Statutory provisions on profit appropriation
Pursuant to article 27 of the articles of association of Royal HZPC Group B.V., a percentage of the company's profit to be determined by the Executive Board with the approval of the Supervisory Board can be added to the reserves while the undischarged losses of previous years are deducted along with the taxes which are, or will be, charged on the basis of the profit, which may be established by means of an estimate if necessary. The remaining profit is available for disposal at the discretion of the General Meeting of Shareholders. The company can only make payouts of profit available for paying out to the shareholders and any other parties that may be thus entitled to the extent that the shareholders' equity is greater than the paid and called-up part of the capital augmented with the reserves that must be maintained by law or under the articles of association.
Events after balance sheet date
In September 2023, Royal HZPC Group B.V. was targeted by a form of cybercrime. A large amount was transferred by criminals to their bank account. It is now known that the amount is in a blocked bank account and thus out of the hands of criminals. Due to the progress of the investigation initiated, the amount has not yet been returned to our bank account and is therefore not at our free disposal at this time.
Independent auditor's report
The following is an English translation of the independent auditor’s report issued 19 October 2023
To: the shareholders and supervisory board of Royal HZPC Group B.V.
Report on the audit of the financial statements 2022/2023 included in the annual report
Our opinion
We have audited the financial statements for the financial year ended 30 June 2023 of Royal HZPC Group B.V. based in Joure.
In our opinion, the accompanying financial statements give a true and fair view of the financial position of Royal HZPC Group B.V. as at 30 June 2023 and of its result for the period 1 July 2022 to 30 June 2023 in accordance with Part 9 of Book 2 of the Dutch Civil Code.
The financial statements comprise:
- the consolidated and company balance sheet as at 30 June 2023
- the consolidated and company profit and loss statement for the period 1 July 2022 to 30 June 2023
- the notes comprising a summary of the accounting policies and other explanatory information.
Basis for our opinion
We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the 'Our responsibilities for the audit of the annual accounts' section of our report. We are independent of Royal HZPC Group B.V. as required by the Accounting Organisations Supervision Act (Wta), the ‘Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten’ (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. Furthermore, we have complied with the ‘Verordening gedrags- en beroepsregels accountants’ (VGBA, Dutch Code of Ethics).
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Information in support of our opinion
We designed our audit procedures in the context of our audit of the financial statements as a whole and in forming our opinion thereon. The following information in support of our opinion and any findings were addressed in this context, and we do not provide a separate opinion or conclusion on these matters.
Our focus on fraud and non-compliance with laws and regulations
Our responsibility
Although we are not responsible for preventing fraud or non-compliance and we cannot be expected to detect non-compliance with all laws and regulations, it is our responsibility to obtain reasonable assurance that the financial statements, taken as a whole, are free from material misstatement, whether caused by fraud or error.
Our audit response related to fraud risks
We identified and assessed the risks of material misstatements of the financial statements due to fraud. During our audit we obtained an understanding of the company and its environment and the components of the system of internal control, including the risk assessment process and management’s process for responding to the risks of fraud and monitoring the system of internal control and how the supervisory board exercises oversight, as well as the outcomes.
We refer to the Risk Management section in the management report for management’s (fraud) risk assessment.
We evaluated the design and relevant aspects of the system of internal control and in particular the fraud risk assessment, as well as the code of conduct, whistle blower procedures and incident registration of the Integrity Council. We evaluated the design and the implementation of internal controls designed to mitigate fraud risks.
As part of our process of identifying fraud risks, we evaluated fraud risk factors with respect to financial reporting fraud, misappropriation of assets and bribery and corruption. We evaluated whether these factors indicate that a risk of material misstatement due to fraud is present.
We incorporated elements of unpredictability in our audit. We also considered the outcome of our other audit procedures and evaluated whether any findings were indicative of fraud or non-compliance.
As in all of our audits, we addressed the risks related to management override of controls. For these risks we have performed procedures among others to evaluate key accounting estimates for management bias that may represent a risk of material misstatement due to fraud, in particular relating to important judgment areas and significant accounting estimates as disclosed in the section ‘Use of estimates’ on page 81 in the financial statements. We have also used data analysis to identify and address high-risk journal entries and evaluated the business rationale (or the lack thereof) of significant extraordinary transactions. Additionally, in order to respond to the identified risk of management override of controls with regard to the capitalized development costs for the new ERP-system, we examined whether the expenditure meets the criteria for capitalization.
When identifying and assessing fraud risks we presumed that there are risks of fraud in revenue recognition, in particular with regard to the recognition of revenue in the correct financial year. We considered among others the company’s result objectives and its realization. We designed and performed our audit procedures relating to revenue recognition responsive to this presumed fraud risk.
Specifically for the risk related to commission payments to agents, we have paid attention to the services agreed in writing and the amount of the associated remuneration.
These risks did however not require significant auditor’s attention The following fraud risk identified did require significant attention during our audit.
Risks in the management estimation of the allowance for doubtful debts
| Fraud risk |
At the balance sheet date, the size of the outstanding trade receivables is significant. Customers have a strong geographical spread and pay relatively late for their seed potatoes. The management has an important role in the estimation process of the collectability of the trade receivables and thus the amount of the allowance for doubtful debts. In our audit, we took into account the risk that the management could breach internal control measures in the assessment of the allowance for doubtful debts leading to a material misstatement. Trends or interests may influence the outcome of the estimation. That is why we have identified a fraud risk for the valuation of the allowance. The trade receivables and the credit risk are explained in note 5 and note 14 of the financial statements (page 102 and page 106 of the annual report respectively). In note 5 in the notes to the consolidated balance sheet, management describes that there is uncertainty about the collectability of € 6.4 million trade receivables from high-risk and ultra-high-risk countries. | |
| Our audit approach | We performed among others the following audit procedures, directed specifically this fraud risk: • We have gained an understanding of the design and existence of internal control with regard to the determination of the allowance for doubtful debts. • We have verified the management's estimate on the basis of underlying (source) documentation, including bank receipts after the balance sheet date. • Based on a retrospective assessment of the allowance for doubtful debts in the 2022-2023 financial statements, we have audited the quality of the management's assessment process. • We have discussed the background of material outstanding trade receivables with account managers, sales management and group management and, where possible, verified with underlying source documentation. • We have audited the disclosures in the financial statements. |
We considered available information and made enquiries with members of management, the Integrity Council and the supervisory board. We refer to notes in the section 'Events after balance sheet date' on page 125 where it has been explained that a cyber incident has occurred after the end of the financial year. We have taken note of the design and execution of the internal investigation.
The fraud risks we identified, enquiries and other available information did not lead to specific indications for fraud or suspected fraud potentially materially impacting the view of the financial statements.
Our audit response related to risks of non-compliance with laws and regulations
We performed appropriate audit procedures regarding compliance with the provisions of those laws and regulations that have a direct effect on the determination of material amounts and disclosures in the financial statements. Furthermore, we assessed factors related to the risks of non-compliance with laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general industry experience, through our experience in the sector, discussions with management, reading minutes, inspection of internal investigations, and performing substantive tests of details of classes of transactions, account balances or disclosures.
We identified the following risk of non-compliance with laws and regulations and we performed the following procedures.
Risks of non-compliance with laws and regulations due to third-party payments
| Fraud risk |
Part of HZPC's revenue comes from countries where sanctions apply and customers experience problems when transferring funds to HZPC, on the basis of which third parties are deployed, whether or not through intermediaries. We considered non-compliance with anti-corruption laws in high-risk countries, including the use of intermediaries and unwittingly cooperating in terrorist financing or money laundering by receiving funds through unknown third parties, as a risk in our audit. Note 15 in the financial statements contains a disclosure on third-party payments. The risks with regard to compliance with laws and regulations, including developments in the financial year 2022-2023, are explained in the annual report on page 59. |
|
| Our audit approach |
We performed among others the following audit procedures, directed specifically this fraud risk, where the planning and execution took place in collaboration with our forensic specialists: • We have gained an understanding of the design and existence of internal control around third-party payments. • Performing analytical procedures and transaction tests on third-party payments. • Taking note of internally conducted investigations into third-party payments and irregularities in the financial year 2022-2023, including the background checks carried out on external parties involved in the third-party payments. • Taking note of legal opinions. • We have inquired management and members of the supervisory board as well as the company's external legal counsel about possible or suspected violations of laws and regulations relating to third-party payments, including the status of ongoing investigations. To confirm the results of those investigations, we verified the information received with underlying source documentation. |
We also inspected lawyers’ letters and remained alert to any indication of (suspected) non-compliance throughout the audit. Finally we obtained written representations that all known instances of non-compliance with laws and regulations have been disclosed to us.
We have evaluated the adequacy of the disclosures in note 15 of the financial statements and on page 59 of the annual report on third-party payments and irregularities. We have examined whether these disclosures reflect the current status of the main investigations regarding suspected violations of laws and regulations and possible irregularities, including unwittingly cooperating in terrorist financing or money laundering by receiving funds through unknown third parties. The explanatory notes show that not all identified risks have been completely eliminated, the possible impact of which we have weighed for our opinion.
Our audit response related to going concern
Management made a specific assessment of the company’s ability to continue as a going concern and to continue its operations for the foreseeable future. As disclosed in section ‘Going concern’ on page 80 of the financial statements, the current financing agreement runs till 6 October 2024 and the company has started discussions with banks to obtain a new financing agreement. The financial statements have been prepared on a going concern basis.
We discussed the specific assessment with management, taken note of underlying correspondence with banks and evaluated it professionally and critically, and in particular the management's assumption that the refinancing will be arranged before 6 October 2024. We considered whether management’s going concern assessment, based on our knowledge and understanding obtained through our audit of the financial statements or otherwise, contains all relevant events or conditions that may cast significant doubt on the company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion.
Based on our procedures performed, we did not identify material uncertainties about going concern. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause a company to cease to continue as a going concern.
Report on other information included in the annual report
The annual report contains other information in addition to the financial statements and our auditor’s report thereon.
Based on the following procedures performed, we conclude that the other information:
- is consistent with the financial statements and does not contain material misstatements
- contains the information as required by Part 9 of Book 2 of the Dutch Civil Code for the management report and the other information as required by Part 9 of Book 2 of the Dutch Civil Code.
We have read the other information. Based on our knowledge and understanding obtained through our audit of the financial statements or otherwise, we have considered whether the other information contains material misstatements. By performing these procedures, we comply with the requirements of Part 9 of Book 2 of the Dutch Civil Code and the Dutch Standard 720. The scope of the procedures performed is substantially less than the scope of those performed in our audit of the financial statements.
Management is responsible for the preparation of the other information, including the management report in accordance with Part 9 of Book 2 of the Dutch Civil Code and other information required by Part 9 of Book 2 of the Dutch Civil Code.
Description of responsibilities regarding the financial statements
Responsibilities of management and the supervisory board for the financial statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with Part 9 of Book 2 of the Dutch Civil Code. Furthermore, management is responsible for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.
As part of the preparation of the financial statements, management is responsible for assessing the company’s ability to continue as a going concern. Based on the financial reporting framework mentioned, management should prepare the financial statements using the going concern basis of accounting unless management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so. Management should disclose events and circumstances that may cast significant doubt on the company’s ability to continue as a going concern in the financial statements.
The supervisory board is responsible for overseeing the company’s financial reporting process.
Our responsibilities for the audit of the financial statements
Our objective is to plan and perform the audit engagement in a manner that allows us to obtain sufficient and appropriate audit evidence for our opinion.
Our audit has been performed with a high, but not absolute, level of assurance, which means we may not detect all material errors and fraud during our audit.
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. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion.
We have exercised professional judgment and have maintained professional skepticism throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. The ‘Information in support of our opinion’ section above includes an informative summary of our responsibilities and the work performed as the basis for our opinion. Our audit included among others:
- Identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, designing and performing audit procedures responsive to those risks, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control
- Obtaining an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control
- Evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management
- Evaluating the overall presentation, structure and content of the financial statements, including the disclosures
- Evaluating whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Because we are ultimately responsible for the opinion, we are also responsible for directing, supervising and performing the group audit. In this respect we have determined the nature and extent of the audit procedures to be carried out for group entities. Decisive were the size and/or the risk profile of the group entities or operations. On this basis, we selected group entities for which an audit or review had to be carried out on the complete set of financial information or specific items.
Communication
We communicate with the supervisory board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant findings in internal control that we identify during our audit.
Groningen, 19 October 2023
Ernst & Young Accountants LLP
J.J. Kooistra
