Bellamy's Australia Ltd
Annual Report 2016

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ANNUAL REPORT 2O15-16 B E L L A M Y ’ S A U S T R A L I A L I M I T E D This report is provided to the Australian Securities Exchange (ASX) under ASX Listing Rule 4.2A. CORPORATE DIRECTORY Principal registered office and principal administration office Bellamy’s Australia Limited 115 Cimitiere Street Launceston TAS 7250 T: (03) 6332 9200 F: (03) 6331 1583 bellamysorganic.com.au Company Secretary Brian Green Location of share registry LINK Market Services Level 1, 333 Collins Street Melbourne VIC 3000 Bellamy’s Australia Limited ABN 37 124 272 108 ASX Code: BAL Directors Rob Woolley (Chair) Laura McBain (Managing Director and Chief Executive Officer) Ian Urquhart (Resigned 30 June 2016) Michael Wadley Launa Inman Patria Mann Charles Sitch BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 Bellamy’s is a long-term growth story: the opportunity for the Bellamy’s brand is vast, and our ambition for continuing growth is underpinned by a clear vision, strong brand, depth of category understanding, supply chain, and agility. CONTENTS Corporate Directory Inside Cover Message from the Chair and Managing Director Company Overview Review of Operations Financial Review Risk Management Board of Directors Executive Team Directors’ Report Remuneration Report Auditor’s Independence Declaration Financial Statements Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report Shareholder Information 5 7 9 23 29 30 32 33 37 51 54 55 56 57 58 86 87 89 3 A year of very strong growth EBIT up 342% to $54.3m Revenue up 95% to $245m China revenues up 331% BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 Message from the Chair and Managing Director In the 24 months since our listing in August to leverage our distribution and manufacturing on our long term vision to be a leading global 2014, Bellamy’s has delivered two consecutive relationships. years of strong and growing profits for our shareholders. We have done this through our agility, focus and passion for growing a strong international organic food and formula brand from our home in Launceston. A key to our success has been our ability to significantly increase organic ingredients available to us, and convert that to baby formula through our manufacturing partners. We have strengthened and developed our Deep at the heart of Bellamy’s is a fundamental belief that there are three basics that every strategic supply, manufacturing and distribution capabilities, and this includes our agreements child should have - the love and respect of their with Fonterra and Tatura Milk Industries. We parents, a safe and secure home in which to continue to develop strong relationships with grow up, and healthy wholesome food to eat. local and global farmers that can provide quality Bellamy’s aim is to deliver on the third pillar by organic ingredients. We have also strategically offering nutrition for children as it should be: taken steps to ensure increasing local supply uncomplicated, simple, organic and safe. of organic ingredients by working closely with The shifting consumer mindset towards health foods, wellbeing and organic sees an increased understanding of, and demand for, Bellamy’s organic farming. Australian farmers to source our ingredients and support them in the journey of converting to Sitch. quality organic products. We have leveraged Our consumers – parents and their children this trend by simply adhering to our core – remain at the heart of our operations. We business philosophy, continuing to strengthen are working strategically to communicate the brand, engaging highly talented and our understanding of the need for pure, passionate people into our team, and working uncomplicated nutrition to new, expectant with world class organic farmers, manufacturers and existing parents through the channels organic baby food and formula company, we expanded our team over the last 12 months across various aspects of the business including production and quality, marketing and logistics. We strengthened our senior leadership team with the appointment of Andrew Cohen as Chief Operations & Strategy Officer, and Katherine Henry as Executive Director People & Culture. Having been a Director since inception, Ian Urquhart retired from the Board at the 30th of June. Ian played an important role in the growth and them evolution of the company to its present listed position. In the second half of the year we appointed two experienced non- executive Directors, Patria Mann and Charles We have laid the groundwork to support our growth plans into FY17 and beyond. We will continue to build on the core fundamentals of our brand, enhancing and surrounding this with great people, world class manufacturers and suppliers, and strong distribution focus in traditional and e-commerce. We look to continue to build opportunities for Bellamy’s in new geographies and enhance our offering with new products. We are excited by the opportunities that lie ahead and are assured by the strong foundation we have in place, and continue to strengthen, to underpin sustainable long term growth for Bellamy’s. and suppliers. In FY16 Bellamy’s earnings before interest and tax (EBIT) was up 342% to $54.3 million and revenue grew by 95% to $244.6 million. Our results are built on the strength of the Bellamy’s brand and the dedication and passion of the entire Bellamy’s team, our manufacturers, suppliers, distributors and retailers. Bellamy’s aims to be a world leader in organic infant nutrition. Expansion into new global markets is a key pillar of our long term growth strategy and during the second half of FY16 Bellamy’s began developing strategic distribution partners in multiple markets to set the groundwork for expansion into new countries. We scan new market opportunities and assess markets based on size potential, market gap and ability that resonate with them. We pride ourselves on the loyalty and trust that we have built with thousands of parents and Bellamy’s babies. We truly value the supportive community our parents are building and we are continually working to enhance this positive brand experience. In FY16 our focus on social and digital media has fostered substantial growth of We again thank all of those who have supported an engaged online Bellamy’s community. Our Bellamy’s in meeting our growth targets. We Facebook audience alone has increased roughly are focused on continuing to grow Bellamy’s 45% per cent in 12 months to nearly 90,000. while supporting the further growth of the We have seen growth not just in formula but organic industry in the year ahead. also in our food range. We are the number one brand in Australia for baby cereals and pastas, and the fastest growing brand in ready to eat baby food pouches. In order to support our growth and ensure we have the infrastructure in place to deliver Rob & Laura 5 BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 Company Overview Bellamy’s is an Australian producer, supplier also available through multiple online retail We understand parents’ desire to offer their and marketer of 100% organic baby food and platforms. baby formula. Headquartered in Tasmania, Bellamy’s offers a range of organic food and formula products for babies and toddlers, starting with an organic infant formula suitable from birth. Our products are currently distributed in Australia, Vietnam, Singapore, Malaysia, People’s Republic of China, Hong Kong, and New Zealand. The products are Our growth story Operating for 13 years Bellamy’s has a deep understanding of the complex organic global supply chain and children pure, simple, uncomplicated nutrition. This understanding is at the core of everything we do, and is a key differentiator of Bellamy’s. through our strong relationships with key With a clear vision, strong brand, depth of suppliers we have been able to promote and category understanding, strong supply chain, develop the organic food industry. We work and agility, Bellamy’s is uniquely placed to closely with organic farmers, manufacturers and continue its growth trajectory, deliver its various supply chain partners to deliver high products to more parents globally, and grow quality organic foods for babies and toddlers. shareholder value. Aug 2014 Bellamy’s formula manufacturer (Tatura Milk - TMI) receives China accreditation 2003 Established in Launceston, Australia. Producing Australia’s first organically certified baby food 2012 Established distribution partnerships in Malaysia & Vietnam Nov 2015 Bellamy’s enters strategic manufacturing arrangements with Fonterra Australia 2007 Acquired by Tasmanian Pure Foods Ltd 2011 Sales & distribution teams established in China & Singapore Aug 2014 Bellamy’s Australia Limited (BAL) listed on the Australian Securities Exchange Mar 2016 Admission to S&P/ASX 200 Index July 2015 Long term infant formula supply agreement signed with Bega Cheese subsidiary, Tatura Milk 7 BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 Review of Operations A track record of optimising returns Bellamy’s Revenue Growth ($m) Bellamy’s Revenue Growth ($m) 139.5 139.5 105.1 105.1 67.9 67.9 57.4 57.4 26.8 26.8 24.1 24.1 1H14 1H14 2H14 2H14 BAL Revenue ($m) BAL Revenue ($m) 1H15 1H15 2H15 2H15 1H16 1H16 2H16 2H16 Expon. (BAL Revenue ($m)) Expon. (BAL Revenue ($m)) Bellamy’s EBIT ($m) Bellamy’s EBIT ($m) 35.1 35.1 AUD AUD millions millions $160 $160 $140 $140 $120 $120 $100 $100 $80 $80 $60 $60 $40 $40 $20 $20 $0 $0 AUD AUD millions millions $40 $40 $30 $30 $20 $20 $10 $10 $0 $0 A strong bond with our parents No business can exist without its customers, but for us, our customers are arguably more special than most. They are all mothers and fathers, generally starting out on the journey of parenthood – with no lessons and no manuals. We realise that we play a role in that journey of joy and discovery – and it’s one that has helped shape our brand. At Bellamy’s, it’s our firm belief that babies everywhere deserve to start life with three basic necessities: the love and respect of their parents, the safety and security of a loving home, and the goodness of wholesome food to eat. It is this understanding that drives our mission: to produce wholesome, organic food for babies and infants. We want parents everywhere to be able to give their children a “Pure Start to Life”. This one mission drives our entire supply chain; from the finest organic ingredients sourced, to the care taken in how our products are made at the highest possible standards. It is why we believe our parents have a strong bond and deeper association with Bellamy’s than with other brands. This has come through strongly from our information resource pages and social media engagement. Mothers and fathers look to us for information and reassurance, provided simply and concisely, to help them come to their 19.2 19.2 own parenting decisions. 2 2 1H14 1H14 7 7 5.3 5.3 0.9 0.9 1H15 1H15 2H14 2H14 BAL EBIT ($m) BAL EBIT ($m) 1H16 1H16 2H15 2H15 Expon. (BAL EBIT ($m)) Expon. (BAL EBIT ($m)) 2H16 2H16 Bellamy’s social media engagement across key platforms in Australia continued to outperform all others in the category. As at 30 June 2016, Bellamy’s was the No. 1 baby food / infant formula brand by number of followers across multiple platforms including Facebook, Twitter and Instagram. In China, we are quickly building a strong following through social media and our word-of-mouth marketing activities. The core brand proposition resonates in the minds of parents in China as a brand offering safety and trust. Combined with a strong agency presence and our own on ground team, our digital media programs will continue to build on the assets we have already developed there. Increasing brand awareness is critical to attracting new mothers to the category. 9 BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 Review of Operations Continued Where we play Overall, distribution has continued to grow in FY16, as reflected by the 95% growth in net revenue over the last 12 months. Australia continues to represent the majority of sales – 78% in FY16, although a proportion of that is sales through Australian retailers that make their way to consumers in China. Bellamy’s in Australia In Australia, Bellamy’s products are distributed in more than 4,400 outlets across major retailers including Coles, Woolworths, Big W, Target, Costco, Chemist Warehouse, Terry White and Amcal. We have also pushed deeper into independent supermarkets and pharmacies, which provide a strong growth channel. For example, Bellamy’s continues to be the market leader in Infant Foods in Pharmacy holding more than 50% market share at June 2016 (source: Aztec). Bellamy’s in China Bellamy’s recognises the importance of having a multi-channel distribution strategy in China, and providing easy access to our products for parents regardless of their physical location. This ensures that as the China market evolves, we can remain agile and adapt to changing consumer purchasing trends and government regulations. Segment revenues $179m Group Revenue $245m Australia revenues growing at 67% $62m China revenues growing at 331% SEA/Other $4m All Brands in Baby, Toddler & Kids Website Facebook Instagram Twitter YouTube 1st Bellamy’s Organic 2nd Heinz for Baby 3rd Rafferty’s Garden 1st 3rd 10th 1st 2nd 3rd 1st - 4th 1st - 3rd 3rd 2nd 11th Ranking of social engagement as listed by BrandData for Infant nutrition brands in the Australian marketplace (branddata.com | August 2016) Guangdong Shanghai Hong Kong Vietnam Singapore Malaysia Australia New Zealand 11 BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 Review of Operations Continued Over the past 12 months there has been a continuing shift toward online purchasing of imported infant formula products through third party websites such as t-mall.com, jd.com, and vip.com, with delivery to consumers via free trade zones in China and local Chinese providers. Our multi-channel distribution strategy and strong online presence has underpinned our growth in China and strongly positions us to continue growing in this market. In the offline (bricks and mortar) channel, we continue to build a focused and sustainable market presence, particularly in key mother and baby chain stores. With more than 30 distributors, Bellamy’s products are now stocked in over 2,000 stores across China, predominantly in mother and baby chain stores. In the online channel, we built on our flagship store’s strong position on Tmall as one of the top 10 baby formula stores, and launched platforms on JD, Kaola, NetEase and VIP. Reflecting our multi-channel distribution strategy, we also commenced trading directly with reseller networks during FY16 as part of a broader strategy to remain flexible to changing consumer purchasing trends. This has offered meaningful experiences about parenting and Over the past seven years, we have built route to market efficiencies and increased growth – another way we can engage with a strong business in China. Our plan is to brand penetration through the activation of the Chinese parents. resellers’ unique consumer networks. The second half of FY16 saw a number of Even though we estimate our market share to regulatory changes announced, aimed at currently be less than 1% of the overall China putting in place a clear framework for cross market, our current market share on online border e-commerce channels and a broader continue to maintain our presence across multiple distribution channels, remain agile and adapt to changes, while also increasing our marketing investment to further build our brand and distribution presence in the country. channels was around 3% at the end of June. product registration framework covering both Bellamy’s in South East Asia Supporting both online and offline sales initiatives, we commenced a brand building domestic and foreign infant formula products within the Chinese market. Bellamy’s has In June 2016, we entered into a strategic distribution partnership to support Bellamy’s partnership with BabyTree, the largest parenting been aware of the intentions of the regulatory continued growth in Singapore and Hong Kong website in China, to improve Bellamy’s brand awareness and penetration in China. BabyTree is specifically aimed at the fast-growing China maternity and baby industry. The platform authorities and was able to respond to the regulatory changes quickly and efficiently. Having operated in China for over seven years, we view the regulatory changes announced offers parents the opportunity to share valuable positively and believe they will further strengthen experiences, while also obtaining positive and Bellamy’s growth opportunities in China. by leveraging distribution platforms. In Vietnam, we are working towards improving Bellamy’s footprint through adopting a direct to market model that will provide greater control over distribution of our products. 13 BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 Review of Operations Continued Our products Bellamy’s produces more than 40 Australian- made and organically certified products including infant formula, toddler milk, snacks, cereals, pastas and ready to eat pouches. Our product range is designed to offer various entry points to the brand for parents, whether their baby is breast-fed, formula- fed or complementary-fed. This is a unique proposition as there are no other organic brands in Australia offering a comprehensive selection of foods, and it is carefully executed to enhance the brand relevance for our families. Our formula products Bellamy’s infant formula range is the only certified organic infant formula made in Australia. Formula comprises approximately 96% of Our food products Bellamy’s sales (increasing from 88% in the prior period). Bellamy’s range of cereals, pastas, ready to serve pouches and healthy snack foods deliver There are three products within this progressive on our promise to offer a complete range of range: Step 1 Organic Infant formula – suitable from birth to 12 months Step 2 Organic Follow-on formula – suitable from 6 to 12 months Step 3 Organic Toddler milk drink – from 12+ months Bellamy’s produces two variants of each product – one is made for the Australian and export markets, while the other is suitable for China only as it is designed to meet the different labelling and compositional requirements in China. organic food from birth to infant. Sales of non- formula products have grown by 8% over the last 12 months. In the Pharmacy channel Bellamy’s accounts for more than 50% of baby food sales, and is the #1 brand in cereal and pastas and the fastest growing brand in ready to serve pouches. We have a substantial opportunity to grow the penetration of Bellamy’s food range in Australian supermarkets, by replicating our strong performance in the Pharmacy channel. 15 Review of Operations Continued Bellamy’s produces 40 unique Australian made and organic certified products including infant formula, toddler milk drink, snacks, cereals, pastas and ready to eat pouches. Product Range BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 17 BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 Review of Operations Continued Bellamy’s organic supply chain is a key strength The strong relationships we have in place with organic suppliers and product manufacturers is key to being able to bring our range of products to the market in an efficient, timely and reliable manner. As such, we continue to invest in upstream suppliers by offering long- term supply contracts on terms that recognise the long-term vision and planning required for sustainable organic food production. Organic formula production is expanding The announcement of our agreement with Fonterra to produce baby formula for Bellamy’s in December 2015 was an exciting milestone to ensure continued growth in our baby formula range. The agreement is a five-year supply agreement and will substantially lift volumes in FY17 and beyond. Tatura Milk Industries (TMI) continues to be a key manufacturing partner for Bellamy’s. Our annual production volumes are supported by a six-year supply agreement signed in July 2015, and this continues an eight-year relationship of producing quality infant formula to exacting standards. Bellamy’s IMF Production Volume (KTn) H2 14 H1 15 H2 15 H1 16 H2 16 our supply team has continued to increase materials to produce the organic ingredients Organic formula production deliveries from the availability of organic ingredients in the destined for our infant formula products. Given Fonterra started from the first quarter of FY17. short term and with a longer term view. We our broad relationships, we have been working This additional manufacturing capacity has been matched to our demand requirements and ingredient availability. have several initiatives under way that ensure closely with co-ops and dairies across Europe the ongoing demand for Bellamy’s baby to increase our access to existing available formula will be met, including long-term supply milk and provide opportunities for farmers to Across both of the TMI and Fonterra facilities agreements for key organic ingredients. convert their farms to organic. there is an opportunity to grow volumes. Reflecting Bellamy’s deep understanding of We continue to explore how we can support We also continue to facilitate potential expansion beyond contracted capacities, both within existing infrastructure and new sites. We take the view that this will require thoughtful and practical planning that ensures compliance with regulations in the countries within which the organic supply chain, we have continued conversion of Australian farms to organic to build access to organic ingredients as and are confident that our story will serve to evidenced by the substantial growth in encourage farmers to take this opportunity. volumes over the last two years. We now A small group of farmers in Tasmania is now have access to more than double the existing working through plans for conversion to ingredient pool to meet our medium term organic milk – this is the starting point for our we operate both now and into the future. growth objectives. The organic milk pool is growing To support our sales activities and growth, Bellamy’s sources organic dairy materials from multiple suppliers in Europe and deploys these ongoing plans for organic milk to be developed in Tasmania and Australia more broadly. 19 BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 Review of Operations Continued Our people and office locations By most business standards, the Bellamy’s team is lean and efficient. This is due in part to choosing experienced committed people – but for the most part it is choosing people who are a strong fit with our internal values and culture – and work towards a higher purpose to help change the world. We believe it is our purpose that galvanises our people. By producing wholesome, organic food, our people genuinely believe that they are helping to shape the next generation’s mindful eating habits. And in their own small way, they are helping Bellamy’s create better, healthier lives. It is this belief that makes our people a mirror of our brand personality, since our internal values are also those of our brand. But we also realise that their commitment to the business is only one part of the equation: we also have a commitment to our people. We aim to give them the opportunity, support and environment to do the best work of their careers. Our focus on people repays the business through the positive feedback we receive from our business partners, and our Bellamy’s users. The Bellamy’s team is primarily based in Launceston, with sales teams located in Sydney, Melbourne, Perth, Brisbane, China and Singapore. During the year we also strategic growth in our team. We also have teams based in our office in Shanghai to support the China business and in Singapore to support the South East Asia business. opened an office in Melbourne to support the strength of our existing teams. months has accelerated our people needs It is expected the Bellamy’s team will across all aspects of the business in order continue to grow over FY17 in Australia and to ensure we have the right platform to grow Asia to achieve our growth ambitions in sustainably over the longer term. This has those markets. seen the number of employees increase by 50% over FY16 across both Australian and Asian locations, and also across all facets of the business, enabling us to build on the Bellamy’s is a strong advocate for diversity in the workplace, and 67% of our team are women. At an executive level, over 33% of the executive team are women, and at board level, 50% of the directors are As part of this growth, we have strengthened women. Bellamy’s will continue to advocate Bellamy’s senior leadership team with for women in senior positions, and aims to the appointment of a Chief Operations & foster a culture of diversity in various ways, Strategy Officer, and an Executive Director notably through the promotion of people Bellamy’s rapid growth over the past 12 People & Culture. from within our organisation to leadership roles at Bellamy’s. 21 BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 Financial Review Exceptional growth in FY16 earnings Sustainably growing while optimising returns The table below outlines the key consolidated financial performance indicators for FY16. Statutory Profit Results Financial Year ended Financial Year ended Period Period 30 June 30 June Movement movement 2016 ($000) 2015 ($000) Up/Down up/down ($000) % Revenue EBIT 244,583 125,302 119,281 54,306 12,286 42,020 Profit before income tax expense 54,894 12,981 41,913 Income Tax expense (16,566) (3,908) (12,658) 95% 342% 323% 324% Net Profit after income tax expense 38,328 9,073 29,255 322% Underlying Profit Results (1) For the year ended 30 June 2016 For the year ended 30 June 2015 Bellamy’s has delivered another record year. We have optimised returns and achieved exceptional growth in earnings in FY16, with EBIT up 342% to $54.3 million. With revenue of $244.8m achieved, this delivered a FY16 EBIT margin of 22.2%. We have used the growing earnings and cash flows to commence a business reinvestment program during H2 FY16 in order to put in place the building blocks required – people, infrastructure and marketing – to drive sustainable growth and further optimise long term returns. We will continue our investment program with FY17 being a year of increasing sophistication for the business to ensure we have the right platform in place to drive sustainable long-term growth. Our plans will see a further $15-20 million invested into the business in FY17 to complete this investment program. This investment will position the Statutory Non- Underlying Statutory Non- Underlying business for sustainable earnings growth in Profit ($000) Recurring Items ($000) Profit ($000) Profit ($000) Recurring Items (2) ($000) Profit ($000) FY18 and beyond. Revenue Bellamy’s receives its revenue primarily from 244,583 125,302 - 125,302 the sale of its products: 54,306 12,286 1,312 13,598 • Directly to consumer operations (principally Revenue 244,583 EBIT 54,306 Profit before 54,894 income tax expense Net Profit after income tax expense 38,328 - - - - 54,894 12,981 1,312 14,293 38,328 9,073 918 9,991 (1) Bellamy’s has followed the guidance for underlying profit as issued by the ASIC regulator Guide RG230 ‘Disclosing non-IFRS information’. The profit and loss summary with a prior period comparison provided in the table above, has been sourced from the audited accounts but has not been subject to separate review or audit. The Directors believe that the presentation of the unaudited non-IFRS profit and loss summary in the table is useful for users as it reflects the underlying profits of the business. (2) Non-recurring items in 2015 include $1.3m in relation to obsolete stock from the Ready to Go products. supermarkets and pharmacies) • Through distribution agents in offshore jurisdictions that then on-sell direct to retailers • Direct to consumers through Bellamy’s online store and through other e-commerce platforms, including tmall.com, jd.com. and vip.com Revenue is derived for each geographical market through a combination of these activities. Bellamy’s sells selected products in each market depending on the market regulatory requirements and consumer preferences. 23 BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 Financial Review Continued Group revenue for FY16 was $244.6 million to increased volume of ingredients as the e-commerce platform providers. In addition, which is a 95% increase on FY15, reflecting: company continues to grow. we invested more into market research, brand • Increased brand awareness As we further build brand awareness, • Growth across all retailers ensuring our products are accessible to the awareness and other brand building initiatives to support the future growth of the company. • New distribution points with independent retailers in the domestic market • Growth across online distribution channels. Gross Profits The gross profit margin for FY16 was 45.7% compared to 32.9% in FY15, reflecting: • Change in channel mix, with online channels delivering higher gross profit margins • Price rise in the domestic market for infant formula products, which was implemented in December 2016, together with the flow-on effect into our e-commerce flagship store pricing in China. broader demographic of customer is also 3. Distribution and selling costs important. As such, we plan to invest in appropriate strategic promotional activities to attract new consumers to our brand (for example via social media campaigns). The focus on attracting customers early in the product lifecycle will enhance our product annuity and provide greater return on investment, as parents progress through the product range at various touchpoints in their child’s development. Costs of Doing Business Bellamy’s utilises third party warehousing providers and logistics providers for the safe supply and delivery of products. One of the outcomes of the sales volume growth we have achieved are operational efficiencies that assist us in optimising returns. During FY16, new warehouses in Hong Kong and China were contracted to deliver services to the expanding sales network. The new warehouses have been necessary to meet the needs of our multiple e-commerce Over FY16, we have been able to improve sales channels and to support our offline profitability through managing costs while distribution strategy in China. This was the first price increase Bellamy’s growing revenues. implemented in approximately five years and 1. Employment costs brought our product more into line with an This year, we have made a clear and appropriate price level for premium / organic purposeful investment in our people and infant formula products. The last six months of FY16 also saw us strengthen Bellamy’s presence in multiple e-commerce channels with numerous new relationships commencing on various platforms directly servicing Chinese consumers. This influenced the mix of sales this will continue in FY17. We anticipate the number of people employed by Bellamy’s will grow over the next 12 months, however we will continue to pursue the right balance between acquiring high quality talent, the appropriate number of resources and the Other costs of selling include e-commerce platform fees and commissions and merchandising costs. In the next 12 months Bellamy’s will continue its transition from an outsourced merchandising model for Australia to an in-house model. This will further optimise returns by improving efficiencies in costs while also improving ranging and distribution of Bellamy’s products through a dedicated merchandising force. costs associated with the growth of our Overall, distribution and selling costs have across our channels in FY16. people. reduced as a percentage of revenue. From a product cost perspective, we 2. Marketing costs are focused on leveraging the benefits of Marketing spend has increased for the year at increased production volumes and working 2.9% of revenue (FY15 2.0%). We increased closely with manufacturers, distributors and digital marketing over the second half of suppliers to develop sustainable long-term FY16 – further developing our web platforms pricing solutions for the entire supply chain. across Australia and Asia, increasing our We recognise the importance of security of social media presence and increasing our ingredient supply, and the investment required e-commerce marketing initiatives through to achieve this in order to ensure access strategic partnerships with a number of Strong growth in shareholder returns Building on Bellamy’s performance in FY15 and growth outlook, the company’s share price continued to rise in FY16. As at 30 June 2016, Bellamy’s share price was $10.20 (30 June 2015: $4.37). This is significant growth since listing on 5 August 2014 at $1.30. 25 BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 Financial Review Continued Reflecting the company’s strong balance sheet and growth outlook, in February 2016 the Board declared a fully franked interim dividend of 4.1 cents per share. A fully franked final dividend of 7.8 cents per share was declared by directors on 19 August 2016. The total dividends paid and declared for FY16 represent a payout ratio of 30% of FY16 profit Outlook: strong growth will facilitate business reinvestment that will underpin longer term returns Bellamy’s remains focused on delivering sustainable growth in FY17 through: While the China regulatory environment has undergone substantial change over the past six months, we were aware well in advance of the pending changes and were ready to adapt. We believe the changes implemented by the China government are important to ensure safe products for consumers, and believe we are well placed to continue to grow as a result of those after tax. • Increasing market penetration in Australia to changes. Cash from operations and other sources of cash Cash balances remained relatively stable over the period, increasing by $0.3 million, closing at $32.3 million. During FY16, the company generated positive cash flows from operations of $8.9 million. The primary factor driving this has been strong sales, a strong debtors’ collection cycle and improved trading terms with suppliers. Inventory balances have increased significantly as a result of the addition of a second manufacturing partner (Fonterra) and the ingredients required to support this initiative, as well as levels of finished goods to support the current sales rate of the business. Ingredients on hand at 30 June 2016 comprised approximately 50% of overall inventory value at that date. drive further volume share growth • Strengthening distribution growth in China and South East Asia by leveraging online and offline sales channels Underpinning the sales and distribution opportunities in Australia and Asia is a supply chain team that is firmly focused on growing our supply of organic ingredients and manufacturing • Innovating new organic products within the capacity. Strong forward planning and a commitment from our supply chain to meet the high demand for Bellamy’s products has ensured that not only have we been able to achieve exceptional growth over FY16, but we will be able to supply a substantial uplift in manufacturing volumes over FY17 and beyond. This underpins our ability to continue to meet the fast-growing demand for our products globally. baby category • Building on our deep understanding of the complex organic global supply chain through strong partnerships, open communications, and arrangements that support mutual growth to meet our growing supply requirements. In Australia, the business will continue to deepen distribution both geographically and with new retailers. Opportunities for further growth are focused on increasing our product ranging across retailers with the full product suite, and developing new accounts with smaller retailer and pharmacy groups. In FY17, new product development will focus on innovation within existing ranges and products The investment into our supply chain through specific to the China market. the building of raw materials inventory is a measured and deliberate one. While drawing on working capital, this strategy is important in supporting Bellamy’s ability to remain flexible and responsive to the fast growing market demand for our products. Inventory management remains a focus for us. We are mindful of the business’s cash flow requirements as it continues to grow, and have appropriate funding arrangements in place to meet our requirements. In China, we are focused on further growing our multi-channel distribution, and further developing online and offline distribution of the Bellamy’s range, with baby formula as the spearhead. Having quickly built a top 10 presence on Tmall, and with the China consumer buying more and more online, we aim to capture a growing portion of the e-commerce market through platforms such as Tmall, JD, VIP, and BabyTree. 27 BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 Risk Management Bellamy’s considers the identification, The company employs a number of measures consideration to future exchange rates evaluation and control of risks to the to minimise the risk in this area including movements and to ensure a sustainable pricing business and corporate strategy an important food safety accreditations, a positive release solution for both parties. underpinning to growth. Bellamy’s continues to mature and refine its risk management approach. Risks are regularly monitored, especially those internal and external risks that could have a material impact program, substantial independent product testing through accredited laboratories, dedicated professional Bellamy’s staff to audit factories and ingredient suppliers and having in place appropriate insurances. on Bellamy’s. The following are considered to Change in Regulations In addition, Bellamy’s trades via the t-mall. com and jd.com global platforms. These platforms allow Chinese consumers to pay for their goods in RMB via transaction facilities operated by the two platforms. Funds collected are remitted to Bellamy’s in Hong Kong dollars, and in US dollars. The exchange rate used by the transaction facilities is reflective of the spot market price. Bellamy’s will monitor this transaction basis as the monies traded increase proportionately to the business. There is a risk that laws or regulations may be introduced or amended in Australia, or in foreign jurisdictions in which Bellamy’s sells or sources its ingredients and/or products. Bellamy’s understands the sensitivity of the organic, baby and food industries. Through Bellamy’s imports many ingredients and industry engagement and the appointment has exposure to USD and EUR movements of personnel to particularly focus on and directly where it purchases ingredients on its understand these regulatory issues in own behalf and indirectly through purchases Australian and Asia, Bellamy’s aims to of finished products where its product respond efficiently and effectively to changes manufacturers purchase ingredients on its in regulation that may impact its business. behalf. that enables the business to ensure it Foreign Exchange maintains its organic certification. Ingredients The group has exposure to movements in and ingredient suppliers are carefully selected foreign currency exchange rates through: • Sales to distributors and customers in foreign currency • Inventory purchases In order to hedge against the exposure to fluctuations in exchange rates associated with the direct purchase of ingredients by Bellamy’s, the company enters into forward exchange contracts (AUD/EUR only at this stage), which are designated as cash flow hedges. The company also aims to create natural • Translations of net investments in foreign hedges wherever possible. As transactions subsidiaries denominated in foreign of this nature are increasing, the business currencies. will continue to monitor its foreign exchange risk management policies and look for best forecast growth. During FY16, Bellamy’s sales were Product Contamination, Recall and Food Safety As a producer of food products, Bellamy’s is subject to a general risk that any product contamination or product-recall issues (however caused) may have a material adverse effect on the company’s brand and its financial performance. predominantly transacted in Australian dollars. practice solutions. For the internal operations in the entities in Singapore, Hong Kong and China, all income and expenses are conducted in local currency. Consistent with previous financial years, the Bellamy’s contract with its import agent in China was conducted in Australian dollars. Prices were renegotiated in July 2015 with 29 be the material risks to the business and our approach to managing those risks. Ingredients and Manufacturing Bellamy’s Organic maintains its credibility and brand strength by ensuring all of its products are certified organic. This requires Bellamy’s to rely on a complex global organic supply chain, where ingredients maintain their organic certification and are available in sufficient quantities to meet the demands of the business. Bellamy’s has a strict quality control system and managed throughout the organic supply chain by a dedicated in-house supply chain and quality team. Bellamy’s has developed a deep understanding of the complex organic global supply chain, and has built strong relationships with key suppliers and manufacturers with whom Bellamy’s plans for Board of Directors Laura McBain Managing Director and CEO Laura was appointed as General Manager of Bellamy’s in 2006, Chief Executive Officer (“CEO”) in 2011 and Managing Director and CEO in 2014. Prior to joining Bellamy’s, Laura practised as an accountant specialising in the areas of providing business advisory and taxation services. Laura holds a Bachelor of Commerce and in 2013 completed the IMD Leadership Challenge. In 2013, Laura was named the Telstra Tasmanian Business Woman of the Year and she went on to be named the Telstra Australian Business Woman of the Year for 2013 (Private and Corporate). Rob Woolley Independent Non-executive Chair Member of the Remuneration and Nomination Committee Member of the Audit and Risk Committee Rob was appointed as Chair on the formation of the Company in 2007. Rob is Chair of TasFoods Limited and was previously a Board member and Chair of Tandou Limited. He was also Managing Director of Webster Limited and prior to that role a partner for approximately twenty years in Deloitte including senior management roles in that firm. Rob has also served on various Government Boards and committees. Rob holds a Bachelor of Economics, is a Fellow of the Institute of Chartered Accountants, and a member of the Institute of Company Directors. Ian Urquhart Independent Non-executive Director Member of the Remuneration and Nomination Committee (resigned 22 April 2016) Michael Wadley Independent Non-executive Director Chair of the Remuneration and Nomination Committee (resigned 22 April 2016) Member of the Audit and Risk Committee (resigned 22 April 2016) Ian resigned as an Independent Non-executive Director of Bellamy’s Australia Ltd on 30 June 2016 Ian was appointed as a non- executive director and the Company Secretary on the formation of the Company in 2007. He resigned as Company Secretary in June 2014. Ian was a Chief Financial Officer and director of the PGA Group Pty Ltd for over thirty years and taught finance and accounting at Monash University. Ian has a Bachelor of Commerce, a Masters in Administration and is a Certified Practising Accountant (CPA). Member of the Audit and Risk Committee Michael was appointed a Non-executive Director in 2014 and has been based in Shanghai over 15 years Michael is a principal at Wadley Consulting Shanghai Co. Ltd, and has served three terms on the Board of Directors of the Australian Chamber of Commerce in Shanghai and previously headed up the China practice groups of two national Australian law firms. He is a committee member of the Australian China Business Council, Queensland, and a Fellow of the Australian Institute of Company Directors. Michael holds a Bachelor of Laws from Queensland University of Technology, and is admitted to practice the Supreme Court of Queensland, the High and Federal Courts of Australia, and is registered as a foreign lawyer in China and Hong Kong. BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 Patria Mann Independent Non-executive Director Chair of Audit and Risk Committee (appointed 22 April 2016) Charles Sitch Independent Non-executive Director Member of the Remuneration and Nomination Committee (appointed 22 April 2016) Patria was appointed a Non- executive Director on 10 March 2016. Patria is an experienced non-executive Director who is currently on the boards of Event Hospitality and Entertainment Charles was appointed a Non- executive Director on 10 March 2016. Charles is currently a Director of Spark Limited (formerly Telecom New Zealand Limited), (formerly Amalgamated Holdings), and Apiam Animal Health Ridley Corporation, Allianz Australia and Perpetual Superannuation. Patria was formerly a Partner at KPMG. She holds a Bachelor of Limited. He is also Chairman of the Robin Boyd Foundation and Board Member of Trinity College (Melbourne). Economics (University of Sydney), Charles was previously a Director is an associate of the Institute of Chartered Accountants and a Fellow of the Australian Institute of Company Directors. of the global management consulting firm McKinsey & Co for 24 years. Charles has a Bachelor of Law / Commerce from the University of Melbourne, an MBA from Columbia Business School, and is a Graduate of the Australian Institute of Company Directors. Launa Inman Independent Non-executive Director Member of the Audit and Risk Committee (resigned 22 April 2016) Chair of the Remuneration and Nomination Committee (appointed 22 April 2016) Launa was appointed as a Non- executive director of the company in February 2015. Launa brings to the board extensive experience in retailing, marketing (including digital technology and social media), finance and logistics. Launa is a director of the Commonwealth Bank of Australia, Super Retail Group Limited, and Precinct Properties New Zealand Limited and a member of the boards of the Alannah and Madeline Foundation and Virgin Australia Melbourne Fashion Festival. Her diverse experience includes terms as Managing Director and CEO of Billabong International (May 2012 to August 2013), Managing Director of Target Australia Pty Ltd (2005 to 2011) and Managing Director of Office Works (2004 to 2005). Launa’s qualifications include: MCom, University of South Africa (UNISA), BCom (Hons) (UNISA), BCom (Economics & Accounting) (UNISA). She is a member of the Australian Institute of Company Directors and has completed the Wharton Business School executive program. 31 Executive Team Shona Ollington Chief Financial Officer Andrew Cohen Chief Operations and Strategy Officer Brian Green Company Secretary Shona was appointed as Chief Andrew was appointed as COO Brian was appointed Company Financial Officer (“CFO”) in August and Chief Strategy Officer in June Secretary in June 2014, he had 2014. Prior to joining Bellamy’s 2016. Andrew brings extensive been performing the role of the Shona enjoyed a 16 year career experience in grocery, retail and Chief Financial Officer (“CFO”) of at KPMG (Director since 2011) FMCG, including successful and Bellamy’s Organic since 2007. specialising in business advisory, extensive China go-to-market Brian’s extensive management taxation, business restructuring experience in vitamins, infant accounting experience has been and business valuation. Shona formula and dairy. is also an advisor to the Board of the University of Tasmania Academy Gallery. Shona holds a Master of Applied Finance (Kaplan Professional), is a Fellow of the Taxation Institute of Australia (TIA), has a Graduate Diploma of Financial Planning (Securities Institute of Australia), and is a Member of the Institute of Chartered Accountants in Australia (ICAA). Shona holds a Bachelor of Commerce with majors in Prior to joining Bellamy’s, Andrew worked as a Partner with Bain & Company where he held a leadership role in Consumer Products and Retail practice. With over 10 years’ retail and FMCG experience in management and consulting roles, Andrew has worked with multiple high profile companies to capitalise on the greatest opportunities in the sector and delivering strategies to accelerate growth across multiple Accounting & Human Resource platforms. Management. Andrew holds a Bachelor of Commerce and Arts, University of Melbourne, and completed an MBA, Cambridge University (Dux). gained through working as a management accountant for a wide variety of businesses, including many agribusinesses. Brian has also practised as an accountant in the areas of tax and business advisory work for a number of organisations including Deloitte Touche Tohmatsu. Brian is currently a Director of JR Green Pty Ltd (property management) and BRG Management Pty Ltd (accounting services). Brian holds a Bachelor of Business Accounting and is a Member of the Institute of Chartered Accountants (ICAA) and is a past recipient of its Tasmanian PY Award. BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 Directors’ Report The directors present their report on the consolidated entity consisting of Bellamy’s Australia Limited and the entities it controlled at the end of, or during, the year ended 30 June 2016. Throughout the report, the consolidated entity is referred to as the Group. 1. Information about the directors 1.2 Directorships of other listed companies 1.1 Names and particulars The names and particulars of the directors in office at any time during or since the end of the financial year are: Rob Woolley Independent Non-executive Chair Laura McBain Managing Director and CEO Ian Urquhart Independent Non-executive Director Michael Wadley Independent Non-executive Director Launa Inman Independent Non-executive Director At the date of this report, Directorships of other listed companies held by directors in the 3 years immediately before the date of this report are as follows: Director Company Robert Woolley TasFoods Limited Tandou Limited Launa Inman Commonwealth Bank Limited Billabong International Limited Precinct Properties Pty New Zealand Super Retail Group Limited Period of directorship Since September 2015 2011 - 2015 Since 2011 2012 - 2013 Since October 2015 Since November 2015 Patria Mann Ridley Corporation Limited Since 2013 Event Hospitality & Entertainment Limited Charles Sitch Spark New Zealand Limited Apiam Animal Health Limited Since 2011 Since 2015 1.3 Director shareholdings The following table sets out each director’s 1.4 Directors’ Meetings Patria Mann relevant interest in Bellamy’s shares and The number of Directors’ meetings held and Independent Non-executive Director Charles Sitch Independent Non-executive Director The above named directors held office for the whole of the financial year and since the end of the financial year except for: • Patria Mann – appointed 10 March 2016 • Charles Sitch – appointed 10 March 2016 • Ian Urquhart – resigned 30 June 2016 See more information about the Board of Directors on pages 30 and 31. options as at the date of this report. the number of meetings attended during the Fully paid ordinary Share shares options financial year were: Board of Directors Director No. No. Attended Held Robert Woolley 452,277 Nil Laura McBain 1,165,376 1,356,795 Ian Urquhart 1,000,000 Michael Wadley Launa Inman Patria Mann Charles Sitch Nil 26,020 4,000 Nil Nil Nil Nil Nil Nil During FY2016 530,918 options were issued to Laura McBain under the Long Term Incentive Plan (LTIP) for senior executives of the Company. Refer to the note 8 of the Remuneration Report for further details. Directors Robert Woolley Laura McBain Ian Urquhart1 Michael Wadley Launa Inman Patria Mann2 Charles Sitch2 A 13 13 11 13 13 5 5 B 13 13 13 13 13 5 5 A Number of meetings attended during the year B Number of meetings held during the time the Directors held office during the year. 1 Resigned as Non-Executive Director of the Board on 30 June 2016 2 Since appointment on 10 March 2016 33 Directors’ Report Continued Attendances at the Audit & Risk Committee and the Remuneration & Nominations Committee meetings during the financial year were as follows: Directors Robert Woolley Ian Urquhart1 Michael Wadley2 Launa Inman3 Patria Mann4 Charles Sitch5 Audit and Risk Committee Nominations Committee Remuneration and Attended A Held B Attended A Held B 7 7 7 6 1 7 7 7 7 1 N/A N/A 9 6 5 9 N/A 3 9 9 5 9 N/A 3 A Number of meetings attended during the year. B Number of meetings held during the time the Directors held office during the year. 1 Resigned as the Chair of the Audit and Risk Committee as of 22 April 2016. 2 Resigned as Chair and Member of the Remuneration and Nominations Committee as of 22 April 2016. 3 Appointed as the Chair of the Remuneration and Nominations Committee as of 22 April 2016. 4 Appointed as the Chair of the Audit and Risk Committee as of 22 April 2016. 5 Appointed as a Member of the Remuneration and Nominations Committee as of 22 April 2016. 2. Share options granted to directors and senior management On 23 December 2015, in accordance with the employee Long Term Incentive Plan (as approved by the shareholders at the annual general meeting on 20 October 2015), the company issued 896,632 conditional vesting options to the managing director and other senior management as part of their remuneration. The exercise price for the 2016 grant options is $4.97; however the options can only be exercised if specific performance hurdles are met. These options expire five years after the date of the grant which should be no later than 23 December 2020. The holders of these options do not have the right, by virtue of the option to participate in any share issue or interest issue of the company or of any other related body corporate. On 30 June 2016 a further grant of options was made to Andrew Cohen under the Long Term Incentive Plan. The details of grant of options are set out below: Directors and senior management No. of options granted FY2016 No. of options granted 30 June 2016 Total No. of ordinary shares under option Laura McBain Shona Ollington Andrew Cohen Other executives 530,918 112,000 - 253,714 896,632 - - 689,950 - 689,950 1,356,795 328,793 689,950 253,714 2,629,252 Further details about share based payments to directors and key management personnel are included in the Remuneration Report. 3. Company Secretary Mr B Green, Chartered Accountant, held the position of Company Secretary of Bellamy’s Australia Limited at the end of the financial year. He joined Bellamy’s Australia Limited in 2007 and previously held the position of CFO. He was appointed as Company Secretary in 2014. BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 4. Corporate Governance results of those operations in future financial the year ended 30 June 2016. The Board endorses the ASX Corporate Governance Council recommendations, 3rd edition. The Group has taken the opportunity to disclose its 2016 Corporate Governance Statement in the Governance tab on the website at bellamysaustralia.com.au. As required, the Group has also lodged the 2016 Corporate Governance Statement with the ASX. 5. Principal activities The principal activities of the group during the course of the financial year were the supply, sale and distribution of organic food and formula products for babies and toddlers. There were no significant changes to the principal activities during the year. 6. Review of operations A comprehensive review of operations is set out in the in the front section of this Annual Report under Review of Operations. years has not been included in this report as the disclosure of the information is likely to result in unreasonable prejudice to the Group. 9. Environmental regulations The Group’s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a State or Territory. 10. Dividends On 19 August 2016, the Directors declared a fully franked final dividend of 7.8 cents per share for the financial year ended 30 June 2016 (2015: 2.86 cents per share). In respect of the half year ended 31 December 2016, an interim dividend of 4.10 cents per share (2015: Nil) franked to 100% at 30% corporate income tax rate was paid to the holders of fully paid ordinary shares on 26 February 2016. 12.2 Statutory auditors For the year ended 30 June 2016 PricewaterhouseCoopers (“PWC”) acted as the Groups’ external auditor. A representative from PWC will be available to the Annual General Meeting to answer shareholder questions about the conduct of the audit and the preparation and content of the 2016 audit report. 12.3 Non-audit services Details of amounts paid or payable to the auditor for non-audit services provided during the year are outlined in note 32 to the financial statements. The board of directors has considered the position and, in accordance with written advice provided by resolution of the Audit and Risk Committee, is satisfied that the provision of non-audit services, during the year, by the auditor (or by another person or firm on 11. Indemnification and insurance of the auditor’s behalf) is compatible with the Changes in the state of affairs officers and auditors There have been no significant changes in the During the financial year, the company paid general standard of independence for auditors imposed by the Corporations Act 2001. state of affairs of the group during the financial a premium in respect of a contract insuring The directors are of the opinion that the year. 7. Events since the end of the financial year No matters or circumstances have arisen since 30 June 2016, which have significantly affected the group’s operations, results or state of affairs, or may do so in future financial years. secretary or executive officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the the directors of the company, the Company services as disclosed in note 31 to the financial Secretary and all executive officers of the statements do not compromise the external company and of any related body corporate auditor’s independence, based on advice against a liability incurred as such a director, received from the Audit and Risk Committee, 8. Future developments premium. The Group will continue to pursue its strategic business growth objectives through its sustainable growth model focusing on: • premium quality, • innovation; The company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the company or of any related body corporate against a liability • strengthening its brand awareness and diversification of its sales channels; and 12. Audit • continuing to build on its sustainable operating platform through enhancement of its internal systems and operating processes. Further information about likely developments in the operations of the group and the expected incurred as such an officer or auditor. 13. Rounding of amounts The company is a company of the kind referred to in ASIC Corporations (Rounding in Financials/Directors’ Reports) Instrument 12.1 Independence declaration A copy of the auditor’s independence 2016/191, dated 24 March 2016, and in declaration as required under section 307C of the Corporations Act 2001 is set out on page 51 and forms part of the Directors report for accordance with that Corporations Instrument amounts in the directors’ report and the financial statements are rounded off to the nearest thousand dollars, unless otherwise indicated. 35 for the following reasons: • all non-audit services have been reviewed and ratified by the Audit and Risk Committee to ensure that they do not impact the impartiality and objectivity of the auditor; and • none of the non-audit services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 Remuneration Report Message from the Chair of the Remuneration and Nomination Committee Dear Shareholders, The Board of Bellamy’s Australia Ltd (“Bellamy’s” or the “Company”) is pleased to present Bellamy’s Remuneration Report for the 2015/16 financial year (FY16). This year, Bellamy’s continues to deliver solid growth and financial returns for its shareholders, continuing the trend of the last 5 years and particularly since listing 24 months ago. The Bellamy’s Board believes that critical to delivering its short term business objectives and long term strategic ambitions for continued growth and expansion is the remuneration strategy. It should embrace the company’s high performance, ambitious and entrepreneurial culture to continue to deliver performance for our shareholders. The changes to remuneration introduced by the board in FY15 and adopted by shareholders at our last AGM have enabled the board to grow and serve our shareholders. In March 2016 Bellamy’s appointed two new Non-executive Directors, Patria Mann and Charles Sitch. Both appointments strengthen the Board diversity and depth. The appointment of Patria Mann means that 50% of Bellamy’s board are women, and as a leading company providing organic nutrition solutions to families, Bellamy’s actively promotes and advocates diversity in the workplace. Bellamy’s Board saw the retirement of longstanding director, Ian Urquhart, on 30th June 2016 after having held a role as director since Bellamy’s inception in 2007. A continued focus of the business is to build the leadership and executive team. During FY16, Bellamy’s appointed Katherine Henry as Executive Director People & Culture and Andrew Cohen as Chief Operations & Strategy Officer. These appointments build the strength and diversity of Bellamy’s leadership as the business continues to grow. In a rapidly expanding and growing business, it is necessary to regularly review policies and practices. We, therefore, intend to undertake a review during FY17 to establish a remuneration strategy and framework that aligns with Bellamy’s business and growth strategy. There will be a focus on the mix of fixed versus variable remuneration and measures and targets for both the short term and long-term incentive plans. With strong share price growth, it is especially important that any reward for executives under the long-term incentive plan is clearly linked to business performance and our shareholders’ expectations. On behalf of the Committee, I recommend the Report to you. Launa Inman Chair - Remuneration and Nomination Committee 37 Remuneration Report Continued Details of senior executive remuneration for FY16 prepared in accordance with statutory obligations and accounting standards, are contained in section 8 of this Report. The remuneration calculations in the table in section 8 are based on the Accounting Standards principle of ‘accrual accounting’ and, consequently do not necessarily reflect the amount of compensation an executive actually realised in a particular year. To supplement the required disclosure we have included the additional table below which shows the actual compensation realised by the senior executives who were key management personnel at the end of FY16. The amounts disclosed below are considered more helpful for shareholders as it reflects the senior executives ‘actual pay’ in FY16. It is important to note that the STI and LTI amounts are amounts earned based on performance during FY16 that vested and/or were paid in FY17. Name Laura McBain Shona Ollington Andrew Cohen5 Total Fixed (including super) $ Other benefits1 $ STI2 $ LTI3 & 4 $ $597,469 $33,572 $393,011 $297,658 $9,023 $0 $0 $197,736 $0 $904,150 $33,572 $590,747 Total $ $1,024,052 $495,394 $9,023 $1,528,469 $0 $0 $0 $0 1. Other benefits paid to Laura McBain relate to reportable fringe benefits provided during FY16 of $33,572. 2. This amount includes the actual FY15 STI payments and the approved FY16 STI amounts. 3. No options under the Bellamy’s LTI plan vested during FY16. 4. As part of the IPO the CEO was granted 953,000 options, and as disclosed in the 2015 remuneration report 100% of these options vested and the CEO exercised them in full. As details of this one off grant were disclosed in 2015 remuneration report they have not been disclosed in this table. 5. Andrew Cohen commenced employment with the Company on 27 June 2016. Remuneration report (audited) The Board of Bellamy’s is committed to ensuring that our remuneration practices and policies drives a culture of performance and ensures executives are rewarded for the delivery of results and the achievement of Bellamy’s short-term financial objectives and long-term business strategy and ultimately delivering value for our shareholders. This report outlines the remuneration framework and outcomes of Bellamy’s, for key management personnel for the year ended 30th June 2016. It also enables our investors to understand: • The costs and benefits associated with Bellamy’s remuneration practices and policies; and • The link between Bellamy’s performance and the remuneration paid to the CEO and executives. This report has been prepared in accordance with section 300A of the Corporations Act 2001 (Cth). The Report is divided into the following sections: Key section 1. Key management personnel 2. Role of the Remuneration & Nomination Committee 3. Engagement of remuneration consultants 4. Remuneration policy & strategic direction 5. Executive contracts 6. Non-executive Directors’ remuneration structure 7. Relationship between remuneration policy and company performance 8. Remuneration Tables – Directors and KMP Executives BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 Page 39 39 39 40 45 45 46 47 1 Key management personnel The term key management personnel (“KMP”) refers to those persons having the authority 3 Engagement of remuneration consultants and responsibility for planning, directing and controlling the activities of the Consolidated entity The Remuneration & Nomination (“Group”), directly or indirectly and includes any director of the Group (whether executive or Committee periodically engages otherwise). The KMP of Bellamy’s for the year ended 30 June 2016 were: Non-executive Directors Robert Woolley Role Chair Ian Urquhart (Resigned 30th June 2016) Non-executive Director independent external consultants to advise and assess the remuneration of the Chair, Non-executive Directors, CEO and those executives reporting to the CEO. During FY16, the Remuneration & Nomination Committee engaged Egan Associates Pty Ltd (“Egan Associates”) as Michael Wadley Launa Inman Non-executive Director a remuneration consultant. Non-executive Director Patria Mann (Appointed 10th March 2016) Non-executive Director Charles Sitch (Appointed 10th March 2016) Non-executive Director KMP - Executive Director Laura McBain KMP Executives Shona Ollington Andrew Cohen (Appointed 27th June 2016) Managing Director and CEO Chief Financial Officer Chief Operations & Strategy Officer 2 Role of the Remuneration & Nomination Committee The role of the Remuneration & Nomination Committee is to assist the Board by ensuring that Bellamy’s: • has coherent and appropriate remuneration policies and practices which enable Bellamy’s to attract and retain non-executive directors and executives who will create value for shareholders; • fairly and responsibly remunerates non-executive directors and executives having regard to In selecting the remuneration consultant, the Remuneration & Nomination Committee considered potential conflicts of interest and required the consultant’s independence from management as part of their terms of engagement. Egan Associates were asked to provide a remuneration recommendation in relation to the KMPs remuneration. The recommendations were provided to, and discussed with the Chair of the Remuneration & Nomination Committee. Egan Associates has confirmed in writing to the Chair of the Remuneration & Nomination Committee that their recommendations were made free from any undue influence by the Group’s KMP. Considering the above factors, the Board is therefore satisfied that remuneration advice provided was free from undue influence by any of the Company’s senior the performance of Bellamy’s, the performance of the executives and the general market management. environment; • has polices to evaluate the performance and composition of the Board, individual directors and executives on an annual basis with a view to ensuring that Bellamy’s has a Board that can properly discharge its responsibilities and duties; • has adequate succession plans in place (including for the recruitment or appointment of non-executive directors and executives); and • has policies and procedures that are effective to attract, motivate and retain appropriately skilled employees that meet Bellamy’s needs and are consistent with Bellamy’s strategic goals and human resource objectives. Further information about remuneration structures and the relationship between remuneration policy and Company performance is set out below. The Remuneration & Nomination Committee has a Charter which outlines the terms of reference under which it operates. It is available online at www.bellamysaustralia.com.au. Bellamy’s paid $53,937 (including GST) to Egan Associates in respect of remuneration advice and recommendations for NED fees, CEO and senior executive reward levels and arrangements, and the Bellamy’s long term incentive plan (including the valuation of options). 39 Remuneration Report Continued 4 Remuneration policy & strategic direction Bellamy’s remuneration policy aims to attract and retain the best available people to run and manage Bellamy’s and align their interests with our shareholders. The Board is committed to having a remuneration policy that rewards, and retains executives, for achieving our business objectives and delivering shareholder returns. In the case of executives, by providing a fixed remuneration component together with specific short-term and long-term incentives based on key performance areas affecting Bellamy’s financial results, Bellamy’s seeks to create alignment between the interests of executives and shareholders. In the case of non-executive directors, their remuneration does not contain performance-based or ‘at risk’ components. Non-executive directors are paid fees and are encouraged to hold shares in Bellamy’s. As advised to shareholders in the FY15 remuneration report, the Board has committed to revisit incentive arrangements to ensure the right hurdles are in place as the company continues to grow. Accordingly, a further review of Bellamy’s remuneration framework will be undertaken in FY17. 4.1 Executive remuneration structure Executives’ total remuneration package may be comprised of the following elements: • Total Fixed Remuneration (base salary + superannuation) • At-Risk Remuneration: • Short Term Incentive (“STI”) • Long Term Incentive (“LTI”) Currently Bellamy’s uses base salary for the purposes of calculating STI and/or LTI amounts. In FY17 Bellamy’s will move to a fixed remuneration approach for the purposes of calculating STI and/or LTI amounts. The relative weighting of fixed and variable components for target performance is set according to the scope of the executive’s role. The ‘at-risk’ component for the CEO and those executives reporting to her (including KMP executives) ranges from 20% to 110% of base salary, with an average of 60%. For the KMP the ‘at risk’ components are as follows: KMP - Executive Director Laura McBain KMP Executives Shona Ollington Andrew Cohen Short Term Short Term Incentive (At-Target)1 Incentive (Stretch)2 Long Term Incentive3 30% 50% 80% 30% 30% 50% 50% 35% 60% 1. The short-term incentive is the total payment at-target as a % of base salary. 2. KMP executives’ STIs have a stretch component that is designed to encourage above at-target performance as a % of base salary. 3. The long-term incentive refers to the value, of any grant as a % of base salary. The mix of each component as a percentage of the KMP’s base salary is shown in the graph below with a detailed description of each element discussed in more detail below. Remuneration Mix Laura McBain 48% 14% 38% Shona Ollington Andrew Cohen 61% 53% 18% 21% 16% 31% 0% 25% 50% 75% 100% Fixed STI LTI BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 4.2 Fixed remuneration 4.3 Short term incentive arrangements The remuneration for executives includes The Bellamy’s short-term incentive plan rewards the executives for performance against a a fixed component comprised of base pre-determined scorecard of measures linked to Bellamy’s short-term business performance salary and employer superannuation for 12 months, together with individual performance. The specific performance measures contributions. To ensure that fixed may vary from year to year depending on the business’s objectives, but are chosen on the remuneration for Bellamy’s executives basis that they will increase financial performance, market share, and shareholder returns. remains competitive and it is reviewed regularly by the Remuneration & Nomination Committee with reference to individual performance and relevant comparative remuneration in the market. Executive remuneration levels are market-aligned by comparison to similar roles in ASX-listed companies that have comparable market capitalisation, revenues, and financial metrics relevant to the executive’s role, skills and experience. As disclosed in the FY15 remuneration report, a review of the CEO’s and CFO’s fixed remuneration was undertaken during FY15 and the Board approved a remuneration increase for the CEO and CFO for FY16. Effective from 1 July 2015, Laura McBain’s fixed remuneration was increased to $600,000 (inclusive of superannuation), an 88% increase, and Shona Ollington’s fixed remuneration was increased to $299,308 (inclusive of superannuation), a 50.2% increase. In approving this increase, the Remuneration & Nomination Committee and the Board sought independent advice and were satisfied that the increase was necessary to ensure that the Company’s remuneration levels are aligned with the market. Details of KMP executives’ total fixed remuneration for the year ended 30 June 2016 (and 30 June 2015) can be found in the ‘Remuneration Tables’ section of this report. Bellamy’s adopted the following STI structure for FY16. What is the STI plan? An annual incentive plan under which participants are eligible to receive an annual award if they satisfy challenging operational, strategic and individual performance targets. Formal KPIs are notified to participants at the beginning of each year. 1 July to 30 June. What is the performance period Are both target Yes. STI opportunities are set as a percentage of executive base and stretch performance conditions imposed? salary, with a target opportunity and a maximum opportunity to encourage stretch performance. This ensures that target and stretch performance are rewarded. What are the Performance is measured against: KPIs? • Financial Group performance; • Financial Business Unit performance • Non-Financial KPIs relevant to the individual’s role and responsibilities. The STI plan applies beyond KMP. Why were the KPIs chosen? A combination of financial and non-financial KPIs have been chosen because the Board believes that there should be a balance between short term financial measures and more strategic non-financial measures to support further growth. How are the Financial KPIs are assessed quantitatively against predetermined KPIs measured targets. (and why was this method chosen)? Performance against non-financial KPIs relevant to the individual’s role and responsibilities is assessed annually as part of the broader performance review process for executives. The Board believes the STI provides the right measures and appropriately challenging targets for participants. As cash The STI plan is designed to encourage and reward high performance. It puts a significant proportion of the executives’ remuneration at-risk against targets linked to the Company’s performance objectives and therefore supports the alignment between the interests of the executive, Bellamy’s and our shareholders. How is the STI delivered? Why does the Board consider the STI plan an appropriate incentive? 41 % 16.0% % 17.3% % 8.0% % KMP Executives Shona Ollington 2016 Remuneration Report Continued 4.3 Short term incentive arrangements continued Details of those KMP executives’ who received an STI payment for the year ended 30 June 2015 and 30 June 2016, the proportion to be received for at-target and stretch performance, achieved STI, and the amount forfeited, is shown in the tables below. For the year ended 30th June 2016 STI amounts indicated below are subject to an annual review and payable subsequent to 30 June 2016 upon ratification and recommendation by the Remuneration & Nomination Committee and approval by the Board. 2015 STI $ At-Target KMP - Executive Director $ STI $ Stretch $ % At-Target % Stretch % Stretch STI Achieved STI Achieved STI Achieved STI Forfeited $ % % Laura McBain 90,000 150,000 126,000 140.0% 84.0% $ $ $ % % 54,000 90,000 74,400 137.8% 82.7% STI $ At-Target % At-Target % Stretch % Stretch STI Achieved STI Achieved STI Achieved STI Forfeited STI $ Stretch $ KMP - Executive Director $ $ % % Laura McBain 174,208 290,346 267,011 153.3% 92.0% KMP Executives $ $ $ % % Shona Ollington 84,000 140,000 123,336 146.8% 88.1% 11.9% 4.4 Long term incentive arrangements and the employee share option plan LTIs are delivered in the form of options under the employee share option plan (“ESOP”). The granting of options under the ESOP is considered an effective means of motivating, retaining and attracting high quality employees and aligning executives’ interests with those of shareholders. All options issued have an exercise price and only become valuable to the extent that the share price rises above the exercise price. Option grants will be subject to the ESOP rules and other regulatory requirements, including the ASX Listing Rules. It is envisaged that the ESOP will form an integral part the of Bellamy’s LTI arrangements. The terms and conditions that applied to the FY16 grant of options are set out below. What are options? An option to acquire a fully paid ordinary share in the Company (subject to payment of an exercise price), that will only vest and become exercisable if performance hurdles are satisfied. Do senior executives pay Options are granted as part of remuneration and therefore there is no payment provided in connection with a for options? grant. However, senior executives are required to pay an exercise price to exercise the options and receive shares, unless the company operates a cash equivalent amount in lieu. What is the performance The FY16 grant was divided into two tranches. The performance period that applies to each tranche is set period? out below. % of grant Performance measure Relevant performance period Tranche 1 Tranche 2 50% 50% Earnings per share 1/07/2015 – 30/06/2018 Share price growth 1/07/2015 – 30/06/2018 Vesting of both tranches will occur on or after 1 September 2018 subject to the Board determining that the applicable performance hurdles have been met. After vesting, the options will be exercisable from the date the Company issues a vesting notice for the Options (or any later date specified in the vesting notice). BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 What are the performance hurdles and why were they chosen? How does the EPS performance hurdle work? As set out above, the first tranche of the grant is subject to an earnings per share (“EPS”) performance hurdle, and the second tranche is subject to a share price growth (“SPG”) performance hurdle. The EPS Hurdle is based on the absolute and compound annual growth in the Company’s earnings per share over the relevant performance period. An EPS hurdle has been chosen as it provides evidence of the Company’s growth in earnings. It is a hurdle that directly correlates to improved shareholder value. The SPG Hurdle is based on the Company’s share price growth on a compound basis performance over the relevant performance period. A SPG hurdle has been chosen as it is directly linked to the Company’s share price growth and therefore the increase in value created for shareholders. Further details on the hurdles are set out below. The EPS performance hurdle is subject to the measurement of the Company’s average annual growth in EPS. It is intended that EPS for each relevant financial year will be calculated as net profit attributable to shareholders for that financial year, adjusted to exclude the costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus elements. Threshold vesting of options commences at 12% compound annual growth over the applicable performance period. Full vesting occurs for compound annual growth in EPS at levels consistent with outperformance. Company’s EPS Less than 12% 12% % of options that will vest in Tranche 1 Nil 20% Above 12% but less than maximum Between 20% and 100%, as determined on a pro-rata, At or above maximum 100% straight line basis The levels of EPS CAGR required to attract full vesting of the options under the Board approved long-term plan are commercially sensitive and, therefore, will not be disclosed at this time. The applicable EPS CAGR targets will be, however, disclosed on a retrospective basis in the Remuneration Report following the end of the performance period to ensure transparency for shareholders. How does the SPG For tranche 2, the percentage of the options that vest and become exercisable, if any, will be determined over performance hurdle work? the relevant performance period by reference to the following vesting schedule: Company’s SPG Less than 12% 12% % of options that will vest in Tranche 2 Nil 20% Above 12% but less than 18% Between 20% and 100%, as determined on a pro-rata, straight At or above 18% line basis 100% The Board has determined that the opening share price to be used for the purpose of the SPG Hurdle is $6.27. This has been set by reference to the average broker consensus share price target determined after the announcement of the Company’s full year financial results for FY15. 43 Remuneration Report Continued Process for assessing performance conditions The EPS performance hurdle is assessed based on the Company’s audited financial statements. This method of measurement was chosen as the use of financial statements ensures the integrity of the measure and alignment with the true financial performance of the Company. The Board has determined that the SPG performance hurdle will be assessed based on the growth in the Company’s share price from $6.27 over the relevant performance period. The Board believes the LTI provides the right measures and appropriately challenging targets for participants. No voting rights or entitlements to dividends are attached to the options. $4.97 The Board determined the exercise price with consideration to the 10 day VWAP (5 days pre the release of the annual results on 21st August 2015 and 5 days post). What are the rights attaching to the options? What is the exercise price and how was it determined? When do the options 23rd December 2021. expire? What happens on If a participant ceases to be employed due to termination for cause, all options held will lapse with effect from cessation of employment? the date of cessation. If a participant ceases to be employed for any other reason, then a pro rata proportion of any unvested options held, calculated by reference to the proportion of the total performance period that has elapsed as at the date of cessation, will be tested based on performance against the relevant hurdles to that date. Any options that vest based on performance against the hurdles will vest immediately. All other options will lapse. What happens on a change of control? In the event of a takeover bid or other transaction that in the Board’s opinion would result in a change of control, the Board has the discretion to determine that some or all of a participant’s unvested options will vest. If a change of control event occurs before the Board has exercised its discretion, then a pro-rata proportion of unvested options equal to the portion of the total performance period that has elapsed will be tested based on performance against the hurdles to that date. Any options that vest based on performance against the hurdles will vest immediately. All other options will lapse. BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 5 Executive contracts The remuneration and other terms of employment for the executives are covered in formal 6 Non-executive directors’ remuneration structure employment contracts that have no fixed terms. Bellamy’s may terminate an executive Bellamy’s remuneration policy for non- immediately for cause, in which case the executive is not entitled to any payment other than executive directors aims to ensure that the value of total fixed remuneration (and accrued entitlements) up to the termination date. Bellamy’s can attract and retain suitably Notice Notice Period by Period by Name Bellamy’s Executive Termination / Redundancy Payment KMP - Executive Director qualified and experienced directors having regard to: • the level of fees paid to non-executive directors of other comparable Australian listed companies; Laura McBain 6 months 6 months The Company has discretion to make a • the growing size and complexity of payment in lieu of all or part of the notice Bellamy’s operations; period. If the CEO’s employment is terminated in circumstances where there has been a fundamental change to her role, or if she is made redundant then she is entitled to a severance payment equivalent to 12 months’ salary. KMP Executives Shona Ollington 6 months 6 months The Company has discretion to make a • the responsibilities and work requirements of Board members; and • the skills and diversity of Board members. 6.1 Current fee levels and fee pool Under the ASX Listing Rules, the total amount paid to all non-executive directors in any financial year must not exceed the amount fixed in a general payment in lieu of all or part of the notice meeting of the Company. This amount period. If the CFO is made redundant or her employment is terminated in circumstances where there has been a fundamental change to her role, she is entitled to a severance payment that varies depending on her length of service. The payment will range between 12 months’ salary and 6 months’ salary and will include any applicable pay in lieu of notice. Andrew Cohen 6 months 6 months The Company has discretion to make a payment in lieu of all or part of the notice period. If the CO&SO is made redundant or his employment is terminated in circumstances where there has been a fundamental change to his role, he is entitled to a is currently $1,000,000 as determined by Shareholders at an Annual General Meeting held on 20th October 2015. For FY16, non-executive directors’ annual base fees were $82,125 each. The Chair of the Board Committees (Audit & Risk Committee and the Remuneration & Nomination Committee) received an additional annual fee of $6,570 and Committee members received a fee of $3,285. The Chairman of the Board received a fee of $219,000 and no extra fees for membership of Committees. These amounts were inclusive of any superannuation entitlements that any Group company is required to make in respect of the payment. severance payment that varies depending Directors may also be reimbursed for travel on his length of service. The payment will range between 12 months’ salary and 6 months’ salary and will include any applicable pay in lieu of notice. and other expenses incurred in attending to Bellamy’s affairs. Non-executive directors may be paid such additional or special remuneration as the non-executive directors’ decide is appropriate where a director performs extra work or services. 45 Remuneration Report Continued There are no retirement benefit schemes The following table shows the relationship between KMP executives’ at-risk remuneration and for directors other than statutory Bellamy’s financial performance: superannuation contributions, and non- executive directors’ remuneration must not Financial Year Ended 30 June 2016 2015 include a commission on, or a percentage Revenue ($000) of, the profits or income of Bellamy’s. A review of the structure of the non- executive directors’ fees will be undertaken EBIT ($000) EBIT Growth in FY17 as part of the overall review of Share price at start of year the Bellamy’s remuneration strategy & framework. 7 Relationship between remuneration policy and company performance Share price at end of year Share price growth Interim dividend (cents per share) The Board recognises that each executive Final dividend/distribution (cents per share) $244,583 $125,302 $54,306 $12,286 342% $4.37 $10.21 134% 4.1 7.8 11.9 39.8 497% $1.30 $4.37 236% 0.00 2.86 2.86 9.8 needs a significant portion of their remuneration to be at-risk and be linked to Bellamy’s annual business objectives and actual performance. Remuneration is linked to performance by: • Requiring a proportion of the executives remuneration to vary with the short-term and long-term performance of Bellamy’s; • Setting clear expectations on target and stretch performance objectives required for STI payments to ensure quality results; and • Assessment of long-term performance through multiple measures to provide a complete picture of Bellamy’s performance and the increase in shareholder value. Total dividend/distribution (cents per share) Basic EPS (cents per share) Average STI payout as a % at-target for eligible KMP executives1 150.05% 138.89% The following graph shows the Bellamy’s share price movement since 5th August 2014 (the day Bellamy’s was admitted to the ASX Official List): $1.30 to $10.21 as at 30th June 2016 (784%). Closing share price movement to 30th June 2016 $18.00 $16.00 $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00 05 A ug 14 05 N ov 14 05 F eb 15 05 M ay 15 05 A ug 15 05 N ov 15 05 F eb 16 05 M ay 16 BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 Remuneration Tables – Directors and KMP Executives Details of the nature and amount of each element of the remuneration and shareholdings of the KMP of the consolidated entity are set out in the following tables. Table A: Remuneration for key management personnel for the year ended 30th June 2016 Short Term Employee Benefits Benefits Payments Post-employment Share Based 2 t n e m y a P I T S $ y r a t e n o m - n o N $ s t fi e n e b n o i t a u n n a r e p u S t n e m y o p m e l m r e t g n o L s t fi e n e b $ $ s e r a h S $ 3 s n o i t p O $ 1 s e e F / y r a a S l r a e Y Non-executive Directors $ Robert Woolley 2016 200,000 2015 130,000 Ian Urquhart Michael Wadley Launa Inman Patria Mann Charles Sitch 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 84,000 62,500 84,000 64,554 81,000 22,001 24,437 0 23,860 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 19,000 12,350 7,980 5,937 7,980 6,133 7,695 2,090 2,322 0 2,267 0 0 0 0 0 0 0 0 0 0 0 0 0 l d e t a e R e c n a m r o f r e P l a t o T $ % 0 0 0 0 0 0 0 0 0 0 0 0 219,000 142,350 91,980 68,437 91,980 70,687 88,695 24,091 26,759 0 26,127 0 - - - - - - - - - - - KMP - Executive Director Laura McBain 2016 578,533 267,011 33,572 18,936 51,723 2015 287,675 126,000 12,324 25,115 15,746 KMP - Executives Shona Ollington 2016 279,231 123,336 Andrew Cohen 2015 155,769 74,400 2016 2015 8,241 0 0 0 0 0 0 0 18,427 14,798 782 0 440 0 0 0 293,757 1,243,532 45% 248,018 714,878 52% 58,777 480,211 38% 3,576 248,543 31% 5,733 14,756 39% 0 0 0% 1. The fees for P Mann and C Sitch represent those fees earned but not paid until after 30th June 2016. 2. The amounts shown for STI relates to the actual payments for FY15 and the approved amounts for FY16. 3. The fair value of performance rights as at the date of their grant has been determined in accordance with AASB 2 Share-based Payment. The amount shown is the amortised expense for FY16. 47 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Remuneration Report Continued Share based payments Table B: Details of share based payments granted as compensation to senior executives during the current financial year are set out below: KMP - Executive Director Laura McBain1 KMP Executives Shona Ollington1 Andrew Cohen2 Year 2016 2015 2016 2015 2016 2015 Option Series Number Value of Options Number Grant Date Granted Granted $ Vested Percentage of Grant Forfeited FY16 Grant 23-Dec-15 530,918 464,554 FY15 Grant 29-Jun-15 825,877 240,000 FY16 Grant 23-Dec-15 FY15 Grant 29-Jun-15 112,000 216,793 98,000 63,000 FY16 Grant 30-Jun-16 689,950 1,275,000 FY15 Grant n/a 0 0 Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil 1. The value of the options are calculated at the grant date and are amortised over the period from grant date to the vesting date for purposes of accounting and KMP remuneration reporting. For L. McBain and S. Ollington the fair value of each option at the grant date for the FY15 grant was $2.31 and for the FY16 grant was $1.04. 2. The options granted to A. Cohen consist of 3 grants. The grants were made on 1st July 2016 and were as follows: i. A grant of 37,575 as a sign-on offer with a vesting date of 30th June 2017, nil exercise price and a fair value of each option at the grant date of $1.21; ii. A grant of 369,125 based on the offer made to other KMP as part of the FY15 Grant with a vesting date of 30th June 2017, an exercise price of $9.98 and a fair value of each option at the grant date of $1.21; and iii. A grant of 283,250 based on the offer made to other KMP as part of the FY16 Grant with a vesting date of 30th June 2018, an exercise price of $9.98 and a fair value of each option at the grant date of $1.58. Loans to KMP and other transactions of KMP and their personally related entities Neither Bellamy’s nor any other Group company: • has outstanding loans with KMP; or • was party to any other transactions with KMP (including their personally related entities). Options over shares in Bellamy’s Australia Limited Table C: Shows the movements during FY16 in the options over shares in the Company held, directly, indirectly or beneficially, by each KMP, including their related parties. KMP - Executive Director Laura McBain KMP Executives Shona Ollington Andrew Cohen Options held at Granted as Vested in during the Options Exercised Start of remuneration Year Year in FY16 FY16 and exercisable1 reporting Forfeited in held at End period FY16 of Year 2016 2015 2016 2015 2016 2015 1,779,210 530,918 953,333 (953,333) 953,333 825,877 216,793 0 0 0 112,000 216,793 689,950 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,356,795 1,779,210 328,793 216,793 689,950 0 1) The 953,333 options that vested and were exercisable in FY16 relate to the one-off grant made to the Managing Director and CEO as part of a short term incentive disclosed in the 2014 remuneration report. The options had an exercise price of $1.00 and the fair value of each option at the grant date was $0.29. BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 Fully paid ordinary shares of Bellamy’s Australia Limited Table D: Shows the movement during FY16 in the shares of Bellamy’s held, directly, indirectly or beneficially, by each KMP, including their related parties is as follows: Non-executive Directors Robert Woolley Ian Urquhart Michael Wadley Launa Inman Patria Mann Charles Sitch KMP - Executive Director Laura McBain KMP Executives Shona Ollington Andrew Cohen3 Year 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Shares held at Start of Year Net other changes (1) & (2) Shares held at End of Year No. No. 1,335,739 (883,462) 452,277 3,080,438 (1,744,699) 1,335,739 2,500,000 (1,500,000) 1,000,000 3,727,089 (1,227,089) 2,500,000 0 0 22,000 0 0 0 0 0 1,565,376 1,565,376 0 0 13,750 0 0 0 4,020 22,000 4,000 0 0 0 0 0 26,020 22,000 4,000 0 0 0 (400,000) 1,165,376 0 0 0 0 0 1,565,376 0 0 13,750 0 1. As disclosed in the 2015 remuneration report the CEO was granted 953,333 options (no other KMP executives received a grant). The Board has determined that 100% of the options granted to the CEO would vest as a result of the achievement of an NPAT of $9.073m for FY15. Accordingly, the options granted to the CEO became fully exercisable and the CEO exercised these options in full shortly after the release of the FY15 results and sold the shares. 2. There were no shares held nominally by KMP as at 30 June 2016 and as at the date of this report. 3. These shares were acquired by A Cohen before he commenced employment with Bellamy’s on 27th June 2016. Signed in accordance with a resolution of the Board of Directors. Robert G. Woolley Laura McBain CHAIR CEO and Managing Director Dated at Launceston this 19th day of August 2016 49 BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 Auditor’s Independence Declaration Auditor’s Independence Declaration As lead auditor for the audit of Bellamy's Australia Limited for the year ended 30 June 2016, I declare that to the best of my knowledge and belief, there have been: 1. no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Bellamy's Australia Limited and the entities it controlled during the period. Alison Tait Partner PricewaterhouseCoopers Melbourne 19 August 2016 PricewaterhouseCoopers, ABN 52 780 433 757 Freshwater Place, 2 Southbank Boulevard, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. 51 BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 Financials Consolidated Statement of Profit and Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows HOW NUMBERS ARE CALCULATED Segment information Shareholder returns Profit and loss information Financial assets & financial liabilities Non- financial assets & liabilities Issued Capital RISK Critical estimates, judgements and errors Financial risk management GROUP STRUCTURE Parent entity supplementary information Subsidiaries UNRECOGNISED ITEMS Contingent liabilities and contingent assets OTHER INFORMATION Related party transactions Auditor’s remuneration Share based payments Deed of cross guarantee Summary of significant accounting policies Directors’ Declaration Independent Auditor’s Report 54 55 56 57 58 59 60 61 63 64 69 72 72 72 75 75 76 76 76 77 77 78 79 80 80 86 87 53 BELLAMY’S AUSTRALIA LIMITED Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2016 Note 5 5 6(a) 2016 $000 2015 $000 244,583 125,302 (132,855) (84,095) 111,728 41,207 522 397 (28,510) (10,433) (6,969) (11,725) (307) - (15,191) (5,606) (2,509) (5,298) (447) (267) 54,306 12,286 6(b) 588 695 54,894 12,981 7 3 (16,566) 38,328 (3,908) 9,073 (565) - (599) 37,164 (146) 8,927 39.8 38.6 9.8 9.5 Revenue Cost of sales Gross Profit Other income Direct costs (distribution costs) Employee costs Marketing & promotion costs Administrative costs Depreciation, amortisation IPO transaction costs Earnings before net interest and tax (EBIT) Net interest revenue Profit before tax Income tax expense Profit for the year Other comprehensive income (net of tax) Items that may be reclassified to profit and loss in future periods Changes in the fair value of cash flow hedges Income tax relating to these items Exchange differences arising from translation of wholly owned foreign entities Total comprehensive income for the year Earning/s per share Basic earnings per share (cents) Diluted earnings per share (cents) The accompanying notes form part of these financial statements. BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 BELLAMY’S AUSTRALIA LIMITED Consolidated Statement of Financial Position For the year ended 30 June 2016 Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Other financial assets Financial assets at fair value through profit or loss Other assets Total current assets Non-current assets Property, plant and equipment Intangible assets Deferred tax assets Total Non-current assets Total assets Liabilities Current liabilities Trade and other payables Borrowings Provisions Derivatives Current tax liabilities Total Current Liabilities Non-current liabilities Borrowings Provisions Total Non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained profits Total equity The accompanying notes form part of these financial statements. Note 2016 $000 2015 $000 21(a) 8 11 9 10 16 12 13 18 14 15 17 23 18 15 17 19 20 32,295 33,887 67,752 500 283 4,475 32,035 20,867 17,148 - 217 407 139,192 70,674 1,105 1,704 1,500 4,309 143,501 617 104 775 1,496 72,170 48,373 19,109 113 328 807 10,495 60,116 18 146 164 60,280 83,221 40,216 2,829 40,176 83,221 108 179 - 3,664 23,060 130 69 199 23,259 48,911 39,655 340 8,916 48,911 55 BELLAMY’S AUSTRALIA LIMITED Consolidated Statement of Changes in Equity For the year ended 30 June 2016 Foreign currency Cashflow Share based translation hedge reserve reserve $000 $000 payment reserve $000 Retained earnings $000 Total $000 - - - - - - - - - - (565) (565) - - - - 6 - - - - - 493 499 499 - - - - - 3,268 - 3,767 (157) 15,592 9,073 - 9,073 - - - 9,073 (146) 8,927 23,899 - 493 8,916 48,911 8,916 48,911 38,328 (385) 37,943 - (6,683) - - 38,328 (1,164) 37,164 561 (6,683) 3,268 - 40,176 83,221 Balance as at 1 July 2014 Comprehensive income Profit for the year Other comprehensive income Total comprehensive income Issued capital $000 15,756 - - - Issue of shares (net of transaction costs) 23,899 Dividends Share based payments - - (13) - (146) (146) - - - Balance as at 30 June 2015 39,655 (159) Balance as at 1 July 2015 Comprehensive income Profit for the year Other comprehensive income Total comprehensive income Issue of shares (net of transaction costs Dividends Share based payments Other transfers 39,655 - - - 561 - - - (159) - (214) (214) - - - - Balance as at 30 June 2016 40,216 (373) (565) The accompanying notes form part of these financial statements. BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 BELLAMY’S AUSTRALIA LIMITED Consolidated Statement of Cash Flows For the year ended 30 June 2016 Cash flows from operating activities Cash receipts from customers Cash payments to suppliers and employees Cash generated from operations Interest received Dividends received Other revenue Interest paid Income taxes paid Note 2016 $000 2015 $000 231,092 123,418 (214,416) (119,160) 16,676 598 5 38 (10) (8,412) 8,895 1 (752) (1,651) (2,402) 561 (107) - (6,684) (6,230) 263 32,035 (3) 4,258 745 4 - (31) (236) 4,740 - (267) (120) (387) 23,425 (217) 40 - 23,248 27,601 4,434 - Net cash inflow operating activities 21 (b) Cash flows from investing activities Proceeds sale property plant & equipment Purchases of property, plant & equipment Purchases of intangibles Net cash outflow from investing activities Cash flows from financing activities Proceeds share issue Repayment of borrowings Proceeds from borrowings Dividends paid Net cash out flow from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes Cash and cash equivalents at the end of the financial year 21 (a) 32,295 32,035 The accompanying notes form part of these financial statements. 57 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements For the year ended 30 June 2016 These are the consolidated financial statements of Bellamy’s Australia Limited and its subsidiaries. A list of all subsidiaries is included in Note 25. The financial statements are presented in the Australian currency. The notes are set out in the following main sections: How numbers are calculated: provides a breakdown of those individual line items in the financial statements that the directors consider most relevant in the context of the operations of the group, or where there have been significant changes that required specific explanations. Risk: discusses the group’s exposure to various financial risks and what the group does to manage these risks. Group structure: explains significant aspects of the group structure Unrecognised items: provides information about items that are not recognised in the financial statements Other information: includes information that is not directly related to specific line items in the financial statements, including: related party transactions and share-based payments. Other information also includes significant accounting policies applied in the preparation of these financial statements. HOW NUMBERS ARE CALCULATED 1 Significant changes in the current reporting period No significant matters or circumstances arose in the current year which significantly affected or may significantly affect the operations of the group, the results of those operations, or the state of affairs of the Group in future financial years. For a detailed discussion of the group’s performance and financial position, please refer to our operating and financial review on pages 9 to 27. Changes in accounting policy since the most recent interim financial report During the current year, the Group elected to early adopt AASB 9 ‘Financial Instruments’. AASB 9 contains guidance on hedge accounting that replaces the existing requirements of AASB 139 ‘Financial Instruments: Recognition and Measurement’. AASB 9 introduces changes to hedge effectiveness and eligibility requirements to align more closely with an entity’s risk management framework. • As a result of early adoption of AASB 9, there has been no material impact on amounts reported in these financial statements; however application of this standard has resulted in additional disclosures which are incorporated in Note 23. • The changes were adopted retrospectively with no impact on retained earnings in the current or previous financial years or interim financial reports. 2 Segment information a) Description of segments Operating segments are determined in accordance with AASB 8 Operating Segments. To identify the operating segments of the business management has considered the business from both a product and geographical perspective, as well as considering the way information is reported to management and the Board. Segment revenues are derived from the sale and distribution of organic branded formula and food products to babies and toddlers. Management has determined that there are three operating segments based on geographical location. The revenue for geographical segments is determined by the location of the retailer/customer in respect of direct sales. i) Australia – revenues derived from sales to retailers within Australia ii) China / Hong Kong – revenue derived from sales to Chinese distributors and online sales from third party websites to Chinese customers. iii) Other / South East Asia – sales to other distributors and retailers, predominantly in South East Asia. Management primarily uses a measure of earnings before interest and tax (EBIT) to assess the performance of the operating segments. Total assets and liabilities are measured in a manner consistent with that in the financial statements. These assets are allocated based on the operations of the segment and physical location of the asset BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements Continued For the year ended 30 June 2016 2 Segment Information continued b) Segment disclosures a. Segment reporting External sales Other revenue Segment Revenue Segment EBIT Other/South Australia China/Hong Kong East Asia Consolidated 2016 $’000 2015 $’000 2016 $’000 2015 $’000 2016 $’000 2015 $’000 2016 $’000 2015 $’000 178,629 107,045 62,144 14,137 3,809 4,119 244,583 125,302 (311) 15 (206) 297 215 634 (302) 946 178,318 107,060 61,938 14,435 4,025 4,753 244,281 126,248 35,628 13,009 20,873 416 340 685 56,842 14,110 Unallocated corporate expenses Group EBIT Net financing (costs)/revenue Profit before tax from continuing operations - - - - - - - - - - - - Total segment assets 91,089 37,343 17,463 Total segment liabilities 46,931 19,744 1,352 Other disclosures - - - - 1,099 2,540 Depreciation, amortisation & 249 436 39 9 - - - - 1,154 90 2 - - - - (2,537) (1,823) 54,306 12,286 588 695 54,894 12,981 918 489 109,706 39,360 48,373 22,773 2 290 447 impairments Income tax 15,082 3,868 1,738 Acquisition of segment assets 719 252 25 103 7 (255) 8 (63) 16,566 3,908 8 752 267 b. Reconciliation of segment assets and liabilities 2016 $0 2015 $0 2016 $0 2015 2016 $0 $0 2015 $0 2016 $0 2015 $0 Australia China/Hong Kong East Asia Consolidated Other/South Segment assets Unallocated Cash and cash equivalents Deferred tax assets (net) Total assets Segment liabilities Unallocated Provisions (employee benefits) Borrowings Derivatives Current tax liabilities Total liabilities 91,089 37,343 17,463 1,099 1,154 918 109,706 39,360 46,931 19,744 1,352 2,540 90 489 48,373 22,773 32,295 32,035 1,500 775 143,501 72,170 474 131 807 10,495 248 238 - - 60,280 23,259 59 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements For the year ended 30 June 2016 SHAREHOLDER RETURNS 3 Earnings per share Basic earnings per share (a) Diluted earnings per share (b) (a) Basic earnings per share 2016 cents 39.8 38.6 2015 cents 9.8 9.5 The calculation of basic earnings per share is based on the profit attributable to ordinary shareholders of $38,328,000 (2015: $9,073,000) and the weighted average number of shares outstanding of 96,350,131 (2015: 92,534,639) (b) Diluted earnings per share The calculation of diluted earnings per share is based on the weighted average number of shares outstanding of 96,656,397 and unexercised employee options of 3,035,662 (2015:3,355,746). 4 Dividends to Shareholders On 19 August 2016, the Directors declared a fully franked dividend of 7.80 cents per share). Dividends of 2.86 cents per share were paid during the previous financial year. In respect of the financial year ended 30 June 2016, an interim dividend of 4.10 cents per share (2015: Nil) franked to 100% at 30% corporate income tax rate was paid to the holders of fully paid ordinary shares on 26 February 2016. As at 30 June 2016, the level of 30% franking credits available to shareholders on a tax paid basis were $14,095,000 (2015: $4,566,000). The franking credits available are based on the balance of the dividend franking account in the prior year tax return adjusted in relation to the current income tax liabilities for the year ended 30 June 2016. The ability to utilise franking credits is dependent upon the ability to declare dividends. BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements Continued For the year ended 30 June 2016 PROFIT AND LOSS INFORMATION This note provides further information about individual line items in the profit and loss statement 5 Revenue Revenue from continuing operations Other income Grants received Dividends received Fair value increment/(decrement) – financial assets Gain/(loss) on disposal of assets Commissions received Sundry income Total other income Revenue recognition Measurement of revenue 2016 $000 2015 $000 244,583 125,302 39 5 66 (8) 353 67 522 - 4 (27) (4) 382 42 397 Revenue is measured at fair value of the consideration received or receivable after taking into account any trade discounts and volume rebates allowed. Any consideration deferred is treated as the provision of finance and is discounted at a rate of interest that is generally accepted in the market for similar arrangements. The difference between the amount initially recognised and the amount ultimately received is interest revenue. Timing of recognition Revenue from the sale of goods is recognised at the point of delivery as this corresponds to the transfer of significant risks and rewards of ownership of the goods and the cessation of all involvement in those goods. Interest revenue is reported under the heading of net finance costs and recognised using the effective interest rate method. Grant income is recognised as income when the grant becomes receivable. All revenue is stated net of the amount of goods and services tax (GST). Note 2016 $000 2015 $000 6 Expenses a. Employee benefits Wages, salaries, bonuses Superannuation Other employee related expenses b. Net finance revenue/(costs) (unrelated parties) Interest revenue Interest expense – financial liabilities c. Other expenses from continuing operations Depreciation – property, plant & equipment Amortisation and impairment of product development costs 12(b) Amortation of software Write-off obsolete stock IPO transaction costs 6,528 332 3,573 10,433 598 (10) 588 256 36 17 657 - 4,193 324 1,088 5,606 745 (50) 695 203 244 - 1,312 267 61 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements For the year ended 30 June 2016 7 Income tax expense a) Amounts recognised in profit or loss: Current tax expense Deferred tax expense / (benefit) Adjustments for current tax of prior periods Total income tax expense / (benefit) b) Numerical reconciliation between tax expense and profit before tax. Profit before tax from continuing operations Prima facie tax payable at 30% (2015:30%) Non deductible expenditure Other Effect of different overseas tax rates Impact of Controlled Foreign Company Rules R&D benefits Losses not previously recognised Tax effect of inter-entity eliminations Total income tax expense / (benefit) Weighted average effective tax rates 2016 $000 2015 $000 14,482 2,084 - 4,020 (112) - 16,566 3,908 54,894 16,468 6 (51) (1,571) 1,714 - - - 12,981 3,894 3 - 36 - (4) 6 (27) 16,566 30% 3,908 30% BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements Continued For the year ended 30 June 2016 FINANCIAL ASSETS & FINANCIAL LIABILITIES 8 Trade and other receivables Current Trade debtors (a) Loss allowance provision Other debtors 2016 $000 2015 $000 33,582 20,343 (60) - 33,522 20,343 365 524 33,887 20,867 a) Accounting for trade receivables The average number of days outstanding for trade debtors is approximately 30 days. Interest is not charged on overdue balances. Less than 1% of the balance is past 60 days overdue with all balances considered to be recoverable. Collectability of trade receivables is reviewed on an ongoing basis and written off by reducing the carrying value when known to be uncollectable. The impairment amount is recognised within administrative costs. b) Credit risk The company 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. The loss allowance provision as at 30 June 2016 is determined as follows: 2016 Expected loss rate Gross carrying amount Loss allowance provision Closing loss allowance as at 30 June 2015 Opening loss allowance as at 1 July 2015 Increase in loss allowance recognised in profit or loss during the period As at 30 June 2016 More than More than More than Current 30 days 60 days 120 days $000 $000 $000 $000 Total $000 - 15,138 - - 136 - - - - 33,582 60 0.3% 18,308 60 $000 0 0 60 60 The gross carrying amount of trade receivables is $33.6million (2015: $20.3million). During the period, the company made no write offs of trade receivables that it did not expect to receive future cash flows from and made no recoveries from collection of cash flows previously written off. 63 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements For the year ended 30 June 2016 9 Other financial assets Current USD held in trust 10 Financial assets at fair value through profit and loss Current Listed equity securities Listed equity securities The shares are held for trading and are designated as financial assets at fair value through profit and loss. Changes in fair value are included in the statement of comprehensive income under the heading of other income. The fair value increased by $66,500 (2015: decreased by $27,000). NON-FINANCIAL ASSETS & LIABILITIES 11 Inventories Current assets Raw materials & stores at cost Goods in transit Finished goods at cost Inventories are measured at lower of cost and net realisable value 12 Property, plant and equipment a) Carrying amounts Plant and Equipment At cost Accumulated depreciation Leasehold Improvements At cost Accumulated depreciation Total Property Plant & Equipment BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 2016 $000 2015 $000 500 500 283 283 - - 217 217 20,726 11,917 35,109 67,752 3,117 - 14,031 17,148 1,238 (452) 786 564 (245) 319 1,105 903 (327) 576 212 (171) 41 617 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements Continued For the year ended 30 June 2016 12 Property, plant and equipment continued b) Reconciliation of carrying amount Balance as at 1 July 2014 Additions Disposals Depreciation expense Balance as at 30 June 2015 Balance as at 1 July 2015 Additions Disposals Depreciation expense Balance as at 30 June 2016 Plant & Leasehold equipment improvements Total $000 503 184 - (111) 576 576 400 (8) (182) 786 50 83 - (92) 41 41 352 - (74) 319 553 267 - (203) 617 617 752 (8) (256) 1,105 Non-current assets pledged as security Plant and equipment pledged as security for asset purchase liabilities has a written down value of $103,000 (2015: $123,000). 13 Intangible assets Product development costs Cost Accumulated amortisation and impairment Software Cost Accumulated amortisation Total intangibles 2016 $000 2015 $000 1,555 (36) 1,519 202 (17) 185 348 (244) 104 - - - 1,704 104 Expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised only when the project is expected to deliver future economic benefits and those benefits can be reliably measured. Product development costs will be amortised over 3 years, or where the product line is discontinued, the balance is written off during that financial period. 14 Trade and other payables Current Trade payables Sundry payables and accrued expenses Payables are unsecured and are usually paid for 30 days from end of month. 2016 $000 2015 $000 42,359 6,014 48,373 17,016 2,093 19,109 65 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements For the year ended 30 June 2016 15 Borrowings Current Secured liabilities Asset purchase liabilities (a) Total current borrowings Non-Current Secured liabilities Asset purchase liabilities (a) Total non-current borrowings Total borrowings 2016 $000 2015 $000 113 113 18 18 131 108 108 130 130 238 Additional information on finance facilities available (a) The asset purchase liabilities are secured by underlying assets carried at $103,000 (2015: $123,000). Bank accepted letter of credits are provided from time to time in relation to export sale orders and are secured by the underlying receivable balance. Recognised fair value measurements Fair value hierarchy To provide an indication about the reliability of the inputs used in determining fair value, the group has classified its financial instruments into the three levels prescribed under the accounting standards. An explanation of each level follows underneath the table. Recurring fair value measurements as at 30 June 2016 Notes Level 1 Level 2 Level 3 Total Financial Assets Financial assets at FVPL Australian listed equity securities Total Financial Assets Financial Liabilities Derivatives used for hedging Foreign exchange contracts Total Financial Liabilities 10 19 283 283 - - - - 807 807 Recurring fair value measurements as at 30 June 2015 Notes Level 1 Level 2 Level 3 Financial assets at FVPL Australian listed equity securities Total Financial Assets Financial Liabilities Derivatives used for hedging Foreign exchange contracts Total Financial Liabilities 10 217 217 - - - - - - - - - - - - - - 283 283 807 807 Total 217 217 - - BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements Continued For the year ended 30 June 2016 15 Borrowings continued There were no transfers between levels 1 and 2 for recurring fair value measurements during the year. The group’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period. Level 1: The fair value of financial instruments traded in active markets is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the group is the current bid price. These instruments are included in level 1. Level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity securities. Valuation techniques used to determine fair values Specific valuation techniques used to value financial instruments include: • the use of quoted market prices or dealer quotes for similar instruments • the fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date 16 Other assets Current Prepayments Prepayments include payments for purchases of raw materials prior to ownership passing to the group. 17 Provisions Current Employee entitlements Non-Current Employee entitlements 2016 $000 2015 $000 4,475 407 328 146 474 179 69 248 67 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements For the year ended 30 June 2016 18 Tax Current asset / (liability) Current tax asset Income tax payable Deferred tax balances recognised Temporary differences relating to income Temporary differences relating to spending Inventories Other liabilities Employee entitlements Foreign exchange (losses) Overseas operating losses Share based payments Capital raising costs (equity) Net deferred tax balances recognised Represented by Deferred tax assets Deferred tax liabilities Movement in recognised deferred tax balances Opening balance Recognised in income Recognised in equity Deferred tax assets not recognised Australian Tax Consolidated Group Tax losses: capital Temporary differences : revenue 2016 $000 2015 $000 - - 10,495 3,664 - 314 196 661 141 40 290 189 330 1,500 2,109 (609) 1,500 774 (2,075) 2,801 1,500 201 - - 181 (18) 70 (177) 124 148 447 775 1,016 (241) 775 186 117 472 775 201 - Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements Continued For the year ended 30 June 2016 19 Issued capital a) Fully paid ordinary shares 96,656,397 (2015: 95,000,392) Fully paid ordinary shares carry one vote per share and carry a right to dividends. Movements in fully paid ordinary shares Balance 1 July 2014 5 August 2014 – share issue Balance 30 June 2015 Balance 1 July 2015 Share issue Balance 30 June 2016 2016 $000 2015 $000 40,216 39,655 Number of shares ‘000 Share capital $000 70,000 25,000 95,000 95,000 1,656 96,656 15,756 23,899 39,655 39,655 561 40,216 b) Share options granted under the Company’s employee share option plan On 3 September 2015, 1,633,962 options granted to executives and employees on 26 June 2014 were exercised and converted to ordinary shares of the Company. 293,333 options of this original grant were forfeited as a result of an eligible employee ceasing employment with the Company, and a further 272,705 options were foregone as result of cashless exercise. On 23 March 2016, as a result of the Dividend Reinvestment Plan, 22,043 shares were issued at a price of $10.80. The number of ordinary shares on issue is now 96,656,397 (2015: 95,000,392). As at 30 June 2016, executives and employees held options over 2,629,252 (2015: 3,355,748) ordinary shares of the Company. The holders of these options do not have the right, by virtue of the option to participate in any share issue or interest issue of the company or of any other related body corporate. Until they are exercised, the options carry no rights to dividends and no voting rights. c) Dividends not recognised at the end of the reporting period On 19 August 2016 the Directors declared a dividend of 7.80 (2015: 2.86) cents per fully paid ordinary share, fully franked based on tax paid at 30%. The aggregate amount of the proposed dividend expected to be paid on 26 September 2016 out of retained earnings at 30 June 2016, but not recognised as a liability at year end is $7.54 million. d) Capital Management Management and the board of directors monitor the capital of the group in order to maintain a prudent debt to equity ratio, provide the shareholders with adequate returns and ensure that the group can effectively fund the operations in line with business growth objectives. The group’s debt and capital includes ordinary share capital and financial liabilities, supported by financial assets. At balance date there were no externally imposed capital requirements. 69 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements For the year ended 30 June 2016 Management effectively manages the group’s capital by assessing the group’s risk 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. The net debt to cash position as at the end of the reporting period is as follows: Total borrowings Less cash and cash equivalents Net debt / (cash) 20 Reserves (net of income tax) Foreign currency translation reserve Share based payments reserve Cash flow hedge reserve Foreign currency translation reserve Balance at the beginning of the year Exchange differences arising on translating net assets of foreign operations Income tax effect Balance at the end of the year Exchange differences relating to the translation of the results and net assets of the group’s foreign operations are recognised directly in other comprehensive income and are accumulated in the foreign currency translation reserve. Share based payments reserve Balance at the beginning of the year Arising on share based payments Income tax effect Balance at the end of the year The reserve relates to share options granted by the Company to its employees under its Employee Share Option Plan. Further details are provided in note 32. Cash flow hedge reserve Balance at the beginning of the year Arising from changes in fair value of hedging instruments Income tax effect Balance at the end of the year 2016 $000 2015 $000 131 238 (32,295) (32,035) (32,164) (31,797) (373) 3,767 (565) 2,829 (159) (214) - (373) 499 3,268 - 3,767 - (807) 242 (565) (159) 499 - 340 (13) (146) - (159) 6 493 - 499 - - - - The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in the cash flow hedge reserve within equity, limited to the cumulative change in fair value of the hedged item on a present value basis from the inception of the hedge. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, within Other income (expenses). BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements Continued For the year ended 30 June 2016 21 Additional cash flow information a) Cash and cash equivalents Cash and cash equivalents Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the financial year as shown in the cash flow statement is reconciled to the related items in the statement of financial position as follows: b) Reconciliation of profit for the period to net cash flows from operating activities Reconciliation of profit for the year to net cash from operating activities Profit after tax Adjust for non-cash items Depreciation Amortisation Loss on sale – plant and equipment Financial assets – fair value through profit or loss Unrealised gains Interest on asset purchase Share based payments Movements in working capital (Increase)/decrease in trade receivables (Increase)/decrease in inventories (Increase)/decrease in other assets (Increase)/decrease in net tax assets (Decrease)/increase in trade payables (Decrease)/increase in provisions Net cash from operating activities During the year there were no reportable non-cash financing and non-cash investing activities. 2016 $000 2015 $000 32,295 32,035 38,328 9,073 256 51 8 66 (1,196) 10 3,268 (13,020) (54,135) (537) 6,106 29,264 426 8,895 447 - - 27 (146) 19 493 (14,424) (9,412) 2,289 3,672 12,595 106 4,740 71 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements For the year ended 30 June 2016 RISK 22 Critical estimates, judgements and errors There are no critical estimates or judgements other than the capitalisation of product development costs. The accounting for product development costs are outlined in Note 13. At 30 June 2016 there is $1,519,000 (2015: $104,000) of capitalised costs. 23 Financial risk management a) Financial risk management policies The group’s financial instruments consist mainly of deposits with banks, accounts receivable and payable and loans to subsidiaries. b) Financial risk exposures The group is exposed to liquidity and credit risks with limited exposure to interest rate, foreign exchange and equity price risk. Liquidity risk Liquidity risk is managed by maintaining sufficient cash and monitoring forecast cash flows. At the end of the reporting period, the group did not have access to any undrawn borrowing facilities, however, is in the process of obtaining a financing facility in order fund future working capital, as required. The group’s liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these. Fixed Fixed Interest Interest Weighted Average Interest Rate % Floating Interest Rate $000 Rate Mature within 1 Year $000 Rate Mature Non later than interest 1 Year bearing $000 $000 Total 2016 $000 Consolidated Group 2016 Financial assets Cash and cash equivalents 2.6% 17,140 Receivables Financial assets at fair value through profit or loss Total financial assets Financial Liabilities Trade payables Derivative Borrowings Total financial liabilities Net financial assets - - 17,140 - - - - 17,140 6.5% - - - - - - (113) (113) (113) - - - - - - (18) (18) (18) 15,155 33,887 283 32,295 33,887 283 49,325 66,465 (48,373) (48,373) (807) - (807) (131) (49,180) (49,311) 145 17,154 BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements Continued For the year ended 30 June 2016 Fixed Fixed Interest Interest Weighted Average Interest Rate % Floating Interest Rate $000 Rate Mature within 1 Year $000 Rate Mature Non later than interest 1 Year bearing $000 $000 Total 2015 $000 Consolidated Group 2015 Financial assets Cash and cash equivalents 4.7% 32,035 Receivables Shares in Australian listed entities at fair value Total financial assets Financial Liabilities Trade payables Borrowings Total financial liabilities Net financial assets Credit risk - - 32,035 - - - 32,035 8.8% - - - - - - - - - - (108) (108) (108) (130) (130) (130) - 20,867 217 32,035 20,867 217 21,084 53,119 (19,109) (19,109) - (238) (19,109) (19,347) 1,975 33,772 Credit risk arises from exposure to customers and deposits with financial institutions. Management monitors credit risk by actively assessing and rating quality and liquidity of counter parties, through a combination of obtaining external credit ratings, credit checks and past experience. Individual risk limits are set in accordance with the group’s Credit Policy. The compliance with credit limits by customers is regularly monitored by management. For some trade receivables the group obtains security in the form of directors guarantees, or letters of credit which can be called upon if the counterparty is in default under the terms of the agreement. Interest rate risk Due to low debt to equity ratios the group has limited exposure to interest rate risk. As at 30 June 2016, the total borrowings were $131,000 under fixed interest borrowing arrangements. Foreign exchange risk The group has exposure to movements in foreign currency exchange rates through: • Sales to distributors and customers in foreign currency • Anticipated purchases of inventory • Translations of net investments in foreign subsidiaries denominated in foreign currencies Bellamy’s Australia Ltd’s functional currency is Australian dollars. For the internal operations in the entities in Singapore, Hong Kong and China, all income and expenses are conducted in local currency. The group imports ingredients to meet demand, and has exposure to USD and EUR movements directly where it purchases ingredients on its own behalf and indirectly through purchases of finished products where the group’s product manufacturers purchase ingredients on its behalf. In order to hedge against the exposure to fluctuations in exchange rates associated with the highly probable purchase of ingredients, the group enters into forward exchange contracts, which are designated as cash flow hedges. Exposure of overseas debtors to foreign exchange risk is minimal as these transactions are primarily denominated in AUD. 73 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements For the year ended 30 June 2016 23 Financial risk management continued b) Financial risk exposures continued Forward exchange contracts The Board’s risk management policy is to hedge 25% - 100% of anticipated foreign currency cash flows within the next twelve months (mainly inventory purchases) in EUR, subject to a review of the cost of implementing each hedge. At balance date, details of the significant outstanding forward exchange contracts, stated in Australian dollar equivalents are: Average Foreign currency Contract value Mark to Mark to exchange rate (in foreign currency) (AUD) market assets market liabilities 2016 2015 2016 $000 2015 $000 2016 $000 2015 $000 2016 $000 2015 $000 2016 $000 2015 $000 Hedging Imports: Maturing within 12 months Buy Euro 0.6544 - 28,683 - 43,826 - 122 - (930) - At the reporting date, the net amount of unrealised losses under forward exchange contracts hedging anticipated purchases of inventory is $0.8 million. The hedge relationships are all assessed as highly effective with insignificant hedge ineffectiveness and the movement of $0.8 million has been recognised in the hedging reserve. Derivative financial instruments – foreign exchange forward contracts 30 June 2016 $000 30 June 2015 $000 Carrying amount Notional amount Maturity date Hedge ratio Change in fair value of outstanding hedging instruments since 1 July Change in value of hedged item used to determine hedge effectiveness Weighted average hedged rate for the year (including forward points) $807 $43,966 July 2016 – December 2016 1:1* $79 ($79) 0.6533 - - - - - - - * The foreign exchange forward contracts are denominated in the same currency as the highly probable future inventory purchases (EUR), therefore the hedge ratio is 1:1. Foreign currency exposures arising on translation of net investments in foreign subsidiaries are predominantly unhedged. Equity price risk The Group has equity price risk as a result of its listed equity investment holdings valued at fair value through profit and loss $283,000 (2015: $216,500). Fair value of listed equity investments is determined with reference to quoted ASX bid prices. A 10% movement in equity prices would impact the carrying value of the listed investments and profit before tax by $28,000 (2015: $22,000). c) Categories of financial instruments Other than equity investments classified at fair value through profit and loss classified under the heading of current financial assets, all the nature and categories of all other financial instruments are apparent from the face of the Statement of Financial Position. d) Carrying value of financial assets and financial liabilities The carrying amounts of financial assets and financial liabilities recognised in the consolidated financial statements are considered to approximate their fair values. BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements Continued For the year ended 30 June 2016 GROUP STRUCTURE 24 Parent entity supplementary 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 Net Assets Equity Issued capital Reserves Retained earnings Total Equity Statement of Profit or Loss and Other Comprehensive Income Total profit / (loss) Total comprehensive income Guarantees Contingent liabilities Contractual commitments 2016 $000 2015 $000 52,202 39,460 530 612 52,732 40,072 8,654 3,732 - 8,654 44,078 40,216 3,767 95 - 3,732 36,340 39,655 499 (3,814) 44,078 36,340 10,592 10,592 - - - 7 7 - - - 75 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements For the year ended 30 June 2016 25 Subsidiaries Name Bellamy’s Organic Australia Pty Ltd Bellamy’s Kitchen Pty Ltd Yum Mum Pty Ltd Bellamy’s Organic (Hong Kong) Company Ltd Bellamy’s Organic (South East Asia) Pte Ltd Bellamy’s Food Trading (Shanghai) Co Ltd Place of Ownership % Principal incorporation and activity operation 2016 2015 (a) (b) (b) (a) (a) (a) Australia Australia Australia Hong Kong Singapore (c) China (c) 100 100 100 100 100 100 100 100 100 100 100 100 a) Sale and distribution of organic food and formula products for babies and toddlers b) Non-operating c) These entities were incorporated during the 2014 year and currently their respective financial reporting periods are not synchronised with the parent entity. The financial reporting year ends with respect to these entities are: - Bellamy’s Organic (Hong Kong) Company Ltd 31 December - Bellamy’s Organic (South East Asia) Pte Ltd - Bellamy’s Food Trading (Shanghai) Co Ltd 31 March 31 December UNRECOGNISED ITEMS 26 Contingent liabilities and contingent assets As at the date of this report the Group is not aware of any reportable contingent liabilities or contingent assets. 27 Commitments for expenditure There are no known commitments for expenditure (2015: $Nil) - - 2016 $000 2015 $000 28 Operating lease arrangements Non-cancellable operating lease commitments Not later than 1 year Later than one year and not later than 5 years Later than 5 years Operating lease commitments primarily relate to office leasing arrangements. 258 501 - 759 156 72 - 228 29 Events Occurring After Reporting Period No matters or circumstances have arisen since the end of the year which significantly affected or may significantly affect the operations of the group, the results of those operations, or the state of affairs of the group in future financial year. BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements Continued For the year ended 30 June 2016 OTHER INFORMATION 30 Related party transactions a) Parent entities The parent entity within the group is Bellamy’s Australia Limited. b) Subsidiaries A list of subsidiaries is provided in note 24 Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. Balances and transactions between the Company and its controlled entities, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the group and other related parties are disclosed below. Transactions between related parties are executed on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. c) Transactions with related parties Key management personnel compensation The key management personnel compensation included in ‘employee costs’ (see note 6) is as follows: Short term benefits Post-employment benefits Other long term benefits Termination benefits Share based payments 2016 $000 1,058 37 52 - 359 1,506 2015 $000 696 40 16 - 251 1,003 Individual Directors and executive compensation disclosures Information regarding individual Directors and key management personnel compensation and some equity instruments disclosures as required by the Corporations Regulations 2M.3.03 is provided in the Remuneration Report section of the Directors’ Report on pages 37 to 49. Apart from the details disclosed in this note, no Director has entered into a material contract with the Company or Group since the end of the previous financial year and there were no material contracts involving Directors’ interests existing at year end. There were no loans outstanding at reporting date between the Company and the group and key management personnel. Other key management personnel transactions with the company or its controlled entities From time to time, key management personnel of the Company or its controlled entities, or their related entities, may purchase goods from the group. These purchases are on the same terms and conditions as those entered into by other group employees or customers and are trivial or domestic in nature. 77 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements For the year ended 30 June 2016 30 Related party transactions continued Shareholdings The number of ordinary shares held in Bellamy’s Australia Limited as at the date of this report and as at the end of the reporting period, by each key management person, including their related parties, are as follows: Non-executive Directors: R Woolley I Urquhart2 M Wadley L Inman P Mann1 C Sitch 1 Executives L McBain S Ollington A. Cohen 1 Appointed 10 March 2016 2 Resigned 30 June 2016 Options over ordinary shares Movement Balance at 1 July 2015 during year 30 June 2016 No. No. No. 1,335,739 (883,462) 452,277 2,500,000 (1,500,000) 1,000,000 - 22,000 - - - 4,020 4,000 - - 26,020 4,000 - 1,565,376 (400,000) 1,165,376 - 13,750 - - - 13,750 The number of options over Bellamy’s Australia Limited ordinary shares held as at the date of this report and as at the end of the reporting period, by each key management person, including their related parties are set out below. 2016 Executives L McBain S Ollington A Cohen Granted as Vested in Exercised Balance at remuneration FY2015 and during the Forfeited Held as at 1 July 2015 in FY2016 exercisable reporting period in FY2016 30 June 2016 1,779,210 216,793 - 530,918 112,000 689,950 953,333 953,333 - - - - - - - 1,356,795 328,793 689,950 No directors hold options over ordinary shares. 31 Auditor’s Remuneration a) Auditor of the parent entity Audit of the financial statements Other audit, tax and compliance related services Total paid to PricewaterhouseCoopers b) Auditors of the wholly owned overseas subsidiaries Audit of the financial statements Other tax and compliance services BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 2016 $ 2015 $ 132,000 14,000 146,000 155,000 - 155,000 80,000 6,000 86,000 26,000 18,000 44,000 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements Continued For the year ended 30 June 2016 32 Share based payments a) Employee Option Plan The Managing Director and other senior management held, as part of their remuneration, conditional vesting options over 3,035,662 (2015: 3,355,748) ordinary shares of the Company comprising the 2015 grant which was made on 29 June 2015, the current year grant which was made on 23 December 2015, and a subsequent grant on 30 June 2016. FY2015 grant The exercise price for the FY2015 grant of options is $1.30. The options can only be exercised if specific performance hurdles are met. Refer to the remuneration report on pages 37 to 49 for detail regarding the performance hurdles. These options expire four years after the date of the grant, which should be no later than 29 June 2019. FY2016 grant The exercise price for the FY2016 grant of options is $4.97. The options can only be exercised if specific performance hurdles are met. Refer to the remuneration report on pages 37 to 49 for detail regarding the performance hurdles. These options expire five years after the grant date, which should be no later than 23 December 2020. Additional grant on 30 June 2016 A subsequent grant of 689,950 options was made on 30 June 2016. The options were granted under the LTI plan. b) Other movements During the current financial year the initial FY2014 grant options were exercised. With regard to the previous financial year there were no options exercised, however 293,333 options were forfeited as a result of an eligible employee ceasing employment with the company. c) Fair value of options granted during the year The fair value of the options granted during the year was $2.31, $1.22 and $1.58 respectively. d) Expenses arising from share based payment transactions The value of options granted to key management personnel are amortised over the period from the grant date to the vesting date for accounting purposes. Share based payments expense in relation to key management personnel for the year is as follows: Name L McBain L McBain L McBain Shona Ollington Shona Ollington Andrew Cohen Total Option series Grant date No. of options expense $ Share based payment FY2014 Grant FY2015 Grant FY2016 Grant FY2015 Grant FY2016 Grant FY2016 Grant 26/6/2014 29/6/2015 23/12/2015 29/6/2015 23/12/2015 30/6/2016 953,333 825,877 530,918 216,793 112,000 689,950 40,000 101,000 153,000 27,000 32,000 6,000 359,000 79 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements For the year ended 30 June 2016 33 Deed of cross guarantee Bellamy’s Australia Limited and Bellamy’s Organic Pty Ltd executed a deed of cross guarantee on 16 February 2015 under which each company guarantees the debts of the other. By entering into the deed, the wholly owned subsidiaries have been relieved from the requirement to prepare a financial report and Directors’ report under Class Order 98/1418 (as amended) issued by the Australian Securities and Investments Commission. The above companies represent a “Closed Group” for the purposes of the Class Order, and as there are no other parties to the deed of cross guarantee that are controlled by Bellamy’s Australia Limited, they also represent the “extended closed Group”. 34 Summary of significant accounting policies Reporting entity Bellamy’s Australia is a listed public company incorporated in Australia. The address of the principal place of business and registered office are as follows: 115 Cimitiere Street Launceston Tasmania 7250 The entity’s principal activities are the sale and distribution of organic food and formula products for babies and toddlers. The consolidated financial statements and notes represent those of Bellamy’s Australia Limited and Controlled Entity (the “Consolidated Group” or “Group”). The separate financial statements of the parent entity, Bellamy Australia Limited, have not been presented within this financial report as permitted by the Corporations Act 2001. The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of Bellamy’s Australia Limited and its subsidiaries. Basis of preparation These consolidated general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. Bellamy’s Australia Limited is a for-profit entity for the purpose of preparing the financial statements. The financial statements were authorised for issue on 19 August 2016 by the directors of the company. The amounts presented in the financial statements have been rounded to the nearest thousand dollar. The directors have elected under s.334(5) of the Corporations Act 2001 to apply Accounting Standard AASB 9 (December 2014) ‘Financial Instruments’ for this financial year, even though the Standard is not required to be applied until annual reporting periods beginning on or after 1 January 2018. The Group has not elected to apply any pronouncements before their operative date in the annual reporting period beginning 1 July 2015. AASB 15 replaces existing revenue recognition guidance, including AASB 118 Revenue, AASB 111 Construction Contracts and Interpretation 13 Customer Loyalty Programmes. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. The notion of control under AASB 15 replaces the existing notion of risks and rewards under current accounting standards. The standard is applicable from 1 January 2018 with early adoption permitted. The consolidated entity is currently assessing the potential impact of the new standard upon the consolidated entity’s revenue recognition policy and at this stage is unable to estimate the financial impact on adopting the standard. Historical cost convention These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available for sale financial assets, financial assets and liabilities. Compliance with IFRS The consolidated financial statements of the Bellamy’s Australia Limited group also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements Continued For the year ended 30 June 2016 34 Summary of significant accounting policies continued a) Principles of consolidation i) Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Bellamy’s Australia Limited (‘company’ or ‘parent entity’) as at 30 June 2016 and the results of all subsidiaries for the year then ended. Bellamy’s Australia Limited and its subsidiaries together are referred to in this financial report as the group or the consolidated entity. Subsidiaries are all entities (including special purpose entities) over which the group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group. b) Income tax The income tax expense for the financial reporting period comprises current income tax expense (income) and deferred tax expense (income). Current income tax expense charged to the profit or loss is the tax payable on taxable income calculated using applicable income tax rates enacted, or substantially enacted, as at reporting date. Current tax liabilities (assets) are therefore measured at the amounts expected to be paid to (recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the financial year as well unused tax losses. Current and deferred income tax expense (income) is charged or credited directly to equity instead of the profit or loss when the tax relates to items that are credited or charged directly to equity. Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets also result where amounts have been fully expensed but future tax deductions are available. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where a legally enforceable right of set-off exists, the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that the net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. Bellamy’s and its wholly owned Australian controlled entities have implemented the tax consolidation legislation. Bellamy’s, as the head entity in the tax consolidated group and its wholly owned Australian controlled entities continues to account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a standalone taxpayer in its own right. In addition to its own current and deferred tax amounts, Bellamy’s also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Assets or liabilities arising under the tax funding agreement with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. 81 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements For the year ended 30 June 2016 34 Summary of significant accounting policies continued c) Foreign currency translation Items included in the Financial Information of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Australian dollars, which is the functional and presentation currency of the Group. Transactions in foreign currencies are converted at the exchange rates in effect at the dates of each transaction. Amounts payable to or by the Group in foreign currencies have been translated into Australian currency at the exchange rates ruling on balance date. Gains and losses arising from fluctuations in exchange rates on monetary assets and liabilities are included in the income statement in the period in which the exchange rates change, except when deferred in equity as qualifying cash flow hedges. d) Employee expenses and entitlements Provision is made for employee expenses arising to the end of the reporting period. Employee expenses that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled. Employee expenses payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. In determining the liability, consideration is given to employee wage increases and the probability that the employee may satisfy any vesting requirements. Those cash flows are discounted using market yields on Australian corporate bond rates with terms to maturity that match the expected timing of cash flows attributable to employee expenses. Provision has been made in the accounts for benefits accruing to employees up to balance date, such as annual leave, long service leave and bonuses. No provision is made for non-vesting sick leave as the anticipated pattern of future sick leave taken indicates that accumulated non-vesting leave will never be paid. Annual leave provisions are measured at their nominal amounts using the remuneration rates expected to apply at the time of settlement and are classified in other payables. Long service leave provisions are measured as the present value of expected future payments to be made in respect of services provided by employees up to reporting date. Expected future payments are discounted using market yields at reporting date on Australian corporate bonds with terms to maturity that match estimated future cash outflows. All on-costs, including superannuation, payroll tax, workers’ compensation premiums and fringe benefits tax are included in the determination of provisions. e) Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within short-term borrowings in current liabilities on the statement of financial position. f) Borrowings Loan facilities are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities, which are not incremental costs relating to the actual drawdown of the facility, are capitalised and amortised on a straight line basis over the term of the facility. g) Receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less any provision for doubtful debts. Trade receivables are generally due for settlement based upon trading terms negotiated with customers. Sales to export distributors are generally receivable before shipment or secured by letter of credit for longer periods. Sales to domestic customers are generally receivable approximately 45 days from invoice. For trade receivables, the company applies the simplified approach to providing for expected credit losses prescribed by AASB 9, which requires the use of the lifetime loss provision for all trade receivables. Any credit losses are written off to Administrative Costs in the profit and loss. h) Inventories Inventories are measured at the lower of cost and net realisable value. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements Continued For the year ended 30 June 2016 34 Summary of significant accounting policies continued i) Impairment of assets Intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). j) Property, plant and equipment Each class of property, plant and equipment is carried at cost or fair value, less where applicable, any accumulated depreciation or amortisation. Plant and equipment Plant and equipment are measured on the cost basis and therefore carried at cost less accumulated depreciation and any accumulated impairment The carrying amount of plant and equipment is reviewed annually by the directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows which will be received from the assets’ employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. Depreciation The depreciable amount of all fixed assets, excluding freehold land, is depreciated on a straight line basis over the asset’s useful life to the consolidated group commencing from the time the asset is held ready for use. The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset Plant and equipment • IT Hardware • Motor Vehicles • Furniture and fittings Useful life 4 years 8 Years 10 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains or losses are included in the profit and loss statement. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings. k) Leases Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other long-term payables. Finance lease payments are allocated between interest expense and reduction of lease liability over the term of the lease. The interest expense is determined by applying the interest rate implicit in the lease to the outstanding lease liability at the beginning of each lease payment period. Finance leased assets are depreciated on a straight-line basis over the shorter of the asset’s estimated useful life and the lease term. Where the risks and rewards of ownership are retained by the lessor, leased assets are classified as operating leases and are not capitalised. Rental payments are charged to the income statement on a straight line basis over the period of the lease. 83 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements For the year ended 30 June 2016 34 Summary of significant accounting policies continued l) Accounts payable These amounts represent liabilities for goods provided prior to the end of the reporting period and which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. m) Provisions Provisions are recognised when the company 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. n) Financial Instruments Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. Financial assets classified at fair value through profit and loss From time to time the group may hold listed investments for the purposes of trading, such investments are classified at fair value though profit and loss. These investments are measured at fair value with changes in carrying amount being included in profit or loss. Fair value is determined with reference to ASX quoted bid prices. o) Goods and Services Tax (GST) Revenues, expense 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. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of an expense. Receivables and payables in the balance sheet are shown inclusive of GST. Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. p) Share based payments Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 21. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve. q) Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the new share issue are shown in equity as a deduction, net of tax, from the proceeds. r) Comparative figures When required by the Accounting Standards, comparative figures are adjusted to conform to changes in presentation for the current financial year. In the event that the Group retrospectively applies an accounting policy, makes a retrospective restatement or reclassifies items in its financial statements, an additional (third) statement of financial position as at the beginning of the preceding period in addition to the minimum comparative financial statements is presented. Comparative information is reclassified where appropriate to enhance comparability and provide more appropriate information to users. BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 BELLAMY’S AUSTRALIA LIMITED Notes to the Financial Statements For the year ended 30 June 2016 34 Summary of significant accounting policies continued s) Adoption of new and revised Accounting Standards In the current year, the Group has applied an amendment to AASBs issued by the Australian Accounting Standards Board (AASB) that is mandatorily effective for an accounting period that begins on or after 1 July 2015, and therefore relevant for the current year end. AASB 2015-3 ‘Amendments to Australian Accounting This amendment completes the withdrawal of references to AASB 1031 Standards arising from the Withdrawal of AASB 1031 in all Australian Accounting Standards and Interpretations, allowing that Materiality’ Standard to effectively be withdrawn. The application of this amendment does not have any material impact on the disclosures or the amounts recognised in the Group’s consolidated financial statements. t) New Accounting Standards for application in future periods The table below lists the standards and amendments to standards that were available for early adoption and were applicable to the Group. The reported results and financial position of the Group are not expected to change on adoption of any of the amendments to current standards listed below as they do not result in any significant changes to the Group’s existing accounting policies. The Group does not intend on adopting the following new standards or amendments before their mandatory effective dates. Standard / Interpretation AASB 15: ‘Revenue from Contracts with Customers’, and associated Amending Standards AASB 16: ‘Leases’ AASB 2014-4 ‘Amendments to Australian Accounting Standards – Clarification of Acceptable Methods of Depreciation and Amortisation’ Effective for annual Expected to be reporting periods initially applied in beginning on or the financial year after ending 1 January 2018 20 June 2019 1 January 2019 30 June 2020 1 January 2016 30 June 2017 AASB 2015-1 ‘Amendments to Australian Accounting Standards 1 January 2016 30 June 2017 – Annual Improvements to Australian Accounting Standards 2012-2014 Cycle’ AASB 2015-2 ‘Amendments to Australian Accounting Standards 1 January 2016 30 June 2017 – Disclosure Initiative: Amendments to AASB 101’ AASB 2016-1 ‘Amendments to Australian Accounting Standards 1 January 2017 30 June 2018 – Recognition of Deferred Tax Assets for Unrealised Losses’ AASB 2016-2 ‘Amendments to Australian Accounting Standards 1 January 2017 30 June 2018 – Disclosure Initiative: Amendments to AASB 107’ u) Rounding of Amounts The company is a company of the kind referred to in ASIC Corporations (Rounding in Financials/Directors’ Reports) Instrument 2016/191, dated 24 March 2016, and in accordance with that Corporations Instrument amounts in the directors’ report and the financial statements are rounded off to the nearest thousand dollars, unless otherwise indicated. 85 BELLAMY’S AUSTRALIA LIMITED Directors’ Declaration For the year ended 30 June 2016 In the directors’ opinion: (a) The financial statements and notes set out on pages 54 to 85 are in accordance with the Corporations Act 2001, including: i. complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and ii. giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of its performance for the financial year ended on that date, 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 (c) at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed group identified in Note 25 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in Note 33. Note 34 confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The directors have been given the declarations by the CEO and Managing Director and the Chief Financial Officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors. Robert G. Woolley CHAIR Laura McBain CEO and Managing Director Dated at Launceston this 19th day of August 2016 BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 BELLAMY’S AUSTRALIA LIMITED Independent Auditor’s Report For the year ended 30 June 2016 Independent auditor’s report to the members of Bellamy's Australia Limited Report on the financial report We have audited the accompanying financial report of Bellamy's Australia Limited (the company), which comprises the consolidated statement of financial position as at 30 June 2016, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for Bellamy's Australia Limited (the consolidated entity). The consolidated entity comprises the company and the entities it controlled at year’s end or from time to time during the financial year. Directors' responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 34, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the consolidated entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Continued next page 87 PricewaterhouseCoopers, ABN 52 780 433 757 Freshwater Place, 2 Southbank Boulevard, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. BELLAMY’S AUSTRALIA LIMITED Independent Auditor’s Report For the year ended 30 June 2016 Auditor’s opinion In our opinion: (a) the financial report of Bellamy's Australia Limited is in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the consolidated entity's financial position as at 30 June 2016 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. (b) the financial report and notes also comply with International Financial Reporting Standards as disclosed in Note 34. Report on the Remuneration Report We have audited the remuneration report included in pages 37 to 49 of the directors’ report for the year ended 30 June 2016. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s opinion In our opinion, the remuneration report of Bellamy's Australia Limited for the year ended 30 June 2016 complies with section 300A of the Corporations Act 2001. PricewaterhouseCoopers Alison Tait Partner Melbourne 19 August 2016 BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 BELLAMY’S AUSTRALIA LIMITED Shareholder Information For the year ended 30 June 2016 Bellamy’s Australia Limited and controlled entities The following additional information is provided in accordance with the ASX Listing Rules as at 31 July 2016. Number of holders of equity securities Ordinary share capital 96,656,397 shares are held by 19,268 shareholders. At a general meeting, every shareholder present in person or by proxy, attorney or representative has one vote on a show of hands, on a poll, one vote for each fully paid share held. Unlisted options over ordinary share capital A total of 2,345,712 options are held by 7 individual option holders. 1,449,081 options relate to the FY2015 grant, which were granted on 29 June 2015 pursuant to the Long Term Incentive Plan (LTIP). 896,632 options relate to the FY2016 grant, which were granted on 23 December 2015 pursuant to the Long Term Incentive Plan (LTIP). The options do not carry any voting rights. Distribution of holders of equity securities Number of equity securities held 1 to 1000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and Over Total Substantial shareholders Name The Black Prince Private Foundation JP Morgan Nominees HSBC Custody Nominees Quality Life Pty Ltd National Nominees Limited Ordinary shares No. of holders No. of shares % of shares 11,298 6,453 877 504 39 5,296,561 15,086,895 6,490,353 11,521,625 58,260,983 96,656,397 5.48 15.61 6.71 11.92 60.28 Number of % of voting ordinary shares power advised 14,000,000 9,307,249 7,392,624 7,155,415 5,499,461 14.48 9.63 7.65 7.40 5.69 89 BELLAMY’S AUSTRALIA LIMITED Shareholder Information Continued For the year ended 30 June 2016 Rank Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 20 20 BLACK PRINCE PRIVATE FOUNDATION JP MORGAN NOMINEES AUSTRALIA LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED QUALITY LIFE PTY LTD NATIONAL NOMINEES LIMITED CITICORP NOMINEES PTY LIMITED BNP PARIBAS NOMS PTY LTD VERMILION 21 PTY LTD KRISAMI INVESTMENTS PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 3 SANDHURST TRUSTEES LTD SUETONE PTY LTD WARBONT NOMINEES PTY LTD MRKAT PTY LTD BUDUVA PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 MR NORMAN SURTEES AMP LIFE LIMITED DR KUI LIM CHONG & MRS JOCELYN ELIZABETH CHONG MR WEI CHEN NILCOY PTY LTD BNP PARIBAS NOMINEES PTY LTD Total Total remaining holders balance TOTAL Number of ordinary shares held % of capital held 14,000,000 14.48 9,307,249 7,392,624 7,155,415 5,499,461 3,799,842 1,390,984 1,165,376 1,000,000 923,851 665,115 625,000 572,037 452,277 400,000 276,479 250,000 228,370 200,949 200,000 200,000 200,000 55,905,029 40,751,368 96,656,397 9.63 7.65 7.40 5.69 3.93 1.44 1.21 1.03 0.96 0.69 0.65 0.59 0.47 0.41 0.29 0.26 0.24 0.21 0.21 0.21 0.21 57.84 42.16 100.00 BELLAMY’S AUSTRALIA LIMITED ANNUAL REPORT 2015-16 91 Bellamy’s Australia Limited ABN 37 124 272 108 ASX Code: BAL Principal registered office Bellamy’s Australia Limited 115 Cimitiere Street Launceston TAS 7250 T: (03) 6332 9200 F: (03) 6331 1583 bellamysorganic.com.au Company Secretary Mr Brian Green Location of share registry Link Market Services Limited Level 1, 333 Collins Street Melbourne VIC 3000

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