Freedom Foods Group Limited
Annual Report 2007

Plain-text annual report

Freedom Nutritional Products Limited Annual Report 2007 Contents Contents Financial Highlights and Five Year Summary Chairman’s Letter Chief Executive’s Review of Operations Directors’ Report Lead Auditor’s Independence Declaration Corporate Governance Consolidated Income Statement Consolidated Balance Sheet Consolidated Cash Flow Statement Consolidated Statement of Changes in Equity Notes to the Financial Statements Directors’ Declaration Independent Audit Report Shareholder Statistics Corporate Directory 1 2 3 6 12 13 19 20 21 22 23 63 64 66 68 ANNUAL GENERAL MEETING Date Venue 25 October, 2007. Time 11.30 am Deloitte Touche Tohmatsu Level 9, Grosvenor Place, 225 George Street, Sydney, NSW, 2000 Freedom Nutritional Products Limited ABN 41 002 814 235 Annual Report for the year ended 30 June 2007 Financial Highlights and Five Year Summary Sales Revenue ($000’s) EBITDA ($000’s)* EBIT Net Profi t / (Loss) before Tax ($000’s) Profi t attributable to members of the parent ($000’s) Basic Earnings per Share (cents) Number of ordinary shares issued (000’s) Dividend per Share (cents) Dividend Paid ($000’s) Total Assets ($000’s) Shareholders Equity ($000’s) Net Tangible Asset Backing (cents) *E *Earnings before interest, tax, depreciation and amortisation 2003 2003 21,957 1,599 745 564 2.6 26,689 1 233 26,121 14,109 45 2004 2004 32,940 360 (1,237) (749) (2.6) 32,689 Nil Nil 30,581 17,362 43 2005 2005 37,954 2,090 643 310 0.8 2006 2006 46,963 2,921 1,595 1,434 3.2 2007 2007 48,683 3,173 1,789 1,174 2.6 44,485 44,485 44,527 Nil Nil 41,137 21,538 10 Nil Nil 43,548 22,844 13 1 445 47,428 23,654 14 N Note: 2003 and 2004 were prepared under Australian Accounting Standards (AGAAP) 2005, 2006 and 2007 were prepared under Australian Equivalents to International Financial Reporting Standards (AIFRS) 2007 Annual Report | 1 Chairman’s Letter Dear Shareholder, During the year the name of the company was changed from “So Natural Foods Australia Limited” to “Freedom Nutritional Products Limited” (FNP). Special dietary products, The Directors believe the new name better refl ects the broadened activities of the group which now covers: • • • • Low GI food and beverages. Soy and rice beverages, Canned seafood, and FNP reported a net profi t after tax of $1,174,000 for the year. The Chief Executive Offi cer’s report provides a commentary on operations. The fi nancial performance allowed the directors to pay a fully franked one cent dividend during the year and we have now declared an initial 2008 fully franked one cent dividend payable in December 2007. This represents a 4.2% dividend yield on the year end share price. As foreshadowed in my 2006 Chairman’s letter, we said farewell to Messrs Graham Reaney and Maurice van Ryn from the Board. In November we welcomed Mel Miles as a new independent Director. Mr Higgs has decided to step down as a director from the October Board meeting. I extend my thanks to him for his contribution as a director over the years. He has accepted my invitation to join our new International Advisory Board. The company sold the Taren Point land and buildings to our Contract Beverage Packers of Australia joint venture in May. This allowed FNP to pay down debt and CBPA to have control over its manufacturing location. Management continued to implement our strategic plan to become a leader in special nutrition which included an investment in A2 Dairy Products of Australia and the acquisition of baking assets for Freedom Foods. During the year we issued 4.9 million options to senior management to further align management compensation to the stock price performance of the company. The Board thanks Geoff Babidge and his management team for their contributions and we look forward to a solid fi nancial performance for 2008 fi nancial year. Perry Gunner Chairman 5 September 2007 2 | Freedom Nutritional Products Limited Chief Executive’s Review of Operations The company achieved net profi t after tax of $1,174,000 for the 12 months ended 30 June 2007. Whilst sales and EBITDA were higher than the previous year, higher interest costs and tax together with the costs associated with the Arrovest takeover and non-cash executive option expenses resulted in NPAT being marginally belo below the previous year. EBITDA excluding takeover costs and non-cash expense of executive options was up 8% to $ $3,343,000 compared to the prior corresponding period. O Other key highlights of the year included: • • Management continuing to implement the strategic plan to become a leader in special nutrition in the domestic market and developing growth options in international markets, • • • • • • Establishment of the joint venture A2 Dairy Products Australia Pty Ltd and the acquisition of the assets of Cookie Man Pty Ltd to increase Freedom Foods free from manufacturing capability, Improved operating performance for each division including Thorpedo Foods with the exception of Soy and Rice which experienced a declining overall market in the second half, Growth in consolidated gross sales to $60,045,000 up 4% on the previous year primarily from organic growth, Operating EBIT return on funds employed improved to 9%. Functional Foods S Seafood T The Paramount Seafood division comprising Paramount salmon and Brunswick sardine and specialty seafood T p products performed ahead of plan for the year. Paramount salmon sales were signifi cantly above last year given growth of red salmon share from additional ra ranging and Brunswick sardines maintained its brand leadership position in Australia and New Zealand. We were re required to signifi cantly lift our selling prices of pink salmon due to an abnormally reduced catch in Alaska and a also experienced increases in sardine prices from lower catches in Canada. Our p procurement partner Bumble Bee Foods again assisted in sourcing our requirements a at competitive prices. We are hopeful of an improved catch of pink salmon for the coming year whereas the supply environment for sardines is not expected to change in in the immediate term. B By year end, Paramount Seafoods had grown its domestic share in the red and pink salmon segment to approximately 20% by volume and Brunswick’s share of the d domestic sardine segment approximated 35% by volume. Thorpedo Foods During the year, Thorpedo Foods focused its activities on supporting the launch of the fi rst Thorpedo branded product by Yakult Honsha in Japan. The launch was successful in introducing a Thorpedo Low GI beverage into the J Ja Japanese functional beverages market. Sales in the fi rst year for Yakult Honsha were approximately U US$24 million. With the launch of the second summer season in June 2007 and a new marketing campaign to build awareness of t the unique health benefi ts of a low glycemic index product with the Japanese consumers, Yakult are confi dent of improved sales in FY 2008. The license fee income resulted in a positive contribution for the company for the year. In Australia, the domestic strategy remains on accessing distribution of children’s beverages in schools and the grocery channel. Following Ian Thorpe’s decision to retire from competitive swimming, we are jointly reviewing new initiatives for the business moving forward. 2007 Annual Report | 3 Chief Executive’s Review Of Operations (continued) Special Dietary Foods Freedom Foods Freedom Foods, the leading provider of Special Dietary Food products performed credibly with sales growth of 25% and contribution increased by 20%. This growth was a function of broadening the product range with the launch of a number of frozen gluten free products and a new “100 healthy calories” range of cereals, biscuits and snacks for consumers managing calorie intake. The acquisition of the baking assets of Cookie Man in May 2007 has provided the company with increased manufacturing capacity and the opportunity to signifi cantly expand its successful range of free from biscuits and cookies into decadent style and savory products. This initiative also allows Freedom Foods to undertake contract packing for key grocery customers previously serviced by Cookie Man. Following the acquisition, the biscuit manufacturing activities of the company in Cheltenham (Vic) were consolidated into the new Hornsby (NSW) facilities with associated reduction in duplicated overhead costs. During the past year, Freedom Foods has been progressively refi ning its brand and product portfolio within the key segments of biscuits, cereals and snacks and this will continue during the coming year. In addition, the company will continue to review ways to enhance the cost and quality of third party manufacturers and further bolt-on acquisitions to increase market share and capabilities. The special dietary foods market provides consumers a solution for specifi c dietary or medical conditions including gluten free, wheat free, low sugar or salt or highly fortifi ed. This market has signifi cant growth potential both domestically and internationally and is a key focus for our growth plans. Soy and Rice Soy and Rice Beverages under-performed given ongoing competitive activity and a signifi cant decline in the overall market. The total UHT soy beverage market showed a volume decline of 8% MAT to June 2007 due primarily to the impact of erroneous negative publicity in January of the risks of soy beverage consumption. The major industry participants have since been discussing ways to better communicate the benefi ts of soy beverages within a balanced diet to consumers. The returns from soy and rice had been improving through a focus on a reduced range of products and lowering the cost base through the CBPA joint venture. This year, a key initiative has been the introduction of a signifi cantly improved whole bean taste for the proprietary range of soy beverages. Since year end, soy and rice beverages have been integrated within the Freedom Foods special nutrition business to better leverage marketing and promotion across the combined portfolio. Integrated Activities Contract Beverage Packers of Australia Pty Ltd (CBPA) CBPA (50% owned) performed below budget given lower contract packing than planned and the impact of unplanned maintenance activities in the second half. Notwithstanding this, CBPA has been successful in securing additional contract packing volume from October 2007 which together with an upgrade to its processing and screw cap packaging capabilities now underway will further reduce unit costs of the business. The CBPA partners have deferred a decision on relocating to larger premises and CBPA purchased the Taren Point manufacturing facility from FNP in May 2007. 4 | Freedom Nutritional Products Limited Chief Executive’s Review Of Operations (continued) A2 Dairy Products Australia In June 2007 the company invested in a new joint venture company A2 Dairy Products Australia (A2DP), with exclusive rights for the production and sale of a2 milk™ products in Australia and Japan in association with A2 C A2 Corporation Limited of New Zealand. FNP has the right to convert to a 50% equity interest in A2DP. A A2 Corporation Limited was established in 2000 to commercialize potentially important benefi ts a associated with milk. a2 milk™ is obtained naturally from cows specially selected for their genetic makeup to produce milk containing predominantly A2 protein. Certain evidence suggests that d drinking a2 milk™ rather than regular milk may reduce disease risks for some individuals who are p predisposed towards certain conditions. There have been anecdotal reports from consumers w who have switched to a2 milk™ that it has led to noticeable diff erences in the symptoms of certain conditions. F FNP’s investment in A2DP was made through a convertible note instrument and future capital r requirements are to be jointly funded by the respective partners. FNP will provide the joint v venture with industry knowledge and strategy planning, support in retail grocery sales, fi nance a and administration services and access to milk supply through its majority shareholder. In A Australia, a2 milk™ products will share branding with the Freedom Foods brand. T This is a signifi cant growth opportunity for FNP and draws on the company’s unique competencies within the special nutrition and dairy segments of the food industry. The b business plan focuses on building a specialist drinking milk business domestically together with d developing milk powders and formulas for off shore markets. O Outlook O T The plan for FY 2008 is to continue to build scale and effi ciency in each of the core business units of Freedom Foods S Special Dietary, A2 Dairy Products Australia and Seafood. W We will continue to explore opportunities for growth by investment and or acquisition of innovative businesses in s specialised segments of the Nutrition Market. To support this strategy, management and board are developing an in innovative plan for capital raising to fund organic growth and complementary acquisitions. S Subject to fi nancial performance and capital management being to plan, the budget assumes continuation of d dividend payments during the coming fi nancial year. Geoff Babidge C CEO 5 5 September 2007 2007 Annual Report | 5 Directors’ Report Your directors submit the fi nancial report of Freedom Nutritional Products Limited (the Parent) for the year ended 30 June 2007. Directors For the names and particulars of the Directors of the Parent during or since the end of the fi nancial year, refer the Corporate Governance Statement. Company Secretary Mr M Jenkins, B Comm., LLB (Hons), ACA, ACIS has been Company Secretary and Chief Financial Offi cer for over fi ve years. He has been a Chartered Accountant for over 25 years and a Company Secretary for over 15 years. Principal activities manufacture and distribution of long life soy and other beverages; The principal activities of the consolidated entity during the fi nancial year were: • • • • manufacture, distribution and marketing of natural foods; distribution and marketing low GI energy waters. distribution and marketing canned seafood; There were no signifi cant changes in the nature of the principal activities during the fi nancial year. Operating results The consolidated entity’s profi t, after providing for income tax, amounted to $1,174,000 (2006 profi t : $1,434,000). Refer commentary in Chief Executive’s Review of Operations. Dividends paid or recommended A one cent per share fully franked interim dividend was paid on 18 May 2007 in respect of the year ended 30 June 2007. The dividend was franked to 100% at 30% corporate income tax rate. In respect of the fi nancial year ending 30 June 2008, the directors recommend the payment of a fi rst interim dividend of one cent per share franked to 100% at 30% corporate income tax rate to the holders of fully paid ordinary shares on 18 December 2007. Signi(cid:192) cant changes in state of affairs There were no signifi cant changes to the state of aff airs of the consolidated entity that occurred during the fi nancial year under review, not otherwise disclosed in this report. Events subsequent to balance date No other matters or circumstances have arisen since the end of the fi nancial year which signifi cantly aff ected or may signifi cantly aff ect the operations of the consolidated entity, the results of those operations, or the state of aff airs of the consolidated entity in subsequent fi nancial years. Future developments Likely developments in the operation of the consolidated entity and the expected results of these operations have not been included in this report as the Directors believe, on reasonable grounds, that inclusion of such information would be likely to result in unreasonable prejudice to the consolidated entity. Environmental issues The consolidated entity’s operations are subject to environmental regulation under the law of the Commonwealth (AQIS) and the State (Workcover, EPA, Sydney Water, Safe Food NSW) and local council regulations. The consolidated entity operates under a Dangerous Goods Licence issued by Workcover. 6 | Freedom Nutritional Products Limited Directors’ Report (continued) There were no breaches of environmental laws, regulations or permits during the period. The consolidated entity is currently operating in accordance with local council consent in regard to hours of operation. Indemnifying of(cid:192) cer or auditor d T The Parent has not, during or since the fi nancial year, in respect of any person who is or has been an offi cer or auditor of the Parent or a related body corporate: • • indemnifi ed or made any relevant agreement for indemnifying against liability incurred as an offi cer, including costs and expenses in successfully defending legal proceedings; or • • paid or agreed to pay, a premium in respect of a contract insuring against a liability incurred as an offi cer for the costs or expenses to defend legal proceedings; w with the exception of the following matter: D During the fi nancial year the Parent paid premiums to insure each of the Directors against liabilities for costs and e expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the c capacity of offi cer of the Parent. The average premium of each person was $2,286. R Rounding of the accounts The Parent is an entity to which ASIC Class Order 98/0100 applies. Accordingly amounts in the fi nancial report have been rounded off to the nearest thousand dollars. M Meetings of directors D During the fi nancial year 19 meetings of directors (including committees) were held. Mr Higgs took leave of absence fo for a period during the year. Attendances were as follows: Directors Meeting Directors Meeting Audit, risk & Audit, risk & compliance compliance committee meetings committee meetings Remuneration Remuneration & nomination & nomination committee meetings committee meetings Acquisition Acquisition committee meeting committee meeting Eligible to attend Attended Eligible to attend Attended Eligible to attend Attended Eligible to attend Attended 15 15 12 12 15 7 3 2 8 8 14 15 9 11 7 7 2 2 4 7 2 - - 1 1 - - - 1 1 1 - - 1 1 - - - 1 1 1 - - 1 - - - - - - 1 - - 1 - - - - - - - 1 - - 1 - - 1 - 1 - 1 - - 1 - - 1 - 1 P. P. R. Gunner G. H. Babidge G A. M. Perich A R. Perich R. S. F. Higgs M. Miles B. W. Bootle (alternate director) B C. C. Grubb C M. Van Ryn G. J. Reaney G The Board on 29 March 2007 resolved to terminate the Acquisition Committee as the function of the committee was being undertaken by the full Board. Directors’ shareholding Refer to Corporate Governance Statement. 2007 Annual Report | 7 Directors’ Report (continued) Remuneration Report This report details the nature and amount of remuneration for each Director and the executives receiving the highest remuneration. Remuneration policy Remuneration arrangements for Directors and executives of the Parent and Group (“the Directors and executives”) are set competitively to attract and retain appropriately qualifi ed and experienced Directors and executives. As part of its agreed mandate, the Remuneration and Nomination Committee obtains independent advice when required on the appropriateness of remuneration packages given trends in comparable companies and the objectives of the consolidated entity’s remuneration strategy. The remuneration structures explained below are designed to attract suitably qualifi ed candidates, reward the achievement of strategic objectives, and achieve the broader outcome of creation of value for shareholders. The remuneration structures take into account: • • • the Directors and executives’ ability to control the relevant operational performance; and the amount of incentives within each Director and executive’s remuneration. the capability and experience of the Directors and executives; Executive director and executives Fixed remuneration consists of base remuneration (which is calculated on a total cost basis and includes any FBT charges related to employee benefi ts including motor vehicles), as well as employer contributions to superannuation funds. Executive director and executives remuneration levels are reviewed annually by the Remuneration and Nomination Committee through a process that considers the overall performance of the Group. In addition the individual performance of each senior manager is measured against each individual’s Key Performance Indicators (KPI’s) as agreed annually with the senior manager to ensure buy-in. KPI’s are based on the profi tability of the entity and are reviewed annually by the Remuneration and Nomination Committee and the Managing Director/Chief Executive Offi cer (CEO). Performance based remuneration Performance based remuneration are at the discretion of the Remuneration and Nomination Committee. These can take the form of share options or cash payments. During the year the following options were issued 1,700,000 to G.H. Babidge, 1,700,000 to R.J.F. Macleod, 900,000 to B.W. Bootle, 300,000 to P. J. Nathan and 300,000 to M. E. Jenkins. Options are valued using the bi-nomial method. Non-executive directors The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting. Total fees for all non-executive directors, last voted upon by shareholders was in October 2006, was not to exceed $300,000 in total. Total fees for 2007 were $122,315. To align director interests with shareholder interests, the directors are encouraged to hold shares in the Parent. The Chairman receives twice the base fee of non-executive directors. Non-executive directors do not receive performance related remuneration. Directors’ fees cover all main Board activities. Non-executive directors who sit on the Remuneration and Nomination Committee and the Audit, Risk and Compliance Committee receive an additional payment of $1,000 and the Chairman of each receives $2,000. There are no termination or retirement benefi ts for non-executive directors. Service agreements It is the Group’s policy that service contracts are entered into for the CEO which was extended on 1 February 2007. The key terms and conditions are as follows: • • the contract is for a fi xed term to 30 November 2011 the remuneration comprises a fi xed component which includes the cost to the consolidated entity of any superannuation contributions made by the consolidated entity on behalf of the CEO; and 8 | Freedom Nutritional Products Limited Directors’ Report (continued) • the Parent can terminate employment at any time without prior notice if the CEO commits any serious breach of any provisions of his agreement or is guilty of an act of serious misconduct or wilful neglect in the discharge of their duties. The CEO may terminate this agreement with one month’s notice and the Parent with three month’s notice. In the event of dismissal by the Parent, other than for breach, the CEO is also entitled to one year’s total remuneration. P Parent performance, shareholder wealth and directors and senior management remuneration T The remuneration policy has been tailored to increase goal congruence between shareholders and executives. The method applied in achieving this aim is the issue of options to executives to encourage alignment of personal and shareholder interests. s The following table shows the revenue, profi ts and dividends for the past fi ve years for the Parent. TT Revenue ($000s) Net Profi t / (loss) after tax ($000s) Dividends paid (cents) 2003 2003 21,957 564 1 2004 2004 32,940 (749) Nil 2005 2005 37,954 310 Nil 2006 2006 47,654 1,434 Nil 2007 2007 49,952 1,174 1 T The Remuneration and Nomination Committee considers that the Parent’s performance-linked remuneration st structure is appropriate to building shareholder value in the medium term. Directors and executive of(cid:192) cers emoluments T The benefi ts of each director who held offi ce and fi ve highest paid executive offi cers for the year ended 30 June 2007 are as follows: a Short-tem employee benefi ts Short-tem employee benefi ts Post employment Post employment Benefi ts Benefi ts Share based Share based payment payment P. R. Gunner G. H. Babidge A. M. Perich R. Perich S. F. Higgs M. Miles B. W B. W. Bootle C. C. Grubb G. J. Reaney M. Van Ryn Executive Offi cers R. J. F. Macleod P. J. Nathan (1) M. E. Jenkins H. A. Hurwitz B. A. O’Brien Salary Directors’ Fees Committee Fees Non-cash Benefi t Superannuation Contributions - 28,167 3,000 223,487 - - - - - - - - - 187,314 137,325 150,933 137,821 41,761 24,167 25,000 25,000 - - 3,633 6,667 - - - - - - - - 2,000 1,833 2,000 - 182 666 - - - - - - - 1,513 - - - - - - - - - - 1,367 - 15,500 25,695 100,000 2,175 2,430 2,415 17,620 - - 660 7,993 12,686 32,829 27,700 12,179 93,805 Options - 25,045 - - - - 13,259 - - - 25,045 1,500 1,500 - - Total 56,862 350,045 26,342 29,430 29,248 19,620 13,259 3,815 7,993 7,993 225,045 171,654 181,500 150,000 151,066 (1) appointed 11 September, 2006. 2007 Annual Report | 9 Directors’ Report (continued) During and since the end of the fi nancial year an aggregate of 4,900,000 share options were granted to the following directors and executives of the Parent and consolidated entity as part of their remuneration: Directors and executive of(cid:192) cers options Directors and Executives Directors and Executives Number of options Number of options granted granted Issuing entity Issuing entity Number of ordinary Number of ordinary shares under option shares under option Value of Options Value of Options $000 $000 G. H. Babidge B. W. Bootle R. J. F. Macleod M. E. Jenkins P. J. Nathan 1,700,000 900,000 1,700,000 300,000 300,000 Parent Parent Parent Parent Parent 1,700,000 900,000 1,700,000 300,000 300,000 170 90 170 30 30 Details of unissued shares or interests under option as at the date of this report are: Issuing entity Issuing entity Number of shares Number of shares under option under option Class of shares Class of shares Exercise price Exercise price of option of option Freedom Nutritional Products Limited Freedom Nutritional Products Limited Freedom Nutritional Products Limited Freedom Nutritional Products Limited 200,000 1,000,000 4,300,000 600,000 Ordinary Ordinary Ordinary Ordinary $0.80 $0.50 $0.50 $0.50 Expiry date Expiry date of options of options 29 January 2008 27 July 2010 30 November 2011 26 April 2010 The holders of these options do not have the right by virtue of the option, to participate in any share issue or interest issue of any other body corporate or registered scheme. There were no shares or interests issued during the or since the end of the fi nancial year as a result of exercise of an option. Directors’ shareholding Refer to Principle 2 “Structure of the Board to add value” in Corporate Governance Statement. Non-audit services During the year PKF, the Parent’s previous auditors, have performed certain other services in addition to their statutory duties. During the year Deloitte, the Parent’s current auditors, have performed certain other services in addition to their statutory duties. With respect to the non-audit services provided during the year by the auditor, the Board has considered written advice provided and a recommendation of the Audit, Risk and Compliance Committee. The Board is satisfi ed that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporation Act 2001 for the following reasons: • • all non-audit services were subject to the corporate governance procedures adopted by the Parent and have been reviewed by the Audit, Risk and Compliance Committee to ensure they do not impact the integrity and objectivity of the auditor; and the non-audit services provided do not undermine the general principles relating to auditor independence as set out in the Code of Conduct APES 110 Code of Ethics for Professional Accountants issued by The Accounting Professional & Ethical Standards Board. A copy of the auditor’s independence declaration as required under Section 307C of the Corporations Act follows the Directors’ Report. Details of the amounts paid to the ex-auditor of the consolidated entity, PKF for audit and non-audit services provided during the year are set out below: 10 | Freedom Nutritional Products Limited Directors’ Report (continued) Aud Audit Services Ex-auditors of the Parent PKF • • • audit and review of fi nancial reports adoption of AIFRS technical assistance re accounting principles and fi nancial reports Consolidated Consolidated 2007 $ 70,000 - - 70,000 Details of the amounts paid to the auditor of the consolidated entity, Deloitte Touche Tohmatsu for audit and non-audit services provided during the year are set out below: n Audit Services Auditors of the Parent Deloitte Touche Tohmatsu • • • audit and review of fi nancial reports taxation advice accounting advice Consolidated Consolidated 2007 $ 100,000 281,531 25,625 407,156 2006 $ 136,000 20,000 13,000 169,000 2006 $ - - - - P Proceedings on Behalf of Parent No person has applied for leave of Court to bring proceedings on behalf of the Parent or intervene in any N proceedings to which the Parent is a party for the purpose of taking responsibility on behalf of the Parent for all of p t those proceedings. S Signed in accordance with a resolution of the Board of Directors Perr Perry Gunner Geoff Babidge D Dated at Sydney this fi fth day of September 2007. 2007 Annual Report | 11 Lead Auditor’s Independence Declaration The Board of Directors Freedom Nutritional Products Limited 80 Box Road TAREN POINT NSW 2229 5 September 2007 Dear Board Members Deloitte Touche Tohmatsu ABN 74 490 121 060 The Barrington Level 10 10 Smith Street Parramatta NSW 2150 PO Box 38 Parramatta NSW 2124 Australia DX 28485 Tel: +61 (0) 2 9840 7000 Fax: +61 (0) 2 9840 7001 www.deloitte.com.au Freedom Nutritional Products Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Freedom Nutritional Products Limited. As lead audit partner for the audit of the financial statements of Freedom Nutritional Products Limited for the financial year ended 30 June 2007, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely DELOITTE TOUCHE TOHMATSU P G Forrester Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. 12 | Freedom Nutritional Products Limited Corporate Governance Statement This section of the Annual Report is in conformance with the “Principles of Good Corporate Governance” issued by the Australian Stock Exchange (ASX). Each of the ten pr principles are listed in turn performance. The Board adopts a three-year business plan and a 12 month operating plan for the Parent. Financial results and general performance are closely monitored against the operating plan objectives. P Principle 1 i Lay solid foundations for management and L oversight by the Board o T The Board’s responsibilities are encompassed in a charter which is published on www.fnpl.com.au (the Parent’s w website). The Board is responsible for, and has the authority to T determine, all matters relating to the strategic direction, d policies, practices, establishing goals for management p and the operation of the Parent. Without intending to a limit this general role of the Board, the specifi c functions li and responsibilities of the Board include: a (1) oversight of the Parent, including its control and (1 accountability systems; (2) appointing and removing the CEO (or equivalent) (2 for the ongoing management task of developing and implementing suitable strategies consistent with the Parent’s policies and strategic direction, including approving remuneration of the CEO and remuneration policy and succession plans for the CEO; (3) ratifying the appointment and, where appropriate, (3 the removal of the CFO (or equivalent) and the Company Secretary; (4) reviewing and determining the strategic direction ( and policies of the Parent, the allocation of resources, planning for the future and succession planning; (5) reviewing and ratifying systems of risk management and internal compliance and control, codes of conduct and legal compliance; (6) monitoring executives performance and implementation of strategy and ensuring appropriate resources are available; (7) approving and monitoring the progress of major (7 capital expenditure, capital management and acquisitions and divestitures; (8) continuously monitoring and overseeing the (8 Parent’s fi nancial position; and (9) approving and monitoring fi nancial and other reporting. Key responsibilities of the Board include the overseeing of the strategic direction of the Parent, determining its policies and objectives and monitoring management To assist in carrying out its responsibilities, the Board has established the following committees of its members. They are: (1) Audit, Risk and Compliance Committee; and (2) Remuneration and Nomination Committee. The Board on 29 March 2007 resolved to terminate the Acquisition Committee as the function of the committee was being undertaken by the full Board. The Board on 31 August 2007 resolved to establish an International Advisory Board to assist Directors and Management in evolving the company’s strategic plan. Members shall be both board and non-board members and Mr Higgs has agreed to join as an advisor. The responsibilities delegated by the Board to the Parent’s management, as set out in the Parent’s Statement of Delegated Authority, include managing the day-to-day operations of the Parent. The Chief Executive Offi cer has a service contract setting out his duties, responsibilities, conditions of service and termination entitlements. Principle 2 Structure of the Board to add value The Board determines the Boards size and composition, subject to limits imposed by the Parent’s Constitution. The Constitution provides for a minimum of three Directors and a maximum of ten. At this time the Board has determined that there are six directors fi ve of whom, are non-executive, including the Chairman. The names and particulars of the Directors of the Parent during or since the end of the fi nancial year are: Mr. P. R. Gunner Chairman (Non-executive), Age 60 B.Ag.Sc – was former Chairman and CEO of Orlando Wyndham Wine Group. Also Chairman of ABB Grain Limited and director of McGuigan Simeon Wines. Appointed Director April 2003 and Chairman July 2006. Chairman of the Remuneration & Nomination Committee and member of the Audit, Risk and Compliance Committee. Interest in shares and options are 321,017 ordinary shares and nil options. 2007 Annual Report | 13 Corporate Governance Statement (continued) Mr. G. H. Babidge Managing Director (Executive), Age 54 B.Comm., ACA – extensive public company experience within the food industry. Former CEO of the major milling and baking group, Bunge Defi ance and many years Managing Director of the dairy interests of National Foods Limited. Appointed director in January 2002. Interest in shares and options are 69,217 ordinary shares and 2,400,000 options. Mr. A. M. Perich Director (Non-executive), Age 66 Joint Managing Director of Arrovest Pty Limited, Leppington Pastoral Company, one of Australia’s largest dairy producers, and various other entities associated with Perich Enterprises Pty Limited. He is also a property developer, motor car racing promoter, farmer and business entrepreneur. Mr Perich is Past President of the Dairy Research Foundation, a member of the Narellan Rotary club, member of Western Sydney Development Board, Vice President of the Narellan Chamber of Commerce and is actively involved in charity fundraising for cancer research. Appointed director July 2006. Interest in shares and options are 35,044,006 ordinary shares and nil options. Mr. R. Perich Director (Non-executive), Age 64 Joint Managing Director of Arrovest Pty Limited, Leppington Pastoral Company, one of Australia’s largest dairy producers, and various other entities associated with Perich Enterprises Pty Limited. He is also a property developer, motor car racing promoter, farmer and business entrepreneur. Former Director of United Dairies Limited. Appointed director April 2005. Member of the Audit, Risk & Compliance Committee and member of the Remuneration & Nomination committee. Interest in shares and options are 35,044,006 ordinary shares and nil options. Mr. S. F. Higgs Director (Non-executive), Age 60 B Ec. – was founder and former director of UBS Australia. Also director of Primary Health Care Company Limited, Peet & Co. and Chairman of Juvenile Diabetes Research Foundation. Appointed director April 2003. Mr Higgs has advised of his intention to retire as a director following the October 2007 Board meeting. Mr. M. Miles Director (Non-executive), Age 58 B.Sc(Hons) F.I.B.D. – former Vice President of Carlton and United Breweries and Foster’s Group, former director of Carlton & United Breweries & its subsidiaries and former Chairman South Pacifi c Distilleries, Fiji. Member of the Strategic Planning Committee of the Institute of Brewing and Distilling Asia Pacifi c. Appointed director November 2006. Chairman of Audit, Risk & Compliance Committee. Interest in shares and options are 51,069 ordinary shares and nil options. Mr. B. W. Bootle Alternate Director (Non-executive), Age 42 B.Ag.Ec, M.Ag.Ec, Nuff .Sch, MAICD – Chief Executive Offi cer of Arrovest Pty Limited, Leppington Pastoral Company one of Australia’s largest dairy producers and various other entities associated with Perich Enterprises Pty Limited. Appointed alternate director for Mr Ron Perich and Mr Tony Perich July 2006. Interest in shares and options are 40,855 ordinary shares and 900,00 options. Mr. M. van Ryn Former director (Non-executive), Age 52 AASA – CPA, CEO of Tatura Milk Industries Limited. Also director Probiotec Limited and Medical Developments International Limited. Appointed director November 1993. Retired as a director October 2006. Interest in shares and options are nil ordinary shares and nil options. Mr. G. J. Reaney Former director (Non-executive), Age 64 B. Comm., CPA – was formerly Managing Director National Foods Limited and has over 30 years experience in large Australian and overseas Corporations. Also director of AGL Energy Limited, St George Bank Limited and Chairman of PMP Limited. Appointed director February 2001. Retired as director October 2006. Interest in shares and options are 14,005 ordinary shares and nil options. Mr. C. C. Grubb Former director (Non-executive), Age 60 B. A., B. Comm. – extensive experience in the securities and investment banking industry in Australia and Asia. Also director of LIM Asia Arbitrage, Coupland Cardiff Absolute Return Fund and Chirin Asia Pacifi c Fund. Director Odyssey House, McGrath Foundation and former director Jardine Fleming Ord Minnett Limited. Appointed director February 1996. Retired as director July 2006. Interest in shares and options are 384,615 ordinary shares and nil options. Interest in shares and options are 10,000 ordinary shares and nil options. 14 | Freedom Nutritional Products Limited Corporate Governance Statement (continued) The Remuneration & Nomination Committee of the Board comprises Messrs P. R. Gunner and R. Perich being two non-executive directors. Its functions are to review and report to the Board on: a • Remuneration policy for the entire consolidated R entity (including executive offi cers and non-executive directors); • • identifying nominees for directorships and other key executive appointments; (iv) employees are encouraged to discuss concerns and ethical behaviour with directors and senior executives. (e) share trading policy for Directors, CEO and Executives. A copy is available on the Corporate governance website (http://www.freedomnutritional.com.au/ corporategovernance.asp) Principle 4 assessing director competencies; remuneration policies and practices. evaluating the Board’s performance; and • • • • Principle 2.1 of the Best Practice Recommendations P recommends that a majority of the Board should be independent directors. The Board currently has a majority in of independent directors with an independent chairman. o In order to facilitate independent judgement in In decision making each Director may seek independent d professional advice at the Parent’s expense. If advice is sought by the Chairman, he must obtain Board approval if the fees for such advice exceed $10,000 (exclusive of if GST), such approval not to be unreasonably withheld. G Where advice is sought by the other directors, prior WW written approval by the Chairman is required but w approval will not be unreasonably withheld. If the Chairman refuses to give approval, the matter must be C referred to the Board. All directors are made aware of the r professional advice sought and obtained. p P Principle 3 Promote ethical and responsible decision-making d The directors acknowledge the need for and continued T maintenance of a high standard of corporate m g governance practices and ethical conduct by all directors a and employees. In maintaining its ethical standards, the Pare Parent will: (a) behave with integrity in all its dealings with customers, shareholders, employees, suppliers, business partners and the community; (b (b) ensure its actions comply with applicable laws and regulations; Safeguard integrity in (cid:192) nancial reporting As part of the structure of fi nancial review and authorisation both the Chief Executive Offi cer and Chief Financial Offi cer are required to provide written assurances that the fi nancial reports present a true and fair view of the Parent’s fi nancial position in all material respects. This is designed to raise the level of management accountability for fi nancial reporting. Further, executives provide half yearly and yearly a letter of representation on operational, fi nancial, regulatory and commercial matters. The Board has established an Audit, Risk and Compliance Committee comprising three non-executive directors, with appropriate experience. They are Mr M. Miles (Chairman), Mr R. Perich and Mr P. R .Gunner. Their qualifi cations are listed under Principle 2. The Chief Executive Offi cer, Chief Financial Offi cer and external audit partner attend Committee meetings at the discretion of the Committee. The minutes of each Committee meeting are reviewed at the subsequent Board meeting and signed as an accurate record of proceedings. At the subsequent Board meeting the Chairman of the Committee reports on the Committees conclusions and recommendations. The Committee meets at least twice per year. The external auditors have a direct line of communication at any time to either the Chairman of the Audit, Risk and Compliance Committee or the Chairman. The role and responsibilities of the Audit, Risk and Compliance Committee includes: (c) not engage in any activity that could be construed to involve an improper inducement; (d) achieve a working environment where: (a) reviews and reports to the Board on the half yearly and annual reports and fi nancial statements of the Parent and associated entities; (i) equal opportunity is rigorously practised; (ii) harassment and other off ensive forms of behaviour are not tolerated; (iii) confi dentiality of commercially sensitive information is protected; and (b) is responsible for nominating the external auditor and reviewing the adequacy, scope and quality of the annual statutory audit and half yearly statutory review; (c) reviews the eff ectiveness of the Parent’s internal control systems; 2007 Annual Report | 15 Corporate Governance Statement (continued) (d) monitors and reviews the reliability of fi nancial Principle 6 reporting; (e) monitors and reviews the compliance of the Parent with applicable laws and regulations; (f ) monitors the Australian Accounting Standards and Urgent Issues Group consensus views; (g) monitors fi nancial risks and exposure of Parent assets; (h) monitors business continuity ; (i) reviews the Parent’s Occupational Health and Safety obligations and the Parent’s compliance; and (j) the Parent’s insurance policies and coverage. The external auditors have advised the following, after consultation with the Parent that the audit engagement partner shall be rotated every fi ve years. Principle 5 Make timely and balanced disclosure The purpose of the continuous disclosure policy is to ensure that there are mechanisms in place to provide all investors with equal and timely access to material information concerning the Parent. Such information must be presented in a clear and balanced way so as not to omit any material information. These policies are designed to ensure that the Parent meets its continuous disclosure obligations under the ASX Listing Rules. Type of information that needs to be disclosed Listing Rule 3.1 states that any information that a reasonable person would consider to have a material eff ect on the value of the Parent securities must be disclosed. Examples of such information include a change in revenue, asset values or signifi cant transactions. Directors receive copies of all announcements immediately after notifi cation to the ASX. All announcements are posted to the Parent’s website. A report is submitted to each Board meeting of disclosures to the ASX since last meeting with the Disclosure File available for review. Respect the rights of shareholders The Parent aims to keep shareholders informed of the Parent’s performance in an ongoing manner. Apart from information provided pursuant to the Parent’s legal and ASX Listing Rules obligations regarding continuous disclosure of information, the Parent also communicates with shareholders through the: (1) Annual Report which is available to all shareholders . The Annual Report includes relevant information about the Parent’s operations and performance; (2) invitation to the annual general meeting and all accompanying papers; (3) the Parent’s web site; (4) Reports to the ASX and the press; (5) Half yearly profi t announcements; and (6) information and presentations to analysts (which are released to the ASX). The Annual General Meeting provides an important opportunity for shareholders to express their views and respond to initiatives being proposed by the Board. The Parent also requests that the external auditor attend the Annual General Meeting and be available to answer shareholder questions about the audit and the preparation and content of the audit reports. Principle 7 Recognise and manage risk 1.1 The Audit, Risk and Compliance Committee: (a) reviews the eff ectiveness of the Parent’s internal control systems; (b) monitors and reviews the compliance of the Parent with applicable laws and regulations; (c) monitors fi nancial risks and exposure of Parent assets; (d) monitors business continuity; (e) reviews the Parent’s Occupational Health and Safety obligations and the Parent’s compliance; and (f ) the Parent’s insurance policies and coverage. Disclosure Offi cer The Board has appointed the Company Secretary to act as the Disclosure Offi cer, responsible for communications with the ASX and deciding what information must be disclosed. The Disclosure Offi cer holds the primary responsibility for ensuring that the Parent complies with its disclosure obligations. In addition, Directors, employees or consultants are all responsible for reporting price sensitive information that is not generally available to the Disclosure Offi cer. 1.2 Risk oversight and management policies The Committee is responsible for providing the Board with advice and recommendations regarding the ongoing development of risk oversight and management policies that set out the roles and respective accountabilities of the Board, the Committee and management. The policies cover the areas of oversight, risk profi le, risk management, compliance and control and assessment of eff ectiveness. 16 | Freedom Nutritional Products Limited Corporate Governance Statement (continued) 1.3 Risk management and risk profi le (2) the remuneration packages and other terms The Committee is responsible for: (1) providing the Board with advice and recommendations regarding the establishment and implementation of: (a) a risk management system; and (b) a risk profi le for the Parent that describes the material risks (including fi nancial and non- fi nancial risks) which the Parent faces; (2) reviewing the eff ectiveness of the Parent’s ( implementation of the risk management system at least once a year; and (3) regularly reviewing and updating the Parent’s risk (3 profi le. The Committee is responsible for ensuring that T the appropriate executives have established and implemented a system for identifying, assessing, im monitoring and managing risk throughout the m organisation. The system is to include the Parent’s internal compliance and control systems. in In order to help give the Audit, Risk and Compliance In Committee the ability to exercise independent C judgement it is structured so that it consists of: ju (1) only non-executive directors; (2) at least 1 independent director; and (2 (3) a Chairman, who is not the Chairman of the Board. (3 P Principle 8 E Encourage enhanced performance. In In respect of remuneration issues, the responsibilities of the Remuneration and Nomination Committee include t determining, evaluating and reporting to the Board with d respect to: (1) executive remuneration and incentive policies, (1 including ensuring that the remuneration policies and practices of the Parent are consistent with its strategic goals and human resource objectives; (2 (2) the Parent’s recruitment, retention and termination policies and procedures for executives; ( (3) incentive schemes; (4) superannuation arrangements; and (5 (5) the remuneration framework for directors. The Remuneration and Nomination Committee operates independently of the senior management of the Parent in its recommendations to the Board in relation to: (1) reviewing on an annual basis the performance and salary of the CEO and other executives including Executive and Employee Share Option Plan participation; and conditions of appointment and continuing employment of senior executives; and (3) reviewing non-executive Directors’ remuneration within the maximum amount approved by shareholders. The Board believes that directors are properly rewarded through payment of a fee which is reviewed annually in the light of market conditions and has regard to the responsibilities placed on the Directors by the legal and fi nancial framework within which they act. The Remuneration and Nomination Committee is responsible for ensuring that the Board is of a size and composition that allows for: (1) decisions to be made expediently; (2) a range of diff erent perspectives to be put forward regarding issues before the Board; (3) a range of diff erent skills to be bought to Board deliberations; and (4) Board decisions to be made in the best interests of the Parent as a whole rather than of individual shareholders or interest groups. The Remuneration and Nomination Committee is responsible for the: (1) evaluation and review of the performance of the Board (excluding the Chairman); (2) evaluation and review of the performance of individual directors; (3) review of and making of recommendations on the size and structure of the Board; and (4) review of the eff ectiveness and programme of Board meetings. The evaluation and review of the performance of the Chairman is undertaken by all Board members. Subject to normal privacy requirements, Directors have direct access to Parent records and information and to senior offi cers. They receive regular detailed reports on fi nancial and operational aspects of the Parent’s business and may request elaboration or explanation of these reports at any time. Individual Directors are entitled to independent professional advice at the Parent’s expense in the furtherance of their duties, refer Principle 2. Directors and executives are encouraged to broaden their knowledge of the Parent’s business and to keep abreast of developments in business more generally by attendance at relevant courses, seminars, conferences, etc. The Parent meets expenses involved in such activities. 2007 Annual Report | 17 Corporate Governance Statement (continued) Principle 9 Remunerate fairly and responsibly The Board has established a Remuneration and Nomination Committee to consider and report on, among other matters, remuneration policies and packages applicable to Board members and to senior managers of the Parent. Two non-executive directors Mr P. R. Gunner and Mr R. Perich are members of the Committee which meets at least once per year. The Committee’s main functions include: (1) Conditions of service and remuneration of the Chief Executive and his direct reports: (2) Performance of the Chief Executive and executives; (3) Ensure that the remuneration policy achieves both a level and composition of remuneration that is both competitive and reasonable. Remuneration policies are designed to attract and maintain talented and motivated directors and employees as well as raising the level of performance of the Parent. (4) Recommendation to the Board, which has the discretion to reward eligible employees with the payment of bonuses, share options and other incentive payments. These incentive payments are designed to link reward to performance and are determined by both fi nancial and non-fi nancial imperatives. The Chief Executive attends meetings of the Remuneration and Nomination Committee by invitation when required to report on, and discuss, senior management performance, remuneration matters, etc. Non-executive Directors receive fees determined by the Board, but within the aggregate limit approved by Shareholders at a General Meeting. The remuneration packages of non-executive directors are generally fee based. Non-executive directors are able to participate in the 2006 Employee Share Option Plan (with the exception of Ron and Tony Perich). No options have been issued to them at the date of this report. Non-executive directors do not participate in bonus payments or any retirement benefi ts other than statutory superannuation. The Nomination and Remuneration Committee is responsible for ensuring that any equity-based executive or non-executive director remuneration is made in accordance with the thresholds approved by shareholders. Principle 10 Recognise the legitimate interests of stakeholders 1.1 Code of ethics (1) The Directors acknowledge the need for and continued maintenance of a high standard of corporate governance practices and ethical conduct by all directors and employees. A Code of Ethics has been adopted. Its details are set out below. (2) The Parent aims to maintain a high standard of ethical business dealings. Objectives In maintaining its ethical standards, the Parent will: (a) (b) (c) behave with integrity in all its dealings with customers, shareholders, employees, suppliers, business partners and the community; ensure its actions comply with applicable laws and regulations; not engage in any activity that could be construed to involve an improper inducement; (d) achieve a working environment where: (i) equal opportunity is rigorously practised; (ii) harassment and other off ensive forms of behaviour are not tolerated; (iii) confi dentiality of commercially sensitive information is protected; and (iv) employees are encouraged to discuss concerns and ethical behaviour with directors and senior executives. (3) The Parent will take into account the principles in this Code of Ethics in every venture in which it participates. Directors and the executives team must comply with the Code of Ethics and demonstrate commitment to the Code and consistency in its execution. (4) Responsibilities The CEO will be responsible to the Board for establishing, implementing and reviewing the eff ectiveness of the Code of Ethics. The CEO will be responsible for seeking to ensure that all of the Parent’s employees and contractors understand, and act in accordance with these principles. 1.2 Confl icts of interest resolution The Board has implemented a range of procedures designed to ensure that the Parent complies with the law and achieves high ethical standards in identifying and resolving or managing confl icts of interest. All directors must advise the Chairman of all business dealings with the Parent. 1.3 Reporting obligations As part of the active promotion of ethical behaviour any behaviour that does not comply with this code must be duly reported. Protection will be provided for those who report violations in good faith. 18 | Freedom Nutritional Products Limited Consolidated Income Statement for the (cid:192) nancial year ended 30 June 2007 Notes Notes Consolidated Consolidated $000 $000 Parent Parent $000 $000 2007 2006 2007 2006 Con Continuing operations Revenue Cost of sales Gross profi t Other income Marketing expenses Selling and distribution expenses Administrative expenses Profi t from continuing operations before tax, fi nance costs and equity accounted investments Finance costs Share of loss of joint venture accounted for using the equity method Share of loss of jointly controlled entity accounted for using the equity method Profi t / (loss) before income tax Income tax expense Profi t / (loss) after income tax Loss attributable to minority interest Profi t / (loss) attributable to members of the parent Earnings per share From continuing operations: Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Dividends per share paid (cents per share) N Notes to the fi nancial statement are included on pages 23 to 62 5 5 6 7 9 9 14,947 (9,390) 5,557 124 (604) (2,393) (1,476) 1,208 (1,191) (135) - (118) (14) (132) - (132) 16,791 (10,636) 6,155 10 (593) (2,549) (1,430) 1,593 (1,096) (71) - 426 (225) 201 - 201 49,952 (35,633) 14,319 176 (2,332) (6,017) (2,999) 3,147 (1,222) (135) (1) 1,789 (620) 1,169 5 1,174 2.6 2.6 1.0 47,654 (33,158) 14,496 244 (2,970) (6,090) (2,853) 2,827 (1,161) (71) - 1,595 (289) 1,306 128 1,434 3.2 3.0 0.0 2007 Annual Report | 19 Consolidated Balance Sheet as at 30 June 2007 ASSETS Current Assets Cash and cash equivalents Trade and other receivables Other fi nancial assets Inventories Current tax asset Prepayments Non-current assets classifi ed as held for sale Total Current Assets Non-Current Assets Other fi nancial assets Deferred tax assets Property, plant and equipment Intangible assets Total Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities Trade and other payables Borrowings Current tax liabilities Provisions Liabilities directly associated with non-current assets classifi ed as held for sale Total Current Liabilities Non-Current Liabilities Borrowings Deferred tax liability Provisions Total Non-Current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Equity attributable to equity holders of the parent Issued capital Reserves Retained earnings Parent interests Minority interests TOTAL EQUITY Notes to the fi nancial statement are included on pages 23 to 62. 20 | Freedom Nutritional Products Limited Notes Notes Consolidated Consolidated $000 $000 Parent Parent $000 $000 2007 2006 2007 2006 22(a) 10 11 12 7 14 11 7 14 13 15 16 7 17 16 7 17 18 19 20 4 10,824 1,476 10,642 84 685 23,715 - 23,715 2,347 2,092 1,795 17,479 23,713 47,428 9,741 10,090 425 641 20,897 - 20,897 2,612 35 230 2,877 23,774 23,654 22,078 66 2,956 25,100 (1,446) 23,654 656 8,934 155 9,812 - 359 19,916 3,321 23,237 450 2,214 500 17,147 20,311 43,548 9,856 641 309 518 11,324 93 11,417 9,054 114 119 9,287 20,704 22,844 22,058 - 2,227 24,285 (1,441) 22,844 3 3,284 1,476 2,155 84 310 7,312 - 7,312 30,384 711 364 - 31,459 38,771 3,157 10,111 392 164 13,824 - 13,824 2,612 28 113 2,753 16,577 22,194 22,078 66 50 22,194 - 22,194 578 3,545 155 1,987 - 278 6,543 3,321 9,864 24,065 811 202 - 25,078 34,942 2,985 11 267 204 3,467 93 3,560 8,504 100 93 8,697 12,257 22,685 22,058 - 627 22,685 - 22,685 Consolidated Cash Flow Statement for the (cid:192) nancial year ended 30 June 2007 Notes Notes Consolidated Consolidated $000 $000 Parent Parent $000 $000 2007 2006 2007 2006 Cas Cash fl ows from operating activities Receipts from customers Payments to suppliers and employees Interest and other costs of fi nance paid Income tax paid Receipt of government grant Net cash fl ows used in operating activities 22(b) Cash fl ows from investing activities Proceeds from sale of property, plant and equipment Purchase of property, plant and equipment 22(d) Interest received Investment in jointly controlled entity Unlisted investment in Joint Venture Payment for Business Acquisition Loan from related party Advance (to) / from Joint Venture Loan to controlled entities Payments for intangible assets Net cash used in investing activities Cash fl ows from fi nancing activities Payment of fi nance lease liabilities Repayment of borrowings Dividends paid Net cash fl ows used in fi nancing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of fi nancial year Cash and cash equivalents at end of fi nancial year 22(a) N Notes to the fi nancial statement are included on pages 23 to 62. 46,808 (46,725) (1,119) (485) - (1,521) 3,520 (315) 31 (1,579) (453) (1,765) 268 (1,321) - - 46,267 (45,676) (1,161) (85) 137 (518) 8 (189) 65 - (129) (1,084) (7) (597) - (33) 14,084 (14,648) (1,088) (381) - (2,033) 3,500 (268) 1,162 - (453) - 268 (1,321) (5,120) - (1,614) (1,966) (2,232) - (1,605) (415) (2,020) (5,155) 83 (5,072) (32) - - (32) (2,516) 2,599 83 - (992) (415) (1,407) (5,672) 578 (5,094) 15,787 (15,190) (1,096) - - (499) - (148) 1,038 - (129) 6 (6) (604) (524) - (367) - - - - (866) 1,444 578 2007 Annual Report | 21 Consolidated Statement of Changes in Equity for the (cid:192) nancial year ended 30 June 2007 Attributable to equity holders of the parent Attributable to equity holders of the parent Minority Minority Interest Interest Total Equity Total Equity Fully paid ordinary shares $000 Equity - settled employee benefi ts reserve $000 Retained Earnings $000 Total $000 22,851 1,434 24,285 1,174 (445) 66 20 $000 $000 (1,313) (128) (1,441) (5) - - - 21,538 1,306 22,844 1,169 (445) 66 20 793 1,434 2,227 1,174 (445) - - 2,956 25,100 (1,446) 23,654 426 201 627 (132) (445) - - 50 22,484 201 22,685 (132) (445) 66 20 22,194 - - - - - - - - 22,484 201 22,685 (132) (445) 66 20 22,194 CONSOLIDATED At 1 July 2005 Profi t for the year At 30 June 2006 Profi t / (Loss) for the year Dividend paid Recognition of share-based payments Equity issues At 30 June 2007 PARENT At 1 July 2005 Profi t for the year At 30 June 2006 Profi t for the year Dividend paid Recognition of share-based payments Equity issues At 30 June 2007 22,058 - 22,058 - - - 20 22,078 22,058 - 22,058 - - - 20 22,078 Notes to the fi nancial statement are included on pages 23 to 62. - - - - - 66 - 66 - - - - - 66 - 66 22 | Freedom Nutritional Products Limited Notes to the Financial Statements For the year ended 30 June 2007 1 Corporate Information The fi nancial report of Freedom Nutritional Products Limited for the year ended 30 June 2007 was authorised for issue in accordance with resolution of directors on 5 September 2007. The Parent changed its name from So Natural Foods Australia Limited to Freedom Nutritional Products Limited in accordance with a resolution of shareholders on 1 February 2007. Freedom Nutritional Products Limited is a company incorporated in Australia whose shares are publicly traded on the Australian stock exchange. The nature of the operations and principal activities of the Group are described in note 4. 2 Adoption of New and Revised Accounting Standards In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to its operations and eff ective for the current annual reporting period. • • • investments classifi ed as at fair value through profi t or loss (AASB 2005-04 ‘Amendments to Australian Accounting Standards’); fi nancial guarantee contracts (AASB 2005-09 ‘amendments to Australian Accounting Standards’); and rights to cash reimbursement for expenditure required to settle a provision (AASB 2005-5 ‘amendments to Australian Accounting Standards’). There has been no material impacts of these changes on the Group’s accounting policies as a result of the adoption of these new and revised standards and interpretations. The adoption of these new and revised Standards and Interpretations has resulted in a change to the Group’s accounting policies in relation to business combinations involving entities under common control. Such business combinations were formerly within the scope of AASB 3 ‘Business Combinations’, but are now scoped out of that standard by AASB 2005-6 ‘Amendments to Australian Standards’. At the date of authorisation of the fi nancial report, a number of Standards and Interpretations were in issue but not yet eff ective. Initial application of the following Standards is not anticipated to aff ect any of the amounts recognised in the fi nancial report, but will change the disclosures presently made in relation to the consolidated entity’s and the parent’s fi nancial report: Standard dard AASB 7 ‘Financial Instruments: Disclosures’ and consequential amendments to other accounting standards resulting from its issue AASB 101 ‘Presentation of Financial Statements’ – revised standard AASB 2007-7 ‘Amendments to Australian Accounting Standards’ AASB 8 ‘Operating Segments’ Eff ective for annual reporting Eff ective for annual reporting periods beginning on or after periods beginning on or after Expected to be initially applied Expected to be initially applied in the fi nancial year ending in the fi nancial year ending 1 January 2007 30 June 2008 1 January 2007 1 July 2007 1 January 2009 30 June 2008 30 June 2008 30 June 2010 Initial application of the following Standards and Interpretations is not expected to have any material impact to the fi nancial report of the consolidated entity and the parent: 2007 Annual Report | 23 Notes to the Financial Statements For the year ended 30 June 2007 (continued) Standard/Interpretation Standard/Interpretation AASB Interpretation 10 ‘Interim Financial Reporting and Impairment’ AASB Interpretation 11 ‘AASB 2 – Group and Treasury Share Transactions’ AASB 2007-1 ‘Amendments to Australian Accounting Standards arising from AASB Interpretation 11’ AASB Interpretation 12 ‘Service Concession Arrangements’ AASB 2007-2 ‘Amendments to Australian Accounting Standards arising from AASB Interpretation 12’ AASB 2007-4 ‘Amendments to Australian Accounting Standards arising from ED 151 and Other Amendments’ AASB Interpretation 13 ‘Customer Loyalty Programmes’ AASB Interpretation 14 ‘AASB 119 – The Limit on a Defi ned Benefi t Asset, Minimum Funding Requirements and their Interaction’ AASB 123 ‘Borrowing Costs’ – revised standard AASB 2007-6 ‘Amendments to Australian Accounting Standards arising from AASB 123’ Eff ective for annual Eff ective for annual reporting periods reporting periods beginning on or after beginning on or after Expected to be initially Expected to be initially applied in the fi nancial year applied in the fi nancial year ending ending 1 November 2006 1 March 2007 1 March 2007 1 January 2008 1 January 2008 30 June 2008 30 June 2008 30 June 2008 30 June 2009 30 June 2009 1 July 2007 30 June 2008 1 July 2008 1 January 2008 1 January 2009 1 January 2009 30 June 2009 30 June 2009 30 June 2010 30 June 2010 3 Signi(cid:192) cant Accounting Policies (a) Statement of compliance The fi nancial report is a general-purpose fi nancial report which has been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards and Interpretations, and complies with other requirements of the law. The fi nancial report includes the separate fi nancial statements of the Parent and the consolidated fi nancial statements of the Group. Accounting Standards include Australian equivalents to International Financial Reporting standards (‘A-IFRS’). Compliance with A-IFRS ensures that the fi nancial statements and notes of the Parent and the Group comply with International Financial Reporting standards (‘IFRS’). (b) Basis of preparation Limited and its subsidiaries as at 30 June each year (‘the Group’). The fi nancial statements of subsidiaries are prepared for the same reporting period as Parent, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist. All intercompany balances and transactions, including unrealised profi ts arising from intra- group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. A list of controlled entities is contained in Note 31. The fi nancial report has been prepared on a historical cost basis. Cost is based on the fair values of the consideration given in exchange for assets. Minority interest represent the interests in Thorpedo Foods Pty Limited and Thorpedo Seafoods Pty Limited, not held by the Group companies. The fi nancial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($000) unless otherwise stated under the option available to the Parent under ASIC Class Order 98/0100, dated 10 July 1998. The Parent is an entity to which the class order applies. (c) Basis of consolidation The consolidated fi nancial statements comprise the fi nancial statements of Freedom Nutritional Products (d) Business combinations Acquisitions of subsidiaries and businesses are accounted for using the purchase method. The cost of the business combination is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. 24 | Freedom Nutritional Products Limited Notes to the Financial Statements For the year ended 30 June 2007 (continued) 3 Signi(cid:192) cant Accounting Policies (g) Property, plant and equipment (continued) The acquiree’s identifi able assets, liabilities and contingent liabilities that meet the conditions for recognition under AASB 3 ‘Business Combinations’ are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classifi ed as held for sale in accordance with AASB 5 ‘Non-current Assets Held for Sale and Discontinued Operations’, which are recognised and measured at fair value less costs to sell. Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifi able assets and liabilities recognised. If, after reassessment, the Group’ interest in the net fair value of the acquiree’s identifi able assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profi t or loss. The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised. Land and buildings, plant and equipment, motor vehicles and equipment under fi nance lease are stated at cost less depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the item, In the event that settlement of all or part of the purchase consideration is deferred, cost is determined by discounting the amounts payable in the future to their present value as at the date of acquisition. Depreciation is provided on property, plant and equipment, including freehold buildings but excluding land. Depreciation is calculated on a straight line basis so as to write off the net cost of each asset over its expected useful life to its estimated residual value. The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period, with the eff ect of any changes recognised on a prospective basis. Class of Fixed Assets Class of Fixed Assets Depreciation Rate Depreciation Rate Buildings Plant and equipment Leased plant and equipment Motor vehicles 4-6% 5-20% 5-10% 15-33% ( (e) Interest in joint venture The Group’s interest in joint ventures represent jointly controlled entities which have been measured by applying the equity method of accounting. Under the equity method of accounting the carrying amounts of interests in joint venture entities are increased or decreased to recognise the Group’s share of the post acquisition profi ts or losses and other changes in net assets of the joint ventures. The interests in joint ventures have been measured by applying the cost method in the Parent’s own fi nancial report. ( (f) Foreign currency translation Both the functional and presentation currency of Freedom Nutritional Products Limited and its Australian subsidiaries is Australian dollars (AUD). Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are reinstated at the rate of exchange ruling at the balance sheet date. (h) Non-current assets classi(cid:192) ed as held for sale Non-current assets (and disposal groups) classifi ed as held for sales are measured, with certain expectations, at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classifi ed as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the asset (or disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary for such a sale and the sale is highly probable. The sale of the asset (or disposal group) must be expected to be completed within one year from the date of classifi cation, except in the circumstances where sale is delayed by events or circumstances outside the Group’s control and the Group remains committed to a sale. (i) Borrowing costs Exchange diff erences are recognised in the income statement in the period in which they arise. Borrowing costs directly attributable to the acquisition, construction or production of qualifying 2007 Annual Report | 25 Notes to the Financial Statements For the year ended 30 June 2007 (continued) 3 Signi(cid:192) cant Accounting Policies (l) (continued) assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specifi c borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profi t or loss in the period in which they are incurred. (j) Goodwill Goodwill acquired in a business combination is initially measured at cost, being the excess of the other cost of the business combination over the acquirer’s interest in the net fair value of the identifi able assets, liabilities and contingent liabilities recognised. Goodwill is subsequently measured at its cost less any impairment losses. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (CGUs) or groups of CGUs, expected to benefi t from the synergies of the business combination. CGUs (or groups of CGUs) to which goodwill has been allocated are tested for impairment annually, or more frequently if events or changes in circumstances indicate that goodwill might be impaired. If the recoverable amount of the CGU (or group of CGUs) is less than the carrying amount of the CGU (or groups of CGUs), the impairment loss is allocated fi rst to reduce the carrying amount of any goodwill allocated to the CGU (or groups of CGUs pro-rata on the basis of the carrying amount of each asset in the CGU (or groups of CGUs). An impairment loss recognised for goodwill is recognised immediately in profi t or loss and is not reversed in a subsequent period. On disposal of an operation within a CGU, the attributable amount of goodwill is included in the determination of the profi t or loss on disposal of the operation. (k) Brand names Brand names recognised by the company have an indefi nite useful life and are not amortised. Each period, the useful life of this asset is reviewed to determine whether events and circumstances continue to support an indefi nite useful life assessment for the asset. Such assets are tested for impairment in accordance with the policy in note 3(l). 26 | Freedom Nutritional Products Limited Impairment of assets At each reporting date the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suff ered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash fl ows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identifi ed, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identifi ed. Intangible assets with indefi nite useful lives and intangible assets not yet available for use are tested for impairment annually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the time value of money and the risks specifi c to the asset for which the estimates of future cash fl ows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in profi t or loss immediately. (m) Inventories Inventories are measured at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows: Raw materials – purchase cost on a fi rst-in, fi rst-out basis; Manufactured fi nished goods – cost of direct materials, direct labour and an appropriate portion of manufacturing variable and fi xed overheads based on normal operating capacity but excluding borrowing costs. Purchased fi nished goods – purchase cost on a weighted average cost basis. Notes to the Financial Statements For the year ended 30 June 2007 (continued) 3 Signi(cid:192) cant Accounting Policies (r) Convertible note (continued) Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. ( (n) Loans and receivables Trade receivables, loans, and other receivables that have fi xed or determinable payments that are not quoted in an active market are classifi ed as ‘loans and receivable’. Loans and receivables are measured at amortised cost using the eff ective interest method less impairment. Interest is recognised by applying the eff ective interest rate. The component parts of convertible notes (compound instruments) are classifi ed separately as fi nancial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or upon the instruments reaching maturity. The equity component initially brought to account is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognised and included in equity, net of income tax eff ects and is not subsequently remeasured. ( (o) Cash and cash equivalents (s) Provisions Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defi ned above, net of outstanding bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet. ( (p) Other (cid:192) nancial liabilities Other fi nancial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other fi nancial liabilities are subsequently measured at amortised cost using the eff ective interest method, with interest expense recognised on an eff ective yield basis. The eff ective interest method is a method of calculating the amortised cost of a fi nancial liability and of allocating interest expense over the relevant period. The eff ective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the fi nancial liability, or, where appropriate, a shorter period. ( (q) Trade and other payables Liabilities for trade and other payables are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the Group. Payables to related parties are carried at the principal amount. Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cashfl ow estimated to settle the present obligation, its carrying amount is the present value of those cashfl ows. When some or all of the economic benefi ts required to settle a provision are expected to be recovered from a third party, the recoverable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. (t) Employee bene(cid:192) ts A liability is recognised for benefi ts accruing to employees in respect of wages and salaries, annual leave and long service leave when it is probable that settlement will be required and they are capable of being measured reliably. Liabilities recognised in respect of employee benefi ts expected to be settled within 12 months, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Liabilities recognised in respect of employee benefi ts which are not expected to be settled within 12 months are measured as the present value of the 2007 Annual Report | 27 Notes to the Financial Statements For the year ended 30 June 2007 (continued) 3 Signi(cid:192) cant Accounting Policies (continued) estimated future cash outfl ows to be made by the Group in respect of services provided by employees up to reporting date. Defi ned contribution plans Contributions to defi ned contribution superannuation plans are expensed when incurred. (u) Share-based payments Equity-settled payments with employees and others providing similar services are measured at the fair value of the equity instrument at the grant date. Fair value is measured by use of a binomial model. The expected life used in the model has been adjusted, based on management’s best estimate, for the eff ects of non-transferability, exercise restrictions, and behavioural considerations. Further details on how the fair value of equity-settled share-based transactions has been determined can be found in note 29. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. The above policy is applied to all equity-settled share based payments that were granted after 7 November 2002, that vested after 1 January 2005. No amount has been recognised in the fi nancial statements in respect of the other equity-settled share-based payments. (v) Leases Leases are classifi ed as fi nance leases when the terms of the lease transfer substantially all the risks and rewards incidental to ownership of the leased asset to the lessee. All other leases are classifi ed as operating leases. Group as lessee Assets held under fi nance leases are initially recognised at their fair value or, if lower, at amounts equal to the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a fi nance lease obligation. Lease payments are apportioned between fi nance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income, unless they are directly attributable to the qualifying assets, in which case they are capitalised in accordance with the Group’s general policy on borrowing costs. Refer to note 3(i). Contingent rentals are recognised as expenses in the periods in which they are incurred. Finance leased assets are amortised on a straight line basis over the estimated useful life of the asset. Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefi ts from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. Lease incentives In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefi ts of incentives are recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefi ts from the leased asset are consumed. (w) Revenue Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, stock rotation, price protection, rebates and other similar allowances. Sale of goods Revenue from the sale of goods is recognised when all the following conditions are satisfi ed: • the Group has transferred to the buyer the signifi cant risks and rewards of ownership of the goods; • • • • the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor eff ective control over the goods sold; the amount of revenue can be measured reliably; it is probable that the economic benefi ts associated with the transaction will fl ow to the entity; and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Licensing fees Revenue is recognised on an accrual basis in accordance with the substance of the relevant 28 | Freedom Nutritional Products Limited Notes to the Financial Statements For the year ended 30 June 2007 (continued) 3 Signi(cid:192) cant Accounting Policies (continued) agreement. Revenue is determined on a time basis are recognised on a straight-line basis over the period of the agreement. Revenue arrangements that are based on sales are recognised by reference to the underlying arrangement. Interest revenue Interest is accrued on a time basis, by reference to the principal outstanding and at the eff ective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the fi nancial asset to that asset’s net carrying amount. (x (x) Government grants Government grants are assistance by the government in the form of transfers of resources to the Group in return for past or future compliance with certain conditions relating to the operating activities of the entity. Government grants include government assistance where there are no conditions specially relating to the operating activities of the group other than the requirement to operate in certain regions or industry sectors. Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and the grants will be received. Government grants whose primary condition is that the Group should purchase, construct or otherwise acquire long-term assets are recognised as deferred income in the balance sheet and recognised as income on a systematic and rational basis over the useful lives of the related assets. Other government grants are recognised as income over the periods necessary to match them with the related costs which they are intended to compensate, on a systematic basis. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate fi nancial support to the Group with no future related costs are recognised as income of the period in which it becomes receivable. ( (y) Income tax Current tax Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profi t or loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by reporting date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable). Deferred tax Deferred tax is accounted for using the balance sheet liability method. Temporary diff erences are diff erences between the tax base of an asset or liability and its carrying amount in the balance sheet. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. In principle, deferred tax liabilities are recognised for all taxable temporary diff erences. Deferred tax assets are recognised to the extent that it is probable that suffi cient taxable amounts will be available against which deductible temporary diff erences or unused tax losses and tax off sets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary diff erences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business combination) which aff ects neither taxable income nor accounting profi t. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary diff erences arising from the initial recognition of goodwill. Deferred tax liabilities are recognised for taxable temporary diff erences associated with investments in subsidiaries, branches and associates and interests in joint ventures except where the Group is able to control the reversal of the temporary diff erences and its probable that the temporary diff erences will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary diff erences associated with these investments and interests are only recognised to the extent that it is probable that there will be suffi cient taxable profi ts against which to utilise the benefi ts of the temporary diff erences and they are expected to reverse in the foreseeable future. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets refl ects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are off set when they relate to income taxes levied by the same taxation authority and the company/Group intends to settle its current tax assets and liabilities on a net basis. 2007 Annual Report | 29 Notes to the Financial Statements For the year ended 30 June 2007 (continued) 3 Signi(cid:192) cant Accounting Policies (continued) Current and deferred tax for the period Current and deferred tax is recognised as an expense or income in the income statement, except when it relates to items credited or debited directly to equity, in which case the deferred tax is also recognised directly in equity, or where it arises from the initial accounting for a business combination, in which case it is taken into account in the determination of goodwill or excess. Tax consolidation The Parent and all its wholly-owned Australian resident entities are part of a tax-consolidated group under Australian taxation law. The Parent is the head entity in the tax-consolidated group. Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary diff erences of the members of the tax-consolidated group are recognised in the separate fi nancial statements of the members of the tax-consolidated group using the ‘separate tax payer within group’ approach by reference to the carrying amounts in the separate fi nancial statements of each entity and the tax values applying under tax consolidation. Current tax liabilities and assets and deferred tax assets arising from unused tax losses and relevant tax credits of the members of the tax-consolidated group are recognised by the company (as head entity in the tax-consolidated group). Due to the existence of a tax funding arrangement between the entities in the tax-consolidated group, amounts are recognised as payable to or receivable by the company and each member of the group in relation to the tax contribution amounts paid or payable between the parent entity and the other members of the tax-consolidated group in accordance with the arrangement. Further information about the tax funding arrangement is detailed in note 7 to the fi nancial statements. Where the tax contribution amount recognised by each member of the tax-consolidated group for a particular period is diff erent to the aggregate of the current tax liability or asset and any deferred tax asset arising from unused tax losses and tax credits in respect of that period, the diff erence is recognised as a contribution from (or distribution to) equity participants. (z) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (‘GST’) except: • where the GST incurred on the purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of acquisition of the asset or as part of the expense item as applicable; and • receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. Cash fl ows are included in the Cash Flow Statement on a gross basis and the GST component of cash fl ows arising from investing and fi nancing activities, which is recoverable from, or payable to, the taxation authority are classifi ed as operating cash fl ows. (aa) Financial instruments Recognition Financial instruments are initially measured at fair value, net of transaction costs, except for those fi nancial assets carried at fair value through profi t and loss, which are initially measured at fair value when the related contractual rights or obligations exist. Subsequent to initial recognition these instruments are measured as set out below. Financial assets at fair value through profi t and loss A fi nancial asset is classifi ed in this category if acquired principally for the purpose of selling in the short term of if so designated by management and within the requirements of AASB 139: Recognition and Measurement of Financial Instruments. Derivatives are also categorised as held for trading unless they are designated as hedges. Realised and unrealised gains and losses arising from changes in their fair value of these assets are included in the income statement in the period in which they arise. Loans and receivables Loans and receivables are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market and are stated at amortised cost using the eff ective interest rate method. Held-to maturity investments These investments have fi xed maturities, and it is the group’s intention to hold these investments to maturity. Any held-to-maturity investments held by the group are stated at amortised cost using the eff ective interest rate method less impairment. Available-for-sale fi nancial assets Available-for-sale fi nancial assets include any fi nancial assets not included in the above categories. 30 | Freedom Nutritional Products Limited Notes to the Financial Statements For the year ended 30 June 2007 (continued) 3 Signi(cid:192) cant Accounting Policies (continued) Available-for-sale fi nancial assets are refl ected at fair value. Unrealised gains and loses arising from changes in fair value are taken directly to equity. Financial liabilities Non-derivative fi nancial liabilities are recognised at amortised cost, comprising original debt less principal payments and amortisation. ( (ab) Derivative (cid:192) nancial instruments The Group enters into a variety of derivative fi nancial instruments to manage its exposure to foreign exchange rate risk, including foreign exchange forward contracts. Further details of derivative fi nancial instruments are disclosed in note 26 to the fi nancial statements. at each reporting date. The resulting gain or loss is recognised in profi t or loss immediately unless the derivative is designated and eff ective as a hedging instrument, in which event, the timing of the recognition in profi t or loss depends on the nature of the hedge relationship. The Group has not adopted hedge accounting during the fi nancial year or previous corresponding period. Embedded derivatives Derivatives embedded in other fi nancial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts are not measured at their fair value with changes in fair value recognised in profi t or loss. (ac) Comparative (cid:192) gures Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value Where required by Accounting Standards comparative fi gures have been adjusted to conform to changes in presentation for the current year. 4 4 Business and Geographical Segments The Group is organised into three business segments which is the basis on which the Group reports. The principal products and services of these segments are as follows: Seafood Freedom Foods A range of canned seafood covering sardines, salmon, tuna and specialty seafood. These products are produced overseas and sold in Australia and overseas. A range of products for consumers requiring a solution to specifi c dietary or medical conditions including gluten free, wheat free, low sugar or salt or highly fortifi ed. The product range covers breakfast cereals, cookies, snack bars, soy and rice beverage, frozen prepared foods and other complimentary products. These products are produced and sold in Australia and overseas. Thorpedo Foods Thorpedo range of low GI beverages. These products are produced and sold in Australia and overseas. External sales External sales Other Other 2007 $000 2006 $000 2007 $000 2006 $000 Total Total 2007 $000 2006 $000 Segment revenue Continuing operations Seafood Freedom Foods Thorpedo Foods Total of all segments Eliminations Unallocated Consolidated revenue 20,902 26,823 1,117 18,785 26,095 2,327 - - 1,238 - - 626 20,902 26,823 2,355 50,080 - 48 18,785 26,095 2,953 47,833 - 65 50,128 47,898 2007 Annual Report | 31 Notes to the Financial Statements For the year ended 30 June 2007 (continued) 4 Business and Geographical Segments (continued) Segment result Continuing operations Seafood Freedom Foods Thorpedo Foods Unallocated Profi t before income tax Income tax expense Profi t for the year from continuing operations Segment assets and liabilities Continuing operations Seafood Freedom Foods Thorpedo Foods Total of all segments Eliminations Unallocated Consolidated Total Total 2007 $000 2006 $000 1,966 838 60 2,864 (1,075) 1,789 (620) 1,169 1,731 1,338 (540) 2,529 (934) 1,595 (289) 1,306 Assets Assets 2007 $000 Liabilities Liabilities 2006 $000 2007 $000 2006 $000 22,790 44,034 4,909 71,733 21,715 42,552 5,197 69,464 16,321 21,998 7,447 45,766 16,792 18,631 7,696 43,119 (26,535) (27,575) (23,945) (23,973) 2,230 47,428 1,659 43,548 1,953 23,774 1,558 20,704 Other segment information Carrying value of investments accounted for using the equity method Share of net profi t/(loss) of jointly controlled entities accounted for under the equity method Acquisition of segment assets Depreciation and amortisation of segment assets Seafood Seafood Freedom Foods Freedom Foods Thorpedo Foods Thorpedo Foods 2007 $000 2006 $000 - - - - - - - - 2007 $000 1,097 (136) 1,539 162 2006 $000 450 (71) 195 181 2007 $000 2006 $000 - - - - - - - - The Group operates principally in the Australian geographical area. 32 | Freedom Nutritional Products Limited Notes to the Financial Statements For the year ended 30 June 2007 (continued) Consolidated Consolidated $000 $000 Parent Parent $000 $000 2007 2006 2007 2006 48,683 46,963 13,785 - 1,162 - 15,753 65 973 - 65 - 626 47,654 14,947 16,791 237 - 7 - 244 - 124 - - 124 - - 10 - 10 31 - 1,238 49,952 30 129 - 17 176 5 Revenue Continuing operations • • • • Sale of goods Interest received from other persons Interest received from subsidiaries of parent entity Licence fee Other income • • • • Government grant - refer below Gain on disposal of property Exchange gain Management fee received The above government grant is the Export Market Development Grant received for 2006 and receivable for 2007. 6 6 Pro(cid:192) t for the year Continuing operations (i) Losses Profi t for the year was arrived at after charging the following losses Loss on disposal of plant and equipment (7) - (4) - (ii) Expenses: Finance costs Interest on bank overdrafts and loans Interest on obligations under fi nance leases Interest on convertible notes Total borrowing costs Depreciation on property, motor vehicles plant and equipment Rental expense on operating leases Research and development costs expensed Impairment of trade receivables 486 261 475 1,148 13 - 455 261 475 1,091 5 - 1,222 1,161 1,191 1,096 162 129 116 43 165 100 272 40 68 69 113 25 117 13 204 25 2007 Annual Report | 33 Notes to the Financial Statements For the year ended 30 June 2007 (continued) 6 Pro(cid:192) t for the year (continued) Employee benefi t expense Post employment benefi ts - defi ned contribution plans Share-based payments - equity-settled share-based payments Other employee benefi ts Total employee benefi t costs Consolidated Consolidated $000 $000 Parent Parent $000 $000 2007 2006 2007 2006 417 66 5,470 5,953 379 - 4,846 5,225 154 66 1,909 2,129 157 - 1,986 2,143 The following expense items are relevant in explaining the fi nancial performance: Bid response costs 104 175 104 175 Operating EBITDA (being EBITDA adjusted for bid response costs and equity settled share-based payments) was $3,343,000 (2006: $3,096,000) 7 Income taxes Income tax recognised in profi t or loss Tax expense comprises: Current income tax expense Adjustments recognised in the current year in relation to the current tax of prior years. Deferred tax expense/(income) relating to the origination and reversal of temporary diff erences Income tax expense /(income) Attributable to continuing operations 457 43 120 620 620 404 (26) (89) 289 289 - (14) 28 14 14 - - 225 225 225 The prima facie income tax expense on pre-tax accounting profi t from operations reconciles to the income tax expense in the fi nancial statements as follows: Profi t from continuing operations Income tax expense calculated at 30% Eff ect of expenses that are not deductible in determining taxable profi t Eff ect of tax concessions (research and development) Previously unrecognised and unused tax losses and tax off sets now utilised. Adjustments recognised in the current year in relation to the current tax of prior years 1,789 537 156 (116) - 43 620 1,595 478 (18) - - (171) 289 (118) (35) 176 (113) - (14) 14 426 128 (8) - 132 (27) 225 The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on taxable profi ts under Australian tax law. There has been no change in the corporate tax rate when compared with the previous reporting period. 34 | Freedom Nutritional Products Limited Notes to the Financial Statements For the year ended 30 June 2007 (continued) Consolidated Consolidated $000 $000 Parent Parent $000 $000 2007 2006 2007 2006 7 Income taxes (continued) Current tax assets and liabilities Current tax assets Entities in the tax-consolidated group Current tax liabilities Income tax payable attributable to Entities in the tax-consolidated group Other 84 392 33 425 - 84 - 267 42 309 392 - 392 Opening Opening Balance Balance Charged to Charged to income income Acquisitions Acquisitions $000 $000 $000 209 14 207 (114) 35 17 368 1,635 97 1,732 2,100 85 6 (207) 118 (35) 22 (11) (167) 58 (109) (120) 77 - - - - - 77 - - - 77 Deferred tax balances Deferred tax assets/(liabilities) arise from the following: Consolidated 2007 Temporary diff erences: Provisions Doubtful debts Formation costs Property plant & equipment Finance leases Other Unused tax losses and credits: Tax losses Withholding tax paid Presented in the balance sheet as follows: Deferred tax (liability) - non-current Deferred tax asset - non-current 267 - 267 Closing Closing balance balance $000 371 20 - 4 - 39 434 1,468 155 1,623 2,057 (35) 2,092 2,057 2007 Annual Report | 35 Notes to the Financial Statements For the year ended 30 June 2007 (continued) 7 Income taxes (continued) Consolidated 2006 Temporary diff erences: Provisions Doubtful debts Formation costs Property plant & equipment Finance leases Prepayments derecognised Other Unused tax losses and credits: Tax losses Withholding tax paid Presented in the balance sheet as follows: Deferred tax (liability) - non-current Deferred tax asset - non-current Parent 2007 Temporary diff erences: Provisions Doubtful debts Formation Costs Property plant & equipment Finance leases Other Unused tax losses and credits: Tax losses Presented in the balance sheet as follows: Deferred tax (liability) - non-current Deferred tax asset - non-current 36 | Freedom Nutritional Products Limited Opening Balance Opening Balance $000 188 13 206 (169) - 365 30 633 1,378 - 1,378 2,011 93 2 42 (100) 18 6 61 650 711 Charged to Charged to income income $000 21 1 1 55 35 (365) (13) (265) 257 97 354 89 (4) 7 (42) 104 (18) 98 145 (173) (28) Closing balance Closing balance $000 209 14 207 (114) 35 - 17 368 1,635 97 1,732 2,100 (114) 2,214 2,100 89 9 - 4 - 104 206 477 683 (28) 711 683 Notes to the Financial Statements For the year ended 30 June 2007 (continued) Opening Balance Opening Balance Charged to Charged to income income Closing balance Closing balance $000 $000 $000 142 3 - (76) - 93 8 170 766 936 (49) (1) 42 (24) 18 (93) (2) (109) (116) (225) 93 2 42 (100) 18 - 6 61 650 711 (100) 811 711 7 Income taxes (continued) Parent 2006 Temporary diff erences: Provisions Doubtful debts Formation costs Property plant & equipment Finance leases Prepayments derecognised Other Unused tax losses and credits: Tax losses Presented in the balance sheet as follows: Deferred tax (liability) - non-current Deferred tax asset - non-current Tax consolidation Relevance of tax consolidation to the Group The company and its wholly-owned Australian resident entities have formed a tax-consolidated group with eff ect from 1 July 2003 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is Freedom Nutritional Products Limited. The members of the tax-consolidated group are identifi ed at note 31. Nature of tax funding arrangements and tax sharing agreements Entities within the tax-consolidated group have entered into a tax funding arrangement and a tax-sharing agreement with the head entity. Under the terms of the tax funding arrangement, Freedom Nutritional Products Limited and each of the entities in the tax-consolidated group has agreed to pay a tax equivalent payment to or from the head entity, based on the current tax liability or current tax asset of the entity. Such amounts are refl ected in amounts receivable from or payable to other entities in the tax-consolidated group. The tax sharing agreement entered into between members of the tax-consolidated group provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations or if an entity should leave the tax-consolidated group. The eff ect of the tax sharing agreement is that each member’s liability for tax payable by the tax-consolidated group is limited to the amount payable to the head entity under the tax funding arrangement. 2007 Annual Report | 37 Notes to the Financial Statements For the year ended 30 June 2007 (continued) 8 Auditors remuneration Current year adoption of AIFRS auditing and reviewing the fi nancial report Remunerations of the auditors of the Group for: • • • • • accounting advice taxation advice technical assistance re accounting principles and fi nancial report disclosure The auditor of the consolidated entity is Deloitte Touche Tohmatsu (2006: PKF) Past years Remuneration of past auditors of the Group to settle excess fee claim • auditing and reviewing the fi nancial report 9 Earnings per share (a) Earnings used in the calculation of basic EPS ($000) (b) Earnings used in the calculation of dilutive EPS ($000) Consolidated Consolidated $$ Parent Parent $$ 2007 2006 2007 2006 100,000 - - 281,531 25,625 407,156 136,000 19,750 13,250 - - 43,584 - - 43,645 - 136,000 13,750 5,250 - - 169,000 87,229 155,000 70,000 - 70,000 2007 2007 $000 - 2006 2006 $000 1,174 1,174 1,434 1,434 Number ‘000 (c) Weighted average number of ordinary shares outstanding during the year used in the calculation of basic EPS 44,490 44,485 (number) Add weighted average number of options outstanding Weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted EPS During 2007 the Parent issued 4,900,000 options over ordinary shares. - 44,490 2,892 47,377 10 Trade and other receivables Current Trade receivables (i) Allowance for doubtful trade receivables Other receivables 38 | Freedom Nutritional Products Limited Consolidated Consolidated $000 $000 Parent Parent $000 $000 2007 2006 2007 2006 9,921 (67) 9,854 970 10,824 8,293 (46) 8,247 687 8,934 2,874 (30) 2,844 440 3,284 3,369 (5) 3,364 181 3,545 Notes to the Financial Statements For the year ended 30 June 2007 (continued) 10 Trade and other receivables (continued) (i) The average credit period on sales of goods is 60 days. No interest is charged on trade receivables. An allowance has been made for estimated irrecoverable trade receivable amounts arising from past sale of goods, determined by reference to past default experience. During the current fi nancial year, the allowance for doubtful debts increased by$21,000 (2006: increased by $26,000) in the Group and increased by $25,000 (2006: increased by $25,000 ) in the Parent. The movement was recognised in the income statement for the year. 11 Other (cid:192) nancial assets Current Loans to joint venture Non-current Loans to subsidiaries Investment in jointly controlled entity (i) Investment in joint venture entity - refer note 33 Consolidated Consolidated $000 $000 Parent Parent $000 $000 2007 2006 2007 2006 1,476 - 1,579 768 2,347 155 - - 450 450 1,476 155 29,616 23,615 - 768 - 450 30,384 24,065 (i) As part of the investment in a jointly controlled entity, the Group holds non-listed unsecured redeemable notes returning 7%p.a. The notes are redeemable at par value on 1 June 2012. 1 12 Inventories Current Raw materials Finished goods 1,505 9,137 10,642 1,439 8,373 9,812 953 1,202 2,155 1,206 781 1,987 In Inventories of $nil (2006: $nil) are expected to be recovered after more than twelve months. 13 Intangibles Year ended 30 June 2006 Cost (gross carrying amount) Costs incurred during the year Net carrying amount Year ended 30 June 2007 At 1 July, 2006 Costs incurred during the year Net carrying value Consolidated Consolidated $000 $000 Parent Parent $000 $000 Goodwill Brand name Total Total 6,628 - 6,628 6,628 302 6,930 10,486 33 10,519 10,519 30 10,549 17,114 33 17,147 17,147 332 17,479 - - - - - - 2007 Annual Report | 39 Notes to the Financial Statements For the year ended 30 June 2007 (continued) 13 Intangibles (continued) Goodwill and brand name are initially recorded at cost. The useful life of the brand name asset was estimated as indefi nite. No impairment loss was charged for operations in the 2007 fi nancial year (2006: NIL). Allocation of goodwill to cash-generating units Goodwill has been allocated for impairment testing purposes to three cash-generating units as follows: Seafood Freedom Foods Thorpedo Foods Consolidated Consolidated $000 $000 2007 1,982 3,170 1,778 2006 1,982 2,868 1,778 The recoverable amounts of the cash generating units are determined based on a value in use calculation which uses cash fl ow projections based on fi nancial budgets approved by management covering a fi ve-year period, and a discount rate of 12% pa (2006: 8% pa). Cash fl ow projections during the budget period for the cash-generating units are also based on the same expected gross margins during the budget period. Key assumptions Key assumptions Cash-generating units Cash-generating units Budgeted market share Budgeted gross margin Average market share in the period immediately before the budget period plus a growth of up to 1% of market share per year. Management believes that the planned market share growth per year for the next fi ve years is reasonable. Average gross margins achieved in the period immediately before the budget period is consistent with that used by management. Impairment of cash-generating units including goodwill There was no impairment loss recognised or reversed during the period for an individual asset or cash generating unit. 14 Property, plant and equipment NON-CURRENT ASSETS - classifi ed as held for sale Freehold land and buildings for sale • at fair value less costs to sell Total Land and Buildings The Parent sold its land and buildings on 30 May 2007. NON-CURRENT Freehold land and buildings • at cost Accumulated depreciation Total Land and Buildings 40 | Freedom Nutritional Products Limited Consolidated Consolidated $000 $000 Parent Parent $000 $000 2007 2006 2007 2006 - - 3,321 3,321 117 (106) 11 117 (102) 15 - - - - - 3,321 3,321 - - - Notes to the Financial Statements For the year ended 30 June 2007 (continued) Consolidated Consolidated $000 $000 Parent Parent $000 $000 2007 2006 2007 2006 2,667 (1,070) 1,597 15 1,612 48 (27) 21 190 (39) 151 1,795 1,290 (964) 326 21 347 48 (23) 25 157 (44) 113 500 783 (562) 221 - 221 - - - 166 (23) 143 364 662 (520) 142 - 142 - - - 65 (5) 60 202 14 14 Property, plant and equipment (continued) Plant and Equipment • at cost Accumulated depreciation Capital work in progress Total Owned Plant and Equipment Plant and Equipment under fi nance lease Capitalised leased assets Accumulated depreciation Total Leased Plant and Equipment Motor Vehicles under fi nance leases • at cost Accumulated depreciation Total Motor Vehicles TOTAL PROPERTY, PLANT AND EQUIPMENT M Movement in the carrying amounts of each class of property, plant and equipment between the beginning and the end of the current fi nancial year: e Parent 2007 Balance at beginning of year Additions Depreciation expense Disposals Carrying amount at the end of year Group 2007 Balance as at beginning of year Additions Acquisitions through business combinations Depreciation expense Disposals Carrying amount at the end of year Land and Land and Buildings Buildings $000 - - - - - 15 - - (4) - 11 Plant and Plant and Equipment Equipment Motor Motor Vehicles Vehicles $000 142 167 (50) (38) 221 372 214 1,224 (119) (58) 1,633 $000 60 101 (18) - 143 113 101 - (39) (24) 151 Total Total $000 202 268 (68) (38) 364 500 315 1,224 (162) (82) 1,795 2007 Annual Report | 41 Notes to the Financial Statements For the year ended 30 June 2007 (continued) Parent 2006 Land and Land and Buildings Buildings $000 Plant and Plant and Equipment Equipment Motor Motor Vehicles Vehicles Total Total $000 $000 $000 14 Property, plant and equipment (continued) Balance at beginning of year Additions Depreciation expense Carrying amount at the end of year Group 2006 Balance at beginning of year Additions Disposals Depreciation expense Carrying amount at the end of year - - - - $000 20 - - (5) 15 170 84 (112) 142 $000 410 130 - (168) 372 - 65 (5) 60 $000 65 65 (25) 8 113 170 149 (117) 202 $000 495 195 (25) (165) 500 Aggregate depreciation allocated, whether recognised as an expense or capitalised as part of the carrying amount of other assets during the year: Freehold land and buildings Plant and equipment Motor vehicles 15 Trade and other payables Current Trade payables (i) Other payables and accruals Due to related parties Consolidated Consolidated $000 $000 Parent Parent $000 $000 2007 4 119 39 162 7,168 2,302 271 9,741 2006 5 168 (8) 165 7,252 2,601 3 9,856 2007 - 50 18 68 2,153 733 271 3,157 2006 - 112 5 117 2,069 913 3 2,985 (i) The average credit period on purchases of certain goods from North America is 2 months. Additional trade payables are paid within 60 days of invoice date. No interest is charged on trade payables. 42 | Freedom Nutritional Products Limited Notes to the Financial Statements For the year ended 30 June 2007 (continued) Consolidated Consolidated $000 $000 Parent Parent $000 $000 2007 2006 2007 2006 16 Borrowings 6 Current - at amortised cost Bank overdrafts - secured (i) Finance leases - secured (iii) (note 24) Convertible Notes - unsecured (ii) Non-current - at amortised cost Loan payable - secured (i) Convertible Notes - unsecured (ii) Finance leases - secured (iii) (note 24) 5,076 33 4,981 10,090 2,500 - 112 2,612 573 68 - 641 4,128 4,877 49 9,054 5,097 33 4,981 10,111 2,500 - 112 2,612 (i) The bank overdraft and loans payable are secured as detailed in note 34. (ii) The Parent has issued 8,333,333 unsecured convertible notes at $0.60 each, with a coupon rate of 9.5% per annum maturing on 1 September 2007. (iii) Secured by the asset leased. 17 Provisions Current Employee benefi ts Non-current Employee benefi ts Aggregate employee benefi ts Employee benefi t movement Balance at beginning of year Additional provision recognised Transfer Amounts used 1 18 Issued capital Fully paid ordinary shares 641 230 871 637 598 - (364) 871 518 119 637 576 384 - (323) 637 164 113 277 297 108 - (128) 277 - 11 - 11 3,578 4,877 49 8,504 204 93 297 475 104 (144) (138) 297 44,527,343 (2006: 44,485,010) ordinary shares fully paid 22,078 22,058 22,078 22,058 Issued during the year Balance at beginning of year May 2007 - 42,333 ordinary shares for 46.8 cents per share Balance at end of year 22,058 20 22,078 22,058 - 22,058 22,058 20 22,078 22,058 - 22,058 2007 Annual Report | 43 Notes to the Financial Statements For the year ended 30 June 2007 (continued) 18 Issued capital (continued) Fully paid ordinary shares carry one vote per share and carry the right to dividends. Changes to the then Corporations Law abolished the authorised capital and par value concept in relation to share capital from 1 July 1998. Therefore, the company does not have a limited amount of authorised capital and issued shares do not have a par value. The Dividend Reinvestment Plan provides shareholders with the opportunity to receive ordinary shares, in lieu of cash dividends, at a discount (set by the directors) from the market price at time of issue. Options (i) For information relating to the Freedom Nutritional Products Limited Employee Share Option Plan, including details of options issued, exercised and lapsed during the fi nancial year and the options outstanding at year-end, refer note 29. (ii) For information relating to share options issued to key management personnel during the fi nancial year, refer note 28 At 30 June 2007, there were 6,100,000 (30 June 2006: 2,975,000) unissued ordinary shares for which options were outstanding. 19 Reserves Equity-settled employee benefi ts reserve Balance at beginning of fi nancial year Share based payment Balance at end of fi nancial year Consolidated Consolidated $000 $000 Parent Parent $000 $000 2007 2006 2007 2006 66 - 66 66 - - - - 66 - 66 66 - - - - The equity-settled employee benefi ts reserve arises on the grant of share options to executives and senior employees under the Employee Share Option Plan. Amounts are transferred out of the reserve and into issued capital when the options are exercised. Further information about share-based payments to employees is made in note 29 to the fi nancial statements. 20 Retained pro(cid:192) ts Retained profi ts at the beginning of the fi nancial year Net profi t Dividends paid for current year Retained profi ts at end of fi nancial year 2,227 1,174 (445) 2,956 793 1,434 - 2,227 627 (132) (445) 50 426 201 - 627 44 | Freedom Nutritional Products Limited Notes to the Financial Statements For the year ended 30 June 2007 (continued) 2007 2007 2006 2006 Cents per share Total $000 Cents per share Total $000 21 Dividends 1 Recognised amounts Fully paid ordinary shares Interim dividend: fully franked at a 30% tax rate 1.0 445 - - Unrecognised amounts On 31 August 2007, the directors declared a fully franked interim dividend of 1.0 cents per share to the holders of fully paid ordinary shares in respect of the fi nancial year ending 30 June 2008, to be paid to shareholders on 18 December 2007. The dividend will be paid to shareholders on the Register of Members on 3 December 2007. The total estimated dividend to be paid is $445,000. Adjusted franking account balance 2 22 Cash flow information (a) Reconciliation of cash and cash equivalents Parent Parent $000 $000 2007 222 2006 27 For the purposes of the statement of cash fl ows, cash and cash equivalents includes cash on hand, funds held in cash management account and cheque account net of bank overdrafts. Cash at the end of the fi nancial year as shown in the statement of cash fl ows is reconciled to the related items in the balance sheet as follows:- Cash Overdraft Consolidated Consolidated $000 $000 Parent Parent $000 $000 2007 4 (5,076) (5,072) 2006 656 (573) 83 2007 3 (5,097) (5,094) Reconciliation of net cash provided by operating activities to operating profi t after income tax (b) Operating profi t after income tax Depreciation Provision for employee entitlements Write off of inventory Gain on disposal of assets Foreign currency revaluation Share based payments Interest received Loss in jointly controlled entity 1,169 162 235 (2) (120) (23) 66 (31) 136 1,306 165 61 44 - - - - - (132) 68 (19) (27) (124) - 66 (1,162) 135 2006 578 - 578 201 117 (178) 37 - - - - - 2007 Annual Report | 45 Notes to the Financial Statements For the year ended 30 June 2007 (continued) 22 Cash (cid:193) ow information (continued) Changes in Assets and Liabilities (Increase) in receivables (Increase) / Decrease in inventory (Increase) / Decrease in other assets Decrease / (Increase) in deferred tax assets Decrease / (Increase) in accounts payable Decrease in provision for income tax (Decrease) / Increase in provision for deferred income tax Consolidated Consolidated $000 $000 Parent Parent $000 $000 2007 2006 2007 2006 (2,000) (828) (626) 122 264 34 (79) (1,521) (629) (2,679) (147) (543) 1,255 197 452 (518) (1,038) (141) 333 100 (61) 41 (72) (2,033) (772) 258 (16) 191 (370) - 33 (499) Details of credit stand-by arrangements available and unused loan facilities are shown in note 23 to the fi nancial statements. (c) Non-cash fi nancing and investing activities During the current fi nancial year, the Group acquired $101,000 of motor vehicles under fi nance leases. These acquisitions will be refl ected in the cash fl ow statement over the term of the fi nance lease via lease repayments. (d) Business acquired During the fi nancial year 100% of the Cookie Man baking operations was acquired. During the previous fi nancial year, consideration deferred at 30 June 2005, was paid in respect of the acquisition of the remaining 20% of Freedom Foods Pty Limited. Details of this transaction are: Purchase consideration Incidental costs Deferred consideration for Freedom Foods acquisition Cash consideration Assets and liabilities held at acquisition date Prepayments Inventories Deferred tax assets Property, plant and equipment Employee entitlements Rent received in advance Outside equity interest Goodwill on acquisition 46 | Freedom Nutritional Products Limited 1,247 432 86 1,765 9 412 78 1,224 (196) (64) 1,463 - 302 1,765 1,084 - - 1,084 - - - - - - - - - - - - - - - - - - - - - - - - - (6) - (6) - - - - - - - - - - Notes to the Financial Statements For the year ended 30 June 2007 (continued) Consolidated Consolidated $000 $000 Parent Parent $000 $000 2007 2006 2007 2006 23 Standby arrangements and unused credit facilities 3 Credit Facility Bank Amount utilised at 30 June Unused credit/facility Loans facilities Amount utilised at 30 June Unused loan facilities 7,650 (5,076) 2,574 2,500 (2,500) - 2,574 1,100 (573) 527 4,950 (4,128) 822 1,349 7,650 (5,076) 2,574 2,500 (2,500) - 2,574 1,100 - 1,100 4,400 (3,578) 822 1,922 Credit and Loan Facilities The bank overdraft and multi-option facilities are arranged with Westpac Banking Corporation with the general terms and conditions and is subject to annual review. The bank facilities of the Group are secured by a fi rst registered mortgage over all the Group’s property and a fi rst equitable mortgage over the whole of the Group’s assets and undertakings including uncalled capital. The mortgage is held by Westpac Banking Corporation. Interest rates are variable and subject to adjustment. 2 24 Capital and leasing commitments Finance leases Leasing arrangements Finance leases relate to motor vehicles and equipment with lease terms of 5 years. The Group has options to purchase the equipment for an agreed amount at the conclusion of the lease agreements. Minimum future lease payments Minimum future lease payments Present value of minimum future lease Present value of minimum future lease payments payments Consolidated Consolidated Parent Parent Consolidated Consolidated Parent Parent 2007 $000 2006 $000 2007 $000 2006 $000 2007 $000 2006 $000 2007 $000 2006 $000 50 131 181 (36) 145 74 54 128 (11) 117 50 131 181 (36) 145 16 54 70 (10) 60 33 112 145 - 145 33 112 145 68 49 117 - 117 68 49 117 33 112 145 - 145 33 112 145 11 49 60 - 60 11 49 60 Finance lease liabilities Payable: • • not longer than one year one to fi ve years Minimum lease payments Less future fi nance charges Present value of minimum lease payments Included in the fi nancial statements as: (note 16) Current borrowings Non-current borrowings 2007 Annual Report | 47 Notes to the Financial Statements For the year ended 30 June 2007 (continued) 24 Capital and leasing commitments (continued) Operating leases Leasing arrangements Operating leases relate to offi ce space with lease terms of between two and two and a half years. The Parent/Group does not have an option to purchase the leased asset at the expiry of the lease period. Consolidated Consolidated $000 $000 Parent Parent $000 $000 2007 2006 2007 2006 146 135 281 395 72 86 158 50 146 135 281 61 86 147 Consolidated Consolidated Parent Parent 2007 2007 2006 2006 2007 2007 2006 2006 Number 137 85 Number 39 72 Non-cancellable operating lease commitments • • not longer than one year one to fi ve years Group’s share of jointly controlled entities capital commitments Not longer than 1 year 25 Personnel Note The entity employs casual and full time staff numbering 26 Financial instruments (a) Financial risk management objectives The Group’s Corporate Treasury function provides services to the business, co-ordinates access to domestic and international fi nancial markets, monitors and manages the fi nancial risks relating to the operations of the Group through internal risk reports which analyses exposures by degree magnitude of risks. These risks include market risk (including currency risk and price risk), credit risk and liquidity risk. The Group seeks to minimise the eff ects of these risks, by using derivative fi nancial instruments to hedge these risk exposures. The use of fi nancial derivatives is governed by the Group’s policies approved by the board of directors, which provide written principles on foreign exchange risk, credit risk and the investment of excess liquidity. The Group does not enter into trade fi nancial instruments, including derivative fi nancial instruments, for speculative purposes. The Group’s activities expose it primarily to the fi nancial risks of changes in foreign currency exchange rates. The Group enters into foreign exchange forward contracts to manage exposure to foreign currency risk for its imports. There has been no change to the Group’s exposure to market risks or the manner in which it manages and measures the risk. The Corporate Treasury function reports monthly to the board which monitors risks and policies implemented to mitigate risk exposure. (b) Signi(cid:192) cant accounting policies Details of the signifi cant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of fi nancial asset, fi nancial liability and equity instrument are disclosed in note 3 to the fi nancial statements. 48 | Freedom Nutritional Products Limited Notes to the Financial Statements For the year ended 30 June 2007 (continued) 26 Financial instruments (continued) (c) Forward exchange contracts The Group enters into forward exchange contracts to buy specifi ed amounts of foreign currencies in the future at stipulated exchange rates. The objective of entering into the forward exchange contracts is to protect the Group against unfavourable exchange rate movements for the contracted purchases undertaken in foreign currencies. Average exchange Average exchange raterate 2007 2007 2006 2006 Foreign currency Foreign currency Contract value Contract value Fair value Fair value 2007 2007 FC’000 2006 2006 FC’000 2007 2007 $000 2006 2006 $000 2007 2007 $000 2006 2006 $000 Outstanding contracts Consolidated Buy US Dollars Less than 3 months 3 to 6 months Over 6 months Buy Canadian Dollars Less than 3 months 3 to 6 months Over 6 months 0.7566 0.7951 0.8406 0.9128 0.9090 0.9069 0.7470 0.7511 - - - - 976 927 525 1,973 1,750 550 3,443 2,650 - - - - 1,290 1,166 625 2,161 1,925 606 4,609 3,528 - - - - (140) (74) (6) 37 24 7 (152) 23 37 - - - - 60 The Group has entered into contracts to purchase fi nished goods from suppliers in the United States, Canada and Thailand. The Group has entered into forward exchange contracts (for terms not exceeding 8 months) to hedge the exchange rate risk arising from these anticipated future transactions. The Group does not adopt hedge accounting and therefore movements in the fair value of forward exchange contracts are recorded in the income statement. As at reporting date, the aggregate amount of unrealised gains under forward foreign exchange contracts reported in the profi t and loss relating to these anticipated future transactions is $23,000 (2006: unrealised gains of $23,000). (d) (d) Credit risk The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance sheet date, to recognised fi nancial assets of the Group which have been recognised on the Balance Sheet is the carrying amount, net of any allowance for doubtful debts. The Group does not have signifi cant risk exposure to any one debtor, however 87% (2006 - 81%) of sales and 79% (2006 - 87%) of year end receivables are concentrated in major supermarkets throughout Australia. The Parent has 91% (2006 - 91%) of sales and 80% (2006 - 88%) of year end receivables concentrated in major supermarkets throughout Australia. (e) Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Board of Directors, who has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecasts and actual cash fl ows and matching the maturity profi les of fi nancial assets and liabilities. 2007 Annual Report | 49 Notes to the Financial Statements For the year ended 30 June 2007 (continued) 26 Financial instruments (continued) (f) Interest rate risk The Parent and Group’s exposures to interest rate risk, which is the risk that a fi nancial instrument’s value will fl uctuate as a result of changes in market interest rates, and the eff ective weighted average interest rates on those fi nancial assets, are set out below: Group Group Fixed rate maturing in Fixed rate maturing in Financial Instrument Financial Instrument NoteNote Weighted Weighted average average eff ective eff ective interest interest rate %rate % Variable Variable RateRate Less than 1 Less than 1 year year 1 to 5 years 1 to 5 years Non Interest Non Interest Bearing Bearing Total Total 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 4 - - - - - 4 - - - - 656 - - - - - 656 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,250 - 1,250 - - - 5.3 7.0 7.3 8.2 7.5 - - - 4 656 - - - - - - - - - 9,854 8,247 9,854 8,247 970 1,476 687 155 970 1,476 - - 1,250 687 155 - 768 450 768 450 13,068 9,539 14,322 10,195 7,168 7,252 7,168 7,252 2,302 2,601 2,302 2,601 271 - - - - 3 - - - - 271 145 5,076 3 117 573 2,500 4,128 4,981 4,877 33 68 112 49 5,076 573 2,500 4,128 - - 9.5 - - 4,981 - - - - - - - - 4,877 7,576 4,701 5,014 68 112 4,926 9,741 9,856 22,443 19,551 Financial Assets Cash and cash equivalents Trade receivables Other receivables Due from joint venture Redeemable notes Investment in joint venture entity Total Financial Assets Financial Liabilities Trade payables Other payables Due to related parties Finance leases Bank overdrafts Loan payable Convertible notes Total Financial Liabilities 22 10 10 11 11 11 15 15 15 16 16 16 16 50 | Freedom Nutritional Products Limited Notes to the Financial Statements For the year ended 30 June 2007 (continued) 26 Financial instruments (continued) Parent nt Fixed rate maturing in Fixed rate maturing in Financial Instrument ncial Instrument NoteNote Weighted Weighted average average eff ective eff ective interest interest rate %rate % Variable Variable RateRate Less than 1 Less than 1 year year 1 to 5 years 1 to 5 years Non Interest Non Interest Bearing Bearing Total Total 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 Fi Financial Assets Cash Trade receivables Other receivables Due from joint venture Due from controlled entities Investment in joint venture entity Total Financial Assets F Financial Liabilities Trade payables Other payables Due to related parties Bank overdrafts Finance leases Loan payable Convertible notes Total Financial Liabilities 22 10 10 11 11 11 15 15 15 16 16 16 16 5.3 8.5 8.2 7.3 7.5 9.5 3 - - - - - 3 - - - 5,097 - 578 - - - - - 578 - - - - - 2,500 3,578 - - - - - - - - - - - 33 - - - 4,981 7,597 3,578 5,014 - - - - - - - - - - - 11 - - 11 - - - - - - - - 29,616 23,615 - - - - 3 578 2,844 3,364 2,844 3,364 440 1,476 - 768 181 155 440 1,476 181 155 - 29,616 23,615 450 768 450 29,616 23,615 5,528 4,150 35,147 28,343 - - - - 112 - - - - - - 49 - 4,877 2,153 2,069 2,153 2,069 733 271 - - - - 913 3 - - - - 733 271 5,097 145 913 3 - 60 2,500 3,578 4,981 4,877 112 4,926 3,157 2,985 15,880 11,500 ( (g) Fair value of (cid:192) nancial instruments The fair values of fi nancial assets and fi nancial liabilities are determined as follows: • the fair value of fi nancial assets and fi nancial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices; and • • the fair value of other fi nancial assets and fi nancial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash fl ow analysis; and the fair value of derivative instruments are calculated using quoted prices. Where such prices are not available use is made of discounted cash fl ow analysis using the applicable yield curve for the duration of the instruments for non-optional derivatives, and option pricing models for optional derivatives. (h) Options In May 2004, the Group entered into arrangements with Ian Thorpe whereby both a wholly owned subsidiary of the Parent (TFG) and Ian Thorpe entered into two joint ventures relating to food and beverages and seafood. The fi rst of these ventures has been formed as Thorpedo Foods Pty Limited (TFG interest 50.01%). Under the arrangements TFG has a call option to acquire up to 75% in Thorpedo Foods Pty Limited until 30 September 2009. The consideration payable is to be calculated based upon EBITDA multiples and will be satisfi ed 2007 Annual Report | 51 Notes to the Financial Statements For the year ended 30 June 2007 (continued) 26 Financial instruments (continued) by exercise of a call option held by Ian Thorpe for shares in the Parent. These fi nancial instruments do not have a value at 30 June 2007. On 30 June 2005, TFG exercised a call option and acquired an additional 25.01% in Thorpedo Foods Pty Limited bringing its interest in Thorpedo Foods Pty Limited at 30 June 2005 to 50.01%. The additional 25.01% was acquired for $20. 27 Key management personnel compensation This report details the nature and amount of remuneration for each Director and the executives receiving the highest remuneration. Remuneration policy Remuneration arrangements for Directors and executives of the Parent and Group (“the Directors and executives”) are set competitively to attract and retain appropriately qualifi ed and experienced Directors and executives. As part of its agreed mandate, the Remuneration and Nomination Committee obtains independent advice when required on the appropriateness of remuneration packages given trends in comparable companies and the objectives of the consolidated entity’s remuneration strategy. The remuneration structures explained below are designed to attract suitably qualifi ed candidates, reward the achievement of strategic objectives, and achieve the broader outcome of creation of value for shareholders. The remuneration structures take into account: • • • The capability and experience of the Directors and executives; The Directors and executives’ ability to control the relevant operational performance; and The amount of incentives within each Director and executive’s remuneration. Executive director and executives Fixed remuneration consists of base remuneration (which is calculated on a total cost basis and includes any FBT charges related to employee benefi ts including motor vehicles), as well as employer contributions to superannuation funds. Executive director and executives remuneration levels are reviewed annually by the Remuneration and Nomination Committee through a process that considers the overall performance of the Group. In addition the individual performance of each senior manager is measured against each individual’s Key Performance Indicators (KPI’s) as agreed annually with the senior manager to ensure buy-in. KPI’s are based on the profi tability of the entity and are reviewed annually by the Remuneration and Nomination Committee and the Managing Director/ Chief Executive Offi cer (CEO). Performance based remuneration Performance based remuneration are at the discretion of the Remuneration and Nomination Committee. These can take the form of share options or cash payments. During the year the following options were issued 1,700,000 to G.H. Babidge, 1,700,000 to R.J.F. Macleod, 900,000 to B.W. Bootle, 300,000 to P. J. Nathan and 300,000 to M. E. Jenkins. Options are valued using the bi-nomial method. Non-executive directors The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting. Total fees for all non-executive directors, last voted upon by shareholders in October 2006, was not to exceed $300,000 in total. Total fees for 2007 were $122,315. To align director interests with shareholder interests, the directors are encouraged to hold shares in the Parent. 52 | Freedom Nutritional Products Limited Notes to the Financial Statements For the year ended 30 June 2007 (continued) 27 Key management personnel compensation (continued) The Chairman receives twice the base fee of non-executive directors. Non-executive directors do not receive performance related remuneration. Directors’ fees cover all main Board activities. Non-executive directors who sit on the Remuneration and Nomination Committee and the Audit, Risk and Compliance Committee receive an additional payment of $1,000 and the Chairman of each receives $2,000. There are no termination or retirement benefi ts for non-executive directors. Service agreements It is the Group’s policy that service contracts are entered into for the CEO which was extended on 1 February 2007. The key terms and conditions are as follows: • • • The contract is for a fi xed term to 30 November 2011 The remuneration comprises a fi xed component which includes the cost to the Parent of any superannuation contributions made by the Parent on behalf of the CEO; and The Parent can terminate employment at any time without prior notice if the CEO commits any serious breach of any provisions of his agreement or is guilty of an act of serious misconduct or wilful neglect in the discharge of their duties. The CEO may terminate this agreement with one month’s notice and the Parent with three month’s notice. In the event of dismissal by the Parent, other than for breach, the CEO is also entitled to one year’s total remuneration. Parent performance, shareholder wealth and directors and senior management remuneration The remuneration policy has been tailored to increase goal congruence between shareholders and executives. The method applied in achieving this aim is the issue of options to executives to encourage alignment of personal and shareholder interests. The following table shows the revenue, profi ts and dividends for the past fi ve years for the Parent. Revenue ($000s) Net Profi t / (loss) after tax ($000s) Dividends paid (cents) 2003 2003 21,957 564 1 2004 2004 32,940 (749) Nil 2005 2005 37,954 310 Nil 2006 2006 47,654 1,434 Nil 2007 2007 49,952 1,174 1 The Remuneration and Nomination Committee considers that the Parent’s performance-linked remuneration structure is appropriate to building shareholder value in the medium term. The aggregate compensation made to directors and other members of key management personnel of the Parent and the Group is set out below: Short-term employee benefi ts Post-employment benefi ts Share-based payment Other long term benefi ts Consolidated Consolidated Parent Parent 2007 2007 $ 1,019,335 338,187 66,350 2006 2006 $ 1,113,016 103,088 - 1,423,872 1,216,104 2007 2007 $ 122,315 58,988 66,350 247,653 2006 2006 $ 128,780 30,360 - 159,140 2007 Annual Report | 53 Notes to the Financial Statements For the year ended 30 June 2007 (continued) 27 Key management personnel compensation (continued) Details of key management personnel The directors and other members of key management personnel of the Group during the year were: P. R. Gunner (Chairman, non-executive director) G. H. Babidge (Managing Director, Chief Executive Offi cer) A. M. Perich (Non-executive director), appointed July 2006 R. Perich (Non-executive director) S. Higgs (Non-executive director) M. Miles (Non-executive director), appointed November 2006 B. W. Bootle (alternate director), appointed July 2006 C. C. Grubb (Non-executive director), resigned July 2006 M. Van Ryn (Non-executive director), resigned October 2006 G. J. Reaney (Non-executive director), resigned October 2006 R. J. F. Macleod (Strategic Development Director) P. J. Nathan (General Manager Sales) (appointed September 2006) M. E. Jenkins (Chief Financial Offi cer & Company Secretary) H. A. Hurwitz (Marketing Manager) B. A. O’Brien (Product Development Manager) Determination of remuneration of speci(cid:192) ed directors Remuneration of non-executive directors comprise fees determined having regard to industry practice and the need to obtain appropriately qualifi ed independent persons. Fees do not contain any non-monetary elements. Remuneration of the executive directors is determined by the Remuneration & Nomination Committee (refer statement of Corporate Governance Practices for further details). In this respect, consideration is given to normal commercial rates of remuneration for similar levels of responsibility. Options are granted to acquire ordinary shares in Freedom Nutritional Products Limited to the executive directors. The compensation of each member of the key management personnel of the Group is set out below: 2007 2007 $$ $$ $$ $$ $$ $$ $$ $ $ P. R. Gunner G. H. Babidge (i) A. M. Perich R. Perich S. F. Higgs M. Miles B. W. Bootle (i) C. C. Grubb Short term benefi ts Salaries and fees 31,167 223,487 24,167 27,000 26,833 Non monetary - 1,513 - - - 2,000 - Post employment benefi ts Superannuation 25,695 100,000 2,175 2,430 2,415 17,620 Equity compensation Options Total - 25,045 - - - - 56,862 350,045 26,342 29,430 29,248 19,620 - - - 13,259 13,259 3,815 - - - 3,815 54 | Freedom Nutritional Products Limited Notes to the Financial Statements For the year ended 30 June 2007 (continued) 27 Key management personnel compensation (continued) M. van Ryn G. J. Reaney R. J. F. Macleod (i) P. J. Nathan (ii) M. E. Jenkins (ii) H. A. Hurwitz B. A. O’Brien Total Shor Short term benefi ts Salaries and fees Non monetary - - Post employment benefi ts 7,333 187,314 137,325 150,933 137,821 41,761 1,000,956 - - - 1,367 - 15,500 18,380 Superannuation 7,993 660 12,686 32,829 27,700 12,179 93,805 338,187 Equity compensation Options Total 2006 Short term benefi ts Salaries and fees Non monetary Post employment benefi ts - 7,993 - 7,993 25,045 1,500 1,500 - - 66,349 225,045 171,654 181,500 150,000 151,066 1,423,872 $$ P. R. Gunner $$ G. H. Babidge (iii) $$ R. Perich $$ S. F. Higgs $$ C. C. Grubb 21,000 - 286,795 - 20,000 - 20,000 - Superannuation 1,890 12,140 1,800 1,800 Equity compensation Options Total - 22,890 - 298,935 - 21,800 - 21,800 45,780 - - - 45,780 M. van Ryn G. J. Reaney R. J. F. Macleod (iii) H. A. Hurwitz M. E. Jenkins Dr V. Lakshminarayana B. A. O’Brien Total S Short term benefi ts Salaries and fees Non monetary - - Post employment benefi ts 22,000 147,860 123,853 147,788 130,298 117,642 1,083,016 - - 15,000 - - 15,000 30,000 Superannuation 22,890 1,980 12,140 11,147 15,000 11,727 10,574 103,088 E Equity compensation Options Total - - - - - - - - 22,890 23,980 160,000 150,000 162,788 142,025 143,216 1,216,104 (i) (ii) On 30 November 2006 share options were granted under the employee share option plan. Further details of the options granted are contained in notes 28 and 29. On 26 April 2007 share options were granted under the employee share option plan. Further details of the options granted are contained in notes 28 and 29. (iii) On 27 July 2005 share options were granted under the employee share option plan. Further details of the options granted are contained in notes 28 and 29. 2007 Annual Report | 55 Notes to the Financial Statements For the year ended 30 June 2007 (continued) 28 Related party transactions (a) Equity interests in related parties (i) Equity interests in subsidiaries Details of the percentage of ordinary shares held in subsidiaries are disclosed in note 31 to the fi nancial statements. (ii) Equity interest in joint ventures Details of interests in joint ventures are disclosed in note 33 to the fi nancial statements. (b) Transactions with key management personnel (i) Key management personnel compensation Details of key management personnel compensation are disclosed in note 27 to the fi nancial statements. (ii) Key management personnel equity holdings Fully paid ordinary shares of the Parent Balance at 1 July Balance at 1 July Granted as Granted as compensation compensation Received on Received on exercise of exercise of options options Net other change Net other change Balance at 30 June Balance at 30 June 2007 P. R. Gunner G. H. Babidge A. M. Perich (1) (2) R. Perich (2) S. F. Higgs M. Miles B. W. Bootle M. van Ryn C. C. Grubb G. J. Reaney R. J. F. Macleod P. Nathan M. E. Jenkins H. A. Hurwitz B. A. O’Brien No. 204,346 69,217 8,771,289 8,771,289 384,615 - - 172,074 8,068,435 8,068,435 156,108 - 30,326 - - No. No. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - No. 116,671 - 26,130,510 26,130,510 - 51,069 40,855 (172,074) (8,058,435) (8,054,430) - 40,000 - - - No. 321,017 69,217 34,901,799 34,901,799 384,615 51,069 40,855 - 10,000 14,005 156,108 40,000 30,326 - - (1) Mr A. M. Perich joined the board as a non-executive director in July 2006. He is joint managing director with Mr R. Perich of Arrovest Pty Ltd. At the date of his appointment Arrovest Pty Ltd already held shares consistent with those shown for Mr R. Perich. (2) Messrs A. M. Perich and R. Perich each hold an interest in Arrovest Pty Limited which is a registered holder of shares in the Parent. 56 | Freedom Nutritional Products Limited Notes to the Financial Statements For the year ended 30 June 2007 (continued) 28 Related party transactions (continued) Balance at 1 July Balance at 1 July Granted as Granted as compensation compensation Received on Received on exercise of exercise of options options Net other change Net other change Balance at 30 June Balance at 30 June No. No. No. No. No. 2006 P. R. Gunner G. H. Babidge R. Perich S. F. Higgs M. van Ryn C. C. Grubb G. J. Reaney R. J. F. Macleod M. E. Jenkins H. A. Hurwitz B. A. O’Brien Dr V. Lakshminarayana Share options of the Parent 101,942 69,217 6,474,528 384,615 46,133 8,068,435 8,068,435 156,108 30,326 - - - - - - - - - - - - - - - - - - - - - - - - - - - 102,404 - 2,296,761 - 125,941 - - - - - - - 204,346 69,217 8,771,289 384,615 172,074 8,068,435 8,068,435 156,108 30,326 - - - Balance Balance at 1 July at 1 July Granted as Granted as compensation compensation Exercised Net other Net other Exercised change change Balance Balance at 30 at 30 June June Balance Balance vested at vested at 30 June 30 June Vested Vested but not but not exercisable exercisable Vested and Vested and exercisable exercisable Options Options vested vested during year during year No. No. No. No. No. No. No. No. No. 2007 G.H. Babidge 1,925,000 1,700,000 - (1,225,000) 2,400,000 700,000 B. W. Bootle - 900,000 R. J. F. Macleod 650,000 1,700,000 P. Nathan M. E. Jenkins Dr V. Lakshminarayana H. A. Hurwitz 2006 - 100,000 50,000 50,000 G. H. Babidge 1,225,000 R. J. F. Macleod M. E. Jenkins Dr V. Lakshminarayana H. A. Hurwitz 350,000 100,000 50,000 50,000 300,000 300,000 - - 700,000 300,000 - - - - - - - - - - - - - - - 900,000 - (350,000) 2,000,000 300,000 - - - - - - - - - 300,000 - 400,000 100,000 50,000 50,000 50,000 50,000 1,925,000 1,925,000 650,000 650,000 100,000 100,000 50,000 50,000 50,000 50,000 - - - - - - - - - - - - 700,000 - 300,000 - 100,000 50,000 50,000 1,925,000 650,000 100,000 50,000 50,000 - - - - - - - 925,000 650,000 100,000 50,000 50,000 2007 Annual Report | 57 Notes to the Financial Statements For the year ended 30 June 2007 (continued) 28 Related party transactions (continued) All share options issues to key management personnel were made in accordance with the provisions of the Employee Share Option Plan. During the fi nancial year nil options (2006: nil) were exercised by key management personnel. Further details of the Employee Share Option Plan and of share options granted during 2007 and 2006 fi nancial years are contained in note 29 to the fi nancial statements. (iii) Other transactions with key personnel of the Group Profi t for the year includes $124,000 (2006: nil) on the sale of land and buildings to Contract Beverage Packers of Australia Pty Ltd (CBPA) which is a 50: 50 joint venture with Leppington Pastoral Company which is owned by members of the Perich family. For further transactions with key personnel of the Group, refer to transactions between Parent and its related parties below. (c) Transactions with other related parties Other related parties include: • • • • • the parent entity entities with joint control or signifi cant infl uence over the Group joint ventures in which the entity is a venturer subsidiaries other related parties (i) Transactions between Parent and its related parties During the fi nancial year, the following transactions occurred between the Parent and its related parties: • • • • the Parent recognised tax payable in respect of the tax liabilities of its wholly-owned subsidiaries. Payments to/from the Parent are made in accordance with the terms of the tax funding arrangement. the Parent made dividend payments totalling $348,000 to its ultimate parent entity (2006: nil). The ultimate parent entity Arrovest Pty Ltd holds 78% of the fully paid ordinary shares of Freedom Nutritional Products Limited (2006: 20%) the Parent received interest income of $1,162,000 (2006: $973,000) from controlled entities. The interest rate on loans is 9.5% or 8% (2006: 9.5% or 8%). Interest is receivable on the last business day of the fi nancial year. the Parent made payments of $1,562,000 (2006: $1,372,000) to a controlled entity for selling, corporate and fi nancial services. The amount is payable on the last day of the fi nancial year. The following balances arising from transactions between the Parent and its other related parties are outstanding at reporting date: • • • Non-current loans totalling $29,616,000 are receivable from subsidiaries (2006: $23,615,000) Current loans totalling $1,476,000 are receivable from joint ventures (2006: $155,000) Current loans totalling $271,000 are repayable to the associate of the ultimate parent (2006: $3,000) All amounts advanced to or payable to related parties are unsecured and are subordinated to other liabilities. The amounts outstanding will be settled in cash. No guarantees have been given or received. No expense has been recognised during the fi nancial year for bad or doubtful debts in respect of the amounts owed by related parties. Transactions and balances between the Parent and its subsidiaries were eliminated in the preparation of the consolidated fi nancial statements of the Group. 58 | Freedom Nutritional Products Limited Notes to the Financial Statements For the year ended 30 June 2007 (continued) 28 Related party transactions (continued) (ii) Transactions between the Group and its related parties CBPA provided contract beverage packing services at cost $2,134,000 (2006: $2,348,000). These services are provided under normal terms and conditions. Current loans totalling $1,476,000 are receivable from joint ventures (2006: $155,000) The following balances arising from transactions between the Group and its other related parties are outstanding at reporting date: • • All amounts advanced to or payable to related parties are unsecured and are subordinated to other liabilities. Current loans totalling $271,000 are repayable to the associate of the ultimate parent (2006: $3,000) The amounts outstanding will be settled in cash. No guarantees have been given or received. No expense has been recognised during the fi nancial year for bad or doubtful debts in respect of the amounts owed by related parties. (iii) Guarantee The Parent has guaranteed half bank debt up to $1m for the debts of a jointly controlled entity. The amount of the potential exposure is $nil (2006: $nil). ( (d) Parent entities The Parent entity of the Group is Freedom Nutritional Products Limited and the ultimate parent entity is Arrovest Pty Ltd which is incorporated in Australia. 2 29 Share based payments – Employee Share Option Plan Senior employees are eligible to participate in the share scheme under which executives are issued options to acquire shares in the Parent. Each employee share option converts into one ordinary share of the Parent on exercise. No amounts are paid or payable by the recipient on receipt of the option. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry. The options granted expire within fi ve years of their issue, or one year of the resignation of the senior employee, whichever is the earlier. In relation to options issued during the current fi nancial years option series 7 vest in four equal tranches over a period of 4 years and option series 8 vests in two equal tranches over two years. The following share-based payment arrangements were in existence during the current and comparative reporting periods: Option series (1) Issued 1 January 2002 (2) Issued 1 January 2002 (3) Issued 1 January 2002 (4) Issued 29 January 2003 (5) Issued 3 September 2003 (6) Issued 27 July 2005 (7) Issued 30 November 2006 (8) Issued 26 April 2007 Number Number Grant date Grant date Expiry date Expiry date Exercise price Exercise price Fair value at Fair value at grant grant 333,334 333,333 333,333 700,000 275,000 1,000,000 4,300,000 600,000 1/01/02 1/01/02 1/01/02 29/01/03 3/09/03 27/07/05 30/11/06 26/04/07 28/03/07 28/03/07 28/03/07 29/01/08 3/09/08 27/07/10 30/11/11 26/04/10 $ 0.90 1.00 1.10 0.80 0.85 0.50 0.50 0.50 $ - - - - - - 0.10 0.10 The weighted average fair value of the share options granted during the fi nancial year is $0.10 (2006: $nil). Options were priced using a binomial option pricing model. Where relevant, the expected life used in the model has been adjusted on management’s best estimate for the eff ects of non-transferability, exercise restrictions and behavioural considerations. 2007 Annual Report | 59 Notes to the Financial Statements For the year ended 30 June 2007 (continued) 29 Share based payments – Employee Share Option Plan (continued) Inputs into the model Inputs into the model Series 1 Series 1 Series 2 Series 2 Series 3 Series 3 Series 4 Series 4 Series 5 Series 5 Series 6 Series 6 Series 7 Series 7 Series 8 Series 8 Grant date share price Exercise price Expected volatility Option life Dividend yield Risk-free interest rate 0.72 0.90 15% 0.72 1.00 15% 0.72 1.10 15% 0.60 0.80 15% 0.80 0.85 15% 0.38 0.50 15% 0.50 0.50 20% 0.48 0.50 20% 5.25 years 5.25 years 5.25 years 5 years 5 years 5 years 5 years 3 years Nil 6.0% Nil 6.0% Nil 6.0% 2007 2007 Nil 6.0% Nil 6.0% Nil 6.0% 2.5% 8% 2.5% 8% 2006 2006 Number of options Weighted average exercise price $ Number of options Weighted average exercise price $ Balance at beginning of fi nancial year Granted during fi nancial year Forfeited during fi nancial year Cancelled during fi nancial year Exercisable at end of fi nancial year 2,975,000 4,900,000 (200,000) (1,575,000) 6,100,000 1,200,000 0.77 0.50 0.84 0.93 0.51 0.55 1,975,000 1,000,000 - - 2,975,000 2,975,000 Balance at end of the fi nancial year The share options outstanding at the end of the fi nancial year had an average exercise price of $0.51 (2006: $0.77), and a weighted average remaining contractual life of 1,501 days (2006: 374 days). 30 Contingent liabilities Bank guarantee given to a supplier arising out of the normal course of business. No liability is expected to accrue. Consolidated Consolidated $000 $000 2007 51 2006 51 Parent Parent $000 $000 2007 20 0.91 0.50 - - 0.77 0.77 2006 20 A statement of claim has been received from a customer relating to products provided in 1998 and 1999. The Parent is defending this claim and believes it will be successful. The claim is for $392,000 plus interest. 31 Controlled entities Controlled Entity Paramount Seafoods Pty Limited Nutrition Ventures Pty Limited Freedom Foods Pty Limited Australian Natural Foods Holdings Pty Limited Thorpedo Foods Group Pty Limited Thorpedo Foods Pty Limited Thorpedo Seafoods Pty Limited 60 | Freedom Nutritional Products Limited Country of Incorporation Country of Incorporation Percentage of shares held Percentage of shares held Australia Australia Australia Australia Australia Australia Australia 2007 100% 100% 100% 100% 100% 50.01% 75% 2006 100% 100% 100% 100% 100% 50.01% 75% Notes to the Financial Statements For the year ended 30 June 2007 (continued) 31 Controlled entities (continued) The consolidated income statement and balance sheet of the entities party to the deed of cross guarantee is the consolidated income statement and balance sheet included in the 2007 fi nancial report. On 22 March 2007 Functional Food Investments Pty Limited changed its name to Nutrition Ventures Pty Limited. 3 32 Companies party to deed of cross guarantee The following have entered into a deed of cross guarantee as a condition to obtaining relief under ASIC Class Order 98/1418 from the Corporations Act 2001 requirements to prepare and lodge an audited fi nancial report and a directors’ report. Members of the closed group are: • • • • • • • • Freedom Nutritional Products Limited Nutrition Ventures Pty Limited Freedom Foods Pty Limited Paramount Seafoods Pty Limited Australian Natural Foods Holdings Pty Limited Thorpedo Foods Group Pty Limited Thorpedo Foods Pty Limited Thorpedo Seafoods Pty Limited Each party to the deed of cross guarantee, guarantees to each creditor in the group payment in full of any debt upon winding up under the provisions of the Corporations Act 2001 or, in any other case, if six months after a resolution or order for winding up, any debt of a creditor that has not been paid in full. 3 33 Joint venture Freedom Nutritional Products Limited has a 50% (2006: 50%) interest in Contract Beverage Packers of Australia Pty Limited (CBPA) for an opening investment cost of $974,000 (2006: $521,000). CBPA acquired the manufacturing equipment of Freedom Nutritional Products Limited at book value and provides contract beverage packing services. The Group’s share of CBPA loss for the year ended 30 June 2007 was $136,000 (2006: $71,000) which has been equity accounted for and consequently reduces the investment cost in CBPA to $768,000 (2006: $450,000). Freedom Nutritional Products Limited’s share of the assets employed in the joint venture is: Current assets Non-current assets Total assets Current liabilities Non-current liabilities Net assets Shareholder funds Revenue Loss after income tax $000 $000 2007 1,699 4,905 6,604 2,609 3,700 6,309 295 295 1,088 (136) 2006 275 3,064 3,339 1,102 2,256 3,358 (19) (19) 191 (71) 2007 Annual Report | 61 Notes to the Financial Statements For the year ended 30 June 2007 (continued) 34 Assets pledged as security In accordance with the security arrangements of liabilities, as disclosed in note 16 to the fi nancial statements, all non-current assets of the Group, except goodwill and deferred tax assets, have been pledged as security. The holder of the security does not have the right to sell or repledge the assets. The Group does not hold title to the equipment under fi nance lease pledged as security. 35 Acquisition of business Name of business acquired Name of business acquired Principal activity Principal activity Date of acquisition Date of acquisition Proportion of shares Proportion of shares acquired (%) acquired (%) Cost of acquisition Cost of acquisition $000 $000 Cookieman baking assets Biscuit baking 18-May-07 Nil 1,679 Net Assets Acquired Assets Prepayments Inventory Deferred tax assets Plant and equipment Liabilities Employee entitlements Income in advance Goodwill Cookieman baking assets Cookieman baking assets Book Value $000 Fair Value Adjustment $000 Fair Value on Acquisition $000 9 412 78 1,008 (196) (64) 1,247 - - - 216 - - 216 9 412 78 1,224 (196) (64) 1,463 216 1,679 The initial accounting for the acquisition of the Cookieman baking assets has only been provisionally determined at reporting date. At the date of fi nalisation of this report, the necessary valuation of separately identifi able intangibles has not been fi nalised and goodwill noted above has therefore only been provisionally determined based on the directors’ best estimate. Included in the net profi t for the period is $44 thousand attributable to the additional business generated by Cookieman baking assets. 36 Subsequent events No matters or circumstances have arisen since the end of the fi nancial year which signifi cantly aff ected or may signifi cantly aff ect the operations of the consolidated entity, the results of those operations, or the state of aff airs of the consolidated entity in subsequent fi nancial years. 62 | Freedom Nutritional Products Limited Directors’ Declaration For the year ended 30 June 2007 Freedom Nutritional Products Limited Directors’ Declaration For The Year Ended 30 June 2007 or The directors declare that: • • in the directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; • • • in the directors’ opinion, the attached fi nancial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the fi nancial position and performance of the company and the consolidated entity; and the directors have been given the declarations required by s.295A of the Corporations Act 2001. At the date of this declaration, the company is within the class of companies aff ected by ASIC Class Order 98/1418. T The nature of the deed of cross guarantee is such that each company which is party to the deed guarantees to each c creditor payment in full of any debt in accordance with the deed of cross guarantee. In In the directors’ opinion, there are reasonable grounds to believe that the company and the companies to which t the ASIC Class Order applies, as detailed in note 32 to the fi nancial statements will, as a group, be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee. S Signed in accordance with a resolution of the directors made pursuant to s.295 (5) of the Corporations Act 2001. On behalf of the directors O P. R. Gunner P. R. Chairman Ch Sydney, 5 September 2007 G.H. Babidge Managing Director 2007 Annual Report | 63 Independent Audit Report Independent Auditor’s Report to the members of Freedom Nutritional Products Limited Deloitte Touche Tohmatsu ABN 74 490 121 060 The Barrington Level 10 10 Smith Street Parramatta NSW 2150 PO Box 38 Parramatta NSW 2124 Australia DX 28485 Tel: +61 (0) 2 9840 7000 Fax: +61 (0) 2 9840 7001 www.deloitte.com.au We have audited the accompanying financial report of Freedom Nutritional Products Limited, which comprises the balance sheet as at 30 June 2007, and the income statement, cash flow statement and statement of changes in equity for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year as set out on pages 19 to 63. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 3, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial Reporting Standards ensures that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. Liability limited by a scheme approved under Professional Standards Legislation. 64 | Freedom Nutritional Products Limited Independent Audit Report (continued) We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Auditor’s Independence Declaration In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s Opinion In our opinion: a) the financial report of Freedom Nutritional Products Limited is in accordance with the Corporations Act 2001, including: i) ii) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2007 and of their performance for the year ended on that date; and complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 3. DELOITTE TOUCHE TOHMATSU P G Forrester Partner Chartered Accountants P Parramatta, 5 September 2007 2007 Annual Report | 65 Shareholder Statistics Shareholding Substantial shareholders The number of shares held by the substantial shareholder is listed in the Parent’s register as at 31 August 2007 is: Shareholder Shareholder Arrovest Pty Limited Number Number 35,044,006 Class of shares and voting rights Class of shares and voting rights At 31 August 2007, there were 44,527,343 ordinary shares of the Parent on issue. The Parent’s listed ordinary shares are of one class with equal voting rights and all are quoted on a Member Exchange of the Australian Stock Exchange Limited (the home exchange being the Australian Stock Exchange (Sydney) Limited). DISTRIBUTION OF SHAREHOLDERS AS AT 31 August 2007 Category Category 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 - and over Ordinary Ordinary 334 307 112 157 18 928 Non marketable securities which are holdings of less than 1,042 ordinary shares are held by 352 shareholders. This statistic is based on the share register as at 31 August 2007. 66 | Freedom Nutritional Products Limited Shareholder Statistics (continued) 20 LARGEST ORDINARY SHAREHOLDERS AS AT 31 August 2007 Name 1 2 3 4 5 6 7 8 9 10 11 12 13 Arrovest Pty Limited East Coast Rural Holdings Pty Limited Mr S Higgs ATF SF Higgs Superannuation Fund National Nominees Limited Mr & Mrs P Gunner ATF Perry Gunner Superannuation Fund Mr & Mrs J Perry Mr T E Morris Rakzirre Pty Limited Anisam Pty Limited Economic Consultancy Services Pty Ltd Berzins Asset Management Pty Limited Gallium Pty Limited Cebourn Partners Pty Limited 14 Mr L Lip & Ms Y F Chong 15 Symspur Pty Limited 16 Mr Gary Douglas Spence 17 RD & KA McGavin Pty Limited ATF RD & KA McGavin Superannuation Fund 18 Mr & Mrs C Tuckwell ATF CRT Superannuation Fund 19 Mr & Mrs E Dally ATF E J Dally Superannuation Fund 20 Mr James Marsden & Mr John Adam Number of Number of Ordinary Shares Ordinary Shares HeldHeld % Held of % Held of Ordinary Capital Ordinary Capital 35,044,006 78.70% 405,279 384,615 336,499 321,017 200,000 200,000 195,137 192,308 192,308 170,000 162,180 156,108 144,732 140,871 120,851 115,385 100,000 100,000 97,030 0.91% 0.87% 0.76% 0.72% 0.45% 0.45% 0.44% 0.43% 0.43% 0.38% 0.36% 0.35% 0.33% 0.32% 0.27% 0.26% 0.22% 0.22% 0.22% The proportion of ordinary shares held by the 20 largest shareholders is 87.09% Stock exchanges that have granted quotation to the securities of the Parent quoted in Australia: All Member Exchanges. A 38,778,326 87.09% 2007 Annual Report | 67 Company Secretary Michael Jenkins Prin Principal Registered Of(cid:192) ce 8 80 Box Road Taren Point, NSW 2229 T Tel: (02) 9526 2555 F Fax: (02) 9525 5406 S Share Registry Registries Limited L Level 2, 28 Margaret Street, Sydney NSW 2000 T Tel: (02) 9279 0677 F Fax: (02) 9279 0664 n Insurance Brokers InterRisk Australia Pty Limited L Level 1, 7 Macquarie Place, Sydney NSW 2000 T Tel: (02) 9346 8050 F Fax: (02) 9346 8051 M Management G Geoff Babidge – Managing Director Corporate Directory Solicitors Gilbert & Tobin 2 Park Street, Sydney NSW 2001 Tel: (02) 9263 4000 Fax: (02) 9263 4111 Mallesons Stephen Jaques Level 60, Governor Phillip Tower, 1 Farrer Place, Sydney NSW 2000 Tel: (02) 9296 2000 Fax: (02) 9296 3999 Banker Westpac Banking Corporation 344-346 The Kingsway, Caringbah NSW 2229 Tel: (02) 9540 1077 Fax: (02) 9540 3134 Auditor Deloitte Touche Tohmatsu Chartered Accountants The Barrington, Level 10 R Rory Macleod – Strategic Development Director 10 Smith Street, Parramatta NSW 2150 G Greg Hughes – Chief Operating Offi cer M Michael Jenkins – Chief Financial Offi cer and Company Secretary Tel: (02) 9840 7060 Fax: (02) 9840 7001 2007 Annual Report | 68 Freedom Nutritional Products Limited ABN 41 002 814 235 | Ph: 02 9526 2555 | Fax: 02 9525 5406 80 Box Road Taren Point NSW 2229 | PO Box 2531 Taren Point NSW 2229 

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