Atlas Pearls Annual Report 2018

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FY2018 Annual Report · Atlas Pearls

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A T L A S P E A R L S L T D - A S X A T P - A N N U A L R E P O R T • 2 0 1 8

For personal use onlyLike each pearl, every woman is unique!

FIND THE
ONE...
AS UNIQUE
AS HER.

For personal use onlyA M E S S A G E F R O M

THE MANAGING DIRECTOR

2 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use onlyA M E S S A G E F R O M

THE MANAGING DIRECTOR

Better Together

It has been almost three years since we embarked on the ambitious journey of turning our business
around through further improvements in pearl quality and increased production volumes to
ensure Atlas’ relevance as a significant supplier to the market with sustained profitability. The main
challenge this year has been to look after a large number of oysters whilst harvesting smaller pearls
than expected.

Revenue dropped from $16.3M last year to $14.2M this year with a similar number of pearls harvested
and sold. Market conditions and foreign exchange have been stable or favourable throughout the
year, but harvested pearl size decreased significantly over the financial year. A thorough operational
review performed in April and May established that a 6 month long adverse environmental condition
at the time of seeding in 2015/16 affected host oysters across the Indonesian Archipelago as well
as the Philippines and to a lesser extent Myanmar. This was further confirmed by the early harvest
of a representative sample of oysters seeded over the past 18 months to better gauge harvests to
come. The outcome of the exercise was positive and confirmed that both pearl growth and oyster
condition have normalised and so should harvests going forward.

Management and staff reacted positively early on to the challenges from smaller pearl sizes to
contain and reduce cost where and when possible without impairing the company’s ability to grow.
Clients helped and agreed to secure their purchase position via trade loans granted to protect their
pearl supply, hence providing bridge funding to manage the transition until oysters seeded last year
and this year are harvested.

Gross Profit dropped from $7.4M to $5.3M. Whilst administration, finance and marketing costs were
reduced by almost $1M, operations delivered a loss before tax of $1.9M against a profit before tax
of $800K last year.

This year’s financial outcome is disappointing but there are various reasons to look forward to a
brighter future thanks to positive achievements delivered by the Atlas team this year:

• A 15% increase in oysters seeded compared to last year,
• A sustained improvement in oyster survival rate at spat and juveniles’ stages,
• A further improved post-seeding nuclei retention rate,
• A progressive consolidation of all our CSR initiatives,
• A solid demand and firming up of prices for Atlas Pearls,
• A positive trend towards a more collaborative supply chain.

The sum of all is making Atlas Pearls a more robust business proposition, a strong learning organisation
and better prepared to react to unavoidable market and environmental fluctuations. Pearling is a
collaborative industry by essence and Atlas Pearls was founded in 1993 around the principle of
sustainability. We would like to share with you how the people of Atlas Pearls, shareholders and
stakeholders alike are doing their part to bring nature’s gift from our hands to your hearts.

Once again, thank you to all.

Pierre Fallourd
Managing Director

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 3

For personal use only“Give a man a fish and you feed him for a day.

Teach a man to fish and you feed him for a lifetime”

For personal use onlyFor personal use onlyTransfer of Knowledge

PEOPLE

With a 25-year history in pearling, Atlas Pearls is a global leader in eco-

pearling & one of the top producers of the highly sought after silver & white

South Sea pearls, commonly known as the queen of all gems.

The Company operates five farms dotted throughout the
nutrient-rich waters of the Indonesian Archipelago from the
famous Island of Bali through to the intriguing West Papua.

The people behind the pearls and the environment where
they grow are integral and critical to their story and heritage.
Each Atlas pearl is made of thousands of concentric layers
of aragonite crystal deposited around a spherical nucleus
carefully inserted into a host mother of pearl oyster by a skilled
and inspired master grafter.

Over the years, Atlas Pearls has managed to build a strong
culture around a set of cohesive and stimulating values such
as Respect & Integrity, Care & Understanding, Community, &
Teamwork, Passion & Commitment, Intuition & Initiatives.

The pearling cycle is four years long and labour intensive.
Each oyster is manipulated more than 500 times over the
course of its productive life. It is crucial to continue to fuel the
passion of the people behind the pearls and empower them.
Continuous on-the-job training, regular talent promotion,
stimulating career paths and gender equality are cornerstone
to achieving our goal as an organisation.

6 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use onlyFor personal use onlyEnvironmentally Responsible

PLANET

“It is the story of nature, passionate men and women working
together harmoniously that will give each gem its unique
lustre and orient, the inner glow or beauty from within. There
is no shortcut in the careful process of giving birth to quality
South Sea Pearls. Modern technology sometimes helps
through the process but producing good quality pearls takes
time for a sufficient number of layers of aragonite crystals
to build and properly refract light, ensuring lustre is long-
lasting”, said Mark Longhurst, a passionate veteran Australian
Pearler, now based in Indonesia and Chief Operating Officer
of Atlas Pearls.

Over the years, the Company experienced the same challenges
the whole pearl industry went through with various
successive global economic crises, fast pace environmental
changes and ever accelerating fashion cycles, but the passion
for the core business remains. Atlas Pearls production grew
steadily in volume and quality from a promising 50,000
pearls in 2000 to an estimated 500,000 pearls 20 years later.
The Company supplies quality South Sea pearls primarily to
selected prominent pearl trading companies but also caters
to leading global retailers and fashion houses.

Beyond the numbers, it is important to note that modern
pearling became non-extractive with the perfection of
hatchery technology. Pearlers can now select spawners and
breed oysters to suit specific attributes without affecting
natural resources. Pinctada maxima, mother of pearl oysters,
feed on microorganisms or plankton born of photosynthesis
in the ocean.

Those same filter feeders also retain polluting agents such
as heavy metals and cyanides within their gills and in doing
so restore balance within the environment they grow in. Our
oysters are held in nets hanging on underwater long lines
which constitute both substrate and shelter for life to flourish.
Juvenile fish and bivalves, soft fouling and crawling animals
are thriving on those structures which act as artificial reefs
in addition to their primary duty to secure pearl bearers and
provide easy access for maintenance.

Last but not least, a significant portion of sub-tropical reef areas
have been threatened by human predation. Destructive and
illegal fishing practices using dynamite or cyanide have lead
to long term damage. Pearling requires an environment free
of harm, making pearl farms natural sanctuaries. Fish catches
within or at the fringe of pearl farms are often multiplied
several fold when compared to non-protected areas.

8 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use onlyFor personal use onlyTransfer of Wealth

PEARLS

“We have developed over the years, the ability to extend the
life of our pearls beyond the farm and ensure that through
the skills and talent of our clients they continue to radiate for
many years and adorn women with discerning taste around
the world” said Tim Jones, Atlas Pearls Distribution Manager.

The emerging collaborative economic global trend is calling
for a better alignment and improved communication among
the key players along the pearling and luxury value chain. The
customers of tomorrow are calling for more transparency and
direct access “behind the scenes”. Three of Atlas’ Pearl farms
-Bali, Flores and West Papua- are open to the public and offer
an immersive experience, as well as a variety of fine and
fashion pearl jewellery. Atlas Pearls is the only active pearling
company listed on the Australian Stock Exchange, which
gives everyone a chance to own a piece of the dream as well.

Another example of active collaboration within the industry
is the acknowledgment of the need for more and better
education on pearls, both at consumer and trade level, but also
from government authorities who support the industry in their
respective countries. Pearling is not getting any easier with time
and one should not regard those pearls as commodities, but as
a very valuable little miracle of nature. Atlas Pearls is committed

to disseminate the good word and help its customers make
the right choice when it comes to pearls.

“Modern luxury customers tend to privilege experience over
products. We feel very fortunate to live the life we live and get
the opportunity to share it with others. Producing pearls is
such a diverse, challenging and exciting experience that we do
not have to make anything up to sell the story, everything is
true” said Pierre Fallourd, Managing Director. “It has been quite
a journey since the founders’ set-up operations in Kupang in
1993: Atlas Pearls roughly doubled in size every five years,
managing economic downturns and shifts in supply and
demand thanks to our People and Nature’s goodwill. Believe
me, there is never a dull day when you choose pearling!”

Making the most of our available resources constitute
the path towards sustainability which in turn allows Atlas
Pearls to provide jobs to over 900 people on a permanent,
contractual and casual basis. Pearling also offers stable and
direct employment to local communities in remote areas
where there are little alternatives as a result of isolation. Those
benefits extend to a variety of joint building, supply, repair
and even oyster grow-out activities.

10 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use onlyFor personal use onlyFor personal use onlyA L E T T E R F R O M

THE CHAIRMAN

Dear Shareholder

2017/18 was a mixed year for Atlas Pearls marked by some key achievements in operating performance being over-
shadowed by disappointing harvest outcomes towards the end of the second half of the financial year.

Smaller pearl sizes in the first half of the financial year were largely forecasted, however, expectations that profitability would
improve in the second half of the financial year were not met. Over the past couple of years Atlas Pearls has initiated hatchery
reforms with the Company’s focus to improve survival rates and increase pearl sizes. Unfortunately due to adverse weather
and food supply affecting the 15/16 seeded oysters, harvested pearls were smaller than anticipated. These conditions were
not unique to Atlas Pearls and appeared to affect growers in Indonesia, Philippines and Myanmar.

Despite this specific challenge, some important positives have emerged during 17/18 including:

•

Confirmation of improved survival rates which will ultimately result in fewer resources being employed to produce the
same number of pearls.

A substantial lift in seeded pearls numbers which will lead to higher sales revenue and a larger, more robust business.

Firming pearl prices particularly in the latter part of the year.

These challenging circumstances have also cemented an acknowledgment and acceptance across the entire organisation
of the need to target and achieve unit production costs that will ensure company profitability over the most difficult of
operating and market conditions.

With sampled results and preliminary harvesting for 2018/19 seeming to confirm that the latter part 2017/18 results were
a “one-off”, the cost focus and operational improvements achieved in this year position the Company well for improved
profitability next year.

Atlas Pearls’ 50% joint venture Essential Oils of Tasmania (“EOT”) made progress in growing sales and expanding the range of
services and products offered domestically and internationally. On a positive note, EOT returned a profit of $78k, a promising
result in light of the strengthening demand for Tasmanian products. The Board and Senior Management continue to explore
a number of prospective paths forward for EOT in the medicinal cannabis industry to capitalise on the Company’s undoubted
extraction expertise and production capabilities.

On the capital structure front, the Company secured a $3.5M debt facility in FY2017 from its major shareholder to replace
the prior existing bank debt facility. The loan was approved at the 2017 AGM and is repayable in a number of installments
through to June 2020. At 30 June 2018 the balance of the shareholder loan is $3.25M. Atlas Pearls was also successful in
the traditional bank lending market securing an increase in the existing overdraft facility to $1.5M (30 June 2017: $1.0M) to
accommodate the historically slower cash flows in the first part of the year.

In addition to the shareholder loan and the overdraft facility, Atlas Pearls successfully collaborated with trade partners to
secure short term trade loans that support harvest schedules.

Although Atlas Pearls has received an unqualified audit report, I would like to draw shareholders attention to the Going
Concern section of the Annual Report on page 36 and the emphasis of matter paragraph in the Auditors report on page 74.

In conclusion, while the financial performance in 2017/18 was undoubtedly disappointing, key operational improvements
were achieved in the Company which will support future profitability.

Geoff Newman
Chairman

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 13

For personal use onlyCORPORATE DIRECTORY

DIRECTORS

AUDITORS

Geoff NEWMAN

B.Ec (Hons), M.B.A, F.C.P.A, F.A.I.C.D.

Timothy MARTIN

B.Arts, M.B.A, G.A.I.C.D.

Pierre FALLOURD

M.B.A, G.A.I.C.D.

Cadell BUSS

M.B.A, M.P.M, G.A.I.C.D.

BDO Audit (WA) Pty Ltd

38 Station Street

Perth

Western Australia 6008

TAX ADVISERS

RSM Bird Cameron

8 St Georges Terrace

Perth

Western Australia 6008

COMPANY SECRETARY

BANKERS

Susan HUNTER

B.Com, ACA, F Fin, G.A.I.C.D, AGIA

REGISTERED OFFICE

47-49 Bay View Terrace

Claremont

Western Australia 6010

P.O. Box 1048

Claremont

Western Australia 6910

TELEPHONE +61(0)8 9284 4249

FACSIMILE +61 (0)8 9284 3031

WEBSITE www.AtlasPearls.com.au

E-MAIL Atlas@Atlaspearls.com.au

National Australia Bank

100 St Georges Terrace

Perth

Western Australia 6000

SHARE REGISTRY

Computershare (WA) Pty Ltd

Level 11, 172 St George’s Terrace

Perth

Western Australia 6000

HOME EXCHANGE

Australian Securities Exchange Ltd

Exchange Plaza

2 The Esplanade

Perth

Western Australia 6000

ASX TRADING CODE ATP

14 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use onlySUMMARY OF FISCAL INDICATORS 2017/18

Revenue from continuing operations

30 June 18
$’000

30 June 17
$’000

14,211

16,355

Normalised earnings before interest, tax, depreciation and amortisation (Normalised EBITDA)

(561)

1,016

EBITDA margin

Depreciation and amortisation

Foreign exchange gains/(losses)

Revaluation and write-off of agriculture assets (oysters and pearls) gains/(losses)

Other non-operating benefits/(costs)

Derivative instruments gains/(losses)

Earnings/(loss) before interest and tax (EBIT)

EBIT margin

Interest net income/(costs)

Tax benefit/(expense)

Net profit/(loss) after tax (NPAT)

Basic earnings/(loss) per share (cents)

Net tangible assets (NTA)

Assets

Debt (current & non-current)

Shareholder funds

Debt/shareholder funds (%)

Number of shares on issue (million)

(3.95%)

6.21%

(256)

(149)

(612)

(150)

(1,728)

(12%)

(256)

(50)

(2,034)

(0.48)

(470)

598

(206)

(286)

410

1,062

6.5%

(257)

901

0.21

23,899

26,443

31,710

34,178

4,060

3,529

23,899

26,443

17%

427.9

13%

427.9

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 15

For personal use only
DIRECTORS’ REPORT

Your Directors present their report on the consolidated entity consisting of Atlas Pearls Ltd and the entities it controlled at the end of,
or during, the period ended 30 June 2018. Referred to hereafter as, the Company or Atlas Pearls.

1. Directors

The following persons were Directors of Atlas Pearls during all or part of the financial period and up to the date of this report except
where stated:

GEOFF NEWMAN, B. Ec (Hons), M.B.A, F.C.P.A ,F.A.I.C.D.

INDEPENDENT NON-EXECUTIVE CHAIRMAN

Mr. Newman has over 27 years’ experience in finance, marketing and general management roles in organisations either directly involved in
the resources sector or providing services and products to businesses in that sector. In 1995, after managing Bunnings Pulpwood operations
for a number of years, he joined Coogee Chemicals Pty Ltd as Commercial Manager and then was appointed to the Board as Finance Director
in the following year. Until August 2005 he was Finance Director/Chief Financial Officer and Company Secretary of both Coogee Chemicals
and its oil and gas subsidiary Coogee Resources Pty Ltd before he retired from the Coogee Group at the end of June 2006.

Appointed Chairman on 16 February 2015
Director since 15 October 2010
Directorships of other listed companies held in the last three years: Nil

TIMOTHY MARTIN, BA, M.B.A, G.A.I.C.D.

NON-EXECUTIVE DIRECTOR

Mr. Martin has been an Executive Manager at Coogee Chemicals Pty Ltd since 2005, held the position of Managing Director from 2012 – 2015
and was appointed Executive Chairman in July 2015.

Prior to working at Coogee, Mr. Martin worked in management roles within the packaged food manufacturing sector supplying to
national supermarket chains, and has ongoing interests in commercial property development.

Appointed Director on 4 February 2013.
Directorships of other listed companies held in the last three years: Nil

PIERRE FALLOURD, M.B.A, G.A.I.C.D

MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER

Mr. Fallourd has over 20 years’ experience in pearling and is highly recognised in the pearl and jewellery industry for his role in developing
and marketing golden pearls globally. He is a specialist in managing the pearl value chain and maximising the use and value of each pearl
harvested. Pierre is fundamental to Atlas’ cradle to cradle strategy of extracting and maximising all aspects of the pearl and its by-products.
Mr. Fallourd joined the Company in March 2013 as Vice President of Pearling and has been Chief Executive Officer of Atlas since November 2014.

Appointed Managing Director 4 January 2016
Directorships of other listed companies held in the last three years: Nil

CADELL BUSS, MBA, MPM, G.A.I.C.D.

INDEPENDENT NON-EXECUTIVE DIRECTOR

Mr. Buss has extensive experience in marketing, communications and advertising spanning 20 years in the industries of Fast Moving
Consumer Goods, Sports Administration and Local Government. His career commenced in sales, progressing into senior leadership
engagements at leading commercial enterprises, including Fosters Group Limited, Guinness International and DJ Carmichael Pty Ltd.

Appointed Director on 1 February 2018.
Directorships of other listed companies held in the last three years: Nil

16 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use onlyDIRECTORS’ REPORT

2. Company Secretary

The role of Company Secretary for the financial year was shared by Ms. Susan Hunter and Mr. Trevor Harris, until Mr. Harris resigned 29 January
2018.

SUSAN HUNTER, BCom, ACA, F Fin, G.A.I.C.D, AGIA

Ms. Hunter has 21 years’ experience in the corporate finance industry. She is founder and Managing Director of consulting firm Hunter
Corporate which specialises in the provision of corporate governance and company secretarial advice to ASX listed companies and has held
Senior Executive roles at Ernst & Young and PricewaterhouseCoopers in the Corporate Finance divisions and at Bankwest in the Strategy
and Ventures division. She holds a Bachelor of Commerce, is a Member of the Australian Institute of Chartered Accountants, a Fellow of
the Financial Services Institute of Australasia, a Graduate Member of the Australian Institute of Company Directors and a Member of the
Governance Institute of Australia.

Appointed 19 December 2012.

TREVOR HARRIS, BCom, CPA, GDip Comp Law_ACG, AGIA

Mr. Harris joined Atlas on 31 August 2015 as Chief Financial Officer and was appointed joint Company Secretary 4 January 2016. Mr. Harris
has over 20 years’ experience in financial management in a wide variety of industry sectors. As well as being a qualified CPA accountant, he
holds a postgraduate qualification in Commercial Law and is a Chartered Company Secretary. Mr. Harris has filled multi-disciplinary roles with
companies such as Alcyone Resources Ltd, Shield Mining Ltd, Sphere Minerals Limited, BGC Australia and Toll Holdings.

Appointed 4 January 2016.
Resigned 29 January 2018.

3. Directors’ Meetings

The attendance at meetings of the Company’s Directors including meetings of committees of Directors is shown below:

Director

Period

Directors’ Meetings

Meetings
Held Whilst
in Office

Attended

G. Newman

01/07/17-30/06/18

T. Martin

P. Fallourd

C. Buss

01/07/17-30/06/18

01/02/18- 30/06/18

4. Principal Activities and Review of Operations

4.1.

PRINCIPAL ACTIVITIES

Atlas Pearls is a Company that produces South Sea Pearls, with farming operations throughout Indonesia and retail stores in Perth and
Bali. The Company has a 50% joint venture in Essential Oils of Tasmania, a Company providing essential oils, pearl shell by-products and
perfumes to local and international markets.

4.2.

REVIEW OF OPERATIONS AND SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

4.2.1. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

There were no significant changes in the state of affairs of the Group during the financial year.

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 17

For personal use onlyDIRECTORS’ REPORT

4.2.2. SHAREHOLDER RETURNS

Net profit/(loss) after tax

Basic EPS (cents)

Dividends paid

Dividends (per share) (cents)

30 June 2018
$’000

30 June 2017
$’000

30 June 2016
$’000

(2,034)

(0.48)

Nil

901

0.21

Nil

968

0.23

Nil

The adjustments from NPAT to arrive at reported Normalised EBITDA for these periods are shown below:

Net profit/(loss) after tax

Tax (benefit)/expense

Interest net costs

Depreciation & amortisation

Foreign exchange (gain)/loss

Agriculture standard revaluation (gain)/loss

Other non-operating (income)/expense

Derivative instrument (gain)/loss

Impairment of JV loan

Normalised EBITDA

4.2.3. FINANCIAL POSITION

Total Assets

Debt (Current & Non-current)

Other Liabilities

Shareholder funds / Net Assets

Debt / Shareholder funds

Number of shares on issue (million)

Net tangible assets per share (cents)

Share price at reporting date (cents)

30 June 2018
$’000

(2,034)

256

149

612

150

(561)

30 June 2017
$’000

30 June 2016
$’000

901

(96)

257

470

(598)

206

286

(410)

1,016

968

1,819

288

399

750

(1,827)

281

268

816

3,762

30 June 2018
$’000

30 June 2017
$’000

30 June 2016
$’000

31,710

(4,060)

(3,750)

23,899

17%

427.9

5.6

2.4

34,178

(3,529)

(4,207)

26,443

13%

427.9

6.2

2.6

34,808

(4,225)

(4,759)

25,825

16%

425.4

6.1

3.2

There has been a decrease in the net assets of the Group of $2.5M in the year ended 30 June 2018 (30 June 2017: $0.6M increase).

4.2.4. OPERATING RESULTS

Atlas Pearls recorded a net loss after tax for the period ended 30 June 2018 of $2.0M, a decrease of $2.9M (30 June 2017: profit $0.9M).

The operating revenue for the year ended 30 June 2018 was $14.2M, a decrease of $2.2M (30 June 2017: $16.4M). Market conditions
remained stable but harvested pearl size decreased significantly due to adverse environmental conditions.

Management and staff reacted effectively to the challenges of the smaller pearls, reducing operating expenses without impairing
the Company’s ability to protect pearl supply. Administration, finance and marketing expenses for the year ended 30 June 2018 were
$6.3M a decrease of $0.8M (30 June 2017: $7.1M).

Additionally, the Company embarked on a more collaborative supply chain with the assistance of clients and secured short term trade
loans to manage the transition between seeding and harvest. Refer to note 18.4 for further details on current financing arrangements.

18 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use only

DIRECTORS’ REPORT

4.2.5. REVIEW OF OPERATIONS

4.2.5.1.

PEARLING

Further improvements of operational processes have been at the forefront of 17/18 Management efforts.

The Hatchery Team extended its attention from larvae management to the nursery with the objective to improve oyster survival
on transfer to the sea and ensure stronger animals that deliver better pearls. Both North Bali and Lembata based hatcheries
and nurseries outperformed their previous results successfully doubling survival rates. This means that not only will oysters be
stronger, but fewer will be required to meet seeding targets.

The seeding team has been restructured to ensure that Technicians are performing tasks best suited to their specific skills and
abilities which has translated into an average post-operation retention rate above 80%.

Significant efforts have been invested in oyster management, specifically cleaning with extensive re-training being conducted
on all sites. Training was delivered to ensure only oysters requiring cleaning were selected, as opposed to a standard cleaning
roster. Atlas Pearls is hopeful that this cleaning method will reduce undue stress on the oysters.

Whilst these improvements are expected to deliver gains both in quality and cost going forward, the profile of this years’ harvest
remained disappointing.

The 15/16 El Nino occurrence and water temperature increase resulting from underwater current changes stalled oyster growth
and by extension pearl growth for harvests for the latter half of the financial year. To verify the suspected environmental impacts
a representative sample harvest was performed across all seeded oysters. The sample revealed that oysters in the water were
growing, indicating that harvests should progressively return to normal in 18/19.

Project capital sourced in January 2017 to support shell purchases and provide infrastructure to host the increasing number of
oysters was efficiently allocated and harvests resulting from this effort are expected during the first half of 18/19. The volume
increase from this project should reduce the cost-per-pearl.

4.2.5.2.

PEARLING VALUE ADDED

Trading remained a primary focus of the Company with improving prices as a result of a perceived shortage of loose pearls in
the market in the white south sea pearls 9-12mm category. Unfortunately, the proportion of smaller pearls did negatively impact
revenue per piece and overall revenue.

The most noticeable evolution of pearl distribution this year has been a strong interest expressed by trade clients to secure pearl
supply through a collaborative supply chain. For Atlas Pearls, this came in the form of trade loans to secure the right of first sight
of future harvests. This is encouraging and may mark a turn-around in the traditional supply-demand relationships which usually
leads to negative price tension.

Wholesale revenues grew 19% due to continuous efforts to understand and serve the Australian market as well as new initiatives
launched in Asia. Singapore has proven to be a solid market. Hong Kong, Tokyo and Jakarta will be an upcoming focus for the
Company.

Retail in Australia has been quiet throughout the year but attention to detail and focus on design and merchandising has
enabled the Company’s gross profit in this division to improve from prior year. By contrast, retail in Indonesia delivered in line
with expectations with a special mention to our farm-based immersive experience stores at three sites; North Bali, Labuan Bajo
and Raja Ampat. All three destinations delivered record sales from increased promotion by the Indonesia Tourism Department.

4.2.5.3.

NATURAL EXTRACTS

Essential Oils of Tasmania Pty Ltd, a 50% joint venture of Atlas Pearls, delivered a profit of $78k. This is as a result of a focused
strategy and realignment of the value chain.

By having a downstream model and providing a refined product in smaller quantities, Essential Oils of Tasmania Pty Ltd is aiming
at progressively moving away from the bulk commodity end of the essential oil market. Due to an increased appetite globally
for products derived from Tasmania, the joint venture was able to diversify its services to Tasmanian native crops extracts such as
Native Pepper, Boronia, Kunzea and South Rosalina.

Whilst Fennel and Peppermint remain the two main revenue drivers, Essential Oils of Tasmania Pty Ltd is also actively pursuing
projects involving more exotic crops such as Cannabis and Cherries and the by-products to chase highly valuable extracts aimed
at health and medical benefits.

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 19

For personal use onlyDIRECTORS’ REPORT

4.2.6 AUDIT OPINION

The financial report has been audited independently and received an unmodified opinion. Refer to page 30 for the Independent
Auditors Report and Opinion.

4.2.7 PERSONNEL

Staff numbers at the end of the year were as follows:

INDONESIAN NATIONALS PART TIME

INDONESIAN NATIONALS PERMANENT

EXPATRIATES INDONESIA

AUSTRALIA

2016
444

2017
544

2018
414

2016
422

2017
476

2018
486

2016
22

2017
21

2018
15

2016
19

2017
19

2018
13

5. Dividends

No dividends were declared and paid by the Company during period ended 30 June 2018 (30 June 2017: nil).

6. Events Since the end of the Financial Year

On 1 July 2018, Atlas Pearls secured ¥165M in short-term financing from a commercial partner. The loan is repayable by 30 June 2019.

There have been no other material events since the end of the financial year.

7. Likely Developments and Expected Results of Operations

The Company will continue to focus on the core pearling business from both a cost and revenue perspective. Production is growing on a
strong platform where both best practice and operational efficiencies will deliver quality and cost gains. Distribution is improving on the
back of a strong and more sophisticated global demand.

Results from the growth strategy initiated in January 2017 are expected to deliver a double digit increase in volume this year. The financial
outcome of this significant change will be harvest profile and market dependent.

Efforts will be invested in further consolidating Tasmanian operations and focus on more efficient operations and higher value extraction
opportunities.

8. Directors’ Interests

The relevant interest of each current Director in the share capital of the Company, as notified by the Directors to the Australian Stock Exchange
in accordance with S205G (1) of the Corporations Act 2001, at the date of this report, are detailed in Section 13.5.5 of the Remuneration Report.

20 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use onlyDIRECTORS’ REPORT

9. Options

During the year ended 30 June 2015 5,500,000 unlisted options were issued to certain employees, pursuant to the Atlas Pearls Employee
Option Plan. These options are exercisable at $0.059 on or before 31 December 2018 and are subject to the following vesting conditions;

achieving a minimum A$2.75M average normalised EBITDA for the 3 years ended 30 June 2018,
the employee remains directly engaged as an employee until 30 June 2018.

-
-
There were no listed or unlisted options issued during the year ended 30 June 2018.

EXPATRIATES INDONESIA

AUSTRALIA

Refer to note 26.4 for further information.

10. Indemnification and Insurance of Directors and Officers

10.1.

INDEMNIFICATION

The Company has agreed to indemnify the following current Directors of the Company; Mr G Newman, Mr T Martin, Mr C Buss and
Mr P Fallourd and all former Directors against all liabilities to another person (other than the Company or a related body corporate) that
may arise from their position as Directors of the Company, except where the liability arises out of conduct which involves negligence,
default, breach of duty or a lack of good faith. The agreement stipulates that the Company will meet the full amount of any such
liabilities, including costs and expenses.

10.2.

INSURANCE PREMIUMS

Since the end of the previous financial year the Company has paid insurance premiums of $34,845 (30 June 2017 : $32,500) in respect of
Directors’ and Officers’ liability and legal expenses insurance contracts, for current and former Directors and Officers.

11. Non-Audit Services

The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and
experience with the Company and/or the Group are important.

Details of the amounts paid or payable to the auditor (BDO) for audit and non-audit services provided during the period are set out below.

The Board of Directors is satisfied that the provision of non-audit services during the period is compatible with general standards of
independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the services disclosed below did not
compromise the external auditor independence requirements of the Corporations Act 2001. The nature of the service provided do not
compromise the general principles relating to auditor independence because they relate to tax advice in relation to compliance issues
and review of the tax provisions prepared by the Company. None of the services undermine the general principles relating to auditor
independence as set out in APES 110 Code of Ethics for Professional Accountants.

The following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-related audit
firms during the period ended 30 June:

AUDIT SERVICES

BDO Australian Firm

Audit and review of financial reports

BDO Indonesian Firm

Audit and review of financial reports

Total remuneration for audit services

Other Services

Total remuneration for other services

30 June
2018
$

30 June
2017
$

93,279

94,349

30,781

35,704

124,060

130,053

5,100

18,544

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 21

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DIRECTORS’ REPORT

12. Proceedings on Behalf of the Company

No person has applied under section 237 of the Corporations Act 2001 for leave of court to bring proceedings on behalf of the Company or
to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or
part of those proceedings. The Company has not been a party to any proceedings during the period.

13. Renumeration Report (Audited)

The Directors are pleased to present your Company’s 2018 remuneration report which sets out remuneration information for Atlas Pearls
Non-Executive Directors, Executive Directors and other Key Management Personnel.

Name

Non-Executive and Executive Directors

Position

G. Newman

T. Martin

S. Arrow

P. Fallourd

C. Buss

Other Key Management Personnel

M. Longhurst

D. Kubicki

T. Harris

Independent Non-Executive Chairman

Non-Executive Director

Independent Non-Executive Director (until 22 September 2016)

Managing Director

Non-Executive Director (appointed 1 February 2018)

Chief Operations Officer Pt Cendana Indopearl

Chief Financial Officer (appointed 26 March 2018)

Chief Financial Officer (resigned 29 January 2018)

Changes since the end of the reporting period
There have been no changes to the remuneration of Key Management Personnel after 30 June 2018.

13.1.

REMUNERATION GOVERNANCE

13.1.1. ROLE OF THE BOARD IN REMUNERATION GOVERNANCE

Remuneration governance is the responsibility of the full the Board as per a resolution passed on 27 February 2017. Primary
responsibilities include recommendations including;

•
•
•
•

Non-Executive Director fees
Remuneration levels of Executive Directors and other Key Management Personnel
The over-archiving Executive remuneration framework and the operation of incentive plans, and
Key performance indicators and performance hurdles for the Executive team.

The objective is to ensure that Remuneration policies and structures are fair and competitive and aligned with the long-term interest
of the Company.

Assessing performance and claw-back of remuneration

The Board is responsible for assessing performance against KPIs and determining the STI and LTI to be paid. To assist in this assessment,
the Board receives detailed reports on performance from management which are based on independently verifiably data such as
financial measures, market share and data from independently run surveys.

In the event of serious misconduct or a material misstatement in the Company’s financial statements, the Board may cancel or defer
performance-based remuneration and may also claw back performance-based remuneration paid in previous financial years.

13.1.2. NON-EXECUTIVE DIRECTOR REMUNERATION POLICY

Fees and payments to Non-Executive Directors reflect the demands which are made on, and the responsibilities of, the Directors.
Non-Executive Directors’ fees are reviewed annually by the Board. Consideration is given to the remuneration of comparable
companies when setting fee levels.

The Non-Executive Directors aggregate annual remuneration may not exceed $350,000 which is periodically recommended
for approval by shareholders. This limit was approved by shareholders at the Annual General Meeting on 30 May 2007. In the
period ending 30 June 2018, the total Non-Executive Directors’ fees including retirement benefit contributions were $148,947
(30 June 2017: $139,404).

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DIRECTORS’ REPORT

The following fees have applied:

•
•
•

Base fees for Non-Executive Directors is $50,000 per annum.
The Independent Non-Executive Chairman’s fee is $78,000 per annum.
The Managing Directors base package is $240,000, with an additional $22,800 per annum including superannuation payable
for Directors’ duties.

13.1.3.

EXECUTIVE REMUNERATION POLICY AND FRAMEWORK

In determining Executive remuneration, the Board aims to ensure that remuneration practices are:

•
•
•
•

Competitive and reasonable, enabling the Company to attract and retain key talent
Aligned to the Company’s strategic and business objectives and the creation of shareholder value
Transparent, and
Acceptable to shareholders

Executive remuneration framework has three components;

•
•
•

Base pay and benefits, including superannuation
Short-term performance incentives (refer 13.3 for individual detail), and
Long-term incentives through participation in the Atlas South Sea Pearl Limited Employee Share Plan and Employee Option Plan.

Employment contracts are in place between the Company (or its subsidiaries) and all Key Management Personnel. Under these
contracts, Key Management Personnel are paid a base salary (which may be provided in the form of cash or non-financial benefits)
in accordance with their skills and experience, as well as entitlements including superannuation and accrued annual leave and long
service leave.

Executive salaries are reviewed annually and are adjusted to take into consideration the individuals’ responsibilities and skills compared
to others within the Company and the industry. There are no guaranteed base pay increases in any of the Executives’ contracts.

There were no short or medium-term cash incentives provided to any Executives of the Company during the last financial year
except where noted in section 13.2 of this report. Short or medium-term cash incentives are incorporated into some Executives’
salary packages at the time of this report. The framework provides a mix of fixed and variable pay with short and medium-term
incentives. As Executives gain seniority with the Group, the balance of this mix shifts to a higher proportion of ‘at risk’ rewards.

An Employee Share Plan (ESP) provides some Senior Executives with incentive over and above their base salary (refer 13.2). The
allocation of shares under the Employee Share Plan (ESP) is not subject to performance conditions of the Company. The reasons for
establishing the ESP were:

•

To align the interests of Senior Management with shareholders. The ESP provides employees with incentive to strive for long-
term profitability which is in line with shareholder objectives; and
To provide an incentive for employees to extend their employment terms with the Company. Pearl farming is a long-term
business and the experience of long serving senior employees an important factor in the long-term success of the Company.

Use of remuneration consultants

During the financial year ended 30 June 2018 the Company did not engage any remuneration consultants.

Voting and comments made at the Company’s 2017 Annual General Meeting

Atlas Pearls received more than 93% of “yes” votes on adoption of the remuneration report for the 2017 financial year. On the
resolution to re-elect Director Mr Tim Martin, Atlas Pearls received 98% of “yes” votes. The Company did not receive any specific
feedback at the Annual General Meeting or throughout the year on its remuneration.

Relationship between Key Management Personnel Remuneration and Performance

Each Key Management Personnel is remunerated on an individual basis. Some Key Management Personnel are entitled to bonuses
based on a percentage of EBITDA.

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 23

For personal use onlyDIRECTORS’ REPORT

13.2.

DETAILS OF REMUNERATION

The following tables show details of the remuneration received by the Directors and the Key Management Personnel of the Group for
the current and previous financial period.

Name

Short Term Benefits

Cash
Salary &
Fees
$

Salary
Sacrifice
for Shares
$

Short Term
Incentive
Cash
Bonus
$

Non-cash
Monetary
Benefits
$

Post-
Employment
Benefits

Long
Term
Benefits

Share
Based
Compensation

Total

Super-
annuation
Benefit
$

Long
Service
Leave
$

Bonus
Shares
$

Options5
$

Total Cash
Salary,
Fees and
Short
Term
Benefits
$

Directors (Non-Executive)

G. Newman

T. Martin

S. Arrow 1

C. Buss 2

2018

2017

2018

2017

2018

2017

2018

2017

78,000

50,114

11,290

20,833

Directors (Executive)

P. Fallourd

2018

2017

240,000

Other Key Management Personnel

M. Longhurst 3

D. Kubicki 4

T. Harris 4

Total 2018

Total 2017

Notes:

2018

2017

2018

2017

2018

2017

2018

2017

200,000

206,608

43,679

182,589

185,693

815,215

771,705

22,500

78,000

50,114

11,290

20,833

240,000

222,500

229,108

43,679

182,589

185,693

22,500

837,714

22,500

794,205

22,800

4,121

17,346

17,641

44,267

40,441

78,000

50,114

11,290

20,833

10,925

273,725

5,463

8,194

227,963

234,571

47,800

199,935

211,528

16,388

898,369

24,582

859,228

1. Mr S Arrow was appointed as Non-Executive Director on 2 January 2014. Mr S Arrow resigned from his position on 22 September 2016.

2. Mr C Buss was appointed 1 February 2018 as Non-Executive Director.

3. Non-Monetary benefits of other Key Management Personnel includes overseas living allowances as per individual employment contracts.

Mr T Harris was appointed Chief Financial Officer on 31 August 2015. Mr T Harris resigned from his position on 29 January 2018. Ms D Kubicki was appointed Chief Financial
Officer on 26 March 2018.

Share based remuneration related to options, relates to options issued in prior periods, being recognised over the respective vesting period.

24 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

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DIRECTORS’ REPORT

13.2.1. DETAILS OF REMUNERATION – PERFORMANCE ANALYSIS

The following table indicates the percentage of remuneration relating to options and performance:

Name

P. Fallourd

M. Longhurst

D. Kubicki

T. Harris

30 June 2018
% Performance

30 June 2017
% Performance

3.99%

2.40%

0.00%

3.99%

2.33%

N/A

3.87%

13.2.2. RELATIONSHIP BETWEEN REMUNERATION AND ATLAS PERFORMANCE

The following table shows performance indicators as prescribed by the Corporations Act 2001 over the past five reporting periods:

Profit/(loss) for the year / period

(2,034,099)

900,581

968,103

(8,134,049)

1,813,922

30 June
2018

30 June
2017

30 June
2016

30 June
2015

30 June
2014

Basic earnings per share

Dividend payments

Decrease in share price

Total KMP incentives as a percentage profit/loss %

13.3.

SERVICE AGREEMENTS

(0.48)

(8%)

0.21

(19%)

0.23

(27%)

12%

(2.4)

(48%)

(0.8%)

0.61

53%

4.4%

On appointment to the Board, all Non-Executive Directors enter into a service agreement with the Company. Remuneration and other
terms of employment for the Chief Executive Office, Chief Financial Officer, Chief Operations Officer and other Key Management
Personnel are also formalised in service agreements.

Details of Key Management Personnel contracts are set out below:

13.3.1. Mr Pierre Fallourd (Managing Director and Chief Executive Office – appointed 4 January 2016.)

•

Base salary for the 2018 financial period of $240,900 per annum inclusive of superannuation, reviewed annually.

Directors fees of $21,900 per annum including superannuation, payable from appointment (4 Jan 2016)

No bonus has been accrued as payable for 17/18.

Either party may terminate the contract of employment by giving three months’ notice or a lesser amount as mutually agreed.

13.3.2. Mr Mark Longhurst (Chief Operating Officer – Appointed 1 March 2016)

•

Base salary for the 2018 financial period of $200,000 per annum inclusive of superannuation.

Non-Financial allowances related to living in Indonesia are also included, to a maximum allowance of $22,500 annually.

No bonus has been accrued as payable for 17/18.

Either party may terminate the contract of employment by giving six months’ notice or a lesser amount as mutually agreed.

13.3.3. Ms Diana Kubicki (Chief Financial Officer – Appointed 26 March 2018)

•

Base salary for the 2018 financial period of $190,000 per annum inclusive of superannuation

Either party may terminate the contract of employment by giving three months’ notice or a lesser amount as mutually agreed.

13.3.4. Mr Trevor Harris (Chief Financial Officer – Appointed 31 August 2015; Resigned 29 January 2018)

•

Base salary for the 2018 financial period of $200,000 per annum inclusive of superannuation

Either party may terminate the contract of employment by giving three months’ notice or a lesser amount as mutually agreed.

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 25

For personal use onlyDIRECTORS’ REPORT

13.3.5. OTHER NON - EXECUTIVES (STANDARD CONTRACTS)

•

Contract terminates on retirement.

The Company may terminate the Executive’s employment agreement by providing two months’ written notice or
providing payment in lieu of the notice period.

No entitlement to any special termination payments under these contracts.

13.4.

ADDITIONAL INFORMATION OF THE REMUNERATION REPORT

13.4.1. LOANS TO DIRECTORS AND EXECUTIVES

•

The Company obtained a debt financing package of $3.5M from Tim Martin (Non-Executive Director) and the Martin
Family (related party) in June 2017. The loan is repayable in staged payments to be completed by 30 June 2020.
An interest charge of 7.5% is payable quarterly on the loan balance. The Martin Family facility is currently secured as a
second priority charge over the Company’s assets as approved by shareholders at a General Meeting held on
13 September 2017.

As at 30 June 2018 the balance of the Martin Family loan was $3.25M (30 June 2017: $3.5M)

As at 30 June 2018 interest accrued and payable on loans from related parties is Nil (30 June 2017: $1,233)

13.4.2. OPTIONS

•

Performance options were issued to Directors and Key Management Personnel during the financial period end
30 June 2015. The options were issued at nil cost to employees and will respectively expire on 31 December 2018. The
options are exercisable based on the completion of KPI’s specific to each individual.

13.4.3. OTHER KEY MANAGEMENT PERSONNEL TRANSACTIONS

•

As at 30 June 2018, Director fees of $10,767 are payable (30 June 2017: $8,236).

13.5.

SHARE BASED PAYMENTS COMPENSATION

13.5.1. EMPLOYEE SALARY SACRIFICE SHARE PLAN

There was no salary sacrifice scheme undertaken for the year ended 30 June 2018. The details below relate to the issuing of shares to
Directors and Key Management Personnel during the year ended 30 June 2017 and year ended 30 June 2016 under the employee
salary sacrifice share plan. Please refer to Note 26 in the financial statements for further details.

Name

Date of
Entrance

Entitlement
No. of Shares

No. of
Shares to
be Issued

Date of
Issue

Pierre Fallourd

17/11/14

213,667

28/11/16

Pierre Fallourd

17/11/14

341,889

28/11/16

Shares
Forfeited
in the
Year

Financial
Year in
Which
Shares
Vested

2016 –
100%

2015 –
100%

Nature of
Shares

Share Issue
Price

Total Value
Salary
Sacrificed

Ordinary
Shares

$0.045

$9,615

$0.045

$15,385

13.5.2 NON-EXECUTIVE DIRECTOR FEE SACRIFICE SHARE PLAN

Please refer to Note 26 in the financial statements for details.

26 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

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DIRECTORS’ REPORT

13.5.3. DIRECTOR FEE SALARY SACRIFICE PLAN

The details relating to the allocation of shares to Directors and Key Management Personnel under the Non-Executive Director Fee
Salary Sacrifice Share Plan are as follows:

Name

Date of
Entrance

Entitlement
No. of
Shares

No. of
Shares
Issued

Date of
Issue

Shares
Vested
to End of
2017

Shares
Forfeited
in the
Year

Geoff Newman

1/11/14

716,289

28/11/16

100%

Tim Martin

1/11/14

518,512

28/11/16

100%

Financial
Year in
Which
Shares
Vested

2016 –
100%

Nature
of
Shares

Ordinary
Shares

Share
Issue
Price

Total
Value
Salary
Sacrificed

$0.045

$32,233

$0.045

$23,333

Notes:

These shares were issued under the Non-Exectutive Directors’ plan described above directly to Non-Exectutive Directors’ for past services rendered.

13.5.4. PERFORMANCE OPTIONS

The details relating to the allocation of performance options to Directors and Key Management Personnel under the Atlas Pearls
Employee Option Plan are as follows:

Name

Date of
Grant

Entitlement
No. of
Options

Vesting
Date

Expiry
Date

Shares
Forfeited
in the
Year

Financial
Year in
Which
Shares
Vest

Pierre Fallourd1

30/06/15

2,000,000

30/06/18

31/12/18

2018

Trevor Harris1,2

30/06/15

1,500,000

30/06/18

31/12/18

100%

2018

Mark Longhurst1

30/06/15

1,000,000

30/06/18

31/12/18

2018

Value Per
Options
at
30 June
18

Value Per
Options
at
30 June
17

Option
Exercise
Price

$32,805

$21,880

$0.059

$16,410

$0.059

$16,403

$10,940

$0.059

Nature
of
Shares

Ordinary
Shares

Notes:

1.
2.

These unlisted options were approved by the Board of Directors on 29 May 2015.
Mr T Harris resigned from his position on 29 January 2018 hence 100% of his unlisted options were forfeited upon resignation.

13.5.5. EQUITY INSTRUMENTS

The details relating to the equity instruments held by Key Management Personnel are as follows:

(a)

Equity instrument disclosures relating to Key Management Personnel

1. Options and rights granted as compensation
There were no options issued to Key Management Personnel as remuneration during the year ended 30 June 2018.

2. Option holdings
There are 3,000,000 options on issue to Key Management Personal at 30 June 2018. None were issued during the year
ended 30 June 2018.

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 27

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DIRECTORS’ REPORT

(b)

Shareholdings

The number of shares in the Company held during the financial period by each Director of the Company and the other
Key Management Personnel of the Group, including their personally related parties, are set out below.

Details of shares that were granted as compensation during the reporting period are provided at note 26 and in the
remuneration report contained at section 13.5 of the Directors’ report.

The details relating to the equity instruments held by Key Management Personnel are as follows:

Balance
01/07/17

Granted as
Compensation

Options
Exercised

Other
Changes

Balance
30/06/18

Parent Entity Directors

Mr G. Newman

Mr T. Martin1

Mr C. Buss2

Mr P. Fallourd

Other Key Management Personnel

Mr M. Longhurst

Ms D. Kubicki3

Mr T. Harris3

2,563,443

108,326,550

3,866,762

114,756,755

2,563,443

108,326,550

3,866,762

114,756,755

Notes:

4,997,428 shares are directly held by Mr T Martin. The balance of 103,329,122 shares, are related party share holdings.

Mr. C Buss was appointed 1 February 2018 as a Non-Executive Director.

Mr. T Harris resigned on 29 January 2018. Ms. D Kubicki was appointed 26 March 2018 as Chief Financial Officer.

(c)

Option holding

The number of options over ordinary shares in the parent entity held during the twelve months ended 30 June 2018 by each
Director and other members of Key Management Personnel of the consolidated entity, including their personally related parties, is
set out below:

Parent Entity Directors

Mr G. Newman

Mr T. Martin

Mr. C Buss1

Mr P. Fallourd

Other key management personnel

Mr T. Harris3

Ms D. Kubicki2

Mr M. Longhurst

Balance
01/07/17

Granted

Exercised

Lapsed/
Forfeited/
Other3

Balance
30/06/18

2,000,000

1,500,000

1,000,000

4,500,000

2,000,000

1,500,000

1,000,000

1,500,000

3,000,000

Notes:
1.
2.
3.

Mr. C Buss was appointed 1 February 2018 as Non-Executive Director.
Ms. D Kubicki was appointed 26 March 2018 as Chief Financial Officer.
Mr T Harris resigned from his position on 29 January 2018 hence 100% of his unlisted options were forfeited upon resignation.

This is the end of the Audited Remuneration Report.

28 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

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DIRECTORS’ REPORT

14. Auditor’s Independance Declaration

A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 30.

Signed in accordance with a resolution of the Directors.

Geoff Newman
Chairman
30 August 2018

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 29

For personal use onlyFor personal use onlyCONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME

Revenue from continuing operations

Cost of goods sold

Gross profit

Other income

Administration expenses

Finance costs

Marketing expenses

Change in fair value less husbandry costs of oysters

Write-off of pearl and jewellery costs

Other expenses

Share of equity accounted investment

Profit/(Loss) before income tax

Income tax /(charge) benefit current year

Profit/(Loss) after income tax for the period from continuing operations

Other comprehensive income/(losses)

Items that will not be reclassified as profit or loss:

Revaluation of land and buildings

Items that will be reclassified as profit or loss:

Exchange differences on translation of foreign operations

Other comprehensive income/(losses) for the period, net of tax

Total comprehensive income/(losses) for the period

Profit/(loss) is attributable to:

Owners of the Company

Total comprehensive income/(losses) is attributable to: Owners of the Company

Overall operations:

Earnings per share for profit/(loss) from continuing operations attributable to the ordinary equity
holders of the Company

Basic earnings profit/(loss) per share (cents)

Diluted earnings per share (cents)

Note

2018
$

2017
$

14,210,795

16,355,404

(8,909,878)

(8,938,039)

5,300,917

531,016

7,417,365

1,800,532

(5,586,504)

(6,144,142)

(331,386)

(344,577)

(287,128)

(324,982)

(941,472)

(1,984,116)

(49,983)

(2,034,099)

(462,683)

(484,778)

57,074

(263,441)

(931,695)

(183,744)

804,487

96,094

900,581

179,179

(509,503)

(2,543,602)

(2,034,099)

(2,543,602)

(645,139)

(465,960)

434,621

900,581

434,621

(0.48)

0.21

The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes.

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 31

For personal use only

CONSOLIDATED STATEMENT OF
FINANCIAL POSITION

Note

2018
$

2017
$

1,278,873

2,184,968

872,865

6,465

1,968,744

9,204,890

856,382

156,639

1,508,465

8,728,104

13,331,837

13,434,558

1,262,848

8,080,344

5,035,034

3,999,752

18,377,978

31,709,815

2,299,323

2,310,482

115,691

4,725,496

1,750,000

1,207,104

128,091

3,085,195

7,810,691

1,226,871

108,901

10,471,069

5,298,579

3,638,436

20,743,856

34,178,414

2,612,940

278,722

260,538

3,152,200

3,250,000

1,316,458

17,030

4,583,488

7,735,688

23,899,124

26,442,726

36,857,415

(9,351,359)

(3,606,932)

23,899,124

36,857,415

(8,841,856)

(1,572,833)

26,442,726

Current assets

Cash and cash equivalents

Trade and other receivables

Derivative financial instruments

Inventories

Biological assets

Total current assets

Non-current assets

Loans to joint venture entities

Inventories

Biological assets

Property, plant and equipment

Deferred tax assets

Total non-current assets

Total assets

Current liabilities

Trade and other payables

Borrowings

Current tax liabilities

Total current liabilities

Non-current liabilities

Borrowings

Deferred tax liabilities

Provisions

Total non-current liabilities

Total liabilities

Net assets

Equity

Contributed equity

Reserves

(Accumulated losses)

Total equity

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

32 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use onlyCONSOLIDATED STATEMENT OF
CHANGES IN EQUITY

Attributable to Owners of Atlas Pearls

Contributed
Equity

Revaluation
Reserve

Share Based
Payment
Reserve

Foreign
Currency
Translation
Reserve

(Accumulated
loss)

Total
Equity

Note

Balance at 1 July 2016

Profit for the year

Exchange differences on translation of foreign operations

Revaluation of property, plant and equipment

Total comprehensive income for the period

Transactions with owners in their capacity as owners

Contributions of equity, net of transaction costs

Employee share scheme

Balance at 30 June 2017

Balances at 1 July 2017

Profit for the year

Exchange differences on translation of foreign operations

Revaluation of property, plant and equipment

Total comprehensive income / (loss) for the period

Transactions with owners in their capacity as owners

Contributions of equity, net of transaction costs

Employee share scheme

Balance at 30 June 2018

36,698,536

179,179

158,879

714,605

(9,115,083)

(2,473,414) 25,824,644

24,582

900,581

(645,139)

179,179

(645,139)

900,581

434,621

158,879

24,582

36,857,415

179,179

739,187 (9,760,222)

(1,572,833) 26,442,726

36,857,415

179,179

739,187

(9,760,222)

(1,572,833) 26,442,726

(2,034,099)

(509,503)

(2,034,099)

(2,543,602)

36,857,415

179,179

739,187 (10,269,725)

(3,606,932) 23,899,124

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 33

For personal use only
CONSOLIDATED STATEMENT OF
CASH FLOWS

Cash flows from operating activities

Proceeds from pearl, jewellery and oyster sales

Proceeds from other operating activities

Payments to suppliers and employees

Income tax (paid)

Interest paid

Interest received

Net cash (used) in operating activities

Cash flows from investing activities

Payments for property, plant and equipment

Joint venture partnership contributions (paid)

Net cash (used) in investing activities

Cash flows from financing activities

Net repayment of borrowings

Proceeds from borrowings

Net cash provided (used) in financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents at the beginning of the period

Effects of exchange rate changes on cash and cash equivalents

Cash and cash equivalents at the end of the financial year

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

Note

2018
$

2017
$

13,834,132

15,875,707

341,750

402,952

(14,175,404)

(15,529,227)

(433,886)

(270,677)

3,005

(701,080)

(517,023)

(310,669)

8,183

(70,077)

(675,794)

(1,307,180)

(221,748)

(675,794)

(1,528,928)

(1,507,622)

(3,990,904)

1,935,411

3,500,000

427,789

(490,904)

(949,085)

2,184,968

42,990

1,278,873

(2,089,909)

4,343,407

(68,530)

2,184,968

34 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use only

INDEX OF NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS

PART A: BASIS OF PREPERATION

Basis of preperation

PART B: FINANCIAL PERFORMANCE

Segment reporting

Revenue from continuing operations and other income

Biological assets

Profit / (loss) before income tax includes the following specific items

Earnings profit / (loss) per share

PART C: TAX

Tax

PART D: CASH FLOW INFORMATION

8. Cash and cash equivalents

PART E: WORKING CAPITAL

Inventories

10. Trade and other receivables

11. Trade and other payables

PART F: FIXED ASSETS

12. Property, plant and equipment

PART G: FUNDING, CAPITAL MANAGEMENT AND EQUITY

13. Borrowings

14. Derivative financial instruments

15. Contributed equity

16. Reserves

17. Dividends

PART H: FINANCIAL RISK MANAGEMENT

18. Financial risk management

PART I: UNRECOGNISED ITEMS

19. Events occurring after the reporting period

20. Commitments

21. Contingencies

PART J: OTHER

22. Subsidiaries

23. Related party transactions

24.

Interests in joint ventures

25. Parent entity financial information

26. Share based payments and options

27. Remuneration of auditors

28. Accounting policies

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 35

For personal use only

NOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

PART A BASIS OF PREPERATION

1. Basis of Preperation

1.1.

BASIS OF PREPARATION

These general purpose financial statements have been prepared in accordance with Australian Accounting Standards, and
other authoritative pronouncements of the Australian Accounting Standards Board, IFRS and the Corporations Act 2001. Atlas Pearls
is a for-profit entity for the purpose of preparing the financial statements.

The financial statements cover the consolidated entity of Atlas Pearls and its subsidiaries. Atlas Pearls is a listed public Company,
incorporated and domiciled in Australia.

A description of the nature of the consolidated entity’s operations and its principal activities is included in the review of operations and
activities in the Directors’ report which is not part of these financial statements. The financial statements were authorised for issue by the
Directors on 30 August 2018. The Directors have the power to amend and reissue the financial statements.

The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. The accounting
policies have been consistently applied to all the periods presented, unless otherwise stated.

1.2.

GOING CONCERN

The financial statements have been prepared on a going concern basis, which contemplates continuity of normal business activities and
the realisation of assets and the settlement of liabilities in the ordinary course of the business.

The net loss after tax for the Group for the year ended 30 June 2018 amounts to a loss of $2.0M (30 June 2018: $0.9M profit). At 30 June
2018 the Group had a working capital balance of $7.3M (30 June 2017: $8.1M); $9.2M (30 June 2017: $8.7M) of this balance comprised
of unharvested oysters due for harvest during the next 12 months. At 30 June 2018, the Group had a net asset position of $23.9M
(30 June 2017: $26.4M); $17.3M (30 June 2017: $19.2M) of this balance comprised of unharvested oysters.

During the year ended 30 June 2017, the Group’s debt was restructured and new investment obtained to increase oyster stocks and
drive the Group’s long term strategic plan. This strategy remains on course, with higher seeding targets and increased oyster stock.
Oyster stocks on hand (seeded and unseeded) at 30 June 2018 is 2.3M shells (30 June 17: 2.0M shells).

The Group, however, has not met its revenue forecasts for the year. Whilst the number of pieces expected to be harvested, as well as
selling prices achieved at market, have been on target, the proportion of goods harvested at a sellable grade and the overall weight of
the harvests have been lower than expected. This had an impact on the revenue result and oyster valuation for the year, as well as on
cash flow receipts.

Consequently, further cash flow funding will be required to bridge working capital requirements until the benefits of the growth strategy
can be realised. The Company has secured short term funding arrangements with commercial partners, with a view for these to be
repaid in full over the next 12 months. Funding of US$600,000 was obtained in May 2018, repayable by 30 April 2019. Funding of ¥165M
was obtained in July 2018, repayable by 30 June 2019.

The Group’s core debt facility remains in place and repayments are expected to be made on schedule. The balance of the debt owing
to the Martin Family is $3.25M at 30 June 2018. A payment of $250k was made in February 2018 as scheduled. The loan is to be repaid
in staggered payments by June 2020.

The ability of the Group to both meet its debt repayments and continue to fund its working capital requirements are dependent upon:

•
•
•
•
•

the international market for wholesale loose white south sea pearls maintaining existing demand levels and pricing;
the Group meeting its auction forecasts;
the quality of harvested pearls meeting valuation expectations;
the Group achieving profitable operations with positive operating cash flows; and
obtaining short term funding to bridge working capital requirements

These conditions indicate a material uncertainty that may cast a significant doubt about the Group’s ability to continue as a going
concern and, therefore, it may be unable to realise its assets and discharge its’ liabilities in the normal course of business.

Management have reasonable grounds to believe that the Group will continue as a going concern. The profile of the most recent pearl
harvest is an improvement on the previous six month average. Short term funding has been obtained and will enable the Company to
effectively manage its harvest schedule.

Should the Group be unable to continue as a going concern it may be required to realise its assets and discharge its liabilities other
than in the normal course of business and at amounts different to those stated in the financial statements. This financial report does
not include any adjustments relating to the recovery and classification of recorded asset amounts or the amounts or classification of
liabilities and appropriate disclosure that may be necessary should the Group be unable to continue as a going concern.

36 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use onlyNOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

PART B FINANCIAL PERFORMANCE

2. Segment reporting

The Group has identified its operating segments based on internal reports that are reviewed and used by the Board of Directors and
management team (the chief operating decision makers) in assessing performance and in determining the allocation of resources.

The operating segments are identified by management based on the manner in which the product is sold, whether retail or wholesale.
Management also considers the business from a geographical perspective and has identified four reportable segments. Discrete financial
information about each of these operating businesses is reported to the Board of Directors and management team on at least a monthly basis.

The wholesale business is a producer and supplier of pearls within the wholesale market. The retail business is the manufacture and sale of
pearl jewellery and related products within the retail market.

The accounting policies used by the Group in reporting segments are the same as those detailed throughout the financial statements and
in the prior period except as detailed below.

Inter-entity sales

Inter-entity sales are recognised based on an internally set transfer price. These transactions are eliminated within the internal reports. The
revenue from external parties reported to the chief operating decision maker is measured in a manner consistent with that in the statement
of profit or loss and other comprehensive income.

It is the Group’s policy that if items of revenue and expense are not allocated to operating segments then any associated assets and
liabilities are also not allocated to segments. This is to avoid asymmetrical allocations within segments which management believe would
be inconsistent.

2.1.

(i)

SEGMENT INFORMATION PROVIDED TO THE BOARD OF DIRECTORS AND MANAGEMENT TEAM

The segment information provided to the Board of Directors and management team for the reportable segments for the

period ended 30 June 2018 is as follows:

30 June 2018

Australia

Indonesia

Australia

Indonesia

Wholesale Loose Pearls

Jewellery

Total

Total segment revenue

Inter-segment revenue

13,145,811

12,962,715

221,473

511,665

26,841,664

(12,681,580)

Revenue from external customers

13,145,811

281,135

221,473

511,665

14,160,084

Normalised EBITDA

(2,262,887)

2,062,341

(312,602)

(48,120)

(561,269)

Adjusted net operating profit/(loss) before income tax

(2,669,656)

2,006,307

(345,686)

(64,292)

(1,073,328)

Depreciation and amortisation

Revaluation of Biological Assets

Totals segment assets

Total assets include:

149,610

56,662

33,084

16,246

255,602

(287,128)

1,921,577

23,387,021

301,816

836,207

26,446,622

Additions to non – current assets (other than financial
assets or deferred tax)

657,065

226

18,503

675,794

Total segment liabilities

(539,440)

(1,812,958)

(8,928)

(20,896)

(2,382,222)

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 37

For personal use only

NOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

(ii)

The segment information provided to the Board of Directors and management team for the reportable segments for
the period ended 30 June 2017 is as follows:

30 June 2017

Australia

Indonesia

Australia

Indonesia

Wholesale Loose Pearls

Jewellery

Total

Total segment revenue

Inter-segment revenue

15,343,728

12,141,560

370,470

351,104

28,206,862

(11,905,271)

Revenue from external customers

15,343,728

236,289

370,470

351,104

16,301,591

Normalised EBITDA

(288,056)

1,843,201

(394,221)

(145,670)

1,015,254

Adjusted net operating profit/(loss) before income tax

(938,190)

1,719,381

(433,026)

(161,670)

Depreciation and amortisation

Revaluation of Biological Assets

Totals segment assets

Total assets include:

Additions to non – current assets
(other than financial assets or deferred tax)

309,420

106,455

57,074

38,125

16,030

3,267,839

24,722,448

450,387

871,896

29,312,571

1,464,843

3,109

18,409

1,486,361

186,495

470,030

57,074

Total segment liabilities

(656,239)

(1,914,665)

(34,023)

(20,594)

(2,625,521)

2.2.

OTHER SEGMENT INFORMATION

(i)

Segment revenue

Segment revenue reconciles to total revenue from continuing operations in the statement of profit or loss and other
comprehensive income as follows:

Total Segment Revenue

Intersegment eliminations

Interest income

Other revenues

Total revenue from continuing operations (Note 3)

Major customers by country

2018
$

2017
$

26,841,664

28,206,862

(12,681,580)

(11,905,271)

48,605

2,106

53,813

14,210,795

16,355,404

(ii)

Adjusted net operating profit

The Board of Directors and the management team review on a monthly basis the performance of each segment by analysing
the segment’s net operating profit before tax. A segment’s net operating profit before tax excludes non-operating income
and expense such as interest paid and received, foreign exchange gains and losses whether realised or unrealised, fair value
gains and losses and impairment charges.

38 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use only

NOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of adjusted net operating profit/(loss) before income tax is provided as follows:

Net Operating Profit Before Tax

Changes in fair value of biological and agricultural assets

Foreign exchange gains

Foreign exchange losses

Other

Profit/(loss) before income tax from continuing operations

(iii)

Segment assets

Assets are allocated based on the operations of the segment and the physical location of the asset.

Reportable segments’ assets are reconciled to total assets as follows:

Segment Assets

Unallocated:

Joint Venture Loans

Deferred tax assets

Total assets as per the statement of financial position

2018
$

2017
$

(1,073,328)

186,495

(612,110)

(206,367)

473,996

1,331,955

(622,501)

(733,814)

(150,174)

(1,984,116)

226,218

804,487

2018
$

2017
$

26,446,622 29,312,571

1,263,441

1,227,407

3,999,752

3,638,436

31,709,815 34,178,414

The total of non-current assets other than financial instruments and deferred tax assets located in Australia is $916,388
(30 June 2017: $1,139,452). The total located in Indonesia is $15,400,741 (30 June 2017: $16,389,934).

(iv)

Segment liabilities

Liabilities are allocated based on the operations of the segment and the physical location of the asset.

Reportable segments’ liabilities are reconciled to total liabilities as follows:

Segment Liabilities

Unallocated:

Current tax liabilities

Borrowings

Deferred tax liabilities

Other

Total liabilities as per the statement of financial position

(v)

Normalised EBITDA reconciliation

Net profit before tax

Finance/Interest paid

Depreciation/Amortisation

FX (gain)/loss

Agriculture standard revaluation

Other non-operating (income)/expense

(Gain) / Loss on derivative instruments

Normalised EBITDA

2018
$

2017
$

2,382,222

2,625,521

115,691

260,538

4,060,482

3,528,722

1,207,104

1,316,453

45,192

4,454

7,810,691

7,735,688

2018
$

2017
$

(1,984,116)

256,458

255,601

804,487

256,886

470,030

148,504

(598,095)

612,110

206,367

285,812

150,174

(409,963)

(561,269)

1,015,524

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 39

For personal use only
NOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

Revenue from Continnuing Operations

3.1.

REVENUE FROM CONTINUING OPERATIONS

SALES REVENUE

Sale of goods

OTHER REVENUE

Interest income

Other Revenues

Total revenue from continuing operations

3.2. OTHER INCOME

Foreign exchange gains

Grant funds

Gain on derivative financial instruments

Gain on sale of assets

Total other income

SIGNIFICANT ACCOUNTING POLICY

2018
$

2017
$

14,160,084 16,301,591

48,605

2,106

53,813

14,210,795 16,355,404

2018
$

2017
$

473,996

1,331,955

56,721

299

58,614

409,963

531,016

1,800,532

Revenue from sales is recognised at the fair value of consideration received or receivable, after deducting sales taxes, when the control of a good or service
transfers to the customer. Amounts disclosed as revenue are net of returns, trade allowances, rebates and amounts collected on behalf of third parties.

The following specific recognition criteria must also be met before revenue is recognised:

Sales Revenue comprises of revenue earned from the sale of products or services to entities outside the economic entity. Sales revenue is
recognised when the goods are provided or when the fee in respect of services provided is receivable.

Interest Income is recognised as it accrues.

4. Biological Assets

CURRENT

Oysters – at fair value

Total current biological assets

NON CURRENT

Oysters – at fair value

Total non-current biological assets

Total biological assets

40 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

2018
$

2017
$

9,204,890

8,728,104

9,204,890

8,728,104

8,080,344 10,471,069

17,285,234 19,199,173

For personal use only

NOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

Biological Assets recognised as current assets on the Statement of Financial Position represent the estimated value of the pearls to be
harvested within the next 12 months. The details of the Biological Assets that are held by the Group as at period end are as follows:

QUANTITY HELD WITHIN THE GROUP OPERATIONS

NUMBER OF PEARLS HARVESTED

Juvenile & mature oysters not seeded 2017 : 1,035,169

Juvenile & mature oysters not seeded 2018 : 1,182,571

Nucleated oysters 2017 : 950,588

Nucleated oysters 2018 : 1,146,707

No significant events occurred which impacted on oyster mortalities during the financial year.

2017: 374,046

2018: 410,411

SIGNIFICANT ACCOUNTING POLICY

Agricultural assets include pearl oysters, both seeded and unseeded. Seeded oysters are measured at their fair value less estimated husbandry costs. The
fair value of these biological assets is determined by using the present value of expected net cash flows from the oysters, discounted using a pre-tax
market determined rate. The fair value of unseeded oysters is determined by reference to market prices for this type of asset in Indonesia.

Changes in fair value less estimated husbandry costs of these assets are recognised in the consolidated statement of profit or loss and other comprehensive
income in the period they arise.

The Group is exposed to financial risk in respect of its involvement in primary production which consists of the breeding and rearing
of oysters for the purpose of producing pearls. The primary financial risk associated with this activity occurs due to the length of time
between the expenditure of cash in relation to the operation of the farm and the harvesting of the pearls and realisation of cash receipts
from the sales to third parties. The Group ensures that it maintains sufficient working capital to ensure that it can sustain its operation
through any delays in cash flow that may be reasonably foreseen.

Level 3 analysis: The finance and operations departments undertake the valuation of the oysters. The calculations are considered to be
level 3 fair values. The data is taken from internal management reporting and work completed by the executive within the respective
field teams to determine the material inputs to the model. The key production inputs are confirmed with the relevant executives and
agreed with the Board of Directors every six months. These are listed in note 4.1.

4.1.

KEY PRODUCTION ASSUMPTIONS

The key assumptions utilised to determine the fair market value of oysters are detailed below:

Input

2018

2017

Commentary

Average selling price

¥12,600 per
momme

¥12,300 per
momme

Obtained by analysing sales prices achieved and the trend analysis of the
past 12 months of average sales prices.

Yen exchange rate

¥81.90: AUD 1

¥86.15: AUD 1

Based on forward Yen price per a financial institution.

Average pearl size

0.44

Proportion of marketable grade

41%

20%

Discount rate

Mortality

0.49

48%

20%

Based on technical assessment of expected harvest output, and taking
into account historical actual results over the past 12 months

Based on historical data for pearl grade over the last 12 months

Based on analysis of comparable primary producers.

Historical

Based on historical harvest mortality rates

Average unseeded oyster value

$2.04

Costs to complete

$0.76

$1.50

$0.76

Based on independent valuation

Based on historical averages of costs to complete and sell pearls per
momme.

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 41

For personal use only

NOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

4.2.

SENSITIVITY ANALYSIS - OYSTERS

The following tables summarise the potential impact of changes in the key non-production related variables on the oyster valuation:

Selling Price (¥/momme)

-10%

No Change

+10%

¥11,340 (Sellable Grade)
¥1,800 (Commercial Grade)

¥12,600 (Sellable Grade)
¥2,000 (Commercal Grade)

¥13,860 (Sellable Grade)
¥2,200 (Commercial Grade)

Discount rate

22%

20%

18%

Profit $

($856,429)

($452,776)

($31,931)

Profit $

($403,653)

$420,845

Profit $

$49,123

$452,776

$873,622

-10%

No Change

+10%

Selling Price (¥/momme)

¥11,340 (Sellable Grade)
¥1,800 (Commercial Grade)

¥12,600 (Sellable Grade)
¥2,000 (Commercal Grade)

¥13,860 (Sellable Grade)
¥2,200 (Commercial Grade)

FX Rate

90.09

81.90

73.71

Av. Weight

0.49

0.44

0.40

Profit $

($3,062,503)

($452,776)

$2,777,044

-10%

37% (Sellable %)
63% (Commercial %)

Profit $

$605,353

($1,964,032)

($4,434,750)

Profit $

($2,653,045)

($287,129)

$3,283,405

Sellable %

No Change

41% (Sellable %)
59% (Commercial %)

Profit $

$2,765,788

($287,129)

($2,659,396)

Profit $

($2,243,587)

$452,776

$3,789,766

+10%

45% (Sellable %)
55% (Commercial %)

Profit $

$4,933,707

$1,970,835

($877,919)

5. Profit / (loss) before income tax includes the following specific items

5.1.

ADMINISTRATION EXPENSES FROM ORDINARY ACTIVITIES

Salaries and wages

Depreciation property, plant and equipment and amortisation of intangible assets

Operating lease rental costs

Compliance and Accounting

Other

Total administration expenses

2018
$

2017
$

3,242,808

3,530,469

255,602

470,030

612,062

522,288

558,600

474,951

917,432

1,146,404

5,586,504

6,144,142

42 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use onlyNOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

5.2.

FINANCE COSTS

Interest and finance charges payable

Total finance costs

5.3.

OTHER EXPENSES

Loss on foreign exchange

Loss on derivative financial instruments

Provision for employee entitlements

Share option expense

Other

Total other expenses

6. Earnings profit / (loss) per share

Basic earnings/(loss) per share (cents per share)

Diluted earnings per share (cents per share)

6.1. EARNINGS RECONCILIATION

Net profit/(loss) used for basic earnings

After tax effect of dilutive securities

Diluted earnings/(loss)

2018
$

331,386

2017
$

462,683

2018
$

622,501

150,174

2017
$

733,814

92,641

116,670

76,156

24,582

56,629

941,472

931,695

2018
$

(0.48)
-

2017
$

0.21
0.21

2018
$

2017
$

(2,034,099)

900,581

(2,034,099)

900,581

2018
No.

2017
No.

Weighted average number of ordinary shares outstanding during the period used for calculation of basic earnings per share

422,218,298 421,525,077

Adjustments for calculation of diluted earnings per share: options

Weighted average number of potential ordinary shares outstanding during the period used for calculation
of diluted earnings per share

3,000,000 4,500,000

425,218,298 426,025,077

Diluted earnings per share is calculated after taking into consideration all options and any other securities that were on issue that remain
unconverted at 30 June 2018 as potential ordinary shares which may have a dilutive effect on the profit of the Consolidated Group.

Ordinary shares issued to employees under the Employee Share Plan are considered to be potential ordinary shares and have been
included in the determination of diluted earnings per share to the extent that they are dilutive.

SIGNIFICANT ACCOUNTING POLICY

Basic earnings per share

Basic earnings per share is determined by dividing net profit after income tax attributable to members of the Company, excluding any costs of servicing
equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial period, adjusted for bonus
elements in ordinary shares issued during the period. Refer to Note 26.1 for further detail.

Diluted earnings per share

Diluted earnings per share adjusts the figure used in determination of basic earnings per share to take into account the after income tax effect of interest
and other financial costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for
no consideration in relation to dilutive potential ordinary shares. Refer to Note 26.1 for further detail.

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 43

For personal use only

NOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

7. Tax

7.1.

INCOME TAX EXPENSE

PART C TAX

(a) The components of tax expense/(benefit) comprise:
Current tax
Deferred tax
Income tax expense/(benefit)

(b) Deferred income tax (revenue) expense included in income tax expense comprises:

Decrease/(increase) in deferred tax assets (excluding tax losses) (note 7.2)
Decrease/(increase) to opening balances
(Decrease)/increase in deferred tax liabilities (note 7.2)
Deferred tax expense/(benefit)

Profit/(loss) before income tax expense

Tax at the Australian tax rate of 27.5%

Tax effect of amounts which are not deductible in calculating taxable income:

Non-deductible expenses
Sundry items
Permanent differences
Difference in overseas tax rates
De-recognition of assets
Income tax under(over) provided in prior years
Income tax expense/(benefit)

Weighted average effective tax rates

(d) Deferred income tax at 30 June relates to the following:
Deferred tax liabilities
Fair value adjustment on biological assets
Prepayments
Derivative financial instruments
Investment in subsidiary
Unrealised foreign exchange gain

Deferred tax assets
Difference in accounting and tax depreciation
Stock
Accruals
Provisions
Other
Tax losses

Investment

Intangible Asset

Deferred tax/(income)

For details of the franking account, refer to Note 17

44 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

2018
$

2017
$

520,651 505,893
(601,986)
(96,094)

(470,668)
49,983

(1,044,821)
687,483
(113,330)
(470,668)

(602,629)
-
643
(601,986)

(1,984,116)
(545,632)

804,487
241,346

72,586
183,827
(24,691)
(3,544)
367,437
-
49,983

66,750
22,322
(34,331)
(93,566)
400,840
(699,454)
(96,094)

-3%

63,859
277
45,214
-
-

14,270
189
(1,120)
(11,302)
(1,394)

(6,167)
18,711
1,900
46,689
615
324,881

(7,934)
24,935
(18,884)
(37,265)
(15,036)
1,010,482

(25,311)

(285,669)

(69,287)

470,668

601,986

For personal use only

NOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

7.2.

TAX ASSETS AND LIABILITIES

(a) Liabilities

CURRENT

Income tax payable

NON-CURRENT

Deferred tax liabilities comprises temporary differences attributable to:

Agricultural and biological assets at fair value

Prepayments

Current derivative instruments

Total deferred tax liabilities

(b) Assets

Deferred tax assets comprises temporary differences attributable to:

Tax allowances relating to property, plant & equipment

Agricultural and biological assets at fair value

Accruals

Provisions

Impairment of loans

Other

Tax losses recognised

Total deferred tax assets

2018
$

2017
$

115,691

260,538

1,204,885

1,268,744

441

1,778

718

46,996

1,207,104

1,316,458

19,265

88,440

22,150

443,406

277,908

47,763

25,432

69,731

20,250

396,717

303,219

47,150

898,932

862,499

3,100,820

2,775,937

3,999,752

3,638,436

The Company believes that the deferred tax asset relating to tax losses recognised is available to be carried forward based upon the
Company’s projections of future taxable amounts.

The overall movement in deferred tax account is as follows:

Opening balance

(Charge)/credit to statement of profit or loss and other comprehensive income

(Charge)/credit for adjustment to Australian tax

Closing balance

2,321,982

1,719,996

1,158,151

601,986

(687,483)

2,792,650

2,321,982

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 45

For personal use onlyNOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

SIGNIFICANT ACCOUNTING POLICY

The income tax expense or benefit for the period is the tax payable on the current period’s taxable income based on the applicable tax rate for each
jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the
countries where the Company’s subsidiaries operate and generate taxable income. It establishes provisions where appropriate on the basis of amounts
expected to be paid to the tax authorities.

In April 2017, the Australian Government passed legislation which reduces the corporate rate for small and medium business entities from 30% to 25%
over the next decade. As Atlas Pearls has a turnover of more than $10M but less than $50M it qualifies as a medium business entity and the effective tax
rate of 27.5%. Atlas Pearls will be subject to the reduced rates from the 2016-17 income year onwards.

Consequently, Atlas Pearls has remeasured its deferred tax balances based on the effective tax rate that will apply in the year the temporary differences
are expected to reverse. The impact of the change in tax rate has been recognised as a tax expense in profit or loss, except to the extent that it relates to
items previously recognised outside profit or loss.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an
asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.
Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to
apply when the related deferred income tax asset is realised, or the deferred income tax liability is settled.

Deferred tax is credited in the consolidated statement of profit or loss and other comprehensive income except where it relates to items that may be
credited directly to equity, in which case the deferred tax is adjusted directly against equity.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only to the extent that it is probable that future taxable
amounts will be available to utilise those temporary differences and losses.

Deferred tax liabilities and assets are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax
balances relate to the same taxation authority. Current tax assets and liabilities are offset where the entity has a legally enforceable right to offset and
intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

PART D CASH FLOW INFORMATION

8. Cash and Cash Equivalents

Cash at bank

Balances per statement of cash-flows

Risk exposure

2018
$

2017
$

1,278,873

2,184,968

1,278,873

2,184,968

The Group’s exposure to interest rate risk is disclosed in note 18. The maximum exposure to credit risk at the reporting date is the carrying
amount of each class of cash and cash equivalents mentioned above.

Cash not available for use

The Group has cash held as a guarantee as part of their obligations under their lease agreement totalling $100,000 (30 June 2017: $100,000).

8.1.

NOTES TO THE CASH FLOW STATEMENT

8.1.1. RECONCILIATION OF CASH

For the purposes of the statement of cashflows, and in line with the accounting policy, cash and cash equivalents includes cash
on hand, deposits held at call with financial institutions, other short-term, high liquid investments with original maturity or three
months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in
value, and bank overdrafts.

Cash at the end of the financial period as shown in the statement of cashflows is reconciled to the related items in the Statement
of Financial Performance as noted above.

46 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use only

NOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

8.1.2. RECONCILIATION OF PROFIT/(LOSS) AFTER INCOME TAX TO NET CASH INFLOW FROM OPERATING ACTIVITIES

Profit/(loss) after income tax

Depreciation and amortisation

(Gains)/losses on Equity Investments

Investment income

Share based payments

Foreign exchange (gain)/losses unrealised

Derivative instrument (gains)/losses unrealised

Agricultural asset fair value (gains)/losses

Decrease/(increase) in trade and other debtors

Decrease/(increase) in inventories

(Decrease)/increase in trade and other creditors

Increase/(decrease) in provision

Increase/(decrease) in taxes

Net cash obtained/ (used in) operating activities

2018
$

2017
$

(2,034,099)

255,601

(45,600)

244,839

900,581

470,030

183,744

(57,896)

24,582

(16,644)

150,174

(409,963)

612,110

206,367

(29,552)

(130,366)

950,451

(340,220)

(188,879)

37,598

53,223

50,042

(653,723)

(1,003,557)

(701,080)

(70,077)

As at the date of this report the Company has not entered into any non-cash financing or investing activities.

8.1.3. CREDIT FACILITIES

As at 30 June 2018, the Company had in place a bank overdraft loan facility with the National Australia Bank with a limit of $1.5M
(30 June 2017: $1.0M).

8.1.4. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES

Opening
Balance
2017
$

Cash
Flows
$

Acquisition
$

Foreign
Exchange
Movements
$

Fair Value
Changes
$

Reclassification
in Balance
Sheet
$

Closing
Balance
2018
$

Non-Cash Changes

Long-term borrowings

3,250,000

Short-term borrowings

278,722

427,789

Lease liabilities

Assets held to hedge
long-term borrowings

Total liabilities from
financing activities

3,528,722

427,789

103,971

(1,500,000)

1,500,000

1,750,000

2,310,482

4,060,482

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 47

For personal use onlyNOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

PART E WORKING CAPITAL

9. Inventories

CURRENT

Pearls

Jewellery

Other inventory

Total current inventory

NON CURRENT

Nuclei

Total non-current inventory

2018
$

2017
$

1,161,282

495,532

808,462

939,062

73,871

1,968,744

1,508,465

108,901

1,968,744

1,617,366

SIGNIFICANT ACCOUNTING POLICY

Pearls: Pearl inventory is held at cost and value assessed based on the cost of oyster stock at time of harvest. At each reporting date, pearl inventory is
reviewed to ensure it is valued at the lower of cost and net realisable value. At 30 June 2018, a write off of pearl stocks of $324,982 has been recorded
(30 June 2017: $263,441) to bring the value in line with the assessed net realisable value.
Nuclei: Quantities on hand at the period end are valued at the lower of cost and net realisable value.
Other inventory: Including cosmetics, fuel, mechanical parts and farm spares at the period end are valued at the lower of costs and net realisable value.
Net Realisable Value: Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.

10. Trade and Other Receivables

CURRENT

Trade receivables

Provision for doubtful debts

Net trade receivables

Sundry debtors & prepayments

Total trade & other receivables

(a) Impaired trade receivables

2018
$

2017
$

341,036

349,331

(3,665)

(43,090)

337,371

306,241

535,494

550,141

872,865

856,382

At 30 June 2018, an impairment of $3,665 has been booked in relation to trade receivables. This relates to debts owing from a
wholesale customer which is past due by more than three months and which management have deemed at risk of not being collected.
Management are actively pursuing recovery of the debt.

48 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use only
NOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

(b) Past due but not impaired

As at 30 June 2018, trade receivables of $12,363 (30 June 2017: $56,726) were past due but not impaired in the Group. Within the Group
these relate to a small number of independent customers for whom there is no recent history of default. Given the past history with
these customers no impairment has been recognised in the financial period. The ageing analysis of these trade receivables is as follows:

Up to one month

2-3 months

3 months and above

2018
$

2017
$

5,108

2,868

4,387

53,546

3,180

12,363

56,726

The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivables mentioned above.
Refer to note 18 for more information on the risk management policy of the Group and the credit quality of the entity’s trade receivables.

11. Trade and Other Payables

CURRENT

Trade payables

Other payables and accrued expenses

Total current trade and other payables

NON-CURRENT

Other payables and accrued expenses

Total non-current trade and other payables

2018
$

2017
$

425,668

520,963

1,745,564

2,091,977

2,171,232

2,612,940

128,091

Other payables include accruals for annual leave and employee benefits of $1,574,103, and (30 Jue 2017: $1,647,565) in the consolidated
entity. Non-current other payables comprises of accrued long service leave for employees with more than five year tenure with the Company
and provision for make good of commercial rent.

SIGNIFICANT ACCOUNTING POLICY

Trade Payables represent liabilities for goods and services provided to the Group prior to the end of the financial period which are unpaid. These amounts
are unsecured and are usually settled within 30 days of recognition.

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 49

For personal use only

NOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

PART F FIXED ASSETS

12. Property, plant and equipment

(a) Non-Pearling Assets

Plant and equipment

- at cost

- accumulated depreciation

Leasehold improvements

- at cost

- accumulated depreciation

Total non-pearling assets

(b) Pearling project

Land (leasehold and freehold) and buildings

- at cost

- accumulated depreciation

Plant and equipment, vessels, vehicles

- at cost

- accumulated depreciation

Total pearling project

Total property, plant and equipment

2018
$

2017
$

1,096,538

1,137,838

(851,950)

(782,898)

244,588

354,940

1,032,844

1,045,347

(654,949)

(586,044)

377,895

622,483

459,303

814,243

2,211,080

2,861,215

(436,722)

(391,702)

1,774,358

2,469,513

7,376,010

6,361,985

(4,737,817)

(4,347,162)

2,638,193

2,014,823

4,412,551

4,484,336

5,035,034

5,298,579

Included in Pearling project land (leasehold and freehold) and buildings is $532,797 (30 June 2017: $1,519,873) which represents construction
of buildings in progress at cost.

Reconciliations of the carrying amount for each class of property, plant and equipment are set out below:

(a) Non-Pearling Assets

Plant and equipment

Carrying amount at beginning of the year

Additions

Reclassifications /Disposals

Depreciation

Foreign exchange movement

Carrying amount at end of the year

Leasehold Improvements

Carrying amount at beginning of the year

Additions

Reclassifications/Disposals

Depreciation

Foreign exchange movement

Carrying amount at end of the year

50 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

2018
$

2017
$

354,940

18,730

(5,536)

457,918

21,518

(123,260)

(107,936)

(286)

244,588

(16,560)

354,940

459,303

543,894

(75,616)

(5,792)

377,895

(76,066)

(8,525)

459,303

For personal use onlyNOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

(b) Pearling project

Leasehold land and buildings

Carrying amount at beginning of the year

Additions

Revaluation of freehold land

Depreciation

Foreign exchange movement

Carrying amount at end of the year

Plant and equipment, vessels, vehicles

Carrying amount at beginning of the year

Additions

Disposals / reclassifications

Depreciation

Foreign exchange movement

Carrying amount at end of the year

Total Carrying amount

Reconciliation of depreciation to the Statement of Profit or Loss and Other Comprehensive Income:

Depreciation charge (Note 12)

Capitalised depreciation charge

Depreciation of property, plant and equipment

Depreciation of PPE

Amortisation of Intangible Asset

Depreciation charge (Note 5)

2018
$

2017
$

2,469,513

1,327,333

509,576

1,073,500

(1,068,764)

179,179

(57,471)

(54,376)

(78,496)

(56,123)

1,774,358

2,469,513

2,014,822

2,411,670

147,488

212,164

1,068,764

(528,837)

(506,807)

(64,044)

(102,204)

2,638,193

2,014,823

5,035,034

5,298,579

2018
$

2017
$

(785,184)

(745,185)

529,582

437,124

(255,602)

(308,061)

(255,602)

(308,061)

(161,969)

(255,602)

(470,030)

SIGNIFICANT ACCOUNTING POLICY

Each class of property, plant & equipment is stated at historical cost less, where applicable, any accumulated depreciation and impairment losses. The
carrying value of property, plant and equipment and their useful lives are reviewed annually by management to ensure it is not in excess of the recoverable
amount of these assets which is assessed on the basis of the expected net cash flows that will be received from the assets employed and subsequent
disposal.

The cost of fixed assets constructed within the economic entity includes the cost of materials and direct labour. Repairs and maintenance carried out on
the assets are expensed unless there is a future economic benefit that will flow to the Group which can be reliably measured, in which case the value of
the asset is increased. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the consolidated
statement of profit or loss and other comprehensive income.

Depreciation on property, plant and equipment is calculated on a straight-line basis so as to write off the cost or valuation of property, plant and equipment
over their estimated useful lives commencing from the time the asset is held ready for use. The depreciation rates used for each class of depreciable assets
are unchanged: Freehold Land (5-10%), Leasehold land & buildings improvements (5-10%), Vessels (10%), and Plant and Equipment (10-50%).

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 51

For personal use only

NOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

PART G FUNDING, CAPITAL MANAGEMENT AND EQUITY

13. Borrowings

CURRENT

Other loans

Total current borrowings

NON CURRENT

Other loans

Total non-current borrowings

Total borrowings

2018
$

2017
$

2,310,482

278,722

1,750,000

3,250,000

1,750,000

3,250,000

4,060,482

3,528,722

Refer to Note 18.4 for disclosures on financing arrangements currently in place.

SIGNIFICANT ACCOUNTING POLICY

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference
between the proceeds and the redemption amount is recognised in the statement of profit or loss and other comprehensive income over the period of
the borrowings using the effective interest rate method.

Fees paid on the establishment of loan facilities, which are not an incremental cost relating to the actual draw down of the facility, are recognised in the
statement of profit or loss and other comprehensive income.

Borrowings are removed from the statement of financial position when the obligation specified in the contract is discharged, cancelled or expired.
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.

14. Derivative Financial Instruments

Forward foreign exchange contracts

SIGNIFICANT ACCOUNTING POLICY

2018
$

6,465

2017
$

156,639

Derivative instruments are initially measured at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair
value at each reporting date. The Group is party to derivative financial instruments in the normal course of business in order to hedge a proportion of the
exposure to fluctuations in foreign exchange rates in accordance with the Groups financial risk policies (refer note 18).
Derivative financial assets and liabilities comprise forward exchange contracts and non-deliverable forwards. Gains and losses arising from changes in fair
value of foreign exchange hedging contracts are recognised in the statement of profit or loss and other comprehensive income in the period in which
they arise.
The Groups operating expenses mainly consist of materials and services purchased in Indonesian Rupiah. During the period ended 30 June 2018 the
Group has entered into non deliverable forwards to sell Australian Dollars and receive Indonesian Rupiah. The sale of pearls is denominated in Japanese
Yen and so the Group has entered into forward exchange contracts and options to sell Japanese Yen and receive Australian Dollars.

52 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use only

NOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

15. Contributed equity

Issued and fully paid-up capital

Ordinary Shares

Balance at beginning of period

Shares issued

Share transaction costs

Balance at end of period

Treasury Shares

Balance at beginning of period

Shares released

Balance at end of period

2018

2017

No. of Shares

No. of shares

2018

2017

422,909,620

424,809,620

38,857,415

424,809,620

421,280,906

36,857,415

36,698,536

3,528,714

158,879

424,809,620

36,857,415

3,062,138

4,117,694

(1,055,556)

3,062,138

Treasury shares are shares in Atlas Pearls that are held by the Atlas Pearls Ltd Executive Share Plan Trust for the purpose of issuing shares
under the Atlas South Sea Pearl Employee share plan. No treasury shares were issued over the course of financial year ended 30 June 2018 to
employees as part of the Atlas employee share salary sacrifice plan (30 June 2017: 1,055,556).

(i)

Rights

Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’
meetings. In the event of winding up of the Company, ordinary shareholders rank after all other shareholders (where applicable) and creditors
and are fully entitled to any proceeds of liquidation in proportion to the number of shares held.

(ii)

Options

There are 3,000,000 unlisted options on issue at 30 June 2018. Information relating to the Atlas Limited Employee Option Plan, including
details of options issued, exercised and lapsed during the financial year and the options outstanding at the end of the reporting period, is
set out in note 26.

(iii)

Capital Risk Management

The Group’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue
to provide returns to shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost
of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders,
return capital to shareholders, issue new shares or sell assets to reduce debt. The Group has a net gearing ratio of 17% at 30 June 2018
(30 June 2017 : 13%)

The Group has no external requirements imposed upon it in relation to capital structure.

SIGNIFICANT ACCOUNTING POLICY

Ordinary share capital is recognised at the fair value of the consideration received by the Company and recognised in equity.
Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received.

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 53

For personal use only
NOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

16. Reserves

Foreign Currency Translation Reserve

Employee Share wReserve

Revaluation Reserve

Total Reserves

Movements:
Foreign Currency Translation Reserve1

Balance at beginning of year

Currency translation differences arising during the Year

Balance at end of year

Employee Share Reserve2

Balance at beginning of period

Movement in Employee Share Reserve

Balance at end of year

Revaluation Reserve3

Balance at beginning of period

Movement in Revaluation Reserve

Balance at end of year

2018
$

2017
$

(10,269,725)

(9,760,222)

739,187

179,179

739,187

179,179

(9,351,359)

(8,841,856)

(9,760,222)

(9,115,083)

(509,503)

(645,139)

(10,269,726)

(9,760,222)

739,187

714,605

24,582

739,187

179,179

The foreign currency translation reserve records exchange differences arising on translation of foreign controlled subsidiaries to the reporting currency.

The employee share reserve records the value of equity portion of remuneration paid to employees in the form of shares or other equity instruments.

The revaluation reserve records the value of increase in the carrying value of assets as a result of revaluation.

17. Dividends

Dividend Franking Account

2018
$

2017
$

Franking credits available to shareholders of the Company for subsequent financial years based on a tax rate of 27.5%.

1,305,572

1,278,704

The above amounts represent the balance of the franking account as at the end of the financial period adjusted for:

(i)

(ii)

(iii)

Franking credits that will arise from the payment of the amount of the provision for income tax;

Franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and

Franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.

SIGNIFICANT ACCOUNTING POLICY

A Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the
end of the period but not distributed at reporting date.

No dividends have been paid or declared in respect of the 2018 financial year or the period ended 30 June 2017.

54 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use only

NOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

PART H FINANCIAL RISK MANAGEMENT

18. Financial risk management
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk
and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise
potential adverse effects on the financial performance of the Group. The Group uses derivative financial instruments such as foreign
exchange contracts to hedge certain risk exposures. Derivatives are exclusively used for hedging purposes, i.e. not as trading or speculative
instruments. The Group uses different methods to measure different types of risk to which it is exposed. The Group uses sensitivity analysis in
the case of interest rate and foreign exchange risks and aging analysis for credit risk. Risk management is carried out by the Board of Directors
and Senior Management.

The Group holds the following financial instruments:

Financial Assets

Cash and cash equivalents

Trade and other receivables

Derivative financial instruments

Total financial assets

Financial Liabilities

Trade and other payables

Borrowings

Total financial liabilities

18.1.

MARKET RISK

(i) Foreign exchange risk

2018
$

2017
$

1,278,873

2,184,968

361,707

326,396

6,465

156,639

1,647,045

2,668,003

426,668

525,009

4,060,482

3,528,722

4,487,150

4,053,731

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with
respect to the Japanese Yen, Indonesian Rupiah and US Dollars.

Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that
is not the entity’s functional currency and net investments in foreign operations. The risk is measured using sensitivity analysis and cash
flow forecasting.

Management manages their foreign exchange risk against their functional currency. Group companies are required to hedge a
proportion of their foreign exchange risk exposure arising from future commercial transactions and recognised assets and liabilities
using forward exchange contracts and options under the guidance of the Board of Directors.

The majority of the Group’s cash reserves are held in Australian banks with AAA ratings.

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 55

For personal use onlyNOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

Group Sensitivity Analysis

Sensitivity analysis is based on exchange rates in US Dollars and Japanese Yen increasing or decreasing by 10% and the effect on profit
and equity.

Statement of
Financial Position
Amount

AUD

Foreign Exchange Rate Risk

30 June 2018

30 June 2017

-10%

10%

-10%

10%

Profit

Equity

Profit

Equity

Profit

Equity

Profit

Equity

Financial Assets

Cash

2018

2017

1,278,873

2,184,968

Trade and other receivables

361,707

326,396

Derivatives

Financial Liabilities

6,465

156,639

17,236

27,992

1,460

Trade and other payables

426,668

525,009

(4,431)

Borrowings

Derivatives

4,060,482

3,528,722

(90,054)

(741)

Total Increase/(Decrease)

(48,539)

(14,102)

(22,902)

(1,194)

3,626

73,680

607

39,714

5,249

20,650

17,404

(4,091)

39,212

(4,294)

(16,895)

(14,240)

3,347

(32,082)

The majority of the exposure above relates to borrowings held in USD. Trade debtors relates to sales made in JPY. Current borrowings
are all held in AUD and USD. Not shown in the table above is the exposure to exchange movements on the intercompany loans made
to the Indonesian subsidiaries. The loans are held in IDR and revalued to AUD at each year end. The loan balance as at 30 June 2018 was
$2,606,814 (30 June 2017: AUD$2,463,005). The intercompany loans are eliminated on consolidation.

(ii) Cash flow and fair value interest rate risk

The Group’s main interest rate risk arises from its borrowings. Current borrowings are repayable by 30 April 2019 and non-current
borrowings are repayable by 30 June 2020, both are at fixed interest rates. As such the Group considers that any fair value interest rate
risk or cash flow risk will be immaterial.

(iii) Price risk

The Group is exposed to fluctuations in pearl prices. This product is not traded as a commodity on an open market and as such the price
risk cannot be hedged.

18.2.

CREDIT RISK

Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, derivative financial instruments, as well as
credit exposures to wholesale and retail customers, including outstanding receivables. The Group considers the credit quality of the
customer, taking into account its financial position, past experience and other factors. Sales to retail customers are required to be settled
in cash or using major credit cards, thus mitigating credit risk.

The maximum exposure to credit risk at the reporting date is the carrying amount of the financial assets as summarised on page 55. For
retail customers without credit rating the Group generally retains title over the goods sold until payment is received in full.

All cash balances held at banks are held at internationally recognised institutions. The Australian Government has guaranteed all
deposits held with Australian banks, cash held in Indonesia is not covered by this guarantee. The majority of other receivables held are
with related parties and within the Group. Given this the credit quality of financial assets that are neither past due or impaired can be
assessed by reference to historical information about default rates.

Trade receivables

Wholesale customers – existing customers previous defaults

Derivative financial assets

56 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

2018
$

2017
$

312,055

305,348

6,465

156,639

For personal use only

NOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

18.3.

LIQUIDITY RISK

Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of
committed credit facilities and the ability to close out market positions. The Group manages liquidity risk by continuously monitoring
forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Management aims at maintaining
flexibility in funding by keeping committed credit lines available. Surplus funds are generally only invested in instruments such as
term deposits that are highly liquid. Management monitors rolling forecasts of the Group’s liquidity reserve (comprising the undrawn
borrowing facilities below) and cash and cash equivalents (Note 8) on the basis of expected cash flows. This is generally carried out by
the Senior Management and the Board of Directors on a Group basis. In addition, the Group’s liquidity management policy involves
projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these and monitoring debt
financing plans.

18.4.

FINANCING ARRANGEMENTS

The Group had access to the following borrowing facilities at the reporting date.

Fixed rate

Foreign currency trade loans

Overdraft facility (NAB)

2018
$

2017
$

810,482

1,500,000

1,000,000

2,310,482

1,000,000

•

During the period ended 30 June 2018, the Company has agreed to an additional $500,000 to the existing $1,000,000 working
capital overdraft facility with the National Australia Bank (NAB). The overdraft facility will be secured by a registered company
charge over the Company’s Assets. As at 30 June 2018, no amount has been drawn down on this facility.

A repayment of $250,000 has been made to the debt financing package of $3,500,000 from Mr. Martin (Non-Executive Director) and the
Martin Family (a related party) in February 2018. The loan commenced in January 2017 and is repayable over a three year period at a
7.5% interest rate, in staged repayments to be completed by 30 June 2020. The outstanding loan balance at 30 June 2018 is $3,250,000.

On the resolution to the General Meeting held on 13 September 2017, the loan agreement with the Martin Family has been granted
security as a second priority charge over the Company’s assets, behind the NAB facility. It has been approved by the shareholders in the
event the Company defaults on its repayment terms as noted above, the outstanding debt and interest will only be convertible into
ordinary shares with convertibility being at the lender’s election. In that event, the conversion price will be at a 15% discount to 30 day
VWAP, with a minimum conversion price of 1.5c.

During the year, the Company has agreed two new unsecured short-term loans of US$600,000 and ¥100,000,000 provided by two
commercial partners. The ¥100,000,000 loan commenced in February 2018 and was repaid in full by 25 June 2018. The US$600,000 was
drawn down in May 2018 and is repayable in full by 30 April 2019.

•

On 1 July 2018, the Company agreed to an unsecured short-term loan of ¥165,000,000. The loan is repayable by 30 June 2019.

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 57

For personal use onlyNOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

18.5.

MATURITIES OF FINANCIAL LIABILITIES AND DERIVATIVE FINANCIAL INSTRUMENTS

The table below analyses the Group’s financial liabilities, net and gross settled derivative financial instruments into relevant maturity
groupings based on their remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table
are the contractual undiscounted cashflows.

Balances due within twelve months equal their carrying balances as the impact of discounting is not significant.

30 June 2018

30 June 2017

Consolidated
Entity

Less than
6 Months

6-12
Months

Between
1 & 2
Years

Between
2 & 5
Years

Total
Contractual
Cash Flows

Carrying
Amount
(Asset)/
Liabilities

Less than
6 Months

6-12
Months

Between
1 & 2
Years

Between
2 & 5
Years

Total
Contractual
Cash Flows

Carrying
Amount
(Asset)/
Liabilities

Non-Derivatives

Trade payables

426,668

525,009

Borrowings

Total non-
derivatives

Derivatives

2,310,482

1,250,000

500,000

4,060,482

22,057

256,665

1,500,000

1,750,000

3,528,722

426,668 2,310,482 1,250,000

500,000

4,487,150 4,487,150

547,066

256,665 1,500,000 1,750,000

4,053,731 4,053,731

Net settled
(Non deliverable
forwards)

6,465

Gross settled

-(inflow)

-outflow

4,150,000

(4,143,535)

Total Derivatives

6,465

156,639

4,150,000

3,300,000

(4,143,535)

(3,143,361)

6,465

156,639

3,300,000

(3,143,361)

156,639

(a) Fair value hierarchy

AASB 13 requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:

(a) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1)

(b) inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly

(level 2), and

The following table presents the group’s financial assets and financial liabilities measured and recognised at fair value at 30 June 2018
and 30 June 2017 on a recurring basis:

30 June 2018

LEVEL 1

Assets

Forward foreign exchange contracts

Total Assets

30 June 2017

Assets

Forward foreign exchange contracts

Total Assets

LEVEL 1

LEVEL 2

6,465

LEVEL 2

156,639

LEVEL 3

TOTAL

LEVEL 3

TOTAL

58 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use only

NOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

(b) Valuation techniques used to derive level 2 and level 3 fair values

The fair value of financial instruments that are not traded in an active market (for example, over–the– counter derivatives) is
determined using valuation techniques. These valuation techniques maximise the use of observable market data where it is available
and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the
instrument is included in level 2. If one or more of the significant inputs is not based on observable market data, the instrument is
included in level 3. This is the case for unlisted equity securities. As at 30 June 2018 there are no level 3 related instruments in place.

(i) Transfers between levels 2 and 3 and changes in valuation techniques

There were no transfers between the levels of the fair value hierarchy in the period ended 30 June 2018 or 30 June 2017.

The Group also has a number of financial instruments which are not measured at fair value in the statement of financial position. These
had the following fair values as at 30 June 2018:

Debt Financing

Total non-current borrowing

2018
$

Carrying
Amount

2018
$

Fair Value

2017
$

Carrying
Amount

1,750,000

3,250,000

1,750,000

3,250,000

2017
$

Fair Value

3,250,000

Due to their short-term nature, the carrying amounts of the current receivables, current payables and current borrowings are assumed
to approximate their fair value.

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 59

For personal use only
NOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

PART I UNRECOGNISED ITEMS

19. Events occuring after the reporting period

On 1 July 2018, Atlas secured ¥165M in short term financing from a commercial partner. The loan is repayable on or before 30 June 2019.
The loan funding provides the Company with short term working capital which will aide in the effective management of its harvest schedule.

There have been no other material events since the end of the financial year.

20. Commitments

Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows:

Within one year

Later than one year, but not later than five years

Later than five years

Non - cancellable operating leases

2018
$

2017
$

344,740

680,671

1,066,427

1,025,411

1,411,167

The Group leases premises under non-cancellable operating leases expiring in May 2021. On renewal the terms of the leases are renegotiated.

There are no capital commitments in place in relation to the acquisition of property, plant and equipment. Fixed assets are replaced in the
normal course of business operations and the Company does not anticipate any material capital outlay for such replacement costs in the
coming year.

Other commitments/guarantees

Atlas Pearls had a bank guarantee with the National Bank of Australia for AUD$100,000 at 30 June 2018 (30 June 2017: $100,000) which was
transferred over from Commonwealth Bank of Australia after the end of financial year 2017. This guarantee has been taken out to secure the
rental of the Atlas Pearls corporate offices in Claremont, Western Australia.

SIGNIFICANT ACCOUNTING POLICY

Lease payments for operating leases, where substantially all the risk and benefits remain with the lessor, are charged as expenses in the period in which
they are incurred.

21. Contingencies

The Company’s historical tax affairs are regularly subject to audit by the Indonesian Tax Office and this process remains ongoing. There is a
possibility that this review programme may result in future tax liabilities in relation to prior year tax returns. All assessments received to date
have been brought to account. Currently there are no periods under review.

60 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use only

NOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

22. Subsidiaries

PART J OTHER

The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the
accounting policy described in note 28.3.

Name of entity

Class of Shares

Percentage Owned

30 June 2018

30 June 2017

Place of Incorporation

Perl’Eco Pty Ltd

Tansim Pty Ltd

P.T. Cendana Indopearls

Aspirasi Satria Sdn Bhd

Ord

100%

Australia

Indonesia

Malaysia

The ultimate parent entity, Atlas Pearls, is incorporated in Australia.

23. Related party transactions

(a)

Subsidiaries

Interests in subsidiaries are set out in note 22.

(b)

Joint ventures

World Senses Pty Ltd was formed on 29 November 2012 as a joint venture between Nomad Two Worlds Global Trading Pte Ltd and Atlas
Pearls Ltd.

At 30 June 2018, there is a net loan balance of $698,212 owing from World Senses Pty Ltd to Atlas (30 June 2017: $698,212). This balance
consists of salary and administration recharges and accounting charges, offset by pearl cosmetic products, pearl jewellery and pearl
protein extraction assets transferred to Atlas. The net loan receivable balance for Atlas from World Senses Pty Ltd of $698,212 has been fully
impaired due to the net liability position of the World Senses Pty Ltd accounts.

Essential Oils of Tasmania Pty Ltd was acquired in January 2013 as a 100% subsidiary. On 20 April 2015 50% of the investment in the entity
was sold to Westwood Properties Pty Ltd. Post this sale Essential Oils of Tasmania Pty Ltd has been deemed a joint venture and accounted
for using the equity method.

As at 30 June 2018, there is a loan balance of $2,078,876 (30 June 2017: $2,042,450) owing from Essential Oils of Tasmania Pty Ltd to
Atlas Pearls. This balance consists of admin and expense recharges, and funding advances. The provision represents a write-down to the
director’s best estimate of the recoverable value and is deemed a prudent assessment.

The parent entity has a 50% interest in Brookfield Tasmania Pty Ltd. At 30 June 2018, there is nil loan balance (30 June 2017: $449) owing
from Brookfield Tasmania Pty Ltd.

Due from World Senses Pty Ltd

Due to World Senses Pty Ltd

Impairment of World Senses asset

Due from Essential Oils of Tasmania Pty Ltd

Impairment of Essential Oils of Tasmania Pty Ltd Receivable

Due from Brookfield Tasmania Pty Ltd

2018
$

2017
$

771,173

(72,961)

(698,212)

2,078,876

2,042,450

(816,028)

449

1,262,848

1,226,871

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 61

For personal use only

NOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

Detailed remuneration disclosures are provided in section 13.2 of the remuneration report.

Short-term employment benefits

Post-employment benefits

Share based compensation

(d) Transactions with other related parties

The following balances are outstanding at the end of the reporting period in transactions with related parties:

Director fees payable

2018
$

2017
$

837,714

794,205

44,267

16,388

40,441

24,582

898,369

859,228

2018
$

2017
$

10,767

8,286

(e) Loans from Related Parties
Refer to Note 18.4 for detailed disclosures on financing arrangements. Loans detailed below are accounted for under current and non-
current liabilities (see note 13).

Beginning of the year

Loans advanced from

Principal repayments

Interest charged

Interest paid

End of year

2018
$

2017
$

3,501,233

3,500,000

(250,000)

254,846

49,623

(256,079)

(48,390)

3,250,000

3,501,233

62 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use only
NOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

24. Interests in Joint Ventures

(a)

Joint venture

The parent entity has a 50% interest in World Senses Pty Ltd, which is a resident in Australia and the principal activity of which is the
commercialisation of Atlas and Essential Oils of Tasmania Pty Ltd’s research and development, products and export markets.

The parent entity has a 50% interest in Brookfield Tasmania Pty Ltd, which is a resident in Australia and the principal activity of which is to
develop a manufacturing and tourism facility.

The parent entity has a 50% interest in Essential Oils of Tasmania Pty Ltd, which is a resident in Australia and the principal activity of which is
to grow and produce essential oils.

The interest in World Senses Pty Ltd and Essential Oils of Tasmania Pty Ltd is accounted for in the financial statements using the equity
method of accounting (refer to note 22). The joint venture is unlisted hence no quoted fair value is disclosed. Information regarding to the
joint ventures are set out below.

World Senses Pty Ltd

Joint Ventures’ assets and liabilities

Current assets

Non-current assets

Total assets

Current liabilities

Non-current liabilities

Total liabilities

Net assets

Joint Venture’s revenues, expenses and results

Revenues

Expenses

Profit/(loss) for the period

Reconciliation to carrying value

Opening net asset 1 July

Profit/(loss) for the period

Closing net assets (liabilities)

Group’s share in percentage

Group share in profit/(loss)

Carrying value

2018
$

2017
$

305,114

304,334

441,333

746,447

745,667

41,641

41,791

1,760,292

1,801,933

1,802,083

(1,055,486)

(1,056,416)

7,272

8,165

(6,342)

(189,629)

930

(181,464)

(1,056,416)

(874,952)

930

(181,464)

(1,055,486)

(1,056,416)

50%

465

50%

(90,732)

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 63

For personal use onlyNOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

Essential Oils of Tasmania Pty Ltd

Joint Ventures’ assets and liabilities

Current assets

Non-current assets

Total assets

Current liabilities

Non-current liabilities

Total liabilities

Net assets

Joint Venture’s revenues, expenses and results

Revenues

Expenses

Profit/(loss) for the period

Reconciliation to carrying value

Opening net asset 1 July

Profit/(loss) for the period

Closing net assets (liabilities)

Group’s share in percentage

Group share in profit/(loss)

Carrying value

2018
$

2017
$

4,117,109

3,031,525

1,150,631 1,061,804

5,267,740

4,093,329

357,893

340,446

4,973,766

3,894,684

5,331,659

4,235,130

(63,919)

(141,801)

4,104,275

3,227,576

(4,026,394)

(4,213,771)

77,881

(986,195)

(141,800)

844,395

77,881

(986,195)

(63,919)

(141,800)

50%

38,941

(493,098)

(b)

Contingent liabilities relating to joint ventures

Each of the partners in World Senses Pty Ltd are jointly and severally liable for the debts of the joint venture. The assets of the joint venture
do not exceed its’ debts.

Each of the partners in Essential Oils of Tasmania Pty Ltd are jointly and severally liable for the debts of the joint venture. The assets of the
joint venture do not exceed its’ debts.

There have been no legal claims lodged against the joint ventures. The joint ventures do not have any contingent liabilities in respect of a
legal claim lodged against the joint venture.

64 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use onlyNOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

25. Parent entity financial information

(a) Summary financial information

The individual financial statements for the parent entity show the following aggregate amounts:

Statement of financial position

Current assets

Total assets

Current liabilities

Total liabilities

Shareholders’ equity

Issued capital

Reserves

Share-based payment reserve

Accumulated losses

Loss for the period

Total comprehensive loss

(b)

Contingent liabilities

2018
$

2017
$

1,840,553

2,852,239

24,440,639

26,803,398

5,459,679

3,650,070

5,221,347

4,800,932

36,857,417

739,188

(15,594,139)

(15,428,708)

22,002,467

22,167,825

(2,783,174)

(165,359)

(2,783,174)

(165,359)

The parent entity did not have any contingent liabilities as at 30 June 2018 (30 June 2017: Nil).

The parent entity did not provide financial guarantees during the period (30 June 2017: Nil).

SIGNIFICANT ACCOUNTING POLICY

The financial information for the parent entity, Atlas Pearls, has been prepared on the same basis as the consolidated financial statements, except as set
out below:
Investments in subsidiaries
Investments in subsidiaries are accounted for at cost in the financial statements of Atlas Pearls.
Share-based payments
The grant by the Company of ordinary shares to the employees of subsidiary undertakings in the Group is treated as a capital contribution to that
subsidiary undertaking. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting
period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity.

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 65

For personal use only
NOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

26. Share Based Payments and Options

26.1.

EMPLOYEE SALARY SACRIFICE SHARE PLAN

On 30 May 2012, the Atlas Employee Salary Sacrifice Share Plan was established. The Group has formed a trust to administer the Group’s
employee share scheme. The trust is consolidated, as the substance of the relationship is that the trust is controlled by the Group. Shares
held by Atlas South Sea Pearl Limited Employee Share Trust are disclosed as treasury shares and deducted from contributed equity.

Shares held by the trust and not yet issued to employees at the end of the reporting period are shown as treasury shares in the financial
statements. The shares rank equally with other fully paid ordinary shares.

To participate in the Salary Sacrifice Plan, eligible employees are required to salary sacrifice a portion of their annual base salary into
Shares. There is no maximum percentage or value cap to the amount that each Eligible Employee can sacrifice. The issue price for Shares
under the Salary Sacrifice Plan will be determined from time to time at the discretion of the Board of Directors.

The Employee Share Plan is open to Eligible Participants being any Eligible Employee; or conditional upon the Company obtaining any
necessary ASIC relief to extend the operation of ASIC Class Order 03/184 (or similar class order) to them:

i.
ii.

any Eligible Contractor; or
Eligible Casual Employee,

Who is declared by the Board to be an Eligible Participant for the purposes of the Plan. An Eligible Employee means: a full time or part
time employee (including an executive director) of a Group Company.

An Eligible Contractor means:

(a) An individual that has:

i.
ii.

Performed work for a Group Company, for more than 12 months; and
Received 80% of more of their income in the preceding year from a Group Company; or

(b) A company where each of the following are satisfied in relation to the Company:

ii.
iii.
iv.

Throughout the previous 12 months the Company has had a contract in place with a Group Company, for the provision of
the services of an individual (contracting individual) to a Group Company;
The contracting individual has performed work for a Group Company, for more than 12 months;
The contracting individual has been the only member for the Company for more than 12 months; and;
More than 80% of the aggregate income of the Company and the contracting individual from all sources
(other than from each other) in the preceding 12 months was received form a Group Company.

The Board may determine the terms and conditions of the Salary Sacrifice arrangement for which Shares are offered in lieu of that
Remuneration. The number of Shares to be issued, transferred or allocated to the Trustee to be held on behalf of a Participant will
be the dollar amount of the Salary Sacrifice divided by the issue price per Share outlined in the Invitation. In the case of fractional
entitlements, the number of Shares to be issue, transferred or allocated to the Trustee to be held on behalf of a Participant will be
rounded up to the nearest whole Share, unless otherwise determined by the Board from time to time.

26.2.

NON-EXECUTIVE DIRECTOR FEE SACRIFICE SHARE PLAN

The Non-Executive Director Salary Sacrifice Share Plan is open to Eligible Participants, being any Non-Executive Director who is declared
by the Board to be an Eligible Participant for the purpose of the Plan.

The Company’s Non-Executive Directors will receive a portion of their Director’s fee in the form of Shares.

The Company agrees to issue or procure the transfer of Shares to eligible Non-Executive Directors, in lieu of the amount of Directors’ fees
that each eligible Non-Executive Director has agreed to sacrifice from their monthly Directors’ fees each financial year. The issue price for
Shares under the Salary Sacrifice Plan will be determined from time to time at the discretion of the Board of Directors.

66 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use only

NOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

26.3.

ATLAS PEARLS LTD EMPLOYEE OPTION PLAN

At the EGM on 13 May 2014 it was resolved by the shareholders to approve the Atlas Pearls Ltd Employee Option Plan. On 24 February
2014, the Board adopted the Atlas Pearls Ltd Employee Option Plan (Plan) under which eligible participants may be granted Options to
acquire Shares in the Company. The Directors consider that the Plan is an appropriate method to:

(a)
(b)
(c)
(d)

Reward Directors, executives, employees, consultants and contractors for their past performance;
Provide long term incentives for participation in the Company’s future growth;
Motivate Directors, executives, employees, consultants and contractors and general loyalty; and
Assist to retain the services of valued Directors, Executives, employees, consultants and contractors.

The Plan will be used as part of the remuneration planning for Directors, executives, employees and contractors. Under the Plan,
participants are granted options which only vest if certain performance standards are met. Participation in the plan is at the Board’s
discretion and no individual has a contractual right to participate in the Plan or to receive any guaranteed benefits.

The Corporate Governance Council Guidelines recommend that remuneration packages involve a balance between fixed and incentive
pay reflecting short and long-term performance objectives appropriate to the Company’s circumstances and goals. The Board considers
that the Plan will assist the Company in structuring the remuneration packages of its executives in accordance with the Guidelines.

The amount of options that will vest depends on the individual’s Key Performance Indicators. An option which has vested but has not
been exercised will immediately lapse upon the first to occur of:

i.
ii.
iii.

iv.

Close of business on the Expiry Date;
The transfer or supported transfer of the Option in breach of Clause 7(a) of the Plan;
Termination of the Participant’s employment or engagement with the Company or an Associate Body Corporate on the
basis that the Participant acted fraudulently, dishonestly, in breach of the Participant’s obligations or otherwise for cause; and
The day which is six months after an event which gives rise to a vesting under clauses 4(a) to 4(d) of the plan.

26.4.

OPTIONS ON ISSUE

On 30 June 2015 5,500,000 options exercisable at $0.059 each, on or before 31 December 2018 (expiry date), were issued to employees
of the Company on the terms and conditions set out in the Explanatory Memorandum ratified at the Extraordinary General Meeting
held on 13 May 2014.

Options are granted under the plan for no consideration. Options granted under the plan carry no dividend or voting rights. When
exercisable, each option is convertible into one ordinary share. The exercise price of options is based on 143% (June 2017: 143%) of the
volume weighted average share price at which the Company’s shares are traded on the Australian Stock Exchange (ASX) during the
week up to and including the date of the grant.

As at 1 July 2017

Granted during the year

Exercised during the year

Forfeited during the year

As at 30 June 2018

2015 Average exercise
price per share option

Number of options

0.066

4,500,000

0.066

1,500,000

3,000,000

- There were no options issued during the year ended 30 June 2018 (2017: nil).

Issue Date

30 June 2015

Total

Expiry Date

Exercise Price

31 December 2018

0.0590

Share Options
30 June 2018

Share Options
30 June 2017

3,000,000

4,500,000

Weighted average remaining contractual life of options outstanding at end of period

0.6 years

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 67

For personal use only

NOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

26.5. FAIR VALUE OF OPTIONS GRANTED

The assessed fair value at grant date of options granted during the year ended 30 June 2015 was $0.016 (5,500,000 options). This
valuation imputes a total value of approximately $90,215 for the proposed Options. The value may go up or down as it will depend in
part on the future price of a Share.

The fair value at grant date is independently determined using a Black-Scholes option pricing model that takes into account the exercise
price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share,
the expected dividend yield and the risk free interest rate for the term of the option. The model inputs for options granted during the
year ended 30 June 2015 are detailed below.

The Black & Scholes methodology has been used, together with the following assumptions:

i. Options are granted for no consideration and vest based on the individual’s Key Performance Indicators. Vested options are

exercisable for a period of six months after vesting or the earlier of 31 December 2018.

ii. Exercise price - $0.0590;

iii. Grant date – 30 June 2015;

iv. Share price at grant date: $0.044

v. Expected price volatility of the Company’s shares: 60%;

vi. Expected dividend yield: 0%;

vii. Risk-free interest rate: 3.06%

The expected price volatility is based on the historic volatility (based on the remaining life of the options), adjusted for any expected
changes to future volatility due to publicly available information.

Where options are issued to employees of subsidiaries within the Group, the subsidiaries compensate Atlas Pearls for the amount
recognised as expense in relation to these options.

Expenses arising from share-based payment transactions

Total expenses arising from share-based payment transactions and option related valuation expenses recognised during the period as
part of employee benefit expense were as follows:

Option expense

Option release for forfeited options

2018
$

20,518

(20,518)

2017
$

24,582

The share based payment expenses arising from the salary sacrifice share plan is nil as the plan does not give additional benefit to the
employees as shares are issued in lieu of cash salary and cash bonus. The value of the shares originally issued to the trust is at the value
sacrificed by the employee under the plan.

SIGNIFICANT ACCOUNTING POLICY

Share Based Payments: The fair value of shares granted under the Employee Share Plan is recognised as an employee expense with a corresponding
increase in equity. The fair value is measured at the date that the employee enters into the plan and is recognised over the period during which the
employee becomes unconditionally entitled to the shares.

68 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use only

NOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

27. Remuneration of Auditors

During the period, the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and
non-related audit firms:

AUDIT SERVICES

BDO Australia Firm:

Audit and review of financial reports

BDO Indonesia Firm:

Audit and review of financial reports

Total remuneration for audit and other assurance services

Other Services

Total remuneration for other services

Total remuneration of BDO for audit and other related services

28. Accounting policies

28.1.

HISTORICAL COST CONVENTION

2018
$

2017
$

93,279

94,349

30,781

124,060

5,100

35,704

130,053

18,544

129,160

148,596

These financial statements have been prepared under the historical cost basis, as modified by the revaluation of available for sale
financial assets, financial assets and liabilities (including derivative instruments) at fair value through profit or loss and biological assets
at fair value less cost to sell.

28.2.

NEW AND AMENDED STANDARDS ADOPTED BY THE GROUP

Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not been
adopted by the Group for the annual reporting period ending 30 June 2018 unless disclosed separately. The Group’s and the parent
entity’s assessment of the impact of these new standards and interpretations is set out below.

AASB
Amendment

Affected Standard(s)

Nature of Change to Accounting Policy

Application
Date of
Standard*

Application
Date for
Group

AASB 9

Financial Instruments

Changes to classification and measurement requirements of
financial instruments.

1 Jan 18

1 July 18

AASB 16

Leases

AASB 16 eliminates the operating and finance lease
classifications for lessees currently accounted for under
AASB 117 Leases. Leases with terms greater than 12 months,
unless the underlying asset is immaterial, will be recognised
as a lease liability and a right of use asset in the statement of
financial position.

1 Jan 19

1 July 19

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 69

For personal use onlyNOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

Impact on initial application:

AASB 9

The Company enters into forward hedge contracts to manage foreign currency risk but it currently does not apply hedge accounting.
Derivative instruments are fair valued at each reporting date and gain or loss recognised in the statement of profit or loss and other
comprehensive income. It is expected that the application of the new amendments will not have an impact on the entity’s financial
statements.

AASB 16

To the extent that the Company, as lessee, has significant operating leases outstanding at the date of initial application, 1 July 2019,
right-of-use assets will be recognised for the amount of the unamortised portion of the useful life, and lease liabilities will be recognised
at the present value of the outstanding lease payments.

Thereafter EBITDA will increase as a result of operating lease expenses currently included in EBITDA which will be recognised instead
as amortisation of the right-of-use asset, and interest expense on the lease liability. However, there will be an overall reduction in net
profit before tax in the early years of a lease because the amortisation and interest charges will exceed the current straight-line expense
incurred under AASB 117 Leases. This trend will reverse in the later years.

Atlas Pearls has identified the following lease where this standard change will have an impact:

• Claremont office lease held by the parent entity.

Any other amendments are not applicable to the Group and therefore have no impact.

28.3.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Atlas Pearls as at 30 June 2018 and the
results of its subsidiaries for the period then ended. Atlas Pearls and its subsidiaries together are referred to in this financial statement as
the consolidated entity.

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the
Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns
through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to
the Group. They are deconsolidated from the date that control ceases.

The acquisition method of accounting is used to account for the acquisition of business combinations by the Group. Intercompany
transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also
eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have
been changed where necessary to ensure consistency with the policies adopted by the Group.

Non-controlling interests in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other
comprehensive income, statement of changes in equity and statement of financial position respectively.

The interest in a joint venture entity is accounted for using the equity method after initially being recognised at cost in the consolidated
statement of financial position. Under the equity method of accounting, the investments are initially recognised at cost and adjusted
thereafter to recognise the Group’s share of the post-acquisition profits or losses of the investee in profit or loss, and the Group’s share
of movements in other comprehensive income of the investee in other comprehensive income. When the Group’s share of losses in
an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the
Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity.

Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s
interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset
transferred. Accounting policies of equity accounted investees have been changed where necessary to ensure consistency with the
policies adopted by the Group. The Group treats transactions with non-controlling interests that do not result in a loss of control as
transactions with equity owners of the Group. A change in ownership interest results in an adjustment between the carrying amounts
of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount
of the adjustment to non-controlling interests and any consideration paid or received is recognised in a separate reserve within equity
attributable to the owners.

70 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use onlyNOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

28.4.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Group’s accounting policies. The Directors evaluate estimates and judgements
incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a
reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the
Group. Actual results may differ from these estimates under different assumptions and conditions and may materially affect financial
results or the financial position reported in future periods.

The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the
financial statements are detailed below:

(a) Determination of market value of biological assets – see note 4
(b) Write off of inventories – see note 9
(c) Impairment of debtors – see note 10
(d) Impairment of joint venture receivables – see note 24

28.5.

FOREIGN CURRENCY TRANSLATION

a) Functional and presentation currency

Items included in the financial statements of each of the subsidiaries within the Group’s entities are measured using the currency of
the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are
presented in Australian dollars, which is Atlas Pearls functional and presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transactions.
Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period end exchange
rates of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated statement of profit or loss
and other comprehensive income, except when they are deferred in equity as qualifying cash flow hedges and qualifying net investment
hedges or are attributable to part of the net investment in a foreign operation.

Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. Translation differences
on non-monetary assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the
fair value gain or loss. Translation differences on non-monetary assets such as equities classified as available for sale financial assets are
included in the fair value reserve in equity.

All foreign exchange gains and losses are presented in the Statement of Profit or Loss and Other Comprehensive Income within other
income or other expenses unless they relate to financial instruments.

The results and financial position of all Group entities (none of which has the currency of a hyperinflation economy) that have a functional
currency different from the presentation currency are translated into the presentation currency as follows:

•

Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that
statement of financial position;

Income and expenses for each statement of profit or loss and other comprehensive income are translated at average exchange
rates;

and all resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and
other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is
sold or borrowings are repaid, a proportional share of such exchange differences are recognised in the statement of profit or loss and
other comprehensive income as part of the gain or loss on sale.

28.6.

COMPARATIVE FIGURES

When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current
financial period.

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 71

For personal use onlyNOTES TO & FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS

28.7.

IMPAIRMENT OF ASSETS

Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for the amount by which the assets carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Non-financial assets other than goodwill that
suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

28.8.

EMPLOYEE BENEFITS

Short Term Obligation

Liabilities for wages and salaries, including non-monetary benefits and accumulating sick leave that are expected to be settled wholly
within twelve months after the end of the period in which the employees render the related service are recognised in respect of
employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities
are settled. The liability for accumulating sick leave is recognised in the provision for employee benefits. All other short-term employee
benefit obligations are presented as payables.

Wages and salaries, annual leave, sick leave, long service leave and superannuation

Provision is made for the Group’s liability for employee entitlements arising from services rendered by employees to reporting date.
Employee entitlements expected to be settled within one year together with entitlements arising from wages and salaries, annual
leave and sick leave which will be settled after one year have been measured at their nominal amount. Other employee entitlements
payable later than one year have been measured ayt the present bvalue of the estimated future cash outflows to be made for those
entitlements. Liabilities due to be paid within 12 months of the reporting date are recognised in other payables. The liability for long
service is recosgnised in the provision for employee benefits.

Contributions are made by the Group to employee superannuation funds and are charged as expenses when incurred.

Share-based payments

Share-based compensation benefits are provided to employees via the Atlas Pearls Employee Share Plan Pty Ltd. Information relating to
this scheme is set out in note 26.

28.9.

PROVISIONS

Provisions for legal claims, service warranties and make good obligations are recognised when the Group has a present legal or
constructive obligation as a result of a past event; it is more likely than not that an outflow of resources will be required to settle the
obligation; and the amount has been reliably estimated.

28.10.

BORROWING COSTS

Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to
complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed.

72 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use onlyDIRECTORS’ DECLARATION

The Directors of the Company declare that:

(a)

the financial statements comprising the statement of profit or loss and other comprehensive income, statement of financial position,
statement of cash flows, statement of changes in equity and accompanying notes are in accordance with the Corporations Act 2001
and:

ii.

give a true and fair view of the consolidated entity’s financial position as at 30 June 2018 and of the performance for the
period ended on that date; and

comply with Accounting Standards, and the Corporations Act 2001 and other mandatory professional reporting
requirements.

(b)

(c)

(d)

(e)

the Company has included in the notes to the financial statements an explicit and unreserved statement of compliance with
International Financial Reporting Standards.

the Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A.

in the Directors opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they
become due and payable.

the remuneration disclosures included in the Directors’ Report (as part of audited remuneration report) for the period ended 30 June
2018 comply with section 300A of the Corporations Act 2001.

This declaration is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the Directors by:

Geoff Newman
Chairman
Perth, Western Australia
30 August 2018.

ANNUAL REPORT 2018 | ATLAS PEARLS LTD | 73

For personal use only

For personal use onlyKey audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report of the current period. These matters were addressed in the context of
our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters. In addition to the matter described in the Material uncertainty
related to going concern section, we have determined the matters described below to be the key audit
matters to be communicated in our report.

Valuation of Biological Assets

Key audit matter

How the matter was addressed in our audit

As at 30 June 2018, the carrying value of biological

Our audit procedures included, but were not

assets inventory of the Group was $17,285,234 as

limited, to the following:

disclosed in note 4.

AASB 141 Agriculture requires the Group to value their

biological assets at fair value less costs to sell. The

Considering the appropriateness of the valuation

methodology against the relevant Australian

Accounting Standards;

determination of the value of the biological asset

Testing the mathematical accuracy of the fair

requires significant management judgements and

value model used by management;

estimates as detailed in note 4.

Physically counting the numbers of oysters on

We considered this issue to be a Key Audit Matter, due

hand at the year end.

to the significance of the balance to the reported

Performing analytical procedures and sensitivity

financial position and performance of the Group, and

the extent to which management judgements and

estimates determine the final valuation.

(cid:120)

analysis in order to determine the inputs of most

significance to the final valuation, including the

extent to which they may have changed from

previous years, and focused our substantive

testing on those items.

In the case of specific inputs, we performed the

following:

Obtaining historical farming data, and comparing

this to forecasts used in the model;

Obtaining sales data, including where available

post-year-end data, and comparing these to

forecast sales prices;

Comparing the expected exchange rates to

futures prices and other financial data;

Obtaining written representation over the

suitability of the assumptions used from senior

management.

Considering the completeness and accuracy of

the disclosures made in note 3, including

sensitivity disclosures.

For personal use onlyFor personal use onlyIn preparing the financial report, the directors are responsible for assessing the ability of the group 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 to cease
operations, or has no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the Financial Report

Our objectives are to obtain reasonable assurance about whether the financial report as a whole is 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 the Australian Auditing Standards 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 this financial report.

A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:

http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf

This description forms part of our auditor’s report.

Report on the Remuneration Report

Opinion on the Remuneration Report

We have audited the Remuneration Report included in pages 22 to 28 of the directors’ report for the
year ended 30 June 2018.

In our opinion, the Remuneration Report of Atlas Pearls Ltd, for the year ended 30 June 2018, complies
with section 300A of the Corporations Act 2001.

Responsibilities

The directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility
is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with
Australian Auditing Standards.

BDO Audit (WA) Pty Ltd

Glyn O'Brien

Director

Perth, 30 August 2018

For personal use onlyADDITIONAL ASX INFORMATION

The following additional information is required by the Australian Securities Exchange. The information is current as at 18 September 2018.
(a) Distribution schedule and number of holders of equity securities as at 18 September 2018

1 – 1,000

1,001 – 5,000

5,001 – 10,000

10,001 – 100,000

Fully Paid
Ordinary Shares
(ATP)

Unlisted Options
– 5.9c 31/12/18

132

400

300

872

100,001 – and
over

373

Total

2,077

The number of holders holding less than a marketable parcel of fully paid ordinary shares as at 18 September 2018 is 1,208.

(b) 20 Largest holders of quoted equity securities as at 18 September 2018

The names of the twenty largest holders of fully paid ordinary shares (ASX code: ATP) as at 18 September 2018 are:

Rank

Name

% of Total Shares

Boneyard Investments Pty Ltd

Chemco Superannuation Fund Pty Ltd

Raintree Pearls & Perfumes Pty Ltd

SP & K Birkbeck Holdings Pty Ltd

Jingie Investments Pty Ltd

Abermac Pty Ltd

Hsbc Custody Nominees (Australia) Limited

Westwood Properties Pty Ltd

Farjoy Pty Ltd

Mr Nelson Michel Pierre Rocher

Five Talents Limited

Mr Paul Michael Butcher

Chembank Pty Limited

Coakley Pastoral Co Pty Ltd

Forsyth Barr Custodians Ltd

Miss Kristie Birkbeck

Queensridge Investments Pty Ltd

Mr Timothy James Martin

Ms Jennifer Michelle Roughan

Mr Pierre Fallourd

TOTAL

53,048,882

32,400,000

20,718,834

20,529,202

17,880,240

17,833,333

16,608,835

8,000,000

7,099,412

6,712,185

5,620,000

5,000,000

4,744,717

4,597,742

3,818,536

3,549,072

3,540,883

3,360,000

3,311,206

12.40

7.57

4.84

4.80

4.18

4.17

3.88

1.87

1.66

1.57

1.31

1.17

1.11

1.07

0.89

0.83

0.79

0.77

243,373,079

56.88

Stock Exchange Listing – Listing has been granted for 427,871,758 ordinary fully paid shares of the Company on issue on the Australian
Securities Exchange.

The unquoted securities on issue as at 18 September 2018 are detailed below in part (d).

(c)

Substantial shareholders

Substantial shareholders in Atlas Pearls Limited and the number of equity securities over which the substantial shareholder has a relevant
interest as disclosed in substantial holding notices provided to the Company are listed below:

Name

Boneyard Investments Pty Ltd &
Associates *

Raintree Pearls & Perfumes Pty Ltd &
Associates **

112,345,667

30,090,855

% Voting Power

27.09%

13.12%

Date of Notice

4 May 2015

8 June 2012

* Includes shares held by Boneyard Investments Pty Ltd, Chemco Superannuation Fund Pty Ltd, Jingie Investments Pty Ltd, T. Martin, T. & W. Martin, J. Martin and J & B Martin.
** Includes shares held by Raintree Pearls & Perfumes Pty Ltd and SP & K Birkbeck Holdings Pty Ltd .

78 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use only
ADDITIONAL ASX INFORMATION

(d) Unquoted Securities

The number of unquoted securities on issue as at 18 September 2018:

Security

Unlisted options exercisable at 5.9 cents, on or before 31 December 2018.

Number on issue

3,000,000

(e) Holder Details of Unquoted Securities

All unquoted securities were issued under an employee incentive scheme. Therefore, no disclosure is required in relation to people that hold
more than 20% of a given class of unquoted securities as at 18 September 2018.

(f) Restricted Securities as at 18 September 2018

There were no restricted securities on issue as at 18 September 2018.

(g) Voting Rights

All fully paid ordinary shares carry one vote per ordinary share without restriction.

Unquoted options have no voting rights.

(h) On-Market Buy-back

The Company is not currently performing an on-market buy-back.

(i) Corporate Governance

The Board of Atlas Pearls Limited is committed to achieving and demonstrating the highest standards of Corporate Governance. The Board
is responsible to its Shareholders for the performance of the Company and seeks to communicate extensively with Shareholders. The Board
believes that sound Corporate Governance practices will assist in the creation of Shareholder wealth and provide accountability. In accor-
dance with ASX Listing Rule 4.10.3, the Company has elected to disclose its Corporate Governance policies and its compliance with them on
its website, rather than in the Annual Report. Accordingly, information about the Company’s Corporate Governance practices is set out on
the Company’s website at https://www.atlaspearls.com.au/pages/corporate-governance .

79 | ATLAS PEARLS LTD | ANNUAL REPORT 2018

For personal use onlyFor personal use onlyURBAN BOUTIQUES

AUSTRALIA, Perth

BALI, Seminyak

FARM BOUTIQUES

NORTH BALI, Penyabangan

FLORES, Labuan Bajo, Pungu Island

RAJA AMPAT, Alyui Bay

FARMS

EAST NUSA TENGGARA, Lembata Bay

EAST NUSA TENGGARA, Alor Bay

WWW.ATLASPEARLS.COM.AU

FIND US ONFor personal use only