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 2 3 Producing the world’s finest South Sea pearls sustainably and respectfully, while caring for our environment, people, communities, and shareholders. - C H A I R M A N ’ S A D D R E S S - Dear fellow Shareholders, on behalf of the Board of Directors of Atlas Pearls Ltd, I am pleased to present to you the Company’s 2023 Annual Report. FY23 was a year of significant achievements for the Company with sales in excess of $27.2M, normalised EBITDA (earnings before interest and tax) of $9.8M, and retirement of the $1.1M final tranche of the Boneyard debt facility, leaving the Company free of debt and with a cash balance of $7.8M at financial year end. Continuing strong demand and high prices for South Sea pearls was a major contributor to the record performance which, combined with the wider reach and more competitive on-line sales platform, saw prices in some categories two to three times higher than in the recent past. Results would have been significantly better if the annual harvest of pearls had aligned more closely with the historical trend of the internal quality index measure. However, a portion of the quality issue is attributable to smaller pearl size rather than imperfections on the traditional grading scale, and these smaller but otherwise high-quality pearls have ready markets in both China and Japan. Pearl quality, which was thought to be impacted by a particular breeding cohort, reached a low point in the middle of the year. We have seen a stabilisation and modest improvement in recent months, with some harvests featuring broodstock from third parties crossed with our own population. These will be important markers for the breeding research work initiated during FY23. 2 | ATLAS PEARLS | Annual Report 2023 Our improved financial position has enabled the Company to position itself for future growth by: • Appointing new key personnel to fill some strategic gaps in the management team. Commencing the scoping and design of a new vessel to improve productivity. Better understanding our markets and identifying the opportunities to grow into them. Commencing negotiations to acquire a new farm site. Formalising our extensive environmental, social and governance (ESG) program to better communicate to all stakeholders the considerable work we do within the communities where we operate. • • • • Understandably, our shareholders have raised questions around capital management prospects, given our improved performance. The Board has not formulated a dividend policy at this time, due to the inherent uncertainties of aquaculture, the need to fund future operating costs between sales events, and the cyclical swings typical in the luxury goods market. However, in view of the positive earnings reported this year, the Board has resolved to declare a special dividend of 0.35 cents per share (franked to 100%) and payable on 26 September 2023. We will continue to evaluate a dividend policy, but for now consider that the payment of special dividends will be the preferred policy, as and when favourable market circumstances allow. The last few years have seen a remarkable turnaround in the Company’s fortunes, and I want to thank all of our employees for their contribution to our significantly improved financial position. I also want to thank our shareholders who have stuck with us through the lean years, and I look forward to your ongoing support. Sincerely Geoff Newman Chairman - 30 August 2023 - C H A I R M A N ’ S A D D R E S S - - C E O R E V I E W O F O P E R A T I O N S - - C E O R E V I E W O F O P E R A T I O N S - Operationally, it was a strong production year with the number of pearls harvested exceeding 540,000. Improved profits were as a result of the strong market demand, where average price increased, coupled with a lower cost of goods sold for the year vs FY22. This profit result was aided by a reduction in aggregated capitalised costs of oysters across the four-year growth cycle. This current four-year cycle included the period of COVID-19, during which our Company implemented a low-cost model to ensure we were as lean as possible. While we recognise that this necessary approach is not a sustainable long-term strategy, it is important to note that the combination of higher average prices and reduced production costs contributed significantly to gross margin, and consequently, our profit result. As indicated in last year’s report, the quality of pearls produced in the second half of FY22 trended downwards. This trend has persisted throughout the current year, primarily driven by a decline in the average pearl size in H1. This reduction in size significantly impacts our perception of quality and how it is measured. Although we have seen a stabilisation and modest improvement in this measure over H2 FY23, there remains work to be done. During the year the uptick in global demand for pearls has resulted in price increases. These price increases have more than offset the reduction in average size, leading to the attainment of our highest average price for pearls in many years. As foreshadowed in last year’s report, we have repaid the last of our outstanding debt of $1.125M, concluding the year in a strong financial position, with cash in the bank of $7.8M. Furthermore, we have successfully secured an increase of our overdraft facility to $2.5M to provide us with working capital flexibility to better manage our sales cycles and to maximise opportunities. In view of the improved results in FY23 the Board has resolved to declare a special dividend of 0.35 cents per share (franked to 100%) and payable on 26 September 2023. Atlas’ Pearls performance over the year is largely attributable to the ongoing work and dedication of the entire team across all facets of the business. Their collective efforts were instrumental in executing the initiatives that we identified from an operational and sales perspective. This year, we held two impactful workshops convening senior leaders from operations, sales, and finance. These sessions were pivotal in determining the strategic focal points essential for realising our operational budget goals, whilst also aligning with our longer- term strategy, and are now a permanent fixture in our annual calendar of events. SALES INITIATIVES Atlas Pearls is committed to building and executing a strategy that positions us as a multi-channel distribution company, that looks to maximise the value of every pearl that we grow and harvest. This includes our traditional auctions, which have been refined to now be hybrid auctions, allowing customers to physically inspect goods, whilst also allowing remote participants to engage through our online platform. Beyond auctions, pearls are made available for purchase online between events, which has increased customer reach and created competitive tension. This online visibility has generated opportunities to new markets and customers. Furthermore, over the course of the year, we re-engaged with our Australian and international wholesale customers to offer a range of value-add products comprising matched pairs, pearl strands, and a selection of loose pearls. We have reopened our farm retail operations at North Bali and Alyui. To further expand our retail presence, we eagerly anticipate the reopening of the Pungu retail store in early FY24. Additionally, we are developing a ‘Farm Tour’ experience for our customers that will provide them with invaluable insights into the intricacies of pearl farming and granting a glimpse into our operations. Beyond the technical aspects, this tour also serves as a conduit to highlight the sustainability of pearls and our operations, showcasing our commitment to the environment, our workforce, and all stakeholders. This immersive experience will epitomise our aspiration to foster a connection between our customers, our pearls, and our collective vision for a sustainable future. OPERATIONS INITIATIVES Over the year, progress has been made in a series of pivotal improvements and strategic initiatives aimed at achieving consistency in pearl quality, and improving operational efficiency and productivity. They align with our long-term growth strategy and include: GENETICS AUDIT We have a genetics program to understand the breadth of diversity within our broodstock. This initiative commenced with the sampling of approximately 3,500 oysters to enable genetic sequencing of the oysters. This data will be used in a breeding matrix to maximise the diversity of our broodstock to strategically optimise crosses on an individual basis. While this is a long-term project, spanning five to eight years before it will drive substantial change and improvement, it will enrich our understanding and enhancement of oyster genetics. The outcomes of this initiative will pave the way for tangible benefits for our business going forward in the short and longer term. Annual Report 2023 | ATLAS PEARLS | 5 CONDITIONING SYSTEM In pursuit of better gamete conditioning during spawning, we have embarked on trials for an advanced ‘conditioning system’. Through these trials, we aim to establish robust processes that facilitate enhanced control over our spawning cohorts’ physical condition. This will empower us to select oysters from specific families for targeted crossbreeding, thereby further leveraging the benefits of the genetic audit. This initiative underscores our commitment to staying at the forefront of technological and genetic innovation. DATA CAPTURE We’ve initiated a data capture project to centralise, in a cloud-hosted database, almost 250 unique data fields over the four-year life cycle of each production cohort. The aim is to consolidate all the data points that we have across multiple farms and hatcheries into the centralised database. This concerted effort will enable us to extract actionable insights to facilitate informed decisions going forward. In addition to capturing real-time data, we’ve embarked on the tedious but necessary step of inputting historical data. This will equip us with the means to monitor trends and outcomes in certain key areas of our operations, ushering in data-driven precision to our endeavours. ESG/SUSTAINABILITY AND COMMUNITY ENGAGEMENT (CSR) Atlas Pearls has a longstanding commitment to supporting our villages, stakeholders, and communities around our farms. Recognising our role as both neighbours and key employers in our operational areas, we have embarked on the early stages of an ESG (Environmental, Social, and Governance)/sustainability initiative. This will build on the foundation of existing data concerning our environmental impact and ongoing environmental initiatives. The initiative’s scope includes the establishment of a centralised co- ordination and measurement system for our already substantial Corporate Social Responsibility (CSR) programs, as well as our continuous improvement in the realms of ESG and sustainability. NEW OPERATIONS VESSEL Following preliminary Board approval, we will start shortly construction of a steel vessel that will replace some of our aging fleet. This new vessel is designed to replace existing vessels responsible for transporting seeded shell from our hatcheries and nurseries to our designated grow-out sites. Beyond transportation, it is engineered to facilitate on-board oyster harvesting and seeding activities, within an enhanced 6 | ATLAS PEARLS | Annual Report 2023 operating environment. The vessel will also offer accommodations for our technical team who go from site to site performing crucial harvest and seeding operations. This investment underscores our dedication to leveraging technology for improved efficiency, operational excellence, and a heightened working environment. It will also reduce the capital intensity at new sites as the mobile infrastructure can service multiple sites due to our staggered harvesting schedules. NEW SITE DISCUSSIONS We are currently engaged in discussions regarding a potential new farming site. Although our discussions have yielded promising results thus far, there remain some governmental and administrative approvals to be navigated before the finalisation of this endeavour. Our commitment to rigorous due diligence is evident as we work to secure all necessary approvals and pave the way for this exciting new venture. Once approvals are received, we will start to build seeded oyster stocks at this grow-out site, but we will not see harvested pearls from this operations until FY26. We acknowledge the hard work and dedication from our committed management team who have demonstrated exceptional commitment in executing the strategy into tangible actions, and deftly navigating through periods of change. It is important to emphasise that Atlas Pearls thrives on a culture of continuous improvement and evolution, not just in terms of the perspective of our standard operating procedures related to our oysters, but also in how we view and measure the key aspects of our business. Our focus remains on the production and distribution of the highest quality, ethically produced, and luxurious pearls in the world, a testament to our commitment to both uncompromising luxury and responsible practices that safeguard our environment and the communities we touch. Michael Ricci CEO - 30 August 2023 Oyster nursery North Bali farm site. - A B O U T A T L A S P E A R L S - Over the past 30 years, Atlas Pearls has become one of the world’s largest producers and distributor of the highly sought-after, white and silver South Sea pearls. Operating across 7 farming locations throughout the South Seas, the Company employs more than 1,200 people and in 2023 harvested more than 540,000 pearls. Atlas Pearls commenced farming in 1993, with its first farm located in Kupang - East Nusa Tenggara and has since gone on to establish a total of 7 farming sites. These locations stretch from the national parks of East Java and as far east as Alyui Bay, Raja Ampat. Atlas Pearls operates on the fundamental principles of producing the most valued South Sea pearls through ethical, sustainable, and non- extractive processes whereby each pearl is direct from the source. Through rigorous breeding programs, the Company is able to maintain a supply of healthy, genetically managed oyster stocks, which can then be transported to different farm sites where they grow into healthy mature oysters ready for pearl production. The movement of oysters between farm sites also enables stock to be positioned in the best possible conditions for their growth, and diversifies the risk of environmental risk factors such as algae and water temperature changes. With oysters thriving in pristine waters, each farm site works tirelessly with staff and the local community to continuously improve and maintain the health of the oceans in which we operate. Through education and active participation in a range of environmental programs, benefits to both the pearls and local communities are observed. Working across such great distance relies heavily on the support of our experienced workforce of more than 1,200 people. Each farming operation requires a dedicated team who work directly with the oysters from seeding, cleaning, maintaining, and harvesting, alongside operational staff who perform the roles of security, maintenance, engineering, catering, and administration. For many, these remote farm sites provide invaluable employment and training. South Sea pearl farming is a delicate balance of nature and nurture as the Company continues to strive to supply the best quality pearls to the market, whilst leaving a positive environmental footprint. Annual Report 2023 | ATLAS PEARLS | 9 Financial report highlights 2023 Chart Title The Company currently employes more than 1,200 staff across 2 offices and 7 pearl farms. Expatriates - Indonesia Australia Indonesian Nationals (permanent) Indonesian Nationals (part time) The current gender breakdown across the Company’s personnel is 36% Female and 64% Male. 36% 64% Expatriates – Indonesia Indonesian nationals – permanent 547,755 pearls were harvested in FY23. Indonesian nationals – part time Australia $6.2m Record revenue achieved at a single sales event. 4% The Company currently has a combined total of 2,865,641 juvenile and mature oysters, an increase of 4% since 2019. 2019 2020 2021 2022 2023 Pearl production has increased by 16% since 2019 to 547,755 in 2023. Nucleated oyster stocks have increased 17% from 2019 to 1,349,236 in 2023. 2019 t 2020 t 2021 t 2022 t 2023 t 4% Atlas Pearls‘ shift to a more diversified distribution channel has seen an overall change in customer geographical regions as the Company continues to adjust it‘s sales strategy. Operating expenses have increased 4% from 2019 to $6.5M in 2023. 10 | ATLAS PEARLS | Annual Report 2023 Summary of fiscal indicators Revenue from contracts with customers Net profit after tax Tax expense Finance/interest net costs Depreciation and amortisation Net foreign exchange loss Agriculture standard revaluation (gain) Normalised EBITDA1 EBITDA margin Basic earnings per share (cents) Cash and cash equivalents Assets NTA NTA per share (cents) Debt (current and non-current) Shareholder funds Debt/shareholder funds (%) Number of shares on issue (million) Share price at year end (cents) 30 JUNE 23 $’000 30 JUNE 22 $’000 27,200 9,088 626 60 291 382 (641) 9,805 36% 2.14 7,845 40,066 34,084 8.0 - 21,508 4,592 836 238 312 612 (2,336) 4,254 20% 1.08 2,995 31,516 24,356 5.7 1,125 34,084 24,375 0% 427.9 4.2 5% 427.9 3.6 1. Atlas Pearls uses ‘normalised EBITDA’ to comment on its financial performance and is used internally to evaluate performance. Normalised EBITDA is a non-IFRS financial measure. Non-IFRS measures of financial performance are unaudited. Refer to note 5 for a reconciliation to statutory earnings. Annual Report 2023 | ATLAS PEARLS | 11 Directors’ Report The 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 year ended 30 June 2023. Referred to hereafter as, the Company, Atlas Pearls, or the Group. Directors 1. The following were Directors of Atlas Pearls for all of the financial year and up to the date of this report. GEOFFREY (Geoff) NEWMAN | BEc (Hons), MBA, FCPA, FAICD CHAIRMAN TIMOTHY (Tim) MARTIN | BA, MBA, GAICD NON-EXECUTIVE DIRECTOR Geoff has more than 30 years’ experience in finance, marketing, and general management roles within the resources sector. In 1995, after managing Bunnings Pulpwood operations, he joined Coogee Chemicals Pty Ltd as Commercial Manager and was appointed to the Board as Finance Director the following year. Until August 2005, Geoff was Finance Director/Chief Financial Officer and Company Secretary of both Coogee Chemicals Pty Ltd and its oil and gas subsidiary, Coogee Resources Pty Ltd, before retiring from the Coogee Group in June 2006. APPOINTMENTS: Chairman - 13/07/2022 Executive Chairman - 01/10/2019 Chairman - 16/02/2015 Director - 15/10/2010 Directorships of other listed companies held in the last three years: Nil CADELL BUSS | MBA, MPM, GAICD INDEPENDENT NON-EXECUTIVE DIRECTOR Cadell is a multi-industry senior executive with over 20 years’ experience locally and internationally in marketing, project development, and equity capital markets. Cadell was the CEO of Western Australia’s longest serving stockbroking firm, DJ Carmichael, and has consulted to a number of ASX listed companies with African-based assets. Cadell was previously Project and Finance Director with Luso Global Mining, an angel investor to African- based mining and exploration companies. Cadell is also the founder and Managing Director of Chilwa Minerals Limited (ASX: CHW). Cadell has a Masters degree in Project Management, an MBA from Murdoch University, Perth, and is a graduate of the Australian Institute of Company Directors. APPOINTMENTS: Director - 01/02/2018 Directorships of other listed companies held in the last three years: Chilwa Minerals Limited (Managing Director appointed 01/02/2022) 12 | ATLAS PEARLS | Annual Report 2023 Tim has been an executive manager at Coogee Chemicals Pty Ltd since 2005. He held the position of Managing Director from 2012 - 2015, and was appointed Executive Chairman in July 2015. Prior to working at Coogee, Tim worked in management roles within the packaged food manufacturing sector, supplying to national supermarket chains, and has ongoing interests in commercial property development. In 2013, Tim graduated from Harvard University completing their OPM (Owner/President Management) Program. Tim is a former Director of Plastics and Chemicals Industries Association (PACIA) and a former Director of the Kwinana Industries Council. APPOINTMENTS: Director - 04/02/2013 Directorships of other listed companies held in the last three years: Nil JOSÉ MARTINS | BAcc, GAICD INDEPENDENT NON-EXECUTIVE DIRECTOR José is a highly regarded finance executive with over 25 years’ experience in the management of public and private companies. He has previously held CFO roles with Macmahon Holdings Limited, Ausdrill Limited (now part of Perenti), and Alliance Mining Commodities Limited. José qualified as a Chartered Accountant in South Africa, and holds a Bachelor of Accountancy (with distinction) from the University of Witwatersrand, Johannesburg, and is a graduate of the Australian Institute of Company Directors. APPOINTMENTS: Director - 17/05/2023 Directorships of other listed companies held in the last three years: GenusPlus Group Limited (Non-Executive Director appointed 03/01/2018) 2. Company Secretary SUSAN PARK | BCom, ACA, F Fin, FGIA, FCG, GAICD COMPANY SECRETARY Susan has over 25 years’ experience in the corporate finance sector. She is the founder and Managing Director of consulting firm, Park Advisory, 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. Susan holds a Bachelor of Commerce from the University of Western Australia majoring in Accounting and Finance, is a Member of the Chartered Accountants Australia and New Zealand, a Fellow of the Financial Services Institute of Australasia and a graduate Member of the Australian Institute of Company Directors. She is also a Fellow of the Governance Institute of Australia and the Chartered Governance Institute. APPOINTMENTS: Company Secretary - 19/12/2012 Indonesia Alyui Bay Banyubiru North Bali Pungu West Lembata Lembata Alor The South Seas 1. EAST JAVA, Banyubiru 2. NORTH BALI, Penyabangan 3. FLORES, Labuan Bajo, Pungu Island 4. EAST NUSA TENGGARA, West Lembata 5. EAST NUSA TENGGARA, Lembata Bay 6. EAST NUSA TENGGARA, Alor Bay 7. RAJA AMPAT, Alyui Bay ATLAS PEARLS FARMING OPERATIONS Pearling Operations Australia 3. 3.1 Principal activities PRINCIPAL ACTIVITIES 5. 5.1 Financial review SHAREHOLDER RETURNS Atlas Pearls produces South Sea pearls, with pearling operations located throughout Indonesia (refer 3.2). Pearls produced are sold through a multi-faceted distribution network. No significant changes in the nature of Atlas Pearls principal activities occurred during the year ended 30 June 2023. 3.2 ABOUT ATLAS PEARLS Over the past 30 years Atlas Pearls has become one of the world’s largest producers of the highly sought after white and silver South Sea pearls. Operating across 7 farming locations throughout the South Seas and employing more than 1,200 people, the Company harvested more than 547,755 pearls this year. Net profit after tax Basic EPS (cents) Dividends paid Dividends (per share) (cents) 30 June 2023 $’000 30 June 2022 $’000 30 June 2021 $’000 9,088 2.14 Nil Nil 4,592 1.08 Nil Nil 6,720 1.58 Nil Nil The adjustments from net profit after tax to arrive at reported normalised EBITDA for these years are shown below: 4. Directors’ meetings The attendance at meetings of the Company’s Directors including meetings of committees of Directors is shown below: Net profit after tax Tax expense Interest net costs Director Period Directors’ meetings Depreciation and amortisation Meetings held whilst in office Attended Geoff Newman 1 July 22 - 30 June 23 Tim Martin 1 July 22 - 30 June 23 Cadell Buss 1 July 22 - 30 June 23 José Martins 1 July 22 - 30 June 23 5 5 5 - 5 5 5 - 30 June 2023 $’000 30 June 2022 $’000 30 June 2021 $’000 9,088 4,592 626 60 291 382 836 238 312 612 6,720 1,356 444 473 445 Net foreign exchange loss Agriculture standard revaluation (gain) (641) (2,336) (3,989) Other non-operating expenses - - Normalised EBITDA 9,805 4,254 180 5,628 Annual Report 2023 | ATLAS PEARLS | 13 Directors’ Report 5.2 FINANCIAL POSITION Total assets Debt (current and 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 2023 $’000 30 June 2022 $’000 30 June 2021 $’000 40,066 - (5,982) 34,084 0% 427.9 8.0 4.2 31,516 (1,125) (6,016) 24,375 5% 427.9 5.7 3.6 28,052 (4,199) (5,428) 18,425 23% 427.9 4.3 1.5 There has been an increase in the net assets of the Group of $9.7M in the year ended 30 June 2023 (30 June 2022: $6M increase). 5.2.1 OPERATING RESULTS The Company is pleased to announce a net profit before tax of $9.7M and a reported inflow of cash from operating activities for the year ended 30 June 2023 of $8.4M. Atlas Pearls continued evolving its sales distribution plan, learning from each sales event and enhancing the current strategy to meet its customer’s needs, ensuring each pearl is reaching its potential. At an operational level, the farms continue to work assiduously to ensure oyster health is optimised. The passion and dedication shown by all employees translates to beautiful, coveted, South Sea pearls. The operating revenue for the year ended 30 June 2023 was $27.2M, an increase of $5.7M on prior year (30 June 2022: $21.5M). Administration, finance, and marketing expenses were $6.5M, an increase of $0.8M on prior year (30 June 2022: $5.7M). 5.2.2 REVIEW OF OPERATIONS 5.2.2.1 PEARLING The Company harvested 547,755 pearls during the period. The downward trend in pearl quality reported in last year’s annual repot persisted, primarily driven by a decline in the average size of the pearls produced in H1. It should be noted that the inherent quality remains good, however, the reduction in average size has exerted a downward pressure on the overall weight sold in FY23. Further upside is possible in FY24 with some harvests featuring broodstock from third parties crossed with our own population. 5.2.2.2 PEARLING VALUE ADDED Atlas Pearls continues to review and refine its sales strategy with the core objective of ensuring each pearl achieves maximum return. This strategy involves directing pearls through different sales channels whilst also being available online to reach customers globally. This hybrid approach achieves not only reach but competitive tension across the different markets. The Company will continually review and refine to adapt to changing markets. For a detailed review of operations please refer to the CEO’s review of operations on page 5. 5.2.3 AUDIT OPINION The financial report has been audited independently and received an unmodified opinion. Refer to page 22 for the Independent Auditors Report and page 55 onwards for the Auditors Opinion. 14 | ATLAS PEARLS | Annual Report 2023 5.2.4 PERSONNEL Staff numbers at the end of the year were as follows: INDONESIAN NATIONALS PART TIME - 675 EXPATRIATES INDONESIA - 20 INDONESIAN NATIONALS PERMANENT - 521 AUSTRALIA - 14 Dividends 6. In view of the positive earnings reported for the year ended 30 June 2023, the Board has resolved to declare a special dividend of 0.35 cents per share (franked to 100%). No dividends were declared or paid during the year ended 2023 or in the previous financial year. The Board has not formulated a dividend policy due to the inherent uncertainties of aquaculture, the need to fund future operating costs between sales events, and the cyclical swings typical in the luxury goods market. The Board will continue to evaluate a dividend policy, however the payment of special dividends will be the preferred policy, as and when favourable market circumstances allow. Key dates: • Record date for determining entitlement to special dividend: 05 September 2023 Date the special dividend is payable: 26 September 2023 • Events since the end of the financial year 7. On 30 August 2023, the Company declared a final fully franked special dividend of 0.035 cents per share. The total value of the payment is $1.5M. The record date is 05 September 2023 with a payment date of 26 September 2023. Other than the matter disclosed above, there have been no other significant events after balance date which require disclosure. Likely developments and expected 8. results of operations The Company endeavours to host oysters in optimal growing locations whilst creating diversification for risk mitigation. The Company remains committed to the multi-faceted approach to the distribution of the pearls, with the plan to continue increasing customer reach. 9. The relevant interest of each current Director in the share capital of the Company, as notified by the Directors to the Australian Securities Exchange in accordance with S205G (1) of the Corporations Act 2001, at the date of this report, are detailed in Section 14.5.3 of the Remuneration Report. Directors’ interests 10. Options During the year ended 30 June 2023, there were no unquoted options issued to employees (30 June 2022: 18,758,055), pursuant to the Atlas Pearls Ltd Employee Share and Incentive Plan. Refer to note 23.2 for further information. 11. Indemnification and insurance of Directors and officers 11.1 INDEMNIFICATION The Company has agreed to indemnify all current and former Directors and officers of the Company against all liabilities to another person (other than the Company or a related body corporate) that may arise from their position as Directors and officers 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. 11.2 INSURANCE PREMIUMS During the financial year the Company has paid insurance premiums of $33,244 (30 June 2022: $27,750) in respect of Directors’ and officers’ liability and legal expenses insurance contracts, for current and former Directors and officers. 12. Audit and 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 or services 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 Company, its related practices and non-related audit firms during the year ended 30 June: 30 June 2023 $ 30 June 2022 $ BDO AUSTRALIAN FIRM Audit and review of financial reports 119,710 96,370 ESG consulting services BDO INDONESIAN FIRM 16,995 - Audit and review of financial reports 49,377 52,562 Total remuneration for audit services 169,087 148,932 Total remuneration for other services 16,995 - 13. 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 year. 14. Remuneration report (audited) The Directors are pleased to present your Company’s 2023 remuneration report, which sets out remuneration information for Atlas Pearls’ Directors and other Key Management Personnel. The information provided in this Remuneration Report has been audited as required by section 308(c) of the Corporations Act 2001. Name Directors Position Geoff Newman Executive Chairman, from 1 October to 12 July 2022 Non-Executive Chairman, from 13 July 2022 Tim Martin Cadell Buss José Martins Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director, appointed 17 May 2023 Other Key Management Personnel Michael Ricci Chief Executive Officer Mark Longhurst Chief Operations Officer, resigned 31 December 2022 Diana Kubicki Chief Financial Officer, resigned 09 June 2023 Gemma Cann Chief Financial Officer, appointed 17 July 2023 14.1 REMUNERATION GOVERNANCE 14.1.1 ROLE OF THE BOARD IN REMUNERATION GOVERNANCE Remuneration governance is the responsibility of the full Board. Primary responsibilities include recommendations for; • • Non-Executive Director fees, Remuneration levels of Executive Directors and other Key Management Personnel, The overarching Executive remuneration framework and the operation of incentive plans, and Key performance indicators (‘KPIs’) and performance hurdles for the Executive team. • • The objective is to ensure that remuneration policies and structures are fair and competitive, and are aligned with the long-term interests of the Company. Assessing performance and claw-back remuneration KPIs are set annually, with a certain level of consultation with Key Management Personnel. The measures are specifically tailored to the area everyone is involved in and has a level of control over. The KPIs target areas the Board believes hold greater potential for group expansion and profit, covering financial and non-financial, as well as short and long-term goals. The level set for each KPI is based on budgeted figures for the Group and respective industry standards. Performance in relation to the KPIs is assessed annually, with bonuses being awarded depending on the number and deemed difficulty of the KPIs achieved. Following the assessment, the KPIs are reviewed by the Board considering the desired and actual outcomes, and their efficiency is assessed in relation to the Group’s goals and shareholder wealth, before the KPIs are set for the following year. 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. Annual Report 2023 | ATLAS PEARLS | 15 Directors’ Report 14.1.2 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 $500,000 (30 June 2022: $500,000) which is periodically recommended for approval by shareholders. This limit was approved by shareholders at the Extraordinary General Meeting on 29 April 2022. In the year ending 30 June 2023, the total Non-Executive Directors’ fees including retirement benefit contributions were $312,809 (30 June 2022: $122,578). The base fees for Non-Executive Directors are $72,150 per annum (inclusive of superannuation) (30 June 2022: $71,825 (inclusive of superannuation)). 14.1.3 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 Short-term performance incentives (refer section 14.3 for individual detail), and Long-term incentives through participation in the Atlas Pearls Ltd Employee Share and Incentive 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. The Atlas Pearls Ltd Employee Share and Incentive Plan (Plan) provides some senior executives with incentive over and above their base salary (refer section 14.2). The allocation of shares or options under the Plan is not subject to performance conditions of the Company. The reasons for establishing the Plan were: • To align the interests of senior executives with shareholders. The Plan 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 is an important factor in the long-term success of the Company. • Short-term Incentives The Atlas Pearls’ Ltd Salaried Employee Bonus Scheme (‘STI Plan’) is maintained as the primary financial reward for employee performance. The underlying principle of the STI Plan is; The greater a salaried employee’s ability to influence overall group and individual department results, the greater the “at risk” component of their remuneration package should be. The employee’s designated bonus level is expressed as percentage of base salary and determines the maximum bonus payment possible for the employee year-on-year. Calculation of the employee’s actual bonus payment takes into consideration: • • • the business results of the Company overall; the results of the department in which the participant works; the employee’s individual results against their established quantitative and qualitative KPIs. The Board shall retain absolute discretion over how the bonus program operates, who participates in it, and all bonus payments generated by it. The structure of the STI Plan relating to senior executives is outlined in the table below: Feature Description Max opportunity CEO: 15% of FTE fixed remuneration Other senior executives: 15% of fixed remuneration The STI metrics align with the Group’s strategic priorities of market competitiveness, operational excellence, shareholder value, and fostering talented and engaged people. Performance metrics Metric Target Weighting Reason for selection Consolidated EBITDA Budget1 Individual performance metrics Specific to individuals2 70% 30% Reflects improvements in both revenue and cost control Targeted metrics have been chosen that are critical to individual roles and which support the Group’s strategic objectives. Delivery of STI 100% of the STI award is paid in cash no later than three months following the end of the financial year. Board discretion The Board has discretion to adjust remuneration outcomes up or down to prevent any inappropriate reward outcomes. 1. 2. The budget for consolidated EBITDA is set as a dollar figure by the Board on an annual basis. The actual EBITDA results achieved are expressed as a percentage of the relevant budget figure. The bonus outcomes are calculated on a sliding scale, with the minimum payment at 90% of budget and maximum payment at 115% of budget Individual KPIs are established and agreed between the employee and their manager. This is done either at the annual performance appraisal each year for existing employees, or soon after commencement of employment for new employees. 16 | ATLAS PEARLS | Annual Report 2023 Use of remuneration consultants During the financial year ended 30 June 2023 the Company did not engage any remuneration consultants. Voting and comments made at the Company’s 2022 Annual General Meeting Atlas Pearls received 99.19% of ‘yes’ votes on adoption of the renumeration report for the 2022 financial year. 76.21% of ‘yes’ votes were received on the resolution to re-elect Geoff Newman as Director. 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. 14.2 DETAILS OF REMUNERATION The following tables show details of the remuneration received by the Directors and the Key Management Personnel (KMP) of the Group for the current and previous financial period. s e e f d n a y r a l a s h s a C $ e m a N Directors (Non-executive) Geoff Newman1 Tim Martin Cadell Buss José Martins2 2023 2022 2023 2022 2023 2022 2023 2022 120,129 218,469 71,825 61,328 71,825 61,250 8,036 - Other Key Management Personnel Michael Ricci3 Mark Longhurst4 Diana Kubicki5 TOTAL 2023 TOTAL 2022 2023 2022 2023 2022 2023 2022 2023 2022 249,574 4,308 152,630 247,885 221,483 205,977 895,502 799,217 m r e t - t r o h S s t fi e n e b r o f e c fi i r c a s $ s e r a h s y r a l a S m r e t - t r o h S h s a c e v i t n e c n i $ s u n o b m r e t - t r o h s d n a s t fi e n e b s e e f , y r a l a s h s a c l a t o T h s a c - n o N y r a t e n o m 6 t fi e n e b $ $ t n e m y o p m e l s t fi e n e b - t s o P n o i t a u n n a r e p u S t fi e n e b $ m r e t - g n o L s t fi e n e b e v a e l e c i v r e s g n o L $ n o i t a s n e p m o c d e s a b - e r a h S s u n o B s e r a h S $ 7 s n o i t p O $ l a t o T $ - - - - - - - - - - - - - - - - - - - - 26,040 - - - - - - - - - - - - - - - - - - - - - 120,129 218,469 12,906 21,947 71,825 61,328 71,825 61,250 8,036 - - - - - 844 - - - - - - - - - 275,614 28,549 2,812 4,308 431 11,123 163,753 39,875 287,760 - - - - - 221,483 22,820 (11,376) 205,977 26,040 11,123 932,665 - 39,875 839,092 21,172 65,119 43,550 - (8,564) - - - - - - - - - - - - - - - - - 27,244 160,279 15,246 255,662 - - - - - - - - 71,825 61,328 71,825 61,250 8,880 - 306,975 4,739 6,045 169,798 5,641 293,401 5,064 237,991 4,905 232,054 38,353 1,027,573 25,792 908,434 1. 2. 3. 4. 5. 6. 7. Geoff Newman was Executive Chairman until 12 July 2022, thereafter assuming the role of Non-Executive Chairman. José Martins was appointed Non-Executive Director on 17 May 2023. Michael Ricci was appointed Chief Executive Officer on 13 June 2022. Mark Longhurst ceased as a KMP with effect from 31 December 2022. Diana Kubicki resigned as CFO on 09 June 2023. Non-Monetary benefits of other KMP includes overseas living allowances as per individual employment contracts. Share-based remuneration related to options being recognised over the respective vesting period. Annual Report 2023 | ATLAS PEARLS | 17 Directors’ Report 14.2.1 DETAILS OF REMUNERATION – PERFORMANCE ANALYSIS The following table indicates the percentage of remuneration relating to options and performance: Name Geoff Newman Michael Ricci Mark Longhurst (ceased as KMP 31 December 2022) Diana Kubicki (resigned 09 June 2023) 30 June 2023 % Performance 30 June 2022 % Performance 17% 9.42% 3.56% 2.13% 5.96% 0% 1.92% 2.11% 14.2.2 RELATIONSHIP BETWEEN REMUNERATION AND ATLAS PEARLS’ PERFORMANCE The following table shows performance indicators as prescribed by the Corporations Act 2001 over the past five reporting periods: 30 June 2023 30 June 2022 30 June 2021 30 June 2020 30 June 2019 9,087,744 4,591,551 6,719,924 (8,076,827) (3,582,461) 2.14 1.08 1.58 (1.90) (0.84) - - - - - 17% 140% 200% (38%) (67%) 0.8% 0.6% 0.1% (0.2%) (2.5%) Profit/(loss) for the year Basic earnings per share Dividend payments Increase/ (decrease) in share price Total KMP incentives as percentage of profit/(loss) % 14.3 SERVICE AGREEMENTS 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 Officer other KMPs are also formalised in service agreements. Details of KMP service agreements are set out below: 14.3.1 MICHAEL RICCI (Chief Executive Officer) Michael has been engaged as Chief Executive Officer of the Group pursuant to an employment agreement between the Group and Michael (Ricci Agreement). The total annual remuneration payable to Michael under the Ricci Agreement is a salary of $248,000 per annum (exclusive of superannuation) (2022: $224,000) on a part-time basis of four days per week. Michael is also entitled to participate in STIs of up to 15% (2022: 15%) of the base salary and LTIs, as determined by the Board. An STI bonus of $26,040 has been accrued in respect of the financial year ended 30 June 2023 (30 June 2022: nil) under the STI Plan, representing a 70% achievement of the maximum bonus payable. The Ricci Agreement commenced on 13 June 2022 and employment under the Ricci Agreement will continue until terminated in accordance with the Ricci Agreement (Term). During the Term, the Ricci Agreement may be terminated by the Group at any time: • by three months written notice to Michael, at which time the Group will immediately pay Michael 3 months base salary in lieu; or • by summary notice in circumstances where Michael neglects to perform his duties or comply with reasonable or proper direction or engages in serious misconduct. 18 | ATLAS PEARLS | Annual Report 2023 • Otherwise, the Ricci Agreement may be terminated by Michael at any time for any reason by giving not less than three months’ notice in writing to the Group. Michael is also subject to restrictions in relation to the use of confidential information during and after his employment with the Group ceases, being directly or indirectly involved in a competing business during the continuance of his employment with the Group, and for a period of 12 months after his employment with the Group ceases, on terms which are otherwise considered standard for agreements of this nature. The Ricci Agreement contains additional provisions considered standard for agreements of this nature. 14.3.2 MARK LONGHURST (Chief Operations Officer) Mark resigned from the position of Chief Operations Officer on 31 December 2022. The total remuneration payable to Mark was a base salary for the 2023 financial year of $230,000 per annum (exclusive of superannuation) (2022: $230,000) and non-financial allowances related to living in Indonesia are also included, to a maximum allowance of $22,500 annually. No bonus has been accrued in respect of the financial year ended 30 June 2023. 14.3.3 MS DIANA KUBICKI (Chief Financial Officer) Diana resigned from the position of Chief Financial Officer on 09 June 2023. The total remuneration payable to Diana was a base salary for the 2023 financial year of $220,000 per annum (inclusive of superannuation)(2022: $190,000). No bonus has been accrued in respect of the financial year ended 30 June 2023. 14.3.4 GEMMA CANN (Chief Financial Officer) Gemma was promoted to Chief Financial Officer of the Group with effect from 17 July 2023, pursuant to an employment agreement between the Group and Gemma (Cann Agreement). The total annual remuneration payable to Gemma under the Cann Agreement is a salary of $180,000 per annum (exclusive of superannuation). Gemma is also entitled to participate in STIs of up to 15% of the base salary and LTIs, as determined by the Board. The Cann Agreement commenced on 17 July 2023 and employment under the Cann Agreement will continue until terminated in accordance with the Cann Agreement (Term). During the Term, the Cann Agreement may be terminated by the Group at any time: • by three months’ written notice to Gemma, at which time the Group will immediately pay Gemma 3 months’ base salary in lieu; or by summary notice in circumstances where Gemma neglects to perform her duties or comply with reasonable or proper direction or engages in serious misconduct. • Otherwise, the Cann Agreement may be terminated by Gemma at any time for any reason by giving not less than three months’ notice in writing to the Group. Gemma is also subject to restrictions in relation to the use of confidential information during and after her employment with the Group ceases, being directly or indirectly involved in a competing business during the continuance of her employment with the Group, and for a period of 12 months after her employment with the Group ceases, on terms which are otherwise considered standard for agreements of this nature. The Cann Agreement contains additional provisions considered standard for agreements of this nature. 14.4 ADDITIONAL INFORMATION OF THE REMUNERATION 14.5 SHARE-BASED PAYMENTS COMPENSATION REPORT 14.4.1 LOANS FROM DIRECTORS AND EXECUTIVES During the year, the Company repaid its debt funding from Boneyard Investments Pty Ltd, a related party of Tim Martin (Non-Executive Director). As at 30 June 2023 the balance of the loan was nil (30 June 2022: $1.125M). Refer to note 16.4 for further details of the loan arrangement. 14.4.2 OPTIONS No options were issued to KMP during the financial year end 30 June 2023 (30 June 2022: 4,955,301 options). Refer to section 23.2 for details of options on issue. 14.4.3 OTHER KMP TRANSACTIONS As at 30 June 2023, Director fees of $13,948 are payable (30 June 2022: $5,417). 14.5.1 EMPLOYEE SALARY SACRIFICE SHARE PLAN There was no salary sacrifice scheme undertaken for the year ended 30 June 2023. 14.5.2 PERFORMANCE OPTIONS The details relating to performance options allocated to KMP under the Atlas Pearls Ltd Employee Share and Incentive Plan are shown in the table below. The fair value at grant date is independently determined using a Hoadley Trading and Investment valuation model, which takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected volatility of the underlying share, the expected dividend yield, and the risk free interest rate for the term of the option. t n a r g f o e t a D s n o i t p o f o . o N t n e m e l t i t n E e t a d g n i t s e V n i r a e y l a i c n a n i F t s e v s n o i t p o h c i h w e t a d y r i p x E e m a N Geoff Newman1 29/04/22 510,478 30/06/22 30/09/24 Mark Longhurst1,2 24/05/22 257,055 30/06/22 30/09/24 Diana Kubicki1,3 24/05/22 223,526 30/06/22 30/09/24 Geoff Newman1 29/04/22 765,718 30/06/23 30/09/24 Mark Longhurst1,2 24/05/22 385,583 30/06/23 30/09/24 Diana Kubicki1,3 24/05/22 335,290 30/06/23 30/09/24 Geoff Newman1 29/04/22 1,276,196 30/06/24 30/09/24 Mark Longhurst1,2 24/05/22 642,639 30/06/24 30/09/24 Diana Kubicki1,3 24/04/22 558,816 30/06/24 20/09/24 2022 2023 2023 2023 2023 2023 2024 2024 2024 t a e c i r p e r a h S e t a d t n a r g $0.047 $0.042 e s i c r e x e n o i t p O e c i r p $0.065 $0.065 $0.042 $0.065 $0.047 $0.042 $0.070 $0.070 $0.042 $0.070 $0.047 $0.042 $0.075 $0.075 $0.042 $0.075 y t i l i t a l o V 100% 100% 100% 100% 100% 100% 100% 100% 100% e t a r e e r f k s i R t n a r g t a s n o i t p o f o e u l a v l a t o T e t a d e u l a v r i a F 2.45% $10,618 $0.0208 2.53% 2.53% $4,524 $0.0176 $3,934 $0.0176 2.45% $16,616 $0.0217 2.53% 2.53% $6,941 $0.0180 $6,035 $0.0180 2.45% $28,332 $0.0222 2.53% $11,825 $0.0184 2.53% $10,282 $0.0184 Notes: These unlisted options were approved at the EGM on 29 April 2022 and are subject to the employee remaining engaged as an employee at the date of the prescribed vesting date. 1. 2. Mark Longhurst ceased as a KMP with effect from 31 December 2022. 3. Diana Kubicki resigned as CFO on 9 June 2023. Unlisted options issued to Diana Kubicki on 24/05/22 with a vesting date of 30/06/24 will therefore be forfeited as she will not meet the vesting criteria noted in note 1. above. Under the terms of the Atlas Pearls Ltd Employee Share and Incentive Plan, Diana Kubicki has 3 months from the date of her resignation to exercise the options that have vested before they are forfeited, unless the board exercises its discretion otherwise. Annual Report 2023 | ATLAS PEARLS | 19 Directors’ Report 14.5.3 EQUITY INSTRUMENTS (C) OPTION HOLDING The details relating to the equity instruments held by KMP are as follows: (A) EQUITY INSTRUMENT DISCLOSURES RELATING TO KMP Options and rights granted as compensation: There were no options issued to KMP as remuneration during the year ended 30 June 2023 (30 June 2022: 5,877,347). (B) SHAREHOLDINGS The number of shares in the Company held during the financial year by each Director and the other KMP of the Group, including their personally related parties, are set out below: 2 2 / 7 0 / 1 0 e c n a l a B Directors Geoff Newman1 2,563,443 Tim Martin2 Cadell Buss3 Michael Ricci4 110,184,995 1,337,000 - 114,085,438 n o i t a s n e p m o c s a d e t n a r G - - - - - d e s i c r e x e s n o i t p O d e r i u q c A 3 2 / 6 0 / 0 3 e c n a l a B - - - - - - - 2,563,443 110,184,995 1,337,000 512,800 512,800 - 512,800 114,598,238 Notes: 1. 2. 3. 4. 1,847,154 shares held by Mr Geoffrey Grosvenor Newman & Mrs Cheryl Louise Newmanand 716,289 shares held by Mrs Cheryl Louise Newman & Mr Geoffrey Grosvenor Newman . 54,907,327 shares are held by Boneyard Investments Pty Ltd, 32,400,000 shares are held by Chemco Superannuation Fund Pty Ltd , 17,880,240 shares are held by Jingie Investments Pty Ltd, and 1,000,000 shares are held by Mr Timothy James Martin and Mr William Gordon Martin of which Tim Martin is a beneficiary, and the remaining balance of 3,997,428 shares are held personally by Tim Martin. Shares are held by Cadon Holdings Pty Ltd of which Cadell Buss is a beneficiary. Shares were acquired on market and are held by M&K Ricci Pty Ltd of which Michael Ricci is a beneficiary. The number of options over ordinary shares in the parent entity held during the year ended 30 June 2023 by each Director and other KMP of the Group, including their personally related parties, is set out below: 2 2 / 7 0 / 1 0 e c n a l a B d e s i c r e x E d e t n a r G Directors Geoff Newman 2,552,392 - - Other Key Management Personnel Mark Longhurst2 1,285,277 D Kubicki3 1,117,632 4,955,301 - - - - - - P M K s a d e c n e m m o c / d e s a e C 3 2 / 6 0 / 0 3 e c n a l a B 1 d e t s e V y l l u F - 2,552,392 1,276,196 (1,285,277) (1,117,632) - - 642,638 558,816 d e s p a L / d e t fi r o F - - - - (2,402,909) 2,552,392 2,477,650 Notes: 1. 1,486,591 Options vested 30 June 2023 (30 June 2022: 991,059). 2. Mark Longhurst ceased as KMP with effect from 31 December 2022. 3. Diana Kubicki resigned on 09 June 2023. 15. Rounding of amounts The Company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the ‘rounding off’ of amounts in the Directors’ report and financial report. Amounts in the Directors’ report and financial report have been rounded off to the nearest thousand dollars in accordance with the instrument. This is the end of the Audited Remuneration Report. 20 | ATLAS PEARLS | Annual Report 2023 16. Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 22. Signed in accordance with a resolution of the Directors. Geoff Newman Chairman - 30 August 2023 Annual Report 2023 | ATLAS PEARLS | 21 Tel: +61 8 6382 4600 Tel: +61 8 6382 4600 Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 Fax: +61 8 6382 4601 Fax: +61 8 6382 4601 www.bdo.com.au www.bdo.com.au www.bdo.com.au Level 9, Mia Yellagonga Tower 2 38 Station Street 5 Spring St Subiaco, WA 6008 Perth, WA 6000 PO Box 700 West Perth WA 6872 PO Box 700 West Perth WA 6872 Australia Australia DECLARATION OF INDEPENDENCE BY JARRAD PRUE TO THE DIRECTORS OF ATLAS PEARLS LIMITED As lead auditor of Atlas Pearls Limited for the year ended 30 June 2023, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Atlas Pearls Limited and the entities it controlled during the period. Jarrad Prue Director BDO Audit (WA) Pty Ltd Perth 30 August 2023 BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. Transferring baby oysters to nets ready for going to sea. Consolidated Statement of Profit or Loss and Other Comprehensive Income Revenue from contracts with customers Cost of goods sold GROSS PROFIT Administration expenses Finance costs Marketing expenses Change in fair value less husbandry costs of oysters Other expenses Other income PROFIT BEFORE INCOME TAX Income tax expense PROFIT AFTER INCOME TAX OTHER COMPREHENSIVE INCOME Items that will be reclassified as profit or loss: Exchange differences on translation of foreign operations OTHER COMPREHENSIVE INCOME NET OF TAXES TOTAL COMPREHENSIVE INCOME PROFIT IS ATTRIBUTABLE TO: Owners of the Company TOTAL COMPREHENSIVE INCOME IS ATTRIBUTABLE TO : Owners of the Company EARNINGS PER SHARE ATTRIBUTABLE TO THE ORDINARY EQUITY HOLDERS OF THE COMPANY Basic earnings per share (cents) Diluted earnings per share (cents) Notes 2023 $ 2022 $ 3 5 5 4 5 3 7 6 6 27,200,159 21,507,913 (10,897,065) (11,569,737) 16,303,094 9,938,176 (6,021,303) (5,000,982) (74,213) (399,911) 641,493 (249,842) (435,167) 2,336,115 (921,161) (1,465,813) 185,890 9,713,889 (626,145) 9,087,744 305,180 5,427,667 (836,116) 4,591,551 446,144 446,144 9,533,888 1,280,099 1,280,099 5,871,650 9,087,744 9,533,888 5,871,650 2.14 2.14 1.08 1.08 The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. 24 | ATLAS PEARLS | Annual Report 2023 Consolidated Statement of Financial Position CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Biological assets TOTAL CURRENT ASSETS NON-CURRENT ASSETS Intangibles Biological assets Property, plant and equipment Right-of-use assets Deferred tax assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Provisions Borrowings Lease liabilities Current tax liabilities TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Lease liabilities Deferred tax liabilities Provisions TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Retained earnings / (accumulated losses) TOTAL EQUITY The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. Notes 2023 $ 2022 $ 8 9 4 4 11 7 10 10 7 7 10 13 14 7,845,286 300,619 3,319,854 8,916,104 2,995,131 240,047 3,167,940 9,763,861 20,381,863 16,166,979 - 11,340,618 6,928,730 617,588 797,111 19,684,047 40,065,910 757,374 2,971,185 - 63,572 124,098 18,561 7,883,366 5,905,882 686,707 854,108 15,348,624 31,515,603 810,715 2,731,110 1,125,000 58,048 398,583 3,916,229 5,123,456 159,559 1,860,885 45,186 2,065,630 5,981,859 220,998 1,766,697 29,616 2,017,311 7,140,767 34,084,051 24,374,836 36,857,415 36,857,415 (7,744,682) (8,366,153) 4,971,318 (4,116,426) 34,084,051 24,374,836 Annual Report 2023 | ATLAS PEARLS | 25 Consolidated Statement of Changes in Equity Attributable to owner of Atlas Pearls d e t u b i r t n o C y t i u q e Notes $ n o i t a u l a v e R e v r e s e r $ e r a h s e e y o p m E l e v r e s e r $ y c n e r r u c n g e r o F i e v r e s e r n o i t a l s n a r t $ i s g n n r a e d e n i a t e R d e t a l u m u c c a ( $ ) s e s s o l y t i u q e l a t o T $ BALANCES AT 1 JULY 2022 Net profit for the year Exchange differences on translation of foreign operations 14 Total comprehensive income Transactions with owners in their capacity as owners Share-based payments Balance at 30 June 2023 14 36,857,415 179,179 989,514 (9,534,846) (4,116,426) 24,374,836 - - - - - - - - - - - - 9,087,744 9,087,744 446,144 - 446,141 446,144 9,087,744 9,533,885 175,327 - - 175,327 36,857,415 179,179 1,164,842 (9,088,702) 4,971,318 34,084,051 BALANCES AT 1 JULY 2021 Net profit for the year Exchange differences on translation of foreign operations 14 Total comprehensive income Transactions with owners in their capacity as owners Share-based payments Balance at 30 June 2022 14 36,857,415 179,179 911,083 (10,814,945) (8,707,977) 18,424,755 - - - - - - - - - - - - 4,591,551 4,591,551 1,280,099 - 1,280,099 1,280,099 4,591,551 5,871,650 78,431 - - 78,431 36,857,415 179,179 989,514 (9,534,846) (4,116,426) 24,374,836 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. 26 | ATLAS PEARLS | Annual Report 2023 Consolidated Statement of Cash Flows CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from pearl and jewellery sales Proceeds from pearl by-product sales Payments to suppliers and employees Income tax paid Interest paid Interest received Notes 2023 $ 2022 $ 26,243,479 20,982,624 594,162 838,216 (17,572,442) (15,710,705) (767,211) (920,381) (62,063) (215,713) 14,067 11,751 Net cash inflow from operating activities 8 8,449,992 4,985,792 CASH FLOWS FROM INVESTING ACTIVITIES Payments for property, plant and equipment Net cash outflow from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Repayment of borrowings Proceeds from borrowings Repayment of lease liabilities Net cash outflow from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effects of exchange rate changes on cash and cash equivalents (2,155,311) (1,600,828) (2,155,311) (1,600,828) (1,812,806) (3,628,515) 687,806 (130,484) 556,207 (79,454) (1,255,484) (3,151,762) 5,039,197 233,202 2,995,131 3,022,311 (189,042) (260,382) CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL YEAR 8 7,845,286 2,995,131 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. Annual Report 2023 | ATLAS PEARLS | 27 Index of notes to the consolidated financial statements PART A Basis of preparation PART B Financial performance 1. Basis of preparation 2. Segment reporting 3. Revenue from contracts with customers and other income 4. Biological assets 5. Expenses 6. Earnings per share 7. Tax PART C Tax PART D Cash flow information 8. Cash and cash equivalents PART E Working capital 9. Inventories 10. Payables PART F Non-financial assets and liabilities 11. Property, plant and equipment PART G Funding, capital management and equity 12. Borrowings 13. Contributed equity 14. Reserves 15. Dividends PART H Risk management 16. Risk management PART I Unrecognised items 17. Events occurring after the reporting period PART J Other 18. Commitments 19. Contingencies 20. Subsidiaries 21. Related party transactions 22. Parent entity financial information 23. Share-based payments 24. Remuneration of auditors 25. Accounting policies 29 29 31 32 34 34 35 37 37 37 38 39 40 40 40 41 45 45 45 45 46 46 47 48 49 Notes to the consolidated financial statements PART A - Basis of preparation PART B - Financial performance 1. 1.1 Basis of preparation BASIS OF PREPARATION The financial statements cover the consolidated entity of Atlas Pearls Ltd 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 2023. The Directors have the power to amend and reissue the financial statements. These general purpose financial statements have been prepared in accordance with Australian Accounting Standards, and other authoritative pronouncements of the Australian Accounting Standards Board (AASB), IFRS, and the Corporations Act 2001. Atlas Pearls is a for-profit entity for the purpose of preparing financial statements. These financial statements have been prepared under the historical cost basis, financial assets and liabilities (including derivative instruments) at fair value through profit or loss, and biological assets and inventories at fair value less cost to sell. The accounting policies are consistent with those disclosed in the 2022 financial statements, except for the impact of all new or amended standards and interpretations. 1.2 CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgment 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) (b) Write off of inventories – see note 9 (c) Property, plant and equipment depreciation rates - see note 11 Determination of market value of biological assets – see note 4 Segment reporting 2. 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. DISAGGREGATION OF REVENUE The Group derives revenue from the transfer of goods at a point in time in major product lines and geographical regions as shown below. The operating segments are identified by management based on the location in which the product is sold, whether Australia or Indonesia. 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 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 on a cost-plus arrangement as per the Advance Pricing Agreement (APA), which was effective 1 July 2017 through to 30 June 2021. The transfer price terms per the APA are between 11.8% and 16.47%. The Company has applied for an extension of the current APA agreement for a further five years, which is being reviewed by the respective tax authorities. At report date the agreement was still being negotiated. Atlas Pearls has chosen to prepare its accounts in line with the previous APA agreement until a new agreement has been signed. These transactions are eliminated within the internal reports. The revenue from external parties, reported to the chief operating decision makers 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. Segment revenue reconciles to total revenue from contracts with customers in the statement of profit or loss and other comprehensive income as follows: 2023 2022 Total segment revenue 46,877,358 40,160,833 Inter-segment eliminations (19,677,199) (18,652,920) Total revenue from contracts with customers (note 3) 27,200,159 21,507,913 Annual Report 2023 | ATLAS PEARLS | 29 Notes to the consolidated financial statements 2.1 SEGMENT INFORMATION PROVIDED TO THE BOARD OF DIRECTORS AND MANAGEMENT TEAM (i) The segment information provided to the Board of Directors and management team for the reportable segments for the year ended 30 June 2023 is as follows: 30 June 2023 Total segment revenue Inter-segment revenue Revenue from external customers Timing of revenue recognition At a point in time Over time Normalised EBITDA Adjusted net opertating profit before income tax Depreciation and amortisation Revaluation of biological assets TOTAL SEGMENT ASSETS Total assets include: Additions to non-current assets TOTAL SEGMENT LIABILITIES Loose pearls and by-product Australia $ Indonesia $ Total $ 26,365,847 20,511,511 46,877,358 - (19,677,199) (19,677,199) 26,365,847 834,312 27,200,159 26,365,847 834,312 27,200,159 - - - 26,365,847 834,312 27,200,159 7,073,425 2,731,616 6,859,569 2,594,382 111,962 - 178,982 641,493 9,805,041 9,453,951 290,944 641,493 7,651,584 31,616,644 39,268,228 31,322 2,123,989 2,155,311 (628,574) (3,145,171) (3,773,745) (ii) The segment information provided to the Board of Directors and management team for the reportable segments for the year ended 30 June 2022 is as follows: Loose pearls and by-product Australia $ Indonesia $ Total $ 20,565,831 19,595,002 40,160,833 - (18,652,920) (18,652,920) 20,565,831 942,082 21,507,913 20,565,831 942,082 21,507,913 - - - 20,565,831 942,082 21,507,913 1,287,569 3,062,661 1,085,453 2,777,063 116,055 196,203 - 2,336,115 4,191,144 3,703,431 312,258 2,336,115 2,276,144 28,384,770 30,660,914 31,237 1,548,641 1,579,878 (479,227) (3,092,214) (3,571,441) 30 June 2022 Total segment revenue Inter-segment revenue Revenue from external customers Timing of revenue recognition At a point in time Over time Normalised EBITDA Adjusted net opertating profit before income tax Depreciation and amortisation Revaluation of biological assets TOTAL SEGMENT ASSETS Total assets include: Additions to non–current assets TOTAL SEGMENT LIABILITIES 30 | ATLAS PEARLS | Annual Report 2023 2.2 OTHER SEGMENT INFORMATION (iv) Normalised EBITDA reconciliation (i) 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 expenses such as interest paid and received, foreign exchange gains and losses whether realised or unrealised, fair value gains and losses, and impairment charges. A reconciliation of adjusted net operating profit/(loss) before income tax is provided as follows: Segment net operating profit before tax 9,453,951 3,703,431 2023 $ 2022 $ Net profit before tax Finance/interest paid Depreciation/amortisation Foreign exchange loss 2023 $ 2022 $ 9,713,889 5,427,667 60,146 290,944 381,555 237,971 312,258 611,879 Agriculture standard revaluation (gain) (641,493) (2,336,115) NORMALISED EBITDA 9,805,041 4,253,660 3. 3.1 Revenue REVENUE FROM CONTRACTS WITH CUSTOMERS 2023 $ 2022 $ 641,493 2,336,115 171,823 174,198 (553,378) (786,077) 9,713,889 5,427,667 Sale of goods 27,200,159 21,507,913 TOTAL REVENUE FROM CONTRACTS WITH CUSTOMERS 3.2 OTHER INCOME 27,200,159 21,507,913 Changes in fair value of biological and agricultural assets Foreign exchange gains Foreign exchange losses TOTAL PROFIT BEFORE INCOME TAX FROM OPERATIONS (ii) 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 2023 $ 2022 $ 39,268,228 30,660,914 571 582 797,111 854,108 40,065,910 31,515,604 The total of non-current assets other than financial instruments and deferred tax assets located in Australia is $703,964 (30 June 2022: $786,159). The total located in Indonesia is $15,590,296 (30 June 2022: $12,551,975). (iii) 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: Segement liabilities Unallocated: Current tax liabilities Borrowings Lease liabilities Deferred tax liabilities TOTAL LIABILITIES AS PER THE STATEMENT OF FINANCIAL POSITION 2023 $ 2022 $ 3,773,745 3,571,441 124,098 398,583 - 1,125,000 223,131 279,046 1,860,885 1,776,697 5,981,859 7,140,768 Foreign exchange gains Interest income Other TOTAL OTHER INCOME 2023 $ 171,823 14,067 - 185,890 2022 $ 174,198 11,751 119,112 305,180 SIGNIFICANT ACCOUNTING POLICY Revenue from contracts with customers Revenue is recognised when the Group transfers control of products to a customer at the amount to which the Group expects to be entitled. Revenue shall be measured at the fair value of the consideration received or receivable. The amount of revenue arising on a transaction is usually determined by an agreement between the Group and the customer. Government Grants Government grants relating to costs are deferred and recognised in profit or loss over the period necessary to match them with the loss they are intended to compensate. Sale of Goods - Wholesale The Group produces and sells pearls in the wholesale market. Revenue from the sale of goods is recognised at a point in time when control of the product is transferred to the customer, which is typically on delivery. Sale of Goods - Retail The Group operates an online retail store and farm experience stores selling pearl jewellery. Revenue from the sale of goods is recognised when the Group transfers control of the product to the customer, which is typically at the point of sale. Annual Report 2023 | ATLAS PEARLS | 31 Notes to the consolidated financial statements SIGNIFICANT JUDGEMENT Fair value should reflect market participant views and market data at the measurement date under current market conditions. The valuation of oysters contains both observable and unobservable inputs. The Group carefully considered these inputs when assessing the fair value of oyster stocks. A fair valuation uplift of $641,493 (2022: $2,336,115 increase) is included in the valuation of biological assets. 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, the the harvesting of the pearls, and realisation of cash receipts from the sale to third parties. The Group ensures that it maintains sufficient working capital to sustain its operations 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, as described in note 16.5. 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. Biological assets Current Oysters – at fair value 2023 $ 2022 $ 8,916,104 9,763,861 TOTAL CURRENT BIOLOGICAL ASSETS 8,916,104 9,763,861 Oysters – at fair value 11,340,618 7,883,366 TOTAL NON-CURRENT BIOLOGICAL ASSETS 11,340,618 7,883,366 TOTAL BIOLOGICAL ASSETS 20,256,722 17,647,227 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: Biological Assets Juvenile and mature oysters Nucleated oysters 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 - 700,000 600,000 500,000 400,000 300,000 200,000 100,000 - 2023 2022 Pearls Harvested 2023 2022 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. 32 | ATLAS PEARLS | Annual Report 2023 4.1 KEY PRODUCTION ASSUMPTIONS The key assumptions utilised to determine the fair market value of oysters are detailed below: Input 2023 2022 2023 Assumptions 2022 Assumptions Average selling price ¥15,518 ¥11,250 Based on sale prices achieved over prior three reporting periods. Based on sale prices achieved in current reporting period. Yen exchange rate ¥95.97 ¥93.79 No change to prior period. Based on forward Yen price per a financial institution. Average pearl size Proportion of marketable grade Discount rate Mortality 0.38 34% 20% 16% 0.43 38% Based on harvest results achieved over prior five reporting periods. Based on harvest results achieved over prior three reporting periods. Based on harvest results achieved over prior five reporting periods. Based on harvest results achieved over prior three reporting periods. 20% No change to prior period. Based on analysis of comparable primary producers. 12% No change to prior period. Based on current harvest mortality rates. Average unseeded oyster value $1.91 $1.76 No change to prior period. Based on historical independent valuation. Costs to complete $0.59 $0.69 No change to prior period. Based on current average. 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: Average selling price (¥/Momme) -10% ¥13,966 (Sellable grade) ¥2,008 (Commercial grade) No change ¥15,518 (Sellable grade) ¥2,231 (Commercial grade) +10% ¥17,070 (Sellable grade) ¥2,454 (Commercial grade) Discount rate 22% 20% 18% Profit $ (3,206,133) (2,927,864) (2,638,362) Profit $ (337,714) - 351,526 Profit $ 2,530,704 2,927,864 3,341,413 Average selling price (¥/Momme) -10% ¥13,966 (Sellable grade) ¥2,008 (Commercial grade) No change ¥15,518 (Sellable grade) ¥2,231 (Commercial grade) +10% ¥17,070 (Sellable grade) ¥2,454 (Commercial grade) Profit $ (5,615,830) (2,927,864) 451,092 -10% 31% (Sellable %) 22% (Commercial %) Profit $ 686,851 (2,037,285) (4,761,420) Profit $ (2,986,629) - 3,754,395 Sellable % No change 34% (Sellable %) 24% (Commercial %) Profit $ 2,927,864 - (2,927,864) Profit $ (357,428) 2,927,864 7,057,699 +10% 38% (Sellable %) 27% (Commercial %) Profit $ 5,169,847 2,038,166 (1,093,515) FX rate ¥105.57 ¥95.97 ¥86.37 Av. weight 0.42 0.38 0.34 Annual Report 2023 | ATLAS PEARLS | 33 Notes to the consolidated financial statements 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 2023 as potential ordinary shares, which may have a dilutive effect on the profit of the Group. Ordinary shares issued to employees under the Atlas Pearls Ltd Employee Share and Incentive 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. 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. 5. 5.1 Expenses ADMINISTRATION EXPENSES Salaries and wages 4,134,894 3,501,850 Depreciation property, plant and equipment 234,616 154,536 2023 $ 2022 $ Amortisation of intangible asset Amortisation of right-of-use asset Occupancy costs Compliance and accounting Travel Other - 56,328 115,370 450,595 386,595 642,905 86,262 71,460 67,920 395,130 224,288 499,538 TOTAL ADMINISTRATION EXPENSES 6,021,303 5,000,982 5.2 FINANCE COSTS Interest and finance charges payable Interest from lease liabilities TOTAL FINANCE COSTS 5.3 OTHER EXPENSES Loss on foreign exchange Provision for employee entitlements Share option expense (refer to note 23) Other 2023 $ 2022 $ 55,893 18,320 74,213 231,747 18,095 249,842 2023 $ 553,378 86,558 175,328 105,897 2022 $ 786,075 226,175 78,430 375,133 TOTAL OTHER EXPENSES 921,161 1,465,813 6. Earnings Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 6.1 EARNINGS RECONCILIATION 2023 $ 2.14 2.14 2023 $ 2022 $ 1.08 1.08 2022 $ Net profit used for basic earnings 9,087,744 4,591,551 Weighted average number of ordinary shares outstanding during the period used for calculation of basic earnings per share Adjustments for calculation of diluted earnings per share Weighted average number of potential ordinary shares outstanding during the year used for calculation of diluted earings per share 2023 $ 2022 $ 424,809,620 424,871,758 18,689,466 18,758,055 443,499,086 443,567,675 34 | ATLAS PEARLS | Annual Report 2023 PART C - Tax 7. 7.1 Tax INCOME TAX EXPENSE (A) THE COMPONENTS OF TAX EXPENSE/(BENEFIT) COMPRISE: Current tax Deferred tax Prior period (over) provision INCOME TAX EXPENSE (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 in deferred tax liabilities (note 7.2) Decrease/(increase) in opening balances DEFERRED TAX EXPENSE (C) NUMERICAL RECONCILIATION OF INCOME TAX EXPENSE TO PRIMA FACIE TAX PAYABLE: Profit before income tax expense Tax at the Australian tax rate of 25% (30 June 2022 : 26%) Tax effect of amounts which are not deductible in calculating taxable income: Non-deductible expenses Sundry items Permanent differences Difference in overseas tax rates Income tax (over) provided in previous years Utilisation of tax losses INCOME TAX EXPENSE 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 Other Deferred tax assets Difference in accounting and tax depreciation Stock Accruals Provisions Other DEFERRED (INCOME) For details of the franking account, refer to Note 15 2023 $ 2022 $ 474,957 314,179 (162,994) 626,145 56,997 94,188 162,994 314,179 388,692 731,916 (284,492) 836,116 (63,034) 510,497 284,492 731,915 9,713,889 2,428,471 5,427,667 1,356,917 64,642 (14,840) 6,475 (64,767) (162,994) (1,630,842) 626,145 6% 28,530 (23,671) 64,166 (53,302) (284,492) (252,032) 836,116 15% (133,390) (604,734) 5,189 34,012 (69,422) (58,404) (25,685) 86,144 10,371 (151,185) (10,001) 104,277 34,972 92,764 (6,705) (52,052) (5,946) (447,425) Annual Report 2023 | ATLAS PEARLS | 35 Notes to the consolidated financial statements 7.2 TAX ASSETS AND LIABILITIES (A) LIABILITIES CURRENT Income tax payable NON-CURRENT Deferred tax liabilities comprises of temporary differences attributable to: Agricultural and biological assets at fair value Prepayments Other TOTAL DEFERRED TAX LIABILITIES (B) ASSETS Deferred tax assets comprises of temporary differences attributable to: Agricultural and biological assets at fair value Accruals Provisions Tax allowances relating property, plant and equipment Other Previously recognised deferred tax assets Tax losses recognised TOTAL DEFERRED TAX ASSETS (C) RECONCILIATIONS The overall movement in deferred tax account is as follows: Opening balance (Charge) to statement of profit or loss and other comprehensive income Decrease in opening balances CLOSING BALANCE 2023 $ 2022 $ 124,098 398,583 1,839,386 1,705,996 4,971 16,528 10,160 50,541 1,860,885 1,766,697 34,360 - 629,859 50,516 82,376 797,111 - - 92,764 25,685 543,715 119,938 72,006 854,108 - - 797,111 854,108 (912,583) (314,179) 162,994 (465,159) (731,916) 284,492 (1,063,768) (912,583) SIGNIFICANT JUDGEMENT Deferred tax assets Deferred tax assets and liabilities have been bought to account after considering the level of tax losses carried forward and available to the Group against future taxable profits and the probability within the future that taxable profits will be available against which the benefits of the deductible temporary difference can be claimed. Losses can be carried forward indefinitely and have no expiry date. The balance of losses available to the Group at 30 June 2023 is $9,042,671 (30 June 2022: $15,556,038). 36 | ATLAS PEARLS | Annual Report 2023 PART D - Cash flow information PART E - Working capital 8. Cash and cash equivalents 9. Inventories 2023 $ 2022 $ Cash at bank 7,845,286 2,995,131 Pearls BALANCES PER STATEMENT OF CASH FLOWS 7,845,286 2,995,131 Jewellery TOTAL INVENTORY 2023 $ 2022 $ 3,017,706 2,925,746 302,148 242,194 3,319,854 3,167,940 Risk exposure The Group’s exposure to interest rate risk is disclosed in note 16. 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 agreements totalling $29,889 (30 June 2022: $29,696). 8.1 NOTES TO THE CASH FLOW STATEMENT 8.1.1 RECONCILIATION OF CASH For the purposes of the statement of cash flows, 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 of 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 cash-flows is reconciled to the related items in the statement of financial performance as noted above. 8.1.2 RECONCILIATION OF PROFIT/(LOSS) AFTER INCOME TAX TO NET CASH INFLOW FROM OPERATING ACTIVITIES NUMBER OF PEARLS ON HAND 100,174 127,761 SIGNIFICANT JUDGEMENT Pearl and jewellery inventory is held at cost and value assessed based on the fair value 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 2023, nil write off of pearl stocks has been recorded (30 June 2022: $nil). 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. Payables Current Provisions Trade payables Other payables and accrued expenses 2023 $ 2022 $ 2,971,185 2,731,110 659,440 97,934 311,792 498,923 2023 $ 2022 $ TOTAL CURRENT PAYABLES 3,728,559 3,541,825 9,087,744 4,591,551 Other payables and accrued expenses TOTAL NON-CURRENT PAYABLES 45,186 45,186 29,616 29,616 Profit after income tax Depreciation and amortisation Share-based payments Foreign exchange (gain) unrealised Income tax expense 290,944 175,328 (253,472) 626,145 312,258 78,430 (591,443) 836,116 Agricultural asset fair value (gains)/losses (641,493) (2,336,115) Decrease/(increase) in trade and other debtors (145,896) 200,621 Decrease/(increase) in inventories (1,325,938) 1,970,318 (Decrease)/increase in trade and other creditors Increase/(decrease) in provision Increase/(decrease) in taxes NET CASH OBTAINED IN OPERATING ACTIVITIES (1,252) 321,125 15,570 622,312 50,352 (447,424) 8,449,992 4,985,792 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 2023 the Company had in place a bank overdraft loan facility with the National Australia Bank with a limit of $2.5M (30 June 2022: $1.5M). TOTAL PAYABLES 3,773,745 3,571,441 Non-current other payables comprise of accrued long service leave for employees with more than five years tenure with the Company. 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 2023 | ATLAS PEARLS | 37 Notes to the consolidated financial statements PART F - Fixed assets and liabilities 11. Property, plant and equipment 2023 $ 2022 $ 2023 $ 2022 $ (B) PEARLING PROJECT Leasehold land and buildings Carrying amount at beginning of the year 1,698,651 1,690,761 (A) NON-PEARLING ASSETS Plant and equipment - at cost 594,421 651,707 Reclassifications/disposals Additions - accumulated depreciation (503,130) (558,591) Depreciation 91,291 93,116 Foreign exchange movement 1,640,577 1,289,707 (840,576) (1,280,895) (129,835) (105,788) 48,504 104,866 Leasehold improvements - at cost 299,596 292,801 - accumulated depreciation (262,169) (235,126) Total non-pearling assets 37,427 128,718 57,675 150,791 Carrying amount at end of the year 2,417,321 1,698,651 Plant and equipment, vessels, and vehicles Carrying amount at beginning of the year 4,056,439 3,268,783 (B) PEARLING PROJECT Land (leasehold and freehold) and buildings Additions Reclassifications/disposals Depreciation - at cost 3,388,595 2,516,730 Foreign exchange movement - accumulated depreciation (971,274) (818,079) Carrying amount at end of the year 2,417,321 1,698,651 TOTAL CARRYING AMOUNT Plant and equipment, vessels, vehicles 476,365 258,932 840,576 1,225,389 (1,106,516) (899,288) 115,827 4,382,691 6,928,730 202,623 4,056,439 5,905,882 - at cost 13,680,437 12,020,273 - accumulated depreciation (9,297,746) (7,963,833) Reconciliation of depreciation to the Statement of Profit or Loss and Other Comprehensive Income: 2023 $ 2022 $ Depreciation charge (1,296,223) (1,067,684) Capitalised depreciation charge 1,117,934 898,108 Depreciation of property, plant and equipment (PPE) (234,616) (169,576) Depreciation of PPE Amortisation of intangible asset Amortisation of Right-Of-Use Asset (234,616) (169,576) - (56,328) (86,263) (56,419) DEPRECIATION CHARGE (NOTE 5) (290,944) (312,258) Total pearling project 4,382,691 6,800,012 TOTAL PROPERTY, PLANT AND EQUIPMENT 6,928,730 4,056,440 5,755,091 5,905,882 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 2023 $ 2022 $ 93,116 38,369 (3,552) 96,826 31,237 (1,996) (38,637) (35,471) 1,995 91,291 2,520 93,116 Carrying amount at beginning of the year 57,675 82,617 Additions Reclassifications/disposals Depreciation Foreign exchange movement Carrying amount at end of the year - - - - (21,235) (27,137) 987 37,427 2,195 57,675 38 | ATLAS PEARLS | Annual Report 2023 SIGNIFICANT JUDGEMENT Each class of property, plant and 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 entity includes the cost of materials and direct labour. Repairs and maintenance carried out on the assets are expensed unless there is a future 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 and Buildings improvements (5-10%), Vessels (10%), and Plant and Equipment (10-50%). Depreciation on property, plant and equipment which are directly related to Biological Assets are capitalised to the carrying amount of Biological Assets. The estimations of useful lives, residual values and depreciation methods require significant management judgements and are regularly reviewed. If they need to be modified, the depreciation and amortisation expense is accounted for prospectively from the date of the assessment until the end of the revised useful life (for both the current and future years). Construction in Progress Included in pearling project land (leasehold and freehold) and buildings is $1,073,298 (30 June 2022: $604,961) which represents construction of buildings in progress at cost. These expenses will be capitalised within property, plant and equipment when a project is completed. PART G - Funding, capital management and equity 12. Borrowings Current Other loans TOTAL CURRENT BORROWINGS Non current Other loans TOTAL NON-CURRENT BORROWINGS TOTAL BORROWINGS 2023 $ 2022 $ - - - - - 1,125,000 1,125,000 - - 1,125,000 Refer to Note 16.4 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 drawdown 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, canceled 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. Annual Report 2023 | ATLAS PEARLS | 39 Notes to the consolidated financial statements 13. Contributed equity 2023 No. of shares 2022 No. of shares 2023 $ 2022 $ 427,871,758 427,871,758 36,857,415 36,857,415 427,871,758 427,871,758 36,857,415 36,857,415 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. - - - - - - - - 14. Reserves Issued and fully paid-up capital Ordinary shares Balance at beginning of year Shares issued Share transaction costs Balance at end of year Treasury shares Balance at beginning of year Shares released Balance at end of year 427,871,758 427,871,758 36,857,415 36,857,415 3,062,138 3,062,138 - - 3,062,138 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 during the financial year ended 30 June 2023. (30 June 2022: nil). (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 18,366,884 unlisted options on issue at 30 June 2023 (2022: 18,758,055). Information relating to the Atlas Pearls Ltd Employee Share and Incentive Plan, including details of options issued, exercised and lapsed during the financial year and the options outstanding at the end of the reporting period are set out in note 23. (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 nil at 30 June 2023 (30 June 2022 : 5%) 2023 $ 2022 $ Foreign currency translation reserve (9,088,702) (9,534,846) Employee share reserve Revaluation reserve Total reserves Movements: Foreign currency translation reserve1 1,164,842 179,179 989,514 179,179 (7,744,681) (8,366,153) Balance at beginning of year (9,534,846) (10,814,945) Currency translation differences arising during the year 446,144 1,280,099 Balance at end of year (9,088,702) (9,534,846) Employee share reserve2 Balance at beginning of year Movement in employee share reserve Balance at end of year Revaluation reserve3 Balance at beginning of year Balance at end of year 989,514 175,328 1,164,842 179,179 179,179 911,083 78,431 989,514 179,179 179,179 NOTES: 1. 2. 3. 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. 15. Dividends Dividend franking account Franking credits available to shareholders of the Company for subsequent financial years based on a tax rate of 25% 2023 $ 2022 $ 1,305,572 1,305,572 The above amounts represent the balance of the franking account as at the end of the financial period adjusted for: (i) 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 The Group has no external requirements imposed upon it in relation to capital structure. (ii) (iii) Franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date. 40 | ATLAS PEARLS | Annual Report 2023 PART H - Risk management 16. Risk management 16.1 MATERIAL BUSINESS RISKS Atlas Pearls’ approach to managing risk is documented in a Corporate Risk Register reviewed and approved by the Board of Directors. The risk register seeks to ensure that risk management is embedded throughout the business and managed in a structured and systematic manner. The risk registry is reviewed regularly by the Board and is evaluated and updated as the Company’s business model evolves and underlying risks change. The Board has overall responsibility for managing the organisation’s risks, and monitors management’s actions to ensure they are in line with Company policy. The following is a summary of the key continuing significant operational risks facing the business and the way in which Atlas Pearls manages these risks: (I) CORPORATE The Company manages a number of corporate risks such as safety, recruitment and retention of key employees, tax, foreign exchange, purchasing and procurement, potential lower than anticipated return on capital invested and potential lower underlying earnings. All the aforementioned risks are managed through Atlas Pearls’ risk management framework, which includes review and monitoring by management, and the Board. (II) MATERIAL CONTRACTS Atlas Pearls may enter into contracts with suppliers that exceed $1M. Some of the key risks associated with these material contracts include cash flow management, contract management, performance and quality of the services being delivered, and reputation. Atlas Pearls manages these material contracts with steering committee reviews, operating reviews, and other strict project management practices. External legal counsel may be involved. Atlas Pearls negotiates favourable payment terms and reviews financial risk to manage cash flow as effectively as possible. (III) CONSUMER PREFERENCES AND PRICING RISK Atlas Pearls has exposure to pricing risk in relation to the sale of pearls, specifically the weakening of customer demand resulting in the softening of pearl prices. This risk also encompasses the volatility from shifts in consumer preferences. To address these challenges, we have implemented a multi-channel sales approach that provides the ability to diversify our market presence by creating alternative revenue streams. Additionally, the Company consistently monitors the market, staying attuned to shifts in customer preferences and price trends. By closely tracking these indicators, we can proactively adjust our pricing strategy and sales and marketing efforts to align with evolving market conditions. (IV) COMPETITION To address the risk associated with market competition, Atlas Pearls has developed strategies on multiple fronts. The Company continuously invests in research and development activities, to maintain our reputation as a producer of quality pearls, and to innovate and differentiate our products from competitors. We prioritise maintaining strong relationships with our customers, built on trust, quality, and excellence. Atlas Pearls maintains a pricing structure that takes into account market dynamics and competitive positioning. The Company also reviews and assesses industry trends and emerging competitors, allowing Atlas Pearls to proactively adapt our strategies to remain one of the world’s largest producers and distributor of South Sea pearls. (V) OPERATIONAL RISK Operational risk pertaining to pearl quality are an ongoing risk to Atlas Pearls. The Company’s proactive approach involves measures like reviewing seeding procedures and grow-out times, diversifying hatchery brood stock, refining the hatchery spawning strategy, and genetic analysis of broodstock. These risks necessitate the Company applying continuous procedural control at every phase of spat and pearl production. Complementary initiatives encompass a genetics project, probiotics research, and broodstock conditioning. These strategies are closely monitored, with oyster growth and genetics reporting being actively tracked to ensure effective risk management aligned with the Company’s broader risk framework. (VI) COST CONTROLS, INFLATION, AND SUPPLY CHAIN CONSTRAINTS Rising input costs and supply chain constraints have the potential to reduce profit margins where those costs cannot be recovered from customers. Significant input costs include labour, components and materials, and fuel. Atlas Pearls has the ability to recover costs through the selling price of pearls. The Company sources components and equipment from multiple suppliers and vendors, allowing us to get the most competitive pricing on various input components. The Company employs centralised logistics and purchasing personnel to co-ordinate the movement of components and materials across the Company’s pearl farms, and the pricing of those items. Senior management monitors the effectiveness of this process regularly. (VII) POLITICAL, REGULATORY AND COMPLIANCE Atlas Pearls is a global company and operates in numerous countries around the world. The Company must comply with a range of governance requirements which are conditions of its ASX listing. New or evolving regulations and international standards are outside the Company’s control and can often be complex and difficult to predict. The potential development of international opportunities can be jeopardised by changes to fiscal or regulatory regimes, adverse changes to tax laws and the application thereof, or changes to existing political, judicial or administrative policies, and changing community expectations. Atlas Pearls seeks to manage and minimise this risk through its existing risk management framework including Board approved governance policies which are subject to regular review. (VIII) ANTI-BRIBERY AND CORRUPTION Atlas Pearls’ business activities and operations are located in jurisdictions with varying degrees of political, economic and judicial stability, including an inherently high risk of bribery and corruption. This exposes Atlas Pearls to the risk of unauthorised payments, or offers of payments, to or by employees or agents that could be in violation of applicable anti-corruption laws. Atlas Pearls has a clear Anti-Bribery and Corruption Policy and internal controls and procedures to protect against such risks. However, there can be no assurances that such controls, policies and procedures will absolutely protect Atlas Pearls from potentially improper or criminal acts. (IX) ENVIRONMENTAL, SOCIAL, GOVERNANCE (ESG) Atlas Pearls has a longstanding commitment to supporting our villages, stakeholders, and communities around our farms. Building on our ongoing environmental initiatives, and in a conscious approach to building a sustainable business, the Board has begun the process of developing a reporting framework to manage and monitor the Company’s ESG impact. The Company continues to monitor and review future impacts as new information and data becomes available. Annual Report 2023 | ATLAS PEARLS | 41 Notes to the consolidated financial statements (II) FOREIGN EXCHANGE RISK The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Japanese Yen (‘JPY’), Indonesian Rupiah (‘IDR’) and US Dollar (‘USD’). Foreign exchange risk arises from future commercial transactions, 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. The Group manages their foreign exchange risk against their functional currency. Group companies review exposure on a regular basis and will undertake hedging, if deemed appropriate, under guidance of the Board of Directors. The majority of the Group’s cash reserves are held in Australian banks with AAA ratings. 16.2 FINANCIAL RISK (I) FINANCIAL RISK The Group’s activities expose it to a variety of financial risks (including currency risk, interest rate risk, and price risk), credit risk, and liquidity risk. The Group uses sensitivity analysis in the case of interest rate and foreign exchange risks and ageing analysis for credit risk. Risk management is carried out by the Board of Directors and senior management. The Group holds the following financial instruments: 2023 $ 2022 $ Financial assets Cash and cash equivalents 7,845,286 2,995,131 Trade and other receivables 300,619 240,047 TOTAL FINANCIAL ASSETS 8,145,905 3,235,178 Financial liabilities Trade and other payables Lease liabilities Borrowings 706,253 223,132 450,214 279,046 - 1,125,000 TOTAL FINANCIAL LIABILITIES 929,385 1,854,260 GROUP SENSITIVITY ANALYSIS Sensitivity analysis is based on exchange rates in USD and JPY increasing or decreasing by 10% and the effect on profit and equity. Statement of financial position amount AUD Foreign exchange rate risk 30 June 2023 30 June 2022 -10% 10% -10% 10% 2023 2022 Profit Equity Profit Equity Profit Equity Profit Equity Financial assets Cash 7,845,286 2,995,131 622,701 Trade and other receivables 300,619 240,047 1,857 Financial liabilities Trade and other payables 706,253 450,214 (2,820) Borrowings - 1,125,000 - Total Increase/(Decrease) 621,738 - - - - - (509,483) (1,519) 2,307 - (508,695) - - - - - 117,148 4,520 (171) - 121,497 - - - - - (95,848) (3,698) 140 - (99,406) - - - - - Trade debtors relates to sales made in JPY and USD. Current borrowings are all held in AUD. Not shown in the table above is the exposure to exchange movements on the inter-company 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 2023 was $3,690,050 (30 June 2022: $4,590,938). The inter-company loans are eliminated on consolidation. (iii) CASH FLOW AND FAIR VALUE INTEREST RATE RISK The Group’s main interest rate risk arises from its borrowings, which were repaid on 30 September 2022. As such the Group considers that any fair value interest rate risk or cash flow risk will be immaterial. (iv) 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. 16.3 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 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 below. 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. 42 | ATLAS PEARLS | Annual Report 2023 16.5 FINANCING ARRANGEMENTS The Group had access to the following borrowing facilities at the reporting date. Overdraft facility (NAB) Loans 2023 $ 2,500,000 - 2,500,000 2022 $ 1,500,000 1,125,000 2,625,000 During the year ended 30 June 2023, the Company increased the $1.5M working capital overdraft facility by a further $1.0M to $2.5M 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 2023 no amount has been drawn down on this facility (30 June 2022: nil). On 27 August 2020, the Group entered into a $4.5M loan agreement with Boneyard Investments Pty Ltd (Boneyard) whereby Boneyard has agreed to make a revolving loan facility available to Atlas Pearls at an interest rate of 7.5% per annum. The loan was repaid in full and the loan finalised on 30 September 2022. Impairment of financial assets The Group hold trade receivables that are subject to the expected credit loss model. While cash and cash equivalents are also subject to the impairment requirements of AASB 9, the identified impairment loss was immaterial. Trade receivables The Group applies the AASB 9 simplified approach to measuring the expected credit losses, which uses a lifetime expected loss allowance for all trade receivables. The expected credit losses have been grouped based on shared credit risk characteristics and the days past due. The assessment for expected credit losses requires a degree of estimation and judgement. It is based on the lifetime expected credit loss, grouped based on days overdue, and makes assumptions to allocate an overall expected credit loss rate for each group. These assumptions include recent sales experience, historical collection rates, and forward-looking information that is available. The allowance for expected credit losses is calculated based on the information available at the time of preparation. The actual credit losses in future years may be higher or lower. Major purchases are invoiced as cash on delivery (COD). Smaller accounts are provided 30-day credit terms and are usually paid by their due date. On that basis, the loss allowance as at 30 June 2023 and 30 June 2022 was determined to be nil. Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group and failure to make contractual payments for a period of greater than 120 days past due. Impairment losses on trade receivables are presented as net impairment losses within operating profit. Subsequent recoveries of amounts previously written off are credited against the same line item. 2023 $ 2022 $ TRADE RECEIVABLES Existing customers with no previous defaults 31,265 72,437 16.4 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 on call 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. Annual Report 2023 | ATLAS PEARLS | 43 Notes to the consolidated financial statements 16.5 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 un-discounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant. 30 June 2023 30 June 2022 s h t n o m 6 n a h t s s e L $ s h t n o m 2 1 - 6 $ s r a e Y 2 d n a 1 n e e w t e B $ s r a e Y 5 d n a 2 n e e w t e B $ l a u t c a r t n o c l a t o T s w o fl h s a c $ t n u o m a g n i y r r a C s e i t i l i b a i l / ) t e s s a ( $ s h t n o m 6 n a h t s s e L $ s h t n o m 2 1 - 6 $ s r a e Y 2 d n a 1 n e e w t e B $ s r a e Y 5 d n a 2 n e e w t e B $ l a u t c a r t n o c l a t o T s w o fl h s a c $ t n u o m a g n i y r r a C s e i t i l i b a i l / ) t e s s a ( $ 706,253 - - - - - - 706,253 706,253 450,214 - - - 1,125,000 - - - - - 450,214 450,214 - 1,125,000 1,125,000 30,553 33,021 69,878 89,680 223,132 223,132 27,634 29,972 63,427 158,012 279,046 279,046 Consolidated entity Non-derivatives Trade payables Borrowings Lease liabilities TOTAL NON-DERIVATIVES 736,806 33,021 69,878 89,680 929,385 1,858,770 1,602,848 29,972 63,427 158,012 1,854,260 3,708,519 (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) (c) inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly (level 2), and inputs for the asset/liability that are not based on observable market data (unobservable inputs) (level 3). The following table presents the group’s financial assets and financial liabilities measured and recognised at fair value at 30 June 2023 and 30 June 2022 on a recurring basis: 30 June 2023 Level 1 Level 2 Level 3 $ $ $ Total $ 30 June 2022 Level 1 Level 2 Level 3 $ $ $ Total $ Assets Biological assets TOTAL ASSETS - - - - 20,256,723 20,256,723 Biological assets 20,256,723 20,256,723 TOTAL ASSETS - - - - 17,647,227 17,647,227 17,647,227 17,647,227 Assets VALUATION TECHNIQUES USED TO DERIVE LEVEL 2 AND (B) 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. The Group is exposed to financial risk in respect of its involvement in primary production, which consists of 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 expenditure of cash in relation to the operation of the farm and the harvesting of the pearls, and realisation of cash receipts from 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 in 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 point (C) below. (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 2023 or 30 June 2022. 44 | ATLAS PEARLS | Annual Report 2023 (C) FAIR VALUE MEASUREMENTS USING SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3) PART I - Unrecognised items The following table presents the changes in level 3 instruments for the period ended 30 June 2023: 2023 $ 2022 $ Changes in fair value of oyster stock Opening balances 30 June 2022 17,647,227 17,244,175 Due to new stock Due to mortalities Due to ageing Due to harvests 2,868,438 3,384,465 (3,988,080) (3,347,124) 5,248,493 8,056,028 (5,935,534) (6,854,583) Due to price changes 4,416,179 (835,734) CLOSING BALANCE AT 30 JUNE 2023 20,256,723 17,647,227 The key assumptions utilised to determine the fair market value of oysters are detailed in note 4.1. (D) FAIR VALUES OF OTHER FINANCIAL INSTRUMENTS The Group also has no financial instruments (2022: one) which are not measured at fair value in the statement of financial position with the following fair value as at 30 June 2023: 2023 2023 2022 2022 Carrying amount Fair value Carrying amount Fair value - - - - - - - - 1,125,000 1,125,000 1,125,000 1,125,000 Bank Loan Debt financing TOTAL NON-CURRENT BORROWING 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. 17. Events occurring after the reporting period On 30 August 2023, the Company declared a final fully franked special dividend of 0.035 cents per share. The total value of the payment is $1.5M. The record date is 05 September 2023 with a payment date of 26 September 2023. Other than the matter disclosed above, there have been no other significant events after balance date which require disclosure. 18. Commitments Atlas Pearls had one bank guarantee with the National Bank of Australia (NAB) for a total of $29,889 at 30 June 2023 (30 June 2022: $29,814). This guarantee has been taken out to secure the rental of the Atlas Pearls corporate office in Subiaco, Western Australia. 19. 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 program may result in future tax liabilities in relation to prior year tax returns. All assessments received to date have been brought to account. PART J - Other 20. Subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 25.2. f o e m a N y t i t n e Perl’Eco Pty Ltd Tansim Pty Ltd Atlas Pearls Employee Share Plan Pty Ltd World Senses Pty Ltd* P.T. Cendana Indopearls P.T Disthi Mutiara Suci P.T Cahaya Bali Aspirasi Satria Sdn Bhd* * dormant s e r a h s f o s s a l C Ord Ord Ord Ord Ord Ord Ord Ord Percentage owned e n u J 0 3 3 2 0 2 100% 100% e n u J 0 3 2 2 0 2 100% 100% n o i t a r o p r o c n i f o e c a l P Australia Australia 100% 100% Australia 50% 100% 100% 100% 100% 50% 100% 100% 100% 100% Australia Indonesia Indonesia Indonesia Malaysia The ultimate parent entity, Atlas Pearls Ltd, is incorporated in Australia. Annual Report 2023 | ATLAS PEARLS | 45 Notes to the consolidated financial statements 21. Related party transactions 22. Parent entity financial information SUBSIDIARIES (A) Interests in subsidiaries are set out in note 20. KEY MANAGEMENT PERSONNEL (B) Detailed remuneration disclosures are provided in section 14.2 of the Directors Report. 2023 $ 2022 $ Short-term employment benefits 932,665 962,664 Long-term employment benefits Post-employment benefits Share-based compensation (8,564) 65,119 38,553 12,692 57,357 29,839 1,027,573 1,062,552 (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 2023 $ 2022 $ 9,579,655 4,181,629 22,309,522 16,645,451 3,372,330 3,520,390 4,364,229 4,555,013 36,857,417 36,857,417 (c) TRANSACTIONS WITH OTHER RELATED PARTIES Share-based payment reserve 1,164,842 989,514 Director fees payable1 Expatriate medical insurance expenses2 2023 $ 2022 $ 1,706 11,123 12,829 5,417 10,543 15,960 Accumulated losses PROFIT FOR THE YEAR TOTAL COMPREHENSIVE PROFIT (B) CONTINGENT LIABILITIES (25,756,494) (26,627,963) 12,265,765 11,218,970 6,523,367 6,523,367 871,110 871,110 1. Non-Executive Director, Tim Martin is a director of Boneyard Investments Pty Ltd (note 17.4) and a substantial shareholder of the Company (Additional ASX information: note (C)). 2. Expatriate medical insurance expenses relating to the spouse of Mark Longhurst, KMP until 31 December 2022. The parent entity did not have any contingent liabilities as at 30 June 2023 (30 June 2022: nil). The parent entity did not provide financial guarantees during the year (30 June 2022: nil). (D) LOANS FROM RELATED PARTIES Refer to Note 16.4 for detailed disclosures on financing arrangements. Loans detailed below are accounted for under current and non-current liabilities (see note 12). Beginning of the year Loans advanced from Principal repayments Interest charged Interest paid END OF YEAR 2023 $ 2022 $ 1,125,000 4,000,000 - - (1,125,000) (2,875,000) 21,267 (21,267) - 184,777 (184,777) 1,125,000 (E) 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. 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. 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 and reviewed at each reporting period for impairment indicators. 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. 46 | ATLAS PEARLS | Annual Report 2023 23. Share-based payments and options 23.1 EMPLOYEE SHARE PLAN At the Extraordinary General Meeting on 29 April 2022 it was resolved by the shareholders to approve the Atlas Pearls Ltd Employee Share and Incentive Plan (Plan) and the issues of options to former Executive Chairman, Geoff Newman. The Board adopted the 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) Reward Directors, Executives, and employees for their past performance (b) Provide long-term incentives for participation in the Company’s future growth (c) Motivate Directors, Executives, employees, and generate loyalty; and (d) Assist to retain the services of valued Directors, Executives, and employees The Plan will be used as part of the remuneration planning for Directors, Executives and employees. Under the Plan, participants are granted options which can only vest if specific performance hurdles 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 receive any guaranteed benefits. I. 16,205,663 Options granted to employees (“ESOP”) 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 circumstance 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. An option which has not vested will immediately lapse upon the first to occur of: I. II. The expiry of the option period; If an eligible person’s employment or engagement with the Company ceases because of an uncontrollable event, six months (or such other period as the Board will in its absolute discretion determine) from the date on which the eligible person ceased that employment or engagement If an eligible Person’s employment or engagement with the Company ceases because of a controllable event, the last day of any period specified in clause 25(b), subject to clause 25(a). III. 23.2 OPTIONS ON ISSUE The Group has the following equity compensation arrangements to renumerate Directors, Executives and employees of the Group; II. 2,552,392 Options granted to Atlas Pearls former Executive Chairman, Geoff Newman (“EC”) Grant date Vesting date Expiry date Options issued Exercise price Remaining at 30 June 2023 Grant date Vesting date Expiry date Options issued Exercise price Remaining at 30 June 2023 Tranche 1 27 May 2022 30 June 2022 ESOP Tranche 2 27 May 2022 30 June 2023 Tranche 3 27 May 2022 30 June 2024 30 September 2024 30 September 2024 30 September 2024 2,796,311 $0.065 2,718,077 4,194,474 $0.070 4,077,123 Tranche 1 29 April 2022 30 June 2022 EC Tranche 2 29 April 2022 30 June 2023 9,214,878 $0.075 8,460,476 Tranche 3 29 April 2022 30 June 2024 30 September 2024 30 September 2024 30 September 2024 510,478 $0.065 510,478 765,718 $0.070 765,718 1,276,196 $0.075 1,276,196 Annual Report 2023 | ATLAS PEARLS | 47 Notes to the consolidated financial statements MEASUREMENT OF FAIR VALUE The fair value at grant date is independently determined using a Hoadley Trading and Investment valuation model, which 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. Fair value at grant date Share price at grant date Exercise price Volume weighted average Expected future volatility Risk free rate Dividend yield ESOP EC Tranche 1 Tranche 2 Tranche 3 Tranche 1 Tranche 2 Tranche 3 $0.0176 $0.0180 $0.0184 $0.0208 $0.0217 $0.0222 $0.042 $0.065 125% 100% 2.53% Nil $0.042 $0.070 133.3% 100% 2.53% Nil $0.042 $0.075 142.8% 100% 2.53% Nil $0.047 $0.065 125% 100% 2.45% Nil $0.047 $0.070 133.3% 100% 2.45% Nil $0.047 $0.075 142.8% 100% 2.45% Nil SHARES REMAINING AT YEAR END The following options remain outstanding at year end. 24. Remuneration of Auditors Balance at 30 June 2022 16,205,663 2,552,392 ESOP EC 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: BDO Australian firm Audit and review of financial reports ESG consulting services BDO Indonesian firm 30 June 2023 $ 30 June 2022 $ 119,710 16,995 96,370 - Audit and review of financial reports 49,377 52,562 TOTAL REMUNERATION FOR AUDIT SERVICES 169,087 148,932 TOTAL REMUNERATION FOR OTHER SERVICES 16,995 - Granted during the period Exercised during the period Expired during the period - - - Forfeited during the period (949,987) - - - - BALANCE AT 30 JUNE 2023 15,255,676 2,552,392 The following share-based payment expenses were recognised to profit and loss. ESOP Options EC Options TOTAL SHARED-BASED PAYMENT EXPENSE 2023 2022 148,084 27,244 15,246 63,185 175,328 78,431 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 The fair value of shares granted under the Employee Share and Incentive 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. 48 | ATLAS PEARLS | Annual Report 2023 25. Accounting policies 25.1 NEW AND AMENDED STANDARDS ADOPTED BY THE GROUP The Group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 January 2023: • • • AASB 2020-1 Amendments to Australian Accounting Standards – Classification of Liabilities as Current or Non-Current [AASB 101], and AASB 2021-2 Amendments to Australian Accounting Standards – Disclosure of Accounting Policies and Definition of Accounting Estimates AASB 2021-5 Amendments to Australian Accounting Standards – Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction. The amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods. Certain new accounting standards, amendments to accounting standards and interpretations have been published that are not mandatory for 30 June 2023 reporting periods and have not been adopted early by the Group. These standards, amendments or interpretations are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. 25.2 PRINCIPLES OF CONSOLIDATION The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Atlas Pearls as at 30 June 2023, 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 de-consolidated 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. 25.3 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. Annual Report 2023 | ATLAS PEARLS | 49 Notes to the consolidated financial statements (C) GROUP COMPANIES 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. 25.4 COMPARATIVE FIGURES When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial period. 25.5 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. 25.6 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 12 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 at the present value of the estimated future cash outflows to be made for those 50 | ATLAS PEARLS | Annual Report 2023 entitlements. Liabilities due to be paid within 12 months of the reporting date are recognised in other payables. The liability for long service is recognised in the provision for employee benefits. Contributions are made by the Group to employee superannuation funds and are charged as expenses when incurred. 25.7 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. 25.8 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. 25.9 FINANCIAL INSTRUMENTS CLASSIFICATION AND MEASUREMENT Except for certain trade receivables the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Under AASB 9 financial assets are subsequently measured at fair value through profit or loss (FVPL), amortised cost, or fair value through other comprehensive income (FVOCI). The classification is based on two criteria: The Group’s business model for managing the assets; and whether the instruments’ contractual cash flows represent ‘solely payments of principal and interest’ on the principal amount outstanding (the ‘SPPI criterion’). The new classification and measurement of the Group’s financial assets are, as follows: Debt instruments at amortised cost, for financial assets that are held within a business model with the objective to hold the financial assets in order to collect contractual cash flows that meet the ‘SPPI criterion’. This category includes the Group’s trade and other receivables and long-term loan receivable. IMPAIRMENT The Group assesses, on a forward-looking basis, the expected credit losses (ECLs) associated with its debt instruments carried at amortised cost and FVOCI. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive. The shortfall is then discounted at an approximation to the asset’s original effective interest rate. For trade receivables, the Group has applied the standard’s simplified approach and has calculated ECLs based on lifetime expected credit losses. The Group has established a provision matrix that is based on the Group’s historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. The loss allowance calculated for 30 June 2023 is $nil due to past history with customers who have never previously defaulted on amounts due. For other debt financial assets, including long-term loan receivables, the ECL is based on either the 12-month or lifetime ECL. The 12-month ECL is the portion of lifetime ECLs that results from default events on a financial instrument that are possible within 12 months after the reporting date. When there has been a significant increase in credit risk since origination, the allowance will be based on the lifetime ECL. In all cases, the Group considers that there has been a significant increase in credit risk when contractual payments are more than 30 days past due. The Group considers a financial asset in default when contractual payment are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. 25.10 INCOME TAX 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. 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 assets and liabilities have been bought to account after considering the level of tax losses carried forward and available to the Group against future taxable profits, and the probability within the future that taxable profits will be available against which the benefits of the deductible temporary difference can be claimed. 25.11 LEASES LIABILITIES The Group leases offices in Subiaco, Western Australia and Sanur, Indonesia. As the leases are of real estate, the Group has elected not to separate the lease and non-lease components and instead accounts for these as a single lease component. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants other that the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes. A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the consolidated entity’s incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of- use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. 25.12 RIGHT-OF-USE ASSETS A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the consolidated entity expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of-use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. The Group has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less, and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred. Low-value assets comprise IT equipment and vehicles. Leases relating to the farms in Indonesia have been recognised as right-of-use assets and are amortised over the life of the lease. There is no lease liability as the leases have all been prepaid on inception of the agreements. 25.13 TRADE RECEIVABLES The Group’s customers are required to pay in accordance with agreed payment terms. Depending on the capture of the sales, settlement terms are either cash on delivery or 30 days from the date of invoice. Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair value. The Group holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised costs using the effective interest method. Annual Report 2023 | ATLAS PEARLS | 51 Directors’ 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: i ii give a true and fair view of the consolidated entity’s financial position as at 30 June 2023 and of the performance for the year ended on that date; and comply with Accounting Standards, and the Corporations Act 2001 and other mandatory professional reporting requirements. (b) (c) (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 year ended 30 June 2023 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 - 30 August 2023 52 | ATLAS PEARLS | Annual Report 2023 Additional ASX information The following additional information is required by the Australian Securities Exchange. The information is current as at 14 August 2023. (A) DISTRIBUTION SCHEDULE AND NUMBER OF HOLDERS OF EQUITY SECURITIES AS AT 14 AUGUST 2023 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – and over Ordinary Fully Paid Shares 139 372 268 Unlisted options: 6.5 cents, exp 30/09/2024 Unlisted options: 7.0 cents, exp 30/09/2024 Unlisted options: 7.5 cents, exp 30/09/2024 - - - - - - - - - 736 11 3 - 331 14 22 29 The number of holders holding less than a marketable parcel of fully paid ordinary shares as at 14 August 2023 is 801. (B) 20 LARGEST HOLDERS OF QUOTED EQUITY SECURITIES AS AT 14 AUGUST 2023 The names of the twenty largest holders of fully paid ordinary shares (ASX: ATP) as at 14 August 2023 are: Total 1,846 25 25 29 Rank Name Shares % of shares 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. Boneyard Investments Pty Ltd CHEMCO Superannuation Fund Pty Ltd Citicorp Nominees Pty Limited HSBC Custody Nominees (Australia) Limited Jingie Investments Pty Ltd ABERMAC Pty Ltd Morckstow Pty Ltd Westwood Properties Pty Ltd BNP Paribas Noms Pty Ltd Mr Wesley Rtherford + Mrs Sian Rutherford Mr Tingyao Xu Ten Talents (2020) Limited Chembank Pty Limited Mr Cameron Beavis Mr Paul Michael Butcher Miss Kristie Birkbeck Queensridge Investments Pty Ltd Mr Timothy James Martin Ms Jennifer Michelle Roughan Mr Pierre Fallourd Total 54,907,327 32,400,000 30,281,853 28,192,363 17,880,240 17,833,333 8,000,000 8,000,000 7,953,027 6,300,000 5,580,000 5,120,000 5,000,000 4,500,000 4,067,208 3,818,536 3,549,072 3,540,883 3,360,000 3,311,206 12.83 7.57 7.2 6.59 4.18 4.17 1.87 1.87 1.77 1.47 1.30 1.20 1.17 1.05 0.95 0.89 0.83 0.83 0.79 0.77 253,775,048 59.31 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. (C) SUBSTANTIAL SHAREHOLDERS IN ATLAS PEARLS LTD 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 and Associates * Shares 114,944,995 % Voting Power 27.09% Date of Notice 4 May 2015 1. *Includes shares held by Boneyard Investments Pty Ltd, Chemco Superannuation Fund Pty Ltd, Jingie Investments Pty Ltd, T. Martin, T. and W. Martin, J. Martin and J and B Martin. Annual Report 2023 | ATLAS PEARLS | 53 Additional ASX information (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 14 August 2023. (F) RESTRICTED SECURITIES AS AT 14 AUGUST 2022 There were no restricted securities on issue as at 14 August 2023. (G) VOTING RIGHTS All fully paid ordinary shares carry one vote per ordinary share without restriction. (H) ON-MARKET BUY-BACK The Company is not currently performing an on-market buy-back. (I) CORPORATE GOVERNANCE The Board of Atlas Pearls Ltd 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 accordance 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 54 | ATLAS PEARLS | Annual Report 2023 Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au Level 9, Mia Yellagonga Tower 2 5 Spring Street Perth, WA 6000 PO Box 700 West Perth WA 6872 Australia INDEPENDENT AUDITOR'S REPORT To the members of Atlas Pearls Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Atlas Pearls Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2023, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial report, including a summary of significant accounting policies and the directors’ declaration. In our opinion the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: (i) (ii) Giving a true and fair view of the Group’s financial position as at 30 June 2023 and of its financial performance for the year ended on that date; and Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key 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. BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation. Accounting for Biological Assets Key audit matter How the matter was addressed in our audit The Group’s biological assets, as disclosed in Note 4 to Our audit procedures included, but were not limited the financial report, was a key audit matter as the to: calculation of the fair value of the oysters requires significant estimates and judgements by management. The Australian Accounting Standards require biological assets to be measured at fair value less costs to sell or, in the absence of a fair value, at cost less impairment. • • Considering the appropriateness of the valuation methodology against the relevant Australian Accounting Standards; In conjunction with our valuation specialist, reviewing the accuracy and integrity of The Group have valued the biological assets at fair management’s fair value model and the value less costs to sell. The valuation requires discount rate used by management; management’s judgement in relation to estimating the future selling prices, exchange rates, pearl size, portion of marketable grade, mortality, costs to complete and discount rate. • Attending the physical stocktake procedures and verifying a sample of oysters on hand at reporting date and agreeing this to the fair value model; • Assessing the key inputs contained within the fair value model, including the future selling prices, incorporating any potential impact of recent economic conditions, exchange rates, pearl size, portion of marketable grade, mortality and costs to complete; and • Evaluating the adequacy of the related disclosure in Note 4 to the financial report. Other information The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 30 June 2023, but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In 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 (http://www.auasb.gov.au/Home.aspx) at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.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 15 to 20 of the directors’ report for the year ended 30 June 2023. In our opinion, the Remuneration Report of Atlas Pearls Limited, for the year ended 30 June 2023, 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 Jarrad Prue Director Perth 30 August 2023 AUSTRALIA HEAD OFFICE 26 Railway Road, Subiaco 6008, Western Australia PO BOX: 248 Subiaco, Western Australia 6904 TEL.+61 8 9284 4249 EMAIL. atlas@atlaspearls.com.au INDONESIA HEAD OFFICE Pertokoan Sanur Raya 18-19. Jl Bypass Ngurah Rai, Sanur, 80227 Bali TEL. +62 361 284455 EMAIL. atlas@atlaspearls.com.au FARM SITES EAST JAVA, Banyu Biru NORTH BALI, Penyabangan FLORES, Labuan Bajo, Pungu Island EAST NUSA TENGGARA, West Lembata EAST NUSA TENGGARA, Lembata Bay EAST NUSA TENGGARA, Alor Bay RAJA AMPAT, Alyui Bay