Skellerup FY18 Result
16 August 2018
Strong growth delivers record profit for Skellerup
Highlights for the year ending 30 June 2018
A strong performance across the Group delivered a record result for Skellerup in FY18.
• Revenue of $240.4 million, up 14% on pcp.
• Record earnings before interest and tax (EBIT) of $39.8 million, up 21% on pcp.
o Industrial Division EBIT of $20.8 million, up 21% on pcp.
o Agri Division EBIT of $22.8 million, up 15% on pcp.
o Corporate Costs of $3.9 million, down 5% on pcp.
• Record net profit after tax (NPAT) of $27.3 million, up 23% on pcp.
• Final dividend increased from 6.0 cps to 7.0 cps (55% imputed) bringing the total dividend to
11.0 cps (~70% imputed) for the full year.
Industrial Division EBIT lifted by 21 percent to $20.8 million, accelerating a trend in earnings growth
established over the past 4 years. CEO David Mair said the result was an outcome of focusing activity
on the best opportunities and delivering innovative and cost-effective solutions.
“We continue to enhance our operating platform and deploy the expertise we have in engineered
polymer product, compound and tool design into customer focused development. We have
improved our execution and sped up our development activity enabling strong growth across
international markets, particularly in the potable water industry.”
Agri Division EBIT lifted by 15 percent to $22.8 million, a record result for the Division. Mair said the
result was due to growth in international markets and a buoyant NZ market with the improved pay-
out rates available to farmers.
“International markets provide the best opportunities for growth and we are very pleased with
progress in FY18. Our reputation and ability to consistently develop and deliver innovative and high-
quality dairy consumables and animal hygiene products is critical to our success. This year also marks
the 60
th
anniversary of Red Band. Leveraging this long-established technical knowhow, we have
continued to develop and grow our footwear range, including our firefighting boots which are not
only worn in NZ and Australia but now also by a large proportion of the UK fire brigades.”
Chair Liz Coutts noted that the Board was pleased with the broad-based growth achieved in FY18.
She noted supply chain flexibility gives Skellerup confidence they can adapt and mitigate the impacts
of more restrictive international trade practices and to continue to grow earnings.
Coutts confirmed that a final dividend of 7.0 cents per share (imputed 55%) would be paid to
shareholders on 11 October 2018. This payment will bring the total dividend pay-out for the financial
year ended 30 June 2018 to 11.0 cents per share (imputed ~70% overall) a 16% increase in pay-out
above the prior year. Allowing for the impact of partial imputation the aggregate payout for the
period provides a minimum 7% net increase to shareholders above the prior year. -As noted
previously the partial imputation of the final dividend reflects the growth in Skellerup’s earnings
largely coming from Skellerup’s international operations.
“This dividend increase follows a 6% increase in the prior year and reflects Skellerup’s consistently
strong earnings and cash flow. These successive increases are in line with the Board’s practice of
increasing dividends as profit growth allows,” Mrs Coutts said.
For further information please contact:
David Mair Graham Leaming
Chief Executive Officer Chief Financial Officer
021 708 021 021 271 9206
---
Skellerup Holdings Limited
Results for announcement to the market
Reporting Period Year ended 30 June 2018
Previous Reporting Period Year ended 30 June 2017
Amount NZ$000 Percentage change
Revenue from ordinary activities 240,408 14%
Net profit from ordinary activities after tax
attributable to security holders
27,277 23%
Net profit after tax attributable to security
holders
27,277 23%
Final Dividend Net amount per security Imputed amount per security
Total Final Dividend of $13,496k imputed to
55% at an effective tax rate of 28%. The
Dividend Reinvestment Plan will not apply
to this dividend.
7.0 cents per share 1.5 cents per share
Record Date 28 September 2018
Dividend Payment Date 11 October 2018
Comments: Refer attached Release for commentary on trading results.
Directors Declaration (NZX Listing Rules Appendix 1, 3.1 & 3.2)
The Directors declare that the Audited Consolidated Financial Statements included in the attached Annual
Report been prepared in compliance with applicable Financial Reporting Standards. The accounting policies
the Directors consider critical to the portrayal of the Company’s financial condition and results which require
judgements and estimates about matters which are inherently uncertain are disclosed on page 35 of the
attached Annual Report that forms part of this announcement.
OTHER INFORMATION
A. Net Tangible Assets per Security (NZX Listing Rules Appendix 1: 1.3(g))
Refer Note 18 of Consolidated Financial Statements in the attached Annual Report.
B. Control gained and lost over Entities (NZX Listing Rules Appendix 1: 1.3(h))
Skellerup has not gained or lost control over any entities during the period.
C. Associates & Joint Ventures (NZX Listing Rules Appendix 1: 1.3(i))
Skellerup did not have any associate entities or joint venture arrangements at balance date. As disclosed in Note x of the
Consolidated Financial Statements Skellerup acquired a 35% interest in Sim Lim Technic LLC subsequent to balance date.
This investment will be equity accounted in the future financial results of Skellerup.
D. Audit (NZX Listing Rules Appendix 1: 1.3(l))
The Consolidated Financial Statements have been audited and are not subject to any qualification. The Auditors Report
on the Consolidated Financial Statements is included as pages 26 to 28 of the attached Annual Report.
E. Business Changes (NZX Listing Rules Appendix 1: 1.3(m))
There have not been any major changes or trends in Skellerup’s business subsequent to year end.
---
2018
Annual Report
Skellerup
Skellerup Holdings Limited
L3, 205 Great South Road
Greenlane, Auckland 1051, New Zealand
PO Box 74526, Greenlane
Auckland 1546, New Zealand
E ea@skellerupgroup.com
T +64 9 523 8240
W www.skellerupholdings.com
SKELLERUP
2018 ANNUAL REPORT
BUSINESS REVIEW
Highlights1
Chair's Review2
Our Business Model4
What We Do6
CEO's Review8
Case Study: Gulf 10
Case Study: Masport12
Case Study: Footwear14
Managing our Environmental Impact16
Our People17
Board of Directors18
Corporate Governance20
Contents
Developing innovative
solutions for our
customers
SHAREHOLDER INFORMATION
Directors' Disclosures, Remuneration and Shareholding65
Five Year Financial History66
Corporate Directory67
FINANCIAL
REPORT
Directors' Responsibility Statement25
Independent Auditor's Report26
Income Statement29
Statement of Comprehensive Income30
Balance Sheet31
Statement of Changes in Equity32
Cash Flow Statement33
Notes to the Financial Statements34
CASE STUDY: GULF
Taking our specialist
know-how to new
applications
CASE STUDY: FOOTWEAR
CASE STUDY: MASPORT
Delivering tailored
systems solutions that
drive value for our
customers
SKELLERUP | ANNUAL REPORT 2018
REVENUE
$240.4m
Increased by $30.1m
GLOBAL TEAM
780
Increased by 22
Highlights
FY16 FY17 FY18
250
200
150
100
50
0
FY16 FY17 FY18
30
25
20
15
10
5
0
FY16 FY17 FY18
15
12
9
6
3
0
TOTAL INJURY RATE*
16%
FY16 FY17 FY18
12
10
8
6
4
2
0
1
The TIR (Total Injury Rate) is the total number of Serious Harm, Lost Time
and Medically Treated Injuries multiplied by 2,080 (the estimated annual
hours worked by an individual), divided by the actual year to date hours
worked, annualised, and expressed as a percentage. The TIR represents
the percentage likelihood of being injured on each site. Zero TIR is the
benchmark that all sites are striving to achieve.
14
%
N PAT
$27.3m
Increased by $5.2m
23%
EARNINGS PER SHARE
14.1c
Increased by 2.7c
23%
DIVIDEND
11.0cps
Increased by 1.5c
16%
3%
ANNUAL REPORT 2018 | SKELLERUP
2
Welcome to the Skellerup Annual Report for 2018.
We have had a record year and continued to deliver
against a consistent and effective strategy.
Skellerup is a world leader in the design and development
of polymer products. We make the critical components in
products and systems that transport water from reservoir
to your tap or shower, transport milk from the cowshed
to the vat, and form part of your motor vehicle. While we
often develop only parts of the overall product or system,
these are essential to overall function and performance.
People around the world rely on our products every day
without necessarily recognising the Skellerup name.
Our components and products are used across a broad
range of industries. Many must meet high food and
water safety requirements. From design to manufacture,
our expertise covers the development and tooling, the
materials, and the process for manufacture.
Our business model is focused on developing strong and
deep relationships with our customers. We work closely
with them to understand their challenges. Our approach
to innovation is not merely to improve a component
they currently have but to also understand what the real
problem is and create a solution to solve it.
Original Equipment Manufacturers (OEM) are an
important customer group for Skellerup. We are focused
on developing long-term partnerships where our
people effectively form part of their development team.
This means we know our resources are concentrated
on solving real problems for key customers. We can
therefore focus our resources and capital on the areas
of the business that will have the greatest impact. This
reduces risk for both Skellerup and our customers.
We apply the same thinking to investing in new
capabilities. In July 2018, we announced our acquisition
of a 35% stake in Sim Lim Technic (Sim Lim). This
investment enables us to meet existing and new customer
requirements for liquid silicone rubber (LSR) products,
where we see growing global demand.
Skellerup is truly a global organisation. Today, more
than three quarters of our products are manufactured
outside of New Zealand. Our specialist teams work across
geographies allowing us to share technical capabilities
and innovation. Over three quarters of our revenue is
earned outside of New Zealand also. The US is our largest
Chair's Review 2018
SKELLERUP | ANNUAL REPORT 2018
3
market and provides strong growth potential for both our
agricultural and industrial businesses.
We recognise the importance of ensuring our activities
make the most effective and efficient use of energy and
water. Over the past year, we have further increased our
efforts and targets for improving our energy efficiency,
waste minimisation and water conservation performance.
We have made good progress in these areas and will
continue with this focus during 2019.
Our balance sheet remains strong, providing
opportunities for prudent ongoing investment in our
people and technologies. Our strong earnings and
cash flow have also allowed us to increase our dividend
again this year. The Board is pleased to announce a final
dividend of 7.0 cents per share (imputed 55%), which
will be paid on 11 October 2018. This will bring the total
dividend pay-out for the financial year ended 30 June
2018 to 11.0 cents per share, a 16% increase on the prior
year.
This is my first full year as the Chair of Skellerup, and I
would like to thank my fellow Directors. We are fortunate
to have a strong and well-balanced board with a good
breadth of sector and international experience to match
our areas of focus. The Board members have spent
considerable time in the business this year. We have been
to see the new Wigram facility twice and have visited
our operations in China. Our visit to China coincided
with celebrating the 15th anniversary of the opening
of our manufacturing facility in this market. It allowed
the Board to spend time at our site there, meeting with
the local team and our key business partners. These
trips have been immensely valuable in deepening our
understanding to help direct management to capitalise on
the opportunities and mitigate against the risks across our
organisation and markets.
Finally, on behalf of the Board, I would like to thank the
team around the world for their contribution to what is a
record result for Skellerup. We look forward to continuing
this success for all our shareholders.
Our business model is focused
on developing strong and deep
relationships with our customers
Elizabeth (Liz) Coutts
Chair and Director
Our business enablers
Our economic performance
A strong balance sheet, low debt, a very
good dividend yield and relatively low
levels of capital expenditure required to
maintain and grow the business.
Our people
Diverse, experienced, vibrant,
international team delivering solutions
for customers in over 80 countries.
Our intellectual property and
innovation
Vast expertise and capability in
polymers coupled with world leading
tooling design to deliver innovative,
dependable solutions for our
customers.
Our business model
ANNUAL REPORT 2018 | SKELLERUP
4
Developing strong and deep
customer relationships
Working closely with customers,
particularly Original Equipment
Manufacturers (OEMs) as part of their
product innovation teams.
Our approach
We make clever, critical components
which are often only a small part of a
more complex system
Our products are usually only a small
part of the total solution, but they are
critical. The risk of failure means OEM
customers will prefer a trusted brand
such as Skellerup.
Applying our intellectual know how
to new applications
Applying our expertise across
new industrial and agricultural
applications. From design to
manufacture, our expertise in
polymer technologies covers
the materials, the tooling and
development, and the process for
manufacture.
Strong global delivery and profitable growth
Geographical
Revenue
FY2018
•
New Zealand
•
Australia
•
North America
•
Europe
•
United Kingdom
and Ireland
•
Asia
•
Other
Our operational capability and
capacity
Our customer commitment
Customer-centric development.
Includes partnership with customers
to deliver both branded and OEM
products.
Our environment
Reducing our impact on the environment
through reducing usage of important
resources and waste.
World-class manufacturing and
distribution facilities and partners
in New Zealand, Australia, China,
Vietnam, UK, Italy and the USA.
SKELLERUP | ANNUAL REPORT 2018
5
VACUUM PUMP SYSTEMS
IndustrialAgri
RED BAND
A global leader in essential dairy consumables,
safeguarding milk quality, animal health and welfare.
Delivering specialist footwear for the farming, fire,
forestry, electricity and mining markets.
Our businesses
Develops critical, precise components, seals and
systems used to manage the flow of fluids, in
particular assuring the quality of potable (drinking)
water but also in containing and preventing the
egress of grey water. Leveraging our knowledge of
designing and manufacturing polymer products to
innovate solutions to meet customer needs in critical
applications.
Industrial
Agri
We produce essential dairy consumables
and rubber footwear
We deliver critical, precise components, seals and systems
used in a broad range of applications
Faucet
mounting bracket
Milking platform
wheel
Tubing
Milking liners
ANNUAL REPORT 2018 | SKELLERUP
6
What we do
Control valve seal
Orthotic
ski boot liner
Enzide plug
Ice maker seat
U-Dek
foam matting
Coupling
Nozzle &
hose
Gumboots
Teat sprayer
Milk filters
Plate heat
exchangers
Dispensing
pump
SKELLERUP | ANNUAL REPORT 2018
7
Gas valve
diaphragm
Water level
sensor
Rainpanel
Mixer tap
internal seal
Deks flashing
Irrigation
isolation valve
Shower
valve seal
ANNUAL REPORT 2018 | SKELLERUP
CEO's Review 2018
Skellerup has delivered another strong performance
for FY18 as we have continued to focus on the business
fundamentals.
We have lifted performance across the Group and we
continue to see the gains reflected in our bottom line. Our
FY18 Net Profit After Tax (NPAT) of $27.3 million is a record
result and represents a 23% improvement over the prior
year underpinned by a 14% increase in revenue. I am proud
of the efforts of our team in delivering this level of growth.
Industrial Division
The Industrial Division continues to deliver strong growth
year-on-year, with Earnings Before Interest and Tax (EBIT)
up 21% to $20.8 million on a 15% increase in revenue to
$151.5 million.
We continue to focus on international markets. Each
of our components is often only a small part of a more
complex system, yet forms a key element in ensuring the
whole system works reliably. The success of the system
often relies on one of our critical components and that
means customers prefer to work with a trusted brand like
Skellerup. We continue to work closely with our customers,
developing more innovative products and services by
understanding their underlying needs, not just their stated
wants. We help them to realise new opportunities that will
make them, and us, even more successful. On the following
pages we have provided some examples of this approach
in action. Our Gulf business works with leading tap (faucet)
and shower systems businesses to develop sophisticated
new product innovations – often where others have
deemed it too difficult. Masport’s vacuum system is
supplied as a package greatly reducing installation time.
This reduces the customer's total cost and is now helping us
to gain market share.
We understand that these strong partnerships take time
to develop. Winning the initial opportunity often means
you need to be able to solve a problem that an existing
supplier cannot. In other words, you focus on the most
difficult challenge first. If you can do that, you show that you
are truly innovative and technically superior, then further
opportunities follow. These relationships become sound
partnerships. OEM business is great business, hard won but
enduring. Once in place, Skellerup works hard to remain
innovative and ensure there is no need for our customers to
look elsewhere.
We understand the pressures our customers are under and
this year have again improved our processes to reduce
the time taken to develop new products and solutions.
We maximise our customers’ loyalty by providing faster,
reliable product development. We are proud to be a partner
of choice and have one of the highest customer retention
rates in the industry.
As recently announced, our Gulf business in the US won
the prestigious “Partner of the Year” award from Moen,
the leading tapware brand in North America. This is the
second time in the past three years that we have been
acknowledged with this award and is a great credit to our
product development team in New Zealand and the team in
the US.
We are excited by our recent investment in Sim Lim that
provides us with valuable liquid silicone rubber (LSR)
capability. We are looking forward to combining this new
technical expertise with the knowledge and reach of the
Skellerup Group to deliver high-quality solutions to existing
and new OEM customers.
Agri Division
The Agri Division delivered an excellent result with EBIT
up 15% to $22.8 million for the year. This is a record
result and a continuation of steady growth, particularly in
global markets. We develop innovative and high-quality
dairy components and specialist footwear designed and
manufactured to meet the specific needs of customers.
The completion of our new manufacturing facility at Wigram
in 2016 and the subsequent sale and disposal of the
Woolston site have enabled our Agri team to develop an
external focus on customers and growth. We are beginning
to see the benefits of this strategy, with revenue increasing
by 12% to $89.0 million in the current year.
New Zealand is our largest single market, but international
markets contribute more than half of our revenue and
8
9
provide us with the strongest growth prospects. This is
driven by a growing Asian middle class and global demand
for milk protein.
Our dairy rubberware, milk filters and animal hygiene
products play a crucial role in maintaining milk quality and
protecting animal health. Our capability and knowledge
are broad, combining chemistry, product and tool design,
a world-class manufacturing capability and a deep
understanding of what the ultimate customers require.
Skellerup has a reputation for working closely with
customers (all the way through to end users on farm) to
ensure we have a clear understanding of their needs so that
we develop products that deliver real, tested and proven
benefits.
Skellerup is famous in New Zealand for the iconic Red Band
gumboot that turns 60 this year. Our range has expanded
from this formidable gumboot to include insulated
gumboots and highly specialised boots for the fire, forestry,
mining, nuclear and electricity industries. Our fire boots
have been protecting firefighters all around the world for
more than a decade. (See page 14 for more information on
our footwear business.)
Investing in our people
Skellerup is a global organisation and we are proud of
our highly skilled team. The battle for top-class talent is a
worldwide issue, and we work hard to ensure we look after
our people and that they are well supported, motivated
and rewarded. We are committed to investing in our team
to make sure they have the right skills and resources to
continue to meet the needs of our customers and the
markets we service.
Health and safety will always be a priority for Skellerup; it
is embedded into our culture and day-to-day operations.
We maximise our customers’ loyalty by
providing faster, reliable product development
9
SKELLERUP | ANNUAL REPORT 2018
We continued to reduce our injury rate in FY18 and have
an ongoing programme in place to educate our team and
improve our systems and practices to keep our people safe.
Improving the efficiency and effectiveness of our
activities
To be successful, we must continue to deliver
improvements across the Group. This begins with an
ongoing focus on improving our manufacturing processes
to be as efficient as possible, reducing consumption of
resources and managing waste. Innovation is not limited to
the products we manufacture but encompasses the way
we produce and deliver them as well. Producing goods with
less waste and consuming fewer resources not only has a
positive impact on financial results but also has benefits for
the environment. This year we have complemented these
activities with an environmental programme implemented
at a business unit level. This is under way in all 15 of our
manufacturing and distribution facilities and we have made
pleasing progress to date. (More information on these
initiatives can be found on page 16.)
Concluding comments
At Skellerup, we are proud of our track record for
collaboration and innovation. The majority of our product
development projects cross multiple geographies, with our
technical sales team being in market with our customers.
Most of our product design is carried out in New Zealand,
with manufacturing and assembly in New Zealand, Asia,
Europe and North America. We are proud to be a truly
global business and look forward to continuing to deliver
outstanding products and solutions for our customers and
strong returns for our shareholders.
David Mair
Chief Executive Officer and Director
Gulf is a leading manufacturer of precision-engineered
rubber and plastic components. A key growth market for
Gulf US is tapware and shower manufacturers, where
we work with the top Original Equipment Manufacturers
(OEMs).
Focused development on the most
profitable opportunities
As one of the fastest-growing businesses within the
Skellerup Group, Gulf US’s focus is on staying close to
customers, to develop new lines of business that are
successful both for the customers and Skellerup.
Gulf is focused on using its resources for areas that
provide the best return on investment. This means
developing technical solutions and innovations for key
customers that are market leading; in other words, we
enable our key OEMs to lead their market and create
value.
Potable water is a large and growing market, yet it
is highly regulated. Our products need to meet both
food safety and sustainability requirements, while also
delivering high performance. Gulf is trusted to do both.
Building new relationships where others
have failed
Skellerup has built strong relationships with many key
manufacturers in the tapware and shower sector. We
recently worked with a new OEM customer by solving a
problem their other suppliers couldn’t. The customer was
developing a new large-sized shower panel. This was a
unique product, manufactured using liquid silicone rubber,
where we needed to design a solution to allow rain-like
water flow out of a shower head with more than 700
individual nozzles.
Case studies: Our approach in action
Developing innovative solutions for
our customers
Our solution successfully fulfilled the customer brief, not
only achieving the right water flow but also becoming
the only large-sized panel on the market to comply with
the water-flow regulation (2 gallons/7.5 litres per minute).
Following this success, we are now developing more
products for this customer. We are also able to apply this
technology and approach to other areas of our business.
Product development in partnership with
customers
New product development typically takes anywhere
from 18 months to three years from concept to market-
ready production. With a highly technical product, it is
the preliminary design and prototyping that is critical and
takes time.
In this initial stage, we work closely with the customer to
understand their specific requirements. Our specialist
product development engineers in Auckland develop
prototype samples that are discussed and tested with
the customer. Once we have a preferred solution that
meets the brief and we have customer sign-off, our
engineers design the prototype tooling that will deliver
that solution. This is where the customer is provided with
fully developed prototype samples for final testing and
approval.
The final stage requires our engineers to develop the
production tooling and confirm packaging and delivery
requirements. Our products are typically manufactured in
Asia, New Zealand and the US.
Proven and trusted partnerships
The product development process is complex, but when
complete we have a deeply committed customer and
an established market. The close working relationships
we build with customer teams also means we are more
than a supplier to them – we are a key part of their
organisation. An example of the success of this approach
is winning leading North American tapware brand
Moen’s prestigious “Partner of the Year” award in 2018,
the second time in three years we have received this
accolade.
ANNUAL REPORT 2018 | SKELLERUP
10
SKELLERUP | ANNUAL REPORT 2018
Gulf US builds strong
customer relationships in the
potable water market
11
ANNUAL REPORT 2018 | SKELLERUP
1212
Masport leads the market
with complete vacuum
systems solutions
13
Skellerup is focused on building strong and loyal
relationships with our customers. By intimately
understanding our customers’ businesses we can
develop innovative solutions that make them, and us,
more successful. Our new range of Masport Systems is
an ideal example. We have moved from simply providing
pumps and loose components, to developing full vacuum
systems solutions. These are better performing products
and significantly more efficient for customers to install.
By demonstrating to customers that we are able to save
them considerable time and ultimately money, we have
now become the market leader in this growing market
segment.
Tailored solutions for leading original
equipment manufacturers
We have developed vacuum pumps and components for
leading truck manufacturers in the United States for more
than 50 years. Our vacuum pumps and components are
only one part of the final truck – but they are critical to its
specialist function.
This is a highly competitive and growing market, with a
number of companies selling similar products. Skellerup’s
approach has gone beyond making small incremental
changes to the features of the current components, to
finding a complete new solution that reduces lead time
and cost for the customer, making them more competitive.
From spending time with customers, we understood
labour to be one of their key costs. This is due to the
time required for installation of the pump and various
loose components. Our new systems are a total solution
which is fitted as a single complete product. We have the
capability to be able to tailor each system to ensure it
meets each customer’s requirements, creating a unique
experience and making it very difficult for competitors to
match.
Streamlining our production processes
Our new product development process required
collaborative input from technical experts across the
Skellerup Vacuum Systems Group. The pumps were
designed in New Zealand, with system components
developed in the US and the assembly taking place
across both the US and China.
These new system solutions are also more efficient to
manufacture. Our assembly process has been streamlined
and we are now operating on a much smaller footprint.
We have improved our time to market as well. Where
many of our competitors need weeks to deliver, our
orders are complete within just a few days.
Positioning Masport as a leading vacuum
pump brand
Masport is seen by the industry to be an innovative and
leading brand of vacuum pumps and systems. We have
worked hard to understand our customers and their
end-users and provide additional value-added support.
We recognise that time is scarce and that through the
evolution of technology, information is absorbed in
different ways. We understand users don’t read complex
manuals, and have therefore developed a range of short,
engaging videos which explain how to use and maintain
our vacuum systems. We also stay in constant contact
and engage with our customers through social media and
eMarketing campaigns.
Case studies: Our approach in action
Developing tailored systems solutions
that drive value for our customers
By demonstrating to
customers that we
are able to save them
considerable time and
ultimately money, we
have now become the
market leader
Taking our specialist know-how
to new applications
Case studies: Our approach in action
This year, New Zealand’s iconic Skellerup
Red Band Gumboot turns 60. Today, our
footwear range is so much more than the
original gumboot, and includes specialty
boots for the fire, forestry, electricity, mining
and nuclear industries.
New Zealand’s market-leading gumboot
The first Red Band gumboots rolled off the production line
in October 1958 and became an instant hit around New
Zealand. From the very beginning, the Red Band team
worked hard to understand their customers and produced
a bespoke solution. The trusted Red Band gumboot was
designed for Kiwis’ wider feet, finished halfway up the calf
and used a lining of heavy-duty cotton canvas integrated
with our rubber to give the boots greater strength,
flexibility and protection.
Today, Red Band are still hand-made to the original
specifications and formulations. Each boot is made up of
19 individual components with at least six different rubber
formulations.
In 1958, the product line consisted of just the one style of
boot, but today this has expanded to include a full range
of Red Band gumboots for adults and children as well as
workboots, socks and clothing. We also create specialty
products for other industries.
Specialty boots for demanding
applications
As a leading manufacturer of specialty rubber footwear,
Skellerup has a proven track record for applying our
expertise to develop products for the most demanding
and critical applications. This approach has seen our
specialty footwear range develop across ever-demanding
applications including firefighting, forestry, dielectric,
mining and even nuclear.
Our products are designed to meet country-specific
standards and end-user requirements. Our specialty
footwear is sold across the globe including the US,
Europe, Australia, Chile, China, India and the Middle East.
The choice of the British fire service
After extensive testing and trials featuring the world’s
best firefighting footwear, Skellerup’s Fire Fighter
Extreme Boot was selected as the rubber structural
firefighting boot of choice for the United Kingdom’s
South East Consortium’s five-year supply programme.
This prestigious programme covers 30% of the UK’s fire
service, including London whose personnel are currently
being fitted out in their new Skellerup boots.
Skellerup footwear continues to be designed in New
Zealand and is produced in our specialist rubber footwear
factory in Jiangsu, China.
ANNUAL REPORT 2018
14
60 years of footwear innovation
started with the Red Band
15
We are well known for our innovative product
development and production processes. In prior years
we have implemented environmental initiatives across
the Group in relation to energy usage, water consumption
and waste reduction. This is a positive approach, not only
for the environment but also for our organisation.
A key development for FY18 has been the formalisation
of these activities into a cohesive programme which
has been implemented across our manufacturing and
distribution facilities around the world. Each site has
developed environmental initiatives to focus on the
specific areas that will have the greatest impact. This
programme brings together all of our current initiatives
and projects and allows us to share best-practice
learnings. We are pleased with our progress, particularly
in our two largest facilities - Wigram, New Zealand, and
Jiangsu, China.
Reducing waste at Wigram
As reported in FY17, our new Wigram facility was
completed in 2016 and the design of the building includes
many sustainability features that greatly reduce our
water consumption and use energy more efficiently. For
example, recycling water has lowered water consumption
by 93% compared to our previous site.
This year, we have introduced new procedures to ensure
Managing our environmental impact
any inferior product is identified sooner. This has resulted
in less waste being generated and energy consumption
has decreased. With the technical team conducting
machine audits at a greater frequency, they are able to
find problems and develop data-driven solutions at the
source, resulting in fewer rejected goods. This knowledge
is passed onto operators who become better skilled at
detecting potential problems in the future. By introducing
new procedures and checks this year, we have managed
to reduce the number of rejected products by up to 38%
in some parts of our business.
We are also working to reduce plastic packaging across
several product lines. In total, we aim to decrease the
volume of plastic bags used per year by approximately
24%. This will not only result in less waste for our
customers but will also reduce costs to the business.
Minimising emissions at Jiangsu
In November 2017 we replaced our coal-powered boiler
to one using natural gas. Burning clean natural gas
produces approximately 35% less CO
2
than coal for the
same level of energy, while also reducing sulphur dioxide
and nitrogen oxide emissions.
In the coming year, we will continue to focus on improving
our processes to ensure impacts on our business and the
environment remain positive.
16
ANNUAL REPORT 2018 | SKELLERUP
We asked our people what Skellerup
means to them – this graphic shares
some of their responses.
We are proud of our team and are
committed to supporting them to
ensure the ongoing success of our
customers and our business.
We are a global company. A key part of being successful
as an international company is local knowledge,
understanding and expertise. This provides us with real
agility alongside our technical, operational and financial
nous. We are therefore able to move quickly to capitalise
on opportunities.
We are customer focused. Our team is based in the UK,
Italy, USA, China, Australia and New Zealand. This footprint
enables us to service customers in over 80 countries and
allows diversity of thought and talent. Our team has a
common commitment to understanding what customers
require, then innovating to develop and create the solution.
As a diverse business, we are able to adapt and capitalise
on change, and manage the market and geo-political
issues as they arise. We are also alert to and will embrace
the potential technology provides to improve the capability
and skills of our team and to ensure we deliver the
solutions our customers need.
15 years of operations in China
Our manufacturing facility in China has been part of the
Skellerup Group for 15 years. In May 2018, we celebrated
this milestone at our facility in Jiangsu. Martin Li, our
General Manager in China, hosted a ceremony attended
by staff and the Skellerup Board. This was an opportunity
for our Board members to gain a direct insight into our
business activities and the local region in which we
operate. Liz Coutts, Chair, and David Mair, CEO, spoke at
the event along with Martin Li and Lu Mingkun, one of our
foundation employees. We are delighted that half of our
We’re global, diverse and agile
Our people
17
team members in Jiangsu have been with Skellerup for
more than a decade.
Committed to a safe working environment
We are committed to the health and safety of our people;
zero harm is the only acceptable target.
This commitment begins at the top of our organisation
where all Board members sit on the Board’s Health and
Safety subcommittee as well as their review of a Health
and Safety Report at each Board meeting. Our Directors
also individually and collectively visit Skellerup’s sites to
gain a first-hand understanding of the systems we have in
place.
Strong and visible leadership is critical to continuous
improvement in health and safety. Every business unit
within the Skellerup Group has a Health and Safety
Committee and an active plan. Progress is measured and
reported monthly.
Ultimately the target is zero harm. This requires constant
awareness, training, communication and commitment. We
have put a strong emphasis on reporting not only injuries
but also near-miss incidents. This information presents
invaluable opportunities to learn and improve systems
and processes to prevent future incidents. In FY18 we
improved our Total Injury Rate (TIR) by 16% to 2.34%. The
TIR measures the number of injuries suffered over the total
hours worked and is the percentage likelihood a team
member may be injured. Measuring and improving the TIR
continues to be a focus across our organisation.
innovative
trusted
quality
rubber
footwear
redband
masport
hardworking
excellence
customer
teamwork
professional
creative
safe
family
farmers
rural
gumboots
quatro
dependable
international
dairy
kiwi
quality
customer
hardworking
dairy
innovative
global
leader
iconic
inclusive
helpful
reliable
family
Skellerup’s team seek to capitalise on our
capability to design and deliver world leading
engineered polymer products particularly for
applications used to deliver safe food and
water. Our financial position is strong and we
are focused on delivering revenue and earnings
growth.
Elizabeth (Liz) Coutts
Liz has been Skellerup Chair
since January 2017 and a member
of the Board since 2002. Liz
has over 20 years governance
experience as Board Chair and
Audit Committee Chair in both the
private and public sectors across
a broad range of industries. Her
contribution to governance was
recognised with her appointment
to the New Zealand Order of Merit
(ONZM) in 2016. Liz is President of
the Institute of Directors, Chair of
Ports of Auckland Limited, Chair
of NZX and ASX listed Oceania
Healthcare Limited and a director
of EBOS Group Limited.
Alan Isaac
Alan was appointed Chair of
the Audit and Risk Management
Committee in January 2017 and
has been a member of the Board
since August 2016. Alan has
international experience leading
teams to improve performance in
business and sport. Alan enjoyed
a distinguished 35-year career at
KPMG including 10 years as Chair
and has chaired and directed a
range of national and international
companies and sporting bodies.
Alan is Vice-President of the
Institute of Directors, and a
director of Scales Corporation,
Oceania Healthcare and the NZ
Community Trust.
Board of Directors
The experience
and diverse range
of skills across
Skellerup’s Board
ensures our plans
are robust and
pursued with
vigour and
sound business
discipline.
18
19
John Strowger
John has been Chair of the
Health & Safety Committee since
August 2016 and a member of
the Board since March 2015.
John is recognised as one of New
Zealand’s leading commercial
lawyers, specialising in corporate,
contract and securities law and
mergers & acquisitions. He was
named NZ Deal Maker of the Year
at the 2017 and 2015 Australasian
Law Awards. A partner at
Chapman Tripp, John co-heads
that firm’s China desk, which
coordinates the work on investment
and trade between China and
New Zealand.
David Cushing
David was appointed to the
Skellerup Holdings Board in
August 2017. David is a former
investment banker with over 20
years’ experience as a director
of listed companies. David has
expertise across a broad range of
industries having previously been
a director of horticultural business
Fruitfed Supplies Limited, Williams
& Kettle Limited, Tourism Holdings
Limited, Acurity Health Group
Limited and property company
NPT Limited. David is currently
Executive Chairman of Rural
Equities Limited and Managing
Director of private investment
company H&G Limited. He is also a
director of ASX listed agribusiness
Webster Limited and a director of
Red Steel Limited.
David Mair
David has been a member of
the Board since 2006 and was
appointed Chief Executive in
August 2011. David has wide-
ranging international experience
at director and executive level and
is expert managing international
manufacturing businesses with
a particular knowledge of Asia,
where he lived and worked for
a number of years. David is an
independent director of Forté
Funds Management.
SKELLERUP | ANNUAL REPORT 2018
ANNUAL REPORT 2018 | SKELLERUP
20
The Board and management are focused on ensuring the
long-term success of the company and are committed to
building long-term shareholder value.
The Board regularly reviews and assesses Skellerup’s
governance policies, procedures and practices to ensure they
are appropriate and effective. Skellerup reports against the
recommendations of the NZX Corporate Governance Code
(NZX Code) as required by the NZX Listing Rules.
Our approach for the financial year ended 30 June 2018 is
detailed below.
Principle 1 – Code of Ethical Behaviour
Skellerup complies with the recommendations of Principle 1.
Skellerup Directors set high standards of ethical behaviour
and require members of the management team to conduct
themselves similarly; they hold management accountable for
delivering these standards throughout the organisation.
Skellerup’s Code of Ethics provides a framework of minimum
standards of ethical behaviour according to which Directors,
management and all employees of the Company are
expected to conduct themselves. The Code of Ethics outlines
the Company’s expectations for all Company personnel
and includes consideration of conflicts of interest, conduct,
legislative compliance, confidentiality and the use of the
Company’s assets and information.
Skellerup communicates its Code of Ethics to Directors
and employees, explaining the Code’s purpose and the
mechanism for reporting any unethical behaviour. The CEO
reviews this Code with all Group and Business Managers
annually. The Managers in turn are required to review
with staff and confirm that they have done so to the CEO.
Skellerup has not received any reports of serious instances of
unethical behaviour during the year.
Skellerup is committed to ensuring its Directors and
employees understand its policy on and rules for dealing
in Skellerup ordinary shares or any other derivatives
thereof. Skellerup’s Financial Products Trading Policy notes
that insider trading is prohibited at all times and provides
examples of material information to assist Directors and
employees with compliance. It imposes further restrictions on
Directors and senior management and permits trading only in
prescribed trading windows or with consent.
Principle 2 – Board Composition and Performance
Skellerup complies with the recommendations of Principle 2.
The members of Skellerup’s Board collectively provide the
broad range of strategic, business, commercial and financial
skills and knowledge, and the independence and experience
required to lead and govern the Company effectively.
The Board regularly reviews its performance and
composition to ensure it has the range of capabilities
required.
Currently, the Board comprises three non-executive,
independent Directors, one non-executive Director and
one executive Director. The independence of Directors
is reconsidered annually. See pages 18 and 19 for more
information on the tenure, skills and experience of
Skellerup’s current Board. The independent status of each
Director is noted also on page 62.
Board procedures ensure that all Directors have the
information needed to contribute to informed discussion and
decisions on a consistent basis and to carry out their duties
effectively. Senior managers make direct presentations to
the Board as required to give the Directors an understanding
of management strategies, priorities, style and capabilities.
Directors also visit Skellerup facilities throughout the world
as part of their ongoing engagement to ensure they are
familiar with all aspects of the Company. Training is made
available to Directors and in the last financial year Directors
participated in training on a wide range of topics.
Skellerup implemented a written Diversity Policy during the
past financial year. Diversity in Skellerup includes (but is not
limited to) gender, race, ethnicity and cultural background,
disability and physical capability, age, sexual orientation, and
religious or political belief. A gender composition table of the
Skellerup Directors, officers and management is included
on page 64. Skellerup maintains a merit-based environment
which provides equal opportunity for development and
recognition based on performance and a flexible and
inclusive work environment that values difference that create
value. Skellerup remunerates equivalent roles in an equitable
manner. Skellerup has established objectives to meet the
Policy intent and notes the following outcomes during FY18:
This section of the Annual Report outlines our corporate governance structures and processes,
and how they have been applied during the year. Skellerup’s Board and management are
committed to high standards of corporate governance. We believe this is central to the effective
management of the business and to maintaining the confidence of our shareholders.
Corporate Governance
SKELLERUP | ANNUAL REPORT 2018
21
• During FY18 Skellerup investigated an alleged claim
of harassment. Skellerup did not find any substance
to the complaint or the complainant. No other
complaints for harassment, discrimination or
victimisation were received.
• Skellerup reviews employee remuneration annually
and concluded that all employees were remunerated
equitably consistent with the roles performed.
Principle 3 – Board Committees
Skellerup complies with the recommendations of Principle 3.
The Board has appointed four Board committees to assist
in carrying out its responsibilities effectively, each of which
operates under a written charter. The Board regularly reviews
the performance of each standing committee against its
specific written charter. The delegated responsibilities,
powers and authorities of these committees are described
below.
1. Audit and Risk Management Committee
This committee currently comprises four non-executive
Directors, one of whom is appointed as Chair. The Chief
Executive Officer (CEO) and the Chief Financial Officer
(CFO) attend as ex-officio members at the invitation of
the committee; the external auditors attend by invitation
of the Chair.
This committee meets a minimum of four times each year.
Its responsibilities are to:
• Ensure that the Company has adequate risk
management controls in place
• Advise the Board on accounting policies, practices
and disclosure
• Review the scope and outcome of the external audit
• Review the annual and half-yearly statements prior to
approval by the Board
The Audit and Risk Management Committee reports the
proceedings of each of its meetings to the full Board.
The current composition of the committee is Alan Isaac
(Chair), Elizabeth Coutts, John Strowger and
David Cushing.
2. Health and Safety Committee
This Committee comprises four non-executive Directors,
one of whom is appointed as Chair, plus the Executive
Director. The CFO also attends meetings as an ex-officio
member. This Committee meets a minimum of three
times each year. Its responsibilities are to:
• Provide leadership and policy for Health and Safety
(H&S) management within the Skellerup Group
• Advise the Board on H&S strategy and policy and
specify targets to track performance
• Review management systems to ensure that they
are appropriate to manage hazards and risks of the
business
• Monitor and review performance by specifying and
receiving timely reports on incidents, investigations
and resultant actions and with the assistance of
internal and external audits
The H&S Committee reports proceedings of each of its
meetings to the full Board. The current composition of
the Committee is John Strowger (Chair), Elizabeth Coutts,
Alan Isaac, David Cushing and David Mair.
3. Remuneration Committee
This committee comprises three non-executive Directors.
It meets as required to:
• Review the remuneration packages of the CEO and
senior managers
• Make recommendations to shareholders in relation to
non-executive Directors’ remuneration packages.
Remuneration packages are reviewed annually.
Independent external surveys are used as a basis for
establishing competitive packages. Management only
attend remuneration committee meetings
at the invitation of the committee.
The current composition of the Remuneration Committee
is Elizabeth Coutts (Chair), Alan Isaac and David Cushing.
4. Board Nomination Committee
This committee comprises two non-executive Directors.
It meets as required to recommend new appointments to
the Board.
The current composition of the Board Nomination
Committee is Elizabeth Coutts (Chair) and David Cushing.
ANNUAL REPORT 2018 | SKELLERUP
22
Board & Committee Attendance 1 July 2017 to 30 June 2018
DirectorBoardAudit & RiskHealth & SafetyRemunerationNomination
Liz Coutts8 of 84 of 43 of 32 of 22 of 2
Alan Isaac8 of 84 of 43 of 32 of 2N/A
John Strowger8 of 84 of 43 of 3N/AN/A
David Cushing7 of 73 of 33 of 32 of 2N/A
Sir Selwyn Cushing3 of 31 of 1N/AN/A2 of 2
Ian Parton3 of 31 of 1N/AN/AN/A
David Mair8 of 84 of 4*3 of 3N/AN/A
* David Mair attends Audit & Risk Management Committee meetings ex-officio at the invitation of the Committee
Skellerup implemented a formal Takeover Response Policy
during the past financial year. The purpose of the Policy is
to ensure that Skellerup is well prepared for an approach
and, therefore, it will be better able to control the takeover
response process and respond to any approach in a
professional, timely and coordinated manner and in the best
interest of Skellerup and its shareholders.
Principle 4 – Reporting and Disclosure
Skellerup complies with the recommendations of Principle 4.
The Board demands integrity in financial reporting and in the
timeliness and balance of information disclosed.
The financial progress of Skellerup’s two divisions is reported
separately to the Board each month to enable divisional
financial performance to be reviewed in the context of the
Company’s strategies and objectives. Monthly reporting also
provides information on H&S key opportunities, personnel,
customers and risks facing the business, and the steps being
taken to optimise outcomes.
The Audit and Risk Management Committee oversees the
quality and integrity of external financial reporting including
the accuracy, completeness and timeliness of financial
statements. The Company seeks to provide clear, concise
financial statements and recognises the value of providing
shareholders with financial and non-financial information
including environmental, economic and social sustainability
risk management as reported in this Annual Report.
Management accountability for the integrity of the Company’s
financial reporting is reinforced by certification of the CEO and
CFO in writing that the financial statements fairly present the
financial results and position of the Company.
The Company has a written continuous disclosure policy
and clear processes in place to ensure compliance with the
continuous disclosure requirements that come with being a
listed company.
Skellerup’s Code of Ethics, Board and Committee Charters,
Continuous Disclosure Policy and other key governance
documents are published on its website at
www.skellerupholdings.com.
Principle 5 – Remuneration
Skellerup complies with the recommendations of Principle 5.
The Board’s Remuneration Committee is responsible for
reviewing remuneration packages of the CEO and senior
managers and making recommendations to shareholders in
relation to non-executive Directors’ remuneration.
The current approved pool of remuneration available for
the payment of non-executive Directors is $550,000. This
was approved by shareholders at the Annual Meeting on
26 October 2016. Non-executive Directors are paid a fixed
cash fee. Non-executive Directors are not part of any share
scheme. In the year ended 30 June 2018, total fees paid to
non-executive Directors amounted to $477,367. Details of
Director remuneration are shown on page 62.
Senior executives’ remuneration comprises a combination
of fixed and at-risk components. Payment of the at-risk
component is linked to exceeding previous best annual
financial performance in the areas of the business for which
each executive is responsible or, in some circumstances, the
achievement of specific projects. Total remuneration paid to
the CEO in the year ended 30 June 2018 and in the prior years,
together with a description of the long-term share-based
incentive scheme in place for the CEO, is detailed on page 63.
Skellerup implemented a written Remuneration Policy for the
remuneration of Directors and officers during the past financial
year. This Policy outlines the remuneration principles that
apply to Directors and senior managers of Skellerup to ensure
that remuneration practices are fair and appropriate for the
organisation, and there is a clear link between remuneration
and performance. The guiding principles of this Policy are
that the remuneration of Directors and executives will be
transparent, fair and reasonable to meet the needs of the
business and shareholders.
SKELLERUP | ANNUAL REPORT 2018
23
Principle 6 – Risk Management
Skellerup complies with the recommendations of Principle 6.
Each Director has a sound understanding of the key risks
faced by Skellerup.
The Board, advised by the Audit and Risk Management
Committee, reviews the Company’s Risk Management Report
prepared by the CEO and management team on a semi-annual
basis and specific items are monitored on a monthly basis. The
Risk Management Report identifies key risks and strategies to
manage these risks. The Board ensures that adequate external
insurance cover is in place appropriate to the Company’s size
and risk profile.
The Audit and Risk Management Committee monitors the
Company’s system of internal financial control with the aid
of reviews and reports prepared by external providers and
periodic certification by the CEO and CFO. This system
includes clearly defined policies controlling treasury
operations and capital expenditure authorisation. The CFO
is responsible for ensuring that all operations within the
Company adhere to the Board-approved financial control
policies.
The H&S Committee leads and monitors H&S management
within the Skellerup Group. The Company operates a
comprehensive H&S framework across all of its businesses
to identify and address workplace hazards and to monitor
and review compliance with H&S policies and procedures.
Board review of H&S is a priority and is facilitated by both the
activities of the H&S Committee and the receipt and review
of H&S reports at each Board meeting. Details of Skellerup’s
key H&S risks and its performance for the year ended 30 June
2018 are included on page 16.
Principle 7 – Auditors
Skellerup complies with the recommendations of Principle 7.
The Board ensures the quality and independence of the
external audit process, which culminates in the audit report
issued in relation to the annual financial statements.
The Board has an established framework for Skellerup’s
relationship with its auditors and to ensure independence
of the Company’s external auditor is maintained, a written
Audit Independence Policy was implemented during the past
financial year. The Policy sets out guidelines to be followed
to ensure that related assurance and other services provided
by Skellerup’s auditors are not perceived as conflicting with
the independent role of the auditor. The Audit and Risk
Management Committee approves any non-audit services
that are provided by the external auditor. The Audit and Risk
Management Committee meets regularly with the external
auditors and management.
Skellerup’s external auditor is Ernst & Young (EY) and was
reappointed by shareholders at the 2017 Annual Meeting in
accordance with the Companies Act 1993. EY did not provide
any non-audit services during the year ended 30 June 2018.
The audit partner responsible for the Skellerup audit was
appointed in the past financial year replacing the prior partner
who rotated off the Skellerup engagement at the conclusion of
the 2017 financial year having completed a 5 year term.
Skellerup maintains an internal audit function with the
assistance of PwC. Skellerup reviews the residual risks from its
semi-annual Risk Management Report to determine priorities
for consideration for internal audit review with the assistance
of PwC.
The significant issues and judgements considered by the Audit
and Risk Management Committee are disclosed in Note f on
page 35 of the financial statements.
Principle 8 – Shareholder Rights & Relations
Skellerup complies with the recommendations of Principle 8
except as set out below.
Recommendation 8.4 states that each person who invests
money in a company should have one vote per share of the
company they own equally with other shareholders. Skellerup
complies with this recommendation, but did not comply with
the commentary to the recommendation during the year
ended 30 June 2018 as it conducted voting by a show of hands
for efficiency at its 2017 Annual Shareholders Meeting. The
Skellerup Board intends to continue conducting voting by a
show of hands where the matters to be voted on at the Annual
Shareholders Meeting include only ordinary business (being
the election of Directors and authorising the Directors to fix the
fees of the auditors).
The Board aims to ensure that shareholders are kept informed
of developments affecting the Company and encourages
shareholders to engage with the Company. Information is
communicated to shareholders through the annual and interim
reports, and periodic and continuous disclosure to the NZX,
and at Annual Meetings.
The Board encourages shareholders to attend and participate
fully at Annual Meetings to ensure they exercise the
opportunity to ask questions about the Company and its
performance.
The Company also maintains information for shareholders
on its website (www.skellerupholdings.com). This includes a
description of Skellerup’s business and structure, copies of key
corporate governance documents and all information released
to the NZX.
The Board respects the interests of all stakeholders in the
Company. Skellerup strives to manage its business in a
manner that delivers long-term shareholder value by delivering
consistent quality solutions for customers, a work environment
that is safe and delivers development opportunities for
its employees, and meets or exceeds the compliance
requirements in the environments in which the Company
operates.
ANNUAL REPORT 2018 | SKELLERUP
24
Skellerup Holdings Limited
Financial Statements for the
year ended 30 June 2018
SKELLERUP | ANNUAL REPORT 2018
25
The Directors are pleased to present the Group financial
statements of Skellerup Holdings Limited for the year
ended 30 June 2018.
The Group financial statements are dated 16 August 2018
and are signed in accordance with a resolution of the
Directors made pursuant to section 211 of the Companies
Act 1993.
For and on behalf of the Directors
EM Coutts
Chair of the Board of Directors
AR Isaac
Director
The Directors are responsible for the preparation, in
accordance with New Zealand law and generally accepted
accounting practice, of financial statements, which give a
true and fair view of the financial position of the Skellerup
Holdings Limited Group as at 30 June 2018, and the
results of their operations and cash flows for the year
ended 30 June 2018.
The Directors consider that the financial statements of
the Group have been prepared using accounting policies
appropriate to the Group circumstances, consistently
applied and supported by reasonable and prudent
judgements and estimates, and that all applicable New
Zealand Equivalents to International Financial Reporting
Standards have been followed.
The Directors have responsibility for ensuring that proper
accounting records have been kept which enable, with
reasonable accuracy, the determination of the financial
position of the Group and enable them to ensure that the
financial statements comply with the Financial Reporting
Act 1993.
The Directors have responsibility for the maintenance of a
system of internal control designed to provide reasonable
assurance as to the integrity and reliability of financial
reporting. The Directors consider that adequate steps
have been taken to safeguard the assets of the Group and
to prevent and detect fraud and other irregularities.
Director's Responsibility Statement
for the year ended 30 June 2018
ANNUAL REPORT 2018 | SKELLERUP
A member firm of Ernst & Young Global Limited
Independent auditor’s report to the Shareholders of Skellerup Holdings Limited
Report on the audit of the financial statements
Opinion
We have audited the financial statements of Skellerup Holdings Limited (“the company”) and its
subsidiaries (together “the Group”) on pages 29 to 61, which comprise the balance sheet of the group
as at 30 June 2018, and the income statement, statement of comprehensive income, statement of
changes in equity and cash flow statement for the year then ended of the group, and the notes to the
financial statements including a summary of significant accounting policies.
In our opinion, the financial statements on pages 29 to 61 present fairly, in all material respects, the
financial position of the group as at 30 June 2018 and its financial performance and cash flows for the
year then ended in accordance with New Zealand equivalents to International Financial Reporting
Standards and International Financial Reporting Standards.
This report is made solely to the company's shareholders, as a body. Our audit has been undertaken so
that we might state to the company's shareholders those matters we are required to state to them in an
auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company and the company's shareholders, as a body,
for our audit work, for this report, or for the opinions we have formed.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the
Audit of the Financial Statements section of our report.
We are independent of the group 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 we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
EY provided services in respect of R&D tax incentives to a subsidiary of the group during the year.
Partners and employees of our firm may deal with the group on normal terms within the ordinary
course of trading activities of the business of the group. We have no other relationship with, or interest
in, the group.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial statements of the current year. These matters were addressed in the context of
our audit of the financial statements as a whole, and in forming our opinion thereon, but we do not
provide a separate opinion on these matters. For each matter below, our description of how our audit
addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the
financial statements section of the audit report, including in relation to these matters. Accordingly, our
audit included the performance of procedures designed to respond to our assessment of the risks of
material misstatement of the financial statements. The results of our audit procedures, including the
A member firm of Ernst & Young Global Limited
procedures performed to address the matter below, provide the basis for our audit opinion on the
accompanying financial statements.
Scoping of the audit
Why significant How our audit addressed the key audit matter
Skellerup is a global business with over 75% of
the group’s revenue being generated in
countries other than New Zealand.
A significant area of focus when conducting
the audit was ensuring sufficient audit
evidence was obtained in differing geographic
locations and businesses to enable us to reach
appropriate conclusions on the consolidated
financial statements. This was both with
respect to the determination and allocation of
materiality as well as the determination of the
nature and extent of audit procedures to be
performed in each location.
The EY New Zealand audit team is the co-
ordinating primary team and determined the
extent and nature of audit procedures required by
component teams in all significant locations.
The primary team assessed the nature, scale and
risks associated with each of the Group’s
significant businesses. As a result of this
assessment each business was allocated a scope
reflecting the audit procedures to be performed.
The primary team either performed, or instructed
component teams to perform, the audit
procedures required for Group reporting purposes
in relation to significant businesses in New
Zealand, Australia, USA, UK, Italy and China. For
the remaining businesses analytical procedures
were performed.
The primary team instructed component teams as
to the significant risk areas to be addressed by
their audit procedures and the information to be
reported back. The primary team determined the
materiality to be applied by each component team
having regard to the size and risk profile of the
various businesses across the Group.
All component teams were required to provide
written confirmation to the primary team
confirming the procedures performed, the results
of the procedures and any significant findings or
observations.
A member of the primary team visited several
businesses and component teams in the USA and
we had discussions with each of the component
auditors included in our audit scope. During these
visits and discussions, the procedures performed
by each component team were discussed as were
their findings relevant to the Group audit.
We reported to the Audit Committee the results of
audit procedures and testing performed by both
the primary and component teams and any
misstatements identified that warranted reporting
based on quantitative or qualitative grounds.
26
SKELLERUP | ANNUAL REPORT 2018
A member firm of Ernst & Young Global Limited
Independent auditor’s report to the Shareholders of Skellerup Holdings Limited
Report on the audit of the financial statements
Opinion
We have audited the financial statements of Skellerup Holdings Limited (“the company”) and its
subsidiaries (together “the Group”) on pages 29 to 61, which comprise the balance sheet of the group
as at 30 June 2018, and the income statement, statement of comprehensive income, statement of
changes in equity and cash flow statement for the year then ended of the group, and the notes to the
financial statements including a summary of significant accounting policies.
In our opinion, the financial statements on pages 29 to 61 present fairly, in all material respects, the
financial position of the group as at 30 June 2018 and its financial performance and cash flows for the
year then ended in accordance with New Zealand equivalents to International Financial Reporting
Standards and International Financial Reporting Standards.
This report is made solely to the company's shareholders, as a body. Our audit has been undertaken so
that we might state to the company's shareholders those matters we are required to state to them in an
auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company and the company's shareholders, as a body,
for our audit work, for this report, or for the opinions we have formed.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the
Audit of the Financial Statements section of our report.
We are independent of the group 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 we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
EY provided services in respect of R&D tax incentives to a subsidiary of the group during the year.
Partners and employees of our firm may deal with the group on normal terms within the ordinary
course of trading activities of the business of the group. We have no other relationship with, or interest
in, the group.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial statements of the current year. These matters were addressed in the context of
our audit of the financial statements as a whole, and in forming our opinion thereon, but we do not
provide a separate opinion on these matters. For each matter below, our description of how our audit
addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the
financial statements section of the audit report, including in relation to these matters. Accordingly, our
audit included the performance of procedures designed to respond to our assessment of the risks of
material misstatement of the financial statements. The results of our audit procedures, including the
A member firm of Ernst & Young Global Limited
procedures performed to address the matter below, provide the basis for our audit opinion on the
accompanying financial statements.
Scoping of the audit
Why significant How our audit addressed the key audit matter
Skellerup is a global business with over 75% of
the group’s revenue being generated in
countries other than New Zealand.
A significant area of focus when conducting
the audit was ensuring sufficient audit
evidence was obtained in differing geographic
locations and businesses to enable us to reach
appropriate conclusions on the consolidated
financial statements. This was both with
respect to the determination and allocation of
materiality as well as the determination of the
nature and extent of audit procedures to be
performed in each location.
The EY New Zealand audit team is the co-
ordinating primary team and determined the
extent and nature of audit procedures required by
component teams in all significant locations.
The primary team assessed the nature, scale and
risks associated with each of the Group’s
significant businesses. As a result of this
assessment each business was allocated a scope
reflecting the audit procedures to be performed.
The primary team either performed, or instructed
component teams to perform, the audit
procedures required for Group reporting purposes
in relation to significant businesses in New
Zealand, Australia, USA, UK, Italy and China. For
the remaining businesses analytical procedures
were performed.
The primary team instructed component teams as
to the significant risk areas to be addressed by
their audit procedures and the information to be
reported back. The primary team determined the
materiality to be applied by each component team
having regard to the size and risk profile of the
various businesses across the Group.
All component teams were required to provide
written confirmation to the primary team
confirming the procedures performed, the results
of the procedures and any significant findings or
observations.
A member of the primary team visited several
businesses and component teams in the USA and
we had discussions with each of the component
auditors included in our audit scope. During these
visits and discussions, the procedures performed
by each component team were discussed as were
their findings relevant to the Group audit.
We reported to the Audit Committee the results of
audit procedures and testing performed by both
the primary and component teams and any
misstatements identified that warranted reporting
based on quantitative or qualitative grounds.
27
ANNUAL REPORT 2018 | SKELLERUP
A member firm of Ernst & Young Global Limited
Information other than the financial statements and auditor’s report
The directors of the company are responsible for the Annual Report, which includes information other
than the financial statements and auditor’s report.
Our opinion on the financial statements does not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with the
financial statements or our knowledge obtained during the audit, or otherwise appears to be materially
misstated.
If, based upon the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Directors’ responsibilities for the financial statements
The directors are responsible, on behalf of the entity, for the preparation and fair presentation of the
financial statements in accordance with New Zealand equivalents to International Financial Reporting
Standards and International Financial Reporting Standards, and for such internal control as the
directors determine is necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing on behalf of the entity
the group’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the directors either intend to liquidate
the group or cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are 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 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 International Standards on Auditing (New Zealand) will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and 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 the auditor’s responsibilities for the audit of the financial statements is located
at the External Reporting Board’s website: https://www.xrb.govt.nz/standards-for-assurance-
practitioners/auditors-responsibilities/audit-report-1/. This description forms part of our auditor’s
report.
The engagement partner on the audit resulting in this independent auditor’s report is Simon O’Connor.
Chartered Accountants
Auckland
16 August 2018
28
SKELLERUP | ANNUAL REPORT 2018
29
Income Statement for the year ended 30 June 2018
Note
2018
$000
2017
$000
Revenue
2240,408
210,322
Cost of sales
(151,345)
(131,857)
Gross profit
89,063
78,465
Other income / (expenses)41,706
3,387
Distribution expenses(13,587)
(13,401)
Marketing expenses(18,730)
( 17,1 6 3 )
Administration expenses(18,671)
(18,464)
Profit for the year before tax and finance costs
39,781
32,824
Finance costs15(1,863)
(1,414)
Profit for the year before tax
37,918
31,410
Income tax expense 5(10,641)
(9,300)
Net after-tax profit for the year, attributable to owners of the Parent
27,277
22,110
Earnings per share
Basic earnings per share (cents)1814.15
11.47
Diluted earnings per share (cents)1814.01
11.35
The above Income Statement should be read in conjunction with the accompanying notes.
Financial Statements
A member firm of Ernst & Young Global Limited
Information other than the financial statements and auditor’s report
The directors of the company are responsible for the Annual Report, which includes information other
than the financial statements and auditor’s report.
Our opinion on the financial statements does not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with the
financial statements or our knowledge obtained during the audit, or otherwise appears to be materially
misstated.
If, based upon the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Directors’ responsibilities for the financial statements
The directors are responsible, on behalf of the entity, for the preparation and fair presentation of the
financial statements in accordance with New Zealand equivalents to International Financial Reporting
Standards and International Financial Reporting Standards, and for such internal control as the
directors determine is necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing on behalf of the entity
the group’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the directors either intend to liquidate
the group or cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are 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 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 International Standards on Auditing (New Zealand) will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and 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 the auditor’s responsibilities for the audit of the financial statements is located
at the External Reporting Board’s website: https://www.xrb.govt.nz/standards-for-assurance-
practitioners/auditors-responsibilities/audit-report-1/. This description forms part of our auditor’s
report.
The engagement partner on the audit resulting in this independent auditor’s report is Simon O’Connor.
Chartered Accountants
Auckland
16 August 2018
ANNUAL REPORT 2018 | SKELLERUP
30
Statement of Comprehensive Income for the year ended 30 June 2018
Note
2018
$000
2017
$000
Net profit after tax for the year
27,277
22,110
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Net gains/(losses) on cash flow hedges16(1,061)
(447)
Income tax related to gains/(losses) on cash flow hedges5297
157
Foreign exchange movements on translation of overseas subsidiaries165,987
(1,145)
Income tax related to gains/(losses) on foreign exchange movements of loans with
overseas subsidiaries
5
(180)
70
Other comprehensive income net of tax
5,043 (1,365)
Total comprehensive income for the year attributable to
equity holders of the Parent
32,32020,745
The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
Financial Statements
SKELLERUP | ANNUAL REPORT 2018
31
Balance Sheet as at 30 June 2018
Note
2018
$000
2017
$000
Current assets
Cash and cash equivalents
69,681
6,022
Trade and other receivables and prepayments749,486
46,347
Inventories847,127
41,477
Income tax receivable52,305
230
Derivative financial assets2175
399
Total current assets
108,674
94,475
Non-current assets
Property, plant and equipment9
93,366
94,942
Deferred tax assets53,542
3,509
Goodwill1045,966
44,174
Intangible assets10456
539
Derivative financial assets2121
293
Total non-current assets
143,351
143,457
Total assets
252,025
237,932
Current liabilities
Trade and other payables1128,709
24,956
Provisions125,301
6,636
Income tax payable51,194
1,740
Derivative financial liabilities21465
90
Total current liabilities
35,669
33,422
Non-current liabilities
Provisions121,672
1,602
Interest-bearing loans and borrowings1340,400
41,777
Deferred tax liabilities51,815
1,784
Derivative financial liabilities21183
100
Total non-current liabilities
44,070
45,263
Total liabilities
79,739
78,685
Net assets
172,286
159,247
Equity
Equity attributable to equity holders of the Parent
Share capital1469,732
69,732
Reserves16(7,985)
(13,028)
Retained earnings19110,539
102,543
Total equity
172,286
159,247
The above Balance Sheet should be read in conjunction with the accompanying notes.
ANNUAL REPORT 2018 | SKELLERUP
32
Statement of Changes in Equity for the year ended 30 June 2018
Fully Paid
Ordinary
Shares
Cash Flow
Hedge
Reserve
Foreign
Currency
Translation
Reserve
Employee
Share Plan
Reserve
Retained
Earnings
Total
Note
$000$000$000$000$000$000
Balance 1 July 2016
69,732657(12,791)47197,78 6155,855
Net profit after tax for the year ending
30 June 2017
––––22,11022,110
Other comprehensive income
–(290)(1,075)––(1,365)
Total comprehensive income
for the year
–(290)(1,075)–22,11020,745
Share incentive scheme
––––––
Dividends
––––(17,353)(17,353)
Balance 30 June 2017
69,732367(13,866)471102,543159,247
Net profit after tax for the year ending
30 June 2018
––––27,27727,277
Other comprehensive income16
–(764)5,807––5,043
Total comprehensive income
for the year
–(764)5,807–27,27732,320
Share incentive scheme
17––––––
Dividends
19––––(19,281)(19,281)
Balance 30 June 2018
69,732(397)(8,059)471110,539172,286
The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.
Financial Statements
SKELLERUP | ANNUAL REPORT 2018
33
Cash Flow Statement for the year ended 30 June 2018
Note
2018
$000
2017
$000
Cash flows from operating activities
Receipts from customers
241,347
205,276
Interest received53
74
Dividends received1
1
Payments to suppliers and employees(197,965)
(172,938)
Income tax refund/(paid)(13,228)
(9,552)
Interest and bank fees paid(1,863)
(1,632)
Net cash flows from/(used in) operating activities
28,345
21,229
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
908
178
Payments for property, plant and equipment(5,333)
(12,275)
Payments for intangible assets (95)
(420)
Net cash flows from/(used in) investing activities
(4,520)
(12,517)
Cash flows from financing activities
Proceeds/(repayments) from loans and advances
(1,415)
5,347
Dividends paid to equity holders of Parent(19,281)
(17,353)
Net cash flows from/(used in) financing activities
(20,696)
(12,006)
Net increase/(decrease) in cash and cash equivalents3,129
(3,294)
Cash and cash equivalents at the beginning of the year6,022
9,510
Effect of exchange rate fluctuations530
(194)
Cash and cash equivalents at the end of the year
69,681
6,022
The above Cash Flow Statement should be read in conjunction with the accompanying notes
Reconciliation of net profit after tax to net cash flow from operations
2018
$000
2017
$000
Net profit after tax 27,277
22,110
Adjustments for:
Depreciation
7, 265
6,904
Amortisation191
885
(Gain)/Loss on sale of assets(385)
197
Foreign currency movements on translating foreign assets and liabilities(1,170)
(770)
Bad debts written off43
32
Net movement in working capital(4,876)
(8,129)
Net cash inflow from operating activities
28,345
21,229
ANNUAL REPORT 2018 | SKELLERUP
34
Reporting Entity
Skellerup Holdings Limited (‘the Company’) is a limited liability company incorporated and domiciled in New Zealand. It is registered
under the Companies Act 1993 with its registered office at Level 3, 205 Great South Road, Greenlane, Auckland. The Company is a
Reporting Entity in terms of the Financial Markets Conduct Act 2013 and is listed on the New Zealand Exchange (NZX Main Board)
with the ticker SKL. These financial statements were authorised for issue in accordance with a resolution of the directors on 16
August 2018.
(a) Nature of operations
The Skellerup Group of companies is a global solutions provider of technical polymer and elastomer products for a variety of
specialist industrial and agricultural applications. Skellerup’s operations are split into two units: the Agri Division, a world leading
provider of food grade dairy rubberware, filters, and animal health products to the global dairy industry; and the Industrial Division,
a global specialist for technically demanding products used in water, roofing, automotive, extraction, appliance and health
applications.
(b) Basis of preparation
These financial statements of the Group, a profit-oriented business, are for the year ended 30 June 2018.
(c) Statement of compliance
The consolidated financial statements for the year ended 30 June 2018 have been prepared in accordance with New Zealand
Generally Accepted Accounting Practices and the requirements of the Financial Markets Conduct Act 2013. For the purpose
of complying with NZ GAAP, the group is a for-profit entity. The financial statements comply with New Zealand equivalents to
International Financial Reporting Standards (‘NZ IFRS’). The financial statements also comply with International Financial Reporting
Standards (‘IFRS’). The financial statements are presented in New Zealand dollars (NZD) and all values are rounded to the nearest
thousand dollars ($000).
The accounting principles recognised as appropriate for the measuring and reporting of profit and loss and financial position on an
historical-cost basis have been applied, except for derivative financial instruments, which have been measured at fair value.
The preparation of financial statements in accordance with NZ IFRS requires management to make judgements, estimates and
assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual
results may differ from these estimates. Critical accounting judgements, estimates and assumptions are detailed in Note (f).
(d) Basis of consolidation
The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 30 June 2018.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group
has:
• Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);
• Exposure, or rights, to variable returns from its involvement with the investee; and
• The ability to use its power over the investee to affect its returns.
Business combinations are accounted for using the acquisition method. The consideration transferred in a business combination is
measured at fair value. Fair value is calculated as the sum of: the acquisition-date fair values of the assets transferred by the Group;
the liabilities incurred by the Group to former owners; the equity issued by the Group; and the amount of any non-controlling interest
in the acquiree. For each business combination, the Group measures the non-controlling interest in the acquiree either at fair value
or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred.
In preparing the consolidated financial statements, all inter-company balances, income and expense transactions, and profit and
losses resulting from intra-Group activities, have been eliminated.
(e) Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the
economic substance of the underlying events and circumstances relevant to that entity (the ‘functional currency’). The consolidated
financial statements are presented in New Zealand dollars (the ‘presentation currency’), which is the functional currency of the
Parent.
Notes to the Financial Statements
SKELLERUP | ANNUAL REPORT 2018
35
Transactions and balances
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. 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 translation are recognised in the income statement, except when
deferred in other comprehensive income as qualifying cash flow hedges.
Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the
exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at
fair value are translated to New Zealand dollars at foreign exchange rates ruling at the dates the fair value was determined.
Group companies
The assets and liabilities of all Group companies that have a functional currency that differs from the presentation currency, including
goodwill and fair value adjustments arising on consolidation, are translated to New Zealand dollars at foreign exchange rates ruling
at the balance sheet date. The revenues and expenses of these foreign operations are translated to New Zealand dollars at rates
approximating the foreign exchange rates ruling at the dates of the transactions. Exchange differences arising from the translation of
foreign operations are recognised in the foreign currency translation reserve
. On any disposal of a foreign operation, the component of
OCI relating to that particular foreign operation is reclassified to profit or loss.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign
entity and are translated at the foreign exchange rates ruling at the balance sheet date.
(f) Significant accounting judgements and assumptions
In the process of applying the Group’s accounting policies, a number of judgements have been made and estimates of future events
applied. Judgements and estimates which are material to the financial statements are found in the following notes.
•Note 10Impairment of goodwillpage 46
•Note 8Inventory obsolescencepage 43
•Note 9Estimation of useful lives of assetspage 44
•Note 5Recovery of deferred tax assetpage 40
ANNUAL REPORT 2018 | SKELLERUP
36
1. Segment Information
An operating segment is a distinguishable component of the entity which is reported as an organisational unit, engages in business
activities, earns revenue and incurs expenses, and whose operating results are reviewed regularly by the chief operating decision-
maker to allocate resources and assess performance.
The Group’s operating segments are Agri, Industrial and Corporate, being the divisions reported to the executive management and
Board of Directors to assess performance of the Group and allocate resources.
The principal measure of performance for each segment is EBIT (earnings before interest and tax). As a result, finance costs and
taxation have not been allocated to each segment.
Agri Division
The Agri Division manufactures and distributes dairy rubberware which includes milking liners, tubing, filters and feeding teats,
together with other related agricultural products and dairy vacuum pumps to global agricultural markets.
Industrial Division
The Industrial Division manufactures and distributes technical polymer products across a number of industrial markets, including
construction, infrastructure, automotive, mining and general industrial, together with industrial vacuum pump systems for a variety of
industrial applications worldwide.
Corporate Division
The Corporate Division includes the Parent company and other central administration expenses that have not been allocated to the
Agri and Industrial Divisions.
(a) Business segment analysis
For the year ended 30 June 2018
Agri
$000
Industrial
$000
Corporate
$000
Eliminations
$000
Total
$000
Revenue89,033151,507–
(132)240,408
Segment EBIT22,82720,816
(3,862)–39,781
Profit before tax, and finance costs
39,781
Finance costs
(1,863)
Profit for the year before tax
37,918
Income tax expense
(10,641)
Net after-tax profit27,277
Assets and liabilities
Segment assets
121,287115,02815,710–252,025
Segment liabilities
11,49822,96045,281–79,739
Net assets109,78992,068
(29,571)–172,286
Other segment information
Capital expenditure
2,4403,0026–5,448
Cash flow
Segment EBIT
22,82720,816(3,862)–39,781
Adjustments for:
- Depreciation and amortisation
4,2803,11264–7,456
- Non-cash items
––(1,512)–(1,512)
Movement in working capital
(705)(16)(4,155)–(4,876)
Segment cash flow26,40223,912(9,465)-40,849
Finance and tax cash expense
(15,091)
Movement in finance and tax accrual
2,587
Net cash flow from operating activities 28,345
Notes to the Financial Statements
SKELLERUP | ANNUAL REPORT 2018
37
1. Segment Information (continued)
For the year ended 30 June 2017
Agri
$000
Industrial
$000
Corporate
$000
Eliminations
$000
Total
$000
Revenue79,233131,244–
(155)210,322
Segment EBIT19,76517,14 6
(4,063)132,849
Profit before tax, finance costs and relocation costs
32,849
Finance costs
(1,414)
Profit for the year before tax and relocation costs
31,435
Relocation costs
(25)
Profit for the year before tax
31,410
Income tax expense
(9,300)
Net after-tax profit 22,110
Assets and liabilities
Segment assets
119,9211 07, 3 6110,650–237,932
Segment liabilities
12,96519,62146,099–78,685
Net assets106,9568 7,74 0
(35,449)–159,247
Other segment information
Capital expenditure
10,3212,038234–12,593
Cash flow
Segment EBIT
19,76517,14 6(4,063)132,849
Adjustments for:
- Depreciation and amortisation
4,4433,29056–7,78 9
- Non-cash items
––(541)–(541)
Movement in working capital
(3,164)(3,548)(1,416)(1)(8,129)
Segment cash flow21,04416,888(5,964)–31,968
Finance and tax cash expense
(11,184)
Relocation cost
(25)
Movement in finance and tax accrual
470
Net cash flow from operating activities 21,229
Major customers
The Agri and Industrial Divisions generate revenue from a large number of customers.
For the Agri Division, the three largest customers account for 34.7% (2017: 36.3%) of the Agri Division revenue.
For the Industrial Division, the three largest customers account for 9.5% (2017: 9.6%) of the Industrial Division revenue.
ANNUAL REPORT 2018 | SKELLERUP
38
1. Segment Information (continued)
(b) Geographical revenue
Revenue from external customers by geographical locations is detailed below. Revenue is attributed to each geographical location
based on the location of the customers. Differences in foreign currency translation rates can impact comparisons between years.
2018
$000
2017
$000
New Zealand51,735
46,327
Australia53,615
49,657
North America68,364
57, 229
Europe33,603
26,149
United Kingdom and Ireland12,431
11,483
Asia16,448
14,297
Other4,212
5,180
Total revenue
240,408
210,322
(c) Assets by geographical location
The non-current segment assets are scheduled by the geographical location in which the asset is held.
The non-current assets, which include property, plant and equipment, goodwill and intangible assets for each geographical location,
are as follows:
2018
$000
2017
$000
New Zealand101,837
104,040
Australia9,140
9,148
Europe10,969
10,229
United Kingdom and Ireland8,846
8,136
Asia7, 891
7,126
North America1,105
976
Non-current assets by geographical location
139,788
139,655
2. Operating Revenue
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be
measured reliably. Revenue is recognised net of the amount of GST/VAT. The following specific recognition criteria must be met also
before revenue is recognised:
Sale of goods
Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be
measured reliably. The timing of when risks and rewards are considered passed to the buyer varies depending on the contractual
terms of sale.
Interest
Revenue is recognised as the interest accrues (using the effective interest method, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset).
Dividends
Revenue is recognised when the shareholders’ right to receive the payment is established.
NZ IFRS 15 – Revenue from contracts with customers
Skellerup will be required to account and report in accordance with NZ IFRS I5 for the year ending 30 June 2019. Skellerup has
performed a review of the nature of its sales transactions and the requirements of NZ IFRS 15 and does not anticipate any material
change to its financial results, position and disclosures.
Notes to the Financial Statements
SKELLERUP | ANNUAL REPORT 2018
39
3. Expenditure Included in Net Profit for the Year
Net profit for the year has been arrived at after charging the items noted below. Where the GST/VAT incurred on a purchase of goods
and services is not recoverable from the taxation authority, the GST/VAT is recognised as part of the expense item as applicable.
Note
2018
$000
2017
$000
Employee benefits expense:
Wages and salaries (including annual leave, long-service leave, CEO share scheme
and sick leave)49,57744,896
Termination benefits198
312
Defined contribution expense2,723
2,498
Total employee benefit expense
52,498
47,70 6
Depreciation and amortisation expense:
Depreciation of property, plant and equipment97, 265
6,904
Amortisation of intangible assets10191
885
Total depreciation and amortisation expense
7,456
7,78 9
Total (gain)/loss on disposal of property, plant and equipment
(385)
197
Total product development costs
4,577
4,384
Total rentals and operating lease costs
234,368
4,876
Remuneration of auditors:
Audit of the financial statements by Parent company auditors467
399
Other auditors’ fees for the audit of the financial statements in foreign jurisdictions
72118
Taxation services provided by Parent company auditors11
11
Total remuneration of auditors
550
528
4. Other Income
2018
$000
2017
$000
Interest income 53
74
Government grants received13
56
Realised and unrealised foreign currency gains / (losses)1,123
2,507
Other sundry income517
775
Total other income / (expenses)
1,706
3,412
ANNUAL REPORT 2018 | SKELLERUP
40
5. Taxation
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from, or paid to,
the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amount are those
that are enacted or substantively enacted by the balance sheet date.
Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities
and their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognised for all taxable temporary differences except:
• For a deferred income tax liability arising from the initial recognition of goodwill; or
• Where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a
business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused
tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and
the carry-forward of unused tax assets and unused tax losses can be utilised. The carrying amount of deferred income tax assets is
reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available
to allow all or part of the deferred income tax asset to be utilised.
(a) Income statement
2018
$000
2017
$000
Current income tax
Current income tax charge/(credit)10,350
9,244
Prior-year adjustments(3)
116
Deferred income tax
Temporary difference reversal/(origination)174
51
Prior-year adjustments265
(101)
Effect of movement in tax rates(145)
(10)
Income tax expense as per income statement
10,641
9,300
(b) Amounts charged/(credited) to other comprehensive income
Note
2018
$000
2017
$000
Current income tax
Fair value of derivative financial instruments
16(297)(157)
Translation of foreign operations
16180(32)
Prior year adjustments
–(38)
Total income tax expense/(credit) relating to other comprehensive income
(117)
(227)
Notes to the Financial Statements
SKELLERUP | ANNUAL REPORT 2018
41
5. Taxation
(c) Reconcilliation
2018
$000
2017
$000
Total profit before tax as reported
37,918 31,410
Tax percentage at Parent company rate
28%28%
Tax at Parent company rate
10,617 8,795
Non-deductible expenses/(non-assessable income)
(116)41
Tax effects of non-New Zealand profits
23459
Adjustments for prior years
26215
Effect of movement in tax rates
(145)(10)
Income tax as per income statement
10,6419,300
(d) Deferred tax assets and liabilities
2018
$000
2017
$000
Deferred tax asset
3,542 3,509
Deferred tax liability
(1,815)(1,784)
Net tax asset
1,7271,725
The movement in the net deferred tax assets and liabilities is provided below:
2018
Note
Opening
Balance
Charged to
income
Charged to other
comprehensive
income
Foreign
currency
movements
Closing
balance
$000$000$000$000$000
Property, plant and equipment
(1,310)(200)(78)(1,588)
Provisions and accruals
3,06919733,161
Financial derivatives
(143)297154
Other
109(113)4–
Net tax asset1,725
(294)297(1)1,727
2017Note
Opening
Balance
Charged to
income
Charged to other
comprehensive
income
Foreign
currency
movements
Closing
balance
$000$000$000$000$000
Property, plant and equipment
(1,320)(12)22(1,310)
Provisions and accruals
3,112(33)(10)3,069
Financial derivatives
(300)157(143)
Other
3106-109
Net tax asset1,49561157121,725
ANNUAL REPORT 2018 | SKELLERUP
42
(e) Imputation credit account
Note
2018
$000
2017
$000
Balance at the beginning of the year
1,043
4,112
Attached to dividends paid
19
(7,000)
(6,438)
Income tax paid in New Zealand6,823
4,504
Income tax to be paid in New Zealand (estimate)-
854
Reversal of previous year's estimate(854)
(1,989)
Total imputation credits
12
1,043
6. Cash and Cash Equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity
of three months or less.
For the purposes of the cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net
of outstanding bank overdrafts. Cash flows are included in the cash flow statement on a gross basis and the GST/VAT component of
cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority, is classified
as operating cash flows.
In New Zealand, some Group companies operate bank accounts in overdraft. Under the Group, bank facility overdrafts have a
legal right of set-off against bank accounts in funds. Therefore, only the net in funds position has been disclosed. Cash and cash
equivalents at the end of the year as shown in the cash flow statement can be reconciled to the related items in the balance sheet as
follows:
All cash is available and under the control of the Group and, other than in China, there are no restrictions relating to the use of the
cash balances disclosed.
Notes to the Financial Statements
SKELLERUP | ANNUAL REPORT 2018
43
7. Trade and Other Receivables and Prepayments
Trade receivables are recorded at cost less an allowance for any uncollectable amounts. Collectability of trade debtors is reviewed
on an ongoing basis and a provision for doubtful debts is made when there is objective evidence that the Group will not be able to
collect the receivable. Any amount of provision recognised represents the difference between the carrying amount of these trade
receivables and the expected recoverable amount. Bad debts are written off when identified.
2018
$000
2017
$000
Trade receivables46,312
42,580
Less allowance for doubtful debts347
180
45,965
42,400
GST/VAT receivable278
252
Other3,243
3,695
Total trade and other receivables and prepayments
49,486
46,347
The average credit period for the sale of goods is 64 days (2017: 67 days). The Group offers credit terms ranging from 30 to 120 days
to those customers for whom the Group has been able to validate acceptable credit quality. The credit terms and limits are reviewed
monthly. No interest is charged on the trade receivables.
Of the trade receivables balance at the end of the year, $8.81 million (2017: $7.55 million) representing 19.2% (2017: 17.8%) of the
trade receivables are due from the Group’s three largest customers. The balances due from these customers are current and are
considered to be a low credit risk to the Group.
Ageing of past due but not impaired trade receivables:
2018
$000
2017
$000
One to 30 days11,752
10,771
31 to 60 days1,075
601
61 days plus557
256
Total past due trade receivables
13,384
11,628
Movement in the allowance for doubtful debts:
Balance at the beginning of the year180
218
Impaired losses recognised197
32
Amounts written off as uncollectable(29)
(36)
Impairment losses reversed(13)
(28)
Net foreign currency exchange differences12
(6)
Balance at the end of the year
347
180
8. Inventories
The Group applies an inventory valuation policy of valuing at the lower of original cost or net realisable value. Where inventory is
written down below cost, estimates are made of the realisable value less cost to sell to determine the net realisable value.
Costs incurred in bringing each product to its present location and conditions are accounted for as follows:
Raw materials as the purchase cost on a first-in, first-out basis.
Finished goods and work-in-progress as the cost of direct materials and labour and a proportion of manufacturing overheads based
on normal operating capacity but excluding borrowing costs.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the
estimated costs necessary to make the sale.
2018
$000
2017
$000
Raw materials9,229
9,057
Work-in-progress2,534
2,815
Finished goods35,364
29,605
Total inventories
47,127
41,477
The value of inventories is net of $2,220,557 (2017: $2,272,537) in respect of write-downs across all categories of inventory to net
realisable value. All inventory write-down movements are included in the cost of sales. Certain inventories are subject to retention of
title clauses where the inventory has not been paid for.
ANNUAL REPORT 2018 | SKELLERUP
44
9. Property, Plant and Equipment
All classes of property, plant and equipment are recorded initially at cost, including costs directly attributable in bringing the asset
to the working condition and ready for its intended use. Subsequently, property, plant and equipment is measured at cost less
accumulated depreciation and accumulated impairment.
Depreciation of property, plant and equipment, other than freehold land, which is carried at cost, is calculated on a straight-line
basis over the estimated useful life of the asset as follows:
Buildings: 40 years
Plant and equipment: Two to 30 years
Furniture, fittings and other: Five to 10 years
The estimation of the useful lives of assets has been based on historical experience, manufacturers’ warranties and management’s
judgement on the performance of the asset. Adjustments to useful lives are made when considered necessary. The depreciation
charges are disclosed below.
At each reporting date, the Group assesses whether or not there is any indication that an asset may be impaired. Where an
indicator of impairment exists, the Group makes a formal estimate of the recoverable amount. Where the carrying amount of an
asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to
arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference
between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the year in which
the item is derecognised.
Note
Freehold
Land
$000
Freehold
Buildings
$000
Plant and
Equipment
$000
Furniture,
Fittings and
Other
$000
Total
$000
Cost
Balance 1 July 20167, 25 832,45394,7937,7 20142,224
Additions
–2,0479,47265512,174
Disposals
––(2,719)(1,105)(3,824)
Net foreign currency exchange differences
––(558)(70)(628)
Balance 30 June 2017
7, 25 834,500100,9887, 20 0149,946
Additions
–234,8664445,333
Disposals
(174)–(959)(283)(1,416)
Net foreign currency exchange differences
––3,296 275 3,571
Balance 30 June 2018
7,08434,523108,1917,636157,434
Accumulated depreciation and impairment
Balance 1 July 2016––46,1495,53451,683
Depreciation expense3
–6065,7195796,904
Disposals
––(2,138)(998)(3,136)
Net foreign currency exchange differences
––(429)(18)(447)
Balance 30 June 2017
–60649,3015,09755,004
Depreciation expense3
–9115,7286267, 265
Disposals
––(632)(262)(894)
Net foreign currency exchange differences
––2,495 198 2,693
Balance 30 June 2018
–1,51756,8925,65964,068
Carrying value
As at 30 June 2017
7, 25 833,89451,6872,10394,942
As at 30 June 2018
7,08433,00651,2991,97793,366
Notes to the Financial Statements
SKELLERUP | ANNUAL REPORT 2018
45
9. Property, Plant and Equipment (continued)
Plant and equipment and freehold buildings include work in progress of $970,000 (2017: $4,217,000).
Capital expenditure commitments are $511,000 (2017: $1,849,000).
10. Intangible Assets
The Group’s intangible assets consist mainly of goodwill, software costs and land-use rights.
Note
Goodwill
$000
Software
$000
Total
$000
Cost
Balance 1 July 201644,2358,85853,093
Additions
207210417
Disposals
–––
Net foreign currency exchange differences
(268)(1)(269)
Balance 30 June 2017
44,1749,06753,241
Additions
– 9898
Disposals
–(76)(76)
Net foreign currency exchange differences
1,7921361,928
Balance 30 June 2018
45,9669,22555,191
Accumulated amortisation
Balance 1 July 2016–7,6 437,6 43
Disposals
–––
Amortisation expense3
–885885
Net foreign currency exchange differences
–––
Balance 30 June 2017
–8,5288,528
Disposals
–(73)(73)
Amortisation expense3
–191191
Net foreign currency exchange differences
123123
Balance 30 June 2018
–8,7698,769
Carrying value of goodwill and intangible assets
As at 30 June 201744,17453944,713
As at 30 June 2018
45,96645646,422
Goodwill
Goodwill acquired in a business combination is measured initially at cost, being the excess of the consideration transferred over the
fair value of the Group’s net identifiable assets acquired and liabilities assumed. If this consideration transferred is lower than the fair
value of the net identifiable assets of the subsidiary acquired, the difference is recognised in the income statement.
Separately recognised goodwill is tested annually for impairment and carried at cost less any accumulated impairment losses.
Impairment losses on goodwill are not reversed.
The Group determines whether or not goodwill associated with items with indefinite useful lives is impaired at least on an annual
basis. This requires certain assumptions being made in determining the recoverable amount of the cash-generating units, using a
value-in-use discounted cash flow methodology, to which the goodwill has been allocated. The assumptions used in determining the
recoverable amount and the carrying amount of goodwill are detailed below.
ANNUAL REPORT 2018 | SKELLERUP
46
10. Intangible Assets (continued)
Software
Identifiable intangible assets, which are acquired separately or in a business combination, are capitalised at cost at the date of
acquisition and stated at cost less any accumulated amortisation and impairment losses. Subsequent expenditure on intangible
assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other
expenditure is expensed as incurred.
Software costs are recorded as intangible assets and amortised over a period of 10 years.
Research and development costs
Research costs are expensed as incurred. Development expenditure incurred on an individual project is carried forward when its
future recoverability can be regarded reasonably as assured.
Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost
less any accumulated amortisation and accumulated impairment losses.
Any expenditure carried forward is amortised over the period of expected future sales from the related project.
The amortisation period and amortisation method for development costs is reviewed at each financial year-end. If the useful life or
method of consumption is different from that of the previous assessment, changes are made accordingly.
Impairment tests for goodwill
(i) Description of cash-generating units
Goodwill acquired through business combinations has been allocated to the business units acquired. Subsequent business
reorganisations within the Group have resulted in some original cash-generating units (CGU) being combined with other Group
businesses. In such circumstances, the original goodwill has been allocated across the combined cash-generating unit to determine
fairly the recoverable amount against the value in use.
The goodwill allocated to each cash-generating unit is shown in the table below. The changes in goodwill recorded are attributable
to exchange rate movements on the translation of the goodwill balances denominated in foreign currencies.
The net present value of future estimated cash flows exceeds the recoverable amount of goodwill allocated to each cash-generating
unit based on a value-in-use calculation. A pre-tax discount rate of 12.31% (2017: 10.02%) has been applied to discount future
estimated cash flows to their present values.
Cash-generating unit
2018
$000
2017
$000
Gulf33,907
32,937
Ambic7,747
7,078
Deks3,881
3,728
Stevens Filterite431
431
Total goodwill
45,966
44,174
(ii) Assumptions used to determine the recoverable amount
The estimated future cash flows generated have been determined from the business plans and detailed budgets prepared by
management as part of the annual business planning that is reviewed and approved by the Board of Directors. Such forecasts
analyse and quantify a range of growth objectives which form the basis for determining the business growth and direction over the
next five years.
For periods beyond 2018, the Group anticipates that business results will continue to improve due to new product developments, the
benefits of established customer relationships and expansion into new and existing niche markets.
The estimated cash flow in perpetuity is based upon the forecast year five cash flows and then an estimate of sustainable growth
beyond this time period of 1.5% per annum.
Key assumptions used in the value-in-use calculations are as follows:
Notes to the Financial Statements
SKELLERUP | ANNUAL REPORT 2018
47
10. Intangible Assets (continued)
Revenue assumptions
Revenue has been forecast to increase in a range of 2% to 23% per annum over the following five-year period in line with the Group’s
strategic business plans to develop and introduce new products, in addition to continuing to support and grow the Group’s existing
global customer relationships.
Discount rate assumptions
The discount rate is intended to reflect the time value of money and the risks specific to each cash-generating unit achieving its
forecast cash flows. In determining the appropriate discount rate, regard has been given to the weighted average cost of capital of
the Group, which has been updated as at 30 June 2018, to reflect the current market interest rates and the additional cost of capital
applicable in the current risk environment.
Commodity cost pricing assumptions
With the base raw material component being synthetic and natural rubbers sourced from Asia, the pricing of these raw materials can
fluctuate: many of the synthetics are by-products of the petrochemical industry, and natural rubbers are influenced by global supply
and demand influences. Pricing assumptions have been made in the Group forecasts that any cost increases driven by commodity
price changes will be passed through to customers.
Market share assumptions
In preparing forecasts, the Group’s business plans show no loss of market share. The Group’s strategy is to continue to expand in
global markets, especially in North America and Europe. This is the case particularly for the Gulf cash-generating unit, which has
dedicated manufacturing and distribution capabilities established in these markets.
Growth rate assumptions
The growth rates have been based on business plan assumptions applied in the preparation of the annual budgets for the new
financial year and the following two years, with assumed lower growth rates in years four and five and in perpetuity. This process is
based on key strategies that have been quantified at a product and customer level, reviewed by senior management and signed off
by the Board of Directors.
(iii) Sensitivity to assumption changes
Estimates made of future cash flows are based on current market conditions. With trading across a number of different products
covering a wide industry base, and through a number of international markets, the risk of significant change to cash flow projections
is mitigated. Any change in future cash flow projections, which is influenced by price changes, foreign currency movements and
competitor activities, is expected to have only minimal impact and is unlikely to cause an impairment risk to the goodwill allocated to
the various cash-generating units, particularly with the estimated net present value of each cash-generating unit tested well above
the carrying value of assets, including goodwill.
11. Trade and Other Payables
Trade and other payables are carried at amortised cost and, due to their short-term nature, are not discounted. They represent
liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid, and arise when the
Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are
unsecured and paid usually within 30 to 60 days of recognition.
The net amount of GST/VAT payable to the taxation authority is included as part of payables in the balance sheet.
2018
$000
2017
$000
Trade payables16,843
12,529
Employee entitlements3,052
2,098
Sundry payables and accruals7,728
9,358
GST payable1,086
971
Total trade and other payables
28,709
24,956
The average credit period on purchases of all goods and services represents an average of 45 days credit (2017: 38 days credit). The
Group has financial risk management policies in place to ensure that all payables are met within acceptable terms and conditions of
purchase.
ANNUAL REPORT 2018 | SKELLERUP
48
12. Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event. It is probable
that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be
made of the amount of the obligation.
Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement
is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is
presented in the income statement net of any reimbursement.
Provisions are measured at the present value of management’s best estimates of the expenditure required to settle the present
obligation at the balance date.
If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-
tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
2018
$000
2017
$000
Provisions
Employee entitlements5,627
5,486
Make-good–
1,528
Warranties1,346
1,224
Total provisions
6,973
8,238
Current5,301
6,636
Non-current1,672
1,602
Total provisions
6,973
8,238
Make-
good
$000
Warranties
$000
Balance 1 July 2016
3,0821,076
Additional provisions recognised
100609
Reductions arising from payments/sacrifices of economic benefits
(1,654)(220)
Reductions arising from remeasurement or settlement without cost
–(239)
Net foreign currency exchange differences
–(2)
Balance 30 June 2017
1,5281,224
Additional provisions recognised
–545
Reductions arising from payments/sacrifices of economic benefits
(1,528)(495)
Reductions arising from remeasurement or settlement without cost
–50
Net foreign currency exchange differences
–22
Balance 30 June 2018
–1,346
Employee entitlements
(i) Wages, salaries, annual leave and sick leave
Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be
settled within 12 months of the reporting date are recognised in respect of employees’ services up to the reporting date. They
are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are
recognised when the leave is taken and are measured at the rates paid or payable.
(ii) Long-service leave
The liability for long-service leave is recognised and measured at the present value of expected future payments to be made in
respect of services provided by employees up to the reporting date using a probability calculation of the employee reaching the
future service milestones. Consideration is given to expected future wage and salary levels, experience of employee departures
and periods of service. Expected future payments are discounted using market yields at the reporting date with terms to maturity
and currencies that match, as closely as possible, the estimated future cash outflows.
Notes to the Financial Statements
SKELLERUP | ANNUAL REPORT 2018
49
12. Provisions (continued)
(iii) Defined contribution scheme
The Group contributes to post-employment schemes for its employees. Under these schemes, the benefits received by the
employee are determined by the amount of the contribution paid by the Group, together with any investment returns and, hence,
the actuarial and investment risk is borne entirely by the employee. Therefore, because the Group’s obligations are determined
by the amount paid during each period, no actuarial assumptions are required to measure the obligation or the expense.
Make-good costs
The provision for make-good costs includes the estimated future costs to the Group of decommissioning and relocating plant and
equipment for its Dairy Rubber Development and Manufacturing activity to the new site at Wigram, and costs to complete the exit
from the former operating site at Woolston.
Warranties
In determining the level of provision required for warranties, the Group has made judgements in respect of the expected performance
of products and the costs of rectifying any products that do not meet the customers’ quality standards.
The provision for warranty claims represents the present value of the Directors’ best judgement or estimate of the future outflow of
economic benefits that will be required under the Group’s various product warranty programmes. The estimate has been made on
the basis of the expected performance of products, historical warranty trends, the costs of rectifying any products that do not meet
the customers’ quality standards and insurance arrangements the Group has in place. The actual cost may vary as a result of new
materials, altered manufacturing processes or other events affecting product quality.
13. Interest-bearing Loans and Borrowings
All loans and borrowings are recognised initially at the fair value of the consideration received less directly attributable
transaction costs.
After initial recognition, interest-bearing loans and borrowings are measured subsequently at amortised cost using the effective
interest method.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at
least 12 months after the reporting date.
2018
$000
2017
$000
Non-current liabilities
Secured at amortised cost
Balance at the beginning of the year41,77736,413
Drawdowns25,90028,073
Repayments(27,315)(22,726)
Net foreign currency exchange differences3817
Balance at the end of the year40,40041,777
Effective interest rate3.71%3.45%
The carrying amounts disclosed above approximate fair value.
The bank loans are provided under a $60 million multi-currency facility agreement with ANZ Bank New Zealand Limited (ANZ Bank)
which has an expiry date of 15 June 2020.
Derivative financial instruments are used by the Group in the normal course of business in order to hedge exposure to fluctuations in
interest and foreign exchange rates.
The carrying amount of tangible assets of the Charging Group (which excludes Skellerup Rubber Products Jiangsu Limited and other
smaller entities in the Group) totalling $201 million is pledged as security to ANZ Bank to secure the above term loans.
Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (i.e. an asset which necessarily
takes a substantial period of time to prepare for its intended use or sale) are capitalised as part of the cost of that asset. All other
borrowing costs are expensed in the period in which they occur. For the current year, nil interest costs were capitalised
(2017: $217,435).
ANNUAL REPORT 2018 | SKELLERUP
50
14. Contributed Equity
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in
equity as a deduction, net of tax, from the proceeds.
Number of
Shares
Value
$000
Balance 1 July 2016192,805,807 69,732
Balance 30 June 2017192,805,807 69,732
Balance 30 June 2018
192,805,80769,732
All shares are fully paid and have no par value. Each ordinary share confers on the holder one vote at any shareholder meeting of the
Company and carries the right to dividends.
As at 30 June 2018, there are also 1,947,533 redeemable ordinary shares on issue (2017: 1,947,533). These redeemable ordinary
shares were issued by the Company on 26 October 2011, in support of the Chief Executive Officer’s Incentive Scheme, which is
described in Note 17.
The Directors’ objective is to ensure the entity continues as a going concern, as well as to maintain optimal returns to shareholders
and benefits for other stakeholders.
The Directors aim to provide a capital structure which:
• Provides an efficient and cost-effective source of funds;
• Is balanced with external debt to provide a secure structure to support the short and long-term funding of the Group;
and
• Ensures that the ratio of funds sourced from shareholders and external debt is maintained proportionately at a level
which does not create a credit and liquidity risk to the Group.
The Company is listed on the New Zealand Exchange and is, therefore, subject to continuous disclosure obligations to inform
shareholders and the market of any matters which affect the capital of the Company. This includes changes to the capital structure,
new share issues, dividend payments and any other significant matter which affects the creditworthiness or liquidity of the Group.
The Group is not subject to any externally imposed capital requirements.
15. Finance Costs
2018
$000
2017
$000
Interest on bank overdrafts and borrowings1,455
1,340
Bank facility fees408
291
Interest capitalised-
(217)
Total finance costs in Income Statement
1,863
1,414
16. Reserves
2018
$000
2017
$000
Reserve balances
Cash flow hedge reserve
(397)
367
Foreign currency translation reserve(8,059)
(13,866)
Employee share plan reserve471
471
Total reserves
(7,985)
(13,028)
Notes to the Financial Statements
SKELLERUP | ANNUAL REPORT 2018
51
16. Reserves (continued)
The cash flow hedge reserve is intended to recognise the fair value movements of the effective derivatives held to hedge interest
rate and foreign currency risk. A summary of movements is shown in the table below.
Note
2018
$000
2017
$000
Cash flow hedge reserve
Balance at the beginning of the year367
657
Gain/(loss) recognised on cash flow hedges:
Foreign exchange contracts
(1,057)
(481)
Interest rate swaps(4)
34
Income tax related to gains/(losses) recognised in other comprehensive income5297
157
Movement for the year (764)
(290)
Balance at the end of the year
(397)
367
Exchange differences relating to the translation of values from the functional currencies of the Group’s foreign subsidiaries into New
Zealand dollars are brought to account by entries made directly to the foreign currency translation reserve.
A summary of movements is shown in the table below.
Note
2018
$000
2017
$000
Foreign currency translation reserve
Balance at the beginning of the year
(13,866)
(12,791)
Gain/(loss) recognition:
Foreign exchange movements on translation of foreign operations
5,987
(1,145)
Income tax related to gains/(losses) recognised in other comprehensive income5(180)
70
Movement for the year 5,807
(1,075)
Balance at the end of the year
(8,059)
(13,866)
The employee share plan reserve is used to record the value of share-based payments provided to employees, including key
management personnel, as part of their remuneration. A summary of movements is shown in the table below.
Note
2018
$000
2017
$000
Employee share plan reserve
Balance at the beginning of the year471
471
Expense recognised for the year17-
–
Balance at the end of the year
471
471
17. Share-based Incentive Scheme
The Group operates a share-based incentive scheme for the Chief Executive Officer whereby redeemable ordinary shares were
issued on 26 October 2011 and held in trust under a Deed which allows for the shares to convert to ordinary shares if fully paid, at the
option of the Chief Executive Officer, in a future period.
The cost of the equity-settled transaction is recognised over the period in which the conditions are fulfilled. The cumulative expense
recognised at each reporting date, until the vesting date, reflects the extent to which the vesting period has expired and the
Group’s best estimate of the number of equity instruments that will vest ultimately. The expense or credit for a period represents
the movement in the cumulative expense recognised as at the beginning and end of that period. The cumulative expense over the
vesting period is recognised through the employee share plan reserve in equity.
ANNUAL REPORT 2018 | SKELLERUP
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17. Share-based Incentive Scheme (continued)
No expense is recognised for equity that does not vest. Where an equity award is cancelled, it is treated as if it vested on the date of
cancellation. No further expense is recognised and the cumulative balance in the employee share plan reserve transfers to retained
earnings.
Any cash contribution made towards the equity share scheme at the grant date, has been offset against the initial recognised cost of
the expired vesting period.
The redeemable ordinary shares issued on grant date have been fair valued under the terms defined by New Zealand International
Financial Reporting Standards NZ IFRS-2. The fair value determined is being recognised as an employee incentive scheme expense
over the estimated vesting period.
(a) Recognised share-based employee incentive scheme
The expense recognised for the Chief Executive Officer’s incentive scheme is as follows:
2018
$000
2017
$000
Amount at the beginning of the year471
471
Share-based incentive scheme expensed during the year–
–
Amount at the end of the year
471
471
(b) The share-based incentive scheme
The scheme has the following attributes:
• A total of 1,947,533 redeemable ordinary shares was issued to Skellerup Holdings Employee Trustee Company Limited
(the Trustee) to hold on behalf of the Chief Executive Officer on 26 October 2011.
• The Trustee is a wholly owned subsidiary of Skellerup Holdings Limited and acts as a corporate trustee.
• The Trustee subscribed for the 1,947,533 redeemable ordinary shares at an issue price of $1.2534, being the volume-
weighted average price for the 60 consecutive trading days prior to the date of issue.
• The redeemable ordinary shares have been paid to 1 cent.
• The redeemable ordinary shares carry only a fraction of the voting rights that would be exercised if the shares were
fully paid ordinary shares. The fraction is equivalent to the proportion which is paid up to the total issue price.
• The redeemable ordinary shares are entitled to participate in any distribution of surplus assets on liquidation to the
extent of the amount paid up on the shares.
• The redeemable ordinary shares are not eligible for dividends or other distributions until fully paid up and transferred
from the Trustee to the Chief Executive Officer.
• The redeemable ordinary shares may be redeemed at the option of the Chief Executive Officer. The amount payable
will be the balance of the issue price. Fifty percent of the shares vested on 26 October 2015 and a further fifty percent
vested on 26 October 2016. The period in which the Chief Executive Officer can redeem the shares expires on
26 October 2018.
• When the redeemable ordinary shares have been fully paid and transferred to the Chief Executive Officer, the shares
shall convert to ordinary shares and rank in all respects equally with the Group’s ordinary shares.
(c) Pricing model
The redeemable ordinary shares have been fair valued using the Black-Scholes formula. The fair value has been determined as
$471,000.
18. Earnings per Share
Earnings per share is calculated as net profit attributable to members of the Parent, adjusted to exclude any costs of servicing equity
(other than dividends), divided by the weighted average number of ordinary shares.
2018
Cents per
Share
2017
Cents per
Share
Basic earnings per share14.15
11.47
Diluted earnings per share14.01
1 1.35
Net tangible asset per share64.67
58.25
Notes to the Financial Statements
SKELLERUP | ANNUAL REPORT 2018
53
18. Earnings per Share (continued)
The earnings and weighted average number of ordinary shares used in the calculation of earnings per share are
as follows:
2018
$000
2017
$000
Earnings used in the calculation of earnings per share 27,277
22,110
Weighted average number of ordinary shares for
– Basic earnings per share
192,805,807 192,805,807
– Diluted earnings per share
194,753,340 194,753,340
19. Retained Earnings
2018
$000
2017
$000
Balance at the beginning of the year102,543
97,78 6
Net profit for the year27,277
22,110
Payment of dividends(19,281)
(17,353)
Balance at the end of the year 110,539
102,543
During the reported period, a dividend of 6.0 cents per share was paid on 12 October 2017 and 4.0 cents per share on 22 March 2018.
All dividends paid were fully imputed with imputation tax credits totalling $6,999,439 (2017: $6,438,235).
20. Financial Risk Management Objectives and Policies
The Group’s principal financial instruments comprise receivables, payables, bank loans and overdrafts, cash and derivatives. Because
of these financial instruments, the principal financial risks to the Group are movements in foreign currency and interest rates. Credit risk
and liquidity risk are considered also to be risk areas and are, therefore, closely managed.
The Board reviews and agrees upon policies for managing financial risk.
The Group enters into derivative transactions, principally forward foreign currency contracts and interest rate swaps. The purpose is to
manage the currency and interest rate risks arising from the Group’s operations and its sources of finance.
Credit risk is managed through regular review of aged analysis of receivable ledgers. The credit risk exposures are the receivables
recorded in Note 7.
Liquidity risk is monitored through the review of future rolling cash flow forecasts. These cash flow forecasts are updated on a weekly
basis with particular emphasis placed on the prospective four-week period. These forecasts are monitored constantly against limitations
of the entire debt facility.
Risk exposures and responses
(i) Interest rate risk
The Group’s exposure to market interest rates relates primarily to the Group’s long-term debt obligations.
The Group’s policy is to monitor its interest rate exposure and to hedge the volatility arising from interest rate changes by entering
into interest rate swap contracts that cover a minimum of 25% and a maximum of 75% of the core debt. Core debt is defined as debt in
excess of $15 million that is not expected to be repaid from available cash flows within an 18-month time horizon.
The level of debt is disclosed in Note 13. A reasonably expected movement in the interest rate would not have a material impact on
profit or equity.
At balance date, the Group had the following mix of financial assets and liabilities exposed to interest rates risk. Details of financial
instruments in place to manage this risk are disclosed in Note 21.
2018
$000
2017
$000
Financial assets
Cash and cash equivalents
9,681
6,022
Financial liabilities
Bank loans
40,400
41,777
Net exposure (30,719)
(35,755)
ANNUAL REPORT 2018 | SKELLERUP
54
20. Financial Risk Management Objectives and Policies (continued)
(ii) Foreign currency risk
The Group imports raw materials and finished goods and exports finished goods to a number of foreign customers. The main foreign
currencies traded are US dollars (USD), Euro dollars (EUR), Australian dollars (AUD) and British pounds (GBP).
The Group seeks to cover up to 100% of the net foreign currency cash flow forecast, for the next 12-month period, with foreign
currency contracts. Where the foreign currency cash flows can be forecasted reliably beyond the future 12-month period, such cash
flows may also be covered by foreign currency contracts of up to 50% of the forecast cash flows.
The Group also has translational currency exposures. Such exposures arise from subsidiary operating entities that transact in
currencies other than the Group’s functional currency. Currently, the Group does not hedge these exposures.
Foreign currency net monetary assets
As at 30 June 2018, the Group has the following net monetary assets in foreign currency values which are in different currencies from
the subsidiary’s base currency and will revalue either through the income statement or the statement of comprehensive income:
Cash and Cash
Equivalents
$000
Receivables
$000
Payables
$000
Net Monetary
Assets
$000
30 June 2018
USD
1,4245,4893,3693,544
AUD
141,136221,128
GBP
146331–477
EUR
2081,168804572
30 June 2017
USD
1,4545,0642,5543,964
AUD
431,2881081,223
GBP
78347–425
EUR
2641,174758680
The foreign-currency-denominated values, as shown in the table above, are converted to New Zealand dollars as follows:
2018
$000
2017
$000
Financial assets
Cash and cash equivalents2,760
2,580
Trade and other receivables11,997
10,711
14,757
13,291
Financial liabilities
Trade and other payables6,381
4,785
Net exposure
8,376
8,506
Notes to the Financial Statements
SKELLERUP | ANNUAL REPORT 2018
55
20. Financial Risk Management Objectives and Policies (continued)
Foreign currency sensitivity
Net Profit after Tax Net Equity
Higher/(Lower)
2018
$000
2017
$000
2018
$000
2017
$000
Foreign currency rates
Increase +10%
(548)(544)(8,166)( 7, 355)
Decrease -5%
3173154,7284,258
Significant assumptions used in the foreign currency exposure sensitivity analysis are as follows:
(a) The range of possible foreign exchange rate movements was determined by a review of the last two years’
historical movements and economists’ views of future movements.
(b) The Group’s trend of trading in foreign currency values is not expected to change materially over future periods.
(c) The Group’s net exposure to foreign currency at balance date is representative of past periods and is expected to
remain relatively consistent for the future 12-month period.
d) The price sensitivity of derivatives has been based on a reasonably possible movement of the spot rate applied at
balance date.
(e) The effect on other comprehensive income results from foreign currency revaluations through the cash flow hedge
reserve and the foreign currency translation reserve.
(f) The sensitivity analysis does not include financial instruments that are non-monetary items as these are not
considered to give rise to a currency risk.
(iii) Credit risk
All customers who trade with any Group subsidiary on credit terms are subject to credit verification procedures including an assessment
of their independent credit rating and financial position. Risk limits are set for individual customers according to the risk profile of each
and, where it is considered appropriate, registrations are made to record a secured interest in the products supplied.
Receivable balances are monitored on an ongoing basis with appropriate provisions held for doubtful debts.
(iv) Liquidity risk
The Group monitors its future cash inflows and outflows through rolling cash flow forecasts.
At balance date, the liquidity risk is considered to be low with the bank facility not fully drawn, compliance with bank covenants, and
forecast cash flows reporting positive operating cash generation for the Group over the next financial year. The following maturity
analysis shows the profile of future payment commitments of the Group. With the available bank facility and the ability for the business
to generate future positive operating cash inflows, the obligation to meet the forward commitments is considered to be a low risk.
ANNUAL REPORT 2018 | SKELLERUP
56
20. Financial Risk Management Objectives and Policies (continued)
Maturity analysis of financial assets and liabilities
The following table represents both the expected and contractual maturity and cash flows of receipts and payments. There is a
further analysis of future operating lease commitments in Note 23; these are not included in this analysis.
Balance 30 June 2018
Zero to Six
Months
$000
Seven to 12
Months
$000
One to Five
Year s
$000
More than
Five Year s
$000
Total
$000
Financial assets
Cash and cash equivalents
9,681–––9,681
Trade and other receivables and prepayments
49,1151711901049,486
Derivatives
75–21–96
58,8711712111059,263
Financial liabilities
Trade and other payables
28,475115119–28,709
Interest-bearing loans
––40,400–40,400
Derivatives
465–183–648
28,94011540,702–69,757
Net total29,93156
(40,491)10(10,494)
Balance 30 June 2017
Zero to Six
Months
$000
Seven to 12
Months
$000
One to Five
Year s
$000
More than
Five Year s
$000
Total
$000
Financial assets
Cash and cash equivalents
6,022–––6,022
Trade and other receivables
45,95699283946,347
Derivatives
399–293–692
52,37799576953,061
Financial liabilities
Trade and other payables
24,640199117–24,956
Interest-bearing loans
––41,777–41,777
Derivatives
90–100–190
24,73019941,994–66,923
Net total
27,6 47(100)(41,418)9(13,862)
Fair value
The derivatives that have been fair valued by the Group are detailed in Note 21 and have a fair value of $552,000 (2017: $502,000).
Under NZIFRS, there are three methods available for estimating fair value of financial instruments.
The methods are:
Level 1 – the fair value is calculated using quoted prices in active markets.
Level 2 – the fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the
assets or liabilities, either directly (as prices) or indirectly (derived from prices).
Level 3 – the fair value is estimated using inputs for the asset or liability that are not based on observable market data.
In determining the fair value of all derivatives, the Group has applied the Level 2 method of calculating fair value by using estimated
inputs, other than quoted prices, that are observable for assets and liabilities, either directly (as prices) or indirectly (derived from
prices).
21. Financial Instruments
Financial assets in the scope of NZ IAS 39 Financial Instruments: Recognition and Measurement are classified as either financial
assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets.
When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value
through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets after initial
recognition and, when allowed and appropriate, re-evaluates this designation at each financial year-end.
Notes to the Financial Statements
SKELLERUP | ANNUAL REPORT 2018
57
21. Financial Instruments (continued)
Recognition and derecognition
All regular purchases and sales of financial assets are recognised on the trade date: i.e. the date that the Group commits to purchase
the asset. Regular purchases or sales are purchases or sales of financial assets under contracts that require delivery of the assets within
the period established generally by regulation or convention in the market place. Financial assets are derecognised when the Group no
longer controls the contractual rights that comprise the financial instrument, which is normally the case when the instrument is sold, or
all the cash flows attributable to the instrument are passed through to an independent third party. Gains and losses on financial assets
are exclusive of interest and dividends, which are recognised separately.
(i) Financial assets at fair value through profit or loss
Financial assets classified as held for trading are included in the category ‘financial assets at fair value through profit and loss’. Financial
assets are classified as held for trading if they are acquired for the purpose of selling in the near term with the intention of making a
profit. Derivatives are classified also as held for trading unless they are designated as effective hedging instruments. Gains or losses on
investments held for trading are recognised in the income statement.
Detail of the Group’s financial assets and liabilities are shown below. Significant accounting policies and methods adopted, including the
criteria for recognition, the basis of measurement and the basis in which income and expenses are recognised, in respect of each class
of financial asset, financial liability and equity instrument, are disclosed in the preceding notes.
Financial Assets
Cash and
Bank
Balances
$000
Trade and
Other
Receivables
$000
Derivatives
$000
Total
Financial Assets
$000
Balance 30 June 2018
Amortised cost
9,681––9,681
Loans and receivables
–49,486–49,486
Hedge instruments
––9696
Total financial assets
9,68149,4869659,263
Balance 30 June 2017
Amortised cost
6,022––6,022
Loans and receivables
–46,347–46,347
Hedge instruments
––692692
Total financial assets
6,02246,34769253,061
Financial Liabilities
Trade and
Other
Payables
$000
Derivatives
$000
Borrowings
$000
Total Financial
Liabilities
$000
Balance 30 June 2018
Hedge instruments
648648
Other financial liabilities
28,70940,40069,109
Total financial liabilities
28,70964840,40069,757
Balance 30 June 2017
Hedge instruments
190190
Other financial liabilities
24,95641,77766,733
Total financial liabilities
24,95619041,77766,923
Where the financial assets and financial liabilities are shown at amortised cost, their cost approximates fair value.
The Group uses derivative financial instruments such as forward currency contracts and interest rate swaps to hedge its risks
associated with foreign currency and interest rate fluctuations. Such derivative financial instruments are recognised initially at fair value
on the date on which a derivative contract is entered into and are remeasured subsequently to fair value. Derivatives are carried as
assets when their fair value is positive and as liabilities when their fair value is negative.
ANNUAL REPORT 2018 | SKELLERUP
58
21. Financial Instruments (continued)
Any gains or losses arising from changes in the fair value of derivatives, except for those that qualify as cash flow hedges, are taken
directly to profit or loss for the year. The fair values of forward currency contracts are calculated by reference to current forward
exchange rates for contracts with similar maturity profiles. The fair values of interest rate swap contracts are determined by reference
to market values for similar instruments.
• For the purposes of hedge accounting, hedges are classified as:
• Fair value hedges when they hedge the exposure to changes in the fair value of a recognised asset or liability; or
• Cash flow hedges when they hedge the exposure to variability in cash flows that is attributable either to a particular
risk associated with a recognised asset or liability or to a forecast transaction.
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the
Group wishes to apply hedge accounting, and the risk management objectives and strategies for undertaking the hedge. The
documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged
and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s
fair values or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting
changes in fair values or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective
throughout the financial reporting periods for which they were designated.
Hedges that meet the strict criteria for hedge accounting are accounted for as follows:
(ii) Cash flow hedges
Cash flow hedges are hedges of the Group’s exposure to variability in cash flows, which is attributable to a particular risk associated
with a recognised asset or liability or a highly probable forecast transaction and that could affect profit or loss. The effective portion
of the gain or loss on the hedging instrument is recognised directly in the statement of comprehensive income, while the ineffective
portion is recognised in the income statement.
Amounts taken to the statement of comprehensive income are transferred out of the statement of comprehensive income and
included in the measurement of the hedged transaction (sales or inventory purchases) when the forecast transaction occurs.
If the forecast transaction is no longer expected to occur, amounts previously recognised in the statement of comprehensive income
are transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or
rollover, or, if its designation as a hedge is revoked, amounts previously recognised in the statement of comprehensive income remain
in the statement of comprehensive income until the forecast transaction occurs. If the related transaction is not expected to occur, the
amount is recognised in the income statement.
Derivative financial instruments
Details of the derivatives held and their fair values at balance date were as follows:
2018
$000
2017
$000
Current assets
Forward currency contracts - cash flow hedge75
399
Current assets
75
399
Non-current assets
Forward currency contracts - cash flow hedge21
293
Non-current assets
21
293
Total assets96
692
Current liabilities
Forward currency contracts - cash flow hedge404
46
Interest rate swaps - cash flow hedge61
44
Current liabilities
465
90
Non-current liabilities
Forward currency contracts - cash flow hedge
100
5
Interest rate swaps - cash flow hedge83
95
Non-current liabilities
183
100
Total liabilities648
190
Net assets/(liabilities)
(552)
502
Notes to the Financial Statements
SKELLERUP | ANNUAL REPORT 2018
59
21. Financial Instruments (continued)
Foreign exchange contracts
The Group imports a large proportion of its raw materials and finished goods, and has export sales to a number of customers. As a
result, the Group has both inward and outward foreign currency cash flows. Both the inward cash flows and the outward cash flows
are tested and hedged against highly probable forecasted sales and purchases. The main currency exposures are in US dollars, Euro
dollars, Australian dollars and British pounds.
At balance date, details of outstanding foreign currency contracts are as follows:
Notional Amount Average Exchange Rates
2018201720182017
$000$000
Buy NZD/Sell EUR
Maturing 2018: one to 24 months (2017: one to 23 months)
7, 2945,2590.58270.6274
Buy NZD/Sell GBP
Maturing 2018: one to 24 months (2017: three to 23 months)
4,0513,9870.51830.5393
Buy NZD/Sell USD
Maturing 2018: one to 24 months (2017: one to 23 months)
6,5696,8670.69270.6917
Buy NZD/Sell AUD
Maturing 2018: one to 15 months (2017: two to 17 months)
12,1917, 5 690.91050.9248
Buy GBP/Sell EUR
Maturing 2018: nil (2017: one to four months)
–70–1.2946
The forward currency contracts are considered to be highly effective hedges as they are matched against forecast inventory
purchases and export sales, and any gain or loss on the contracts attributable to the hedge risk is taken directly to other
comprehensive income. Amounts are transferred out of other comprehensive income and included in the measurement of the
hedged transaction (sales or purchases) when the forecast transaction occurs.
Movements in the cash flow hedge reserve are recorded in the Statement of Comprehensive Income.
Interest rate swap agreements
The Group seeks to fix a minimum of 25% and a maximum of 75% of its interest rate risk where debt exceeds $15 million.
At 30 June 2018 the Group had $10 million fixed at a rate of 2.64% plus bank margin expiring 26 February 2019, $5 million fixed at a
rate of 2.35% plus bank margin expiring 23 April 2019, $5 million fixed at a rate of 2.55% plus bank margin expiring 20 April 2020 and
$5 million fixed at a rate of 2.68% plus bank margin expiring 22 February 2021.
The interest swap agreements are considered to be highly effective hedges as they are matched against forecast interest payments
and any gain or loss on the contracts attributable to the hedge risk is taken directly to other comprehensive income. Amounts are
transferred out of other comprehensive income and included in the measurement of the hedged transaction when the forecast
interest payment is made.
Movements in the cash flow hedge reserve are recorded in the Statement of Comprehensive Income.
Credit risk
Credit risk arises from potential failure of counterparties to meet their obligations at the maturity dates of contracts. Because the
counterparty of the above financial derivatives is the ANZ Bank New Zealand Ltd, there is minimal credit risk.
NZ IFRS 9
Skellerup will be required to account and report in accordance with NZ IFRS 9 for the year ending 30 June 2019. Skellerup has
considered the requirements of NZ IFRS 9 and does not anticipate any material change to its financial results, position and
disclosures.
ANNUAL REPORT 2018 | SKELLERUP
60
22. Related Parties
The consolidated financial statements incorporate the following significant companies:
(a) Subsidiary companies
Name of EntityPrincipal Activities
Country of
Incorporation
Holding
2018 2017 Balance Date
Skellerup Industries Limited*Manufacturing and SalesNew Zealand100%100%30 June
Skellerup Growth LimitedPropertyNew Zealand100%100%30 June
Ambic Equipment Limited*Manufacturing and SalesUK100%100%30 June
Deks Industries Pty Limited*Manufacturing and SalesAustralia100%100%30 June
Gulf Rubber Australia Pty Limited*Manufacturing and SalesAustralia100%100%30 June
Gulf US IncorporatedDistributionUSA100%100%30 June
Masport IncorporatedManufacturing and SalesUSA100%100%30 June
Skellerup Rubber Products Jiangsu Limited*Manufacturing and SalesChina100%100%31 December
Tumedei SpA*Manufacturing and SalesItaly100%100%30 June
*Held indirectly by the Parent company through its direct subsidiaries.
(b) Compensation of key management
The remuneration of Directors and senior management personnel during the year was as follows:
2018
$000
2017
$000
Short-term benefits
Directors’ fees477
493
Senior management’s salaries and incentives1,896
1,887
Contribution to defined contribution scheme for senior management personnel60
68
Long-term benefits
Share-based incentive scheme expensed during the year–
–
Mr John Strowger is a Director of Skellerup and a partner of Chapman Tripp, the Group’s legal advisors. Chapman Tripp has charged
fees during the year amounting to $296,597 (2017: $55,034). The fees were charged on normal terms and conditions and exclude GST.
There was $21,047 (2016: $4,249) outstanding (excluding GST) at balance date relating to these transactions.
23. Lease Commitments
The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an
assessment of whether or not the fulfilment of the arrangement is dependent on the use of a specific asset or assets and whether or not
the arrangement conveys a right to use the asset.
Operating leases
The Group has entered into commercial leases on properties, motor vehicles, and plant.
2018
$000
2017
$000
Payments recognised as an expense
- Minimum lease payments
4,368
4,876
Non-cancellable operating lease commitments
- Within one year
3,659
3,267
- After one year but not more than five years5,371
6,177
- After more than five years111
154
Total minimum lease payments
9,141
9,598
NZ IFRS 16 – Leases
Skellerup will be required to account and report in accordance with NZ IFRS 16 for the year ending 30 June 2020. Skellerup has
considered the requirements of NZ IFRS 16 and expects its adoption will result in the recognition of a right to use asset of $10,971,000
and a lease liability of $10,971,000 based on a similar lease profile to the one at 30 June 2018 being in place at 30 June 2020. Skellerup
does not expect any material impact on earnings. These estimated values may change as a result of contractual obligations Skellerup
may enter into before 30 June 2020.
Notes to the Financial Statements
SKELLERUP | ANNUAL REPORT 2018
61
24. Contingent Liabilities
2018
$000
2017
$000
Bank guarantee provided to the New Zealand Exchange
7575
The Group receives claims from time to time in relation to products supplied. Where the Group expects to incur a cost to replace or
repair the product supplied and can reliably measure that cost, that cost is recognised. The Group has general liability and professional
indemnity insurance in the event that there are warranty claims.
25. Significant Events after Balance Date
On 11 July 2018, Skellerup acquired a 35% stake in Sim Lim Technic LLC for NZ$1,683,400. This USA based company designs and
manufactures liquid silicone rubber products. This investment will be equity accounted into Skellerup’s financial results in the future.
The Directors have agreed to pay a final dividend, imputed to 55%, of 7.0 cents per share on 11 October 2018, to shareholders on the
register at 5.00pm on 28 September 2018. This dividend is not recorded in the financial statements.
There are no other events subsequent to balance date that require additional disclosure.
26. New Accounting Standards, Amendments and Interpretations and IFRIC Interpretations
Other than as disclosed in notes 2, 21 and 22, there is no new standard, amendment or interpretation, which has been issued and is
effective, that has a significant impact on the Group. Other than as disclosed in notes 2, 21 and 22, we have not yet completed a formal
assessment of new standards, amendments and interpretations that have been issued and are not yet effective.
ANNUAL REPORT 2018 | SKELLERUP
62
Directors holding office during the year and their shareholdings
Directors held interests in the following shares in the Company as at 30 June 2018.
Held with Non-beneficial InterestHeld by Associated Persons
Liz Coutts(Independent)–920,000
David Cushing(Non-Executive)–15,773,826
Sir Selwyn Cushing(Non-Executive)–15,773,826
Alan Isaac(Independent)–40,000
David Mair(Chief Executive)2,434,4023,527,506
Dr Ian Parton(Independent)–305,000
John Strowger(Independent)–118,320
Directors’ Interests
Pursuant to section 140(2) of the Companies Act 1993 and section 299 of the Financial Markets Conduct Act 2013, the Directors
named below have made a general disclosure of interest during the period 01 July 2017 to 03 August 2018 by a general notice
disclosed to the Board and entered in the Company’s Interest Register.
Alan Isaac
• Interest in 40,000 shares held by Isaac/Dinsdale/McBeth following the purchase of 20,000 shares on 19 September 2017.
David Mair
• Interest in 2,773,018 shares held by Forté Funds Management Limited following the purchase of 388,616 shares between
04 August 2017 and 20 December 2017 and the sale of 200,000 shares between 30 May 2018 and 15 June 2018.
• Interest in 5,000 shares as Trustee for Monica Mair following the purchase of 5,000 shares.
Director, CEO and Employee Remuneration
Director Remuneration
The total remuneration to non-executive directors is $550,000 as approved by the shareholders at the Annual Meeting on
25 October 2017. Director remuneration for FY18 is shown in the table below.
NoteBoard ChairBoard DirectorAudit & Risk ChairTotal
Liz Coutts82,50082,500165,000
David Cushing371,533 71,533
Sir Selwyn Cushing
126,667 26,667
Alan Isaac
82,50022,500105,000
Dr Ian Parton 2 26,667 26,667
John Strowger
82,500 82,500
David Mair4
Total82,500372,36722,50047 7, 367
Directors’ Disclosures, Remuneration and Shareholding
Notes:
1. Sir Selwyn Cushing served as Non-Executive Director of the Board from 01 July 2017 to 25 October 2017.
2. Ian Parton served as Independent Director of the Board from 01 July 2017 to 25 October 2017.
3. David Cushing was appointed as Non-Executive Director of the Board on 21 August 2017.
4. David Mair is an Executive Director. He is remunerated for his role as CEO and does not receive any director remuneration..
SKELLERUP | ANNUAL REPORT 2018
63
Employee Remuneration
The Group paid remuneration in excess of $100,000 including benefits to 119 employees (not including non-executive directors)
during the FY18 year in the following bands.
Remuneration
Range $000
No. of
employees
Remuneration
range $000
No. of
employees
Remuneration
range $000
No. of
employees
100-11019190-2002290-3001
1 1 0-12016200-2106330-3401
120-13014210-2206400-4101
130-14011220-2303510-5201
140-1506230-2401540-5501
150-1601250-2604560-5701
160-17010260-2702650-6601
170-1803270-2803
1 80-1904280-2901
CEO Remuneration: Five Year Summary
$000Remuneration
SalaryKiwisaverSTITotalLT I Ve s t i n gLT I S p a n
David Mair FY18
600183479652011 - 2018
David Mair FY17
60018316492011 - 2017
David Mair FY16
60018061850%2011 - 2016
David Mair FY15
54216055850%2011 - 2015
David Mair FY14
5421605582011 - 2014
CEO Remuneration FY18 and FY17
$000 Fixed Remuneration Performance Based Remuneration
SalaryKiwisaverSubtotalSTILT ISubtotalTotal
David Mair FY18
60018618347*347965
David Mair FY17
6001861831*31649
CEO Remuneration
CEO remuneration is made of three components: Fixed remuneration, short-term performance incentive (STI) and long-term
performance incentive (LTI). The STI and LTI at risk because the outcome is determined by performance against financial objectives.
The table below shows CEO remuneration in FY18 and FY17.
The STI is an at-risk payment designed to motivate and reward for financial performance that exceeds the previous best achieved by
Skellerup under the incumbent CEO management. The financial measure used for determining this performance is earnings before
interest and tax (EBIT). The STI is set so that the CEO receives 5% of EBIT in excess of the previous best EBIT achieved by Skellerup
under his management. The FY18 STI payment was accrued at 30 June 2018 and will be paid in FY19.
* The LTI is a share based incentive scheme (LTI scheme) that commenced on 26 October 2011 following the appointment of David
Mair as CEO. 1,947,533 redeemable ordinary shares were issued to the Skellerup Holdings Employee Trustee Company Limited on
this date at an issue price of $1.2534 which was the volume weighted average price for the 60 consecutive trading days preceding
the date of issue. The shares were paid to 1 cent. The shares became eligible for redemption by the CEO in two equal tranches on 26
October 2015 and 26 October 2016. In order to redeem any of the shares the CEO must make payment of the balance of the issue
price. The opportunity for the CEO to redeem the shares expires on 26 October 2018. Further details on the LTI scheme are disclosed
in note 17 to the financial statements on page 51.
ANNUAL REPORT 2018 | SKELLERUP
64
Gender and Diversity as at 30 June 2018
DirectorsOfficers
Management
201820172018201720182017
Male45221915
Female110087
Total56222722
Distribution of Ordinary Shares and Shareholders as at 03 August 2018
Size of shareholding
Number of
shareholders
% of
shareholders
Number of
shares
% of
shares
1 - 4,999 1,772 34.00 4,495,170 2.33
5,000 - 9,999 1,244 23.87 8,318,919 4.31
10,000 - 49,999 1,830 35.11 35,575,165 18.45
50,000 - 99,999 218 4.18 14,226,483 7. 3 8
100,000 - 499,999 123 2.36 20,975,649 10.88
500,000 - 999,999 8 0.15 5,055,744 2.62
1,000,000 and over 17 0.33 104,158,677 54.02
Totals 5,212 100.00% 192,805,807 100.00%
Directors’ Disclosures, Remuneration and Shareholding
Substantial Security Holders
Pursuant to the Financial Markets Conduct Act 2013, the following parties had given notice as at 03 August 2018 that they were
substantial security holders in the Company and held a relevant interest in the number of ordinary shares shown below:
Number of
shares%
Sir Selwyn Cushing15,773,8268.18
H&G Limited 14,1 1 6,1697. 32
SKELLERUP | ANNUAL REPORT 2018
65
Number
of shares %
1
Forsyth Barr Custodians Limited14,598,7507. 57
2 H & G Limited14,116,1697. 32
3 Citibank Nominees (New Zealand) Limited12,456,3936.46
4 Accident Compensation Corporation9,004,0494.67
5 FNZ Custodians Limited4,638,3022.41
6 Public Trust Forté Nominees Limited4, 2 37,0 1 82.20
7 HSBC Nominees (New Zealand) Limited A/C State Street4,142,7482.15
8 Custodial Services Limited 3,690,9351.91
9 David William Mair + John Gordon Phipps3,527,5061.83
10 HSBC Nominees (New Zealand) Limited3 ,0 8 7,7 3 01.60
11 Maxima Investments Limited2,600,0001.35
12 New Zealand Permanent Trustees Limited2,500,0001.30
13 HSBC Nominees A/C NZ Superannuation Fund Nominees Limited1,997,8601.04
14 BNP Paribas Nominees (NZ) Limited1 , 8 37, 5 3 30.95
15 Custodial Services Limited 1,806,2490.94
16 Guangqiang Chen1,800,4180.93
17 Leveraged Equities Finance Limited1,780,0000.92
18 Tea Custodians Limited Client Property Trust Account1 ,6 37, 5 4 40.85
19 New Zealand Depository Nominee Limited1,593,6040.83
20 Seajay Securities Limited1,457,6420.76
Twenty Largest Shareholders as at 03 August 2018
ANNUAL REPORT 2018 | SKELLERUP
66
Period Ending30/06/201830/06/201730/06/201630/06/201530/06/2014
Tot al Revenue
240,408
210,322211,415203,011196,606
EBIT (before Canterbury EQs)
39,781
32,84929,51131,11929,935
Finance Costs
1,863
1,414411163733
Profit before Tax and Canterbury EQs
37,918
31,43529,09930,95629,202
Canterbury EQs Pre-Tax Income (Expense)
–
(25)(145)–19,844
Ta x
10,641
9,3008,4299,0237,952
Net Profit After Tax
27,277
22,11020,52521,93341,094
EPS (c)*
14.1
11.510.711.410.8
Dividend (c)
11.0
9.59.09.08.5
Operating Cash Flow
28,345
21,22930,93917, 8 0250,976
Cash Reserves (Net Debt)
(30,719)
(35,755)(26,903)83016,345
Total Assets
252,025
237,932228,004211,631185,624
Total Liabilities
79,739
78,68572,14951,97140,933
Net Assets
172,286
159,247155,855159,660144,961
Five Year Financial History (NZ $000)
* excluding Canterbury EQs Income (Expense).
SKELLERUP | ANNUAL REPORT 2018
67
Corporate Directory
Directors
EM Coutts, ONZM, BMS, FCA, CFloD
Chair
BD Cushing, BCom, ACA
AR Isaac, CNZM, BCA, FCA
DW Mair, BE, MBA
WJ Strowger, LLB (Hons)
Officers
DW Mair, BE, MBA
Chief Executive Officer
GR Leaming, BCom, CA
Chief Financial Officer
Registered Office
L3, 205 Great South Road
Greenlane
Auckland 1051
New Zealand
PO Box 74526
Greenlane
Auckland 1546
New Zealand
Email: ea@skellerupgroup.com
Telephone: +64 9 523 8240
Website: www.skellerupholdings.com
Legal Advisors
Chapman Tripp
23 – 29 Albert Street
Auckland 1010
New Zealand
Bankers
ANZ Bank New Zealand Limited
23 – 29 Albert Street
Auckland 1010
New Zealand
Auditors
Ernst & Young
2 Takutai Square
Britomart
Auckland 1010
New Zealand
Share Registrar
Computershare Investor Services Limited
Private Bag 92119
Auckland 1142
New Zealand
159 Hurstmere Road
Takapuna
Auckland 0622
New Zealand
Managing your shareholding
Online
To change your address, update your payment
instructions and to view your investment portfolio
including transactions, please visit:
www.computershare.co.nz/investorcentre
General enquiries
Email: enquiry@computershare.co.nz
Telephone: +64 9 488 8777
Facsimile: +64 9 488 8787
Please assist our registrar by quoting your CSN or shareholder number.
2018
Annual Report
Skellerup
Skellerup Holdings Limited
L3, 205 Great South Road
Greenlane, Auckland 1051, New Zealand
PO Box 74526, Greenlane
Auckland 1546, New Zealand
E ea@skellerupgroup.com
T +64 9 523 8240
W www.skellerupholdings.com
SKELLERUP
2018 ANNUAL REPORT
---
APPENDIX 7 – NZSX Listing Rules
Number of pages including this one
(Please provide any other relevant
NZSX Listing Rule 7.12.2. For rights, NZSX Listing Rules 7.10.9 and 7.10.10. details on additional pages)
For change to allotment, NZSX Listing Rule 7.12.1, a separate advice is required.
Full name
of Issuer
Name of officer authorised to
Authority for event,
make this notice
e.g. Directors' resolution
Contact phone
Contact fax
numbernumber
Date
Nature of event
BonusIf ticked,
Rights Issue
Tick as appropriate
Issue
state whether:Taxable
/ Non TaxableConversionInterestRenouncable
Rights IssueCapitalCallDividend
If ticked, stateFull
non-renouncable
change
x
whether:
InterimYear
x
SpecialDRP Applies
EXISTING securities affected by this
If more than one security is affected by the event, use a separate form.
Description of theISIN
class of securities
If unknown, contact NZX
Details of securities issued pursuant to this eventIf more than one class of security is to be issued, use a separate form for each class.
Description of theISIN
class of securities
If unknown, contact NZX
Number of Securities toMinimum
Ratio, e.g
be issued following eventEntitlement
1 for 2 for
Conversion, Maturity, Call
Treatment of Fractions
Payable or Exercise Date
Tick if
provide an
pari passu
ORexplanation
Strike price per security for any issue in lieu or date
of the
Strike Price available.
ranking
Monies Associated with Event
Dividend payable, Call payable, Exercise price, Conversion price, Redemption price, Application money.
Source of
Amount per security
Payment
(does not include any excluded income)
Excluded income per security
(only applicable to listed PIEs)
Supplementary
Amount per security
Currencydividendin dollars and cents
details -
NZSX Listing Rule 7.12.7
Total monies
TaxationAmount per Security in Dollars and cents to six decimal places
In the case of a taxable bonusResident
Imputation Credits
issue state strike priceWithholding Tax(Give details)
Foreign
FWP Credits
Withholding Tax(Give details)
Timing
(Refer Appendix 8 in the NZSX Listing Rules)
Record Date 5pmApplication Date
For calculation of entitlements -Also, Call Payable, Dividend /
Interest Payable, Exercise Date,
Conversion Date. In the case
of applications this must be the
last business day of the week.
Notice DateAllotment Date
Entitlement letters, call notices,For the issue of new securities.
conversion notices mailedMust be within 5 business days
of application closing date.
OFFICE USE ONLY
Ex Date:
Commence Quoting Rights:Security Code:
Cease Quoting Rights 5pm:
Commence Quoting New Securities:Security Code:
Cease Quoting Old Security 5pm:
EMAIL: announce@nzx.com
Notice of event affecting securities
SKELLERUP HOLDINGS LIMITED
Graham LeamingBoard Resolution
021 271 920609 523 824115082018
Ordinary SharesNZSKXE0001S8
Enter N/A if not
applicable
In dollars and cents
Final Dividend ex Retained Earnings
$0.070
NZD$0.006794
$13,496,406
Date Payable
11 October 2018
$$0.013069$0.014972
11 October 201828 September 2018
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.
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