Inventory Stocktake Policy

1 Introduction

Hilton Foods APAC (HFAPAC) operate fast-moving meat packing plants with a wide range of
consumer product and ingredient activities and spare parts.
These operations by their very nature have individually and collectively high levels of
inventories ranging from raw materials through to finished products.
Because of the similarities in the range of inventory types, manufacturing processes,
methods of storing inventories and management practices between the various Hilton Foods
APAC sites it is appropriate to have a definitive Hilton APAC Physical Inventory Stocktake
Accounting Policy.

2 Purpose and Scope

This Policy outlines the process and mandatory guidelines required to
- Prescribe the minimum parameters to be observed in inventory counting in carrying
out Physical Inventory Stocktakes,
- Ensure inventory balances in SAP and RGC are accurate, and
- Stock adjustments and any stock write-offs in SAP and RGC are processed correctly
and approved as per this policy.
The policy is designed to work in conjunction with HFAPAC’s inventory stocktake and
reconciliation procedures.
The stock management rules and protocols to be followed by all stakeholders across all
plants are designed to ensure the following:

i. The integrity of the stocktake process is not compromised and is performed

independently at the local site level;
ii. Stock gains and losses are captured at all locations and in a timely manner
iii. Accurate weekly financial reporting capturing all inventory adjustments;
iv. Assist in the management of obsolete stock and slow-moving stock at risk;
v. This guideline applies to Raw Material, Ingredients, Packaging, Spare Parts, Pallets,
Crates & Bins;
vi. Understand when you do and do not need customer approval to write-off,
downgrade, or dump inventory;
vii. Understand the correct communication process when adjusting or writing off stock;
viii. Physical stock on hand at each plant and third-party locations is accurately reported in
both SAP and Vision;

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This Procedure applies to all staff responsible for the accuracy of inventory reported in
SAP and RGC which includes but is not limited to staff performing daily and weekly
stocktakes, cycle counts, reconciliations and management approving stock adjustments or
write-offs.

3 Inventory Transactions
The following inventory transactions processed within the day to day operations of HFA /
HFNZ are captured by these guidelines. Where any transaction results in a financial
adjustment then a “Stock Adjustment Approval Form” must be completed and approved
(see Appendix):

A. Conversion of 1 material to another – required when substituting product into a

work order or downgrading a product to a lower valued article.
B. Goods issue to cost centre
C. Writing on or establishing stock – NOT TO BE USED unless approved by Site Finance
Manager where it is an urgent situation and stock has not been receipted in
correctly.
D. Return to vendor – to correct the stock in the system if returned to the supplier
E. Stock balance corrections
F. Stocktake adjustments – NOT TO BE USED unless approved by Site Finance
Manager where it is an urgent situation that cannot be rectified by any other
means.
G. Stocktake postings
H. Write off of stock – used when stock is obsolete or has been dumped or cannot be
located.

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Key Processes

The following diagram provides an overview of the process and key controls of the
HFA/HFNZ stock reconciliation procedures.

Inventory categories covered

Packaging Reconciliation processes covered
Ingredients
Primal Daily SAP to Vision reconciliation Reports
Finished Goods Weekly packaging and ingredients stock
Spare Parts takes Stock take count sheets
Crates Stocktake of stock locations not in Vision eg. LX02 - inventory sub-ledger of all stock
offsite or freezer locations in SAP - doesnt include packaging
Pallets
Reconciliation of clearing locations eg. Scrap Stock adjustment and write off reporting
FB4 bins and Returns, staging etc
Monthly Spare Parts listing by site
Monthly RGC Spare parts reconciliation to
SAP RGC spare parts purchase orders
Weekly slow moving stock at risk reviews STO reporting
MB52 - includes all stock and financial values
HFAPAC Weekly Inventory Reporting

4 Valuation Policy
Accounting Policies Adopted in Preparation of Financial Report

Inventories
Accounting valuation approach:

(a) Inventories are stated at the lower of cost and net realisable value.
(b) Cost is determined on a standard cost, manufactured inventory and work in progress
includes applicable variable and fixed factory overhead costs, the latter being
allocated on the basis of normal operating capacity.
(c) Net realisable value is selling price less costs to sell. Adequate provision is made for
slow moving and obsolete inventory.

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5 STOCKTAKE
A rigorous cycle counting system should be established to ensure that all inventories are
counted to substantiate the value of inventories carried.
Cycle counts must be done weekly for each category. It is recommended a specific days is set
each week to conduct cycle counts for each category . E.g. Packaging – Monday, Ingredients –
Tuesday etc.
Primals and FG stock take will be done via sample testing to ensure stock accuracy in the
miniload.
Crates and pallet counts which are performed on a regular process through the month should
be reported through to Finance before month end for audit and internal control purposes. .
5.1 Inventories are to be critically reviewed (full stocktake of Ingredients and
packaging) at a minimum at each financial reporting month and prudent
provisions raised for obsolescence.
5.2 For offsite locations a complete physical count of the inventories must be carried
out monthly by either Hilton Foods staff or the 3PL provider
5.3 Counts are to be undertaken in accordance with detailed, and documented
procedures which are approved in writing by APAC Corporate Finance Manager
and/or APAC Finance Director. (See Appendix)
5.4 Adequate written instructions must be issued prior to the physical inventory
count, with detailed briefings held for personnel involved in the count.
5.5 Each Counting Team is to comprise a minimum of two persons and must involve a
site finance personal at least once a quarter.
5.6 Goods in transit, stocks at third party warehouses and work in progress are to be
counted to the extent practical and where this is not practical they should be
confirmed in writing with the relevant third party.
5.7 Stocks owned by third parties but held by sites (consignment stocks) are to be
excluded from inventories. But stock takes must be performed by the 3rd party
preferably on a monthly basis and the counts sent to the relevant inventory
controller & planning.
5.8 Physical count balances are to be reconciled in writing with control accounts by
the Inventory Team Leader at site.
5.9 Independent checks as to the reasonableness of counts, such as comparison to
material control or similar records must be performed. Recounts should be
performed when there are variances to SAP stock quantities and / or the process
error resolved in SAP before posting.
5.10 These reconciliations are to be sent to the relevant Site Finance Manager for
audit purposes
5.11 Inventories are to be valued on a consistent basis with the previous period.
5.12 Where inventory items are physically counted the inventory is to be pre-arranged
to ensure that adequate lead time has been allowed to identify and facilitate the
accurate counting of the inventory.

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 5.13 The accuracy of scales, electronic devices and any pre-determined measurement
factors must be verified for accuracy prior to and during any physical inventory
stocktake.
5.14 Packaging, shipping material and spare parts are to be subject to the same
procedures and practices as product inventories in the Site with additional
requirements set out in section 6.

6 Engineering Spare parts

A rigorous cycle counting system should be established to ensure that all inventories are
counted to substantiate the value of inventories carried.
6.1 Each site is to perform cycle counts on a weekly basis.
6.2 A cycle count list is generated from RGC and used during the counts.
6.3 All engineering spares must be counted at least twice during the year (January -
December) with the top 20% of spares at site by $ counted every quarter.
6.4 Each Counting Team is to comprise a minimum of two persons (where possible)
and must involve a site finance personal at least once a quarter.
6.5 Physical count balances are to be reconciled in writing with RGC by the
Maintenance planner on site.
6.6 Independent checks as to the reasonableness of counts, such as comparison to
minimum stock levels or similar records must be performed. Recounts are
performed when variances from physical counts exceed designated levels.
6.7 Engineering need to keep a record of when spares were last counted to ensure all
spares have been counted at least twice in the year and high value spares (top
20% of spares) counted every quarter.
6.8 Records of weekly stocktakes/cycle counts are to be sent to Site Finance
Managers when completed for Audit purposes
6.9 All PO’s raised for spare parts in RGC need to follow HFAPAC delegated authority
and attain approvals via email before placing orders with suppliers.
6.10 Site Finance Managers are to check a minimum of 5 spare parts invoices to RGC
every month to ensure $ values recorded in RGC are accurate and in the correct
currency. The invoices need to be attached to the monthly balance sheet
reconciliations and sent to Head of Commercial Finance and APAC Corporate
Finance Manager on working day 12 of every month.
6.11 As part of the invoice checking the email approvals need to be sighted as well.

Delegated Authority for Spare parts purchases.

Value Approval Required
Up to $10K Engineering manager
Up to $25K Head of Engineering
Up to $50K Site General Manger
Up to $100K Director of Operations
> $100K APAC COO

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7 Stocktaking Documentation
7.1 Copies of count sheets, valuation sheets, reconciliations and adjustment
approvals are to be maintained and form part of the audit working papers for the
Site.
7.2 Count sheets must be used to record counts. All documents must be accounted
for at the conclusion of the count.
7.3 Physical and accounting control over the stocktaking documentation must be
established with separation of division between those personnel controlling the
count sheets and those taking the physical inventory.
7.4 Write off forms need to be completed for any stock write offs
7.5 All write offs need to be cleared out of the system within 24 hours of Write off
forms being submitted.

8 Full year requirements

8.1 A full stocktake of all site and offsite storage (excluding miniload) must be
performed at the end of financial year (December) and it must be attended by
site finance managers and Inventory team leader.
8.2 A larger sample size for cycle counts needs to be done at full year for all items in
the miniload and the counts must be attended by the site finance manager and
System Specialist.

9 Authority limits for stock adjustments and write offs (Absolute

value per instance)

Value Approval Required

Up to $1K Inventory Team leader
Up to $5K Logistics Manager
Up to $10K Site General Manager AND Site Finance Manager
Up to $50K Director of Operations or Finance Director
> $50K APAC COO
All write offs and downgrades > $2K Woolworths in writing

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9.1 Authority limits are based on the absolute value of the adjustment/write off. See
example below.

9.2 Authority limits are based on per stocktake/write off and not per line item.

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APPENDIX

RACI Matrix

Accountability and
responsibility matrix - Stock.xlsx

Write off Approval form

Stock AdjWrite off

Form.xlsx

Stocktake SOP

Ingredients 9.2.4_HFNZ_Stockta
stocktake process.docx ke Process Packaging Rev_00 (003).docx