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Nestle New Zealand Ltd
Annual Report
For the year ended
31 December 201 7
Nestle New Zealand Limited Financial Statements for the Year Ended 31 December 2017
Directors' Declaration
Company Directory
Independent Auditor's report
Statement of Comprehensive Income
Statement of Changes in Equity
Statement of Financial Position
Statement of Cash Flows
Notes to the Financial Statements
Contents
3
4
5 to 6
7 to 8
9
10
11
12 to 32
2
Nestle New Zealand Limited Financial Statements for the Year Ended 31 December 2017
Directors' Declaration
In the opinion of the directors of Nestle New Zealand Limited, the financial statements and notes, on pages 7 to 32:
- comply with New Zealand generally accepted accounting practice and give a true and fair view of the financialposition of the company as at 31 December 2017 and the results of operations for the year ended on that date;
- have been prepared using the appropriate accounting policies, which have been consistently applied andsupported by reasonable judgements and estimates.
The directors believe that proper accounting records have been kept which enable, with reasonable accuracy, the determination of the financial position of the company and facilitate compliance of the financial statements with the Financial Reporting Act 2013.
The directors consider that they have taken adequate steps to safeguard the assets of the Company, and to prevent and detect fraud and other irregularities. Internal control procedures are also considered to be sufficient to provide reasonable assurance as to the integrity and reliability of the financial statements.
The directors are pleased to present the financial statements of Nestle New Zealand Limited for the year ended 31 December 2017.
For and on behalf of the Board of Directors:
P Winter 21st of March 2018 Director
3
Nestle New Zealand Limited Financial Statements for the Year Ended 31 December 2017
Nature of Business:
Registered Office:
Postal Address:
Incorporation Number:
IRD Number:
Directors:
Solicitors:
Auditors
Bankers:
Business Location:
Company Directory
Manufacture of fast moving consumer goods ("FMCG") and its distribution thereof
Level 3 - Building 1 & 2 Carlaw Park Commercial 12-16 Nicholls LaneParnell, Auckland
P O Box 1784, Auckland 1015
46423
10-478-146
Trevor Clayton Christian Abboud (appointed 28 April 2017) Veronique Cremades (ceased 1 May 2017) Daniel Lagger (ceased 30 September 2017) Peter Winter (appointed 1 October 2017) Andrew AIishire (ceased 30 November 2017) Amanda Butler (ceased 8 December 2017) John Davis (appointed 1 January 2018)
Buddle Findlay
KPMG Sydney
ANZ Banking Corporation
Auckland and Christchurch
4
ndeoendent Auditor's Reoort To the shareholders of Nestle New Zealand Limited
Report on the financial statements
OpinionIn our opinion, the accompanying financial
statements of Nestle New Zealand Limited (the
company) on pages 7 to 32:
i. present fairly in all material respects the
company's financial position as at 31 December
2017 and its financial performance and cash
flows for the year ended on that date; and
ii. comply with New Zealand Equivalents to
International Financial Reporting Standards.
� Basis for opinion
We have audited the accompanying financial
statements which comprise:
- the statement of financial position as at 31
December 2017;
- the statements of comprehensive income,
changes in equity and cash flows for the year
then ended; and
- notes, including a summary of significant
accounting policies and other explanatory
information.
We conducted our audit in accordance with International Standards on Auditing (New Zealand) ('ISAs (NZ)'). We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the company in accordance with Professional and Ethical Standard 1 (Revised) Code of
Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board and the
International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA
Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements and the
IESBA Code.
Our responsibilities under ISAs (NZ) are further described in the auditor's responsibilities for the audit of the
financial statements section of our report.
Other than in our capacity as auditor we have no relationship with, or interests in, the company.
$
fil. Use of this independent auditor's report
This independent auditor's report is made solely to the shareholders as a body. Our audit work has been
undertaken so that we might state to the shareholders those matters we are required to state to them in the
independent auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the shareholders as a body for our audit work, this independent
auditor's report, or any of the opinions we have formed.
A Responsibilities of the Directors for the financial statements The Directors, on behalf of the company, are responsible for:
the preparation and fair presentation of the financial statements in accordance with generally accepted
accounting practice in New Zealand (being New Zealand Equivalents to International Financial Reporting
Standards) and International Financial Reporting Standards;
implementing necessary internal control to enable the preparation of a set of financial statements that is
fairly presented and free from material misstatement, whether due to fraud or error; and
- assessing the ability to continue as a going concern. This includes disclosing, as applicable, matters related
to going concern and using the going concern basis of accounting unless they either intend to liquidate or to
cease operations, or have no realistic alternative but to do so.
x,R,,,,. Auditor's responsibilities for the audit of the financial statements
Our objective is:
to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error; and
to issue an independent auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with ISAs NZ will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of these financial statements is located at the External
Reporting Board (XRB) website at:
http://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-report-8/
This description forms part of our independent auditor's report
KPMG
Sydney
21 March 2018
6
Nestle New Zealand Limited Statement of Comprehensive Income For the year ended 31 December 2017
In thousands of New Zealand Dollars
Note 2017 2016
Revenue 421,782 405,669
Cost of sales (202,894) (195,242)
Gross profit 218,888 210,427
Sales and marketing expenses (32,635) (32,964)
Distribution expenses (28,203) (26,875)
Administrative expenses (49,982) (45,651)
Other expenses (54,365) (55,690)
Operating profit before financing costs 53,703 49,247
Financial income 105 49
Financial expenses (1,251) (2,163)
Net financing costs 3 (1,146) (2,114)
Share of profiU(loss) of equity accounted investee 8 (39) (352)
Profit before income tax 52,518 46,781
Income tax expense 4 (14,716) (13,100)
Profit after income tax 37,802 33,681
Cash flow hedges (foreign exchange contracts) - net of tax 304 1,642
Actuarial losses on pension plan - net of tax 788 1,503
Other comprehensive income 1,092 3,145
Total comprehensive income for the period 38,894 36,826
The notes on pages 12 to 32 are an integral part of these financial statements
7
Nestle New Zealand Limited Statement of Comprehensive Income (continued) For the year ended 31 December 2017
In thousands of New Zealand Dollars
Profit for the period
Other comprehensive income
Items that will not be reclassified to profit or loss
Defined benefit plan actuarial gain/(losses)
Tax on items that will not be reclassified to profit or loss
Total items that will not be reclassified to profit or loss
Items that may be reclassified subsequently to profit or loss
Effective portion of changes in fair value for cash flow hedges
Net change in fair value of cash flow hedges transferred to profit and loss
Tax on items that may be reclassified subsequently to profit or loss
Total items that may be reclassified subsequently to profit or loss
Other comprehensive income for the period, net of income tax
Total comprehensive income for the period
The notes on pages 12 to 32 are an integral part of these financial s tatements
Note 2017
37,802
1,094
(306)
788
1,380
(957)
(119)
304
1,092
38,894
8
2016
33,681
2,088
(585)
1,503
(975)
3,254
(637)
1,642
3,145
36,826
Nestle New Zealand Limited Statement of Changes in Equity
For the year ended 31 December 2017
In thousands of New Zealand Dollars
Share Note capital
Balance at 1 January 2017 300
Profit for the period
Other comprehensive income
Total comprehensive income
Transactions w ith owners, recorded directly in equity
Dividends to shareholders 11
Share based payment transactions
Transactions with owners
Balance at 31 December 2017 300
Share Note capital
Balance at 1 January 2016 300
Profit for the period
Other comprehensive income
Total comprehensive income
Transactions with owners, recorded directly in equity
Dividends to shareholders 11
Share based payment transactions
Transactions with owners
Balance at 31 December 2016 300
Remuneration reserve
(93)
9
9
(84)
Remuneration reserve
(93)
(93)
(93)
The notes on pages 12 to 32 are an integral part of these financial statements
Hedging Retained reserve earnings Total equity
24 15,058 15,289
37,802 37,802
304 788 1,092
304 38,590 38,894
(44,000) (44,000)
9
(44,000) (43,991)
328 9,648 10,192
Hedging Retained Total equity
reserve earnings
(1,618) 6,374 5,056
33,681 33,681
1,642 1,503 3,145
1,642 35,184 36,826
(26,500) (26,500)
(93)
(26,500) (26,593)
24 15,058 15,289
9
Nestle New Zealand Limited
Statement of Financial Position As at 31 December 2017
In thousands of New Zealand Dollars
Note 2017 2016
Assets
Property, plant and equipment 5 60,149 56,686
Intangible assets 6 9,602 9,602
Deferred tax asset 7 1,646 1,151
Total non-current assets 71,397 67,439
Cash and cash equivalents 16 11,632 7,986
Trade and other receivables 10 35,077 46,595
Prepayments 491 1,130
Inventories 9 36,172 35,125
Interest bearing loans granted - CPW Partnership 16 & 22 212 1,271
Derivative assets 17 1,161 770
Total current assets 84,745 92,877
Total assets 156,142 160,316
Equity
Share capital 300 300
Reserves 244 (69)
Retained earnings 9,648 15,058
Total equity 10,192 15,289
Liabilities
Interest-bearing loans and borrowings 12 62,055 47,373
Employee entitlements 13 636 621
Retirement benefit plan liability 13 3,766 4,149
Other payables 278
Provisions 14 500 458
Total non-current liabilities 67,235 52,601
Short term borrowings 12 19,300
Trade and other payables 15 69,116 65,184
Derivative liabilities 17 402 1,238
Employee entitlements 13 4,651 4,537
Provisions 14 156
Current tax payable 4,545 2,011
Total current liabilities 78,715 92,426
Total liabilities 145,950 145,027
Total equity and liabilities 156,142 160,316
The notes on pages 12 to 32 are an integral part of these financial statements
10
Nestle New Zealand Limited
Statement of Cash Flows
For the year ended 31 December 2017
In thousands of New Zealand Dollars
Note 2017 2016
Cash flows from operating activities
Cash receipts from customers 487,655 452,845
Payments to suppliers and employees (410,874) (400,877)
Cash generated from operations 76,781 51,968
Interest paid (net) (881) (1,788)
Income taxes paid (13,102) (16,500)
Net cash from operating activities 24 62,798 33,922
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 33 28
Acquisition of property, plant and equipment (11,965) (7,130)
Loans from/ (to) related entities (net) 1,059 (999)
Net cash (used in) investing activities (10,873) (8,101)
Cash flows from financing activities
Net proceeds/ (repayment) of loans and borrowings (4,279) 8,226
Dividends paid (44,000) (26,500)
Net cash (used in) financing activities (48,279) (18,274)
Net increase/(decrease) in cash and cash equivalents 3,646 7,547
Cash and cash equivalents at 1 January 2017 7,986 439
Cash and cash equivalents at 31 December 2017 16 11,632 7,986
The notes on pages 12 to 32 are an integral part of these financial statements
11
Nestle New Zealand Limited
Notes to the Financial Statements For the year ended 31 December 2017 Significant accounting policies
Reporting entity
Nestle New Zealand Limited (the "Company") is a company incorporated and domiciled in New Zealand.
The Company is based in Auckland and is primarily involved in the manufacture of fast moving consumer goods ("FMCG") and its distribution thereof.
The financial statements of the Company are for the year ended 31 December 2017. The financial statements were authorised for issue by the directors on 21 March 2018.
Basis of preparation
Statement of compliance and basis of preparation The financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice ("NZ GMP"). They comply with New Zealand equivalents to International Financial Reporting Standards -Reduced Disclosure Regime ("NZ IFRS RDR") and other applicable Financial Reporting Standards, as appropriate for Tier 2 for-profit entities that qualify for and elect to apply reduced disclosure reporting concessions.
The entity has elected to report in accordance with Tier-2 For-Profit Accounting Standards on the basis that it does not have public accountability and is not a large for-profit public sector entity.
The financial statements have been prepared on a going concern basis.
Presentation currency These financial statements are presented in New Zealand dollars ($). All financial information presented in New Zealand dollars has been rounded to the nearest thousand dollars ($'000).
Use of estimates and judgements The preparation of a financial report in conformity with New Zealand Accounting Standards requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. These accounting policies have been consistently applied by each entity in the consolidated entity.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
Judgements Information about judgements made in applying accounting policies that have the most significant effects on the amounts recognised in the consolidated financial statement is included in the following notes - Basis of consolidation (page 13) and Impairment (page 15).
Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these financial statements.
12
Nestle New Zealand Limited
Notes to the Financial Statements For the year ended 31 December 2017 Significant accounting policies (continued)
Basis of consolidation
Joint ventures (equity accounted investees) Joint ventures are those entities over whose activities the Company has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. Joint ventures are accounted for using the equity method (equity accounted investees). The financial statements include the Company's share of the income and expenses of equity accounted investees, after adjustments to align the accounting policies with those of the Company, from the date that joint control commences until the date that joint control ceases. When the Company's share of losses exceeds its interest in an equity accounted investee, 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 Company has an obligation or has made payments on behalf of the investee.
In accordance with NZ IFRS 11 and NZ IAS 28, the Company uses the equity method to account for its investment in the joint venture in the financial statements even though the financial statements are not described as consolidated financial statements.
Property, plant and equipment
Owned assets
Items of property, plant and equipment are stated at cost, less accumulated depreciation and impairment losses. The cost of self-constructed assets includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located.
On the date of transition to NZ IFRS, 1 January 2006, the revalued amounts of certain items of property, plant and the equipment were taken as deemed cost for those items of property, plant and equipment.
Where material parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.
Subsequent costs
Subsequent costs are added to the carrying amount of an item of property, plant and equipment when that cost is incurred if it is probable that the future economic benefits embodied with the item will flow to the Company and the cost of the item can be measured reliably. All other costs are recognised in the Statement of Comprehensive Income as an expense as incurred.
Depreciation
Depreciation is recognised in the Statement of Comprehensive Income on a straight-line basis over the estimated useful life of each part of an item of property, plant and equipment. Land is not depreciated. The depreciation rates used for each class of asset, for the current and comparative periods are as follows:
• Buildings
• Plant and Machinery
• Tools, Furniture and Equipment
• Information Technology Equipment
• Motor Vehicle
2-4%
6.7-20%
6.7-20%
33%
20%
The residual value of assets is reassessed annually.
13
Nestle New Zealand Limited
Notes to the Financial Statements For the year ended 31 December 2017 Significant accounting policies (continued)
Intangible assets
Goodwill As part of its transition to NZ I FRS, the Company elected not to restate business combinations that occurred prior to 1 January 2006. The goodwill balance at that date is the deemed cost of that goodwill under NZ IFRS.
Goodwill arising after 1 January 2006 represents the excess of cost of the acquisition over the fair value of the identifiable assets, liabilities and contingent liabilities acquired.
Goodwill is measured at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment.
Other intangible assets Other intangible assets consist of management information systems which have finite useful lives and are measured at cost less accumulated amortisation. Management information systems are amortised on a straight-line basis over five years.
Non-derivative financial instruments
Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables. Cash and cash equivalents comprise of cash balances and call deposits.
Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition, non-derivative financial instruments are measured as described below.
A financial instrument is recognised if the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Company's contractual rights to the cash flows from the financial assets expire or if the Company transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset.
Trade and other receivables
Trade and other receivables are measured at their cost less impairment losses.
Trade and other payables
Trade and other payables are stated at cost.
Interest-bearing loans and borrowings
Interest-bearing loans and borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest payable on borrowings is calculated using the effective interest method. Borrowing costs are expensed as incurred and included in the net financing costs.
Inventories
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
Raw materials and packaging materials are valued on the first-in first-out principle and include expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of finished goods and work in progress costs are determined on a weighted average basis.
Cost of goods manufactured or in the process of manufacture consists of direct materials and direct labour, together with an appropriate proportion of fixed and variable production overheads.
14
Nestle New Zealand Limited
Notes to the Financial Statements For the year ended 31 December 2017
Significant accounting policies (continued)
Impairment
The carrying amounts of the Company's assets other than inventories, prepayments, derivatives and deferred tax are reviewed at each balance date to determine whether there is any indication of impairment. If any such indication exists, the assets recoverable amount is estimated.
An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses directly reduce the carrying amount of assets and are recognised in the Statement of Comprehensive Income.
Estimated recoverable amount of other assets is the greater of their fair value less costs to sell and value in use. Value in use is determined by estimating future cash flows from the use and ultimate disposal of the asset and discounting these to their present value using a pre-tax discount rate that reflects current market rates and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
An impairment loss in respect of goodwill is not reversed. Other impairment losses are reversed when there is a change in the estimates used to determine the recoverable amount.
Employee benefits
Defined benefit plans
The Company's net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of 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 recognised past service costs and the fair value of any plan assets are deducted. The discount rate is the market yield on relevant New Zealand Government Stock at the Balance Sheet date with a similar term as the estimated term of the obligation. The calculation is performed by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Company, the recognised asset is limited to the net total of any unrecognised past service costs and the present value of any future refunds from the plan or reductions in future contributions to the plan.
When the benefits of a plan are improved, the portion of the increased benefit relating to the past service by employees is recognised in profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in profit or loss.
Long service leave
The Company's net obligation in respect of long service leave is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date.
The liability is calculated by determining the probability that the employee will reach entitlement and is discounted to its present value. The discount rate is the market yield on relevant New Zealand Government Stock at the Balance Sheet date.
15
Nestle New Zealand Limited
Notes to the Financial Statements For the year ended 31 December 2017
Significant accounting policies (continued)
Provisions
A provision is recognised when the Company has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market rates and, where appropriate, the risks specific to the liability.
Revenue
In general, revenue is recognised only when it is probable that the economic benefits comprising the revenue will flow to the entity and that the flow can be reliably measured. In addition the following specific revenue recognition criteria apply.
Goods Sold Revenue from the sale of goods is recognised in the profit or loss when the significant risks and rewards of ownership have been transferred to the buyer. Revenue from sale of goods is measured at the fair value of consideration received, net of returns and allowances, trade discounts and volume rebates.
Expenses
Operating lease payments
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the Statement of Comprehensive income in the periods the amounts are payable.
Finance income and expenses
Finance income comprises interest income, changes in the fair value of financial assets at fair value through profit or loss, foreign currency gains, and gains on hedging instruments that are recognised in profit or loss. Interest income is recognised as it accrues, using the effective interest method.
Finance expenses comprise interest expense on borrowings and net defined benefit obligation, foreign currency losses and losses on hedging instruments that are recognised in profit or loss. All borrowing costs are recognised in profit or loss using the effective interest method.
Foreign currency transactions
Transactions in foreign currencies that are settled in the accounting period are translated at the settlement rate. Transactions in foreign currency that are not settled in the accounting period, resulting in monetary assets and liabilities denominated in foreign currencies at the Balance Sheet date are translated to New Zealand dollars at the foreign exchange rate ruling at that date. Foreign exchange differences arising on their translation are recognised in the Statement of Comprehensive Income.
Derivative financial instruments
The Company uses foreign exchange contracts to hedge its exposure to foreign exchange risk arising from future purchases of manufactured goods and raw materials in foreign currencies. In accordance with the treasury policy, the Company does not hold or issue derivative financial instruments for trading purposes.
However derivatives that do not qualify for hedge accounting are accounted for as trading instruments. Derivatives are recognised initially at their fair value with fair value changes recognised in profit or loss unless hedge accounting is applied. Transaction costs are expensed immediately.
Where the foreign exchange contracts are designated as a hedge, the effective portion of changes in the fair value of foreign exchange contracts is initially recognised in the Hedging Reserve, and subsequently transferred to other comprehensive income at the point at which the underlying inventories are recorded in the Statement of Comprehensive Income. Any ineffective portion of foreign exchange contracts is recognised immediately in profit or loss.
16
Nestle New Zealand Limited
Notes to the Financial Statements For the year ended 31 December 2017
Significant accounting policies (continued)
Income tax
Income tax expense comprises current and deferred tax. 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 in respect of previous years.
Deferred tax is recognised 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 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 substantively enacted by the reporting date.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilised.
Goods and services tax
All amounts are shown exclusive of Goods and Services Tax (GST), except for receivables and payables that are stated inclusive of GST.
New standards and interpretations not yet adopted
A number of new standards and amendments to standards are effective for annual reports beginning after 1 January 2018 and earlier application is permitted; however, the Company has not early adopted the following new or amended standards in preparing theses consolidated financial statements.
(i) IFRS 9 Financial Instruments
IFRS 9 replaces the existing guidance in IFRS 139 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition and de-recognition of financial instruments from IAS 139. IFRS 9 is effective for annual periods beginning on or after 1 January 2018. Early adoption is permitted. The Company has assessed the potential impact of IFRS 9 on the financial statements and do not expect any material adjustments.
(iii) IFRS 15 Revenue from Contracts with Customers
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IFRS 118 Revenue, IFRS 111 Construction Contracts and IFRIC 13 Customer Royalty Programmes. IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018. The Company has assessed the potential impact of IFRS 15 on the financial statements and do not expect any material adjustments.
(iii) IFRS 16 Leases
IFRS 16 Leases removes the lease classification test and requires all leases (including operating leases) to be brought onto the balance sheet. The definition of a lease is also amended and is now the new on/off balance sheet test for lessees. IFRS 16 is effective for annual reporting periods beginning on or after 1 January 2019. Early adoption will be permitted for entities that also adopt IFRS 15 Revenue from contracts with customers. The Company is assessing the potential impact on its financial statements resulting from the application of IFRS 16.
17
Nestle New Zealand Limited
Notes to the Financial Statements For the year ended 31 December 2017
In thousands of New Zealand Dollars
1 Expenses
Administrative expenses include: Note 2017 2016
Fees paid to auditors:
- audit fees 47 45
- taxation 7 36
- other 2
Other expenses include: Note 2017 2016
Restructuring costs expensed as incurred 109
Loss on disposal of property, plant and equipment 364 330
Impairment losses on property, plant and equipment 919
Operating lease expenses 18 4,374 3,876
2 Personnel expenses
Note 2017 2016
Wages and salaries 53,068 50,556
Expenses/(lncome) in respect of defined benefit plans 13 884 1,205
Increase in liability for long-service leave 15 184
Recognised in profit or loss 53,967 51,945
Movement in share based payment (9) 93
Movement in defined benefit plans recognised in other (1,094) (2,088) comprehensive income
52,864 49,950
3 Net financing costs
Note 2017 2016
Interest income on bank deposits 105 49
Financial income 105 49
Interest expense (1,251) (2,163)
Net change in fair value of derivative assets through profit or loss
Financial expense (1,251) (2,163)
Net finance costs (1,146) (2,114)
18
Nestle New Zealand Limited
Notes to the Financial Statements For the year ended 31 December 2017
In thousands of New Zealand Dollars
4 Income tax expense
Current tax expense
Deferred tax expense
Total income tax expense
Reconciliation of effective tax rate
Profit before tax
Income tax using the company tax rate at 28% (2016: 28%)
Share of (gain)/loss of equity accounted investee
Non-taxable items
Under/(over) provided in prior periods
Imputation credits
Imputation credits available for use in subsequent reporting periods
Note
7
Note
2017
15,636
(920)
14,716
52,518
14,705
11
(31)
31
14,716
2017
(38,246)
2016
13,560
(460)
13,100
46,781
13,099
99
(105)
8
13,100
2016
(42,255)
19
Nestle New Zealand Limited
Notes to the Financial Statements For the year ended 31 December 2017
In thousands of New Zealand Dollars
5 Property, plant and equipment
Land Buildings Plant & Motor Information Total machinery, vehicles technology furniture & equipment
Balance at 31 December 2017
Cost 2,491 38,866 100,157 89 4,888 146,491
Accumulated depreciation (19,373) (63,478) (87) (3,404) (86,342)
Carrying value 2,496 19,493 36,679 2 1,484 60,149
Current year depreciation 1,532 5,133 2 519 7,186
Balance at 31 December 2016
Cost 2,165 38,119 93,059 89 4,667 138,099
Accumulated depreciation (17,827) (60,416) (85) (3,085) (81,413)
Carrying value 2,165 20,292 32,643 4 1,582 56,686
Current year depreciation 1,485 5,454 4 394 7,337
20
6
Nestle New Zealand Limited
Notes to the Financial Statements For the year ended 31 December 2017
In thousands of New Zealand Dollars
Intangible assets Goodwill Other Total
Intangible Assets
Cost
Balance at 1 January 2016 11,119 8,945 20,064
Additions Transfers
Balance at 31 December 2016 11,119 8,945 20,064
Balance at 1 January 2017 11,119 8,945 20,064 Additions Transfers
Balance at 31 December 2017 11 119 8,945 20,064
Amortisation and impairment
Balance at 1 January 2016 1,517 8,945 10,462 Amortisation for the year
Impairment for the year Balance at 31 December 2016 1,517 8,945 10,462
Balance at 1 January 2017 1,517 8,945 10,462 Amortisation for the year Balance at 31 December 2017 1,517 8,945 10,462
Carrying amounts
At 1 January 2017 9,602 9,602
At 31 December 2017 9,602 9,602
Goodwill relates to the acquisition of Animal Health Food Ltd (1992) and Wyeth New Zealand (2012).
Goodwill acquired through business combinations has been allocated to the cash-generating units below, being the level at which the business is monitored for internal management and reporting purposes, for impairment testing.
Nestle Purina Petcare
Wyeth New Zealand
2017
4,468
5,134
9,602
2016
4,468
5,134
9,602
21
Nestle New Zealand Limited
Notes to the Financial Statements For the year ended 31 December 2017
In thousands of New Zealand Dollars
1 Deferred tax assets and liabilities
Unrecognised deferred tax assets and liabilities
There are no unrecognised deferred tax assets or liabilities.
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets
2017 2016
Deferred tax assets I (liabilities) 4,684 4,540
Liabilities Net
2017 2016 2017 2016
(3,038) (3,389) 1,646 1,151
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset and when the taxes are settled on a net basis with the same tax authority.
Movement in recognised deferred tax assets and liabilities
The movement in the deferred tax account is as follows:
Balance at 1 January
Tax on differences recognised in profit or loss
Tax on differences recognised in other comprehensive income
Balance at 31 December
2017
1,151
920
(425)
1,646
2016
1,913
460
(1,222)
1,151
22
Nestle New Zealand Limited
Notes to the Financial Statements For the year ended 31 December 2017 In thousands of New Zealand Dollars
8 Equity accounted investees
The Company's share of loss in its equity accounted investee for the year was $39,000 (2016: $352,000 loss).
Summary financial information for equity accounted investee, not adjusted for the percentage ownership held by the Company:
Ownership Current Non- Total Current Non- Total Revenues Expenses ProfiU(loss)
In thousands of New Zealand dollars
2017
CPW New Zealand Goint venture) 50%
2016
CPW New Zealand Goin! venture) 50%
assets current assets liabilities current liabilities
2,216
2,802
asset liabilities
2,216 14,966
2,802 15.474
14,966
15,474
16,219 (16,297) (78)
14,673 (15,377) (704)
23
Nestle New Zealand Limited
Notes to the Financial Statements For the year ended 31 December 2017
In thousands of New Zealand Dollars
g Inventories
10
Raw materials
Less: Provision for write down
Finished goods
Less: Provision for write down
Carrying amount of inventories
Note 2017
6,879
(295)
6,584
30,336
(748)
29,588
36,172
In 2017 the write-down of inventories to net realisable value amounted to $1,043,000 (2016: $653,000).
In 2017, inventories of $66,534,000 (2016:$66,971,000) were recognized as an expense during the year and included in Cost of Sales.
Trade and other receivables
Note 2017
Trade receivables 28,305
Trade receivables due from related parties 6,405
Other receivables 367
35,077
2016
7,978
(415)
7,563
27,800
(238)
27,562
35,125
2016
35,285
10,892
418
46,595
Trade receivables are shown net of impairment losses amounting to $46,000 (2016: $78,000) and provision for prompt payment discount amounting to $814,000 (2016: $1,361,000) recognised in the current year.
11 Capital and reserves
At 31 December 2017, share capital comprised 150,000 ordinary shares (2016: 150,000). All issued shares are fully paid.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company, and rank equally with regard to the Company's residual assets.
24
Nestle New Zealand Limited
Notes to the Financial Statements For the year ended 31 December 2017
In thousands of New Zealand Dollars
11 Capital and reserves (continued)
12
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of foreign exchange contracts (cash flow hedging instruments) related to hedged transactions that have not yet occurred or not yet recognised in profit or loss.
Dividends
The following net dividends were declared and paid by the Company for the year ended 31 December 2017:
Final dividend $96.66 per share (2016: $33.33) for previous year
1"1 Interim dividend $140.00 per share (2016: $110.00) for current year
2nd Interim dividend $56.66 per share (2016: $33.33) for current year
Interest-bearing loans and borrowings
Current
Unsecured loans
Non-current
Unsecured loans
Share of accumulated loss of equity accounted investee
Note
Note
2017
14,500
21,000
8,500
44,000
2017
55,719
6,375
62,055
2016
5,000
16,500
5,000
26,500
2016
19,300
19,300
41,037
6,336
47,373
Unsecured loans are intercompany loans of $55,719,000 with NTC-MEA (Nestle Treasury Centre - Middle East and Africa) (2016: $41,037,000). Interest is charged at market rates. NTC-MEA has advised there is no current intention to receive repayment in the next 12 months and therefore unsecured loans are shown as non-current.
Current unsecured loans in overnight borrowings made with ANZ were repaid in 2017 by the company.
25
Nestle New Zealand Limited
Notes to the Financial Statements For the year ended 31 December 2017
In thousands of New Zealand Dollars
13 Employee benefits
Current
Liability for annual leave
Non-current
Liability for long-service leave
Retirement benefit plan liability
Actuarial assumptions
Note
Principal actuarial assumptions at the reporting date (expressed as weighted averages)
Note
Discount rate
Future salary increases
Future pension increases
2017
4,651
4,651
636
3,766
4,402
9,053
2017
3.25%
3.00%
0.00%
2016
4,537
4,537
621
4,149
4,770
9,307
2016
3.50%
3.00%
0.00%
Assumptions regarding future mortality are based on published statistics and mortality tables. The assumed retirement age is 65 (2016: 65) and the average age of pension beneficiaries is 73 (2016:74).
Reconciliation of Defined Benefit Obligation 2017 2016
Defined benefit obligation at start of period 38,148 40,734
Current service cost (net member contributions) 527 756
Interest cost on DBO 1,294 1,333
Member contributions 291 337
Actuarial loss/ (gain) 1,427 (1,292)
Settlement gain ( 1)
Benefit payments (2,365) (3,720)
Defined benefit obligation at end 39,322 38,148
(1) Settlement gain is included in administrative expense in the Statement of Comprehensive income.
26
Nestle New Zealand Limited
Notes to the Financial Statements For the year ended 31 December 2017
In thousands of New Zealand Dollars
13 Employee benefits (continued)
Reconciliation of net plan assets
Assets at start of period
Interest income on Plan assets (at discount rate)
Return on assets greater than discount rate (actuarial gain)
Employer contributions
Member contributions
Administration costs
Benefit payments
Assets at end of period
Pension expense in P&L
Costs I (Income) recognized in P&L (excluding tax)
Contributions tax
Costs I (Income) recognized in P&L (including tax)
Remeasurement effects in Other Comprehensive Income
Remeasurement effects recognized in OCI (excluding tax)
Tax expense
Remeasurement effects recognized in OCI (including tax)
Plan assets allocation
Percentage invested in each asset class at the end of the period
Equity
Global bonds
Cash
Key risks The key risks that the Fund is exposed to are:
2017
33,999
1,157
2,521
173
291
(220)
(2,365)
35,556
2017
884
435
1,319
2017
1,094
(306)
788
2017
55.8%
38.0%
6.2%
the risk that investment returns will be lower than assumed and the Company will need to increase its contributions. the risk that salaries will increases at a greater rate than assumed, which will require an increase in Company contributions.
2016
35,512
1,163
795
190
337
(279)
(3,720)
33,998
2016
1,205
593
1,798
2016
2,088
(585)
1,503
2016
54.8%
38.8%
6.4%
the risk that the underlying mortality of members who are pensioners will be lower than assumed, which will lead to an increase in the required Company contribution rate. the risk that there is an adverse change to taxation basis affecting investment income or Company
contributions, both of which could lead to an increase in the required Company contribution rate.
27
Nestle New Zealand Limited
Notes to the Financial Statements For the year ended 31 December 2017
In thousands of New Zealand Dollars
14 Provisions Note 2017 2016
Current
Other short-term provision 156
Non-current
Make good provision 123 123
Other long-term provision 377 335
500 458
15 Trade and other payables
Note 2017 2016
Trade payables 34,092 34,920
Trade payables due to related parties 20,607 19,106
Non trade payables and accrued expenses 14,417 11,158
69,116 65,184
28
Nestle New Zealand Limited
Notes to the Financial Statements For the year ended 31 December 2017
In thousands of New Zealand Dollars
16 Financial instruments
Note Trading Loans and Other Total carrying receivables amortised amount
2017: costs
Assets
Cash and cash equivalents 11,632 11,632
Trade and other receivables 10 35,077 35,077
Derivative assets 17 1,161 1,161
Interest bearing loans granted 22 212 212
Total current assets 1,161 46,921 48,082
Total assets 1,161 46,921 48,082
Liabilities
Interest bearing loans and borrowings 12 62,055 62,055
Total non-current liabilities 62,055 62,055
Short term borrowings 12 ·--·----· --• --- ··-�·----
Trade and other payables 15 69,116 69,116 --------·-------- -- -- ··-· -- --- - -
Derivative liabilities 17 402 402
Total current liabilities 402 69,116 69,518
Total liabilities 402 131,171 131,573
Note Trading Loans and Other Total carrying receivables amortised amount
2016: costs
Assets
Cash and cash equivalents 7,986 7,986
Trade and other receivables 10 46,595 46,595
Derivative assets 17 770 770
Interest bearing loans granted 22 1,271 1,271
Total current assets 770 55,852 56,622
Total assets 770 55,852 56,622
Liabilities
Interest bearing loans and borrowings 12 47,373 47,373
Total non-current liabilities 47,373 47,373
Short term borrowings 12 19,300 19,300
Trade and other payables 15 65,184 65,184
Derivative liabilities 17 1,238 1,238
Total current liabilities 1,238 19,300 65,184 85,722
Total liabilities 1,238 19,300 112,557 133,095
29
Nestle New Zealand Limited
Notes to the Financial Statements For the year ended 31 December 2017
In thousands of New Zealand Dollars
17 Financial risk management
The Company classifies its foreign exchange contracts hedging forecast transactions as cash flow hedges. The fair value of foreign exchange contracts used as hedges of forecast transactions at 31 December 2017 was $759,000 (2016: $(468,000)) comprising assets of $1,161,000 (2016: $770,000) and liabilities of $402,000 (2016: $1,238,000).
18 Operating leases
Leases as lessee
19
20
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
More than five years
2017
4,004
9,998
14,002
2016
3,499
6,136
9,635
The Company leases offices, warehouse facilities, car parks, fork hoists and motor vehicles under operating leases.
During the year ended 31 December 2017, $4,374,000 (2016: $3,876,000), was recognised as an expense in the Statement of Comprehensive Income in respect of operating leases. Refer to Note 1 - Expenses (Other expenses -Operating lease expense)
Commitments
2017 2016
Capital commitments 1,839 50
Commodity forward contracts 520
Foreign exchange forward transactions 79,351 77,651
81,190 78,221
Contingencies
The Company has provided a letter of support to the Directors of Cereal Partners New Zealand stating that Nestle New Zealand Ltd will continue to provide working capital funding as required to enable Cereal Partners New Zealand to meet its financial obligations as and when they fall due for at least a period of 12 months from the date the 2017 Cereal Partners New Zealand financial statements are signed.
21 Capital management
The Company's capital includes share capital, hedging reserve and retained earnings.
The Company's policy is to maintain a sound capital base to support the continued development of its business. The Board of Directors seeks to maintain a prudent balance between different components of the Company's capital.
The Company is not subject to any externally imposed capital requirements.
The Company's policies in respect of capital management are reviewed regularly by the Board of Directors.
30
Nestle New Zealand Limited
Notes to the Financial Statements For the year ended 31 December 2017
In thousands of New Zealand Dollars
22 Related parties
The immediate and ultimate parent entity is Nestle S.A., incorporated in Switzerland with following related transactions:
Purchase of finished goods from related parties
Royalty payments
2017
10,780
21,517
2016
10,282
20,464
The following summarises Nestle New Zealand Ltd and its controlled entities' material transactions with other related parties not disclosed in detail elsewhere in the accounts:
Sale of finished goods to related parties
Purchase of finished goods from related parties
Purchase of raw and packaging materials from related parties
Purchase of equipment and spares from related parties
Provision of services from related parties
Interest paid to related party
Working Capital Loan - CPW Partnership
Share of accumulated loss of equity accounted investee
23 Subsequent events
2017
58,910
114,279
3,397
82
19,120
1,282
2017
212
(6,375)
(6,163)
2016
60,190
107,235
3,765
313
14,206
1,554
2016
1,271
(6,336)
(5,065)
After the balance sheet date the directors of the Company declared a final dividend of $8,500,000.The dividend has not been provided and there is no income tax consequence. All the dividends paid or declared by the Company since the end of the previous financial year were 100% fully imputed.
31
Nestle New Zealand Limited
Notes to the Financial Statements For the year ended 31 December 2017
In thousands of New Zealand Dollars
24 Reconciliation of cash flows from operating activities
Note 2017 2016
Profit for the period 37,802 33,681
Adjustments for:
Depreciation and amortisation 7,186 7,337
Sale of property, plant and equipment (gain)loss 364 330
Impairment losses on property, plant and equipment 919
(Gain) / Loss on equity investment 8
39 352
Interest income 3 (105) (49)
Interest expense 3 1,251 2,163
Share based payment 115 149
Income tax expense 4 14,716 13,100
Operating profit before changes In working capital and provisions 62,287 57,063
(lncrease)/decrease in trade and other receivables 11,518 (6,353)
(lncrease)/decrease in other assets and liabilities (585) (102)
(lncrease)/decrease in inventories (1,047) (2,757)
(Decrease)/increase in trade and other payables 4,975 3,768
(Decrease)/lncrease in provisions and employee benefits (367) 591
Cash generated from operations 76,781 52,210
Interest paid (881) (1,788)
Income taxes paid (13,102) (16,500)
Net cash from operating activities 62,798 33,922
32
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