Freedom Foods Group Limited Annual Report 2008

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FY2008 Annual Report · Freedom Foods Group Limited

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Freedom Nutritional
Products Limited

Annual Report

2008

For personal use onlyContents

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

ANNUAL GENERAL MEETING

Date

Venue

30 October, 2008.

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 2008

For personal use only

Financial Highlights and Five Year Summary

Sales Revenue ($000’s)

EBITDA ($000’s)*

Net Profit / (Loss) before Tax ($000’s)

Profit 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)

2004

2005

2006

2007

2008

32,940

360

(1,237)

(749)

(2.6)

32,689

Nil

30,581

17,362

37,954

2,090

643

310

0.8

46,963

48,683

2,921

1,595

1,434

3.2

3,173

1,789

1,174

2.6

54,082

3,203

1,508

956

2.0

44,485

44,527

54,607

Nil

41,137

21,538

Nil

43,548

22,844

445

47,428

23,654

891

56,295

29,239

*Earnings before interest, tax, depreciation and amortisation

Note:

2004 was prepared under Australian Accounting Standards (AGAAP)
2005, 2006, 2007 and 2008 were prepared under Australian Equivalents to International Financial Reporting
Standards (AIFRS)

2008 Annual Report | 1

For personal use onlyChairman’s Letter

Dear Shareholder,

Freedom Nutritional Products Limited (FNP) reported a net profit after tax of $956 thousand for the year. The Chief
Executive Officer’s report provides a commentary on operations. The financial performance allowed the directors to
pay fully franked dividends of two cents during the year and we have now declared that the final 2008 fully franked
one cent dividend payable in December 2008. This represents a 6% dividend yield on the year end share price.

During the year the Board welcomed Mr Rory Macleod as Executive Director. Mr Macleod has been an employee of
the company for the past 5 years.

The Board welcomed interests of Mr Terry Morris as a substantial shareholder during the year and viewed this as
an endorsement of its strategy to be a leader in the special nutrition market. I wish to acknowledge the continued
support of our major shareholder the Perich Group over the past year.

In October 2007 the company acquired the “Norganics” brand which has a leading position in health food and
grocery channels. Further in April 2008 the company acquired a modern food grade plant in Leeton, NSW to support
continuing domestic growth as well as to provide capability to grow its export market in particular in Europe and
North America.

The year saw a2 milk™ sales grow by 150% for our joint venture company A2 Dairy Products Australia as consumer
awareness of the potential health benefits and superior taste profile grew. Further opportunities for growth are being
developed.

The Board thanks Geoff Babidge and his management team for their contributions and we look forward to improving
financial performance in 2009 financial year.

Perry Gunner
Chairman
2 September 2008

2 | Freedom Nutritional Products Limited

For personal use only
Chief Executive’s Review of Operations

The Group achieved net profit after tax of $956 thousand for the 12 months ended 30 June 2008.

Sales and EBITDA of our wholly owned businesses were higher than in 2007 however the final result was impacted
by higher interest costs, a higher effective income tax rate, a negative performance of our joint ventures and foreign
exchange marked to market adjustments. Operating EBITDA was up 10% to $3,835 thousand compared to the prior
year and return on funds employed improved marginally to 9.4%.

Key highlights of the year included:

•

Improved operating performance of Freedom Foods core products in cereals and snacks. Specialty Seafood and
Thorpedo Foods performed close to plan.

Acquisition and successful integration of Norganic Foods brand from October 2007.

Acquisition of a modern manufacturing facility at Leeton in April 2008 and finalization of plans to establish a
dedicated gluten free and nut free cereal and baked products facility for Freedom Foods to be completed during
2009.

Successful development of the A2 Dairy Products Australia joint venture with significant growth in fresh milk
volumes and achievement of monthly earnings break even by year end.

•

Growth in consolidated gross sales of 11% on the previous year.

Functional Foods

Seafood

The Paramount Seafood division comprising Paramount salmon and Brunswick sardine and specialty seafood products
performed near to plan for the year.

Paramount salmon sales were marginally above last year and we achieved growth in market share in a number of
lines. Brunswick sardines experienced higher purchase costs and a more competitive market, but was able to maintain
its brand leadership position in both Australia and New Zealand. Bumble Bee Foods continues to assist sourcing our
requirements and passed on a reduction in sardine costs which will assist in the coming year. The 2008 salmon catch is
forecast to be substantially down, however we expect to secure our volume requirements for 2009.

Thorpedo Foods

Thorpedo Foods continued its focus of supporting its beverage licensee in Japan, Yakult Honsha, and achieved its
planned financial performance.

Special Dietary Foods

Freedom Foods

Freedom Foods, the leading provider of Special Dietary Food products in Australia performed credibly with sales
growth (excluding soy and rice beverages) of 64% reflecting increased sales of core cereals and snacks and the impact
of acquisitions of baking assets and the Norganic brand during the year. Our entry into free-from frozen foods did
not achieve expectations nor the volume requirements of the trade, notwithstanding
strong consumer purchase intent and trends in other markets.

In October, Freedom Foods completed the acquisition of the assets of Norganic Foods
which consolidated Freedom’s leading position in retail grocery and health food
channels. The Norganic acquisition performed to plan during the year.

In April the company acquired a modern food grade factory near Leeton, NSW and
subsequently finalized plans to establish a dedicated manufacturing facility for gluten,
wheat and nut free cereal and baked products, to be completed during 2009. This
will be a unique facility to support further development of proprietary branded and
contract special dietary products. The facility will provide opportunity to target export
growth in European and North American markets. The facility will cost around A$10m
during 2009, to be funded utilizing both debt and equity.

2008 Annual Report | 3

For personal use onlyChief Executive’s Review Of Operations
(continued)

Soy and Rice

Notwithstanding our introduction of an improved taste profile and packaging, soy beverages under-performed our
expectation with ongoing price competition and continuing decline in the market in part a function of continued
speculation of potential risks of soy consumption. Our rice beverage range however continued to perform strongly
and maintained a market leadership position.

Equity Accounted Activities

A2 Dairy Products Australia

In June 2007 the company invested in the 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
Corporation Limited of New Zealand. FNP has the right to convert to a 50% equity interest in A2DP.

a2 milk™ is obtained naturally from cows specially selected for their genetic makeup to produce milk containing
predominantly A2 protein. Certain evidence suggests that drinking a2 milk™ rather than regular milk may reduce
disease risks for some individuals who are predisposed towards certain conditions.

During the year, the business achieved a significant increase in a2 milk™ fresh milk volumes and by year end A2DP had
achieved a break-even monthly earnings position, ahead of our business plan. This growth was a function of a range of
factors including publicity surrounding the potential benefits of a2 milk™, increased awareness following a significant
marketing campaign to both consumers and health professionals, and ongoing support from the grocery trade.

A2DP will continue to focus on achieving further growth in market milk and develop plans for the launch of additional
a2 milk™ products. In addition, the company is advanced in developing a market entry strategy for Japan.

Contract Beverages Packers of Australia Pty Ltd (CBPA)

CBPA (50% owned) incurred a loss during the year from issues associated with the installation of new processing and
packaging equipment and lower dairy milk and soy contract packing than planned. Whilst our investment in CBPA is
minimal, our objective is to achieve profitable performance from a growing business. As a result, we have implemented
a new strategic plan to broaden our product offering and build new customer relationships and have engaged a new
experienced management team to take forward this plan in the current year.

Outlook

The plan for FY 2009 is to focus on the activities of the core activities of Freedom Foods Special Dietary, Specialty
Seafood and A2DP. In particular this includes achievement of volume and earnings expectations for these businesses,
close management of the Leeton factory capital expenditure project and continuous improvement in all functions
across the company. We will opportunistically consider growth opportunities in the specialized segments of the
Nutrition Market should they arise.

Geoff Babidge
Managing Director and Chief Executive Officer
2 September 2008

4 | Freedom Nutritional Products Limited

For personal use only
Directors’ Report

Your directors submit the financial report of Freedom Nutritional Products Limited (the Parent) for the year ended 30
June 2008. In order to comply with the provisions of the Corporations Act 2001, the directors report as follows:

Directors

For the names and particulars of the Directors of the Parent during or since the end of the financial year, refer to the
Corporate Governance Statement.

Company secretary

Mr M Jenkins, B Comm., LLB (Hons), ACA, ACIS has been Company Secretary and Chief Financial Officer for over six
years. He has been a Chartered Accountant for over 26 years and a Company Secretary for over 16 years.

Principal activities

The principal activities of the consolidated entity during the financial year were:

•

manufacture and distribution of long life soy and other beverages;

manufacture, distribution and marketing of natural foods;

distribution and marketing canned seafood;

distribution and marketing low GI energy waters.

There were no significant changes in the nature of the principal activities during the financial year.

Review of operations

The consolidated entity’s profit attributable to equity holders of the parent, after providing for income tax, amounted
to $956,000 (2007 profit : $1,174,000).

Refer commentary in Chief Executive’s Review of Operations.

Dividends paid or recommended

A one cent per share fully franked first interim dividend was paid on 18 December 2007 in respect of the year ended 30
June 2008. The dividend was franked to 100% at 30% corporate income tax rate.

A one cent per share fully franked second interim dividend was paid on 19 May 2008 in respect of the year ended 30
June 2008. The dividend was franked to 100% at 30% corporate income tax rate.

In respect of the financial year ended 30 June 2008, the directors recommend the payment of a final 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 2008.

Significant changes in state of affairs

There were no significant changes to the state of affairs of the consolidated entity that occurred during the financial
year under review, not otherwise disclosed in this report.

Events subsequent to balance date

No matters or circumstances have arisen since the end of the financial year which significantly affected or may
significantly affect the operations of the consolidated entity, the results of those operations, or the state of affairs of the
consolidated entity in subsequent financial 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 regulations

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.

2008 Annual Report | 5

For personal use onlyDirectors’ Report
(continued)

The consolidated entity operates under a Dangerous Goods Licence issued by Workcover.

There were no breaches of environmental laws, regulations or permits during the year.

The consolidated entity is currently operating in accordance with local council consent in regard to hours of
operation.

Indemnification of officers and auditors

The Parent has not, during or since the financial year, in respect of any person who is or has been an officer or auditor
of the Parent or a related body corporate:

•

indemnified or made any relevant agreement for indemnifying against liability incurred as an officer, 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 officer for the
costs or expenses to defend legal proceedings;

with the exception of the following matter:

During the financial year the Parent paid premiums to insure each of the Directors against liabilities for costs and
expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the
capacity of an officer of the Parent. The contract of insurance prohibits disclosure of the nature of the liability and the
amount of the premium.

Rounding off of amounts

The Parent is an entity to which ASIC Class Order 98/0100 applies. Accordingly amounts in the financial report have
been rounded off to the nearest thousand dollars, unless otherwise stated.

Meetings of Directors

During the financial year 15 meetings of directors (including committees) were held. The following persons acted as
directors of the company during or since the end of the financial year with attendances to meetings of directors as
follows:

Directors Meeting

Audit, risk & compliance
committee meetings

Remuneration &
nomination
committee meetings

Eligible To
attend

Attended

Eligible
To attend

Attended

Eligible
To attend

Attended

P. R. Gunner

G.H. Babidge

A. M. Perich

R. Perich

M. Miles

R.J.F. Macleod

B. W. Bootle (alternate director)

S.F. Higgs

Mr B. W . Bootle attended 11 of the 12 board meetings as an observer.

Mr R.J.F. Macleod was appointed a director in May 2008.

Mr S. F. Higgs resigned as a director in October 2007.

6 | Freedom Nutritional Products Limited

For personal use onlyDirectors’ Report
(continued)

Remuneration Report - Audited

This report details the nature and amount of remuneration for each Director and the executives receiving the highest
remuneration.

Key management personnel (incorporating the group and company executive who receive the highest remuneration
for the year) include:

P. R. Gunner - Chairman and non-executive director

G.H. Babidge - Chief executive officer and Managing director

A. M. Perich - Non-executive director.

R. Perich - Non-executive director.

M. Miles - Non-executive director

R.J.F Macleod - Executive director (appointed as director in May 2008)

B. W. Bootle - alternate director

S.F. Higgs - Non-executive director (resigned October 2007)

G. J. Hughes - Chief operating officer (commenced July 2007)

P. J. Nathan - General manager marketing

M. E. Jenkins - Chief financial officer and Company secretary

M Christian - General manager manufacturing (commenced January 2007)

M. Haupfleisch - Business unit manager - Specialty Seafood (commenced March 2008)

Remuneration policy

Remuneration arrangements for key management personnel of the Parent and Group (“the Directors and executives”)
are set competitively to attract and retain appropriately qualified 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 qualified candidates. 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 directors and executives

Fixed remuneration consists of base remuneration (which is calculated on a total cost basis and includes any FBT charges
related to employee benefits including motor vehicles), as well as employer contributions to superannuation funds.

Executive directors and executives remuneration levels are reviewed annually by the Remuneration and Nomination
Committee through a process that considers the overall performance of the Group.

Performance based remuneration

Performance based remuneration is at the discretion of the Remuneration and Nomination Committee. These can take
the form of share options or cash payments. During the year, no further options were issued.

Options are valued using the bi-nomial method.

Options have been issued to key management personnel in the past, however these options do not relate to the
performance of the Company but are used to assist in retaining personnel for future periods by linking the vesting of
such options to a personnel’s employ.

2008 Annual Report | 7

For personal use onlyDirectors’ Report
(continued)

During the current financial year, bonuses have been paid to key management personnel consistent with the
above basis.

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 paid to non-executive directors for
2008 was $167,000. 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 benefits 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 fixed term to 30 November 2011

The remuneration comprises a fixed component which includes the cost to the consolidated entity of any
superannuation contributions made by the consolidated entity 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 his
duties. The CEO may terminate this agreement with one month’s notice and the Parent with six month’s notice. In
the event of dismissal by the Parent, other than for breach of contract, the CEO is also entitled to one year’s total
remuneration.

No other executive has a fixed term contract.

Parent performance, shareholder wealth and directors and senior management remuneration

The remuneration policy of the company and group does not directly link the remuneration of the directors and
senior executives to parent performance or shareholder wealth.

The following table shows the revenue, profits, dividends and earnings per share for the past five years for the
consolidated entity.

Revenue ($000s)

Net Profit / (loss) after tax ($000s)

Dividends paid (cents)

Basic Earnings per share (cents)

2004

32,940

(749)

Nil

(2.6)

2005

37,954

310

Nil

0.8

2006

46,963

1,434

Nil

3.2

2007

48,683

1,174

2.6

2008

54,082

956

2.0

2004 was prepared under Australian Accounting Standards (AGAAP). Years 2005, 2006, 2007 and 2008 are prepared
under Australian Equivalents to International Financial Reporting Standards (AIFRS).

The Remuneration and Nomination Committee considers that the Parent’s performance-linked remuneration
structure is appropriate to building shareholder value in the medium term.

8 | Freedom Nutritional Products Limited

For personal use onlyDirectors’ Report
(continued)

Directors and executive officers emoluments

The benefits of each director who held office and five highest paid executive officers for the year ended 30 June 2008 are
as follows

Short-term employee benefits

Post
employment
Benefits

Share
based
payment

% of
total
being

Salary

Directors’
Fees

Committee
Fees

Bonus

Non-cash
Benefit

Superannuation
Contributions

60,000

3,000

Directors - 2008

P. R. Gunner

G.H. Babidge

A.M. Perich

R. Perich

M. Miles

R. J. F. Macleod

B W. Bootle

S. F. Higgs (1)

325,871

211,871

30,000

10,000

(1) Mr Higgs resigned as a director in October 2007.

Executive Officers - 2008

G. J. Hughes (1)
(Chief operating officer)

P. J. Nathan
(General manager of marketing)

M. E. Jenkins
(Chief financial officer & company secretary)

M Christian (2)
(General manager of manufacturing)

M. Haupfleisch (3)
(Business unit manager - Speciality Seafood)

(1) Commenced 23 July 2007

223,509

144,843

185,000

189,596

55,200

50,000

22,000

2,000

(2) General Manager of Manufacturing - Commenced 1 January 2007

(3) Business unit manager - Specialty Seafoods - Commenced 11 March 2008

Directors - 2007

P. R. Gunner

G.H. Babidge

A.M. Perich

R Perich

S. F. Higgs

M. Miles

B W. Bootle

C.C. Grubb

G. J. Reaney

M. van Ryn

28,167

3,000

223,487

24,167

25,000

3,633

6,667

2,000

1,833

2,000

182

666

Options

Total

Options

68,670

42,934

381,934

11%

32,700

34,880

5,670

13,129

2,700

2,880

13,129

42,934

267,934

900

22,731

10,900

10,421

283,930

27,000

12,283

9,000

193,126

1,513

15,000

9,000

209,000

211,596

55,200

25,695

100,000

2,175

2,430

2,415

17,620

660

7,993

56,862

25,045

350,045

13,259

26,342

29,430

29,248

19,620

13,259

3,815

7,993

16%

100%

2008 Annual Report | 9

For personal use only
Directors’ Report
(continued)

Executive Officers - 2007

R. J. F. Macleod
(Strategic and corporate development)

P. J. Nathan (1)
(General manager of marketing)

M. E. Jenkins
(Chief financial officer & company
secretary)

H. A. Hurwitz
(Soy business and new product
development manager)

B. A. O’Brien (2)
(Brand development manager)

Salary

187,314

137,325

150,933

137,821

41,761

(1) appointed 11 September, 2006.

(2) resigned 17 August 2007

Short-term employee benefits

Post
employment
Benefits

Share
based
payment

% of
total
being

Directors
Fees

Committee
Fees

Non-cash
Benefit

Superannuation
Contributions

Bonus

Options

Total

Options

12,686

25,045

225,045

11%

32,829

1,500

171,654

1,367

27,700

1,500

181,500

12,179

15,500

93,805

150,000

151,066

(3) Directors Grubb, Reaney and van Ryn retired during the financial year ended 30 June 2007.

No director or senior management person appointed during the year received a payment as part of his or her
consideration for agreeing to hold the position.

There were no performance based remuneration payments made during the financial years.

Bonus payments as compensation for the current financial year

Mr G. J. Hughes was granted a cash retention bonus of $50,000 on 1 November 2007.
Mr M. Christian was granted a cash retention bonus of $22,000 on 1 January 2008.
No other bonuses were granted during 2008.

Employee share options

During and since the end of the financial year no share options were granted to key management personnel of the parent
and consolidated entity as part of their remuneration.

Details of unissued shares or interests under option as at the date of this report are:

Issuing entity

Freedom Nutritional Products Limited (i)

Freedom Nutritional Products Limited (ii)

Freedom Nutritional Products Limited (iii)

Grant date

(i) Issued 27 July 2005

(ii) Issued 30 November 2006

(iii) Issued 26 April 2007

Number of shares
under option

Class of shares

Exercise price
of option

1,000,000

4,300,000

600,000

Ordinary

$0.50

Expiry date
of options

27 July 2010

30 November 2011

26 April 2010

Fair value at grant

Nil

$0.10

10 | Freedom Nutritional Products Limited

For personal use onlyDirectors’ Report
(continued)

Recipients

Issued 27 July 2005

Issued 30 November 2006

Issued 26 April 2007

Name

Number

Fair Value ($)

G.H. Babidge

R. J. F. Macleod

G. H. Babidge

R. J. F. Macleod

B. W. Bootle

M. E. Jenkins

P. Nathan

700,000

300,000

1,700,000

900,000

300,000

Nil

170,000

90,000

30,000

Conditions

Employment

There are no further performance criteria that need to be met in relation to options granted. Options vest over a
period of either 3 or 5 years and relate to an employees service period only.

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 or since the end of the financial year as a result of exercise of an option.

During the year 200,000 options lapsed.

Directors’ shareholding

Refer to Principle 2 “Structure of the Board to add value” in Corporate Governance Statement.

Non-audit services

During the year Deloitte, the 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 satisfied 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, including reviewing or auditing the auditor’s own work, acting in a
management or decision-making capacity for the company, acting as advocate for the company or jointly sharing
economic risks and rewards.

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 prior year are set out below:

Audit Services

Ex-auditors of the Parent - PKF

•

audit and review of financial reports

Consolidated

2008
$

2007
$

70,000

2008 Annual Report | 11

For personal use onlyDirectors’ Report
(continued)

Details of the amounts paid/payable to the auditor of the consolidated entity, Deloitte Touche Tohmatsu for audit and
non-audit services provided during the year are set out below:

Audit Services

Auditors of the Parent - Deloitte Touche Tohmatsu

•

audit and review of financial reports

taxation advice

accounting advice

Proceedings on Behalf of Parent

Consolidated

2008
$

190,000

72,416

107,403

369,819

2007
$

100,000

281,531

25,625

407,156

No person has applied for leave of Court to bring proceedings on behalf of the Parent or intervene in any
proceedings to which the Parent is a party for the purpose of taking responsibility on behalf of the Parent for all of
those proceedings.

Signed in accordance with a resolution of the Board of Directors

Perry Gunner

Geoff Babidge

Dated at Sydney this second day of September 2008.

12 | Freedom Nutritional Products Limited

For personal use only

Lead Auditor’s Independence Declaration

Deloitte Touche Tohmatsu
A.B.N. 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

The Board of Directors
Freedom Nutritional Products Limited
80 Box Road
TAREN POINT NSW 2229

2 September 2008

Dear Board Members

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 2008, 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 A Roberts
Partner
Chartered Accountants

Liability limited by a scheme approved under Professional Standards Legislation.

2008 Annual Report | 13

For personal use only

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
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.

Principle 1

Lay solid foundations for management and
oversight by the Board

The Board’s responsibilities are encompassed in a
charter which is published on
www.freedomnutrional.com.au (the Parent’s website).

The Board is responsible for, and has the authority to
determine, all matters relating to the strategic direction,
policies, practices, establishing goals for management
and the operation of the Parent. Without intending to
limit this general role of the Board, the specific functions
and responsibilities of the Board include:

(1) oversight of the Parent, including its control and

accountability systems;

(2) appointing and removing the CEO (or equivalent)
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,
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
capital expenditure, capital management and
acquisitions and divestitures;

(8) continuously monitoring and overseeing the Parent’s

financial position; and

(9) approving and monitoring financial 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 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.
Non-board members are Messrs Higgs and Lischewski.

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 and Consolidated entities.

The Chief Executive Officer 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 four 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 financial year are:

Mr. P. R. Gunner
Chairman (Non-executive), Age 61

B.Ag.Sc – is former Chairman and CEO of Orlando
Wyndham Wine Group. Also current 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 360,517 ordinary shares
and nil options.

14 | Freedom Nutritional Products Limited

For personal use onlyCorporate Governance Statement
(continued)

Mr. G.H. Babidge
Managing Director (Executive), Age 55

B.Comm., ACA – extensive public company experience
within the food industry. Former CEO of the major milling
and baking group, Bunge Defiance and many years
Managing Director of the dairy interests of National Foods
Limited. Appointed director in January 2002.

Carlton & United Breweries & its subsidiaries and former
Chairman of South Pacific Distilleries, Fiji. Member of the
Strategic Planning Committee of the Institute of Brewing
and Distilling Asia Pacific. Appointed director November
2006. Chairman of Audit, Risk & Compliance Committee.

Interest in shares and options are 104,353 ordinary shares
and nil options.

Interest in shares and options are 69,217 ordinary shares
and 2,400,000 options.

Mr. R. J. F. Macleod
Director (Executive), Age 40

Mr. A. M. Perich
Director (Non-executive), Age 67

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 35,853,870 ordinary
shares and nil options.

Mr. R. Perich
Director (Non-executive), Age 65

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 35,853,870 ordinary
shares and nil options.

Mr. S. F. Higgs
Director (Non-executive), Age 61

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
resigned as a director in October 2007.

Interest in shares and options are 384,615 ordinary shares
and nil options.

Mr. M. Miles
Director (Non-executive), Age 59

B.Sc (Hons) F.I.B.D. - former Vice President of Carlton and
United Breweries and Foster’s Group, former director of

B.Ec (Hons) – has for the past 5 years been responsible
for strategic and corporate development. Former senior
director, corporate finance for UBS in Australasia and
Europe where he gained extensive experience in strategy
and commercial development, mergers and acquisitions
and corporate analysis. Appointed director May 2008.

Interest in shares and options are 156,108 ordinary shares
and 2,000,000 options.

Mr. B. W. Bootle
Alternate Director (Non-executive), Age 43

B.Ag.Ec, M.Ag.Ec, Nuff.Sch, MAICD- Chief Executive Officer
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 42,486 ordinary shares
and 900,000 options.

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:

•

Remuneration policy for the entire consolidated
entity (including executive officers and non-executive
directors);

identifying nominees for directorships and other key
executive appointments;

assessing director competencies;

evaluating the Board’s performance; and

remuneration policies and practices.

Principle 2.1 of the Best Practice Recommendations
recommends that a majority of the Board should be
independent directors. The Board currently has a majority
of independent directors with an independent chairman.

In order to facilitate independent judgement in decision
making each Director may seek independent 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 $50,000 (exclusive of GST), such
approval not to be unreasonably withheld. Where advice

2008 Annual Report | 15

For personal use onlyCorporate Governance Statement
(continued)

is sought by the other directors, prior written approval
by the Chairman is required but approval will not be
unreasonably withheld. If the Chairman refuses to give
approval, the matter must be referred to the Board. All
directors are made aware of the professional advice
sought and obtained.

Principle 3

Promote ethical and responsible
decision-making

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. In maintaining its ethical standards, the
Parent will:

(a)

behave with integrity in all its dealings with
customers, shareholders, employees, suppliers,
business partners and the community;

(b) ensure its actions comply with applicable laws

and regulations;

to involve an improper inducement;

(d) achieve a working environment where:

(i) equal opportunity is rigorously practised;

(ii)

harassment and other offensive forms of
behaviour are not tolerated;

This is designed to raise the level of management
accountability for financial reporting. Further, executives
provide half yearly and yearly, a letter of representation on
operational, financial, regulatory and commercial matters,
to the Board.

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
qualifications are listed under Principle 2.

The Chief Executive Officer, Chief Financial Officer 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
Committee’s 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:

(a)

reviews and reports to the Board on the half yearly
and annual reports and financial statements of the
Parent and consolidated entities;

(iii) confidentiality of commercially sensitive

(b) is responsible for nominating the external auditor

information is protected; and

(iv) employees are encouraged to discuss concerns
and ethical behaviour with directors and senior
executives.

and reviewing the adequacy, scope and quality of the
annual statutory audit and half yearly statutory review;

(c)

reviews the effectiveness of the Parent’s and
consolidated entities internal control systems;

(e) share trading policy for Directors, CEO and

(d) monitors and reviews the reliability of financial

Executives. A copy is available on the parents website
http://www.freedomnutritional.com.au/
corporategovernance.asp

Principle 4

Safeguard integrity in financial reporting

As part of the structure of financial review and
authorisation both the Chief Executive Officer and
Chief Financial Officer are required to provide written
assurances that the financial reports present a true
and fair view of the Parent’s and the consolidated
entity’s financial position in all material respects and
that the integrity of the financial statements is founded
on a sound system of risk management and internal
compliance and control which implements the policies
adopted by the Board and is operating efficiently and
effectively in all material aspects.

reporting;

(e) monitors and reviews the compliance of the Parent
and Consolidated entities with applicable laws and
regulations;

(f)

monitors the Australian Accounting Standards and
Urgent Issues Group consensus views;

(g) monitors financial risks and exposure of the Parent

and consolidated entities assets;

(h) monitors business continuity ;

(i)

(j)

reviews the Parent’s Occupational Health and Safety
obligations and the Parent’s compliance; and

the Parent’s and consolidated entities 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 five years.

16 | Freedom Nutritional Products Limited

For personal use only

Corporate Governance Statement
(continued)

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.

(4) Reports to the ASX and the press;

(5) Half yearly profit 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.

Type of information that needs to be disclosed

Principle 7

Listing Rule 3.1 states that any information that a
reasonable person would consider to have a material
effect on the value of the Parent securities must be
disclosed. Examples of such information include a change
in revenue, asset values or significant transactions.

Directors receive copies of all announcements
immediately after notification 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.

Disclosure Officer

The Board has appointed the Company Secretary to act
as the Disclosure Officer, responsible for communications
with the ASX and deciding what information must be
disclosed. The Disclosure Officer 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 Officer.

Principle 6

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 website;

Recognise and manage risk

1.1 The Audit, Risk and Compliance Committee:

The Committee’s responsibilities are encompassed in a
charter which is available on the parents website
http://www.freedomnutritional.com.au/
corporategovernance.asp. The specific functions and
responsibilities of the Committee include:

(a)

reviews the effectiveness of the Parent’s internal
control systems;

(b) monitors and reviews the compliance of the Parent

with applicable laws and regulations;

(c)

monitors financial 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.

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 profile, risk
management, compliance and control and assessment of
effectiveness.

1.3 Risk management and risk profile

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 profile for the Parent that describes
the material risks (including financial and
non-financial risks) which the Parent faces;

2008 Annual Report | 17

For personal use only

Corporate Governance Statement
(continued)

(2) reviewing the effectiveness 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

profile.

responsibilities placed on the Directors by the legal and
financial 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:

The Committee is responsible for ensuring that
the appropriate executives have established and
implemented a system for identifying, assessing,
monitoring and managing risk throughout the
organisation. The system is to include the Parent’s internal
compliance and control systems.

(1) decisions to be made expediently;

(2) a range of different perspectives to be put forward

regarding issues before the Board;

(3) a range of different skills to be bought to Board

deliberations; and

In order to help give the Audit, Risk and Compliance
Committee the ability to exercise independent
judgement it is structured so that it consists of:

(1) only non-executive directors;

(2) at least 1 independent director; and

(3) a Chairman, who is not the Chairman of the Board.

Principle 8

Encourage enhanced performance

In respect of remuneration issues, the responsibilities of
the Remuneration and Nomination Committee include
determining, evaluating and reporting to the Board with
respect to:

(1) executive remuneration and incentive policies,

including ensuring that the remuneration policies
and practices of the Parent are consistent with its
strategic goals and human resource objectives;

(2) the Parent’s recruitment, retention and termination

policies and procedures for executives;

(3) incentive schemes;

(4) superannuation arrangements; and

(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;

(2) the remuneration packages and other terms

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

(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 effectiveness 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 officers. They receive regular detailed reports on
financial 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.

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.

18 | Freedom Nutritional Products Limited

For personal use onlyCorporate Governance Statement
(continued)

The Committee’s main functions include:

(2) The Parent aims to maintain a high standard of

(1) Conditions of service and remuneration of the Chief

Executive and his direct reports:

(2) Performance of the Chief Executive and other

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 financial and non-financial
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 benefits 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 any thresholds approved by
shareholders.

Principle 10

Recognise the legitimate interests of
stakeholders

1.1 Code of ethics

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 offensive forms of

behaviour are not tolerated;

(iii) confidentiality 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
effectiveness 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 Conflicts 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 conflicts of interest. All
directors must advise the Chairman of all business
dealings with the Parent.

(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.

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.

2008 Annual Report | 19

For personal use only

Consolidated Income Statement
for the financial year ended 30 June 2008

Revenue

Cost of sales

Gross profit

Other revenue

Marketing expenses

Selling and distribution expenses

Administrative expenses

Profit from continuing operations before tax, finance 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

Profit / (loss) before income tax

Income tax expense

Profit / (loss) for the year

Attributable to:

Equity holders of the parent

Minority interest

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)

Notes to the financial statement are included on pages 24 to 69

Parent
$000

2008

3,100

(384)

2,716

(100)

(317)

2,299

(533)

1,766

2007

14,947

(9,390)

5,557

124

(604)

(2,393)

(1,476)

1,208

(1,191)

(135)

(118)

(14)

(132)

Notes

Consolidated
$000

2008

55,202

2007

49,945

(40,146)

(35,633)

15,056

543

(2,181)

(6,191)

(4,000)

3,227

14,312

183

(2,332)

(6,017)

(2,999)

3,147

(1,364)

(1,222)

(317)

(38)

1,508

(552)

956

2.0

(135)

(1)

1,789

(620)

1,169

1,174

(5)

1,169

2.6

1.0

20 | Freedom Nutritional Products Limited

For personal use only
Consolidated Balance Sheet
as at 30 June 2008

Notes

Consolidated
$000

Parent
$000

2008

2007

2008

2007

22(a)

1,111

11,793

707

7,588

289

10,824

1,476

10,642

685

21,488

23,715

3,188

2,057

7,396

6,992

15,174

34,807

56,295

7,600

3,520

191

774

2,347

2,092

1,795

6,930

10,549

23,713

47,428

9,741

10,090

425

641

12,085

20,897

2,373

12,286

310

14,971

27,056

29,239

26,999

665

1,575

29,239

2,612

230

2,877

23,774

23,654

22,078

2,956

25,100

(1,446)

23,654

955

993

3,284

1,476

2,155

310

7,312

26,936

30,384

502

389

27,827

28,820

176

189

498

120

206

704

28,116

711

364

31,459

38,771

3,157

10,111

392

164

13,824

2,612

113

2,753

16,577

22,194

26,999

22,078

192

925

28,116

22,194

2008 Annual Report | 21

ASSETS

Current Assets

Cash and cash equivalents

Trade and other receivables

Other financial assets

Inventories

Current tax asset

Prepayments

Total Current Assets

Non-Current Assets

Other financial assets

Deferred tax assets

Property, plant and equipment

Goodwill

Other intangible assets

Total Non-Current Assets

TOTAL ASSETS

LIABILITIES

Current Liabilities

Trade and other payables

Borrowings

Current tax liabilities

Provisions

Total Current Liabilities

Non-Current Liabilities

Trade and other payables

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 financial statement are included on pages 24 to 69

For personal use onlyConsolidated Cash Flow Statement
for the financial year ended 30 June 2008

Notes

Consolidated
$000

Parent
$000

2008

2007

2008

2007

Cash flows from operating activities

Receipts from customers

Payments to suppliers and employees

Interest and other costs of finance paid

Income tax (paid) / refund

Receipt of government grant

Net cash provided by/(used in) operating activities

22(b)

Cash flows from investing activities

Proceeds from sale of property, plant and equipment

Purchase of property, plant and equipment

Dividend received

Interest received

Payment in relation to convertible notes

Investment in jointly controlled entity

Unlisted investment in Joint Venture

Payment for Business Assets

Loan (to) / from related party

Advance from / (to) Joint Venture

Loan from / (to) controlled entities

22(d)

54,035

(50,451)

(1,364)

(590)

1,720

(2,298)

195

(1,000)

(8)

(5,174)

(271)

769

46,808

(46,725)

(1,119)

(485)

(1,521)

3,520

(315)

(1,579)

(453)

(1,765)

268

(1,321)

Net cash (used in)/provided by investing activities

(7,787)

(1,614)

Cash flows from financing activities

Proceeds from issue of shares

Payment for share issue costs

Proceeds from borrowings

Repayment of borrowings

Dividends paid

Net cash provided by/(used in) financing activities

Net increase / (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of financial year

Cash and cash equivalents at end of financial year

22(a)

Notes to the financial statement are included on pages 24 to 69

5,000

(79)

15,208

(7,856)

(883)

11,390

5,323

(5,072)

251

(1,605)

(415)

(2,020)

(5,155)

(5,072)

3,308

(2,168)

14,084

(14,648)

(1,088)

(381)

1,203

(2,033)

(159)

3,100

(271)

1,063

3,602

7,335

5,000

(79)

(7,481)

(883)

(3,443)

5,095

(5,094)

3,500

(268)

1,162

(453)

268

(1,321)

(5,120)

(2,232)

(992)

(415)

(1,407)

(5,672)

578

(5,094)

22 | Freedom Nutritional Products Limited

For personal use onlyConsolidated Statement of Changes in Equity
for the financial year ended 30 June 2008

Attributable to equity holders of the parent

Minority
Interest

Total
Equity

Notes

CONSOLIDATED

At 1 July 2006

Profit/(Loss) for the year

Dividends paid

Recognition of share-based
payments

Equity issues

At 30 June 2007

Profit / (Loss) for the year

Dividend paid

Recognition of share-based
payments

Gain/(loss) on revaluation of
purchased property

Transfer to retained earnings

Equity issues

At 30 June 2008

PARENT

At 1 July 2006

(Loss) for the year

Dividends paid

Recognition of share-based
payments

Equity issues

At 30 June 2007

Profit for the year

Dividend paid

Recognition of share-based
payments

Equity issues

At 30 June 2008

Fully paid
ordinary
shares
$’000

22,058

22,078

4,921

26,999

22,058

22,078

4,921

26,999

Equity - settled
employee
benefits
reserve
$’000

Asset
revaluation
reserve
$’000

Retained
Earnings
$’000

126

192

126

192

473

2,227

1,174

(445)

2,956

956

(891)

(1,446)

1,575

627

(132)

(445)

1,766

(891)

925

Notes to the financial statement are included on pages 24 to 69

Total
$’000

24,285

1,174

(445)

$’000

(1,441)

(5)

22,844

1,169

(445)

25,100

(1,446)

23,654

956

(891)

126

473

(1,446)

4,921

29,239

22,685

(132)

(445)

22,194

1,766

(891)

126

4,921

28,116

1,446

956

(891)

126

473

4,921

29,239

22,685

(132)

(445)

22,194

1,766

(891)

126

4,921

28,116

2008 Annual Report | 23

For personal use onlyNotes to the Financial Statements
For the year ended 30 June 2008

1 Corporate Information

The financial report of Freedom Nutritional Products Limited for the year ended 30 June 2008 was authorised for
issue in accordance with resolution of directors on 2 September 2008.

Freedom Nutritional Products Limited is a company incorporated in Australia whose shares are publicly traded
on the Australian securities exchange. The company is trading under the symbol ‘FNP’.

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 effective for the current
annual reporting period. Details of the impact of the adoption of these new accounting standards are set out
in the individual accounting policy notes set out below. The group has also adopted the following Standards as
listed below which only impacted on the Group’s financial statements with respect to disclosure.

•

AASB101 ‘Presentation of Financial Statements (revised October 2006)’

AASB 7 ‘Financial Instruments: Disclosures’

At the date of authorisation of the financial report, a number of Standards and Interpretations were in issue but
not yet effective.

Initial application of the following Standards will not affect any of the amounts recognised in the financial report,
but will change the disclosures presently made in relation to the Group and the company’s financial report:

Standard

AASB 101 ‘Presentation of Financial Statements (revised September 2007),
AASB 2007-8 ‘Amendments to Australian Accounting Standards arising from AASB 101’

Effective for annual
reporting periods
beginning on or after

Expected to be
initially applied in the
financial year ending

1 January 2009

30 June 2010

AASB 8 ‘Operating Segments’, AASB 2007-3 ‘Amendments to Australian Accounting Standards arising
from AASB 8’

1 January 2009

30 June 2010

Initial application of the following standards is not expected to have any material impact on the financial report of the
Group and the Company:

Standard/Interpretation

AASB Interpretation 12 ‘Service Concession Arrangements’, AASB Interpretation 4 ‘
Determining whether an Arrangement contains a Lease’ (revised), AASB Interpretation 129
‘Service Concession Arrangements: Disclosure’ (revised), AASB 2007-2 ‘Amendments to
Australian Accounting Standards arising from AASB Interpretation 12’

1 January 2008

30 June 2009

AASB Interpretation 13 ‘Customer Loyalty Programmes’

1 July 2008

30 June 2009

AASB Interpretation 14 ‘AASB 119 – The Limit on a Defined Benefit Asset, Minimum
Funding Requirements and their Interaction’

AASB 2008-2 ‘Amendments to Australian Accounting Standards - Puttable Financial Instruments and
Obligations arising on Liquidation

AASB 3 ‘Business Combinations’ (2008), AASB 127 ‘Consolidated and Separate Financial Statements’
and AASB 2008-3 ‘Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127’

AASB 2008-1 ‘Amendments to Australian Accounting Standard - Share-based Payments: Vesting
Conditions and Cancellations’

1 January 2008

30 June 2009

1 January 2009

30 June 2010

1 July 2009

30 June 2010

1 July 2009

30 June 2010

24 | Freedom Nutritional Products Limited

For personal use onlyNotes to the Financial Statements
For the year ended 30 June 2008 (continued)

2 Adoption of New and Revised Accounting Standards (continued)

The initial application of the expected issue of an Australian equivalent accounting standard to the following
standard is not expected to have a material impact on the financial report of the Group and the company:

Standard

Improvements to IFRs (2008)

Amendments to IFRs 1‘First time Adoption of International Financial Reporting Standards and IAS
27 ‘Consolidated and Separate Financial Statements - Cost of an Investment in Subsidiary, Jointly
Controlled Entity or Associate.

Effective for annual
reporting periods
beginning on or after

Expected to be
initially applied in the
financial year ending

1 January 2009

30 June 2010

3 Significant Accounting Policies
The following significant accounting policies have been
adopted in the preparation and presentation of the
financial report:

(a) Statement of compliance

The financial report is a general-purpose financial
report which has been prepared in accordance with
the Corporations Act 2001, Accounting Standards
and Interpretations, and complies with other
requirements of the law.

The financial report includes the separate financial
statements of the Parent and the consolidated
financial statements of the Group. Accounting
Standards include Australian equivalents to
International Financial Reporting standards (‘A-IFRS’).
Compliance with A-IFRS ensures that the financial
statements and notes of the Parent and the Group
comply with International Financial Reporting
standards (‘IFRS’).

(b) Basis of preparation

The financial report has been prepared on the
historical cost basis. Cost is based on the fair values
of the consideration given in exchange for assets.

The financial 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.

sources of estimation uncertainty

In the application of the Group’s accounting policies,
management is required to make judgments,
estimates and assumptions about carrying values
of assets and liabilities that are not readily apparent
from other sources. The estimates and associated
assumptions are based on historical experience and
other factors that are considered to be relevant.

Actual results may differ from these estimates. The
estimates and underlying assumptions are reviewed
on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the
estimate is revised if the revision affects only that
period, or in the period of the revision and future
periods if the revision affects both current and future
periods. Refer to Note 3(d) - 3(z) for further details.

(d) Basis of consolidation

The consolidated financial statements incorporate
the financial statements of Freedom Nutritional
Products Limited and its subsidiaries as at 30 June
each year (‘the Group’). Control is achieved where
the Company has the power to govern the financial
and operating policies of an entity so as to obtain
benefits from its activities.

The results of subsidiaries acquired or disposed of
during the year are included in the consolidated
income statement from the effective date of
acquisition or up to the effective date of disposal, as
appropriate.

Where necessary, adjustments are made to the
financial statements of subsidiaries to bring their
accounting policies into line with those used by
other members of the Group.

All intra-group transactions, balances, income and
expenses are eliminated in full on consolidation. In
the separate financial statements of the company,
intra-group transactions (‘common control
transactions’) are generally accounted for by
reference to the existing (consolidated) book value
of the items.

Minority interests represent the interests in
Thorpedo Foods Pty Limited and Thorpedo
Seafoods Pty Limited, not held by the Group
companies. Minority interests consist of the amount
of those interests at the date of the original business
combination and the minority’s share of changes
in equity since the date of the combination. Losses
applicable to the minority in excess of the minority’s

2008 Annual Report | 25

For personal use onlyNotes to the Financial Statements
For the year ended 30 June 2008 (continued)

3 Significant Accounting Policies

(f) Foreign currency translation

(continued)

interest in the subsidiary’s equity are allocated
against the interests of the Group except to the
extent that the minority has a binding obligation
and is able to make an additional investment to
cover the losses.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. The acquiree’s identifiable 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 classified 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 identifiable assets, liabilities and contingent
liabilities recognised. If, after reassessment, the
Group’s interest in the net fair value of the acquiree’s
identifiable assets, liabilities and contingent liabilities
exceeds the cost of the business combination, the
excess is recognised immediately in profit 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.

(e) Joint venture arrangements

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 profits 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 financial report.

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
restated at the rate of exchange ruling at the balance
sheet date. Exchange differences are recognised in the
income statement in the period in which they arise.

(g) Property, plant and equipment

Plant and equipment, motor vehicles and
equipment under finance lease are stated at cost
less accumulated depreciation and impairment.
Land and Buildings held for use in the production of
goods, are carried in the balance sheet at fair value,
less any subsequent accumulated depreciation and
subsequent accumulated impairment losses. Fair
value is determined on the basis of an independent
valuation prepared by external valuation experts,
based on discounted cashflows or capitalisation
of net income, as appropriate. Revaluations are
performed with sufficient regularity such that the
carrying amounts do not differ materially from those
that would be determined using fair values at the
balance sheet date. Any revaluation increase arising
on the revaluation of land and buildings is credited
to a revaluation reserve, except to the extent that it
reverses a revaluation decrease for the same asset
previously recognised as an expense in the profit
or loss, in which case the increase is credited to the
income statement to the extent of the decrease
previously charged. A decrease in carrying amount
arising on the revaluation of land and buildings
is charged as an expense in profit or loss to the
extent that it exceeds the balance, if any, held in the
revaluation reserve relating to a previous revaluation
of that asset.

Construction in progress is stated at cost. Cost
includes expenditure that is directly attributable to
the acquisition or construction of the item. Assets
held under finance leases are depreciated over
their expected useful lives on the same basis as
owned leased assets or, where shorter, the term
of the relevant lease. 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.

26 | Freedom Nutritional Products Limited

For personal use onlyNotes to the Financial Statements
For the year ended 30 June 2008 (continued)

3 Significant Accounting Policies

(continued)

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 effect of any changes recognised on a
prospective basis. The gain or loss arising on disposal
or retirement of an item of property, plant and
equipment is determined as the difference between
the sales proceeds and the carrying amount of the
asset and is recognised in profit or loss.

The following depreciation rates are used in the
calculation of depreciation:

Class of Fixed Assets

Depreciation Rate

Buildings

Plant and equipment

Leased plant and equipment

Motor vehicles

2-6%

5-20%

5-10%

15-33%

(h) Non-current assets classified as held for sale

Non-current assets (and disposal groups) classified
as held for sale are measured at the lower of carrying
amount and fair value less costs to sell. Non-current
assets and disposal groups are classified 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 classification, 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

Borrowing costs directly attributable to the
acquisition, construction or production of qualifying
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
specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing
costs eligible for capitalisation. All other borrowing
costs are recognised in profit or loss in the period in
which they are incurred.

(j) Goodwill

Goodwill acquired in a business combination is
initially measured at its cost, being the excess of the
cost of the business combination over the Group’s
interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities recognised at
the date of acquisition. 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 benefit
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 first to reduce the carrying amount of any
goodwill allocated to the CGU (or groups of CGUs)
and then to the other assets of the cash-generating
units 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 profit 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
profit or loss on disposal of the operation.

(k) Intangible assets

Brand names
Brand names recognised by the company have an
indefinite 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 indefinite useful life
assessment for the asset. Such assets are tested for
impairment in accordance with the policy in note 3(l).

Intangible assets acquired in a business
combination
Intangible assets acquired in a business combination
are identified and recognised separately from
goodwill where they satisfy the definition of

2008 Annual Report | 27

For personal use onlyNotes to the Financial Statements
For the year ended 30 June 2008 (continued)

3 Significant Accounting Policies

(m) Inventories

(continued)

an intangible asset and their fair values can be
measured reliably. Subsequent to initial recognition,
intangible assets acquired in a business combination
are reported at cost less accumulated amortisation
and accumulated impairment losses, on the same
basis an intangible assets acquired separately.

(l) Impairment of long-lived assets excluding

goodwill

At each reporting date the Group reviews the
carrying amounts of its assets to determine whether
there is any indication that those assets have
suffered 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 flows that are independent from
other assets, the Group estimates the recoverable
amount of the CGUs to which the asset belongs.
Where a reasonable and consistent basis of
allocation can be identified, 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 identified.

Intangible assets with indefinite 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 flows are discounted
to their present value using a pre-tax discount rate
that reflects current market assessments of the time
value of money and the risks specific to the asset for
which the estimates of future cash flows have not
been adjusted. If the recoverable amount of an asset
(or CGU) is estimated to be less than its carrying
amount, the carrying amount of the asset (or CGU) is
reduced to its recoverable amount. An impairment
loss is recognised in profit or loss immediately.

Where an impairment loss subsequently reverses,
the carrying amount of the asset (or CGU) is
increased to the revised estimate of its recoverable
amount, but only to the extent that the increased
carrying amount does not exceed the carrying
amount that would have been determined had no
impairment loss been recognised for the asset
(or CGU) in prior years. A reversal of an impairment
loss is recognised immediately in profit or loss.

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 first-in, first-out
basis;

Manufactured finished goods - cost of direct
materials, direct labour and an appropriate portion
of manufacturing variable and fixed overheads
based on normal operating capacity but excluding
borrowing costs.

Purchased finished goods- purchase cost on a
weighted average cost basis.

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) Cash and cash equivalents

Cash and short-term deposits in the balance sheet
comprise cash at bank and in hand and cash
equivalents, which are 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 defined above, net of outstanding
bank overdrafts. Bank overdrafts are shown within
borrowings in current liabilities in the balance sheet.

(o) Other financial liabilities

Other financial liabilities, including borrowings, are
initially measured at fair value, net of transaction
costs. Other financial liabilities are subsequently
measured at amortised cost using the effective
interest method, with interest expense recognised
on an effective yield basis.

The effective interest method is a method of
calculating the amortised cost of a financial liability
and of allocating interest expense over the relevant
period. The effective interest rate is the rate that
exactly discounts estimated future cash payments
through the expected life of the financial liability, or,
where appropriate, a shorter period.

(p) Convertible note

The component parts of convertible notes
(compound instruments) are classified separately
as financial liabilities and equity in accordance with
the substance of the contractual arrangement.

28 | Freedom Nutritional Products Limited

For personal use onlyNotes to the Financial Statements
For the year ended 30 June 2008 (continued)

3 Significant Accounting Policies

(continued)

Defined contribution plans
Contributions to defined contribution
superannuation plans are expensed when incurred.

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 effects and
is not subsequently remeasured.

(q) Provisions

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
cashflow estimated to settle the present obligation,
its carrying amount is the present value of those
cashflows. When some or all of the economic benefits
required to settle a provision are expected to be
recovered from a third party, the recoverable amount
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.

(r) Employee benefits

A liability is recognised for benefits 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 benefits 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
benefits which are not expected to be settled within
12 months are measured as the present value of the
estimated future cash outflows to be made by the
Group in respect of services provided by employees
up to reporting date.

(s) 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
effects 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.

At each reporting date, the Group revises its
estimate of the number of equity instruments
expected to vest. The impact of the revision of the
original estimates, if any, is recognised in profit
or loss over the remaining vesting period, with
corresponding adjustment to the equity-settled
employee benefits reserve.

(t) Leased Assets

Group as lessor
Rental income from operating leases is recognised
on a straight-line basis over the term of the relevant
lease. However, contingent rentals arising under
operating leases are recognised as income in a
manner consistent with the basis on which they are
determined. Initial direct costs incurred in negotiating
and arranging an operating lease are added to the
carrying amount of the leased asset and recognised
on a straight-line basis over the lease term.

Leases are classified as finance 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 classified as
operating leases.

Group as lessee
Assets held under finance 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 finance lease
obligation.

2008 Annual Report | 29

For personal use onlyNotes to the Financial Statements
For the year ended 30 June 2008 (continued)

3 Significant Accounting Policies

(continued)

Lease payments are apportioned between finance
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 benefits 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 benefits 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 benefits from
the leased asset are consumed.

(u) Revenue

Revenue is measured at the fair value of the
consideration received or receivable. Revenue
is reduced for terms, rebates and other similar
allowances.

Sale of goods
Revenue from the sale of goods is recognised when
all the following conditions are satisfied:

•

the Group has transferred to the buyer the
significant risks and rewards of ownership of the
goods;

the Group retains neither continuing managerial
involvement to the degree usually associated
with ownership nor effective control over the
goods sold;

•

the amount of revenue can be measured reliably;

•

it is probable that the economic benefits
associated with the transaction will flow 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
agreement. Revenue is calculated on the basis of the
turnover of the licensee.

Interest revenue
Interest is accrued on a time basis, by reference
to the principal outstanding and at the effective
interest rate applicable, which is the rate that exactly
discounts estimated future cash receipts through
the expected life of the financial asset to that asset’s
net carrying amount.

Rental income
Revenue from operating leases is recognised in
accordance with the Group’s accounting policy
outlined in note 3(t).

(v) 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 specifically 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
financial support to the Group with no future related
costs are recognised as income of the period in
which it becomes receivable.

30 | Freedom Nutritional Products Limited

For personal use onlyNotes to the Financial Statements
For the year ended 30 June 2008 (continued)

3 Significant Accounting Policies

(continued)

(w) Income tax

Current tax
Current tax is calculated by reference to the amount
of income taxes payable or recoverable in respect
of the taxable profit 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 differences are
differences 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 differences. Deferred tax assets
are recognised to the extent that it is probable
that sufficient taxable amounts will be available
against which deductible temporary differences or
unused tax losses and tax offsets can be utilised.
However, deferred tax assets and liabilities are not
recognised if the temporary differences giving rise
to them arise from the initial recognition of assets
and liabilities (other than as a result of a business
combination) which affects neither taxable income
nor accounting profit. Furthermore, a deferred
tax liability is not recognised in relation to taxable
temporary differences arising from the initial
recognition of goodwill.

Deferred tax liabilities are recognised for taxable
temporary differences 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 differences
and its probable that the temporary differences will
not reverse in the foreseeable future. Deferred tax
assets arising from deductible temporary differences
associated with these investments and interests are
only recognised to the extent that it is probable that
there will be sufficient taxable profits against which to
utilise the benefits of the temporary differences 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 reflects 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 offset 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.

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 differences of
the members of the tax-consolidated group are
recognised in the separate financial statements of
the members of the tax-consolidated group using
the ‘separate tax payer within group’ approach by
reference to the carrying amounts in the separate
financial 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 financial statements.
Where the tax contribution amount recognised by
each member of the tax-consolidated group for
a particular period is different to the aggregate of

2008 Annual Report | 31

For personal use onlyNotes to the Financial Statements
For the year ended 30 June 2008 (continued)

3 Significant Accounting Policies

(continued)

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 difference is
recognised as a contribution from (or distribution to)
equity participants.

(x) Goods and services tax

Revenues, expenses and assets are recognised net of
the amount of goods and services tax (‘GST’) except:

•

where the amount of GST incurred 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; or

•

for receivables and payables which 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 inthe balance sheet.

Cash flows are included in the Cash Flow Statement
on a gross basis and the GST component of cash
flows arising from investing and financing activities,
which is recoverable from, or payable to, the taxation
authority are classified within operating cash flows.

(y) Financial instruments

Recognition of investments
Investments are initially measured at fair value,
net of transaction costs, except for those financial
assets carried at fair value through profit and loss,
which are initially measured at fair value when
the related contractual rights or obligations exist.
Subsequent to initial recognition these investments
are measured as set out below.

Financial assets at fair value through profit and loss
A financial asset is classified in this category if
acquired principally for the purpose of selling in the
short term 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.

Effective interest method
The effective interest method is a method of
calculating the amortised cost of a financial asset
and of allocating interest income over the relevant

period. The effective interest rate is the rate that
exactly discounts estimated future cash receipts
(including all fees on points paid or received that
form an integral part of the effective interest rate,
transaction costs and other premiums or discounts)
through the expected life of the financial asset, or,
where appropriate, a shorter period.

Income is recognised on an effective interest rate
basis for debt instruments other than those financial
assets ‘at fair value through profit or loss’

Loans and receivables
Loans and receivables have fixed or determinable
payments that are not quoted in an active market
and are stated at amortised cost using the effective
interest rate method less impairment. Interest income
is recognised by applying the effective interest rate.

Held-to maturity investments
These investments have fixed 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
effective interest rate method less impairment.

Available-for-sale financial assets
Available-for-sale financial assets include any
financial assets not included in the above categories.
Available-for-sale financial assets are reflected at
fair value. Unrealised gains and losses arising from
changes in fair value are taken directly to equity.

Derecognition of financial assets
The Group derecognises a financial asset only when
the contractual rights to the cash flows from the
asset expire, or it transfers the financial asset and
substantially all the risks and rewards of ownership
of the asset to another entity. If the Group neither
transfers nor retains substantially all the risks and
rewards of ownership and continues to control the
transferred asset, the Group recognises its retained
interest in the asset and an associated liability for
amounts it may have to pay. If the Group retains
substantially all the risks and rewards of ownership
of a transferred financial asset, the Group continues
to recognise the financial asset and also recognises a
collateralised borrowing for the proceeds received.

Impairment of financial assets
Financial assets, other than those at fair value
through profit or loss, are assessed for indicators of
impairment at each balance sheet date. Financial
assets are impaired where there is objective
evidence that as a result of one or more events
that occurred after the initial recognition of the
financial asset the estimated future cash flows of the
investment have been impacted.

32 | Freedom Nutritional Products Limited

For personal use onlyNotes to the Financial Statements
For the year ended 30 June 2008 (continued)

3 Significant Accounting Policies

(continued)

Financial liabilities
Non-derivative financial liabilities are recognised
at amortised cost, comprising original debt less
principal payments and amortisation.

(z) Derivative financial instruments

The Group enters into a variety of derivative financial
instruments to manage its exposure to foreign
exchange rate risk, including foreign exchange
forward contracts. Further details of derivative
financial instruments are disclosed in note 26 to
the financial statements. Derivatives are initially
recognised at fair value at the date a derivative

contract is entered into and are subsequently
remeasured to their fair value at each reporting date.
The resulting gain or loss is recognised in profit or loss
immediately unless the derivative is designated and
effective as a hedging instrument, in which event, the
timing of the recognition in profit or loss depends on
the nature of the hedge relationship. The Group has
not adopted hedge accounting during the financial
year or previous corresponding period.

Embedded derivatives
Derivatives embedded in other financial 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 profit or loss.

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

Thorpedo 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 specific dietary or
medical conditions including gluten free, wheat free, low sugar or salt or highly
fortified. 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 range of low GI beverages. These products are produced and sold in
Australia and overseas.

Segment revenue

Continuing operations

Seafood

Freedom Foods

Thorpedo Foods

Total of all segments

Eliminations

Unallocated

Consolidated revenue

External sales

Other

2008
$’000

2007
$’000

2008
$’000

2007
$’000

Total

2008
$’000

19,057

34,447

578

20,902

26,823

1,117

1,227

1,238

19,057

34,447

1,805

55,309

436

2007
$’000

20,902

26,823

2,355

50,080

55,745

50,128

2008 Annual Report | 33

For personal use onlyNotes to the Financial Statements
For the year ended 30 June 2008 (continued)

4 Business and Geographical Segments (continued)

Segment result

Continuing operations

Seafood

Freedom Foods

Thorpedo Foods

Unallocated

Profit before income tax

Income tax expense

Profit for the year from continuing operations

Segment assets and liabilities

Continuing operations

Seafood

Freedom Foods

Thorpedo Foods

Total of all segments

Eliminations

Unallocated

Consolidated

2008
$’000

2007
$’000

1,096

967

172

2,235

(727)

1,508

(552)

956

1,966

838

2,864

(1,075)

1,789

(620)

1,169

Assets

Liabilities

2008
$’000

2007
$’000

2008
$’000

2007
$’000

20,206

27,719

5,130

53,055

(857)

4,097

56,295

22,790

44,034

4,909

71,733

(26,535)

2,230

47,428

17,762

26,233

7,493

51,488

(39,247)

14,815

27,056

16,321

21,998

7,447

45,766

(23,945)

1,953

23,774

Other segment information

Carrying value of investments accounted for using
the equity method

Share of net profit/(loss) of jointly controlled
entities accounted for under the equity method

Acquisition of segment assets

Depreciation and amortisation of segment assets

Seafood

Freedom Foods

Thorpedo Foods

2008
$’000

2007
$’000

2008
$’000

1,514

(355)

10,623

331

2007
$’000

1,097

(136)

1,539

162

2008
$’000

2007
$’000

The Group operates principally in the Australian geographical area.

34 | Freedom Nutritional Products Limited

For personal use only5 Revenue

Continuing operations

•

Sale of goods

Interest received

Loans and receivables

•

Cash and cash equivalents

Subsidiaries

•

License fee

Other revenue

•

Government grant - refer below

Gain on disposal of property

Dividends received

Rental income

Convertible note interest

Management fee received

Notes to the Financial Statements
For the year ended 30 June 2008 (continued)

Consolidated
$000

Parent
$000

2008

2007

2008

2007

54,082

48,683

1,109

55,202

118

184

210

543

1,238

49,945

129

183

3,100

13,785

1,162

14,947

124

3,100

124

The above government grant is the Export Market Development Grant received for 2007 and receivable for 2008. The above
Convertible note interest relates to interest receivable on convertible notes issued to A2 Dairy Products Pty Limited.

6 Profit for the year before tax

Continuing operations

(i) Losses

Profit for the year was arrived at after charging the following losses

Loss on disposal of plant and equipment

(7)

(ii) Other Expenses:

Finance costs

•

Interest on bank overdrafts and loans

•

Interest on obligations under finance leases

•

Interest on convertible notes

Total borrowing costs

1,229

100

1,364

486

261

475

1,222

100

(4)

455

261

475

1,191

2008 Annual Report | 35

For personal use only
Notes to the Financial Statements
For the year ended 30 June 2008 (continued)

6 Profit for the year before tax (continued)

Exchange losses

Depreciation on property, motor vehicles, plant and equipment

Rental expense on operating leases

Research and development costs expensed

Impairment of trade receivables

Employee benefit expense

Post employment benefits - defined contribution plans

Share-based payments - equity-settled share-based payments

Other employee benefits

Total employee benefit costs

Consolidated
$000

Parent
$000

2008

151

331

104

411

574

126

5,973

6,673

2007

162

129

463

417

5,470

5,953

2008

121

126

2007

453

154

1,909

2,129

The following expense items are relevant in explaining the financial performance:

Bid response costs

104

Operating EBITDA (being EBITDA adjusted for bid response costs and equity settled share-based payments, share of loss
under equity accounting, unrealised exchange losses, and after charging FNP corporate management fee) was $3,835,000
(2007: $3,479,000)

Income Taxes

Income tax recognised in profit 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
differences

Income tax expense /(income)

Attributable to continuing operations

431

119

552

457

120

620

583

(231)

181

533

(14)

The prima facie income tax expense on pre-tax accounting profit from operations reconciles to the income tax expense in
the financial statements as follows:

Profit from continuing operations

Income tax expense calculated at 30%

Effect of expenses that are not deductible in determining taxable profit

Effect of tax concessions (research and development)

Previously unrecognised and unused tax losses and tax offsets now utilised

Adjustments recognised in the current year in relation to the current tax of prior years

1,508

452

245

(31)

(233)

119

552

1,789

537

156

(116)

620

2,299

690

250

(10)

(166)

(231)

533

(118)

(35)

176

(113)

(14)

36 | Freedom Nutritional Products Limited

For personal use onlyNotes to the Financial Statements
For the year ended 30 June 2008 (continued)

Income Taxes (continued)

The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on
taxable profits under Australian tax law. There has been no change in the corporate tax rate when compared with the
previous reporting period.

Income tax recognised directly in equity
No current or deferred tax amounts were charged/(credited) directly to equity during the year.

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

Deferred tax balances

Deferred tax assets/(liabilities) arise from the following:

Consolidated 2008

Temporary differences:

Provisions

Doubtful debts

Property plant & equipment

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

Consolidated
$000

Parent
$000

2008

2007

2008

2007

176

191

392

425

176

392

Opening
Balance

Charged to
income

Acquisitions

Closing
balance

$’000

371

434

1,468

155

1,623

2,057

(32)

138

131

(244)

111

(133)

(2)

339

177

565

1,224

266

1,490

2,055

(2)

2,057

2,055

2008 Annual Report | 37

For personal use onlyNotes to the Financial Statements
For the year ended 30 June 2008 (continued)

Income Taxes (continued)

Consolidated 2007

Temporary differences:

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

Parent 2008

Temporary differences:

Provisions

Doubtful debts

Property plant & equipment

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

38 | Freedom Nutritional Products Limited

Opening
Balance

Charged to
income

Acquisitions

Closing
balance

$’000

209

207

(114)

368

1,635

1,732

2,100

104

206

477

683

(207)

118

(35)

(11)

(167)

(109)

(120)

(9)

(16)

(9)

(172)

(181)

371

434

1,468

155

1,623

2,057

(35)

2,092

2,057

197

305

502

For personal use onlyNotes to the Financial Statements
For the year ended 30 June 2008 (continued)

Opening
Balance

Charged to
income

Closing
balance

$’000

(100)

650

711

(4)

(42)

104

(18)

145

(173)

(28)

104

206

477

683

(28)

711

683

Income Taxes (continued)

Parent 2007

Temporary differences:

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

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
effect from 1 July 2005 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 identified 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
reflected 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 effect 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.

2008 Annual Report | 39

For personal use only
Notes to the Financial Statements
For the year ended 30 June 2008 (continued)

8 Auditors remuneration

Current year

Remunerations of the auditors of the Group for:

•

audit or review of the financial report

taxation advice and preparation of tax returns

accounting advice

The auditor of the consolidated entity is Deloitte Touche Tohmatsu.

Past years

Remuneration of past auditors of the Group to settle excess fee claim

Consolidated
$

Parent
$

2008

2007

2008

2007

190,000

72,416

107,403

369,819

100,000

281,531

25,625

407,156

60,053

32,461

92,514

43,584

43,645

87,229

•

auditing and reviewing the financial report

70,000

9 Earnings per share

Basic earnings per share

Diluted earnings per share

Consolidated

2008

2007

Cents per share

2.0

2.6

The earnings and weighed average number of ordinary shares used in the calculation of basic and diluted
earnings per share are as follows:

(a) Earnings used in the calculation of basic EPS

(b) Earnings used in the calculation of diluted EPS

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 2008 no options were issued over ordinary shares by the Parent.

During 2007 the Parent issued 4,900,000 options over ordinary shares.

10 Trade and other receivables

$000

956

Number ‘000

46,765

46,849

$000

1,174

44,490

Current

Trade receivables

Allowance for doubtful debts

Other receivables

40 | Freedom Nutritional Products Limited

Consolidated
$000

Parent
$000

2008

2007

2008

2007

11,111

(122)

10,989

804

11,793

9,921

(67)

9,854

970

10,824

2,874

(30)

2,844

440

3,284

For personal use onlyNotes to the Financial Statements
For the year ended 30 June 2008 (continued)

10 Trade and other receivables (continued)

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 financial year, the allowance for doubtful debts
increased by $55,000 (2007: increased by $21,000) in the Group and decreased by $30,000 in the Parent (2007:
increased by $25,000 ). The movement was recognised in the income statement for the year. Included in the
allowance for doubtful debts are individually impaired trade receivables with a balance of $80,000 (2007:
$62,000). The Group does not hold any collateral over these balances.

Current (i)

Past due but not impaired (ii)

Consolidated
$000

2008

10,692

297

2007

9,622

232

Parent
$000

2008

2007

2,694

150

(i)

(ii)

The current receivables for the Group are with an average of 66 days. Management considers that there are no
indications as of the reporting date that the debtors will not meet their payment obligations.

The past due but not impaired receivables for the Group are with an average of 93 days. These relate to a number of
customers for whom there is no recent history of default and other indicators of impairment. Management considers
that no provision is required on these balances.

The Group does not have significant risk exposure to any one debtor, however 87% (2007 - 87%) of sales and 85%
(2007 - 82%) of year end receivables are concentrated in major supermarkets throughout Australia. The Parent
has 0% (2007 - 91%) of sales and 0% (2007 - 80%) of year end receivables concentrated in major supermarkets
throughout Australia.

Other receivables

These amounts generally arise from transactions outside the usual operating activities of the Group and the
Parent. Management has assessed that these are all recoverable and no impairment has been taken.

11 Other financial assets

Current

Loans to joint ventures - refer Note 28 Related party transactions

707

1,476

955

1,476

Non-current

Loans to subsidiaries - refer Note 28 Related party transactions

Convertible notes (i)

Investment in jointly controlled entity

Investment in joint venture entities - refer note 33 Jointly controlled operations
and assets

1,674

913

601

1,250

329

768

26,335

29,616

601

768

3,188

2,347

26,936

30,384

(i)

The Group holds non-listed unsecured convertible notes returning an effective interest rate of 15.8% p.a. The notes
are convertible at par value on 1 June 2012. This amount includes the debt component of the note with the equity
component residing in investment in jointly controlled entity.

(ii)

Loans to related parties and subsidiaries

The Group has provided short-term loans to joint venture entities interest free and at call. Management has assessed
that these are all recoverable and no impairment exists.

Loans to subsidiaries include amounts arising under the group’s tax funding arrangement. The inter-company loan
receivable is repayable on demand and interest is charged on the outstanding balance at market rates. There are no
indications as of the reporting date that the subsidiaries will not meet their payment obligations.

Further information in relation to amounts due from related entities is set out in note 28.

2008 Annual Report | 41

For personal use only

Notes to the Financial Statements
For the year ended 30 June 2008 (continued)

12 Inventories

Current

Raw materials

Finished goods

Provision for stock obsolescence

13 Intangibles

2008

Balance at 1 July 2007

Costs incurred during the year

Balance at 30 June 2008

2007

Balance at 1 July 2006

Costs incurred during the year

Balance at 30 June 2007

Consolidated
$000

Parent
$000

2008

2007

2008

2007

860

6,851

(123)

7,588

Goodwill

$’000

6,930

6,992

6,628

302

6,930

1,505

9,237

(100)

10,642

Brand
Names

$’000

10,549

4,625

15,174

10,519

10,549

Total

$’000

17,479

4,687

22,166

17,147

332

17,479

962

1,202

(9)

2,155

Parent
Total

$’000

Goodwill and brands are initially recorded at cost. All brands have been assessed as having indefinite useful lives.

No impairment loss was charged in the 2008 financial year (2007: $nil).

Allocation of goodwill to cash-generating units

Goodwill has been allocated for impairment testing purposes to the following cash-generating units:

Seafood

Freedom Foods

Thorpedo Foods

The consolidated entity carries an amount of $15,174,000 of brand names with indefinite useful lives allocated
between the Seafood and Freedom Foods cash generating units. The brand names relate to major brands
purchased as part of business combinations that have long establishment and are considered to be market
leaders within their market segment. The brand names operate in a stable industry with a strong positioning in
the consumer functional foods market.

42 | Freedom Nutritional Products Limited

For personal use only
Notes to the Financial Statements
For the year ended 30 June 2008 (continued)

13 Intangibles (continued)

The carrying amount of goodwill has been allocated to the identified cash-generating units as follows:

Seafood

Freedom Foods

Thorpedo Foods

Consolidated
$’000

2008

1,982

3,232

1,778

6,992

2007

1,982

3,170

1,778

6,930

The recoverable amounts of the cash generating units are determined based on a value in use calculation which uses cash
flow projections based on financial budgets approved by management covering a four-year period, and a discount rate of
11% pa (2007: 12% pa). Cash flow 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

Budgeted market share

Budgeted gross margin

Cash-generating units

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 four 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

Freehold land and buildings (at fair value)

Accumulated depreciation

Total Land and Buildings

Plant and Equipment (at cost)

Accumulated depreciation

Capital work in progress at cost

Total Owned Plant and Equipment

Plant and Equipment (under finance lease)

Accumulated depreciation

Total Leased Plant and Equipment

Motor Vehicles (under finance leases)

Accumulated depreciation

Total Motor Vehicles

Total property, plant and equipment

Consolidated
$’000

Parent
$’000

2008

2007

2008

2007

5,000

(20)

4,980

2,994

(1,171)

1,823

456

2,279

(48)

214

(77)

137

117

(106)

2,667

(1,070)

1,597

1,612

(27)

190

(39)

151

7,396

1,795

881

(629)

252

214

(77)

137

389

783

(562)

221

166

(23)

143

364

2008 Annual Report | 43

For personal use onlyNotes to the Financial Statements
For the year ended 30 June 2008 (continued)

14 Property, plant and equipment (continued)

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

Parent 2008

Balance at 1 July 2007

Additions

Disposals

Depreciation expense

Balance at 30 June 2008

Group 2008

Balance at 1 July 2007

Additions

Disposals

Depreciation expense

Balance at 30 June 2008

Parent 2007

Balance at 1 July 2006

Additions

Disposals

Depreciation expense

Balance at 30 June 2007

Group 2007

Balance at 1 July 2006

Additions

Disposals

Acquisitions through business combinations

Depreciation expense

Balance at 30 June 2007

Land and
Buildings

Plant and
Equipment

Motor
Vehicles

Total

$000

5,000

(11)

(20)

4,980

(4)

221

111

(13)

(67)

252

1,633

950

(49)

(255)

2,279

142

167

(38)

(50)

221

372

214

(58)

1,224

(119)

1,633

143

(54)

137

151

(6)

(56)

137

101

(18)

143

113

101

(24)

(39)

151

364

159

(13)

(121)

389

1,795

5,998

(66)

(331)

7,396

202

268

(38)

(68)

364

500

315

(82)

1,224

(162)

1,795

Aggregate depreciation allocated, whether recognised as an expense or capitalised as part of the carrying amount of other
assets during the year:

Consolidated
$000

Parent
$000

2008

255

331

2007

119

162

2008

2007

121

Freehold land and buildings

Plant and equipment

Motor vehicles

44 | Freedom Nutritional Products Limited

For personal use only15 Trade and other payables

Current

Trade payables (i)

Other payables and accruals (ii)

Due to related parties

Non-current

Other payables and accruals (ii)

Notes to the Financial Statements
For the year ended 30 June 2008 (continued)

Consolidated
$000

Parent
$000

2008

2007

2008

2007

4,995

2,605

7,600

2,373

7,168

2,302

271

9,741

2,153

733

271

3,157

(i)

(ii)

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.
Included in other payables and accruals is $3,155,552 due to the vendor for the purchase of the Leeton property. The
current portion of this payable is $518,473.

16 Borrowings
Secured - at amortised cost

Current

Bank overdrafts (i)

Loan payable (i)

Finance leases (ii)

Non-current

Loan payable (i)

Finance leases (ii)

Unsecured - at amortised cost

Current

Convertible Notes - unsecured (iii)

Disclosed in the financial statements as:

Current borrowings

Non-current borrowings

860

2,591

12,200

15,806

3,520

12,286

15,806

5,076

2,500

112

4,981

12,702

10,090

2,612

12,702

155

5,097

2,500

112

4,981

12,723

10,111

2,612

12,723

(i) Secured by assets as detailed in note 34.
(ii) Secured by leased assets as detailed in note 24.
(iii) The Parent issued 8,333,333 unsecured convertible notes at $0.60 each, with a coupon rate of 9.5% per annum which

matured on 1 September 2007.

2008 Annual Report | 45

For personal use onlyNotes to the Financial Statements
For the year ended 30 June 2008 (continued)

17 Provisions

Current

Employee benefits (i)

Non-current

Employee benefits

Employee benefits movement:

Balance at 1 July 2007

Additional provision recognised

Amounts used

Balance at 30 June 2008

Consolidated
$000

Parent
$000

2008

2007

2008

2007

774

310

871

625

(412)

1,084

641

230

637

598

(364)

871

189

120

277

110

(78)

309

164

113

297

108

(128)

277

(i)

The current Group provision for employee benefits includes $112,000 of annual leave and vested long service leave
entitlements accrued but not expected to be taken within 12 months (2007: $229,000). The current parent employee
benefits are expected to be taken during the next 12 months.

18 Issued capital

Fully paid ordinary shares

54,606,737 (2007: 44,527,343) ordinary shares fully paid

Balance at 1 July

Issue of shares (i)(ii)

Balance at 30 June

26,999

22,078

4,921

26,999

22,078

22,058

22,078

26,999

22,078

4,921

26,999

22,078

22,058

22,078

(i)

(ii)

April 2008 - 10,000,000 ordinary shares were issued for 50 cents per share. Issue costs of $119,000 were incurred during
the capital raising process.
May 2008 - 41,998 ordinary shares were issued for 51.6 cents per share.
December 2007 - 37,396 ordinary shares were issued at 49.7 cent per share.

During the prior financial year there were 42,333 ordinary shares issued for 46.8 cents per share during May 2007.
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.

Share options granted under the employee share option plan

(i)

(ii)

For information relating to the Freedom Nutritional Products Limited Employee Share Option Plan, including details of
options issued, exercised and lapsed during the financial year and the options outstanding at year-end, refer note 29.

For information relating to share options issued to key management personnel during the financial year, refer note 28. At
30 June 2008, there were 5,900,000 (30 June 2007: 6,100,000 of which 200,000 have lapsed in the financial year ended
30 June 2008) unissued ordinary shares for which options were outstanding.

46 | Freedom Nutritional Products Limited

For personal use only19 Reserves

Asset revaluation

Equity-settled employee benefits

Balance at 1 July

Share based payment

Balance at 30 June

Notes to the Financial Statements
For the year ended 30 June 2008 (continued)

Consolidated
$000

Parent
$000

2008

473

192

665

126

192

2007

2008

192

126

192

2007

The equity-settled employee benefits 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 financial statements.

Asset revaluation

Balance at 1 July

Revaluation increment

Balance at 30 June

473

The asset revaluation reserve arises on the revaluation of land and buildings. Where a revalued land or building is sold that
portion of the asset revaluation reserve which relates to the asset, and is effectively realised, is transferred directly to retained
earnings.

20 Retained Profits

Balance at 1 July

Transfer from minority interest

Net profit / (loss) attributable to members of the parent

Dividends paid

Balance at 30 June

21 Dividends

Recognised amounts

Fully paid ordinary shares

Interim dividend: fully franked at a 30% tax rate

Unrecognised amounts

Fully paid ordinary shares

Final dividend: fully franked at a 30% tax rate

2,956

(1,446)

956

(891)

1,575

2,227

1,174

(445)

2,956

1,766

(891)

925

627

(132)

(445)

2008

2007

Cents per
share

Total
$’000

Cents per
share

Total
$’000

1.0

445

446

546

1.0

445

On 28 August 2008, the directors declared a fully franked final dividend of 1.0 cents per share to the holders of fully paid
ordinary shares in respect of the financial year ending 30 June 2008, to be paid to shareholders on 19 December 2008. The
dividend will be paid to shareholders on the Register of Members on 1 December 2008. The total estimated dividend to be
paid is $546,000.

2008 Annual Report | 47

For personal use onlyNotes to the Financial Statements
For the year ended 30 June 2008 (continued)

21 Dividends (continued)

Adjusted franking account balance

Impact on franking account balance of dividends not recognised

22 Notes to the cash flow statement

(a) Reconciliation of cash and cash equivalents

Parent
$000

2008

343

(234)

2007

222

For the purposes of the cash flow statement, cash and cash equivalents includes cash on hand and funds held in
cash management and cheque accounts net of bank overdrafts. Cash at the end of the financial year as shown in
the cash flow statement is reconciled to the related items in the balance sheet as follows:-

Cash

Overdraft

Consolidated
$000

2008

1,111

(860)

251

2007

(5,076)

(5,072)

Parent
$000

2008

(b) Reconciliation of profit for the period to net cash flows from operating activities

Profit for the year

Depreciation

Provision for employee entitlements

Write off of inventory

Gain on disposal of assets

Foreign currency revaluation

Share based payments

Interest received

Intercompany dividends received

Loss in jointly controlled entity

Changes in Assets and Liabilities

(Increase) / Decrease in receivables

(Increase) / Decrease in inventory

(Increase) / Decrease in other assets

(Increase) / Decrease in deferred tax assets

Increase / (Decrease) in accounts payable

Increase / (Decrease) in provision for income tax

Increase / (Decrease) in provision for deferred income tax

Net cash from operating activities

956

331

214

151

126

(195)

355

(969)

3,054

461

(2,653)

(150)

(33)

1,720

1,169

162

235

(2)

(120)

(23)

(31)

136

(2,000)

(828)

(626)

122

264

(79)

(1,521)

1,766

121

126

(3,100)

317

3,247

2,155

(270)

(209)

(2,822)

(132)

(28)

1,203

2007

(5,097)

(5,094)

(132)

(19)

(27)

(124)

(1,162)

135

(1,038)

(141)

333

100

(61)

(72)

(2,033)

Details of credit stand-by arrangements available and unused loan facilities are shown in note 23 to the financial
statements.

48 | Freedom Nutritional Products Limited

For personal use onlyNotes to the Financial Statements
For the year ended 30 June 2008 (continued)

22 Notes to the cash flow statement (continued)

During the current financial year, the Group acquired $48,000 (2007:$101,000) of motor vehicles under finance
leases. These acquisitions will be reflected in the cash flow statement over the term of the finance lease via
lease repayments. Furthermore, the group acquired land and buildings which included deferred purchase
consideration of $3,156,000 refer to note 15(ii).

(d) Business Acquired

During the 2008 financial year consideration was paid for the acquisition of Norganic Foods (Australia) Pty
Limited business assets. Also, consideration was finalised in respect of the Cookieman baking assets. During
the 2007 financial year, consideration was paid for the acquisition of Cookieman baking assets. Also, deferred
consideration was paid in respect of acquiring the remaining 20% of Freedom Foods Pty Limited.

Details of these transaction are:

Purchase consideration

Incidental costs - Cookie man

Incidental costs - Norganic Foods (Australia)

Deferred consideration for Freedom Foods acquisition

Cash consideration

Assets and liabilities held at acquisition date

Prepayments

Inventories

Deferred tax assets

Property, plant and equipment

Brands (Intellectual property)

Employee entitlements

Rent received in advance

Goodwill on acquisition

Consolidated
$000

2008

4,500

618

5,174

492

4,626

5,118

5,174

2007

1,247

432

1,765

412

1,224

(196)

(64)

1,463

302

1,765

Parent
$000

2008

2007

2008 Annual Report | 49

For personal use onlyNotes to the Financial Statements
For the year ended 30 June 2008 (continued)

23 Standby arrangements and unused credit facilities

Financing Facility

Secured bank overdraft facility

•

amount used

amount unused

Secured loan facilities

•

amount used

•

amount unused

Unused financing facilities

Consolidated
$000

2008

2007

Parent
$000

2008

860

1,140

2,000

14,791

534

15,325

1,674

5,076

2,574

7,650

2,500

2,574

2007

5,076

2,574

7,650

2,500

2,574

The bank overdraft and multi-option facilities are arranged with Bankwest (2007: Westpac Banking Corporation)
with general terms and conditions and is subject to annual review. The bank facilities of the Group are secured
by a first registered mortgage over all the Group's property and a first equitable mortgage over the whole of the
Group's assets and undertakings including uncalled capital. The mortgage is held by Bankwest (2007: Westpac
Banking Corporation). Interest rates are variable and subject to adjustment.

24 Capital and leasing commitments

Finance leases

Leasing arrangements
Finance leases relate to motor vehicles and equipment with lease terms of up to 5 years. The Group has options
to purchase the equipment for an agreed amount at the conclusion of the lease agreements. The Group's
obligation under finance leases are secured by the lessor's title to the leased assets.

Minimum future lease payments -
$’000

Present value of minimum future lease
payments - $’000

Consolidated

Parent

Consolidated

Parent

2008

2007

2008

2007

2008

2007

2008

2007

171

(16)

155

131

181

(36)

145

171

(16)

155

131

181

(36)

145

155

112

145

112

145

155

112

145

112

145

Finance lease liabilities

Payable:

•

No later than 1 year

•

Later than 1 year but not later than 5 years

Minimum future lease payments (i)

Less future finance charges

Present value of minimum lease payments

Included in the financial statements as: (note 16)

Current borrowings

Non-current borrowings

50 | Freedom Nutritional Products Limited

For personal use only

Notes to the Financial Statements
For the year ended 30 June 2008 (continued)

24 Capital and leasing commitments (continued)

(i)

Minimum future lease payments includes the aggregate of all lease payments and any guaranteed residual.

Operating leases

Disclosure for lessees
Leasing arrangements
Operating leases relate to office equipment with lease terms of between one 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.

Non-cancellable operating lease commitments

•

Not longer than 1 year

Longer than 1 year but not longer than 5 years

Group's share of jointly controlled entities capital commitments

•

Not longer than 1 year

Consolidated
$000

Parent
$000

2008

2007

2008

2007

593

146

135

281

395

146

135

281

Disclosure for lessors
Operating leases relate to warehouse facilities owned by the group with lease terms currently less than 1 year.

Non-cancellable operating lease receivables

•

Not longer than 1 year

25 Personnel note

The entity employs casual and full time staff numbering

26 Financial instruments

(a) Capital risk management

Consolidated Number

Parent Number

2008

152

2007

137

2008

2007

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern
while maximising the return to stakeholders through the optimisation of debt and equity balances.

The Group's overall strategy remains unchanged from 2007. The capital structure of the Group consists of debt,
which includes the borrowings disclosed in note 16, cash and cash equivalents and equity attributable to equity
holders of the parent comprising issued capital, reserves and retained earnings as disclosed in notes 18, 19 and
20 respectively.

Operating cash flows are used to maintain and expand the group's manufacturing and distribution assets, as
well as to make the routine outflows of tax, dividends and repayment of maturing debt. The Group's policy is to
borrow centrally, using a variety of capital market issues and borrowing facilities, to meet anticipated funding
requirements.

Gearing ratio

The Group's management reviews the capital structure on a regular basis. As a part of this review the committee

2008 Annual Report | 51

For personal use only

Notes to the Financial Statements
For the year ended 30 June 2008 (continued)

26 Financial instruments (continued)

considers the cost of capital and the risks associated with each class of capital.

Financial liabilities

Debt (i)

Cash and cash equivalents

Net debt

Equity (ii)

Net debt to equity ratio

Consolidated
$000

2008

2007

15,806

(251)

15,555

27,664

56%

12,702

5,072

17,774

22,144

80%

Parent
$000

2008

155

(1)

154

27,191

2007

12,723

5,094

17,817

22,144

80%

(i) Debt is defined as long and short-term borrowings, as detailed in note 16.

(ii) Equity includes all capital and reserves.

(b) Financial risk management objectives

The Group's Corporate Treasury function provides services to the business, co-ordinates access to domestic

and international financial markets, monitors and manages the financial 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

effects of these risks, by using derivative financial instruments to hedge these risk exposures. The use of financial

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 or trade financial instruments, including derivative financial instruments for speculative purposes.

The Group's activities expose it primarily to the financial 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.

(d) Significant accounting policies

Details of the significant 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

financial asset, financial liability and equity instrument are disclosed in note 3 to the financial statements.

(e) Foreign currency risk management

The Group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange

rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising

forward foreign exchange contracts.

52 | Freedom Nutritional Products Limited

For personal use only

Notes to the Financial Statements
For the year ended 30 June 2008 (continued)

26 Financial instruments (continued)

The carrying amount of the Group's foreign currency denominated financial assets and financial liabilities at the
reporting date is as follows:

Consolidated

US dollars (USD)

Canadian dollars (CAD)

Financial assets
$’000

Financial liabilities
$’000

2008

1,032

945

2007

2008

2007

913

273

520

791

There have been no change to the group's exposure to foreign currency risks or the manner in which it manages
and measures the risks from the previous period.

Forward Exchange Contracts

The Group enters into forward exchange contracts to buy specified 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.

The following table details the forward foreign currency contracts outstanding as at reporting date:

Average exchange rate

Foreign currency

Contract value

Fair value

Outstanding contracts

2008

2007

2008

FC'000

2007

FC'000

2008

$'000

2007

$'000

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

0.9397

0.9328

0.9478

0.9378

0.7566

0.7951

0.8406

0.9128

0.9090

0.9069

1,869

1,500

962

950

976

927

525

1,973

1,750

550

1,989

1,608

1,015

1,013

1,290

1,166

625

2,161

1,925

606

2008

$'000

(155)

(141)

(77)

(76)

(449)

2007

$'000

(140)

(74)

(6)

(152)

The Group has entered into contracts to purchase finished 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.

Foreign currency sensitivity analysis

The following table details the sensitivity to a 10% increase and decrease in the Australian dollar against the
relevant currencies in relation to foreign exchange exposures. 10% is the sensitivity rate used when reporting
foreign currency risk internally to key management personnel and represents management's assessment of the
possible change in foreign exchange rates.

A positive number indicates an increase in profit where the Australia Dollar strengthens against the respective
currency. For a weakening of the Australia Dollar against the respective currency there would be an equal and
opposite impact on the profit and the balances below would be negative.

2008 Annual Report | 53

For personal use only

Notes to the Financial Statements
For the year ended 30 June 2008 (continued)

26 Financial instruments (continued)

Consolidated

US dollars (USD) impact

AUD appreciates by 10%

AUD depreciates by 10%

Canadian dollars (CAD) impact

AUD appreciates by 10%

AUD depreciates by 10%

Profit or loss
$’000

2008

2007

(69)

(39)

(81)

(88)

(i)

This is mainly attributable to the exposure outstanding on foreign currency receivables and payables at year
end in the consolidated entity and the parent.

(f) Interest rate risk management

The Parent and Group are exposed to interest rate risk as they borrow funds at both fixed and floating interest
rates. The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate
borrowings.
Exposures to interest rate risk, which is the risk that a financial instrument's value, its borrowing costs and interest
income will fluctuate as a result of changes in market interest rates and the effective weighted average interest
rates on those financial instruments are set out below:

Group
Financial Instrument

Weighted
average
effective
interest rate

Note

Financial Assets

Cash and cash equivalents

Redeemable notes

Total Financial Assets

Financial Liabilities

Bank overdrafts

Finance leases

Other payable

Loan payable

Convertible notes

Total Financial Liabilities

5.0%

15.8%

10.7%

8.0%

11.0%

9.0%

9.5%

Fixed rate maturing in

Variable Rate

Less than 1 year

1 to 5 years

2008

$ '000

1,111

860

14,791

15,651

2007

$ '000

2008

$ '000

2007

$ '000

5,076

2,500

7,576

782

851

4,981

5,014

2008

$ '000

1,674

2,373

2007

$ '000

1,250

112

2,459

112

54 | Freedom Nutritional Products Limited

For personal use onlyNotes to the Financial Statements
For the year ended 30 June 2008 (continued)

26 Financial instruments (continued)

Parent
Financial Instrument

Financial Assets

Cash

Due from controlled entities

Total Financial Assets

Financial Liabilities

Bank overdrafts

Finance leases

Loan Payable

Convertible notes

Total Financial Liabilities

Weighted
average
effective
interest rate

Note

5.0%

10.5%

8.2%

8.0%

7.5%

9.5%

Fixed rate maturing in

Variable Rate

Less than 1 year

1 to 5 years

2008

$ '000

2007

$ '000

2008

$ '000

2007

$ '000

5,097

2,500

7,597

4,981

5,014

2008

$ '000

26,335

2007

$ '000

29,616

112

There have been no change to the group's exposure to interest rate risks or the manner in which it manages and
measures the risks from the previous period.

Interest rate sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to interest rates as detailed in the
above table at the reporting date and the stipulated change taking place at the beginning of the financial year
and held constant throughout the reporting period.

A 100 basis point movement with all other variables being held constant:

•

the impact on the consolidated entity's net profit will be an increase/decrease of $177,000 (2007: $76,000)
respectively; and

•

the impact on the parent's net profit will be an increase/decrease of $nil (2007: $76,000) respectively.

This is mainly attributable to the company's and consolidated entity's exposure to interest rates on its variable
rate borrowings.

A 100 basis point movement is used when reporting interest rate risk internally to key management personnel
and represents management's assessment of the possible change in interest rates.

(g) Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss
to the Group and the Parent. The Group has adopted the policy of only dealing with credit worthy counterparties
as a means of mitigating the risk of financial loss from defaults. The Group's exposure and the credit ratings of
its counterparties are continuously monitored and the aggregate value of transactions concluded are spread
amongst approved counterparties.

Quality of Trade and Other Receivables and Other Financial Assets have been disclosed in notes 10 and 11
respectively.

Credit risk from balances with banks and financial institutions is managed by Group Treasury in accordance with
a Board approved policy. Investments of surplus funds are made only with approved counterparties and within
credit limits assigned to each counterparty.

2008 Annual Report | 55

For personal use only
Notes to the Financial Statements
For the year ended 30 June 2008 (continued)

26 Financial instruments (continued)

Counterparty credit limits are reviewed by the Board on an annual basis, and may be updated throughout the
year subject to approval of the Board. The limits are set to minimise the concentration of risks and therefore
mitigate financial loss through potential counterparty failure. The credit risk on liquid funds is limited because
the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance sheet
date, to recognised financial assets of the Group which have been recognised on the Balance Sheet is the
carrying amount, net of any allowance for doubtful debts.

(h) Liquidity risk management

Liquidity risk arises from the possibility that the Group and the Parent may be unable to settle a transaction on
the due date. The 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 flows and matching the maturity profiles of financial assets and liabilities.

The Group and the Parent manages liquidity risk by maintaining adequate reserves, banking facilities and reserve
borrowing facilities by continuously monitoring forecast and actual cash flows and matching profiles of financial
assets and liabilities. Included in Note 23 is a listing of additional undrawn facilities that the company and the
consolidated entity has at their disposal to further reduce liquidity risk.

Liquidity risk tables

The following table detail the company's and the consolidated entity's remaining contractual maturity for its
financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities
based on the earliest date on which the company or the consolidated entity can be required to pay. The tables
include both interest and principal cash flows.

Weighted
average
effective
interest rate

11.0%

10.7%

8.0%

9.0%

9.5%

Consolidated

Financial Liabilities

Trade payables

Other payables and accruals

Other payables

Due to related parties

Bank overdrafts

Finance leases

Loan payable

Convertible notes

Less than 1 year

1 to 5 years

More than 5 years

2008

2007

2008

2007

2008

2007

$’000

4,995

1,823

850

952

3,998

7,168

2,302

271

5,492

2,688

5,475

3,400

16,138

131

Total Financial Liabilities

12,700

23,446

19,627

56 | Freedom Nutritional Products Limited

For personal use only26 Financial instruments (continued)

Weighted
average
effective
interest rate

8.2%

8.0%

7.5%

9.5%

Parent

Financial Liabilities

Trade payables

Other payables

Due to related parties

Bank overdrafts

Finance leases

Loan payable

Convertible notes

Notes to the Financial Statements
For the year ended 30 June 2008 (continued)

Less than 1 year

1 to 5 years

More than 5 years

2008

2007

2008

2007

2008

2007

$’000

2,153

733

271

5,515

2,688

5,475

131

2,500

2,631

Total Financial Liabilities

146

16,885

(i) Fair value of financial instruments

The carrying amount of financial assets and financial liabilities recorded in the financial statements approximates
their fair values.

The fair values of financial assets and financial liabilities are determined as follows:

•

the fair value of financial assets and financial liabilities with standard terms and conditions and traded on
active liquid markets are determined with reference to quoted market prices;

the fair value of other financial assets and financial liabilities (excluding derivative instruments) are determined
in accordance with generally accepted pricing models based on discounted cash flow 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 flow analysis using the applicable yield curve for the duration of the
instruments for non-optional derivatives, and option pricing models for optional derivatives.

(j) 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 first 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 satisfied by exercise
of a call option held by Ian Thorpe for shares in the Parent. These financial instruments do not have a value at 30
June 2008.

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.

2008 Annual Report | 57

For personal use only

Notes to the Financial Statements
For the year ended 30 June 2008 (continued)

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 qualified 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 theobjectives of the consolidated entity’s remuneration strategy.

The remuneration structures explained below are designed to attract suitably qualified candidates. 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 benefits 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.

Performance based remuneration

Performance based remuneration is at the discretion of the Remuneration and Nomination Committee. This can
take the form of share options or cash payments. During the year no options were issued. Options are valued
using the bi-nomial method.

The following cash retention bonuses were granted

(i) Mr. G. J. Hughes on 1 November 2007 for $50,000; and

(ii) Mr M Christian on 1 January 2008 for $22,000.

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 2008 were $167,000 (2007: $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
retirement benefits for non-executive directors.

58 | Freedom Nutritional Products Limited

For personal use only

Notes to the Financial Statements
For the year ended 30 June 2008 (continued)

27 Key management personnel compensation (continued)

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 fixed term to 30 November 2011

The remuneration comprises a fixed 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 his duties. The CEO may terminate this agreement with one month’s notice and the Parent with
six 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 of the company and group does not directly link the remuneration of directors and
senior executives to parent performance or shareholder wealth.

The following table shows the revenue, profits and dividends for the past five years for the Group.

Sales Revenue ($000’s)

Net Profit / (loss) after tax ($000s)

Dividends paid (cents)

2004

32,940

(749)

Nil

2005

37,954

310

Nil

2006

46,963

1,434

Nil

2007

48,683

1,174

2008

54,082

956

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 benefits

Post-employment benefits

Share-based payment

Consolidated
$000

Parent
$000

2008

2007

1,601,890

1,019,335

78,992

126,599

338,187

66,350

1,807,481

1,423,872

2008

167,000

15,030

126,599

308,629

2007

122,315

58,988

66,350

247,653

2008 Annual Report | 59

For personal use only

Notes to the Financial Statements
For the year ended 30 June 2008 (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 Officer)
A. M. Perich (Non-executive director)
R. Perich (Non-executive director)
S. Higgs (Non-executive director), resigned October 2007.
M. Miles (Non-executive director)
B. W. Bootle (alternate director)
R. J. F. Macleod (Executive director) appointed to the Board
May 2008.

•

•
•
•
•

G. J. Hughes (Chief Operating Officer) appointed
July 2007.
P. J. Nathan (General Manager Marketing)
M. E. Jenkins (Chief Financial Officer & Company Secretary)
M. Christian (General Manager Manufacturing)
M. Haupfleisch (General Manager, Specialty Seafoods)
appointed March 2008.

Determination of remuneration of specified directors

Remuneration of non-executive directors comprise fees determined having regard to industry practice and the need
to obtain appropriately qualified independent persons. Fees do not contain any non-monetary elements.

Remuneration of the executive directors is determined by the Remuneration & Nomination Committee. In this
respect, consideration is given to normal commercial rates of remuneration for similar levels of responsibility.

Options are granted to the executive directors to acquire ordinary shares in Freedom Nutritional Products Limited.

The compensation of each member of the key management personnel of the Group is set out below:

2008

Short term benefits

P. R.
Gunner

G H
Babidge

A. M.
Perich

R. Perich

S.F. Higgs

M. Miles

B. W.
Bootle

R. J. F.
Macleod

Salaries and fees

63,000

325,871

30,000

32,000

10,000

32,000

Bonus

Non monetary

Post employment
benefits

Superannuation

5,670

13,129

2,700

2,880

900

2,880

211,871

13,129

Equity compensation

Options

Total

Short term benefits

Salaries and Fees

Bonus

Non monetary

Post employment benefits

Superannuation

Equity compensation

Options

Total

60 | Freedom Nutritional Products Limited

42,934

68,670

381,934

32,700

34,880

10,900

34,880

22,731

42,934

267,934

G.J. Hughes

P. J. Nathan

M. E.
Jenkins

M.
Christian

M.
Haupfleisch

Total

144,843

185,000

223,509

50,000

27,000

10,421

12,283

15,000

9,000

189,596

22,000

55,200

1,502,890

72,000

27,000

78,992

126,599

283,930

193,126

209,000

211,596

55,200

1,807,481

For personal use onlyNotes to the Financial Statements
For the year ended 30 June 2008 (continued)

27 Key management personnel compensation (continued)

2007

P. R.
Gunner

G H
Babidge
(i)

A. M.
Perich

R. Perich

S.F. Higgs

M. Miles

C. C. Grubb

B. W.
Bootle
(i)

Short term benefits

Salaries and fees

31,167

223,487

24,167

27,000

26,833

2,000

Non monetary

Post employment
benefits

1,513

Superannuation

25,695

100,000

2,175

2,430

2,415

17,620

13,259

3,815

25,045

56,862

350,045

26,342

29,430

29,248

19,620

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

7,333

187,314

137,325

150,933

1,367

137,821

41,761

15,500

1,000,956

18,380

Equity compensation

Options

Total

Short term benefits

Salaries and Fees

Non monetary

Post employment
benefits

Superannuation

7,993

660

12,686

32,829

27,700

12,179

93,805

338,187

Equity compensation

Options

Total

7,993

25,045

225,045

1,500

66,349

171,654

181,500

150,000

151,066

1,423,872

(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.

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 financial
statements.

(ii) Equity interest in joint ventures

Details of interests in joint ventures are disclosed in note 33 to the financial 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 financial statements.

2008 Annual Report | 61

For personal use only

Notes to the Financial Statements
For the year ended 30 June 2008 (continued)

28 Related party transactions (continued)

(ii) Key management personnel equity holdings

Fully paid ordinary shares of the Parent

2008

P. R. Gunner

G.H. Babidge

A. M. Perich (2)

R. Perich (2)

S. F. Higgs

M. Miles

B. W. Bootle

R. J. F. Macleod

G. J. Hughes

P. Nathan

M. E. Jenkins

M. Christian

M. Haupfleisch

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

Balance at
1 July 2007

Granted as
compensation

Received on
exercise of options

Net other change

Balance at
30 June 2008

No.

321,017

69,217

34,901,799

384,615

51,069

40,855

156,108

40,000

30,326

No.

39,500

628,586

53,284

1,631

No.

360,517

69,217

35,530,385

384,615

104,353

42,486

156,108

40,000

30,326

Balance at
1 July 2006

Granted as
compensation

Received on
exercise of options

Net other change

Balance at
30 June 2007

No.

204,346

69,217

8,771,289

384,615

172,074

8,068,435

156,108

30,326

No.

116,671

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

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.

62 | Freedom Nutritional Products Limited

For personal use only
Notes to the Financial Statements
For the year ended 30 June 2008 (continued)

28 Related party transactions (continued)

Share options of the Parent

Balance
at 1 July

Lapsed

Granted as
compensation

Exercised

Net other
change

Balance
at 30
June

Balance
vested at
30 June

Vested
but not
exercisable

Vested and
exercisable

Options
vested
during year

No.

2008

G.H. Babidge

2,400,000

B. W. Bootle

900,000

R. J. F. Macleod

2,000,000

P. Nathan

300,000

M. E. Jenkins

400,000

(100,000)

2007

G.H. Babidge

1,925,000

B. W. Bootle

R. J. F. Macleod

650,000

P. Nathan

M. E. Jenkins

Dr V
Lakshminarayana

100,000

50,000

H.A. Hurwitz

50,000

1,700,000

900,000

1,700,000

300,000

2,400,000

1,125,000

900,000

2,000,000

300,000

225,000

725,000

150,000

(1,225,000)

2,400,000

700,000

900,000

(350,000)

2,000,000

300,000

400,000

50,000

100,000

50,000

1,125,000

225,000

725,000

150,000

700,000

300,000

100,000

50,000

425,000

225,000

425,000

150,000

All share options issued to key management personnel were made in accordance with the provisions of the
Employee Share Option Plan.

During the financial year nil options (2007: nil) were exercised by key management personnel.

Further details of the Employee Share Option Plan and of share options granted during 2008 and 2007 financial
years are contained in note 29 to the financial statements.

(iii) Other transactions with key personnel of the Group

Profit for the financial year ended 30 June 2007 included $124,000 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.

Other related parties include:

•

the parent entity

entities with joint control or significant influence over the Group.

joint ventures in which the entity is a venturer

subsidiaries

other related parties

2008 Annual Report | 63

For personal use only

Notes to the Financial Statements
For the year ended 30 June 2008 (continued)

28 Related party transactions (continued)

(i) Transactions between Parent and its related parties

During the financial 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 $702,000 to its ultimate parent entity (2007: $348,000). The
ultimate parent entity Arrovest Pty Ltd holds 65% of the fully paid ordinary shares of Freedom Nutritional
Products Limited (2007: 78%).

the Parent received interest income of $nil (2007: $1,162,000) from controlled entities. Interest is receivable on
the last business day of the financial year.

the Parent made payments of $215,396 (2007: $1,562,000) to a controlled entity for selling, corporate and
financial services. The amount is payable on the last day of the financial year.

the Parent paid rental income of $57,000 (2007: $nil) to CBPA.

the Parent received fees for management services provided of $15,000 (2007: $3,750) from CBPA.

The Group was reimbursed by CBPA $2,407,000 (2007: $2,134,000) for labour services provided.

The following balances arising from transactions between the Parent and its other related parties are outstanding
at reporting date:

•

Non Current loans totalling $26,335,000 are receivable from subsidiaries (2007: $29,616,000).

Current loans totalling $955,000 are receivable from joint ventures (2007: $1,476,000).

Current loans totalling $nil are repayable to the associate of the ultimate parent (2007: $271,000).

All amounts advanced to or payable to related parties are unsecured and are at call.

The amounts outstanding will be settled in cash. No guarantees have been given or received. No expense has
been recognised during the financial 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 financial statements of the Group.

(ii) Transactions between the Group and its related parties

During the financial year, the following transactions occurred between the Group and its other related parties:

•

CBPA sold goods totalling $7,668,000 (2007: $nil) to the Group at cost.

The Group made interest payments of $57,000 (2007: $nil) to Arrovest Pty Ltd. The weighed average interest
rate on the loans is 9%.

The Group received rental income of $17,000 (2007: $nil) from A2DP.

The Group was reimbursed by A2DP $883,000 (2007: $18,000) for labour and other administrative services
provided.

The Group received interest income of $184,000 (2007: $7,000) from A2DP on its convertible notes.
effective interest rate on the convertible notes is 15.8% (2007: 15.8%).

The

These services are provided under normal terms and conditions.

The following balances arising from transactions between the Group and its other related parties are outstanding
at reporting date:

•

Current loans totalling $707,000 are receivable from joint ventures (2007: $1,476,000)

Current loans totalling $nil are repayable to the associate of the ultimate parent (2007: $271,000)

All amounts advanced to or payable to related parties are unsecured and are subordinated to other liabilities.

64 | Freedom Nutritional Products Limited

For personal use only

Notes to the Financial Statements
For the year ended 30 June 2008 (continued)

28 Related party transactions (continued)

(iii)

Transactions between joint ventures in which the entity is a venturer and other related parties of the Group.

During the financial year, the following transactions occurred between joint ventures in which the entity is a
venturer and other related parties of the Group:

•

Leppington Pastoral Company sold goods and services totalling $5,147,000 (2007: $253,000) to CBPA at cost.

CBPA incurred a Dairy Management Fee payable to Leppington Pastoral Company totalling $111,000 (2007:
$15,000).

These services are provided under normal terms and conditions.

(iv) Guarantee

The Parent has guaranteed bank debt up to $1.5m for the debts of a jointly controlled entity. The amount of the
exposure at balance date is $nil (2007: $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.

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 five 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 financial year ended 30 June 2007 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:

Number

Grant date

Expiry date

Exercise price

Fair value at
grant

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

333,334

333,333

700,000

275,000

1,000,000

4,300,000

600,000

1/01/02

29/01/03

3/09/03

27/07/05

30/11/06

26/04/07

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

0.10

The weighted average fair value of the share options granted during the financial year is nil (2007: $0.10). 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 effects of non-transferability, exercise restrictions and
behavioural considerations.

Expected volatility is based on historical share price volatility over the past 2 years. It is expected that options will
be exercised only in the event of market price exceeding exercise price.

2008 Annual Report | 65

For personal use only

Notes to the Financial Statements
For the year ended 30 June 2008 (continued)

29 Share based payments - Employee Share Option Plan (continued)

Inputs into the model

Grant date share price

Exercise price

Expected volatility

Option life

Dividend yield

Risk-free interest rate

Series 1

Series 2

Series 3

Series 4

Series 5

Series 6

Series 7

Series 8

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

20%

0.48

0.50

20%

5.25 years

5 years

3 years

Nil

6.0%

Nil

6.0%

Nil

6.0%

Nil

6.0%

Nil

6.0%

Nil

6.0%

2.5%

The following reconciles the outstanding share options granted under the employee share option plan at the
beginning and end of the financial year:

Balance at beginning of the financial year

Granted during financial year

Lapsed during financial year

Cancelled during financial year

Exercisable at end of financial year

2008

2007

Number of options

6,100,000

(200,000)

5,900,000

2,375,000

Weighted average
exercise price $

Number of options

Weighted average
exercise price $

0.51

0.80

0.50

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

Balance at end of the financial year
The share options outstanding at the end of the financial year had an average exercise price of $0.50
(2007: $0.51), and a weighted average remaining contractual life of 1,105 days (2007: 1,501 days). No options
were exercised during the financial year.

30 Contingent liabilities

Bank guarantee given to a supplier arising out of the normal course of
business. No liability is expected to accrue.

Consolidated
$000

2008

2007

Parent
$000

2008

2007

A statement of claim received in a prior period was settled for $25,000 during the financial year 30 June 2008

66 | Freedom Nutritional Products Limited

For personal use only
Notes to the Financial Statements
For the year ended 30 June 2008 (continued)

31 Controlled entities

Controlled Entity

Paramount Seafoods Pty Limited (iii)

Nutrition Ventures Pty Limited (iii)

Nutrition Ventures Financing Pty Limited (i) (iii)

Freedom Foods Pty Limited (iii)

Australian Natural Foods Holdings Pty Limited (iii)

Thorpedo Foods Group Pty Limited (iii)

Thorpedo Foods Pty Limited

Thorpedo Seafoods Pty Limited

Country of
Incorporation

Ownership interest

Australia

2008

100%

50.01%

75%

2007

100%

50.01%

75%

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 2008 financial report.

(i) Nutrition Ventures Financing Pty Limited was incorporated on 1 October 2007.

(ii) Subsequent to year end Norganic Foods Pty Limited was incorporated on 23 July 2008.

(iii) These companies are members of the tax consolidated group.

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 financial report
and a directors’ report.

Members of the closed group are:

•

Freedom Nutritional Products Limited

Paramount Seafoods Pty Limited

Nutrition Ventures Pty Limited

Nutrition Ventures Financing Pty Limited

•

Freedom Foods Pty Limited

Australian Natural Foods Holdings Pty Limited

Thorpedo Foods Group 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. The consolidated financial
report of the closed group would not be materially different from the report of the group as a whole.

33 Jointly controlled operations and assets

The Group is a venturer in the following jointly controlled operations and assets

Name of venture

Country of incorporation

Principal activity

2008

2007

CBPA

A2DP

Australia

Contract beverage packing
services

Sale of a2 milk

Output interest
%

2008 Annual Report | 67

For personal use only

Notes to the Financial Statements
For the year ended 30 June 2008 (continued)

33 Jointly controlled operations and assets (continued)

Reconciliation of movement in investments accounted for using the equity method:

Balance at 1 July

Share of loss for the year

Dividends

Additions

Balance at 30 June

CBPA
$000

2008

768

(317)

451

150

601

2007

450

(135)

315

453

768

A2DP
$000

2008

329

(38)

291

622

913

2007

(1)

330

329

Summarised financial information in respect of Freedom Nutritional Products Limited’s share in the joint venture
is set out below:

Current assets

Non current assets

Total assets

Current liabilities

Non current liabilities

Total Liabilities

Net assets

Shareholder funds

Revenue

Loss after income tax

3,202

4,894

8,096

3,168

4,799

7,967

129

5,451

(317)

1,699

4,905

6,604

2,609

3,700

6,309

295

1,088

(135)

(38)

109

(38)

(2)

(1)

34 Assets pledged as security

In accordance with the security arrangements of liabilities, as disclosed in note 16 to the financial 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 finance lease pledged as security.

35 Acquisition of business

On 29 October 2007, the consolidated entity acquired the business assets of Norganic Foods (Australia) Pty
Ltd, specialising in the health food category. There were also additional incidental costs associated with the
acquisition of the Cookieman baking assets. The Cookieman baking assets were acquired on 18 May 2007.
The assets were acquired for the principal activity of biscuit baking. Details of the acquisition and additional
incidental costs are as follows:

Purchase consideration - Norganic Foods (Australia)

Incidental costs - Norganic Foods (Australia)

Purchase consideration - Cookieman

Incidental costs - Cookieman

Cash consideration

68 | Freedom Nutritional Products Limited

Consolidated
$000

Company
$000

2008

4,500

618

5,174

2007

2008

2007

1,247

432

1,679

For personal use onlyNotes to the Financial Statements
For the year ended 30 June 2008 (continued)

35 Acquisition of business (continued)

The purchase consideration for the business assets of Norganic Foods (Australia) included deferred consideration
of $1,000,000. This deferred consideration is dependent on this business achieving certain sales volume and
ranging benchmarks within the first 12 months after the date of acquisition. At the date of this report, the
payment of the deferred consideration is not considered probable and as such this deferred consideration
has not been recognised as a liability. Should this deferred consideration be required to be paid, the value of
intangibles would increase by the amount of the deferred consideration.

Net Assets Acquired

Assets

Prepayment

Inventory

Deferred tax assets

Plant and equipment

Brand Names

Liabilities

Employee entitlements

Income in advance

Goodwill

Norganic Foods (Australia)

Cookieman Bake house

Book Value
$000

Fair Value
Adjustment
$000

Fair Value on
Acquisition
$000

Book Value
$000

Fair Value
Adjustment
$000

Fair Value on
Acquisition
$000

493

4,625

5,118

493

4,625

5,118

412

1,008

(196)

(64)

1,247

216

412

1,224

(196)

(64)

1,463

272

1,735

The accounting for the acquisition of the Cookie man Baking assets and for Norganic Foods (Australia) is final as
at 30 June 2008.
Any goodwill arising from business combinations is recognised because the cost of the combination included
a control premium paid to acquire the business combination. In addition, the consideration paid for the
combination effectively included amounts in relation to the benefit expected synergies, revenue growth, and
future market development . These benefits are not recognised separately from goodwill as the future economic
benefits arising from them cannot be reliably measured.
Included in the net profit for the period is $513,000 attributable to the additional business generated by
Norganic Foods (Australia). In 2007 additional business attributable to the Cookie man baking assets contributed
$44,000 to net profit for the period.

36 Subsequent events

No matters or circumstances have arisen since the end of the financial year which significantly affected or may
significantly affect the operations of the consolidated entity, the results of those operations, or the state of affairs
of the consolidated entity in subsequent financial years.

2008 Annual Report | 69

For personal use only
Directors’ Declaration
For the year ended 30 June 2008

Freedom Nutritional Products Linmited

Directors’ Declaration

For The Year Ended 30 June 2008

The director’s declare that:

(a)

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;

(b) in the directors’ opinion, the attached financial 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 financial position and performance of the company and the consolidated entity; and

At the date of this declaration, the company is within the class of companies affected by ASIC Class Order 98/1418.
The nature of the deed of cross guarantee is such that each company which is party to the deed guarantees to each
creditor payment in full of any debt in accordance with the deed of cross guarantee.

In the directors’ opinion, there are reasonable grounds to believe that the company and the companies to which
the ASIC Class Order applies, as detailed in note 32 to the financial 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.

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

P. R. Gunner
Chairman

Sydney, 2 September 2008

G.H. Babidge
Managing Director

70 | Freedom Nutritional Products Limited

For personal use only

Independent Audit Report

Deloitte Touche Tohmatsu
A.B.N. 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

Independent Auditor’s Report
to the members of Freedom Nutritional
Products Limited

Report on the Financial Report

We have audited the accompanying financial report of Freedom Nutritional Products
Limited, which comprises the balance sheet as at 30 June 2008, 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 20 to 70.

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.

2008 Annual Report | 71

For personal use only

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) giving a true and fair view of the company’s and consolidated entity’s financial

position as at 30 June 2008 and of their performance for the year ended on that date;
and

(ii) 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.

Report on the Remuneration Report

We have audited the Remuneration Report included in pages 7 to 11 of the directors’ report
for the year ended 30 June 2008. The directors of the company are responsible for the
preparation and presentation of the Remuneration Report in accordance with section 300A of
the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration
Report, based on our audit conducted in accordance with Australian Auditing Standards.

Auditor’s Opinion

In our opinion the Remuneration Report of Freedom Nutritional Products Limited for the
year ended 30 June 2008, complies with section 300A of the Corporations Act 2001.

DELOITTE TOUCHE TOHMATSU

P A Roberts
Partner
Chartered Accountants
Parramatta, 2 September 2008

72 | Freedom Nutritional Products Limited

For personal use only

Shareholder Statistics

Shareholding

Substantial shareholders

The number of shares held by the substantial shareholder as listed in the Parent’s register as at 31 August 2008 is:

Shareholder

Arrovest Pty Limited

Telunapa Pty Ltd

Number

35,853,870

9,000,000

Class of shares and voting Rights

At 31 August 2008, there were 54,606,737 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 2008