Australian Dairy Nutritionals Group Annual Report 2019

FY2019 Annual Report · Australian Dairy Nutritionals Group

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2019
Annual Report

Australian Dairy Nutritionals Group

Australian Dairy Nutritionals Group Annual Report 2019CONTENTS

CHIEF EXECUTIVE OFFICER’S LETTER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

DIRECTORS’ REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

CORPORATE GOVERNANCE STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

AUDITOR’S INDEPENDENCE DECLARATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME . 19

CONSOLIDATED STATEMENT OF FINANCIAL POSITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

CONSOLIDATED STATEMENT OF CASH FLOWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

NOTES TO THE FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

DIRECTORS’ DECLARATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

SHAREHOLDER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

CORPORATE DIRECTORY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

Australian Dairy Nutritionals Group Annual Report 2019CHIEF EXECUTIVE OFFICER’S LETTER

The 2019 Financial Year has been one of solid progress for the Group as the Board and
Management implemented our strategy to move away from being a producer of price
competitive, low value products to focus on the production of premium and specialty dairy
products with realistic profit margins, including development of the Group’s own brands. Of
particular note, was the Group securing the purchase of an overseas existing infant formula
and nutritionals mixing plant for re-commissioning in Camperdown . This complements the
Group’s earlier purchase of Flahey’s Nutritionals Pty Ltd which included various brands,
trademark protected in both Australia and some Asian markets as well as infant formula
recipes under development .

The Group’s processing operations, Camperdown Dairy Company, continued its turn around
with the commencement in July 2018 of the 4-year agreement to manufacture several yoghurt
products under ‘The Collective’ brand ranged in Woolworths stores nationally .

Pleasingly, this agreement was extended in February 2019 by a further 2 year period, (taking the term to 6 years) in return for the
Group agreeing to invest in additional capacity for pouch based products through the purchase of an automated, high speed pouch
machine . The pouch machine is due to be commissioned by December 2019 .

The Group made good progress in the conversion of its dairy farms to organic milk, bringing the timeline forward with the purchase
of the “Yaringa” farm in November 2019 . Conversion of the remaining farms is on track with all farms achieving full conversion
during calendar year 2021. There were however, some significant headwinds for the farms through the 2019 Financial year with
very high feed costs . Whilst South West Victoria hasn’t experienced drought conditions, key grain producing regions across the
Eastern seaboard of Australia experienced significant drought conditions resulting in prices of key feed inputs more than doubling
over the last 12 months. The season in South West Victoria has gotten off to a great start and therefore, the Group are expecting
that its reliance on bought in feed will be much lower this year .

In addition to this, milk prices have opened very strongly and Management have negotiated a new milk supply agreement
commencing on 1 July 2019 which the Group expects will have a net benefit over the previous financial year of between $1.1 Mil
and $1.3 Mil per annum.

Finally, in June 2019 the Group successfully raised $12 million through a private placement to sophisticated investors. These
funds will be used to fund the development of a new building for the infant formula plant and expansion of Camperdown Dairy’s
operations as well as working capital .

With strong milk prices, an expectation of lower costs at the farm level through better environmental conditions and strong progress
on the development of the infant formula plant, the Board is optimistic that financial year 2020 will be a transformational one for the
Group .

I would like to thank all of our employees and the people involved in the company for their support and hard work during the year .
I would also like to thank the securityholders for their support during the year and assure them that they are top of mind in all
respects . For those of you who are able to make it to the AGM, please introduce yourself and I look forward to meeting you then .

Peter Skene
CHIEF EXECUTIVE OFFICER

Australian Dairy Nutritionals Group Annual Report 2019DIRECTORS’ REPORT

Director’s Report

The Board of directors of Australian Dairy Nutritionals Limited (the Company) submits to members the Annual Report of the
company and its controlled entities (the Group) for the financial year ended 30 June 2019.

PRINCIPAL ACTIVITIES AND SIGNIFICANT CHANGES IN THE NATURE OF THOSE ACTIVITIES

The principal activities of the Group during the year were:

• Operation of the Camperdown Dairy factory at Camperdown Victoria, which processes raw milk from the Group’s dairy farms to
produce high quality fresh milk, cream, butter and yoghurt products for distribution and sale in Australia under the Camperdown
Dairy brand and brand names of customers .

• Development and market launch of new Camperdown Dairy branded dairy products including organics;

• Ownership of dairy farms via the Australian Dairy Farms Trust (the Trust);

• Operation of dairy farms and ownership of dairy livestock through SW Dairy Farms Pty Ltd (SWDF) to produce fresh raw milk

for sale to external parties and for use by Camperdown Dairy Company Pty Ltd (CDC); and

• Continued emphasis on implementation of the Group’s published Strategy of expanding its Organic focus and aiming for

production and ownership of high value added brands and products .

In respect of the Group’s continued commitment to conversion of all Group farms to organic milk production and expanded contract
processing and packing of customers’ branded products, there has been no significant change in the scale or nature of the Group’s
activities in the year .

The Trust acquired an advanced organic in-conversion farm Yaringa at Nirranda South in South West Victoria, which is expected to
be fully certified Organic in November 2019, and also sold a non-milking fodder production farm at Glenfyne for $2.6 million with the
net proceeds of the sale after costs, being applied to reduce bank borrowings .

Two separate equity capital raisings were undertaken during the financial year:

•

a Stapled Security Purchase Plan on 30 October 2018 accepting 325 applications to raise $2,719,500 in new capital for the
Group. The Group issued 20,919,363 new stapled securities at an issue price of $0.13 per security; and

a Sophisticated Investor Placement of $12 million to new securityholders was made in June 2019, managed by Blue Ocean
Equities Sydney and completed in two tranches of $3.9 million (32,657,851 securities) in June and $8.1 million (67,342,149
securities) in August .

The placement was ratified and approved by securityholders at an Extraordinary General Meeting held on 13 August 2019.

In the June quarter of the financial year, the board had an opportunity to acquire an existing entry level infant formula plant.
The acquisition completed in late August 2019 . The plant has been dismantled and relocated to Camperdown, where it will be
reassembled in a purpose built factory to be constructed on the Camperdown Dairy Park land owned by the Group . It is expected
that the plant will be in full production in mid-2020 and be producing organic infant formula from organic milk produced on the
Group’s own farms .

In June 2019, the dairy processors announced significantly higher milk prices for the new season which potentially will result in
higher milk revenues in FY2020 based on current production values .

The Board believes the combination of positive changes to the capital structure of the Group, new sales of the Group’s Own Brands
and those of premium customers and increased milk prices for the Group’s farm production combine to place the Group in a strong
position to build on this success in FY2020 .

BUSINESS MODEL AND OBJECTIVES

2019 Financial Year – Continued Transition, Implementation and Consolidation Year

FY2018 was the commencement of the necessary transition from being a commodity producer of predominantly bottled white milk
to being a successful differentiated dairy producer and marketer with its own valuable brands.

The results of these changes showed the first positive financial impact in the December 2018 quarter of FY2019 as expected and
foreshadowed in the FY2018 Directors’ Report .

Australian Dairy Nutritionals Group Annual Report 2019DIRECTORS’ REPORT (cont’d)

BUSINESS MODEL AND OBJECTIVES (cont’d)

In March 2018, the Board advised that the organic infant formula segment would be included in it’s strategic objectives and that the
Group’s remaining conventional milk dairy farms would commence the three year conversion to organic certification. The organic
conversion process requires more expensive organic grain and fodder inputs for livestock and the elimination of non-organic
supplements and the use of certain chemicals and pesticides . The known initial impact of the conversion is that in the early stages,
milk production volumes decrease. However, the rewards are significant once the conversion to organic process is complete and
certified.

The 2019 financial year has been another transition year with a focus on the future to confidently set the Group on a realistic path
to be a profitable, flexible and significantly diversified participant in the specialised dairy products market.

OPERATING RESULTS

The consolidated net loss attributed to members of the Group, after providing for income tax was $4,026,025 (2018: $4,157,653).
This result is comprised of a net loss from the dairy processing segment of $2,077,510 (2018: $2,811,749) and net loss from the
dairy farm segment of $1,948,515 (2018: $1,345,904).

Total income for the year ended 30 June 2019 is $21,940,223 up 10% against the 2018 comparative period of $19,902,214. This
is a result of a $2,263,132 increase in revenue from the dairy processing segment, and a $225,123 decrease in revenue from the
dairy farm segment .

Total expenses for the year ended 30 June 2019 were $25,966,248, up 8% against the 2018 comparative period of $24,059,867.
This comprised a $1,528,893 increase in expenses from the dairy processing segment and an increase of $377,488 from the dairy
farm segment .

REVIEW OF OPERATIONS

Strategy Implementation

The Group continues to progress with conversion of its dairy farms to produce organic milk including the acquisition of Yaringa
farm, which is expected to be fully converted organically and certified in late 2019. The Group also continues to shift its focus from
production of low margin commodity bottled white milk to higher margin processed products and, entering the infant and toddler
formula market with the acquisition of Flahey’s Nutritionals . Planning for the construction of new processing facilities including
installation of the first stage infant formula plant acquired on 27 August 2019 on Camperdown Dairy Park has also commenced.

Dairy Processing - Camperdown Dairy Company Pty Ltd (CDC)

CDC processes milk with outputs including bottled white milk, yoghurt, butter and cream, under the Group’s own Camperdown
Dairy branded milks including Jersey and Free-Range labels, as well as for a range of other customer labels via contract packing .
CDC reported a net loss of $2,077,510 (2018: $2,811,749) and EBITDA of -$1,168,304 (2018: -$1,964,637) for the financial year
ended 30 June 2019 .

Included in expenses for the year ended 30 June 2019 is a provision of $864,438 in respect of trade receivables owing by Jonesy’s
Dairy Fresh . On 26 August 2019 the Group announced that it had entered into a joint venture with Jonesy’s Dairy Fresh and the
trade debtor balance will be fully secured against the existing and future assets of the joint venture (refer Note 7(a)(i)) .

Revenue for the year ended 30 June 2019 is $13,391,170 up 20% against the 2018 comparative period of $11,128,038.

A significant sales contribution has been made by The Collective, a New Zealand based brand that has entered the Australian
market after strong success over several years in New Zealand and the United Kingdom. Production of The Collective products
commenced in late August 2018 and the products are ranged in Woolworths stores nationally . Sale volumes of the The Collective
products have increased in line with expectations during 2019, with growth forecast to continue in 2020 .

In line with the Group’s announced strategy to decrease the focus on low margin commodity milk sales in favour of building higher
margin brands and sales, there was an expected decline in sales of bottled white milk compared with the prior comparative period .

Flahey’s Nutritionals Acquisition

The business, brands, formulations and trademarks of Flahey’s Nutritionals were acquired and settled in December 2018 . As part
of the same transaction the brand’s founder, Christopher Flahey, commenced employment as the Group’s Sales and Marketing
Director charged with the task of expanding sales of the existing products and the development of new formula brands (refer note
3) .

Australian Dairy Nutritionals Group Annual Report 2019DIRECTORS’ REPORT (cont’d)

REVIEW OF OPERATIONS (cont’d)

Dairy Farms - Australian Dairy Farms Trust and SW Dairies Pty Ltd

The Group’s dairy farms reported a net loss of $1,948,515 (2018: $1,345,904) and EBITDA of -$750,814 of (2018: -$857,048) for
the year ended 30 June 2019 .

Total farm milk sales for the year of $7,395,306 are 2% down on the 2018 comparative period. There has been an increase of
$0.21 per kilogram in the net milk solids price from $5.87 to $6.08 during the year, offset by a 5% decrease in milk solids production
arising from the the conversion to organic .

Gain on change in fair value of livestock during the year was $538,552 (2018: $380,267). Livestock carrying values remained
steady for the year ended 30 June 2019 compared to a reduction in the carrying value of livestock following independent valuations
in 30 June 2018 .

Operating costs in the year ended 30 June 2019 have increased $377,488 from the 2018 comparative. This is largely attributable
to increased heifer rearing costs and costs associated with the commencement of milking on the new Yaringa farm . The Yaringa
Farm at Nirranda South was acquired in October 2018 and is expected to become fully certified as an organic dairy farm in late
2019. This will be a significant cornerstone in the process of focusing on higher value added organic products including organic
infant formula .

Capital Raisings

The Group completed a Stapled Security Purchase Plan (SPP) on 30 October 2018 accepting 325 applications to raise $2,719,500
in new capital for the Group. The Group issued 20,919,363 new stapled securities at an issue price of $0.13 per security.

A Sophisticated Investor Placement of $12 million to new securityholders was made in June 2019, managed by Blue Ocean
Equities Sydney and completed in two tranches of $3.9 million (32,657,851 securities) in June and $8.1 million (67,342,149
securities) in August .

Name change

At the 2018 AGM held in Melbourne on 29 November 2018, securityholders voted to approve a resolution to change the name
of the Group from Australian Dairy Farms Limited to Australian Dairy Nutritionals Limited to better reflect the primary focus of the
Group going forward to concentrate on milk powders and dairy nutritionals including the production of organic infant formula . The
name change was implemented on 24 December 2018 and the same change was adopted in the name of the Australian Dairy
Nutritionals Group .

FINANCIAL POSITION

The net assets of the Group at 30 June 2019 total $33,014,661, an increase of $2,540,490 from the June 2018 comparative.

The key assets and liabilities in the statement of financial position at 30 June 2019 are:

•

cash and cash equivalents of $3,748,550 (June 2018: $2,331,700);

property, plant and equipment of $29,190,439 (June 2018: $25,834,763);

intangible assets of $6,974,236 (June 2018: $6,643,045);

biological assets (livestock) of $4,928,422 (June 2018: $5,205,774); and

total borrowings of $12,695,402 (June 2018: $10,478,421).

SIGNIFICANT CHANGES IN STATE OF AFFAIRS

Significant changes in the state of affairs of the Group in the year include capital raisings and the acquisition of Flahey’s
Nutritionals .

In the opinion of the directors, there were no other significant changes in the state of affairs of the Group that occurred during the
year under review that are not disclosed elsewhere in this report or in the accompanying financial statements.

Australian Dairy Nutritionals Group Annual Report 2019DIRECTORS’ REPORT (cont’d)

EVENTS AFTER THE REPORTING PERIOD

Following is a summary of the key events after the reporting period:

• On 20 August 2019, the Group announced to the ASX the completion of tranche 2 of its placement with the issue of

67,342,149 stapled securities, raising $8.1m. Managing Broker, Blue Ocean Equities, which acted as lead manager to the
placement, were also issued 2,500,000 options;

• On 26 August 2019 the Group announced to the ASX it has entered into a joint venture in relation to the Jonesy’s Dairy

The trade debtor balance as well as any working capital advanced by CDC to JD will be fully secured against the existing
and future assets of JD. The parent company currently owns 100% of the share capital in JD but on completion of the joint
venture transaction, the parent company will own 50% of the shares in JD and the founders of JDF will own the other 50% of
the shares . The Group sees the joint venture as a strategic platform to expand its position in the hospitality and niche retail
distribution market . In addition, the directors are of the view that the security which CDC will have over the new joint venture
entity (JD), provide a potential opportunity for CDC to recover some or all of the trade debtor balance owed by the Business
(refer Note 7(a)(i)) .

• On 27 August 2019 the acquisition of the infant formula and nutritionals mixing plant announced on 4 April 2019 completed
(refer Note 18(c)(i) . The plant has obtained full customs and AQIS clearance and has now been re-located to Camperdown,
Victoria .

In the opinion of the directors there were no other material matters that have arisen since 30 June 2019 that have significantly
affected or may significantly affect the Group, that are not disclosed elsewhere in this report or in the accompanying financial
statements .

ENVIRONMENTAL ISSUES

The Group is regulated by environmental obligations contained in the Environment Protection Act 1970 and is subject to water
licensing restrictions under the Water Act 1989 .

The Group considers itself to be in compliance with its environmental obligations .

FUTURE DEVELOPMENTS, PROSPECTS AND BUSINESS STRATEGIES

After extensive analysis of the practicalities and implications of transitioning to higher value-added production and processing,
including an emphasis on developing the Group’s own brands of premium dairy products with high value margins and relative
protection from price competition, the Board published its intention to commence the conversion process for its farms to become
certified organic milk producers.

It is expected that the transition of the dairy farms to fully certified organic farms will take approximately three years.

The intention is for the Group to focus on development of formula products, nutritionals and specialty dairy products using organic
milk . Ultimately, this will be achieved by the Group’s expansion of its facilities and installation at the Camperdown Dairy Park on
industrial zoned land already owned by the Group .

In the short term, the Group intends to outsource infant formula arrangements to existing Australian producers and develop the
Group’s new brands and where possible using organic milk produced on the Group’s own farms . However, planning and building
applications are in progress to commence construction of a new factory facility on the Camperdown Dairy Park land owned by the
Group, to accommodate the acquired infant formula plant referred to in Note 18(c)(i) and other dairy processing plant . During this
period, significant concentration will be on generating revenue from contract processing and packaging to support and facilitate the
Group’s development and transition .

Business Risk

The Group consists of complementary businesses in dairy farming and milk processing that are exposed to a range of strategic,
financial, operational, environmental and related risks that are inherent when operating in agricultural and fast-moving consumer
goods markets . The Group has an enterprise risk management framework which, together with corporate governance, provides a
framework for managing the material risks .

Environment

The agricultural and dairy farming industry are largely dependent on the natural outside environmental and weather conditions,
including heat, cold, rain and sunshine, all of which directly impact animal health and welfare and productivity . Failure to
successfully prepare for and respond to these factors, and to mitigate there impact may adversely effect on farm and business
performance .

Australian Dairy Nutritionals Group Annual Report 2019DIRECTORS’ REPORT (cont’d)

FUTURE DEVELOPMENTS, PROSPECTS AND BUSINESS STRATEGIES (cont’d)

To mitigate these issues, the Group has progressively improved our farms by installing appropriate drainage, irrigation and water
and fodder storage . Stock levels are regularly balanced to meet changing conditions and to prepare for expected changes and the
pre-ordering of grain and fodder supplies that are not able to be grown on farms is in place .

The Group also continues to endeavour to play its part in not creating environmental pressures and promoting sustainability and
animal welfare .

Financial

The availability of funding and management of capital and liquidity are fundamental to the Group’s business operations and growth .
In addition, a failure to move away from producing or dealing in low margin commodity products in favour of high value-added
products and establishment of the Group’s own sought-after brands could continue to adversely impact on business profitability.

To mitigate these issues, the Group has board approved strategies to discontinue and avoid low margin commodity production and
has plans for progressive expansion in the range and diversity of products produced . The Group will also need to continue to invest
in new technology and recognise which parts of the business can be reduced or outsourced, or assets sold to further improve the
overall capital position .

Operational

The Group is subject to operational risk including the availability of high quality and experienced personnel for farms and dairy
processing .

To mitigate the issue, the Group has established policies, standards and training in regards to business operations, including
people safety, health and wellbeing, food and product safety . We continue to invest in our operational capability across processes,
technology and improving our business so that it attracts and retains high calibre personnel .

Compliance

The Group is subject to applicable laws, regulations and contractual arrangements and is exposed to adverse regulatory or
legislative changes. Breaches or adverse changes could result in negative impacts on the Group’s reputation and profitability and
significant fines or other adverse consequences.

To mitigate these issues, the Group has a compliance framework in place and a variety of policies have been established to
facilitate legal, regulatory compliance and internal protocols . We liaise with government and regulatory bodies on proposed legal
and regulatory changes and the Group Code of Conduct and training programs promote awareness of legal, regulatory and internal
policy requirements .

Australian Dairy Nutritionals Group Annual Report 2019DIRECTORS’ REPORT (cont’d)

INFORMATION ON DIRECTORS

The following persons held office as directors of the Company during or since the end of the year. The names and details of the
directors are:

Name

Position

Michael Hackett
Adrian Rowley
Peter Skene
Paul Morrell

Chairman
Director
Director / Group CEO
Director

Michael Hackett

Chairman (Non-Executive)

Qualifications

Bachelor of Commerce - University of Queensland
ACA Financial Planning Specialist

Directorships held in other listed
entities in the past 3 years

Cashwerkz Limited (formerly Trustees Australia Limited) – director since June 1986
Jimmy Crow Limited - retired August 2018

Interest in Group securities &
options

A relevant interest in 22,632,221 stapled securities at 30 June 2019 .
A relevant interest in 2,400,000 performance options at 30 June 2019 .

Michael Hackett was appointed to the board on 8 May 2009. Michael is a qualified Chartered Accountant who is also the
chairman of Trustees Australia Limited (ASX CODE: TAU) and a former director of Jimmy Crow Limited (NSX CODE: JCC) .
He has a Bachelor of Commerce degree from the University of Queensland . Michael has had considerable experience in
managing and operating a wide range of businesses and property developments .

Adrian Rowley

Qualifications

Director (Non-Executive, Independent)

Certified Financial Planner

Directorships held in other listed
entities in the past 3 years

No other current or former directorships in listed entities .

Interest in Group securities &
options

A relevant interest in 1,286,000 stapled securities at 30 June 2019 .
A relevant interest in 2,400,000 performance options at 30 June 2019 .

Adrian Rowley was appointed to the board on 20 July 2011. Adrian has had a career in financial services spanning 20 years
and is currently Head of Equity Strategy at Watershed Funds Management .

Peter Skene

Qualifications

Director (Group CEO)

Bachelor of Applied Science - Melbourne University
Bachelor of Commerce - Deakin University
Associate Diploma in Dairy Technology - VCAH

Directorships held in other listed
entities in the past 3 years

No other current or former directorships in listed entities .

Interest in Group securities &
options

A relevant interest in 12,515,385 stapled securities at 30 June 2019 .
A relevant interest in 7,000,000 loan securities at 30 June 2019 .

Peter Skene was appointed to the board on 1 July 2016. Peter’s past experience reflects a vertical experience path starting
on the factory floor and moving through positions from factory hand to Managing Director in dairy, food and other fast
moving consumer goods (FMCG) industries . He has over 25 years experience in the areas of sales, global supply chain,
manufacturing, quality management, research and development and general management . Peter has also taken on the role of
Group CEO with effective operational responsibility for all aspects of the Group’s business.

Australian Dairy Nutritionals Group Annual Report 2019DIRECTORS’ REPORT (cont’d)

INFORMATION ON DIRECTORS (cont’d)

Paul Morrell

Qualifications

Director (Non-Executive)

Trade Qualified - Diesel Mechanic
Certificate IV - Business and Management

Directorships held in other listed
entities in the past 3 years

Interest in Group securities &
options

No other current or former directorships in listed entities .

A relevant interest in 37,152,422 stapled securities at 30 June 2019 .

Paul Morrell was appointed to the Board on 1 March 2018 . Paul’s background has a strong emphasis in lead management
in complex construction and people management for large scale enterprises and is combined with a sound knowledge of
the manufacturing and on time delivery of services and products including exposure to aspects of food manufacturing and
speciality powders .

COMPANY SECRETARY

The following persons held office as a company secretary of the Company during the financial year:

Kate Palthorpe

Company Secretary and General Counsel

Interest in Group securities &
options

No relevant interest in stapled securities or options at 30 June 2019 .

Kate was appointed to this role in September 2018. She is an experienced legal and governance professional with a strong
understanding of the food and dairy industry and experienced in negotiating and documenting complex procurement and
supply agreements. Kate has previously held positions with Minter Ellison, Aesop and Aussie Farmers Direct (prior to
acquisition by the Group) .

Jerome Jones

Company Secretary

Interest in Group securities &
options

No relevant interest in stapled securities or options at 30 June 2019 .

Jerome Jones retired as company secretary in September 2018 .

MEETINGS OF DIRECTORS

The board generally meets on a monthly basis either in person or by telephone conference . Directors meet bi-annually with the
Group’s auditor to discuss relevant issues . On matters of corporate governance, the board retains its direct interest rather than
through a separate committee structure which is at this stage is inappropriate for a Company of this size and structure .

Aside from formally constituted directors’ meetings, the directors and chairman are in regular contact regarding the operation of
the Company and particular issues of importance . Written reports on trading activities and operating strategies are prepared by or
provided to the directors on a regular basis or as required by changing circumstances .

The number of directors’ meetings and number of meetings attended by each of the Company directors during the financial year
are set out in the table below:

Directors

Michael Hackett

Adrian Rowley

Peter Skene

Paul Morrell

Meetings eligible
to attend

Meetings attended

Australian Dairy Nutritionals Group Annual Report 2019
DIRECTORS’ REPORT (cont’d)

DIVIDENDS PAID OR RECOMMENDED

The directors have not recommended or paid a dividend for the year ended 30 June 2019 (2018: $nil) at the date of this report.

INDEMNIFYING OFFICERS OR AUDITOR

During the financial year, the Company paid an insurance premium in respect of an insurance policy insuring the directors, the
company secretary and all executive officers of the Group against a liability incurred as a consequence of holding that office in
the Group to the extent permitted by the Corporations Act 2001. The amount of the premium was $40,943 (2018: $35,150) for all
directors and officers for the year.

The Company has not otherwise, during or since the end of the financial year, indemnified or agreed to indemnify an officer or
auditor of the Company against a liability incurred as such by an officer or auditor.

PROCEEDINGS ON BEHALF OF COMPANY

No person has applied for leave of a court to bring proceedings against or on behalf of the Group or to intervene in any significant
proceedings to which any such entity is a party for the purpose of taking responsibility for all or any part of those proceedings . No
proceeding has had or is likely to have a material impact on the financial position of the Group.

NON-AUDIT SERVICES

The board is satisfied that the provision of non-audit services during the year is compatible with the general standard of
independence for auditors imposed by the Corporations Act 2001 and is satisfied that the services disclosed below did not
compromise the external auditor’s independence for the following reasons:

i) all non-audit services are reviewed and approved by the board prior to commencement to ensure they do not adversely

affect the integrity and objectivity of the auditor; and,

ii) the nature of the services provided do not compromise the general principles relating to auditor independence in accordance
with APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional Ethical Standards board .

During the year ended 30 June 2019 there was no payment to external auditors for non-audit services (2018: $nil).

OPTIONS

At the date of this report, the unissued ordinary stapled securities of Australian Dairy Nutritionals Limited under option are as
follows:

Grant Date

Last Date of Expiry

Exercise Price

Number under Option

24 December 2018

12 February 2018

31 August 2021

12 February 2021

12 February 2023

nil

29 cents

12 .4 cents

6,250,000

10,000,000

7,000,000*

* Loan Securities

Option holders do not have any rights, by virtue of holding options, to participate in any issues of securities or other interests of the
Company or any other entity .

There have been no other options granted over unissued securities or interests of any controlled entity within the Group during or
since the end of the reporting period .

On 3 July 2018, 3,000,000 securities were issued on the exercise of employee options granted on 12 February 2018 with a nil
exercise price .

For details of options issued to directors and executives as remuneration, refer to the Remuneration Report .

AUDITOR’S INDEPENDENCE DECLARATION

The auditor’s independence declaration for the year ended 30 June 2019 has been received and a copy can be found at page 18 .

Australian Dairy Nutritionals Group Annual Report 2019DIRECTORS’ REPORT (cont’d)

REMUNERATION REPORT

Remuneration Policy

The remuneration policy of Australian Dairy Nutritionals Limited has been designed to align key management personnel (KMP)
objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific long-term
incentives based on key performance areas affecting the Group’s financial results. The Board believes the remuneration policy to
be appropriate and effective in its ability to attract and retain high-quality KMP to run and manage the Group, as well as create goal
congruence between directors, executives and shareholders .

The Board’s policy for determining the nature and amount of remuneration for KMP of the Group is as follows:

– The remuneration policy is developed and approved by the Board, who form the remuneration committee due to the

current size and nature of the Group’s activities . Professional advice is sought from independent external consultants when
required .

– All KMP receive a base salary (which is based on factors such as length of service and experience), superannuation and

performance incentives .

– Performance incentives are only paid once predetermined key performance indicators (KPIs) have been met.

– Incentives paid in the form of equity are intended to align the interests of the KMP and Group with those of the

securityholders. In this regard, KMP are prohibited from limiting risk attached to those instruments by use of derivatives or
other means .

– The remuneration committee reviews KMP packages annually by reference to the Group’s performance, executive

performance and comparable information from industry sectors .

The performance of KMP is measured against criteria agreed annually with each executive and is based predominantly on the
forecast growth of the Group’s profits and shareholders’ value. All bonuses and incentives must be linked to predetermined
performance criteria . The policy is designed to attract a high calibre of executives and reward them for performance results leading
to long-term growth in shareholder wealth .

KMP receive, at a minimum, a superannuation guarantee contribution required by the government, which is currently 9.5%. Some
individuals, however, may choose from time to time to sacrifice part of their salary to increase payments towards superannuation.

There are currently no defined benefit superannuation entitlements to executive KMP and upon retirement KMP are paid employee
benefit entitlements accrued to the date of retirement. Any options not exercised before or on the date of termination will lapse.

All remuneration paid to KMP is valued at the cost to the Company and expensed.

The Board’s policy is to remunerate non-executive directors at market rates for time, commitment and responsibilities . The
remuneration committee determines payments to the directors and reviews their remuneration annually, based on market practice,
duties and accountability . Independent external advice is sought when required . The maximum aggregate amount of fees that can
be paid to directors is subject to approval by shareholders at the annual general meeting .

Directors are also entitled and encouraged to participate in the Long Term Incentive Plan (LTIP) to align their interests with
shareholders’ interests .

Options granted under the LTIP do not carry dividend or voting rights . Each option is entitled to be converted into one ordinary
security once the interim or final financial report has been disclosed to the public and is measured using a binomial methodology.

KMP or closely related parties of KMP are prohibited from entering into hedge arrangements that would have the effect of limiting
the risk exposure relating to their remuneration .

In addition, the Board’s remuneration policy prohibits directors and KMP from using Australian Dairy Nutritionals Limited securities
as collateral in any financial transaction, including margin loan arrangements.

No KMP receive securities that are not performance based as part of their remuneration.

Australian Dairy Nutritionals Group Annual Report 2019DIRECTORS’ REPORT (cont’d)

REMUNERATION REPORT (cont’d)

Engagement of Remuneration Consultants

During the financial year, no consultants were engaged by the remuneration committee to review the elements of KMP
remuneration and provide recommendations . As the size and nature of the Group’s activities increase, this may become necessary .

Performance-based Remuneration

KPIs are set annually, with a certain level of consultation with KMP. The measures are specifically tailored to the area each
individual 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 remuneration committee in light of 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 determining whether or not a KPI has been achieved, the Group bases the assessment on audited figures; however, where the
KPI involves comparison of the Group, or a division within the Group, to the market, independent reports may be obtained from
other organisations .

Relationship between Remuneration Policy and Group Performance

The remuneration policy has been tailored to increase goal congruence between shareholders, directors and executives . The
establishment of the LTIP is to encourage the alignment of personal and shareholder interests . The Group believes this policy
should be effective in increasing shareholder wealth in future years.

Performance Conditions Linked to Remuneration

The Group seeks to emphasise reward incentives for results and continued commitment to the Group through the incorporation of
incentive payments based on the achievement of Total Securityholder Returns and continued employment with the Group .

During this financial year, the Group did not issue Performance Incentives to current KMP. The performance-related proportions
of remuneration based on the achievement of Total Securityholder Returns are included in the Employment Details of KMP table
below . The objective of the Performance Incentives is to both reinforce the short and long-term goals of the Group and provide a
common interest between management and shareholders .

The satisfaction of the performance conditions is based on a review of the audited financial statements of the Group and publicly
available market indices, as such figures reduce any risk of contention relating to payment eligibility. The Board does not believe
that performance conditions should include a comparison with any other measures or factors external to the Group at this time .

Employment Details of Members of Key Management Personnel

The following table provides employment details of persons who were, during the financial year, members of KMP of the
consolidated Group . The table also illustrates the proportion of remuneration that was performance and non-performance based .

Name

Position Held

Contract Details

M Hackett

Chairman

A Rowley

Director

P Morrell

Director

N/A

P Skene

Group CEO / Director

3 months notice

Proportions of Elements
of Remuneration Related
to Performance (Other
than Options Issued)

Proportions of Elements
of Remuneration Not
Related to Performance

Non-salary
Cash-based
Incentives
%

Securities

Fixed
Salary
/ Fees
%

100

Australian Dairy Nutritionals Group Annual Report 2019
DIRECTORS’ REPORT (cont’d)

REMUNERATION REPORT (cont’d)

Changes in Directors and KMP Subsequent to Year-end

There has been no change to directors or KMP subsequent to year-end.

Remuneration Expense Details for the Year Ended 30 June 2019

The following table of benefits and payments represents the components of the current year and comparative year remuneration
expenses for each member of KMP of the Group. Such amounts have been calculated in accordance with Australian Accounting
Standards .

Key Management
Personnel (KMP)

Short Term Benefit

Post
Employment

Salary /
Director’s
Fees

Securities

Super
Contributions

Long-
term
Benefit

Long
Service
Leave

Termination

Equity-settled
Share-based
Payments

Total

Termination
Benefits

Options

M Hackett - 2019

M Hackett - 2018

A Rowley - 2019

A Rowley - 2018 1

75,000

50,000

P Skene - 2019

329,469

7,125

4,750

20,531

14,435

P Skene - 2018

336,737

124,100

19,616

(8,650)

P Morrell - 2019

P Morrell - 2018 2

Total - 2019

Total - 2018

60,000

20,000

514,469

5,700

1,900

38,106

14,435

481,737

124,100

33,391

(8,650)

5,265

12,720

5,265

12,720

87,390

94,845

60,015

67,470

364,435

902,702

1,374,505

65,700

21,900

10,530

577,540

928,142

1,558,720

1 . This amount is paid in accordance with a contract arrangement with Watershed Funds Management Pty Ltd, an entity associated
with Adrian Rowley .

2 . Paul Morrell was appointed as a director on 01 March 2018 .

Options and Rights Granted as Share-based Payments

There were no options or rights granted as share-based payments to KMP during the year.

The terms and conditions relating to performance options granted as remuneration to KMP during the 2018 comaparative are as
follows:

Name

Remuneration
Type

Grant Date Grant
Value

Reason for
Grant

Percentage
Vested /
Paid during
Year

Percentage
Forfeited
during Year

Percentage
Remaining
as
Unvested

Expiry
Date for
Vesting or
Payment

Note

M Hackett

A Rowley

Options

12/02/18

34,203

12/02/18

34,203

P Skene

Performance Rights

12/02/18

300,720

Loan Securities

12/02/18

442,217

(i)

(ii)

(iii)

100

31/12/19

30/06/18

12/02/23

N/A

Range of
Possible
Values
Relating
to Future
Payments

(i) Options were issued as part of the Group’s LTIP with vesting milestones based on Total Securityholder Returns .

(ii) Performance rights were issued as part of the Group’s STIP and vested upon achievement of performance hurdles set by

the board, and are accounted for as an option .

(iii) Loan securities were issued as part of the Group’s LTIP to ensure the continued future service and commitment to the

Group of Peter Skene, and are accounted for as an option .

Australian Dairy Nutritionals Group Annual Report 2019

DIRECTORS’ REPORT (cont’d)

REMUNERATION REPORT (cont’d)

Options and Rights Granted as Remuneration

Grant Details

Exercised

Balance at
01/07/2018

Issue Date

No.

Value
($)

No.

Value
($)

M Hackett

2,400,000 12/02/2018

2,400,000

A Rowley

2,400,000 12/02/2018

2,400,000

34,203

P Skene

7,000,000 12/02/2018

7,000,000

442,217

P Skene 1 .

3,000,000 12/02/2018

3,000,000

300,720

(3,000,000)

(300,720)

TOTAL

14,800,000

811,343

(3,000,000)

(300,720)

1 . Peter Skene exercised 3,000,000 performance rights on 3 July 2018 .

Forfeit/
Cancel

No.

Balance at
30/06/2019

2,400,000

7,000,000

11,800,000

Balance at
30/06/2019

Vested

Unvested

No.

M Hackett

2,400,000

A Rowley

2,400,000

2,400,000 *expires 31 December 2019

P Skene1 .

7,000,000

11,800,000

10,000,000

4,800,000

1 . Peter Skene holds 7,000,000 loan securities .

The fair value of options granted as remuneration as shown in the above table has been determined in accordance with Australian
Accounting Standards and will be recognised as an expense over the relevant vesting period .

Description of Options/Rights Issued as Remuneration

There were no options or rights issued as remuneration during the year .

Details of the options granted as remuneration to those KMP listed in the previous table in the 2018 comparative are as follows:

Grant Date

Issuer

Entitlement
on Exercise

Dates
Exercisable

Exercise
Price

Value at Grant
Date

Amount Paid/
Payable by Recipient

12/02/18

Australian Dairy
Nutritionals Limited

1:1

12/02/21

$0.29

$0.003

30/06/18

$0.10

12/02/23

$0.12

$0.063

nil

Option values at grant date were determined using a binomial method .

Details relating to performance criteria required for vesting have been provided in the Options and Rights Granted as Share-based
Payments table .

Australian Dairy Nutritionals Group Annual Report 2019DIRECTORS’ REPORT (cont’d)

REMUNERATION REPORT (cont’d)

KMP Securityholdings

The number of ordinary securities held by each KMP of the Group during the financial year is as follows:

30 June 2019

Michael Hackett1
Adrian Rowley
Peter Skene
Paul Morrell

Balance at
01/07/2018

Granted as
Remuneration

Other
Changes

21,921,566
1,286,000
9,300,000
37,037,037
69,544,603

-
-
3,000,000
-
3,000,000

710,655
-
215,385
115,385
1,041,425

Balance at
30/06/2019

22,632,221
1,286,000
12,515,385
37,152,422
73,586,028

1 The balance includes relevant interests held indirectly .

Other Equity-related KMP Transactions

There have been no other transactions involving equity instruments apart from those described in the tables above relating to
options, rights and securityholdings .

Loans to KMP

At the date of this report, there have been no loans made to or from any member of KMP.

Other Transactions with KMP and/or their Related Parties

As set out in Note 24(b) of the financial statements, the Group had the following transactions with KMP:

(i) Jimmy Crow Limited

Michael Hackett is a director of Jimmy Crow Limited. During the year ended 30 June 2019, Jimmy Crow Limited was paid $93,372
(2018: $172,740) on a reimbursement basis, for the provision of administrative services, accounting, secretarial, and related
activities. There was $9,391 (2018: $18,480) due at 30 June 2019.

There were no other transactions conducted between the Group and KMP or their related parties, other than those disclosed above
relating to equity and compensation, that were conducted other than in accordance with normal employee, customer or supplier
relationships on terms no more favourable than those reasonably expected under arm’s length dealings with unrelated persons .

This directors’ report, incorporating the remuneration report, is signed in accordance with a resolution of the Board of Directors .

_______________

Michael Leslie Hackett

Chairman

Brisbane

30 August 2019

Australian Dairy Nutritionals Group Annual Report 2019CORPORATE GOVERNANCE STATEMENT

The board is responsible for the overall Corporate Governance of the Group .

The board monitors the operational and financial position and performance of the Group and oversees the business strategy,
including approving the strategic goals of the Group and considering and approving its business plan and the associated farm,
processing and corporate budgets .

The board is committed to maximising performance and growth and generating appropriate levels of security holder value and
returns . In conducting the Group’s business, the board strives to ensure the Group is properly managed to protect and enhance
securityholder interests and that the Group operates in an appropriate environment of Corporate Governance . In accordance with
this, the board has developed and adopted a framework of Corporate Governance policies, risk management practices and internal
controls that it believes are appropriate for the Group .

The Corporate Governance Statement which was lodged with this Annual Report, discloses the extent to which the Company will
follow the recommendations taking into account that the relatively small size of the Company requires that the cost and benefits of
adoption need to be taken into account in determining the extent of practical implementation .

The principal governance related policies and practices are as follows:

• Corporate Governance Statement

•

Board Charter

Securityholder Communication Policy

• Risk Management Policy

• Continuous Disclosure Policy

• Code of Conduct

Details of the Group’s key policies, charters for the board and code of conduct are available on the Group’s website under the
Governance tab at www.adfl.com.au.

Australian Dairy Nutritionals Group Annual Report 2019AUDITOR’S INDEPENDENCE DECLARATION

Australian Dairy Nutritionals Group Annual Report 2019CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2019

Revenue

Other income

Administration costs

Employment expenses

Finance costs

Dairy product related costs

Dairy farm related costs

Depreciation and amortisation expense

Deemed cost of livestock disposed

Impairment of property, plant and equipment

Loss before income tax

Tax expense

Net loss for the year

Other comprehensive income

Items that will be reclassified subsequently to profit or loss

when specific conditions are met:

Items that will not be reclassified to profit or loss

Other comprehensive income for the year

2019

2018

21,373,358

19,521,947

566,865

(830,733)

380,267

(699,738)

(5,788,552)

(5,483,975)

Notes
4(a)

4(b)

4(c)(v)

4(c)(iv)

4(c)(i)

(638,223)

4(c)(iii)

(10,232,587)

4(c)(ii)

(6,138,396)

4(c)(vi)

(1,468,232)

(869,525)

(451,458)

(9,394,166)

(5,870,719)

(884,510)

(937,226)

(338,075)

(4,026,025)

(4,157,653)

(4,026,025)

(4,157,653)

Total comprehensive loss for the year

(4,026,025)

(4,157,653)

Loss is attributable to:

Company shareholders

Trust unitholders

Total comprehensive loss is attributable to:

Company shareholders

Trust unitholders

Earnings per stapled security:

Basic earnings per stapled security (cents)

Diluted earnings per stapled security (cents)

The accompanying notes form part of these financial statements.

(3,254,207)

(771,818)

(4,026,025)

(3,047,440)

(1,110,213)

(4,157,653)

(3,254,207)

(771,818)

(4,026,025)

(3,047,440)

(1,110,213)

(4,157,653)

(1 .55)

(1 .80)

Australian Dairy Nutritionals Group Annual Report 2019CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2019

ASSETS

Current Assets

Cash and cash equivalents

Trade and other receivables

Inventories

Other current assets

Total Current Assets

Non-Current Assets

Biological assets

Intangible assets

Property, plant & equipment

Total Non-Current Assets

Total Assets

LIABILITIES

Current Liabilities

Trade and other payables

Provisions

Borrowings

Total Current Liabilities

Non-Current Liabilities

Provisions

Borrowings

Total Non-Current Liabilities

Total Liabilities

Net Assets

EQUITY

Issued capital

Reserves

Accumulated losses

Equity attributable to shareholders

Non-controlling interests

Issued units

Accumulated losses

Equity attributed to non-controlling interests

Total Equity

The accompanying notes form part of these financial statements.

Notes

2019

2018

3,748,550

2,477,116

995,718

216,416

2,331,700

2,397,522

625,509

182,183

7,437,800

5,536,914

4,928,422

6,974,236

5,205,774

6,643,045

29,190,439

25,834,763

41,093,097

37,683,582

48,530,897

43,220,496

2,370,950

314,797

264,363

1,897,724

260,816

10,177,445

2,950,110

12,335,985

135,087

12,431,039

12,566,126

109,364

300,976

410,340

15,516,236

12,746,325

33,014,661

30,474,171

16(a)

25,474,856

18,760,113

591,634

761,279

(16,264,510)

(13,031,720)

9,801,980

6,489,672

16(a)

30,744,991

(7,532,310)

23,212,681

(6,760,492)

23,984,499

33,014,661

30,474,171

Australian Dairy Nutritionals Group Annual Report 2019CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2019

Cash Flows from Operating Activities
Receipts from customers

Payments to suppliers and employees

Interest received

Finance costs

Net operating cash flows

Cash Flows from Investing Activities

Payment for property, plant and equipment

Proceeds from sale of property, plant and equipment

Payment for biological assets

Payment for intangible assets

Payment for Flahey’s Nutiritionals Pty Ltd

Net investing cash flows

Cash Flows from Financing Activities

Proceeds from issue of stapled securities net of transaction costs

Net repayment of loans - unsecured

Net proceeds from CBA facility

Repayment of hire purchase loans

Net financing cash flows

Net increase / (decrease) in cash held

Cash at the beginning of the period

Cash at the end of the financial period

The accompanying notes form part of these financial statements.

Notes

,2019

2018

22,012,465

21,487,802

(23,867,690)

(23,673,376)

5,486

18,108

(638,223)

(451,458)

6(b)

(2,487,962)

(2,618,924)

(6,579,734)

(1,052,562)

11(c)

16(a)

15(b)

2,743,343

(53,621)

(20,598)

(270,260)

56,364

(336,014)

(34,645)

(4,180,870)

(1,366,857)

6,354,208

4,986,087

(21,846)

2,054,000

(322,526)

8,085,682

1,416,850

2,331,700

3,748,550

(224,024)

4,740,217

754,436

1,577,264

2,331,700

Australian Dairy Nutritionals Group Annual Report 2019CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2019

Issued
Capital
Ordinary

Option
Reserve

Accumulated
Losses

Non-
controlling
Interest
(Trust)

Total

Note

Balance at 1 July 2018

18,760,113

761,279

(13,031,720)

23,984,499

30,474,171

Comprehensive income for the year
Loss attributable to company shareholders /
trust unitholders

Total comprehensive loss for the year
Transactions with equityholders in their
capacity as equity holders:
Contributions of equity, net of transaction
costs
Option reserve

Transfer of retained earnings (options)

Transfer to issued capital (options)

Total transactions with equity holders

16(a)

6,414,023

152,492

(21,417)

300,720

(300,720)

6,714,743

(169,645)

(3,254,207)

(771,818)

(4,026,025)

(3,254,207)

(771,818)

(4,026,025)

21,417

6,414,023

152,492

6,566,515

Balance at 30 June 2019

25,474,856

591,634

(16,264,510)

23,212,681

33,014,661

Issued
Capital
Ordinary

Option
Reserve

Accumulated
Losses

Non-
controlling
Interest
(Trust)

Total

Balance at 1 July 2017

17,379,491

363,360

(10,423,799)

21,345,146

28,664,198

Note

Comprehensive income for the year
Loss attributable to company shareholders /
trust unitholders

Total comprehensive loss for the year
Transactions with equityholders in their
capacity as equity holders:
Contributions of equity, net of transaction
costs
Option reserve - KMP options

Transfer to retained earnings

Total transactions with equity holders

Balance at 30 June 2018

16(a)

1,380,622

18,760,113

837,438

(439,519)

397,919

761,279

(3,047,440)

(1,110,213)

(4,157,653)

(3,047,440)

(1,110,213)

(4,157,653)

439,519

3,749,566

5,130,188

837,438

439,519

3,749,566

5,967,626

13,031,720

23,984,499

30,474,171

The accompanying notes form part of these financial statements.

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Australian Dairy Nutritionals Group (“the Group”) was formed by the stapling of Australian Dairy Nutritionals Limited (“the
Company”) and its controlled entities, and Australian Dairy Farms Trust (“the Trust”) . The Financial Reports of the Group and the
Trust have been presented jointly in accordance with ASIC Class Order 13/1050 relating to combining accounts under stapling and
for the purpose of fulfilling the requirements of the Australian Securities Exchange.

The Trust is a registered managed investment scheme under the Corporations Act 2001 . The Responsible Entity is governed by
the terms and conditions specified in the constitution. Trustees Australia Limited retired as Responsible Entity on 20 May 2018, and
Dairy Fund Management Limited was appointed, both of which are domiciled in Australia .

The Group was established for the purpose of facilitating a joint quotation of the Company and the Trust on the Australian Securities
Exchange . The constitutions of the Trust and the Company ensure that, for so long as the two entities remain jointly quoted, the
number of units in the Trust and the number of shares in the Company shall be equal and the unitholders and shareholders are
identical . Both the Responsible Entity of the Trust and the Company must at all times act in the best interests of the Group .

To account for the stapling, Australian Accounting Standards require an acquirer (the Company) to be identified and an acquisition
to be recognised. The net assets and net profit of the acquiree (the Trust) are recognised as non-controlling interest as they are not
owned by the acquirer in the stapling arrangement .

The stapling arrangement will cease upon the earliest of either the winding up of the Company or the Trust or by agreement
between the parties .

(a) Basis of Preparation

These general purpose financial statements have been prepared in accordance with the Corporations Act 2001, Australian
Accounting Standards and Interpretations of the Australian Accounting Standards Board and in compliance with International
Financial Reporting Standards as issued by the International Accounting Standards Board. The Group is a for-profit entity for
financial reporting purposes under Australian Accounting Standards. Material accounting policies adopted in the preparation of
these financial statements are presented below and have been consistently applied unless stated otherwise.

The financial statements were authorised for issue by the Board of Directors on 30 August 2019.

Except for cash flow information, the financial statements have been prepared on an accruals basis and are based on historical
costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial
liabilities .

(b) Principles of Consolidation

Stapling

The stapling of the Company and the Trust was approved at separate meetings of the respective shareholders and unitholders on
1 September 2014 . On 22 October 2014, shares in the Company and units in the Trust were stapled to one another and are now
quoted as a single security on the Australian Securities Exchange .

Australian Accounting Standards require an acquirer to be identified and an in-substance acquisition to be recognised. In relation
to the stapling of the Company and the Trust, the Company is identified as having acquired control over the assets of the Trust. To
recognise the in-substance acquisition, the following accounting principles have been applied:

(1) no goodwill is recognised on acquisition of the Trust because no direct ownership interest was acquired by the Company in

the Trust;

(2) the equity issued by the Company to unitholders to give effect to the transaction is recognised at the dollar value of the

consideration payable by the unitholders . This is because the issue of shares by the Company was administrative in nature
rather than for the purposes of the Company acquiring an ownership interest in the Trust; and

(3) the issued units of the Trust are not owned by the Company and are presented as non-controlling interests in the Group

notwithstanding that the unitholders are also the shareholders by virtue of the stapling arrangement . Accordingly, the equity
in the net assets of the Trust and the profit / (loss) arising from these net assets have been separately identified in the
statement of comprehensive income and statement of financial position.

The Trust’s contributed equity and accumulated losses are shown as a non-controlling interest in this Financial Report . Even though
the interests of the equity holders of the identified acquiree (the Trust) are treated as non-controlling interests the equity holders of
the acquiree are also equity holders in the acquirer (the Company) by virtue of the stapling arrangement .

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(b) Principles of consolidation (cont’d)

Subsidiaries

The consolidated financial statements incorporate the assets, liabilities and results of the Company and all subsidiaries from the
date on which control is obtained by the Company .

Subsidiaries are entities controlled by the Company . Control exists when the Company 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. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control
commences until the date that control ceases .

Inter-entity transactions, balances and unrealised gains on transactions between Company entities 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 Company .

Non-controlling interests in the results and equity of subsidiaries are shown separately in the statement of comprehensive income
and statement of financial position respectively.

Investments in subsidiaries are accounted for at cost in the individual financial statements of the Company. A list of subsidiaries
appears in Note 22 to the consolidated financial statements.

Business combinations

Business combinations occur where an acquirer obtains control over one or more businesses .

A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or
businesses under common control . The business combination will be accounted for from the date that control is obtained, whereby
the fair value of the identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised (subject to
certain limited exemptions) .

When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent
consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not
remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability
is remeasured in each reporting period to fair value, recognising any change to fair value in profit or loss, unless the change in
value can be identified as existing at acquisition date.

All transaction costs incurred in relation to business combinations, other than those associated with the issue of a financial
instrument, are recognised as expenses in profit or loss when incurred.

The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase .

Goodwill

Goodwill is carried at cost less any accumulated impairment losses . Goodwill is calculated as the excess of the sum of:

(i) the consideration transferred;

(ii) any non-controlling interest (determined under either the full goodwill or proportionate interest method); and

(iii) the acquisition date fair value of any previously held equity interest;

over the acquisition date fair value of net identifiable assets acquired.

The acquisition date fair value of the consideration transferred for a business combination plus the acquisition date fair value of any
previously held equity interest shall form the cost of the investment in the separate financial statements.

The amount of goodwill recognised on acquisition of each subsidiary in which the Group holds less than 100% interest will depend
on the method adopted in measuring the non-controlling interest . The Group can elect in most circumstances to measure the non-
controlling interest in the acquiree either at fair value (full goodwill method) or at the non-controlling interest’s proportionate share
of the subsidiary’s identifiable net assets (proportionate interest method). In such circumstances, the Group determines which
method to adopt for each acquisition and this is stated in the respective notes to these financial statements disclosing the business
combination .

Under the full goodwill method, the fair value of the non-controlling interest is determined using valuation techniques which make
the maximum use of market information where available . Under this method, goodwill attributable to the non-controlling interest is
recognised in the consolidated financial statements.

Goodwill on acquisition of subsidiaries is included in intangible assets . Goodwill on acquisition of associates is included in
investments in associates .

Changes in the ownership interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions
and do not affect the carrying amounts of goodwill.

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(b) Principles of consolidation (cont’d)

Goodwill (cont’d)

Goodwill is tested for impairment annually and is allocated to the Group’s cash-generating units or groups of cash-generating units,
representing the lowest level at which goodwill is monitored and not larger than an operating segment . Gains and losses on the
disposal of an entity include the carrying amount of goodwill related to the entity disposed of .

Changes in the ownership interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions

Under current income tax legislation the Trust is not liable to pay tax provided its taxable income and realised capital gains are
distributed to unitholders . The liability for capital gains tax that may arise if the land and buildings were sold is not accounted for in
this report .

The Company’s income tax expense for the period is the tax payable on the current period’s taxable income adjusted by changes
in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their
carrying amounts in the financial statements and to unused tax losses.

Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are
recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted . The relevant tax rates are
applied to cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An
exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset
or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination,
that at the time of the transaction did not affect either accounting profit or taxable profit or loss.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if is probable that future
taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not
recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the
parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not
reverse in the foreseeable future .

Current and deferred tax balances attributable to amounts recognised in other comprehensive income or directly in equity are also
recognised in other comprehensive income or directly in equity .

Tax consolidation

The Company and its wholly-owned entities (this excludes the Trust) have formed a tax-consolidated group with effect from 1 July
2014 and are, therefore, taxed as a single entity from that date . The head entity within the tax consolidated group is Australian
Dairy Nutritionals Limited .

Current tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of
the tax consolidated group are recognised in the separate financial statements of the members of the tax consolidated group, using
the ‘separate taxpayer within the group’ approach by reference to carrying amounts of assets and liabilities in the separate financial
statements of each entity and the tax values applying under tax consolidation .

Any current tax liabilities or assets and deferred tax assets arising from unused tax losses of the subsidiaries are assumed by the
head entity in the tax consolidated group and are recognised as amounts payable (receivable) to (from) other entities in the tax
consolidated group in conjunction with any tax funding arrangement amounts referred to in the following section. Any difference
between these amounts is recognised by the Company as an equity contribution or distribution .

The Company recognises deferred tax assets arising from unused tax losses of the tax consolidated group to the extent that it
is probable that future taxable profits to the tax consolidated group will be available against which the asset can be utilised. Any
subsequent period adjustment to deferred tax assets arising from unused tax losses, as a result of revised assessments of the
probability of recoverability, is recognised by the head entity only .

Tax funding arrangements and tax sharing arrangements

The head entity, in conjunction with other members of the tax consolidate group, has entered into a tax funding arrangement, which
sets out the funding obligations of members of the tax consolidated group in respect of tax amounts . The tax funding arrangements
require payments to/from the head entity equal to the current tax liability (asset) assumed by the head entity and any tax-loss
deferred tax asset assumed by the head entity, resulting in the head entity recognising an inter-entity receivable (payable) equal in
amount to the tax liability (asset) assumed . The inter-entity receivable (payable) is at call .

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

Tax funding arrangements and tax sharing arrangements (cont’d)

Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and reflect the timing of the head
entity’s obligation to make payments for tax liabilities to the relevant tax authorities .

The head entity, in conjunction with other members of the tax consolidated group, has also entered into a tax sharing agreement .
The tax sharing agreement provides for the determination of the allocation of income tax liabilities between the entities should the
head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this
agreement, as payment of any amounts under the tax sharing agreement is considered remote .

(d) Fair value of assets and liabilities

The Group measures some of its assets and liabilities at fair value on either a recurring or non-recurring basis, depending on the
requirements of the applicable Accounting Standard .

Fair value is the price the Group would receive to sell an asset or would have to pay to transfer a liability in an orderly (ie unforced)
transaction between independent, knowledgeable and willing market participants at the measurement date .

As fair value is a market-based measure, the closest equivalent observable market pricing information is used to determine fair
value. Adjustments to market values may be made having regard to the characteristics of the specific asset or liability. The fair
values of assets and liabilities that are not traded in an active market are determined using one or more valuation techniques .
These valuation techniques maximise, to the extent possible, the use of observable market data .

To the extent possible, market information is extracted from either the principal market for the asset or liability (ie the market with
the greatest volume and level of activity for the asset or liability) or, in the absence of such a market, the most advantageous
market available to the entity at the end of the reporting period (ie the market that maximises the receipts from the sale of the asset
or minimises the payments made to transfer the liability, after taking into account transaction costs and transport costs) .

For non-financial assets, the fair value measurement also takes into account a market participant’s ability to use the asset in its
highest and best use or to sell it to another market participant that would use the asset in its highest and best use .

The fair value of liabilities and the entity’s own equity instruments (excluding those related to share-based payment arrangements)
may be valued, where there is no observable market price in relation to the transfer of such financial instruments, by reference to
observable market information where such instruments are held as assets . Where this information is not available, other valuation
techniques are adopted and, where significant, are detailed in the respective note to the financial statements.

(e) Inventories

Inventories and consumables held for use in operations are valued at the lower of cost and net realisable value . Cost is determined
on the average cost basis and comprises the cost of purchase including transport costs .

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the
estimated costs necessary to make the sale .

(f ) Biological Assets

Biological assets are comprised of livestock (dairy cattle) . Biological assets are measured at fair value less costs to sell, with any
change recognised in profit or loss. Costs to sell include all costs that would be necessary to sell the assets, including freight and
direct selling costs .

The Group, at each reporting date, appoints an external, independent valuer who having recent experience in the location and
nature of cattle held by the Group performs a valuation for the reporting date . Fair value is determined by reference to market
values for cattle of similar age, weight, breed and genetic make-up . The fair value represents the estimated amount for which
cattle could be sold on the date of valuation between a willing buyer and willing seller in an arm’s length transaction after proper
marketing wherein the parties had each acted knowledgeably, prudently and without compulsion .

In the event an independent valuer has not been appointed the Group determines whether an active or other effective market exists
for a biological asset in its present location and condition, the quoted price in that market is the appropriate basis for determining
the fair value of that asset . If an active market does not exist then the directors use one of the following valuation methods, when
available, in determining fair value:

•

the most recent market transaction price, provided that there has not been a significant change in economic circumstances
between the date of that transaction and the end of the reporting period; or

• market prices, in markets accessible to the entity, for similar assets with adjustments to reflect differences.

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(g) Financial instruments

Initial recognition and measurement

Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions to the
instrument. For financial assets, this is the date that the Group commits itself to either the purchase or sale of the asset (i.e. trade
date accounting is adopted) .

Financial instruments (except for trade receivables) are initially measured at fair value plus transaction costs, except where
the instrument is classified at fair value through profit or loss, in which case transaction costs are expensed to profit or loss
immediately . Where available, quoted prices in an active market are used to determine fair value . In other circumstances, valuation
techniques are adopted .

Trade receivables are initially measured at the transaction price if the trade receivables do not contain a significant financing
component or if the practical expedient was applied as specified in AASB 15.63.

Classification and subsequent measurement

Financial liabilities

All of the Group’s financial liabilities are subsequently measured at amortised cost using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest expense
in profit or loss over the relevant period.

The effective interest rate is the internal rate of return of the financial asset or liability; that is, it is the rate that exactly discounts the
estimated future cash flows through the expected life of the instrument to the net carrying amount at initial recognition.

The Group does not have any financial liabilities classified as held for trading, designated as fair value through profit or loss or any
financial guarantee contracts.

A financial liability cannot be reclassified.

Financial assets

Financial assets are subsequently measured at:

•

amortised cost; or

fair value through other comprehensive income, or through profit and loss.

Measurement is on the basis of the two primary criteria:

•

the contractual cash flow characteristics of the financial asset; and

the business model for managing the financial assets.

A financial asset is subsequently measured at amortised cost if it meets the following conditions:

•

the financial asset is managed solely to collect contractual cash flows; and

the contractual terms within the financial asset give rise to cash flows that are solely payments of principal and interest on
the principal amount outstanding on specified dates.

A financial asset is subsequently measured at fair value through other comprehensive income if it meets the following conditions:

•

the contractual terms within the financial asset give rise to cash flows that are solely payments of principal and interest on
the principal amount outstanding on specified dates; and

the business model for managing the financial asset comprises both contractual cash flows collection and the selling of the
financial asset.

By default, all other financial assets that do not meet the measurement conditions of amortised cost and fair value through other
comprehensive income are subsequently measured at fair value through profit or loss.

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(g) Financial instruments (cont’d)

Derecognition

Derecognition refers to the removal of a previously recognised financial asset or financial liability from the statement of financial
position .

Derecognition of financial liabilities

A liability is derecognised when it is extinguished (i .e . when the obligation in the contract is discharged, cancelled or expires) . An
exchange of an existing financial liability for a new one with substantially modified terms, or a substantial modification to the terms
of a financial liability is treated as an extinguishment of the existing liability and recognition of a new financial liability.

The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable, including
any non-cash assets transferred or liabilities assumed, is recognised in profit or loss.

Derecognition of financial assets

A financial asset is derecognised when the holder’s contractual rights to its cash flows expires, or the asset is transferred in such a
way that all the risks and rewards of ownership are substantially transferred .

All of the following criteria need to be satisfied for derecognition of financial assets:

•

the right to receive cash flows from the asset has expired or been transferred;

all risk and rewards of ownership of the asset have been substantially transferred; and

the group no longer controls the asset (i .e . the group has no practical ability to make a unilateral decision to sell the asset
to a third party) .

On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying amount and the sum
of the consideration received and receivable is recognised in profit or loss.

On derecognition of an investment in equity which was elected to be classified as at fair value through other comprehensive
income, the cumulative gain or loss previously accumulated in the investments revaluation reserve is not reclassified to profit or
loss, but is transferred to retained earnings .

Impairment

The Group recognises a loss allowance for expected credit losses on:

•

financial assets that are measured at amortised cost;

Loss allowance is not recognised for:

•

financial assets measured at fair value.

Expected credit losses are the probability-weighted estimate of credit losses over the expected life of a financial instrument. A credit
loss is the difference between all contractual cash flows that are due and all cash flows expected to be received, all discounted at
the original effective interest rate of the financial instrument.

The Group uses the simplified approach to impairment, as applicable under AASB 9: Financial Instruments.

Simplified approach

The simplified approach does not require tracking of changes in credit risk at every reporting period, but instead requires the
recognition of lifetime expected credit loss at all times .

In measuring the expected credit loss, a provision matrix for trade receivables was used taking into consideration various data to
get to an expected credit loss (ie diversity of customer base, appropriate groupings of historical loss experience, etc) .

Recognition of expected credit losses in financial statements

At each reporting date, the Group recognises the movement in the loss allowance as an impairment gain or loss in the statement of
profit or loss and other comprehensive income.

The carrying amount of financial assets measured at amortised cost includes the loss allowance relating to that asset.

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(h) Property, Plant and Equipment

Each class of property, plant and equipment is carried at cost or fair value as indicated, less, where applicable, accumulated
depreciation and impairment losses .

Basis of measurement of carrying amount

Land, buildings and improvements, plant and equipment are stated at cost less accumulated depreciation and any accumulated
impairment losses .

The carrying amount of property, plant and equipment is reviewed annually by directors to ensure it is not in excess of the
recoverable amount . The recoverable value of property is based on periodic, but at least triennial, valuations by external
independent valuers, less subsequent depreciation for buildings and an assessment of the properties value in use .

In the event the carrying amount of property, plant and equipment is greater than its estimated recoverable amount, the carrying
amount is written down immediately to its estimated recoverable amount and impairment losses are recognised in profit or loss.
A formal assessment of recoverable amount is made when impairment indicators are present (refer to Note 1(l) for details of
impairment) .

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured
reliably. All other repairs and maintenance are recognised as expenses in profit or loss in the financial period in which they are
incurred .

Depreciation

The depreciable amount of all fixed assets, including buildings but excluding freehold land, is depreciated on a straight-line basis
over the asset’s useful life to the Group commencing from the time the asset is available for use . Leasehold improvements are
depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements .

The useful-life rates used for each class of depreciable assets are:

Class of Fixed Assets

Land

Land improvements

Buildings

Fixed Improvements

Depreciation Rate
(years)

Not depreciated

3 years

40 years

30 years

Plant and equipment - owned

3-10 years

Plant and equipment - leased

Motor Vehicles

2-5 years

5 years

The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at the end of each reporting period .

An assets carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its
estimated redeemable amount .

Gains and losses on disposals are determined by comparing proceeds with the carrying amount . These gains or losses are
included in the statement of profit or loss and other comprehensive income in the period which they arise. When revalued assets
are sold, amounts included in the revaluation surplus relating to that asset are transferred to retained earning .

(i) Leases

Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal
ownership that is transferred to entities in the Group, are classified as finance leases.

Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased
property or the present value of the minimum lease payments, including any guaranteed residual values . Lease payments are
allocated between the reduction of the lease liability and the lease interest expense for the period .

Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term .

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

Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the life of the lease
term .

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(j) Employee Benefits

Short-term employee benefits

Provision is made for the Group’s obligation for short-term employee benefits. Short-term employee benefits are benefits (other
than termination benefits) that are expected to be settled wholly before 12 months after the end of the annual reporting period
in which the employees render the related service, including wages, salaries and sick leave. Short-term employee benefits are
measured at the (undiscounted) amounts expected to be paid when the obligation is settled .

The Group’s obligations for short-term employee benefits such as wages, salaries and sick leave are recognised as a part of
current trade and other payables in the statement of financial position. The Group’s obligations for employees’ annual leave and
long service leave entitlements are recognised as provisions in the statement of financial position.Other long-term employee
benefits

Provision is made for employees’ long service leave and annual leave entitlements not expected to be settled wholly within 12
months after the end of the annual reporting period in which the employees render the related service . Other long-term employee
benefits are measured at the present value of the expected future payments to be made to employees. Expected future payments
incorporate anticipated future wage and salary levels, durations of service and employee departures and are discounted at rates
determined by reference to market yields at the end of the reporting period on government bonds that have maturity dates that
approximate the terms of the obligations . Any remeasurements for changes in assumptions of obligations for other long-term
employee benefits are recognised in profit or loss in the periods in which the changes occur.

The Group’s obligations for long-term employee benefits are presented as non-current provisions in its statement of financial
position, except where the group does not have an unconditional right to defer settlement for at least 12 months after the end of the
reporting period, in which case the obligations are presented as current provisions .

Equity-settled payments

Share-based payments to employees are measured at the fair value of the instruments issued and amortised over the vesting
periods . Share-based payments to non-employees are measured at the fair value of goods or services received or the fair value
of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are
recorded at the date the goods or services are received . The corresponding amount is recorded to equity . The fair value of options
is determined using a binomial pricing model . The number of shares and options expected to vest is reviewed and adjusted at the
end of each reporting period such that the amount recognised for services received as consideration for the equity instruments
granted is based on the number of equity instruments that eventually vest .

(k) Provisions

Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that
an outflow of economic benefits will result and that outflow can be reliably measured.

Provisions are measured using the best estimate of the amounts required to settle the obligation at the end of the reporting period .

(l) Impairment of Assets

At each reporting date, the Group reviews the carrying values of its tangible and intangible assets to determine whether there is any
indication that those assets have been impaired . If such an indication exists, the recoverable amount of the asset, being the higher of
the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value . Any excess of the asset’s carrying
value over its recoverable amount is recognised immediately in profit or loss.

Impairment testing is performed annually for goodwill and intangible assets with indefinite lives.

Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the
cash-generating unit to which the asset belongs .

(m) Intangibles other than Goodwill

Other intangiblies have a finite life and are carried at cost or fair value less any accumulated amortisation and any impairment
losses, and are amortised over their useful lives .

(n) Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits available on demand with banks, other short-term highly liquid
investments with original maturities of three months or less .

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(o) Trade and other receivables

Trade and other receivables include amounts due from customers for goods sold and services performed in the ordinary course of
business. Receivables expected to be collected within 12 months of the end of the reporting period are classified as current assets.
All other receivables are classified as non-current assets.

Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective
interest method, less any provision for impairment . Refer to Note 1(g) for further discussion on the determination of impairment
losses .

(p) Trade and other payables

Trade and other payables represent the liability outstanding at the end of the reporting period for goods and services received by
the Group during the reporting period which remains unpaid . The balance is recognised as a current liability with the amount being
normally paid within 30 days of recognition of the liability .

(q) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial
period of time to prepare for their intended use or sale are added to the cost of those assets, until such time as the assets are
substantially ready for their intended use or sale .

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

(r) Goods and services tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not
recoverable from the Australian Taxation Office (ATO).

Receivables and payables are stated inclusive of the amount of GST receivable or payable . The net amount of GST recoverable
from, or payable to, the ATO is included with other receivables or payables in the statement of financial position.

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities
which are recoverable from, or payable to, the ATO are presented as operating cash flows included in receipts from customers or
payments to suppliers .

(s) Revenue and Other Income

The Group has applied new accounting standard AASB 15: Revenue from contracts, with customers, with effect from 1 July 2018.
Application of the standard has not impacted amounts recognised as revenue (refer note 1(v)(b)) . Revenue recognition policies are
as follows:

The sale of dairy farm and dairy processing segment products are measured at the fair value of consideration received net of any
trade discounts and volume rebates allowed .

The sale of dairy products represents a single performance obligation and accordingly, revenue will be recognised in respect of the
sale of these goods at the point in time when control over the corresponding goods and services is transferred to the customer (i .e .
at a point in time for sale of goods when the goods are delivered to the customer or transfer to the freight forwarder) .

Dairy cattle fair value adjustments are determined at the end of each reporting date (refer Note 10) . The amount of the net
increment or decrement in the fair value is recorded as either revenue or expense and is determined as:

•

The difference between the total net fair value of dairy cattle recognised at the beginning of the financial year and the total
fair value of dairy cattle recognised as at the reporting date; less

• Costs expected to be incurred in realising the fair value (including freight and selling costs) .

Dairy cattle sales are recognised when:

•

there has been a transfer of control to the customer (through the execution of a sales agreement at the time of delivery of
the cattle to the customer);

the quantity and quality of the cattle has been determined; and

the price is fixed and generally title has passed.

Interest revenue is recognised using the effective interest rate method, which, for floating rate financial assets, is the rate inherent
in the instrument .

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(t) Critical Accounting Estimates and Judgments

The preparation of the financial statements requires directors to make judgements, estimates and assumptions that affect the
reported amounts in the financial statements. The director’s continually evaluate their judgements and estimates in relation to
assets, liabilities, contingent liabilities, revenue and expenses . Judgements and estimates are based on historical experience and
on other various factors they believe are reasonable under the circumstances, the result of which form the basis of the carrying
values of assets and liabilities that are not readily apparent from other sources .

Accounting measurements for which significant judgements, estimates and assumptions have been made are:

- Carrying value determination of land and buildings, refer Note 12;

- Carrying value determination of goodwill and intangibles, refer Note 11;

- Fair value determination of livestock, refer Note 10;

- Classification of debt, refer Note 15;

- Share based payments, refer Note 26; and

- Income tax and other taxes, refer Note 5 .

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. Further details of the nature of these assumptions and conditions may be found
in the relevant notes to the financial statements.

(u) Comparative figures

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

Where the Group has retrospectively applied an accounting policy, made a retrospective restatement of items in the financial
statements or reclassified items in its financial statements, an additional statement of financial position as at the beginning of the
earliest comparative period will be disclosed .

(v) New and Amended Accounting Policies Adopted by the Group

(a) Initial Application of AASB 9: Financial Instruments

AASB 9 replaces the provisions of AASB 139 that relate to the recognition, classification and measurement of financial assets
and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting. Most of the
changes are not relevant to the Group, however there was a new impairment model introduced in AASB 9 which requires the
recognition of impairment provisions based on expected credit losses rather than only incurred credit losses as is the case under
AASB 139 .

The adoption of AASB 9 Financial Instruments from 1 July 2018 resulted in changes to the Group’s accounting policies . No opening
adjustment was necessary as a result of the adoption of AASB 9 . Financial assets in terms of AASB 9 need to be measured
subsequently at either amortised cost or fair value on the basis of the Group’s business model and the cash flow characteristics of
the financial assets. There were no financial liabilities impacted by the adoption of AASB 9.

Impairment of financial assets

As per AASB, an expected credit loss model is applied, not an incurred credit loss model as per the previous Standard applicable
(AASB 139). To reflect changes in credit risk, this expected credit loss model requires the Group to account for expected credit loss
since initial recognition .

The Group has one type of financial asset that is subject to AASB 9’s new expected credit loss model:

•

trade receivables for sales of dairy farm and dairy processing segment products .

The Group was required to review its impairment methodology under AASB 9 for each of these classes of assets and no
adjustment was required .

The Group applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss
allowance for all trade receivables . To measure the expected credit losses, trade receivables have been grouped based on credit
risk characteristics and the days past due. There was no material difference between the expected credit loss calculated under
AASB 9 and AASB 139 .

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)

(v) New and Amended Accounting Policies Adopted by the Group (cont’d)

(b) Initial Application of AASB 15: Revenue from Contracts with Customers

The Group has adopted AASB 15 Revenue from Contracts with Customers which resulted in changes in accounting policies and
required no retrospective adjustments to the amounts recognised in the financial statements. In accordance with the transition
provisions in AASB 15, the Group has adopted the new standard with the modified retrospective method and has determined the
application of AASB 15 to have an immaterial impact on the Group’s financial statements.

Accounting policy changes

•

Accounting for dairy farm and dairy processing segment products.

The sale of these products are measured at the fair value of consideration received net of any trade discounts and volume rebates
allowed .

This represents a change in revenue recognition accounting policy of the Group from previous recognition when the significant risks
and rewards of ownership of the goods have passed to the buyer at the time of dispatch of the goods to customer - as stated above
the accounting policy change has an immaterial impact on the Group financials.

(w) New Accounting Standards for Application in Future Periods

The AASB has issued a number of new and amended Accounting Standards that have mandatory application dates for future
reporting periods, some of which are relevant to the group . The directors have decided not to early-adopt any of the new and
amended pronouncements . The following sets out their assessment of the pronouncements that are relevant to the Group but
applicable in future reporting periods .

AASB 16: Leases (applicable to annual reporting periods beginning on or after 1 January 2019) .

The Group has chosen not to early-adopt AASB 16 . However, the Group has conducted a preliminary assessment of the impact of
this new Standard, as follows .

A core change resulting from applying AASB 16 is that most leases will be recognised on the balance sheet by lessees as the
standard no longer differentiates between operating and finance leases. An asset and a financial liability are recognised in
accordance to this new Standard . There are, however, two exceptions allowed: short-term and low-value leases .

Basis of preparation

The accounting for the Group’s operating leases will be primarily affected by this new Standard.

AASB 16 will be applied by the Group from its mandatory adoption date of 1 July 2019 . The comparative amounts for the year prior
to first adoption will not be restated, as the Group has chosen to apply AASB 16 retrospectively with cumulative effect. While the
right-of-use assets for property leases will be measured on transition as if the new rules had always been applied, all other right-
of-use assets will be measured at the amount of the lease liability on adoption (after adjustments for any prepaid or accrued lease
expenses) .

The Group’s non-cancellable operating lease commitments amount to $218,230 as at the reporting date .

The Group has performed a preliminary impact assessment and has estimated that on 1 July 2019, the Group expects to recognise
the right-of-use assets of approximately $204,000 and lease liabilities of approximately $210,000 (after adjusting for prepayments
and accrued lease payments recognised as at 30 June 2019) .

Following the adoption of this new Standard, the Group’s net profit after tax is expected to decrease by approximately $6,000 in
2020. The repayment of the principal portion of the lease liabilities will be classified as cash flows from financing activities, thus
increasing operating cash flows and decreasing financing cash flows by approximately $136,000.

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 2: PARENT INFORMATION

The following information has been extracted from the books and records of the parent and has been prepared in accordance with
Australian Accounting Standards .

Statement of Financial Position

Assets

Current assets

Non-current assets

Total assets

Liabilities

Current liabilities

Non-current Liabilities

Total liabilities

Equity
Issued capital

Reserves

Retained earnings

Total Equity

Statement of Profit or Loss and Other Comprehensive Income

Total loss

Total comprehensive loss

Contingent liabilities and guarantees

2019

2018

5,622,851

11,657,658

17,280,509

1,038,826

11,320,503

12,359,329

5,189,441

54,897

5,244,338

5,139,509

40,462

5,179,971

25,474,856

18,760,113

591,634

761,279

(14,030,319)

(12,342,034)

12,036,171

7,179,358

(1,709,702)

(2,100,974)

The Company does not have any contingent liabilities or guarantees in place for the year ended 30 June 2019, other than in
respect of CBA borrowings, refer Note 15 .

Contractual commitments

(i) On 4 April 2019, the parent company announced to the ASX it had executed an agreement to purchase an existing offshore
infant formula plant comprising a dryer together with compatible evaporator and nutritionals blending equipment . The purchase
settled on 27 August 2019, with the Company acquiring 100% of the financing vehicle, Organic Nutritionals Pty Ltd for $1,302,014.
Included in the acquisition price is a $122,490 deposit for a high-speed pouch machine to further advance production capabilities
and capacity for The Collective contract. The Group is committed to the final balance of $277,753 which is payable on delivery of
the machine expected to be late in 2019 .

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 3: BUSINESS COMBINATIONS

On 24 December 2018, Australian Dairy Nutritionals Limited acquired 100% of the issued capital and control of Flahey’s Nutritionals
Pty Ltd (Flahey’s) for a total purchase consideration of $1,095,260. This acquisition forms part of the Group’s overall strategy to
expand its dairy processing business and is a key step in entering the infant / toddler formula market . Additionally, Christopher
Flahey, the founder of Flahey’s Nutritionals and an experienced sales executive in the infant formula sector, joined the Group as its
Sales and Marketing executive .

Purchase consideration:
Cash
Completion price adjustment
Stapled securities1 .
Performance consideration2 .
Total purchase consideration

400,000
(129,740)
75,000
750,000
1,095,260

1 . On 24 December 2018, 625,000 stapled securities were issued at the market price of 12 cents .

2 . On 24 December 2018, 6,250,000 consideration securities were issued and valued using both the binomial option pricing model
and Black-Scholes model . The consideration securities are subject to various performance milestones and Christopher Flahey
remaining employed with the company on a conversion date . The consideration securities are forfeited if performance hurdles are
not satisfied and the conversion dates are as follows:

•

31 August 2019 - 1,875,000 consideration securities will be available to be converted to 1,875,000 stapled securities;

30 August 2020 - 1,875,000 consideration securities will be available to be converted to 1,875,000 stapled securities; and

31 August 2021 - 2,500,000 consideration securities will be available to be converted to 2,500,000 stapled securities .

The independent valuation resulted in a price of 12 cents per consideration security under both models .

For financial accounting purposes (Under AASB 3 Business Combinations) the performance consideration is accounted for as
follows:

Recognised as cost of acquisition (i)
Amortised as performance consideration through profit and loss (ii)

(i) Fair value of assets acquired and liabilities assumed:
Other current assets
Intangible assets3 .

Property, plant and equipment

Net identifiable assets acquired and liabilities assumed

345,260
750,000
1,095,260

20,260

322,140

2,860

345,260

3 . In accordance with AASB 3: Business Combinations the acquirer is required to recognise separately from Goodwill the identifiable
intangible assets of Flahey’s on acquisition. Under the accounting standard, an intangible asset is considered identifiable if it
meets the Contractual Legal Criterion . Flahey’s uses a range of recipes, formulations and patents which meet the Contractual
Legal Criterion and in accordance with this requirement the Group has attributed $322,140 to the fair value of identifiable intangible
assets acquired .

(ii) Performance consideration is amortised over 3 years, with a charge to profit and loss to reflect the actual number of securities
which issue .

Results contributed by the acquired entity since acquisition date:
Revenue
Loss before income tax

Costs of acquisition totalling $9,213 were expensed during the year.

-
(24,788)

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 4: REVENUE AND EXPENSES

(a) Revenue

Revenue from contracts with customers

Other sources of revenue

Total revenue

(i) Revenue disaggregation

The revenue is disaggregated by service line and timing of revenue recognition .

Note

2019

2018

(i)

(ii)

21,285,117

19,224,209

88,241

297,738

21,373,358

19,521,947

Service lines:

- Dairy processing

- Dairy farms

Timing of revenue recognition

Services transferred to customers:

- at a point in time

- over time

(ii) Other sources of revenue

Interest

Farm costs recoveries

Insurance recovery

Fuel rebate

(b) Other Income

Gain on change in fair value of livestock (refer Note 10)
Gain on disposal of property, plant and equipment

(i) Finance costs
CBA facility
Loans - unsecured
Other
Finance charges payable under finance leases

(ii) Dairy related costs

Feed costs

Repairs, maintenance and vehicle costs

Animal health costs

Land holding and lease costs

Breeding and herd testing expenses

Dairy shed expenses

Electricity

Other dairy related costs

13,391,171

7,893,946

21,285,117

11,127,811

8,096,398

19,224,209

21,285,117

19,224,209

21,285,117

19,224,209

5,486

52,389

30,366

88,241

538,552
28,313

566,865

604,592
3,276
-
30,355
638,223

18,108

36,914

160,392

82,324

297,738

380,267
-

380,267

413,000
13,602
242
24,614
451,458

3,255,608

3,339,270

406,141

94,140

152,947

211,969

143,129

175,562

364,132

144,261

121,809

201,454

120,078

170,590

1,698,900

6,138,396

1,409,125

5,870,719

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 4: REVENUE AND EXPENSES (cont’d)

(iii) Dairy processing related costs

Cost of goods sold

Freight costs

Property and lease costs

Loss allowance on receivables

Other dairy processing related costs

(iv) Employment benefits expense
Employee and director remuneration costs
Equity settled share based payment costs

(v) Administration and non-dariy related costs
Administration costs
Professional costs

(vi) Other significant items
Deemed cost of livestock sold (refer Note 10)

Impairment of land and buildings (refer Note 12)

NOTE 5: INCOME TAX EXPENSE

(a) The components of tax expense / (benefit) comprise

Current tax

Deferred tax

2019

2018

7,473,221

7,078,355

423,830

411,691

873,765

1,050,080

10,232,587

695,930

383,850

1,236,031

9,394,166

5,636,060
152,492
5,788,552

4,522,437
961,538
5,483,975

335,780
494,953

830,733

869,525

2019

312,596
387,142

699,738

937,226

338,075

2018

(b) The prima facie tax on profit before income tax is reconciled to the income tax as follows
Prima facie tax payable / (benefit) on profit / (loss) from ordinary activities before
income tax at 27.5% (2018: 27.5%):

(1,107,157)

(1,143,355)

Add /(less)

Tax effect of:

- trust loss not recognised

- current period tax losses not recognised

- net amount of expenses not currently deductible

- other income not included in assessable income

Income tax expense / (benefit) attributable to entity

Applicable weighted average effective tax rates are nil due to losses.

225,708

855,524

219,102

309,827

957,892

(19,791)

(193,177)

(104,573)

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 5: INCOME TAX EXPENSE (cont’d)

Deferred tax assets and liabilities not brought to account, the net benefit of which will only be realised if the conditions for
deductibility set out in Note 1 occur . The amount of losses ultimately available is also dependant on compliance with conditions of
deductibility imposed by law .

Temporary differences

Tax losses

Net unbooked deferred tax assets

2019

989,139

7,030,416

8,019,555

2018

1,118,055

5,949,184

7,643,383

The Group has revenue losses of $25,565,148 (2018: $21,633,395). These losses comprise $19,784,841 of Group losses and
$5,780,307 of transferred in losses “pre-stapling”. The transferred in losses can be carried forward and may be utilised against
taxable income in future years provided the Same Business Test is satisfied. The Group is of the view that it satisfies the necessary
criteria for these losses to be made available against future taxable profit, however the ATO will not rule on the availability to carry
forward the losses at a point in time, they will only rule on the ability to utilise the losses at the date of utilisation .

The 2018 year carry forward loss amounts have been re-stated to agree to tax returns as lodged and to reflect a tax rate of 27.5%
(previously reported at 30%).

NOTE 6: CASH AND CASH EQUIVALENTS

Current

Cash at bank and in hand

Total cash and cash equivalents

2019

2018

3,748,550

2,331,700

Cash at bank earns interest at floating rates based on daily bank deposit rates.

(a) Reconciliation of Cash

For the purpose of the Cash Flow Statement, cash includes cash and cash equivalents comprising the following at 30 June 2019:

Cash at bank and in hand

2019

3,748,550

2018

2,331,700

A floating charge over cash and cash equivalents has been provided to the CBA as part of security arrangements for current
facilities . For further details refer to Note 15: Borrowings .

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 6: CASH AND CASH EQUIVALENTS (cont’d)

(b) Reconciliation of Result after Income Tax to Cash Flows from Operations

Net loss after income tax

Adjustment of non cash items

Amortisation and depreciation

Deemed cost of livestock disposed

Fair value adjustment of biological assets

Impairment of property, plant and equipment

Loss / (gain) on disposal of property, plant and equipment

Bad debts and impairment provision

Distribution from termination of Camperdown Cheese and Butter Factory joint venture

Equity settled share based payments

Changes in assets and liabilities, net of the effects of movements in subsidiaries

(Increase) / decrease in trade and other receivables

(Increase) / decrease in other assets

(Increase) / decrease in inventories

Increase / (decrease) in trade and other payables

Increase / (decrease) in provisions

Net operating cash flows

1 July 2018 Cashflows

Non-cash
changes1.

30 June 2019

Hire purchase loans1 .

478,421

(322,526)

485,507

641,402

CBA facility2
Total

10,000,000

2,054,000

10,478,421

2,054,000

12,054,000

12,695,402

1 . Leases entered into in the current year .

2 . . CBA facility cashflows:

New facility drawn down
New facility paid down

$
4,550,000
(2,496,000)

2,054,000

2019

2018

(4,026,025)

(4,157,653)

1,468,232

869,525

(538,552)

(28,313)

873,765

(681,543)

152,492

(671,816)

5,189

(370,209)

379,589

79,704

884,510

937,226

(380,267)

338,075

94,818

961,539

30,526

31,555

159,690

(1,544,681)

25,738

(2,487,962)

(2,618,924)

(d) Non-cash financing and investing (refer note 16(a))

A total of 625,000 stapled securities were issued with a value of $75,000 as consideration for the acquisition of Flahey’s
Nutritionals .

A total of 150,031 stapled securities were issued with a value of $24,005 as consideration for equipment acquisition advisory
services .

A total of 3,000,000 stapled securities were issued with a value of $300,720 on exercise of performance rights issued in the prior
year .

During the year the Group acquired plant and equipment with an aggregate value of $485,507 by means of finance leases and
$402,863 in a distribution from the CDC joint venture (refer Note 23). These acquisitions are not reflected in the statement of
cashflows.

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 7: TRADE AND OTHER RECEIVABLES

Current

Trade receivables

Provision for impairment

Other receivables

Total current trade and other receivables

(a) Lifetime Expected Credit Loss Credit Impaired

Note

(a)

2019

2018

2,839,564

2,031,393

(864,438)

501,990

366,129

2,477,116

2,397,522

Opening
balance under
AASB 139

Adjustment
for AASB 9

Net
measurement
of loss
allowance

Amounts
written off

Total

Current trade receivables

864,438

The Group applies the simplified approach to providing for expected credit losses prescribed by AASB 9, which permits the use of
the lifetime expected loss provision for all trade receivables . To measure the expected credit losses, trade receivables have been
grouped based on shared credit risk characteristics and the days past due . The loss allowance provision as at 30 June 2019 is
determined as follows; the expected credit losses also incorporate forward-looking information .

2019

Current

>30 days past
due

>60 days past
due

>90 days past
due

Total

Expected loss rate

55%

Gross carrying amount

2,473,946

121,823

Loss allowing provision (i)

70,826

66,498

869

98%

744,916

3,341,554

727,114

864,438

(i) On 26 August 2019 the Group announced to the ASX it has entered into a joint venture in relation to the Jonesy’s Dairy Fresh
(JDF) milk distribution business (Business) . Under the terms of the joint venture, the assets of the Business will be transferred to
a new trading company, Jonesy’s Distribution Pty Ltd (JD). The parent company currently owns 100% of the share capital in JD
but on completion of the joint venture transaction, the parent company will own 50% of the shares in JD and the founders of JDF
will own the other 50% of the shares. As part of the joint venture transaction, the outstanding trade debtor balance between the
Business and Camperdown Dairy Company (CDC) will be transferred to JD and CDC will advance JD up to an additional $100,000
for working capital . The trade debtor balance as well as any working capital advanced by CDC to JD will be fully secured against
the existing and future assets of JD. Whilst the security held by CDC over the assets of JD affords CDC the opportunity to collect
some or all of the outstanding trade debtor balance, the directors have provided for the full $864,438 of the JDF outstanding
balance to Camperdown Dairy at 30 June 2019 .

2018

Current

>30 days past
due

>60 days past
due

>90 days past
due

Total

Expected loss rate

Gross carrying amount

2,334,879

34,269

Loss allowing provision

2,622

25,752

2,397,522

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 7: TRADE AND OTHER RECEIVABLES (cont’d)

Credit risk

The Group has a significant concentration of credit risk with three key customers totalling $2,189,865 or 65% of receivables at
balance date. Of this amount, $864,438 is impaired. The class of assets described as “trade and other receivables” is considered
to be the main source of credit risk to the Group .

On a geographical basis, the Group has all credit risk exposures in Australia .

The Group always measures the loss allowance for trade receivables at an amount equal to lifetime expected credit loss . The
expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of
the debtor and an analysis of the debtor’s current financial position, adjusted for factors that are specific to the debtor, general
economic conditions of the industry in which the debtor operates and an assessment of both the current and the forecast direction
of conditions at the reporting date .

There has been no change in the estimation techniques used or significant assumptions made during the current reporting period.

The Group writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there
is no realistic prospect of recovery; for example, when the debtor has been placed under liquidation or has entered into bankruptcy
proceedings, or when the trade receivables are over two years past due, whichever occurs earlier .

(b) Financial assets Measured at Amortised Cost

Trade and other receivables
Total current

Total financial assets measured at amortised cost

Note

2019

2018

2,477,116

2,397,522

A floating charge over some trade receivables has been provided for certain debt. For futher details refer to Note 15: Borrowings.

NOTE 8: INVENTORIES

Current
Packaging

Raw materials, finished goods and chemicals

Feedstock, hay and silage

Total inventories (at cost)

NOTE 9: OTHER ASSETS

Current

Prepayments

Bonds and deposits

Total other assets

NOTE 10: BIOLOGICAL ASSETS

Non-current
Dairy livestock

Total biological assets

2019

341,876

268,690

385,152

995,718

2019

165,474

50,942

216,416

2019

2018

231,643

71,742

322,124

625,509

2018

152,183

30,000

182,183

2018

4,928,422

5,205,744

Notes

(a)

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 10: BIOLOGICAL ASSETS (cont’d)

Movements during the year:

Opening carrying amount

Purchases of livestock

Deemed cost of livestock disposed

Gain from changes to fair value

Closing carrying amount

Movements during the year (herd numbers):

Opening balance

Purchases

Natural increase and attrition

Sales

Closing balance

5,205,774

53,621

(869,525)

538,552

4,928,422

5,426,719

336,014

(937,226)

380,267

5,205,774

2019

No.

3,812

1,610

(1,548)

3,939

2018

No.

3,504

231

1,663

(1,586)

3,812

(a) Biological assets represent the dairy livestock owned by the Group . At 30 June 2019, the livestock has been valued at fair
value, by independent stock agents, based on the prices in the open cattle market in the locality of the dairy operations . A
fair value gain of $538,552 (2018: $380,267) has been recognised in profit and loss at 30 June 2019, and represents price
movements, natural increase and the movement in ages of young stock . .

(b) Financial risks associated with the Group’s dairy herd relates to selling prices of milk, and is managed by way of contracted

revenue volumes and prices .

(c) During the year ended 30 June 2019, the Group produced 15 .8 million litres (2018: 16 .7 million litres) of raw milk . The

average number of cows milked during the year was 2,111 (2018: 2,041) .

NOTE 11: INTANGIBLE ASSETS

Goodwill

- at cost

Recipes, formulations and patents

- at cost

Product development

- at cost

Less accumulated amortisation

Total intangible assets

Notes

2019

2018

(a)

(b)

(c)

6,616,393

336,220

41,163

(19,540)

21,623
6,974,236

34,645

(7,993)

26,652
6,643,045

(a) On 15 April 2016 the Group acquired Camperdown Dairy Company Pty Ltd (CDC) . In accordance with AASB 3 Business
Combinations, the purchase price was allocated to the fair value of the net identifiable assets of CDC and the remaining amount
was allocated to goodwill .

As part of the annual review of holding values of all intangibles the directors have reviewed the carrying value of goodwill and have
adopted the current carrying value at 30 June 2019 .

Impairment Disclosures

Goodwill is allocated to cash-generating units (CGU) which are based on the Group’s internal reporting segments . Goodwill relates
to the acquisition of CDC and the recoverable amount of this goodwill has been assessed using “value in use” calculations for the
dairy processing segment .

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 11: INTANGIBLE ASSETS (cont’d)

Key Assumptions Used For ‘Value-In-Use’ Calculations

Value-in-Use

The impairment test for the dairy processing segment is based on ‘value-in-use’ calculations, applying discounted cash flow
projections that have been approved by the board .

Key assumptions

The key assumptions are based on historical results combined with expectations of future market activity and opportunities, and
include revenue growth, gross margins, discount rates and terminal growth rate .

Sensitivity to change in assumptions

Revenue growth – Revenue projections are based on the 2020 budget and forward-looking plans using current and contracted
sales levels and pipeline growth. Growth rates of 3% have been used, reflecting a conservative approach in a changing
marketplace .

Gross margins – Gross margins are based on the 2020 budget and reflect current actuals and estimates of contracted sales
margins .

Discount rates – Discount rates used reflect pre-tax rates and are adjusted to incorporate risk premiums associated with the
industry sector and specific business risk assessments. A pre-tax discount rate of 8.01% has been used in calculations, reflecting
the Group’s estimated WACC which takes into account debt and equity .

Terminal growth rate - A terminal growth rate of 2.2% has been used for future cash flow growth beyond the 5-year forecast period.
This is a conservative rate when compared with annual growth rates during the forecast period .

Impairment

At 30 June 2019, the recoverable amount of the CGU exceeded the carrying value and no impairment has been recorded for
intangible assets in the dairy processing segment .

Impact of possible changes in key assumptions

The dairy industry has been experiencing significant change in recent years, and the Group has responded to this through strategic
changes in product mix and customer base . Revenue and margin projections are based primarily on contracts in place at balance
date, and are therefore considered reasonably based estimates .

Sensitivity analysis indicated that given current industry conditions and status of the Group, no reasonably possible changes in any
of the key assumptions would cause the recoverable amount of the CGU to be less than its carrying value .

(b) Recipes, formulations and patents relate to the acquisition of Flahey’s Nutritionals Pty Ltd on 24 December 2018 (refer note 3) .

Opening balance

Additions in year

Acquisition of Flahey’s Nutritionals (refer Note 3)

Amortisation

Closing balance

2019

6,643,045

20,598

322,140

(11,547)

6,974,236

2018

6,649,168

34,645

(40,768)

6,643,045

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 12: PROPERTY, PLANT AND EQUIPMENT

Land, buildings and improvements

- at cost

Less accumulated depreciation

Less accumulated impairment

Plant and equipment - owned

- at cost

Less accumulated depreciation

Plant and equipment - leased

- at cost

Less accumulated depreciation

Total property, plant and equipment

Notes

2019

2018

26,560,020

23,097,490

(1,240,622)

(2,824,473)

(653,541)

(2,785,638)

22,494,925

19,658,311

(b)

(a)

7,767,241

7,057,687

(2,175,287)

(1,613,877)

5,591,954

5,443,810

1,366,521

(262,961)

1,103,560

905,733

(173,091)

732,642

29,190,439

25,834,763

(a) Below is a table showing the carrying value of land, buildings and improvements by property:

Acquisition date

Carrying value 2019

Carrying value 2018

Farm name

Brucknell No 1

Brucknell No 2

Ignatios

Brucknell No 3

Missens Road

Drumborg

22 October 2014

14 January 2015

6 March 2015

9 July 2015

16 September 2015

4,172,733

4,133,816

2,290,333

1,520,110

5,200,361

Depot & Old Geelong Road
(Camperdown) - Land

17 November 2017

272,974

Yarringa - Nirranda South1 .

4 October 2018

Total (at director’s valuation)

4,904,598

22,494,925

4,101,688

4,010,256

2,370,220

2,246,211

1,513,040

5,143,918

272,974

19,658,311

1 . As announced to ASX on 5 October 2018, the Group acquired the Yaringa farm at Nirranda South . The farm is NASAA
certified and set for full organic certification in October 2019. Yaringa is an important cornerstone in the Group’s strategy to

focus its milk processing business on value-added premium dairy products and brand building .

Land, buildings and improvements represents the total holding costs of each property including purchase price, acquisition
costs, capitalised development and land improvement costs since acquisition .

(b) Registered valuers Preston Rowe Paterson completed an independent valuation of all farms for the year ended 30

June 2018 . The basis of the valuation was ‘As Is and In Use’ with vacant possession and the combined fair value of all
properties was $19,050,000, which gave rise to an impairment charge of $338,075 in that year,

$2,600,000 with the net proceeds of the sale used to pay down CBA borrowings.

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 12: PROPERTY, PLANT AND EQUIPMENT (cont’d)

Movements in the Carrying Amounts

Movements in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the
current financial year:

2019

Land,
Buildings &
Improvements

Plant &
Equipment -
Owned

Plant &
Equipment -
Leased

Total

Balance beginning of the financial year

19,658,311

5,443,810

732,642

25,834,763

Additions

Disposals

5,906,230

1,076,367

(2,374,841)

(256,182)

485,507

(24,719)

7,468,104

(2,655,742)

Depreciation expense

(694,775)

(672,041)

(89,870)

(1,456,686)

Balance at end of financial year

22,494,925

5,591,954

1,103,560

29,190,439

2018

Land,
Buildings &
Improvements

Plant &
Equipment -
Owned

Plant &
Equipment -
Leased

Total

Balance beginning of the financial year

19,457,094

5,832,409

683,767

25,973,270

Additions

Disposals

Impairment expense

Depreciation expense

636,140

436,421

121,931

(151,182)

(338,075)

(96,848)

(673,838)

(73,056)

1,194,492

(151,182)

(338,075)

(843,742)

Balance at end of financial year

19,658,311

5,443,810

732,642

25,834,763

NOTE 13: TRADE AND OTHER PAYABLES

Current

Trade creditors

Sundry creditors and accrued expenses

Total trade and other payables

Notes

2019

2018

1,579,109

1,161,205

791,841

736,519

2,370,950

1,897,724

Financial liabilities at amortised cost classified as trade and other payables

Total trade and other payables

Financial liabilities as trade and other payables

2,370,950

1,897,724

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 14: PROVISIONS

Current

Employee benefits

Total current provisions

Non-current
Employee benefits

Total non-current provisions

Total provisions

Movement in provisions:

Opening balance

Additional provision

Amounts used

Closing balance

Provision for employee benefits

2019

2018

314,797

260,816

135,087

449,884

109,364

370,180

263,352

(183,648)

449,884

344,442

172,442

(145,704)

370,180

A provision has been recognised for employee entitlements relating to annual leave and long service leave . In calculating the
present value of future cash flows in respect of long service leave, the probability of long service leave being taken is based on
historical data. The measurement and recognition criteria relating to employee benefits have been included in Note 1(j) to this
report .

NOTE 15: BORROWINGS

Current
Bank hire purchase loans - secured
CBA facility - secured

Total current borrowings

Non-current
Bank hire purchase loans - secured
CBA facility - secured

Total non-current borrowings

Total borrowings

Notes

(a)

2019

264,363
-

264,363

377,039
12,054,000

12,431,039

12,695,402

2018

177,445
10,000,000

10,177,445

300,976
-

300,976

10,478,421

(a) At 30 June 2019, the Group has banking facilities with the Commonwealth Bank of Australia Limited (CBA) . The facility is
a three year redrawable loan facility of $12,054,000 which has a maturity date of 4 October 2021. The facility is subject to
compliance with predetermined covenants and an annual review. The directors have classified the facility as a non-current
liability in its entirety based on the facility not maturing until 4 October 2021, the Group’s intentions to retain the facility prior
to maturity date and meeting all covenants during the period and subsequent to balance date .

(b) On 13 May 2019, the CBA approved a short-term overdraft facility of $1,000,000 for the Group. The facility remained

undrawn and was subsequently closed on 15 July 2019 .

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 15: BORROWINGS (cont’d)

Collateral Provided:

The CBA facility is secured by a first registered mortgage over all the Group farms and a general security interest over all assets
of Australian Dairy Farms Trust (ADFT) . In addition the Company has provided a negative pledge to not grant a security interest
over its shareholding in Camperdown Dairy Company, and an unlimited guarantee secured over all its present and after acquired
property .

Lease liabilities are secured by the underlying leased assets .

The carrying amounts of assets pledged as security are:

First mortgage over land and buildings

General security interest over all assets of ADFT

First registered charge over leased equipment

Negative pledge and guarantee over all other Group assets

Total assets pledged as security

NOTE 16: ISSUED CAPITAL

2019

22,494,924

12,877,664

1,103,560

12,054,748

48,530,896

2018

19,050,000

14,999,743

732,642

8,438,111

43,220,496

2019

2018

56,219,847

49,505,104

Contributed equity of the Group

(a) Movement in stapled securities:

Date

Details

Number
of Stapled
Securities

Issue Price

Shareholders
$

Unitholders
$

Stapled Entity
$

01 Jul 2018

Opening balance

242,792,046

18,760,113

30,744,991

49,505,104

02 Jul 2018

KPI performance rights (i)

3,000,000

30 Oct 2018

24 Dec 2018

28 Jun 2019

28 June 2019

Stapled Security
Purchase Plan(ii)
Purchase of Flahey's
Nutritionals Pty Ltd (iii)
Placement - Tranche 1
(iv)
Ultima Capital
Consultancy (v)

Transaction costs

20,919,363

625,000

0 .10

0 .13

0 .12

300,720

2,719,500

75,000

32,657,851

0 .12

3,918,942

150,031

0 .16

24,005

(323,424)

300,720

2,719,500

75,000

3,918,942

24,005

(323,424)

30 June 2019

300,144,291

25,474,856

30,744,991

56,219,847

Date

Details

01 Jul 2017
07 Sep 2017
17 Nov 2017
12 Feb 2018
12 Feb 2018

30 June 2018

Opening balance
Placement
Purchase of CDPT land
KPI performance rights
Loan securities
Transaction costs

Number
of Stapled
Securities

197,633,109
37,037,037
121,900
1,000,000
7,000,000

242,792,046

Issue Price

Shareholders
$

Unitholders
$

Stapled Entity
$

0 .135
0 .164
0 .1241
-

17,379,491
1,250,000
10,000
124,100
-
(3,478)
18,760,113

26,995,425
3,750,000
10,000
-
-
(10,434)
30,744,991

44,374,916
5,000,000
20,000
124,100
-
(13,912)
49,505,104

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 16: ISSUED CAPITAL (cont’d)

The basis of allocation of the issue price of stapled securities issued post stapling is determined by arrangement between the
Company and Trust as set out in the Stapling Deed .

(i) On 2 July 2018, there was 3,000,000 stapled securities issued to Peter Skene on exercise of performance options . The fair
value of securities granted, determined by independent valuation, was $300,720 (being the amount of the options granted).

(ii) On 30 October 2018, there was 20,919,363 stapled securities issued to eligible securityholders under the Group’s Stapled
Security Purchase Plan at a price of $0.13 per security. The fair value of securities granted, determined by reference to the
offer issue price, was $2,719,500.

(iii) On 24 December 2018, 625,000 stapled securities were issued as part of the acquisition of Flahey’s Nutritionals . The fair

value of securities issued, determined by reference to market price, was $75,000 (refer note 3).

(iv) On 28 June 2019, there was 32,657,851 stapled securities issued on completion of a placement being conducted in two
tranches. The fair value of securities granted in tranche 1, determined by reference to the placement price of $0.12 per
security, was $3,918,942. Tranche 2 of the placement was susequently completed on 20 August 2019 with the issue of
67,342,149 stapled securities .

(v) On 28 June 2019, there was also 150,031 stapled securities issued to Ultima Capital Partners for consultancy services in
relation to the Group’s infant formula project . The fair value of securities issued, determined by reference to market price,
was $24,005.

(b) Performance Options

There are 16,250,000 (2018: 13,780,000) performance options on issue at 30 June 2019 (refer note 26) .

There are 7,000,000 (2018: 7,000,000) loan securities on issue at 30 June 2019 (refer note 26) .

(d) Stapled Securities

The fully paid ordinary shares in the Company are stapled with the fully paid units in the Trust to produce Stapled Securities .
These entitle the holder to participate in dividends and distributions as declared from time to time and the proceeds on winding up .
Subject to the Corporations Act 2001, every holder of stapled securities present at a meeting in person, or by proxy, is entitled to
one vote for each stapled security held .

(e) Capital management

Management controls the capital of the Group in order to maintain a sustainable debt to equity ratio, generate long-term
shareholder value and ensure that the Group can fund its operations and continue as a going concern .

The Group’s debt and capital include ordinary share capital and financial liabilities, supported by financial assets.

The Group is not subject to any externally imposed capital requirements .

Management effectively manages the Group’s capital by assessing the Group’s financial risks and adjusting its capital structure
in response to changes in these risks and in the market . These responses include the management of debt levels, distributions to
shareholders and share issues .

This strategy, consistent with the prior year, is to ensure that the Group’s gearing ratio remains below 35%. The gearing ratios for
the years ended 30 June 2019 and 30 June 2018 are as follows:

Total borrowings

Less cash and cash equivalents

Net debt

Total equity

Total capital

Gearing ratio

Notes
15

2019
$

2018
$

12,695,402

10,478,421

(3,748,550)

(2,331,700)

8,946,852

33,014,661

41,961,513

21%

8,146,721

30,474,171

38,620,892

21%

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 17: RESERVES

Nature and purpose of reserves

The option reserve records items recognised as expenses on valuation of employee share based payments (options and
securities) .

NOTE 18: CAPITAL AND LEASING COMMITMENTS

(a) Finance lease commitments:

Payable - minimum lease payments

Not later than 12 months

Between 12 months and 5 years

Greater than 5 years

Minimum lease payments

Less future finance charges

Present value of minimum lease payments

2019

293,867

424,369

718,236

(76,834)

641,402

(b) Non-cancellable operating leases contracted for but not capitalised in the financial statements:

Payable - minimum lease payments

Not later than 12 months

Between 12 months and 5 years

Greater than 5 years

2019

135,430

82,800

2018

201,523

329,534

531,057

(52,636)

478,421

2018

86,500

64,875

Present value of minimum lease payments

218,230

151,375

NOTE 19: CONTINGENT LIABILITIES

The Group does not have any contingent liabilities for the year ended 30 June 2019 (2018: nil) .

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 20: KEY MANAGEMENT PERSONNEL COMPENSATION

Refer to the remuneration report contained in the directors’ report for details of the remuneration paid or payable to each member of
the Group’s key management personnel (KMP) for the year ended 30 June 2019.

The totals of remuneration paid to KMP of the Company and the Group during the year are as follows:

Short term

Post employment

Other long-term

Share-based payments

Short-term employee benefits

2019

514,469

38,106

14,435

10,530

2018

605,837

33,391

(8,650)

928,142

577,540

1,558,720

These amounts include fees and benefits paid to the non-executive Chair and non-executive directors as well as all salary, leave
benefits, fringe benefits and cash bonuses awarded to executive directors and other KMP.

Post-employment benefits

These amounts are the current-year’s cost of providing for the Group’s superannuation contributions made during the year .

Other long-term benefits

These amounts represent long service leave benefits accruing during the year.

Share-based payments

These amounts represent the expense related to the participation of KMP in the ADNG employee Long Term Incentive Plan (LTIP),
as measured by the fair value of the options, rights and shares granted on grant date .

Further information in relation to KMP remuneration can be found in the directors’ report.

NOTE 21: AUDITORS’ REMUNERATION

Remuneration of the auditor for:

Audit and review of the financial statements

2019

64,566

2018

76,560

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 22: CONTROLLED ENTITIES

Particulars in relation to controlled entities

Parent Entity:

Australian Dairy Nutritionals Limited

Wholly Owned Controlled Entities

SW Dairy Farms Pty Ltd

Dairy Fund Management Limited

DFI Operations Pty Ltd (dormant)

Camperdown Dairy Company Pty Ltd

Victorian Farmers Direct Pty Ltd

Flahey’s Nutritionals Pty Ltd

Camperdown Dairy Park Trust

Other Controlled Entities

Australian Dairy Farms Trust

2019

2018

Class of
Equity

Percentage
Owned

Note

(a)

ordinary

units

(b)(c)

units

100

The financial year of all controlled entities is the same as that of the holding company and all controlled entities are incorporated in
Australia . All entities principal place of business and country of incorporation is Australia . All ownership interests are directly held
and have equal voting rights. Other than for borrowings as detailed in Note 15, there are no significant restrictions over the Group’s
ability to access or use assets, and settle liabilities, of the Group .

(a)

Ultimate Controlling Entity

The ultimate controlling entity of the Group is Australian Dairy Nutritionals Limited .

(b) Transactions with Non-controlling interests in ADFT

As set out in Note 1, ADFT is a controlled entity . Transactions with non-controlling interests in ADFT in the year comprised equity as
set out in Note 16 .

Set out below is the summarised financial information for ADFT, before any intra-group elimination:

Summarised Financial Position

Current assets

Non-current assets

Current liabilities

Non-current liabilities

Net Assets

Carrying amount of non-controlling interests

Summarised Financial Performance

Revenue

Loss after tax

Other comprehensive income after tax

Total comprehensive loss

Loss attributable to non-controlling interests

2019

2018

12,938,737

22,433,852

14,039,911

20,009,833

(105,908)

(10,065,245)

(12,054,000)

23,212,681

23,984,499

23,212,681

23,984,499

220,232

(771,818)

214,733

(1,110,213)

(771,818)

(1,110,213)

(771,818)

(1,110,213)

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 22: CONTROLLED ENTITIES (cont’d)

(d) Summarised Financial Information of Subsidiaries with Material Non-controlling Interests

Set out below is the summarised financial information for ADFT, before any intra-group elimination:

Summarised Cash Flow Information

Net cash from / (used in) operating activities

Net cash from / (used in) investing activities

Net cash from / (used in) financing activities

Net cash increase / (decrease) in cash and cash equivalents

NOTE 23: ASSOCIATES AND JOINT ARRANGEMENTS

2019

2018

(570,388)

(2,572,079)

1,491,091

1,651,376

(480,109)

(40,810)

2,131,023

1,610,104

In prior years the Group has held 50% interest in a joint venture entity - Campwerdown Cheese and Butter Factory Pty Ltd (CCB).
CCB was a private entity that manufactures butter for the shareholders of the joint venture . The Group’s interest in the company
represented a strategic investment with the joint venture operated on a break-even basis and was not material to the Group . As
announced to the ASX 3 July 2018, the joint venture was terminated on 2 July 2018 with CDC taking sole ownership of the joint
venture butter plant. Included in revenue is $716,543 as a final distribution from termination of the CCB joint venture.

Name

Unlisted:

Principal
Activities

Country
of
Incorp.

Type

Ownership Interest

Carrying amount of
investment

2019

2018

2019

2018

Camperdown Cheese & Butter
Factory Pty Ltd (CCB)

Manufacture
of butter &
cream

Aust

NOTE 24: RELATED PARTY TRANSACTIONS

(a) The Group’s main related parties are as follows:

(i)

Entities exercising control over the Group:

The ultimate parent entity that exercises control over the Group is Australian Dairy Nutritionals Limited, which is incorporated in
Australia .

(ii)

Key management personnel:

Any person(s) having authority and responsibility for planning, directing and controlling the activities of the entity, directly or
indirectly, including any director (whether executive or otherwise) of that entity, are considered key management personnel .

For details of disclosures relating to key management personnel, refer to Note 20 .

(iii)

Other related parties:

Other related parties include entities controlled by the ultimate parent entity and entities over which key management personnel
have joint control .

Australian Dairy Nutritionals Group Annual Report 2019

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 24: RELATED PARTY TRANSACTIONS (cont’d)

(b) Transactions with related parties:

Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to
other parties unless otherwise stated .

The following transactions occurred with related parties:

(i) Jimmy Crow Limited

(ii) Watershed Funds Management Pty Ltd

Adrian Rowley is a director of Watershed Funds Management Pty Ltd . During the year ended 30 June 2019, Watershed Funds
Management Pty Ltd was paid $54,750 (2018: $54,750) for the provision of Adrian Rowley as director. There was $5,019 (2018:
$5,019) due at 30 June 2019.

(iii) Funding amongst Group entities is on an unsecured, interest free, no fixed term basis.

NOTE 25: SEGMENT REPORTING

SEGMENT INFORMATION

Identification of reportable segments

The Group has identified its operating segments based on the internal reports that are reviewed by the board in assessing
performance and determining the allocation of resources .

The Group is managed primarily on the basis of product category since the diversification of the Group’s operations inherently have
notably different risk profiles and performance assessment criteria. Operating segments are therefore determined on the same
basis .

Reportable segments disclosed are based on aggregating operating segments where the segments are considered to have similar
economic characteristics and are also similar with respect to the following:

•

the products sold and/or services provided by the segment;

the type or class of customer for the products or service; and

external regulatory requirements .

Types of products and services by segment

Dairy Farms

The dairy farms segment includes the ownership and operation of dairy farms and dairy livestock for the production and sale of
fresh raw milk for conversion to milk and milk products .

Dairy Processing

The dairy processing segment includes the processing and sale of dairy products to domestic markets .

Basis of accounting for purposes of reporting by operating segments

Accounting policies adopted

Unless otherwise stated, all amounts reported to the board with respect to operating segments are determined in accordance with
accounting policies that are consistent to those adopted in the annual financial statements of the Group.

In accordance with AASB 8, corporate costs and KMP remuneration have been allocated to the dairy farm and dairy processing
segments on a 50/50 basis, representative of the consumption of this expenditure . Finance costs - banking facility, have been
allocated in accordance with historical use of funds. The 30 June 2018 comparative has also been restated to reflect these
allocations .

There are no intersegment sales and reporting of segment revenue has not been impacted by the adoption of AASB 15 (refer note
1) .

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 25: SEGMENT REPORTING (cont’d)

Segment assets

If an asset is used across multiple segments, if possible it is allocated to the segment that receives the majority of economic value
from it, otherwise it is split between segments. Segment assets are generally identifiable on the basis of their nature and physical
location .

Segment liabilities

Liabilities are, if possible, allocated to segments where there is a direct nexus between the incurrence of the liability and the
operations of the segment, otherwise they are split between segments . Bank facility borrowings are considered to relate to the
Group as a whole and are not allocated . Segment liabilities include trade and other payables .

(i) Segment Performance

30 June 2019
Revenue

External sales

Other income
Interest revenue

Total segment revenue

Total group revenue

Dairy Farm

Dairy
Processing

Total

7,976,702

13,391,170

21,367,872

566,865
5,486

-
-

566,865
5,486

8,549,053

13,391,170

21,940,223

Segment net loss before tax

(1,948,515)

(2,077,510)

(4,026,025)

30 June 2018
Revenue

External sales

Other income
Interest revenue

Total segment revenue

Total group revenue

Dairy Farm

Dairy
Processing

Total

8,376,028

11,127,811

19,503,839

380,267
17,881

-
227

380,267
18,108

8,774,176

11,128,038

19,902,214

Segment net loss before tax

(1,345,904)

(2,811,749)

(4,157,653)

(ii) Segment Assets
As at 30 June 2019

Segment assets

Segment assets include:

Additions to non-current assets

Dairy Farms

Dairy
Processing

Total

33,425,001

15,105,896

48,530,897

6,680,822

1,183,643

7,864,465

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 25: SEGMENT REPORTING (cont’d)

As at 30 June 2018

Segment assets

Segment assets include:

Additions to non-current assets

(iii) Segment Liabilities

As at 30 June 2019

Segment liabilities

As at 30 June 2018

Segment liabilities

(iv) Revenue by geographic region

Dairy Farms

Dairy
Processing

Total

30,990,054

12,230,442

43,220,496

1,286,601

278,550

1,565,151

Dairy Farms

Dairy
Processing
$

Total

6,139,679

9,376,557

15,516,236

Dairy Farms

Dairy
Processing
$

Total

2,313,671

10,432,654

12,746,325

Revenue attributable to external customers is disclosed below, based on the location of the external customer

Australia
Other countries

Total revenue

(v) Assets by geographic region

The location of segment assets is disclosed below by geographical location of the assets

Australia
Other countries

Total assets

2019
$

21,940,223
-

21,940,223

2018
$

19,902,214
-

19,902,214

2019
$

48,530,897
-

48,530,897

2018
$

43,220,496
-

43,220,496

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 26: SHARE BASED PAYMENTS

During the year ended 30 June 2019, there were no stapled securities, performance options and loan securities issued to
employees and key management personnel under the ADNG employee Long Term Incentive Plan (LTIP) .

The group established the LTIP to motivate executives to strive to improve Group performance and securityholder returns . The
options are issued for no consideration and carry no entitlements to voting rights or dividends of the Group . The number available
to be granted is determined by the Board and is based on various performance measures .

The following performance options were granted in 2018 to employees and key management personnel to take up ordinary
securities:

Grant Date

12 February 2018

Number

2,400,000

2,800,000

3,000,000

Exercise Price

Vesting Date

Exercisable on or before

$0.29

31 December 2019

12 February 2021

31 December 2019

12 February 2021

31 December 2019

12 February 2021

31 December 2019

12 February 2021

30 June 2018

A summary of movements of all options during the year is as follows

Options outstanding at 1 July 2017

Granted

Forfeited

Cancelled

12,540,000

13,000,000

(5,620,000)

(6,140,000)

Options outstanding at 30 June 2018

13,780,000

(all exercisable)

The total and fair value of options granted during the 2018 comparative period was $371,261. These values were calculated using
a binominal option pricing model applying the following inputs:

Weighted average exercise price:

Weighted average life of option:

Expected share price volatility:

Weighted average risk-free rate:

$0.22

0 .8 years

71.24%

1.95%

Vesting subsequent to grant date is subject to key management personnel meeting speficied performance criteria and the fair value
of the options granted to employees is considered to represent the value of the employee services received over the vesting period .
Historically volatility has been the basis for determining expected share price volatility as it is assumed that this is indicative of
future movements . The life of the options is based on the historical exercise patterns, which may not evenuate in the future .

Options outstanding at 1 July 2018

Granted (i)

Forfeited (ii)

Exercised (iii)

13,780,000

6,250,000

(780,000)

(3,000,000)

Options outstanding at 30 June 2019

16,250,000

(all exercisable)

(i) Granted options

On 24 December 2018 the Group issued consideration securities for the purchase of Flahey’s Nutritionals Pty Ltd (refer note 3) .

The weighted average remaining life of these securities at period end is 1 .7 years and there is no exercise price .

The fair value of the consideration securities issued was $750,000 based on a weighted average fair value of securities of $0.12
calulated by applying the following inputs:

weighted average exercise price:

nil

weighted average exercise life:

expected share price volatility:

weighted average risk-free rate:

1 .7 years

96.28%

1.91%

During the year ended 30 June 2019, $126,273 has been expensed as a share-based payment in regards to the consideration
securities .

Australian Dairy Nutritionals Group Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 26: SHARE BASED PAYMENTS (cont’d)

(ii) Cancelled and forfeited performance options

Options are forfeited if performance hurdles are not satisfied or after the holder ceases to be employed by the Group, unless the
Board determines otherwise . During the year ended 30 June 2019, 780,000 (2018: 5,620,000) performance options were forfeited
as the performance hurdle was not satisfied and $21,417 (2018: $439,519) has been transferred from the equity reserve to retained
earnings .

In the 2018 comparative, 6,140,000 performance options were cancelled and the $36,388 fair value of the cancelled options was
offset against the fair value of the new options granted on 12 February 2018.

(iii) Exercised performance options

On 2 July 2018, there were 3,000,000 stapled securities issued to Peter Skene for achievement of 2018 performance hurdles .

(iii) Stapled securities granted to key management personnel as share-based payments in the 2018 comparative are as follows:

Grant Date

Number

12 February 2018

1,000,000

The fair value of securities granted, determined by reference to market price, was $124,100.

These securities were issued as compensation to key management personnel of the Group .

(iv) Loan securities granted to key management personnel as share-based payments in the 2018 comparative are as follows:

Grant Date

Number

Exercise Price Vesting Date

Exercisable on or before

12 February 2018

7,000,000

$0.124

12 February 2018

12 February 2023

A summary of key terms and conditions of the loan securities are:

•

Loan securities are securities in the stapled entity, each carrying the same dividend rights and otherwise ranking pari passu
in all respects with ordinary issued securities in the Group;

Financial assistance is provided to participants by way of a limited recourse interest free loan to acquire the securities;

The loan is repayable at any time or is repayable immediately if the participant ceases to be an employee;

The Group retains security over the loan securities whilst ever there is an amount outstanding under the loan; and

Loan securities that have not vested and / or are subject to loan repayment will be restricted from trading .

Under the applicable Accounting Standards, the loan securities and related limited recourse loan are accounted for as options,
which gives rise to a share based payment expense . The value of the loan and the issue price of the shares are not recorded as
loans receivable or share capital of the Group until repayment or part repayment of the loan occurs .

The fair value of loan securities granted during the period was $442,217 (2017: $nil). This value was calculated using a binomial
option pricing model applying the following inputs:

Exercise price:

Life of the option:

Expected share price volatility:

$0.124

5 years

71.24%

Weighted average risk-free interest rate:

2.42%

(v) Included under employee benefits expense in the statement of profit or loss is $152,492 (2018: $961,538), which relates to
equity-settled share-based payment transactions - securities and options .

(vi) Other share based payments (refer note 15) .

During the year the Group issued stapled securities as consideration:

•

for the purchase of Flahey’s Nutritionals Pty Ltd - 625,000 securities .

for payment of consultancy services - 150,031 securities .

in the 2018 comparative, for purchase of land - 121,900 securities .

Australian Dairy Nutritionals Group Annual Report 2019
NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 27: EVENTS AFTER THE BALANCE DATE

Following is a summary of the key events after the reporting period:

• On 20 August 2019, the Group announced to the ASX the completion of tranche 2 of its placement with the issue of

67,342,149 stapled securities, raising $8.1m. Blue Ocean Equities, who acted as lead manager to the placement, were also
issued 2,500,000 options;

• On 26 August 2019 the Group announced to the ASX it has entered into a joint venture in relation to the Jonesy’s Dairy

Fresh (JDF) milk distribution business (Business) . Under the terms of the joint venture, the assets of the Business will be
transferred to a new trading company, Jonesy’s Distribution Pty Ltd (JD) . In addition, the outstanding trade debtor balance
between the Business and Camperdown Dairy Company (CDC) will be transferred to JD and CDC will advance JD up to
an additional $100,000 for working capital. The trade debtor balance as well as any working capital advanced by CDC to
JD will be fully secured against the existing and future assets of JD. The parent company currently owns 100% of the share
capital in JD but on completion of the joint venture transaction, the parent company will own 50% of the shares in JD and the
founders of JDF will own the other 50% of the shares. The Group sees the joint venture as a strategic platform to expand its
position in the hospitality and niche retail distribution market . In addition, the directors are of the view that the security which
CDC will have over the new joint venture entity (JD), provide a potential opportunity for CDC to recover some or all of the
trade debtor balance owed by the Business (refer Note 7(a)(i)) .

NOTE 28: FINANCIAL RISK MANAGEMENT

The Group’s principal financial instruments consist mainly of deposits with banks, accounts receivable, accounts payable, bank
loans and leases .

The totals for each category of financial instruments, measured in accordance with AASB 9 as detailed in the accounting policies to
these financial statements, are as follows:

Financial assets

Financial assets at amortised cost:

Cash and cash equivalents

Trade and other receivables

Bonds and deposits

Total financial assets

Financial liabilities

Financial liabilities at amortised cost:

Trade and other payables

Borrowings

Total financial liabilities

Financial Risk Management Policies

Notes

2019

2018

3,748,550

2,477,116

50,942

6,276,608

2,331,700

2,397,522

30,000

4,759,222

2,370,950

12,695,402

15,066,352

1,897,724

10,478,421

12,376,145

The main purpose of the financial instruments listed is to raise finance for the Group’s operations when the board considers it
appropriate. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise
directly from its operations. Risks arising from the Group’s financial instruments include interest rate risk, liquidity risk and credit
risk . The board reviews and agrees policies for managing each of these risks and they are summarised below .

Treasury Risk Management

The board considers financial risk exposure to evaluate treasury management strategies in the context of the most recent economic
conditions and forecasts. The overall risk management strategy seeks to assist the Group in meeting its financial targets, while
minimising potential adverse effects on financial performance. Risk management policies are reviewed by the board when
necessary. These include the use of credit risk policies and future cash flow requirements.

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 28: FINANCIAL RISK MANAGEMENT (cont’d)

Financial Risk Exposures and Management

(a) Credit risk

The Group trades only with parties that it believes to be creditworthy . The maximum exposure to credit risk is equivalent to the
financial assets’ carrying value. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit
verification procedures. In addition, receivable balances are monitored on an ongoing basis, however the Group will always have
exposure to potential bad debts (see also Note 7) .

With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents, bonds
and deposits, the Group’s exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the
carrying amount of those instruments . The Group generally does not require third party collateral .

(b)

Liquidity risk

Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or otherwise meeting its
obligations related to financial liabilities. The Group manages this risk through the following mechanisms:

•

preparing forward looking cash flow analysis in relation to its operational, investing and financing activities;

• monitoring undrawn credit facilities;

•

obtaining funding from a variety of sources;

• maintaining a reputable credit profile;

• managing credit risk related to financial assets;

investing surplus cash with appropriately regulated financial institutions; and

comparing the maturity profile of financial liabilities with the realisation profile of financial assets.

•

The table below presents maturity of the Group’s financial instruments. Cash flows realised from financial assets reflect
management’s expectation as to the timing of realisation. Actual timing may therefore differ from that disclosed. The timing of cash
flows presented in the table to settle financial liabilities reflects the earliest contractual settlement dates taking into consideration
management expectations that Group banking facilities will be extended .

Financial liability and financial asset maturity analysis:

Within 1 year

1 to 5 years

Over 5 years

Total

2019

2018

2019

2018

2019

2018

2019

2018

Financial liabilities due
for payment

Borrowings

(264,363) (10,177,445) (12,431,039)

(300,976)

Trade & other payables

(2,370,950)

(1,897,724)

Total expected outflows

(2,635,313)

(12,075,169) (12,431,039)

(300,976)

Financial assets -
cash flows realisable

Cash

3,748,550

2,331,700

Trade and other receivables

2,477,116

2,397,522

Bonds and deposits

50,942

30,000

Total anticipated inflows

6,225,666

4,729,222

50,942

30,000

Net (outflows) / inflows on
financial instruments

3,590,353

(7,345,947) (12,380,097)

(270,976)

•

The Groups financial assets are pledged as security for debt (refer note 15).

- (12,695,402) (10,478,421)

- (2,370,950)

(1,897,724)

- (15,066,352)

(12,376,145)

3,748,550

2,331,700

2,477,116

2,397,522

50,942

30,000

6,276,608

4,759,222

(8,789,744)

(7,616,923)

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 28: FINANCIAL RISK MANAGEMENT (cont’d)

Interest rate risk

The Group at the date of this report has debt exposure through $641,402 in fixed rate facilities, $12,054,000 in variable rate
facilities, and $3,748,550 in variable rate cash balances.

Sensitivity Analysis

The Group has performed sensitivity analysis relating to its exposure to variable interest rate at balance date . This sensitivity
analysis demonstrates the effect on the current year results and equity which could result from a change in this risk.

Interest rate sensitivity analysis

At 30 June 2019, the effect on profit and equity as a result of changes in the interest rate, with all other variables remaining
constant would be as follows:

Change in profit

- Increase in interest rate by 1%

- Decrease in interest rate by 1%

Change in equity

- Increase in interest rate by 1%

- Decrease in interest rate by 1%

Fair Values

2019

(83,054)

83,054

(83,054)

83,054

2018

(76,683)

76,683

(76,683)

Set out below is a comparison by category of carrying amounts and fair values of all of the Group’s financial instruments recognised
in the financial statements.

Carrying Amount

Fair Value

Footnote

2019

2018

2019

2018

Financial assets
Financial assets at amortised
cost:
Cash and cash equivalents

Trade and other receivables

Bonds and deposits

Total financial assets

Financial liabilities
Financial liabilities at amortised
cost:
Trade creditors

Borrowings

Total financial liabilities

(i)

(ii)

3,748,550

2,477,116

50,942

6,276,608

2,331,700

2,397,522

30,000

4,759,222

3,748,550

2,477,116

50,942

6,276,608

2,331,700

2,397,522

30,000

4,759,222

2,370,950

12,695,402

15,066,352

1,897,724

10,478,421

12,376,145

2,370,950

12,695,402

15,066,352

1,897,724

10,478,421

12,376,145

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 28: FINANCIAL RISK MANAGEMENT (cont’d)

The fair values disclosed in the above table have been determined based on the following methodologies:

(i) Cash and cash equivalents, trade and other receivables, bonds and deposits and trade and other payables are short-term

instruments in nature whose carrying value is equivalent to fair value .

(ii) Fair values on borrowings are determined using a discounted cash flow model incorporating current commercial borrowing

rates .

NOTE 29: FAIR VALUE MEASUREMENT

The Group measures and recognises the following assets and liabilities at fair value on a recurring basis after initial recognition:

•

biological assets .

The Group may measure some items of property at fair value on a non-recurring basis . The Group does not subsequently measure
any other assets or liabilities at fair value on a non-recurring basis .

(a) Fair Value Hierarchy

AASB 13: Fair Value Measurement requires the disclosure of fair value information by level of the fair value hierarchy, which
categorises fair value measurements into one of three possible levels based on the lowest level that an input that is significant to
the measurement can be categorised into as follows:

Level 1

Level 2

Level 3

Measurements based on quoted prices
(unadjusted) in active markets for
identical assets or liabilities that the
entity can access at the measurement
date .

Measurements based on inputs
other than quoted prices included in
Level 1 that are observable for the
asset or liability, either directly or
indirectly .

Measurements
based on
unobservable inputs
for the asset or
liability .

The fair values of assets and liabilities that are not traded in an active market are determined using one valuation technique . This
valuation technique maximises, to the extent possible, the use of observable market data. All significant inputs required to measure
fair value are observable, therefore the asset or liability or is included in Level 2 .

The Group selects a valuation technique that is appropriate in the circumstances and for which sufficient data is available to
measure fair value. The availability of sufficient and relevant data primarily depends on the specific characteristics of the asset or
liability being measured . The valuation techniques selected by the Group are consistent with the following valuation approach:

• Market approach: valuation techniques that use prices and other relevant information generated by market transactions for

identical or similar assets or liabilities .

This valuation technique requires inputs that reflect the assumptions that buyers and sellers would use when pricing the asset or
liability including assumptions about risks . When selecting a valuation technique, the Group gives priority to those techniques that
maximise the use of observable inputs and minimise the use of unobservable inputs . Inputs that are developed using market data
(such as publicly available information on actual transactions) and reflect the assumptions that buyers and sellers would generally
use when pricing the asset or liability are considered observable, whereas inputs for which market data is not available and
therefore are developed using the best information available about such assumptions are considered unobservable .

The following tables provide the fair values of the Group’s assets measured and recognised on a recurring basis after initial
recognition and their categorisation within the fair value hierarchy:

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 29: FAIR VALUE MEASUREMENT (cont’d)

30 June 2019

Non-financial assets
Biological assets

Total non-financial assets recognised at
fair value on a recurring basis

30 June 2018

Note

Level 1

Level 2

Level 3

Total

4,928,422

Note

Level 1

Level 2

Level 3

Total

Non-financial assets
Biological assets

Total non-financial assets recognised at
fair value on a recurring basis

5,205,774

(b) Techniques and Inputs Used to Measure Level 2 Fair Values

The following tables provide the fair values of the Group’s assets and liabilities measured and recognised on a recurring basis after
initial recognition and their categorisation within the fair value hierarchy:

Description

Non-financial assets

Biological assets

Fair Value at
30 June 2019
$

4,928,422

Valuation Technique(s)

Input Used

Market approach using
recent observable market
data for dairy cattle

Breed, weight, condition

There were no changes during the period in the valuation techniques used by the Group to determine Level 2 fair values .

The following assets and liabilities are not measured at fair value in the statement of financial position, but their fair values are
disclosed in the notes:

Cash;

Trade and other receivables;

Bonds and deposits;

Trade and other payables; and

Borrowings .

Australian Dairy Nutritionals Group Annual Report 2019NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 30: EARNINGS PER STAPLED SECURITY CALCULATIONS

Earnings per stapled security:

Basic loss per stapled security

Diluted loss per stapled security

Reconciliation of earnings to profit or loss:

Loss attributable to shareholders and unitholders

Weighted average number of stapled securities outstanding during the year
used in calculating basic EPS
Weighted average number of options outstanding

Weighted average number of stapled securities outstanding during the year
used in calculating dilutive EPS

2019

cents

(1 .55)

2018

cents

(1 .80)

(4,026,025)

(4,157,653)

Number of
Shares

260,204,432

230,768,425

260,204,432

230,768,425

All options on issue are considered to be dilutive potential ordinary securities, however they are presently anti-dilutive at 30 June
2019 as the Group is in losses .

NOTE 31: DIVIDENDS

The directors have not recommended or paid a dividend for the year ended 30 June 2019 (2018: $nil) at the date of this report.

Australian Dairy Nutritionals Group Annual Report 2019DIRECTORS’ DECLARATION

DIRECTORS’ DECLARATION

For the year ended 30 June 2019

In the opinion of the directors of Australian Dairy Farms Group:

(a)

the financial statements and notes of the Company and of the Group are in accordance with
the Corporations Act 2001, and:

(i)

(ii)

give a true and fair view of the Company’s and Group’s financial position as at 30 June
2019 and of their performance for the year ended on that date; and

comply with Australian Accounting Standards, which, as stated in accounting policy
Note 1 to the financial statements, constitutes compliance with International Financial
Reporting Standards (IFRS); and

(b)

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

This declaration has been made after receiving the declarations required to be made to the
directors in accordance with Section 295A of the Corporations Act 2001 for the financial year
ending 30 June 2019 .

This declaration is made in accordance with a resolution of the board of directors .

___________________

Michael Leslie Hackett
Chairman

Brisbane

30 August 2019

Australian Dairy Nutritionals Group Annual Report 2019INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS

Australian Dairy Nutritionals Group Annual Report 2019INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS (cont’d)

Australian Dairy Nutritionals Group Annual Report 2019SHAREHOLDER INFORMATION

The following information was extracted from Australian Dairy Farms Group’s Register of Securityholders on 27 August 2019:

TWENTY LARGEST SECURITYHOLDERS - ORDINARY SECURITIES

IRONBARK-VEST PTY LTD

CORPORATE SOLUTIONS PTY LTD

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED

PETER AND LYNNE SKENE

SIR RONALD ALFRED BRIERLEY

CS FOURTH NOMINEES PTY LIMITED

CITICORP NOMINEES PTY LIMITED

CS THIRD NOMINEES PTY LIMITED

FIDUCIARY NOMINEES PTY LTD

10 ONE MANAGED INVT FUNDS LTD

11 MR JUNLONG LIANG

12 RATHVALE PTY LIMITED

13 COSTINE PTY LTD

14 MYALL RESOURCES PTY LTD

15 VITAMIN WAREHOUSE AUSTRALIA PTY LTD

16 AM GLORY PTY LTD

17 MR CHONG CHE WONG

18 MR ZHONGDE ZHAO

19 MR ZHAN WANG

20 MR BINBIN ZHANG

Total Securities on issue

DISTRIBUTION OF SECURITYHOLDINGS

Size of Holding

1 - 1000

1,001 - 5,000

5,001 - 10,000

10,001 - 100,000

100,001 or greater

MARKETABLE PARCELS

Fully Paid Stapled Securities

Securities Held

% of Issued
Capital

55,440,764

15 .09

15,309,892

14,100,209

12,515,385

12,500,000

11,769,979

10,423,412

7,396,547

4,872,207

4,166,666

3,855,000

3,460,885

2,741,788

2,600,000

2,450,000

2,300,069

2,000,000

1,800,000

1,709,247

4 .17

3 .84

3 .41

3 .40

3 .20

2 .84

2 .01

1 .33

1 .13

1 .05

0 .94

0 .75

0 .71

0 .67

0 .63

0 .54

0 .49

0 .47

173,412,050

367,486,440

47.19

100.00

Number of
Securityholders

187

827

594

1,418

432

3,458

Securities

45,562

2,598,434

4,986,791

52,679,408

307,176,245

367,486,440

5 .41

23 .92

17 .18

41 .01

12 .48

100.00

On 27 August 2019, using the last traded security price of $0.125 per security, there were 798 holdings, which were of less than a
marketable parcel ($500).

VOTING RIGHTS

On a show of hands, every member present in person or by proxy or attorney or being a corporation by its authorised
representative shall have one vote . On a poll, every member who is present in person or by proxy or attorney, or being a
corporation, by its authorised representative, shall have one vote for every stapled security of which he is the holder .

Australian Dairy Nutritionals Group Annual Report 2019SHAREHOLDER INFORMATION (cont’d)

SUBSTANTIAL SECURITYHOLDERS

The names of the substantial securityholders listed in the Group’s register on 27 August 2019 are:

Ironbark-Vest Pty Ltd

Michael Hackett and associated entities

Securities Held

55,440,764

23,298,887

% of Voting
Power Advised

15 .09

6 .34

UNLISTED OPTIONS OVER ORDINARY SECURITIES

At the date of this report, the unissued ordinary securities of Australian Dairy Nutritionals Limited under option are as follows:

Grant Date

Last Date of Expiry

Exercise Price

Number under Option

24 December 2018

31 August 2021

12 February 2018

12 February 2021

nil

29 cents

6,250,000

10,000,000

Option holders do not have any rights to participate in any issues of securities or other interests of the Company or any other entity .

RESTRICTED SECURITIES

There are 7,000,000 restricted loan securities on issue at the date of this report .

Australian Dairy Nutritionals Group Annual Report 2019CORPORATE DIRECTORY

Board of Directors

Michael Hackett
Chairman

Adrian Rowley
Director

Paul Morrell
Director

Peter Skene
Director / Group CEO

Registered Office

Level 1, 200 Creek Street
Brisbane QLD 4000

Telephone:
Facsimile:
Email:
Web:

(07) 3020 3020
(07) 3020 3080
info@adfl.com.au
www.adfl.com.au

Share Register

Link Market Services Limited
Level 21
10 Eagle Street
Brisbane QLD 4000

Telephone:
Facsimile:

1300 554 474
(02) 9287 0309

Company Secretary

Kate Palethorpe
Company Secretary

Corporate Office

Level 1, 200 Creek Street
Brisbane QLD 4000

GPO Box 6
Brisbane QLD 4001

Telephone:
Facsimile:
Email:
Web:

(07) 3020 3020
(07) 3020 3080
info@adfl.com.au
www.adfl.com.au

Auditor

Nexia Brisbane Audit Pty Ltd
Level 28
10 Eagle Street
Brisbane QLD 4000

Telephone:
Facsimile:

(07) 3229 2022
(07) 3229 3277

Email:
Web:

registrars@linkmarketservices .com .au
www .linkmarketservices .com .au

Email:
Web:

audit@nexiabrisbane .com .au
www .nexia .com .au

Stock Exchange
Australian Dairy Nutritionals Group is listed on the official List of the Australian Securities Exchange Limited (ASX).

The ASX Code is “AHF” .

Australian Dairy Nutritionals Group Annual Report 2019