Background
Financial report

Notes to the consolidated financial
statement 2014/2015

General

Relationship with seperate company and principal activities
The Company, having its legal address in Joure, is a private limited liability company under Dutch law, with 100% of its shares held by the Association HZPC (Vereniging HZPC).

The Vompany is a holding company; the group is primarily involved in selling seed potatoes and of the related products and services.

The associated growers deliver the seed potatoes grown by them. The Company sells the delivered seed potatoes grown by them and receives a commission. In the Netherlands seed potatoes are grown by a pool-mechanism. Outside the Netherlands separate agreements have been made with growers.

Financial reporting period
These financial statements have been prepared for a reporting period of one year. The financial year of the company runs from 1 July up to and including 30 June of the next year.

Basis of preparation
The financial statements have been prepared in accordance with Title 9, Book 2 of the Netherlands Civil Code. The applied accounting policies are based on the historical cost convention.

Application of Section 402, Book 2 of the Netherlands Civil Code
The financial information of the company is included in the consolidated financial statements. For this reason, in accordance with Section 402, Book 2 of the Netherlands Civil Code, the separate profit and loss account of the company exclusively states the share of the result of participating interests after tax and the general result after tax.

Going concern
These financial statements have been prepared on the basis of the going concern assumption.

Accounting policies

General
The figures for 2013/2014 have been reclassified in order to make them comparable to current year’s presentation. It concerns the reclassification of income from licences of EUR 12,765,000 (FY 2013/2014 EUR 11,925,000) to net turnover because this revenue category is considered to be part of our normal operating activities. Previously these revenues were classified as other operating income. Other reclassifications have been included in order to adopt the functional model of the profit and loss statement.

Unless stated otherwise, assets and liabilities are shown at nominal value.

An asset is disclosed in the balance sheet when it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity and the cost of the asset can be measured reliably. A liability is recognised in the balance sheet when it is expected to result in an outflow from the entity of resources embodying economic benefits and the amount of the obligation can be measured with sufficient reliability.

Income is recognised in the profit and loss account when an increase in future economic potential related to an increase in an asset or a decrease of a liability has arisen, the size of which can be measured reliably.

Expenses are recognised when a decrease in the economic potential related to a decrease in an asset or an increase of a liability has arisen, the size of which can be measured with sufficient reliability.

If a transaction results in a transfer of future economic benefits and or when all risks relating to assets or liabilities transfer to a third party, the asset or liability is no longer included in the balance sheet. Assets and liabilities are not included in the balance sheet if economic benefits are not probable and/or cannot be measured with sufficient reliability.

Revenues and expenses are allocated to the period to which they relate. Revenues are recognized when the company has transferred the significant risks and rewards of ownership of the seed potatoes and ware potatoes to the buyer.

Licences are considered as income when third parties have exercised the right of the company’s assets.

The financial statements are presented in euros, the company’s functional currency. All financial information in euros has been rounded to the nearest thousand, unless indicated otherwise.

Use of estimates
The preparation of the financial statements requires the management to form opinions and to make estimates and assumptions that influence the application of principles and the reported values of assets and liabilities and of income and expenditure. Actual results may differ from these estimates. The estimates and the underlying assumptions are constantly assessed. Revisions of estimates are recognised in the period in which the estimate is revised and in future periods for which the revision has consequences.

The accounting policy on trade receivables is in the opinion of management the most critical for the purpose of presenting the financial position and require estimates and assumptions related to the customer credit risk which is dependent on the customer, the geographic region and economic circumstances.

Consolidation principles
The consolidated financial statements include the financial data of the company, its group companies and other companies over which the company has control. Control exists when the company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Group companies are participating interests in which the company has a direct or indirect controlling interest.

In assessing whether controlling interest exists, potential voting rights that are currently exercisable are taken into account. Group companies exclusively acquired with the view to resale within the foreseeable future are exempted from consolidation.

The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Joint venture are not consolidated but valued at net asset value.

In preparing the consolidated financial statements, intra-group debts, receivables and transactions are eliminated.
The Group companies are consolidated in full with minority interest presented within Group equity separate from shareholders’ equity.

Participating companies
HZPC Holland B.V. in Joure, is the seperate Company of the Group with the following

Participating interests (direct and indirect) per 30 June 2015

Consolidated: Interest:
• Stet Holland B.V., in Emmeloord, the Netherlands 100%
   
• Bonna Terra B.V., in Emmeloord, the Netherlands 100%
   
• ZOS B.V. in Leeuwarden, the Netherlands with its participation: 100%
     - ZOS WEHE B.V., in Wehe-den Hoorn, the Netherlands 100%
   
• Participatie Maatschappij Buitenland B.V. in Joure, the Netherlands with its participations: 100%
     - Huchette Cap Gris-Nez SAS, in La Chapelle d’Armentieres, France with its participation: 100%
        * Fleur de Lys - Huchette SARL, in La Chapelle d’Armentieres, France 100%
     - Patatas HZPC España S.L., in Torrent, Spain 100%
     - HZPC Portugal Lda, in Mira, Portugal 100%
     - HZPC Americas Corp., in Charlottetown, Canada 100%
     - HZPC UK Ltd., in Crowle Scunthorpe, United Kingdom 100%
     - HZPC Deutschland GmbH, in Eydelstedt, German 100%
     - HZPC Polska Sp. z o.o., in Poznan, Poland 100%
     - HZPC América Latina, in Buenos Aires S.A., Argentina 80%
     - HZPC Kantaperuna Oy, in Tyrnävä, Finland 100%
     - HZPC Sverige AB, in Lidkoping, Sweden 100%
     - HZPC China Ltd, in Hongkong, China 100%
     - HZPC Ltd, in Hongkong, China 100%
     - Solentum B.V., in Joure, the Netherlands 100%
   
Not consolidated:  
• D.S.S. Opslag B.V., in Dronten, the Netherlands 50%
• Semillas SZ S.A., in Santiago, Chile 20%
• HZPC Sadokas Oy (Joint Venture), in Tyrnävä, Finland, with its participation: 41%
     - ZAO HZPC Sadokas Oy in Saint-Petersburg, Russia 100%
• HZPC Mahindra, in Chandigarh, India (Joint Venture) 40%

Principles for the translation of foreign currency

Transactions in foreign currencies
Transactions denominated in foreign currency are translated into the relevant functional currency of the group companies at the exchange rate applying on the transaction date.

Monetary assets and liabilities denominated in foreign currency are translated at the balance sheet date into the functional currency at the exchange rate applying on that date. Translation gains and losses are taken to the profit and loss account as expenditure. Non-monetary assets and liabilities in foreign currency that are stated at historical cost are translated into euros at the applicable exchange rates applying on the transaction date.

Non-monetary assets and liabilities in foreign currency that are stated at fair value are translated into euros at the applicable exchange rates at the registering date when the fair value was measured.

Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated into euros at exchange rates applying on the balance sheet date. Income and expenses of foreign operations are translated into euros at the exchange rate applying on the transaction date.

Translation gains and losses are taken to reserve for translation difference. If a foreign operation is fully or partially sold, the respective amount is transferred from the reserve for translation difference to the profit and loss account.

Developments most important foreign exchange currencies
The development of the foreign exchange rate of the most important currencies:

  Exchange rate   Exchange rate
EUR 1 versus Foreign exchange 30-06-15 Average rate 30-06-14
Canadian Dollar 1.393 1.408 1.458
British Pound 0.714 0.760 0.801
Polish Zloty 4.195 4.167 4.158
American Dollar 1.123 1.205 1.369
South-African Rand 13.737 13.718 14.567

 

Financial instruments
Financial instruments include investments in shares, trade and other receivables, cash items, loans and other financing commitments, derivative financial instruments, trade payables and other amounts payable. These financial statements contain the following financial instruments: financial instruments held for trading (financial assets and liabilities), loans and receivables (both purchased and issued), equity instruments, other financial liabilities and derivatives. Financial instruments also include derivate financial instruments embedded in contracts.

Derivative instruments embedded in contracts that are not separated from the host contract because they do not meet the above conditions, are recorded in the same way as the host contract. Financial instruments are initially stated at fair value, including discount or premium and directly attributable transaction costs. However, if financial instruments are subsequently measured at fair value through profit and loss, then directly attributable transaction costs are directly recognized in the profit and loss account.

The fair value of a financial instrument is the amount for which an asset could be traded or a liability could be settled between two well-informed parties that are independent of each other and willing to enter into a transaction.

The fair value of unlisted financial instruments is determined by discounting the expected cash flows at a discount rate equal to the prevailing risk-free market interest rate for the remaining term, plus credit and liquidity spreads. Given the nature and the short-term nature of the ‘financial instruments’ carrying amount does not differ significantly from the fair value.

After initial recognition, financial instruments are valued in the manner described below.

Financial instruments held for trading
Financial instruments (assets and liabilities) held for trading are carried at fair value and changes in the fair value are recognised in the profit and loss account.

Loans granted and other receivables
Loans granted and other receivables are carried at amortised cost on the basis of the effective interest method, less impairment losses.

Current liabilities and other financial obligations
Current liabilities and other financial obligations are carried at amortised cost on the basis of the effective interest method.

Impairment of financial assets
A financial asset that is not stated at (1) fair value with value changes reflected in the profit and loss account, or at (2) amortised cost or lower market value, is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, with negative impact on the estimated future cash flows of that asset, which can be estimated reliably.

Objective evidence that financial assets are impaired includes default or delinquency by a debtor, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers, indications that a debtor or issuer is approaching bankruptcy, or the disappearance of an active market for a security.

An impairment loss in respect of a financial asset stated at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in the profit and loss account.

When, in a subsequent period, the amount of an impairment loss decreases, and the decrease can be related objectively to an event occurring after the impairment was recognised, the decrease in impairment loss is reversed through profit or loss (up to the amount of the original cost).

Intangible fixed assets

Goodwill
Goodwill represents the excess of the cost of the acquisition over the company’s interest in the net realizable value of the assets acquired and the liabilities assumed at the transfer date, less cumulative amortization and impairment losses.

Goodwill paid upon the acquisition of foreign group companies and subsidiaries is translated at the exchange rates at the date of acquisition. The capitalized goodwill is amortized on a straight-line basis over an estimated useful life of five years.

Software
Software is stated at cost less accumulated amortisation and impairment losses. The capitalised amount is amortised on a straight-line basis during the three-year term period.

Development cost
Development costs are capitalised in so far as incurred in respect of potentially profitable projects. The development of an intangible fixed asset is considered commercially profitable if the following conditions are:

  • the completion of the asset is technically feasible,
  • the Company has the intention of completing the asset and then of using or selling it,
  • the Company has the ability to use or sell the asset, it is probable that the asset will generate future economic benefits, and
  • the costs during the development phase can be determined reliably.

Development costs are stated at production cost, less accumulated amortisation and impairment losses.

The Company has not capitalized development cost as the criteria for capitalization has not been met. The cost for development and other cost for research has been fully charged to the result in the period in which they are incurred.

Tangible fixed assets
Land and buildings, plant and equipment and other fixed operating assets are stated at cost, less accumulated depreciation and impairment losses.

The cost consists of the price of acquisition or manufacture, plus other costs that are necessary to get the assets to their location and condition for their intended use. The cost of self-constructed assets includes the cost of materials and consumables and other costs that can be directly allocated to the construction.

Government grants are deducted from the cost price of the assets to which the grants relate.

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each item of the tangible fixed assets. Land is not depreciated.

The following depreciation percentages are applied:

• Buildings: 4% - 20%
• Plant and equipment: 10% - 33 1/3%
• Other fixed operating assets: 10% - 33 1/3%

Maintenance expenditures are only capitalised when the maintenance leads to extension of the useful life of the asset.

Assets that are taken out of service are stated at the lower of book value or net realizable value.

Financial fixed assets
Participating interests where significant influence is exercised over the business and financial policy are valued according to the equity method on the basis of net asset value. Participating interests where the company exercises control along with other participants, such as in joint ventures, are valued in the same way.

The net asset value is calculated on the basis of the Company’s accounting policies. Results on transactions involving transfer of assets and liabilities between the Company and its participating interests and mutually between participating interests are eliminated to the extent that these cannot be regarded as having been realised.

Participating interests with a negative net asset value are valued at nil. If the Company fully or partially guarantees the debts of the relevant participating interest, or if has the constructive obligation to enable the participating interest to pay its debts (for its share therein), then a provision is recognised accordingly to the amount of the estimated payments by the company on behalf of the participating interest. This provision is recognised primarily to the debit of the receivables on the respective participating interest and for the remainder is presented under provisions.
Participating interests where no significant influence is exercised are stated at the lower of cost or realisable value. In case of a firm intention to sell, then the participating interest is stated at the lower expected sales value.

Loans to non-consolidated participating interest are included at amortised cost using the effective interest method, less impairment losses.

The accounting policies for other financial fixed assets are included under the heading ‘Financial instruments’.

Dividends are accounted for in the period in which they are declared. Interest income is recognised in the profit and loss account on an accrual basis, using the effective interest rate method. Any profit or loss is recognised under financial income or expenses.

Impairment
For tangible and intangible fixed assets an assessment is made as of each balance sheet date as to whether there are indications that these assets are subject to impairment. If there are such indications, then the recoverable value of the asset is estimated. The recoverable value is the higher of the value in use and the net realizable value. If it is not possible to determine the recoverable value of an individual asset, then the recoverable value of the cash flow generating unit to which the asset belongs is estimated.

If the carrying value of an asset (or a cash flow generating unit) is higher than the recoverable value, an impairment loss is recorded for the difference between the carrying value and the recoverable value. In case of an impairment loss of a cash flow generating unit, the loss is first allocated to goodwill that has been allocated to the cash flow generating unit. Any remaining loss is allocated to the other assets of the unit in proportion to their carrying values. In addition an assessment is made on each balance sheet date whether there is any indication that an impairment loss that was recorded in previous years has decreased. If there is such indication, then the recoverable value of the related asset (or cash flow generating unit) is estimated.

Reversal of an impairment loss that was recorded in the past only takes place in case of a change in the estimates used to determine the recoverable value since the recording of the last impairment loss. In such case, the carrying value of the asset (or cash flow generating unit) is increased up to the amount of the estimated recoverable value, but not higher than the carrying value that would have applied (after depreciation) if no impairment loss had been recorded in prior years for the asset (or cash flow generating unit).

An impairment loss for goodwill is not reversed in a subsequent period, unless the previous impairment loss was caused by an extraordinary specific external event that is not expected to recur and if there are successive external events that undo the effect of the earlier event.

Disposal of fixed assets
Fixed assets available for sale are stated at the lower of their carrying amount and net realisable value.

Inventories
Raw materials and consumables are carried at the lower of cost, determined in accordance with the first-in, first-out (FIFO) principle, and market value.

The inventories of mini-tubers which have been grown by the Company Itself, is stated at cost directly attributable to production. The main part of this is personnel expenses.

The valuation of inventories includes possible impairments that arise on the balance sheet date.

Receivables and securities
The accounting policies applied for the valuation of trade and other receivables and securities are described under the heading ‘Financial instruments’.

Shareholders’ equity
Financial instruments that are designated as equity instruments by virtue of the economic reality are presented under shareholders’ equity. Payments to holders of these instruments are deducted from the shareholders’ equity as part of the profit distribution.

Financial instruments that are designated as a financial liability by virtue of the economic reality are presented under liabilities. Interest, dividends, income and expenditure with respect to these financial instruments are recognised in the profit and loss as financial income or expense.

Provisions

General
A provision is recognized if the following applies:

  • the Company has a legal or constructive obligation, arising from a past event;
  • the amount can be estimated reliably; and
  • it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation.

If all or part of the payments that are necessary to settle a provision are likely to be fully or partially compensated by a third party upon settlement of the provision, then the compensation amount is presented separately as an asset.

Provisions are stated at the nominal value of the expenditures that are expected to be required to settle the liabilities and losses.

Provision pension and for long service
A provision for pension and for long service is included for the obligations based on pension administration regulations or similar commitments by the Company. The long-service provision is the provision for future long-service awards. The provision is recognised for the present value of the future long-service awards, which is calculated on the basis of the commitments made, the likelihood of the staff concerned remaining with the Company, and their age. See also the accounting principles wages and salaries and note 11 to the consolidated balance sheet.

Current liabilities
The valuation of current liabilities is explained under the heading ‘Financial instruments’.

Revenue recognition

Sales of seed potatoes and ware potatoes
Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates. Revenue from the sales of seed potatoes is recognized when the significant risks and rewards of ownership have been transferred to the buyer, recovery of consideration is probable, the associated costs and possible return of the potatoes can be estimated reliably, and there is no continuing involvement with the potatoes.

The transfer of risks and benefits varies according to the conditions of the relevant sales contract.

Rendering of services
Revenues from services rendered, as grading and sorting, are recognised in the profit and loss account when the revenue amount can be determined in a reliable manner, collection of the related compensation to be received is probable, the extent to which the services have been performed on the balance sheet date can be determined reliably, and the costs already incurred and (possibly) yet to be incurred to complete the service can be determined reliably.

Licences
Licences are paid when third parties have exercised the right of the Company’s assets like varieties developed by the company. In case the group acts on behave of third parties developed varieties, the net turnover is included after the deduction of the payments to these third parties as the Company does not bare the customer credit risk on these licences.

Government grants
Government grants are initially recognised in the balance sheet as deferred income when there is reasonable assurance that they will be received and the Group will comply with the conditions associated with the grant. Grants that compensate the Group for expenses incurred are recognized in the profit and loss on a systematic basis in the same period in which the expenses are recognised. Grants that compensate the Group for the cost of an asset are recognized in the profit and loss account on a systematic basis over the useful life of the asset.

Costs of outsourced work and other external costs
This concerns costs that are directly attributable to net turnover such as cost of trade goods, services, transport, loading and packaging. The cost for development and other cost for research has been fully charged to the result during which they are incurred.

Share in result of participating interests
The share in the result of participating interests consists of the share of the group in the results of these participating interests, determined on the basis of the accounting principles of the group. Results on transactions, where the transfer of assets and liabilities between the group and the non-consolidated participating interests and mutually between non-consolidated participating interests themselves, are not recognised as they can be deemed as not realised.

The results of participating interests acquired or sold during the financial year are stated in the group result from the date of acquisition or until the date of sale respectively.

Personnel expenses
The rewards of the personnel as an expense is recognized in the profit and loss account in the period the services provided and to the extent not already paid, recognized as a liability on the balance sheet. If the amounts already paid exceed the compensation payable, the excess is recorded as a current asset to the extent that there will be reimbursed by the staff or by set-off against future payments by the Company.

An expected compensation due to profit sharing and bonus payments are recognized when the obligation to pay that fee has arisen can be made on or before the balance sheet date and a reliable estimate of the liabilities. For rewards with building rights, profit sharing and bonuses of the projected costs are taken into account during the service. On the balance sheet date is incorporated a liability. The recognized obligation relates to the best estimate of the amounts required to settle the obligation at the balance sheet date. The best estimate is based on contractual agreements with employees (collective bargaining agreements and individual employment contracts). Additions to and releases of liabilities are charged or credited to the profit and loss account.

Dutch Pension scheme
The pension commitments are placed with a pension insurer. The pension scheme is of such a nature that the actuarial risks are covered by the pension insurer. In the annual accounts, the owed premiums are included as costs in the profit and loss account; insofar the periodic owed premiums have not yet been paid, they are included as a liability on the balance sheet. The main principle is that the pension charge to be recognised for the reporting period should be equal to the pension contributions payable to the pension fund over the period. In so far as the payable contributions have not yet been paid as at balance sheet date, a liability is recognised. If the contributions already paid exceed the payable contributions as at balance sheet date, a receivable is recognised to account for any repayment by the fund or settlement with contributions payable in future.

Foreign pension plans
Pension plans that are comparable in design and functioning to the Dutch pension system, having a strict segregation of the responsibilities of the parties involved and risk sharing between the said parties (company, fund and members) are recognized and measured in accordance with Dutch pension plans (see previous section).

For foreign pension plans that are not comparable in design and functioning to the Dutch pension system, a best estimate is made of the commitment as at balance sheet date. This commitment should then be stated on the basis of an actuarial valuation principle generally accepted in the Netherlands.

Leasing
The Company may enter into financial and operating leases. A lease contract where the risks and rewards associated with ownership of the leased property are transferred substantially all to the lessee, is referred to as a financial lease. All other leases are classified as operating leases. In classifying leases, the economic reality of the transaction is decisive rather than its legal form.

If the Company acts as lessee in an operating lease, then the leased property is not capitalised. Lease payments regarding operating leases are charged to the profit and loss account on a straight-line basis over the lease period. The Company has only operational lease agreements.

Corporate income Tax
Corporate income tax comprises the current and deferred corporate income tax payable and deductible for the reporting period. Corporate income tax is recognized in the profit and loss account except to the extent that it relates to items recognized directly to equity, in which case it is recognized in equity.

Current tax comprises the expected tax payable or receivable on the taxable profit or loss for the financial year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to the tax payable in respect of previous years.

If the carrying values of assets and liabilities for financial reporting purposes differ from their values for tax purposes (tax base), this results in temporary differences. A provision for deferred tax liabilities is recognized for taxable temporary differences.

For deductible temporary differences, unused loss carry forwards and unused tax credits, a deferred tax asset is recognized, but only in so far as it is probable that taxable profits will be available in the future for offset or compensation.

Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that the related tax benefit will be realized.

For taxable temporary differences related to group companies, foreign branches, associates and interests in joint ventures, a deferred tax asset is recognized unless the Company is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

For deductible temporary differences regarding group companies, foreign branches, associates and interests in joint ventures, a deferred tax asset is only recognized in so far as it is probable that the temporary difference will reverse in the foreseeable future and that taxable profit will be available to offset the temporary difference. Deferred tax assets and liabilities are stated at nominal value.

Cash flow statement
The cash flow statement is prepared using the indirect method. Cash flows in foreign currency are translated into euros using the weighted average exchange rates at the dates of the transactions.

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