Clover Corporation
Annual Report 2018

Plain-text annual report

CLOVER CORPORATION LIMITED ABN 85 003 622 866 Annual Report For the Year Ended 31 July 2018 CLOVER CORPORATION LIMITED ABN 85 003 622 866 Non-Executive Director and Chairman Non-Executive Director Chief Executive Officer and Managing Director Non-Executive Director Non-Executive Director Non-Executive Director CORPORATE DIRECTORY Directors Mr Rupert A Harrington Mr Graeme A Billings Mr Peter J Davey Mr Ian D Glasson Ms Cheryl L Hayman Dr Merilyn J Sleigh Secretary Mr Paul A Sherman Registered Office 39 Pinnacle Road Altona North VIC 3025 Telephone: Facsimile: (03) 8347 5000 (03) 8347 5055 Auditors PKF Melbourne Audit & Assurance Pty Ltd Level 12 440 Collins Street Melbourne VIC 3000 Share Registry Computershare Investor Services Pty Limited Level 3, 60 Carrington Street Sydney NSW 2000 Telephone: 1300 850 505 Australian Securities Exchange Code Ordinary Shares CLV Website http://www.clovercorp.com.au 2 CLOVER CORPORATION LIMITED ABN 85 003 622 866 Table of Contents Chairman’s Report About Clover Directors’ Report Corporate Governance Statement 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 Audit Report Auditors’ Independence Declaration ASX Additional Information 4 6 7 22 30 31 32 33 34 63 64 68 69 Vision To optimise the health and development of adults, infants and children. Mission Statement To deliver science-based bioactives which provide health benefits to the adults, infants, and children. 3 CLOVER CORPORATION LIMITED ABN 85 003 622 866 CHAIRMAN’S REPORT Clover Corporation Limited (Clover) reported a net profit after tax (NPAT) for the 12 months ended 31 July 2018 of $7.6m (2017: profit of $3.6m). Sales revenue in FY2018 was $63.0m (2017: $47.9m) an increase of 31.5%. Sales Revenue EBIT Profit before tax Profit after tax 2018 Statutory $000’s 62,961 10,220 10,616 7,588 2017 Statutory $000’s 47,864 5,488 5,012 3,639 Sales for the year have grown 31.5% with revenue growth across all territories. Clover has experienced increased demand from existing and new customers, delivering a 109% increase in net profit after tax. The margin rate has improved across the year, with additional volume delivering improved productivity. The company has benefited from its natural hedge policy better aligning sales currency to purchasing currency. Commercial Clover has added to its commercial team with a business development manager located in New Zealand, a market which has provided significant growth in recent times. The business has a strong pipeline of new opportunities driven by a constant customer face to face development program supported by a knowledgeable technical team. Clover has benefited from its new product development work over recent years, with the hypoallergenic product now widely used across specialty infant formula brands and the highly concentrated Omega 3 powder winning new business in the growing nutraceutical gummy sector. Other product applications are in trial and product development, with sales expected in the future. The infant formula market has continued to grow with Chinese customers showing a preference for imported products, and many Chinese manufacturers are positioning themselves off shore in Joint Ventures and greenfield sites to meet the consumer sentiment. China Chinese regulations have changed with new regulations requiring brands to be registered and licensed. This appears to have improved the demand of many of Clover’s customers, whilst smaller brands have not achieved licensing or have lost favour with customers. Overall China demand has grown with manufacturers reporting significant growth rates across the year. Europe Customers in Europe are preparing for the introduction of new regulations requiring them to include a minimum of 20mg of DHA per 100k/cal by February 2020. Clover has worked with customers across the European market assisting them to achieve the new requirement, which on average doubles their DHA usage compared to current inputs. Whilst some brands will use direct oil injection, others will supplement their product with a powder form of DHA. Clover expects to benefit from the change in regulations with its superior Driphorm DHA powder formulation readily able to address the changed requirements. Australia & New Zealand Strong demand in New Zealand has driven revenue, and Clover now has an additional New Zealand based executive to manage the customer relationship. The Australian and New Zealand markets have 4 benefited from increased production facilities coming on line, with additional factories under construction. The ‘clean, green’ image of these markets has attracted the Chinese consumer, increasing demand and raising New Zealand to number three supplier of infant formula to China in the world. Americas Clover’s distributor in North America has helped launch our highly concentrated DHA product into the gummy market and is promoting applications into the sports nutrition, ready to drink and nutraceutical markets. New distributors in South America have only just started with Clover products but have already recorded initial orders, providing a promising route into both the North and South American markets. Research & Development Clover has developed several new products across 2018 and as a result has made two new patent applications. These new products should open new markets and enhance Clover’s existing offering, providing a platform for future growth. Our dedicated Research and Development team has significant knowledge in the Micro Encapsulation area, with their skills often called upon by customers. During 2018 Clover released a technical paper which cited clinical trial work encompassing the DHA lipid found in Clover’s core products. The paper which was published in “Critical Reviews in Food Science and Nutrition” journal clearly demonstrates the value of Omega 3 supplementation in supporting health and development outcomes, and will assist customers in identifying target markets for new products where clinical benefit has been established. Operations Clover has increased its production capacity at its Altona North refinery to meet increased demand, and operates its current spray drying capacity within its available contracted time. The company is endeavouring to establish additional capacity for drying in the 2019/20 years, securing relationships with third party manufacturers and investing in additional capacity to meet forecasted demand. Expenditure Clover has experienced high volume growth, which has resulted in additional cost, but has still contained operating expenses in 2018 to $8.3m (2017 $6.1m) with the unit overhead level consistent with the prior period. During the past twelve months the company has purchased its production site in Altona North, consolidating its Victorian operations onto one site, which will deliver further cost savings and process improvements for years to come. Inventories at year end were valued at $19.8m (2017: $18.8m), providing consistent inventory turnover as the company continues to focus on maintaining tight inventory controls, with the increase year on year reflecting the high volumes being manufactured and a strong raw material position. The overall cash position of the business at year end was $7.9m (2017: $5.9m). Clover operates out of underlying cash balances with minimal bank debt of $4.2m covering the current purchase of the Altona North factory. The business continues to review investment opportunities for expansion into aligned markets and products. Dividend Based on the performance of Clover in FY18 the Directors have decided to declare a fully franked final dividend for FY18 of 1.25 cents per share. The record date for this dividend will be 30 October 2018, with payment due on 20 November 2018. Whilst Clover’s performance remains susceptible to demand volatility in the Chinese Infant Formula market, the outlook for FY19 is positive as Clover develops new markets and product opportunities, with the impact of regulatory change in China and the EU flowing through to product applications. Mr Rupert Harrington Chairman Date: 21 September 2018 5 CLOVER CORPORATION LIMITED ABN 85 003 622 866 ABOUT CLOVER Company Focus: Clover seeks to improve human nutrition and quality of life by developing value- added nutrients for use in foods or as nutritional supplements. In doing so, Clover provides a competitive advantage for its customers, value to shareholders and a working environment in which employees can fully utilise and develop their respective skills. Company History: Clover was formed in 1988 as a family-owned Australian company providing lipid- based ingredients for the food industry. Clover was listed on the ASX in November 1999. In November 2002, Clover entered into a joint venture with the Queensland-based Food Spectrum Group of companies. The incorporated joint venture, Nu-Mega Ingredients Pty Limited (Nu-Mega), was 70% owned by Clover. The joint venture ceased in November 2007 when Clover acquired the remaining 30% of Nu-Mega to make it a wholly owned subsidiary. Nu-Mega has significantly expanded its markets, introducing new products with a focus on encapsulation technology and the delivery of bioactive nutritional ingredients. Company Operations: Clover operates from two sites:   The Company’s registered office and manufacturing plant for tuna oils and related products, Head Office, Customer Service, Quality Assurance, and Sales and Marketing departments are located in Altona, Victoria. Innovation, Research & Development, Product Development, Technical Support departments are located in Brisbane, Queensland. Company Technology and Products. The major focus of the Company is on the delivery of bioactive ingredients using proprietary encapsulation technology to produce ready-to-blend products containing tuna oil and/or other nutritional lipids. The health benefits of omega-3 fatty acids in the diet have been well documented and this has assisted in developing the expanding global market for products containing these nutritionally important dietary components. One material that Clover uses is tuna oil, which is high in DHA (docosahexaenoic acid), an essential fatty acid, which is recognized for its importance in brain, nerve and eye tissue development in babies and infants. Clover, through its subsidiary Nu-Mega, supplies refined Omega 3 oils and a range of other encapsulated ingredients for use in infant formula, nutraceuticals, pharmaceuticals, and sports nutrition markets. In addition to its own internally developed intellectual property, Clover has licensed patented technology from the Commonwealth Scientific Industrial Research Organisation (CSIRO) for the encapsulation of marine and algal oils to protect them from oxidation and degradation. Nu-Mega’s Driphorm® range of microencapsulated powders enables the addition of Hi-DHA® tuna and/or algal oils to a broad spectrum of products in a convenient and stable dry powder form. These ingredients are marketed globally. Clover continues to seek other nutritional and medical applications for its products, as well as developing new types of products, often in conjunction with customers. 6 CLOVER CORPORATION LIMITED ABN 85 003 622 866 DIRECTORS’ REPORT Your directors present their report on the consolidated entity consisting of Clover Corporation Limited (“the Company”) and the entities it controlled (“the consolidated entity”) at the end of, or during, the year ended 31 July 2018. Directors The following persons were directors of Clover Corporation Limited during the financial year and up to the date of this report: Name and qualifications Experience and special responsibilities Mr Rupert A Harrington, BTech, MSc, CDipAF, MAICD. Non-Executive Director since 1 July 2015 Appointed Chairman 21 September 2017 Rupert Harrington is an experienced Director with a wealth of experience in business strategy and M & A. Mr. Harrington’s earlier career was in operational management in the UK and Australia. His career since 1987 has been in Private Equity where he has an excellent track record of delivering results for investors in sectors including: health, technology, industrial services and manufacturing. He is currently Chairman of Advent Partners, a pre-eminent mid-market Australian PE firm. Mr. Harrington is Non-Executive Director of Pro Pac Packaging (ASX: PPG) and Integral Diagnostics (ASX: IDX). At the end of 2017 he resigned as a Non-Executive Director of Bradken Limited following its successful acquisition by Hitachi. Mr Peter R Robinson, B.Com. (UNSW), FAICD Appointed Chairman 13 December 2002 Non-Executive Director since August 1997 Resigned 21 September 2017 Mr Robinson has held both executive and non-executive directorships for a period of 30 years. Mr Robinson has over 30 years’ experience at general management and chief executive officer level. During this period Mr Robinson has had extensive experience in the pharmaceutical industry. Mr Robinson joined Washington H. Soul Pattinson and Company Limited (WHSP) in 1978 and was appointed an Executive Director of WHSP in 1984. Mr Robinson retired from WHSP March 31 2015. Former listed company directorships in the past three years: Australian Pharmaceutical Industries Limited, appointed May 2000, retired January 2018 TPI Enterprises Limited, appointed February 2013, retired May 2018 7 CLOVER CORPORATION LIMITED ABN 85 003 622 866 DIRECTORS’ REPORT (continued) Name and qualifications Experience and special responsibilities Mr Graeme A Billings, BCom, FCA, MAICD Non-Executive Director since 14 May 2013 Chair of the Audit Committee Member of the Remuneration Committee Member of the Nomination Committee Mr Peter J Davey, MBA, GradDip Bus., Dip.Art (Design), GAICD. Executive Director since 11 November 2014 Mr Ian D Glasson BEng (Hons) MIE Aust, GAICD Non-Executive Director since 1 February 2017 Member of the Audit Committee Member of the Remuneration Committee Member of the Nomination Committee Mr Billings has been a Chartered Accountant since 1980. Mr Billings was a partner at Coopers and Lybrand and then PricewaterhouseCoopers (PwC) for 24 years. Mr Billings was head of PwC’s Melbourne Assurance practice for a number of years as well as Global Leader of PwC’s Industrial Products and Manufacturing industry group. Mr Billings brings a range of financial, corporate governance, internal control, commercial and corporate transactional skills to the Company. Other current listed company directorships: GUD Holdings Limited, appointed 2011 Korvest Limited, appointed 2013 Korvest Limited, Chairman appointed 2014 Azure Healthcare, Chairman appointed 2015 DomaCom Ltd, appointed 2014 Mr Davey has a track record of building businesses across a diverse range of industry sectors. He has held senior management positions within a number of manufacturing and distribution companies operating in competitive and diverse markets. Mr Davey has particular strengths in sales and marketing, and development and implementation of strategies for growth. Mr Davey was formerly Executive Manager AgriProdcuts and a director of Viterra Australia Limited, responsible for the AgriProducts division that traded in agricultural inputs, fertilizer, seed and wool. In earlier roles, Mr Davey headed the Sales and Marketing divisions of FMP Products and Hi Fert Pty Ltd. During his career, Mr Davey has had a particular focus on marketing based businesses operating in the Asia and Oceania regions. Mr Glasson is currently CEO of PGG Wrightson based in Christchurch, New Zealand. He was formerly CEO of Gold Coin Group / Zuellig Agriculture which managed a portfolio of animal feed operations and farming ventures throughout South East Asia. Prior to that he was CEO for seven years of Sucrogen (formerly the sugar business of listed entity CSR and now owned by Wilmar) which generated revenues of nearly $2 billion and had extensive contacts across the local and international food and beverage sector and retail market. He has also had extensive agribusiness experience with Goodman Fielder and Gresham Rabo, as well as spending the first sixteen years of his career in the oil and gas sector with Esso. Other current company directorships: Ricegrowers Ltd, appointed 2016 8 CLOVER CORPORATION LIMITED ABN 85 003 622 866 DIRECTORS’ REPORT (continued) Name and qualifications Ms Cheryl L Hayman, B.Com, FAICD Non-Executive Director since 9 July 2008 Member of the Audit Committee Member of the Remuneration Committee Chair of the Nomination Committee Experience and special responsibilities Ms. Hayman has extensive consumer goods, packaged food and functional food industry experience including being former Marketing Director for the Baking Division of George Weston Foods (Australia/NZ) where she was largely responsible for leading the successful launch of the Hi-DHA Tip Top Up bread range. Dr Merilyn J Sleigh, B.Sc, PhD, DipCorp Man, FTSE, FAICD. Non-Executive Director since 9 July 2008 Member of the Audit Committee Chair of the Remuneration Committee Member of the Nomination Committee Ms. Hayman contributes significant strategic and marketing expertise derived from a corporate career which spanned local and global organisations. Her skills include developing marketing and business strategy across diverse industry segments, driving innovation, stimulating new product development, and business planning and branding across social media platforms. Today Cheryl is a professional Non-Executive Director across public, government and not-for-profit company directorships: Non-Executive Director, HGL Ltd (ASX: HNG) appointed 2016 Non–Executive Director, AIFST appointed 2016 Non-Executive Director, Peer Support Australia appointed 2007. Non-Executive Director, Chartered Accountants Australia & New Zealand appointed 2018 Dr Sleigh was trained as a Biochemist and was formerly CEO & Managing Director of EvoGenix Limited, an ASX-listed biotechnology company; Dean, Faculty of Life Sciences, University of NSW; Director, Research & Development at Peptech Limited and Scientist & Senior Manager, CSIRO. She was until recently (retired June 2018) a director of Relationships Australia (NSW) and the Chair of its social enterprise RASE Pty Ltd, where she remains a director. She is also a member of the Council of the University of Technology Sydney. Dr Sleigh contributes extensive experience in strategic management of ASX-listed SMEs both as a director, and as a CEO. She also provides scientific research and development expertise relevant to Clover’s Innovations program and commercialisation of its products. Former listed company directorships in the last three years: Tyrian Diagnostics Limited, appointed 2008, resigned 2016. Company Secretary Mr Paul Sherman, B.Bus, CA, MBA Appointed 25 November 2016 Mr Sherman is a Chartered Accountant with over 20 years’ experience in executive finance roles across a broad range of industries. 9 CLOVER CORPORATION LIMITED ABN 85 003 622 866 DIRECTORS’ REPORT (continued) Principal Activities The principal activities of the consolidated entity during the course of the financial year were the refining and sale of natural oils, the production of encapsulated powders and the research and product development of functional food and infant nutrition ingredients. There were no significant changes in the nature of the principal activities of the consolidated entity during the financial year. Operating Results The results for this report are for the financial year ended 31 July 2018, the comparative period being the financial year ended 31 July 2017. Total revenue from sale of goods increased 31.5% to $62,961,000. Net profit after tax is $7,588,000 (2017: profit of $3,639,000). Review of Operations A full review of operations is included in the Chairman’s Report appearing on pages 4 and 5 of this Annual Report. 10 CLOVER CORPORATION LIMITED ABN 85 003 622 866 DIRECTORS’ REPORT (continued) Employees The consolidated entity had 39 employees as at 31 July 2018 (2017: 33 employees). Events Subsequent to Reporting Date The company intends entering into a contract to purchase a share of a spray drying facility in Hamilton, New Zealand. There are commitments of NZD11.3m to be paid by 31 December 2018. There will be related commitments which shall be financed through a loan from the Bank of New Zealand. Apart from the above, no other events have occurred subsequent to balance date that would materially affect the results for the financial year. Significant changes in the State of the Affairs Other than as stated above, and in the accompanying Financial Report, there were no significant changes in the state of the affairs of the consolidated entity during the financial year. Likely Developments The consolidated entity will continue to pursue its policy of increasing the profitability and market share of its operating businesses during the next financial year. Dividends A fully franked final dividend of 0.75 cent per share for the 12 months ended 31 July 2017 was paid on 20 November 2017. The total final 2017 dividend paid was $1,652,000. The Directors have declared a fully franked final dividend of 1.25 cent per share ($2,064,771) in respect of the year ended 31 July 2018. The record date for this dividend will be 30 October 2018 with payment due on 20 November 2018. An interim dividend of 0.50 cent per share was paid for FY2018. The total dividend declared in respect to FY2018 is 1.75 cent per share, an increase of 0.75 cent per share compared with the total dividend declared for FY2017. Environmental Regulations The consolidated entity’s operations are subject to environmental regulations under the laws of the Commonwealth and State. The consolidated entity complies with all applicable environmental regulations. 11 CLOVER CORPORATION LIMITED ABN 85 003 622 866 DIRECTORS’ REPORT (continued) Directors’ Meetings The number of directors’ meetings (including meetings of sub-committees of directors) and number of meetings attended by each of the directors of the Company during the financial year are: Directors Meetings Nomination Committee Meetings Audit Committee Meetings Remuneration Committee Meetings Director Number Eligible to Attend Number Attended Number Attended Number Eligible to Attend Number Eligible to Attend Number Attended Number Eligible to Attend Number Attended R A Harrington P R Robinson G A Billings P J Davey I D Glasson C L Hayman Dr M J Sleigh 13 3 12 13 11 11 11 13 3 12 13 10 11 11 1 - 1 - 1 1 1 1 - 1 - 1 1 1 1 - 4 - 4 4 4 1 - 4 - 3 4 4 2 - 2 - 2 2 2 2 - 2 - 2 2 2 Insurance of Directors and Officers During the financial year, the Company paid a premium in respect of a contract insuring its directors and officers against all liabilities to another person (other than the Company or a related body corporate) that may arise from their position, except where the liability arises out of conduct involving lack of good faith. The contract covers any past, present or future director, secretary, executive officer or employee of the Company and its controlled entities. Further details have not been disclosed due to confidentiality provisions of the contract of insurance. Rounding Off of Amounts The Company is of a kind referred to in ASIC Corporations Instrument (Rounding in Financial/ Directors’ Reports) 2016/191, and accordingly amounts in the Financial Report and the Directors’ Report have been rounded off to the nearest thousand dollars, unless otherwise stated. Proceedings on behalf of the Company No person has applied for leave of the Court to bring proceedings on behalf of the Company or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the financial year. 12 CLOVER CORPORATION LIMITED ABN 85 003 622 866 DIRECTORS’ REPORT (continued) Remuneration Report The Remuneration Report outlines the director and executive remuneration arrangements of the Company for the 2018 financial year in accordance with the requirements of the Corporations Act 2001 and its Regulations. It has been audited in accordance with section 300(A) of the Corporations Act 2001 (as amended). (i) Key Management Personnel Key Management Personnel (KMP) in this report are those individuals having responsibility for planning, directing and controlling the major activities of the Company during the financial year. They include Non-Executive Directors, Executive Directors, and Executive KMP. The Directors and Chief Executive Officer determined that those persons having authority and responsibility for planning, directing and controlling activities are as listed below. Name Directors R A Harrington P R Robinson G A Billings P J Davey I D Glasson C L Hayman Dr M J Sleigh Executive KMP P J Davey P A Sherman (ii) Remuneration Policy Position Non-Executive Chairman (appointed 21 September 2017) Non-Executive Chairman (resigned 21 September 2017) Non-Executive Director Chief Executive Officer and Managing Director Non-Executive Director Non-Executive Director Non-Executive Director Chief Executive Officer and Managing Director Chief Financial Officer and Company Secretary The Company operates from two locations in Australia and markets its products internationally. All Executive KMP are based in Australia. Through an effective remuneration framework, the Company aims to:  Provide fair and equitable rewards;  Align rewards to business outcomes that are linked to creation of shareholder value;  Stimulate a high performance culture;  Encourage the teamwork required to achieve business and financial objectives;  Attract, retain and motivate high calibre employees; and  Ensure that remuneration is competitive in relation to peer companies in Australia. 13 CLOVER CORPORATION LIMITED ABN 85 003 622 866 DIRECTORS’ REPORT (continued) Remuneration Report (continued) (iii) Remuneration Framework Responsibilities The Board has established a Remuneration Committee to assist it in establishing a suitable remuneration framework for the Company. Responsibilities of the Remuneration Committee are to review and make recommendations to the Board on the following issues:  The structure of the total remuneration package (TRP) including base salary, other benefits, short term incentive (bonus) and share-based long term incentive for the CEO;  The mechanism to be used to review and benchmark the competitiveness of this TRP;  The Key Performance Indicators (KPIs) to be set for the CEO;  Changes in the amounts of different components of the TRP following annual performance review of the CEO;  Decision on whether the Long Term Incentive Plan will be offered for any year; the number of performance rights to be awarded to the CEO and specified Executives under this plan when offered; and setting of associated performance indicators for future assessment;  Determination of the number of performance rights vesting at the end of each three year assessment period of the Long Term Incentive Plan, based on financial performance indicators previously established; and  The remuneration and any other benefits of the Non-Executive Directors. The Remuneration Committee consists of four independent Non-Executive directors, Dr Merilyn Sleigh (Chair), Cheryl Hayman, Ian Glasson and Graeme Billings. The Company Secretary may act as secretary of the Remuneration Committee. The Board Chairperson and any other Non-Executive Directors may attend committee meetings in an ex officio capacity. Executives including the CEO, and any advisors retained by the Committee may attend by invitation. More information on Remuneration Committee meetings held during the year and Directors’ attendance at these meetings can be found on page 12 of this report. The Board is responsible for reviewing and resolving on recommendations from the Remuneration Committee. In addition it:  Considers matters relating to remuneration of Executives reporting to the CEO;  Approves the establishment of or amendment to employee share, performance rights and any other deferred incentive plan;  Considers matters related to Executive succession planning; and  Considers recommendations from the Nomination Committee in relation to Board succession planning, to ensure an appropriate mix of skills, experience, expertise and diversity (subject to the power of shareholders in General Meeting to elect or re-elect directors). (iv) Non-Executive Directors’ Remuneration A remuneration pool of $500,000 for the payment of Non-Executive directors was approved by shareholders at the Annual General Meeting held in November, 2011. Total Non-Executive Directors remuneration including superannuation paid at the statutory prescribed rate for the year ended 31 July 2018 was $365,066 which is within the approved amount. The Board believes that the remuneration approved for Non-Executive Directors must:  Enable the Company to attract and retain suitably qualified directors with appropriate experience and expertise; and  Recognise that given the small size of the Board, all Directors contribute extensively to the work of committees. As such, current policy is that no additional fees apply to Directors for their participation on Board committees.  Must be appropriate in the context of the overall financial performance of the company. 14 CLOVER CORPORATION LIMITED ABN 85 003 622 866 DIRECTORS’ REPORT (continued) Remuneration Report (continued) The Remuneration Committee reviews fees for Non-Executive directors annually, utilising data on and trends in Director and Chairperson remuneration in the relevant group of the top 500 ASX-listed companies in Australia (from published reports), as well as data obtainable on director remuneration in a number of peer companies either from the same industry or with similar market capitalisation and financial performance. Remuneration consultants have been used every three years to assist in this process but none have been engaged for this purpose in the past two financial years. The Board has to date selected a simple remuneration policy whereby only fees and statutory superannuation benefits are payable. The table on page 19 of this report shows fees paid to Non- Executive Directors for the 2018 and 2017 financial years. Non-Executive Directors do not participate in any share or performance rights plans. Non-Executive Directors are entitled to reimbursement of travel or other reasonable expenses incurred by them in the course of discharging their duties. (v) Executive Remuneration and Link to Business Strategy The diagram below outlines components which may be included as part of the TRP for Executives. TOTAL REMUNERATION PACKAGE + Total fixed remuneration (cash salary, superannuation and non-monetary benefits) FIXED Short term incentive (cash payment) + Long term incentive (performance rights) VARIABLE = Total Remuneration Package The Managing Director and specified Executives (Executives) are eligible for Short Term Incentive (STI) payments, while the Managing Director and Executives may also have access to a Long Term Incentive in the form of Performance Rights. The most recent LTI Offer was made to the CEO and Executives in October 2017. The total fixed remuneration of the Managing Director is set against market benchmarks by use of a remuneration consultant. The Company seeks this benchmark information every 2-3 years. At other times, increases in fixed remuneration are determined by consideration of CPI salary increases applied across the whole company, and use of published information on CEO/MD salaries in the top 500 ASX-listed companies and in companies from related industries of similar market capitalisation and financial status, as described for review of fees for Non-Executive Directors. The Company’s Executive remuneration is directly linked to its business strategy. The Board engages in an annual strategy review with management, identifying key goals and challenges for the year and the longer term. Following this, business plans and an annual budget are prepared and approved, with Key Performance Indicators (KPIs) (both financial and non-financial) established for the business. 15 CLOVER CORPORATION LIMITED ABN 85 003 622 866 DIRECTORS’ REPORT (continued) Remuneration Report (continued) These are the basis for KPIs for the CEO, set by the Board, and for other Executives, set by the CEO according to the area of responsibility of each Executive. A formal review of the achievement of each Executive is conducted by the CEO annually and proposed changes in fixed remuneration and the Short Term Incentive (STI) to be paid are submitted to the Board for noting. As noted in section (iii) above, the performance of the CEO against agreed KPI’s is reviewed by the Remuneration Committee, and recommendations on adjustment to total fixed remuneration and payment of the Short Term Incentive are made to the Board, for approval. The STI is a variable cash payment with the maximum payment based on a percentage of the Executive’s total fixed remuneration. For the Managing Director 50% applied in 2018 (30% in 2017), while for other Executives, 10% applied in both years. The Company awards STI payments on evidence that the Executives have achieved stretching work plan objectives and dealt with unexpected challenges in a way that contributes to both short-term performance and long term prospects of the Company. The Board retains discretion to vary STI payments outside of the set formula to recognise overall company performance, changes in the Company’s circumstances during the year and exceptional contributions by particular Executives. KPIs set for the CEO each year include financial, strategic and operational targets as summarised in the table below. KPIs for individual Executives reporting to the CEO include the overall financial goals for the Company, and may otherwise focus principally on operational goals in areas contributing to the overall goals (short and long term) for the Company, and for which the Executive is responsible. The financial targets are set at two levels, with the initial target establishing a gateway to an entitlement to an STI payment. KPI type Financial Percent contribution to STI 40-60% Strategic 20-50% Operational 20-50% Description - Examples Link to Company Strategy Achievement of revenue, profit and free cash flow targets set for the year in the annual budget. Establishment of agreed strategic plans and progress towards their implementation. Commercial development of new products from the R&D team; expansion of sales – new products, new customers; new market sectors; meeting regulatory challenges; manufacturing efficiencies and cost effective sourcing of raw materials; effective management of inventory, debtors and creditors (working capital requirements). Sets target for growth in sales and profits for each year, contributing to increasing shareholder value. Net free cash flow provides for further investment in the business and capacity to pay increasing dividends each year. Strategic KPI’s address the medium term prospects for the company, including new products, markets, customers and alliances, and contributing to mitigation of business risk. Operational KPIs address particular challenges identified each year (but often on- going) for continued growth of the business for the future, in the key management areas of Sales and Marketing, R&D output, Manufacturing, Regulatory and Cash Management. Examples include turning the output from the R&D team into profitable products attracting new sales. Adjustment to the changing nature of the market, raw material availability and manufacturing efficiency are all required to maintain both short term performance of the Company, and long term growth. 16 CLOVER CORPORATION LIMITED ABN 85 003 622 866 DIRECTORS’ REPORT (continued) Remuneration Report (continued) (vi) Long Term Incentive Plan A Long Term Incentive (LTI) may be offered each year to the CEO at the discretion of the Board. The incentive, when offered, is in the form of Performance Rights (rights to receive shares in the Company) which are delivered according to the Terms of the Clover Corporation Long Term Incentive Plan and an annual Letter of Invitation from the Board to the CEO, setting out the terms for vesting of performance rights at the end of the three year period from the date of offer (the assessment period). Performance Rights are issued for nil consideration and entitle the recipient to receive one Clover Corporation share at no cost for each Performance Right that vests at the end of the assessment period. The number of Performance Rights offered at the start of each financial year is determined from a percentage of the CEO’s total fixed remuneration for that year. This dollar value is converted into a number of Performance Rights based on the Volume Weighted Average Price of Clover Corporation shares on the ASX for the two week period up to and including the last day of the previous financial year. Hurdles for vesting of Performance Rights are currently set for each year of the 3 year assessment period, with vesting of Rights determined after the annual results for the company are released to the market at the end of the third year. For example, performance against hurdles set for an LTI offer if it were made in August 2017 would be assessed in September 2020, examining achievement in each of the three years since the offer date. Hurdles for vesting of Performance Rights reflect long term growth and financial performance of the Company relevant to growth in shareholder value, including such parameters as Earnings per Share (EPS) growth over the three year period, and Return on Equity (ROE) over the same period. Executives may also be invited to participate in the Company’s Long Term Incentive Plan. Performance Rights offered are on the same basis as for the CEO with the number calculated by taking a percentage of the Executive’s total fixed remuneration for that year and converting this value to the number of Performance Rights granted using the same methodology as for the CEO, as described above. Shares vesting as a result of assessment of achievements against hurdles are either purchased on- market by the Company on behalf of the CEO and Executives, or shares can be issued subject to shareholder approval. Any Performance Rights not vesting at the end of the assessment period lapse. 17 CLOVER CORPORATION LIMITED ABN 85 003 622 866 DIRECTORS’ REPORT (continued) Remuneration Report (continued) The grants which were current during the financial year were: Year of Offer Performance conditions 2016 Target – EPS Max - EPS 2016 Target –ROE (%) 2017 Max–ROE (%) Target – EPS Max - EPS 2017 Target –ROE (%) Max–ROE (%) Targeted result for year ended 31 July 2017 Targeted result for year ended 31 July 2018 Targeted result for year ended 31 July 2019 Targeted result for year ended 31 July 2020 2.5c 3.2c 13.5% 17.1% - - - - 2.9c 3.7c 14.7% 18.8% 2.9c 3.7c 14.7% 18.8% 3.4c 4.3c 16.4% 20.8% 3.4c 4.3c 16.4% 20.8% - - - - 3.8c 4.6c 17.8% 22.8% Note – 50% of the total value of the grant vests on achievement of the target and a further 50% on the achievement of the maximum. As at 31 July 2018 the following are the performance rights whose conditions have been met, and their vesting profile: P Davey P Sherman Balance 31 July 2018 Rights granted under LTI plan dated 172,795 156,940 19,100 17,263 366,098 1 August 2016 1 August 2017 1 August 2016 1 August 2017 Rights vesting effective year-ended 31 July 2019 31 July 2020 31 July 2019 31 July 2020 Under the terms of the LTI the following are further particulars relating to performance rights transactions during the year. No rights will vest until 2019 or 2020 from the grants made in 2016 and 2017 respectively. However, given that annual targets have been set for these grants, the performance conditions for each rights offer have been fulfilled for year ending 31 July 2018. Vesting of these rights at the dates shown above is dependent on continued employment of the Executive. Rights Granted Rights yet to be fulfilled, subject to service conditions Fair value of the rights as compensation* Rights whose conditions were fulfilled in year ending 31 July2018 P Davey P Sherman # 486,676 53,625 540,301 * Note: No LTI compensation has been paid in year ending 31 July 2018 or will be paid in year ending 31 July 2019. The actual value of the Performance Rights will be dependent on the Clover share price at the time of vesting. $ 514,392 56,728 571,120 # 816,412 89,987 906,399 # 329,736 36,362 366,098 18 CLOVER CORPORATION LIMITED ABN 85 003 622 866 DIRECTORS’ REPORT (continued) Remuneration Report (continued) (viii) Remuneration of Non-Executive Directors and Executive KMP The following tables disclose details of the remuneration of the Directors and Executive KMP of the consolidated entity. 2018 Directors R A Harrington P R Robinson G A Billings P J Davey 1,2 I D Glasson C L Hayman Dr M J Sleigh Executive KMP P A Sherman 1,2 Salary and Fees Superannuation Contributions $ 89,082 15,913 57,100 394,018 57,100 57,100 57,100 727,413 $ 8,463 1,512 5,424 41,520 5,424 5,424 5,424 73,191 Salary and Fees Superannuation Contributions $ 213,756 213,756 $ 21,203 21,203 STI Remune ration $ - - - 191,954 - - - 191,954 STI Remuner ation $ 23,496 23,496 Non-cash Benefits LTI Rem- uneration Total $ - - - 32,189 - - - 32,189 $ - - - 514,392 - - - 514,392 $ 97,545 17,425 62,524 1,174,073 62.524 62.524 62.524 1,539,139 Non-cash Benefits LTI Rem- uneration Total $ - - $ 56,728 56,728 $ 315,183 315,183 1. STI consist of amounts accrued in respect to 2018 2. LTI consists of an accrual value for performance rights that are expected to vest in 2019 and 2020, as noted above 2017 Directors R A Harrington P R Robinson G A Billings P J Davey 3 I D Glasson 4 C L Hayman Dr M J Sleigh Salary and Fees Superannuation Contributions STI Remuner ation Non-cash Benefits LTI Rem- uneration $ 56,451 93,681 56,451 345,799 27,854 56,451 56,451 693,138 $ 5,363 8,900 5,363 44,502 2,646 5,363 5,363 77,500 $ - - - 51,188 - - - 51,188 $ - - - 33,221 - - - 33,221 $ - - - - - - - - Total $ 61,814 102,581 61,814 474,710 30,500 61,814 61,814 855,047 Salary and Fees Superannuation Contributions STI Payment Non-cash Benefits LTI Rem- uneration Total Executive KMP P A Sherman 3 $ 208,973 208,973 $ 19,852 19,852 $ 9,430 9,430 $ - - $ - - $ 238,255 238,255 3. STI consist of amounts accrued in respect of 2017 and paid in 2018 4. I Glasson appointed as Director on 1 February 2017 19 CLOVER CORPORATION LIMITED ABN 85 003 622 866 DIRECTORS’ REPORT (continued) Remuneration Report (continued) (ix) Employment Contracts There are no specific employment contracts with Non-Executive Directors. Non-Executive Directors are appointed under a letter of appointment and are subject to election and rotation requirements as set out in the ASX listing rules and the Company’s constitution, per the ‘Board Nomination Policy and Procedure for Selection and Appointment of Directors’ policy, which can be viewed in the Corporate Governance section of the Company’s website at www.clovercorp.com.au. Managing Director Mr Peter Davey was employed by the Company under a contract of employment. Other Executives (standard contract) All other Executives have rolling contracts. The Company may terminate the Executive’s employment agreement by providing between one and three months’ written notice or providing payment in lieu of the notice period (based on the fixed component of the executive’s remuneration), together with statutory termination entitlements. The Company may terminate the contract at any time without notice if serious misconduct has occurred. Where termination with cause occurs, the Executive is only entitled to that portion of remuneration that is fixed, and only up to the date of termination. Directors’ interests The relevant interest of each director in the share capital of the Company, as notified by the directors to the Australian Stock Exchange in accordance with section 205G(1) of the Corporations Act 2001, at the date of this report is as follows: Director R A Harrington G A Billings P J Davey I D Glasson C L Hayman Dr M J Sleigh Ordinary Shares Performance Rights* 322,748 50,000 23,454 40,000 200,000 312,397 948,599 - - 329,736 - - - 329,736 * There are an additional 486,676 performance rights available to Mr Davey subject to meeting relevant performance and employment conditions 20 CLOVER CORPORATION LIMITED ABN 85 003 622 866 DIRECTORS’ REPORT (continued) Auditor’s Independence and Non-audit Services The Board of Directors is satisfied that the provision of non-audit services during the period is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the services disclosed below did not compromise the external auditor’s independence for the following reasons:  all non-audit services are reviewed and approved by the Board of Directors prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and  the nature of the services provided do not compromise the general principles relating to auditor independence as set out in the APES110 Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board. The following fees for non-audit services were paid/payable to the external auditors during the year ended 31 July 2018: Taxation services Auditor’s Independence Declaration $ 8,853 8,853 A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 has been received by the Directors, and a copy is attached at page 68. Signed in accordance with a resolution of the Board of Directors. Rupert Harrington Chairman Melbourne Date: 21 September 2018 21 CLOVER CORPORATION LIMITED ABN 85 003 622 866 CORPORATE GOVERNANCE The Board of Clover Corporation Limited is committed to ensuring its policies and practices reflect good corporate governance and recognises that for the success of the Company an appropriate culture needs to be nurtured and developed throughout all levels of the Company. This statement outlines the Company’s Corporate Governance practices in place throughout the year, unless otherwise stated, and has been summarised into sections in line with the 8 core principles set the ASX Corporate Governance Council’s “Corporate Governance Principles and out Recommendations – 3rd Edition”. in Principle 1 – Lay solid foundations for management and oversight The Board is ultimately responsible for the operations, management and performance of the Company. In discharging this responsibility, the Board delegates to senior management whose role it is to manage the Company in accordance with the directions and policies set by the Board. The Board monitors the activities of senior management in the performance of their delegated duties. It is the responsibility of the Board to determine policies, practices, management and the operations of the Company and to ensure that the Company is compliant with statutory, legal and other regulatory obligations. Responsibilities of the Board include the following:-  Determining corporate strategies, policies and guidelines for the successful performance of the Company in the present and in the future;  Monitoring the performance and conduct of the Company;   Accountability to shareholders; Ensuring that risk management procedures and compliance and control systems are in place and operating effectively;  Monitoring the performance and conduct of senior management, and ensuring adequate succession plans are in place; and Ensuring the Company continually builds an honest and ethical culture.  The Board has delegated responsibility for the following to management: Production of performance measurement reports;  Day to day management of the Company;   Managing the compliance and risk management systems;  Management of staff including, appointment, termination, staff development and performance measurement. The CEO is responsible for ensuring that the responsibilities delegated by the Board to management are properly discharged. The performance of the CEO is evaluated by the Board with reference to the overall performance of the Company, its subsidiaries and associates in which the CEO represents the Company. Both qualitative and quantitative measures are used to evaluate performance. The CEO evaluates the performance of the other senior executives and reports to the Board. The Board also reviews the performance of these executives via their attendance at Board meetings and the monthly Board reports. The performance of the senior executives of the Company was assessed, as set out above, during the reporting period. The Board is responsible for evaluating candidates and recommending individuals for appointment as Directors. The Company undertakes appropriate background and screening checks prior to nominating a Director for election by shareholders. 22 CLOVER CORPORATION LIMITED ABN 85 003 622 866 CORPORATE GOVERNANCE (continued) Principle 1 – Lay solid foundations for management and oversight (continued) The Company maintains written agreements with each Director and senior Executives that sets out the terms of their appointment and outlines all relevant roles and obligations. The Company Secretary is accountable to the Board, through the Chairman, and is responsible for advising the Board and its Committees on governance matters, monitoring the Board and ensuring Committee policies and procedures are followed, and coordinating the timely completion of Board and Committee papers. Diversity The Company values and respects the skills that people with diverse backgrounds, experiences and perspectives bring to the organisation. The Company is committed to rewarding performance and providing opportunities that allow individuals to reach their full potential irrespective of background or difference. When appointing or promoting people within the organisation the most suitably qualified candidates are selected. As a result, diversity is promoted throughout the organisation. In March 2012, the Company established a Diversity Policy to formalise its commitment to providing equal access to opportunities irrespective of background or difference. The policy may be viewed in the Corporate Governance section of the Company’s web site at www.clovercorp.com.au. The policy governs the conduct of the Company, its wholly owned subsidiaries and all Directors and employees of those entities. The Company has adopted the ASX Corporate Governance Principles and Recommendations on diversity. As at 31 July 2018 the organisation had 39 employees. The proportion of women employees in the whole organisation as at 31 July 2018 was 33%. While the Company believes that this represents a good level of gender diversity, it will continue to ensure that neither gender nor any other differences interfere with the employment of individuals based on their suitability for the position available. The proportion of women in senior executive positions as at 31 July 2018 was 17%. The Company’s objective is to incrementally grow this as vacancies allow and suitably qualified candidates are available. The aim is to achieve female representation of 30% or more. The small number of senior executive positions within the organisation and the low turnover rate limits the opportunity to increase female representation in this area. Two of the five Non-Executive Directors are women. The Board will continue to assess candidates on their skills, knowledge and experience and on the relevance of these to the Company’s needs. Principle 2 – Structure the Board to add value The Company’s constitution states that its Board is to comprise no less than three and no more than ten Directors. The names and details of the Directors of the Company at the date of this statement are set out in the Directors’ Report. At the date of this report the Board consisted of five Non-Executive Directors and one Executive Director. Each Director has undertaken to provide the Board with all information that is relevant to the assessment of his/her independence in a timely manner. The Board has assessed the independence of its members and is of the view that the following Directors are independent: Mr R Harrington - Non-Executive Mr G A Billings - Non-Executive Mr I D Glasson – Non-Executive Ms C L Hayman - Non-Executive Dr M J Sleigh - Non-Executive 23 CLOVER CORPORATION LIMITED ABN 85 003 622 866 CORPORATE GOVERNANCE (continued) Principle 2 – Structure the Board to add value (continued) The Company has established a Nomination Committee which currently consists of four independent Non-Executive Directors, and is chaired by one of the independent Non-Executive directors. The Committee periodically reviews the Board’s membership having regard to the Company’s particular needs, both present and future. Where a committee member is due for re-election at the next Annual General Meeting, that Director abstains from consideration of their nomination for re-election. The Company has a Board Nomination Policy that sets out the process by which candidates are identified and selected, the use of professional intermediaries and the requirement for a diverse range of candidates to be considered. This policy may be viewed in the Corporate Governance section of the Company’s web site at www.clovercorp.com.au. The Nomination Committee considers the structure, balance and skills of the Board in making decisions regarding appointment, retirement and nominations for re-election. When a vacancy occurs, the necessary and desirable skills, expertise and experience required to complement the Board are identified and a process to identify the most appropriate candidates is implemented. The committee engages recruitment consultants and other independent experts to undertake research and assessment as required. Directors are initially appointed by the full Board, subject to election by the shareholders of the Company at the next Annual General Meeting. Under the Constitution, one third of the Board is required to retire from office each year. Retiring Directors may stand for re-election subject to approval by the Board. The company has an established induction procedure which allows new Board appointees to participate fully and actively in Board decision making at the earliest opportunity. The Board considers that the current Directors bring an appropriate mix of skills, breadth and depth of knowledge and experience and diversity to meet the Board’s responsibilities and objectives. The range of skills and experience possessed by the each of the Directors is set out in the Directors’ Report, and is summarised in the table below: 24 CLOVER CORPORATION LIMITED ABN 85 003 622 866 CORPORATE GOVERNANCE (continued) Principle 2 – Structure the Board to add value (continued) Skill Category Description of Attribute Board experience and governance Demonstrated commitment to highest standards of governance, listed company expertise and member of governance body Current Board Representation Five Directors Five Directors Executive leadership, Capability as Board Chair or Committee Chair Healthcare, infant formula, nutrition sector experience, and working in the health sciences Strategy Development Financial and Risk Management Wholesale and Distribution; Inventory Management and Control Business Acquisition, Capital Projects and Integration Remuneration, Organisation Development Technical IP Development, and Protection Marketing, Sales and Communications Sustainable success in business at a Senior Executive level in relevant industries, including health, science, finance, investment, consumer goods Relevant business or Board experience in operational sectors, local or international; Knowledge of managing research, science and development in a high technology environment Five Directors Experience in developing, implementing and challenging plans of action designed to achieve long term company goals and sustainable competitive advantage and growth Experience in financial accounting and reporting, corporate finance, internal controls and/or experience in business risk management at a Board level in listed entity Knowledge of supply chain and inventory management; Experience working with manufacturing, production, supply chain, logistics and distribution nuances Experience working with large scale capital outlays and long-term investment horizons; M&A, new business acquisition experience, track record in developing an asset or business portfolio over the long term that remains resilient to systemic risk Background in an industry that has faced disruptive change; anticipating risks and facing major market change. Board Remuneration Committee membership or management in relation to remuneration, and organisational development or transformation Development and management of IP, trademarks and protection mechanisms for competitive advantage, both local and global scale; Knowledge and experience in commercialising new product development Senior executive experience in Marketing, Communications and Brand development; detailed understanding of corporate purpose to create long-term company value, external relationship building and valuable customer experiences Five Directors Five Directors Three Directors Four Directors Five Directors Four Directors Three Directors In the discharge of their duties and responsibilities the Directors, either individually or jointly, have the right to seek independent professional advice at the Company’s expense. In respect of advice to individual Directors, the prior approval of the Chairman is required; such approval is not to be unreasonably withheld. The Chairman is entitled to receive a copy of any such advice obtained. 25 CLOVER CORPORATION LIMITED ABN 85 003 622 866 CORPORATE GOVERNANCE (continued) Principle 2 – Structure the Board to add value (continued) The Chairman is responsible for monitoring and assessing the performance of individual Directors, each Board committee and the Board as a whole. The Chairman interviews each Director and provides feedback regarding their performance. In 2018 each Director independently completed an external confidential assessment of the performance of the Board. The results of the assessments are compiled into a written report which is presented to the Board and discussed. The performance of each Director of the Company was assessed during the reporting period. Principle 3 – Act ethically and responsibly Code of Conduct The Company has an established code of conduct dealing with matters of integrity and ethical standards. The Board recognises the need for the Directors and employees to adhere to the highest standards of behaviour and business ethics. Professional conduct and ethical standards; All Directors and employees are expected to abide by the code of conduct which covers a number of areas including the following:-   Compliance with laws and regulations;  Relationships with shareholders, customers, suppliers and competitors;  Confidentiality and continuous disclosure;      Standards of workplace behaviour and equal opportunity; Privacy and anti-discrimination; Proper use of Company assets; The environment; and Investigation and reporting of breaches of the code. Share Trading The Company has established a share trading policy which may be viewed in the Corporate Governance section of the Company’s web site at www.clovercorp.com.au. Principle 4 – Safeguard integrity in financial reporting The Company has an established Audit Committee, which has a formal charter outlining the committee’s function, composition, authority, responsibility and reporting. The Audit Committee charter may be viewed in the Corporate Governance section of the Company’s web site at www.clovercorp.com.au. There are currently four members of the Audit Committee, all of whom are non-executive Directors and are considered to be independent (refer to principle 2 above). Mr Billings, who is the Chair of the Audit Committee, is not the Chairman of the Board. The Chairman of the Board is not a member of the Audit Committee. The details of the Audit Committee members at the date of this statement and their attendance at meetings are set out in the Directors’ Report. The Non-Executive Chairman, CEO, and Company Secretary may attend Audit Committee meetings by invitation. The external auditors, PKF, are requested by the Audit Committee to attend appropriate meetings to report on the results of their half-year review and of their planning for and result of the full year audit. 26 CLOVER CORPORATION LIMITED ABN 85 003 622 866 CORPORATE GOVERNANCE (continued) Principle 4 – Safeguard integrity in financial reporting (continued) The function of the Audit Committee is to assist the Board in fulfilling its statutory and fiduciary responsibilities relating to:  The external reporting of financial information, including the selection and application of accounting policies; The independence and effectiveness of the external auditors; The effectiveness of internal control processes and management information systems;    Compliance with the Corporations Act, ASX Listing Rules and any other applicable requirements;  The application and adequacy of risk management systems within the Company. The CEO and the Chief Financial Officer are required to state in writing to the Board, by submission to the Audit Committee, that the Company’s financial statements present a true and fair view, in all material respects, of the Company’s financial position and operational results and that they are in accordance with relevant accounting standards. A declaration under Section 295A of the Corporations Act from the CEO and Chief Financial Officer has been received in respect of the current reporting period. Principle 5 – Make timely and balanced disclosure The Board recognises the need to ensure that all investors have equal and timely access to material information regarding the Company and for announcements to be factual, clear, balanced and complete. The Company has established a Continuous Disclosure Policy to ensure compliance with the ASX and Corporations Act continuous disclosure requirements. The policy requires timely disclosure through the ASX company announcements platform of information concerning the Company that a reasonable person would expect to have a material effect on the price or value of the Company’s securities or which would materially influence the decision making of investors. Internal procedures are in place to ensure that relevant information is communicated promptly. The Chairman and CEO are responsible for determining disclosure obligations and the Company Secretary is the nominated continuous disclosure officer for the Company. Principle 6 – Respect the rights of security holders The Board is committed to ensuring that shareholders are fully informed of all material matters affecting the Company in a timely manner. The dissemination of information is mainly achieved as follows:-     An Annual Report is distributed (electronically if preferred) to shareholders in November each year; A newsletter is periodically distributed to shareholders; Announcements to the ASX and press releases advising of events which are of particular significance to the progress and prospects of the Company, and Significant information is also posted on the Company’s website. In addition, shareholders are encouraged to attend and participate in the Annual General Meeting (AGM) of the Company. The external auditor attends the AGM to answer shareholders’ questions with regard to the conduct of the audit and the content of the Auditor’s Report. 27 CLOVER CORPORATION LIMITED ABN 85 003 622 866 CORPORATE GOVERNANCE (continued) Principle 7 – Recognise and manage risk The Company is committed to identifying and managing areas of significant business risk to protect shareholders, employees, earnings and the environment. Arrangements in place include:-  Regular detailed financial, budgetary and management reporting;   Procedures to manage financial and operational risks; Established organisational structures, procedures and policies dealing with the areas of health and safety, environmental issues, industrial relations and legal and regulatory matters;  Comprehensive insurance and risk management programs;  Procedures requiring Board approval for all borrowings, guarantees and capital expenditure beyond minor levels;  Where applicable, the utilisation of specialised staff and external advisors; and  Regular operational audits undertaken by major customers. Management is responsible for the design and implementation of a risk management and internal control system which manages the material business risks of the Company and reporting to the Board on whether those risks are being managed efficiently. Management reported to the Board on an ongoing basis during the current reporting period. The Board of Directors regularly reviews the external risks to the Company. The Board reviews and approves management’s plans to reduce the impact of potential risks and monitors progress against these plans. The Company does not have an internal audit function. Management is responsible for the design and implementation of a risk management and internal control system which manages the material business risks of the Company and reporting to the Board on whether those risks are being managed efficiently. Management reported to the Board on an ongoing basis. The Board of Directors regularly reviews the external risks of the Company. The Board reviews and approves management’s plans to reduce the impact of potential risks and monitors progress against these plans. The Company does not have any exposure to economic, environmental and social sustainability risks to disclose during the reporting period. The CEO and the Chief Financial Officer are required to state in writing to the Board, by submission to the Audit Committee, that the risk management and internal control compliance systems are operating efficiently and effectively. In their declaration under section 295A of the Corporations Act the CEO and Chief Financial Officer have made this statement in respect of the current reporting period. Principle 8 – Remunerate fairly and responsibly The Company has established a Remuneration Committee which currently consists of four independent, non-executive Directors. The Committee makes recommendations to the full Board on remuneration matters and other terms of employment for Executive Directors and Non-Executive Directors. Senior executive performance is continually monitored by the CEO and the CEO’s performance is subject to continuous monitoring by the full Board. The remuneration of the CEO is reviewed annually by the Remuneration Committee, which consists of only Non-Executive Directors. The remuneration of the senior executive staff is reviewed annually by the full Board after taking into consideration the recommendations of the Remuneration Committee and the CEO. The CEO and senior executive staff are remunerated by way of salary, performance incentive payments, non monetary benefits, and superannuation contributions. 28 CLOVER CORPORATION LIMITED ABN 85 003 622 866 CORPORATE GOVERNANCE (continued) Principle 8 – Remunerate fairly and responsibly (continued) the Company’s performance, market rates, Non-Executive Director’s fees are reviewed periodically by the full Board after taking into consideration the recommendations of the Remuneration Committee. Non-Executive Directors are remunerated by way of fees in the form of cash and superannuation contributions and are not entitled to receive bonus payments or any equity based remuneration. level of responsibility and Remuneration is set so as to attract and retain suitable personnel and to motivate them to pursue the long term growth and success of the Company. Further information of Directors’ and Executive remuneration is set out in the Remuneration Report. For further information concerning the corporate governance practices of the Company refer to the corporate governance section of the Company’s web site at www.clovercorp.com.au. 29 CLOVER CORPORATION LIMITED ABN 85 003 622 866 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 Notes 2018 $'000 2017 $'000 2 2 3 4 62,961 (44,714) 47,864 (36,279) 18,247 11,585 665 (476) (2,594) (4,184) (1,518) 10,616 (3,028) (2,163) (2,821) (1,113) 5,012 (1,373) 7,588 3,639 Revenue Cost of goods sold Gross profit Other income / (expenses) Marketing and sales expenses Administration and corporate expenses Research and development expenses Profit before income tax Income tax (expense)/credit Profit after tax for the period attributable to members of the parent entity Other comprehensive profit/(loss) Items that may be reclassified subsequently to profit or loss: Foreign currency translation adjustments Other comprehensive profit/(loss) for the year 46 46 (38) (38) Total comprehensive profit for the year 7,634 3,601 Earnings per share (EPS) Basic earnings per share (cent per share) Diluted earnings per share (cent per share) 19 19 4.59 4.59 2.20 2.20 This Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. 30 CLOVER CORPORATION LIMITED ABN 85 003 622 866 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 JULY 2018 Current assets Cash and cash equivalents Trade and other receivables Inventories Other current assets - prepayments Non-current assets Available for sale listed investment Property, plant and equipment Deferred tax assets Intangible assets Total assets Current liabilities Trade and other payables Interest bearing liabilities Current tax liabilities Short-term provisions Non-current liabilities Interest bearing liabilities Deferred tax liabilities Long-term provisions Total liabilities Net assets Equity Issued capital Foreign currency translation reserve Retained profits/(Accumulated losses) Total equity Notes 6 7 8 9 10 4 11 12 13 14 13 4 14 15 16 2018 $'000 7,894 15,257 19,768 656 43,575 4 6,062 502 1,907 8,475 2017 $'000 5,916 12,125 18,811 763 37,615 5 2,262 852 1,907 5,026 52,050 42,641 7,821 450 1,278 599 10,148 3,737 - 20 3,757 9,243 - 148 526 9,917 - 120 28 148 13,905 10,065 38,145 32,576 32,920 (158) 5,383 38,145 32,920 (204) (140) 32,576 This Statement of Financial Position should be read in conjunction with the accompanying notes. 31 CLOVER CORPORATION LIMITED ABN 85 003 622 866 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 Retained Profits/ (Accumulated Losses) $'000 Foreign Currency Translation Reserve $'000 Issued Capital $'000 Total $'000 Balance at 1 August 2016 32,920 (2,540) (166) 30,214 Profit attributable to members of the entity Dividend paid Foreign currency translation reserve Balance at 31 July 2017 Balance at 1 August 2017 Profit attributable to members of the entity Dividend paid Foreign currency translation reserve - - - 32,920 32,920 - - - 3,639 (1,239) - - 3,639 (1,239) - (38) (38) (140) (204) 32,576 (140) (204) 32,576 7,588 (2,065) - - 7,588 (2,065) - 46 46 Balance at 31 July 2018 32,920 5,383 (158) 38,145 This Statement of Changes in Equity should be read in conjunction with the accompanying notes. 32 CLOVER CORPORATION LIMITED ABN 85 003 622 866 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest (paid) / received Income tax paid Notes 2018 $ '000 2017 $ '000 60,413 (54,475) (189) (1,668) 46,081 (46,270) 47 (453) Net cash inflow/ (outflow) from operating activities 18 4,081 (595) Cash flows from investing activities Acquisition of plant and equipment (4,226) (480) Net cash outflow from investing activities (4,226) (480) Cash flows from financing activities Dividends paid Repayment of interest bearing liabilities Issue of interest bearing liabilities 5 (a) (2,065) (312) 4,500 (1,239) - - Net cash outflow from financing activities 2,123 (1,239) Net increase/(decrease) in cash held Cash and cash equivalents at the beginning of the period 1,978 (2,314) 5,916 8,230 Cash and cash equivalents at the end of the period 6 7,894 5,916 This Statement of Cash Flows should be read in conjunction with the accompanying notes. 33 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES The financial report covers Clover Corporation Limited (“the Company”) and controlled entities (“the Group”). Clover Corporation Limited is a listed public company, incorporated and domiciled in Australia. Basis of preparation The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The financial report also complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. The consolidated financial statements have been prepared on the basis of historical cost, except for certain financial instruments that are measured at fair value at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair values of the consideration given in exchange for goods and services. All amounts are presented in Australian dollars, unless otherwise noted. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the consolidated entity takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of AASB 2, leasing transactions that are within the scope of AASB 117, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in AASB 2 or value in use in AASB 136. In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:  Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;  Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and  Level 3 inputs are unobservable inputs for the asset or liability. The consolidated entity has applied the relief available to it in ASIC Corporations Instrument (Rounding in Financial/ Directors’ Reports) 2016/191 and accordingly amounts in the financial report and the directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated. The financial report was authorised for issue on 21 September 2018 by the Board of Directors. (a) (i) Changes in accounting policy and disclosures, standards and interpretations This Note 1 details the material accounting policies adopted by the consolidated entity in the preparation of the financial report. The accounting policies adopted are consistent with those of the previous financial year. 34 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (a) (i) Changes in accounting policy and disclosures, standards and interpretations (continued) There are no new or revised Accounting Standards and Interpretations issued by the AASB in respect of the reporting period beginning 1 August 2017 that have any significant impact on the consolidated entity in the current year or could impact on future periods. (a) (ii) Early adoption of standards The consolidated entity has not elected to apply any pronouncements before their operative date in the annual reporting period beginning 1 August 2017. (a) (iii) New accounting standards for application in future periods The following Standards and Interpretations issued or amended are applicable to the consolidated entity but are not yet effective and have not been adopted in preparation of the financial statements at the reporting date. The consolidated entity’s assessment of the impact of these new standards and interpretations is set out below. AASB 15 Revenue from Contracts with Customers AASB 15 replaces AASB 11 Construction Contracts, AASB 18 Revenue and related Interpretations. The core principle of AASB 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. Accordingly, revenue will be recognised through application of the following steps: (i) (ii) (iii) (iv) (v) Identify the contract(s) with a customer. Identify the performance obligations in the contract. Determine the transaction price. Allocate the transaction price to the performance obligations in the contract Recognise revenue when (or as) the entity satisfies a performance obligation. AAAS 15 is effective for annual reporting periods beginning on or after 1 January 2018, and it is available for early adoption. It is not anticipated that the Group will apply the standard until the year commencing 1 August 2018. The Group has assessed that application of the standard is not expected to have any material impact on the point at which revenue is recognised, as its principles embody an approach consistent with the Group’s current policy to align recognition with performance obligation satisfaction. AASB 9 Financial Instruments AASB 9 (December 2014) replaces AASB 139, and is effective for annual reporting periods beginning on or after 1 January 2018. While AASB 9 is available for early adoption, it is not anticipated that the Group will apply the standard until the year commencing 1 August 2018. Considering limited current exposure to the following key aspects of the new standard, its application is not believed to be of significant impact unless circumstances change. 35 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) The application version of AASB 9: (i) (ii) (iii) (iv) Introduces a new expected loss impairment model that will require more timely recognition of expected credit losses; Confirms previous amendments relating to new hedge accounting requirements, including changes to hedge effectiveness testing, treatment of hedging costs, risk components that can be hedged and disclosures; Includes requirements for a simpler approach for classification and measurement of financial assets compared with the requirements of AASB 139; Provides that where the fair value option is used for financial liabilities the change in fair value is to be accounted for by presenting that part attributable to change in credit risk in other comprehensive income, and the remainder in profit or loss. AASB 16 Leases. AASB 16 is effective for annual reporting periods beginning on or after 1 January 2019. The Standard requires lessees to initially recognise a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. Though the standard can be early adopted that cannot be prior to the adoption of AASB 15. It is not anticipated that the Group will apply the standard until the year commencing 1 August 2019. Considering the group’s current portfolio of leased assets, the application of AASB 16 is not believed to be of significant impact unless circumstances change. (b) Principles of consolidation The consolidated financial statements incorporate the financial statements of the Clover Corporation Limited and entities controlled by the Company and its subsidiaries. Control is achieved when the Company is exposed or has rights to variable returns for its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. All subsidiaries have a reporting date of 31 July. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the elements of control listed above. When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company's voting rights in an investee are sufficient to give it power, including:  the size of the Company's holding of voting rights relative to the size and dispersion of holdings of the other vote holders; rights arising from other contractual arrangements; and  potential voting rights held by the Company, other vote holders or other parties;   any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders' meetings Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit 36 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (b) Principles of consolidation (continued) or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the consolidated entity's accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the consolidated entity are eliminated in full on consolidation. (c) Income tax The income tax expense (credit) for the period comprises current income tax expense (credit) and deferred tax expense (credit). Current income tax expense (credit) 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 the end of the reporting period. 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 (credit) reflects movements in deferred tax asset and deferred tax liability balances during the period as well as unused tax losses. Current and deferred income tax expense (credit) 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 and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates enacted or substantively enacted at the end of the reporting period. Their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. 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 37 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (c) Income tax (continued) 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 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. Tax consolidation Clover Corporation Limited and its wholly-owned Australian subsidiaries have not formed an income tax consolidated group under tax consolidation legislation. Inventories (d) Inventories are measured at the lower of cost and net realisable value. The cost of manufactured products includes direct materials, direct labour and an appropriate portion of variable and fixed overheads. Overheads are applied on the basis of normal operating capacity. Costs are assigned on the basis of weighted average costs. (e) Property, plant and equipment Each class of property, plant and equipment is carried at cost, less where applicable any accumulated depreciation and impairment losses. Plant and equipment The carrying amount of plant and equipment is reviewed annually by 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 that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. The cost of fixed assets constructed within the consolidated entity includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the consolidated entity and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred. Depreciation The depreciable amount of all fixed assets including capitalised lease assets, are depreciated on a straight-line basis over their useful lives to the consolidated entity commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. 38 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (e) Property, plant and equipment (continued) The depreciation rates used for each class of depreciable assets are: Class of Asset Leasehold improvements, at cost Plant and equipment, at cost Furniture and equipment, at cost Depreciation Rates 6.66% - 15.00% 5.00% - 33.33% 4.80% - 40.00% Impairment The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If any indication of impairment exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. The recoverable amount of plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses are recognised in the statement of comprehensive income. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the statement of comprehensive income. De-recognition An item of plant and equipment is de-recognised upon disposal or when no further future economic benefits are expected from its use or disposal. (f) Leases Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership that is transferred to entities in the consolidated entity, are classified as finance leases. Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred. Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the life of the lease term. 39 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (g) Financial instruments Initial recognition and measurement Financial assets and financial liabilities are recognised when the consolidated entity becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the company commits itself to either the purchase or sale of the asset (i.e. trade date accounting is adopted). Those financial instruments entered into by the consolidated entity are classified and measured as set out below. Classification and subsequent measurement Financial instruments are subsequently measured at either of fair value, amortised cost using the effective interest rate method, or cost. Fair value represents the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties. Where available, prices quoted in an active market are used to determine fair value. In other circumstances, valuation techniques are adopted. Amortised cost is calculated as: a. the amount at which the financial asset or financial liability is measured at initial recognition; b. plus or minus the cumulative amortisation of the difference, if any, between the amount initially recognised and the maturity amount calculated using the effective interest method; and c. less any reduction for impairment. The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that exactly discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense in profit or loss. The consolidated entity does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirements of accounting standards specifically applicable to financial instruments. (i) Financial assets at fair value through profit or loss Financial assets are classified at ‘fair value through profit or loss’ when they are either held for trading for the purpose of short-term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation where a consolidated entity of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with changes in carrying value being included in profit or loss. (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. Loans and receivables are included in current assets, except for those which are not expected to mature within 12 months after the end of the reporting period. (All other loans and receivables are classified as non-current assets.) 40 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (g) Financial instruments (continued) Trade debtors and other receivables are recognised at the amount due. The consolidated entity establishes a provision for any doubtful debts based on a review of all outstanding amounts at period end. Bad debts are written off when they are identified. (iii) Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the consolidated entity’s intention to hold these investments to maturity. They are subsequently measured at amortised cost. Held-to-maturity investments are included in non-current assets, except for those which are expected to mature within 12 months after the end of the reporting period. (All other investments are classified as current assets). If during the period the consolidated entity sold or reclassified more than an insignificant amount of the held-to-maturity investments before maturity, the entire held-to-maturity investments category would be tainted and reclassified as available-for-sale. (iv) Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either not suitable to be classified into other categories of financial assets due to their nature, or are designated as such by management. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments. Available-for-sale financial assets are included in non-current assets, except for those which are expected to mature within 12 months after the end of the reporting period. (All other financial assets are classified as current assets.) Fair value Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models. Impairment At each reporting date, the consolidated entity assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in the statement of comprehensive income. Derecognition Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are discharged, cancelled or expired. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss. 41 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (h) Impairment of assets At each reporting date, the consolidated entity reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the statement of comprehensive income. Impairment testing is performed annually for goodwill and intangible assets with indefinite lives. Where it is not possible to estimate the recoverable amount of an individual asset, the consolidated entity estimates the recoverable amount of the cash-generating unit to which the asset belongs. (i) Intangibles Goodwill Goodwill is carried at cost less accumulated impairment losses. Goodwill is calculated as the excess of the sum of the consideration transferred and the acquisition date fair value of any previously held equity interest, over the acquisition date fair value of net identifiable assets acquired. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is tested for impairment annually and is allocated to the consolidated entity’s cash generating units or groups of cash generating units, which represent the lowest level at which goodwill is monitored but where such level is not larger than an operating segment. Gains and losses on the disposal of an entity include the carrying amount of goodwill related to the entity sold. Changes in the ownership interests in a subsidiary are accounted for as equity transactions and do not affect the carrying values of goodwill. (j) Foreign currency transactions and balances Functional and presentation currency The functional currency of each of the consolidated entity’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the Company’s functional and presentation currency. Transaction and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the period- end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items are recognised in the statement of comprehensive income, except where deferred in equity as a qualifying cash flow or net investment hedge. Exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity, otherwise the exchange difference is recognised in the statement of comprehensive income. 42 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (k) Cash and cash equivalents For the purpose of the cash flow statement, cash includes cash on hand and in at-call deposits with banks or financial institutions, net of bank overdrafts, and investments in money market instruments with less than 14 days to maturity. (l) Revenue Revenue from the sale of goods is recognised upon the delivery of goods to customers. Revenue is measured at the fair value of the consideration received or receivable after taking into account any trade discounts and volume rebates allowed. Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. Dividend revenue is recognised when the right to receive a dividend has been established. Dividends received from associates and joint venture entities are accounted for in accordance with the equity method of accounting. Revenue from the rendering of a service is recognised upon the delivery of the service to the customers. All revenue is stated net of the amount of goods and services tax (GST). (m) Trade and other payables Trade and other payables represent liabilities outstanding at the end of the reporting period for goods and services received by the Company during the reporting period, which remain unpaid. Amounts are unsecured and are presented as current liabilities. They are normally settled in accordance with the terms agreed with the respective creditors. (n) Employee benefits Provision is made for the consolidated entity’s liability for employee benefits arising from services rendered by employees to reporting date. Employee benefits expected to be settled within one year together with entitlements arising from wages, salaries and annual leave which will be settled after one year, have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Other employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. Contributions are made by the consolidated entity to employee superannuation funds and are charged as expenses when incurred. (o) Provisions Provisions are recognised when the consolidated entity has a legal or constructive obligation, as a result of past events, from which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. 43 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (p) Goods & services tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax 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 the expense. Receivables and payables in the statement of financial position 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. (q) Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company, excluding any costs of servicing equity other than dividends, by the weighted average number of ordinary shares, adjusted for any bonus elements. Diluted earnings per share Diluted earnings per share is calculated as net profit attributable to members of the Company, adjusted for:   costs of servicing equity (other than dividends); the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and  other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus elements. (r) Operating segments An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. This includes start up operations which are yet to earn revenues. Operating segments have been identified based on the information provided to the chief operating decision makers. (s) Comparative figures Where required by the Accounting Standards comparative figures have been adjusted to conform with changes in presentation in the current financial period. 44 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (t) Critical accounting estimates and judgements The directors evaluate estimates and judgements incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data; obtained both externally and within the consolidated entity. Key estimate Impairment The consolidated entity assesses impairment at each reporting date by evaluating conditions and events specific to the consolidated entity that may be indicative of impairment triggers. Recoverable amounts of relevant assets are reassessed using value-in-use calculations performed. In assessing recoverable amounts a number of key estimates are made. Key judgements Impairment of goodwill: Goodwill is allocated to the tuna oil cash-generation units which are based on the controlled entity’s’ principal activities. The Company assessed the recoverable amount of goodwill and determined that no impairment was required at reporting date. Recoverable amounts of relevant assets are reassessed using value-in-use calculations that incorporate various key assumptions. Refer to Note 11 for further details on the assumptions used in these calculations. Inventory realisation: The measurement of inventory at the lower of cost and net realisable value requires judgements to be made in respect of the forecast demand for the consolidated entity’s products and the matching of raw material purchasing and the manufacturing process to meet forecasts. The possibility that inventory lines may exceed optimum levels or be obsolete is factored into adjustments necessary to measure inventory at net realisable value, should it be determined to be lower than cost. Certain lines of inventory are carried at net realisable value, that being lower than cost (refer to Note 8). The impact of net realisable value adjustments on the financial result for the year is disclosed in Note 3. Income tax: Deferred tax assets are recognised for unused tax losses and tax offsets to the extent that it is probable that taxable profit will be available against which the losses and offsets can be utilised. Management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies. 45 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 2. Revenue and other income Operating activities: Sales of goods Other income / (expenses): Net exchange gains / (losses) Interest revenue Total revenue 3. Expenses Profit before income tax includes the following items: Consolidated 2018 $'000 2017 $'000 62,961 62,961 645 20 665 47,864 47,864 (523) 47 (476) 63,626 47,388 Employee benefits expense: 5,752 4,496 Inventory impairment charge: 62 (32) Depreciation and amortisation: - leasehold improvements - buildings - plant and equipment - office furniture and equipment Loss on asset disposal Interest expense Minimum lease payments: - operating lease 4. Income tax expense/(credit): (a) The components of tax expense/(credit) comprise: Current tax Deferred tax liability Deferred tax asset 40 216 438 7 701 60 209 163 - 369 36 568 - - 206 399 2,798 (120) 350 3,028 140 (26) 1,259 1,373 46 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 4. Income tax expense/(credit) (continued) (b) Reconciliation of income tax expense/(credit): The aggregated amount of income tax expense attributable to the period differs from the amounts prima facie payable on profits from ordinary activities. The difference is reconciled as follows: Prima facie tax payable on profit before income tax at 30% Tax effect amounts: - Research and development claim - Sundry other Income tax expense/(credit) attributable to profit (c) Deferred tax assets Consolidated 2018 $'000 2017 $'000 3,184 1,504 (107) (49) (39) (92) 3,028 1,373 Deferred tax asset 502 852 The deferred tax assets balance comprises the following temporary differences: Impairment of inventory Provisions Unrealised foreign exchange Other temporary differences Reconciliation: Opening balance (Charges) / credits to income statement Closing balance 378 312 (198) 10 502 852 (350) 502 355 227 176 94 852 2,111 (1,259) 852 47 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 4. Income tax expense/(credit) (continued) (d) Deferred tax liabilities The deferred tax liability balance comprises the following timing differences: Depreciating assets Reconciliation: Opening balance Charge / (benefit) to income statement Closing balance 5. Dividends (a) Dividend paid during the period Final dividend for the year ended 31 July 2017 of 0.75 cent per share (2016FY: 0.50 cent per share) fully franked at the tax rate of 30%, paid 21 November 2017 Interim dividend for the year ended 31 July 2018 of 0.50 cent per share (2017FY: 0.25 cent per share) fully franked at the tax rate of 30%, paid 02 May 2018 Franking account balance Franking credits available for subsequent financial years Consolidated 2018 $'000 2017 $'000 0 0 120 (120) 0 120 120 146 (26) 120 1,239 826 826 2,065 413 1,239 5,274 4,545 The above available amounts are based on the balance of the dividend franking account at the period end adjusted for franking credits that will arise from the payment of the current tax liability; franking debits that will arise from payment of dividends recognised as a liability at period end; and franking credits that will arise from dividends recognised as a receivable at period end. There were no dividend or distribution reinvestment plans operating during the financial period. (b) Dividends declared after reporting date The Directors have declared a final dividend for the financial year ended 31 July 2018 of 1.25 cent per share (2017: final 0.75 cent per share) fully franked at 30%, payable on 20 November 2018, but not recognised as a liability at the end of the financial period. The record date for this dividend will be 30 October 2018. 48 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 6. Cash and cash equivalents Cash at bank Cash on deposit, at call 7. Trade and other receivables Current Trade debtors Other debtors Total current trade and other receivables Provision for impairment of receivables Consolidated 2018 $'000 2017 $'000 7,894 - 7,894 4,890 1,026 5,916 13,910 1,347 15,257 11,655 470 12,125 Trade receivables are amounts due from customers for goods sold in the ordinary course of business. They are generally due for settlement between 30 and 120 days and therefore are classified as current. Other receivables generally arise from transactions outside the usual operating activities of the consolidated entity. Settlement timeframes may vary, though their classification is current. A provision for impairment is recognised when there is objective evidence that an individual trade or other receivable is impaired. These amounts are included in impairment expense in the statement of profit or loss. Refer to Note 23 for more information on credit risk of trade and other receivables. 8. Inventories Raw materials, at lower of cost & net realisable value Goods in transit Finished goods, at lower of cost & net realisable value Total inventories 9. Other current assets Prepayments Deposit on proposed acquisition of property Total other current assets 10,167 1,717 7,884 19,768 10,258 3,605 4,948 18,811 656 - 656 413 350 763 49 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 10. Property, plant and equipment Land Buildings, at cost Less: accumulated depreciation Total Buildings Leasehold improvements, at cost Less: accumulated depreciation Total leasehold improvements Plant and equipment, at cost Less: accumulated depreciation Total plant and equipment Furniture and equipment, at cost Less: accumulated depreciation Total furniture and equipment Consolidated 2018 $'000 2017 $'000 2,000 3,845 (934) 2,911 - - - - - - - 1,632 (843) 789 4,161 (3,037) 1,124 7,330 (5,867) 1,463 231 (204) 27 207 (197) 10 Total property, plant and equipment 6,062 2,262 Reconciliation of the carrying amounts of each class of asset at the beginning and the end of the current financial period: Land Balance at beginning of the period Additions Carrying amount at the end of the period Buildings Balance at beginning of the period Additions Transfer, from leasehold improvements Transfer, from other assets Depreciation expense Carrying amount at the end of the period Leasehold improvements Balance at beginning of the period Transfer, to Buildings Transfer, to Equipment Depreciation expense Carrying amount at the end of the period - - - - - - - - - 952 - - (163) 789 - 2,000 2,000 - 2,390 387 350 (216) 2,911 789 (737) (12) (40) 0 50 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 Plant and equipment Balance at beginning of the period Additions, net of disposals Transfers, from leasehold improvements Foreign Currency Translation Depreciation expense Carrying amount at the end of the period Furniture and equipment Balance at the beginning of the period Additions, net of disposals Depreciation expense Carrying amount at the end of the period 11. Intangible assets Goodwill on acquisition, at cost Total intangible assets Consolidated 2018 $'000 2017 $'000 1,463 1,710 99 12 (12) (438) 1,124 10 24 (7) 27 120 - 2 (369) 1,463 33 13 (36) 10 1,907 1,907 1,907 1,907 There were no acquisitions of controlled entities in 2018 (2017: None). (a) Impairment assessment Goodwill is allocated to the tuna oil cash-generating unit which is based on the controlled entities’ principal activities. During the 31 July 2018 financial year, the Company assessed the recoverable amount of goodwill relating to the tuna oil segment and determined that goodwill is not impaired. The recoverable amount of the cash-generating unit, being the assets of the cash-generating unit and goodwill, was assessed by reference to the cash-generating unit’s value-in-use. Value-in-use is calculated based on the present value of cash flow projections over a 5 year period approved by the Board of Directors. The cash flows are discounted using a rate of 12% and 2% annual growth rates. Management believes that any reasonable possible change in key assumptions on which recoverable amount is based would not cause the aggregate carrying amount of the cash generating unit to exceed its recoverable amount. 12. Trade and other payables Current Trade creditors Sundry creditors and other accruals 5,984 1,837 7,821 8,916 327 9,243 51 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 13. Interest Bearing Liabilities Current interest bearing liabilities Non-current interest bearing liabilities Assets pledged as security Consolidated 2018 $'000 2017 $'000 450 3,737 4,187 - - - The interest bearing liabilities are secured by a first mortgage over land and buildings (with a carrying value of $4.911m), as well as a general charge over Group assets. 14. Provisions Aggregate employee entitlements: Current Non-current Total employee entitlements 15. Issued capital (a) Issued and paid up capital 165,181,696 (2017:165,181,696) fully paid ordinary shares Total contributed equity 599 20 619 526 28 554 32,920 32,920 32,920 32,920 The Company has issued share capital amounting to 165,181,696 ordinary shares of no par value. Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of shares held. At shareholders’ meetings, each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. (a) Movement in ordinary shares There were no movements in issued capital during the financial period. Options There are no options over the unissued capital of the Company at the end of the financial period. 52 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 (b) Capital management The Company’s objective in managing capital is to continue to provide shareholders with attractive investment returns and ensure that the Company can fund its operations and continue as a going concern. The Company’s capital consists of shareholders’ equity plus net debt. The movement in equity is shown in the Consolidated Statement of Changes in Equity. At 31 July 2018 gross debt was $4,187,000 (2017: $ nil). There are no externally imposed capital requirements. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or raise debt. 16. Reserves The foreign currency translation reserve records exchange differences arising on translation of the financial statements of foreign subsidiaries. Foreign currency translation Total (158) (158) (204) (204) 17. Parent company information Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Equity Issued capital Accumulated losses Total equity Net profit for the period before other comprehensive income Total comprehensive income for the period Earnings per share (cents per share) 2018 $'000 2017 $'000 71 22,065 605 22,481 22,136 23,085 1,176 - 1,176 177 120 297 20,960 22,789 32,920 (11,960) 20,960 32,920 (10,131) 22,789 236 236 (386) (386) 1.4c (0.23)c 53 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 Controlled entities: Nu-Mega Lipids Pty Limited Nu-Mega Ingredients Pty Limited Subsidiaries: - Nu-Mega Ingredients Limited - Nu-Mega Ingredients Limited - Nu-Mega Ingredients (NZ) Limited Country of Incorporation Australia Australia United Kingdom United States of America New Zealand Percentage Owned 2017 2018 % % 100 100 100 100 100 100 100 100 100 100 Contingent liabilities There are no contingent liabilities at the reporting date. 18. Reconciliation of cash flow Reconciliation of cash flow from operating activities to operating profit Profit for the period Non cash items : - Amortisation and depreciation Change in assets and liabilities, net of the effects of purchase of subsidiaries (Increase)/Decrease in receivables (Increase)/Decrease in other assets (Increase)/Decrease in inventories (Decrease)/Increase in payables (Decrease)/Increase in deferred tax liabilities Decrease/(Increase) in deferred tax assets (Decrease)/Increase in current tax liabilities (Decrease)/Increase in employee entitlements Net cash inflow/(outflow) from operating activities Consolidated 2018 $ '000 2017 $ '000 7,588 3,639 701 568 (3,082) (242) (958) (1,350) (120) 350 1,130 64 4,081 (1,260) (39) (5,179) 746 (23) 1,259 (320) 14 (595) 54 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 19. Earnings per share The following reflects the income and share data used in the calculation of basic and diluted earnings per share: 2018 2017 $ 000 $ 000 (a) Reconciliation of earnings to net profit or loss Profit attributable to members of the parent entity 7,588 3,639 Earnings used to calculate basic and diluted EPS 7,588 3,639 (b) Weighted average number of ordinary shares outstanding during the period used in the calculation of basic and diluted earnings per share 165,181,696 165,181,696 (c) Basic and Diluted earnings per share (cents per share) 4.59c 2.20c 20. Auditor's remuneration Remuneration of the auditor of the parent entity in respect of: - Auditing and reviewing the financial reports of the Company and the controlled entities - Taxation services 21. Related party transactions (a) Ultimate parent entity: $ $ 92,000 8,853 100,853 94,000 19,763 113,763 Clover Corporation Limited is the ultimate parent entity of the consolidated entity. (b) Ownership interests: Information in relation to ownership interest in controlled entities is provided in Note 17. 55 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 22. Key management personnel compensation (a) Names and positions held in the consolidated entity of key management personnel in office at any time during the period were: Name Directors R A Harrington P R Robinson G A Billings P J Davey I D Glasson C L Hayman Dr M J Sleigh Executive KMP P A Sherman Position Non-Executive Chairman (appointed 21 September 2017) Non-Executive Chairman (resigned 21 September 2017) Non-Executive Director Chief Executive Officer and Managing Director Non-Executive Director Non-Executive Director Non-Executive Director Chief Financial Officer and Company Secretary Key management personnel remuneration has been included in the Remuneration Report section of the Directors’ Report. The table below summarises the total compensation: Short-term benefits Long-term benefits (b) Performance rights: 2018 $ 1,283,202 571,120 1,854,322 2017 $ 1,093,302 - 1,093,302 There were 366,098 Performance Rights offers available to key management personnel whose conditions have been met as at 31 July 2018, which vest during 2019 or 2020. There were an additional 540,301 Performance Rights offers available to key management personnel, subject to meeting relevant conditions. (c) Shareholding: Directors R A Harrington P R Robinson G A Billings P J Davey I D Glasson C L Hayman Dr M J Sleigh Balance 31 July 2017 57,748 1,396,441 50,000 23,454 - 200,000 257,397 Resignation Adjustment Shares Purchased & Sold Balance 31 July 2018 - (1,396,441) - - - - - 265,000 - - - 40,000 - 55,000 322,748 0 50,000 23,454 40,000 200,000 312,397 1,985,040 (1,396,441) 360,000 948,599 56 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 23. Management of financial risk The consolidated entity's principal financial instruments consist of cash, deposits with bank, accounts receivable, payables and borrowings. Financial risk management policies The consolidated entity manages its exposure to key financial risks, including interest rate and currency risk in accordance with the consolidated entity's financial risk management policies. The majority of sales are transacted in US dollars and Australian dollars. The objective of the policies is to support the delivery of the consolidated entity's financial targets whilst protecting future financial security. Primary responsibility for identification and control of financial risks rests with the audit and risk committee under the authority of the board. The board reviews and agrees policies for managing each of the risks identified below, including the review of credit risk policies and future cash flow requirements. Specific financial risk exposures and management The main risks arising from the consolidated entity's financial instruments are interest rate risk, foreign currency risk, price risk, credit risk and liquidity risk. Interest rate risk is not significant given the consolidated entity has minimal borrowings. The consolidated entity uses different methods to measure and manage different types of risks to which it is exposed. These include monitoring levels of exposure to foreign exchange risk and assessments of market forecasts for foreign exchange rates. Ageing analysis and monitoring of specific credit allowances are undertaken to manage credit risk and liquidity risk is monitored through the development of future rolling cash flow forecasts. (a) Foreign currency risk As a result of the consolidated entity having cash balances, trade receivables and trade payables denoted in foreign currency, the consolidated entity's statement of financial position can be affected by movements in the relevant exchange rates relative to the Australian dollar. The consolidated entity utilises foreign exchange hedges to manage its exposure to currency fluctuations arising from the purchase of goods and services in foreign currency. At 31 July 2018, the consolidated entity had the following financial assets and liabilities denominated in foreign currency. Financial assets Cash and cash equivalents Trade and other receivable Total financial assets Financial liabilities Trade and other payables Total financial liabilities 2018 $'000 2017 $'000 818 11,597 12,415 1,347 9,049 10,396 (1,761) (10,654) (4,603) (4,603) 57 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 23. Management of financial risk (continued) (a) Foreign currency risk (continued) At 31 July 2018, had the Australian Dollar moved as illustrated in the table below with all other variables held constant, profit after tax and equity would have been affected as follows: Foreign exchange movement Change in Profit USD/AUD + 5% USD/AUD - 5% EURO/AUD + 5% EURO/AUD - 5% GBP/AUD + 5% GBP/AUD - 5% NZD/AUD + 5% NZD/AUD - 5% Post Tax Profit Higher/(Lower) 2018 $'000 2017 $'000 Change in Equity Higher/(Lower) 2018 $'000 2017 $'000 (499) 548 (240) 265 (499) 548 (240) 265 (5) 5 (1) 1 (5) 6 (28) 31 (5) 6 (2) 3 (5) 5 (1) 1 5 6 (28) 31 (5) 6 (2) 3 Significant assumptions used in the foreign currency exposure sensitivity analysis include:  Reasonable estimates of movements in foreign exchange rates were determined based on a review of the last two years’ historical movements and economic forecasters’ expectations.  The reasonable movement of 5% was calculated by taking the spot rates for each currency as at reporting date, moving this spot rate by 5% and then re-converting the foreign currency into Australian dollars at the revised spot rate.  The net exposure at reporting date is representative of what the consolidated entity was, and is expecting, to be exposed to in the next twelve months from reporting date. (b) Price risk The consolidated entity's exposure to commodity and price risk is considered minimal. There are annual fixed price purchase contracts in place for forecast raw material requirements. From time to time it may be necessary to purchase raw materials from outside of the agreements. 58 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 23. Management of financial risk (continued) (c) Credit risk Credit risk arises from the financial assets of the consolidated entity, which comprise cash and cash equivalents, trade and other receivables. The consolidated entity's exposure to credit risk arises from potential default of the counter party, with a maximum exposure equal to the carrying amount of the financial assets. The consolidated entity trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it the consolidated entity's policy to securitize its trade and other receivables. It is the consolidated entity's policy that all customers who wish to trade on credit terms are subject to credit verification procedures including an assessment of their independent credit rating, financial position, past experience and industry reputation. Risk limits are set for each individual customer in accordance with parameters monitored by the CEO. These risk limits are regularly monitored. A breakdown of receivables showing those within/out of terms is shown below. Receivable balances are monitored on an ongoing basis to minimize the occurrence of bad debts. Trade receivables as at 31 July 2018 Trade receivables: Within terms Over terms Total Consolidated 2018 $'000 2017 $'000 13,543 367 13,910 11,654 - 11,654 For the remaining financial assets there are no significant concentrations of credit risk within the consolidated entity and financial instruments are spread amongst a number of AAA rated financial institutions. 59 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 23. Management of financial risk (continued) (d) Liquidity risk Liquidity risk arises from the financial liabilities of the consolidated entity and the consolidated entity’s subsequent ability to meet these obligations to repay their financial liabilities and other obligations as and when they fall due. The consolidated entity's objective is to maintain a balance between continuity of funding and flexibility through the use of cash balances, borrowings, working capital and leasing. Maturity analysis of financial assets and liability based on management's expectations The risk implied from the values shown in the tables below, reflects a balanced view of cash inflows and outflows. Leasing obligations, trade payables and other financial liabilities mainly originate from the financing of assets used in the consolidated entity’s ongoing operations such as property, plant, equipment and investments in working capital. Consolidated Realisable cash flows from financial assets Cash and cash equivalents Trade and other receivables Anticipated cash inflows Financial liabilities and obligations due for payment Trade and other payables Interest bearing liabilities Leasing commitments Anticipated cash outflows Net inflow/(outflow) (e) Interest Rate Risk Balance as at 31 July 2018 Less than 1 year 1-5 years $'000 $'000 $'000 Over 5 years $'000 7,894 15,257 23,151 7,894 15,257 23,151 - - - (7,821) (4,187) (361) (12,369) 10,782 (7,821) (450) (127) (8,398) 14,753 - (3,737) (234) (3,971) (3,971) - - - - - - - The consolidated entity’s primary interest rate risk arises from long-term borrowings. The consolidated entity’s bank loans outstanding, totalling $4,187,000 (2017: $nil) are principal and interest payment loans, bearing interest at a current annual rate of 4.6%. (f) Fair value All assets and liabilities recognised in the statement of financial position, whether they are carried at cost or at fair value, are recognised at amounts that represent a reasonable approximation of fair value, unless otherwise stated in the applicable notes. The carrying amounts of cash and bank balances, other receivables and other payables approximate their fair values due to their short term nature. 60 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 24. Operating segments Identification of reportable segments The consolidated entity operates in the industry of manufacturing tuna oil and encapsulated products in Australia. Whereas in the previous financial year, a treasury segment was separately disclosed, the Chief Executive Officer and the Board of Directors consider that there is no true separation of the treasury function from the primary business and operating segment of the Group, nutritional oil and microencapsulated powders. Financial information about the business as a whole is reported to and reviewed by the Chief Executive Officer and Board of Directors on a monthly basis, in order to assess performance and determine the allocation of resources. Geographical information Revenues from external customers by domestic and export location of operations and information about its non-current assets by location of assets is shown in the following table. Revenue from external customers 2017 $'000 2018 $'000 Non-current assets 2017 $'000 2018 $'000 Australia / New Zealand Asia Europe Americas Total 37,650 18,485 4,111 2,715 24,032 18,260 3,195 2,377 62,961 47,864 7,970 - - - 7,970 4,169 - - - 4,169 During the financial year there were 2 customers who represented 38% and 19% of total sales respectively. Greater than 90% of total sales revenue is generated by the export market. 61 CLOVER CORPORATION LIMITED ABN 85 003 622 866 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 Consolidated 2018 $’000 2017 $’000 25. Capital and leasing commitments (a) Operating lease commitments Operating leases primarily related to premises, contracted for but not capitalised in the financial statements: Payable: Not later than 1 year Later than 1 year but not later than 5 years Total operating leases 127 234 361 371 - 371 26. Events subsequent to reporting date The company intends entering into a contract to purchase a share of a spray drying facility in Hamilton, New Zealand. There are commitments of NZD11.3m to be paid by 31 December 2018. There will be related commitments which shall be financed through a loan from the Bank of New Zealand. Apart from the above, no other matter or circumstance has arisen since 31 July 2018 that has significantly affected, or may significantly affect the consolidated entity's operations, the results of those operations, or the consolidated entity's state of affairs in future financial years. 27. Contingent liabilities There are no contingent liabilities at the reporting date. 62 CLOVER CORPORATION LIMITED ABN 85 003 622 866 DIRECTORS’ DECLARATION The Directors of Clover Corporation Limited declare that in their opinion: (a) the financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 31 July 2018 and of its performance for the period ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; (b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 1; and (c) there are reasonable grounds to believe that the consolidated entity will be able to pay its debts as and when they become due and payable. This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the financial year ending 31 July 2018. This declaration is made in accordance with a resolution of the Board of Directors. Rupert Harrington Chairman Melbourne Date: 21 September 2018 63 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CLOVER CORPORATION LIMITED REPORT ON THE FINANCIAL REPORT Opinion We have audited the accompanying financial report of Clover Corporation Limited (the Company), which comprises the consolidated statement of financial position as at 31 July 2018, and the consolidated statements of profit or loss and other comprehensive income, changes in equity, and cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the Directors’ Declaration of the Company and the consolidated entity (the Group) comprising the Company and the entities it controlled at the year’s end or from time to time during the financial year. In our opinion, the accompanying financial report is in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the Group’s consolidated financial position as at 31 July 2018 and of its consolidated financial performance for the year ended on that date; and (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion 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 about whether the financial report is free from material misstatement. Our responsibilities under those standards are further described in the Auditor’s Responsibility section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. Key audit matter – Inventory existence and valuation As at 31 July 2018, the carrying value of inventory was $19,768,000 (2017: $18,811,000) as disclosed in note 8 of the financial report. Inventory is the most significant of the Group’s assets, and accordingly we considered it a Key Audit Matter. The Group’s manufacturing planning processes consider forecast customer demand and access to materials from a range of suppliers. These factors impact on the quantity of raw material and finished goods inventory on hand, and necessitate minimum inventory levels to ensure that the Group’s sales objectives continue to be met. How our audit addressed this matter Our procedures included but were not limited to:  Attending and observing year-end inventory counts performed by Management at locations of significance;   Testing the accuracy of perpetual inventory records for a sample of products to check descriptions, quantities and the recording of inventory movements; Evaluating the design of processes to capture the costs of purchase and conversion and those other costs incurred in bringing inventories to their present location and condition; 64 PKF Melbourne Audit & Assurance Pty Ltd ABN 75 600 749 184 Liability limited by a scheme approved under Professional Standards Legislation Melbourne Level 12, 440 Collins Street Melbourne VIC 3000 Australia p f +61 3 9679 2222 +61 3 9679 2288 PKF Melbourne Audit & Assurance Pty Ltd is a member firm of the PKF International Limited family of legally independent firms and does not accept any responsibility or liability for the actions or inactions of any individual member of correspondent firm or firms. For office locations visit www.pkf.com.au Key audit matter – Inventory existence and valuation (continued) A standard cost system is used to account for inputs to inventory. Management conducts regular analysis to actualise the cost of inventory, and to determine whether adjustment to the carrying amount is required to reflect net realisable value, if that is lower than cost. How our audit addressed this matter (continued)   Testing on a sample basis the reasonableness of standard costs compared to actual costs of purchase and production; Considering the turnover cycle of inventory, assessing the allocation of purchase price and efficiency variances; and  Challenging the adequacy of adjustments made to inventory for it to be measured at the lower of cost and net realisable value on the basis of actual and forecast sales activity, and Management’s assessment of qualitative factors. Key audit matter – Revenue recognition How our audit addressed this matter The Group’s sales revenue amounted to $62,961,000 during the year (2017: $47,864,000). Note 1(l) Revenue describes the accounting policies applicable to distinct revenue streams, noting that revenue from the sale of goods, after adjusting for discounts or allowances, is recognised upon the delivery of goods to customers. Shipments dispatched but not yet delivered to customers are classified as goods in transit inventories. On the basis of the significance of the account and the processes to determine recognition point, we have considered revenue recognition as a Key Audit Matter. Key audit matter – Assessment of the carrying amount of goodwill As at 31 July 2018, the carrying value of goodwill was $1,907,000 (2017: $1,907,000) as disclosed in note 11 of the financial report. The Group’s goodwill arose from a business combination in 2007 relating to the then tuna oil segment, which remains fundamental to the Group’s primary business and operating segment, nutritional oil and microencapsulated powders. Determination as to whether or not there is an impairment relating to an asset or Cash Generating Unit (CGU) involves significant judgement about the future cash flows and plans for the asset or CGU. Further disclosure regarding the Group’s impairment assessment is contained in Note 11. We have determined that the evaluation of the recoverable amount of goodwill is a Key Audit Matter. Our procedures included but were not limited to:    evaluating a sample of contracts and agreeing revenue amounts to the records accumulated as inputs to the financial statements, including supporting billing systems and bank records; these procedures enabled our assessment of the values recorded and the timing of revenue recognition as appropriate to the timeframe of product delivery; evaluating the cut-off process and its reliability to fairly account for dispatches not yet delivered to customers at the reporting date and the recognition of revenue in accordance with the Group accounting policies; and assessing the consistency of the Group’s accounting policies in respect of revenue recognition with the criteria prescribed by the applicable standard, AASB 118 Revenue. How our audit addressed this matter Our procedures included but were not limited to:  Evaluating the impairment calculations including the testing of the recoverable amount of the CGU;  Assessing the reasonableness of the cash flow projections prepared by Management and approved by the Board and used in the impairment model;    Evaluating the reasonableness of key assumptions including the discount rate, forecast growth and terminal value assumptions; Testing the arithmetic accuracy of the impairment model; Reviewing Management’s sensitivity analysis around the key drivers of the cash flow projections, and assessing the likelihood of such movements occurring sufficient to give rise to an impairment; and  Assessing the appropriateness of the disclosures included in Note 11. 65 Other Information Other information is financial and non-financial information in the annual report of the Group which is provided in addition to the financial report and our Auditor’s Report thereon. The directors are responsible for the other Information in the annual report. Our opinion on the financial report does not cover the other Information and, accordingly, we do not express any form of assurance conclusion thereon, with the exception of our opinion on the Remuneration Report. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of the other information we obtained prior the date of the Auditor’s Report, we are required to report that fact. We have nothing to report in this regard. 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 gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 1, the Directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial report complies with International Financial Reporting Standards. In preparing the financial report, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our responsibility is to express an opinion on the financial report based on our audit. Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue and auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individual or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. 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 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 entity’s preparation of the financial report that gives a true and fair view 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. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors. We conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events and conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion on the financial report. Our conclusions are based on the audit 66 evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. We evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. We obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Directors, we determine those that were of most significance in the audit of the financial report of the current year and are therefore key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. REPORT ON THE REMUNERATION REPORT Opinion We have audited the Remuneration Report included in pages 13 to 20 of the Directors’ Report for the year ended 31 July 2018. In our opinion, the Remuneration Report of Clover Corporation Limited for the year then ended complies with Section 300A of the Corporations Act 2001. Responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. PKF Melbourne, 21 September 2018 Steven Bradby Partner 67  AUDITOR’S INDEPENDENCE DECLARATION TO THE DIRECTORS OF CLOVER CORPORATION LIMITED In relation to our audit of the financial report of Clover Corporation Limited for the year ended 31 July 2018, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. PKF Melbourne, 21 September 2018 Steven Bradby Partner PKF Melbourne Audit & Assurance Pty Ltd ABN 75 600 749 184 Liability limited by a scheme approved under Professional Standards Legislation Melbourne Level 12, 440 Collins Street Melbourne VIC 3000 Australia p f +61 3 9679 2222 +61 3 9679 2288 PKF Melbourne Audit & Assurance Pty Ltd is a member firm of the PKF International Limited family of legally independent firms and does not accept any responsibility or liability for the actions or inactions of any individual member of correspondent firm or firms. For office locations visit www.pkf.com.au 68 CLOVER CORPORATION LIMITED ABN: 85 003 622 866 Additional ASX Information Additional information required by the Australian Securities Exchange Listing Rules and not disclosed elsewhere in this report. Shareholdings as at 31 August 2018 Substantial shareholders The number of shares held by substantial shareholders and their associates is set out below: Washington H. Soul Pattinson and Company Limited Brickworks Limited1 37,411,939 ordinary shares 37,411,939 ordinary shares 1 Details included on substantial shareholder notice dated 18 November 2013. Shares held by Brickworks Limited represent a technical relevant interest as a result of Brickworks Limited’s shareholding in Washington H. Soul Pattinson & Company Limited. Distribution of shareholders as at 31 July 2018 Category 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total Number of Holders Total number of holders of less than a marketable parcel, being 321 shares @ 1.56 435 1,056 668 920 117 3,196 88 Voting rights On a show of hands every Shareholder present in person or by proxy at a general meeting shall have one vote. Where a poll is demanded, every Shareholder present in person or by proxy at a general meeting shall have one vote for every ordinary share held. 69 CLOVER CORPORATION LIMITED ABN: 85 003 622 866 ASX Additional Information - Continued Twenty largest shareholders as at 31 July 2018* Rank Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Washington H Soul Pattinson & Company UBS Nominees Pty Ltd BNP Paribas Noms Pty Ltd Evelin Investments Pty Ltd Citicorp Nominees Pty Ltd HSBC Custody Nominees (Australia) Ltd National Nominees Ltd HSBC Custody Nominees (Australia) Ltd A/C 2 Incani & Papadoppoulos Super Pty Ltd Mr Peter Howells Brett Paton Family Super Fund A/C Neweconomy Com AU Nominees Pty Ltd Connaught Consultants (Finance) Pty Ltd Mr Charles Neil Hamish Drummond Mr Garrie Ellice Mr Pei Yin Foo BNP Paribas Nominees Pty Ltd Ms Nina Tschernykow JP Morgan Nominees Australia Ltd Ganesh Super Fund A/C Total top 20 shareholders Total number of shares on issue * As shown on the register, beneficial holdings may differ. Securities quoted by the ASX Number of Fully Paid Ordinary Shares Percentage of Issued Ordinary Shares (%) 37,411,939 17,818,066 7,667,701 7,550,000 5,705,904 5,581,078 3,954,141 3,827,125 2,113,350 1,558,138 1,550,000 1,435,248 1,427,600 1,101,685 1,094,963 1,108,000 1,001,940 878,881 855,636 850,816 22.65 10.79 4.64 4.57 3.45 3.38 2.39 2.32 1.28 0.94 0.94 0.87 0.86 0.67 0.66 0.62 0.61 0.53 0.52 0.52 104,402,211 165,181,696 63.21% All of the Company’s issued ordinary shares are quoted by the ASX under the code CLV. Register of securities New South Wales Computershare Investor Services Pty Limited Level 3, 60 Carrington Street Sydney NSW 2000 Telephone: 1300 850 505 70 

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