ANNUAL REPORT
2020
ANNUAL REPORT 2020
ANNUAL
REPORT
2020
CONTENTS
1
4
8
Financial
Highlights
14
Operating +
Financial
Review
Chairman’s
Letter
30
Financial
Report 2020
Managing
Director’s
Letter
85
Independent
Auditor’s
Report
90
Shareholders’
Information
93
Corporate
Directory
About Ecofibre
Ecofibre is a provider of hemp products in the United
States and Australia.
In the United States, the Ananda Health business is the #1
provider of hemp-derived CBD for retail pharmacies. The
Company produces nutraceutical products for human and
pet consumption, as well as topical creams and salves. See
www.anandahemp.com and www.anandaprofessional.com.
The Company also supplies its leading Ananda Hemp CBD
products to Australians via the SAS B program.
In Australia, the Company produces 100% Australian grown
and processed hemp food products including protein
powders, de-hulled hemp seed and hemp oil. See
www.anandafood.com.
The Company is also developing innovative hemp-based
products in textiles and composite materials in the United
States. See www.hempblack.com.
The Company owns or controls key parts of the value chain
in each business, from breeding, growing and production to
sales and marketing. Our value proposition to customers is
built on strong brands and quality products.
FINANCIAL HIGHLIGHTS
Revenue
US independent pharmacies
up 519% from $5.7m to
up 510% from 525 to
$35.6m
3,200
NPAT
Channel mix
up 170% from $8.6m loss to
Branded channel sales
+ $6.0m
84%
Fully diluted EPS
Gross Margin
up 158% from 3.7 cps loss to
for H2 FY2019
+ 2.2 CPS
77%
Net Assets
up from $1.6m to
$
m42.3
EBITDA margin
for H2 FY2019
25%
Financial
Highlights
Chairman’s
Letter
1
4
6
30
Financial
Report 2019
77
Independent
Auditor’s Report
Managing Director’s
Letter
81
Shareholders
Information
10
Operating +
Financial Review
85
Corporate
Directory
FINANCIAL HIGHLIGHTS
Revenue
up 42% from $35.6m to
Channel mix
Branded channel sales
$50.7m
87%
US independent
pharmacies
up 279%
$9.3m
NPAT
up 119% from $6.0m to
$13.2m
Channel mix
Wholesale distributor sales
up 279%
$9.3m
Fully diluted EPS
up 100% from 2.17 cps to
Gross Margin
for FY20
4.34 CPS
76%
Net Assets
up from $42.3m to
$
m63.0
Underlying
EBITDA margin
for FY20
27%
ECOFIBRE LIMITED ANNUAL REPORT 2020 1
OUR VISION
2
KEY
INFRASTRUCTURE
IN PLACE FOR
NEXT STAGE
OF GROWTH
ECOFIBRE LIMITED ANNUAL REPORT 2020 3
IMITED
CHAIRMAN’S LETTER
Dear Shareholders
On behalf of the Directors it is my pleasure to welcome you to our second
annual report as a listed company.
In the 2020 financial year (FY20) the Company continued its trajectory of
strong growth in revenues and profits. Our financial performance is
summarised on page 1 and recorded in detail later in this report.
Shareholders will be pleased to note the progress made in each of our three businesses.
Our United States (US) nutraceuticals business, Ananda Health, maintained dominant
market share in the key retail pharmacy channel despite being slowed by COVID-19 and
wide-spread civil unrest across the country.
1
other
companies
49%
51%
Ananda Health reached an important milestone in May when it won an exclusive
distribution agreement with the largest retail pharmacy in the US, CVS Pharmacy.
The win speaks highly of the quality of the Ananda Health team and products, and we
are on track to stock our first 'topical' products in select CVS locations in the second
quarter of this year.
It's worth noting that most national US retailers and distributors still only stock topical
CBD products. As more clinical studies are conducted and confidence in the health
benefits of CBD continues to improve, we look forward to the day when 'ingestible'
products can also be supplied through these channels.
IRI data. Graph shows composition of drug store class of trade for the 52 week period ending
17 May 2020. The drug store class of trade includes national and regional chain stores and
independent pharmacies. Independent pharmacies represent 77% of all CBD sales in this channel.
1
4
We've committed to an ongoing program of clinical research to
provide patients, pharmacists, doctors and regulators with the
information they need to make informed decisions, and we believe
that Ananda Health is very well positioned as the CBD industry
continues to professionalise. For those unfamiliar with our business,
all of our products are made with non-psychoactive hemp, not
marijuana.
Our Hemp Black business was commercialised in FY20 after more
than two years of technology development with Thomas Jefferson
University (TJU).
In April 2020 Hemp Black was beginning to manufacture a range of
yoga wear, both to launch its brand and also to demonstrate the
quality and functionality of its technologies. With the onset of
COVID-19, our CEO Eric Wang made a nimble decision to switch
production and focus on meeting demand for anti-bacterial and
reusable face masks. With outbreaks continuing and greater focus
on public health globally it seems the need for high-quality masks
won't disappear anytime soon.
As a result of this pivot Hemp Black was able to break even in FY20.
We also recently announced the transformational acquisition of
advanced textile manufacturer, and long-term Hemp Black partner,
TexInnovate. This business will strengthen Hemp Black's capabilities,
which now extend through the value chain from R&D and patents, to
manufacture, and strong distribution through Ananda Health and
existing TexInnovate customers.
On behalf of the Board I'd like to extend a warm welcome to the
president of TexInnovate, Jeff Bruner, and his highly skilled team. I
look forward to their continued success as part of the Ecofibre family.
Our third business, Ananda Food, is making steady progress but
remains unprofitable.
Our food products are available at Woolworths Stores under the
‘Macro’ brand, and through selected IGA stores under the Ananda
Food brand. Our products are also sold wholesale to food
manufacturers and other distributors. As sales and production
volumes increase we are expecting a better outcome for Ananda
Food in FY21.
ECOFIBRE LIMITED ANNUAL REPORT 2020 5
New Kentucky Headquarters
Management has done a wonderful job designing and building our new
facility in Kentucky, USA.
The building brings together staff from a number of
locations and creates a highly productive working
environment for our US team. The building now serves as
our US headquarters, a production facility for Ananda
Health and Hemp Black, and a future training centre
for pharmacists and doctors.
I haven't been able to tour the facility yet due
to travel restrictions, but it's clearly a
showpiece for our products and
capabilities.
Progress in Australia
I am pleased that full spectrum Ananda Hemp
products are now available in Australia under
the Special Access Scheme (SAS) and
Authorised Prescriber scheme. The product
supplied in Australia is the same as our industry
leading US product and is very competitively
priced as we utilise the scale of our US operations.
Health practitioners are prescribing the product for a
range of conditions, and I congratulate the Australian
Therapeutic Goods Administration (TGA) and governments
for making Ananda Hemp available in Australia.
In June 2020 the Australian government passed legislation to
allow certification for legitimate export of hemp seed and
similar products.
Further improvements in the Australian regulatory
environment are also likely following publication of the
Senate Community Affairs Committee report 'Current
barriers to patient access to medicinal cannabis in Australia'
in March 2020.
6
Our future
We made substantial progress across the business in FY20, and I'd
like to thank my fellow directors, our management team and staff
for their hard work and the results they've delivered for
shareholders.
As with previous years, I want to highlight the contribution of our
Managing Director, Eric Wang. His drive and ability have been key
to Ecofibre's success, and his commitment to the Company is
second to none. Eric has now relocated permanently to the US to
focus on the large market opportunity available to our business,
and on behalf of all shareholders I'd like to thank both him and his
family.
My thanks also to the patients, customers, business partners and
others who are all part of the Ecofibre story, and especially to you
the shareholders for your continued support.
On a personal note, my grand-daughter Katelyn continues to thrive
on her daily dose of Ananda Hemp.
Thank you for being an Ecofibre shareholder
Barry Lambert
Chairman
ECOFIBRE LIMITED ANNUAL REPORT 2020 7
MANAGING DIRECTOR’S LETTER
Dear Fellow Shareholders,
I would like to join Barry in thanking you for your continued support and it is my pleasure to
report on Ecofibre's operations and financial performance in our first full year as a publicly
listed company.
Many shareholders have recently reached out to check-in and ask what my mindset is as our leadership team
manages through an unusually high level of uncertainty and disruption on a global scale.
To draw an analogy closer to home, the leadership mindset that we have taken reminds me of the song “Four
Seasons in One Day” by Crowded House. Like the weather, economic conditions are always changing, and this
ultimately impacts customers’ mindsets and behaviours. And like people adjust to the weather on a regular
basis, companies must regularly adjust to economic changes to grow and be relevant.
In the last several months Ecofibre has certainly experienced several abrupt changes in economic conditions that
have affected our customers’ mindset and behaviour. In my view, going forward it is prudent to expect abrupt
changes to our economy to become the norm as opposed to the exception.
Our Victorian shareholders will tell us they leave the house every morning (pre-COVID) prepared for Four
Seasons in One Day. Likewise, our management team remains focussed on growing Ecofibre profitably in an
environment where ‘economic seasons’ can change in one day.
With this backdrop, there are two points I will highlight as I review FY20 and more importantly set the scene for
FY21:
!
!
Our strategy and vision remain constant
All three of our businesses are now in commercial phase as we grow our diversified portfolio
Our strategy and vision remain constant
In last year's annual report, I shared the four principles we use to deploy capital in support of our portfolio
strategy. I wanted to remind shareholders of these principles as they anchor our strategy, and ensure measured
decision making. They help keep us focused on building a growing, sustainable, resilient business that actively
manages economic change.
! Strong purpose: we only enter markets where we believe our products can improve the lives and well-being
of people and the sustainability of our planet
! Clear focus: we target customers and segments that our capabilities and values are aligned to
! Quality, safety and transparency
! Education
! Sustainability
8
ECOFIBRE LIMITED
ANNUAL REPORT 2020 7
! Design to last: our business models must be profitable, sustainable and provide flexibility as we operate in a
highly fluid industry
! Execute with conviction: patience to properly invest in infrastructure and brand, and conviction that our
products improve the lives of people and our planet, means we take a long-term view on these businesses
Across our three businesses we have deep conviction that our value propositions resonate with customers, the
segments we target are attractive from a growth and financial perspective, and that we can be the clear leader
in our specific market segments.
All three of our businesses are now in commercial phase as we grow our diversified portfolio
Our stated strategy is to establish a portfolio of businesses that create hemp-based products that add value and
improve people’s lives. I am very pleased to report that we have progressed this strategy to a point where all
three of our businesses are now in the full commercial stage of their lifecycle.
Last year our portfolio had an ‘established’ US based CBD business Ananda Health, a ‘recently established’
Australian based hemp food business Ananda Food, and a Hemp Black ‘R&D program’ with plans to begin early
commercial activity by the end of FY20.
Over the past year our management team has:
! Profitably grown the Ananda Health business and generated positive cash flow to fund the working capital
required to seed our Ananda Food and Hemp Black businesses during the early stages of their development.
Ananda Health continues to expand its market leading position in US retail pharmacies, improve its cost
efficiency ratios and selectively add product lines relevant to our target customers.
At the strategic level we were able to implement two major shifts which are fundamental to our long-term
success in the US CBD market. Our formal relationship with CVS Pharmacy, the largest pharmacy chain in the
US, will underpin our growth as CBD evolves into a mass market product. I still consider CBD in the US to be
in its early stages of acceptance with large upside when the industry reaches its full potential.
Secondly, we have established major regional and national distribution relationships across the US. These
traditional intermediated channels for pharmacies will underpin the success of establishing CBD as a staple in
the professional US health care system.
We welcomed David Neu as CEO of Ananda Health during the year, and I would like to personally thank him
and his team for their leadership and commitment to Ecofibre. David and his wife Espy are in the process of
relocating from their homes in Los Angeles and Philadelphia to Kentucky where our US headquarters is
located.
! Established and deepened large scale commercial relationships for our Ananda Food business.
We were not able to deliver a profitable result this year as I had planned but the team has been able to
expand our presence across a range of products and customers which will create a solid result for this
coming financial year.
Our future
We made substantial progress across the business in FY20, and I'd
like to thank my fellow directors, our management team and staff
for their hard work and the results they've delivered for
shareholders.
As with previous years, I want to highlight the contribution of our
Managing Director, Eric Wang. His drive and ability have been key
to Ecofibre's success, and his commitment to the Company is
second to none. Eric has now relocated permanently to the US to
focus on the large market opportunity available to our business,
and on behalf of all shareholders I'd like to thank both him and his
family.
My thanks also to the patients, customers, business partners and
others who are all part of the Ecofibre story, and especially to you
the shareholders for your continued support.
On a personal note, my grand-daughter Katelyn continues to thrive
on her dosage of Ananda Hemp each day.
Thank you for being an Ecofibre shareholder
Barry Lambert
Chairman
ECOFIBRE LIMITED ANNUAL REPORT 2020 9
ECOFIBRE LIMITED
ANNUAL REPORT 2020 7
Dear Fellow Shareholders,
I would like to join Barry in thanking you for your continued support and it is my pleasure to
report on Ecofibre's operations and financial performance in our first full year as a publicly
listed company.
To draw an analogy closer to home, the leadership mindset that we have taken reminds me of the song “Four
Seasons in One Day” by Crowded House. Like the weather, economic conditions are always changing, and this
ultimately impacts customer mindsets and behaviours. And like people adjust to the weather on a regular
basis, companies must regularly adjust to economic changes to grow and be relevant.
In the last several months Ecofibre has certainly experienced several abrupt changes in economic conditions that
have affected our customer’s mindset and behaviour. In my view, going forward it is prudent to expect abrupt
changes to our economy to become the norm as opposed to the exception.
Our Victorian shareholders will tell us they pretty much leave the house every morning prepared for Four
Seasons in One Day. Likewise, our management team is prepared to keep growing Ecofibre profitably in an
environment where ‘economic seasons’ can change in one day.
With this backdrop, there are two points I will highlight as I review FY20 and more importantly set the scene for
Fy21:
!
!
Our strategy and vision remain constant
All three of our businesses are now in commercial phase as we grow our diversified portfolio
Our strategy and vision remain constant
In last year's annual report, I shared the four principles we use to deploy capital in support of our portfolio
strategy. I wanted to remind shareholders of these principles as they anchor our strategy, and ensure measured
decision making. They help keep us focused on building a growing, sustainable, resilient business that actively
manages economic change.
! Strong purpose: we only enter markets where we believe our products can improve the lives and well-being
of people and the sustainability of our planet
! Clear focus: we target customers and segments that our capabilities and values are aligned to
! Quality, safety and transparency
! Education
! Sustainability
We continue to be the leading grower and producer of hemp food in Australia and do so with the highest
levels of quality control and food security which allow us to serve the top brands across Australia. During
the year it was agreed that our range with Woolworth Macro brand will be extended to include hemp
seed oil, and Ananda Food was also selected to supply one of Australia’s leading plant-based food
manufacturers. These products will be available across Australia in the very near future.
! Completed our core R&D and intellectual property development for Hemp Black and have begun to
translate this IP into what we expect to be a highly attractive profitable long-term business.
During the year our portfolio of IP has matured with several patents granted and others pending
approval. The business also established the core supply chains required to take product concepts to
market at scale. I would like to thank Mark Sunderland, Chief Innovation Officer, for his tireless
leadership and innovative vision for Hemp Black. In addition to his current role, Mark will step into a
group-wide role as Chief Sustainability Officer as we develop one of the most sustainable hemp business
models globally.
! Completed all of our major capital investment programs for the foreseeable future with the building of
our US Headquarters in Kentucky and the proposed acquisition of TexInnovate.
Our US Headquarters houses production and manufacturing processes for Ananda Health and Hemp
Black as well as all core functions to support and run these businesses. The building is one of the most
sustainable in Kentucky and construction was completed in under a year thanks to a remarkable team
effort between our architects, construction manager, contractors and staff. This building is one of the
most important marketing tools for our businesses as it provides physical / visual proof points of the
production quality of Ananda Health and a wide range of use cases for Hemp Black.
Finally, I am very pleased to welcome the TexInnovate team to the Ecofibre family. This acquisition
completes all of the core components of our Hemp Black supply chain and we expect this business to be a
meaningful part of our portfolio from both a revenue and profit perspective in FY21.
I have had the pleasure of working closely with Jeff Bruner over the past 18 months. He and his team add
significant depth and experience to Ecofibre and are one of the most respected teams in the world of high-
performance textiles. Jeff will maintain all of his current responsibilities and serve as President of Hemp
Black.
Outlook
As our business continues to grow, it is worth reflecting on the fact that Ecofibre sold its first US CBD
product in January 2017, hemp food only became legal in Australia in November 2017, and Hemp Black sold
its first product in May of this year. The growth in both revenues and profits in such a short time is a
testament to the Ecofibre team across multiple geographies.
Today Ecofibre is a leader in our target markets and I am confident that our absolute and relative position
will continue to improve. I am excited to finally have our portfolio of businesses fully established and see our
teams capture full potential for the Group.
10
Our strategy and vision remain constant
In last year's annual report, I shared the four principles we use to deploy
capital in support of our portfolio strategy. I wanted to remind
shareholders of these principles as they anchor our strategy, and ensure
measured decision making. They help keep us focused on building a
growing, sustainable, resilient business that actively manages economic
change.
! Strong purpose: we only enter markets where we believe our
products can improve the lives and well-being of people and the
sustainability of our planet
! Clear focus: we target customers and segments that our capabilities
and values are aligned to
! Quality, safety and transparency
! Education
! Sustainability
! Design to last: our business models must be profitable, sustainable
and provide flexibility as we operate in a highly fluid industry
! Execute with conviction: patience to properly invest in infrastructure
and brand, and conviction that our products improve the lives of
people and our planet, means we take a long-term view on these
businesses
Across our three businesses we have deep conviction that our value
propositions resonate with customers, the segments we target are
attractive from a growth and financial perspective and that we can be
the clear leader in our specific market segments.
All three of our businesses are now in commercial phase as we
grow our diversified portfolio
Our stated strategy is to establish a portfolio of businesses that create
hemp-based products that add value and improve people’s lives. I am
very pleased to report that we have progressed this strategy to a point
where all three of our businesses are now in the full commercial stage of
their lifecycle.
Last year our portfolio had an ‘established’ US based CBD business
Ananda Health, a ‘recently established’ Australian based hemp food
business Ananda Food, and a Hemp Black ‘R&D program’ with plans to
begin early commercial activity by the end of FY20.
Thank you
Thank you again to all our customers, business partners
and shareholders for your continued support of
Ecofibre.
As shareholders, we are privileged to have strong talent,
commitment and an ownership culture across all of our
teams. They are the core of the Company and I am
thankful for everything they do.
My personal thanks to Barry and Jon, my fellow
directors, who have been instrumental in supporting me
so that Ecofibre could be nimble when it mattered most.
Finally, I want to thank Christy and my children who have
been the greatest source of support and understanding
over the past four years whilst I have been commuting
to the US. I am very much looking forward to having the
family together as we relocate to the US. We will miss
our friends and we will always call Australia home.
Eric Wang
Managing Director
ECOFIBRE LIMITED ANNUAL REPORT 2020 11
From left to right:
Eric Wang (Chief Executive Officer & Managing Director)
Sam Timmermann (Marketing Director - Ananda Health)
John Ryan (Chief Strategy Officer)
Georgie Rist (Vice President Global Accounts - Ananda Health)
Alex Nance (Operations Manager)
Alex Capano (Chief Science Officer)
Brent Ballard (Vice President of Strategic Accounts - Ananda Health)
Jerry Newton (Chief Operating Officer - Ananda Health)
Adam Cantwell (Vice President Global Operations)
Chuck Schneider (Chief Marketing & Administrative Officer)
Mark Sunderland (Chief Innovation Officer - Hemp Black)
Kalie Borsato (Director of Sales Operations, Ananda Health)
Mary Jakobi (US Financial Controller)
Jeff Bruner (President TexInnovate)
David Neu (Chief Executive Officer, Ananda Health)
Absent from photo:
Alastair Bor (Chief Technology Officer)
Jonathan Brown (Chief Financial Officer)
Kieren Brown (Managing Director – Ananda Food)
Kate Douglass (Group Financial Controller)
12
OUR CUSTOMERS ARE OUR
MOST VALUABLE RESOURCE.
WE WILL ALWAYS BE THE MOST
RESPECTED COMPANY.
A GREAT COMPANY HAS
ACCOUNTABLE INDIVIDUALS.
WHEN YOU LOVE WHAT YOU
DO, IT WON’T FEEL LIKE
WORKING.
WE ARE A LEADER IN
OUR INDUSTRY
WHICH MEANS
BREAKING AND
SETTING THE
RULES.
ECOFIBRE LIMITED ANNUAL REPORT 2020 13
OPERATING FINANCIAL REVIEW
+
REVENUE
42%
Growth across all
business lines
GROSS
MARGIN
4%
Continued focus on
production efficiency
50.7
35.6
5.7
72%
76%
34%
2018
2019
2020
2018
2019
2020
CHANNEL
MIX
Ongoing shift to
wholesale distribution
PROFIT
BEFORE TAX
276%
Sale growth, scale benefits,
cost management
50.7
35.6
2019
2020
Retail (b2c digital) +18%
Wholesale (white label, bulk, other) +13%
Wholesale (distributor) +279%
Wholesale (direct to retailer) +28%
17.3
4.6
-8.2
2018
2019
2020
14
NPAT
119%
Strong contribution by
Ananda Health
DILUTED
EPS
1
100%
Prioritising
shareholder outcomes
13.2
6.0
4.34
2.17
-8.6
-3.71
2018
2019
2020
2018
2019
2020
NET
ASSETS
49%
Balance sheet
strength
63.0
42.3
UNDERLYING
EBITDA MARGIN
Improved net
margins
8%
19%
27%
1.6
-128%
2018
2019
2020
2018
2019
2020
1
Diluted EPS for 2018 adjusted for 3:1 share split implemented on 6 February 2019
ECOFIBRE LIMITED ANNUAL REPORT 2020 15
Financial Results
Ecofibre is pleased to announce a full year profit after tax of $13.2m in FY20, up from $6.0m in FY19. The result
was driven by strong growth in revenues, an increase in gross margins reflecting the Company's investment in
brand and quality infrastructure, and continued strong cost management.
Group revenue increased 42% to $50.7m (FY19: $35.6m) and the group’s gross profit increased to $38.5m (FY19:
$25.8m) which was underpinned by increasing gross margins (FY20: 76%, FY19: 72%).
Strong cost controls continue to be in place with operating expenses increasing at half the rate of the growth in
revenue, up 21% to $27.5m (FY19: $22.7m).
After adjusting for one-off items in FY19 and FY20, including income tax credits, IPO costs, one-off government
incentives and foreign exchange, the business' underlying EBITDA margin increased from 19% in FY19 to 27% in
FY20.
The Company has a strong balance sheet, with $18.3m cash on hand and low debt.
Operating cash inflows for the year were $5.8m, cash investment outflows totalled $22.5m and financing cash
inflows totalled $9.4m, including a $10.0m term loan.
Subsequent to the end of the year, Ecofibre raised $29.5m from institutional investors to fund the upfront cash
component of the acquisition of TexInnovate and provide initial working capital for that business.
The major investments required to establish Ecofibre's three businesses are now largely complete, and fixed
capital investment in the coming year is expected to be moderate.
Portfolio Overview
Ecofibre's operations are diversified by business line, geography and value
chain.
Our three business lines in hemp-derived CBD, high-tech hemp-fibre
applications and hemp foods operate independently in their markets, and
are each expected to earn an appropriate, standalone return on invested
capital.
! Ananda Health aims to be the preferred provider in the USA
practitioner and pharmacy channels by providing federally legal, safe,
high quality products.
! Hemp Black supplies sustainable and functional hemp materials, based
on superior technical performance at a better price point delivered
more sustainably. Our aim is to be the recognised leader in sustainable
high-tech hemp applications.
! Ananda Food’s business is focussed on the production and sale of
hemp foods primarily in Australia. The business aims to be the leading
hemp food supplier in Australia and Asia and help to supply the future
demand for quality, safe plant-based proteins.
16
All our businesses have a common focus on health-oriented customers and
channels, and all focus primarily on the US and Australian markets.
In 2020 we began to realise synergies from running the Company as an
integrated portfolio. For example:
! Hemp Black distributes face masks to retail pharmacies under the
Ananda Professional brand in the United States, and direct to
consumers via anandahemp.com. From July 2020 Hemp Black is
leveraging the resources of Ananda Food to distribute product in
Australia.
! Ananda Food supplies hemp seed oil to Ananda Health as an input to
the manufacture of nutraceuticals.
! Ananda Food, Hemp Black and Ananda Health have collaborated to
develop a new range of nutraceuticals based on hemp-seed or hemp-
fibre derived carbon for sale in US retail pharmacies.
Each business also has strong capabilities and depth through
its value chain:
! Ananda Health's vertically integrated supply chain,
respected brand and management capability is a point of
difference in the retail pharmacy market;
! Hemp Black's intellectual property and manufacturing
know-how combine to produce unique products with
attributes our customers value.; and
! Ananda Food's gene bank, agronomic experience,
vertically integrated business and fully traceable food
supply chain experience is difficult for competitors to
replicate.
Overall, the retail pharmacy distribution capability of Ananda
Health has become a key asset for the entire group, and
diversification - and integration - of our business portfolio has
emerged as a key strength.
* pre-COVID (!)
ECOFIBRE LIMITED ANNUAL REPORT 2020 17
Ananda Health
FY20 RESULT
Revenue: $46.8m
Profit before Tax: $20.8m
Ananda Health's profit before tax increased by 63% during the year, from $12.7m in FY19 to
$20.8m in FY20.
Our key brands - Ananda Hemp and Ananda Professional - target the health and wellbeing
segment, including customers seeking help with sleep, anxiety or pain. We focus on well-regulated
and reputable distribution channels and emphasise high quality research, training and advice.
The vast majority of revenue is derived from the US, which continues to be one of the world's
largest markets for hemp-derived CBD.
We also export medicinal cannabis from the US to Australia. In February 2020 we commenced sale
of two Ananda Hemp branded products to Australian patients via the Special Access Scheme (SAS)
and Authorised Prescriber scheme.
US industry overview
The availability of hemp-derived CBD products has continued to increase in the US, even though
the product is not yet widely adopted within the US healthcare system.
The general market remains oversupplied and competitive, with farmers growing too much during
the 2019 northern summer, and product re-sellers and marketing companies subsequently
competing on price rather than quality.
Many suppliers who have high operating costs, lack strong production or marketing capabilities, or
who were not able to finance their operations, exited the industry during the year.
Some industry commentary suggests that hemp cropping in US may reduce by over 30% in the US
2020 summer growing season compared with the prior year, citing market conditions and difficulties
related to the COVID-19 pandemic as contributing factors. Most of the US crop will continue to
focus on CBD, however the proportion of the crop focussed on cannabinoid-rich varieties may
decline from 90% in 2019 to 75% in 2020.
2
Ananda Health continues to focus on things the business can control - quality, costs, pricing - and
investing in long term relationships with customers and distributors.
2
https://hemptoday.net/contraction-in-u-s-fields-wont-necessarily-mean-higher-prices/
18
ECOFIBRE LIMITED ANNUAL REPORT 2020 19
CVS win and distribution shift
Ananda Health is focussed on the retail pharmacy market, including both independent pharmacies and their
distributors, and pharmacy chains.
The largest retail pharmacy in the US is CVS Pharmacy, with over 9,900 retail locations in 49 states.
In May 2020, Ecofibre announced that Ananda Health had secured an exclusive distribution agreement with
CVS, under which a line of hemp-derived topical products are expected to be offered for sale from December
2020. Ananda Health will initially supply ten topical products for sale exclusively at select CVS Pharmacy
locations. All products will be manufactured in Ecofibre’s new facility in Georgetown, Kentucky.
The CVS tender process was rigorous and highly competed. In this segment, brand and trust are critically
important, and securing this customer provides market validation for Ananda Health's ability to reliably deliver
high quality product.
Most large retailers such as CVS are yet to carry ingestible hemp-derived CBD products. This may become a
significant opportunity for Ananda Health once customer policies change.
In the broader retail pharmacy context, independent pharmacies are the innovators and early adopters, focussed
on providing advice and trusted by their patients to help improve health outcomes. In the past Ananda Health
supplied independent pharmacies directly through online or phone-based orders. Our strategy is now to
progressively shift to a 'distributor-led' model, using the traditional wholesale channels already in place for other
products stocked by independent pharmacies.
Ananda Health products are now distributed by two of the three largest pharmacy wholesalers in the US,
Cardinal Healthcare and McKesson, together with multiple regional and specialist distributors.
The business has also developed significant data integration and warehousing capabilities to support regional
distribution partners and Electronic Data Interchange (EDI) for large customers. This allows straight through
processing of orders and integration with inventory management and accounting systems.
New Products and Brand Refresh
Ananda Hemp branding was also updated in
June 2020 to enhance its professional, clinical
look and allows the consumer to quickly
identify what’s in the bottle and what’s not.
These updates align more closely with the
features of the Ananda Professional line, so
that both key Ananda Health brands now
share a consistent look and feel and
consumers can be assured of the brand’s
commitment to product quality, potency and
transparency.
In both cases we retained the same trusted
and high quality product formulations.
20
Research Studies
In November 2019 Ecofibre announced an ongoing program of research by Ananda Health to improve
understanding of the benefits of CBD. These studies are intended to support regulators, doctors, medical
practitioners and pharmacists who need credible data to make decisions about patient care.
The first study was an 8-week peer reviewed observational study on hemp-derived CBD and opioid reduction,
published in the Journal Postgraduate Medical and Hospital Practice.
3
In June 2020, Ananda Health commenced patient enrollment for a phase II clinical trial on chemotherapy induced
peripheral neuropathy (CIPN) with the Lankenau Institute for Medical Research (LIMR). The study has received
an IND (investigational new drug) from the US Food and Drug Administration (FDA).
4
Ecofibre’s third study is a phase II clinical trial that will evaluate moderate-dose CBD on agitation, sleep and
mood in dementia patients. The moderate-dose study is currently pursuing its own FDA IND and expects to
commence patient enrollment in August 2020.
5
Over time Ananda Health expects these and similar studies will help shift prescriber and patient uptake of hemp-
derived CBD in the US Healthcare system, and help shift the current market from 'early adopters' to 'early mass'.
1.
Opioid Reduction Study
Published November 2019
An 8-week study on Hemp Derived CBD was completed and recently published in the Journal
Postgraduate Medical and Hospital Practice.
! First study on CBD and opioid reduction to identify key data points, and one of the largest
studies of its kind.
! 97 patients who had been using opioids to treat chronic pain for at least a year completed the 8-
week study.
94 patients added Ananda Hemp Full Spectrum CBD gel caps to their treatment regimen
Of those who added Ananda full spectrum extract:
! 53% reduced their use of opioids
! 94% reported improvements in quality of life indices, specifically sleep, pain and/or mood.
! Sleep and pain score improvements were statistically significant using two validated
measurement instruments, the Pittsburgh Sleep Quality Index and the Pain Intensity and
Interference Scale.
! Ananda Hemp was well tolerated and demonstrated an excellent safety profile.
Outside of survey studies, this was the largest study on the use of CBD to reduce the use of opioids
in the treatment of chronic pain. It was also the first study on CBD and opioid reduction to identify
key data points, such as hemp extract doses, delivery method, and specific cannabinoid content.
3
4
5
Details of the study are available at https://www.tandfonline.com/doi/full/10.1080/00325481.2019.1685298
Details of the study are available at https://clinicaltrials.gov/ct2/show/NCT04398446
Details of the study are available at https://clinicaltrials.gov/ct2/show/NCT04436081
ECOFIBRE LIMITED ANNUAL REPORT 2020 21
2.
Coala-T-CBD Study for chemotherapy-induced peripheral neuropathy (CIPN)
Patient enrolment underway
TM
The purpose of the study is to assess the efficacy of hemp-derived CBD on the severity and duration
of CIPN among breast, colon, and ovarian cancer patients who received common types of neurotoxic
chemotherapy.
CIPN, is a debilitating and often chronic condition that affects patients’ quality of life and limits their
ability to complete a full course of potentially life-saving treatments. Currently, there are no safe and
effective medications to treat or prevent CIPN, but research in animals using CBD offers hope as a
new treatment.
The Coala-T-CBD StudyTM is the first clinical trial positioned to translate this success to humans and
is led by oncologist Dr. Marisa Weiss, the founder and chief medical officer of www.breastcancer.org
and Director of Breast Radiation Oncology and Breast Health Outreach at Lankenau Medical Center.
The study is the first in the United States to study the impact of hemp-derived full spectrum CBD on
CIPN, a condition that affects approximately 25-50% of pediatric and adult cancer patients
undergoing neurotoxic chemotherapy.
To our knowledge is the first phase II clinical trial using full-spectrum hemp extract for the treatment
of CIPN to receive an FDA IND.
The IND allows Dr Weiss’ team to conduct the highest-quality research using a randomized, double-
blind, placebo-controlled clinical trial.
3.
Effects of THC-Free CBD oil on agitation in patients with Alzheimer’s Disease
Patient enrolment commencing
This is a randomized, double-blinded, placebo-controlled, crossover trial that aims to 1) determine the
efficacy of THC-free cannabidiol (CBD oil) in reducing the severity of agitation among participants and
2) determine whether THC-free CBD oil can reduce the burden on caregivers and increase the
participants' quality of life.
Individuals with Alzheimer's and other forms of dementia often go through a period of significant
behavioral and psychological symptoms of dementia. It is estimated that up to 90% of persons with
dementia experience behavior problems at some point. These behaviours can be challenging for both
unpaid family caregivers as well as paid caregivers.
The study will be conducted by Hamid Okhravi, M.D., Eastern Virginia Medical School
22
Hemp Black
Regulation
Ecofibre's operations are di a key asset for the entire group, and diversification - and integration - of our
business portfolio has emerged as a key strength.
In the United States, hemp remains a federally legal agricultural commodity since enactment of the 2018 Farm
Bill, and hemp and hemp products are no longer a controlled substance. Hemp is regulated as an agricultural
commodity by the US Department of Agriculture (including the FDA) rather than the US Justice Department
(Drug Enforcement Agency, DEA).
6
The FDA has still only approved one cannabis-derived prescription medicine in the US for a limited indication;
treatment of adults with moderate and severe spasticity due to multiple sclerosis.
On 25 November 2019, the US Food and Drug Administration ('FDA') announced that it had issued warning
letters to 15 companies (Ecofibre was not one of the 15) for illegally selling products containing cannabidiol
(CBD) in ways that violate the Federal Food, Drug, and Cosmetic Act (FD&C Act). Ecofibre continues to
welcome the FDA's focus, and believes that the
market for hemp-derived CBD can only
benefit from considered regulation.
For Ananda Health, the safety and
compliance of our products remains a
key priority. Businesses that are not
100% compliant are potentially
committing a felony and place
their customers at risk. This is
particularly important in the
highly regulated pharmacy
segment, which is regulated
by state-based pharmacy
boards, the FDA and also
the DEA.
6
US Controlled
Substances Act
ECOFIBRE LIMITED ANNUAL REPORT 2020 23
Hemp Black
FY20 RESULT
Revenue: $2.4m
Profit before Tax: -
Hemp Black began commercial operations in the fourth quarter of the year and delivered a breakeven profit
result.
Since mid-2017, Ecofibre has worked with Thomas Jefferson University to develop a platform of intellectual
property to sustainably deliver the natural anti-microbial and conductive properties of hemp into existing
manufacturing supply chains for textiles, composites, coatings and paints, and other industries. To date the
7
business has been granted 2 patents and there are 7 patent families pending.
This R&D phase is now largely complete, and business focus has shifted to building brand, developing use cases
for Hemp Black's technology, and leveraging existing and new customer relationships.
During the R&D phase, Hemp Black established a product design, product development, sustainability and
supply chain team based in Philadelphia, Pennsylvania. Now that the business is in its commercial phase, these
capabilities will be relocating to our new US Headquarters in Kentucky. Ecofibre's new corporate headquarters
also serves as core infrastructure for production of Hemp Black inputs, as well as a display centre for its
products.
During the year, the business re-prioritised a planned launch of athleisure-wear and re-purposed existing fabric
to produce Personal Protection Equipment (PPE) in response to market needs.
Approximately 130,000 masks were produced late in the year, and the business is focussed on customers who
value the anti-microbial properties and sustainability of the fabric, as well as 3D knitting quality and safety. In
early FY21 the business also began producing neck gaiters as a more flexible alternative to facemasks.
TexInnovate has been instrumental in helping design, commission and operate the specialist equipment for the
Hemp Black face mask. The recently announced acquisition of that business provides the operational capability
and know-how to deliver Hemp Black's intellectual property across different product markets and significantly
increased scale.
8
TexInnovate comprises a group of five businesses based in North Carolina, USA that provide specialist, polymer-
based yarns and fabrics to a range of customers.
7
8
Patents are filed and owned by Thomas Jefferson University, and Ecofibre has
exclusive, global rights to commercialise these technologies
Announced to the ASX on 29 July 2020. Completion is subject to due diligence
and is scheduled to occur on or about 1 September 2020.
24
Triad Polymers - best-in-class provider of performance masterbatch and custom
compounding to the plastics industry for technical textiles, packaging and injection
molding. Also one of the very few companies globally that can produce bi-component
and tri-component polymer fibers
Trident Fibers -
manufactures custom
polymer-based yarns
used for internal medical
implants and applications
Fibex -
premier synthetic yarn
manufacturer for
outdoor turfs for sports
fields, playgrounds and
other outdoor uses
Knitmasters -
manufacturer of highly
technical 2-D and 3-D
knitted fabrics for a
range of high
performance uses
TexInnovate - designs and manufactures equipment for the four manufacturing
business being acquired
ECOFIBRE LIMITED ANNUAL REPORT 2020 25
Combined, the two businesses will have a full suite of capabilities, including intellectual property, processing
know-how and capacity, branding and distribution.
Hemp Black has six technologies and core products which incorporate either Ananda full spectrum CBD hemp-
extract or eco6, an environmentally friendly, non-toxic, organic black pigment produced by pyrolyzing the
carbon-rich stalk of the hemp plant:
! Hemp Black / ink – carbon infused conductive water-based ink
! Hemp Black / origin - higher performance, conductive, carbon infused fibre engineered into the core of the
fibre
! Hemp Black / element – Ananda full spectrum extract infused polymer fibre
! Hemp Black / hide – Ananda full spectrum extract vegan leather, produced using a 3rd party partner
introduced by TexInnovate
! Hemp Black / fusion – combines eco6 and Ananda full spectrum extract with a performance fibre
! Hemp Black / nano – Ananda full spectrum extract nano-film electro-spun into nano fibres
Using these technologies, the business will have a number of potential go-to-market options to sustainably
deliver the natural anti-microbial and conductive properties of hemp into existing manufacturing supply chains
for textiles, composites, coatings and paints, and other industries.
HEMP BLACK / feedstock
HEMP BLACK / technology
HEMP BLACK / markets
! HEMP BLACK / eco
6
! Ananda full spectrum
extract
! HEMP BLACK / ink
! HEMP BLACK / origin
! HEMP BLACK / element
! HEMP BLACK / nano
! HEMP BLACK / hide
! HEMP BLACK / fusion
! targeted development of
end retail products -
narrow category focus to
build brand awareness,
control brand story and
demonstrate technology
! co-brand and supply to
selected brands /
partners
! ‘bulk sales’ of
manufacturing inputs
! License intellectual
property
26
Ananda Food
FY20 RESULT
Revenue: $1.5m
Loss before Tax: $2.2m
Ananda Food incurred a loss before tax of $2.2m (FY19: $1.0m loss before tax).
The loss included a $0.5m write-down in the value of seed and intermediate products, and higher marketing
costs. Overall, the business' path to scale and better margins has been slower than planned.
Ananda Food supplies 100% Australian hemp seed products that are rich in digestible protein, fibre, omega 3
and omega 6 oils. Products are sold to wholesalers and distributors, including bulk, white-label and branded
products.
The business has a quality customer base for the long term, including:
! Woolworths Macro brand - Ananda Food has supplied de-hulled hemp seeds and protein powder since
August 2019, and will begin to supply hemp seed oil from first quarter of FY21.
! IGA - group buying approval was obtained in December 2019, and the group is the preferred hemp food
supplier to Ritchies network.
During the year Ananda Food's production facility in Beresfield, New South Wales, earned certification under
the British Retail Consortium Global Standard (BRCGS) for food. The accreditation builds on the previously
obtained Hazard Analysis and Critical Control Points (HACCP) certification and is one of the world’s leading food
safety certification standards.
Ecofibre has lodged a Plant Breeders Rights (PBR) application for a new variety, ECO-Excalibur, and data from a
final trial conducted during the year has been accepted by IP Australia. The final description of ECO-Excalibur
has been published , and we await the outcome of a standard 6-month public comment period, after which the
PBR is expected to be granted.
9
Consumer education and the use of hemp in everyday staples continue to be the catalysts for the growth of this
business. Consumers need a better awareness off the health benefits of hemp seed, and the use of hemp foods
as a core ingredient highlighting its specific health and nutritional benefits. In particular, hemp is a superior
source of plan-based protein. Hemp protein provides 24/mg iron / 100g - up to 4x more than soy protein.
Ananda Food is at an early stage of exploring the potential for bulk and white label distribution in Asian
markets, where Australian-sourced foods enjoy a strong reputation for safety and quality. Peter Osborne,
former Blackmore's managing director in Asia (2009 - 2020) has been appointed as a strategic advisor to review
potential opportunities, which we will assess based on Ecofibre's ability to use existing manufacturing
capabilities to access customers at a low marginal cost of distribution in scalable channels.
9
Plant Varieties Journal – Volume 33 Number 1
ECOFIBRE LIMITED ANNUAL REPORT 2020 27
Kentucky Facility
Ecofibre officially opened its new US headquarters and production facility in Georgetown, Kentucky at an
opening ceremony in May 2020.
Designed to meet the highest green building standards in the world, Ecofibre's US Headquarters is targeting
the LEED Platinum certification from the US Green Building Council (USGBC), which we expect to be achieved
later in 2020.
Once achieved, the facility will be one of only three in the United States and the seventh worldwide to achieve a
LEED Platinum rating for its building type. The LEED rating system considers impact in seven categories:
Location and Transportation, Sustainable Sites, Water Efficiency, Energy and Atmosphere, Materials and
Resources, Indoor Environmental Quality, and Innovation.
10
WATER EFFICIENCY
RAINWATER COLLECTION TANK
CONTRIBUTES TO 40% WATER
USAGE REDUCTION
SUSTAINABLE SITES
DEMONSTRATION HEMP CROP
CONTRIBUTES TO 2.1 ACRES
OF OPEN SPACE AMENITIES
ON SITE
ENERGY AND ATMOSPHERE
SOLAR PV ARRAY PRODUCES 10%
OF REQUIRED ENERGY USAGE
INDOOR ENVIRONMENTAL QUALITY
68 SOLATUBES IN OFFICE AND WAREHOUSE
CONTRIBUTE TO 58% OF FLOOR AREA WITH
DAYLIGHT AUTONOMY
ENERGY AND ATMOSPHERE
108 GEOTHERMAL WELLS HELP
REDUCE ENERGY CONSUMPTION 47%
MATERIAL AND RESOURCES
28 UNIQUE MATERIALS WITH
ENVIRONMENTAL PRODUCT
DECLARATIONS CONTRIBUTE TO
SUSTAINABLE USE OF RESOURCES
10
Leadership in Energy and Environmental Design (LEED) is the most widely used green building rating system in the world.
Available for virtually all building, community, and home project types, LEED provides a framework to create healthy, highly
efficient, and cost-saving green buildings. LEED certification is a globally recognized symbol of sustainability achievement.
See https://new.usgbc.org/leed
28
Incorporating Hemp Black's innovative and sustainable technologies, the facility utilises sustainable materials,
green infrastructure, daylighting principles, geothermal heating and cooling, and solar panels for on-site
renewable energy production, our new facility will reduce its energy demand and water consumption while
providing a safe and healthy working environment.
Compared to similar traditionally built facilities, the new facility is designed to
! use 89% less water through water-efficient fixtures, rainwater collection, and the use of native vegetation;
and
! reduce energy demand by 47% through usage optimization and on-site renewable energy generation
Sustainibility
Ecofibre's commitment to sustainability remains unchanged as we expand our business, and the Company will
release its first Sustainability Report prior to the 2020 Annual General Meeting.
Business Systems
The maturity of Ecofibre's business systems and their underlying
processes have continued to evolve in tandem with the evolution of
the business.
In November 2019 Ecofibre implemented the Netsuite
accounting and Enterprise Resource Planning platform
across the group. The system is integrated with upstream
and downstream systems to enable customer transactions,
payment processing, inventory dispatch and other
processes. During the year Ecofibre also
consolidated its digital and e-commerce assets
onto a single platform to facilitate an improved
customer experience as well as to take advantage
of contemporary security and compliance
processes.
ECOFIBRE LIMITED ANNUAL REPORT 2020 29
FINANCIAL REPORT 2020
30
FINANCIAL REPORT 2020
32
Directors’
Report
44
Auditor’s
Independence
Declaration
36
Remuneration
Report
45
Directors’
Declaration
46
Consolidated
Statement of
Profit or Loss
47
48
49
50
Consolidated
Statement of Other
Comprehensive Income
Consolidated
Statement of
Financial Position
Consolidated
Statement of
Changes in Equity
Consolidated
Statement of
Cash Flows
51
Notes to the
Financial Statements
ECOFIBRE LIMITED ANNUAL REPORT 2020 31
Directors’ Report
The directors present their report, together with the financial statements, on the consolidated entity (referred to
hereafter as the ‘Group’) consisting of Ecofibre Limited (referred to hereafter as the 'company' or 'parent entity') and
the entities it controlled at the end of, or during, the year ended 30 June 2020.
Directors
The following persons were directors of Ecofibre Limited during the whole of the financial year and up to the date of
this report:
Barry Lambert
Jon Meadmore
Eric Wang
Principal activities
The principal continuing activities of the Group during the financial year were breeding, growing, processing and
distributing hemp products.
Significant changes in the state of affairs
During the year, the Group issued 13,667,923 new shares, including final settlement of a convertible note (5,148,223
shares) and issue of shares to Thomas Jefferson University in relation to the Research and Share Subscription
Agreement with that institution (7,147,561 shares). 1,372,139 shares vested and were issued from the Employee Share
Trust pursuant to the Group’s Employee Share Scheme.
The Group completed construction of its new US Headquarters and production facility in Georgetown, Kentucky.
There were no other significant changes in the state of affairs of the consolidated entity during the financial year.
Review of operations and results
The profit from ordinary activities for the Group after providing for income tax amounted to $13.2m (30 June 2019:
$6.0m).
The net assets of the Group are $63.0m as at 30 June 2020 (2019: $42.3m).
The Ananda Health business continued to perform strongly. Revenue for the year totalled $47.0m (2019: $34.2m)
although lower in the second half of the year (1H20: $29.0m; 2H20: $21.7m). Ananda Health has also started to supply
a number of medium and large US distributors to acquire new customers and service existing customers. On 14 May,
Ananda Health announced an exclusive distribution agreement with CVS for a range of topical products expected to
commence in December 2020. The Group also began to import Ananda Health products from the United States into
Australia.
On 25 November 2019, the US Food and Drug Administration ('FDA') announced that it had issued warning letters
to 15 companies (Ecofibre was not one of the 15) for illegally selling products containing cannabidiol (CBD) in ways
that violate the Federal Food, Drug, and Cosmetic Act (FD&C Act). Ecofibre has welcomed the FDA's focus on this
market, and believes that the market will benefit from considered regulation in this new and forming industry.
32
DIRECTORS’ REPORT
Review of operations and results (continued)
Ananda Food secured Woolworths as a major customer, and is supplying de-hulled seed and protein powder under
the Woolworths Macro brand. The business also secured group-level approval to supply IGA stores with Ananda Food
branded product. Revenue for the year was $1.5m.
Commercial operations for the Hemp Black business commenced in the fourth quarter of the year following the
manufacture and launch of anti-microbial facemasks. Revenue for the year was $2.4m.
Ecofibre’s annual result included a very challenging final quarter which saw significant upheaval and uncertainty across
multiple aspects of our supply chain and customers due to the onset of COVID-19 and civil disturbances in the US.
The group made several adjustments to address the new economic environment in the US, including switching from
the planned production of Athleisurewear to face masks.
No dividend was paid during the year (2019: Nil).
Matters subsequent to the end of the financial year
On 29 July 2020, Ecofibre entered into a conditional Asset Sale Agreement (ASA) to acquire a portfolio of businesses
and assets of TexInnovate, a key manufacturing partner of Hemp Black based in North Carolina, USA. The portfolio
includes five businesses that have deep technical expertise across a broad range of high-performance textile
disciplines. The businesses work together as an integrated manufacturing platform and will help drive innovation and
delivery for a range of products envisaged for Hemp Black.
The total potential consideration for the acquisition is approximately USD49.0m.
Consideration for the business and its operating assets is USD42.0m:
• At completion Ecofibre will pay USD21.0m (USD10.5m cash, and 5,924,926 shares also with an approximate value
of USD10.5m).
• Contingent consideration with a value up to USD21.0m, payable in 3 equal tranches of USD7.0m each on the 3rd,
4th and 5th anniversaries after completion. Each tranche will comprise 50% cash and 50% shares. The contingent
consideration is subject to the acquired businesses delivering USD6.0m earnings before interest and tax (EBIT) for
two consecutive annual periods within five years of completion.
Consideration for real estate assets used by the business is estimated at USD7.0m and will be determined by
independent market appraisal. The acquisition of the real estate will be settled in cash at completion.
Completion of the acquisition is subject to satisfactory due diligence by Ecofibre. The ASA contains warranties,
indemnities, restraints of trade and other commercial and legal provisions that Ecofibre considers appropriate for the
transaction. Ecofibre intends to employ all of TexInnovate’s current staff at completion.
To fund the cash component payable at completion for the business, operating assets and real estate, Ecofibre
conducted a placement under its Listing Rule 7.1 capacity to existing institutional shareholders to raise $29.5m at an
issue price of $2.50. The share placement was completed and 11,800,000 new shares issued on 4 August 2020.
No other matter or circumstance has arisen since 30 June 2020 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.
ECOFIBRE LIMITED ANNUAL REPORT 2020
33
DIRECTORS’ REPORT
Likely developments and expected results of operations
Ananda Health is expected to commence supply to CVS in December 2020, and will focus on continuing to broaden
its integrated distribution capability, and progressing Phase II clinical trials to assess the efficacy of hemp-derived
CBD for chemotherapy-induced peripheral neuropathy, and agitation, sleep and mood in dementia patients.
Ananda Food will focus on marketing its range of hemp foods to wholesale customers and building the scale of its
operations.
Hemp Black will focus on the integration of TexInnovate (assuming contract completion as planned), and securing
new customers using the capabilities of both businesses.
Environmental regulation
The Group is subject to and compliant with all aspects of environmental regulations for its business activities. The
directors are not aware of any environmental law that is not being complied with.
Information on directors
Name:
Title:
Experience and expertise:
Barry Lambert
Non-Executive Chairman
Barry founded ASX listed company, Count Limited, a financial services business, in
1980. Count was one of the largest independent advice providers in Australia and was
acquired by Commonwealth Bank in 2011.
Barry was also asked to serve as Chairman of Class Limited and subsequently took Class
through to listing on the ASX. Barry also served as Chairman of ASX listed Count Plus.
In 2017, Barry resigned as Chairman of Class Limited and Count Plus to focus on his
role as Chairman of Ecofibre. In 2016 and 2017, Barry and Joy Lambert made significant
donations to establish the Lambert Initiative at Sydney University and Lambert Center
at Thomas Jefferson University, respectively. Both of these entities are focused on the
research and education of medicinal cannabis and hemp.
Special responsibilities:
Member of the Audit, Risk and Compliance Committee
Name:
Title:
Experience and expertise:
Eric Wang
Chief Executive Officer and Managing Director
Eric joined Ecofibre as CFO and Director in December 2015. He was appointed CEO
and Managing Director in December 2017. Eric has over 25 years of leadership and
executive management experience, both as an officer in the United States Army and
as a financial services executive in Australia. Prior to joining Ecofibre, Eric served as
Captain and Apache pilot in the US Army for eight years in a range of roles, including
Troop Commander, Operations Officer, Executive Officer and Personnel Officer in the
United States and Europe.
After leaving the military, Eric moved to Australia to work for the global management
consulting firm, Bain & Company, where he specialized in the financial services industry
in Australia and Asia. More recently, he served as the Chief Operating Officer of
Perpetual Limited and Director of the APO for AMP Limited.
Special responsibilities:
None
34
Information on directors (continued)
Name:
Title:
Experience and expertise:
Jon Meadmore
Non- Executive Director
Jon is a Brisbane-based partner of law firm, Colin Biggers & Paisley. He is the joint
leader of the corporate group, having practiced law for over 25 years. Jon holds a
Bachelor of Business (Accounting) in addition to his law degree.
Special responsibilities:
Chairman of Audit, Risk and Compliance Committee
DIRECTORS’ REPORT
Company secretary
Jonathan Brown is the company's Chief Financial Officer and has held the role of Company Secretary since 18 June
2019. He is a Chartered Accountant with over 25 years of commercial experience. Jonathan has a Bachelor of
Business (Accounting), a Graduate Diploma in Advanced Accounting, and a Graduate Diploma in Finance and
Investment.
Prior to joining Ecofibre in 2016, Jonathan worked for AMP, the London Stock Exchange and Ferrier Hodgson in a
variety of roles including corporate strategy, M&A, senior finance roles and insolvency & reconstruction.
Meetings of directors
The number of meetings of the company's Board of Directors ('the Board') and of each Board committee held during
the year ended 30 June 2020, and the number of meetings attended by each director were:
Director
Attended
Held
Attended
Held
Board
Audit, Risk and Compliance
Committee
Barry Lambert
Eric Wang
Jon Meadmore
9
9
9
9
9
9
3
3
3
3
3
3
Held: represents the number of meetings held during the time the director held office or was a member of the relevant
committee.
ECOFIBRE LIMITED ANNUAL REPORT 2020
35
DIRECTORS’ REPORT
Remuneration report (audited)
The remuneration report details the key management personnel (KMP) remuneration arrangements for the
consolidated entity, in accordance with the requirements of the Corporations Act 2001 and its Regulations. It also
details the Company’s Employee Share Scheme (ESS) available to all employees in the Group.
KMPs are those persons having authority and responsibility for planning, directing and controlling the activities of
the entity, directly or indirectly, including all directors. Throughout this Remuneration report, the members of the
executive KMP are collectively referred to as “executives”.
Principles used to determine the nature and amount of remuneration
Details of remuneration
Service agreements
The remuneration report is set out under the following main headings:
●
●
●
●
●
Additional disclosures relating to key management personnel
Employee share scheme
Principles used to determine the nature and amount of remuneration
The Board is responsible for determining and reviewing remuneration arrangements for its directors and executives.
The performance of the consolidated entity depends on the quality of its directors and executives. The remuneration
philosophy is to attract, motivate and retain high performance and high quality personnel.
The Board has structured an executive remuneration framework that is market competitive and complementary to
the reward strategy of the consolidated entity.
The reward framework is designed to align executive reward to shareholders' interests by:
●
●
●
having total shareholder return as a core component of plan design;
focusing on sustained growth in shareholder wealth, particularly growth in share price; and
attracting and retaining high calibre executives.
Remuneration for executive and non-executive directors is structured separately.
36
DIRECTORS’ REPORT
Principles used to determine the nature and amount of remuneration (continued)
Non-executive director remuneration
ASX listing rules require the aggregate non-executive directors' remuneration be determined periodically by a
general meeting. The most recent determination was at the Annual General Meeting held on 8 December 2017,
where the shareholders approved a maximum annual aggregate remuneration of $500,000.
Fees and payments to non-executive directors reflect the demands and responsibilities of their role. Non-executive
directors' fees and payments are reviewed annually by the Board. The chairman's fees are determined
independently to the fees of other non-executive directors based on comparative roles in the external market. Non-
executive directors do not receive share options or other incentives.
Executive remuneration
The consolidated entity aims to reward executives based on their position and responsibility, with a level and mix of
remuneration which has both fixed and variable components.
The executive remuneration and reward framework covers base pay, including superannuation, share-based
payments, and other benefits such as health care. The combination of these comprises the executive's total
remuneration.
Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, are reviewed periodically
by the Board based on individual and business performance, the overall performance of the consolidated entity and
comparable market remuneration.
Executives may receive their fixed remuneration in the form of cash or other fringe benefits (for example motor
vehicle benefits) where it does not create any additional costs to the consolidated entity and provides additional
value to the executives.
Long-term incentives (LTI) include share-based payments and any long service leave. Shares are awarded to
executives from shares already held by the ESS in an Employee Share Trust (EST) once the executives meet time
and performance based vesting hurdles.
Details of remuneration
Details of the remuneration of key management personnel of the consolidated entity are set out in the following
tables.
The key management personnel of the consolidated entity consisted of the directors and CFO of Ecofibre Limited:
●
●
●
●
Barry Lambert – Non-Executive Chairman
Eric Wang – Managing Director and CEO
Jon Meadmore – Non-Executive Director
Jonathan Brown – CFO and Company Secretary
ECOFIBRE LIMITED ANNUAL REPORT 2020
37
Details of remuneration (continued)
2020
Non-Executive Directors:
Barry Lambert (Chairman)
Jon Meadmore
Executive Director:
Eric Wang
Other Key Management Personnel:
Jonathan Brown
2019
Non-Executive Directors:
Barry Lambert (Chairman)
Jon Meadmore
Executive Director:
Eric Wang
Other Key Management Personnel:
Jonathan Brown
DIRECTORS’ REPORT
Short-term
benefits
Post-employment
benefits
Share-based
payments
Cash salary
and fees
$’000
Super-
annuation
$’000
Equity-settled
shares
$’000
Total
$’000
91
90
280
200
661
91
90
280
200
661
9
-
25
20
54
9
-
25
20
54
-
-
100
90
793
1,098
392
1,185
612
1,900
-
-
100
90
1,222
1,527
606
1,828
826
2,543
The proportion of remuneration linked to performance and the fixed proportion are as follows:
Name
Non-Executive Directors:
Barry Lambert (Chairman)
Jon Meadmore
Executive Directors:
Eric Wang
Fixed remuneration
At risk - LTI
2020
2019
2020
2019
100%
100%
100%
100%
-
-
-
-
28%
20%
72%
80%
Other Key Management Personnel:
Jonathan Brown
36%
27%
64%
73%
38
Service agreements
Remuneration and other terms of employment for executives are formalised in service agreements. Details of these
agreements are as follows:
DIRECTORS’ REPORT
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Eric Wang
Managing Director and Chief Executive Officer
8 December 2017
LTI:
No fixed term
Base salary of $280,000 per annum plus superannuation, to be reviewed every 12
months from the date of commencement. Either party may terminate the employment
upon 6 months’ written notice. No notice is required by the Company upon limited
events akin to misconduct or incapacity. Mr Wang is subject to a restraint of trade
restricting competition with the company for up to 24 months from termination of his
employment.
2,400,000 shares were issued on 28 December 2018 upon fulfillment of a time-based
vesting hurdle. A further 7,200,000 shares are held by the ESS Trustee as potential LTI
under the ESS and will vest in tranches upon satisfaction of the following share price
hurdles and earliest vesting dates for each tranche:
Share Price Hurdle
Share
tranches
2,400,000
Earliest Vesting
Date
30 June 2022
Share price on ASX of at least $1.50 based on
a rolling 30 day volume weighted average
price (VWAP) during the period between 1
January 2022 and 31 December 2024
2,400,000
2,400,000
Share price on ASX of at least $1.83 based on
a rolling 30 day VWAP during the period
between 1 January 2023 and 31 December
2024
Share price on ASX of at least $2.17 based on
a rolling 30 day VWAP during the period
between 1 January 2024 and 31 December
2024
30 June 2023
30 June 2024
ECOFIBRE LIMITED ANNUAL REPORT 2020
39
Service agreements (continued)
DIRECTORS’ REPORT
Name:
Title:
Agreement commenced:
Term of agreement:
Details:
Jonathan Brown
CFO and Company Secretary
8 December 2017
LTI:
No fixed term
Base salary of $200,000 per annum plus superannuation, to be reviewed every 12 months
from the date of commencement. Either party may terminate the employment upon 3
months’ written notice. No notice is required by the Company upon limited events akin
to misconduct or incapacity. Mr Brown is subject to a restraint of trade restricting
competition with the company for up to 24 months from termination of his employment.
1,200,000 shares were issued on 28 December 2018 upon fulfillment of a time-based
vesting hurdle. A further 2,400,000 shares are held by the ESS Trustee as potential LTI
under the ESS and will vest in tranches upon satisfaction of the following share price
hurdles and earliest vesting dates for each tranche
Share
tranches
799,998
Earliest Vesting
Date
31 July 2020
Share Price Hurdle
Share price on ASX of at least $1.50 based
on a rolling 30 day VWAP during the period
between 1 January 2020 and 31 December
2024
800,001
800,001
Share price on ASX of at least $1.83 based
on a rolling 30 day VWAP during the period
between 1 January 2022 and 31 December
2024
Share price on ASX of at least $2.17 based
on a rolling 30 day VWAP during the period
between 1 January 2024 and 31 December
2024
31 July 2022
31 July 2024
Key management personnel have no entitlement to termination payments in the event of removal for misconduct.
Additional disclosures relating to key management personnel
Shareholding
The number of shares in the company held during the financial year by each director and other members of key
management personnel of the consolidated entity, including their personally related parties, is set out below:
Balance at the start of
the year
Additions
Disposals
Balance at the end
of the year
72,857,736
538,000
13,301,253
2,502,246
89,199,235
5,148,223
-
-
-
5,148,223
(2,000,000)
-
-
(205,000)
(2,205,000)
76,005,959
538,000
13,301,253
2,297,246
92,142,458
Ordinary shares
Barry Lambert
Jon Meadmore
Eric Wang
Jonathan Brown
40
DIRECTORS’ REPORT
Employee share scheme
The Board believes that all employees should be given the opportunity to become shareholders in our business,
and that the share scheme helps engage, retain and motivate employees over the long term. Ecofibre’s share
scheme is therefore part of its standard remuneration practice, to encourage alignment with the performance of the
Group.
The employee share scheme is an LTI designed to help the Group attract and retain the best staff as we deliver our
long-term strategy. These shares will be issued to employees from shares already held by the (EST) if employees
meet time-based, performance based or time and performance based, vesting hurdles. The time-based hurdles are
1, 2, 3 or 4 years, typically depending on the seniority of the employee.
Key terms of the ESS are:
How is it paid?
Employees are eligible to receive shares if they meet certain time-based, performance-
based or time and performance-based vesting hurdles.
How can employees
earn and how is
performance
measured?
Different vesting conditions are offered to various employees. The conditions include:
a. Share price hurdles – earned when share price exceeds a certain level on a 30 days
volume weighted average price (VWAP) basis within a certain period.
b. Profit-based hurdles – earned when Group or business unit profitability achieve
target levels.
c. Sales target hurdle– earned when achieving certain sales, gross margin or volume
targets.
d. Time-based hurdles – earned when employee remains with the Group within 1 to 4
years.
When is performance
measured?
The performance measures are tested at the date specific in each offer document.
What happens if an
employee leaves?
If an employee resigns or is terminated for cause, any unvested LTI under the ESS are
forfeited, unless otherwise determined by the Board.
If an employee ceases employment during the performance period by reason of
redundancy, ill health, death, or other circumstances approved by the Board, the
employee may receive a pro-rata number of unvested shares based on achievement of
the vesting conditions over the performance period up to the date of ceasing
employment (subject to Board discretion).
This concludes the remuneration report, which has been audited.
ECOFIBRE LIMITED ANNUAL REPORT 2020
41
DIRECTORS’ REPORT
Shares under option
Unissued ordinary shares of Ecofibre Limited under option at the date of this report are as follows:
Option holder
Grant date
Expiry date
Exercise price Number under option
Thomas Jefferson University
1 July 2017
31 Dec 2022
$0.537
7,964,581
* During the year, Ecofibre and TJU agreed to amend their agreement and the original grant value of TJU’s options
was revised down from US$5.0m to US$3.3m. This resulted in a reduction of the number of outstanding options
from 12,178,260 options to 7,964,581 options.
No person entitled to exercise the options had or has any right by virtue of the option to participate in any share
issue of the company or of any other body corporate.
None of the options granted are exercisable at 30 June 2020.
Indemnity and insurance of officers
The company has indemnified the directors and executives of the company for costs incurred, in their capacity as a
director or executive, for which they may be held personally liable, except where there is a lack of good faith.
During the financial year, the company paid a premium in respect of a contract to insure the directors and executives
of the company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance
prohibits disclosure of the full details of the cover and the amount of the premium.
Indemnity and insurance of auditor
The company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor
of the company or any related entity against a liability incurred by the auditor.
Proceedings on behalf of the company
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings
on behalf of the company, or to intervene in any proceedings to which the company is a party for the purpose of
taking responsibility on behalf of the company for all or part of those proceedings.
The company was not party to any such proceedings during the year.
42
DIRECTORS’ REPORT
Non-audit services
Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the
auditor are outlined in note 21 to the financial statements.
The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by
another person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors
imposed by the Corporations Act 2001.
●
The directors are of the opinion that the services as disclosed in note 21 to the financial statements do not compromise
the external auditor's independence requirements of the Corporations Act 2001 for the following reasons:
●
all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and
objectivity of the auditor; and
none of the services undermine the general principles relating to auditor independence as set out in APES 110
Code of Ethics for Professional Accountants (including Independence Standards) issued by the Accounting
Professional and Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a
management or decision-making capacity for the company, acting as advocate for the company or jointly sharing
economic risks and rewards.
Rounding of amounts
In accordance with ASIC Corporations (Rounding in Financials/ Directors’ Report) Instrument 2016/191, the amounts
in this report are rounded off to the nearest thousand dollars unless otherwise indicated.
Auditor's independence declaration
The auditor’s independence declaration has been received and can be found on page 44 of the annual report.
Auditor
William Buck (Qld) continues in office in accordance with section 327 of the Corporations Act 2001.
This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act
2001.
On behalf of the directors
___________________________
Barry Lambert
Director
21 August 2020
Sydney
___________________________
Eric Wang
Director
21 August 2020
Lexington
ECOFIBRE LIMITED ANNUAL REPORT 2020
43
AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE
CORPORATIONS ACT 2001 TO THE DIRECTORS OF ECOFIBRE LIMITED
I declare that, to the best of my knowledge and belief during the year ended 30
June 2020 there have been:
— no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
— no contraventions of any applicable code of professional conduct in relation to
the audit.
William Buck (Qld)
ABN 21 559 713 106
Junaide Latif
Director
Brisbane: 21 August 2020
44
Directors’ Declaration
In the directors’ opinion:
•
•
•
•
the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards,
the Corporations Regulations 2001 and other mandatory professional reporting requirements
the attached financial statements and notes comply with International Financial Reporting Standards as issued
by the International Accounting Standards Board as described in note 1 to the financial statements;
the attached financial statements and notes give a true and fair view of the Group’s financial position as at 30
June 2020 and of its performance for the financial year ended on that date;
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become
due and payable; and
The directors have been given the declarations required by section 295A of the Corporations Act 2001.
Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001.
On behalf of the directors
___________________________
Barry Lambert
Director
21 August 2020
Sydney
ECOFIBRE LIMITED ANNUAL REPORT 2020
45
Consolidated Statement of Profit or Loss
For the year ended 30 June 2020
Revenue
Direct costs
Gross profit
Other income
Other operating expenses
Interest expense
Profit before income tax
Note
4(a)
5(a)
4(b)
5(b)
2020
$’000
2019
$’000
50,717
35,605
(12,255)
(9,833)
38,462
25,772
6,482
1,864
(27,549)
(22,679)
(144)
(372)
17,251
4,585
Income tax (expense)/ benefit
6
(4,095)
1,415
Profit after income tax attributable to the members of the company
13,156
6,000
Earnings per share:
Basic earnings per share - cents
Diluted earnings per share - cents
4.43
4.34
2.28
2.17
The above consolidated statement of profit or loss should be read in conjunction with the accompanying notes
46
Consolidated Statement of Other Comprehensive Income
For the year ended 30 June 2020
2020
$’000
2019
$’000
Profit after income tax attributable to the members of the company
13,156
6,000
Other comprehensive income for the year:
Items that may be reclassified subsequently to profit or loss
Exchange differences on translating foreign controlled entities
Total comprehensive income for the year attributable to the members
of the company
(425)
391
12,731
6,391
The above consolidated statement of other comprehensive income should be read in conjunction with the accompanying
notes
ECOFIBRE LIMITED ANNUAL REPORT 2020
47
Consolidated Statement of Financial Position
As at 30 June 2020
Note
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Inventories
Biological assets
Other current assets
Tax recoverable
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Intangible assets
Right-of-use assets
Property, plant and equipment
Deferred tax assets
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Related party loans
Lease liabilities
Tax payable
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Lease liabilities
Related party loans
Deferred tax liability
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued capital
Foreign currency translation reserve
Accumulated losses
Convertible loan reserve
Share-based payment reserve
TOTAL EQUITY
7
8
9
10
11
12
13
14
15
16
17
13
13
17
18
20
29
2020
$’000
18,252
9,442
10,014
2,321
5,434
-
2019
$’000
25,740
2,808
6,573
2,405
969
251
45,463
38,746
659
1,047
34,634
2,492
38,832
340
-
6,655
2,034
9,029
84,295
47,775
9,381
-
491
829
10,701
593
10,000
-
10,593
3,740
1,340
-
-
5,080
-
-
392
392
21,294
5,472
63,001
42,303
62,376
(175)
(4,348)
-
5,148
56,189
250
(17,504)
139
3,229
63,001
42,303
The above consolidated statement of financial position should be read in conjunction with the accompanying notes
48
Consolidated Statement of Changes in Equity
For the year ended 30 June 2020
Note
Share-based
payment
reserve
$'000
Issued
capital
$'000
Convertible
loan reserve
$'000
Foreign
currency
translation
reserve
$'000
Accumulated
gains/ (losses)
$'000
Total
$'000
Consolidated
Balance 30 June 2018
22,536
2,145
524
(141)
(23,504)
1,560
Total comprehensive
income for the year
-
Shares issued
20
27,323
Share issue cost
Share-based payments
Convertible loan conversion
to shares
20
20
20
(207)
2,687
1,084
3,850
-
(385)
-
-
-
-
-
-
-
391
6,000
6,391
-
-
-
-
-
-
-
-
27,323
(207)
3,771
3,465
Balance 30 June 2019
56,189
3,229
139
250
(17,504)
42,303
Total comprehensive
income for the year
Shares issued
Share-based payments
-
3,836
-
-
918
1,919
20
20
-
-
-
Convertible loan conversion
to shares
20
1,433
-
(139)
(425)
13,156
12,731
-
-
-
-
-
-
3,836
2,837
1,294
Balance 30 June 2020
62,376
5,148
-
(175)
(4,348)
63,001
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes
ECOFIBRE LIMITED ANNUAL REPORT 2020
49
Consolidated Statement of Cash Flows
For the year ended 30 June 2020
Cash flows from operating activities
Receipts from customers
Government grants
Payments to suppliers and employees
Interest received
Interest paid
Income tax paid
Note
2020
$’000
2019
$’000
42,954
1,691
(34,917)
274
(189)
(4,004)
33,835
1,476
(32,013)
111
(493)
(479)
Net cash flows generated from operating activities
24
5,809
2,437
Cash flows from investing activities
Payments for property, plant and equipment
Payments for intangible assets
Receipt from sale of property, plant and equipment
Other
Net cash flows used in investing activities
Cash flows from financing activities
Repayment of borrowings
Proceeds from borrowings
Repayment of lease liabilities
Proceeds from issue of shares
Transaction costs related to issues of shares
(22,605)
-
203
(126)
(4,833)
(340)
238
248
(22,528)
(4,687)
-
10,000
(598)
-
-
(1,173)
-
-
27,323
(1,040)
Net cash flows generated from financing activities
9,402
25,110
Net (decrease)/ increase in cash and cash equivalents held
(7,317)
22,860
Cash and cash equivalents at the beginning of the financial year
25,740
2,756
Effect of movement in exchange rates on cash held
(171)
124
Cash and cash equivalents at the end of the financial year
18,252
25,740
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes
50
Notes to the Consolidated Financial Statements
1. Summary of significant accounting policies
Ecofibre Limited ('the Company' or ‘Ecofibre’) is a for profit company limited by shares incorporated in Australia.
The nature of the operations and principal activities of the Group are described in the Directors’ Report.
New or amended Accounting Standards and Interpretations adopted
The consolidated entity has adopted all of the new or amended Accounting Standards and Interpretations issued
by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period.
Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early
adopted.
The following Accounting Standards and Interpretations are most relevant to the consolidated entity:
AASB 16 Leases
The Group has adopted AASB 16 from 1 July 2019. The standard replaces AASB 117 'Leases' and for lessees
eliminates the classifications of operating leases and finance leases. Except for short-term leases and leases of
low-value assets, right-of-use assets and corresponding lease liabilities are recognised in the statement of
financial position. Straight-line operating lease expense recognition is replaced with a depreciation charge for
the right-of-use assets (included in operating costs) and an interest expense on the recognised lease liabilities
(included in finance costs). In the earlier periods of the lease, the expenses associated with the lease under AASB
16 will be higher when compared to lease expenses under AASB 117. However, EBITDA (Earnings Before
Interest, Tax, Depreciation and Amortisation) results improve as the operating expense is now replaced by
interest expense and depreciation in profit or loss. For classification within the statement of cash flows, the
interest portion is disclosed in operating activities and the principal portion of the lease payments are separately
disclosed in financing activities. For lessor accounting, the standard does not substantially change how a lessor
accounts for leases.
AASB 16 was adopted using the modified retrospective approach and as such the comparatives have not been
restated. The impact of adoption at 1 July 2019 is set out in Note 13.
Right-of-use assets
A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at
cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments
made at or before the commencement date net of any lease incentives received, any initial direct costs
incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred
for dismantling and removing the underlying asset, and restoring the site or asset.
Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the
estimated useful life of the asset, whichever is the shorter. Where the Group expects to obtain ownership of
the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use
assets are subject to impairment or adjusted for any remeasurement of lease liabilities.
The Group has elected not to recognise a right-of-use asset and corresponding lease liability for short-term
leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are
expensed to profit or loss as incurred.
ECOFIBRE LIMITED ANNUAL REPORT 2020
51
1. Summary of significant accounting policies (continued)
New or amended Accounting Standards and Interpretations adopted (continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Lease liabilities
A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at
the present value of the lease payments to be made over the term of the lease, discounted using the interest
rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate.
Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that
depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of
a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated
termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in
the period in which they are incurred.
Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are
remeasured if there is a change in the following: future lease payments arising from a change in an index or a
rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a
lease liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss
if the carrying amount of the right-of-use asset is fully written down.
Basis of preparation
The financial statements are general purpose financial statements which have been prepared in accordance with
the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative
pronouncements of the Australian Accounting Standards Board.
Australian Accounting Standards set out accounting policies that the AASB has concluded would result in
financial statements containing relevant and reliable information about transactions, events and conditions.
Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply
with International Financial Reporting Standards. The following is a summary of the material accounting policies
adopted by the Group in the preparation of the financial statements. The accounting policies have been
consistently applied, unless otherwise stated.
The financial statements have been prepared on an accruals basis and are based on historical costs modified by
the revaluation of selected non-current assets, financial assets, financial liabilities and biological assets for which
fair value basis of accounting has been applied.
The financial statements are presented in Australian dollars and all values are rounded to the nearest thousand
dollars in accordance with ASIC Corporation Instrument 2016/191 unless otherwise stated.
a) Parent entity information
In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated
entity only. Supplementary information about the parent entity is disclosed in note 28.
52
1. Summary of significant accounting policies (continued)
b) Principles of consolidation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements incorporate the results and assets and liabilities of all entities controlled
by Ecofibre Limited ("parent entity") as at 30 June 2020 and results of all controlled entities for the year then
ended. The parent entity and its controlled entities together are referred to in the financial statements as "the
consolidated entity" or "the Group". Subsidiaries are all those entities over which the parent entity has control.
The parent entity controls an entity when it is exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns through the power to direct the activities of the entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the parent entity.
Where controlled entities have entered the group during the year, the financial performance of those entities is
included only for the period of the year that they were controlled.
Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated
entity are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of
impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to
ensure consistency with the policies adopted by the consolidated entity.
c) Foreign currency translation
The financial statements are presented in Australian dollars, which is Ecofibre's functional and presentation
currency.
Foreign currency transactions and balances
Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions
and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognised in profit or loss.
Foreign currency monetary items are translated at the year-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 value was determined.
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 profit or loss or statement of other comprehensive income.
Foreign operations
The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at
the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using
the average exchange rates, which approximate the rates at the dates of the transactions, for the period. All
resulting foreign exchange differences are recognised in other comprehensive income through the foreign
currency reserve in equity.
The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is
disposed of.
ECOFIBRE LIMITED ANNUAL REPORT 2020
53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies (continued)
d) Revenue recognition
The consolidated entity recognised revenue as follows:
Revenue from contracts with customers
Revenue is recognised at an amount that reflects the consideration to which the consolidated entity is expected
to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer,
the consolidated entity: identifies the contract with a customer; identifies the performance obligations in the
contract; determines the transaction price which takes into account estimates of variable consideration and the
time value of money; allocates the transaction price to the separate performance obligations on the basis of the
relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when
or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods
or services promised.
Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as
discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent
events. Such estimates are determined using either the 'expected value' or 'most likely amount' method. The
measurement of variable consideration is subject to a constraining principle whereby revenue will only be
recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue
recognised will not occur. The measurement constraint continues until the uncertainty associated with the
variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle
are recognised as a refund liability.
Sale of goods
Sale of goods revenue is recognised at the point of sale, which is where the customer has taken delivery of the
goods, the risks and rewards are transferred to the customer and there is a valid sales contract. Amounts
disclosed as revenue are net of sales rebates, returns and trade discounts.
Bill-and-hold arrangements
Bill-and-hold arrangements occur when there is a sale to a customer and the customer requests the consolidated
entity to warehouse its products for a period of time until it can accept delivery or arrange transfer of the products
to third parties. Revenue from bill-and-hold arrangements is recognised when the customer obtains title and
acknowledges control of a product.
Interest
Interest revenue is recognised as interest accrues using the effective interest method. This is a method of
calculating the amortised cost of a financial asset and allocating the interest income over the relevant period
using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through
the expected life of the financial asset to the net carrying amount of the financial asset.
Other revenue
Other revenue is recognised when it is received or when the right to receive payment is established.
Government grants
Government grants relating to costs are deferred and recognised in profit or loss over the period necessary to
match them with the costs that they are intended to compensate.
54
1. Summary of significant accounting policies (continued)
e) Income Tax
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The income tax expense or benefit for the period is the tax payable on that period's taxable income based on
the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities
attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where
applicable.
A charge for current income tax expense is recognised based on the profit for the year adjusted for any non-
assessable or disallowed items. It is calculated using tax rates that have been enacted or are substantively
enacted throughout the reporting period.
Deferred tax is accounted for using the liability method in respect of temporary differences arising between the
tax bases of assets and liabilities and their carrying amounts in the financial statements. 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 is calculated at the tax rates that are expected to apply to the period when the asset is realised or
liability is settled. Deferred tax is credited in the statement of profit or loss and other comprehensive income
except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted
directly against equity.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profits will be
available against which deductible temporary differences can be utilised.
The amount of benefits brought to account or which may be realised in the future is based on the assumption
that no adverse change will occur in income taxation legislation and the anticipation that the company and
consolidated entity will derive sufficient future assessable income to enable the benefit to be realised and comply
with the conditions of deductibility imposed by the law.
f) Acquisition of assets
The cost method of accounting is used for all acquisitions of assets regardless of whether equity instruments or
other assets are acquired. Cost is measured as the fair value of the assets given up at the date of acquisition
plus incidental costs directly attributable to the acquisition.
ECOFIBRE LIMITED ANNUAL REPORT 2020
55
1. Summary of significant accounting policies (continued)
g) Current and non-current classification
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Assets and liabilities are presented in the statement of financial position based on current and non-current
classification.
An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in
the consolidated entity's normal operating cycle; it is held primarily for the purpose of trading; it is expected to
be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted
from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other
assets are classified as non-current.
A liability is classified as current when: it is either expected to be settled in the consolidated entity's normal
operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the
reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months
after the reporting period. All other liabilities are classified as non-current.
Deferred tax assets and liabilities are always classified as non-current.
h) Trade and other receivables
Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the
effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for
settlement within 60 days.
The consolidated entity has applied the simplified approach to measuring expected credit losses, which uses a
lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped
based on days overdue.
Other receivables are recognised at amortised cost, less any allowance for expected credit losses.
i)
Inventories
Inventories and agricultural produce are valued at the lower of cost and net realisable value on an average cost
basis. Cost comprises of direct materials and delivery costs, direct labour, import duties and other taxes. Costs
of purchased inventory are determined after deducting rebates and discounts received or receivable.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of
completion and the estimated costs necessary to make the sale.
j) Biological assets
Biological assets are measured on initial recognition and at the end of each reporting period at their fair value
less costs to sell.
56
1. Summary of significant accounting policies (continued)
k) Impairment of assets
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At the end of each reporting period, the company and consolidated entity review the carrying values of their
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 profit or loss.
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.
l) Property, plant and equipment
Plant and equipment
Plant and equipment is measured on the cost basis less accumulated depreciation and impairment losses.
The carrying value 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 assets' employment and subsequent disposal. The expected net cash
flows have been discounted to their net present values in determining recoverable amounts.
Depreciation
Depreciation is calculated on the basis of writing off the net cost of each item of property, plant and equipment
over its expected useful life to the entity. Estimates of remaining useful lives are made on a regular basis for all
assets, with annual reassessments for major items. The expected useful lives vary from 3 to 7 years.
m) Financial instruments
Recognition
Financial instruments are initially measured at cost on trade date, which includes transaction costs, when the
related contractual rights or obligations exist. Subsequent to initial recognition these instruments are measured
as set out below:
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 stated at amortised cost using the effective interest rate method.
Financial liabilities
Non-derivative financial liabilities are recognised at amortised cost, comprising original debt, less principal
repayments and amortisation.
ECOFIBRE LIMITED ANNUAL REPORT 2020
57
1. Summary of significant accounting policies (continued)
m) Financial instruments (continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Impairment
At the end of each reporting period, the consolidated entity recognises a loss allowance for expected credit
losses on financial assets measured at amortised cost. The measurement of the loss allowance depends upon
the consolidated entity’s assessment at the end of each reporting period as to whether the financial instruments’
credit risk has increased significantly since initial recognition, based on reasonable and supportable information
that is available, without undue cost or effort to obtain. Impairment losses are recognised in the statement of
profit or loss.
Convertible notes
The debt and equity components of the convertible loan is separately recognised. At the date of recognition of
the convertible loan, the debt component of the facility is determined and recorded at fair value. The remainder
of the proceeds are allocated to the equity component as a convertible note reserve.
n) Trade and other creditors
These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end
of the financial year and which are unpaid. The amounts are unsecured and are usually paid within 30 days of
recognition.
o) Employee entitlements
Short-term employee benefits
Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave, expected
to be settled within 12 months of the reporting date are recognised in current liabilities in respect of employees’
services up to the reporting date and are measured on the basis of when the benefit is expected to be settled.
Share-based payments
Equity-settled and cash-settled share-based compensation benefits are provided to employees.
Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in
exchange for the rendering of services. Cash-settled transactions are awards of cash for the exchange of services,
where the amount of cash is determined by reference to the share price.
The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently
determined using either the Binomial or Black-Scholes option pricing model that takes into account the exercise
price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility
of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option,
together with non-vesting conditions that do not determine whether the consolidated entity receives the services
that entitle the employees to receive payment. No account is taken of any other vesting conditions.
The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity
over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value
of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the
vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at
each reporting date less amounts already recognised in previous periods.
58
1. Summary of significant accounting policies (continued)
o) Employee entitlements (continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The cost of cash-settled transactions is initially, and at each reporting date until vested, determined by applying
either the Binomial or Black-Scholes option pricing model, taking into consideration the terms and conditions on
which the award was granted. The cumulative charge to profit or loss until settlement of the liability is calculated
as follows:
• during the vesting period, the liability at each reporting date is the fair value of the award at that date
•
multiplied by the expired portion of the vesting period.
from the end of the vesting period until settlement of the award, the liability is the full fair value of the liability
at the reporting date.
All changes in the liability are recognised in profit or loss. The ultimate cost of cash-settled transactions is the
cash paid to settle the liability.
Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market
conditions are considered to vest irrespective of whether or not that market condition has been met, provided
all other conditions are satisfied.
If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been
made. An additional expense is recognised, over the remaining vesting period, for any modification that
increases the total fair value of the share-based compensation benefit as at the date of modification.
If the non-vesting condition is within the control of the consolidated entity or employee, the failure to satisfy the
condition is treated as a cancellation. If the condition is not within the control of the consolidated entity or
employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over
the remaining vesting period, unless the award is forfeited.
If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any
remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award,
the cancelled and new award is treated as if they were a modification.
p) Cash and cash equivalents
For purposes of the statement of cash flows, cash includes deposits at call with financial institutions and other
highly liquid investments with short periods to maturity which are readily convertible to cash on hand and are
subject to an insignificant risk of changes in value, net of outstanding bank overdrafts.
ECOFIBRE LIMITED ANNUAL REPORT 2020
59
1. Summary of significant accounting policies (continued)
q) Goods and service tax, sales and use tax
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST) and sales and
use tax (SUT) except where the amount of GST or SUT incurred is not recoverable. In these circumstances the
GST or SUT is recognised as part of the cost of acquisition of the asset or as part of an item of the expense.
Receivables and payables are stated with the amount of GST or SUT included. The net amount of GST or SUT
recoverable or payable is included as a current asset or liability in the statement of financial position.
Cash flows are included in the statement of cash flows on a gross basis. The GST or SUT components of cash
flows arising from investing and financing activities which are recoverable or payable are classified as operating
cash flows.
r) Fair value measurement
When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure
purposes, the fair value is based on 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 and assumes that the transaction
will take place either in the principal market or in the absence of a principal market, in the most advantageous
market.
Fair value is measured using the assumptions that market participants would use when pricing the asset or
liability, assuming they act in their economic best interest. For non-financial assets, the fair value measurement
is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for
which sufficient data is available to measure fair value, are used, maximising the use of relevant observable inputs
and minimising the use of unobservable inputs.
s) Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to the owners of Ecofibre Limited,
excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary
shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the
financial year.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into
account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary
shares and the weighted average number of shares assumed to have been issued for no consideration in relation
to dilutive potential ordinary shares.
60
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies (continued)
t) New Accounting Standards and Interpretations not yet mandatory or early adopted
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet
mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 30
June 2020. The consolidated entity has assessed the impact of these new or amended Accounting Standards
and Interpretations, and concluded that they would not have any material impact.
2. Critical accounting estimates and judgements
The preparation of the financial statements requires management to make judgements, estimates and
assumptions that affect the reported amounts in the financial statements. Management continually evaluates its
judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses.
Management bases its judgements, estimates and assumptions on historical experience and on other various
factors, including expectations of future events, management believes to be reasonable under the circumstances.
The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements,
estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts
of assets and liabilities (refer to the respective notes) within the next financial year are discussed below.
Share-based payment transactions
The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair
value of the equity instruments at the date at which they are granted. The fair value is determined by using the
Black-Scholes model taking into account the terms and conditions upon which the instruments were granted.
The accounting estimates and assumptions relating to equity-settled share-based payments would have no
impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact
profit or loss and equity.
Provision for impairment of inventories
The provision for impairment of inventories requires a degree of estimation and judgement. The level of the
provision is assessed by taking into account recent and expected future sales experience, production
requirements, the age of inventories and other factors that affect inventory obsolescence.
Taxation
There are many transactions and calculations undertaken during the ordinary course of business for which the
ultimate tax determination is uncertain. The consolidated entity recognises liabilities for anticipated tax issues
based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is
different from the amounts that were actually recorded, such differences will impact the current and deferred tax
positions in the period in which such determination is made.
Biological assets
Biological assets, in the form of planted hemp crops, are accounted for under AASB 141 Agriculture, which
requires that the assets be measured at fair value less costs to sell. Fair value is determined using a range of
judgemental assumptions including cost per area (acre or hectare), total area planted and percentage of maturity
of the crops based on estimated harvest dates.
ECOFIBRE LIMITED ANNUAL REPORT 2020
61
3. Operating segments
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Identification of reportable operating segments
The consolidated entity is organised into three operating segments based on differences in products and
services provided: nutraceuticals, food and fibre.
These operating segments are based on the internal reports that are reviewed and used by the Board of
Directors (BOD) in assessing performance and in determining the allocation of resources. There is no
aggregation of operating segments.
Other segments represent the research and development and corporate headquarter activities of the
consolidated entity.
The BOD reviews the profit or loss before income tax for each segment. The accounting policies adopted
for internal reporting to the BOD are consistent with those adopted in the financial statements.
Types of products and services
The principal products and services of each of the operating segments are as follows:
Ananda Health
Production and sale of hemp related nutraceutical products focused on the
United States;
Ananda Food
Production and sale of hemp related food products primarily in Australia;
Hemp Black
Development of innovative hemp related fibre products for sale in the United
States, Australia and globally; and
Ecofibre Corporate
Research and development and group corporate functions.
Intersegment transactions
Intersegment transactions were made at arms-length market rates. Intersegment transactions are eliminated on
consolidation.
Intersegment receivables and payables
Intersegment transactions are initially recognised at the consideration received. Intersegment receivables and
payables that earn or incur non-market interest are not adjusted to fair value based on market interest rates.
Intersegment receivables and payables are eliminated on consolidation.
62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. Operating segments (continued)
Operating segment information
a) Segment performance
Consolidated - 2020
Revenue
Sales to external customers
Intersegment sales
Total sales revenue
R&D tax rebate
Interest income
Other income
Total segment revenue
Total expenses
Intersegment purchases
Segment profit/ (loss) before
income tax
Intersegment eliminations
Profit before income tax
Consolidated - 2019
Revenue
Sales to external customers
Intersegment sales
Total sales revenue
R&D tax rebate
Interest income
Other income
Total segment revenue
Total expenses
Intersegment purchases
Segment profit/ (loss) before
income tax
Intersegment eliminations
Profit before income tax
Ananda
Health
$’000
46,819
213
47,032
-
22
1,824
48,878
(27,950)
(100)
Ananda
Food
$’000
Hemp
Black
$’000
Ecofibre
Corporate
$’000
1,469
327
1,796
-
-
371
2,167
(4,225)
(141)
2,429
-
2,429
-
-
-
2,429
(2,420)
-
-
-
-
-
235
4,030
4,265
(5,353)
-
20,828
(2,199)
9
(1,088)
34,241
-
34,241
-
33
109
34,383
(21,639)
-
1,364
111
1,475
-
-
146
1,621
(2,557)
(38)
-
-
-
-
-
15
15
(2,692)
-
-
-
-
1,476
116
(31)
1,561
(5,996)
-
12,744
(974)
(2,677)
(4,435)
Total
$’000
50,717
540
51,257
-
257
6,225
57,739
(39,948)
(241)
17,550
(299)
17,251
35,605
111
35,716
1,476
149
239
37,580
(32,884)
(38)
4,658
(73)
4,585
ECOFIBRE LIMITED ANNUAL REPORT 2020
63
3. Operating segments (continued)
b) Segment assets and liabilities
Consolidated - 2020
Assets
Segment assets
Unallocated assets:
Cash and cash equivalents
Total assets
Liabilities
Segment liabilities
Unallocated liabilities:
Related party loans
Total liabilities
Consolidated - 2019
Assets
Segment assets
Unallocated assets:
Cash and cash equivalents
Total assets
Liabilities
Segment liabilities
Unallocated liabilities:
Related party loans
Total liabilities
4. Revenue and other income
a) Revenue
Sales
b) Other income
Government grant and tax incentives *^
Foreign exchange gain
Interest
Other income
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Ananda
Health
$’000
Ananda
Food
$’000
Hemp
Black
$’000
Ecofibre
Corporate
$’000
Total
$’000
25,205
7,767
6,229
26,842
66,043
18,252
84,295
6,949
2,600
311
1,434
11,294
10,000
21,294
12,501 4,818 2,221
2,495
22,035
25,740
47,775
2,184
931
24
993
4,132
1,340
5,472
2019
$'000
2020
$'000
50,717
35,605
1,876
3,925
257
424
6,482
1,476
11
149
228
1,864
* Included in FY2019 is the Research and Development Tax Incentive received for eligible R&D expenses.
^ Current year income includes a US Paycheck Protection Program (PPP) forgivable loan ($1.6m) and other
government grants due to COVID-19.
64
5. Expenses
a) Direct costs
Costs of goods sold
Write down of inventory
Reversal of inventory provision
b) Other operating expenses
Employees and contractors
Share based payments (note 29)
Sales and marketing
Travel and accommodation
Equipment modification and maintenance
Rent
Legal fees and compliance
Accounting and audit
Depreciation and amortisation
Research and trials
Bad and doubtful debts
Other
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2020
$'000
12,009
368
(122)
12,255
12,008
2,705
2,874
676
360
266
959
391
2,049
2,296
1,049
1,916
27,549
2019
$'000
9,801
32
-
9,833
10,537
3,752
1,645
671
422
702
1,756
233
958
384
44
1,575
22,679
6.
Income tax
a) The aggregated amount of income tax attributable to the financial year differs from the amount calculation
on the operating profit. The difference is reconciled as follows:
Profit/ (loss) before income tax
Prima facie tax/ (tax benefit) on profit/ (loss) from ordinary activities
before income tax at 30% (2019: 27.5%)
Adjustment for foreign tax rates
Tax effect of permanent differences:
- Share based payments
- R & D tax rebate received
- Research and development expenses
- COVID-19 government assistance
- Foreign income taxes
- Other
Change in opening deferred taxes resulting from change in tax rate
Currency conversion differences upon consolidation
Recognition of deferred tax with respect to prior year tax losses
Tax losses utilised
Tax over provided in prior period
Timing differences not previously recognised
Other
Income tax benefit/ (expense)
17,251
4,585
5,175
(546)
(1)
(205)
159
(15)
28
76
(230)
(98)
-
-
(248)
-
-
4,095
1,261
29
180
(406)
233
-
-
131
-
59
(751)
(908)
-
(1,276)
33
(1,415)
ECOFIBRE LIMITED ANNUAL REPORT 2020
65
7. Cash and cash equivalents
Cash at bank
Call deposits
Term deposits and other cash equivalents
8. Trade and other receivables
Trade debtors
Allowance for expected credit losses
GST receivable
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2020
$'000
4,117
2,912
11,223
18,252
9,610
(355)
187
9,442
2019
$'000
2,305
859
22,576
25,740
2,737
(152)
223
2,808
Allowance for expected credit losses
The consolidated entity has recognised a loss of $1,049,000 in the profit or loss in respect of the expected
credit losses for the year ended 30 June 2020.
The consolidated entity has increased its monitoring of debt recovery as there is an increased probability of
customers delaying payment or being unable to pay, due to the Coronavirus (COVID-19) pandemic.
Movement in the allowance for expected credit losses are as follows:
Opening balance
Additional provisions recognised
Receivables written off during the year as uncollectable
Unused amounts reversed
Closing balance
9.
Inventories
Finished goods
Work in progress
Raw materials
10. Biological assets
Crops planted
2020
$'000
152
1,049
(846)
-
355
1,278
5,788
2,948
10,014
2019
$'000
105
47
-
-
152
682
4,075
1,816
6,573
2,321
2,405
The risk of crop failure due to weather conditions is managed through planting at different locations. Reconciliation
of biological assets:
Crops planted at 1 July 2019
Harvested and transferred to raw material inventory
Crops planted (2020 season)
Harvested and transferred to raw material inventory
Balance at 30 June 2020
$'000
2,405
(2,405)
2,825
(504)
2,321
66
11. Other current assets
Prepayments
Loan receivable
Other
12. Intangible assets
Patents and trademarks – at cost
Less: Accumulated amortisation
Software – at cost
Less: Accumulated amortisation
Work in progress – at cost
Total intangible assets
Less: accumulated amortisation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2020
$'000
4,845
173
416
5,434
2019
$'000
920
49
-
969
501
(2)
499
209
(57)
152
8
718
(59)
659
340
-
340
-
-
-
-
340
-
340
Reconciliations
Reconciliations of the written down values at the beginning and end of the current and previous financial year
are set out below:
Balance at 1 July 2018
Balance at 1 July 2019
Additions
Amortisation
Balance at 30 June 2020
Work in
progress
$’000
Patents and
trademarks
$’000
Software
$’000
Total
$’000
-
-
8
-
8
340
340
161
(2)
499
-
-
209
(57)
152
340
340
378
(59)
659
ECOFIBRE LIMITED ANNUAL REPORT 2020
67
13. Leases
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Group leases warehouse, factory and administrative facilities. The leases typically run for a period of 3 to 4
years with some leases having the option to renew the lease after that date. Lease terms are renegotiated upon
expiry of each lease to reflect market rentals. Some leases provide for additional rent payments that are based
on changes in local price indices.
Previously, these leases were classified as operating leases under AASB 117, but are now accounted for pursuant
to AASB 16.
The Group leases office equipment with contract terms of 5 years. These leases are for low-value items, and the
Group has elected not to recognise right-of-use assets and lease liabilities for these leases.
The weighted average incremental borrowing rate applied to lease liabilities at the date of initial application was
7.5%.
Information about leases for which the Group is a lessee is presented below.
i. Right-of-use assets
Right-of-use assets related to leased properties that do not meet the definition of investment property are
presented as below:
2020
Balance at 1 July 2019
Additions to right-of-use assets
Depreciation charge for the year
Exchange difference
Balance at 30 June 2020
Farming and
processing
equipment
$’000
-
24
(5)
-
19
Buildings
$’000
1,440
194
(635)
29
1,028
Total
$’000
1,440
218
(640)
29
1,047
ii) Lease liabilities
The measurement principles of AASB 16 are only applied from 1 July 2019. At the date of initial application,
the right-use-assets equals to the lease liabilities and there was no adjustment to the retained earnings. The
lease liabilities are presented as below:
Operating lease commitments disclosed as at 30 June 2019
Changes to extension options assumptions and discounting using the lessee’s
Incremental borrowing rate at the date of initial application
Balance at 1 July 2019
New leases during the period
Payments
Interest charges during the period
Exchange difference
Balance at 30 June 2020
Lease liability recognised as at 30 June 2020 of which are:
Current lease liabilities
Non-current lease liabilities
68
Total
$’000
1,315
125
1,440
218
(689)
91
24
1,084
491
593
1,084
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
13. Leases (continued)
iii) Amounts recognised in profit or loss
30 June 2020 – Leases under AASB16
Interest on lease liabilities
Depreciation charge
30 June 2019 – Leases under AASB 117
Rental expense
iv) Amounts recognised in statement of cash flows
Cash outflow for leases:
Financing cash outflow
Operating cash outflow
v) Extension options
Total
$’000
91
640
676
598
91
Some property leases contain extension options exercisable by the Group up to 2 years before the end of
the non-cancellable contract period. Where practicable, the Group seeks to include extension options in
new leases to provide operational flexibility. The extension options held are exercisable only by the Group
and not by the lessors. The Group assesses at lease commencement date whether it is reasonably certain to
exercise the extension options. The Group reassesses where it is reasonably certain to exercise the options
if there is a significant event or significant changes in circumstances within its control.
ECOFIBRE LIMITED ANNUAL REPORT 2020
69
14. Property, plant and equipment
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Capital work in progress
Land
Building
Less: accumulated depreciation
Motor vehicles
Less: accumulated depreciation
Office equipment
Less: accumulated depreciation
Plant and machinery
Less: accumulated depreciation
Total property, plant and equipment
Less: accumulated depreciation
2020
$'000
2019
$'000
3,729
2,795
297
24,318
(51)
24,267
514
(87)
427
1,293
(217)
1,076
7,141
(2,303)
4,838
37,292
(2,658)
34,634
-
-
-
-
159
(79)
80
124
(104)
20
4,976
(1,216)
3,760
8,054
(1,399)
6,655
2020 Movement Schedule
Carrying value 1 July 2019
Additions
Transfer
Disposals
Depreciation
Exchange difference
Carrying value 30 June 2020
2019 Movement Schedule
Carrying value 1 July 2018
Additions
Transfer
Disposals
Depreciation
Carrying value 30 June 2019
Capital
WIP
$’000
Land Building
$’000
$’000
Motor
vehicles
$’000
Office
equipment
$’000
Plant and
machinery
$’000
2,795
1,844
(903)
(7)
3,729
767
2,795
(767)
-
-
2,795
-
297
-
-
-
-
297
-
23,715
603
-
(51)
-
24,267
-
-
-
-
-
-
-
-
-
-
-
-
80
370
31
(19)
(39)
4
427
166
-
-
(60)
(26)
80
20
1,172
-
-
(113)
(3)
1,076
1
80
-
-
(61)
20
3,760
1,996
269
(97)
(1,147)
57
4,838
1,780
2,102
767
(18)
(871)
3,760
Total
$’000
6,655
29,394
-
(116)
(1,350)
51
34,634
2,714
4,976
-
(78)
(958)
6,655
70
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15. Deferred tax assets
Deferred tax asset comprises temporary differences attributable to:
Amounts recognised in profit or loss:
Property, plant and equipment
Inventory
Accrued expenses
Allowance for expected credit losses
Blackhole expenditure
Employee share transactions
Prepayments
Other
Carried forward losses
Amounts recognised in equity:
Transaction costs on share issue
Deferred tax asset
Movements:
Opening balance
Credited to profit or loss
Credited to equity
Closing balance
16. Trade and other payables
Trade creditors
Employee entitlements
Other creditors and accruals
17. Related party loans
Current
Convertible loan – Lambert Superannuation Fund *
Non-current
Term loan ^
2020
$'000
2019
$'000
(1,058)
(28)
2,340
49
211
1,134
(90)
(66)
-
2,492
74
33
449
42
166
440
-
-
751
1,955
-
79
2,492
2,034
2,034
458
-
2,492
1,029
487
7,865
9,381
-
1,955
79
2,034
799
402
2,539
3,740
-
1,340
10,000,000
-
* The convertible loan was payable to Lambert Superannuation Fund (a related party of Barry Lambert). In the
current year, the remaining balance of the convertible loan was converted into 5,148,223 shares in Ecofibre
Limited in September 2019 at $0.257 per share.
^ The term loan has been provided by a trust related to the Company’s non-executive Chairman, Mr Barry
Lambert. Mr Lambert is the appointor of the trust, but neither he nor his descendents are beneficiaries. Mr
Lambert is not a director or shareholder of the trustee company. The terms of the term loan are as follows:
Agreement date
Principal balance
Interest rate
Repayment date
month’s notice the repayment date may be extended twice for periods of 6 months each.
: 23 June 2020
: $10,000,000
: 8.0% per annum
: 15 July 2021 with two options to extend at Ecofibre’s election. On the giving of 3
ECOFIBRE LIMITED ANNUAL REPORT 2020
71
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
18. Deferred tax liability
Deferred tax liability comprises temporary differences attributable to:
Amounts recognised in profit or loss:
Property, plant and equipment
Accrued expenses
Deferred tax liability
Movements:
Opening balance
(Credited)/ debited to profit or loss
Closing balance
19. Employee share trust
2020
$'000
2019
$'000
-
-
-
392
(392)
-
517
(125)
392
-
392
392
On 29 June 2018, the Company entered into an Employee Securities Trust Deed with Pacific Custodians Pty
Limited (PCPL) to set up an employee share trust (EST). PCPL is the trustee for the EST.
In August 2018 and September 2018, Ecofibre Limited issued a total of 7,355,659 shares into the EST as part of
Ecofibre's employee share scheme (ESS).
The movement of Ecofibre's shares held in the EST are as follows:
Opening balance as at 30 June 2018
Shares issued by the Company to the EST
Shares issued by the EST to employees as part of the ESS – pre split
Balance pre share split
Share split – 3:1
Shares issued by the EST to employees as part of the ESS – post split
Balance as at 30 June 2019
Shares issued by the EST to employees as part of the ESS
Balance as at 30 June 2020
Number of shares
-
7,355,659
(1,356,449)
5,999,210
11,998,420
(599,957)
17,397,673
(1,372,139)
16,025,534
72
20. Issued Capital
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2020
$'000
2019
$'000
2020
Quantity
2019
Quantity
Ordinary shares
62,376
56,189
305,619,401
291,951,478
Movement in ordinary shares
Opening balance 1 July
Shares issued at $1.61 per share
Shares issued at $1.95 per share
First conversion of convertible loan
Shares issued as part of the ESS
Total
Share split 3:1
Shares issued from initial public offering at
$1.00 per share
Shares issued at $0.537 per share
Conversion of convertible loan
Shares issued as part of the ESS
Share issue cost
56,189
-
-
-
-
56,189
-
-
3,836
1,433
918
-
22,536
3,127
4,196
1,941
2,229
34,029
-
20,000
-
1,909
458
(207)
291,951,478
-
-
-
-
291,951,478
-
-
7,147,561
5,148,223
1,372,139
-
80,195,441
1,942,582
2,151,630
2,425,000
1,383,422
88,098,075
176,196,150
20,000,000
-
7,057,296
599,957
-
Closing balance 30 June
62,376
56,189
305,619,401
291,951,478
321,644,935 total shares are on issue by the parent entity, which includes 305,619,401 consolidated shares on
issue plus shares held by the EST (16,025,534) which have been issued by the parent entity and are eliminated
on consolidation.
Reconciliation to the Consolidated Statement of Changes in Equity:
Balance at 30 June 2018
Shares issued
Share based payment: shares issued as part of the ESS
Convertible loan conversion to shares
Share issue cost
Balance at 30 June 2019
Shares issued
Share based payment: shares issued as part of the ESS
Convertible loan conversion to shares
Balance at 30 June 2020
$’000
22,536
27,323
2,687
3,850
(207)
56,189
3,836
918
1,433
62,376
ECOFIBRE LIMITED ANNUAL REPORT 2020
73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
21. Remuneration of auditors
Amount received or due and receivable by the auditors of the
company in respect of services to the group:
- Annual audit
- Half year review
Audit and review of financial statements
- Tax advisory
- Initial Public Offering - Investigating Accountant
- Initial Public Offering - Tax Due Diligence
- Accounting assistance
Other services
22. Contingent liabilities and commitments
There are no contingent liabilities
Commitment for non-cancellable leases are as follows:
Less than one year
Between one and five years
2020
$'000
2019
$'000
110
25
135
52
-
-
14
66
100
20
120
18
67
29
20
134
34
9
43
705
610
616
878
1,315
1,494
Capital expenditure commitments not provided for in the financial
statements
69
4,945
608
74
23. Interests in subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The financial statements of the subsidiaries have been prepared in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board.
The consolidated financial statements incorporate the assets, liabilities and results of the following wholly-owned
subsidiaries:
Name
Principal place of business / Country
of Incorporation
Ecofibre Services Pty Ltd (ES)
Ananda Food Pty Ltd (AF) (formerly Hemp
Australia Pty Ltd)
Ecofibre Holdings Pty Ltd (EOFH)
Australia
Australia
Australia
Ecofibre USA Inc. (EUSA)
United States of America
Ananda Hemp Inc. (AH) (formerly United Life
Science Inc.)
Ecofibre Kentucky LLC (EK)
United States of America
Hemp Black Inc. (HB) (formerly Satival Inc.) United States of America
United States of America
EOF Distribution Inc. (EOFD)
United States of America
Ecofibre Uruguay SA (EU)
Uruguay
Ownership Interests
2020
%
100%
100%
100%
100%
100%
100%
100%
100%
100%
2019
%
100%
100%
-
100%
100%
100%
100%
-
100%
ES’s principal activity is the provision of group corporate functions and research and development services.
AF’s principal activity is the growing, processing and distribution of hemp food products.
EOFH’s principal activity is sales and distribution of hemp products. EOFH was incorporated on 29 June 2020.
EUSA’s principal activity is an investment holding company.
AH's principal activity is the marketing and distribution of hemp nutraceutical products.
EK's principal activity is the manufacture of hemp nutraceutical products.
HB's principal activity is to develop and commercialise hemp fibre products.
EOFD is a special purpose sales and marketing entity for the Ananda Health business in the United States. EOFD
was incorporated on 18 March 2020.
EU is a dormant entity.
ECOFIBRE LIMITED ANNUAL REPORT 2020
75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
24. Reconciliation of profit after income tax to net cash flows from
operating activities
Net profit/ (loss) after income tax
Depreciation and amortisation
(Gain)/ Loss from disposal of fixed assets
Provision for doubtful debt
Share-based payments
Transaction costs related to IPO
Fair value adjustments for convertible loan
Movement in foreign exchange
Unrealised foreign exchange gain
Interest paid for related party loan
Change in operating assets and liabilities
Decrease (increase) in assets
Trade and other debtors
Prepayments
Inventories
Biological assets
Deferred tax assets
Tax recoverable
Increase (decrease) in liabilities
Trade creditors
Other creditors and accruals
Interest payable
Provisions
Tax payable
Employee entitlements
Deferred tax liabilities
2020
$'000
13,156
2,049
(85)
203
2,705
-
(45)
(425)
(152)
-
(6,837)
(4,341)
(3,441)
84
(458)
251
373
2,250
-
-
829
85
(392)
2019
$'000
6,000
958
(160)
47
3,752
754
(23)
391
(151)
(67)
(1,865)
(389)
(3,854)
(1,450)
(1,955)
(251)
251
21
-
-
(80)
116
392
Net cash flows from operating activities
5,809
2,437
25. Financial risk management objectives and policies
The Group’s principal financial instruments comprise receivables, payables, convertible loans and cash and cash
equivalents.
The main risks arising from the Group’s financial instruments are credit risk, interest rate risk, foreign exchange
risk and liquidity risk. The Group uses different methods to measure and manage different types of risks to which
it is exposed. These include monitoring the levels of exposure to foreign exchange and interest rates and
assessments of market forecasts for foreign exchange and interest rates.
76
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
25. Financial risk management objectives and policies (continued)
Risk exposures and responses
Credit risk
Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents and trade and
other receivables. The Group’s maximum exposures to credit risk at the end of the reporting period in relation
to each class of recognised financial assets is the carrying amount of those assets as indicated in the Statement
of Financial Position. The Group minimises concentrations of credit risk in relation to trade receivables by having
payment terms of 60 days and receivable balances are monitored on an ongoing basis.
Interest rate risk
The Group’s exposure to market interest rates relates primarily to the Group’s funds held on term deposits. All
interest-bearing liabilities are at fixed interest rates. At the end of the reporting period the Group had the
following financial assets exposed to interest rate risk.
Financial Assets
Cash and cash equivalents
2020
$'000
2019
$'000
18,252
25,740
The Group’s policy is to place funds in interest-bearing accounts and term deposit where the funds are surplus
to immediate requirements. The Group’s interest rate exposure is reviewed near the maturity date of term
deposits, to assess whether more attractive rates are available without increasing risk.
The following sensitivity analysis is based on the interest rate exposures in existence at the end of the reporting
period. At 30 June 2020, if interest rates had moved, as illustrated in the table below, with all other variables
held constant, profit after tax and equity would have been affected as follows:
Consolidated
+ 1% (100 basis points)
- 0.5 % (50 points)
Profit after tax higher/
(lower)
Equity higher/ (lower)
2020
$'000
183
(91)
2019
$'000
257
(129)
2020
$'000
183
(91)
2019
$'000
257
(129)
The movements in profits is due to higher/ (lower) interest income from cash balances. There is no impact
on equity other than impact on accumulated losses.
ECOFIBRE LIMITED ANNUAL REPORT 2020
77
25. Financial risk management objectives and policies (continued)
Liquidity risk
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Group’s objective is to maintain sufficient funds to finance its current operations and additional funds to ensure
its long-term survival. The Group will rely on increasing sales and operating cashflows to finance ongoing
operations, together with government incentives. Liquidity risk is monitored through rolling cash flow forecasts
that are tabled and reviewed by the Board. Total liabilities are payable as follows:
Less than one year
Between one and five years
Later than five years
2020
$’000
10,701
10,593
-
21,294
2019
$’000
5,080
392
-
5,472
Foreign currency risk
The Group is exposed to fluctuations in foreign currencies on product sales and purchases of goods and services
in currencies other than the Group’s functional currency. The group manages this risk by monitoring the level of
exposure to foreign currency transactions and forecasting currency requirements through rolling cash flow
forecasts.
The carrying amount of the consolidated entity's foreign currency denominated financial assets and financial
liabilities at the reporting date were as follows:
Consolidated
US dollars
Assets
Liabilities
2020
$'000
2019
$'000
17,114
7,280
2020
$'000
21
2019
$'000
-
The consolidated entity had net assets denominated in foreign currencies of $17,093,000 (assets of $17,114,000
less liabilities of $21,000) as at 30 June 2020 (2019: $7,280,000). Based on this exposure, had the Australian
dollar weakened by 5%/strengthened by 5% (2019: weakened by 5%/strengthened by 5%) against these foreign
currencies with all other variables held constant, the consolidated entity's profit before tax for the year would
have been $1,246,000 higher/$1,246,000 lower (2019: $518,000 higher/$518,000 lower). The percentage change
is the expected overall volatility of the significant currencies, which is based on management’s assessment of
reasonable possible fluctuations taking into consideration movements over the last 6 months each year and the
spot rate at each reporting date. The actual foreign exchange gain for the year ended 30 June 2020 was $3.9m
(2019: $11,000).
Fair value
The carrying amount of all other recognised financial assets and financial liabilities are considered a reasonable
approximation of their fair value due to their short-term nature.
78
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
26. Key management personnel disclosures
Compensation
The aggregated compensation made to the key management personnel of the parent entity is set out below:
Short-term employee benefits and directors fees
Share based payments
Post-employment benefits
See also Note 27 for other related party transactions
27. Related party transactions
Transactions with related parties
The following transactions occurred with related parties:
Interest expense for line of credit with Barry Lambert *
Interest expense for convertible loan with Lambert Superannuation Fund
Interest expense for term loan (see note 17)
2020
$’000
661
1,185
54
1,900
2020
$’000
-
35
18
53
2019
$’000
661
1,828
54
2,543
2019
$’000
31
307
-
338
* In October 2018, Barry Lambert agreed to provide $6.5 million line of credit to Ecofibre Limited. This facility
was unsecured and incurred interest at 7.5% per annum. This facility expired on 12 April 2019.
Receivable and payable to related parties
The receivables from and payables to related parties are disclosed in note 17.
ECOFIBRE LIMITED ANNUAL REPORT 2020
79
28. Parent entity information
Set out below is the supplementary information about the parent entity.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Profit/ (Loss) after income tax
Total comprehensive income
Statement of financial position
Total current assets
Total assets
Total current liabilities
Total liabilities
Equity
Issued capital
Share based payment reserve
Convertible loan reserve
Retained profits
Total equity
2020
$’000
12,770
2019
$’000
(887)
12,770
(887)
37,762
31,646
66,598
36,908
686
1,735
10,686
1,735
62,376
5,148
-
(11,612)
56,189
3,229
139
(24,384)
55,912
35,173
Future operating leases not provided for in the financial statements
-
170
29. Share-based payments
Shares issued in-lieu of research services
Ecofibre has entered into an agreement with Thomas Jefferson University (TJU) to provide research services to
Ecofibre over 5 years, commencing 1 July 2017. In accordance with the Research and Share Subscription
Agreement signed between both parties, 7,147,561 new shares were issued to TJU in the current year for
$3,836,000 worth of research services. Of the total research services, $659,000 was recognised as part of
the employees and contractors expenses in the current year as disclosed in note 5(b).
80
29. Share-based payments (continued)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Share options
Ecofibre has granted TJU an option to subscribe for fully paid ordinary shares within 6 months of the end of the
research.
Set out below are summaries of options granted under the plan:
Grant date Expiry date
Exercise
price
1 Jul 2017 31 Dec 2022
$0.537
Balance at
the start of
the year
12,178,260
No of
options
granted
-
Exercised Expired/
forfeited/
other *
(4,213,679)
-
Balance at
the end of
the year
7,964,581
* During the year, Ecofibre and TJU agreed to amend their agreement and the original grant value of TJU’s
options was revised down from US$5.0m to US$3.3m. This resulted in a reduction of the number of outstanding
options from 12,178,260 options to 7,964,581 options.
None of the options granted are exercisable at 30 June 2020.
For the options granted, the valuation model inputs used to determine the fair value at the grant date are as
follows:
Grant date
Expiry date
1 Jul 2017
31 Dec 2022
Share price
at grant date
$0.537
Exercise
price
$0.537
Expected
volatility
54%
Dividend
yield
-
Risk-free
interest rate
2.21%
Fair value at
grant date
$0.26
Expenses recognised for share options granted during the year
2020
$’000
(24)
2019
$’000
632
Employee shares
Employment agreements were signed with key employees who have an impact on the Group's performance. The
agreements include clauses which entitled the employees to payment in shares of the Company or cash if certain
performance conditions are met.
The expenses recognised for employee services received during the year as part of the employee share scheme
are as follows:
Expenses from equity-settled share-based payment transactions
Expense from cash settled share-based payment transactions
Total expense from employee share-based payment transactions
2020
$’000
2,729
-
2,729
2019
$’000
2,985
135
3,120
ECOFIBRE LIMITED ANNUAL REPORT 2020
81
29. Share-based payments (continued)
Share-based payment reserve
Share options
Employee shares
Total share-based payment reserve
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2020
$’000
1,240
3,908
2019
$’000
1,264
1,965
5,148
3,229
The share-based payment reserve is used to record the cost of equity-settled transactions over the vesting period.
Share-based payment expense
Share options
Employee shares
Total share-based payment expense
30. Earnings per share (EPS)
Earnings used in the calculation of basic and diluted EPS ($'000)
Weighted average number of shares* outstanding during the period used in
the calculation of basic and diluted EPS:
2020
$’000
(24)
2,729
2019
$’000
632
3,120
2,705
3,752
2020
$’000
13,156
2019
$’000
6,000
Basic
Diluted
296,929,432
303,165,688
262,703,027
276,186,752
* Weighted average number of shares exclude Treasury shares held in the EST.
82
31. Fair value measurement
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fair value hierarchy
The following tables detail the consolidated entity's assets and liabilities, measured or disclosed at fair value,
using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value
measurement, being:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access
at the measurement date
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly or indirectly
Level 3: Unobservable inputs for the asset or liability
Consolidated - 2020
Assets
Biological assets
Liabilities
Related party loans – Term loan
Consolidated - 2019
Assets
Biological assets
Liabilities
Related party loans – Convertible loan
Level 1
$'000
Level 2
$'000
Level 3
$'000
Total
$'000
-
-
-
-
2,321
10,000
2,405
1,340
-
-
-
-
2,321
10,000
2,405
1,340
There were no transfers between levels during the financial year.
The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate
their fair values due to their short-term nature.
The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current
market interest rate that is available for similar financial liabilities.
ECOFIBRE LIMITED ANNUAL REPORT 2020
83
32. Events after the reporting period
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
On 29 July 2020, Ecofibre entered into a conditional Asset Sale Agreement (ASA) to acquire a portfolio of
businesses and assets of TexInnovate, a key manufacturing partner of Hemp Black based in North Carolina, USA.
The portfolio includes five businesses that have deep technical expertise across a broad range of high-
performance textile disciplines. The businesses work together as an integrated manufacturing platform and will
help drive innovation and delivery for a range of products envisaged for Hemp Black.
The total potential consideration for the acquisition is approximately USD49.0m.
Consideration for the business and its operating assets is USD42.0m:
• At completion Ecofibre will pay USD21.0m (USD10.5m cash, and 5,924,926 shares also with an approximate
value of USD10.5m).
• Contingent consideration with a value up to USD21.0m, payable in 3 equal tranches of USD7.0m each on the
3rd, 4th and 5th anniversaries after completion. Each tranche will comprise 50% cash and 50% shares. The
contingent consideration is subject to the acquired businesses delivering USD6.0m earnings before interest
and tax (EBIT) for two consecutive annual periods within five years of completion.
Consideration for real estate assets used by the business is estimated at USD7.0m and will be determined by
independent market appraisal. The acquisition of the real estate will be settled in cash at completion.
Completion of the acquisition is subject to satisfactory due diligence by Ecofibre. The ASA contains warranties,
indemnities, restraints of trade and other commercial and legal provisions that Ecofibre considers appropriate
for the transaction. Ecofibre intends to employ all of TexInnovate’s current staff at completion.
To fund the cash component payable at completion for the business, operating assets and real estate, Ecofibre
conducted a placement under its Listing Rule 7.1 capacity to existing institutional shareholders to raise $29.5m
at an issue price of $2.50. The share placement was completed and 11,800,000 new shares issued on 4 August
2020.
No other matter or circumstance has arisen since 30 June 2020 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.
84
Ecofibre Limited
Independent auditor’s report to the members
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Ecofibre Limited (the Company and its
subsidiaries (the Group)), which comprises the consolidated statement of financial
position as at 30 June 2020, the consolidated statement of profit or loss, the
consolidated statement of other comprehensive income, the consolidated
statement of changes in equity and the consolidated statement of cash flows for the
year then ended, and notes to the financial statements, including a summary of
significant accounting policies and other explanatory information, and the directors’
declaration.
In our opinion, the accompanying financial report of the Group, is in accordance
with the Corporations Act 2001, including:
(i)
(ii)
giving a true and fair view of the Group’s financial position as at 30 June
2020 and of its financial performance for t he year ended on that date; and
complying with Australian Accounting Standards and the Corporations
Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our
responsibilities under those standards are further described in the Auditor’s
Responsibilities for the Audit of the Financial Report section of our report. We are
independent of the Group in accordance with the auditor independence
requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics
for Professional Accountants (including Independence Standards) (the Code) that
are relevant to our audit of the financial report in Australia. We have also fulfilled
our other ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of
most significance in our audit of the financial report of the current period. These
matters were addressed in the context of our audit of the financial report as a
whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
ECOFIBRE LIMITED ANNUAL REPORT 2020 85
Key Audit Matters (continued)
Share-based Payments
Refer also to Remuneration Report, note 1(o)
and 29
The Group issued share options to a major supplier
who provides research services to the Group.
The Group also signed employment agreements with
key employees which entitled them to shares in the
Company if certain performance or service
conditions are met.
The valuation of share-based payment arrangements
required significant judgement and estimation by
management, including the following:
- The evaluation of the grant date of the
arrangements, and the evaluation of the fair
value of the underlying share price of the
company as at the grant dates;
- The evaluation of the share-based payment
expenses taken to the profit or loss in
respect of the accrual of service and
performance conditions attached to the
share-based payments; and
- The evaluation of key inputs into the
valuation model.
How our audit addressed it
Our audit procedures included:
— In determining the grant date, we
evaluated what was the most appropriate
date based on the terms an d conditions of
the share-based payment arrangements;
— Evaluating the fair value of the share -
based payment arrangement by agreeing
assumptions to third party evidence;
— In evaluating the progress of the vesting of
share-based payments with performance
milestones, we evaluated the directors’
assessment of the likely success or failure
of achieving those milestones;
— In assessing the vesting of service
conditions, we considered the expensing
of each share-based payment tranche
granted to the arrangement’s beneficiary;
— For specific application of the Black -
Scholes Model in the valuation of share
options, we retested some of the
assumptions used in the model and
recalculated those fair values using the
skill and know-how of our in-house
specialists. We considered that the
forecast volatility applied in the model to
be appropriately reasonable and within
industry norms; and
— We also reconciled the vesting of share -
based payment arrangement to
disclosures made in the Remuneration
Report and financial statements.
— Assessing the adequacy of disclosures in
the notes to the financial statements.
86
Key Audit Matters (continued)
Valuation of Inventories and Biological Assets
Refer also to note 1(i), 1(j), 9 and 10
How our audit addressed it
The Group held biological assets of $2. 3 million at 30
June 2020. The Group’s biological assets consist of
planted hemp crop. The biological assets are
measured at fair value less costs to sell or, in the
absence of a fair value, at cost less impairment. The
valuation uses a range of judgemental assumptions.
Key assumptions include:
- Total number of acres or hectares planted;
- Percentage of maturity of the plant based on
estimated harvest date; and
- Costs per acre, hectare or yield paid or
payable to the farmers.
Upon harvest, the value of biological assets are
transferred to inventory. Its fair value forms part of
the standard cost for inventory valuation.
The group’s inventory of $10 million is significant to
the financial statements and has increased by $3.4
million from prior year.
Our audit procedures included:
— Attending stock counts at multiple
locations;
— Considering the valuation methodology
against the relevant Australian Accounting
Standard;
— Testing the mathematical accuracy of the
calculation;
— Test ing the assumptions used based on
farming contracts;
— Assessing management’s standard costing
model and inputs;
— Evaluating management’s judgement and
assumptions used in determining the
inventory provision;and
— Assessing the adequacy of disclosures in
the notes to the financial statements.
Revenue Recognition
Refer also to note 4 and note 1(d)
The Group generated $50.7 million of sales revenue
for the year ended 30 June 2020. Revenue is
recognised in accordance with the specific revenue
recognition requirements of AASB15 being: -
-
-
-
Identifying performance obligations in
contracts with customers;
Identifying when revenue can be measured
reliably;
It is probable that economic benefits
associated with the transaction will flow to
the Group; and
- The point in time when the customer takes
delivery of the goods.
The size, scale and complexity of the group’s
operations grew significantly during the year, new
distribution wholesalers were added, and a number
of new systems were implemented. In these
circumstances, revenue recognition was an area of
focus as a key audit matter.
How our audit addressed it
Our audit procedures included:
— An analysis of sales transactions to verify
the correct treatment in accordance with
the AASB 15 revenue recognition criteria;
— Performing sales cut-off testing;
— On a sample basis, comparing sales
transactions to delivery documents;
— Reviewing sales contract for the Group’s
key customers;
— Evaluating management’s judgement and
assumptions used in determining the
provision for sales return; and
— Verifying a sample of sales transaction to
payments received.
— Assessing the adequacy of disclosures in
the notes to the financial statements.
ECOFIBRE LIMITED ANNUAL REPORT 2020 87
Other Information
The directors are responsible for the other information. The other information comprises the
information in the Group’s annual report for the year ended 30 June 2020, but does not include the
financial report and the auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard .
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determi ne is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the a bility of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of this financial report.
A further description of our responsibilities for the audit of these financial statements is located at the
Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf
This description forms part of our independent auditor’s report .
88
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 36 to 41 of the directors’ report for the
year ended 30 June 2020.
In our opinion, the Remuneration Report of Ecofibre Limited, for the year ended 30 June 2020,
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.
William Buck (Qld)
ABN 21 559 713 106
Junaide Latif
Director
Brisbane: 21 August 2020
ECOFIBRE LIMITED ANNUAL REPORT 2020 89
Shareholder Information
The shareholder information set out below was applicable as at 6 August 2020.
Number of securityholders
There are 4,420 holders of ordinary shares (quoted and unquoted), 1 holder of options (unquoted) over ordinary
shares and 66 holders of performance rights (unquoted). There were no other classes of equity securities on issue.
Fully paid ordinary shares
Distribution of ordinary shares
Size of shareholding
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 50,000
50,001 to 100,000
100,001 and over
Total
Holding less than a marketable parcel
Number of shareholders Number of shares
1,945
1,360
440
494
60
121
4,420
386
942,036
3,603,232
3,560,946
11,753,696
4,369,938
309,215,087
333,444,935
60,028
% of shares on
issue
0.28%
1.08%
1.07%
3.53%
1.31%
92.73%
100.00%
Twenty largest holders of quoted ordinary shares
The names of the twenty largest holders of quoted ordinary shares (excludes shares in escrow) are listed below:
Name
HSBC Custody Nominees (Australia) Limited
Thomas Jefferson University
Pacific Custodians Pty Limited
Texsymmetry Inc
Citicorp Nominees Pty Limited
John Ryan
JP Morgan Nominees Australia Pty Limited
Barjoy Pty Ltd
Barry Martin Lambert & Joy Wilma Lillian Lambert
Profitous Pty Ltd
Troncell Pty Ltd
National Nominees Limited
James 1916 Pty Ltd
Phildew Pty Ltd
Yarrawonga Holdings Pty Ltd
Yarrawonga Holdings Pty Limited
Miranda June Brown
Brian Furnish & Amy Furnish
E G Enterprises Pty Ltd
William David Furnish
Total
90
Number
26,664,201
10,532,143
8,016,536
6,454,890
5,316,294
5,099,289
4,406,508
3,994,976
3,218,975
2,946,288
2,922,078
2,032,896
2,000,000
1,948,053
1,616,606
1,601,494
1,364,998
1,130,191
1,101,364
1,035,793
93,403,573
% of quoted
ordinary shares
8.00%
3.16%
2.40%
1.94%
1.59%
1.53%
1.32%
1.20%
0.97%
0.88%
0.88%
0.61%
0.60%
0.58%
0.48%
0.48%
0.41%
0.34%
0.33%
0.31%
28.01%
Substantial holders
Substantial holders in the Company as disclosed in substantial holding notices given to the Company were as
follows:
SHAREHOLDER INFORMATION
Name of substantial holder
Barry Martin Lambert
Philip Warner
James William Vicars
Unquoted Restricted Securities
Number of shares over
which interest is held
74,236,900
53,109,243
30,841,174
% of issued capital
23.57%
17.17%
9.97%
There are 191,907,744 unquoted ordinary shares on issue subject to a 24 month ASX restriction as follows:
Restriction period
24 months ASX restriction from date of
official quotation
Class of
security
Number
Number of
holders
Date escrow
period ends
ORD
191,907,744
73
29 March 2021
Unquoted Options
There were 9,610,698 unquoted options over ordinary shares as follows:
Unquoted options – description
Thomas Jefferson University options expiring 31
December 2022 exercisable @ AU$0.537 per share
Total
Number of options
Number of holders
9,610,698
9,610,698
1
1
Unquoted Performance Rights
Distribution of Performance Rights
There are 14,074,052 unquoted performance rights on issue held by 66 holders as follows:
Size of holding
1-1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,000 and above
Total
Number of holders
45
-
-
12
9
66
Number of Rights % of Rights on issue
0.10%
-
-
3.16%
96.74%
14,300
-
-
444,750
13,615,002
14,074,052
100.00%
ECOFIBRE LIMITED ANNUAL REPORT 2020
91
SHAREHOLDER INFORMATION
Voting Rights
Ordinary shares carry voting rights on a one for one basis. Unquoted options and performance rights do not carry
voting rights.
Other ASX required information
During the period between admission to the Official List of ASX and the end of the reporting period, the Company
used the cash, and assets in a form readily convertible to cash, that it had at the time of admission to the ASX, in a
way consistent with its business objectives. This statement is made pursuant to ASX Listing Rule 4.10.19.
92
Directors
Barry Lambert
Jon Meadmore
Eric Wang
Company secretary
Jonathan Brown
CORPORATE
DIRECTORY
Registered Office
Level 12, 680 George Street
Sydney NSW 2000
Principal place of business
Level 12, 680 George Street
Sydney NSW 2000
Share Registry
Link Market Services
Level 21
10 Eagle Street
Brisbane QLD 4000
Auditor
William Buck (Qld)
Level 21, 307 Queen Street,
Brisbane QLD 4000
Solicitor
Colin Biggers & Paisley Lawyers
Level 35, 1 Eagle Street
Brisbane QLD 4000
www.cbp.com.au
Banker
Commonwealth Bank of Australia
240 Queen Street
Brisbane QLD 4000
Stock exchange listing
Ecofibre Limited shares are listed on the
Australian Securities Exchange (ASX code:
EOF
)
Corporate Governance Statement
ecofibre.com/investors/corporate/
www.ecofibre.com
ECOFIBRE LIMITED ANNUAL REPORT 2020 93
ANNUAL REPORT
2020