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Share Name | Share Symbol | Market | Type |
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Agria Corp. American Depositary Shares | NYSE:GRO | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 0.849 | 0 | 01:00:00 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended June 30, 2018.
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to __________
OR
¨ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report ___________
Commission file number: 001-33766
AGRIA CORPORATION
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
12/F Phase 1 Austin Tower, 22-26A Austin
Avenue
Tsim Sha Tsui, Kowloon, Hong Kong
(Address of principal executive offices)
John Fulton
Phone: +852 2619 0033
Email: john.fulton@agriacorp.com
12/F Phase 1 Austin Tower, 22-26A Austin
Avenue
Tsim Sha Tsui, Kowloon, Hong Kong
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each class | Name of Each Exchange on Which Registered | |
American Depositary Shares, each representing
two ordinary shares, par value $0.0000001 per share |
None |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of the close of the period covered by the annual report. 110,115,854 ordinary shares, par value $0.0000001 per share, as of June 30, 2018.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ | Accelerated filer ¨ |
Non-accelerated filer þ Emerging growth company ¨ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ¨
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
US GAAP ¨ | International Financial Reporting Standards as issued by the International Accounting Standards Board þ | Other ¨ |
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ¨ Item 18 ¨
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ¨ No ¨
TABLE OF CONTENTS
Unless otherwise indicated and except where the context otherwise requires, references in this annual report on Form 20-F to:
· | “we,” “us,” “our company,” “the Company,” “our” and “Agria” refer to Agria Corporation, a Cayman Islands company, and its predecessor entities, subsidiaries and, unless the context indicates otherwise, our consolidated structured entities, and their subsidiaries and associates; |
· | “PGW” refers to PGG Wrightson Limited, in which we hold a 50.22% equity interest; |
· | “PGW Seeds” refers to PGG Wrightson Seeds Limited, a wholly-owned subsidiary held through PGW; |
· | “China” or “PRC” refers to the People’s Republic of China, excluding, for purposes of this annual report, Taiwan, Hong Kong Special Administrative Region and Macau Special Administrative Region; |
· | “shares” or “ordinary shares” refers to our ordinary shares; |
· | “ADSs” refers to our American depositary shares, each of which represents two ordinary shares; and |
· | all references to “RMB” or “Renminbi” are to the legal currency of China; all references to “$,” “dollars” and “US dollars” are to the legal currency of the United States; and all references to “NZ$” is to the legal currency of New Zealand. |
FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts can be forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.
You can identify forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations, estimates and projections about future events and financial trends that we believe may affect our financial condition, results of operations, liquidity, business strategy and financial needs. We believe that the following important factors, among others, in some cases have affected, and in the future could affect our consolidated results and could cause our actual consolidated results for the fiscal year ended June 30, 2019 and any other future period to differ materially from those described in any forward-looking statements made by us:
· | our future business development, results of operations and financial condition; |
· | changes in our revenues, cost and expense items; |
· | the financial performance of PGW; |
· | our anticipated development strategies, which may include potential acquisitions and divestitures, expanding into new sectors within the agricultural industry, expanding sales into new regions and expanding our product offerings; |
· | our strategy to expand our research and development capability; |
· | our ability to attract customers and end users and enhance our brand recognition; |
· | future changes in government regulations affecting our business; |
· | trends and competition in the agricultural industry, particularly in the markets where we operate |
3 |
· | our ability to retain and motivate existing management and other key personnel and to recruit and integrate additional qualified personnel into our operations; and |
· | the impact of the SEC investigation on our business and results of operations and our investment in PGW; |
· | our investment in PGW is subject to conditions imposed by the New Zealand Overseas Investment Office (“OIO”), including a requirement to remain of good character, and we may be subject to enforcement action by the OIO if it determines that we have breached those conditions; |
· | our investment in PGW and the business and operations currently conducted by PGW may change materially subject to the completion of the sale of PGW Seeds as well as subject to further strategic decision of PGW regarding the remaining business of PGW after the completion of the sale of PGW Seeds; |
· | our investment in PGW may change materially if our board decides to divest or otherwise reduce our investment in PGW. |
You should thoroughly read this annual report and the documents that we refer to in this annual report with the understanding that our actual future results may be materially different from or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements. Other sections of this annual report include additional factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not Applicable.
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
Not Applicable.
ITEM 3. | KEY INFORMATION |
A. Selected Financial Data
The following table presents selected consolidated financial information for our company. The consolidated statements of profit or (loss) data for the years ended June 30, 2018, 2017 and 2016 and our consolidated financial position data as of June 30, 2018 and 2017 and 2016 included elsewhere in this annual report have been derived from our consolidated financial statements for the relevant periods. Our consolidated financial statements are prepared and presented in accordance with International Financial Reporting Standards, or IFRS, as issued by International Accounting Standards Board, or IASB.
Our historical results do not necessarily indicate results expected for any future periods. You should read the following information in conjunction with our consolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report.
4 |
For the Year Ended June 30, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
$ | $ | $ | ||||||||||
(In thousands, except per share data) | ||||||||||||
Selected Consolidated Statements of Profit or Loss Data: | ||||||||||||
Revenue | 860,652 | 822,215 | 807,679 | |||||||||
Cost of sales | (610,788 | ) | (586,484 | ) | (585,312 | ) | ||||||
Gross profit | 249,864 | 235,731 | 222,367 | |||||||||
Other income | 81 | 334 | 547 | |||||||||
Operating expenses: | ||||||||||||
Selling, general and administrative expense | (226,378 | ) | (214,059 | ) | (192,142 | ) | ||||||
Research and development | (4,624 | ) | (4,445 | ) | (4,311 | ) | ||||||
Impairment of goodwill | (3,070 | ) | - | - | ||||||||
Total operating expenses | (234,072 | ) | (218,504 | ) | (196,453 | ) | ||||||
Equity in earnings/(losses) of investees | (7,874 | ) | 1,783 | (164 | ) | |||||||
Operating profit | 7,999 | 19,344 | 26,297 | |||||||||
Non-operating income (expense), other than financial income/expenses | 1,338 | 5,930 | 3,225 | |||||||||
Profit before financial income/expenses and taxes | 9,337 | 25,274 | 29,522 | |||||||||
Finance income | 199 | 1,089 | 1,589 | |||||||||
Finance expenses | (15,573 | ) | (10,622 | ) | (14,906 | ) | ||||||
Profit/(Loss) before tax | (6,037 | ) | 15,741 | 16,205 | ||||||||
Income tax | (8,613 | ) | (8,992 | ) | (6,962 | ) | ||||||
Profit/(Loss) for the year | (14,650 | ) | 6,749 | 9,243 | ||||||||
Attributable to: | ||||||||||||
Equity holders of the Company | (17,833 | ) | (10,303 | ) | (6,300 | ) | ||||||
Non-controlling interests | 3,183 | 17,052 | 15,543 | |||||||||
(14,650 | ) | 6,749 | 9,243 | |||||||||
Earnings/(loss) per ordinary share: | ||||||||||||
Basic | (0.16 | ) | (0.09 | ) | (0.06 | ) | ||||||
Diluted | (0.16 | ) | (0.09 | ) | (0.06 | ) | ||||||
Weighted average number of ordinary shares outstanding: | ||||||||||||
Basic | 110,115,854 | 110,322,214 | 110,766,600 | |||||||||
Diluted | 110,115,854 | 110,322,214 | 110,766,600 |
The following table presents our selected consolidated financial position data as of June 30, 2018 and 2017 and 2016:
As of June 30, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
$ | $ | $ | ||||||||||
(In thousands) | ||||||||||||
Selected Consolidated Statements of Financial Position Data: | ||||||||||||
Cash and cash equivalents | 17,050 | 15,876 | 8,332 | |||||||||
Accounts receivable | 171,456 | 161,360 | 151,649 | |||||||||
Total assets | 536,590 | 546,584 | 521,260 | |||||||||
Total current liabilities | 275,350 | 262,562 | 245,934 | |||||||||
Share capital | - | - | - | |||||||||
Total equity attributable to equity holders of the Company | 37,266 | 56,736 | 63,006 | |||||||||
Non-controlling interests | 104,326 | 116,784 | 106,578 | |||||||||
Total equity | 141,592 | 173,520 | 169,584 |
5 |
A fully imputed 2018 final dividend of NZ$1.25 cents per share of PGW will be paid on October 3, 2018. A fully imputed 2018 interim dividend of NZ$1.75 cents per share of PGW was paid on April 5, 2018 and a fully imputed 2017 final dividend of NZ$2.0 cents per share of PGW was paid on October 4, 2017. A fully imputed 2017 interim dividend of NZ$1.75 cents per share of PGW was paid on April 4, 2017 and a fully imputed 2016 final dividend of NZ$2.0 cents per share of PGW was paid on October 4, 2016. A fully imputed 2016 interim dividend of NZ$1.75 cents per share of PGW was paid on April 5, 2016
B. Capitalization and Indebtedness
Not Applicable.
C. Reasons for the Offer and Use of Proceeds
Not Applicable.
D. Risk Factors
Risks Related to Our Business
We face risks related to PGW’s business and operations that may adversely affect our results of operations and financial condition.
Close to 99% of our revenues have been, and we expect will continue to be, derived from PGW, and therefore our revenues have been and will continue to be directly tied to the business and operations of PGW. PGW is New Zealand’s leading provider of agricultural products and services and its business is spread across the agriculture, horticulture, livestock, merchandising, insurance, real estate, irrigation and water and financial services sectors, all of which may be subject to various risks and factors beyond our control. If PGW’s business and operations are not as successful as we expect or its revenues do not reach levels that we expected when we acquired our shareholding in it, our results of operations and financial condition may be materially and adversely affected.
We are dependent on the rural sectors in the markets where we operate.
Our revenues and results of operations depend significantly on the prospects of the New Zealand, Australian and South American rural sectors where we primarily operate. Our prospects also depend, to a significant extent, on positive farmer sentiment both in New Zealand and the other countries where we operate, which can be affected by a wide range of factors outside our control. The following are key factors and risks that can have a material impact on the performance of the rural sector and farmer sentiment and in turn our business performance:
· | Fonterra milksolids payout : The dairy sector in New Zealand is heavily influenced by the Fonterra payout announcements each year, which determine dairy farmers’ cash flows and returns for the upcoming season. Farm financial performance is heavily determined by this metric and drives on-farm investment and expenditure decisions and subsequent demand for our products and services. |
· | Climate conditions : The rural sectors in the markets where we operate are exposed to seasonal climate conditions, particularly given the adverse effects on farming caused by droughts or floods. |
· | Commodity price and volume : Prices and sales volumes for agricultural commodities such as lamb, beef, wool and dairy products are key factors affecting farm financial performance. Farm financial performance dictates farmer expenditure, which significantly influences demand for our products and services and, in turn, our revenues and results of operations. |
· | Regulatory changes : Changes to the regulatory structure of the New Zealand, Australian or South American rural economies could either expand or reduce the range of products and services required by farmers and other rural sector participants. |
· | Animal health and crop conditions : An outbreak of animal or crop disease may dramatically reduce production or restrict the ability of our clients to sell their stock or production on domestic and international markets. |
· | International trade barriers : Barriers in the form of foreign government subsidies and quota restrictions can restrict the ability of New Zealand, Australian and South American industries to sell their agricultural commodities in international markets and can also affect the price at which such commodities are sold. |
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· | Environmental regulations : Changes to environmental regulations and the resulting compliance burdens on PGW or its customers could adversely impact PGW’s future performance. |
We may not be able to compete successfully in the markets and sectors in which we operate.
The agricultural services sector and other markets in which we operate are competitive. The market share of our competitors may increase and our market share may decrease as a result of various factors, including a change in consumer preferences toward products or services offered by competitors, pricing (including pricing reductions due to “forced sales” by any competitors in financial distress or having an oversupply of products), payment terms, terms of business and promotional strategies implemented by competitors, improved distribution of competitors’ products or services in each market, and enhanced price competitiveness due to exchange rate fluctuations, lower costs of production or otherwise. Additionally, new competitors may attempt to enter the markets in which we operate by offering products or services at lower prices to gain market share, which would negatively impact our performance and results of operation.
Our seeds production and trading may be subject to certain risks.
We produce and procure seeds from a variety of sources. However, the sources of our seeds supply are subject to risks associated with growing crops, including natural disasters (such as drought), pestilence, plant diseases, insect infestations and man-made disasters (such as contamination). In addition, seeds inventories can be affected by other man-made interventions, such as arson. Our ability to trade seeds internationally is also dependent on biosecurity controls imposed by importing countries. Changes in regulations or a failure of our products to meet the required standards could result in us being unable to sell seeds or meet customer demand, which would adversely affect our business prospects and results of operation.
Extreme weather conditions and other natural or man-made disasters could damage our production and adversely affect demand from end users/farmers, which would cause a material reduction in revenues.
Customer demand for our products are subject to the risks associated with agriculture, including extreme weather conditions and other natural disasters such as drought, flood, snowstorm, earthquake, pestilence, plant diseases and insect infestations. The quality, cost and volume of seeds and other products that we produce could be materially adversely affected by extreme weather conditions or natural disasters; similarly, the end users of our seed products could also be adversely affected and as a result harming our sales and profitability. Man-made disasters, such as arson or other acts that may adversely affect our inventory in the winter storage season, may also damage our products or our production facilities. Furthermore, natural or man-made disasters may cause farmers to migrate from their farmland, which would decrease the number of end users of our products. We do not have insurance to protect against such risks. As a result, extreme weather conditions and other natural disasters may affect our customers’ demand for our products, which would adversely affect our business prospects and results of operations.
Future acquisitions or divestitures could materially change our business and materially and adversely affect our results of operations and financial condition.
Our key strategic priorities require our ongoing efforts in pursuing strategic acquisitions, investments and strategic partnerships. In April 2011, we completed our acquisition of 50.22% of equity interest in PGW, New Zealand’s largest rural services business, which offers a wide range of products, services and solutions to farmers, growers and processors in predominantly New Zealand, Australia and part of South America.
Presented with appropriate opportunities, we may acquire businesses or assets that we believe complement our existing business. Any such acquisitions are invariably subject to associated execution risk including issues relating to the integration of new operations and personnel, geographical coordination, retention of key management personnel, systems integration and the reconciliation of corporate cultures. The acquisition and integration could cause the diversion of management’s attention or resources from our existing business or cause a temporary interruption of or loss of momentum in our business. We could also lose key personnel from the acquired companies. There may be unforeseen or hidden liabilities or we may not be able to generate sufficient revenue to offset new costs of acquisitions, investments and strategic partnerships. The execution of international expansion of our operations exposes us to a number of additional risks including difficulties in staffing and managing overseas operations, fluctuations in foreign currency exchange rates, increased costs associated with maintaining the ability to understand local trends, difficulties and costs relating to compliance with the different commercial, legal and regulatory requirements of the overseas locations in which we operate, failure to develop appropriate risk management and internal control structures tailored to overseas operations, inability to obtain, maintain or enforce intellectual property rights, unanticipated changes in economic conditions and regulatory requirements in overseas environment. These risks associated with strategic repositioning, future acquisitions, investments and strategic partnerships could have a material and adverse effect on our business, results of operations, financial condition or liquidity.
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Any acquisitions and divestitures of any part or more of our business and operations wherever situate, may materially affect our operations and business mix. We may also incur costs, suffer losses or incur liabilities in connection with these acquisitions or divestitures. Any such acquisition or divestiture could materially and adversely affect our business, results of operations and financial condition.
In addition, our investment in PGW and the business and operations currently conducted by PGW may change materially subject to the completion of the sale of PGW Seeds, as well as subject to further strategic decision of PGW regarding the remaining business of PGW after the completion of the sale of PGW Seeds. Our investment in PGW may change materially if we decide to divest or otherwise reduce our investment in PGW, which may materially affect our results of operations.
Any plans to increase our production capacity and expand into new markets may not be successful, which could adversely affect our operating results.
We may make other acquisitions or expansions in the future, which may place substantial demand on our managerial, operational, technological and other resources. Our failure to manage our product offerings, operations and distribution channels effectively and efficiently could materially adversely affect our operating results.
As part of our development, we may expand the geographic areas in which we sell or produce our products. Expansion into new markets may present operating and marketing challenges that differ from those that we currently encounter in our existing markets. For example, in April 2011, we completed a transaction to increase our shareholding in PGW from 19% to a controlling 50.01%, which subsequently increased to 50.22% in June 2011 as a result of share repurchases made by PGW. If we are unable to anticipate the changing demands that our expanding operations will impose on our management capacities, production systems and distribution channels, or if we fail to adapt our production systems and distribution channels to changing demands in a timely manner, our revenues could decline, our expenses could rise and our results of operations could be materially adversely affected.
Our business depends substantially on the continuing efforts of our management, and our business may be severely disrupted if we lose their services.
Our future success depends significantly upon the continued services of our management, including the management of our operating entities. We rely on our management’s experience in product development, business operations and sales and marketing, as well as on their relationships with distributors and relevant government authorities. If one or more of our key management personnel is unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all. The loss of the services of our key management personnel, in the absence of suitable replacements, could materially adversely affect our operations and financial condition, and we may incur additional expenses to recruit and train personnel. Each member of our management team has entered into an employment agreement with us, which contains confidentiality and non-competition provisions. If disputes arise between our management and us in light of the uncertainties within the PRC legal system, there is a risk that some of the provisions of these agreements may not be enforced or enforceable in China, where our managers reside and hold most of their assets.
Our growth prospects may be materially and adversely affected if we are unable to develop or acquire new products.
The majority of the products provided by our seeds business are upstream products ultimately used by farmers. The profitability of our business depends on sustained and recurring orders from our direct customers, which include distributors, breed improvement and reproductive stations and other intermediaries. Reorder rates are uncertain due to several factors, many of which are beyond our control. These factors include changing customer preferences, competitive price pressures, failure to develop new products to meet the evolving demands of farmers, the development of higher-quality products by our competitors and general economic conditions. If we are unable to develop or acquire additional products that meet the demands of farmers, or if our competitors develop products that are favored by farmers, our growth prospects may be materially and adversely affected and our revenues and profitability may decline.
Our operating results may fluctuate due to a number of factors, some of which are beyond our control, and you may not be able to rely on our historical operating results as an indication of our future performance.
Our operating results may fluctuate due to a number of factors, some of which are beyond our control. Our quarterly and annual revenues and costs and expenses as a percentage of our revenues may differ significantly from our historical rates. Our operating results in future quarters may fall below expectations. Business disruption in key sales periods may significantly impact our full year results. Any unexpected seasonal or other fluctuations could adversely affect our business and results of operations. Future acquisitions or divestitures may also materially change our business mix and adversely affect our results of operations and financial condition.
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Our future profitability depends on our ability to secure sufficient orders from customers. An adverse change in market conditions may materially adversely affect our operating results if we cannot adjust our operating and marketing strategy to respond to such changes. Our results of operations may be materially and adversely affected by reduced orders and profit margins in the event of a slowdown in market demand, an increase in business competition, a decrease in government subsidies to farmers, increased costs, or other reasons. As such, we may not be able to maintain a similar level of profitability and you may not be able to rely on our historical operating results as an indication of our future performance.
A severe or prolonged downturn in the global economy or the markets that we primarily operate in could materially and adversely affect our revenues and results of operations.
We and our subsidiary PGW primarily operate in New Zealand, Australia, South America and China. Weak economic conditions and decreased agricultural commodity demand and prices across the world as a result of a global economic downturn may have a negative impact on agricultural production and the rural economies in New Zealand, Australia, South America and China. Lower commodity prices reduce farmers’ income and weaken their confidence in the development of agricultural business. In turn, this may limit their ability or lessen their willingness to use more expensive agricultural products, including the ones we produce. There are still great uncertainties regarding economic conditions and the demand for agricultural commodities. Any turbulence in the international markets and economies and prolonged declines in agricultural commodity demand and prices in New Zealand, Australia, South America and China may adversely affect our business, revenues and results of operations.
If we are unable to estimate farmers’ future needs accurately and to match our production levels to meet the demand of our direct customers, our business, financial condition and results of operations may be materially and adversely affected.
Due to the nature of the seed industry, we normally produce seeds according to our production plan before we sell them to distributors, which are our direct customers. Farmers, who are the end users of our seeds, generally make purchasing decisions for our products based on market prices, economic and weather conditions as well as other factors that we and our distributors may not be able to anticipate accurately in advance. If we fail to accurately estimate the volume and types of products sought by farmers, we may produce seeds that are not in demand. Unsold inventory could eventually be sold as field corn to end users at much lower prices than those of field corn seeds. Aged inventory could result in asset impairment, which would cause us to suffer a loss and incur an increase in our operating expenses. Conversely, if we underestimate demand, we may not be able to satisfy our distributors’ demand for corn seeds, and as a result damage our customer relations and end-user loyalty. Failure to estimate farmers’ future needs and to match our production to our direct customers’ demands may materially and adversely affect our business, financial condition and results of operations.
The resources we devote to research and development may not result in commercially viable or competitive products.
Our success depends in part on our ability to develop new products. Research and development in the seed industries is generally expensive and prolonged. For example, seed development takes at least five years, as measured from the selection of the variety of seed for product development to the launch of a new seed product on the market. Due to the uncertainties and complexities associated with seed and biotechnological research, seed products may not survive the development process, may not ultimately be commercially viable or may not pass government testing in the relevant provinces. In addition, we have significantly fewer financial resources than many of our international competitors. If the resources we devote to research and development do not result in products that survive the development stage, do not result in products that we can sell to our customers or do not pass government testing, our results of operations may be materially and adversely affected.
We may be subject to intellectual property claims in the future which could result in substantial costs and divert our financial and management resources away from our business.
We are subject to the risk that the products, technology and processes that we have developed in collaboration with institutes and universities will infringe upon patents, copyrights, trademarks or other third-party intellectual property rights. We may be subject to legal proceedings and claims relating to the intellectual property of others. If any such claims arise in the future, litigation or other dispute resolution proceedings may be necessary to allow us to retain our ability to offer our products. Even if we prevail in contesting such claims, this could result in substantial costs and divert our management’s resources and attention. If we are found to have violated the intellectual property rights of others, we may be enjoined from using such intellectual property rights, incur additional costs to license or develop alternative products and be forced to pay fines and damages, any of which could materially and adversely affect our business and results of operations.
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Failure to protect our intellectual property rights may undermine our competitive position, and legal action to protect our intellectual property rights may be costly and divert our management’s resources.
We rely primarily on trademark, trade secret and copyright law and contractual restrictions to protect our intellectual property. These afford only limited protection, and the actions we take to protect our intellectual property rights may not be adequate. Third parties may infringe or misappropriate our proprietary technologies or other intellectual property rights, which could materially adversely affect our business, financial condition or operating results. Preventing unauthorized use of proprietary technology can be difficult and expensive. Also, litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. The outcome of such litigation may not be in our favor. Such litigation may be costly and may divert management’s attention as well as consume resources which could otherwise have been devoted to our business. An adverse determination in any such litigation would impair our intellectual property rights and may harm our business, prospects and reputation. In addition, we have no insurance coverage against litigation costs and would bear all costs arising from such litigation to the extent that we are unable to recover them from other parties. The occurrence of any of the foregoing may materially adversely affect our business, results of operations and financial condition.
We face risks and costs associated with our strategic partnerships, agreements and investments that may negatively impact our business, results of operations and financial condition.
We have entered into strategic partnerships and agreements with certain parties from time to time. We may not realize the anticipated benefits of our strategic partnerships and agreements, and we face risks, uncertainties and disruptions associated with the integration process, such as diversion of our management’s attention from other business concerns. In addition, our operating results may suffer because of costs related to the strategic partnerships and potential additional investments required to commercialize the research.
We hold a 50.22% equity interest in PGW, a public company listed on the New Zealand Stock Exchange that is subject to a different set of rules and regulations from U.S. securities laws. Therefore, rules and regulations applicable to PGW may prohibit or restrict our ability to take actions with respect to PGW. Any failure to successfully manage our strategic partnership and investment may have a material adverse effect on our business and results of operations.
Our ability to cause PGW to act in our interest may be restricted by agreements with the minority shareholders of Agria Asia Investments Limited and other factors.
We control PGW through our majority ownership of Agria Asia Investments Limited, or Agria Asia Investments, which indirectly holds a 50.22% shareholding in PGW. However, we have entered into shareholder agreements with Ngai Tahu Capital Limited, or Ngai Tahu, and New Hope International (Hong Kong) Limited, or New Hope International, the minority shareholders of Agria Asia Investments, which contain provisions protecting the rights of minority shareholders, including those that would require the unanimous shareholder approval for certain decisions. Additionally, certain decisions with respect to PGW may require super-majority shareholder approval, which our 50.22% shareholding does not ensure. Furthermore, we may be ineligible to vote on related party transactions between PGW and us, and such related party transactions may not be approved by PGW’s remaining shareholders. As such, restrictions on our ability to exercise control over PGW may adversely affect our business, results of operations and financial condition.
Our ability to consolidate or otherwise cause PGW to act in our interest may change materially in the event of termination of or any other material changes to the shareholders agreements with Ngai Tahu and/or New Hope. Further, our investment in PGW may change materially if we decide to divest or otherwise reduce our investment in PGW.
We may not possess all of the licenses required to operate our business, or we may fail to maintain the licenses we currently hold. This could subject us to fines and other penalties, which could materially adversely affect our results of operations.
We are required to hold a variety of permits and licenses to conduct our various agricultural businesses. We may not possess all of the permits and licenses required for each of our business segments. In addition, the approvals, permits or licenses required by governmental agencies may change without substantial advance notice, and we could fail to obtain the approvals, permits or licenses required to expand our business. If we fail to obtain or to maintain such permits or licenses, or if renewals are granted with onerous conditions, we could be subject to fines and other penalties and be limited in the number or the quality of the products that we could offer. As a result, our business, results of operations and financial condition could be materially and adversely affected.
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We may be subject to product quality or liability claims, which may cause us to incur litigation expenses and to devote significant management time to defending such claims, and if such claims are determined adversely to us we may be required to pay significant damage awards.
In addition to the genetic traits and the quality of our products, the performance of our products depends on climate, geographic conditions, cultivation method, farmers’ degree of knowledge and other factors including agronomy conditions. Moreover, different production methods might result in inconsistent quality. These factors can result in sub-optimal production yields. Farmers generally attribute sub-optimal production yields to lower quality agricultural raw materials. In addition, inconsistent quality of products may also result in the unwillingness of consumers to purchase products or pay for products already purchased that they consider to be sub-standard.
We may be subject to legal proceedings and claims from time to time relating to the quality of our products. The defense of these proceedings and claims could be both costly and time-consuming and significantly divert the efforts and resources of our management. An adverse determination in any such proceeding could subject us to significant liability. In addition, any such proceeding, even if ultimately determined in our favor, could damage our reputation and prevent us from maintaining or increasing sales and market share. Protracted litigation could also result in our customers or potential customers deferring or limiting their purchase of our products.
Seed prices and sales volumes may decrease in any given year with a corresponding reduction in sales, margins and profitability.
There have been periods of instability during which seed and other commodity prices and sales volumes have fluctuated significantly. Commodities can be affected by general economic conditions, weather, outbreaks of disease and factors affecting demand, such as the availability of financing, competition and trade restrictions. Our attempts to differentiate our products from those of other seed producers have not prevented some seed markets from having the characteristics of a commodity market. As a result, the price that we are able to demand for our seed depends on the amount of seed available from other producers. Therefore, prices may be volatile even in the absence of significant external events that might cause volatility. As a result, the amount of revenue that we receive in any given year is subject to change. As production levels are determined prior to the time that the volume and the market price for orders is known, we may have too much or too little product available, which may materially and adversely affect our revenues, margins and profitability.
Our growth prospects may be affected if we are unable to obtain additional capital to finance new acquisitions.
We may require additional cash resources in order to make acquisitions. In general, we do not know the cost of an acquisition until we analyze the opportunity, complete due diligence and begin negotiations. If the cost of any such acquisition exceeds our cash resources, we will need to seek additional cash resources, and may seek to sell additional equity or debt securities or borrow under credit facilities. The sale or issuance of additional equity securities could dilute our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We may also not be able to secure, repay or refinance debt incurred to fund acquisitions and purchases of equity interests, especially if the acquisition or equity interest purchase does not result in the benefits anticipated. As a result, our operating results and financial condition may be materially and adversely affected.
If we grant additional employee share options, restricted shares or other share incentives in the future, our net income could be adversely affected.
We have adopted two share incentive plans and granted share options and restricted shares under those plans. We are required to account for share-based compensation in accordance with IFRS 2: “Share-based Payment”, under which the fair value of the employee services received in exchange for the grant of the awards is recognized as an expense. The total amount to be expensed is determined by reference to the fair value of the awards granted, excluding the impact of any services and non-market performance vesting conditions. The total expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. If we grant additional options, restricted shares or other equity incentives in the future, we could incur significant compensation charges equal to the fair value of the additional options, restricted shares and other equity incentives, and our net income could be adversely affected.
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Fluctuation in the value of various currencies may materially adversely affect your investment.
The value of the US dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions.
Our consolidated financial statements are expressed in US dollars, which is our reporting currency. Most of the revenues and expenses of PGW and dividends that we receive from PGW are denominated in the New Zealand dollar. Meanwhile, our functional currency and the functional currency of certain of our various other subsidiaries, is the US dollar. To the extent that we need to convert New Zealand dollars into US dollars for our operations, appreciation of the US dollar against the New Zealand dollar would adversely affect the US dollar amount we receive from the conversion. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue which will be exchanged into US dollars and earnings from and the value of any US dollar-denominated investments we make.
PGW uses derivative financial instruments to manage its exposure to interest rate and foreign currency risks arising from operational, financing and investment activities. However, limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. Additionally, the effectiveness of these hedges may be limited so that we may not be able to successfully hedge our exposure at all. Additionally, we are exposed to fluctuations in the value of the New Zealand dollar, the Australian dollar, the Euro and the currencies of certain South American countries through our subsidiary PGW. As a result, fluctuations in exchange rates may materially adversely affect your investment.
We face risks related to health epidemics and other outbreaks or acts of terrorism, which could result in reduced demand for our products or disrupt our operations.
Our business could be materially and adversely affected by an outbreak of H1N1 influenza A, avian flu, severe acute respiratory syndrome or another epidemic, or an act of terrorism. From time to time, there have been reports on the occurrences of avian flu in various parts of the world, including a few confirmed human cases and deaths. Since 2009, human cases of H1N1 influenza A virus infection have been identified internationally. Any prolonged recurrence of H1N1 influenza A, avian flu, severe acute respiratory syndrome or other adverse public health developments in countries where we operate may have a material and adverse effect on our business operations. In addition, terrorist attacks, such as those that took place on September 11, 2001, geopolitical uncertainty and international conflicts, could adversely affect our business operations. Any of these events could adversely affect the global economy and cause an immediate and prolonged drop in consumer demand. An immediate and prolonged drop in consumer demand could severely disrupt our business operations and adversely affect our results of operations.
Risks Related to the ADSs
Due to the delisting of our ADSs and termination of the ADR Program, the Bank of New York Mellon may sell any unclaimed underlying shares
Since the ADSs are now delisted from the New York Stock Exchange as of January 2, 2017 and no longer trade publicly, we have instructed the Bank of New York Mellon (BNYM) to wind down the ADR program. Each ADS holder is entitled to take possession of the two underlying ordinary shares for each ADS they own. BNYM will deliver the ordinary shares to the ADS holder or its agent. The election to exchange ADS for ordinary shares has expired as of May 7, 2018. After May 7, 2018, BNYM may attempt to sell any unclaimed underlying shares and return to the relevant ADR holders, the net proceeds, if any, of any sale of the underlying shares.
We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. Holders of our ADSs or ordinary shares.
Based on the latest closing price of our ADSs and the value and composition of our assets, we believe we were not a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for the taxable year ended June 30, 2018. However, we believe we were a PFIC in certain previous taxable years. A non-U.S. corporation will be a PFIC for any taxable year if either (i) at least 75% of its gross income for such year is passive income or (ii) at least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income. We must make a separate determination after the close of each taxable year as to whether we were a PFIC for that year. Because the value of our assets for purposes of the PFIC test will generally be determined by reference to the market price of our ADSs or ordinary shares, our PFIC status may depend in part on the market price of the ADSs or ordinary shares, which may fluctuate significantly. Certain adverse U.S. federal income tax consequences could apply to U.S. Holders (as defined in “Item 10. Additional Information—E. Taxation—U.S. Federal Income Taxation”) of our ADSs or ordinary shares with respect to any “excess distribution” received from us and any gain from a sale or other disposition of the ADSs or ordinary shares if we are or were a PFIC during any taxable year during which a U.S. Holder holds ADSs or ordinary shares, as we were in certain previous taxable years. See “Item 10. Additional Information—E. Taxation—U.S. Federal Income Taxation—Passive Foreign Investment Company.”
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You may not have the same voting rights as the holders of our ordinary shares and may not receive voting materials in time to be able to exercise your right to vote.
Except as described in this annual report and in the deposit agreement, holders of our ADSs who have not elected to exchange their ADS for the ordinary shares, will not be able to exercise voting rights attaching to the shares represented by our ADSs on an individual basis. Holders of our ADSs will appoint the depositary or its nominee to vote the shares represented by the ADSs. You may not receive voting materials in time to instruct the depositary to vote and you may not have the opportunity to exercise a right to vote. Upon our written request, the depositary will mail to you a shareholder meeting notice that contains, among other things, a statement as to the manner in which you may give your voting instructions, including an express indication that such instructions may be given or deemed given to the depositary to give a discretionary proxy to a person designated by us if no instructions are received by the depositary from you on or before the response date established by the depositary. However, no voting instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter as to which we inform the depositary that (i) we do not wish such proxy given, (ii) substantial opposition exists, or (iii) such matter materially and adversely affects the rights of shareholders.
Under our deposit agreement, the depositary will give us a discretionary proxy to vote our ordinary shares underlying your ADSs at shareholders’ meetings if you do not vote, unless we have instructed the depositary that we do not wish a discretionary proxy to be given or under any of the other situations specified under the deposit agreement. The effect of this discretionary proxy is that you cannot prevent ordinary shares underlying your ADSs from being voted, absent the situations described above, and it may be more difficult for shareholders to influence the management of our company. Holders of our ordinary shares are not subject to this discretionary proxy.
Your right to participate in any future rights offerings may be limited, which may dilute your holdings, and you may not receive cash dividends if it is impractical to make them available to you.
We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to you in the United States unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. Also, under the deposit agreement, the depositary bank will not make rights available to you unless the distribution to you or the ADS holders of both the rights and any related securities are either registered under the Securities Act or exempted from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.
In addition, the depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of your ordinary shares or ordinary shares your ADSs represent. However, the depositary may, at its discretion, decide that it is inequitable or impractical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distribute certain property through the mail, or that the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may decide not to distribute that property and you will not receive that distribution.
We are a Cayman Islands company and because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than that under U.S. law, you may have less protection for your shareholder rights than you would under U.S. law.
Our corporate affairs are governed by our amended and restated memorandum and articles of association, the Cayman Islands Companies Law and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as that from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. In addition, some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands.
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As a result of all of the above, public shareholders of our company may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders of our company than they would as shareholders of a U.S. public company.
We are controlled by a small group of shareholders, whose interests may differ from other shareholders.
As of June 30, 2018, our principal shareholder, Mr. Guanglin Lai, beneficially owned 48.1% of our total outstanding shares. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price of our ordinary shares or the ADSs. In addition, because these shareholders could collectively control our company, they would be able to take actions that may not be in the best interests of other shareholders. These actions may be taken even if they are opposed by our other shareholders. We do not have any existing arrangements with any of our shareholders to address potential conflicts of interests between these shareholders and our company, and none of our shareholders, other than our officers pursuant to the terms of their service agreements, has entered into non-compete agreements. There is a risk that our existing shareholders may not always act in the best interests of our company.
Our memorandum and articles of association contain anti-takeover provisions that could adversely affect the rights of holders of our ordinary shares and ADSs.
Our memorandum and articles of association include the following provisions that may have the effect of delaying or preventing a change of control of our company:
· | Our board of directors has the authority to establish from time to time one or more series of shares, including preferred shares without action by our shareholders and to determine, with respect to any series of preferred shares, the terms and rights of that series, including the designation of the series; number of shares of the series; dividend rights, dividend rates, conversion rights, voting rights; and rights and terms of redemption and liquidation preferences. |
· | Our board of directors may issue a series of preferred shares without action by our shareholders to the extent of available authorized but unissued shares. Accordingly, the issuance of preferred shares may adversely affect the rights of the holders of the ordinary shares. Issuance of preference shares may dilute the voting power of holders of ordinary shares. |
· | Subject to applicable regulatory requirements, our board of directors may issue additional ordinary shares or rights to acquire ordinary shares without action by our shareholders to the extent of available authorized but unissued shares. |
By discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction, our memorandum and articles of association could deprive our shareholders of the opportunity to sell their shares at a premium over the prevailing market price.
You may have difficulty enforcing judgments obtained against us.
We are a Cayman Islands company and most of our assets are located outside of the United States. We conduct most of our operations through PGW in New Zealand, Australia and South America. In addition, most of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, most of whom are not residents in the United States and the substantial majority of whose assets are located outside of the United States. In addition, there is uncertainty as to whether the courts of the Cayman Islands would recognize or enforce judgments of U.S. courts.
Our ADS was suspended from the New York Stock Exchange on November 3, 2016 and subsequently delisted on January 2, 2017. Delisting from the New York Stock Exchange limits the liquidity of our ADS, and hinder our ability to raise additional capital as well as having other negative results.
Our ADS was suspended from the New York Stock Exchange on November 3, 2016 and subsequently delisted on January 2, 2017 due to our failure to satisfy the NYSE’s minimum continued listing criteria. As our ADSs are delisted, the liquidity of our ADSs have been adversely affected and our ability to obtain adequate financing for the continuation of our operations would be substantially impaired, which could have a material adverse effect on our financial condition and results of operations.
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Risks related to legal and/or administrative proceeding s
We have received a subpoena from the United States Securities and Exchange Commission in connection with a non-public investigation. The SEC investigation, if determined adversely to us, may have a material adverse effect on our business and results of operations and our investment in PGW.
On December 23, 2015, we received a subpoena from the United States Securities and Exchange Commission in connection with a non-public investigation. The SEC's subpoena is focused on: (i) the accuracy of (a) disclosures related to the nine parcels of land totaling approximately 13,500 acres retained by our Company following the divestiture of Taiyuan Primalights III Agriculture Development Co., Ltd. (“P3A”), one of our consolidated structured entities until it was disposed of in July 2010, and (b) the accounting for the approximately $57.0 million of impairment provision that we took for such land parcels in July 2013, and (ii) claims of share price manipulation by certain of our Company’s executive officers in connection with our efforts to maintain our NYSE listing status. We and certain of our Company’s executive officers and directors have been fully cooperating with the SEC and are nearing a potential settlement for these claims. We have recognized a provision for our best estimate of the expected settlement. However, any final settlement may be in excess of this provision, which would in turn have a material impact on our financial position. In addition, if any settlement exceeds a specified amount set out in certain of our banking facilities, such banking facilities would be subject to an event of review by the respective banks which could result in modified terms or the cancellation of facilities. Furthermore, the outcome of the investigation could adversely impact the ability of one or more of our current executive officers or directors to serve in their current positions. Finally, we cannot assure you that the investigation will be settled at all or will not be determined adversely to us. If the investigation is determined adversely to us, there may be a material adverse effect on our business and results of operations and our investment in PGW.
Our investment in PGW is subject to conditions imposed by the New Zealand Overseas Investment Office (“OIO”), including a requirement to remain of “good character.” We may be subject to enforcement action by the OIO if it determines that we have breached those conditions.
On November 16, 2009, we were granted consent by the OIO to acquire up to 19.99% of ordinary shares in PGW. On April 15, 2011, the OIO granted us consent to acquire a further 41.0% of ordinary shares in PGW. It is a condition of both these consents that we remain of “good character” so long as we maintain a greater than 25% interest in PGW. Under the Overseas Investment Act 2005, the OIO may take enforcement action through the High Court of New Zealand if a consent-holder or individual with control of a consent-holder is in breach of a consent condition. Potential enforcement action may include the imposition of a criminal fine or civil penalty, or an order that the consent-holder divest of their interest in property acquired under the Act.
We have disclosed to the OIO the existence of the SEC investigation and subpoena. In response, the OIO has indicated that the SEC investigation raises concerns as to our ongoing good character. In January 2018, the OIO advised our New Zealand counsel that any investigation into our “good character” status under the Overseas Investment Act would be put on hold pending the outcome of the SEC process. We have advised the OIO that we will notify it of any settlement with the SEC as soon as an agreement-in-principle is reached, and it is possible that the OIO may recommence its investigation before any settlement is publicly announced. We are continuing to cooperate with the OIO and will continue to assist it with any inquiries it might have. PGW’s independent directors have also convened a committee to monitor any review conducted by the OIO. Any adverse findings and subsequent enforcement action by the OIO may materially and adversely affect or otherwise impair the value of our investment in PGW.
ITEM 4. | INFORMATION ON THE COMPANY |
A. History and Development of the Company
We are a global agricultural company with operations and networks servicing New Zealand, Australia, South America, China and various international markets. We were incorporated as a Cayman Islands company in May 2007. In September 2009, we acquired, through our subsidiary, Agria (Singapore) Pte. Ltd., or Agria Singapore, a 19.01% equity interest in PGW. In January 2011, Agria Singapore made a partial takeover offer to the shareholders of PGW to acquire an additional 31.0% of the shares in PGW. On April 29, 2011, we completed this acquisition and increased our shareholding of PGW to 50.01%. In June 2011, our shareholding in PGW was increased to 50.22% as a result of share repurchases made by PGW.
On August 6, 2018, we announced that our New Zealand-listed subsidiary, PGW, has entered into a conditional agreement to sell its PGG Wrightson Seeds (“PGW Seeds”) business to DLF Seeds A/S (“DLF”), a Denmark-based leading global seed co-operative. The completion of the conditional agreement is subject to various conditions including approvals from relevant regulatory authorities in New Zealand. PGW Seeds currently carries on our Seed and Grain business in and over geographical locations in New Zealand, Australia and South America and internationally.
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Our business and operations currently conducted by PGW may change materially subject to and after the completion of the sale of PGW Seeds as well as subject to further strategic decision of PGW regarding the remaining business of PGW after the completion of the sale of PGW Seeds. Our investment in PGW may change materially if we decide to divest or otherwise reduce our investment in PGW.
B. Business Overview
Overview
The four operating segments offer different products and services, and are managed separately because they require different skills, technology and marketing strategies. There is also a group general manager for each segment. Within each segment, further business unit analysis may be provided to management where there are significant differences in the nature of activities.
· | Agency. Includes rural Livestock trading activities, Export Livestock, Wool, Insurance, Real Estate and Finance Commission. |
· | Retail and Water. Includes the Rural Supplies and Fruitfed retail operations, PGG Wrightson Water, AgNZ (Consulting), Agritrade and ancillary sales support, supply chain and marketing functions. |
· | Seed and Grain. Includes Australasia Seed (New Zealand and Australian manufacturing and distribution of forage seed and turf), Grain (sale of cereal seed and grain trading), South America (various related activities in the developing seeds markets including the sale of pasture and crop seed and farm inputs, together with operations in the areas of livestock, real estate and irrigation), and other Seed and Grain (research and development, international, production and corporate seeds). |
· | Other s. Includes our business in China, which contracts with farmers in China to supply maize and edible corn product and in turn after processing it then sells seed through a distribution network throughout the country. |
See note 5 to our consolidated financial statements and Item 5 of this annual report for financial information about our operating segments and geographic financial information.
Research and Development
We conduct research and development primarily in cooperation with various universities and research institutions. See “—Intellectual Property.” We have also acquired a number of technologies and varieties of corn from third parties.
Our Seed and Grain business has a strong emphasis on research and development, as well as extensive experience in plant breeding and have developed management practices to ensure the best use of cultivars on farms. This research ensures that any cultivars introduced into the market will perform under temperate farming systems with the goal of increasing on-farm productivity and profitability. To support this objective, we have developed relationships with key primary research partners globally, including in New Zealand:
· | Grasslands Innovation Limited: a joint venture between PGW Seeds and Grasslanz Technology Limited, a wholly owned subsidiary of AgResearch Limited, New Zealand’s Pastoral Industry Crown Research Institute, or CRI, specialising in endophyte research plus forage grass, herb and clover breeding; |
· | Forage Innovations Limited: a joint venture between PGW Seeds and New Zealand Institute For Plant And Food Research Limited, New Zealand’s specialist CRI dedicated to food technology research; |
· | AgResearch Limited, New Zealand’s pastoral investment CRI, specialises in research related to the pastoral industry and novel endophyte technology; AgResearch Limited and PGW Seeds have developed two joint ventures: Grasslands Innovation Limited and Endophyte Innovations. These two joint ventures have delivered significant innovations to the pastoral market including leading cultivars and the successful novel endophyte technology, including AR37 and Avanex endophytes; |
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· | Universities of Queensland and Australia: a research collaboration that is developing lucerne cultivars; and |
· | University of Georgia, Texas A&M University and University of Wisconsin: research collaborations that are developing forage innovations for the continental or Mediterranean environments. |
In New Zealand, we have established a pre-eminent research and development center, Kimihia Research & Development Centre, near Lincoln, New Zealand. It carries out various research and development programs and draws on genetic material sourced from New Zealand, Australia and South America and includes breeding partnerships with leading research organizations from around the world.
The various partnerships give us access to leading proprietary innovation in a variety of crop species including corn, forage crops and cereal crops. An additional benefit that comes from these partnerships is preferential access to numerous leading academics and technicians that are experts in their chosen field. Research institutes gain the benefit of seeing their innovations being commercialized and delivered to market in a timely and professional manner.
Our global research and development team currently consists of approximately 45 research professionals and staff, with a similar number of professional staff contracted with our various research partners.
As of June 30, 2018, through our research and development, acquisitions and licensing arrangements, we hold the rights to:
· | over two hundred proprietary forage varieties (grass, clover, herb, forage cereal and brassica); |
· | five patented forage novel endophyte strains; |
· | several proprietary turf grass cultivars and Avanex ® Unique Endophyte Technology; |
· | sixteen proprietary edible corn seed varieties; |
· | twenty proprietary field corn seed varieties; |
· | dozens of proprietary cereal grain varieties (wheat and barley); |
· | several proprietary summer and annual crops (sunflower, sorghum); and |
· | several proprietary and branded seed coating technologies. |
We have established more than 42 testing sites for the selection and evaluation of new varieties. These sites are based in multiple regions across over ten different countries covering all the major markets and different climatic zones.
Investments and Strategic Partnerships
· | In February 2013, PGW completed the contracting process for a Primary Growth Partnership program, or PGP Program, with the New Zealand Ministry for Primary Industries, or MPI. PGW Seeds is spearheading the PGP Program with Grasslanz Technology Limited, a New Zealand government-owned company engaged in science and research, to deliver innovative forages for New Zealand farms. The PGP Program is valued at NZ$15.8 million, with government PGP funding contributing NZ$7.7 million over seven years. The seed and nutritional technology development PGP Program aims to develop new technologies that improve animal productivity and animal health, while overcoming adverse environmental impact. |
· | In August 2015, an investment was made in Agimol Corporation S.A. (AgroCentro Uruguay). AgroCentro Uruguay is a rural servicing business. Its business units comprise the retail and distribution of agricultural inputs, farming, logistics and consulting. |
· | In fiscal 2017, a distribution of $2.6 million was received from the investment held in the BioPacificVentures investment fund. |
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· | During the year, PGW reduced its investment in Agri Optics New Zealand Limited from 51% to 33.33% following the inclusion of a third JV partner. Proceeds of $0.08 million were received for the investment reduction. |
Seasonality of Operations
We are subject to significant seasonal fluctuations. In particular, our crop protection, nutrients and merchandise business is weighted towards the first half of our fiscal year as demand for New Zealand farming inputs are generally weighted towards the spring season. Seeds and livestock revenues are significantly weighted to the second half of our fiscal year. The seasonality of seeds revenue reflects the fact that we operate in geographical zones that suit autumn harvesting and sowing. The seasonality of livestock revenue reflects the fact that New Zealand generally has spring calving and lambing, resulting in more livestock trading in the second half of the fiscal year in order for farmers to maximize their income. Other business units have similar but less material cycles. We recognize that this seasonality is the nature of our industry and we plan and manage our business accordingly.
Structure of Our Investment in PGW
In October 2009, we entered into agreements to invest in and form a strategic partnership with PGW. Between November 2009 and December 2009, through equity purchases and participation in a rights issue, we invested a total of NZ$83.9 million and acquired a 19.01% stake in PGW at the price of NZ$0.59 per share. This stake was held by Agria Singapore, a wholly owned subsidiary of Agria Asia Investments, which in turn is our 100% owned subsidiary.
In January 2011, Agria Singapore made a partial takeover offer for an additional 31.0% of the shares in PGW at the offer price of NZ$0.60 per share to in order to bring its total shareholding in PGW to 50.01%. The total consideration paid by Agria Singapore, excluding transaction expenses for the shares acquired under the partial offer, was NZ$141.0 million. The partial takeover offer was completed in April 2011, at which point we held a 50.01% interest in PGW. Our shareholding in PGW was subsequently increased to 50.22% by the end of June 2011 as a result of share repurchases made by PGW.
To finance the partial takeover offer of PGW, Agria Group Limited, or Agria Group, our 100% owned subsidiary and the parent of Agria Asia Investments, subscribed for additional equity in Agria Asia Investments valued at $55.3 million for a combination of cash, expenses already incurred on behalf of Agria Asia Investments and expenses that we agreed to incur on behalf of Agria Asia Investments. Agria Asia Investments also received additional financing in the form of new share subscriptions from third parties, with $20.0 million from New Hope International, a subsidiary of New Hope Group, and NZ$15.0 million from Ngai Tahu, a long-term strategic investor with a particular focus on New Zealand’s South Island commercial and rural ventures. After the completion of share subscriptions, the equity interest in Agria Asia Investments was as follows:
% | ||||
Agria Group | 80.81 | |||
New Hope International | 11.95 | |||
Ngai Tahu | 7.24 |
In June 2011, we entered a new shareholders agreement with New Hope International. Under this agreement, we granted New Hope International the rights of first offer in the event that we propose to transfer all or part of its shares in Agria Asia Investments, as well as the tag-along rights in the event that Agria Group proposes to transfer all or part of its shares in Agria Asia Investments. Furthermore, New Hope International has the right to sell its shares in Agria Asia Investments to Agria Group on the terms and conditions provided in the shareholders agreement at a certain repurchase price to be determined pursuant to a supplemental agreement entered into between Agria Group and New Hope International in June 2011. Under the supplemental agreement, Agria Group agreed to provide a guarantee to New Hope International for a minimal level of dividends to be distributed by Agria Asia Investments to New Hope International. If Agria Group makes any payment to New Hope International under that guarantee, New Hope International will remit such payment to Agria Group once cumulative dividends distributed by Agria Asia Investments to New Hope International exceeds the minimal guaranteed level. To secure the performance of Agria Group’s obligation in connection with this put option held by New Hope International, in June 2011, Agria Group pledged its shares in Agria Asia Investments to New Hope International and Mr. Guanglin Lai, the chairman of our board, made a personal guarantee to New Hope International for Agria Group’s payment obligation in the event that New Hope International exercises its put option. Agria Corporation agreed to indemnify Mr. Lai against all the obligations, losses, costs, damages, expenses, liabilities, actions and demands that he may incur or sustain in connection with his personal guarantee. The implementation of the shareholders agreement with New Hope International in respect of the exercise of the transfer of all or part of its shares to Agria Group is subject to approvals under New Zealand law, including consent from the New Zealand Overseas Investment Office.
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As of June 30, 2018, Agria Group has made by way of prepayment an aggregate sum of $25.8 million to the New Hope International for transfer of all of its shares, or approximately 11.95% interest in Agria Asia Investments, the completion of which is conditional upon and subject to the requisite approvals under New Zealand law as aforesaid including consent being obtained from the New Zealand Overseas Investment Office.
Intellectual Property
We conduct research and development primarily in cooperation with various universities and research institutions. In New Zealand, Australia and Uruguay, much of our research is undertaken by our Seed and Grain business segment, including its turf division, which is supported by a strong research base and commercializes new products through internal research and development, breeding and evaluation programs and joint venture research partnerships.
Many elements of our proprietary information, such as production processes, technologies, know-how and data are not patentable in certain markets where we operate. In those markets, we rely primarily on a combination of trade secrets, trademarks, and confidentiality agreements with employees and third parties to protect our intellectual property. While we cannot assure you that our efforts will deter others from misappropriating our intellectual property rights, we will continue to create and protect our intellectual property rights in order to maintain our competitive position.
A number of seed cultivars are protected by plant variety rights and plant breeders’ rights in New Zealand, Australia and other markets. Certain cultivars are also provided by seed certifications in various jurisdictions. We also protect our intellectual property through a portfolio of registered trademarks and patents, confidentiality clauses in employment contracts and staff education.
Regulation
We derive a substantial majority of our revenues in New Zealand. We are subject to a number of regulations in New Zealand related to its agricultural operations, including the following:
· | Agricultural Compounds and Veterinary Medicines Act 1997. The New Zealand Food Safety Authority administers the Agricultural Compounds and Veterinary Medicines Act. The scope of this Act includes regulatory control of agricultural compounds (veterinary medicines and plant compounds), and their importation, manufacture, sale and use. This Act regulates all animal health products sold by us. |
· | Animal Products Act 1999. MPI administers the Animal Products Act and the Animal Products (Ancillary and Transitional Provisions) Act and various regulations made under these Acts. They regulate the production and processing of animal material and animal products traded and used in New Zealand, or exported from New Zealand, to manage associated risks and facilitate overseas market access. The Animal Products Act requires all animal products traded and used to be “fit for intended purpose.” This means they must meet New Zealand animal product standards. These Acts impact the products that we sell for animal consumption and use on animals. |
· | Animal Welfare Act 1999. The Animal Welfare Act relates to the welfare of animals and the prevention of their ill treatment, and provides for the development and issue of codes of welfare. This Act applies to our livestock operations. |
· | Biosecurity Act 1993. The MPI administers the Biosecurity Act, which provides a legal basis for excluding, eradicating and effectively managing pests and unwanted organisms. Its power can be widely used by the MPI, other government agencies, regional councils and pest management agencies. It is an enabling tool that provides a range of functions, powers and options for the management of risk organisms. This Act regulates our operations at sale yards and livestock movements. |
· | Food Acts 1981 and 2014. The Food Act 2014 came into force on March 1, 2016. It applies to all new food businesses from that date but existing food businesses will transition between 2016 and 2019. The Food Act 2014 aims to give food businesses the tools to manage food safety themselves based on the level of risk associated with the kinds of food produced. We have obligations under the Food Acts 1981 and 2014 as it will be under the new law in relation to components of food that we sells. |
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· | National Animal Identification and Tracing Act 2012, or NAIT Act. The NAIT Act sets up the NAIT scheme which links people, property and livestock in New Zealand. Under the scheme, cattle and deer are traced using NAIT approved radio frequency identification device ear tags. Once tagged, these animals are registered in a national database and the details recorded include the animal's location, movements in the animal's life, and contact details for the person in charge of that animal. This provides traceability for individual animals, to enhance New Zealand's ability to respond quickly if there is a biosecurity incursion such as a disease outbreak. We have detailed obligations in relation to livestock we transact under this Act. |
· | Wine Act 2003. The Wine Act establishes an integrated regime for the production and export of wine. The objectives of the Wine Act include setting standards for identity, truthfulness in labeling, and safety of wine, and minimizing and managing risks to human health arising from the making of wine and ensuring compliance with wine standards. We have obligations under the Wine Act in relation to components of wine that we sell. |
· | Auctioneers Act 2014. This sets out what information a person needs to provide to become registered as an auctioneer. The new registration system is administered by the Ministry of Business, Innovation and Employment. It replaces the licensing system administered by the Ministry of Justice under the Auctioneers Act 1928 and the Auctioneers Regulations 1958. We are registered under the new Act. |
· | Health and Safety at Work Act 2015. The Health and Safety at Work Act 2015 came into force on April 4, 2016. The Act establishes a balanced framework to secure the health and safety of workers and workplaces in New Zealand. It replaces the previous Health & Safety in Employment Act. It follows the principle that workers and other persons should be given the highest level of protection against harm to their health, safety and welfare from hazards and risks arising from work or from specified types of plant as is reasonably practicable. |
· | Holidays Act 2003. The Holidays Act 2003 came into force on April 1, 2004. The purpose of the Act is to promote balance between work and other aspects of employees’ lives. It provides New Zealand employees with minimum entitlements to; annual holidays to provide the opportunity for rest and recreation; public holidays for the observance of days of national, religious, or cultural significance; sick leave to assist employees who are unable to attend work because they are sick or injured, or because someone who depends on the employee for care is sick or injured and bereavement leave to assist employees who are unable to attend work because they have suffered a bereavement. |
There has been widespread non-compliance with the Holidays Act 2003 and inconsistent application of its calculations in New Zealand. In compliance with the Holidays Act 2003, our New Zealand subsidiary, PGW, has agreed an Enforceable Undertaking (EU), which is a binding agreement between PGW and New Zealand Ministry of Business, Innovation and Employment that requires PGW to rectify errors found as a result of PGW’s treatment of the Holidays Act 2003. Work on the EU resulted in a provision of NZD$8.06 million being expensed in June 2018, being PGW management’s best estimate of expected remediation costs.
Our subsidiary, PGW, a New Zealand listed company, is also subject to various other New Zealand rules and regulations applicable to listed companies in New Zealand and the rules and regulations of the other markets where it operates, namely Australia and South America.
C. Organizational Structure
The following diagram illustrates our corporate structure, including our principal subsidiaries, as of June 30, 2018:
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Equity interest.
Contractual arrangements including an Exclusive Technology Development, Technical Support and Service Agreement.
Contractual arrangements including Loan Contract, a Power of Attorneys, an Exclusive Call Option Agreement, an Equity Pledge Agreement, an Letters of Undertaking, and Statement of Spouse.
(1) Consisting of Ms. Xiaoyun Chen, the mother of Mr. Guanglin Lai and Mr. Fulin Lai, the brother of Mr Guanglin Lai, the chairman of our board of directors and a beneficial owner of our ordinary shares.
(2) Ms. Xiaoyun Chen holds 5% and Mr. Fulin Lai holds 95%.
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We conduct our business in China through contractual agreements with our consolidated structured entities, Shenzhen Zhongguan Agriculture Group Co., Ltd., or Zhongguan, Shenzhen NKY Seeds Co., Ltd., or Shenzhen NKY, and Shenzhen Zhongguan Forage Co., Ltd. (formerly known as Shenzhen PGW Seeds Co., Ltd.), or Shenzhen Zhongguan Forage, which hold the requisite licenses and permits for conducting agricultural business. Our contractual arrangements with our consolidated structured entities and their individual shareholders enable us to:
· | exercise effective control over our consolidated structured entities; |
· | receive substantially all of the earnings and other economic benefits from our consolidated structured entities to the extent permissible under PRC law in consideration for the services provided by Agria Holdings (Shenzhen) Co., Ltd., or Agria Shenzhen; and |
· | have an exclusive option to purchase all or part of the equity interests of our consolidated structured entities in each case when and to the extent permitted by PRC law. |
In addition, the individual shareholders of our consolidated structured entities have executed letters of undertaking to remit all of the dividends and other distributions received from our consolidated structured entities to Agria Shenzhen, subject to satisfaction of their personal income tax and other statutory obligations arising from receiving such dividends or other distributions. We will require every person who holds the equity interests in our consolidated structured entities at any time to enter into agreements with us on terms substantially similar as the existing contractual agreements between us and the current shareholders of our consolidated structured entities. We have the legal obligation to provide funding for all losses incurred by our consolidated structured entities.
D. Property, Plant and Equipment
We have several sale yards and wool stores in New Zealand for our Rural Services division and storage and processing facilities in New Zealand, Australia and Uruguay for our Seed and Grain division. We also have a logistics center in Uruguay and grain drying facilities in Gisborne, New Zealand.
We lease a fleet of vehicles for use by employees, agents and representatives. Leases are typically for a period between four and six years. We lease office and computer equipment. Leases are typically for a period of three years. We also lease and sublease land and buildings from which we conduct operations. These leases range in length from 1 to 15 years with various rights of renewal. Where surplus properties are unable to be exited, sublease revenue is obtained where possible on a short-term temporary basis.
ITEM 4A. | UNRESOLVED STAFF COMMENTS |
None.
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on Form 20-F. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information—D. Risk Factors” or in other parts of this annual report on Form 20-F. Our consolidated financial statements and the financial information discussed below, have been prepared in accordance with IFRS.
A. Operating Results
Overview of Financial Results
The following table sets forth a summary of our consolidated results of operations for the periods indicated. This information should be read together with our consolidated financial statements and related notes included elsewhere in this annual report. The operating results in any period are not indicative of the results that may be expected for any future period.
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For the Year Ended June 30, | ||||||||||||||||||||||||
2018 | 2017 | 2016 | ||||||||||||||||||||||
$’000 |
% of
Revenue |
$’000 |
% of
Revenue |
$’000 |
% of
Revenue |
|||||||||||||||||||
Revenue | 860,652 | 100.0 | 822,215 | 100.0 | 807,679 | 100 | ||||||||||||||||||
Cost of sales | (610,788 | ) | (71.0 | ) | (586,484 | ) | (71.3 | ) | (585,312 | ) | (72.5 | ) | ||||||||||||
Gross profit | 249,864 | 29.0 | 235,731 | 28.7 | 222,367 | 27.5 | ||||||||||||||||||
Other income | 81 | - | 334 | - | 547 | - | ||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Selling, general and
administrative expense |
(226,378 | ) | (26.3 | ) | (214,059 | ) | (26.0 | ) | (192,142 | ) | (23.8 | ) | ||||||||||||
Impairment of goodwill | (3,070 | ) | (0.4 | ) | - | - | - | - | ||||||||||||||||
Research and development | (4,624 | ) | (0.5 | ) | (4,445 | ) | (0.5 | ) | (4,311 | ) | (0.5 | ) | ||||||||||||
Total operating expenses | (234,072 | ) | (27.2 | ) | (218,504 | ) | (26.5 | ) | (196,453 | ) | (24.3 | ) | ||||||||||||
Equity accounted earnings/(loss) of investees | (7,874 | ) | (0.9 | ) | 1,783 | 0.2 | (164 | ) | - | |||||||||||||||
Operating profit | 7,999 | 0.9 | 19,344 | 2.4 | 26,297 | 3.3 | ||||||||||||||||||
Non-operating (expenses)/income | 1,338 | 0.2 | 5,930 | 0.7 | 3,225 | 0.4 | ||||||||||||||||||
Profit before interest and tax | 9,337 | 1.1 | 25,274 | 3.1 | 29,522 | 3.7 | ||||||||||||||||||
Finance income | 199 | - | 1,089 | 0.1 | 1,589 | 0.2 | ||||||||||||||||||
Finance expenses | (15,573 | ) | (1.8 | ) | (10,622 | ) | (1.3 | ) | (14,906 | ) | (1.8 | ) | ||||||||||||
Profit/(Loss) before tax | (6,037 | ) | (0.7 | ) | 15,741 | 1.9 | 16,205 | 2.0 | ||||||||||||||||
Income taxes | (8,613 | ) | (1.0 | ) | (8,992 | ) | (1.1 | ) | (6,962 | ) | (0.9 | ) | ||||||||||||
Profit/(Loss) for the year | (14,650 | ) | (1.7 | ) | 6,749 | 0.8 | 9,243 | 1.1 | ||||||||||||||||
Attributable to: | ||||||||||||||||||||||||
Equity holders of the Company | (17,833 | ) | (2.1 | ) | (10,303 | ) | (1.3 | ) | (6,300 | ) | (0.8 | ) | ||||||||||||
Non-controlling interests | 3,183 | 0.4 | 17,052 | 2.1 | 15,543 | 1.9 | ||||||||||||||||||
(14,650 | ) | (1.7 | ) | 6,749 | 0.8 | 9,243 | 1.1 |
Revenue
Revenues from our Agency segment includes rural Livestock trading activities, Export Livestock, Wool, Insurance, Real Estate and Finance Commission.
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Revenues from our Retail and Water segment includes the Rural Supplies and Fruitfed retail operations, PGG Wrightson Water, AgNZ (Consulting), Agritrade and ancillary sales support, supply chain and marketing functions.
Revenues from our Seed and Grain segment includes Australasia Seed (New Zealand and Australian manufacturing and distribution of forage seed and turf), Grain (sale of cereal seed and grain trading), South America (various related activities in the developing seeds markets including the sale of pasture and crop seed and farm inputs, together with operations in the areas of livestock, real estate and irrigation), and other Seed and Grain (research and development, international, production and corporate seeds).
Revenue from Others includes our business in China.
Cost of Sales
Agency cost of sales primarily consist of (i) payments for livestock acquired for stock fattening programs, (ii) payments for livestock purchased for the purposes of live export, and (iii) payments to perform or purchase services to facilitate the provision of agency services.
Retail and Water cost of sales primarily consist of (i) payments to suppliers of agrichemicals, fertilizers and other farm inputs which are sold into the New Zealand agriculture sector through our merchandising store network, (ii) payments to suppliers of capital farm equipment, including irrigation systems which are sold through our various other business units.
Seed and Grain cost of sales primarily consist of (i) payments made to companies to whom we outsource production of our seed products, and (ii) direct costs associated with the treatment, dressing and other value added activities we perform on our seed products prior to them being ready for sale.
Others cost of sales primarily consist of (i) payments made to companies to whom we outsource production of our seed products, and (ii) direct costs associated with the treatment, dressing and other value added activities we perform on our seed products prior to them being ready for sale.
Operating Expenses
Our selling, general and administrative expenses primarily consist of salaries, share-based payments, compensation and benefits for administrative, sales finance and human resources personnel and director fees, depreciation of property, plant and equipment and amortization of land use rights, trademarks, patents, and software, provisions for bad debts, rental and operating lease costs, travel, professional fees and other expenses associated with our corporate and administrative activities as well as advertising in magazines, promotion expenses and other marketing related expenses.
Our research and development expenses primarily consist of direct expenses related to development of our proprietary products, trails, external contractors and services, costs of raw materials used in our research and development activities, salaries of the research and development personnel, depreciation of research and development equipment, as well as amortization of seed variety rights.
Options to purchase a total of 1,440,000 ordinary shares granted to our officers, directors and employees remain outstanding as of June 30, 2018. During the year ended June 30, 2018, no restricted shares were granted to our directors and executive officers and other individuals as a group. The total of restricted shares that vested during the year ended June 30, 2018 was 3,692,220 shares.
We determine share-based compensation expense based on the fair value of the options or restricted shares as of the date of grant and amortize such expenses over the vesting period of the options or restricted shares. A change in the amount of share-based compensation expense will primarily affect our operating expenses, net income and earnings per share.
For the options to purchase 1,440,000 ordinary shares that have been granted to our officers, directors and employees and that remain outstanding as of June 30, 2018, the total share-based compensation expense has been fully recognized as of June 30, 2018.
The total fair value of the restricted shares granted was $5.7 million, which will be amortized as stock-based compensation expense over a thirty-six month vesting period. Amortization expense recognized during the year ended June 30, 2018 for these restricted shares was $1.9 million.
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Interest Income and Interest and Financing Expense
Interest income primarily consists of interest earned on our cash and cash equivalents and restricted cash deposits.
Interest and financing expense primarily consists of interest and facility fees paid on our bank loans.
Taxation
We are incorporated in the Cayman Islands. Under the current law of the Cayman Islands, we are not subject to income or capital gains tax. In addition, dividend payments are not subject to withholding tax in the Cayman Islands.
New Zealand Tax
New Zealand resident companies are subject to tax on their taxable income at the rate of 28%. There is no capital gains tax in New Zealand. However, certain gains arising from the disposal of personal property purchased with the intention of resale are taxable and certain gains on the sale or transfer of land may be taxable.
Australia Tax
Australian resident companies are taxable on their taxable income at the rate of 30%. Net capital gains derived by Australian resident companies are taxed at the 30% corporate rate.
Uruguayan Tax
Uruguayan businesses are taxed on taxable income sourced in Uruguay. Capital gains derived by Uruguayan companies are taxed at the standard rate of corporate tax. The corporate tax rate in Uruguay is 25%. A capital duty at the rate of 1.5% is levied on the net worth of the entity.
Singapore Tax
Singapore resident companies is subject to income tax rate of 17%.
Hong Kong Tax
Hong Kong resident companies are subject to an applicable profits tax rate of 16.5% in Hong Kong.
PRC Enterprise Income Tax
PRC resident companies are all subject to enterprise income tax at a rate of 25%.
PRC Value-Added Tax
In accordance with the relevant tax laws in the PRC, value-added tax is levied on the invoiced value of sales and is payable by purchasers. A PRC company is required to remit the value-added tax it collects to the tax authorities but may deduct the value-added tax it has paid on eligible purchases.
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Results of Operations
Year ended June 30, 2018 compared to year ended June 30, 2017
Revenue
Our revenue increased by 4.7% from $822.2 million in the year ended June 30, 2017 to $860.7 million in the year ended June 30, 2018. Nearly all sectors experienced positive performance as a result of climatic conditions and favorable growing conditions across the board. The New Zealand Ministry for Primary Industries estimates that dairy export revenues increased 14% in 2018, meat and wool sector export revenues increased 12% and horticulture export revenues increased 6% .
Agency revenue increased by 1.6% from $140.6 million in fiscal year 2017 to $142.8 million in fiscal year 2018, primarily due to a strong performance from the Livestock business which repeated 2017’s performance with the effects of higher sheep prices offsetting a lower number of dairy transactions. The Wool team achieved improved results with volumes returning to more normal levels on a lift in underlying wool prices.
Retail and Water revenue increased by 7.6% from $401.0 million in fiscal year 2017 to $431.6 million in fiscal year 2018, primarily due to a solid performance by the Retail business which performed well and contributed to half of the improvement. With activity high across the key dairy, meat and wool and horticulture sectors, revenues were up almost double digits. The Rural Supplies categories of bulk stockfood, calf milk replacer, agrichemicals, seed and fertilizer all grew strongly.
Seed and Grain revenue from external sales increased by 3.4% from $265.8 million in fiscal year 2017 to $274.8 million in fiscal year 2018. In New Zealand we saw strong sales volumes across the board in all product categories except fodder beet. Autumn 2018 saw a favorable sowing window and a significant catch-up of the two previous seasons. In South America sales recovered from the 2017 year that was impacted by extreme weather events. In Australia, dry conditions in New South Wales and Queensland reduced sales to within these states significantly. Victoria, South Australia, Tasmania and the South of Western Australia did benefit from an autumn break to the drought and managed to achieve average sales. Turf and revegetation sales continues to grow in Australia.
Cost of Sales and Gross Profit
Our cost of sales increased by 4.1% from $586.5 million in fiscal year 2017 to $610.8 million in fiscal year 2018, lower than the increase of revenue. As a result, our gross profit margin increased from 28.7% in fiscal year 2017 to 29.0% in fiscal year 2018, primarily due to stronger than anticipated revenues from improved growing conditions and our ability to generate increasingly more profitable sales through innovative new products across many sectors.
Other Income
Other income decreased from $0.3 million in fiscal year 2017 to $0.1 million in fiscal year 2018.
Research and Development
Research and development expense increased by 4.5% from $4.4 million in fiscal year 2017 to $4.6 million fiscal year 2018.
Selling, general and administrative expense
Selling, general and administrative expense increased by 5.7% from $214.1 million in fiscal year 2017 to $226.4 million in fiscal year 2018, primarily due to a $5.9 million provision for remediation costs of historical liabilities under the Holidays Act 2003 of New Zealand, higher incentive provisioning in Livestock and Retail, increased product storage costs in South America, a provision taken for the insurance excess on a product claim.
Equity in Earnings/(Losses) of Investees
Equity in earnings/(losses) of investees resulted in income of $1.8 million in fiscal year 2017 and loss of $7.9 million in fiscal year 2018 due to $10.2 million impairment of investment in Agrocentro, a $3.7 million release of earn-out provision, and higher share of loss recorded on Agrocentro investment earnings.
Operating Profit
As a result of the foregoing factors, operating profit in fiscal year 2018 was $8.0 million, a decrease of 58.5% from $19.3 million in fiscal year 2017.
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Non-operating Income (expense)
Non-operating items resulted in a net income of $1.3 million in fiscal year 2018, compared to net income of $5.9 million in fiscal year 2017, which comprised primarily gains on asset disposals of $6.3 million (2018 gain of $1.3 million) offset by fair value adjustments and defined benefit plan costs.
Finance Income and Finance Expenses
Our net interest and finance costs increased from $9.5 million in fiscal year 2017 to $15.4 million in fiscal year 2018, primarily driven by market-to-market losses on foreign exchange derivatives versus gains in 2017 and increased interest and financing costs.
Profit before Tax
As a result of the foregoing factors, we had loss before tax of $6.0 million in fiscal year 2018, compared to $15.7 million profit in fiscal year 2017.
Income Tax
Our income tax expense was $8.6 million in fiscal year 2018, compared to $9.0 million in fiscal year 2017, primarily because there were non-deductible items such as Agrocentro impairment and Strategic Review costs in fiscal year 2018, while there were non-taxable property/investment gains in fiscal year 2017. The high effective tax rates are a result of the profits arising in PGW being subject to tax at a local rate of 28%, with the rest of the group generating losses for which no tax benefit has been recognized.
Profit for the Year
As a result of the foregoing factors, we had loss for the year of $14.7 million in fiscal year 2018, compared to profit for the year of $6.7 million in fiscal year 2017.
Profit Attributable to Non-controlling Interests
Of the $14.7 million loss for fiscal year 2018, a profit of $3.2 million was attributable primarily to the same non-controlling interests, mainly consisting of the 49.78% of PGW not owned by Agria Singapore and the 7.24% of Agria Asia Investments not owned by Agria Group. Of the $6.7 million profit for fiscal year 2017, $17.1 million was attributable primarily to the same non-controlling interests, mainly consisting of the 49.78% of PGW not owned by Agria Singapore and the 7.24% of Agria Asia Investments not owned by Agria Group.
Loss Attributable to Equity Holders of the Company
As a result of the foregoing factors, loss attributable to equity holders of the Company was $17.8 million for fiscal year 2018, compared to loss attributable to equity holders of the Company was $10.3 million for fiscal year 2017.
Year ended June 30, 2017 compared to year ended June 30, 2016
Revenue
Our revenue increased by 1.8% from $807.7 million in the year ended June 30, 2016 to $822.2 million in the year ended June 30, 2017.
Agency revenue decreased by 8.1% from $153.0 million in fiscal year 2016 to $140.6 million in fiscal year 2017, primarily due to the performance of our Wool procurement and brokering business which has been impacted by the collapse of the global crossbred wool price over the past 15 months, which has resulted in much lower volumes of crossbred wool being sold, partially offset by strong results from the Livestock business due to strong international demand. Our Real Estate and Insurance businesses each performed well and broadly in line with the corresponding period last year.
Retail and Water revenue increased by 8.7% from $368.9 million in fiscal year 2016 to $401.0 million in fiscal year 2017, primarily due to extremely good results from Retail. With spring being the key trading period for our Rural Supplies business, they were less affected by the autumn rains. All three Retail business areas (Rural Supplies, Fruitfed Supplies and Agritrade) contributed to the strong result, and it is particularly pleasing to see Retail continue to extend its market share and profitability gains in a highly-competitive market. The construction part of the Water business dropped year-on-year with a continued reduction in demand for irrigation projects. This was offset by the continued strong performance from the Retail businesses.
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Seed and Grain revenue from external sales decreased by 1.2% from $269.0 million in fiscal year 2016 to $265.8 million in fiscal year 2017. Our New Zealand Seed and Grain business was most affected by the severe weather events. For our Seed business, autumn demand for our seed products has been less than expected as many farmers have simply been unable to complete their re-grassing and autumn pasture renewal plans. For Grain, much lower harvest yields have reduced earnings from our processing and drying facilities.
Cost of Sales and Gross Profit
Our cost of sales increased by 0.2% from $585.3 million in fiscal year 2016 to $586.5 million in fiscal year 2017, lower than the increase of revenue. As a result, our gross profit margin increased from 27.5% in fiscal year 2016 to 28.7% in fiscal year 2017. For agency, strong international demand for protein and lower stock numbers have combined to push up livestock prices, therefore increasing livestock gross profit. Our wool export business also increased its profitability. Profitability of Retail and Water dropped year-on-year mainly due to profitability decrease in water business. Retail business continues to extend its profitability gains. Seed and Grain profitability was adversely affected by bad weather and low harvest yields.
Other Income
Other income decreased from $0.5 million in fiscal year 2016 to $0.3 million in fiscal year 2017.
Research and Development
Research and development expense increased slightly from $4.3 million in fiscal year 2016 to $4.4 million fiscal year 2017.
Selling, general and administrative expense
Selling, general and administrative expense increased by 11.5% from $192.1 million in fiscal year 2016 to $214.1 million in fiscal year 2017, primarily due to increase of employee benefit expense and incentive scheme and increase of rental cost, depreciation and amortization expense, legal expense, bad debt expense, class action settlement fee and provision for pending litigation and claims.
Equity in Earnings/(Losses) of Investees
Equity in earnings/(losses) of investees resulted in loss of $0.2 million in fiscal year 2016 and income of $1.8 million in fiscal year 2017 mainly due to $1.7 million release of earn-out provision.
Operating Profit
As a result of the foregoing factors, operating profit decreased by 26.6% from $26.3 million in fiscal year 2016 to $19.3 million in fiscal year 2017.
Non-operating Income (Expense)
Non-operating items resulted in net income of $5.9 million in fiscal year 2017, which was primarily gain on asset/investment disposals of $6.3 million reduced by fair value adjustment and service fee for defined benefit plan, compared to gain on asset disposals of $3.6 million in fiscal year 2016.
Interest Income and Finance Expenses
Our net interest and finance costs decreased from $13.3 million in fiscal year 2016 to $9.5 million in fiscal year 2017, primarily due to lower funding cost and lower foreign exchange loss.
Profit before Tax
As a result of the foregoing factors, we had profit before tax of $15.7 million in fiscal year 2017, compared to $16.2 million in fiscal year 2016.
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Income Tax
Our income tax expense increased from $7.0 million in fiscal year 2016 to $9.0 million in fiscal year 2017 primarily due to combined effect of higher profit before tax offset by non-taxable gains on sale of properties/investments and a tax benefit of $1.5 million on payments into a defined benefit pension scheme. The effective weighted average tax rate was 57.1% in fiscal year 2017 compared to 43.0% in fiscal year 2016. The high weighted average tax rate in fiscal year 2017 was because there was a positive adjustment for prior years in fiscal year 2016.
Profit for the Year
As a result of the foregoing factors, we had profit for the year of $6.7 million in fiscal year 2017, compared to profit for the year of $9.2 million in fiscal year 2016.
Profit Attributable to Non-controlling Interests
Of the $6.7 million profit for fiscal year 2017, $17.1 million was attributable primarily to the same non-controlling interests, mainly consisting of the 49.78% of PGW not owned by Agria Singapore and the 7.24% of Agria Asia Investments not owned by Agria Group. Of the $9.2 million profit for fiscal year 2016, $15.5 million was attributable to non-controlling interests, mainly consisting of the 49.78% of PGW not owned by Agria Singapore and the 7.24% of Agria Asia Investments not owned by Agria Group.
Loss Attributable to Equity Holders of the Company
As a result of the foregoing factors, loss attributable to equity holders of the Company was $10.3 million for fiscal year 2017, compared to loss attributable to equity holders of the Company was $6.3 million for fiscal year 2016.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with IFRS, which requires us to make judgments, estimates and assumptions that affect (i) the reported amounts of our assets and liabilities, (ii) the disclosure of our contingent assets and liabilities at the end of each fiscal period, and (iii) the reported amounts of revenues and expenses during each fiscal period. We continually evaluate these judgments and estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and assumptions that we believe to be reasonable, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application.
We believe the following are our critical accounting estimates:
· | Recoverability of the carrying values of long lived assets and estimated impairment |
· | Valuation of seeds inventory |
· | Allowance for impairment of trade and other receivables |
· | Provisions and contingent liabilities |
· | Earn-out provision recorded in our investment for equity accounted investee company |
See Note 4 to our consolidated financial statements for additional information about these critical accounting policies and estimates.
B. Liquidity and Capital Resources
Our principal sources of liquidity have been cash generated from (i) dividend payments from PGW and operating activities and (ii) financing activities, consisting of proceeds from bank borrowings and loans from related parties and other entities. As of June 30, 2018, we had $17.1 million in cash and cash equivalents, which consisted of cash on hand and bank deposits which are unrestricted as to withdrawal or use.
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As of June 30, 2018, we had $202.5 million short-term and long-term bank borrowing facilities, with $59.8 million in outstanding short-term bank loans and borrowings and $101.0 million in outstanding long term portions of bank loans and borrowings.
The short and long term facilities are generally collateralized by receivables, inventories, and property and equipment. The interest rates on the loans are set by reference to the base rates in each of China, the United States and New Zealand for RMB, US dollar and New Zealand dollar denominated loans, respectively, with a margin. The weighted average interest rate was 5.0% for the fiscal year ended 2018. These loans have been provided by various banks in China, South America and New Zealand. Fixed rate borrowings represent approximately 9.9% of the total outstanding amount.
We incurred capital expenditures of $17.5 million, $13.2 million and $23.4 million in the years ended June 30, 2018, 2017 and 2016, respectively. Our capital expenditures have primarily been used to acquire property, plant and equipment and technologies. Our capital expenditures are funded by cash provided from operating activities and debt.
We have not encountered any difficulties in meeting our cash obligations to date. We believe that our current cash and cash equivalents and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs for operations for the foreseeable future. We may, however, require additional cash due to changing business conditions or other future developments, including any investments or acquisitions that we may pursue. If our existing cash is insufficient to meet our requirements, we may seek to sell additional equity securities, issue debt securities or borrow from lending institutions.
The following table sets forth a summary of our cash flows for the periods indicated:
For the Year Ended June 30, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
$ | $ | $ | ||||||||||
(In thousands) | ||||||||||||
Net cash (used in)/provided by operating activities | (11,923 | ) | 6,872 | 16,984 | ||||||||
Net cash (used in)/provided by investing activities | (15,843 | ) | 3,948 | (22,946 | ) | |||||||
Net cash provided by/(used in) financing activities | 30,343 | (3,506 | ) | 3,991 | ||||||||
Effect of exchange rate changes on cash and cash equivalents | (1,403 | ) | 230 | 417 | ||||||||
Net increase in cash and cash equivalents | 1,174 | 7,544 | (1,554 | ) | ||||||||
Cash and cash equivalents at the beginning of the year | 15,876 | 8,332 | 9,886 | |||||||||
Cash and cash equivalents at the end of the year | 17,050 | 15,876 | 8,332 |
Operating Activities
Net cash used in operating activities in the year ended June 30, 2018 was $11.9 million, primarily as a result of increase in investment in working capital – accounts receivable increased by $23.0 million, with half of this attributed to an increase in the Go Livestock receivables, reflecting the strength and growth of those products, with the remaining growth in working capital concentrated in the Seed and Grain business. .
Net cash provided by operating activities in the year ended June 30, 2017 was $6.9 million, primarily as a result of 17.0 million higher cash collected from customers and $17.7 million higher cash paid to suppliers, $9.0 million higher cash paid to employees, a lump sum contributions of $5.4 million to defined benefit plan, $1.9 million less interest paid, $1.9 million less cash paid for income tax and $2.2 million lower cash paid for derivative assets/liabilities.
Net cash provided by operating activities in the year ended June 30, 2016 was $17.0 million, primarily as a result of $141.3 million lower cash collected from customers, $143.9 million lower cash paid to suppliers, $9.0 million lower cash paid to employees, $1.0 million higher interest paid, $2.7 lower tax paid and $4.5 million more cash paid for derivative assets/liabilities.
Investing Activities
Net cash used in investing activities in the year ended June 30, 2018 was $15.8 million, primarily as a result of purchase of property, plant and equipment and technologies of in total $17.5 million, offset by proceeds from sales of property, plant and equipment and other assets of $2.4 million.
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Net cash provided by investing activities in the year ended June 30, 2017 was $3.9 million, primarily as a result of proceeds of $3.2 million from sale of investment, proceeds of $15.9 million from disposal of property, plant and equipment and other assets, offset by acquisition of Agri Optics New Zealand Limited of $0.6 million, additional investment in Agimol Corporation (Agrocentro Uruguay) of $1.4 million and acquisition of property, plant and equipment as well as software, totaled to $13.2 million.
Net cash used in investing activities in the year ended June 30, 2016 was $22.9 million, primarily as a result of the acquisition of property, plant and equipment, other assets and intangible assets of $23.4 million, a prepayment to acquire a non-controlling interest of $12.3 million and purchase of investments of $7.9 million, partially offset by $13.3 million in proceeds received from disposal of property, plant and equipment and other assets, and $6.5 million in proceeds received from sales of investments.
Financing Activities
Net cash provided by financing activities in the year ended June 30, 2018 was $30.3 million, primarily as a result of net cash inflow of external borrowings of $41.1 million, offset by $10.8 million dividend paid to minority shareholders of PGW.
Net cash used in financing activities in the year ended June 30, 2017 was $3.5 million, primarily as a result of net cash inflow of $10 million from related parties’ loan, offset by $2.5 million net cash repayment of bank loans (repayment net of drawn down) and payment of dividend to minority shareholders of $10.7 million and $0.3 million cash outflow on share buyback.
Net cash provided by financing activities in the year ended June 30, 2016 was $4.0 million, primarily as a result of $12.0 million of net cash inflow from bank loans (drawn down net of repayment) and $1.8 million net cash inflow from a shareholder’s loan, offset by a payment of dividend to minority shareholders of $9.8 million.
Recently Issued Accounting Pronouncements
Please refer to note 2 to our consolidated financial statements included elsewhere in this annual report.
C. Research and Development, Patents and Licenses, etc.
We conduct research and development primarily in cooperation with various universities and research institutions. We have also acquired a number of technologies and varieties of corn from third parties. In New Zealand, Australia and Uruguay, much of our research is undertaken by our Seed and Grain business segment, including its turf division, which is supported by a strong research base and commercialized new products through internal research and development, breeding and evaluation programs and joint venture research partnerships.
Our expenses incurred in connection with these activities were $4.6 million, $4.4 million, $4.3 million for the years ended June 30, 2018, 2017 and 2016. Research and development expenses primarily consist of direct expenses related to development of our proprietary products, trails, external contractors and services, costs of raw materials used in our research and development activities.
D. Trend Information
See “Item 3. Key Information,” “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Results of Operations” for information on material trends affecting our business and results of operations.
Subject to and upon completion of the sale of PGW Seeds, we will cease and be deemed to have ceased to engage in Seed and Grain business as from June 30, 2018, to the extent such business is currently conducted by PGW Seeds including all its geographical locations in New Zealand, Australia, South America and internationally. PGW will grant a 10-year brand license to PGW Seeds for the use of the PGG Wrightson Seeds brand and PGW will continue to distribute the seeds and grain products in New Zealand under a long-term license for a duration of minimum 7 years plus a 2-year notice period distribution agreement from PGW Seeds.
Our business and operations currently conducted by PGW may change materially subject to and after the completion of the sale of PGW Seeds as well as subject to further strategic decision of PGW regarding the remaining business of PGW after the completion of the sale of PGW Seeds.
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Our investment in PGW may change materially if our Board decides to divest or otherwise reduce our investment in PGW.
E. Off-Balance Sheet Arrangements
We have not entered into any derivative contracts that are indexed to our own shares and classified as shareholder’s equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
F. Tabular Disclosure of Contractual Obligations
The following table sets forth our contractual obligations as of June 30, 2018
Payment Due by June 30, | ||||||||||||||||
Total |
Within one
year |
One to five
years |
Beyond five
years |
|||||||||||||
Short and long-term borrowings (1) | ||||||||||||||||
- principal | 160.8 | 59.8 | 101.0 | - | ||||||||||||
- finance costs | 17.9 | 8.4 | 9.5 | - | ||||||||||||
Lease obligations (2) | 94.3 | 18.5 | 46.7 | 29.1 | ||||||||||||
Purchase obligations (3) | 0.8 | 0.8 | - | - | ||||||||||||
Investment into Zhongnong (4) | 3.6 | 3.6 | - | - | ||||||||||||
Capital expenditure commitment (5) | 1.7 | 1.7 | - | - | ||||||||||||
Other commitments (6) | 0.2 | 0.2 | - | - | ||||||||||||
Total | 279.3 | 93.0 | 157.2 | 29.1 |
(1) | Includes short-term and long-term borrowings and future interest obligations. |
(2) | Includes all non-cancelable operating leases for land and buildings, which are mainly used to conduct operations, primarily related to our wool business and store network. The terms of the leases have various rights of renewal with lease periods ranging from 1 to 15 years. Also includes all non-cancelable operating leases for motor vehicles. These have lease terms of up to three years. |
(3) | Represents commitments for the purchase of corn seeds in China. |
(4) | Represents commitments to make remaining investment into Zhongnong. |
(5) | Represents commitments for the upgrading and purchase of seeds processing equipment. |
(6) | Represents commitments for the contributions to Primary Growth Partnership program. |
G. Safe Harbor
This annual report on Form 20-F contains forward-looking statements that relate to future events, including our future operating results and conditions, our prospects and our future financial performance and condition, all of which are largely based on our current expectations and projections. The forward-looking statements are contained principally in the sections entitled “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects.” These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as “may,” “will,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate,” “is/are likely to” or other similar expressions. These forward-looking statements include:
· | our anticipated development strategies, which may include potential acquisitions and divestitures, expanding into new sectors within the agricultural industry, expanding sales into new regions, and expanding our product offerings; |
· | our strategy to expand our research and development capability; |
· | our ability to attract customers and end users and enhance our brand recognition; |
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· | future changes in government regulations affecting our business; |
· | trends and competition in the agricultural industry, particularly in New Zealand, Australia, South America and China; and |
· | our ability to retain and motivate existing management and other key personnel and to recruit and integrate additional qualified personnel into our operations. |
The accuracy of these forward-looking statements may be impacted by a number of known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We would like to caution you not to place undue reliance on these statements and you should read these statements in conjunction with the risk factors disclosed in the section entitled “Item 3. Key Information—D. Risk Factors.” Except as required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
A. Directors and Senior Management
The following table sets forth information regarding our executive officers and directors as of the date of this annual report.
Directors and Executive Officers | Age | Position/Title | ||
Guanglin Lai | 55 | Executive Chairman of the Board of Directors | ||
Joo Hai Lee | 62 | Non-executive Director | ||
Timothy Wai Koon Chow | 49 | Non-executive Director | ||
John Fulton | 48 | Chief Financial Officer | ||
Kean Seng U | 52 | Head of Corporate and Legal Affairs |
Mr. Guanglin Lai has served as the chairman of our board of directors since June 2007 and executive chairman since March 2013. Mr. Lai also served as our co-chief executive officer from September 2007 to June 2008 and as our chief executive officer from November 2008 to September 2009. Mr. Lai has extensive experience in investments, acquisitions and operation management, and has established many other enterprises in China, Hong Kong and internationally, in particular, animation, logistics and transportation, pharmaceutical sectors, taking a leading role in strategic planning and business development in his investment portfolio. Mr. Lai was appointed as the chairman of the board of directors of PGG Wrightson Limited, a company listed on the New Zealand Stock Exchange, in October 2013 and has served as a director since December 2009. Mr. Lai also serves as the vice-chairman of the Chinese Chamber of Commerce in New Zealand. Mr. Lai holds a master of business administration in finance from The Chinese University of Hong Kong and a bachelor’s degree in accounting from Monash University, Melbourne, Australia. He is a fellow certified public accountant in Australia. Mr. Lai is a Fellow of Monash University and also the member of Global Advisory Council of Faculty of Business and Economics, Monash University.
Mr. Joo Hai Lee has served as our non-executive director since November 2008. Mr. Lee has around 34 years of experience in accounting and auditing. Mr. Lee joined BDO Patrick Tay & Partners/BDO International Singapore (now known as BDO LLP) in 1983 and became a partner there in 1986 and retired in February 2013. He is a member of the Institute of Chartered Accountants in England and Wales, the Institute of Chartered Accountants of Singapore, the Malaysian Institute of Accountants and the Singapore and Hong Kong Institutes of Directors.
Mr. Timothy Wai Koon Chow has served as our non-executive director since October 2017. Mr. Chow was appointed as Chief Operating Officer of Softpower International Limited in January 2015, a listed group on the main board of The Stock Exchange of Hong Kong and is a leading provider of a wide range of pipe related products, fittings, comprehensive services and solutions to the construction sector in Hong Kong and Macau. Mr. Chow is responsible for directing, administering and coordinating the operational activities of this group. Prior to joining Softpower International Limited, Mr. Chow devoted almost 20 years to Hewlett-Packard group, a leading global IT provider of products, technologies, software and solutions and services. Mr. Chow has a MBA degree from Macquarie Graduate School of Management, Australia and a degree in accountancy from Nanyang Technological University, Singapore.
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Mr. John Fulton has served as our chief financial officer since January 2015. Prior to joining Agria, he worked as a consultant in the energy sector working closely with infrastructure funds from 2011 to 2015. Prior to that, he served as Chief Financial Officer for Houston based Ashmore Energy International, or AEI Energy, from 2006 to 2011. He chaired the Board of Directors for Trakya Elektric in Turkey for four years and oversaw the commercial development of AEI Energy’s interests in Turkey during this time. Prior to AEI Energy, he was the Group Treasury Director for Cadbury Schweppes, based in London, from 2005 to 2006 and before this served as Group Treasurer for Coca-Cola HBC, based in London and in Athens from 2001 to 2005. He has worked on numerous global financing projects, M&A projects and financial restructurings, and has broad experience in emerging markets. Prior to leaving New Zealand in 1999, he worked with Lion Nathan and Bancorp Treasury Advisory. He qualified in accounting and finance at Auckland University of Technology. He is a provisional member of the Institute of Chartered Accountants of New Zealand and Institute of Finance Professionals New Zealand. He graduated from Kings College in Auckland, New Zealand.
Mr. Kean Seng U has served as our head of corporate and legal affairs since December 2008. Mr. U has extensive experience in advising multi-national corporations and sovereign entities on direct investments. Mr. U previously practiced as a partner in the Singapore firm of Shooklin & Bok LLP and led a corporate finance team in Allen & Overy Shooklin & Bok, JLV, an international law venture partnership with London-based Allen & Overy LLP. Currently, Mr. U sits as non-executive directors of several publicly listed corporations. Mr. U received his bachelor of laws degree with honors from Monash University in Australia. He is a barrister and solicitor of the Supreme Court of Victoria in Australia, an advocate and solicitor of the Supreme Court of Singapore and a solicitor of England and Wales. In addition to his extensive legal knowledge, Mr. U also has a degree in economics and accounting from Monash University in Australia.
Employment Agreements
We have entered into employment agreements with each of our senior executive officers. Under these agreements, we may terminate the employment for cause, at any time, without notice or remuneration, for certain acts of the employee, including but not limited to a conviction or plea of guilty to a felony, negligence or dishonesty to our detriment, failure to perform the agreed-to duties after a reasonable opportunity to cure the failure and failure to achieve the performance measures specified in the employment agreement. An executive officer may terminate his employment at any time with one-month prior written notice if there is a material reduction in his authority, duties and responsibilities or in his annual salary before the next annual salary review. Furthermore, we may terminate an executive officer’s employment at any time without cause upon one-month advance written notice. In the event of a termination without cause by us, we will provide compensation to the executive officer only to the minimum extent expressly required by applicable law of the jurisdiction where the executive officer is based.
B. Compensation of Directors and Executive Officers
For the year ended June 30, 2018, we paid an aggregate of $3.8 million to our directors and executive officers in cash or benefits in kind.
Share Incentives
2007 Share Incentive Plan . We have adopted the 2007 Share Incentive Plan, or the 2007 Plan, to attract and retain the best available personnel, provide additional incentives to employees, directors and consultants and promote the success of our business. Our board of directors has authorized the issuance of up to 15,000,000 ordinary shares upon exercise of awards granted under the 2007 Plan, plus an increase of 5,000,000 shares when and if the 15,000,000 ordinary shares have been fully used pursuant to the awards granted under the 2007 Plan and the board approves such increase.
As of the date of this annual report, options to purchase a total of 1,440,000 ordinary shares granted to our directors and executive officers and other individuals as a group remained outstanding.
The following summarizes the terms of the 2007 Plan:
Plan Administration . Our board of directors, or a committee designated by our board or directors, will administer the plan. The committee or the full board of directors, as appropriate, will determine the provisions and terms and conditions of each option grant.
Award Agreements . Options and other share incentives granted under the 2007 Plan are evidenced by an award agreement, as applicable, that sets forth the terms, conditions and limitations for each grant.
Eligibility . We may grant awards to employees, directors and consultants of our company or any of our related entities, which include our subsidiaries or any entities in which we hold a substantial ownership interest.
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Acceleration of Options upon Corporate Transactions . The outstanding options will accelerate upon occurrence of a change-of-control corporate transaction where the successor entity does not assume our outstanding options under the plan. In such event, each outstanding option will become fully vested and immediately exercisable, and the transfer restrictions on the awards will be released and the repurchase or forfeiture rights will terminate immediately before the date of the change-of-control transaction, provided that the grantee’s continuous service with us shall not be terminated before that date.
Term of the Options . The term of each option grant shall be stated in the stock option agreement, provided that the term shall not exceed 10 years from the date of the grant.
Vesting Schedule . In general, the plan administrator determines, or the stock option agreement specifies, the vesting schedule. The share options have a vesting term of two to four years.
Transfer Restrictions . Options to purchase our ordinary shares may not be transferred in any manner by the optionee other than by will or the laws of succession and may be exercised during the lifetime of the optionee only by the optionee.
Termination of the Plan . Unless terminated earlier, the plan will terminate automatically in 2017. Our board of directors has the authority to amend or terminate the plan subject to shareholder approval to the extent necessary to comply with applicable law. However, no such action may (i) impair the rights of any optionee unless agreed by the optionee and the plan administrator or (ii) affect the plan administrator’s ability to exercise the powers granted to it under our plan.
2015 Share Incentive Plan . We have adopted the 2015 Share Incentive Plan, or the 2015 Plan, to attract and retain the best available personnel, provide additional incentives to employees, directors and consultants and promote the success of our business. Our board of directors has authorized the issuance of up to 16,614,990 ordinary shares upon exercise of awards granted under the 2015 Plan.
As of the date of this annual report, 11,076,660 restricted shares have been granted to our directors and executive officers as a group. These restricted shares will vest in equal installments over thirty-six months after the date of grant. As of June 30, 2018, 10,153,605 restricted shares are vested.
The following summarizes the terms of the 2015 Plan:
Plan Administration . Our compensation committee, or another committee or subcommittee designated by our board, will administer the 2015 Plan. The compensation committee or other board-designated committee, as appropriate, will determine the provisions and terms and conditions of each award grant.
Award Agreements . Options and other share incentives granted under our plan are evidenced by an award agreement, as applicable, that sets forth the terms, conditions and limitations for each grant.
Eligibility . We may grant awards to employees, directors and consultants of our company or any of our related entities, which include our subsidiaries or any entities in which we hold a substantial ownership interest.
Acceleration of Awards upon Corporate Transactions . Outstanding awards will accelerate upon occurrence of a change-of-control corporate transaction where the successor entity does not assume our outstanding options under the plan. In such event, each outstanding award will become fully vested and immediately exercisable (in the case of options), and the transfer restrictions on the awards will be released and the repurchase or forfeiture rights will terminate immediately before the date of the change-of-control transaction, provided that the grantee’s continuous service with us shall not be terminated before that date.
Term of Awards . The term of each award grant shall be stated in the award agreement, provided that in the case of options and share appreciation rights, the term shall not exceed 10 years from the date of the grant.
Vesting Schedule . In general, the award agreement specifies the vesting schedule.
Transfer Restrictions . Options to purchase our ordinary shares may not be transferred in any manner by the optionee other than by will or the laws of succession and may be exercised during the lifetime of the optionee only by the optionee.
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Termination of the Plan . Our board of directors has the authority to amend or terminate the plan subject to shareholder approval to the extent necessary to comply with applicable law. However, no such action may (i) impair the rights of any award holder unless agreed by the award holder and the plan administrator or (ii) affect the plan administrator’s ability to exercise the powers granted to it under the 2015 Plan.
C. Board Practices
Our board of directors currently consists of three directors. A director is not required to hold any shares in the company by way of qualification. A director may vote with respect to any contract or transaction in which he or she is materially interested provided the nature of the interest is disclosed prior to its consideration and any vote on such contract or transaction. The directors may exercise all the powers of the Company to borrow money, mortgage its undertaking, property and uncalled capital, and issue debentures or other securities whenever money is borrowed or as security for any obligation of the company or of any third party.
In the year ended June 30, 2018, our board held meetings or passed resolutions by unanimous written consent 14 times.
Duties of Directors
Under Cayman Islands law, our directors have a fiduciary duty of loyalty to act honestly in good faith with a view to our best interests. Our directors also have a duty to exercise the skill they actually possess with such care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association.
Terms of Directors and Officers
Our officers are elected by and serve at the discretion of the board of directors. Except for one director who is subject to an initial term of two years, our directors are not subject to a term of office and hold office until their resignation, death or incapacity or until their respective successors have been elected and qualified in accordance with our shareholders agreement and our articles of association, or they are removed by a special resolution of our shareholders. A director will be removed from office automatically if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition with his creditors, or (ii) dies or is found by our company to be or become of unsound mind.
D. Employees
We had 1,938 full-time employees as of June 30, 2018. The following table sets forth the number of employees for each of our business segments and our administrative offices as of June 30, 2018:
We have entered into employment agreements with our full-time employees. Generally, our management and research and development staff have signed non-compete agreements with us and are prohibited from engaging in any activities that compete with our business during the period of their employment with us. Furthermore, the employment contracts with our officers or managers generally include a covenant that prohibits them from engaging in any activities that compete with our business for periods ranging from six months to three years after the period of their employment with us. 6 of our employees are members of a labor union.
If we lose the services of one of more of our key management personnel and are unable to find suitable replacements, our operations and financial condition may be materially and adversely affected. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—Our business depends substantially on the continuing efforts of our management, and our business may be severely disrupted if we lose their services.”
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E. Share Ownership
The following table sets forth information with respect to the beneficial ownership of our ordinary shares by:
· | each of our directors and executive officers as of July 31, 2018; and |
· | each person known to us to own beneficially more than 5% of our ordinary shares as of July 31, 2018. |
The calculations in the shareholder table below are based on 110,115,854 ordinary shares issued and outstanding as of July 31, 2018. Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days after July 31, 2018, including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.
Ordinary Shares Beneficially Owned | ||||||||
Number (1) | % (2) | |||||||
Directors and Executive Officers: | ||||||||
Guanglin Lai (3) | 53,393,092 | 48.1 | ||||||
Joo Hai Lee | — | — | ||||||
Timothy Wai Koon Chow | — | — | ||||||
John Fulton (4) | 2,215,332 | 2.0 | ||||||
Kean Seng U (4) | 3,822,998 | 3.4 | ||||||
All directors and executive officers as a group (5) | 59,123,738 | 53.7 | ||||||
Principal Shareholders: | ||||||||
Brothers Capital Limited (6) | 48,522,000 | 43.8 |
* | Less than 1% or our total issued and outstanding shares |
(1) | Beneficial ownership is determined in accordance with Rule 13d-3 of the General Rules and Regulations under the Exchange Act and includes voting or investment power with respect to the securities. |
(2) | For each person and group included in this table, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of 110,115,854, being the number of ordinary shares outstanding as of July 31, 2018, and the number of ordinary shares underlying share options or restricted shares held by such person or group that are exercisable or will vest, respectively, within 60 days after July 31, 2018, if any. |
(3) | Includes (i) 48,522,000 ordinary shares owned by Brothers Capital Limited, or BCL, a British Virgin Islands company wholly owned by Mr. Lai, (ii) 800,000 ordinary shares issuable upon the exercise of options exercisable within 60 days after July 31, 2018, and (iii) 4,071,092 ordinary shares in the form of ADSs. The business address of Mr. Lai is 12/F Phase 1 Austin Tower, 22-26A Austin Avenue Tsim Sha Tsui, Kowloon, Hong Kong. |
(4) | Restricted shares vested but not issued within 60 days after July 31, 2018. |
(5) | Certain directors and executive officers have been granted options and restricted shares pursuant to the 2007 Plan and the 2015 Plan. See “—B. Compensation of Directors and Executive Officers—Share Incentives.” |
(6) | BCL is a company incorporated in the British Virgin Islands. BCL is wholly owned by Mr. Lai. The business address of BCL is Room 1206, Huantai Building 12, Zhongguancun South Street, Haidian District Beijing 100081, The People’s Republic of China. |
As of the date of this annual report, 110,115,854 of our ordinary shares were issued and outstanding. Since the ADSs are now delisted from the New York Stock Exchange as of January 2, 2017 and no longer trade publicly, we have instructed the Bank of New York Mellon to wind down the ADR program.
None of our existing shareholders has different voting rights from other shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.
For the options granted to our directors, officers and employees, please refer to “—B. Compensation of Directors and Executive Officers.”
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ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
A. Major Shareholders
Please refer to “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”
B. Related Party Transactions
PRC law currently restricts foreign ownership of seed business in China. We conduct our business in China primarily through Agria Shenzhen’s contractual arrangements with our consolidated structured entities and their individual shareholders. While our business in China is not significant at present, it may increase materially in the future.
Contractual Arrangements with Our Consolidated Structured Entities and Their Individual Shareholders
In August 2009, we entered into contractual arrangements with Zhongguan and its then individual shareholders to hold our investments in the agricultural industry in China. In April 2017, we entered into contractual arrangements with the current shareholders of Zhongguan after the shareholding change in Zhongguan. The shareholding of Zhongguan is held in the proportion of 5% and 95% by Ms. Xiaoyun Chen, the mother of Mr. Guanglin Lai and a beneficial owner of our ordinary shares, and Mr. Fulin Lai, the brother of Mr. Guanglin Lai, respectively. Both Ms. Xiaoyun Chen and Mr. Fulin are PRC citizens and do not receive any compensation from us for holding shares of in our consolidated structured entities. Agria Shenzhen’s relationship with Zhongguan and its individual shareholders are governed by contractual arrangements. The powers of attorney, the equity pledge agreement and the exclusive call option agreement enable Agria Shenzhen to effectively control Zhongguan. The exclusive technology development, technical support and service agreement and the letter of undertaking, the terms of which may be amended from time to time, enable Agria Shenzhen to receive substantially all of Zhongguan’s earnings and other economic benefits to the extent permissible under PRC law. We have a legal obligation to provide funding for all losses incurred by Zhongguan.
In September 2009, we formed Shenzhen NKY, to engage in the businesses of research and development, service, sales and investment. The shareholding of Shenzhen NKY is held in the proportion of 51% and 49% by Zhongguan and Ms. Juan Li, respectively. Agria Shenzhen’s relationship with Shenzhen NKY and its individual shareholder is governed by the contractual arrangements. The powers of attorney, the equity pledge agreement and the exclusive call option agreement enable Agria Shenzhen to effectively control Shenzhen NKY. The exclusive technology development, technical support and service agreement and the letter of undertaking, the terms of which may be amended from time to time, enable Agria Shenzhen to receive substantially all of Shenzhen NKY’s earnings and other economic benefits to the extent permissible under PRC law. We have a legal obligation to provide funding for all losses incurred by Shenzhen NKY.
In September 2009, we formed Shenzhen Zhongguan Forage (formerly known as Shenzhen PGW Seeds Co., Ltd.), to engage in the businesses of research and development, service, sales and investment. The shareholding of Shenzhen Zhongguan Forage is held in the proportion of 95% and 5% by Ms. Juan Li and Mr. Fulin Lai, respectively. Agria Shenzhen’s relationship with Shenzhen Zhongguan Forage and its individual shareholders are governed by the contractual arrangements. The powers of attorney, the equity pledge agreement and the exclusive call option agreement enable Agria Shenzhen to effectively control Shenzhen Zhongguan Forage. The exclusive technology development, technical support and service agreement and the letter of undertaking, the terms of which may be amended from time to time, enable Agria Shenzhen to receive substantially all of Shenzhen Zhongguan Forage’ earnings and other economic benefits to the extent permissible under PRC law. We have a legal obligation to provide funding for all losses incurred by Shenzhen Zhongguan Forage.
Power of Attorney
Each of the individual shareholders of our consolidated structured entities has executed a power of attorney to appoint a nominee of Agria Shenzhen as his or her attorney-in-fact to exercise all of his or her rights as an individual shareholder of our consolidated structured entities as provided under PRC law and the articles of association of our consolidated structured entities in China, including voting rights, the rights to transfer any or all of his or her equity interest in our consolidated structured entities and the right to appoint the general manager of our consolidated structured entities.
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Equity Pledge Agreement
Under the equity pledge agreements among our consolidated structured entities, each of the individual shareholders of our consolidated structured entities pledged all of their equity interests in our consolidated structured entities to Agria Shenzhen to guarantee our consolidated structured entities’ performance of their obligations under the exclusive technology developments, technical support and service agreements, the exclusive call option agreements and the loan agreements. If our consolidated structured entities or any of such individual shareholders breaches its contractual obligations under any of these principal agreements, Agria Shenzhen, as pledgee, will be entitled to certain rights, including the right to sell or auction the pledged equity interests. During the term of this agreement, such individual shareholder of our consolidated structured entities may not transfer their respective equity interests to any third party or create other pledges or rights over the equity interests that may have an adverse effect on the rights of Agria Shenzhen as pledgee. The equity pledge agreement will terminate when all the principal agreements are terminated or fully performed.
Exclusive Call Option Agreement
Under the exclusive call option agreement with the individual shareholders of our consolidated structured entities, each of the individual shareholders of our consolidated structured entities has irrevocably granted Agria Shenzhen an exclusive option to purchase from such individual shareholder, to the extent permitted under PRC law, all of the equity interests in our consolidated structured entities for the higher of (i) RMB1 and (ii) the minimum amount of consideration permitted by applicable law. To the extent permitted by PRC law, Agria Shenzhen or its designated person has sole discretion to decide when to exercise the option and when to buy all or part of the equity interests in our consolidated structured entities.
Loan Agreement
Under the loan agreement with the individual shareholders of our consolidated structured entities, Agria Shenzhen made loans to each of the individual shareholders of our consolidated structured entities who undertook to use the loans for investment purposes in our consolidated structured entities.
Exclusive Technology Development, Technology Support and Technology Services Agreement
Under the exclusive technology development, technical support and service agreements between our consolidated structured entities, Agria Shenzhen is the exclusive provider of technology development, technical support and services to our consolidated structured entities. Our consolidated structured entities will not accept these services from any third party without the prior consent of Agria Shenzhen. Agria Shenzhen owns the rights to any intellectual property developed by Agria Shenzhen in the performance of these agreements. The payments of fees are secured by the equity interests in our consolidated structured entities under the equity pledge agreements. These agreements are effective during the operation term of our consolidated structured entities unless terminated by Agria Shenzhen or by either party due to the other party’s breach of the agreements according to the early termination provisions of the agreements. Through the power of attorney granted by the individual shareholders of our consolidated structured entities to an individual designated by Agria Shenzhen, Agria Shenzhen has the ability to cause our consolidated structured entities to agree to amend the agreements and intends to do so as needed.
Letter of Undertaking
Each of the individual shareholders of our consolidated structured entities has executed a letter of undertaking to irrevocably undertake that, unless otherwise limited by laws, regulations or legal proceedings, he or she will remit all of the dividends and other distributions received from our consolidated structured entities to Agria Shenzhen, subject to satisfaction of their personal income tax and other statutory obligations arising from the receipt of such dividends or other distributions. The spouse of each of such individual shareholder has consented to the foregoing undertaking.]
Transactions Relating to Personal Guarantee and Indemnification
In June 2011, we entered a further shareholders agreement with New Hope International. Under this agreement, New Hope International has the right to sell its shares in Agria Asia Investments to Agria Group on the terms and conditions provided in the shareholders agreement at a certain repurchase price to be determined pursuant to a supplemental agreement entered into between Agria Group and New Hope International in June 2011. To secure the performance of Agria Group’s obligation in connection with this put option held by New Hope International, in June 2011, Mr. Guanglin Lai, the chairman of our board, made a personal guarantee to New Hope International for Agria Group’s payment obligation in the event that New Hope International exercises its put option. Agria Corporation agreed to indemnify Mr. Lai against all the obligations, losses, costs, damages, expenses, liabilities, actions and demands that he may incur or sustain in connection with his personal guarantee. On the basis that we have made full prepayment to New Hope International as of June 2016, the aforesaid Personal Guarantee and Indemnification have been discharged.
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Other Related Party Transactions
The following were considered related parties during the years presented:
Name of Related Parties |
Relationship with us |
|
Beijing Zhongnong Seeds Industry Co., Ltd. | A 26.8% associate held by subsidiary | |
Fertimas S.A. | A 50% associate held by subsidiary | |
John McKenzie | Management of PGW | |
Trevor Burt | Director of PGW (appointed December 11, 2012) |
We had the following related party transactions during the years presented:
For the Year Ended June 30, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
($’000) | ($’000) | ($’000) | ||||||||||
Purchase of retail goods, sale of seed under production contracts and livestock transaction | ||||||||||||
John McKenzie | 2,382 | 3,817 | 2,831 | |||||||||
Trevor Burt | 131 | 76 | 605 | |||||||||
Mark Dewdney | 296 | 387 | 326 | |||||||||
Fertimas S.A. | 11,370 | 14,781 | 18,644 | |||||||||
Agrocentro | 2,497 | 4,518 | 4,098 | |||||||||
Loan from shareholder (1) | - | 4,148 | 4,201 | |||||||||
Repayment of loan from shareholder | - | 4,201 | 2,446 | |||||||||
Finance cost to shareholder | 1,038 | 471 | 114 | |||||||||
Repayment of finance cost to shareholder | 348 | - | - | |||||||||
Draw down of loan from related party (2) | - | 10,000 | - | |||||||||
Repayment of loan by related party | 2,450 | - | - | |||||||||
Interest expense on loan from related party | 1,050 | 961 | - | |||||||||
Repaid interest to related party | 1,050 | 785 | - | |||||||||
Sales to related party: | ||||||||||||
Fertimas S.A. | 394 | 362 | - | |||||||||
Agimol Corporation S.A | 13,993 | 19,994 | 19,676 |
(1) | Loan from Brothers Capital Limited is unsecured and bears interest at 12% per annum. |
(2) | Loan from Softpower International Limited is secured by guarantee provided by a subsidiary and bears interest at 10.5%. |
In May 2016, we entered into a loan agreement with Soft Power International for $10.0 million for a period of three years. The loan was drawn down on August 1, 2016 and used to fund general corporate purposes. Soft Power International is controlled by Mr. Guanglin Lai, the chairman of our board. The terms of the loan were considered favorable in light of market conditions and the Board of Soft Power International, a HK-listed entity, gained the necessary regulatory approvals including the Hong Kong Stock Exchange.
We had the following related party balances at the end of each period:
2018 | 2017 | 2016 | ||||||||||
($’000) | ($’000) | ($’000) | ||||||||||
Amounts due from related parties: | ||||||||||||
Accounts receivable | 17,484 | 13,837 | 12,075 | |||||||||
17,484 | 13,837 | 12,075 | ||||||||||
Amounts due to related parties: | ||||||||||||
Accounts payable | 3,264 | 3,667 | 3,356 | |||||||||
Officers and directors of PGW | 402 | 265 | - | |||||||||
Brothers Capital Limited | 4,838 | 4,148 | 4,201 | |||||||||
Softpower International Limited | 10,177 | 10,175 | - | |||||||||
18,681 | 18,255 | 7,557 |
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Share-based Payments
See “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers—Share Incentives.”
C. Interests of Experts and Counsel
Not applicable.
ITEM 8. | FINANCIAL INFORMATION |
A. Consolidated Statements and Other Financial Information
See Item 18.
Legal Proceedings
On December 23, 2015, we received a subpoena from the United States Securities and Exchange Commission in connection with a non-public investigation. The SEC's subpoena is focused on: (i) the accuracy of (a) disclosures related to the nine parcels of land totaling approximately 13,500 acres retained by our Company following the divestiture of Taiyuan Primalights III Agriculture Development Co., Ltd. (“P3A”), one of our consolidated structured entities until it was disposed of in July 2010, and (b) the accounting for the approximately $57.0 million of impairment provision that we took for such land parcels in July 2013, and (ii) claims of share price manipulation by certain of our Company’s executive officers in connection with our efforts to maintain our NYSE listing status. We have been fully cooperating with the SEC and are nearing a potential settlement of these claims.
In November 2016, a class action lawsuit was filed by shareholders against us and certain members of our past and present directors and officers for matters in connection with the NYSE delisting in April 2017. The class action has now been settled for a sum of $1.3 million on the final approval by the United States District Court for the District of New Jersey on December 12, 2017.
See also Risks related to legal and/or administrative proceedings under Item 3D Risk Factors for more particulars on the SEC Investigations and possible risk of enforcement action by the OIO.
Other than the aforementioned, we are currently not a party to any material legal or administrative proceedings, and we are not aware of threatened material legal or administrative proceedings against us. We may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business.
Dividend Policy
We have no present plan to declare and pay any dividends on our shares or ADSs in the near future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.
We are a holding company incorporated in the Cayman Islands. We primarily rely on dividends from PGW. Dividends paid by PGW to Agria Singapore are not subject to withholding tax, provided that the dividends paid by PGW were fully imputed and Agria Singapore holds a direct voting interest of 10% or more in PGW. A dividend is considered to be fully imputed when it is paid out of fully-taxed profits.
Under Cayman Islands law and our amended and restated memorandum and articles of association, we are able to pay dividends out of either profits or share premium. Subject to having sufficient profits and share premium, our board of directors has discretion as to whether to distribute dividends. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. If we pay any dividends, we will pay our shareholders or the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. Cash dividends on our ordinary shares, if any, will be paid in US dollars.
B. Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.
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ITEM 9. | THE OFFER AND LISTING |
A. Offering and Listing Details
The following table provides the high and low trading prices on the New York Stock Exchange for the periods indicated before delisting.
Sales Price ($) | ||||||||
High | Low | |||||||
Yearly Highs and Lows | ||||||||
2012 | 1.56 | 0.65 | ||||||
2013 | 1.74 | 0.69 | ||||||
2014 | 2.12 | 0.96 | ||||||
2015 | 1.89 | 0.93 | ||||||
2016 | 1.40 | 0.71 | ||||||
2017 | N/A | N/A | ||||||
Six Months ended June 30, 2018 | N/A | N/A | ||||||
Quarterly Highs and Lows | ||||||||
Third Quarter 2016 | 0.90 | 0.71 | ||||||
Fourth Quarter 2016 | 0.90 | 0.75 | ||||||
First Quarter 2017 | N/A | N/A | ||||||
Second Quarter 2017 | N/A | N/A | ||||||
Third Quarter 2017 | N/A | N/A | ||||||
Fourth Quarter 2017 | N/A | N/A | ||||||
First Quarter 2018 | N/A | N/A | ||||||
Second Quarter 2018 | N/A | N/A | ||||||
Monthly Highs and Lows | ||||||||
March 2018 | N/A | N/A | ||||||
April 2018 | N/A | N/A | ||||||
May 2018 | N/A | N/A | ||||||
June 2018 | N/A | N/A | ||||||
July 2018 | N/A | N/A | ||||||
August 2018 | N/A | N/A | ||||||
September 2018 | N/A | N/A |
B. Plan of Distribution
Not applicable.
C. Markets
Our ADSs, each representing two of our ordinary shares, have been traded on the New York Stock Exchange since November 7, 2007 under the symbol “GRO.” and was suspended from the New York Stock Exchange on November 3, 2016 and subsequently delisted on January 2, 2017 due to our failure to satisfy the NYSE’s minimum continued listing criteria.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10. | ADDITIONAL INFORMATION |
A. Share Capital
Not applicable.
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B. Memorandum and Articles of Association
We incorporate by reference into this annual report our amended and restated memorandum and articles of association filed as Exhibit 3.2 to our F-1 registration statement (File No. 333-146785), as amended, initially filed with the SEC on October 18, 2007.
C. Material Contracts
We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company” or elsewhere in this annual report on Form 20-F.
D. Exchange Controls
Not applicable.
E. Taxation
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or brought within the jurisdiction of the Cayman Islands. There are no exchange control regulations or currency restrictions in the Cayman Islands. The Cayman Islands is not a party to any tax treaties that are applicable to any payment made by or to our company.
New Zealand Taxation
New Zealand resident companies are subject to tax on their taxable income at the rate of 28%. There is no capital gains tax in New Zealand. However, certain gains arising from the disposal of personal property purchased with the intention of resale are taxable and certain gains on the sale or transfer of land may be taxable.
Australia Taxation
Australian resident companies are taxable on their taxable income at the rate of 30%. Net capital gains derived by Australian resident companies are taxed at the 30% corporate rate.
Uruguayan Taxation
Uruguayan businesses are taxed on taxable income sourced in Uruguay. Capital gains derived by Uruguayan companies are taxed at the standard rate of corporate tax. The corporate tax rate in Uruguay is 25%. A capital duty at the rate of 1.5% is levied on the net worth of the entity.
U.S. Federal Income Taxation
The following discussion describes the material U.S. federal income tax consequences to U.S. Holders (as defined below) under current law of an investment in the ADSs or ordinary shares. This discussion applies only to U.S. Holders that hold the ADSs or ordinary shares as capital assets (generally, property held for investment) and have the US dollar as their functional currency. This discussion is based on the tax laws of the United States in effect as of the date of this annual report on Form 20-F and on U.S. Treasury regulations in effect or, in some cases, proposed as of the date of this annual report on Form 20-F, as well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject to change, which change could apply retroactively and could affect the tax consequences described below.
The following discussion does not deal with the tax consequences to any particular investor or to persons in special tax situations such as:
· | banks and other financial institutions; |
· | insurance companies; |
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· | regulated investment companies; |
· | real estate investment trusts; |
· | broker-dealers; |
· | traders that elect to use a mark-to-market method of accounting; |
· | U.S. expatriates or entities subject to the U.S. anti-inversion rules; |
· | tax-exempt entities; |
· | persons liable for alternative minimum tax; |
· | persons holding an ADS or ordinary share through a bank, financial institution or other entity, or a branch thereof, located organized or resident outside the United States; |
· | persons holding an ADS or ordinary share as part of a straddle, hedging, conversion or integrated transaction; |
· | persons that actually or constructively own 10% or more of the total combined voting power of all classes of our voting stock; |
· | partnerships or other pass-through entities, or persons holding ADSs or ordinary shares through such entities; or |
· | persons who acquired ADSs or ordinary shares pursuant to the exercise of any employee share option or otherwise as compensation. |
In addition, the discussion below does not describe any tax consequences arising out of the Medicare tax on certain “net investment income” pursuant to the Health Care and Education Reconciliation Act of 2010.
The following discussion is for informational purposes only and is not a substitute for careful tax planning and advice. Investors are urged to consult their tax advisors regarding the application of the U.S. federal tax rules to their particular circumstances as well as the state, local, foreign and other tax consequences to them of the purchase, ownership and disposition of ADSs or ordinary shares.
The discussion below of the U.S. federal income tax consequences to “U.S. Holders” will apply to you if you are a beneficial owner of ADSs or ordinary shares and you are, for U.S. federal income tax purposes,
· | an individual who is a citizen or resident of the United States; |
· | a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States, any state thereof or the District of Columbia; |
· | an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or |
· | a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of our ADSs or ordinary shares, the tax treatment of a partner in such partnership generally will depend on the status of such partner and the activities of such partnership.
The discussion below assumes that the representations contained in the deposit agreement are true and the obligations in the deposit agreement and any related agreement have been and will be complied with in accordance with their terms. If you hold ADSs, you should be treated as the holder of the underlying ordinary shares represented by those ADSs for U.S. federal income tax purposes.
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The U.S. Treasury and the U.S. Internal Revenue Services, or IRS, have expressed concerns that U.S. Holders of ADSs may be claiming foreign tax credits in situations where an intermediary in the chain of ownership between the holder of an ADS and the issuer of the security underlying the ADS has taken actions that are inconsistent with the beneficial ownership of the underlying security by the person claiming the credit (for example, pre-releasing ADSs to persons that do not have beneficial ownership of the securities underlying the ADSs). Such actions also may be inconsistent with the claiming of the reduced tax rate for dividends received by certain non-corporate U.S. Holders, including individual U.S. Holders (as discussed below). Accordingly, the availability of foreign tax credits or the reduced tax rate for dividends could be affected by actions taken by intermediaries in the chain of ownership between the holders of ADSs and our company if as a result of such actions the holders of ADSs are not properly treated as beneficial owners of underlying ordinary shares.
Passive Foreign Investment Company
Based on the market price of our ADSs and ordinary shares and the value and composition of our assets, we believe we were not a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for the taxable year ended June 30, 2018, and do not expect to become a PFIC in the foreseeable future. However, we believe we were a PFIC in certain previous taxable years. Kirkland & Ellis LLP, our U.S. tax counsel, expresses no opinion with respect to our PFIC status for any taxable year or our expectations contained in this paragraph.
A non-U.S. corporation will be a PFIC for any taxable year if either:
· | at least 75% of its gross income for such year is passive income, or |
· | at least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income, or the asset test. |
For this purpose, we will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% (by value) of the stock. In applying this rule, however, it is not clear whether the contractual arrangements between us and our structured entity will be treated as ownership of stock. We must make a separate determination after the close of each taxable year as to whether we were a PFIC for that year. Because the value of our assets for purposes of the asset test generally will be determined by reference to the market price of our ADSs or ordinary shares, our PFIC status may depend in part on the market price of our ADSs or ordinary shares, which may fluctuate significantly.
If we are or were a PFIC for any taxable year during which you hold ADSs or ordinary shares, as we were in certain previous taxable years, we will continue to be treated as a PFIC with respect to you for all succeeding years during which you hold ADSs or ordinary shares, unless we cease to be a PFIC and you make a “deemed sale” election with respect to the ADSs or ordinary shares, as applicable. If such election is made, you will be deemed to have sold the ADSs or ordinary shares you hold at their fair market value and any gain from such deemed sale would be subject to the rules described in the following two paragraphs. After the deemed sale election, so long as we do not become a PFIC in a subsequent taxable year, your ADSs or ordinary shares with respect to which such election was made will not be treated as shares in a PFIC, and you will not be subject to the rules described below with respect to any “excess distribution” you receive from us or any gain from an actual sale or other disposition of the ADSs or ordinary shares. You are strongly urged to consult your tax advisors as to the possibility and consequences of making a deemed sale election.
For each taxable year that we are treated as a PFIC with respect to you, you will be subject to special tax rules with respect to any “excess distribution” you receive and any gain you recognize from a sale or other disposition (including a pledge) of the ADSs or ordinary shares, unless you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the ADSs or ordinary shares will be treated as an excess distribution. Under these special tax rules, if you receive any excess distribution or recognize any gain from a sale or other disposition of the ADSs or ordinary shares:
· | the excess distribution or recognized gain will be allocated ratably over your holding period for the ADSs or ordinary shares, |
· | the amount allocated to the current taxable year, and any taxable years in your holding period prior to the first taxable year in which we became a PFIC, will be treated as ordinary income, and |
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· | the amount allocated to each other taxable year will be subject to tax at the highest tax rate in effect for individuals or corporations, as applicable, for each such year, and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
The tax liability for amounts allocated to taxable years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) from the sale or other disposition of the ADSs or ordinary shares cannot be treated as capital, even if you hold the ADSs or ordinary shares as capital assets.
If we are treated as a PFIC with respect to you for any taxable year, to the extent any of our subsidiaries (or possibly our consolidated structured entities) are also PFICs or we make direct or indirect equity investments in other entities that are PFICs, you will be deemed to own shares in such lower-tier PFICs directly or indirectly owned by us in the proportion that the value of the ADSs or ordinary shares you own bears to the value of all of our ADSs or ordinary shares, and you may be subject to the rules described in the preceding two paragraphs with respect to the shares of such lower-tier PFICs that you would be deemed to own. You should consult your tax advisors regarding the application of the PFIC rules to any of our subsidiaries (or structured entities).
A U.S. Holder of “marketable stock” (as defined below) of a PFIC may make a mark-to-market election for such stock to elect out of the PFIC rules described above regarding excess distributions and recognized gains. If you make a mark-to-market election for the ADSs or ordinary shares, you will include in income for each year that we are a PFIC an amount equal to the excess, if any, of the fair market value of the ADSs or ordinary shares as of the close of your taxable year over your adjusted basis in such ADSs or ordinary shares. You will be allowed a deduction for the excess, if any, of the adjusted basis of the ADSs or ordinary shares over their fair market value as of the close of the taxable year. However, deductions will be allowable only to the extent of any net mark-to-market gains on the ADSs or ordinary shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the ADSs or ordinary shares, will be treated as ordinary income. Ordinary loss treatment will apply to the deductible portion of any mark-to-market loss on the ADSs or ordinary shares, as well as to any loss from the actual sale or other disposition of the ADSs or ordinary shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such ADSs or ordinary shares. Your basis in the ADSs or ordinary shares will be adjusted to reflect any such income or loss amounts. If you make a mark-to-market election, any distributions that we make generally would be subject to the tax rules discussed below under “—Taxation of Dividends and Other Distributions on the ADSs or Ordinary Shares,” except that the lower tax rate applicable to qualified dividend income would not apply.
The mark-to-market election is available only for “marketable stock,” which is stock that is traded in greater than de minimis quantities on at least 15 days during each calendar quarter, or regularly traded on a qualified exchange or other market, as defined in applicable U.S. Treasury regulations. Because a mark-to-market election cannot be made for equity interests in any lower-tier PFICs that we own, a U.S. Holder may continue to be subject to the PFIC rules described above regarding excess distributions and recognized gains with respect to its indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes. You should consult your tax advisors as to the availability and desirability of a mark-to-market election, as well as the impact of such election on interests in any lower-tier PFICs.
Alternatively, a U.S. Holder of stock in a PFIC may make a “qualified electing fund” election with respect to such corporation to elect out of the PFIC rules described above regarding excess distributions and recognized gains. A U.S. Holder that makes a qualified electing fund election with respect to a PFIC will generally include in income such holder’s pro rata share of the corporation’s income on a current basis. However, you may make a qualified electing fund election with respect to your ADSs or ordinary shares only if we furnish you annually with certain tax information, and we currently do not intend to prepare or provide such information.
Unless otherwise provided by the U.S. Treasury, each U.S. shareholder of a PFIC is required to file an annual report containing such information as the U.S. Treasury may require. You should consult your tax advisors regarding any reporting requirements that may apply to you.
YOU ARE STRONGLY URGED TO CONSULT YOUR TAX ADVISORS REGARDING THE IMPACT OF OUR BEING A PFIC IN ANY TAXABLE YEAR ON YOUR INVESTMENT IN OUR ADSs AND ORDINARY SHARES AS WELL AS THE APPLICATION OF THE PFIC RULES AND THE POSSIBILITY OF MAKING A MARK-TO-MARKET OR DEEMED SALE ELECTION.
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Taxation of Dividends and Other Distributions on the ADSs or Ordinary Shares
Subject to the PFIC rules discussed above, the gross amount of any distributions we make to you with respect to the ADSs or ordinary shares will be includible in your gross income as dividend income on the date of receipt by the depositary, in the case of ADSs, or by you, in the case of ordinary shares, but only to the extent the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). To the extent the amount of the distribution exceeds our current and accumulated earnings and profits, such excess amount will be treated first as a tax-free return of your tax basis in your ADSs or ordinary shares, and then, to the extent such excess amount exceeds your tax basis, as capital gain. We currently do not, and we do not intend to, calculate our earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that any distribution we make will be reported as a dividend even if such distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above. Any dividends we pay to you will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from U.S. corporations.
With respect to certain non-corporate U.S. Holders, including individual U.S. Holders, dividends will be taxed at the lower capital gains rate applicable to “qualified dividend income,” provided that (1) the ADSs or ordinary shares, as applicable, are readily tradable on an established securities market in the United States, or we are eligible for the benefits of a qualifying income tax treaty with the United States that includes an exchange of information program, (2) we are neither a PFIC nor treated as such with respect to you for the taxable year in which the dividend was paid and the preceding taxable year, and (3) certain holding period requirements are met. Under published IRS authority, common or ordinary shares, or ADSs representing such shares, are considered for the purpose of clause (1) above to be readily tradable on an established securities market in the United States if they are listed on the New York Stock Exchange. As discussed above in “—Passive Foreign Investment Company,” we believe we were not a PFIC for the taxable year ended June 30, 2018, although we were in previous years. You should consult your tax advisors regarding the availability of the lower capital gains rate applicable to qualified dividend income for any dividends paid with respect to our ADSs or ordinary shares.
Dividends will constitute foreign source income for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will be limited to the gross amount of the dividend, multiplied by the reduced tax rate applicable to qualified dividend income and divided by the highest tax rate normally applicable to dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us with respect to the ADSs or ordinary shares generally will constitute “passive category income” but could, in the case of certain U.S. Holders, constitute “general category income.”
If PRC withholding taxes apply to dividends paid to you with respect to our ADSs or ordinary shares), subject to certain conditions and limitations, such PRC withholding taxes may be treated as foreign taxes eligible for credit against your U.S. federal income tax liability. The rules relating to the determination of the foreign tax credit are complex, and you should consult your tax advisors regarding the availability of a foreign tax credit in your particular circumstances.
Taxation of Disposition of the ADSs or Ordinary Shares
Subject to the PFIC rules discussed above, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of an ADS or ordinary share equal to the difference between the amount realized (in US dollars) for the ADS or ordinary share and your tax basis (in US dollars) in the ADS or ordinary share. The gain or loss will be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, who has held the ADS or ordinary share for more than one year, you will be eligible for reduced tax rates. The deductibility of capital losses is subject to limitations.
Any gain or loss you recognize on a disposition of ADSs or ordinary shares generally will be treated as U.S. source income or loss for foreign tax credit limitation purposes, subject to exceptions and limitations. You should consult your tax advisors regarding the proper treatment of gain or loss in your particular circumstances.
Information Reporting and Backup Withholding
Dividend payments with respect to ADSs or ordinary shares and proceeds from the sale, exchange or redemption of ADSs or ordinary shares generally will be subject to information reporting to the IRS and possible U.S. backup withholding. Backup withholding will not apply, however, to a U.S. Holder that furnishes a correct taxpayer identification number and makes any other required certification or is otherwise exempt from backup withholding. U.S. Holders that are required to establish their exempt status must provide such certification on IRS Form W-9. Certain individuals holding ADSs or ordinary shares other than in an account at certain financial institutions may be subject to additional information reporting requirements. U.S. Holders should consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.
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Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing an appropriate claim for refund with the IRS and furnishing any required information in a timely manner.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We have filed with the SEC registration statements on Form F-1, including relevant exhibits and securities under the Securities Act with respect to underlying ordinary shares represented by the ADSs.
We are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F no later than four months after the close of each fiscal year, which is June 30. Copies of reports and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public reference facilities maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549, and at the regional office of the SEC located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
Our consolidated financial statements have been prepared in accordance with IFRS.
I. Subsidiary Information
For a listing of our subsidiaries, see “Item 4. Information on the Company—C. Organizational Structure.”
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Interest Rate Risk
Our exposure to interest rate risk primarily relates to the interest expenses on our outstanding bank borrowings and the interest income generated by cash invested in cash deposits and liquid investments. As of June 30, 2018, our total outstanding borrowings amounted to $160.8 million with a weighted average interest rate of 5.0% per annum. Assuming a 1% increase in applicable interest rates, net profit after tax would have been decreased by $1.0 million. We use derivative financial instruments to manage our exposure to interest rate risks arising from operational, financing and investment activities. We may use interest rate swaps, interest rate options and forward rate agreements to hedge the floating rate exposure as deemed appropriate. However, we do not hold or issue derivative instruments for trading purposes.
Foreign Exchange Risk
Our foreign currency exposure gives rise to market risk associated with exchange rate movements against the US dollar, our reporting currency. Currently, the majority of our revenues and expenses are denominated in New Zealand dollars, with the remaining portion of revenue denominated in Australian dollars, Euros, US dollars and RMB. Of the total $160.8 million borrowings outstanding as of June 30, 2018, 75.7% was denominated in New Zealand dollars, 21.5% in US dollars, 2.1% in RMB and 0.7% in Australian dollars. Fluctuations in exchange rates, primarily among the US dollar against the New Zealand dollar, will affect our financial position. Assuming a 1% appreciation of New Zealand dollars against US dollar, our bank borrowings would have increased by $1.2 million.
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In order to mitigate the foreign currency risk, we hedge foreign currency risks as they arise. In some circumstances, foreign exchange options are used to hedge potential foreign exchange risk. We use forward foreign exchange contracts, spot foreign exchange contracts and foreign exchange options to manage these exposures. However, we do not hold or issue derivative instruments for trading purposes.
Inflation
Historically, inflation has not had a significant effect on our business in New Zealand, the place which generated substantial part of our revenue.
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
Fees and Charges Our ADS Holders May Have to Pay
The Bank of New York Mellon, the depositary of our ADS program, collects its fees for delivery of the underlying shares and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. Holders that surrender ADRs for delivery of the underlying shares will be required to pay a cancellation fee of $5 per 100 ADR rounded up to the nearest 100, plus a $17.50 cable fee and any other taxes or other governmental charges which may be owed.
Fees and Other Payments Made to the Depositary
The depositary has previously reimbursed us for expenses we incur that are related to the administration and maintenance of our ADS facility including, but not limited to, investor relations expenses or any other program related expenses. As a result of the termination of the ADR Program, we had to repay the depositary a total sum of $1,000,000 for the year ended June 30, 2017.
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
None.
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
See “Item 10. Additional Information” for a description of the rights of securities holders, which remain unchanged.
The following “Use of Proceeds” information relates to the registration statement on Form F-1 (File number: 333-146785) filed by us in connection with our initial public offering of 17,150,000 ADSs, representing 34,300,000 ordinary shares. The registration statement was declared effective by the SEC on November 6, 2007.
We received net proceeds of approximately $184.1 million from our initial public offering and as of June 30, 2018, we used the net proceeds received from our initial public offering as follows: approximately $25 million has been used to repay a shareholder’s loan, approximately $2 million has been used to repay bank loans and approximately $157.1 million has been used to fund investments and for general corporate purposes. As of June 30, 2018, all of the net offering proceeds from our initial public offering had been applied.
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ITEM 15. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
Our management, with the participation of our executive chairman and chief financial officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report, as required by Rule 13a-15(b) under the Exchange Act.
Based upon that evaluation, our management has concluded that, as of June 30, 2018, our disclosure controls and procedures were ineffective because of the material weaknesses described below under “Management’s Annual Report on Internal Control over Financial Reporting.” We are currently putting in place the remedial steps to address the material weaknesses in our disclosure controls and procedures as set forth below under “Management’s Plan for Remediation of Material Weaknesses.”
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such item is defined in Rules 13a-15(f) under the Exchange Act, for our company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with IFRS and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of a company’s assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with IFRS, and that a company’s receipts and expenditures are being made only in accordance with authorizations of a company’s management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of a company’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As required by Section 404 of the Sarbanes-Oxley Act and related rules as promulgated by the SEC, our management assessed the effectiveness of our internal control over financial reporting as of June 30, 2018 using criteria established in “Internal Control—Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. As a result of management’s evaluation of our internal control over financial reporting, the following material weaknesses in our internal control over financial reporting were identified within PGG Wrightson Limited as of June 30, 2018:
(i) | we identified weaknesses in our user access controls associated with our retail point-of-sale system, specifically the accessibility of the super user log on details for certain information technology staff; |
(ii) | we did not maintain effective internal controls related to the accounting for manual journal entries, specifically the final year-end adjustments; |
(iii) | we did not maintain effective internal controls around the accounting of revenue recognition, specifically the classification of certain terms of trade of wool export revenues; and |
(iv) | for our South American business we did not maintain effective controls around the financial oversight of an equity investee, specifically the calculation and accounting for Inventory and calculation of debtor provisioning. |
In addition, the auditor brought a number of matters to our attention, including those noted above, that required adjustments to our financial statements, indicating a need to increase the overall level of scrutiny and review around the preparation of our financial statements.
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The material weaknesses described above resulted in misstatement of the Company’s consolidated financial statements. As a result of the material weaknesses, management has concluded that our internal control over financial reporting was ineffective as of June 30, 2018.
Management’s Plan for Remediation of Material Weaknesses
Our management is taking the appropriate steps to remediate the material weaknesses set out above. Specifically, we have rolled out a replacement point-of-sale system which will be implemented for all relevant stores on August 31, 2018. We are also reviewing our other compensating controls, such as management review controls, with respect to manual journals and revenue recognition to ensure that they are operating at an appropriate level of precision. We are also increasing the oversight of our South American equity investee with immediate effect.
Attestation Report of the Registered Public Accounting Firm
This annual report on Form 20-F does not include an attestation report of the company’s independent registered public accounting firm because the company is neither an accelerated filer nor a large accelerated filer, as such terms are defined in Rule 12b-2 under the Exchange Act.
Changes in Internal Control over Financial Reporting
Management has evaluated, with the participation of our executive chairman and chief financial officer, whether any changes in our internal control over financial reporting that occurred during the period covered by this annual report on Form 20-F have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Based on the evaluation we conducted, management has concluded that, other than the additional material weaknesses as disclosed above, no such changes occurred during the period covered by this annual report on Form 20-F.
ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT |
None.
ITEM 16B. | CODE OF ETHICS |
Our board of directors has adopted a code of ethics that applies to our directors, officers, employees and agents, including certain provisions that specifically apply to our executive chairman, chief financial officer, chief operating officer, chief technology officer, vice presidents and any other persons who perform similar functions for us. We have filed our code of business conduct and ethics as an exhibit to our registration statement on Form F-1 (File No. 333-146785) and the amended code of business conduct and ethics as an exhibit to this annual report on Form 20-F. You can also find our code of business conduct on our investor relations website at www.agriagroup.com .
ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
This section discusses the aggregate fees paid by us in connection with certain professional services rendered by KPMG during the years ended June 30, 2018 and 2017 and by GHP Horwath during the year ended June 30, 2016, in each case an independent registered public accounting firm.
For the Year Ended June 30, (2) | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
($ millions) | ($ millions) | ($ millions) | ||||||||||
Audit fees (1) | 0.64 | 0.64 | 0.43 | |||||||||
Audit related fees | 0.01 | 0.01 | - | |||||||||
Tax fees | - | 0.01 | 0.07 | |||||||||
Other non-audit fees | - | 0.03 | 0.01 | |||||||||
Total | 0.65 | 0.69 | 0.51 |
(1) | Aggregate fees billed for professional services rendered by our principal auditors for the audit of our annual financial statements. |
(2) | Except as otherwise disclosed, we did not pay any other fees to our auditors during the periods. |
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ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
None.
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
Our board of directors authorized a share repurchase program on June 8, 2016, under which we may repurchase up to $10 million of its outstanding ADS through December 31, 2017. The repurchases may be made on the open market at prevailing market prices, in privately negotiated transactions, in block trades or through other legally permissible means as determined by our management, including through Rule 10b5-1 share repurchase plans. An aggregate of 325,373 ADSs were repurchased under the share repurchase program. We funded the repurchases made under this program from our available cash balance.
ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
None.
ITEM 16G. | CORPORATE GOVERNANCE |
None.
ITEM 17. | FINANCIAL STATEMENTS |
Not applicable.
ITEM 18. | FINANCIAL STATEMENTS |
The consolidated financial statements of Agria Corporation are included at the end of this annual report.
ITEM 19. | EXHIBITS |
53 |
54 |
55 |
* | Filed with this annual report on Form 20-F. |
56 |
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
AGRIA CORPORATION | ||
By: | /s/ Guanglin Lai | |
Name: Guanglin Lai | ||
Title: Executive Chairman of the Board of Directors |
Date: October 12, 2018
57 |
Agria Corporation and subsidiaries
Consolidated Financial Statements
As of June 30, 2018 and 2017, and for each of the years in the three-year period ended June 30, 2018
F- 1 |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F- 2 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Agria Corporation
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of Agria Corporation and subsidiaries (“the Company”) as of June 30, 2018 and June 30, 2017, the related consolidated statements of profit or loss, comprehensive income (loss), changes in equity, and cash flows for the years then ended, and the related notes (collectively, “the consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2018 and June 30, 2017, and the results of its operations and its cash flows for the years then ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
The 2016 consolidated financial statements of the Company were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those consolidated financial statements, before the restatements to correct the financial reporting errors as described in note 2(s) to the 2017 consolidated financial statements and to reflect the adjustments applied to conform to the 2017 composition of the reportable segments as described in note 2(b) to the 2017 consolidated financial statements, in their report dated September 20, 2016.
As discussed above, the 2016 consolidated financial statements of the Company were audited by other auditors who have ceased operations. As described in note 2(b) to the 2017 consolidated financial statements, the Company changed the composition of its reportable segments in 2017 and the amounts in the 2016 consolidated financial statements relating to reportable segments have been restated to conform to the 2017 composition of reportable segments. We audited the adjustments that were applied to restate the disclosures for reportable segments reflected in the 2016 consolidated financial statements. In our opinion, such adjustments were appropriate and have been properly applied. As described in note 2(s) to the 2017 consolidated financial statements, the Company identified financial reporting errors in its 2016 consolidated financial statements pertaining to 1) the presentation of consolidated statements of profit or loss, 2) the accounting treatment related to defined benefit pension scheme, and 3) the accounting for certain non-controlling interests. The 2016 consolidated financial statements have been restated to correct these misstatements. We audited the correcting adjustments that were applied to restate the 2016 consolidated financial statements. In our opinion, such adjustments were appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2016 consolidated financial statements of the Company other than with respect to the adjustments to restate the disclosures for reportable segments and the correcting adjustments for the identified financial reporting errors, and, accordingly, we do not express an opinion or any other form of assurance on the 2016 consolidated financial statements taken as a whole.
Investigations by the US Securities and Exchange Commission and the New Zealand Overseas Investment Office
We draw attention to note 23 which describes the current investigation of the Company by the US Securities and Exchange Commission, the outcome of which is uncertain and when resolved could have a material adverse impact on the Company’s consolidated financial position, results of operations and cash flows.
We also draw attention to note 29 which describes the pending investigation of the Company by the New Zealand Overseas Investment Office, the outcome of which is uncertain and when resolved could have a material adverse impact on the Company’s consolidated financial position, results of operations and cash flows.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG
We have served as the Company’s auditor since 2017.
Auckland, New Zealand
October 12, 2018
F- 3 |
THIS REPORT IS A COPY OF THE PREVIOUSLY ISSUED REPORT. GHP HORWATH, P.C. HAS CEASED OPERATIONS AND THEREFORE, HAS NOT REISSUED THE REPORT.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Agria Corporation
We have audited, before the effects of the adjustments for the correction of the errors described in Note 2(s) and before the effects of the adjustments to retrospectively apply the impact of the change in the composition of reportable segments described in Notes 2(b) and 5, the accompanying consolidated statements of financial position of Agria Corporation and its subsidiaries (the “Company”) as of June 30, 2016 and the related consolidated statements of profit or loss, comprehensive income (loss), cash flows and changes in equity for the years ended June 30, 2016 and 2015 (the 2016 and 2015 consolidated financial statements before the effects of the adjustments discussed in Note 2(s), 2(b) and 5 are not presented herein). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, except for the errors described in Note 2(s), the consolidated financial statements referred to above, before the effects of the adjustments to retrospectively apply the impact of the change in the composition of reportable segments described in Notes 2(b) and 5, present fairly, in all material respects, the financial position of the Company as of June 30, 2016 and the results of its operations and its cash flows for the years ended June 30, 2016 and 2015, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We were not engaged to audit, review or apply any procedures to the adjustments for the correction of the errors described in Note 2(s) or to the adjustments to retrospectively apply the impact of the change in the composition of reportable segments described in Notes 2(b) and 5, and accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by other auditors.
/s/ GHP HORWATH, P.C. | |
Denver, Colorado | |
September 20, 2016 |
F- 4 |
AGRIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As of June 30, 2018 and 2017
As of June 30, | ||||||||||
Note | 2018 | 2017 | ||||||||
(US$’000) | (US$’000) | |||||||||
ASSETS | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | 15 | 17,050 | 15,876 | |||||||
Accounts receivable, net | 16 | 171,456 | 161,360 | |||||||
Other receivables and prepayments | 16 | 24,831 | 21,339 | |||||||
Inventories | 17 | 187,882 | 194,435 | |||||||
Biological assets | 616 | 1,139 | ||||||||
Short-term derivative assets | 560 | 2,586 | ||||||||
Other investments | 20 | 20 | 2,522 | |||||||
Assets held for sale | 1,771 | 2,366 | ||||||||
Amount due from related parties | 30 | 17,484 | 13,837 | |||||||
Total current assets | 421,670 | 415,460 | ||||||||
Non-current assets: | ||||||||||
Property, plant and equipment, net | 19 | 87,803 | 89,639 | |||||||
Investments in equity accounted investees | 10 | 5,126 | 15,373 | |||||||
Other investments | 20 | 794 | 1,545 | |||||||
Intangible assets, net | 21 | 9,586 | 9,765 | |||||||
Goodwill | 22 | - | 2,977 | |||||||
Long-term derivative assets | 13 | 313 | ||||||||
Biological assets | - | 43 | ||||||||
Non-current prepayments | 345 | 368 | ||||||||
Deferred tax asset, net | 13 | 11,253 | 11,101 | |||||||
Total non-current assets | 114,920 | 131,124 | ||||||||
Total assets | 536,590 | 546,584 | ||||||||
LIABILITIES AND EQUITY | ||||||||||
Current liabilities: | ||||||||||
Debt due within one year | 15 | 59,801 | 48,191 | |||||||
Income tax payable | 4,570 | 3,017 | ||||||||
Accounts payable | 99,615 | 98,253 | ||||||||
Accrued expenses and other liabilities, including provisions | 23 | 99,603 | 103,428 | |||||||
Short-term derivative liabilities | 2,468 | 726 | ||||||||
Defined benefit liability | 24 | 612 | 691 | |||||||
Amounts due to related parties | 30 | 8,681 | 8,256 | |||||||
Total current liabilities | 275,350 | 262,562 | ||||||||
Non-current liabilities: | ||||||||||
Long-term debt | 15 | 101,012 | 85,508 | |||||||
Long-term derivative liabilities | 654 | 485 | ||||||||
Defined benefit liability | 24 | 6,546 | 10,911 | |||||||
Other long-term liabilities | 23 | 1,436 | 3,598 | |||||||
Amounts due to related parties | 30 | 10,000 | 10,000 | |||||||
Total non-current liabilities | 119,648 | 110,502 | ||||||||
Total liabilities | 394,998 | 373,064 | ||||||||
Commitments, contingencies and subsequent events | 28,29,33 | |||||||||
Equity: | ||||||||||
Agria Corporation shareholders’ equity: | ||||||||||
Share capital | 25 | - | - | |||||||
Treasury stock | 25 | (281 | ) | (281 | ) | |||||
Share premium | 25 | 160,971 | 160,971 | |||||||
Statutory reserves | 26 | 672 | 672 | |||||||
Share-based payment reserve | 27 | 22,217 | 20,332 | |||||||
Other reserves | 26 | 115,268 | 114,315 | |||||||
Foreign currency translation reserve | 26 | (25,342 | ) | (21,226 | ) | |||||
Accumulated deficit | (236,239 | ) | (218,047 | ) | ||||||
Total equity attributable to equity holders of Agria Corporation | 37,266 | 56,736 | ||||||||
Non-controlling interests | 104,326 | 116,784 | ||||||||
Total equity | 141,592 | 173,520 | ||||||||
Total liabilities and equity | 536,590 | 546,584 |
The accompanying notes are an integral part of the consolidated financial statements.
F- 5 |
AGRIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
For the years ended June 30, 2018, 2017 and 2016
For the years ended June 30, | ||||||||||||||
Note | 2018 | 2017 | 2016 | |||||||||||
(US$’000) | (US$’000) | (US$’000) | ||||||||||||
Revenue | 6 | 860,652 | 822,215 | 807,679 | ||||||||||
Cost of sales | 7 | (610,788 | ) | (586,484 | ) | (585,312 | ) | |||||||
Gross profit | 249,864 | 235,731 | 222,367 | |||||||||||
Other income | 8 | 81 | 334 | 547 | ||||||||||
Selling, general and administrative expense | 9 | (226,378 | ) | (214,059 | ) | (192,142 | ) | |||||||
Impairment of goodwill | (3,070 | ) | - | - | ||||||||||
Research and development | (4,624 | ) | (4,445 | ) | (4,311 | ) | ||||||||
Equity in earnings/(losses) of investees | 10 | (7,874 | ) | 1,783 | (164 | ) | ||||||||
Operating profit | 7,999 | 19,344 | 26,297 | |||||||||||
Non-operating income | 11 | 1,338 | 5,930 | 3,225 | ||||||||||
Profit before financial income/expenses and income taxes | 9,337 | 25,274 | 29,522 | |||||||||||
Finance income | 12 | 199 | 1,089 | 1,589 | ||||||||||
Finance expenses | 12 | (15,573 | ) | (10,622 | ) | (14,906 | ) | |||||||
(Loss)/profit before income taxes | (6,037 | ) | 15,741 | 16,205 | ||||||||||
Income taxes | 13 | (8,613 | ) | (8,992 | ) | (6,962 | ) | |||||||
(Loss)/profit for the year | (14,650 | ) | 6,749 | 9,243 | ||||||||||
Attributable to: | ||||||||||||||
Equity holders of the Company | (17,833 | ) | (10,303 | ) | (6,300 | ) | ||||||||
Non-controlling interests | 3,183 | 17,052 | 15,543 | |||||||||||
(14,650 | ) | 6,749 | 9,243 | |||||||||||
Earnings/(loss) per ordinary share: | 14 | US$ | US$ | US$ | ||||||||||
Basic | (0.16 | ) | (0.09 | ) | (0.06 | ) | ||||||||
Diluted | (0.16 | ) | (0.09 | ) | (0.06 | ) | ||||||||
No. of ordinary shares outstanding (Basic) | 110,115,854 | 110,322,214 | 110,766,600 | |||||||||||
No. of ordinary shares outstanding (Diluted) | 110,115,854 | 110,322,214 | 110,766,600 |
The accompanying notes are an integral part of the consolidated financial statements.
F- 6 |
AGRIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the years ended June 30, 2018, 2017 and 2016
For the years ended June 30, | ||||||||||||||
Note | 2018 | 2017 | 2016 | |||||||||||
(US$’000) | (US$’000) | (US$’000) | ||||||||||||
(Loss)/profit for the year | (14,650 | ) | 6,749 | 9,243 | ||||||||||
Other comprehensive income (loss), net of tax | ||||||||||||||
Items that will not be reclassified to profit or loss | ||||||||||||||
Changes in fair value of equity instruments | - | 171 | 3,642 | |||||||||||
Re-measurements of defined benefit liability | 24 | 1,955 | 2,226 | (7,150 | ) | |||||||||
Deferred tax on re-measurements of defined benefit liability | 13 | (684 | ) | (154 | ) | 2,003 | ||||||||
1,271 | 2,243 | (1,505 | ) | |||||||||||
Items that are or may be reclassified to profit or loss | ||||||||||||||
Foreign currency translation differences for foreign operations | (9,673 | ) | 5,042 | 813 | ||||||||||
Effective portion of changes in fair value of cash flow hedges | - | (1,396 | ) | 2,606 | ||||||||||
Income tax on changes in fair value of cash flow hedges | - | 407 | (729 | ) | ||||||||||
(9,673 | ) | 4,053 | 2,690 | |||||||||||
Total comprehensive income/(loss) | (23,052 | ) | 13,045 | 10,428 | ||||||||||
Total comprehensive income/(loss) attributable to: | ||||||||||||||
Equity holders of the Company | (21,355 | ) | (7,874 | ) | (6,697 | ) | ||||||||
Non-controlling interests | (1,697 | ) | 20,919 | 17,125 | ||||||||||
Total comprehensive income/(loss) for the year | (23,052 | ) | 13,045 | 10,428 |
The accompanying notes are an integral part of the consolidated financial statements.
F- 7 |
AGRIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 30, 2018, 2017 and 2016
For the years ended June 30, | ||||||||||||
2018 |
2017 |
2016 | ||||||||||
(US$’000) | (US$’000) | (US$’000) | ||||||||||
Cash flows from operating activities: | ||||||||||||
(Loss) / Profit before tax | (6,037 | ) | 15,741 | 16,205 | ||||||||
Adjustments for: | ||||||||||||
Interest expense |
12,346 |
9,988 | 12,885 | |||||||||
Equity in losses (earnings) of investees | 7,874 | (1,783 | ) | 164 | ||||||||
Deferred income taxes | (793 | ) | (578 | ) | (1,341 | ) | ||||||
Share-based payment expenses | 1,885 | 1,885 | 1,476 | |||||||||
Gain on disposal of assets and investment | (1,253 | ) | (6,868 | ) | (3,564 | ) | ||||||
Depreciation and amortization expense | 11,839 | 9,308 | 7,259 | |||||||||
Impairment of goodwill, tangible assets, intangible assets and other investments | 6,483 | - | - | |||||||||
Bad debt expense | 1,355 | 3,673 | 1,492 | |||||||||
Write-downs / (reversals) for inventories obsolescence | 1,898 | 1,275 | (355 | ) | ||||||||
Pension contributions (operating cash) not expensed through profit and loss | (2,024 | ) | (5,386 | ) | - | |||||||
Fair value (gain)/loss |
37 |
300 | 155 | |||||||||
Other non-cash items |
- |
(16 | ) | (880 | ) | |||||||
Changes in: | ||||||||||||
Accounts receivable and other receivables | (34,989 | ) | (5,921 | ) | (8,353 | ) | ||||||
Inventories | (7,617 | ) | (8,659 | ) | 2,770 | |||||||
Income tax payable | 2,368 | 1,538 | (967 | ) | ||||||||
Accounts payable and other payables | 8,645 | 8,897 | 13,982 | |||||||||
Transfer of fixed assets to held for sale | - | - | (3,414 | ) | ||||||||
Derivative assets and liabilities |
3,813 |
(165 | ) | (2,370 | ) | |||||||
Other | - | (2,335 | ) | (391 | ) | |||||||
5,830 | 20,894 | 34,753 | ||||||||||
Interest paid | (8,890 | ) | (6,597 | ) | (8,448 | ) | ||||||
Income tax paid | (8,863 | ) | (7,425 | ) | (9,321 | ) | ||||||
Net cash provided by/(used in) operating activities | (11,923 | ) | 6,872 | 16,984 | ||||||||
Cash flows from investing activities: | ||||||||||||
Cash paid for purchase of investments | (865 | ) | (1,978 | ) | (7,853 | ) | ||||||
Prepayment to non-controlling interest | - | - | (12,297 | ) | ||||||||
Proceeds from finance receivables | - | - | 723 | |||||||||
Acquisition of property, plant and equipment and other assets | (11,342 | ) | (9,251 | ) | (21,154 | ) | ||||||
Acquisition of intangible assets | (6,163 | ) | (3,926 | ) | (2,202 | ) | ||||||
Proceeds from sales of investments | 79 | 3,156 | 6,497 | |||||||||
Proceeds from disposal of property, plant and equipment and other assets | 2,448 | 15,947 | 13,340 | |||||||||
Net cash provided by / (used in) investing activities | (15,843 | ) | 3,948 | (22,946 | ) | |||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from external borrowings | 70,960 | 28,433 | 29,155 | |||||||||
Repayment of external borrowings | (32,306 | ) | (30,892 | ) | (17,136 | ) | ||||||
Proceeds from shareholder’s loan | - | 4,148 | 4,201 | |||||||||
Proceeds from related party’s loan | 2,450 | 10,000 | - | |||||||||
Repayment of shareholder’s loan | - | (4,201 | ) | (2,446 | ) | |||||||
Repurchase of shares | - | (281 | ) | - | ||||||||
Dividends paid to non-controlling interests | (10,761 | ) | (10,713 | ) | (9,783 | ) | ||||||
Net cash provided by/(used in) financing activities | 30,343 | (3,506 | ) | 3,991 | ||||||||
Effect of exchange rate changes on cash and cash equivalents | (1,403 | ) | 230 | 417 | ||||||||
Net increase / (decrease) in cash and cash equivalents | 1,174 | 7,544 | (1,554 | ) | ||||||||
Cash and cash equivalents at the beginning of year | 15,876 | 8,332 | 9,886 | |||||||||
Cash and cash equivalents at the end of year | 17,050 | 15,876 | 8,332 |
The accompanying notes are an integral part of the consolidated financial statements.
F- 8 |
AGRIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended June 30, 2018, 2017 and 2016
Attributable to equity holders of the Company | ||||||||||||||||||||||||||||||||||||||||||||||||
Number of Issued Ordinary Shares |
Share Capital |
Treasury Stock |
Share Premium |
Statutory Reserves |
Share- based Payment Reserve |
Foreign Currency Translation Reserves |
Other Reserves |
Retained Earnings/ (deficit) |
Sub-total |
Non- controlling Interests |
Total Equity |
|||||||||||||||||||||||||||||||||||||
(US$’000) | (US$’000) | (US$’000) | (US$’000) | (US$’000) | (US$’000) | (US$’000) | (US$’000) | (US$’000) | (US$’000) | (US$’000) | ||||||||||||||||||||||||||||||||||||||
Balance July 1, 2015 | 110,776,600 | - | - | 160,971 | 672 | 16,971 | (22,683 | ) | 115,491 | (203,195 | ) | 68,227 | 99,290 | 167,517 | ||||||||||||||||||||||||||||||||||
(Loss) / Profit for the year | - | - | - | - | - | - | - | - | (6,300 | ) | (6,300 | ) | 15,543 | 9,243 | ||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | - | - | - | - | - | - | (357 | ) | (40 | ) | - | (397 | ) | 1,582 | 1,185 | |||||||||||||||||||||||||||||||||
Total comprehensive income (loss) | - | - | - | - | - | - | (357 | ) | (40 | ) | (6,300 | ) | (6,697 | ) | 17,125 | 10,428 | ||||||||||||||||||||||||||||||||
Transactions with owners: | ||||||||||||||||||||||||||||||||||||||||||||||||
Share-based payment | - | - | - | - | - | 1,476 | - | - | - | 1,476 | - | 1,476 | ||||||||||||||||||||||||||||||||||||
Dividend to non-controlling interests | - | - | - | - | - | - | - | - | - | - | (9,837 | ) | (9,837 | ) | ||||||||||||||||||||||||||||||||||
Changes in non-controlling interest ownership | - | - | - | - | - | - | - | 309 | (309 | ) | - | - | - | |||||||||||||||||||||||||||||||||||
Total transaction with owners: | - | - | - | - | - | 1,476 | - | 309 | (309 | ) | 1,476 | (9,837 | ) | (8,361 | ) | |||||||||||||||||||||||||||||||||
Balance June 30, 2016 | 110,776,600 | - | - | 160,971 | 672 | 18,447 | (23,040 | ) | 115,760 | (209,804 | ) | 63,006 | 106,578 | 169,584 | ||||||||||||||||||||||||||||||||||
Balance July 1, 2016 | 110,776,600 | - | 160,971 | 672 | 18,447 | (23,040 | ) | 115,760 | (209,804 | ) | 63,006 | 106,578 | 169,584 | |||||||||||||||||||||||||||||||||||
(Loss) / Profit for the year | - | - | - | - | - | - | (10,303 | ) | (10,303 | ) | 17,052 | 6,749 | ||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | - | - | - | - | - | - | 1,814 | 615 | - | 2,429 | 3,867 | 6,296 | ||||||||||||||||||||||||||||||||||||
Total comprehensive income (loss) | - | - | - | - | - | - | 1,814 | 615 | (10,303 | ) | (7,874 | ) | 20,919 | 13,045 | ||||||||||||||||||||||||||||||||||
Transactions with owners: | ||||||||||||||||||||||||||||||||||||||||||||||||
Share buy back (Bought back 650,746 shares (Note 25) | - | - | (281 | ) | - | - | - | - | - | - | (281 | ) | - | (281 | ) | |||||||||||||||||||||||||||||||||
Share-based payment | - | - | - | - | - | 1,885 | - | - | - | 1,885 | - | 1,885 | ||||||||||||||||||||||||||||||||||||
Dividend to non-controlling interests | - | - | - | - | - | - | - | - | - | - | (10,713 | ) | (10,713 | ) | ||||||||||||||||||||||||||||||||||
Transfer to retained earnings | - | - | - | - | - | - | (2,060 | ) | 2,060 | - | - | - | ||||||||||||||||||||||||||||||||||||
Total transaction with owners: | (281 | ) | - | - | 1,885 | - | (2,060 | ) | 2,060 | 1,604 | (10,713 | ) | (9,109 | ) | ||||||||||||||||||||||||||||||||||
Balance June 30, 2017 | 110,776,600 | - | (281 | ) | 160,971 | 672 | 20,332 | (21,226 | ) | 114,315 | (218,047 | ) | 56,736 | 116,784 | 173,520 | |||||||||||||||||||||||||||||||||
Balance July 1, 2017 | 110,776,600 | - | (281 | ) | 160,971 | 672 | 20,332 | (21,226 | ) | 114,315 | (218,047 | ) | 56,736 | 116,784 | 173,520 | |||||||||||||||||||||||||||||||||
(Loss) / Profit for the year | - | - | - | - | - | - | - | - | (17,833 | ) | (17,833 | ) | 3,183 | (14,650 | ) | |||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | - | - | - | - | - | - | (4,116 | ) | 594 | - | (3,522 | ) | (4,880 | ) | (8,402 | ) | ||||||||||||||||||||||||||||||||
Total comprehensive income (loss) | - | - | - | - | - | - | (4,116 | ) | 594 | (17,8 33 | ) | (21,355 | ) | (1,697 | ) | (23,052 | ) | |||||||||||||||||||||||||||||||
Transactions with owners: | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Share buy back (Bought back 650,746 shares (Note 25) | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Share-based payment | - | - | - | - | - | 1,885 | - | - | - | 1,885 | 1,885 | |||||||||||||||||||||||||||||||||||||
Dividend to non-controlling interests | - | - | - | - | - | - | - | - | - | - | (10,761 | ) | (10,761 | ) | ||||||||||||||||||||||||||||||||||
Changes in non-controlling interest ownership | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Transfer to retained earnings | - | - | - | - | - | - | - | 359 | (359 | ) | - | - | - | |||||||||||||||||||||||||||||||||||
Total transaction with owners: | - | - | - | - | - | 1,885 | - | 359 | (359 | ) | 1,885 | (10,761 | ) | (8,876 | ) | |||||||||||||||||||||||||||||||||
Balance June 30, 2018 | 110,776,600 | - | (281 | ) | 160,971 | 672 | 22,217 | (25,342 | ) | 115,268 | (236,239 | ) | 37,266 | 104,326 | 141,592 |
The accompanying notes are an integral part of the consolidated financial statements.
F- 9 |
AGRIA CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2018, 2017 and 2016
1. Corporation Information
Agria Corporation (the “Company” or “Agria”) and its subsidiaries and consolidated structured entities (collectively, the “Group”) is an international agricultural enterprise with operations in New Zealand, Australia, South America and China.
The Company was incorporated in the Cayman Islands. The Company’s registered office address is at P.O. Box 309 GT, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands.
These consolidated financial statements were authorized for issue by the Board of Directors on October 12, 2018.
2. Summary of Significant Accounting Policies
Basis of preparation
The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
The consolidated financial statements have been prepared under the historical cost convention except for the following:
- | derivative financial instruments are measured at fair value |
- | financial instruments at fair value through profit or loss |
- | investments are measured at fair value |
- | biological assets are measured at fair value less point-of-sale costs |
- | assets classified as held for sale are measured at the lower of their carrying amount or fair value less cost to sell. |
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 4. Actual results could differ from those estimates and such differences could affect the results of operations reported in future periods.
During the year to June 30, 2018, the Group modified the classification of the release of the earn-out payment liability in respect of the Agrocentro Uruguay earn-out (see Note 23), to reflect more appropriately the way in which the economic benefits are measured from this equity investment. As a result a gain of $3.7 million is now classified in “Equity in earnings/ (losses) of investees” rather than included within “non-operating income” (2017: $1.7 million ). In addition, restructuring costs of $2.1 million were reclassified from “non-operating income” to Selling, General and Administrative expense in the year to June 30, 2017. As a result, a net cost of $0.4 million has been reclassified from non-operating to operating in the 2017 Statements of Profit or Loss.
A number of new standards and interpretations are not yet effective for the year ended June 30, 2018 and have not been applied in preparing these consolidated financial statements. The Company’s assessment of these new standards has commenced and is focused on the financial impact on PGW which comprises 98.7% of the Group’s revenues for the year ended June 30, 2018. The work undertaken to date has been limited to a high level consideration of the impact of the new standards. Additional work will need to be undertaken to determine both the financial impacts of the new standards at both PGW and within the Company as a whole and the method of transition to the new standards.
- | IFRS 9 (2014) Financial Instruments has been issued. The final component of IFRS 9 (2014) introduces a new expected credit loss model for calculating impairment. IFRS 9 (2014) is effective for the Company’s annual period beginning on July 1, 2018. The Company early adopted IFRS 9 (2009) and IFRS 9 (2013) in prior years relating to the recognition, derecognition and classification of financial instruments and hedge accounting respectively. | |
- |
IFRS 15 Revenue from Contracts with Customers has been issued. This standard introduced a new revenue recognition model for contracts with customers. The standard is effective for the Company’s annual period beginning on July 1, 2018. Based on its initial review, the Company has identified the following areas that require further analysis:
Retail and Water – contract profit recognition and bundled service contracts Retail and Water and Seed and Grain – the classification of rebates Seed and Grain and Agency – revenue recognition timing for shipped goods |
|
- | IFRS 16 Leases has been issued. This standard eliminates the classification of leases as either operating leases or finance leases. The standard uses a single lessee model which requires a lessee to recognize on the Statement of Financial Position assets and liabilities for all leases with a term of more than 12 months. The standard is effective for the Company’s annual period beginning on July 1, 2019. |
F- 10 |
(a) Basis of Consolidation
Subsidiaries
Subsidiaries are all entities (including consolidated structured entities) over which the Group has control. Control exists when the Group has the power over the entity, exposure, or rights to variable returns from involvement in the entity, and the ability to use power over the entity to affect returns through its power over the entity. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.
Business Combinations
The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.
The excess of the consideration transferred, the amount of any non-controlling interests in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interests recognized and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in the profit or loss.
Changes in ownership interests in subsidiaries without change of control
Transactions with non-controlling interests that do not result in a loss of control are accounted for as equity transactions - that is, as transactions with the owners of the subsidiary in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying amount of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
Associates and jointly controlled entities
Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Jointly controlled entities are those entities over whose activities the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. Associates and jointly controlled entities are accounted for using the equity method. The consolidated financial statements include the Group’s share of the income and expenses of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence starts. Where the Group’s share of losses exceeds its interest in an equity accounted investees, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee.
Transactions Eliminated on Consolidation
Intra-group balances, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.
(b) Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-makers, who are responsible for allocating resources and assessing performance of the operating segments and making strategic decisions. Management has determined that the chief operating decision-makers (“CODM”) of the Group is the Company’s board of directors and senior management team at corporate level.
The Group has four primary operating segments: Agency, Retail and Water and Seed and Grain (NZ) and Other which are the Group's strategic divisions. Agency, Retail and Water operate within New Zealand. Seed and Grain primarily operates within New Zealand with additional operations in Australia and South America through the operations of PGW subsidiary.
F- 11 |
The CODM uses operating profit as the measure of segment profit or loss. Segment operating profit is determined in the same manner as the amount presented in the consolidated statements of profit or loss. Segment operating profit excludes certain corporate items not allocated to the segments. The nature of those corporate items primarily relate to the costs of maintaining the group Finance (team responsible for external reporting, internal reporting to the CFO, CEO and Board and group taxation compliance), Treasury (group cash management, hedging management and banking relationship management) group governance (including internal the group legal and risk an assurance team) and management of management of groups , HR (group HR including the group Health and Safety team) and other support service functions including corporate property services. Accordingly, the nature of these costs includes employee expenses, professional service fees, directors fees and other general and administrative expenses.
The CODM uses total assets and total liabilities as the measure of segment assets and segment liabilities, respectively. Segment assets excludes certain corporate items not allocated to the segments. The nature of those corporate items are other assets held at a Corporate level including assets held for sale, bank debt, cash held at bank, net defined benefit pension liability, deferred tax assets, etc. Segment liabilities excludes certain corporate items not allocated to the segments. The nature of those corporate items are other liabilities associated with corporate activities, accrual of expense for professional service, bank facilities for Group’s working capital requirement.
Intersegment transactions are reported on an arm’s length basis.
The accounting policies used to determine the segment information are consistent with those used to prepare the consolidated financial statements.
(c) Foreign Currency
Foreign Currency Transactions
Transactions in foreign currencies are translated to the respective functional currencies of the Group’s entities at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the period.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that fair value was determined. Foreign currency differences arising on retranslation are recognized in profit or loss.
Foreign Operations
The functional currency of the Company is the U. S. dollar. The functional currency of PGW is the New Zealand dollar. In addition, certain subsidiaries of PGW in Australia and South America have functional currencies of the Australian dollar and the US dollar, respectively. The functional currency of Agria China, Agria Shenzhen and the consolidated structured entities is the Renminbi (RMB). The presentation currency of the Company is US dollar. The individual financial statements of each entity are prepared in the currency of primary economic environment in which the entity operates (its functional currency).
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to U. S. dollars at the exchange rates at the reporting date. The income and expenses of foreign operations are translated to U. S. dollars at exchange rates at the date of the transactions.
Foreign currency differences are recognized in other comprehensive income and the Foreign Currency Translation Reserve (“FCTR”). When a foreign operation is disposed of, in part or in full, the relevant amount in the FCTR is transferred to profit or loss.
(d) Income Recognition
Recognition of Revenue
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized.
Sales Revenue
Sales revenue comprises the sale value of transactions where the Group acts as a principal and the commission for transactions where the Group acts as an agent.
F- 12 |
Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates. Revenue is recognized when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, and there is no continuing management involvement with the goods.
Construction Contracts
The revenue from work-in-progress is recognized when it can be estimated reliably. The percentage of completion method is used to determine the appropriate amount to recognize in each year. The full amount of any anticipated loss, including that relating to work on the contract, is recognized as soon as it is foreseen. Management estimates the percentage of completion stage on construction contracts to determine the appropriate revenue to be recognized for each project. The percentage of completion is estimated based on detailed information regarding the status of each project, based on costs incurred to total estimated costs.
Interest and Similar Income and Expense
For all financial instruments measured at amortized cost, interest income or expense is recorded at the effective interest rate, which is the rate that discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes into account all contractual terms of the financial instrument (for example, prepayment options) and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective interest rate, but not future credit losses.
Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognized using the original effective interest rate applied to the new carrying amount.
The Group recognizes interest revenue, management fees, and establishment fees on an accrual basis when the services are rendered using the effective interest rate method.
Fee Income from Providing Transaction Services
Fees arising from negotiating or participating in the negotiation of a transaction for a third party are recognized on completion of the underlying transactions. Fees or components of the fees that are linked to certain performance are recognized after fulfilling the corresponding criteria.
(e) Income Tax
Income tax expense comprises current and deferred taxation and is recognized in profit or loss except to the extent that it relates to items recognized directly in other comprehensive income or equity, in which case it is recognized directly in other comprehensive income or equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable with respect to previous periods.
Deferred tax is recognized using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for:
- | the initial recognition of goodwill |
- | differences relating to subsidiaries, associates and jointly controlled entities to the extent that they will probably not reverse in the foreseeable future. |
Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantially enacted at the reporting date.
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be recognized.
(f) Earnings per Share
The Group presents basic and diluted earnings per share (“EPS”) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to shareholders by the weighted average number of shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to shareholders and the number of shares outstanding to include the effects of all potential dilutive shares.
F- 13 |
(g) Financial Instruments
(i) Non-derivative Financial Assets
Non-derivative financial assets are comprised of investments, finance receivables, trade and other receivables, and cash and cash equivalents. Financial assets are classified at either amortized cost or fair value depending on the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets.
The Group initially recognizes financial assets on the trade date at which the Group becomes a party to the contractual provisions of the instrument.
Financial assets are initially measured at fair value. If the financial asset is not subsequently measured at fair value through profit and loss, the initial investment includes transaction costs that are directly attributable to the asset’s acquisition or origination. The Group subsequently measures financial assets at either fair value or amortized cost.
Financial assets measured at amortized cost
A financial asset is subsequently measured at amortized cost using the effective interest method and net of any impairment loss, if:
- | the asset is held within a business model with an objective to hold assets in order to collect contractual cash flows; and |
- | the contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest. |
Financial assets measured at fair value
Financial assets other than those classified as financial assets measured at amortized cost are subsequently measured at fair value with all changes recognized in profit or loss.
However, for investments in equity instruments that are not held for trading, the Group may elect at initial recognition to present gains and losses through other comprehensive income. For instruments measured at fair value through other comprehensive income gains and losses are never reclassified to profit and loss and no impairments are recognized in profit and loss. Dividends earned from such investments are recognized in profit and loss unless the dividends clearly represent a repayment of part of the cost of investment.
Other investments
The fair value of financial assets at fair value through profit or loss and other comprehensive income and available-for-sale financial assets is determined by reference to the market price, unless other objective reliable evidence suggests a different value. Other investments where no active market exists are held at historical cost.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held at call with banks, and other short term highly liquid investments with maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents.
Accounts Receivable
The fair value of accounts receivable is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date.
(ii) Non-derivative Financial Liabilities
Interest-bearing Borrowings
Interest-bearing borrowings are classified as other financial liabilities and are initially recognized at fair value net of any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortized cost using the effective interest rate method.
F- 14 |
(iii) Derivative Financial Instruments
The Group uses derivative financial instruments to manage its exposure to interest rate and foreign currency risks arising from operational, financing and investment activities. In accordance with its Treasury policy, the Group does not hold or issue derivative instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments.
Derivative financial instruments are recognized initially at fair value and transaction costs are expensed immediately. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on re-measurement to fair value is recognized immediately in profit or loss. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the hedging relationship (see below).
Cash Flow Hedges
Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognized directly in equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognized in profit or loss.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized in equity remains there until the forecast transaction occurs. When the hedged item is a non-financial asset, the amount recognized in equity is transferred to the carrying amount of the asset when it is recognized. In other cases the amount recognized in equity is transferred to profit or loss in the same period that the hedged item affects profit or loss.
(h) Impairment
The carrying value of the Group’s assets is reviewed at each reporting date to determine whether there is any objective evidence of impairment. An impairment loss is recognized whenever the carrying amount exceeds its recoverable amount. Impairment losses directly reduce the carrying value of assets and are recognized in profit or loss unless the asset is carried at a revalued amount in accordance with another standard.
Impairment of Equity Instruments
The Group assesses at each reporting date whether there is objective evidence that a financial asset or group of assets is impaired. In the case of equity instruments that are not held for trading, the Group may elect to present gains and losses through other comprehensive income. If no election is made fair value gains and losses are recognized in profit or loss.
Impairment of Accounts Receivable and finance receivable
Accounts Receivable is considered past due when they have been operated outside of the normal key trade terms. When forming a view management considers the counterparty’s ability to pay, the level of security and the risk of loss.
Accounts receivable includes accrued interest. Specific provisions are maintained to cover identified doubtful debts.
Non-financial Assets
The carrying amounts of the Group’s non-financial assets, other than biological assets, inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the recoverable amount of the asset is estimated. For goodwill and intangible assets that have indefinite lives, the recoverable amount is estimated at each reporting date.
An impairment loss is recognized if the carrying amount of an asset or the cash-generating unit to which it relates, exceeds the recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that are largely independent from other assets and groups. Impairment losses are recognized in profit or loss.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or unit.
In determining the fair value using value in use, regard is given to external market evidence.
(i) Determination of Fair Values
A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. Where applicable, further information about the assumptions made is disclosed in the notes specific to that asset or liability.
F- 15 |
Derivatives
The fair value of forward exchange contracts is based on broker quotes, if available. If broker quotes are not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward price at the reporting date for the residual maturity of the contract using a risk-free interest rate based on government bonds.
The fair value of interest rate swaps is based on broker quotes. These quotes are tested for reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract using market interest rates for a similar instrument at the reporting date.
Non-derivative Financial Instruments
Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases, the market rate of interest is determined by reference to similar lease agreements.
(j) Biological Assets
Biological assets are measured at fair value less costs to sell, with any change therein recognized in profit or loss. Costs of selling include all costs that would be necessary to sell the assets including transportation costs. The fair value of biological assets intended for domestic processing is determined by applying the market price of stock weight offered by meat processors to the stock weight at the reporting date. Stock counts of livestock quantities are performed by the Group at each reporting date.
(k) Inventories
Finished Goods
Raw materials and finished goods are stated at the lower of cost or net realizable value. Cost is determined on a first in, first out basis, and, in the case of manufactured goods, includes direct materials, labor and production overheads.
Wholesale Seeds
Wholesale seeds inventory is stated at the lower of cost or net realizable value and comprises costs of purchase and other direct costs incurred to bring the inventory to its present location and condition.
(l) Assets held for sale
Assets are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell.
(m) Intangible Assets
Computer Software
Computer software is a finite life intangible asset and is recorded at cost less accumulated amortization and impairment. Amortization is charged on a straight line basis over an estimated useful life between 3 and 10 years. The estimated useful life and amortization method is reviewed at the end of each annual reporting period.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree.
Goodwill is measured at cost less accumulated impairment losses. Impairment loss with respect to goodwill is not reversed. With respect to equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment.
Research and Development
The principal research and development activities are in the development of systems, processes and new seed cultivars.
F- 16 |
Research expenditure on the development of new systems and processes is recognized in profit or loss as incurred. Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalized includes the cost of materials, direct labor and overhead costs that are directly attributable to preparing the asset for its intended use. Other development expenditures are recognized in profit or loss when incurred.
Capitalized development expenditures are measured at cost less accumulated amortization and accumulated impairment losses.
Research and development expenditures on the development of new seed cultivars is recognized in profit or loss as incurred. Development costs of seed cultivars are substantially indistinguishable from the cultivar research costs.
Land Use Rights
Prepaid land use rights are recorded at the amount paid less accumulated amortization and impairment losses. Amortization is provided on a straight-line basis over the term of the agreements of 19 years.
Acquired Technologies
Acquired technologies, which consist primarily of purchased technology know-how related to the production of corn seeds, are stated at cost less accumulated amortization. Amortization is calculated on a straight-line basis over the estimated useful lives of 5 to 15 years.
Rights
Manufacturing and production rights are finite life intangibles and are recorded at cost less accumulated amortization and impairment. Amortization is charged on a straight line basis over an estimated useful life between 3 and 5 years. The estimated useful life and amortization method is reviewed at the end of each annual reporting period.
Determination of fair value
The fair value of intangible assets acquired in a business combination is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets.
(n) Property, Plant and Equipment
Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment.
Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the cost of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.
Subsequent Costs
The cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of day-to-day servicing of property, plant and equipment is recognized in profit or loss as incurred.
Borrowing Costs
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of that asset. All other borrowing costs are expensed as they are incurred.
Depreciation
Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each item of property, buildings, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated. The estimated useful lives for the current and comparative periods are between 3 and 40 years for plant and equipment and 50 years for buildings. Depreciation methods, useful lives and residual values are reassessed at each reporting date.
F- 17 |
Determination of fair value
The fair value of property, plant and equipment recognized as a result of a business combination is based on market values. The market value of property is the estimated amount for which the property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The market value of items of plant, equipment, fixtures and fittings is based on the quoted market prices for similar items.
(o) Leasing Commitments
Leases in terms of which the Group assumes substantially all of the risks and rewards of ownership are classed as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value or the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.
Other leases are operating leases and are not recognized on the statement of financial position. Amounts payable under operating lease arrangements are recognized in profit or loss.
(p) Employee Benefits
Defined Benefit Pension Plan
The Group’s net obligation with respect to defined benefit pension plans is calculated by estimating the future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value, and any unrecognized past service costs and the fair value of any plan assets is deducted. The discount rate is the yield at the reporting date on bonds that have maturity dates approximating the terms of the Group’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Group, the recognized asset is limited to the lower of the net assets of the plan or the current value of the contributions holiday that is expected to be generated. Actuarial gains and losses are recognized directly in other comprehensive income and the defined benefit plan reserve in equity.
Provisions made with respect to employee benefits which are not expected to be settled within twelve months are measured as the present value of the estimated future cash outflows to be made by the Group with respect to services provided by employees up to reporting date.
Short-term Employee Benefits
Short-term employee benefit obligations are measured on an undiscounted basis and expensed as the related service is provided. A provision is recognized for the amount of outstanding short term benefits at each reporting date.
Share-based Payments
The Company operates an equity-settled, share-based compensation plan, under which Agria receives services from employees as consideration for equity instruments (options and restricted shares) of the Company. The fair value of the employee services received in exchange for the grant of the options or restricted shares is recognized as an expense. The total amount to be expensed is determined by reference to the fair value of the options or restricted shares granted, excluding the impact of any service and non-market performance vesting conditions. Non-market performance and service conditions are included in assumptions about the number of options or restricted shares that are expected to vest. The total expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each reporting period, the Group revises its estimates of the number of options and restricted shares that are expected to vest based on the non-market performance and service conditions. It recognizes the impact of the revision of original estimates, if any, in profit or loss with a corresponding adjustment to equity.
When the options are exercised, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium.
F- 18 |
(q) Provisions
A provision is recognized when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation. If management concludes that there is a past obligating even with respect to the underlying claim, then any incremental legal costs expected to be incurred in settling the claim is included in measuring the provision.
(r) Share Capital
Ordinary Share Capital
Incremental costs directly attributable to the issue of ordinary shares are recognized as a deduction from equity.
Repurchase of Share Capital
When share capital recognized is repurchased, the amount of the consideration paid, including directly attributable costs, is recognized as a deduction from equity as treasury stock.
F- 19 |
3. Financial Risk Management
3.1 Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk (including foreign currency risk and price and interest rate risk), credit and counterparty risk and liquidity risk. The Group’s financial risk management focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance by actively managing debt level and cash flow in order to maintain a strong financial position and minimizing refinancing and liquidity risks by attaining healthy debt repayment capacity, appropriate maturity profile and availability of banking facilities. The Group uses derivative financial instruments to hedge certain risk exposures.
The Board of Directors (the “Board”) is responsible for the review and ratification of the Group’s systems of risk management, internal compliance and control, code of conduct and legal compliance.
The Board maintains a formal set of delegated authorities (including policies for credit and treasury), that clearly define the responsibilities delegated to management and those retained by the Board. The Board approves these delegated authorities and reviews them annually.
(a) | Market risk |
(i) | Price and interest rate risk |
Price risk is the risk that the value of financial instruments and the interest margin will fluctuate as a result of changes in market interest rates. The risk is that financial assets may be repriced at a different time and / or by a different amount than financial liabilities.
This risk is managed by operating within approved policy limits using an interest rate duration approach.
Floating rate borrowings are used for general funding activities. Interest rate swaps, interest rate options and forward rate agreements are used to hedge the floating rate exposure as deemed appropriate. The Group had US$52.8 million interest rate derivatives at June 30, 2018 (2017: US$68.2 million).
Sensitivity analysis:
The sensitivity of net profit after tax for the years ended June 30, 2018, 2017 and 2016, to reasonably possible changes in conditions is as follows:
The following tables include the Group’s assets and liabilities at their carrying amounts on an undiscounted basis, categorized by the earlier of contractual repricing or maturity dates.
Within 12 months |
1 to 2 years | Over 2 years |
Non-interest bearing |
Total | ||||||||||||||||
(US$’000) | (US$’000) | (US$’000) | (US$’000) | (US$’000) | ||||||||||||||||
As of June 30, 2018 | ||||||||||||||||||||
Liabilities | ||||||||||||||||||||
Bank borrowings | 160,813 | - | - | - | 160,813 | |||||||||||||||
Derivative financial instruments | (42,651 | ) | 10,155 | 32,496 | 3,122 | 3,122 | ||||||||||||||
Trade and other payables | - | - | - | 200,654 | 200,654 | |||||||||||||||
Amount due to related parties | 4,838 | 10,177 | - | 3,666 | 18,681 | |||||||||||||||
123,000 | 20,332 | 32,496 | 207,442 | 383,270 | ||||||||||||||||
As of June 30, 2017 | ||||||||||||||||||||
Liabilities | ||||||||||||||||||||
Bank borrowings | 133,699 | - | - | - | 133,699 | |||||||||||||||
Derivative financial instruments | (57,174 | ) | 10,995 | 46,179 | 1,211 | 1,211 | ||||||||||||||
Trade and other payables | - | - | - | 205,279 | 205,279 | |||||||||||||||
Amount due to related parties | 4,149 | - | 10,175 | 3,932 | 18,256 | |||||||||||||||
80,674 | 10,995 | 56,354 | 210,422 | 358,445 |
F- 21 |
(ii) | Foreign currency risk |
The Group operates internationally and is exposed to foreign currency risk arising from various currency exposure movements. Foreign currency risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations. Most of the Group’s revenues and expenses are denominated in New Zealand dollars. The Group’s exposure to foreign currency risk primarily relates to transactions in US dollars, Renminbi (“RMB”), Great Britain Pounds, Australian dollars and the Euro. In order to mitigate the foreign currency risk, the Group hedges foreign currency risks as they arise. In some circumstances, foreign exchange options are used to hedge potential foreign currency risk. The Group uses forward foreign exchange contracts, spot foreign exchange contracts and foreign exchange options to manage these exposures.
The notional contract amounts of forward foreign exchange transactions outstanding at balance sheet date are $89.4 million (2017: $100.8 million) for the Group. The cash settlement requirements of these contracts approximate the notional contract amount shown above.
The translation of independent foreign operations into the Group financial statements is not hedged, apart from the seasonal working capital exposure to the Australian business which is hedged with foreign exchange contracts.
Balances denominated in foreign currency can be summarized as:
NZ$ | RMB | GBP | AUD | Euro | ||||||||||||||||
(US$’000) | (US$’000) | (US$’000) | (US$’000) | (US$’000) | ||||||||||||||||
As of June 30, 2018 | ||||||||||||||||||||
Cash and cash equivalents | 12,363 | 579 | 3 | 6 | 13 | |||||||||||||||
Receivables | 99,016 | 1,450 | 4,624 | 7,245 | 37,659 | |||||||||||||||
Finance receivables | 26,685 | - | - | - | - | |||||||||||||||
Bank facilities | (150,012 | ) | (3,476 | ) | - | - | - | |||||||||||||
Payables | (96,672 | ) | (7,943 | ) | (81 | ) | (1,831 | ) | (1,060 | ) | ||||||||||
Net financial position | (108,620 | ) | (9,390 | ) | 4,546 | 5,420 | 36,612 | |||||||||||||
Forward exchange contracts | ||||||||||||||||||||
Notional forward exchange cover | - | - | 4,543 | 5,415 | 36,600 | |||||||||||||||
Net unhedged position | (108,620 | ) | (9,390 | ) | 3 | 5 | 12 | |||||||||||||
As of June 30, 2017 | ||||||||||||||||||||
Cash and cash equivalents | 2,642 | 280 | 2 | 1,011 | 12 | |||||||||||||||
Receivables | 84,584 | 2,870 | 5,632 | 16,896 | 32,866 | |||||||||||||||
Finance receivables | 23,728 | - | - | - | - | |||||||||||||||
Bank facilities | (85,472 | ) | (886 | ) | - | (1,281 | ) | - | ||||||||||||
Payables | (171,293 | ) | (9,122 | ) | (103 | ) | (2,069 | ) | (5,340 | ) | ||||||||||
Net financial position | (145,811 | ) | (6,858 | ) | 5,531 | 14,557 | 27,538 | |||||||||||||
Forward exchange contracts | ||||||||||||||||||||
Notional forward exchange cover | - | - | 5,528 | 14,838 | 27,529 | |||||||||||||||
Net unhedged position | (145,811 | ) | (6,858 | ) | 3 | (281 | ) | 9 |
The net financial positions for the Group in AUD, RMB, GBP, Euro and NZD include cash and cash equivalents, receivables, bank borrowings and payables of the subsidiary companies domiciled in Australia, China and South America and are therefore not hedged.
A reasonably possible strengthening (weakening) of New Zealand dollar against US dollar at 30 June would have affected the measurement of financial instruments denominated in a foreign currency and affected equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases. The foreign exchange risks are not considered likely to lead to material change over the next reporting period for AUD, RMB, GBP and Euro. For this reason, sensitivity analysis of foreign exchange risks for these foreign currencies is not included.
F- 22 |
Profit or loss | Equity, net of tax | |||||||||||||||
Strengthening | Weakening | Strengthening | Weakening | |||||||||||||
June 30, 2018 | ||||||||||||||||
NZD (10% movement) | 970 | (970 | ) | 17,769 | (17,769 | ) | ||||||||||
June 30, 2017 | ||||||||||||||||
NZD (10% movement) | 3,108 | (3,108 | ) | 20,875 | (20,875 | ) |
(b) | Credit risk |
Concentration of credit risk
Credit risk mainly arises from cash and bank balances, advances, finance receivables, accounts and other receivables, and interest rate forward agreements. The carrying amounts of these balances substantially represent the Group’s maximum exposure to credit and counterparty risk in relation to financial assets.
As of June 30, 2018, substantially all of the Company’s cash and cash equivalents were deposited in several financial institutions. The concentrations of credit risk with respect to advances are limited due to the large number of customers included in the Group’s farming customer base in New Zealand, Australia, South America and China. Accounts receivable are typically unsecured and are derived from revenue earned from customers. The risk with respect to accounts receivable is mitigated by credit evaluations the Group performs on its customers and ongoing monitoring on outstanding balances. The Group also has a credit committee who meets as required to review credit risk, new loans and provisioning.
The Group’s maximum credit exposure to credit risk for receivables by geographic regions is as follows:
Total trade and other receivables and amount due from related parties
2018 | 2017 | |||||||
(US$’000) | (US$’000) | |||||||
New Zealand | 121,588 | 134,291 | ||||||
Australia | 7,344 | 9,759 | ||||||
South America (principally Uruguay) | 58,799 | 48,285 | ||||||
China | 2,194 | 4,201 | ||||||
189,925 | 196,536 |
(c) | Liquidity risk |
Liquidity risk is the risk that the Group will encounter difficulties in raising funds at short notice to meet commitments associated with financial instruments. Prudent liquidity risk management includes maintaining sufficient cash and availability of funding from an adequate amount of committed credit facilities. Management maintains a rolling forecast of the Group’s liquidity reserves which comprises undrawn banking facilities and cash and cash equivalents, on the basis of expected cash flows.
F- 23 |
Contractual Maturity Analysis:
The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date.
Within 12 months |
Between 1 and 5 years |
Over 5 years |
Contractual cash flow |
Statement of financial position |
||||||||||||||||
(US$’000) | (US$’000) | (US$’000) | (US$’000) | (US$’000) | ||||||||||||||||
As of June 30, 2018 | ||||||||||||||||||||
Liabilities | ||||||||||||||||||||
Bank borrowings | 68,163 | 110,507 | - | 178,670 | 160,813 | |||||||||||||||
- Principal | 59,801 | 101,012 | - | 160,813 | 160,813 | |||||||||||||||
- Interest | 8,362 | 9,495 | - | 17,857 | - | |||||||||||||||
Derivative financial instruments | 2,468 | 654 | - | 3,122 | 3,122 | |||||||||||||||
Trade and other payables | 190,449 | 1,436 | - | 191,885 | 191,885 | |||||||||||||||
Amount due to related parties | 9,997 | 10,088 | - | 20,085 | 18,681 | |||||||||||||||
271,077 | 122,685 | - | 393,762 | 374,501 | ||||||||||||||||
As of June 30, 2017 | ||||||||||||||||||||
Liabilities | ||||||||||||||||||||
Bank borrowings | 54,251 | 94,516 | 2,556 | 151,323 | 133,699 | |||||||||||||||
- Principal | 48,191 | 82,998 | 2,510 | 133,699 | 133,699 | |||||||||||||||
- Interest | 6,060 | 11,518 | 46 | 17,624 | - | |||||||||||||||
Derivative financial instruments | 726 | 485 | - | 1,211 | 1,211 | |||||||||||||||
Trade and other payables | 197,331 | 3,598 | - | 200,929 | 200,929 | |||||||||||||||
Amount due to related parties | 9,574 | 11,138 | - | 20,712 | 18,256 | |||||||||||||||
261,882 | 109,737 | 2,556 | 374,175 | 354,095 |
Expected Maturity Analysis:
The expected cash flows of the Group’s finance receivables equal their contractual cash flows.
(d) | Funding risk |
Funding risk is the risk of over-reliance on a funding source to the extent that a change in that funding source could increase overall funding costs or cause difficulty in raising funds. The Group has a policy of funding diversification. The funding policy augments the Group’s liquidity policy with its aim to ensure the Group has a stable diversified funding base without over-reliance on any one market sector.
3.2 Capital risk management
The capital of the Group consists of share capital, reserves, and retained earnings. The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain a capital structure to optimize the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. This policy is reviewed regularly by the Board and has not been changed during the period.
3.3 Fair value estimation
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
- | 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 (that is, as prices) or indirectly (that is, derived from prices) |
- | Level 3 - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) |
There had been no material movements between the fair value hierarchy during the years ended June 30, 2018 and 2017.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(US$’000) | (US$’000) | (US$’000) | (US$’000) | |||||||||||||
As of June 30, 2018 | ||||||||||||||||
Assets | ||||||||||||||||
Derivative financial instruments | - | 573 | - | 573 | ||||||||||||
Other investments | - | - | 20 | 20 | ||||||||||||
- | 573 | 20 | 593 | |||||||||||||
Liabilities | ||||||||||||||||
Earn-out provision (Note 23) | - | - | 478 | 478 | ||||||||||||
Derivative financial instruments | - | 3,122 | - | 3,122 | ||||||||||||
- | 3,122 | 478 | 3,600 | |||||||||||||
As of June 30, 2017 | ||||||||||||||||
Assets | ||||||||||||||||
Derivative financial instruments | - | 2,899 | - | 2,899 | ||||||||||||
Other investments | - | - | 22 | 22 | ||||||||||||
- | 2,899 | 22 | 2,921 | |||||||||||||
Liabilities | ||||||||||||||||
Earn-out provision (Note 23) | - | - | 4,229 | 4,229 | ||||||||||||
Derivative financial instruments | - | 1,211 | - | 1,211 | ||||||||||||
- | 1,211 | 4,229 | 5,440 |
F- 24 |
4. Critical Accounting Estimates and Judgements
Estimates and judgments 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.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. 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 addressed below.
Recoverability of the carrying values of long lived assets and estimated impairment losses (Notes 10 and 22)
Non-financial assets including goodwill and investment in associates are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its recoverable amount.
In addition, the Group tests at least annually whether goodwill or assets that have indefinite useful lives have suffered any impairment. The recoverable amounts of assets or cash generating units (“CGUs”) have been principally determined based on value-in-use calculations. These calculations require the use of estimates, such as discount rates, future profitability and growth rates.
Earn-out provision (Note 10 and 23)
The investment recorded for equity accounted investee company, Agimol Corporation S.A., included a provision for expected future earn-out payments. This provision need to be re-assessed annually. The assessments require the use of estimates, such as discount rates, future profitability and growth rates.
Valuation of seeds inventory (Note 17)
The net realizable value of seeds inventory depends on a number of factors, principally germination. An amount of judgement and estimation is required in assessing the valuation.
Allowance for impairment of trade and other receivables (Note 16)
The policy for allowance for impairment of trade and other receivables of the Group is based on the evaluation of collectability and on management’s judgement. A considerable amount of judgement is required in assessing the ultimate realization of these receivables, including the current creditworthiness and the past collection history of each customer. If the financial conditions of customers of the Group were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
Provisions and Contingent liabilities (Notes 23 and 29)
Management makes significant judgements regarding whether any pending litigation and claims should result in the recognition of a provision. Management consults with its legal and other professional advisors to determine whether or not the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation, and if a reliable estimate can be made of the amount to settle the obligation. If so, significant judgments are sometimes necessary to measure the amount of the provision to be recognized. The amount recognized as a provision is generally the best estimate of the expenditure required to settle the present obligation at the end of the reporting period. When there is a continuous range of possible outcomes, and each point in that range is as likely as any other, the mid-point of the range is used to measure the provision recognized. If management concludes that there is a past obligating event with respect to the underlying claim, then any incremental legal costs expected to be incurred in settling the claim is included in measuring the provision.
A contingent liability does not result in the recognition of a provision. Instead, information about the contingent liability is disclosed unless the likelihood of an outflow of resources embodying economic benefits is remote. Disclosures include a brief description of the nature of the contingency and, when this is practicable, the estimated financial effect, an indication of the uncertainties and the possibility of any reimbursement. When disclosure is impracticable, the fact is stated. Significant judgments are sometimes necessary in determining whether or not the Group has a present obligation as a result of a past event and in estimating the amount of any potential liability.
F- 25 |
5. Segment Reporting and Geographic Information
Segment Reporting Structure
The four operating segments offer different products and services, and are managed separately because they require different skills, technology and marketing strategies. There is also a Group General Manager for each segment. Within each segment, further business unit analysis may be provided to management where there are significant differences in the nature of activities.
- | Agency. Includes rural Livestock trading activities, Export Livestock, Wool, Insurance, Real Estate and Finance Commission. |
- | Retail and Water. Includes the Rural Supplies and Fruitfed retail operations, PGG Wrightson Water, AgNZ (Consulting), Agritrade and ancillary sales support, supply chain and marketing functions. |
- | Seed and Grain (NZ). Includes Australasia Seed (New Zealand and Australian manufacturing and distribution of forage seed and turf), Grain (sale of cereal seed and grain trading), South America (various related activities in the developing seeds markets including the sale of pasture and crop seed and farm inputs, together with operations in the areas of livestock, real estate and irrigation), and other Seed and Grain (research and development, international, production and corporate seeds). |
- | Other. Includes China. |
Following is the Group’s operating segment financial information for the years indicated:
Year ended
June 30, 2018 |
Year ended
June 30, 2017 |
Year ended
June 30, 2016 |
||||||||||
USD'000 | USD'000 | USD'000 | ||||||||||
Revenue | ||||||||||||
Agency - all from external customers | 142,809 | 140,592 | 153,006 | |||||||||
Retail and Water - all from external customers | 431,597 | 401,023 | 368,934 | |||||||||
Seed & Grain | ||||||||||||
- External customers | 274,806 | 265,822 | 268,991 | |||||||||
- Intersegment | 45,235 | 39,980 | 34,806 | |||||||||
- Total Seed & Grain segment revenue | 320,041 | 305,802 | 303,797 | |||||||||
Other - all from external customers | 10,906 | 14,035 | 15,357 | |||||||||
Total segment revenue | 905,353 | 861,452 | 841,094 | |||||||||
Reconciliation - Intersegment revenue in Seed & Grain | (45,235 | ) | (39,980 | ) | (34,806 | ) | ||||||
Reconciliation - Regional Corporate (i) | 534 | 742 | 1,391 | |||||||||
Reconciliation - Central Corporate | - | 1 | - | |||||||||
Total consolidated revenue | 860,652 | 822,215 | 807,679 |
(i) Mainly Revenue from discontinued operations.
Equity in earnings of investees | ||||||||||||
Agency | - | - | - | |||||||||
Retail and Water | - | - | - | |||||||||
Seed & Grain | (7,874 | ) | 1,783 | (164 | ) | |||||||
Other | - | - | - | |||||||||
Total of reportable segments | (7,874 | ) | 1,783 | (164 | ) | |||||||
Reconciliation - Regional Corporate | - | - | - | |||||||||
Reconciliation - Central Corporate | - | - | - | |||||||||
Total consolidated equity in earnings of investees | (7,874 | ) | 1,783 | (164 | ) | |||||||
Operating income (loss) | ||||||||||||
Agency | 13,547 | 12,031 | 11,346 | |||||||||
Retail and Water | 13,822 | 11,835 | 12,333 | |||||||||
Seed & Grain | 5,880 | 22,037 | 25,116 | |||||||||
Other | (6,111 | ) | (5,779 | ) | (2,578 | ) | ||||||
Total of reportable segments | 27,138 | 40,124 | 46,217 | |||||||||
Reconciliation - Regional Corporate (i) | (8,689 | ) | (7,969 | ) | (8,030 | ) | ||||||
Reconciliation - Central Corporate (ii) | (10,450 | ) | (12,811 | ) | (11,890 | ) | ||||||
Total consolidated operating income | 7,999 | 19,344 | 26,297 |
(i) | Included operating loss derived from un-allocated corporate employee expenses, professional service fees, directors’ fees and other general and administrative expenses of the regional headquarter. |
(ii) | Included operating loss derived from un-allocated corporate employee expenses, professional service fees, directors’ fees and other general and administrative expenses of Agria’s headquarter. |
F- 26 |
Year ended June 30, 2018 |
Year ended June 30, 2017 |
Year ended June 30, 2016 |
||||||||||
USD'000 | USD'000 | USD'000 | ||||||||||
Depreciation and amortization | ||||||||||||
Agency | (773 | ) | (806 | ) | (843 | ) | ||||||
Retail and Water | (2,205 | ) | (1,239 | ) | (998 | ) | ||||||
Seed & Grain | (5,179 | ) | (4,698 | ) | (3,815 | ) | ||||||
Other | (1,706 | ) | (841 | ) | (815 | ) | ||||||
Total of reportable segments | (9,863 | ) | (7,584 | ) | (6,471 | ) | ||||||
Reconciliation - Regional Corporate (i) | (1,947 | ) | (1,676 | ) | (1,359 | ) | ||||||
Reconciliation - Central Corporate (ii) | (29 | ) | (48 | ) | (118 | ) | ||||||
Total consolidated depreciation and amortization | (11,839 | ) | (9,308 | ) | (7,948 | ) |
(i) | Included depreciation and amortization of un-allocated Corporate fixed assets and intangible assets in regional headquarter. |
(ii) | Included depreciation and amortization of un-allocated Corporate fixed assets and intangible assets in Agria’s headquarter. |
Note: Non-cash items include bad debt expense, inventories write-downs, tax movement, fair value adjustment, and other non-cash items.
Net financial income and expenses | ||||||||||||
Agency | (988 | ) | 337 | (265 | ) | |||||||
Retail and Water | 274 | 194 | (874 | ) | ||||||||
Seed & Grain | (5,170 | ) | (2,944 | ) | (2,577 | ) | ||||||
Other | (388 | ) | (827 | ) | (1,234 | ) | ||||||
Total of reportable segments | (6,272 | ) | (3,240 | ) | (4,950 | ) | ||||||
Reconciliation - Regional Corporate (i) | (4,199 | ) | (1,979 | ) | (3,305 | ) | ||||||
Reconciliation - Central Corporate (ii) | (4,903 | ) | (4,314 | ) | (5,062 | ) | ||||||
Total consolidated net interest (income) and finance costs | (15,374 | ) | (9,533 | ) | (13,317 | ) |
(i) | Included financial cost on loans for corporate operation and fixed assets in regional headquarter. |
(ii) | Included financial cost on loans for corporate operation and fixed assets in Agria’s headquarter. |
Income tax (expense) / income | ||||||||||||
Agency | (3,109 | ) | (2,975 | ) | (4,031 | ) | ||||||
Retail and Water |
(3,073 |
) | (3,750 | ) | (5,444 | ) | ||||||
Seed & Grain |
(6,320 |
) | (5,359 | ) | (6,880 | ) | ||||||
Other | - | (1 | ) | (1 | ) | |||||||
Total of reportable segments | (12,502 | ) | (12,085 | ) | (16,356 | ) | ||||||
Reconciliation - Regional Corporate (i) | 3,890 | 3,093 | 9,394 | |||||||||
Reconciliation - Central Corporate | (1 | ) | - | - | ||||||||
Total consolidated income tax expense | (8,613 | ) | (8,992 | ) | (6,962 | ) |
(i) | Included income tax credit which not able to allocated to segment, but allocated to regional headquarter. |
F- 27 |
Year ended June 30, 2018 |
Year ended June 30, 2017 |
Year ended June 30, 2016 |
||||||||||
USD'000 | USD'000 | USD'000 | ||||||||||
Expenditure for additions to long lived assets | ||||||||||||
Agency | 2,287 | 1,243 | 969 | |||||||||
Retail and Water | 6,899 | 3,736 | 3,199 | |||||||||
Seed & Grain | 9,401 | 8,489 | 24,651 | |||||||||
Other | 1,021 | 1,194 | 1,105 | |||||||||
Total of reportable segments | 19,608 | 14,662 | 29,924 | |||||||||
Reconciliation - Regional Corporate (i) | 2,368 | 1,356 | 2,150 | |||||||||
Reconciliation - Central Corporate (ii) | 1 | 2 | 178 | |||||||||
Total consolidated expenditure for additions to long lived assets | 21,977 | 16,020 | 32,252 |
(i) | Included expenditure for additions of corporate fixed assets in the regional headquarter. |
(ii) | Included expenditure for additions of corporate fixed assets in Agria’s headquarter. |
As at June 30, 2018 |
As at June 30, 2017 |
|||||||
USD'000 | USD'000 | |||||||
Segment assets | ||||||||
Agency | 109,253 | 106,613 | ||||||
Retail and Water | 102,515 | 100,847 | ||||||
Seed & Grain | 283,402 | 284,877 | ||||||
Other | 61,805 | 64,589 | ||||||
Total of reportable segments | 556,975 | 556,926 | ||||||
Reconciliation - Regional Corporate (i) | 14,208 | 22,394 | ||||||
Reconciliation - Central Corporate (ii) | (34,593 | ) | (32,736 | ) | ||||
Total consolidated assets | 536,590 | 546,584 |
(i) | Included assets held for sale, cash held at bank, deferred tax assets and other assets associated with corporate activities of regional headquarter. |
(ii) | Included cash held at bank and other assets associated with corporate activities of Agria’s headquarter. |
Investment in investees | ||||||||
Agency | - | - | ||||||
Retail and Water | - | - | ||||||
Seed & Grain | 5,086 | 15,314 | ||||||
Other | - | - | ||||||
Total of reportable segments | 5,086 | 15,314 | ||||||
Reconciliation - Regional Corporate (i) | 40 | 59 | ||||||
Reconciliation - Central Corporate | - | - | ||||||
Total consolidated investment in investees | 5,126 | 15,373 |
(i) | Included investment in investees that are not related to current existing segments. |
Segment liabilities | ||||||||
Agency | (59,022 | ) | (52,260 | ) | ||||
Retail and Water | (58,136 | ) | (52,862 | ) | ||||
Seed & Grain | (111,125 | ) | (137,224 | ) | ||||
Other | (41,495 | ) | (38,620 | ) | ||||
Total of reportable segments | (269,778 | ) | (280,966 | ) | ||||
Reconciliation - Regional Corporate (i) | (93,438 | ) | (60,155 | ) | ||||
Reconciliation - Central Corporate (ii) | (31,782 | ) | (31,943 | ) | ||||
Total consolidated liabilities | (394,998 | ) | (373,064 | ) |
(i) | Included bank debt, net defined benefit pension liability, accrual of expense for professional service and other liabilities associated with corporate activities of regional headquarter. |
(ii) | Included bank debt, accrual of expense for professional service and other liabilities associated with corporate activities of Agria’s headquarter. |
F- 28 |
Geographical Information
The Group operates predominantly in New Zealand with some operations in Australia, South America and China.
The Australian and South American business units facilitate the export sales and services of New Zealand operations in addition to their own seed trading operations.
In presenting information on the basis of geographical location, revenue is based on the geographical location of operations and non-current assets are based on the geographical location of the assets.
The Group’s consolidated revenue by geographical location for the years ended June 30, 2018, 2017 and 2016 are detailed below.
2018 | 2017 | 2016 | ||||||||||
(US$’000) | (US$’000) | (US$’000) | ||||||||||
New Zealand | 715,847 | 680,760 | 655,860 | |||||||||
Australia | 54,129 | 56,466 | 57,660 | |||||||||
Uruguay | 69,103 | 59,785 | 68,144 | |||||||||
Other South American countries | 10,667 | 11,169 | 10,658 | |||||||||
China | 10,906 | 14,035 | 15,357 | |||||||||
860,652 | 822,215 | 807,679 |
The Group’s consolidated non-current assets (excluding financial instruments and deferred tax assets) by geographical location are detailed below.
As of June 30, | ||||||||
2018 | 2017 | |||||||
(US$’000) | (US$’000) | |||||||
New Zealand | 61,277 | 62,859 | ||||||
Australia | 10,370 | 10,730 | ||||||
Uruguay | 26,389 | 34,547 | ||||||
China | 4,976 | 10,177 | ||||||
103,012 | 118,313 |
6. Revenue
2018 | 2017 | 2016 | ||||||||||
(US$’000) | (US$’000) | (US$’000) | ||||||||||
Sales - Agricultural products | 614,279 | 582,516 | 554,129 | |||||||||
Sales - Agency | 142,809 | 140,592 | 153,006 | |||||||||
Commissions | 78,927 | 77,184 | 70,750 | |||||||||
Construction contract revenue | 21,094 | 19,707 | 28,477 | |||||||||
Other | 3,543 | 2,216 | 1,317 | |||||||||
860,652 | 822,215 | 807,679 |
The Company has not provided additional detail of revenue by specific products and services within Agricultural Products and Agency categories as the information does not exist and the cost to develop would be excessive.
F- 29 |
7. Cost of sales
Cost of sales includes the following items by nature:
2018 | 2017 | 2016 | ||||||||||
(US$’000) | (US$’000) | (US$’000) | ||||||||||
Depreciation and amortization | 1,173 | 965 | 1,124 | |||||||||
Employee benefits including commissions | 24,375 | 27,185 | 24,040 | |||||||||
Inventories, finished goods, work in progress, raw materials and consumables | 564,622 | 541,853 | 543,957 | |||||||||
Other | 20,618 | 16,481 | 16,191 | |||||||||
610,788 | 586,484 | 585,312 |
8. Other Income
2018 | 2017 | 2016 | ||||||||||
(US$’000) | (US$’000) | (US$’000) | ||||||||||
Dividend income | - | - | 4 | |||||||||
Other investment income | 157 | 277 | 543 | |||||||||
Other | (76 | ) | 57 | - | ||||||||
81 | 334 | 547 |
9. Selling, general and administrative expense and Key Management Compensation
Selling, general and administrative expense includes the following items:
2018 | 2017 | 2016 | ||||||||||
(US$’000) | (US$’000) | (US$’000) | ||||||||||
Audit fee of the Company | 333 | 359 | 430 | |||||||||
Audit of annual financial statements of the subsidiaries and associates | 317 | 291 | 342 | |||||||||
Other professional service fees | 4,643 | 7,686 | 6,451 | |||||||||
Donations | 4 | 2 | - | |||||||||
Bad debt expense, net of reversals | 1,355 | 2,979 | 994 | |||||||||
Marketing expenses | 6,786 | 6,469 | 6,356 | |||||||||
Motor vehicle costs | 5,783 | 5,281 | 4,711 | |||||||||
Employee benefit expense | 124,264 | 126,685 | 117,691 | |||||||||
Directors' fees | 71 | 168 | 420 | |||||||||
Depreciation & amortization | 9,845 | 7,856 | 6,412 | |||||||||
Rental and operating lease costs | 21,485 | 20,993 | 17,763 | |||||||||
Travel and entertainment | 6,487 | 5,981 | 6,158 | |||||||||
Communication | 4,785 | 4,935 | 4,890 | |||||||||
IT expense | 5,934 | 5,340 | 5,685 | |||||||||
Class Action settlement fee | - | 1,300 | - | |||||||||
Holiday Act expense (Note 23) | 5,857 | - | - | |||||||||
Insurance claim | (567 | ) | (550 | ) | - | |||||||
Impairment of tangible, other intangible and other investments | 3,413 | - | - | |||||||||
Other general expense | 25,583 | 18,284 | 13,839 | |||||||||
226,378 | 214,059 | 192,142 |
Key management compensation during the periods presented:
2018 | 2017 | 2016 | ||||||||||
(US$’000) | (US$’000) | (US$’000) | ||||||||||
Short-term employee benefits | 6,872 | 8,256 | 6,765 | |||||||||
Share-based payments | 1,885 | 1,885 | 1,476 | |||||||||
8,757 | 10,141 | 8,241 |
F- 30 |
Directors’ fees of $0.1 million incurred during the year ended June 30, 2018 (2017: $0.2 million, 2016: $0.4 million) were included in employee benefits expense.
Class Action settlement fee and insurance claim
In November 2016, a class action lawsuit was filed by shareholders against the Company and certain members of our past and present directors and officers for matters in connection with the NYSE delisting in April 2017. We filed a motion to dismiss the class action, and the action was settled for a sum of $1.3 million in December 2017. Under a Director and Officer Insurance policy, $0.55 million of settlement fee has been claimed back from the insurance company.
10. Equity In Earnings/(Loss) of Investees
Earnings from equity accounted investees
% held by
subsidiaries |
Effective
%
held |
Current
assets US$000 |
Non-current
assets US$000 |
Total
assets US$000 |
Current
liabilities US$000 |
Non-current
liabilities US$000 |
Total
liabilities US$000 |
Revenues
US$000 |
Expenses
US$000 |
Profit / (loss)
after tax US$000 |
Company
Share US$000 |
|||||||||||||||||||||||||||||||||||||
30 June 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||
Forage Innovations Limited | 51 | % | 24 | % | 834 | - | 834 | (556 | ) | - | (556 | ) | 1,213 | (1,155 | ) | 58 | 29 | |||||||||||||||||||||||||||||||
Agimol Corporation S.A. | 50 | % | 23 | % | 40,602 | 10,276 | 50,878 | (42,950 | ) | - | (42,950 | ) | 51,706 | (54,752 | ) | (3,046 | ) | (1,523 | ) | |||||||||||||||||||||||||||||
Agri Optics New Zealand Limited | 33 | % | 15 | % | 230 | 70 | 300 | (41 | ) | (305 | ) | (346 | ) | 732 | (760 | ) | (28 | ) | (36 | ) | ||||||||||||||||||||||||||||
Canterbury Sale Yards (1996) Limited | 50 | % | 23 | % | 104 | 28 | 132 | (41 | ) | - | (41 | ) | 392 | (422 | ) | (30 | ) | (15 | ) | |||||||||||||||||||||||||||||
Fertimas S.A. | 50 | % | 23 | % | 12,304 | - | 12,304 | (10,254 | ) | - | (10,254 | ) | 19,285 | (18,879 | ) | 406 | 203 | |||||||||||||||||||||||||||||||
54,074 | 10,374 | 64,448 | (53,842 | ) | (305 | ) | (54,147 | ) | 73,328 | (75,968 | ) | (2,640 | ) | (1,342 | ) | |||||||||||||||||||||||||||||||||
30 June 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||
Forage Innovations Limited | 51 | % | 21 | % | 855 | - | 855 | (614 | ) | - | (614 | ) | 1,073 | (1,131 | ) | (58 | ) | (30 | ) | |||||||||||||||||||||||||||||
Agimol Corporation S.A. | 50 | % | 20 | % | 37,586 | 8,056 | 45,642 | (39,229 | ) | - | (39,229 | ) | 61,041 | (60,769 | ) | 272 | 136 | |||||||||||||||||||||||||||||||
Agri Optics New Zealand Limited | 51 | % | 21 | % | 6 | 102 | 108 | (68 | ) | (140 | ) | (208 | ) | 126 | (198 | ) | (71 | ) | (36 | ) | ||||||||||||||||||||||||||||
Canterbury Sale Yards (1996) Limited | 50 | % | 20 | % | 141 | 4 | 145 | (27 | ) | - | (27 | ) | 378 | (419 | ) | (41 | ) | (21 | ) | |||||||||||||||||||||||||||||
Fertimas S.A. | 50 | % | 20 | % | 6,513 | - | 6,513 | (4,874 | ) | - | (4,874 | ) | 14,781 | (14,698 | ) | 83 | 41 | |||||||||||||||||||||||||||||||
45,101 | 8,162 | 53,263 | (44,812 | ) | (140 | ) | (44,952 | ) | 77,399 | (77,215 | ) | 185 | 90 |
Movement in carrying value of the investment equity accounted investees
2018 | 2017 | |||||||
(US$’000) | (US$’000) | |||||||
Opening balance | 15,373 | 12,780 | ||||||
Investment in associates | 2,192 | 2,066 | ||||||
Disposal | (79 | ) | - | |||||
Impairment | (10,176 | ) | - | |||||
Currency translation | (842 | ) | 437 | |||||
Share of profit / (loss) | (1,342 | ) | 90 | |||||
Closing balance | 5,126 | 15,373 |
The Group’s equity accounted investees comprise Forage Innovation Limited, Canterbury Sale Yards (1996) Limited, Fertimas S. A., Agimol Corporation S.A. and Agri Optics New Zealand Limited.
The Group has conducted an impairment assessment based on forecasted future cash flows of Agimol Corporation S.A. which resulted in an impairment of $10.2 million recorded through the income statement in equity in loss of investees. As of June 30, 2018, there is goodwill of Nil million included in the carrying value of Agimol Corporation S.A. (2017: $9.7 million).
F- 31 |
The carrying value of the investment in Agimol Corporation S.A. (Agrocentro Uruguay) has been assessed for impairment in conjunction with the review of the earn-out liability. Impairment testing was performed using a discounted cash flow model over a three year period plus a terminal cash flow to determine the recoverable amount of the assets. This assessment lead to a total impairment of $10.2 million to the carrying value of the investment.
The impairment assessment is based on a consideration of the value in use forecast cash flows as described below and with reference to fair value embedded in the offer made for the PGW Seeds business as a whole (see note 33).
The following key assumptions were used in the model, taking into account historic data and forecast economic conditions:
l | The Revenue is projected to increase by 4.6% in the 2019 year, 4.9% in the 2020 and 2021 years, |
l | Post-tax discount rate of 13%; |
l | Long term growth rate of 3.9%. | |
l | Continued shareholder support. |
The key assumptions used and estimates made are considered to represent the most realistic assessment of the recoverable amount of the investment in associate. Based on this assessment the recoverable amount of this asset is lower than its carrying amount at the reporting date and management have concluded that a $10.2 million impairment was required.
The initial investment recorded for this equity accounted investee company in 2016 included a provision for expected future earn-out payments of $4.51 million. This provision was previously included within accruals and other liabilities. Based on the future cash flow forecasts, we have re-assessed the provision which has resulted in a reduction of the provision. The reduction of $3.7 million has been recorded through the income statement in Equity in loss of investees. This provision release offsets against the impairment of Agimol Corporation S.A. noted above.
The net Equity in earnings/(losses) of a loss of $7.9 million (2017: earnings of $1.8 million) comprises the impairment of $10.2 million (2017: Nil), share of loss of $1.4 million (2017: share of profit of $0.1 million) and the release of the earn-out provision of $3.7 million (2017: $1.7 million). Of this total, $8 million (2017: $1.8 million) is attributable to the investment in Agrocentro Uruguay
During the year the Group reduced its investment in Agri Optics New Zealand Ltd from 51% to 33.33% following the inclusion of a third JV partner. Proceeds of $0.08 million were received for the investment reduction.
11. Non-operating items
Non-operating items include the items which are not related to ordinary operation of the Company. They are not extraordinary in nature.
2018 | 2017 | 2016 | ||||||||||||
Note | (US$’000) | (US$’000) | (US$’000) | |||||||||||
Gain on sale of assets | 1,253 | 6,320 | 3,527 | |||||||||||
Business acquisition setup expense | - | - |
|
(538 | ) | |||||||||
Fair value adjustment | (i) | (37 | ) | (300 | ) | (155 | ) | |||||||
Defined benefit plan | (101 | ) | (463 | ) | (274 | ) | ||||||||
Others | 223 | 373 | 665 | |||||||||||
1,338 | 5,930 | 3,225 |
(i) Fair value adjustment | 2018 | 2017 | 2016 | |||||||||
(US$’000) | (US$’000) | (US$’000) | ||||||||||
Assets held for sale | - | (87 | ) | (449 | ) | |||||||
Biological assets | 28 | 20 | 370 | |||||||||
Investments | (65 | ) | (233 | ) | (76 | ) | ||||||
(37 | ) | (300 | ) | (155 | ) |
F- 32 |
12. Interest - Finance Income and Expenses
2018 | 2017 | 2016 | ||||||||||
(US$’000) | (US$’000) | (US$’000) | ||||||||||
Interest income arising from financial assets: | ||||||||||||
Cash flow hedges - ineffective portion of changes in fair value | - | 932 | 1,515 | |||||||||
Other interest income | 199 | 157 | 74 | |||||||||
Finance income | 199 | 1,089 | 1,589 | |||||||||
Interest on interest rate swaps | (379 | ) | (262 | ) | (189 | ) | ||||||
Financial liabilities measured at amortized cost - interest expense | (8,754 | ) | (6,464 | ) | (6,392 | ) | ||||||
Net foreign exchange loss | (3,227 | ) | (634 | ) | (2,021 | ) | ||||||
Effective interest on defined pension ESCT payments | (286 | ) | - | - | ||||||||
Effective interest on expected earn out payments | (62 | ) | (19 | ) | (542 | ) | ||||||
Bank facilities fees | (1,921 | ) | (1,984 | ) | (2,130 | ) | ||||||
Financial liability at fair value through profit or loss - net change in fair value | - | - | (85 | ) | ||||||||
Third-party debt guarantee fee | (423 | ) | (706 | ) | (2,999 | ) | ||||||
Others | (521 | ) | (553 | ) | (548 | ) | ||||||
Finance expense | (15,573 | ) | (10,622 | ) | (14,906 | ) | ||||||
Net finance costs | (15,374 | ) | (9,533 | ) | (13,317 | ) |
13. Income Taxes
2018 | 2017 | 2016 | ||||||||||
(US$’000) | (US$’000) | (US$’000) | ||||||||||
Current tax expense | ||||||||||||
Current year | 10,569 | 9,637 | 9,387 | |||||||||
Adjustment for prior years | (220 | ) | 1,230 | (2,357 | ) | |||||||
10,349 | 10,867 | 7,030 | ||||||||||
Deferred tax expense | ||||||||||||
Origination and reversal of temporary differences | (1,249 | ) | (653 | ) | 367 | |||||||
Effect of change in tax rates | - | - | (198 | ) | ||||||||
Recognition of previously unrecognised tax losses | (328 | ) | - | - | ||||||||
Adjustments for prior years | (159 | ) | (1,222 | ) | (237 | ) | ||||||
(1,736 | ) | (1,875 | ) | (68 | ) | |||||||
Income tax expense | 8,613 | 8,992 | 6,962 |
The Company’s tax charge comes solely from tax payable/receivable in overseas tax jurisdictions, particularly from PGW, which has a statutory tax rate of 28%.
2018 | 2017 | 2016 | ||||||||||
(US$’000) | (US$’000) | (US$’000) | ||||||||||
(Loss) / Profit before tax | (6,037 | ) | 15,741 | 16,205 | ||||||||
Tax expense calculated at statutory tax rates applicable to profits in the respective countries |
2,658 |
9,280 | 10,587 | |||||||||
(Income)/expense not (recoverable)/deductible for tax |
4,028 |
156 | 795 | |||||||||
Effect of tax exemptions | (560 | ) | (1,552 | ) | (2,102 | ) | ||||||
Effect of foreign tax rate difference | 508 | (139 | ) | (659 | ) | |||||||
Losses not recognized | 2,025 | 1,234 | 501 | |||||||||
Under provision in prior years | (379 | ) | 9 | (2,595 | ) | |||||||
Others | 333 | 4 | 435 | |||||||||
8,613 | 8,992 | 6,962 |
2018 | 2017 | 2016 | ||||||||||
(US$’000) | (US$’000) | (US$’000) | ||||||||||
Income tax recognized directly in equity | ||||||||||||
Income tax on changes in fair value of cash flow hedges | - | 407 | (729 | ) | ||||||||
Income tax on movement of actuarial gain/(loss) on employee benefit plans | (684 | ) | (154 | ) | 2,003 | |||||||
(684 | ) | 253 | 1,274 |
F- 33 |
Recognized deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets | Liabilities | Net | ||||||||||||||||||||||
As of June 30, | As of June 30, | As of June 30, | ||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||
(US$’000) | (US$’000) | (US$’000) | (US$’000) | (US$’000) | (US$’000) | |||||||||||||||||||
Property, plant and equipment | - | - | (110 | ) | (380 | ) | (110 | ) | (380 | ) | ||||||||||||||
Intangible assets | - | - | (66 | ) | (334 | ) | (66 | ) | (334 | ) | ||||||||||||||
Employee benefits | 7,236 | 7,062 | - | - | 7,236 | 7,062 | ||||||||||||||||||
Provisions and Accrued expenses | 3,788 | 3,428 | (486 | ) | (71 | ) | 3,302 | 3,357 | ||||||||||||||||
Other items | 891 | 1,396 | - | - | 891 | 1,396 | ||||||||||||||||||
Tax assets / (liabilities) | 11,915 | 11,886 | (662 | ) | (785 | ) | 11,253 | 11,101 |
Movement in deferred tax on temporary differences during the year
Property, plant and equipment |
Intangible assets |
Employee benefits |
Provisions and accrued expenses |
Other items |
Total | |||||||||||||||||||
(US$’000) | (US$’000) | (US$’000) | (US$’000) | (US$’000) | (US$’000) | |||||||||||||||||||
Balance as of July 1, 2016 | (1,658 | ) | (309 | ) | 8,773 | 2,149 | 1,222 | 10,177 | ||||||||||||||||
Recognized in profit or loss | 1,296 | (14 | ) | (237 | ) | 700 | 131 | 1,876 | ||||||||||||||||
Recognized in other comprehensive income | - | - | (1,704 | ) | - | 407 | (1,297 | ) | ||||||||||||||||
Exchange difference | (18 | ) | (11 | ) | 230 | 508 | (364 | ) | 345 | |||||||||||||||
Balance as of July 1, 2017 | (380 | ) | (334 | ) | 7,062 | 3,357 | 1,396 | 11,101 | ||||||||||||||||
Recognized in profit or loss | 253 | 255 | 1,435 | 213 | (420 | ) | 1,736 | |||||||||||||||||
Recognized in other comprehensive income | - | - | (684 | ) | - | - | (684 | ) | ||||||||||||||||
Exchange difference | 17 | 13 | (577 | ) | (268 | ) | (85 | ) | (900 | ) | ||||||||||||||
Balance as of June 30, 2018 | (110 | ) | (66 | ) | 7,236 |
3,302 |
891 |
11,253 |
Unrecognized tax losses/Unrecognized temporary differences
The Group has $7.5 million of unrecognized deferred tax assets relating to unrecognized losses as of June 30, 2018 (2017: $7.6 million) and $1.8 million of unrecognized deferred tax assets relating to unrecognized temporary differences (2017: $1.8 million). These unrecognized tax assets largely relate to carried forward and current year losses in the Australian and China operations of the Group. As of June 30, 2018, the accumulated tax losses in China amounting to $8.3 million (2017: $10.2 million) will expire in five years. There is no expiry period for the tax losses in Australia.
F- 34 |
14. Earnings/(Loss) Per Share
The calculation of the basic earnings per share is based on loss attributable to equity holders of $17.8 million (2017: loss of $10.3 million and 2016: loss of $6.3 million) and the weighted average number of 110,115,854 shares outstanding (2017:110,322,214 and 2016: 110,766,600 shares) during the year.
Weighted-average number of ordinary shares (basic)
2018 | 2017 | |||||||
Outstanding ordinary shares at July 1 | 110,322,214 | 110,766,600 | ||||||
Effect of treasury shares held | (206,360 | ) | (444,386 | ) | ||||
Weighted-average number of ordinary shares outstanding for the year ended June 30 | 110,115,854 | 110,322,214 |
The calculation of the diluted earnings per share for the years ended June 30, 2018, 2017 and 2016 was based on loss attributable to equity holders of $17.8 million, $10.3 million and $6.3 million, respectively and 110,115,854 weighted average number of shares outstanding during 2018 and 110,322,214 shares outstanding during 2017 and 110,766,600 outstanding during 2016. All of the ordinary shares issuable upon exercising employee share options and restricted shares were not included in the calculation of dilutive loss per share for 2018, 2017 and 2016 because the effect of inclusion would be anti-dilutive.
Options to purchase 1,440,000, 2,344,000 and 2,404,000 ordinary shares were exercisable as of June 30, 2018, 2017 and 2016, respectively. Total vested restricted shares outstanding as of June 30, 2018 were 10,153,605 (2017: 6,461,385, 2016: 2,769,165).
15. Cash and Cash Equivalents, and Bank Facilities
As of June 30, | ||||||||
2018 | 2017 | |||||||
(US$’000) | (US$’000) | |||||||
Cash and cash equivalents | 17,050 | 15,876 | ||||||
17,050 | 15,876 | |||||||
Short-term facilities: | ||||||||
Short-term facilities | (59,801 | ) | (39,091 | ) | ||||
Long-term facilities - current portion | - | (9,100 | ) | |||||
(59,801 | ) | (48,191 | ) | |||||
Long-term facilities | ||||||||
Long-term portion | (101,012 | ) | (85,508 | ) | ||||
Net interest bearing debts | (143,763 | ) | (117,823 | ) |
Bank facilities
The Group’s subsidiary, PGW, has a syndicated facility agreement, amended on December 15, 2017, that provides bank facilities of up to $142.2 million. The agreement contains various financial covenants and restrictions that are standard for facilities of this nature, including maximum permissible rates for debt leverage and operating leverage. PGW has granted a general security deed and mortgage over all its wholly-owned New Zealand and Australian assets to a security trust. These assets include the shares held in South American subsidiaries and equity investees. ANZ Bank New Zealand Limited acts as security trustee for the banking syndicate (ANZ Bank New Zealand Limited, Bank of China ( New Zealand ) Limited, Bank of New Zealand Limited, MUFG Bank, Ltd and Westpac New Zealand Limited).
PGW bank syndicate facilities include:
- | A term debt facility of $101.6 million maturing on July 31, 2020 with outstanding borrowings of $80.0 million (2017: $58.6 million) as of June 30, 2018. |
- | A working capital facility of up to $40.6 million maturing on July 31, 2020 with outstanding borrowings of $3.4 million (2017: $4.4 million) as of June 30, 2018. |
The syndicated facility agreement also allows PGW, subject to certain conditions, to enter into additional facilities outside of PGW’s syndicated facility. The additional facilities are guaranteed by the security trust. These facilities amounted to $15.4 million (2017: $14.2 million) as of June 30, 2018 including:
- | Overdraft facilities of $6.5 million (2017: $7.0 million) |
- | Guarantee and trade finance facilities of $7.0 million (2017: $4.9 million) |
- | Finance lease facilities of $1.9 million (2017: $2.3). |
F- 35 |
The syndicated facilities fund the general corporate activities of PGW, the seasonal fluctuations in working capital, and the Go range of livestock product receivables.
In addition, two of the Group’s wholly-owned Uruguayan subsidiaries (Wrightson Pas S.A. and Agrosan S.A.) jointly and severally are obligors to a bank club financing structure. The bank club facilities contain various financial covenants and restrictions that are standard for facilities of this nature. The club facilities are denominated in USD, secured by a mortgage over the Uruguayan logistics centre and provide:
- | An amortizing logistics centre facility of $8.1 million maturing on September 17, 2022. |
- | A committed facility of $12.0 million maturing on June 29, 2021. |
- | A finance lease facilities of $0.2 million. |
Separate to the club facility, the Group’s South American operations have various unsecured financing facilities that amounted to $13.5 million as at June 30, 2018 (2017: $11.3 million).
During April 2018 the Group’s subsidiary, Agria NZ Finance Limited, obtained loan facilities of approximately $35 million from Bank of New Zealand and Bank of China New Zealand Branch which will mature on March 31, 2019. The outstanding loan borrowing was $32.1 million as of June 30, 2018
The loan from Bank of New Zealand and Bank of China New Zealand Branch was used to refinance existing indebtedness and is secured through a pledge of Agria’s shares in PGW. The $35m financing has financial covenants and is subject to events of review to which the Group was compliant with as at June 30, 2018. Furthermore the loan is mandatorily repayable in certain situations including on the completion of the sale of PGW Seeds as described in note 33. The Company forecasts there will be sufficient liquidity to meet all debt obligations.
On September 30, 2018, the Company triggered an event of review under the loan agreement in relation to the sale of PGW Seeds in respect of the degree of its conditionality at this date (see note 33) - the Company has subsequently obtained a waiver from the banks concerned with no change to the facility’s terms.
The Group’s subsidiary, NKY, obtained trade facilities of approximately $2.3 million from WOORI Bank which will mature on April 26, 2019. The loan borrowing was $2.3 million at June 30, 2018 (2017: $0.9 million).
The Group’s subsidiary, Shenzhen Zhongguan, obtained trade facilities of approximately $1.2 million from Shanghai Commercial Bank which will mature on December 11, 2020. The loan borrowing was $1.2 million at June 30, 2018 (2017: Nil).
The weighted average interest rates on short-term and long-term borrowings outstanding as of each balance sheet date were as follows.
As of June 30, | ||||||||
2018 | 2017 | |||||||
Short-term facilities | 6.1 | % | 4.4 | % | ||||
Long-term facilities | 4.3 | % | 3.5 | % |
16. Accounts Receivables, Other Receivables and Prepayments
As of June 30, | ||||||||
2018 | 2017 | |||||||
(US$’000) | (US$’000) | |||||||
Accounts receivable | 149,979 | 144,222 | ||||||
Finance receivables | 496 | - | ||||||
Less allowance for doubtful debts | (5,706 | ) | (6,590 | ) | ||||
Net accounts receivable | 144,769 | 137,632 | ||||||
Go livestock receivables | 26,687 | 23,728 | ||||||
171,456 | 161,360 | |||||||
Other receivables and prepayments | 24,831 | 21,339 | ||||||
196,287 | 182,699 |
Accounts receivable
Analysis of movements in allowance for doubtful debts is as follows:
2018 | 2017 | |||||||
(US$’000) | (US$’000) | |||||||
Balance at beginning of year | (6,590 | ) | (6,062 | ) | ||||
Bad debt expense | (1,355 | ) | (3,673 | ) | ||||
Write-offs | 1,924 | 3,206 | ||||||
Exchange differences | 315 | (61 | ) | |||||
Balance at end of year | (5,706 | ) | (6,590 | ) |
F- 36 |
The aging status of the accounts receivable at the reporting date are as follows:
June 30, 2018 | June 30, 2017 | |||||||||||||||
Not impaired | Impaired | Not impaired | Impaired | |||||||||||||
(US$’000) | (US$’000) | (US$’000) | (US$’000) | |||||||||||||
Not past due | 117,704 | 14 | 106,112 | - | ||||||||||||
Past due 1-30 days | 12,627 | 64 | 18,352 | 13 | ||||||||||||
Past due 31-60 days | 8,357 | 55 | 6,114 | 12 | ||||||||||||
Past due 61-90 days | 710 | 22 | 698 | 21 | ||||||||||||
Past due 90 plus days | 5,371 | 5,551 | 6,356 | 6,544 | ||||||||||||
Impairment | - | (5,706 | ) | - | (6,590 | ) | ||||||||||
144,769 | - | 137,632 | - |
Go livestock receivables
The Group holds receivables in respect of its Go range of livestock products. Launched in November 2015, the Go range allow farmers to defer payment for the purchase of livestock. The counterparty to the Go product is fully exposed to the risks and rewards of ownership. To mitigate credit risk the Group retains title to the livestock until sale. Fee income received in respect of the Go range of livestock receivables is recognized by the Group as interest income over the respective contract period. Interest income on the Go range of livestock receivables is included within operating revenue of the Agency operating segment.
The aging status of the Go livestock receivable at the reporting date are as follows:
June 30, 2018 | June 30, 2017 | |||||||||||||||
Not impaired | Impaired | Not impaired | Impaired | |||||||||||||
(US$’000) | (US$’000) | (US$’000) | (US$’000) | |||||||||||||
Not past due | 26,687 | - | 23,728 | - | ||||||||||||
Past due 1-30 days | - | - | - | - | ||||||||||||
Past due 31-60 days | - | - | - | - | ||||||||||||
Past due 61-90 days | - | - | - | - | ||||||||||||
Past due 90 plus days | - | - | - | - | ||||||||||||
Impairment | - | - | - | - | ||||||||||||
26,687 | - | 23,728 | - |
17. Inventories
As of June 30, | ||||||||
2018 | 2017 | |||||||
(US$’000) | (US$’000) | |||||||
Merchandise / finished goods | 182,198 | 191,219 | ||||||
Raw materials and work in progress | 9,793 | 9,715 | ||||||
Less allowance for inventory obsolescence | (4,109 | ) | (6,499 | ) | ||||
187,882 | 194,435 |
During the year ended June 30, 2018, finished goods, work in progress, raw materials and consumables included in cost of sales in the Statement of Profit or Loss amounted to $564.6 million (2017: $541.9 million; 2016: $544.0 million) (see note 7).
Analysis of movements in allowance for inventory obsolescence is as follows:
2018 | 2017 | |||||||
(US$’000) | (US$’000) | |||||||
Balance at beginning of year | (6,499 | ) | (5,135 | ) | ||||
Inventory write-downs | (3,205 | ) | (3,501 | ) | ||||
Reversals | 1,307 | 78 | ||||||
Utilization | 4,077 | 2,148 | ||||||
Exchange differences | 211 | (89 | ) | |||||
Balance at end of year | (4,109 | ) | (6,499 | ) |
F- 37 |
The write-downs are included in cost of sales in the Statement of Profit or Loss. Consideration is given to factors such as germination levels when assessing the net realizable value of seeds inventory.
18. Financial Instruments
The table below sets out the Group’s classification of each class of financial assets and liabilities, and their fair values.
Designated at fair value |
Other amortized cost |
Total carrying amount |
Fair value | |||||||||||||
(US$’000) | (US$’000) | (US$’000) | (US$’000) | |||||||||||||
As of June 30, 2018 | ||||||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents | - | 17,050 | 17,050 | 17,050 | ||||||||||||
Derivative financial instruments | 573 | - | 573 | 573 | ||||||||||||
Trade and other receivables, net | - | 171,456 | 171,456 | 171,456 | ||||||||||||
Other investments | 20 | 692 | 712 | 712 | ||||||||||||
593 | 189,198 | 189,791 | 189,791 | |||||||||||||
Liabilities | ||||||||||||||||
Derivative financial instruments | 3,122 | - | 3,122 | 3,122 | ||||||||||||
Trade and other payables | - | 99,615 | 99,615 | 99,615 | ||||||||||||
Bank facilities & related parties’ loan | - | 160,813 | 160,813 | 160,813 | ||||||||||||
3,122 | 260,428 | 263,550 | 263,550 | |||||||||||||
As of June 30, 2017 | ||||||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents | - | 15,876 | 15,876 | 15,876 | ||||||||||||
Derivative financial instruments | 2,899 | - | 2,899 | 2,899 | ||||||||||||
Trade and other receivables, net | - | 161,360 | 161,360 | 161,360 | ||||||||||||
Other investments | 22 | 4,045 | 4,067 | 4,067 | ||||||||||||
2,921 | 181,281 | 184,202 | 184,202 | |||||||||||||
Liabilities | ||||||||||||||||
Derivative financial instruments | 1,211 | - | 1,211 | 1,211 | ||||||||||||
Trade and other payables | - | 98,253 | 98,253 | 98,253 | ||||||||||||
Bank facilities | - | 148,022 | 148,022 | 147,644 | ||||||||||||
1,211 | 246,275 | 247,486 | 247,108 |
During the year to June 30, 2018, bank facilities were based on floating interest rates. Therefore the fair value of the banking facilities approximated the carrying value.
F- 38 |
19. Property, Plant and Equipment, net
Land | Buildings |
Plant and
equipment |
Capital
works projects |
Total | ||||||||||||||||
(US$’000) | (US$’000) | (US$’000) | (US$’000) | (US$’000) | ||||||||||||||||
Cost | ||||||||||||||||||||
Balance at July 1, 2016 | 15,503 | 39,801 | 82,248 | 3,085 | 140,637 | |||||||||||||||
Additions | 89 | 1,498 | 7,891 | (240 | ) | 9,238 | ||||||||||||||
Disposals and transfers to other asset classes | (1,073 | ) | (8,266 | ) | (2,334 | ) | (4 | ) | (11,677 | ) | ||||||||||
Exchange difference | 413 | 508 | 2,279 | 92 | 3,292 | |||||||||||||||
Balance at June 30, 2017 | 14,932 | 33,541 | 90,084 | 2,933 | 141,490 | |||||||||||||||
Additions | 392 | 2,680 | 8,404 | (129 | ) | 11,347 | ||||||||||||||
Added as part of a business combination | - | 9 | 570 | - | 579 | |||||||||||||||
Impairment | - | (762 | ) | - | - | (762 | ) | |||||||||||||
Disposals and transfers to other asset classes | (120 | ) | (87 | ) | (1,793 | ) | - | (2,000 | ) | |||||||||||
Exchange difference | (996 | ) | (1,165 | ) | (5,602 | ) | (218 | ) | (7,981 | ) | ||||||||||
Balance at June 30, 2018 | 14,208 | 34,216 | 91,663 | 2,586 | 142,673 | |||||||||||||||
Accumulated depreciation and impairment losses | ||||||||||||||||||||
Balance at July 1, 2016 | - | 4,476 | 43,266 | - | 47,742 | |||||||||||||||
Depreciation for the year | - | 917 | 4,912 | - | 5,829 | |||||||||||||||
Depreciation recovered to cost of sales | - | - | 965 | - | 965 | |||||||||||||||
Disposals and transfers to other asset classes | - | (847 | ) | (3,123 | ) | - | (3,970 | ) | ||||||||||||
Exchange difference | - | 40 | 1,245 | - | 1,285 | |||||||||||||||
Balance at June 30, 2017 | - | 4,586 | 47,265 | - | 51,851 | |||||||||||||||
Depreciation for the year | - |
923 |
5,436 |
- |
6,359 |
|||||||||||||||
Depreciation recovered to cost of sales | - |
116 |
1,057 | - | 1,173 | |||||||||||||||
Disposals and transfers to other asset classes | - | (58 | ) | (1,290 | ) | - | (1,348 | ) | ||||||||||||
Exchange difference | - | (193 | ) | (2,972 | ) | - | (3,165 | ) | ||||||||||||
Balance at June 30, 2018 | - | 5,374 | 49,496 | - | 54,870 | |||||||||||||||
Carrying amounts | ||||||||||||||||||||
At June 30, 2017 | 14,932 | 28,955 | 42,817 | 2,933 | 89,639 | |||||||||||||||
At June 30, 2018 | 14,208 | 28,842 | 42,167 | 2,586 | 87,803 |
20. Other Investments
As of June 30, | ||||||||
2018 | 2017 | |||||||
(US$’000) | (US$’000) | |||||||
Current investments | ||||||||
BioPacificVentures | 20 | 22 | ||||||
Advances to equity investees | - | 2,500 | ||||||
20 | 2,522 | |||||||
Non-current investments | ||||||||
Sundry other investments including saleyards | 692 | 1,545 | ||||||
Advances to equity accounted investees | 102 | - | ||||||
794 | 1,545 |
The investment in BioPacificVentures is classified as a level 3 financial instrument (note 3). The investment in BioPacificVentures had an anticipated total lifespan of 12 years and matured in March 2017. The investors have agreed to continue with the fund manager in facilitating the wind down of the remaining investments held..
The current advance to equity investees is a loan to the South American investee entity, Fertimas S. A. During the period, the advance was repaid and replaced with external bank funding. The Group supports this external bank funding by way of guarantee.
Sundry consists of sale yards investments, which do not have a market price in an active market and whose fair value cannot be reliably determined, are carried at cost.
F- 39 |
21. Intangible Assets, net
Land use
rights |
Trademarks,
Patents & Rights |
Software | Total | |||||||||||||
(US$’000) | (US$’000) | (US$’000) | (US$’000) | |||||||||||||
Cost | ||||||||||||||||
Balance at July 1, 2016 | 59,737 | 6,289 | 15,808 | 81,834 | ||||||||||||
Additions | - | 1,261 | 2,972 | 4,233 | ||||||||||||
Added as part of a business combination | - | 486 | - | 486 | ||||||||||||
Disposals | - | - | (5,507 | ) | (5,507 | ) | ||||||||||
Exchange difference | (28 | ) | (274 | ) | 433 | 131 | ||||||||||
Balance at June 30, 2017 | 59,709 | 7,762 | 13,706 | 81,177 | ||||||||||||
Additions | - | 564 | 5,605 | 6,169 | ||||||||||||
Disposals | - | (429 | ) | - | (429 | ) | ||||||||||
Exchange difference | 31 | (1,030 | ) | (1,295 | ) | (2,294 | ) | |||||||||
Balance at June 30, 2018 | 59,740 | 6,867 | 18,016 | 84,623 | ||||||||||||
Accumulated amortization and impairment | ||||||||||||||||
Balance at July 1, 2016 | 59,654 | 2,666 | 11,676 | 73,996 | ||||||||||||
Amortization for the year | 5 | 1,147 | 1,757 | 2,909 | ||||||||||||
Disposals | - | (135 | ) | (5,507 | ) | (5,641 | ) | |||||||||
Exchange difference | (25 | ) | (93 | ) | 267 | 148 | ||||||||||
Balance at June 30, 2017 | 59,634 | 3,585 | 8,193 | 71,412 | ||||||||||||
Amortization for the year | 6 |
1,732 |
2,569 |
4,307 |
||||||||||||
Impairment (Note 22) | - | 1,532 | - | 1,532 | ||||||||||||
Exchange difference | 29 | (1,509 | ) | (734 | ) | (2,214 | ) | |||||||||
Balance at June 30, 2018 | 59,669 | 5,340 | 10,028 | 75,037 | ||||||||||||
Carrying amounts | ||||||||||||||||
At June 30, 2017 | 75 | 4,177 | 5,513 | 9,765 | ||||||||||||
At June 30, 2018 | 71 | 1,527 | 7,988 | 9,586 |
The amortization of trademarks, patents and software are allocated to selling, general and administrative expense. The amortization of seed variety rights are allocated to research and development expense.
22. Goodwill
2018 | 2017 | |||||||
(US$’000) | (US$’000) | |||||||
Opening balance | 2,977 | 3,041 | ||||||
Impairment of goodwill | (3,070 | ) | - | |||||
Exchange difference | 93 | (64 | ) | |||||
Closing balance | - | 2,977 |
Goodwill is allocated to the Group’s cash-generating units (“CGUs”) identified according to business segment. Goodwill was allocated to the Other segment.
The recoverable amounts of CGUs are determined based on value-in-use calculations. The calculations use budget for the first year and cash flow projections based on financial forecasts prepared by management covering the remaining 4-year operating period. The key assumptions include revenue, cost of sales, operating expenses, discount rate terminal growth rate and working capital assumptions which were determined by management based on the past performance and its expectations on market development.
F- 40 |
For impairment testing purposes, the respective carrying amount was compared with the value in use. The nominal post-tax discount rate applied was 17% (2017: 12%). Cash flow projections for the Other segment were made using management’s five-year forecasts of EBITDA and capital expenditures. Cash flow projections for Other segment reflected long-term growth rates that were assumed to be equal to the average expected inflation rate for China (2018: 2%; 2017: 2%) and were adjusted for a variety of risks, in particular volume and margin deterioration.
Based on the impairment assessment of goodwill, in the opinion of the Directors, the goodwill is fully impaired as of June 30, 2018 together with $1.5 million of intangibles. The remaining net assets of the business of US$7.3 million (including intangible and fixed assets of US$1.6 million and US$3.5 million respectively) are supported by the value in use calculations. However further reductions in the value in use assessment will result in further impairments.
23. Accrued Expenses and Other Liabilities, including Provisions
As of June 30, | ||||||||
2018 | 2017 | |||||||
(US$’000) | (US$’000) | |||||||
Loyalty reward programme | 797 | 966 | ||||||
Deposits received in advance | 5,070 | 4,350 | ||||||
Provisions (note i) | 4,354 | 3,180 | ||||||
Earn-out liability (note ii) | 478 | 4,229 | ||||||
Accrued royalty fees | 3,708 | 3,479 | ||||||
Accrued rebates | 5,781 | 5,226 | ||||||
Accrued lease obligations | 2,072 | 2,157 | ||||||
Employee entitlements (note iii) | 21,227 | 17,048 | ||||||
Accrued product claims (note iv) | 2,927 | 81 | ||||||
Accruals for goods received not invoiced | 27,753 | 36,216 | ||||||
Other liabilities | 26,872 | 30,094 | ||||||
101,039 | 107,026 | |||||||
Payable within 12 months | 99,603 | 103,428 | ||||||
Payable beyond 12 months | 1,436 | 3,598 | ||||||
101,039 | 107,026 |
Note:
(i) Provisions
The movement of provision during the year is as below:
Warranties | Restructuring |
Onerous Contracts |
Other | Total | ||||||||||||||||
(US$’000) | (US$’000) | (US$’000) | (US$’000) | (US$’000) | ||||||||||||||||
At July 1, 2017 | 495 | 11 | 342 | 2,332 | 3,180 | |||||||||||||||
Provisions made during the year | 679 | - | 59 | 1,862 | 2,600 | |||||||||||||||
Provisions used during the year | (595 | ) | - | (332 | ) | (304 | ) | (1,231 | ) | |||||||||||
Foreign exchange | (40 | ) | - | (13 | ) | (74 | ) | (127 | ) | |||||||||||
Provisions reversed during the year | (57 | ) | (11 | ) | - | - | (68 | ) | ||||||||||||
At June 30, 2018 | 482 | - | 56 | 3,816 | 4,354 |
On December 23, 2015, the Company received a subpoena from the United States Securities and Exchange Commission in connection with a non-public investigation. The SEC's subpoena is focused on: (i) the accuracy of (a) disclosures related to the nine parcels of land totaling approximately 13,500 acres retained by the Company following the divestiture of Taiyuan Primalights III Agriculture Development Co., Ltd. (“P3A”), one of its consolidated structured entities until it was disposed of in July 2010, and (b) the accounting for the approximately $57.0 million of impairment provision that the Company took for such land parcels in July 2013, and (ii) claims of share price manipulation by certain of the Company’s executive officers in connection with efforts to maintain the Company’s NYSE listing status. The Company has been fully cooperating with the SEC and are nearing a potential settlement of these claims. For the year ended June 30, 2018, the Company has recognized a provision for this matter based on management’s best estimate of the expected settlement including estimated incremental legal costs. However any final settlement may be in excess of this provision, which could in turn have a material impact on the Company’s financial position and results of operations. In addition, if any settlement exceeds a specified amount set out in certain of the banking facilities, such banking facilities would be subject to an event of review by the respective banks which could result in modified terms or the cancellation of facilities. Furthermore, the outcome of the investigation could adversely impact the ability of one or more of the current executive officers or directors to serve in their current positions. Finally, it is not possible to assure that the investigation will be settled at all or will not be determined adversely to the Company. If the investigation is determined adversely to the Company, there may be a material adverse effect on its business and results of operations and its investment in PGW.
F- 41 |
(ii) Earn-out liability
Agrocentro Uruguay earn-out liability
The amount of the initial investment recorded for this equity accounted investee company in 2016 included an estimated fair value of the contingent consideration, which was also recognized as an accrual liability. This liability has been re-assessed at June 30 2018 resulting in a reduction in the liability held. The reduction, of $3.7 million (2017: $1.7 million), has been recognized in profit and loss for the year in equity in earnings/(losses) of investees.
(iii) Employee entitlements
During the year PGW was subject to an external inspection in respect of its historic compliance with the New Zealand Holidays Act 2003 for all period subsequent to April 1, 2011. The Group has engaged the services of an external advisor and a law firm to assist in determining the level of provision. Work on determining the final liability is not yet complete and considerable judgement is involved as the Act is subject to ongoing interpretation. A provision of $5.5 million has been recorded in the year ended June 30, 2018 on the basis that it represents a change in accounting estimate. The provision is included within Employee entitlements above and represents Management’s best estimate of the remediation costs.
(iv) Product claims
The Company from time to time receives warranty claims from customers and the Company will record a provision for the costs of rectification at management’s best estimate. At June 30, 2018, the Company is in the process of accumulating and assessing a number of claims in relation to a particular product. The Company is insured against such matters, and has recorded the associated insurance excess and will record a provision for further claim costs and a receivable for related insurance recoveries only when such amounts can be reliably estimated.
Subsequent to June 30, 2018, the Company received quantification of a product claim amounting to $4.6m in relation to product sold in 2015. The Company is still assessing the merits and quantification of the claim and the extent to which the claim will be covered by supplier indemnities and the Company’s own insurance policies. As the quantum of any claim settlement cannot be reliably estimated, no provision has been recognized at June 30, 2018
24. Defined Benefit Liability
Defined Benefit Asset / Liability
As of June 30, | ||||||||
2018 | 2017 | |||||||
(US$’000) | (US$’000) | |||||||
Present value of funded obligations | (45,233 | ) | (52,121 | ) | ||||
Fair value of plan assets | 40,005 | 43,126 | ||||||
Net defined benefit liability | (5,228 | ) | (8,995 | ) | ||||
ESCT on committed contributions - short-term | (612 | ) | (691 | ) | ||||
ESCT on committed contributions - long-term | (1,318 | ) | (1,916 | ) | ||||
Total defined benefit liability | (7,158 | ) | (11,602 | ) |
The Group makes contributions to a defined benefit plan that provide a range of superannuation and insurance benefits for employees and former employees. The defined benefit plan is not open to new members. The plan's retired employees are entitled to receive an annual pension payment payable on their life and in some cases on the life of a surviving spouse.
PGG Wrightson
Employment Benefits Plan |
||||||||
2018 | 2017 | |||||||
The Employment Benefits Plan assets consist of: | ||||||||
Equities | 59 | % | 64 | % | ||||
Fixed interest | 31 | % | 28 | % | ||||
Cash | 10 | % | 8 | % | ||||
100 | % | 100 | % |
F- 42 |
Plan assets included PGW’s ordinary shares of Nil (2017: Nil).
PGG Wrightson
Employment Benefits Plan |
||||||||
2018 | 2017 | |||||||
Actuarial Assumptions: | ||||||||
Principal actuarial assumptions at the reporting date (expressed as weighted averages): | ||||||||
Discount rate used (10 year New Zealand Government Bond rate) | 2.85 | % | 2.97 | % | ||||
Inflation | 2.00 | % | 2.00 | % | ||||
Future salary increases | 3.00 | % | 3.00 | % | ||||
Future pension increases | 2.00 | % | 2.00 | % |
Assumptions regarding future mortality are based on published statistics and mortality tables. The current longevities underlying the values of the defined benefit obligation at the reporting date were as follows:
PGG Wrightson
Employment Benefits Plan (Years) |
||||||||
2018 | 2017 | |||||||
Longevity at age 65 for current pensioners | ||||||||
Males | 21 | 21 | ||||||
Females | 24 | 24 | ||||||
Longevity at age 65 for current members aged 45 | ||||||||
Males | 24 | 24 | ||||||
Females | 28 | 28 |
As of June 30, 2018, the weighted average duration of the defined benefit obligation was 8.7 years for the PGG Wrightson Employment Benefits Plan (2017: 8.5 years).
Sensitivity Analysis
The sensitivity of the defined benefit obligation (DBO) to changes in the weighted principal assumption is:
2018 | 2017 | |||||||||||||||
Impact on DBO
with increase in assumption |
Impact on DBO
with decrease in assumption |
Impact on DBO
with increase in assumption |
Impact on DBO
with decrease in assumption |
|||||||||||||
(US$’000) | (US$’000) | (US$’000) | (US$’000) | |||||||||||||
Change in assumption | ||||||||||||||||
Discount rate (0.50% movement) | 999 | (1,094 | ) | 1,167 | (1,268 | ) | ||||||||||
Salary growth rate (0.50% movement) | (143 | ) | 143 | (203 | ) | 203 | ||||||||||
Pension growth rate (0.25% movement) | (428 | ) | 428 | (507 | ) | 456 | ||||||||||
Life expectancy (1 year movement) | (1,047 | ) | 1,047 | (1,065 | ) | 1,065 |
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
(US$’000) | (US$’000) | (US$’000) | (US$’000) | (US$’000) | ||||||||||||||||
Historical information | ||||||||||||||||||||
Present value of the defined benefit obligation | (45,233 | ) | (52,121 | ) | (52,126 | ) | (49,064 | ) | (59,789 | ) | ||||||||||
Fair value of plan assets | 40,005 | 43,126 | 37,418 | 39,099 | 47,952 | |||||||||||||||
Deficit in the plan | (5,228 | ) | (8,995 | ) | (14,708 | ) | (9,965 | ) | (11,837 | ) |
F- 43 |
The Group expects to pay approximately $2.0 million in contributions to defined benefit plans in 2019 (2018: $2.1 million). Member contributions are expected to be approximately $0.6 million (2018: $0.8 million).
Movement in the liability for defined benefit obligations:
2018 | 2017 | 2016 | ||||||||||
(US$’000) | (US$’000) | (US$’000) | ||||||||||
Movement in the liability for defined benefit obligations: | ||||||||||||
Liability for defined benefit obligation at July 1 | 52,121 | 52,126 | 49,064 | |||||||||
Benefits paid by the plan | (6,347 | ) | (4,287 | ) | (2,334 | ) | ||||||
Current service costs | 611 | 705 | 726 | |||||||||
Interest costs | 1,431 | 1,126 | 1,738 | |||||||||
Member contributions | 833 | 855 | 841 | |||||||||
Actuarial (gains)/losses recognized in other comprehensive income arising from: | ||||||||||||
(Gains) loss from changes in financial assumptions | 363 | (1,567 | ) | 3,231 | ||||||||
Experience (gains)/losses | 53 | 1,519 | (3,354 | ) | ||||||||
Exchange difference | (3,832 | ) | 1,644 | 2,214 | ||||||||
Liability for defined benefit obligation at June 30 | 45,233 | 52,121 | 52,126 | |||||||||
Movement in plan assets: | ||||||||||||
Fair value of plan assets at July 1 | 43,126 | 37,418 | 39,099 | |||||||||
Contributions paid into the plan | 2,144 | 4,223 | 807 | |||||||||
Member contributions | 833 | 855 | 841 | |||||||||
Benefits paid by the plan | (6,347 | ) | (4,287 | ) | (2,334 | ) | ||||||
Current service costs and interest | 1,194 | 855 | 1,383 | |||||||||
Actuarial gains/(losses) recognized in equity: | ||||||||||||
Expected return on plan assets | 2,359 | 2,728 | (3,912 | ) | ||||||||
Exchange difference | (3,304 | ) | 1,334 | 1,534 | ||||||||
Fair value of plan assets at June 30 | 40,005 | 43,126 | 37,418 | |||||||||
Expense recognized in profit or loss: | ||||||||||||
Current service costs | 611 | 705 | 726 | |||||||||
Interest | 237 | 272 | 354 | |||||||||
848 | 977 | 1,080 | ||||||||||
Recognized in non-operating items - loss | 101 | 463 | 273 | |||||||||
Recognized in Employee benefit expense | 747 | 514 | 807 | |||||||||
848 | 977 | 1,080 | ||||||||||
Gains and losses recognized in equity: | ||||||||||||
Cumulative losses at July 1 | (25,396 | ) | (25,842 | ) | (25,319 | ) | ||||||
Net profit and loss impact from current period costs | (848 | ) | (977 | ) | (1,080 | ) | ||||||
Recognized during the year | 1,943 | 2,777 | (3,789 | ) | ||||||||
ESCT provision | 12 | (551 | ) | (3,361 | ) | |||||||
Exchange difference | 1,887 | (803 | ) | 7,707 | ||||||||
Cumulative losses at June 30 | (22,402 | ) | (25,396 | ) | (25,842 | ) |
25. Share Capital, Treasury Stock and Share Premium
Number of
ordinary shares issued |
Share Capital |
Number of
Treasury Stock |
Treasury Stock | Share Premium | ||||||||||||||||
(US$’000) | (US$’000) | (US$’000) | ||||||||||||||||||
At June 30, 2017 | 110,766,600 | - | 650,746 | (281 | ) | 160,971 | ||||||||||||||
At June 30, 2018 | 110,766,600 | - | 650,746 | (281 | ) | 160,971 |
F- 44 |
The authorized share capital of the Company is US$50,000 divided into 450,000,000,000 ordinary and 50,000,000,000 preferred shares with par value of US$0.0000001 per share. There are 110,776,000 ordinary shares issued at June 30, 2018 and June 30, 2017. There are no preferred shares issued at June 30, 2018 and 2017. There are 110,115,854 ordinary shares and 110,115,854 ordinary shares outstanding at June 30, 2018 and 2017, respectively.
Share Repurchase Program
The Company’s Board authorized a share repurchase program on June 8, 2016, under which the Company may repurchase up to $10 million of its outstanding American Depositary Shares through December 31, 2017. During the period, the Company has repurchased 325,373 ADS (or 650,746 ordinary shares) with total cost of $281,091 from the open market. The repurchased ADS are kept as Treasury Stock.
26. Statutory Reserves and Other Reserves
Statutory Reserves
According to the Company Law of the PRC and the Articles of Association of individual subsidiaries in China, each of them in China is required each year to transfer 10% of the profit after tax as reported in its PRC statutory financial statements to the statutory common reserve fund, except where the fund has reached 50% of the registered capital of the company. This fund can be used to make up any losses incurred or be converted into paid-in capital, provided that the fund does not fall below 25% of the registered capital. As of June 30, 2018, the balance of statutory reserves is provided from the profit after tax of NKY.
The statutory common reserve fund is not distributable except upon liquidation.
Foreign currency translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations as well as from the translation of liabilities that hedge the Group’s net investment in a foreign subsidiary.
The following reserves are included in the caption “Other Reserves”.
Realized capital reserve
The realized capital reserve comprises the cumulative net capital gains that have been realized.
Revaluation reserve
The revaluation reserve relates to historic revaluations of property, plant and equipment.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet settled.
Defined benefit plan reserve
The defined benefit plan reserve contains actuarial gains and losses on plan assets and defined benefit obligations.
Fair value reserve
The fair value reserve comprises the cumulative net change in the fair value of financial assets and equity investments elected at fair value through other comprehensive income until the investments are derecognized or impaired.
27. Share-based Payment Reserves
2007 Share Incentive Plan
In July 2007, the Company adopted the 2007 Share Incentive Plan (the “Plan”). The Plan provides for the granting of share options and restricted ordinary shares to employees and consultants of the Company. Options granted under the Plan may be either incentive share options or nonqualified share options. The Company reserved 15,000,000 ordinary shares for issuance under the Plan. Under the Plan, options granted generally vest 30% after the first year of service, 30% after the second year of service, 20% after the third year of service and 20% after the fourth year of service. Certain options granted vest 50% after the first year of service and 50% after the second year of service. Certain options granted vest 33.4% after first year of service and 33.3% each after the second and the third year of service. Options may be granted for a term not exceeding 10 years from the date of grant. The option award provides for accelerated vesting if there is a change in control (as defined in the Plan).
F- 45 |
For certain options granted with a four year graded vesting term as described above, in the event of termination of employment or service for any reason after one year of employment or service, the grantee’s right to vest in the option under the Plan will terminate twelve months after the written notice of termination. The Company concluded that the termination clause represents a non-substantive vesting term since it allows the grantee to continue to vest options for a twelve month period after termination. For accounting purposes, 60% of these options granted are vested after the first year of service, 20% after the second year of service and 20% after the third year of service.
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
June 30, 2018 | June 30, 2017 | |||||||||||||||
Average
exercise price in $ per share option |
Options
(thousands) |
Average
exercise price in $ per share option |
Options
(thousands) |
|||||||||||||
At July 1 | 1.37 | 2,344 | 1.36 | 2,404 | ||||||||||||
Granted | - | - | - | - | ||||||||||||
Forfeited | - | - | 1.00 | (60 | ) | |||||||||||
Exercised | - | - | - | - | ||||||||||||
Expired | 2.26 | (904 | ) | - | - | |||||||||||
At June 30 | 0.82 | 1,440 | 1.37 | 2,344 |
Share options outstanding at the end of the year have the following expiry dates and exercise prices:
Grant-vest | Expiry date - July 1 |
Exercise
price in $ per share option |
Share options (thousands) | |||||||||||
2018 | 2017 | |||||||||||||
2007-2010 | 2017 | 4.80 | - | 104 | ||||||||||
2007-2011 | 2017 | 4.80 | - | 200 | ||||||||||
2008-2012 | 2017 | 1.00 | - | 400 | ||||||||||
2009-2011 | 2017 | 0.92 | - | 200 | ||||||||||
2010-2013 | 2020 | 1.00 | 1,040 | 1,040 | ||||||||||
2011-2014 | 2021 | 0.34 | 400 | 400 | ||||||||||
1,440 | 2,344 |
Share-based payment expense for all share options granted have been fully recorded as of June 30, 2018.
2015 Share Incentive Plan
On September 9, 2015, the Board of Directors approved the Company to adopt the 2015 Share Incentive Plan, or the 2015 Plan, to attract and retain the best available personnel, provide additional incentives to employees, directors and consultants and promote the success of our business. The board of directors has authorized the issuance of up to 16,614,990 ordinary shares upon exercise of awards granted under the 2015 Plan. As of June 30, 2018, 11,076,660 restricted shares were granted to our directors and executive officers and other individuals as a group. These restricted shares will vest in equal installments over thirty-six months after the date of grant. The total of restricted shares that vested during the year was 3,692,220 shares. As of June 30, 2018, the number of vested restricted shares was 10,153,605 and number of unvested restricted shares was 923,055.
The weighted average fair value of restricted shares granted during the year determined using the Black-Scholes valuation model was $0.51 per share. The fair value of restricted shares granted during the year was Nil (2017: Nil). The assumptions input into the model to determine the fair value were: (i) vesting term of equal installments of 36 months, (ii) risk free rate assumed with reference to US Treasury Bonds Rates and Bloomberg Fair Value Market Curves as of the Valuation Date, and (iii) the volatility estimated based on the historical volatility of the Company. The fair value is being amortized in profit and loss over a thirty-six month vesting period. During the year ended June 30, 2018, restricted share amortization expense was $1.9 million (2017: $1.9 million)
28. Commitments
(1) Operating lease commitments
The Group leases a fleet of vehicles for use by employees, agents and representatives. Leases are typically for a period between four and six years.
The Group leases office and computer equipment. Leases are typically for a period of three years.
F- 46 |
The Group also leases and subleases land and buildings from which it conducts operations. These leases range in length from 1 to 15 years with various rights of renewal. Where surplus properties are unable to be exited, sublease revenue is obtained where possible on a short-term temporary basis. During the year ended June 30, 2018, sublease revenue totaled approximately $0.8 million (2017: $0.9 million).
Non-cancellable operating lease rentals are payable as follows as of June 30, 2018 and 2017:
2018 | 2017 | |||||||
(US$’000) | (US$’000) | |||||||
Within one year | 18,548 | 19,034 | ||||||
Between one and five years | 46,686 | 42,622 | ||||||
Beyond five years | 29,095 | 24,860 | ||||||
94,329 | 86,516 |
(2) Commitments
2018 | 2017 | |||||||
(US$’000) | (US$’000) | |||||||
Capital expenditure not recorded (note (i)) | 1,667 | 1,050 | ||||||
Commitments of investments (note (ii)) | 3,627 | 3,580 | ||||||
Contributions to Primary Growth Partnership (note (iii)) | 188 | 636 | ||||||
Purchase commitment (note (iv)) | 826 | 6,420 | ||||||
6,308 | 11,686 |
Notes:
(i) | Capital expenditure not recorded |
Included capital project of $0.8 million of seed treatment plant at Rolleston and Agripro, $0.3 million grain feed system, $0.1 million Kimihia irrigator system, and $0.1 million software projects.
(ii) | Commitment of investments |
Investment in Beijing Zhongnong Seed Industry Co., Ltd.
In October 2009, the Company entered into a strategic co-operation framework agreement with the China National Academy of Agricultural Sciences (“CNAAS”), one of the largest agricultural research organizations in the PRC, providing for future co-operation across the spectrum of agricultural research. The Company also entered into an investment agreement with CNAAS and its affiliates, under which the Company is to invest approximately $5.3 million (RMB35 million) (of which approximately $1.7 million (RMB11 million) has been paid as of June 30, 2018) for a 53.84% equity interest of Zhongnong, a company wholly owned by CNAAS and its affiliates. As of June 30, 2018, we have made full provision for impairment of carrying value of the investment in Zhongnong.
(iii) | Contributions to Primary Growth Partnership |
The Group announced on February 18, 2013 that it had completed the contracting process for the Primary Growth Partnership (PGP) programme with the Ministry of Primary Industries. The PGP programme is a Seed and Nutritional Technology Development Programme that aims to deliver innovative forages for New Zealand farms. As a result of entering into the partnership the Group is committed to contributions to the partnership over the six year life of the programme which ends on December 31, 2018. The total commitment in respect of the programme has been reassessed to $2.4 million in the current year. As of June 30, 2018, total contributions of approximately $2.3 million (2017: $2.0 million) have been made to the programme.
(iv) | Purchase commitments mainly consist of service agreements entered into with corn seed companies to purchase corn seeds. The terms of the agreements are for a period of one year. Future minimum purchase payments for the year ending June 30, 2018, under all non-cancelable agreements are approximately $0.8 million (2017: $6.4 million). |
F- 47 |
(v) | Forward purchase commitments |
The Group as part of its ordinary course of business enters into forward purchase agreements with seed and wool growers. These commitments extend for periods of up to 3 years. These commitments are at varying stage of execution, therefore there remains uncertainty associated with yield, quality and market price. The Group is unable to sufficiently quantify the value of these commitments.
Except as disclosed, there are no other material commitments.
29. Contingent liabilities
2018 | 2017 | |||||||
(US$’000) | (US$’000) | |||||||
Guarantee (note i) | 2,500 | - | ||||||
Loyalty reward programme (note ii) | 69 | 103 | ||||||
2,569 | 103 |
Note:
i) | The guarantee is a standby letter of credit supporting external bank funding of the jointly controlled entity Fertimas S.A. Funding was previously provided by the respective joint venture partners. |
ii) | The PGG Wrightson Loyalty Reward Programme is run in conjunction with the co-branded ASB Visa reward card. A provision is retained for the expected level of points redemption. The contingent liability represents the balance of live points that are not recognized as a liability in the consolidated statements for financial position. Losses are not expected to arise from this contingent liability. |
iii) | On 16 November 2009, the Company was granted consent by the New Zealand Overseas Investment Office (OIO) to acquire up to 19.99% of ordinary shares in PGW. On 15 April 2011, the OIO granted the Company consent to acquire a further 41.0% of ordinary shares in PGW. It is a condition of both these consents that the Company remains of “good character” so long as it maintains a greater than 25% interest in PGW. Under the Overseas Investment Act 2005, the OIO may take enforcement action through the High Court of New Zealand if a consent-holder or individual with control of a consent-holder is in breach of a consent condition. Potential enforcement action may include the imposition of a criminal fine or civil penalty, or an order that the consent-holder divest of their interest in property acquired under the Act. |
The Company has disclosed to the OIO the existence of the SEC investigation and subpoena (see note 23). In response, the OIO has indicated that the SEC investigation raises concerns as to the Company’s “good character”. In January 2018, the OIO advised the Company’s New Zealand lawyers that any investigation into the Company’s “good character” status under the Overseas Investment Act would be put on hold pending the outcome of the SEC process. The Company has advised the OIO that it will notify it of any settlement with the SEC as soon as the terms are agreed in principle, and it is possible that the OIO may recommence its investigation before any settlement is publicly announced. The Company is continuing to cooperate with the OIO and will continue to assist it with any inquiries it might have.
Any adverse findings and subsequent enforcement action by the OIO may materially and adversely affect or otherwise impair the value of the Company’s investment in PGW.
Except as disclosed, there are no other material contingencies.
30. Related Party Transactions
(1) The Company had the following related party transactions during the years presented:
2018 | 2017 | 2016 | ||||||||||
(US$’000) | (US$’000) | (US$’000) | ||||||||||
Purchase of retail goods, sale of seed under production contracts and livestock transactions | ||||||||||||
Key management personnel - PGW | 2,809 | 4,280 | 3,762 | |||||||||
Related parties | 13,867 | 19,299 | 22,742 | |||||||||
Sales to related parties | 14,387 | 20,356 | 19,676 | |||||||||
Proceeds of loan from shareholder | - | 4,148 | 4,201 | |||||||||
Repayment of loan from shareholder | - | 4,201 | 2,446 | |||||||||
Finance cost to shareholder (note (i)) | 1,038 | 471 | 114 | |||||||||
Repayment of finance cost to shareholder | 348 | - | - | |||||||||
Proceeds of loan from related party (note (ii)) | - | 10,000 | - | |||||||||
Proceeds from repayment of loan by related party | 2,450 | - | - | |||||||||
Payment of loan interest to related party (note (ii)) | 1,050 | 785 | - | |||||||||
Interest on loan from related party (note (ii)) | 1,050 | 961 | - |
F- 48 |
A number of Directors, senior executives or their related parties, hold positions in other entities that result in them having control or significant influence over the financial or operating policies of these entities. A number of these entities transacted with the Company during the reporting periods. The terms and conditions of these transactions with key management personnel and their related parties were determined to be no more favorable than those available, or which might reasonably be expected to be available, on similar transactions to non-key management personnel related entities on commercial terms.
(2) The Company had the following related party balances at the end of the following periods:
June 30,
2018 |
June 30,
2017 |
|||||||
(US$’000) | (US$’000) | |||||||
Amounts due from related parties: | ||||||||
Accounts receivable from equity accounted investee | 17,484 | 13,837 | ||||||
Amounts due to related parties: | ||||||||
Shareholder (note (i)) | 4,838 | 4,148 | ||||||
Softpower International Limited (note (ii)) | 10,177 | 10,175 | ||||||
Other related parties | 3,666 | 3,933 | ||||||
18,681 | 18,256 |
Notes:
(i) | Loan from shareholder is unsecured loan from Brothers Capital Limited and bears interest at 12% per annum and matures in April 2019. | |
(ii) | Loan from the related party is guaranteed by a subsidiary and bears interest rates at 10.5% per annum and matures in July 2019. |
F- 49 |
31. Principal Subsidiaries and Transactions with non-controlling interests
As of June 30, 2018, the Company’s principal subsidiaries consisted of the following entities:
% of effective ownership |
% of ownership interests directly held by |
|||||||||||||
Name |
Place of Incorporation |
interest held by the Group |
Subsidiary |
Non-controlling interests |
||||||||||
Subsidiary directly held by the Company | ||||||||||||||
Agria Group Limited (formerly known as Aero-Biotech Group Limited) | British Virgin Islands (“BVI”) | 100 | % | - | - | |||||||||
Subsidiaries indirectly held by the Company | ||||||||||||||
China Victory International Holdings Limited (“China Victory”) | Hong Kong | 100 | % | 100.00 | % | - | ||||||||
Aero Biotech Science & Technology Co., Ltd. (“Agria China”) | People’s Republic of China (“PRC”) | 100 | % | 100.00 | % | - | ||||||||
Agria Holdings (Shenzhen) Co., Ltd. (“Agria Shenzhen”) (formerly known as Agria Brother Biotech (Shenzhen) Co., Ltd.) | PRC | 100 | % | 100.00 | % | - | ||||||||
Agria Biotech Overseas Limited (“Agria Overseas”) | Hong Kong | 100 | % | 100.00 | % | - | ||||||||
Agria Asia International Limited (“Agria International”) | Hong Kong | 100 | % | 100.00 | % | - | ||||||||
Hiltex Investment Limited (“Hiltex Investment”) | BVI | 100 | % | 100.00 | % | |||||||||
Golden Hero International Co., Ltd. (“Golden Hero”) | Hong Kong | 100 | % | 100.00 | % | |||||||||
Agria Asia Investments Ltd. (“Agria Asia Investments”) (formerly known as Southrich Limited) | BVI | 92.76 | % | 92.76 | % | 7.24 | % | |||||||
Agria (Singapore) Pte. Ltd (“Agria Singapore”) | Singapore | 92.76 | % | 100.00 | % | - | ||||||||
Agria Corporation (New Zealand) Ltd (“Agria New Zealand”) | New Zealand | 92.76 | % | 100.00 | % | - | ||||||||
Agria NZ Finance Limited | New Zealand | 100.00 | % | 100.00 | % | - | ||||||||
PGG Wrightson Limited (“PGW”) | New Zealand | 46.58 | % | 50.22 | % | 49.78 | % | |||||||
PGG Wrightson Seeds Holdings Limited | New Zealand | 46.58 | % | 100.00 | % | - | ||||||||
PGW Rural Capital Limited | New Zealand | 46.58 | % | 100.00 | % | - | ||||||||
PGG Wrightson Employee Benefits Plan Trustee Limited | New Zealand | 46.58 | % | 100.00 | % | - | ||||||||
PGG Wrightson Real Estate Limited | New Zealand | 46.58 | % | 100.00 | % | - | ||||||||
Agriculture New Zealand Limited | New Zealand | 46.58 | % | 100.00 | % | - | ||||||||
PGG Wrightson Trustee Limited | New Zealand | 46.58 | % | 100.00 | % | - | ||||||||
AgriServices South America Limited | New Zealand | 46.58 | % | 100.00 | % | - | ||||||||
PGW AgriServices Australia Pty Limited | Australia | 46.58 | % | 100.00 | % | - | ||||||||
PGG Wrightson Investments Limited | New Zealand | 46.58 | % | 100.00 | % | - | ||||||||
Bloch & Behrens Wool (NZ) Limited | New Zealand | 46.58 | % | 100.00 | % | - | ||||||||
NZ Agritrade Limited | New Zealand | 46.58 | % | 100.00 | % | - | ||||||||
Ag Property Holdings Limited | New Zealand | 46.58 | % | 100.00 | % | - | ||||||||
PGG Wrightson Seeds New Zealand Limited | New Zealand | 46.58 | % | 100.00 | % | - | ||||||||
PGG Wrightson Seeds South America Holdings Limited | New Zealand | 46.58 | % | 100.00 | % | - | ||||||||
PGG Wrightson Seeds Australia Holdings Pty Limited | Australia | 46.58 | % | 100.00 | % | - | ||||||||
PGG Wrightson Seeds Limited | New Zealand | 46.58 | % | 100.00 | % | - | ||||||||
PGG Wrightson Consortia Research Limited | New Zealand | 46.58 | % | 100.00 | % | - | ||||||||
Grasslands Innovation Limited | New Zealand | 32.61 | % | 70.00 | % | 30.00 | % | |||||||
Agricom Limited | New Zealand | 46.58 | % | 100.00 | % | - | ||||||||
Wrightson Seeds Limited | New Zealand | 46.58 | % | 100.00 | % | - | ||||||||
PGG Wrightson Employee Benefits Plan Limited | New Zealand | 46.58 | % | 100.00 | % | - | ||||||||
PGG Wrightson Seeds (Australia) Pty Limited | Australia | 46.58 | % | 100.00 | % | - | ||||||||
PGW AgriTech South America S.A. | Uruguay | 46.58 | % | 100.00 | % | - | ||||||||
Wrightson Pas S.A. | Uruguay | 46.58 | % | 100.00 | % | - | ||||||||
Juzay S.A. | Uruguay | 46.58 | % | 100.00 | % | - | ||||||||
Agrosan S.A. | Uruguay | 46.58 | % | 100.00 | % | - | ||||||||
PGW Wrightson Seeds Argentina S.A. | Argentina | 46.58 | % | 100.00 | % | - | ||||||||
PGW Sementes Ltda | Brazil | 46.58 | % | 100.00 | % | - | ||||||||
Hunker S.A. | Uruguay | 46.58 | % | 100.00 | % | - | ||||||||
Lanelle S.A. | Uruguay | 46.58 | % | 100.00 | % | - | ||||||||
Afinlux S.A. | Uruguay | 23.76 | % | 51.00 | % | 49.00 | % | |||||||
Kroslyn S.A. Limited | Uruguay | 46.58 | % | 100.00 | % | - | ||||||||
Escritorio Romualdo Rodriguez Ltda | Uruguay | 23.76 | % | 51.00 | % | 49.00 | % |
F- 50 |
As of June 30, 2018, the Company consolidates the following structured entities and their subsidiaries:
Name |
Place of
Incorporation |
% of ownership
interest indirectly held by Subsidiary |
% of effective
ownership interest held by the Company |
|||||||||
Shenzhen Zhongguan Agriculture Group Co., Ltd. (“Zhongguan”) (formerly known as Shenzhen Guanli Agricultural Technology Co., Ltd.) | PRC | 100 | % | (note) | 100 | % | ||||||
Agria NKY Seeds Co., Ltd. (“NKY”) (formerly known as Beijing NKY Seeding Development Co., Ltd.) | PRC | 100 | % | (note) | 100 | % | ||||||
Shenzhen NKY Seeds Co., Ltd. (“Shenzhen NKY”) (formerly known as Shenzhen Agria Agricultural Co., Ltd.) | PRC | 100 | % | (note) | 100 | % | ||||||
Shenzhen Zhongguan Forage Co., Ltd. (“Zhongguan Forage”) (formerly known as Shenzhen Zhongyuan Agriculture Co., Ltd.) | PRC | 100 | % | (note) | 100 | % | ||||||
Tianjin Beiao Seeds Technology Development Co., Ltd. (“Beiao”) | PRC | 100 | % | (note) | 100 | % | ||||||
Wuwei NKY Seeds Co., Ltd. | PRC | 100 | % | (note) | 100 | % | ||||||
Shanxi Jufeng Seeds Co., Ltd. | PRC | 100 | % | (note) | 100 | % | ||||||
Zhuhai NKY Seeds Co., Ltd. (“Zhuhai NKY”) | PRC | 100 | % | (note) | 100 | % | ||||||
Zhuhai Jintain Agriculture Development Co., Ltd | PRC | 100 | % | (note) | 100 | % |
Note: | The Company does not have legal ownership in equity of these subsidiaries. Nevertheless, under certain contractual agreements entered into with the registered owners of these subsidiaries, the Company and its other legally owned subsidiaries control these companies by way of controlling the voting rights, governing the financial and operating policies of their controlling authorities, and casting the majority of votes at meetings of such authorities. In addition, such contractual agreements also transfer the risks and rewards of these companies to the Company and/or its other legally owned subsidiaries. As a result, they are presented as consolidated structured entities of the Company. |
The Company has not provided any financial or other support that it was not previously contractually required to provide during the periods presented to consolidated structured entities.
Material Non-controlling Interests
Set out below is summarized financial information for a subsidiary that has non-controlling interests that is material to the Group. The amounts disclosed are before inter-company eliminations.
PGW | ||||||||
As of June 30, | ||||||||
2018 | 2017 | |||||||
(US$’000) | (US$’000) | |||||||
Summarized financial position | ||||||||
Current assets | 399,679 | 393,784 | ||||||
Current liabilities | (211,828 | ) | (206,199 | ) | ||||
Current net assets | 187,851 | 187,585 | ||||||
Non-current assets | 109,945 | 120,946 | ||||||
Non-current liabilities | (109,648 | ) | (96,301 | ) | ||||
Non-current net assets | 297 | 24,645 | ||||||
Net assets | 188,148 | 212,230 |
F- 51 |
PGW | ||||||||||||
For the year ended June, 30 | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
(US$’000) | (US$’000) | (US$’000) | ||||||||||
Summarized statement of profit or loss | ||||||||||||
Revenue | 849,745 | 808,180 | 792,322 | |||||||||
Profit for the year | 7,010 | 31,493 | 29,410 | |||||||||
Other comprehensive income | 5,833 | (1,188 | ) | (6,575 | ) | |||||||
Total comprehensive income | 12,843 | 30,305 | 22,835 | |||||||||
Dividends paid to non-controlling interests | 10,761 | 10,713 | 9,837 | |||||||||
Summarized cash flows | ||||||||||||
Cash flows provided by operating activities | 4,044 | 14,599 | 23,606 | |||||||||
Cash flows from / (used) in investing activities | (14,847 | ) | 4,916 | (8,817 | ) | |||||||
Cash flows used in financing activities | 11,827 | (18,202 | ) | (14,596 | ) | |||||||
Effect of exchange rate changes | (519 | ) | 210 | 230 | ||||||||
Net increase / (decrease) in cash and cash equivalents | 505 | 1,523 | 423 |
32. Seasonality of Operations
The Group is subject to significant seasonal fluctuations. The Retail business is weighted towards the first half of the financial year as demand for New Zealand farming inputs are generally weighted towards the Spring season. Livestock and Seed and Grain activities are significantly weighted to the second half of the financial year. Seed and Grain revenues reflect the fact the Group operates in geographical zones that suit Autumn harvesting and sowing. New Zealand generally has Spring calving and lambing and so Livestock trading is weighted towards the second half of the financial year in order for farmers to maximize their incomes. Other business units have similar but less material cycles. The Group recognises that this seasonality is the nature of the industry and plans and manages its business accordingly.
33. Subsequent Events
Agreement for sale of PGG Wrightson Seeds Holdings Limited
The Group’s subsidiary, PGG Wrightson Limited, had appointed Credit Suisse (Australia) Ltd and First NZ Capital Ltd as financial advisors in October 2017 to assist with a strategic review of PGW’s business, its growth opportunities, capital and balance sheet requirements, and potentially shareholding structure.
Further to this review, on August 6, 2018 the Group announced that it had signed a sale and purchase agreement for the sale of its subsidiary PGG Wrightson Seeds Holdings Limited (PGW Seeds). The agreement represents the sale of the Group's Seed and Grain operating segment. The sale price is approximately $285 million ($421 million New Zealand Dollar) subject to various adjustments until settlement. The sale is conditional on various approvals including:
· | PGW shareholder approval of a major transaction at a shareholders meeting. |
· | New Zealand Overseas Investment Act approval. |
· | New Zealand Commerce Commission clearance, Australian Competition and Consumer Commission approval and receipt of applicable regulatory approvals in South America. |
· | Change of control consents from several of PGW Seeds’ joint venture partners. |
· | PGW banking syndicate consent. |
Based on the initial sale price an estimated capital gain is expected to be recognised by the Group of approximately $92 million. This estimated capital gain is subject to any further adjustments to the sale price until settlement, less transaction/disposal costs, and is subject to any recycling of the Foreign Currency Translation Reserve consequent to the disposal.
As the transaction was not approved by the boards of PGW, or that of Agria, until post balance date and is still subject to the required approvals noted above, the Group has not recognised the Seed and Grain segment as "Assets Held For Sale" or a "Discontinued Operation" as at 30 June 2018.
Dividend
On August 13, 2018 the Directors of the Group’s subsidiary, PGG Wrightson Limited, resolved to pay a final dividend of NZ$1.25 cents per share on October 3, 2018 to shareholders on PGG Wrightson’s share register as of September 4, 2018. This dividend will be fully imputed.
New bank loan facility
In September 2018, the Group’s subsidiary, Agria (Singapore) Pte., Ltd., obtained a $12.1 million loan facility from Shanghai Commercial Bank. The loan is maturing on August 7, 2023, with five yearly repayment installments. The loan is guaranteed by a third party at a rate of 3% and personal guarantee by the Company’s major shareholder.
Amendment to 2015 Share Incentive Plan
In August 2018, the Board of the Company approved:
1) the number of shares under the 2015 Share Incentive Plan is amended to a new aggregate number of shares that Executive Chairman thinks fit;
2) the Executive Chairman of the Company is authorized to allocate and make such awards to Eligible Individual(s) as defined under Article 2.17 of 2015 Share Incentive Plan.
F- 52 |
1 Year Agria Corp. American Depositary Shares Chart |
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