000

Fair value gain/(loss) 2012 $’000

2011 $’000

33,675

31,589

5,033

7,329

33,675

31,589

5,033

7,329

5,102

7,331

Represented by: Other financial assets Other financial liabilities

(69)

(2)

5,033

7,329

ZESPRI Annual Report 2011/12

51

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

23. Financial instruments (continued) (c)

Market risk (continued)

(iii) Commodity price risk: (continued) Group Notional value

Maturity of oil price forward contracts Less than one year

2012 $’000

33,675

2011 $’000

31,589

Fair value gain/(loss) 2012 $’000

2011 $’000

7,329

5,033

Fair value estimation

The fair value of oil price forward contracts is determined using valuation techniques. All significant inputs required to fair value these instruments are observable, and the instruments are deemed to be Level 2 in the fair value hierarchy defined in NZ IFRS 7 (Financial Instruments: Disclosures). Refer to Note 14. (d)

Market risk sensitivity as at 31 March

ZESPRI Group 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 Statement 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 2012. 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 Group. 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 Group. (e)

Embedded derivatives

ZESPRI International Limited acts as treasury agent for ZESPRI Group. The Company is responsible for paying New Zealand-contracted suppliers based on the net results earned by ZESPRI Group. 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 2012 $’000

2011 $’000

Fair value gain/(loss) 2012 $’000

2011 $’000

(183,492)

(139,661)

Group Contracted future suppliers

1,456,657

1,947,285

Notional value 2012 $’000

2011 $’000

Fair value gain/(loss) 2012 $’000

2011 $’000

Parent

52

Contracted future suppliers

1,456,657

1,947,285

(183,492)

(139,661)

Inter-company derivatives – held for trading

1,456,657

1,947,285

183,492

139,661

ZESPRI Annual Report 2011/12

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

24. Guarantees and contingent liabilities Group

(a) Guarantees

2012 $’000

2011 $’000

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 $1,139,091 (2011: $1,300,649). 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

151

163

– ZESPRI Service Centre N.V. has provided a guarantee in favour of LeasePlan Servicios S.A. Spain for a lease guarantee on company vehicles

35

58

518

592

704

813

ZESPRI International Limited has guaranteed, by way of three bank guarantees, an Italian VAT recovery.

The Company has given an undertaking to continue to financially support its subsidiaries. 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 2011/12 and 2010/11. During this financial year ZESPRI issued in total 282.7 hectares (2011: 206.2 hectares) of Gold3, 14.6 hectares (2011: 253.6 hectares) of Gold9 and 179.7 hectares (2011: 154.1 hectares) of Green14. 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 not granted In the event that a decision is made by the relevant New Zealand authorities not to grant a Plant Variety Right (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 2012, 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 2012 is $12.6m (2011: $6.8m), this being 100 percent of new cultivar licence proceeds received of $7.8m (gross of licence costs), and $4.8m for the GST-exclusive flat fee per hectare for 1,091 hectares. By variety the total contingent liability is $7.0m (2011: $2.5m) for Gold3, $3.3m (2011: $3.2m) for Gold9 and $2.3m (2011: $1.1m) for Green14. Other

In the normal course of business, ZESPRI Group is party to various lawsuits and claims, both as a plaintiff and as a defendant. Current claims and threatened litigation against ZESPRI Group include: —

Turners & Growers Limited filed legal proceedings against ZESPRI in 2009, seeking declarations that the Kiwifruit Export Regulations 1999 are invalid, and that ZESPRI has acted unlawfully pursuant to both the Regulations and the Commerce Act 1986. The High Court dismissed the regulatory claims in August 2010, and dismissed the Commerce Act claims in August 2011. A notice of appeal has been filed by Turners & Growers in relation to the Commerce Act claims, but ZESPRI’s advisors are confident that an appeal would be unsuccessful;



claims by two post-harvest operators in relation to the calculation of the amount of intercheck charges under the 2010 New Zealand Supply Agreement; and



claims related to the Company’s guidance surrounding the application of Streptomycin.

It is not possible to predict with certainty whether ZESPRI Group will ultimately be successful in defending lawsuits and claims taken against it or, if not, what the impact might ultimately be. Management believes that these claims are without merit and will not have a material adverse effect on the ZESPRI Group’s financial position, results of operation or cash flows. Provisions have been made as required and disclosed in Note 20.

ZESPRI Annual Report 2011/12

53

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

24. Guarantees and contingent liabilities (continued) Other (continued)

During 2011/12 ZESPRI Group’s importers into China have been subject to investigations initiated by the Chinese customs authorities with respect to the declared value of kiwifruit for import duties. Zespri Group has not been able to ascertain the amount of duty actually declared or paid by the importers and are therefore unable to calculate with any certainty the amount of any duty shortfall. ZESPRI Group has fully co-operated with the investigation to date as a witness. As at the signing date of these accounts, ZESPRI Group has not been advised that it is under investigation and no charges have been laid against the ZESPRI Group. Although the final resolution of this issue could theoretically have a material adverse affect on the company, the company has no reason to believe that ZESPRI Group has any liability in relation to these issues; however the investigation remains under consideration by the Chinese customs authorities and any potential allegations regarding liability of ZESPRI Group may not be finally determined until the proceedings are concluded. Given that there is currently no claim being made against ZESPRI Group, and the uncertainty around possible outcomes, it is not considered possible to reliably quantify the impact of any potential claim, if any, by the Chinese Authorities against ZESPRI Group.

25. Funding facilities Funding facilities for the 2012/13 season have been arranged. The security for the funding facility and other day-to-day operational treasury activities is a first-ranking general security deed dated 30 April 2007 registered to the ANZ National Bank Limited for ZESPRI Group companies that form a Guaranteeing Group. 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 Group, 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 17). 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. The facility requires the Company to measure and report on the financial performance of the Guaranteeing Group. The current members of the Guaranteeing Group are: ZESPRI Group Limited Aragorn Limited (non-trading – refer Note 31) Kiwifruit Marketing New Zealand Limited ZESPRI Innovation Company Limited ZESPRI International Limited ZESPRI International (Asia) Limited ZESPRI International (Japan) K.K. ZESPRI International (Japan) Limited ZESPRI International (Korea) Co. Limited ZESPRI International Trading Limited ZESPRI New Zealand Limited As at 31 March 2012, the outstanding borrowing under the funding facility is $Nil (2011: $Nil). The maximum exposure relating to the operational treasury activities as at 31 March 2012 is $2,788,207 (2011: $3,757,286). This exposure relates entirely to the unrealised mark-to-market losses on derivatives as at 31 March.

26. Capital commitments (a)

Property, plant and equipment commitments

As at 31 March 2012, there are outstanding capital commitments totalling $211,759 for property, plant and equipment (2011: $153,422). (b)

Intangibles commitments

As at 31 March 2012, there are outstanding capital commitments totalling $448,546 for intangible assets (2011: $261,248).

54

ZESPRI Annual Report 2011/12

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

27. Related party transactions (a)

Key management personnel

ZESPRI Group’s key management personnel include: —

Directors of the Company; and



Members of the global executive of ZESPRI Group.

During the year, key management personnel received the following compensation: Group 2012 $’000

2011 $’000

Short-term employee benefits (including Directors’ fees) 1

7,829

6,172

Short-term employee benefits outstanding as at 31 March 1

1,424

1,537



1

As a result of global executive restructuring, and increased management responsibility for some staff in-market, 3 positions have been added to staff included in key management personnel and $3.9 million of restructuring costs (2011: $4.9 million) have been provisioned. (refer Note 20). Amounts relating to this restructure paid to key management personnel in 2011/12 are $1,219,551 (2011: $Nil), and are included in short-term employee benefits expense above. No amount under the provision is payable as at 31 March 2012 and as such, the 2011/12 employee benefits outstanding for key management personnel does not include amounts provided for in the restructuring provision (2011: $Nil).

Certain Directors, including R B Sharp (resigned 7 March 2012), C S Greenlees, P J McBride, A E de Farias 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. (b)

External related parties through common directorship, control or significant influence by key management personnel

During the year ended 31 March 2012, the Company conducted transactions with the following entities in the normal course of business: Aronia Corporation Limited, Direct Management Services Limited, DMS Progrowers Limited, Eastpack Limited, House of Travel Limited, G3 Kiwi Supply Limited, Kiwifruit Vine Health Incorporated, Longview Charitable Trust, Mainland Kiwi Growers Entity Limited, Mangatarata Orchards Limited, Opotiki Packing and Coolstorage Limited, Port of Tauranga Limited, Robert Monk Transport Limited and Trinity Lands Limited. (2011: AgResearch Limited, Aronia Corporation Limited, Ashton Orchard Holdings, Direct Management Services Limited, DMS Progrowers Limited, Eastpack Limited, House of Travel Limited, G3 Kiwi Supply Limited, G6 Kiwi Supply Limited, Kiwifruit Vine Health Incorporated, Kiwi Produce Limited, Mangatarata Orchards Limited, Opotiki Packing and Coolstorage Limited, Pacific View Pack & Cool Limited, The New Zealand Institute for Plant & Food Research Limited, Port of Tauranga Limited and Seeka Growers 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 13). In certain cases, the Company pays out insurance for losses under these claims; and



The Company may, at its discretion, sell licences for kiwifruit varieties for which it controls the Plant Variety Rights.

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.

ZESPRI Annual Report 2011/12

55

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

27. Related party transactions (continued) (ii)

Transactions during the year and balances outstanding as at 31 March with external related parties. All related party disclosures are GST exclusive. Group 2012 $’000

Parent 2012 $’000

2011 $’000

2011 $’000

Revenue/(expenses): Co-funding from the New Zealand industry for Psa response

5,203

-

5,203

-

829

414

-

-

(293,811)

(521,892)

(293,811)

(521,892)

(10,875)

(14,457)

(10,875)

(14,457)

-

(4,288)

-

-

Psa expenses 2

(8,498)

(12,705)

(8,498)

(12,705)

Other expenses

(5,119)

(7,469)

(675)

(2,466)

Sundry income Fruit and service payments Loyalty premium Research and royalty paid 1

Balances receivable/(payable): Funding for Psa receivable

1,646

-

1,646

-

Sundry income receivable

83

125

-

123

Fruit and service payments outstanding

(3,841)

(12,941)

(3,841)

(12,941)

Loyalty premium payable

(1,587)

(8,674)

(1,587)

(8,674)

-

(5,439)

-

(5,439)

(248)

(765)

-

-

Funding provided to Kiwifruit Vine Health Incorporated Sundry accounts payable (includes research and royalty) 1



Eastpack Limited ceased to be a related party with the resignation of R B Sharp as a Director of the Company on 7 March 2012. The New Zealand Institute for Plant & Food Research Limited ceased to be a related party on 18 August 2010 when M F Bayly resigned as a Director of the Company. As such, the related party expenditure represents dealings with these companies until resignation dates.



Psa expenses recognised during the financial year relating to Kiwifruit Vine Health Incorporated (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.

1

2

In 2011/12, interests directly associated with Directors purchased 9.8 hectares of new variety licences (2011: 7.2 hectares) in the 2012 new variety tender process. (c) Subsidiaries

Subsidiaries, listed at Note 18, 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, $992,676,538 (2011: $879,062,968);



Inter-company sale of New Zealand kiwifruit to ZESPRI Innovation Company Limited, $Nil (2011: $109,157);



Funding to ZESPRI Innovation Company Limited for research and development, $12,837,966 (2011: $10,484,898);



Service fee and expense for the recharge of overheads incurred on its behalf, $15,701,814 (2011: $13,225,954);



Commission expense payable to ZESPRI International Europe N.V. for work done on its behalf, $220,394 (2011: $114,631);



Payment or receipt of Group GST on behalf of the GST tax group in New Zealand; and



Dividend income from subsidiaries, $5,000,000 (2011: $10,000,000) (refer Note 6(a)).

The total of balances owing to or from the Company’s subsidiaries is disclosed in Notes 12, 14, 19 and 23. All of these balances are unsecured, and payable on demand.

56

ZESPRI Annual Report 2011/12

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

28. Events occurring after balance date On 23 May 2012, the Board of Directors of ZESPRI Group Limited announced its intention to pay a final dividend of 8.0 cents per fully paid ordinary share (2011: 4.0 cents), to be paid in August 2012. As the intention was announced after balance date, the financial effect has not been recognised in the Financial Statements.

29. 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. The Company is also required under the terms of the New Zealand Supply Agreement to fund New Zealand Kiwifruit Growers Incorporated, being the kiwifruit grower representative body. Group and Parent 2012 $’000

Kiwifruit New Zealand

2011 $’000

244

234

244

234

681

811

New Zealand Kiwifruit Growers Incorporated - General funding - Industry-good funding

70

88

751

899

Industry-good funding of $70,229 for the year ended 31 March 2012 (2011: $87,988) was allocated to Psa expenses, the ‘5+ a day’ campaign, Bay of Plenty Regional Council for the control of wild kiwifruit, agri-chemical monitoring and Sustainable Farming Fund Project. The reduction in industry-good funding is mainly due to decreased costs associated with Psa expenses and wild kiwifruit control. The Financial Statements of Kiwifruit New Zealand and New Zealand Kiwifruit Growers Incorporated are available for viewing, on request, from Kiwifruit New Zealand or New Zealand Kiwifruit Growers Incorporated.

ZESPRI Annual Report 2011/12

57

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

30. Group 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).

Group 2012 Total sales revenue – external customers

1,522,243

98,153

25

-

Inter-segment commission

-

-

Interest revenue

-

Psa co-funding from the New Zealand industry

-

Corporate services $’000

Eliminations $’000

Total $’000

-

-

1,620,396

-

(13,082)

-

-

136,959

(136,959)

-

-

-

4,282

-

4,282

-

-

-

1,768

58

5,180

1,524,036

98,211

148,429 2,700

Duty and customs

Inter-segment revenue

13,057 1

13,351 2

-

13,351

5,341

-

12,347

18,237

159,933

(150,041)

1,650,376

2,603

-

-

-

151,032

78

-

-

-

2,778

87,167

39

-

-

-

87,206

Promotion

92,949

3,066

-

-

-

96,015

Other direct costs – offshore

70,794

4,737

-

-

-

75,531

Other direct costs – onshore

31,331

-

-

-

-

31,331

-

-

-

8,498

-

8,498

Gold Psa levy expense

849

-

-

Interest expense

107

-

-

Other revenue Total revenue Freight Insurance (onshore and offshore)

New Zealand Psa funding

KNZ/NZKGI costs

1

-

-

-

-

107

(849)2

995

-

-

-

-

995

952,762

75,920

-

-

-

1,028,682

Loyalty premium

-

-

-

27,658

-

27,658

Research

-

-

18,212

-

-

18,212

136,959

219 1

25

(150,041)

-

Fruit and service payments

Inter-segment expense Inter-segment interest (income)/expense

12,838 1

(1,006)

-

-

1,006

-

-

Other offshore costs

-

2,379

-

46,865

-

49,244

Other onshore costs

-

4,579

-

36,305

-

40,884

Green Class 2 subsidy

-

-

-

506

-

506

1,524,036

93,620

18,237

132,827

(150,041)

1,618,679

-

4,591

-

27,106

-

31,697

Total expense Segment profit before taxation



The total research cost is $18,236,836. This is made up of $18,018,083 for New Zealand-grown supply and $218,753 for non-New Zealand-grown supply. The New Zealand-grown supply research is funded $12,837,966 from corporate services and $5,180,117 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.



Total Psa co-funding from the New Zealand kiwifruit industry for Psa response was $14,200,000 (2011: $Nil).

1

2

58

Non-New New Zealand Zealand fresh Research and fresh kiwifruit kiwifruit development $’000 $’000 $’000

ZESPRI Annual Report 2011/12

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

30. Group segment results (continued)

Group 2011 Total sales revenue – external customers Inter-segment revenue Inter-segment commission Interest revenue Other revenue Total revenue Freight Insurance (onshore and offshore) Duty and customs

Non-New New Zealand Zealand fresh Research and Processed fresh kiwifruit kiwifruit development fruit product 1 $’000 $’000 $’000 $’000

1,391,477

119,866

109

-

-

-

10,946 2 -

352

Corporate services $’000

-

1,511,695

-

-

(11,055)

-

127,633

(127,633)

-

-

137

1,391,840

120,003

145,582

3,880

-

85

2,863

68

-

17

78,463

53

-

-

-

13,330

-

Total $’000

-

254

2,384 2

Eliminations $’000

-

4,178

-

4,178

16

7,774

-

10,565

368

139,585

(138,688)

1,526,438

-

-

149,547

-

-

2,948

-

78,516

Promotion

85,664

5,057

-

-

-

-

90,721

Other direct costs – offshore

66,217

5,055

-

-

-

-

71,272

Other direct costs – onshore

26,021

-

-

19

-

26,040

-

-

-

-

(449)

12,426

71

-

-

-

-

-

71

1,133

-

-

-

-

-

1,133 949,732

New Zealand Psa funding Interest expense KNZ/NZKGI costs Fruit and service payments

12,875 2

858,870

90,862

-

-

-

-

Loyalty premium

-

-

-

-

24,415

-

24,415

Research

-

-

13,221

-

-

-

13,221

109

-

(138,239)

-

-

-

-

-

Inter-segment expense Inter-segment interest (income)/expense

127,633 (677)

461 2 -

10,036 2 677

Other offshore costs

-

4,278

-

-

50,436

-

54,714

Other onshore costs

-

4,579

-

144

32,749

-

37,472

1,391,840

114,293

13,330

265

131,188

(138,688)

1,512,228

-

5,710

-

103

8,397

-

14,210

Total expense Segment profit before taxation



ZESPRI Group has ceased its direct involvement in the processed fruit product business. Where the Group holds Plant Variety Rights (PVRs), the Group now grants licences to third-party processors for which royalties are payable to the Group on derived products sold by the third-party processor.



The total research cost is $13,329,597. This is made up of $12,420,354 for New Zealand-grown supply, $460,673 for non-New Zealand-grown supply and $448,570 for Psa research. The New Zealand-grown supply research is funded $10,036,328 from corporate services and $2,384,026 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. The Psa research is conducted on behalf of Kiwifruit Vine Health Incorporated and is funded by corporate services.

1

2

Methods and assumptions

ZESPRI Group allocates assets, and any related depreciation and amortisation, on a basis which reflects where the assets are generated or utilised. ZESPRI Group 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 Group. ZESPRI Group does not allocate income tax to reportable segments.

ZESPRI Annual Report 2011/12

59

Notes to the Financial Statements ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

30. Consolidated group segment results (continued) Group

Sales revenue – by location of external customers

2012 Local currency ’000

2011 Local currency ’000

2012 $’000

2011 $’000

Japan

JPY

26,611,261

JPY

25,592,339

449,019

425,588

Spain

EUR

86,326

EUR

87,423

174,433

174,958

South Korea

KRW

125,537,695

KRW

105,739,926

148,197

127,768

Germany

EUR

62,512

EUR

57,710

124,699

118,265

China

USD

89,157

USD

62,651

116,472

90,426

The Netherlands

EUR

48,427

EUR

53,224

97,547

106,449

Taiwan

USD

66,275

USD

52,076

86,630

72,836

Italy

EUR

32,924

EUR

31,873

66,721

64,743

France

EUR

28,621

EUR

25,320

57,242

52,025

Belgium

EUR

25,437

EUR

25,487

49,889

47,811

United States of America

USD

28,234

USD

22,045

38,675

34,044

New Zealand

NZD

3,362

NZD

1,323

3,362

1,323

various

207,510

195,459

1,620,396

1,511,695

Other

various

Total revenue from product sales

Individual customers account for less than 10 percent of sales across the Group. Group

Non-current assets – by location of asset

2012 $’000

2011 $’000

New Zealand

5,608

3,593

Belgium

4,145

5,913

Japan

537

472

Other

462

489

10,752

10,467

Other non-current assets (no assigned location): - Deferred tax - Non-current other financial assets Total non-current assets

5,527

4,887

89,087

61,281

105,366

76,635

31. Discontinued operations In 2010/11 ZESPRI Group ceased all direct involvement in the processed fruit products trade and is in the process of winding up Aragorn Limited. The profit after taxation for discontinued operations in 2012 was $14,910 (2011: $29,271) and was solely caused by taxation wash-up effects. All trading activities ceased in 2011.

60

ZESPRI Annual Report 2011/12

Statutory Information ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

Shareholder Information Number of shares

Top 20 shareholders at 31 March 2012

%

Christopher Warren Dunstan and Shirley Margaret Dunstan and Murray Crossman Trustee Company Limited

1,876,645

1.56

Hopai Holdings Limited

1,584,310

1.31

Mark Lionel William Gardiner and Robyn Anne Gardiner

1,418,120

1.17

DMS Horticulture Limited

1,407,500

1.17

Trinity Lands Limited

1,372,915

1.14

Seeka Kiwifruit Industries Limited

1,313,825

1.09

Maketu Estates Limited

1,283,270

1.06

South-East Hort Limited

850,000

0.70

Anaru Timutimu and Carlos Ellis and Mere Lambert and Ngawa Hall and Peter Te Ratahi Cross JP and Riri Ellis and Te Timatanga Neil Te Kani

816,590

0.68

Birdhurst Limited

675,610

0.56

S J Brennan Trust and S M Wild Trust

645,730

0.54

Alexandra Ormond Evans and Kim Francis Kenny and Simon Charles Dickie

616,010

0.51

IML Aerocool Trustee Co Limited and John David Anderson

605,470

0.50

Beverley Ann Reid and David Murray Reid and John Alexander Stewart

596,450

0.49

Matai Pacific Limited

591,330

0.49

Mangatarata Orchards Limited

562,330

0.47

Eastpack Limited

546,435

0.45

Aronia Corporation Limited

535,500

0.44

Wakatu Incorporation

531,360

0.44

Sunnyvale Enterprises Limited

527,700

0.44

18,357,100

15.21

Number of shares

%

Distribution of ordinary shares and registered shareholders at 31 March 2012 Size of holding

Number of shareholders

%

1 – 5,000

148

6.8

461,030

5,001 – 25,000

838

38.6

11,991,850

9.9

25,001 – 50,000

518

23.9

18,814,970

15.6

50,001 – 250,000

602

27.7

56,494,300

46.8

65

3.0

32,955,185

27.3

2,171

100.0

120,717,335

100.0

Over 250,000 Total

0.4

ZESPRI Annual Report 2011/12

61

Statutory Information ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

Shareholder Information (continued) Shareholder statistics

2012

2011

Number of shares (’000) 1

120,717

120,717

24,143

$0.10

$0.08

$0.70

$0.50

$0.65

$5.20

$0.17

$0.06

$1.07

Net dividend yield 1

20.0%

12.3%

13.5%

Gross dividend yield at 30%/33% tax rate 2

28.6%

17.6%

20.0%

Interim and final dividend (per share) – fully imputed

2010

Interim and final dividend (per share) – fully imputed – restated for 5:1 share split

$0.14

Share price at year-end Share price at year-end – restated for 5:1 share split

$1.04

Earnings per share Earnings per share – restated for 5:1 share split

$0.21

Share trading 3 Number of shares sold: on-market trades

947,795

1,251,215

2,175,760

Number of shares sold: off-market trades

47,842

1,121,165

572,475

Number of shares transferred with sale of property

1,398,395

136,080

434,865

Family Trust share transfers

1,215,303

628,130

2,146,860

20.5%

21.1%

21.0%

$0.66

$0.56

$3.08

Equity ratio Net tangible assets value per share Net tangible assets value per share – restated for 5:1 share split

$0.62



On 30 September 2010 a share split was performed, as resolved at the Special Meeting of shareholders on 18 August 2010. For every existing share prior to the split, five new shares are in existence after the completion of the share split.



The 2009/10 interim dividend paid December 2009 and dividends paid prior were imputed at a 33/67 ratio. All subsequent dividends have been imputed at a 30/70 ratio, including those eligible under IRD transition rules.



Share volumes for 2011 and 2010 have been restated for the 5:1 share split.

1

2

3

Directors’ Disclosures Directors’ meeting attendances and business travel overseas Organisation ZESPRI Audit and Risk and Group Limited Management Administration Board 1 Committee Committee

Industry Advisory Council

Innovation Advisory Forum

Board Number of Innovation business trips Subcommittee overseas

Regions visited

B L Cameron

18

6

3

4

-

-

1

Europe

A E de Farias

17

6

3

1

-

-

1

Europe

C S Greenlees

17

6

-

4

-

-

2

Europe, Southeast Asia

J J Loughlin

18

6

3

6

1

1

1

Japan

A J Marks

16

-

3

-

1

2

4

Europe, Japan, Southeast Asia

P J McBride

17

-

-

7

2

2

4

Chile, Europe, Japan, Mexico, USA

D A Pilkington

16

-

3

-

2

2

1

Europe

R B Sharp 2

15

6

2

5

1

1

1

Southeast Asia



In addition to the scheduled Board meetings, seven special purpose Board meetings were convened at short notice as a consequence of industry-wide events that required immediate consideration by the Board.



R B Sharp resigned as a Director on 7 March 2012.

1

2

All Directors have a standing invitation to attend meetings of all committees irrespective of whether 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.

62

ZESPRI Annual Report 2011/12

Statutory Information ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

Directors’ Disclosures (continued) 2012 $

Remuneration of Directors M F Bayly (resigned 18 August 2010) B L Cameron (appointed 18 August 2010)

2011 $

-

20,417

64,648

26,833

A E de Farias

61,715

72,955

C S Greenlees

67,915

65,635

128,029

119,525

J J Loughlin A J Marks

64,550

53,346

P J McBride

87,007

88,670

D A Pilkington

66,682

57,715

R B Sharp (resigned 7th March 2012)

59,015

66,780

599,561

571,876

Total

Directors’ interests – shareholdings

The following table sets out the shareholdings in ZESPRI Group Limited held by each Director as at 31 March 2012: Shareholding as at 31 March 2011

Date of transaction

Share price

Number purchased/ transferred

Number sold

Interest commenced/ (ceased)

Shareholding as at 31 March 2012

B L Cameron

38,790

23/05/2011

$0.60

62,829

-

-

A E de Farias 1

233,545

-

-

-

-

-

233,545

C S Greenlees

1,635,970

-

-

-

-

-

1,635,970

101,619

J J Loughlin

-

-

-

-

-

-

-

A J Marks

-

-

-

-

-

-

-

P J McBride 2

991,955

06/07/2011

$0.60

141,955

-

850,000

D A Pilkington

-

-

-

-

-

-

-

1,142,160

-

-

-

-

(1,142,160)

-

R B Sharp 3

-

Shares above are held personally by Directors or are held by way of relevant interest.

The opening balance of Mr A E de Farias differs from the closing balance stated in the 2011 Annual Report, due to the omission of the purchase of 28,000 shares (at $1.07 each) during the 2010/11 financial year.

2



The transactions shown resulted from the restructure of a related party group of companies, which resulted in the shares being held by an entity in which P J McBride has no direct interest .

3

R B Sharp resigned as Director on 7 March 2012.

1

Industry Directors may also hold indirect minority interests in companies holding ZESPRI Group shares which are not significant.

ZESPRI Annual Report 2011/12

63

Statutory Information ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

Directors’ Disclosures (continued) Directors’ interests – Directors in office as at 31 March 2012 B L Cameron Director of, and shareholder in, ZESPRI Group Limited Director of ZESPRI International Limited Director of, and shareholder in, Cameron Farms Limited Director of, and shareholder in, Pacific Orchard Limited Director of Bay of Plenty Rugby Promotions Limited Director of Bay Proud Limited Director of Chiefs Limited Director of Franchise Landscape Supplies Limited (interest ceased March 2012) Director of Origin Quarries Limited (interest ceased March 2012) Trustee of BL and GM Cameron Family Trust Trustee of Blue & Gold Trust Trustee of John Drake Memorial Trust Trustee of Waipuna Foundation Board A E de Farias Director of, and shareholder in, ZESPRI Group Limited Director of ZESPRI International Limited Chairman of Grasslands Group and other subsidiaries Chairman of Maxwell Farms Group Advisory Board Chairman of Opotiki Packing and Coolstorage Limited and subsidiary (related party interests in various orchards) Chairman of The Fresh Fruit Company of Nelson Limited Chairman of Toi EDA (Eastern Bay of Plenty Economic Development Agency) Chairman of Whakatane Airport Board Director and Principal of DFR Consultants Limited Director of, and shareholder in, Waterview Downs Orchards Limited Director of Bay of Plenty Rugby Union Director of Horizon Energy Distribution Limited Alternate Director of OTK Orchards Limited (interest ceased November 2011)

64

ZESPRI Annual Report 2011/12

Statutory Information ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

Directors’ Disclosures (continued) Directors’ interests – Directors in office as at 31 March 2012 (continued) C S Greenlees Director of, and shareholder in, ZESPRI Group Limited Director of ZESPRI International Limited Director of ZESPRI International (Asia) Limited Chairman of, and shareholder in, Avocado Oil NZ Ltd and subsidiaries Director of, and shareholder in, Camestate Holdings Limited Director of, and shareholder in, Direct Management Services Limited Director of, and shareholder in, DMS Horticulture Limited and subsidiaries (interests in various orchards) Director of, and shareholder in, DMS Orchard Management Limited and subsidiaries (related party interests in various orchards and shareholder in supplier) Director of, and shareholder in, DMS Progrowers Limited and subsidiaries Director of, and shareholder in, DMS Progrowers Supply Entity Limited (formerly Procline Orchards Limited) Director of, and shareholder in, UPNZ Limited Director of, and shareholder in, Velocity Orchard Limited (related party interests in various orchards) Director of Barnlees Orchard Limited (interest commenced July 2011) Director of G3 Kiwi Supply Limited Director of Larkridge Investments (No. 1) Limited (related party interests in various orchards) Director of Mainland Kiwi Growers Entity Limited Alternate Director of Avocado New Zealand Marketing Limited Partner in Progeny Kiwifruit Partnership (related party interests in various orchards) Shareholder in Ashton Orchard Holdings Limited (related party interests in various orchards) Shareholder in Fruit Force Holdings Limited (related party interests in various orchards) Shareholder in Mangatarata Orchards Limited (related party interests in various orchards) Shareholder in Tinopai Orchard Limited (related party interests in various orchards) Lessee of a number of orchards Management interest in Aronia Corporation Limited Management interests in various orchards Member of Crasborns Advisory Board Trustee and beneficiary of C S and S M Greenlees Family Trusts (related party interests in various orchards) Trustee of DMS Progrowers Supply Entity Trust

ZESPRI Annual Report 2011/12

65

Statutory Information ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

Directors’ Disclosures (continued) Directors’ interests – Directors in office as at 31 March 2012 (continued) J J Loughlin Chairman of ZESPRI Group Limited, and Director of a number of other ZESPRI Group subsidiaries Chairman of ZESPRI International Limited Chairman of, and shareholder in, Askerne Estate Winery Limited Chairman of, and shareholder in, Loughlin Viticulture and Consulting Limited Chairman of Firstlight Foods Limited and subsidiaries and associates Chairman of Fonterra Candidate Assessment Panel (interest ceased February 2012) Chairman of Tru-Test Corporation Limited Director of AgResearch Limited and subsidiaries and associates Director of Augusta Capital Limited (formerly Kermadec Property Fund Limited) Director of Centralines Limited (interest ceased July 2011) Director of Metlifecare Limited Director of Port of Napier Limited Director of Taupo Motorsport Park Limited (interest ceased September 2011) Trustee and beneficiary of J J and K E Loughlin Family Trust A J Marks Director of ZESPRI Group Limited Director of ZESPRI International Limited Chairman and Director of Raripo Limited and subsidiaries Chairman of Rotorua Tourism Committee Director of Avocado Oil NZ Limited Director of House of Travel Limited Director of Leigh Fisheries Limited Director of Ngai Tahu Tourism Limited Director of Somerset Marketing Limited Director of Virgin Samoa Limited (formerly Polynesian Blue Airlines Limited) P J McBride Deputy Chairman of, and shareholder in, ZESPRI Group Limited Deputy Chairman of ZESPRI International Limited Director of ZESPRI Innovation Company Limited Chairman of Kiwifruit Vine Health Incorporated Director of, and shareholder in, Apex Genetics Limited Director of, and shareholder in, Carmel Trustee Co. Limited Director of, and shareholder in, Flint Capital Limited Director of, and shareholder in, Sequal Enterprises (2007) Limited Director of, and shareholder in, South-East Gold Limited (related party interest in orchard) (interest ceased April 2011) Director of, and shareholder in, South-East Hort Limited and subsidiary (related party interests in various orchards, and shareholder in some suppliers) Director of, and Partner of, Sequal LLP Director of, and Trustee of, the Encounter Charitable Trust Director of, and Trustee of, the Longview Charitable Trust (interest ceased June 2011) Director of Centrefarm Aboriginal Horticulture Limited, NT, Australia Director of International Forestry Co. of China (Papua New Guinea) Limited Director of Sequal Investments Limited Director of Sequal Lumber 2008 Limited General Manager of Kiwifruit for Trinity Lands Limited Managing Director of Montrose Partnership Trustee of P J and L R McBride Family Trust Trustee of Somerset Trust (contingent interest)

66

ZESPRI Annual Report 2011/12

Statutory Information ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

Directors’ Disclosures (continued) Directors’ interests – Directors in office as at 31 March 2012 (continued) D A Pilkington Director of ZESPRI Group Limited Director of ZESPRI International Limited Director of Aragorn Limited Chairman of Prevar Limited (interest ceased September 2011) Chairman of, and shareholder in, Ruapehu Alpine Lifts Limited Director and Deputy Chairman of Rangatira Limited and subsidiaries Director of, and shareholder in, Excelsa Associates Limited Director of, and shareholder in, NZ Biotechnologies Limited Director of Ballance Agri-Nutrients Limited and subsidiaries Director of Douglas Pharmaceuticals Limited and subsidiaries Director of Port of Tauranga Limited Director of Restaurant Brands New Zealand Limited and subsidiaries Independent Member of Wellington City Council – Audit and Risk Management Committee Trustee of New Zealand Community Trust Trustee and Beneficiary of Pilkington Family Trust

ZESPRI Annual Report 2011/12

67

Statutory Information ZESPRI Group Limited and Subsidiaries Annual Report for the year ended 31 March 2012

Employee Remuneration For the year ended 31 March 2012, the number of employees whose total remuneration and value of any benefits received or receivable exceeded $100,000 between the following bands were: Number of non-New Zealand-based employees

Number of New Zealand-based employees

10

4

100,000 to 109,999

10

5

110,000 to 119,999

3

7

120,000 to 129,999

4

4

130,000 to 139,999

4

3

140,000 to 149,999

2

5

150,000 to 159,999

5

6

160,000 to 169,999

3

1

170,000 to 179,999

-

4

180,000 to 189,999

2

4

190,000 to 199,999

-

1

200,000 to 209,999

2

-

210,000 to 219,999

1

-

220,000 to 229,999

1

1

230,000 to 239,999

1

-

240,000 to 249,999

1

-

250,000 to 259,999

3

-

260,000 to 269,999

1

-

300,000 to 309,999

1

1

310,000 to 319,999

2

1

330,000 to 339,999

1

-

340,000 to 349,999

-

2

350,000 to 359,999

2

-

410,000 to 419,999

1

-

430,000 to 439,999

1

-

450,000 to 459,999

1

-

460,000 to 469,999

-

1

480,000 to 489,999

1

-

490,000 to 499,999

1

-

530,000 to 539,999

1

-

570,000 to 579,999

1

-

610,000 to 619,999

1

-

620,000 to 629,999

1

-

700,000 to 709,999

-

1

730,000 to 739,999

1

-

1,150,000 to 1,159,999

1

-

1,210,000 to 1,219,999

Note: These bands are New Zealand Dollar equivalents and reflect foreign exchange fluctuations.

68

Total remuneration and benefits $

ZESPRI Annual Report 2011/12

ZESPRI GROUP LIMITED AND SUBSIDIARIES

INTERNATIONAL OFFICES

Contact Details

NEW ZEALAND

GERMANY

SPAIN

ZESPRI Group Limited ZESPRI International Limited PO Box 4043, Mount Maunganui South 400 Maunganui Road Mount Maunganui 3116 New Zealand Telephone: +64 7 572 7600 Facsimile: +64 7 572 7646 www.zespri.com

ZESPRI International Germany GmbH Postweg 14 DE-46499 Hamminkeln Germany Telephone: +49 287 148 8962 Facsimile: +49 287 142 852 www.zespri.eu

ZESPRI International Iberica SL Mercamadrid Zona Comercial Local 14-A 28053 Madrid Spain Telephone: +34 91 507 9368 Facsimile: +34 91 507 9259 www.zespri.eu

AUSTRALIA

ZESPRI International Italy S.r.l. Via Cesare Lombroso 54 20137 Milan Italy Telephone: +39 02 5410 7492 Facsimile: +39 02 5410 4627 www.zespri.eu

ZESPRI International (Australia) Pty Limited 3 Palermo Street South Yarra, VIC 3141 Australia

BELGIUM ZESPRI International (Europe) N.V. Posthofbrug 10 bus 3 B 2600 Berchem Belgium Telephone: +32 3 201 0801 Facsimile: +32 3 201 0888 www.zespri.eu ZESPRI Service Centre N.V. Posthofbrug 10 bus 7 B 2600 Berchem Belgium Telephone: +32 3 201 0877 Facsimile: +32 3 201 0888 www.zespri.eu

CHINA ZESPRI Management Consulting (Shanghai) Co., Ltd Suite 1703 No. 1065, Zhao-Jia-Bang Road Shanghai PRC 200030 Telephone: +86 21 3368 7528 Facsimile: +86 21 3368 7533 www.zespri.com.cn

FRANCE ZESPRI International France S.A.R.L. 14, Boulevard Ganteaume 13400 Aubagne France Telephone: +33 4 4262 4190 Facsimile: +33 4 4270 0542 ZESPRI Fresh Produce France S.A.R.L. 42 Rue de Tauzia 33800 Bordeaux France

ITALY

ZESPRI Fresh Produce Italy S.r.l. Via Ercolani 28 40026 Imola (BO) Italy Telephone: +39 05 4223 523 Facsimile: +39 05 4261 2909

JAPAN ZESPRI International (Japan) K.K. 3rd Floor, Sanbancho Yayoikan 6-2 Sanbancho Chiyoda-ku Tokyo 102-0075 Japan Telephone: +81 3 3288 9341 Facsimile: +81 3 3288 9353 www.zespri-jp.com

KOREA ZESPRI International (Korea) Co., Ltd 8th Floor, Maru Building 942-20, Daechi-Dong Gangnam-Gu Seoul 135-280 Korea Telephone: +82 2 547 5935 Facsimile: +82 2 547 5938 www.zespri.co.kr

SINGAPORE ZESPRI International (Singapore) Pte Limited 7 Temasek Boulevard 14-02A Suntec Tower One Singapore 038987 Telephone: +65 6 884 8745 Facsimile: +65 6 884 8746

TAIWAN ZESPRI International (Asia) Limited Suite 1701, 17th Floor International Trade Building 333 Keelung Road, Section 1 Taipei 110 Taiwan Telephone: +886 2 2757 7266 Facsimile: +886 2 2345 9633 www.zespri.com.tw

UNITED KINGDOM ZESPRI International (United Kingdom) Limited Pendragon House 65 London Road St Albans Hertfordshire AL1 1LJ United Kingdom Telephone: +44 1 727 750 000 Facsimile: +44 1 727 750 005 www.zespri.eu

UNITED STATES OF AMERICA New Zealand Kiwi Holdings Limited 1420 5th Avenue Suite 4100 Seattle WA 98101-2338 United States of America Telephone: +1 206 223 7000 Facsimile: +1 206 223 7107 www.zesprikiwi.com

ZESPRI Group Limited — ANNUAL REPORT 2011/12

GROWING THE FUTURE TOGETHER

www.zespri.com

2011/12 ANNUAL REPORT