Freedom Foods Group Limited Annual Report 2009

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FY2009 Annual Report · Freedom Foods Group Limited

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Freedom Nutritional
Products Limited

Annual Report

2009

Corporate Directory

Contents

Financial Highlights and Five Year Summary

Chairman’s Letter

Chief Executive Review of Operations

Directors’ Report

Lead Auditor’s Independence Declaration

Corporate Governance Statement

Consolidated Income Statement

Consolidated Balance Sheet

Consolidated Cash Flow Statement

Consolidated Statement of Changes in Equity

Notes to the Financial Statements

Directors’ Declaration

Independent Auditor’s Report

Shareholder Statistics

Corporate Directory

ANNUAL GENERAL MEETING

Date

Venue

29 October, 2009.

Time

11.30 am

Deloitte Touche Tohmatsu
Level 9, Grosvenor Place,
225 George Street,
Sydney, NSW, 2000

Bank of Western Australia Ltd.

Level 26, 45 Clarence Street,

Sydney NSW 2000

Tel: (02) 8299 8000

Fax: (02) 8299 8293

National Australia Bank Ltd.

26/255 George Street

Sydney NSW 2000

Tel: (02) 9237 1171

Fax:(02) 9237 1400

Auditor

Deloitte Touche Tohmatsu

Chartered Accountants

The Barrington,

Level 10, 10 Smith Street,

Parramatta NSW 2150

Tel: (02) 9840 7000

Fax: (02) 9840 7001

Principal Registered Offi ce

Bankers

Company Secretary

Mark Gilio

80 Box Road,

Taren Point NSW 2229

Tel: (02) 9526 2555

Fax: (02) 9525 5406

Share Registry

Registries Limited

Level 7, 207 Kent Street,

Sydney NSW 2000

Tel: (02) 9290 9600

Fax: (02) 9279 0664

Insurance Brokers

InterRisk Australia Pty Limited

Level 1, 7 Macquarie Place,

Sydney NSW 2000

Tel: (02) 9346 8050

Fax: (02) 9346 8051

Solicitors

Gilbert & Tobin

2 Park Street,

Sydney NSW 2001

Tel: (02) 9263 4000

Fax: (02) 9263 4111

Addisons

Level 12, 60 Carrington Street,

Sydney NSW 2000

Tel: (02) 8915 1000

Fax: (02) 8916 2000

Freedom Nutritional Products Limited
ABN 41 002 814 235
Annual Report for the year ended 30 June 2009

Management

Geoff Babidge - Chief Executive Offi cer and Managing Director

Rory Macleod - Executive Director, Strategy, Corporate Development and Chief Financial Offi cer

Mark Gilio - Group Finance Manager and Company Secretary

Phil Wilson - General Manager Leeton Manufacturing Operations

Peter Bartier - National Supply Chain Manager

2009 Annual Report | 76

Financial Highlights and Five Year Summary

Sales Revenue ($000’s)

EBDITA ($000’s)*

Net Profit 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)

* Earnings before depreciation, interest, tax and amortisation

2009

48,596

3,494

1,794

1,320

2.4

54,660

545

63,659

30,161

2008

54,082

3,203

1,508

956

2.0

54,607

891

56,295

29,239

2007

48,683

3,173

1,789

1,174

2.6

44,527

445

47,428

23,654

2006

46,963

2,921

1,595

1,434

3.2

44,485

Nil

43,548

22,844

2005

37,954

2,090

643

310

0.8

44,485

Nil

41,137

21,538

2009 Annual Report | 1

Chairman’s Letter

Dear Shareholder

Freedom Nutritional Products Limited (“FNP”) reported a Net Profit from Operations of $1.8m, representing an
increase of 90% compared to the prior year. The result was after expensing one off restructuring and corporate
development costs of $615k.

The Company was obliged to bring to account the mark to market value of its foreign exchange contracts which at
balance date represented an unrealised loss of $706k. This adjustment has no impact on the Company’s operating
performance or cashflows and will be reversed in the income statement in the following financial year. Net Profit
adjusted for this mark to market adjustment was $1.3m.

The Chief Executive’s report provides a commentary on operations.

A fully franked dividend of 1 cent was paid during the year and the Board has determined there will be no final 2009
dividend paid to assist funding of the new manufacturing facility for Freedom Foods.

In May, shareholders voted in favour of repealing the Company’s prior Articles of Association and replacing it with an
updated Company Constitution. The adopted Company Constitution reflects necessary changes in the current legal
and regulatory environment.

In May 2009, the group converted its convertible note investment in A2 Dairy Products Australia Pty Ltd (A2DP) into
ordinary shares. The effect of the conversion increased our ownership to 50%, which equates with our joint venture
partner A2 Corporation Limited. A2DP performed strongly reporting an EBIT of $1 million for the 2009 year.

The major priority for the year has been to successfully progress the establishment of a new manufacturing facility
for the major ‘’free from’’ products of Freedom Foods. The project is substantially complete with cereal production
underway and relocation of baked products and bars to be completed by December. As a result, the company now
has a unique world-class facility, which provides a platform for substantial growth in the future.

With Freedom Foods and A2DP well positioned for growth, the Board continues to assess the most appropriate way
to raise and allocate capital across the group to achieve the best return for shareholders.

The Board thanks Geoff Babidge and his management team for their ongoing contributions and we look forward to
the year ahead.

Perry Gunner
Chairman
2 September 2009

2 | Freedom Nutritional Products Limited

Chief Executive’s Review of Operations

12 months to 30 June

Gross Sales Revenues *

Net Sales Revenues *

Operating EBDITA **

Operating EBIT **

Profit/(loss) from Equity Associates

Net Profit from Operations

Net Profit (inc non cash FX mark to market)

Return on Average Funds Employed ***

2009
$’000

61,571

48,596

4,568

4,116

212

1,815

1,320

9.4%

2008
$’000

67,883

54,082

3,824

3,492

(354)

956

9.4%

% Change

(9%)

(10%)

19%

18%

160%

90%

38%

Notes
* Excludes Royalty income received from Yakult, convertible note interest and rental income.

** Excludes non recurring restructuring and corporate development costs, non cash expenses of management employee share options, non cash equity
share of joint ventures and non cash mark to market adjustments for foreign exchange contracts.

*** Based on Operating EBIT over average funds employed for the period.

*** EBDITA / Funds Employed, Funds Employed includes $8.2 million in assets relating to Leeton Manufacturing Facility not in operation.

The FNP Group achieved Net Profit from Operations of $1.8 million for the 12 months ended 30 June 2009. This
represents an increase of 90% in comparable net profit over the previous year and is after expensing $615k of non
recurring restructuring and corporate development costs.

The Company was obliged to bring to account the mark to market value of its foreign exchange contracts which at
balance date represented an unrealised loss of $495k (tax affected). This adjustment has no impact on the Company’s
operating performance or cashflows and will be reversed in the income statement in the following financial year. Net
Profit adjusted for this mark to market adjustment was $1.3m.

The result reflected a credible improvement in operating performance for the wholly owned business units on the
prior year and a very significant improvement for our joint venture operations. Gross sales excluding JV associates
decreased by 9% relating to the transfer of contract soy sales to an associated JV and discontinued products in
Freedom (i.e frozen range). Operating EBDITA was $4.6 million, an increase of 19% from the prior corresponding
period and return on funds employed of 9.4% (with funds employed inclusive of Leeton assets not in operation).

Key highlights for FY 2009

Key highlights for the year included:

•

Improved sales and contribution of Freedom Foods cereals, core snack products and proprietary soy and rice
beverages.

Improved sales and margin performance for the Specialty Seafood division.

Implementation of the Freedom Foods major capex plan to establish a dedicated gluten free and nut free cereal
and baked products facility near Leeton, to be commissioned from August 2009.

Significant growth in fresh milk sales and achievement of profitability well ahead of plan for the A2 Dairy Products
Australia joint venture. FNP’s share of A2DP was increased to 50% through the conversion of convertible notes in
May 2009.

•

Turnaround to profitability and growth of the CBPA joint venture.

2009 Annual Report | 3

Chief Executive’s Review of Operations
(continued)

Business Units – Wholly Owned

Freedom Foods

This year was one of consolidation for the Freedom Foods business.

The priority has been to progress the major capital expenditure project to establish a dedicated
gluten and nut free manufacturing facility at the newly acquired premises near Leeton NSW.
The new facility will enable us to internalise the manufacture of the key products of the
business, provide capability to innovate and broaden the range, and enable the company to
expand sales into further channels and markets. The project is substantially complete with
commissioning of cereal production taking place during August 2009 and for biscuit and
breakfast bar equipment to be installed by December 2009. The present Hornsby baking
operation will be relocated and closed as part of this process. The funds employed in the Leeton
facility totaled $8.2m at year end, funded by a shareholder advance and equipment finance.

Sales and contributions for cereals and core snack products such as wraps and mayonnaise
showed growth on the prior year whereas proprietary biscuits were flat given limitations to
innovate in our Hornsby facilities. Contract biscuit sales to grocery customers were well down
on the prior year as were frozen foods which were exited during the year.

Soy and rice proprietary beverages performed to plan. We undertook a major review of
the positioning, range and packaging across the portfolio and the new strategy will be
progressively introduced to the market from August 2009.

Specialty Seafood

The Specialty Seafood division comprising Paramount salmon and Brunswick sardines and specialty seafood products
performed strongly and well ahead of the prior year.

Paramount salmon volumes were marginally down given increased costs and selling prices for pink salmon arising from
a significantly lower catch in 2008. Brunswick sardines sales and margins were both higher in Australia and New Zealand.
Our Seafood sourcing continues to be well managed in association with our procurement partner Bumble Bee Foods.

Thorpedo Foods (50.1% owned)

Yakult Honsha, Thorpedo Food’s licensee in Japan continued to develop the Thorpedo portfolio of beverages
and extended the license agreement for a further 3 year term. There are now 4 beverage products sold under the
Thorpedo brand in Japan.

4 | Freedom Nutritional Products Limited

Chief Executive’s Review of Operations
(continued)

Business Units – Joint Ventures

A2 Dairy Products Australia

A2 Dairy Products Australia (A2DP) has the exclusive rights for the production and sale of a2
milk™ products in Australia and Japan in association with A2 Corporation Limited of New
Zealand. In May 2009, FNP converted a convertible note investment into 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.

A2DP continued to develop strongly and achieved an Operating EBIT of around $1m as a
result of continuing growth in fresh milk volumes during the year. Following a launch in
Western Australia in April 2009, a2 milk™ fresh milk is now available in all mainland states of
Australia. This growth is a function of increasing awareness of the potential benefits of a2
milk™ and support from our retail partners in improving shelf presence and availability. In
May A2DP launched a2 milk™ long life (UHT) dairy milk into the grocery channel.

The business continues to work on how to improve communication of the benefits
of the product to both consumers and health professionals and on extending into
additional product categories beyond drinking milk, with yogurt the next priority.

A2DP is also continuing to progress developing a market entry strategy for Japan with a part
time company representative based in Tokyo.

Contract Beverages Packers of Australia Pty Ltd (CBPA)

CBPA (50% owned) achieved a substantial turn-around in performance in the year following the implementation
of a revised business model, new management and increased throughput and sales. EBIT for the year after once-off
restructuring costs increased to $878k, which after financing costs resulted in a NPAT of $149k, representing a satisfactory
return on FNP’s investment.

CBPA is progressing a plan to broaden its contract packing product and customer base. FNP transferred its non
proprietary soy and rice beverage contracts to CBPA as part of this process with FNP’s proprietary soy and rice
beverages continuing to be packaged on a cost plus 5% basis.

Outlook

FY 2010 will be a particularly exciting year for the Company.

FNP has made significant investments in capital expenditure and new capacity over the last two years and is now
beginning to see improved returns for shareholders.

FNP is strategically well positioned to benefit both from the growth in the “free from” functional foods space and the
broader wellness sector by leveraging its established brands, market positions and new production capacity.

FNP has two significant growth businesses; Freedom Foods, comprising manufacturing of “free from” (i.e. gluten and
nut free) cereals and snacks at the new Leeton facility, and the development of A2 milk, which does not contain the
A1 protein to which some people are intolerant or sensitive.

Geoff Babidge
Managing Director and Chief Executive Officer
2 September 2009

2009 Annual Report | 5

Directors’ Report

Your Directors submit the financial report of Freedom Nutritional Products Limited (the Parent) for the year ended
30 June 2009. 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

On the 25th September 2008 Mr M Jenkins, B Comm., LLB (Hons), ACA, ACIS resigned as Company Secretary. Mr M Gilio
B Comm (Acct), ACA, ACIS was appointed as his replacement. Mr Gilio has been with the Company for over 5 years and is
a current member of Chartered Secretaries Australia.

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 $1,320,000 (2008 profit : $956,000).

Refer to the commentary in the Chief Executive’s Review of Operations.

Dividends paid or recommended

A one cent per share fully franked final dividend was paid on 18 December 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 2009, the Directors are recommending that no final dividend will be paid.

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.

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.

6 | Freedom Nutritional Products Limited

Directors’ Report
(continued)

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)

M.R. Perich (Alternate Director)

Mr B.W. Bootle resigned as an Alternate Director on 12 December 2008.

Mr B.W. Bootle attended 3 board meetings as an observer.

Mr M.R. Perich was appointed Alternate Director on 26 March 2009.

Mr M. Miles was appointed to the remuneration and nomination committee during May 2009.

Mr M.R. Perich attended 3 board meetings as an observer.

2009 Annual Report | 7

Directors’ 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 Strategy, Corporate Development and Chief Financial Officer

B.W. Bootle - Alternate Director (resigned 12 December 2008)

G.J. Hughes - Chief Operating Officer (resigned 3 July 2009)

M.E. Jenkins - Chief Financial Officer and Company Secretary (resigned 25 September 2008)

M. Christian - General Manager of Manufacturing (resigned 31 December 2008)

P. Wilson - General Manager Leeton Manufacturing Operations (commenced in July 2008)

M. Gilio - Group Finance Manager & Company Secretary (appointed Company Secretary 25 September 2008)

P. Bartier - National Supply Chain Manager

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 cash payments were made and no further
options were issued.

Options are valued using the binomial 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.

8 | Freedom Nutritional Products Limited

Directors’ Report
(continued)

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 2009 was $157,000 (2008: $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 a service contract is 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)

2009

48,596

1,320

2.4

2008

54,082

956

2.0

2007

48,683

1,174

2.6

2006

46,963

1,434

Nil

3.2

2005

37,954

310

Nil

0.8

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

2009 Annual Report | 9

Directors’ 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
2009 are as follows:

2009

Directors

P.R. Gunner

G.H. Babidge

A.M. Perich

R. Perich

M. Miles

R.J.F. Macleod

B.W. Bootle (1)
(Alternate Director)

Executive Officers

G.J. Hughes (2)
(Chief Operating Officer)

M.E. Jenkins (3)
(Chief Financial Officer & Company
Secretary)

M. Christian (4)
(General Manager of Manufacturing)

P. Wilson (5)
(General Manager Leeton
Manufacturing Operations)

M. Gilio (6)
(Group Finance Manager & Company
Secretary)

P. Bartier
(National Supply Chain Manager)

Short-term employee benefits

Post
employment
benefits

Share
based
payments

% of
total
being

Directors’
Fees
$

Committee
Fees
$

Salary
$

Bonus
$

Non-cash
benefits
$

Superannuation
Contributions
$

Options
$

Total
$

Options
$

60,000

3,000

355,755

228,755

216,567

71,358

124,935

198,426

139,144

126,606

30,000

2,000

5,670

13,745

2,700

2,880

13,745

68,670

42,934

412,434

32,700

34,880

42,934

285,434

11,393

10%

15%

100%

13,226

229,793

3,750

26,250

101,358

26%

12,523

11,394

124,935

198,426

151,667

138,000

(1) Resigned 12 December 2008
(2) Resigned 3rd of July 2009
(3) Resigned 25 September 2008
(4) Resigned 31 December 2008
(5) Appointed 1 July 2008
(6) Appointed Company Secretary 25 September 2008

10 | Freedom Nutritional Products Limited

Directors’ Report
(continued)

Short-term employee benefits

Post
employment
benefits

Share
based
payments

% of
total
being

Directors’
Fees
$

Committee
Fees
$

Salary
$

Bonus
$

Non-cash
benefits
$

Superannuation
Contributions
$

Options
$

Total
$

Options
$

2008

Directors

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 (1)

60,000

3,000

325,871

211,871

30,000

10,000

2,000

(1) Retired during the financial year ended 30 June 2008.

Executive Officers

G.J. Hughes (1)
(Chief Operating Officer)

P.J. Nathan (2)
(General Manager of Marketing)

M.E. Jenkins
(Chief Financial Officer & Company
Secretary)

M. Christian (3)
(General Manager of Manufacturing)

M. Hauptfleisch (4)
(Business Unit Manager - Specialty
Seafood)

223,509

144,843

185,000

189,596

55,200

50,000

22,000

5,670

13,129

2,700

2,880

13,129

68,670

42,934

381,934

32,700

34,880

42,934

267,934

22,731

900

10,900

10,421

283,930

27,000

12,283

9,000

193,126

15,000

9,000

209,000

211,596

55,200

11%

16%

100%

(1) Commenced 23 July 2007
(2)

Commencing from July 2008, Mr Nathan’s role changed to General Manager of A2 and as such was no
longer considered as a key management personnel for the Freedom Nutritional Products group.

(3) General Manager of Manufacturing - commenced 1 January 2007
(4)

Business Unit Manager - Specialty Seafoods - Commenced 11 March 2008. Due to a change in role is not
considered as key management personnel in the 2009 year.

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

No bonus payments were granted during 2009.

Bonus payments as compensation for the prior 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.

2009 Annual Report | 11

Directors’ Report
(continued)

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

Number of shares
under option

Class of shares

Exercise price of
options

Expiry date of options

Freedom Nutritional Products Limited (i)

Freedom Nutritional Products Limited (ii)

Freedom Nutritional Products Limited (iii)

1,000,000

3,850,000

600,000

Ordinary

$0.50

27 July 2010

30 November 2011

26 April 2010

Grant date

(i) Issued 27 July 2005

(ii) Issued 30 November 2006

(iii) Issued 26 April 2007

Recipients

Issued 27 July 2005

Issued 30 November 2006

Issued 26 April 2007

Name

G.H. Babidge

R.J.F. Macleod

G.H. Babidge

R.J.F. Macleod

M.E. Jenkins

P. Nathan

Fair value at grant

Nil

$0.10

Number

Fair Value ($)

700,000

300,000

1,700,000

300,000

Nil

170,000

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 2 or 4 years and relate to an employee’s 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.

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.

12 | Freedom Nutritional Products Limited

Directors’ Report
(continued)

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/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

Consolidated

2009
$

145,000

43,575

188,575

2008
$

190,000

72,416

107,403

369,819

Proceedings on behalf of parent

No person has applied for leave of Court to bring proceedings on behalf of the Parent or intervene in any
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 2nd day of September 2009.

2009 Annual Report | 13

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(cid:1)
www.deloitte.com.au

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

2 September 2009

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 2009, 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.

14 | Freedom Nutritional Products Limited

Corporate Governance Statement

Freedom Nutritional Products Limited (the Parent) is
committed to implementing the highest possible standards
of corporate governance and ensures, wherever possible,
that its practices are consistent with the Second Edition
of the Australian Securities Exchange (ASX) Corporate
Governance Council’s Principles and Recommendations

Each of the eight principles are listed in turn. In
certain circumstances, due to the size and stage of
development of the Company and its operations, it
may not be practicable or necessary to implement
the ASX Principles in their entirety. In such instances,
the Company will identify the areas of divergence. The
Corporate Governance Statement, policies and Charters
are published on the Parent’s website:
(http://www.freedomnutritional.com.au)

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 (http://www.
freedomnutritional.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 Company. Without intending
to limit this general role of the Board, the specific
functions and responsibilities of the Board include:

(1)

(2)

(3)

(4)

(5)

(6)

(7)

oversight of the Company, including its control and
accountability systems;

appointing and removing the CEO (or equivalent) for
the ongoing management task of developing and
implementing suitable strategies consistent with the
Company’s policies and strategic direction, including
approving remuneration of the CEO and remuneration
policy and succession plans for the CEO;

ratifying the appointment and, where appropriate,
the removal of the CFO (or equivalent) and the
Company Secretary;

reviewing and determining the strategic direction and
policies of the Company, the allocation of resources,
planning for the future and succession planning;

reviewing and ratifying systems of risk management
and internal compliance and control, codes of
conduct and legal compliance;

monitoring Executives performance and
implementation of strategy and ensuring
appropriate resources are available;

approving and monitoring the progress of major
capital expenditure, capital management and
acquisitions and divestitures;

(8)

continuously monitoring and overseeing the
Company’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 Company, determining
its policies and objectives and monitoring management
performance. The Board adopts a three-year business
plan and a 12 month operating plan for the Company.
Financial results and general performance are closely
monitored against the operating plan objectives.

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
Company’s management, as set out in the Company’s
Statement of Delegated Authority, include managing the
day-to-day operations of the Parent and Consolidated
entities. The Statement of Delegated Authority has
been posted to the Parent’s website (http://www.
freedomnutritional.com.au).

The CEO and CFO have service contracts and position
descriptions respectively setting out their duties,
responsibilities, and conditions of service and termination
entitlements. Any new Directors appointed will receive
formal letters of appointment setting out the key terms,
conditions and expectations of their appointment.

Executives are subject to a formal performance review
process on an annual basis. The Remuneration and
Nomination Committee reviews the performance
of senior Executives and the Board reviews the
performance of the Chief Executive Officer and Chief
Financial Officer against clear performance objectives.
Principal and secondary objectives for the financial year
have been established which are evaluated against
and includes monthly monitoring of performance. A
performance evaluation has taken place in the year.

Principle 2

Structure of the Board to add value

The Board determines the Board’s 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

2009 Annual Report | 15

Corporate Governance Statement
(continued)

comprises of six Directors, two of whom are non-executive
independent Directors including the Chairman. A Director is
deemed to be independent if he or she is a Non-Executive
Director and:

(1)

is not a substantial shareholder;

(2)

(3)

(4)

(5)

(6)

(7)

has not been employed in an executive capacity in
the Company in the last three years;

has not acted as a material consultant to the
Company in the last three years;

is not a material supplier or customer of the
Company;

has no material contractual relationship with the
Company;

has not served on the Board for a period which
could materially interfere with his or her ability to act
in the best interests of the Company; and

is free from any interest which could materially
interfere with his or her ability to act in the best
interests of the Company.

The test of independence for Directors is set out in
detail under section 4 of the Board Charter, which has
been posted on the website of the Parent: (http://
www.freedomnutritional.com.au). Materiality thresholds
referred to above are assessed on a case-by-case basis.

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 62

B.Ag.Sc - is former Chairman and CEO of Orlando
Wyndham Wine Group. Also current Chairman of ABB
Grain Limited and Director of Australian Vintage Ltd.
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. Measured against the independence
criteria adopted by the Parent, Mr. Gunner is considered
an independent Director.

and 2,400,000 options. Mr Babidge, being the Managing
Director and Chief Executive Officer of the Parent, is not
considered independent.

Mr A.M. Perich
Director (Non-Executive), Age 68

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. Outside of the Perich Group
Mr. A.M. Perich holds a number of other Directorships
which include MRC Biotech Limited, Greenfields Narellan
Holdings, East Coast Woodshavings Pty Limited, Breeders
Choice Woodshavings Pty Limited, Austral Malaysian
Mining Limited, Pulai Mining Sdn Bhd (Malaysia) and
Inghams Health Research Institute. Memberships
include Narellan Chamber of Commerce, Narellan Rotary
Club, Urban Development Institute of Australia, Urban
Taskforce, Property Council of Australia, past President of
Narellan Rotary Club and Past President of Dairy Research
at Sydney University. Appointed Director in July 2006.

Interest in shares and options are 36,164,454 ordinary
shares and nil options. Being a substantial shareholder
of the Parent, Mr. A.M. Perich is not considered an
independent Director.

Mr R. Perich
Director (Non-Executive), Age 66

Interest in shares and options are 36,164,454 ordinary
shares and nil options. Being a substantial shareholder
of the Parent, Mr. R. Perich is not considered an
independent Director.

Mr G.H. Babidge
Managing Director (Executive), Age 56

Mr M. Miles
Director (Non-Executive), Age 60

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.

Interest in shares and options are 69,217 ordinary shares

B.Sc (Hons) F.I.B.D. - former Vice President of Carlton and
United Breweries and Foster’s Group, former Director of
Carlton & United Breweries & its subsidiaries and former
Chairman of South Pacific Distilleries, Fiji. Member of the
Strategic Planning Committee of the Institute of Brewing
and Distilling Asia Pacific. Appointed Director November

16 | Freedom Nutritional Products Limited

Corporate Governance Statement
(continued)

2006. Chairman of Audit, Risk & Compliance Committee and
member of the Remuneration and Nomination Committee.

referred to the Board. All Directors are made aware of the
professional advice sought and obtained.

Interest in shares and options are 106,667 ordinary shares
and nil options. Measured against the independence
criteria adopted by the Parent, Mr. Miles is considered an
independent Director.

Mr R.J.F. Macleod
Director (Executive), Chief Financial Officer, Age 41

B.Econ (Hons) - has for the past 6 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 Macleod, being an Executive
Director of the Parent, is not considered independent.

Mr M.R. Perich
Alternate Director (Non-Executive), Age 34

B AppSci (SysAg) 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. Former Director of
Contract Beverages Packers of Australia Pty Limited,
a joint venture controlled equally by the Parent and
Arrovest, Director of Australian Dairy Conference,
affiliated with NSW Farmers Association (Diary Section),
Future Dairy Steering Group, Intensive Agriculture
Consultative Committee and Dairy Research Foundation.
Appointed Alternate Director for Mr Ron Perich and Mr
Anthony Perich 26 March 2009.

Interest in shares and options are 36,164,454 ordinary
shares and nil options. Being a substantial shareholder
of the Parent, Mr. M.R. Perich is not considered an
independent Director.

Considering that all incumbent Directors bring an
independent judgement to bear in Board deliberations,
the Parent believes that at this stage of development and
operations, the above mix of Directors is appropriate.

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 exceeds $50,000 (exclusive
of GST), such approval is not to be unreasonably
withheld. Where advice 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

There is a clear division of responsibility between the
Chairman and Chief Executive Officer.

The Remuneration & Nomination Committee of the Board
comprises of three Non-Executive Directors - Messrs P.
R. Gunner, R. Perich and M. Miles. Two out of the three
Committee members are independent. Mr Gunner, who
is an independent Director, is the Committee Chairman.
The Committee Charter which has been posted on the
website of the Parent: (http://www.freedomnutritional.
com.au) details out the process and timing for re-election
of Directors. The Board’s policy for nomination and
appointment of Directors also forms part of the Charter.

The Parent Constitution states that at each Annual General
Meeting (AGM) one-third of the Directors for the time
being, or if their number is not three or a multiple of three,
then the nearest number greater than one-third, shall
retire from office. A retiring Director shall be eligible for re-
election. No Director (other than the Managing Director or,
if there is more than one Managing Director, one of those
Managing Directors only) may hold office without re-
election past the third annual general meeting following
their appointment or three years, whichever is longer or,
in the case of a Director appointed by the Directors as an
additional Director or to fill a casual vacancy, past the next
annual general meeting of the company. Any Director
appointed by the Board since the last AGM must stand for
election at the next AGM.

The Committee is responsible for ensuring that the Board
is of a size and composition that allows for:

(1)

decisions to be made expediently;

(2)

(3)

(4)

a range of different perspectives to be put forward
regarding issues before the Board;

a range of different skills to be bought to Board
deliberations; and

Board decisions to be made in the best interests
of the Parent as a whole rather than of individual
shareholders or interest groups

The Committee’s 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 annually; and

remuneration policies and practices.

2009 Annual Report | 17

Corporate Governance Statement
(continued)

The Remuneration and Nomination Committee is
responsible for the:

(1)

(2)

(3)

(4)

evaluation and review of the performance of the
Board (excluding the Chairman);

evaluation and review of the performance of
individual Directors;

review of and making of recommendations on the
size and structure of the Board; and

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. The
Committee has completed evaluating the performance
of the Board, Committees and individual Directors
during the year. This was undertaken by way of an
informal review by the Remuneration and Nomination
Committee. The next performance evaluation will take
place within the year.

The Committee meets as frequently as required and at
least once a year. The quorum for such meetings is two
members, at least one of whom shall be independent.
Details of the Committee members’ attendance at
Committee meetings are set out in the Directors’ Report.

Subject to normal privacy requirements, each Director
has the right of access to all of the Parent’s records,
information and senior Executives. 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. New Directors
undergo an induction process in which they are given
a full briefing of the operations of the Company. Where
possible, this includes meetings with key Executives,
tours of the operating sites (if practicable), provision of an
induction package containing key corporate information
and presentations. 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 Company meets expenses
involved in such activities.

Names of Members of Committees

Remuneration and
Nomination Committee

Audit Risk and
Compliance Committee

P.R. Gunner

G.H. Babidge

A.M. Perich

R. Perich

M. Miles

R.J.F. Macleod

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:

(1)

(2)

(3)

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;

(4)

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.

The Board, senior Executives and all employees of the
Parent are committed to implementing this Code of Ethics
and each individual is accountable for such compliance.
A copy of the Code is made available to Directors,
employees, contractors and relevant personnel on the
parent’s website: (http://www.freedomnutritional.com.au).

The CEO is responsible for establishing, implementing
and reviewing the effectiveness of the Code of Ethics
as well as for overseeing that all of the Company’s
employees and contractors understand, and act in
accordance with the Code.

The Board has implemented a range of procedures designed
to oversee 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 Company.

As a part of active promotion of ethical behaviour, any
behaviour that does not comply with the Code must be
duly reported. Protection will be provided for those who
report violations in good faith.

The Parent has also implemented Securities Trading
Policies for Directors, CEO and Executives. The policies
generally allow Directors, CEO and Executives to deal in
the Parent’s securities other than in the following periods:

18 | Freedom Nutritional Products Limited

Corporate Governance Statement
Corporate Governance Statement
(continued)

(1)

within the period of one month prior to the
announcement of interim and final results of the
Company; and

(2)

within the period of two weeks prior to the Annual
General Meeting,

but only after waiting at least two hours after the
relevant release so that the market has time to absorb
the relevant information. Further details of the policies
are available on the website of the Parent: (http://www.
freedomnutritional.com.au).

Principle 4

Safeguard integrity in financial reporting

The Board has established an Audit, Risk and Compliance
Committee comprising three Non-Executive Directors,
with appropriate experience. Every member of the
Committee must be able to read and understand financial
statements with experience in financial and accounting
matters. Currently, the Committee comprises of Mr M. Miles
(Chairman), Mr R. Perich and Mr P. R .Gunner. Two out of the
three Committee members are independent. The Chairman
of the Committee is an independent Director and is not
Chairman of the Board.

The Chief Executive Officer, Chief Financial Officer and
external audit partner attend Committee meetings at the
discretion of the Committee.

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 of the Board.

(9)

reviewing the Company’s Occupational Health and
Safety obligations and the Company’s compliance;

(10)

reviewing the Company’s insurance policies and
coverage; and

(11)

overseeing the independence of external auditors
and annually reviewing the Company’s policy on
maintaining the independence of external auditor.

The Committee has a formal Charter which is posted on
the website of the Parent (http://www.freedomnutritional.
com.au). The Committee meets as frequently as required
and at least twice a year. The quorum for such meetings is
two members, at least one of whom shall be independent.
Details of the Committee members’ attendance at
Committee meetings are set out in the Directors’ Report.
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 candidates for the position of external auditor must
be able to demonstrate complete independence from
the Parent and an ability to maintain independence
throughout the engagement period. The external
auditors have advised, after consultation with the Parent,
that the audit engagement partner shall be rotated
every five years. The Board may select an external auditor
based on the criteria relevant to the business of the
Parent such as experience in the industry in which the
Parent operates, references, costs, and any other matters
deemed relevant by the Board.

The Audit, Risk and Compliance Committee is
responsible for:

Principle 5

(1)

(2)

(3)

(4)

(5)

(6)

(7)

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

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

reviewing the effectiveness of the Company’s
internal control systems;

monitoring and reviewing the reliability of financial
reporting;

monitoring and reviewing the compliance of the
Company with applicable laws and regulations;

monitoring the Australian Accounting Standards and
Interpretations;

monitoring financial risks and exposure of the
Company’s assets;

(8)

monitoring the risk management policy and plans;

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.

This Policy is designed to ensure that the Parent meets its
continuous disclosure obligations under the ASX Listing
Rules and has been posted to the website of the Parent
(http://www.freedomnutritional.com.au).

Type of information that needs to be disclosed
Listing Rule 3.1 states that any information that a
reasonable person would consider to have a material
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.

2009 Annual Report | 19

Corporate Governance Statement
(continued)

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. The Company Secretary in discussion
with the CEO, CFO or Company Chairman decides
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.

To enhance clarity and balance of reporting and to
enable investors to make an informed assessment of the
Parent’s performance, financial results are accompanied
by commentary.

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;

(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.

Principle 7

Recognise and manage risk.

Risk oversight and management policies
The Parent has recently adopted a Risk Management
Policy, which has been posted to its website (http://
www.freedomnutritional.com.au). The Policy covers
the areas of oversight, risk management, risk profile,
compliance and control and assessment of effectiveness.
The Audit, Risk and Compliance Committee (details
and composition of which have been set out earlier)
is responsible for providing the Board with advice and
recommendations regarding the ongoing development
of the Policy.

Risk management and risk profile
The Committee is responsible for:

(1)

providing the Board with advice and
recommendations regarding the Parent’s

(i)

risk management system; and

(ii)

risk profile that describes the material risks
(including financial and non-financial risks)

(2)

(3)

(4)

reviewing the effectiveness of the Parent’s
implementation of the risk management system at
least once a year;

regularly reviewing and updating the Parent’s risk
profile; and

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.

Executives provide the Committee and Board with
regular reports on operational, financial, regulatory and
commercial matters within their business divisions. This
ensures Management accountability. Management
is responsible for designing and implementing a risk
management and internal control system to manage the
Parent’s material business risks. Management identifies
and reviews the major risks impacting each area of the
business and develops strategies to effectively mitigate
these risks.

As required by the ASX Principles, Management has
reported to the Board on the effectiveness of the
management of its material business risks. The ultimate
responsibility for risk oversight and management rests
with the Board.

Due to the size and scale of operations of the Parent,
there is no separate internal audit function.

20 | Freedom Nutritional Products Limited

Corporate Governance Statement
(continued)

CEO and CFO assurances
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 consolidated entities
financial position in all material aspects and that the
integrity of the financial statements is founded on a
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 in relation to financial reporting risks. As
part of internal management reporting policy relevant
senior personnel provide written assurances regarding
the integrity of the financial reports to support the CEO
and CFO assurances to the board.

Principle 8

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. The
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. The composition and details of the
Committee have been detailed earlier in this Statement.

In respect of remuneration issues, the responsibilities
of the 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 Company are consistent with its
strategic goals and human resource objectives;

(2)

the Company’s recruitment, retention and
termination policies and procedures for Executives;

(3)

incentive schemes;

(4)

superannuation arrangements; and

(5)

the remuneration framework for Directors.

The Committee operates independently of the senior
management of the Company 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
responsibilities placed on the Directors by the legal and
financial framework within which they act.

The Committee’s main functions include:

(1)

(2)

(3)

(4)

Conditions of service and remuneration of the Chief
Executive and his direct reports:

Performance of the Chief Executive and other
Executives;

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.

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 structure of remuneration for Non-Executive
Directors and Executive Directors is different. As
explained in the Remuneration Report, Executive
Directors and key management personnel receive
fixed remuneration, employer contributions to
superannuation funds and Options. Options are valued
using the binomial method and are not linked to the
performance of the Parent, but to the personnel’s
employ. The Securities Trading Policy for Directors, CEO
and other Executives restricts entering into transactions
with securities in associated products which operate to
limit the economic risk of any unvested entitlements
under any equity based remuneration scheme offered
by the Parent. Remuneration packages of Non-Executive
Directors are fee based. Non-Executive Directors do not
participate in bonus payments or any retirement benefits
other than statutory superannuation.

2009 Annual Report | 21

Consolidated Income Statement
for the financial year ended 30 June 2009

Notes

Consolidated
$000

Parent
$000

Revenue

Cost of sales

Gross profit

Other revenue

Marketing expenses

Selling and distribution expenses

Administrative expenses

Profit from continuing operations before depreciation, income tax,
finance costs, and equity accounted investments

Depreciation

Profit from continuing operations before income tax, finance costs,
and equity accounted investments

Finance costs

Unrealised fair value mark-to-market of derivative financial
instruments

Share of profit/(loss) of joint ventures accounted for using the
equity method

Profit before income tax

Income tax expense

Profit 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 26 to 70.

2009

2008

2,588

3,100

(330)

2,258

(129)

2,129

2,204

(473)

1,731

(263)

2,837

(121)

2,716

(100)

(317)

2,299

(533)

1,766

2009

49,388

(34,874)

14,514

654

(1,872)

(5,392)

(3,916)

3,988

(453)

3,535

(1,247)

(706)

212

1,794

(474)

1,320

2.4

1.0

2008

55,202

(40,146)

15,056

543

(2,181)

(6,191)

(3,669)

3,558

(331)

3,227

(1,364)

(355)

1,508

(552)

956

2.0

22 | Freedom Nutritional Products Limited

Consolidated Balance Sheet
as at 30 June 2009

Notes

Consolidated
$000

Parent
$000

2009

2008

2009

2008

ASSETS

Current Assets

Cash and cash equivalents

Trade and other receivables

Other financial assets

Inventories

Prepayments

Total Current Assets

Non-Current Assets

Other financial assets

Investments accounted for using the equity method

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 26 to 70.

22(a)

762

10,247

1,078

6,853

637

19,577

3,535

1,958

15,323

6,992

16,274

44,082

63,659

7,493

9,558

667

17,790

1,686

13,742

263

15,708

33,498

30,161

27,019

792

2,350

30,161

1,111

11,793

707

7,588

289

21,488

1,674

1,514

2,057

7,396

6,992

15,174

34,807

56,295

7,600

3,520

191

774

12,085

2,373

12,286

310

14,971

27,056

29,239

26,999

665

1,575

29,239

998

1,025

955

993

27,529

26,335

676

458

272

28,935

29,960

190

377

115

134

511

601

502

389

27,827

28,820

176

189

498

120

206

704

29,449

28,116

27,019

319

2,111

29,449

26,999

192

925

28,116

2009 Annual Report | 23

Consolidated Cash Flow Statement
for the financial year ended 30 June 2009

Notes

Consolidated
$000

Parent
$000

2009

2008

2009

2008

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

Payment for purchase of property, plant and equipment

22(d)

Acquisition of business assets

Dividend received

Interest received

Payment in relation to convertible notes

Investment in jointly controlled entity

Loan from / (to) related party

Advance (to) / from joint venture

Loan (to) / from controlled entities

51,802

(46,483)

(1,595)

(423)

3,348

(8,426)

(1,062)

4,500

(371)

54,035

(50,451)

(1,364)

(590)

1,720

(2,298)

(5,174)

195

(1,000)

(8)

(271)

769

Net cash (used in)/provided by investing activities

(5,315)

(7,787)

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 (decrease) / increase 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 26 to 70.

3,547

(1,975)

(527)

1,045

(922)

251

(671)

5,000

(79)

15,208

(7,856)

(883)

11,390

5,323

(5,072)

251

249

(580)

(412)

(743)

(58)

2,600

(43)

(1,194)

1,339

(70)

(527)

(597)

(1)

3,308

(2,168)

1,203

(159)

3,100

(271)

1,063

3,602

7,335

5,000

(79)

(7,481)

(883)

(3,443)

5,095

(5,094)

24 | Freedom Nutritional Products Limited

Consolidated Statement of Changes in Equity
for the financial year ended 30 June 2009

Attributable to equity holders of the parent

Minority
Interest

Total
Equity

Fully paid
ordinary
shares
$’000

22,078

4,921

26,999

27,019

22,078

4,921

26,999

27,019

Retained
Earnings
$’000

2,956

(1,446)

956

(891)

1,575

1,320

(545)

2,350

1,766

(891)

925

1,731

(545)

2,111

Equity - settled
employee
benefits reserve
$’000

Asset
revaluation
reserve
$’000

126

473

Total
$’000

25,100

(1,446)

4,921

956

126

(891)

473

192

473

29,239

127

319

126

192

127

319

1,320

127

(545)

473

30,161

22,194

4,921

1,766

126

(891)

28,116

1,731

127

(545)

29,449

$’000

(1,446)

1,446

23,654

4,921

956

126

(891)

473

29,239

1,320

127

(545)

30,161

22,194

4,921

1,766

126

(891)

28,116

1,731

127

(545)

29,449

Notes

CONSOLIDATED

At 1 July 2007

Transfer to retained earnings

Equity issues

Profit for the year

Recognition of share-based
payments

Dividend paid

Gain on revaluation of
purchased property

At 30 June 2008

Transfer to retained earnings

Equity issues

Profit for the year

Recognition of share-based
payments

Dividend paid

Gain on revaluation of
purchased property

At 30 June 2009

PARENT

At 1 July 2007

Equity issues

Profit for the year

Recognition of share-based
payments

Dividend paid

At 30 June 2008

Equity issues

Profit for the year

Recognition of share-based
payments

Dividend paid

At 30 June 2009

Notes to the financial statement are included on pages 26 to 70.

2009 Annual Report | 25

Notes to the Financial Statements
for the financial year ended 30 June 2009

1 Corporate Information

The financial report of Freedom Nutritional Products Limited for the year ended 30 June 2009 was authorised for
issue in accordance with resolution of Directors on 2 September 2009.

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.

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’

AASB 2007-10 ‘’Further amendments to Australian Accounting Standards arising from AASB 101’

AASB 8 ‘Operating Segments’

AASB2007-3 ‘Amendments to Australian Accounting Standards arising from AASB 8’

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

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 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’

AASB 123 ‘Borrowing Costs’ (revised), AASB 2007-6 ‘Amendments to Australian Accounting Standards
arising from AASB 123’

AASB 2008-5 ‘Amendments to Australian Accounting Standards arising from the Annual Improvements Project’

AASB 2008-6 ‘Further Amendments to Australian Accounting Standards arising from the Annual
Improvements Project’

AASB 2008-7 ‘Amendments to Australian Accounting Standards - Cost of an Investment in a Subsidiary,
Jointly Controlled Entity or Associate

AASB Interpretation 17 ‘Distributions of Non-cash Assets to Owners’, AASB 2008-13 ‘Amendments to
Australian Accounting Standards arising from AASB Interpretation 17 - Distributions of Non-cash Assets
to Owners’

1 January 2009

30 June 2010

1 July 2009

30 June 2010

1 July 2009

30 June 2010

1 January 2009

30 June 2010

1 January 2009

1 July 2009

30 June 2010

1 January 2009

30 June 2010

1 January 2009

30 June 2010

26 | Freedom Nutritional Products Limited

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

3 Significant Accounting Policies

(d) Basis of consolidation

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, except for the revaluation of
certain non-current assets and financial instruments.
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.

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
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,

2009 Annual Report | 27

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

3 Significant Accounting Policies

(continued)

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.

(f) Foreign currency translation

Both the functional and presentation currency
of Freedom Nutritional Products Limited and its
Australian subsidiaries is Australian dollars (AUD).
Transactions in foreign currencies are initially recorded
in the functional currency at the exchange rates
ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies are
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

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. In the
event that settlement of all or part of the purchase
consideration is deferred, cost is determined by
discounting the amounts payable in the future to their
present value as at the date of acquisition.

Depreciation is provided on property, plant and
equipment, including freehold buildings but excluding
land. Depreciation is calculated on a straight line basis
so as to write off the net cost of each asset over its
expected useful life to its estimated residual value. The
estimated useful lives, residual values and depreciation
method are reviewed at the end of each annual
reporting period, with the effect of any changes
recognised on a prospective basis. 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.

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:

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

Class of Fixed Assets

Buildings

Plant and equipment

Leased plant and equipment

Motor vehicles

Depreciation Rate

2-6%

5-20%

5-10%

15-33%

28 | Freedom Nutritional Products Limited

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

3 Significant Accounting Policies

(continued)

(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 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, as 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 CGU 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.

2009 Annual Report | 29

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

3 Significant Accounting Policies

(continued)

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 (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 (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 (CGU) in prior years. A reversal
of an impairment loss is recognised immediately in
profit or loss.

(m) Inventories

Inventories are measured at the lower of cost and net
realisable value.

Costs incurred in bringing each product to its present
location and condition are accounted for as follows:

Raw materials: purchase cost on a 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. 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

30 | Freedom Nutritional Products Limited

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

3 Significant Accounting Policies

(t) Leased Assets

(continued)

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 at 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.

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

(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.

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.

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.

2009 Annual Report | 31

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

3 Significant Accounting Policies

(continued)

(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;

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.

the amount of revenue can be measured reliably;

(w) Income tax

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

32 | Freedom Nutritional Products Limited

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.

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

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

3 Significant Accounting Policies

(continued)

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 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 in the 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

2009 Annual Report | 33

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

3 Significant Accounting Policies

(continued)

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.

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 and the host
contracts are not measured at their fair value with
changes in fair value recognised in profit or loss.

34 | Freedom Nutritional Products Limited

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

4 Business and Geographical Segments

The Group is organised into three business segments which is the basis on which the Group reports. The
principal products and services of these segments are as follows:

Seafood

Freedom Foods

A range of canned seafood covering sardines, salmon, tuna and specialty seafood.
These products are produced overseas and sold in Australia and overseas.

A range of products for consumers requiring a solution to 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 Foods

Thorpedo range of low GI beverages. These products are produced and sold in
Australia and overseas.

External sales

Other

Total

2009
$'000

2008
$'000

2009
$'000

2008
$'000

2009
$'000

2008
$'000

Segment revenue

Continuing operations

Seafood

Freedom Foods

Thorpedo Foods

Eliminations

Unallocated

Consolidated revenue

Segment result

Continuing operations

Seafood

Freedom Foods

Thorpedo Foods

Unallocated

Profit before income tax

Income tax expense

Profit for the year from continuing operations

19,691

28,700

205

19,057

34,447

578

832

1,227

19,691

28,700

1,037

19,057

34,447

1,805

49,428

55,309

614

436

50,042

55,745

2009
$'000

2008
$'000

1,931

1,096

780

2,775

(981)

1,794

(474)

1,320

967

172

2,235

(727)

1,508

(552)

956

2009 Annual Report | 35

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

4 Business and Geographical Segments (continued)

Segment assets and liabilities

Continuing operations

Seafood

Freedom Foods

Thorpedo Foods

Total of all segments

Eliminations

Unallocated

Consolidated

Assets

2009
$'000

Liabilities

2008
$'000

2009
$'000

2008
$'000

20,777

33,821

3,786

58,384

(248)

5,523

63,659

20,206

27,719

5,130

53,055

(857)

4,097

56,295

18,294

25,662

6,084

50,040

17,762

26,233

7,493

51,488

(34,647)

(39,247)

18,105

33,498

14,815

27,056

Other segment information

Acquisition of segment assets

Depreciation and amortisation of segment assets

Seafood

Freedom Foods

Thorpedo Foods

2009
$'000

2008
$'000

2009
$'000

9,471

324

2008
$'000

10,623

210

2009
$'000

2008
$'000

The Group operates principally in the Australian geographical area.

5 Revenue

Revenue
Continuing operations
Sale of goods
Interest received

•
•

Loans and receivables
•
•
License fee

Cash and cash equivalents
Subsidiaries

•

Other revenue
•
•
•
•
•
•

Government grant - refer below
Gain/(loss) on disposal of fixed assets
Dividends received
Rental income
Convertible note interest
Management fee received

Consolidated
$000

Parent
$000

2009

2008

2009

2008

48,596

54,082

10
-
782
49,388

50
(15)
-
65
263
291
654

11
-
1,109
55,202

118
-
-
31
184
210
543

-
-
-
-

-
(12)
2,600
-
-
-
2,588

-
-
-
-

-
-
3,100
-
-
-
3,100

The above government grant is the Export Market Development Grant received for 2008 and receivable for
2009. The above Convertible note interest relates to interest receivable on convertible notes issued to A2 Dairy
Products Pty Limited.

36 | Freedom Nutritional Products Limited

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

6 Profit for the year before tax

Profit for the year was arrived at after charging the following expenses:

Finance costs

•

Interest on bank overdrafts and loans

Interest on obligations under finance leases

Interest on convertible notes

Total borrowing costs

Unrealised fair value mark-to-market of derivative financial instruments (i)

Unrealised foreign currency exchange (gains)/losses

Depreciation on property, motor vehicles, plant and equipment

Loss on disposal of plant and equipment

Rental expense on operating leases (equipment)

Rental expense on operating leases (property)

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

Redundancies

Other employee benefits

Total employee benefit costs

Consolidated
$000

Parent
$000

2009

2008

2009

2008

1,235

1,247

706

(151)

453

496

530

544

127

465

1,229

100

1,364

151

331

104

425

411

574

126

5,634

6,770

5,973

6,673

129

127

100

121

126

(i)

The Group uses derivative financial instruments to hedge its exposure to foreign exchange risks arising from
operational, financing and investment activities.

In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for
trading purposes.

As at 30 June 2009 the Group held foreign exchange contracts in the following currencies:

•

$ USD – United States Dollars

$ CDN – Canadian Dollars

The contracts relate to highly probable forecasted transactions for the purchase of inventory for the Specialty
Seafood business (Salmon and Sardines) and the Freedom Foods business (Cereals and Spreads) with the
purchase consideration being settled in the above currencies. The Group’s objective in entering into foreign
exchange contracts is to provide certainty to the income and cashflow implications for the designated foreign
currency purchase, relating to purchase of inventory or other capital assets.

As at 30 June 2009, the Group had foreign exchange contracts for the purchase of inventory denominated in
$USD at an average rate of $0.75 and for the purchase of inventory denominated in $CDN at an average rate of
$0.90. The contracts are for highly probable forecasted transactions between July 2009 and June 2010.

The Group has foreign exchange contracts for approximately 75% of its highly probable forecasted transactions
between July 2009 and June 2010.

The Group also has foreign exchange contracts for the purchase of assets denominated in $USD at an
average rate of $0.62. The contracts are for highly probable forecasted transactions relating to the purchase of
manufacturing equipment for the Freedom Foods Leeton site.

2009 Annual Report | 37

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

6 Profit for the year before tax (continued)

As the Group does not utilise hedge accounting, derivative financial instruments held by the Group are required
under the Australian Accounting Standards to be valued at fair value as at balance date. A valuation at fair value
assumes that the Group would settle the contracts at a specific date and recognise a gain or loss depending on
the prevailing spot rate at value date, even though the intention of the Group is to settle the contract at contract
expiry in relation to the purchase of inventory or an asset required for manufacturing.

The gain or loss value at fair value is required by Australian Accounting Standards to be recognised in the income
statement. Due to the significant volatility in the prevailing currencies against the $AUD, a valuation at fair value
of foreign exchange contracts held at balance date reflected a loss of $706,000 ($AUD). The impact is non cash
and has been excluded from all calculations in relation to underlying earnings of operations and bank covenants.

(ii)

Operating EBDITA (being EBDITA adjusted for corporate development costs, redundancies, equity settled
share based payments, share of profits under equity accounting, unrealised exchange losses and fair value
mark to market of derivative financial instruments) was $4,568,000 (2008: $3,824,000).

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

Deferred tax expense/(income) relating to the origination and reversal of temporary

differences transferred from wholly owned subsidiaries within the tax-consolidated group

Income tax expense /(income)

Attributable to continuing operations

Consolidated
$000

Parent
$000

2009

2008

2009

2008

295

114

474

431

119

552

294

473

583

(231)

181

533

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 revenue/expenses that are not deductible in determining taxable profit

Effect of tax concessions (research and development)

Previously unrecognised and unused tax losses now recognised as deferred tax assets

Effect of transactions within the tax-consolidated group that are exempt from taxation

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

1,794

1,508

2,204

538

(89)

(40)

474

452

245

(31)

(233)

119

552

661

(89)

(40)

(124)

473

2,299

690

250

(10)

(166)

(231)

533

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.

38 | Freedom Nutritional Products Limited

Income Taxes (continued)

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 2009

Temporary differences:

Provisions

Doubtful debts

Property plant & equipment

Other

Unused tax losses and credits:

Tax losses (i)

Withholding tax paid

Presented in the balance sheet as follows:

Deferred tax (liability) - non current

Deferred tax asset - non current

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

Consolidated
$000

Parent
$000

2009

2008

2009

2008

176

191

176

Opening
Balance

Charged to
income

$’000

Closing
balance

$’000

339

177

565

1,224

266

1,490

2,055

(66)

(28)

(5)

140

(211)

(155)

(114)

273

317

606

1,013

322

1,335

1,941

(17)

1,958

1,941

(i)

Current year earnings together with forecast future earnings support the recognition of carried forward
losses as deferred tax assets.

Consolidated 2008

Temporary differences:

Provisions

Doubtful debts

Property plant & equipment

Other

Opening
Balance

Charged to
income

$’000

Closing
balance

$’000

371

434

(32)

138

131

339

177

565

2009 Annual Report | 39

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

Income Taxes (continued)

Opening
Balance

Charged to
income

$’000

Closing
balance

$’000

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 2009

Temporary differences:

Provisions

Doubtful debts

Property plant & equipment

Other

Unused tax losses and credits:

Tax losses (i)

Presented in the balance sheet as follows:

Deferred tax (liability) - non current

Deferred tax asset - non current

1,468

155

1,623

2,057

(244)

111

(133)

(2)

197

305

502

(6)

(46)

(45)

(i)

Current year earnings together with forecast future earnings support the recognition of carried forward
losses as deferred tax assets

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

40 | Freedom Nutritional Products Limited

104

206

477

683

(9)

(16)

(9)

(172)

(181)

1,224

266

1,490

2,055

(2)

2,057

2,055

198

259

457

(1)

458

457

197

305

502

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

Income Taxes (continued)

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.

8 Auditors remuneration

Current year

•

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.

9 Earnings per share

Basic earnings per share

Diluted earnings per share

Consolidated
$

Parent
$

2009

2008

2009

2008

145,000

43,575

188,575

190,000

72,416

107,403

369,819

35,000

33,862

60,053

32,461

68,862

92,514

Consolidated

2009

2008

Cents per share

2.4

2.0

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

$000

1,320

$000

956

2009 Annual Report | 41

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

9 Earnings per share (continued)

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 2009 no options were issued over ordinary shares by the Parent.

10 Trade and other receivables

Number ‘000

54,635

46,765

54,635

46,849

Current

Trade receivables

Allowance for doubtful debts

Other receivables

Consolidated
$000

Parent
$000

2009

2008

2009

2008

9,396

(31)

9,365

882

10,247

11,111

(122)

10,989

804

11,793

The average credit period on sales of goods is 40 days (2008: 40 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 decreased by $91,000 (2008: increased by $55,000) in the Group and remained
$nil in the Parent (2008: decreased by $30,000 ). Included in the allowance for doubtful debts are individually
impaired trade receivables with a balance of $27,000 (2008: $80,000). The Group does not hold any collateral
over these balances.

Current (i)

Past due but not impaired (ii)

Consolidated
$000

2009

9,287

2008

10,692

297

Parent
$000

2009

2008

(i)

(ii)

The current receivables for the Group are with a weighted average of 37 days (2008: 37 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 a weighted average of 86 days (2008:
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% (2008 - 87%) of sales and 86%
(2008 - 85%) of year end receivables are concentrated in major supermarkets throughout Australia. The Parent
has 0% (2008 - 0%) of sales and 0% (2008 - 0%) 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.

42 | Freedom Nutritional Products Limited

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

11 Other financial assets

Consolidated
$000

Parent
$000

2009

2008

2009

2008

Current

Loans to joint ventures - refer Note 28 Related party transactions

1,078

707

998

955

Non-current

Loans to subsidiaries - refer Note 28 Related party transactions

Convertible notes (i)

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

3,535

27,529

26,335

1,674

1,514

3,188

676

601

28,205

26,936

(i)

The Group held non-listed unsecured convertible notes in A2DP returning an effective interest rate of 15.8%
p.a. The notes were converted at par value on 1 May 2009. This amount included 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. 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.

12 Inventories

Current

Raw materials

Finished goods

Provision for stock obsolescence

Consolidated
$000

Parent
$000

2009

2008

2009

2008

751

6,134

(32)

6,853

860

6,851

(123)

7,588

All inventories of the Group are expected to be recovered within a 12 month period.

13 Intangibles

2009

Balance at 1 July 2008

Costs incurred during the year

Balance at 30 June 2009

Goodwill

Brand
Names

Total

Parent
Total

$’000

6,992

15,174

1,100

16,274

22,166

1,100

23,266

2009 Annual Report | 43

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

13 Intangibles (continued)

2008

Balance at 1 July 2007

Costs incurred during the year

Balance at 30 June 2008

Goodwill

Brand
Names

Total

Parent
Total

$’000

6,930

6,992

10,549

4,625

15,174

17,479

4,687

22,166

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

No impairment losses were charged during the 2009 financial year (2008: $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 $16,274,000 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.

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

Seafood

Freedom Foods

Thorpedo Foods

Consolidated
$’000

2009

1,982

3,232

1,778

6,992

2008

1,982

3,232

1,778

6,992

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 9.9% pa (2008: 11% 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.

44 | Freedom Nutritional Products Limited

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

14 Property, plant and equipment

Consolidated
$000

Parent
$000

2009

2008

2009

2008

Property, plant and equipment

Non current

Freehold land (at fair value)

Accumulated depreciation

Total Land

Buildings (at fair value)

Accumulated depreciation

Total Buildings

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

150

4,850

(141)

4,709

4,859

3,163

150

4,850

(20)

4,830

4,980

2,994

(1,463)

(1,171)

1,700

8,713

10,413

148

(97)

1,823

456

2,279

(48)

214

(77)

137

Total property, plant and equipment

15,323

7,396

935

(714)

221

148

(97)

272

881

(629)

252

214

(77)

137

389

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 2009

Balance at 1 July 2008

Additions

Disposals

Depreciation expense

Balance at 30 June 2009

Group 2009

Balance at 1 July 2008

Additions

Disposals

Freehold
Land

Buildings

Plant and
Equipment

Motor
Vehicles

Total

$000

150

4,830

252

(7)

(82)

221

2,279

8,426

(7)

137

(39)

(47)

137

(39)

389

(46)

(129)

272

7,396

8,426

(46)

2009 Annual Report | 45

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

14 Property, plant and equipment (continued)

Depreciation expense

Balance at 30 June 2009

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

Freehold
Land

Buildings

Plant and
Equipment

Motor
Vehicles

$000

(121)

4,709

4,850

(11)

(20)

4,830

$000

(285)

10,413

221

111

(13)

(67)

252

1,633

950

(49)

(255)

2,279

150

$000

(47)

143

(54)

137

151

(6)

(56)

137

Total

$000

(453)

15,323

364

159

(13)

(121)

389

1,795

5,998

(66)

(331)

7,396

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

Freehold land and buildings

Plant and equipment

Motor vehicles

Consolidated
$000

Parent
$000

2009

2008

2009

2008

121

285

453

255

331

129

121

Freehold land and buildings carried at revaluation
An independent valuation of the Group’s land and buildings was performed by Herron Todd White (MIA) Pty
Limited to determine the fair value of the land and buildings. The valuation, which conforms to Australian
Valuation Standards, was determined by reference to capitalisation of net income method, utilising a net rental
of approximately $37 per square metre per annum. The effective date of the valuation was 30 June 2009.

15 Trade and other payables

Current

Trade payables (i)

46 | Freedom Nutritional Products Limited

Consolidated
$000

Parent
$000

2009

2008

2009

2008

3,682

4,995

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

15 Trade and other payables (continued)

Other payables and accruals (ii)

Other financial liabilities (iii)

Non-current

Other payables and accruals (ii)

Consolidated
$000

Parent
$000

2009

3,105

706

7,493

1,686

2008

2,605

7,600

2,373

2009

2008

(i)

(ii)

The average credit period on purchases of certain goods from North America is 60 days (2008: 60 days).
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 an amount due to the vendor of $2,402,000 (2008: $3,156,000)
for the purchase of the Leeton property. The portion of this payable due to be settled within 12 months is
$717,000 (2008: $782,000).

(iii) Liability arising from year end mark to market of unrealised derivative financial instruments.

16 Borrowings

Secured - at amortised cost

Current

Bank overdrafts (i)

Loan payable (i)

Finance leases (ii) (iii)

Due to related parties

Non-current

Loan payable (i)

Finance leases (ii) (iii)

Disclosed in the financial statements as:

Current borrowings

Non-current borrowings

1,433

3,073

552

4,500

11,050

2,692

23,300

9,558

13,742

23,300

860

2,591

12,200

15,806

3,520

12,286

15,806

155

(i) Secured by assets as detailed in note 34.

(ii) Secured by leased assets as detailed in note 24.

(iii) Included as part of the 2009 finance leases is the Equipment Financing utilised to purchase equipment for

Leeton.

2009 Annual Report | 47

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

17 Provisions

Current

Employee benefits (i)

Non-current

Employee benefits

Employee benefits movement

Balance at 1 July 2008

Additional provision recognised

Amounts used

Balance at 30 June 2009

Consolidated
$000

Parent
$000

2009

2008

2009

2008

667

263

930

1,084

549

(703)

930

774

310

1,084

871

625

(412)

1,084

190

115

305

309

177

(181)

305

189

120

309

277

110

(78)

309

(i)

The current Group provision for employee benefits includes $214,000 of annual leave and vested long
service leave entitlements accrued but not expected to be taken within 12 months (2008: $112,000). The
current parent employee benefits are expected to be taken during the next 12 months.

18 Issued capital

Fully paid ordinary shares

54,660,270 (2008: 54,606,737) ordinary shares fully paid

Balance at 1 July

Issue of shares (i)(ii)

Balance at 30 June

27,019

26,999

27,019

26,999

22,078

4,921

26,999

27,019

26,999

27,019

26,999

22,078

4,921

26,999

(i)

(ii)

During the year there were 53,533 ordinary shares issued for 45 cents per share. Issue costs of $3,700 were
incurred during the share issue process.

During the prior year: In 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.

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)

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.

(ii)

For information relating to share options issued to key management personnel during the financial year,
refer note 28. At 30 June 2009, there were 5,450,000 (30 June 2008: 5,900,000 of which 450,000 have lapsed
in the financial year ended 30 June 2009) unissued ordinary shares for which options were outstanding.

48 | Freedom Nutritional Products Limited

19 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 financial year ended 30 June 2009 (continued)

Consolidated
$000

Parent
$000

2009

473

319

792

192

127

319

2008

2009

473

192

665

126

192

319

192

127

319

2008

192

126

192

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 attributable to members of the parent

Dividends paid

Balance at 30 June

21 Dividends

Recognised amounts

Fully paid ordinary shares

1,575

1,320

(545)

2,350

2,956

(1,446)

956

(891)

1,575

925

1,731

(545)

2,111

1,766

(891)

925

2009

2008

Cents per
share

Total
$’000

Cents per
share

Total
$’000

Interim dividend in relation to 30 June 2008: fully franked at a 30% tax rate

Final dividend in relation to 30 June 2008: fully franked at a 30% tax rate

1.0

545

1.0

445

446

Unrecognised amounts

Fully paid ordinary shares

Final dividend in relation to 30 June 2008: fully franked at a 30% tax rate

1.0

545

On 27 August 2009, the Directors declared that there will be no fully franked final dividend paid in respect of
the financial year 2009.

2009 Annual Report | 49

Notes to the Financial Statements
for the financial year ended 30 June 2009 (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

2009

481

2008

343

(234)

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:

Consolidated
$000

Parent
$000

Cash

Overdraft

2009

762

(1,433)

(671)

2008

1,111

(860)

251

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

Profit for the year

Depreciation

Movement in provision for employee entitlements

Write off of inventory

(Gain) / loss on disposal of assets

Foreign currency revaluation

Unrealised fair value mark-to-market of derivative financial instruments

Share based payments

Interest received

Interest capitalised

Non cash interest expensed

Intercompany dividends received

(Gain) / 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

1,320

453

(154)

(151)

706

127

(10)

(322)

252

(212)

1,546

735

(349)

100

(606)

(119)

3,348

2009

2008

1,731

129

(4)

127

1,766

121

126

956

331

214

151

126

(195)

(2,600)

(3,100)

355

(75)

317

(969)

3,054

461

(2,653)

(150)

(33)

1,720

(16)

(105)

(743)

3,247

2,155

(270)

(209)

(2,822)

(132)

(28)

1,203

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

50 | Freedom Nutritional Products Limited

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

22 Notes to the cash flow statement (continued)
(c) Non-cash financing and investing activities

During the current financial year, the Group acquired $nil (2008: $48,000) 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. During the 30 June 2008 financial year, 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 2009 financial year contingent consideration was finalised in respect of the purchase of Norganics
Foods (Australia) Pty Limited business assets.

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 Cookie Man baking assets.

Details of these transaction are:

Purchase consideration

Incidental costs - Cookie man

Incidental costs - Norganic Foods (Australia)

Cash consideration

Assets and liabilities held at acquisition date:

Inventories

Brands (Intellectual property)

Goodwill on acquisition

23 Standby arrangements and unused credit facilities

Financing Facility

Secured bank overdraft facility

•

amount used

amount unused

Secured loan facilities

•

amount used

amount unused

Secured finance facilities

•

amount used

amount unused

Unused financing facilities

Consolidated
$000

Parent
$000

2009

2008

2009

2008

1,000

1,062

4,500

618

5,174

492

4,626

5,118

5,174

Consolidated
$000

Parent
$000

2009

2008

2009

2008

1,433

567

2,000

14,140

14,200

3,159

4,841

8,000

5,468

860

1,140

2,000

14,791

534

15,325

1,674

2009 Annual Report | 51

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

23 Standby arrangements and unused credit facilities (continued)

The bank overdraft and multi-option facilities are arranged with Bankwest with general terms and conditions and
are subject to annual review. The bank facilities of the Group are secured by a first registered mortgage over all the
Group’s property, excluding items specifically discharged under the Freedom Foods equipment finance arrangement,
and a first equitable mortgage over the whole of the Group’s assets and undertakings including uncalled capital. The
mortgage is held by Bankwest.

The Freedom Foods equipment finance facility has been arranged with the National Australia Bank. This facility is
secured over the assets financed under the facility, which have been specifically discharged from the first registered
mortgage held over all the Group’s property.

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

2009

2008

2009

2008

2009

2008

2009

2008

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

731

3,179

3,910

(666)

3,244

171

(16)

155

(5)

171

(16)

155

552

2,692

3,244

552

2,692

3,244

155

(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.

52 | Freedom Nutritional Products Limited

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

24 Capital and leasing commitments (continued)

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

Disclosure for lessors

Consolidated
$000

Parent
$000

2009

2008

2009

2008

369

429

453

345

798

652

593

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
$000

Parent
$000

2009

2008

2009

2008

Consolidated
Number

Parent
Number

2009

140

2008

152

2009

2008

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 2008. 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
considers the cost of capital and the risks associated with each class of capital.

2009 Annual Report | 53

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

26 Financial instruments (continued)

Financial liabilities

Debt (i)

Cash and cash equivalents

Net debt

Equity (ii)

Net debt to equity ratio

Consolidated
$000

Parent
$000

2009

2008

2009

2008

23,300

671

23,971

27,811

86%

15,806

(251)

15,555

27,664

56%

155

(1)

154

27,338

27,191

(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 management provides services to the business, coordinates 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
and interest 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.

54 | Freedom Nutritional Products Limited

Notes to the Financial Statements
for the financial year ended 30 June 2009 (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

2009

2008

2009

2008

647

766

1,032

945

503

273

520

There have been no changes 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 Group has entered into contracts (for terms not exceeding 12 months) to purchase finished goods from
suppliers in the United States and Canada. The contracts relate to highly probable forecasted transactions
for the purchase of inventory for the Specialty Seafood business (Salmon and Sardines) and the Freedom
Foods business (Cereals and Spreads) with the purchase consideration being settled in the above currencies.
The Group’s objective in entering into foreign exchange contracts is to provide certainty to the income and
cashflow implications for the designated foreign currency purchase, relating to purchase of inventory or other
capital assets.

The Group does not adopt hedge accounting.

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

2009

2008

2009

2008

FC’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

0.685

0.705

0.792

0.878

0.923

0.940

0.933

0.948

0.938

2,713

175

1,735

1,025

780

1,869

1,500

962

950

2009

$’000

3,960

219

2,190

1,168

845

2008

$’000

1,989

1,608

1,015

1,013

2009

$’000

(609)

(1)

(23)

(69)

(4)

(706)

2008

$’000

(155)

(141)

(77)

(76)

(449)

2009 Annual Report | 55

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

26 Financial instruments (continued)
Foreign currency sensitivity analysis
The following table details the sensitivity to an increase / decrease in the Australian dollar against the relevant
currencies in relation to foreign exchange exposures. A sensitivity rate of 7% (USD) and 8.8% (CAD) have been
used as these represent managements assessment of a likely maximum 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.

Consolidated

US dollars (USD) impact

AUD appreciates by 7%

AUD depreciates by 7%

Canadian dollars (CAD) impact

AUD appreciates by 8.8%

AUD depreciates by 8.8%

Profit or loss
$’000

2009

2008

(96)

110

(52)

(69)

(39)

(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 Group manages this risk 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:

Weighted
average
effective
interest rate

Note

Fixed rate maturing in

Variable Rate

Less than 1
year

1 to 5 years

2009

2008

2009

2008

2009

2008

$‘000

16%

762

1,111

762

1,111

8% 1,433

860

11%

552

717

782

2,692

1,686

1,674

2,373

Financial Instrument

Consolidated

Financial Assets

Cash and cash equivalents

Redeemable notes

Total Financial Assets

Financial Liabilities

Bank overdrafts

Finance leases

Other payable

56 | Freedom Nutritional Products Limited

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

Weighted
average
effective
interest rate

Note

Fixed rate maturing in

Variable Rate

Less than 1
year

1 to 5 years

2009

2008

2009

2008

2009

2008

$‘000

12%

4,500

5% 14,123

14,791

15,556

15,651

5,769

851

4,378

2,459

27,529

26,335

27,529

26,335

26 Financial instruments (continued)

Financial Instrument

Due to related parties

Loan payable

Total Financial Liabilities

Parent

Financial Assets

Cash

Due from controlled entities

Total Financial Assets

Financial Liabilities

Finance leases

Total Financial Liabilities

During the financial year there has been no change to the group’s interest rate risk exposure or the manner in
which it manages and measures these risks.

Interest rate sensitivity analysis
The sensitivity analysis below has been determined based on the impact of 150 basis point increase in interest
rates on the exposure to interest rates as detailed in the above table.

The impact of a 150 basis point interest rate movement during the year with all other variables being held
constant will be:
•

an increase/decrease on the consolidated entity’s net profit of $111,000 (2008: $177,000) respectively.

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

A 150 basis point movement 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.

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.

2009 Annual Report | 57

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

26 Financial instruments (continued)

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

Less than 1 year

1 to 5 years

More than
5 years

2009

2008

2009

2008

2009

2008

11%

12%

$ ‘000

3,682

2,388

850

5,040

1,551

731

4,353

4,995

1,823

850

952

3,998

18,595

12,700

2,550

3,400

3,179

13,825

19,554

16,138

19,627

121

146

Consolidated

Financial Liabilities

Trade payables

Other payables and accruals

Other payables

Due to related parties

Bank overdrafts

Finance leases

Loan payable

Total Financial Liabilities

Parent

Financial Liabilities

Other payables

Finance leases

Total Financial Liabilities

(i) Fair value of financial instruments

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

58 | Freedom Nutritional Products Limited

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

26 Financial instruments (continued)

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; and

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 EBDITA 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 2009.

On 30 June 2005, TFG exercised a call option and acquired an additional 25.01% in Thorpedo Foods Pty Limited
bringing its interest in Thorpedo Foods Pty Limited at 30 June 2005 to 50.01%. The additional 25.01% was
acquired for $20.

27 Key management personnel compensation

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

Remuneration policy

Remuneration arrangements for Directors and Executives of the Parent and Group (“the Directors and Executives”)
are set competitively to attract and retain appropriately 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 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 and no cash retention bonuses
were paid. Options are valued using the binomial method.

2009 Annual Report | 59

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

27 Key management personnel compensation (continued)

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 2009 were $157,000 (2008: $167,000). To align Director interests with shareholder interests, the Directors
are encouraged to hold shares in the Parent.

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 After Tax ($000s)

Dividends Paid (cents)

2009

48,596

1,320

2008

54,082

956

2007

48,683

1,174

2006

46,963

1,434

Nil

2005

37,954

310

Nil

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

60 | Freedom Nutritional Products Limited

Consolidated

2009

2008

1,491,940

1,601,890

71,119

123,511

78,992

126,599

1,686,570

1,807,481

Parent

2008

167,000

15,030

126,599

308,629

2009

157,000

14,130

123,511

294,641

Notes to the Financial Statements
for the financial year ended 30 June 2009 (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)
M. Miles (Non-Executive Director)
B. W. Bootle (Alternate Director), resigned 12 December 2008
R. J. F. Macleod (Executive Director Strategy, Corporate Development and Chief Financial Officer)
G. J. Hughes (Chief Operating Officer), resigned 3 July 2009.
M. E. Jenkins (Chief Financial Officer & Company Secretary), resigned 25 September 2008
M. Christian (General Manager Manufacturing), resigned 31 December 2008
P. Wilson (General Manager Leeton Manufacturing Operations), commenced in July 2008
M. Gilio (Group Finance Manager & Company Secretary), appointed Company Secretary 25 September 2008
P. Bartier (National Supply Chain Manager)

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:

2009

P. R. Gunner

G.H. Babidge

A. M. Perich

R. Perich

M. Miles

B. W. Bootle
(i)

R. J. F.
Macleod

Short term benefits

Salaries and fees

63,000

355,755

30,000

32,000

Bonus

Non monetary

Post employment benefits

Superannuation

5,670

13,745

2,700

2,880

Equity compensation

Options

Total

Short term benefits

Salaries and Fees

Bonus

Non monetary

68,670

42,934

412,434

32,700

34,880

G.J. Hughes
(ii)

P. Wilson M. E. Jenkins
(iii)

M. Christian
(iv)

11,393

M. Gilio

216,567

198,426

71,358

124,935

139,144

1,491,940

2009 Annual Report | 61

228,755

13,745

42,934

285,434

Total

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

27 Key management personnel compensation (continued)

2009

G.J. Hughes
(ii)

P. Wilson M. E. Jenkins
(iii)

M. Christian
(iv)

M. Gilio

Total

Post employment benefits

Superannuation

Equity compensation

Options

Total

13,226

229,793

198,426

3,750

26,250

101,358

124,935

151,667

12,523

71,119

(i) Mr B. W. Bootle resigned as alternate Director on 12 December 2008

(ii) Mr G. J. Hughes resigned as Chief Operating Officer on 3 July 2009

(iii) Mr M. E. Jenkins resigned as Chief Financial Officer and Company Secretary on 25 September 2008

(iv) Mr M. Christian resigned as General Manager of Manufacturing 31 December 2008

2008

P. R. Gunner

G.H. Babidge

A. M. Perich

R. Perich

S.F. Higgs

M. Miles

123,511

1,686,570

R. J. F.
Macleod

Short term benefits

Salaries and fees

63,000

325,871

30,000

32,000

10,000

32,000

211,871

Bonus

Non monetary

Post employment benefits

Superannuation

5,670

13,129

2,700

2,880

B. W. Bootle

G.J. Hughes

P. J. Nathan
(i)

M. E. Jenkins

M. Christian M. Hauptfleisch
(ii)

Equity compensation

Options

Total

Short term benefits

Salaries and Fees

Bonus

Non monetary

Post employment
benefits

Superannuation

Equity compensation

Options

Total

68,670

42,934

381,934

32,700

34,880

223,509

50,000

144,843

27,000

185,000

10,421

12,283

15,000

22,731

283,930

9,000

193,126

9,000

209,000

900

10,900

2,880

13,129

34,880

42,934

267,934

Total

189,596

22,000

55,200

1,502,890

72,000

27,000

78,992

126,599

211,596

55,200

1,807,481

(i)

Mr Nathan’s role changed to General Manager of A2 and as such was no longer considered as a key
management personnel for the Freedom Nutritional Products group in the 2009 year.

62 | Freedom Nutritional Products Limited

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

27 Key management personnel compensation (continued)

(ii) Due to a change in role Mrs M Hauptfleisch is not considered a key management personnel in the 2009 year.

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.

(ii)

Key management personnel equity holdings
Fully paid ordinary shares of the Parent

2009

P. R. Gunner

G.H. Babidge

A. M. Perich (2)

R. Perich (2)

M. Miles

B. W. Bootle

R. J. F. Macleod

G. J. Hughes

P. Wilson

M. E. Jenkins

M. Christian

M. Gilio

Balance
at 1 July
2008

Granted as
compensation

Received
on
exercise
of options

Net other
change

Balance
at 30 June
2009

No.

360,517

69,217

35,530,385

104,353

42,486

156,108

30,326

No.

360,517

69,217

634,069

36,164,454

634,069

36,164,454

2,314

943

106,667

43,429

156,108

(3,957)

26,369

2009 Annual Report | 63

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

28 Related party transactions (continued)

2008

P. R. Gunner

G.H. Babidge

A. M. Perich (1)

R. Perich (1)

S. F. Higgs

M. Miles

B. W. Bootle

R. J. F. Macleod

G. J. Hughes

P. Nathan

M. E. Jenkins

M. Christian

M. Hauptfleisch

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

No.

360,517

69,217

628,586

35,530,385

628,586

35,530,385

53,284

1,631

(40,000)

384,615

104,353

42,486

156,108

30,326

(1)

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.

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.

2009

G.H. Babidge

B. W. Bootle

2,400,000

900,000

(450,000)

R. J. F. Macleod

2,000,000

P. Nathan

M. E. Jenkins

2008

G.H. Babidge

B. W. Bootle

300,000

2,400,000

900,000

R. J. F. Macleod

2,000,000

P. Nathan

300,000

M. E. Jenkins

400,000

(100,000)

2,400,000

1,550,000

450,000

2,000,000

1,150,000

300,000

2,400,000

1,125,000

900,000

2,000,000

300,000

225,000

725,000

150,000

1,550,000

450,000

1,150,000

300,000

1,125,000

225,000

725,000

150,000

425,000

225,000

425,000

150,000

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.

64 | Freedom Nutritional Products Limited

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

28 Related party transactions (continued)

During the financial year nil options (2008: nil) were exercised by key management personnel.

Further details of the Employee Share Option Plan and of share options granted during 2009 and 2008 financial
years are contained in note 29 to the financial statements.

(iii) Other transactions with key personnel of the Group
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

(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 $355,000 to its ultimate parent entity (2008: $702,000). The
ultimate parent entity Arrovest Pty Ltd holds 66% of the fully paid ordinary shares of Freedom Nutritional
Products Limited (2008: 65%).

the Parent paid Directors fees totalling $67,580 to Messrs A. M. Perich and R. Perich (2008: $67,580). Messrs A.
M. Perich and R. Perich each hold an interest in Arrorvest Pty Limited which is a registered holder of shares in
the Parent.

the Parent made payments of $330,000 (2008: $365,000) 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 (2008: $57,000) to CBPA.

the Parent received fees for management services provided of $120,000 (2008: $15,000) from CBPA.

The Group was reimbursed by CBPA $3,080,000 (2008: $2,407,000) 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 $27,529,000 are receivable from subsidiaries (2008: $26,335,000).

Current loans totalling $998,000 are receivable from joint ventures (2008: $955,000).

Current loans totalling $4,500,000 are repayable to an associate of the ultimate parent (2008: $nil).

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 $5,852,000 (2008: $7,668,000) to the Group at cost.

2009 Annual Report | 65

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

28 Related party transactions (continued)

•

The Group made interest payments of $264,000 (2008: $57,00) to Arrovest Pty Ltd. The weighed average
interest rate on the loans is 12%.

The Group received rental income of $25,000 (2008: $17,000) from A2DP.

The Group was reimbursed by A2DP $764,000 (2008: $883,000) for labour and other administrative services
provided.

The Group received interest income of $263,000 (2008: $184,000) from A2DP on its convertible notes. The
effective interest rate on the convertible notes is 15.8% (2008: 15.8%).

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 $452,000 are receivable from joint ventures (2008: $707,000).

Current loans totalling $nil are repayable to the associate of the ultimate parent (2008: $nil).

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

The amounts outstanding will be settled in cash. No guarantees have been given or received. No expense has
been recognised during the financial year for bad or doubtful debts in respect of the amounts owed by related
parties.

(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 $8,659,000 (2008: $5,147,000) to CBPA at cost.

CBPA incurred a Dairy Management Fee payable to Leppington Pastoral Company totalling $nil (2008:
$111,000).

These services are provided under normal terms and conditions.

(iv) Guarantee
The Parent has guaranteed 50% of the A2DP debtor finance facility up to $1.5m. The remaining 50% has been
guaranteed by the other party to this jointly controlled entity. The amount of the exposure at balance date is $nil
(2008: $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. There are
no vesting conditions attached to these options other than continuing employment within the Group.

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 4 vest
in four equal tranches over a period of 4 years and option series 5 vests in two equal tranches over two years.

66 | Freedom Nutritional Products Limited

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

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

The following share-based payment arrangements were in existence during the current and comparative reporting
periods:

Option series

(1) Issued 29 January 2003

(2) Issued 3 September 2003

(3) Issued 27 July 2005

(4) Issued 30 November 2006

(5) Issued 26 April 2007

Number

Grant
date

Expiry
date

Exercise
price

Fair value
at grant

700,000

275,000

1,000,000

4,300,000

600,000

29/01/03

29/01/08

3/09/03

27/07/05

30/11/06

26/04/07

3/09/08

27/07/10

30/11/11

26/04/10

0.80

0.85

0.50

0.10

The weighted average fair value of the share options granted during the financial year is nil (2008: $nil). Options
were priced using a binomial option pricing model. Where relevant, the expected life used in the model has been
adjusted on management’s best estimate for the 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.

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

0.60

0.80

15%

5 years

Nil

6.0%

0.80

0.85

15%

5 years

Nil

6.0%

0.38

0.50

15%

5 years

Nil

6.0%

0.50

20%

5 years

2.5%

0.48

0.50

20%

3 years

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

2009

2008

Number of
options

Weighted average
exercise price $

Number of
options

Weighted average
exercise price $

5,900,000

(450,000)

5,450,000

3,750,000

0.50

6,100,000

0.50

(200,000)

0.50

5,900,000

2,375,000

0.51

0.80

0.50

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 (2008: $0.50),
and a weighted average remaining contractual life of 740 days (2008: 1,105 days). No options were exercised during
the financial year.

2009 Annual Report | 67

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

30 Contingent liabilities

Bank guarantee arising from rental of office premises. No liability is expected to accrue.

31 Controlled entities

Controlled Entity

Paramount Seafoods Pty Limited (i)

Nutrition Ventures Pty Limited (i)

Nutrition Ventures Financing Pty Limited (i)

Freedom Foods Pty Limited (i)

Australian Natural Foods Holdings Pty Limited (i)

Thorpedo Foods Group Pty Limited (i)

Thorpedo Foods Pty Limited

Thorpedo Seafoods Pty Limited

Consolidated
$000

Parent
$000

2009

2008

2009

2008

Country of
Incorporation

Ownership interest

2009

2008

Australia

100%

50.01%

75%

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 2009 financial report.

(i) 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

Freedom Foods Pty Limited

Paramount Seafoods Pty Limited

Australian Natural Foods Holdings Pty Limited

•

Nutrition Ventures Pty Limited

Thorpedo Foods Group Pty Limited

Nutrition Ventures Financing 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.

68 | Freedom Nutritional Products Limited

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

33 Jointly controlled operations and assets

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

Name of venture

CBPA

A2DP

Output interest %

Country of incorporation

Principal activity

2009

2008

Australia

Contract beverage packing
services

Sale of a2 milk

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

Balance at 1 July

Share of profits/(losses) for the year

Dividends

Additions (i)

Balance at 30 June

CBPA
$000

A2DP
$000

2009

2008

2009

2008

601

676

768

(317)

451

150

601

913

137

1,050

1,809

2,859

329

(38)

291

622

913

(i) The Groups holding of non-listed unsecured convertible notes in A2DP were converted at par value on 1 May
2009.

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

Profit / (loss) after income tax

CBPA
$000

A2DP
$000

2009

2008

2009

2008

4,205

4,600

8,805

4,369

4,232

8,601

204

11,452

3,202

4,894

8,096

3,168

4,799

7,967

129

5,451

(317)

2,829

645

3,474

929

1,540

2,469

1,005

1,942

137

(38)

109

(38)

2009 Annual Report | 69

Notes to the Financial Statements
for the financial year ended 30 June 2009 (continued)

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.

During the financial year, Freedom Foods Pty Limited entered into an equipment lease with National Australia
Bank to assist in financing equipment requirements for the Freedom manufacturing site at Leeton. The maximum
facility limit is for financing amounts of up to $8 million with a lease term of 5 years with a 20% residual.

The facility is secured by the financed equipment and Freedom Foods obligations under the lease are
guaranteed by Freedom Nutritional Products Limited.

35 Acquisition of business

On the 18th November 2008 contingent consideration of $1,000,000 plus addition incidental costs associated
with the acquisition of the business assets of Norganic Foods (Australia) Pty Ltd were paid. This payment has
resulted in an increase to the value of intangibles by the amount of the deferred consideration. Details of the
acquisitions and additional incidental costs are as follows:

Purchase consideration - Norganic foods (Australia)

Incidental costs - Norganic foods (Australia)

Incidental costs - Cookieman

Cash consideration

Consolidated
$000

Parent
$000

2009

2008

2009

2008

1,000

1,062

4,500

618

5,174

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 $3,917,000 (2008: $513,000) attributable to the additional business
generated by Norganic Foods (Australia) on a gross margin basis.

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.

70 | Freedom Nutritional Products Limited

Directors’ Declaration
For the year ended 30 June 2009

FREEDOM NUTRITIONAL PRODUCTS LIMITED

DIRECTORS’ DECLARATION

FOR THE YEAR ENDED 30 JUNE 2009

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 2009

G.H. Babidge

Managing Director

2009 Annual Report | 71

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 2009, 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 22 to 71.

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.

72 | Freedom Nutritional Products Limited

Independent Audit Report
(continued)

We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our audit opinion.

Auditor’s Independence Declaration

In conducting our audit, we have complied with the independence requirements of the
Corporations Act 2001.

Auditor’s Opinion

In our opinion:

(a) the financial report of Freedom Nutritional Products Limited is in accordance with the

Corporations Act 2001, including:
(i) giving a true and fair view of the company’s and consolidated entity’s financial

position as at 30 June 2009 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 8 to 12 of the directors’ report
for the year ended 30 June 2009. 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 2009, complies with section 300A of the Corporations Act 2001.

DELOITTE TOUCHE TOHMATSU

P A Roberts
Partner
Chartered Accountants
Parramatta, 2 September 2009

2009 Annual Report | 73

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 2009 is:

Shareholder

Arrovest Pty Limited

Telunapa Pty Ltd

Number

36,164,454

9,000,000

Class of shares and voting Rights

At 31 August 2009, there were 54,660,270 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 2009