Freedom Foods Group Limited Annual Report 2013

Plain-text annual report

Freedom Foods Group Limited Annual Report 2013 For personal use onlyContents Financial Highlights and Five Year Summary ..........................................................................................................................2 Chairman’s Letter ......................................................................................................................................................................................3 Managing Director’s Review of Operations .............................................................................................................................5 Directors’ Report .....................................................................................................................................................................................13 Lead Auditor’s Independence Declaration............................................................................................................................21 Corporate Governance Statement .............................................................................................................................................22 Consolidated Statement of Profit and Loss and Other Comprehensive Income ..........................................30 Consolidated Statement of Financial Position ....................................................................................................................31 Consolidated Statement of Cash Flows ..................................................................................................................................32 Consolidated Statement of Changes in Equity ...................................................................................................................33 Notes to the Financial Statements ..............................................................................................................................................34 Directors’ Declaration ..........................................................................................................................................................................79 Independent Auditor’s Report ......................................................................................................................................................80 Shareholder Statistics ..........................................................................................................................................................................82 Corporate Directory .............................................................................................................................................................................85 Annual General Meeting Date 1 November, 2013 Time 12.00 pm Venue DLA Piper Australia 201 Elizabeth Street Sydney NSW 2000 FREEDOM FOODS GROUP LIMITED ABN 41 002 814 235 Annual Report for the year ended 30 June 2013 For personal use only Financial Highlights and Five Year Summary n Financial Highlights and Five Year Summary Sales Revenue ($000's) Operating EBDITA ($000's)* Net Profit after Tax ($000's) Net Operating Profit after Tax ($000's) Basic Earnings per Share (cents) Number of Ordinary Shares Issued (000's) Number of Convertible Redeemable Preference Shares Issued (000's) Ordinary Dividend per Share (cents) Convertible Redeemable Preference Dividend per Share (cents) Dividend Paid ($000's) Total Assets ($000's) Shareholders Equity ($000's) Net Assets Per Share (cents) Net Tangible Asset Backing (cents) 2013 88,831 11,600 13,722 6,351 14.7 113,754 17,219 2.00 2.80 2,327 126,839 82,395 63 47 2012 58,132 5,447 3,012 3,305 3.9 77,996 19,415 0.50 3.40 1,020 103,881 47,270 49 24 2011 45,256 4,041 4,387 2,607 5.7 77,497 19,415 0.50 1.00 405 75,456 49,983 52 29 2010 44,071 3,816 3,357 3,929 5.0 77,435 - - - - 71,090 40,263 52 22 2009 48,596 3,494 1,320 2,642 2.4 54,660 - 1.00 - 545 63,659 30,161 55 13 * Earnings before depreciation, interest, tax and amortisation 2 Annual Report 2013 For personal use only n Chairman’s Letter Dear Shareholder In the 2013 financial year, Freedom Foods Group Limited (“FFG”) achieved Operating EBDITA of $11.6 million, an increase of 113% against the prior corresponding period, reflecting increased sales and profitability in the Freedom Foods business, consolidation of Pactum Australia for 12 months and a contribution from Specialty Seafood. Operating Pre-tax Profit was $7.5 million for the 12 months ended 30th June 2013, reflecting a 117% increase on the previous corresponding 12 month period. The Reported Net Profit of $13.7 million included non-operating after tax profit of $8 million from the sale of 40 million shares in A2 Corporation, employee share option expense of $246k (after tax), bad debts provision of $205k (after tax) and resolution of a long term employee claim of $140k (after tax). The Company is utilising future income tax benefits to reduce cash tax payable on the sale of the A2C shareholding. The result included strong sales growth in Freedom Cereals of 41%, compared to the previous corresponding period, with business unit EBDITA increase reflecting sales growth and improved operating efficiencies at Leeton. Dairy alternative beverage sales continued their trend with sales growth of 28% compared to the previous corresponding period. In the Speciality Seafood business, the Brunswick Sardine brand maintained its No 1 brand leadership position in Australia and New Zealand. Pactum Australia contributed a strong sales result in its first full twelve month period as a consolidated entity. Pactum’s expansion into portion pack UHT, for value added beverages, was completed in December 2012 and the business unit made a material contribution in FY13. The establishment of the new Pactum Dairy Group (PDG) UHT dairy facility was progressed during the year. The Board is pleased with these results and the Company has continued the positive trend in the development of its unique business platforms in specialised areas of the food market. It has two key growth opportunities in Freedom Foods and Pactum Australia, a stable business base in Specialty Seafood and a strategic opportunity in A2C. The Managing Director’s report provides further commentary on operations. The Company completed 2 capital raisings; • • in April 2013 we raised $17.4 million (gross proceeds) at $1.04 per share from a placement and entitlements offer; and in September 2013 we raised $27 million which, together with a small entitlement offer for $3 million (currently underway), will complete this $30 million capital raising. Both capital raisings were significantly oversubscribed. A2 Corporation (A2C) (18.04% FNP shareholding) reported continued strong growth in the Australian fresh milk business with sales up 48% over the prior year. In December 2012, the Company sold 40 million shares in A2C for a total net consideration of $15.4 million, recording a pre tax profit of $11.8 million, which brought our shareholding in A2C down to 18.04%. A2C’s market capitalisation at 27 September 2013 of A$403 million implies a value for the Company’s shareholding of approximately A$73 million, materially above the book value of A$9.9 million. Chairman’s Letter 3 Freedom Foods Group LimitedFor personal use onlyChairman’s Letter (continued...) With improving profitability, the Board has recommended payment of a final fully franked dividend of $0.01 per ordinary share in November 2013. The total dividend for the year represents a dividend payout ratio of 39% of operating net profit in FY 2013, which includes the dividends paid out on the preference shares. Dividend priority remains with the converting preference shareholders, with a further dividend to be paid in accordance with the terms of the converting preference shares in early November 2013. I would also like to pay tribute to Mr Geoff Babidge, who retired from the Board in June this year. Geoff joined the Company in 2002, as Managing Director. He has played a leading role through this period in building the Company growth platform in Freedom Foods and Pactum Australia, and in particular driving the significant value creation opportunity in A2 Milk through A2 Corporation, of which the Company is the largest shareholder. His contribution has been crucial in transforming the Company to target a range of exciting growth opportunities both domestically and offshore. Since stepping down as Managing Director in 2010, he has displayed a keen interest in all aspects of the Company and has been a strong contributor to the Board, in particular providing support to the senior management team under Rory Macleod, Managing Director. The Board and Management wish him well in his ongoing role as Managing Director and CEO of A2 Corporation and to creating further value for FNP shareholders As a consequence of Geoff’s retirement and to ensure process of renewal at the Board, Mr Trevor Allen has joined the Board as an independent non-executive director, effective 1 July 2013. Trevor brings extensive experience in business, corporate finance and capital markets and we look forward to his contribution as a director. On behalf of the Board, I would like to thank all employees for their dedication and hard work throughout the year. There is much to be done and a great deal of confidence about Freedom Foods Group long-term prospects. Perry Gunner Chairman 4 Annual Report 2013For personal use onlyManaging Director’s Review of Operations n Managing Director’s Review of Operations Group Summary Result Year ended 30th June Gross Sales Revenues (1) Net Sales Revenues EBDITA (Operating) (2) EBITA (Operating) (2) Equity Associates Share of Profit Pre Tax Profit (Operating) Pre Tax Profit (Reported) Net Profit (Operating) Net Profit (Reported) Interim Ordinary Dividend (cps) Final Ordinary Dividend (cps) Interim CRPS Dividend (cps) Final CRPS Dividend (cps) (3) EPS (cents per share)( Fully Diluted for CRPS) On Adjusted Reported Net Profit EPS (cents per share)( Fully Diluted for CRPS) On Operating Net Profit Net Debt / Equity Net Assets per Share Notes: 2013 $’000 115,514 88,831 11,600 8,972 819 7,524 18,524 6,351 13,722 1.00 1.00 1.40 1.40 11.96 5.40 10% $0.63 2012 $’000 72,556 58,132 5,447 4,075 1,214 3,476 3,250 3,305 3,012 - 1.00 1.40 1.40 3.11 3.32 82% $0.49 % Change +59.21% +52.81% +112.96% +120.17% -32.54% +116.46% +469.97% +92.16% +355.58% - - - - +284.57% +62.56% -87.80% +29.69% (1) Gross Sales Revenues does not include revenues from the group associate entity, A2 Corporation. (2) Operating EBDITA and EBITA, excludes abnormal or non-operating charges with an add back of non cash employee share option expense of $352k, bad debts written off expense of $293k and employee claim settlement expense of $200k. The company achieved an Operating EBDITA of $11.6 million, an increase of 113%, reflecting increased sales and profitability in the Freedom Foods business, consolidation of Pactum Australia for 12 months and a contribution from Specialty Seafood. Operating Pre-tax Profit was $7.5 million for the 12 months ended 30th June 2013, reflecting a 117% increase on the previous corresponding 12 month period. The Reported Net Profit of $13.7 million included non-operating after tax profit of $8 million from the sale of 40 million shares in A2 Corporation (A2C), employee share option expense of $246k (after tax), bad debts provision of $205k (after tax) and resolution of a long term employee claim settlement of $140k (after tax). The Company is utilising future income tax benefits to reduce cash tax payable on the sale of the A2C shareholding. Net Operating Profit was $6.4 million, an increase of 92%, including an increase in operating income tax expense of $1.2 million for this period against $185k for the last period. Equity Associates contributions of $0.8 million reflected the share of estimated 2013 profits from A2C. In addition to a share of equity profits from A2C from 2012 not previously recognised. Net assets at 30 June 2013 increased to $0.63 per share from $0.49 at June 2012, reflecting the impact of the sell down of the A2C shareholding, exercise of options by shareholders and the capital raising undertaken in April 2013. 5 Freedom Foods Group LimitedFor personal use onlyManaging Director’s Review of Operations (continued...) HIGHLIGHTS Highlights for the year included: • • • • • • • Group Operating EBDITA of $11.6 million, a 35% increase on the previous corresponding period. Operating Net Profit was $6.4 million for the 12 months ended 30th June 2013, reflecting a 93% increase on the previous corresponding 12 month period. Sales growth in Freedom Cereals of 41%, compared to the previous corresponding period, with business unit EBDITA increase reflecting sales growth and improved operating efficiencies at Leeton. Dairy alternative beverage sales continued their trend with sales growth of 28% compared to the previous corresponding period. In the Speciality Seafood business, the Brunswick Sardine brand maintained its No 1 brand leadership position in Australia and New Zealand. Pactum Australia contributed a strong sales result in its first full twelve month period as a consolidated entity. Pactum’s expansion into portion pack UHT, for value added beverages, was completed in December 2012 and the business unit made a material contribution in FY 13. The establishment of the new Pactum Dairy Group (PDG) UHT dairy facility was progressed during the year. A2C (18.04% FNP shareholding) reported continued strong growth in the Australian fresh milk business with sales up 48% over the prior year. In December 2012, the Company sold 40 million shares in A2C for a total net consideration of $15.4 million, recording a pre tax profit of $11.8 million, which brought our shareholding in A2C down to 18.04%. A2C’s market capitalisation at 27 September 2013 of A$403 million implies a value for the Company’s shareholding of approximately A$73 million, materially above the book value of A$9.9 million. • • • • The Company completed a capital raising of $17.4 million (gross proceeds) at $1.04 per share from a placement and entitlements offer in April 2013. The capital raising was significantly oversubscribed with strong demand from a broad range of high quality institutional investors and existing shareholders. Net Debt / Equity at 10% from 82% at June 2012, reflected the sell down of the A2C shareholding and exercise of options by shareholders as well as the $17.4 million capital raising during the period. Net assets per share at $0.63 and net tangible assets of $0.47 per share, with A2C investment recorded at a book value of $9.9 million. The Company is to pay a final dividend for the year of $0.01 per ordinary share (fully franked) in November 2013, equating to a total ordinary share dividend of $0.02 for the year. A fully franked converting preference share dividend will be paid in November 2013. 6 Annual Report 2013For personal use onlyManaging Director’s Review of Operations (continued...) BUSINESS UNITS - WHOLLY OWNED Freedom Foods The Freedom Foods business unit continued to build momentum from the prior financial year, delivering overall gross sales growth of 29% compared to the previous corresponding period. During this period the business drove the Freedom branded portfolio with a focus on effective promotional price points, new product in major retailers and increased merchandising innovation and independent channels to improve distribution and stock weights. As a result, the business sold 1 million Cereal cases, equal to volume growth of 50% and gross sales growth of 41%, compared to the previous corresponding period. Cereal volume growth contributed to increased efficiencies at the Leeton manufacturing facility, with further benefits from management focus on improving efficiencies in labour, supply chain and distribution. The Leeton facility is the only integrated large scale manufacturing capability in Australia (and overseas) producing cereals and snacks “free from” key allergens such as gluten, nuts and dairy to the lowest detectable standards. Freedom Foods continued its focus on leveraging its Cereal base into breakfast snack alternatives, as well as meeting demand for “nut free” snacks, with growth in volumes of 127%, albeit from a small base. Aligned with the increasing sales base is a strong focus on improving sales margins and operational efficiencies at the Leeton site, with the business well progressed to meeting our benchmark 15% return on funds employed in the medium term. Dairy alternative beverage sales (soy, rice and almond) continued the trend from FY 2012 with volume growth of 14% and sales growth of 24% compared to the previous corresponding period, reflecting increased market share of Australia’s Own Organic and Blue Diamond Almond Breeze Milk brands. The business continued its development of export markets, with volume growth in North America reflecting Freedom’s unique point of differentiation in offering a Cereal range free of all common allergens and from non genetically modified sources. With the US gluten free market estimated at US$3.4 billion and growing at 15% CAGR per annum, Freedom Foods is increasing its development activities in North America to grow sales of Freedom branded and contract pack supply from its Leeton facility. The previously announced expansion of Freedom Foods into North America has commenced under a new wholly owned subsidiary and the relocation of a senior commercial executive, Michael Bracka to North America to lead the commercialisation activities of the North American business. Freedom’s long term target is to develop a sales base of up to 7 Freedom Foods Group LimitedFor personal use onlyManaging Director’s Review of Operations (continued...) 1 million cases of Freedom branded Cereals and Cereal snacks. The retail sales channel focus is on specialty or natural product retailers in key demographic regions in the USA, namely around California, Texas, Mid West, New York, Florida and into Canada. The impact of sales and efficiency improvements during the period resulted in significantly increased business unit EBDITA. The focus for the business into FY 2014, remains on increasing sales through growth in distribution channels and building awareness of the brand and products across a broader consumer market open to healthier digestive and nutritional products. The business will continue to drive category leadership of the health channel and support private label development that is complimentary to the business both in Australia and internationally. As part of this and meeting growth demands, the business has commenced a number of major capital programs including: • • $3.5 million investment on downstream cereal packaging capabilities to improve efficiencies and provide for increased capacity in range and format, with new capabilities on stream from January 2014; and $2.5 million investment in additional Cereal extrusion capacity to meet ongoing growth requirements in Australian and International markets in relation to Cereals and Cereal based products such as bars and ingredients, with new capabilities on stream from June 2014. The total production capability, with no material net increase in cash overheads. investment will materially increase Freedom Foods Cereal The business is also well progressed on plans to upgrade its nutritional snack manufacturing capabilities in calendar 2014, to improve efficiencies and meet demand for nutritious allergen free snacks in a range of consumption formats in Australia and internationally. Specialty Seafood The Speciality Seafood business performed below the previous corresponding period, reflecting lower sales in New Zealand and increased cost of Salmon. Brunswick sardines maintained its No 1 brand leadership position in Australia and New Zealand. In Salmon, Paramount increased its share in the Pink Salmon segment, although the brand suffered some SKU ranging reductions in the 2nd half. While the business has seen the benefit of higher exchange rates on inventories purchased in $USD and $CAD, this was not sufficient to meet cost increases in salmon, compared to the previous corresponding period. The business continued to utilise the procurement power of Bumble Bee Foods of North America, with Bumble Bee securing inventory requirements through priority access to Salmon and Sardine catch volumes. The business is focussed on driving category leadership of the speciality seafood channel through introducing new product opportunities (including value added and snacking offerings) and revitalised packaging for the Brunswick brand, while continuing to utilise Bumble Bee Foods procurement base. 8 Annual Report 2013For personal use onlyManaging Director’s Review of Operations (continued...) Pactum Australia Pactum Australia, which provides innovative contract manufacture solutions in long life (UHT) food beverages for private label and proprietary customers, delivered a strong sales and business EBDITA contribution in its 12 months as a consolidated entity. Pactum Australia non-dairy production volumes increased during the year to support the growth of Freedom Foods Australia’s Own and Blue Diamond brands, in particular focussed on the fast growing almond beverage category. The business continued to see benefit at its Sydney facility of increasing its mix of value added UHT products to a range of private label and proprietary customers, while migrating out of standard dairy milk production. As part of its growth strategy, Pactum finalised commissioning in December 2012 of an approximate $7.5 million capital program to expand its packaging capability at its southern Sydney site to provide portion pack UHT (200-330ml configuration) for value added beverages. Initial customer production commenced in January 2013, with the new capacity operating on a 3 shift operation to meet customer demands. Pactum Dairy Group (PDG) In December 2012, Pactum announced that it intended to build a state- of-the-art UHT processing plant to meet demand for high quality dairy milk in export and domestic markets. Pactum will operate the new plant through a joint venture, Pactum Dairy Group Pty Limited (PDG), to be owned jointly (50/50) with Australian Consolidated Milk (ACM), a major Australian dairy milk supply group. The primary market focus of the new capacity is on supply of high quality UHT dairy milk for export markets to proprietary and private label customers in South East Asia, including China. The new facility will enable Pactum to meet growing demand for UHT dairy milk, while providing additional capacity for value added beverages and food at its Sydney facility. The location of the new plant at Shepparton in Victoria, will provide for long term access to sustainable and economic sources of dairy milk. The initial capabilities of the plant will be 200ml portion pack and 1 Litre UHT configuration. Initial capacity will be up to 100m litres, with capability to significantly increase this capacity in the longer term. Pactum has made an initial investment contribution of up to $4.5 million as equity funds to PDG (being 50% of total proposed equity contribution of $9 million), funded through internal sources. National Australia Bank is providing finance facilities to PDG. The new UHT dairy facility at Shepparton is well progressed with trial production to commence in December 2013. The business is well advanced in securing volumes to meet its base business plan for 2014, with a phased development over 3 years. The business recently established a dedicated sales office in China. 9 Freedom Foods Group LimitedFor personal use onlyManaging Director’s Review of Operations (continued...) Packaging Capabilities Expansion As part of its focus on providing innovative contract packaging solutions, Pactum will expand its packaging formats to meet the increasing demands from its private label and proprietary customer base. From July 2014, Pactum will expand its capabilities to include 250ml Prisma format and 330ml Prisma Dreamcap format. These formats are increasingly being utilised to provide premium packaging for food and beverage products. Prisma 250ml is the leading format for premium beverages, while the Prisma Dreamcap will be the first installation of this format in the Australian market for broad contract packaging application, with its use being for premium consumption formats as a more versatile and environmentally friendly alternative to plastic. Both capabilities will be available for domestic customers and dairy based export customers. The packaging capability will be owned by Pactum Australia and operated at PDG’s Shepparton facility. It is expected that certain volume from Pactum’s Sydney facility will be transferred to the new capability to free up existing capacity for new customers in the Sydney facility. The total investment for the packaging capabilities will be approximately $15 million, with an initial earnings contribution from FY 2015 and phased development over 3 years. Exclusive Supply Agreement for a2 UHT Dairy Milk Pactum and A2C have agreed the key terms of an agreement for the exclusive supply of a2 UHT milk for Australian and Asian markets utilising Pactum’s capabilities at its Sydney and soon to be completed Shepparton facility. The agreement will provide for an initial term of 5 years, with renewal options and requires agreement from A2C shareholders as a result of Freedom and A2C sharing two common directors. Strategic Alliance for China Dairy Milk Market As part of its strategy to develop long term value added supply relationships into China and SE Asia, Freedom Foods and Pactum have agreed to enter into a licence and supply agreement with Shenzhen JLL Group (JLL) in China. JLL will work with Freedom to take dairy products into the China market under Freedoms long standing brands. JLL will invest in brand marketing and distribution. JLL is owned by Chinese nationals associated with the development of significant consumer beverage brands in the China market. 10 Annual Report 2013For personal use only Managing Director’s Review of Operations (continued...) STRATEGIC EQUITY ASSOCIATES A2 Corporation Limited (A2C), 18.04% Equity Interest The Company is the largest single shareholder in A2C. A2C owns and commercialises unique and comprehensive intellectual property rights relating to a2™ brand milk and related dairy products in international markets. A2C reported for the FY 2013 year, sales of NZD$94.3 million, an increase of 51% over the prior year and Net Profit After Tax of NZD $4.1 million. Operating EBITDA (before share of associate earnings and unusual items) was NZD$10.6 million, an increase of 125% over the prior year. a2™ branded milk is the fastest growing milk brand in the Australian market and the major driver of category growth nationally, accounting for in excess of 7.4% of grocery channel market share by value. Sales growth in Australia increased 48% over the previous corresponding period. A2C launched a2™ brand milk in the UK market in October 2012 in partnership with Müller Wiseman Dairies, Britain’s largest fresh milk company and by June 2013, had established distribution in 1000 retail outlets in the UK. The Company progressed its plan for the launch of a2™ Platinum™ infant formula into China, which is expected in September 2013. In December 2012, A2C completed an equity raising for NZ$20 million, including a partial sell down by the Company’s three largest shareholders. As part of this, the Company sold 40m shares in A2C at NZ$0.50, for a total net consideration of $15.4 million, recording a pre tax profit of $11.8 million. Post the capital raising and sell down, FNP remains the largest single shareholder in A2C with a fully diluted shareholding of 18.04%. A2C is listed on the main board of the New Zealand Stock Exchange (NZX: ATM), with a market capitalisation as at 27 September 2013 of approximately NZ$454 million (A$403 million) implying a value for FNP’s 18.04% investment of around A$73 million, materially above the book value of A$9.9 million. The Company equity accounted profit of $0.8 million. This reflects it’s share of estimated year end profits from A2C, and it’s share of profits from 2012 not previously recognised. Capital Management The Company’s Net Debt / Equity ratio at the year end was 10%, compared to 82% as at 30 June 2012, reflecting the sell down of the A2C shareholding, exercise of options by shareholders and capital raising in April 2013. Net cashflow from operations during the period increased to $5.9m, compared to $5.4m in the previous corresponding period, reflecting consolidation of Pactum Australia. Capital expenditure of $5.9 million comprised, operating capital expenditure, the balance of the Pactum packaging expansion and initial commitments to expansion at Freedom’s Leeton facility. The Company completed a capital raising of $17.4 million (gross proceeds) from a placement and entitlements offer in April 2013. The capital raising was significantly oversubscribed with strong demand from a broad range of high quality institutional investors and existing shareholders. The proceeds of the Placement and Entitlement Offer are being utilised to fund the Company’s growth strategy including acceleration of capital projects within Freedom Foods and Pactum Australia, new product initiatives, acceleration and expansion of international sales activities and additional working capital requirements. The Company had $10.5 million of debtor finance facilities classified under accounting standards as current debt. The debtor finance facilities form part of the Company’s financing facilities which are part of a rolling annual review. 11 Freedom Foods Group LimitedFor personal use onlyManaging Director’s Review of Operations (continued...) The Company intends to maintain a conservative gearing with net debt to equity not to exceed 50%. The Company completed a buy-back of all unmarketable parcels of shares in the Company in April 2013. The buyback resulted in 42,930 shares being held by 209 shareholders being bought back and cancelled by the Company for a consideration of $40k. The Company has on issue approximately 5.2m convertible redeemable preference shares (CRPS), which are convertible 1 for 1 into ordinary shares at election of the holder at any time. The Company has a buy back option from December 2013, which it intends to proceed with for any CRPS not converted into ordinary shares prior to this date. Dividends Consistent with the continued improvement in group performance, the Company will pay a final fully franked dividend for FY 2013 of $0.01 per ordinary share, consistent with the interim dividend paid in April 2013. The dividend will be paid in November 2013. The record date for determining entitlements is 1 October 2013 and the payment date is 1 November 2013. Ordinary share dividend growth will be in line with the improving financial returns of the Company. The Company will pay a fully franked converting preference share dividend to be paid in accordance with the terms of the converting preference shares in early November 2013. The record date for determining entitlements is 1 October 2013 and the payment date is 1 November 2013. The total dividend for the year represents a dividend payout ratio of 39% of operating net profit in FY 2013, which includes the dividends paid out on the preference shares. Outlook The Company has continued the positive trend in the development of its unique business platforms in specialised areas of the food market, with two key growth opportunities in Freedom Foods and Pactum Australia, a stable business base in Specialty Seafood and a strategic opportunity in A2C. Freedom Foods is expected to continue to deliver improved results from growth in existing distribution channels and international markets, aligned with increasing manufacturing efficiencies at its Leeton facility. The expansion of packaging capabilities in Pactum will result in an increase in sales and profitability in FY 2014, with further growth opportunities through meeting the increasing demands of its private label and proprietary customer base. The investment in Pactum Dairy Group provides a potential medium term opportunity to increase exposure to the growing demand for high quality and safe dairy products from South East Asia, including China. The strategic investment in A2C provides the Company and its shareholders a potentially significant value creation opportunity through A2C’s growth in Australia and international markets. Overall the Company anticipates growth in sales, operating profitability and improving return on funds employed in FY 2014. Rory J F Macleod Managing Director Freedom Foods Group Limited +612 9526 2555 12 Annual Report 2013For personal use onlyn Directors’ Report Your Directors submit the financial report of Freedom Foods Group Limited (the Company) for the year ended 30 June 2013. 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 Company during or since the end of the financial year, refer to the Corporate Governance Statement. Company Secretary Mr Rory J F Macleod held the position of Company Secretary during and at the end of the financial year. He has been with the Company for over 10 years and is the Managing Director. Sharon Maguire is the Assistant Company Secretary. Principal activities The principal activities of the consolidated entity during the financial year were: • manufacture, distribution and marketing of allergen free cereals, nutritional snacks and biscuits; • manufacture and distribution of long life beverages; • • distribution and marketing of canned seafood; investment in branded dairy milk manufacture, marketing and distribution activities. 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 Company, after providing for income tax, amounted to $13,722,000 (2012 profit: $3,012,000). Refer to the commentary in the Managing Directors Review of Operations. Dividends paid or recommended In respect of the financial year ended 30 June 2013, the Directors are recommending that a final ordinary dividend of 1 cent per share be paid at the beginning of November 2013 and a converting preference share (CRPS) dividend of 1.4 cents per CRPS to be paid at the begining of November 2013. Significant changes in state of affairs There are no significant changes in the state of affairs for the current financial year. Subsequent Events Apart from items disclosed in Note 27, there are no further subsequent events. Future developments In future financial years, the consolidated entity expects to further its growth through expansions to other territories, and forming strategic alliances and partnerships. Directors’ Report 13 Freedom Foods Group LimitedFor personal use onlyDirectors’ Report (continued...) 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. The consolidated entity is currently operating in accordance with local council consent in regard to hours of operation. Indemnification of officers and auditors The Company has not, during or since the financial year, in respect of any person who is or has been an officer or auditor of the Company 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 Company 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 Company. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Rounding off of amounts The Company 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 13 meetings of Directors (including committees) were held. The following persons acted as Directors of the company during the financial year, with attendances to meetings of Directors as follows: Directors Meeting Remuneration & nomination committee meetings Audit, risk & compliance committee meetings Eligible to attend Attended Eligible to attend Attended Eligible to attend Attended 1 1 - 1 - - - 10 10 10 10 10 10 10 10 9 9 9 10 10 8 - 2 - 2 2 2 - - 2 - 2 2 2 - 1 1 - 1 - - - P.R. Gunner G.H. Babidge A.M. Perich R. Perich M. Miles R.J.F. Macleod M.R. Perich (alternate director) 14 Annual Report 2013For personal use onlyRemuneration report - audited This report details the nature and amount of remuneration for each Director and the Executives. Directors’ Report (continued...) Key management personnel include: P.R. Gunner - Chairman and Non-Executive Director R.J.F. Macleod - Managing Director G.H. Babidge - Non Executive Director A.M. Perich - Non-Executive Director R. Perich - Non-Executive Director M. Miles - Non-Executive Director M. Bracka - CEO, Freedom Foods North America A. Haddad - CEO, Pactum Australia M. Gauci - Operations Manager, Pactum Australia P. Brown - General Manager, Sales, Freedom Brands T. Moses - General Manager, Leeton Operations Remuneration policy Remuneration arrangements for key management personnel of the Company 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. Managing Director and Executives Fixed remuneration consists of base remuneration (which is calculated on a total cost basis and includes any FBT charges related to employee benefits including motor vehicles), as well as employer contributions to superannuation funds. The Managing 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. These can take the form of share options or cash bonuses. During the year, cash bonuses were paid to A Haddad (Pactum Australia) and M Gauci (Pactum Australia) relating to FY 2012 performance and 600,000 options at 60 cents per option exercise price were granted to RJF Macleod, M Bracka and A Haddad under the Company’s Employee Share Option Plan (ESOP). 15 Freedom Foods Group LimitedFor personal use onlyDirectors’ Report (continued...) The ESOP allows the Company to grant options over shares to all directors (excluding Ron and Tony Perich) and permanent full time or part time employees, or their respective nominees, of a company in the group (Group Companies), which includes related bodies corporate of the Company and a body corporate in which the Company has voting power of 20% or more, whom the Board determines to be eligible to participate. The Board believes that Options granted are appropriate to aligning key executive performance with long term performance and growth of the Company. Options are valued using the binomial method. Non-Executive Directors The maximum aggregate amount of fees that can be paid to Non-Executive Directors is subject to approval by shareholders at an Annual or Extraordinary General Meeting. Total fees for all Non-Executive Directors, last voted upon by shareholders was in June 2013, was not to exceed $500,000 in total. Total fees paid to Non-Executive Directors for 2013 was $223,179 (2012: $195,343). To align director interests with shareholder interests, the Directors are encouraged to hold shares in the Company. The Chairman receives approximately twice the base fee of Non-Executive Directors. Non-Executive Directors do not receive performance related remuneration. Directors’ fees cover all main Board activities including Committee Fees. There are no termination or retirement benefits for Non- Executive Directors. Service agreements Neither the Managing Director or any other Executive has a fixed term contract. All senior executive management are employed under contract. The agreements outline the components of the remuneration paid to executives including annual review. The agreements do not obligate the business to increase fixed remuneration, pay a short term incentive, make termination benefits or offer a long term incentive in any given year. The Company may terminate the contract at any time without notice if serious misconduct has occurred. Where termination with cause occurs, the executive is only entitled to that portion of remuneration that is fixed, and only up to the date of termination. The agreements may be terminated by written notice from either party or by the employing entity within the Group making a payment in lieu of notice. The notice periods are 9 months for the Managing Director, 6 months for CEO Pactum Australia and 12 months for CEO Freedom Foods North America. Other notice periods for other executives are between 1 and 2 months. Company performance, shareholder wealth and directors and senior management remuneration The remuneration policy of the company and group is at the discretion of the Remuneration and Nomination Committee. These can take the form of share options or cash bonuses. 16 Annual Report 2013For personal use onlyDirectors’ Report (continued...) 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 After Tax ($000s) Ordinary Dividends Per Share (cents) CRPS Dividends Per Share (cents) Basic Earnings per Share (cents) 2013 88,831 13,722 2.00 2.80 14.7 2012 58,132 3,012 0.50 3.40 3.9 2011 45,256 4,387 0.50 1.00 5.7 2010 44,071 3,357 - - 5.0 2009 48,596 1,320 1.00 - 2.4 The Remuneration and Nomination Committee considers that the Company’s remuneration structure is appropriate to building shareholder value in the medium term. Directors and executive officers emoluments The benefits of each Director who held office and other key management personnel for the year ended 30 June 2013 are as follows: 2013 Directors P.R. Gunner R.J.F. Macleod (1) G.H. Babidge A.M. Perich R. Perich M. Miles Executive Officers M. Bracka (CEO, Freedom Foods North America) A. Haddad (2) (CEO, Pactum Australia) P. Brown (General Manager, Sales) T. Moses (General Manager, Leeton Operations) M. Gauci (2) (Operations Manager) Salary $ - 350,460 - - - - 317,493 276,226 173,570 145,414 149,020 68,250 - 34,667 35,425 36,779 34,667 - - - - - 1,412,183 209,788 Short-term employee benefits Post employ- ment benefits Share based payments % of total being Directors' Fees $ Committee Fees $ Non-cash Benefits $ Superannuation Contributions $ Other $ - - - - - - - 62,000 - - 25,000 87,000 - - - - - - - - - - - - - - - - - - - - - - - - Options Total Options $ - $ 74,393 151,605 517,739 - - - - 37,787 35,425 37,787 37,787 - 29% - - - - 6,143 15,674 3,120 - 1,008 3,120 17,046 122,628 457,167 27% 25,106 108,139 471,471 23% 15,124 15,242 14,336 - - - 188,694 160,656 188,356 - - - 115,919 382,372 2,207,262 17% (1) RJF Macleod remuneration included pay out of accrued leave during the financial year (2) Other is a bonus for performance relating to FY2012 17 Freedom Foods Group LimitedFor personal use onlyShort-term employee benefits Post employ- ment benefits Share based payments % of total being Non-cash Benefits $ Superannuation Contributions $ Directors’ Report (continued...) 2012 Directors P.R. Gunner R.J.F. Macleod G.H. Babidge A.M. Perich R. Perich M. Miles Executive Officers M. Bracka (CEO, Freedom Brands) A. Haddad (1) (CEO, Pactum Australia) P. Brown (General Manager, Sales) T. Moses (2) (General Manager, Leeton Operations) M. Gauci (3) (Operations Manager) Salary $ - 259,800 - - - - 309,800 59,150 164,220 43,366 33,935 Directors' Fees $ Committee Fees $ 61,000 - 20,333 31,700 30,000 30,000 - - - - - 2,000 - 1,000 1,000 2,000 2,000 - - - - - Other $ - - - - - - - 59,000 - - 31,200 870,271 173,033 8,000 90,200 - - - - - - - - - - - - Options Total Options $ - $ 68,670 76,088 351,663 - - - - 24,213 32,700 34,880 34,880 - 22% - - - - 5,670 15,775 2,880 - 2,880 2,880 15,775 60,870 386,445 16% 5,066 53,261 179,477 30% 14,780 4,681 3,800 - - - 179,000 48,047 68,935 - - - 74,187 190,219 1,405,910 14% (1) Salary is for the period from 1 April 2012 to 30 June 2012 during which Pactum was a subsidiary of the Group. Other is a bonus relating to FY2011. (2) Commenced 12 March 2012. (3) Salary is for the period from 1 April 2012 to 30 June 2012 during which Pactum was a subsidiary of the Group. Other is a bonus relating to FY2011. 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. Bonus payments as compensation for the current financial year Bonus payments are payable to Group employees with respect to the financial year ended 30 June 2013. Employee share options During the financial year share options have been granted to key management personnel of the Company and consolidated entity as part of their remuneration. Details of unissued shares or interests under option granted to key management pesonnel as at the date of this report are: 18 Annual Report 2013For personal use onlyDirectors’ Report (continued...) Issuing entity Freedom Foods Group Limited (i) Freedom Foods Group Limited (ii) Number of shares under option 6,250,000 2,200,000 Class of shares Ordinary Ordinary Exercise price of options $0.40 $0.60 Expiry date of options 2 February 2017 30 August 2017 Grant date (i) Issued 2 February 2012 (i) Issued 30 August 2012 Recipients (i) Issued 2 February 2012 Issued 2 February 2012 Issued 2 February 2012 Issued 30 August 2012 Issued 30 August 2012 Name R.J.F. Macleod M. Bracka A. Haddad R.J.F. Macleod Senior Employees Number 2,500,000 2,000,000 1,750,000 200,000 2,000,000 Fair Value ($) 305,000 244,000 213,500 13,200 132,000 Fair value at grant $0.122 $0.066 Conditions Employment Employment Employment Employment Employment There are no further performance criteria that need to be met in relation to options granted. Options vest over a period of either 3 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. Directors’ shareholding Refer to Principle 2 “Structure of the Board to add value” in the Corporate Governance Statement. Non-audit services During the year Deloitte Touche Tohmatsu, 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 Company 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. 19 Freedom Foods Group LimitedFor personal use onlyDirectors’ Report (continued...) Details of the amounts paid/payable to the auditor of the consolidated entity, Deloitte Touche Tohmatsu for audit and non-audit services provided during the year are set out below: Audit Services Auditors of the Company - Deloitte Touche Tohmatsu - audit and review of financial reports - taxation advice - research and development advice Consolidated 2013 $ 219,810 125,429 59,872 405,111 2012 $ 209,010 72,937 34,504 316,451 The directors are satisfied that the provision of non-audit services, during the year, by the auditor (or by another person or firm on the auditor’s behalf ) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. s.300(11B)(c) The directors are of the opinion that the services as disclosed in note 8 to the financial statements do not compromise the external auditor’s independence, based on advice received from the Audit Committee, for the following reasons: • • all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and none of the services undermine the general principles relating to auditor independence as set out in APES 110 ‘Code of Ethics for Professional Accountants’ 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. Auditor’s independence declaration A copy of the auditor’s independence declaration as required under Section 307C of the Corporations Act follows the Directors’ Report. Proceedings on behalf of Company No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all of those proceedings. Signed in accordance with a resolution of the Board of Directors made pursuant to s.298(2) of the Corporations Act 2001. On behalf of the Directors Perry Gunner Chairman Dated at Sydney 30 September 2013 Rory J F Macleod Managing Director 20 Annual Report 2013For personal use only Lead Auditor’s Independence Declaration n Lead Auditor’s Independence Declaration Deloitte Touche Tohmatsu ABN 74 490 121 060 Eclipse Tower 60 Station Street Parramatta NSW 2150 PO Box 38 Parramatta NSW 2124 Australia DX 28485 Tel: +61 (0) 2 9840 7000 Fax: +61 (0) 2 9840 7001 www.deloitte.com.au The Board of Directors Freedom Foods Group Limited 80 Box Road TAREN POINT NSW 2229 Dear Board Members Freedom Foods Group 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 Foods Group Limited. As lead audit partner for the audit of the financial statements of Freedom Foods Group Limited for the financial year ended 30 June 2013, 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 Catherine Hill Partner Chartered Accountants Sydney, 30 September 2013 Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited 21 Freedom Foods Group LimitedFor personal use onlyCorporate Governance Statement n Corporate Governance Statement Freedom Foods Group Limited (the Company) 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 is 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 available by contacting the Company on +612 9526 2555 whilst the corporate website is under construction. Principle 1 Lay solid foundations for management and oversight by the Board The Board’s responsibilities are encompassed in a Charter which is available by contacting the Company on +612 9526 2555 whilst the corporate website is under construction. 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) oversight of the Company, including its control and accountability systems; Key responsibilities of the Board include the overseeing of the strategic direction of the Company, determining its policies and objectives and monitoring executive 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: (2) appointing and removing the Managing Director (1) Audit, Risk and Compliance Committee; and (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 Managing Director and remuneration policy and succession plans for the Managing Director; (3) ratifying the appointment and, where appropriate, the removal of the CFO (or equivalent) and the Company Secretary; (4) reviewing and determining the strategic direction and policies of the Company, the allocation of resources, planning for the future and succession planning; (5) reviewing and ratifying systems of risk management and internal compliance and control, codes of conduct and legal compliance; (6) monitoring executive management performance and implementation of strategy and ensuring appropriate resources are available; (7) approving and monitoring the progress of major capital expenditure, capital management and acquisitions and divestitures; (8) continuously monitoring and overseeing the Company’s financial position; and (9) approving and monitoring financial and other reporting. (2) Remuneration and Nomination Committee. 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 Company and Consolidated entities. The Statement of Delegated Authority is available by contacting the Company on +612 9526 2555 whilst the corporate website is under construction. The Managing Director and Senior Executive management have service contracts and position descriptions, setting out their duties, responsibilities, and conditions of service termination entitlements. Any new Directors and appointed will receive formal letters of appointment setting out the key terms, conditions and expectations of their appointment. The Managing Director and Senior Executive management are subject to a formal performance review process on an annual basis. The Remuneration and Nomination Committee reviews the performance of the Managing Director and Senior Executive management 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 was undertaken in August 2012 in accordance with the process disclosed. 22 Annual Report 2013For personal use onlyCorporate Governance Statement (continued...) Principle 2 Structure of the Board to add value The Board determines the Board’s size and composition, subject to limits imposed by the Company’s Constitution. The Constitution provides for a minimum of three Directors and a maximum of ten. At this time the Board comprises of six Directors (excluding alternate Director), three 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) has not been employed in an executive capacity in the Company in the last three years; (3) has not acted as a material consultant to the Company in the last three years; (4) is not a material supplier or customer of the Company; (5) has no material contractual relationship with the Company; (6) 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 (7) is free from any interest which could materially interfere with his or her ability to act in the best interests of the Company. Mr P.R. Gunner Chairman (Non-Executive), Age 66. Appointed in April 2003, Director 10 years. B.Ag.Sc - is former Chairman and CEO of Orlando Wyndham Wine Group, a current Director of A2 Corporation, Deputy Chairman of Viterra Inc and Director of Australian Vintage Ltd. Appointed Chairman in July 2006. Chairman of the Remuneration & Nomination Committee. Interest in shares and options are 526,009 ordinary shares, 159,604 convertible redeemable preference shares and 159,604 $0.40 options over ordinary shares. Measured against the independence criteria adopted by the Company, Mr Gunner is considered an independent Director. Mr R.J.F. Macleod Managing Director Age 45. Appointed Director in May 2008, Director 5 years. B.Econ (Hons) - currently Managing Director and director of all Group entities. Mr Macleod has been with the group for the past 10 years responsible for strategic and corporate development and finance and administration. 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. The test of independence for Directors is set out in detail under section 4 of the Board Charter, which is available by contacting the Company on +612 9526 2555 whilst the corporate website is under construction. Materiality thresholds referred to above are assessed on a case-by- case basis. Interest in shares and options are 193,792 ordinary shares, 6,666 $0.40 options over ordinary shares and 2,700,000 options (2,500,000 exercisable at $0.40 and 200,000 exercisable at $0.60) under the group employee share option scheme. Mr Macleod, being Managing Director of the Company, is not considered independent. Whilst the Board is not structured with a majority of independent directors in terms of the ASX Corporate Governance Council’s discussion of independent status, the Board believes that the Directors are able, and do make, quality and independent judgement in the best interests of the Company on all relevant issues before the Board. The Board considers that the Company is not currently of a size, nor are its affairs of such complexity to justify the expense of the appointment of a majority of independent Directors. The Board aims to attract and maintain a Board which has an appropriate mix of skills, experience, expertise and diversity. The names and particulars of the Directors of the Company during or since the end of the financial year are: Mr G.H. Babidge Non Executive Director, Age 60. Appointed Director in January 2002 and resigned in June 2013, Director 11 years. B.Comm., ACA – extensive public company experience within the food industry. Currently Managing Director of A2 Corporation Limited. Former Managing Director of Freedom Foods Group Limited, former CEO of the major milling and baking group, Bunge Defiance and many years Managing Director of the dairy interests of National Foods Limited. Interest in shares and options are 100,391 ordinary shares, 30,643 convertible redeemable preference shares, 30,643 $0.40 options over ordinary shares. 23 Freedom Foods Group LimitedFor personal use onlyCorporate Governance Statement (continued...) Mr A.M. Perich Director (Non-Executive), Age 72. Appointed Director in July 2006, Director 7 years. Member of the Order of Australia - 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, farmer and business entrepreneur. Outside of the Perich Group Mr. A.M. Perich holds a number of other directorships which include, Greenfields Narellan Holdings, East Coast Woodshavings Pty Limited, Breeders Choice Woodshavings Pty Limited, Austral Malaysian Mining Limited, Pulai Mining Sdn Bhd (Malaysia) and 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. Inghams Health Research Interest in shares and options are 69,225,112 ordinary shares and 15,995,142 convertible redeemable preference shares. Being a substantial shareholder of the Company, Mr. A.M. Perich is not considered an independent Director. Mr R. Perich Director (Non-Executive), Age 70. Appointed Director in April 2005, Director 8 years. 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, farmer and business entrepreneur. Former Director of United Dairies Limited. Member of the Audit, Risk & Compliance Committee and member of the Remuneration & Nomination Committee. Interest in shares and options are 69,225,112 ordinary shares and 15,995,142 convertible redeemable preference shares. Being a substantial shareholder of the Company, Mr. R. Perich is not considered an independent Director Mr M. Miles Director (Non-Executive), Age 64. Appointed Director in November 2006, Director 6 years. 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, current Director of A2C and Brewtique Pty Limited and former Chairman of South Pacific Distilleries, Fiji. Member of the Strategic Planning Committee of the Institute of Brewing and Distilling Asia Pacific. Member of the Remuneration and Nomination Committee and the Audit, Risk & Compliance Committee. against the independence criteria adopted by the Company, Mr. Miles is considered an independent director. Mr T.J. Allen Director (Non-Executive), Age 57. Appointed Director July 2013. B Comm (Hons), CA, FF, MAICD – former partner of KPMG and the National Head of its Mergers and Acquisitions business. With over thirty years experience in the corporate advisory sector including senior positions at SBC Warburg (now part of UBS), Baring Brothers and KPMG. He is a non-executive director of Peet Limited, where he chairs its Remuneration Committee, a non-executive director and honorary treasurer of the Juvenile Diabetes Research Foundation and an executive director of ICS Advisory Limited, a boutique corporate advisory firm. He is Chairman of the Audit Risk & Compliance Committee. Interest in shares are 16,000 ordinary shares. Measured against the independence criteria adopted by the Company, Mr. Allen is considered an independent director. Mr M.R. Perich Alternate Director (Non-Executive), Age 38. Appointed Alternate Director for A.M Perich and R. Perich in March 2009, Director 4 years. 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 Company and Arrovest, Director of Australian Dairy Conference and Dairy NSW, Vice President of Dairy Research Foundation and Graduate Member of the Australian Institute of Company Directors post nominals. Interest in shares and options are 69,225,112 ordinary shares and 15,995,142 convertible redeemable preference shares. Being a substantial shareholder of the Company, Mr. M. Perich is not considered an independent Director. In order to facilitate independent judgement in decision making, each Director may seek independent professional advice at the Company’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 unreasonable withheld. If the Chairman refuses to give approval, the matter must be referred to the Board. All Directors are made aware of the professional advice sought and obtained. There is a clear division of responsibility between the Chairman and Managing Director. Interest in shares and options are 222,413 ordinary shares, 64,584 convertible redeemable preference shares and 64,584 $0.40 options over ordinary shares. Measured The Remuneration and Nomination Committee of the Board comprises of three Non-Executive Directors-Messrs. P.R Gunner, R. Perich and G.H Babidge, up until his 24 Annual Report 2013For personal use onlyresignation in June 2013 when he was replaced on the committee by T Allen. Two out of three committee members are independent. Mr Gunner, who is an independent Director, is the Committee Chairman. The Committee Charter which is available by contacting the Company on +612 9526 2555 whilst the corporate website is under construction, details 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 Company 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 a Managing Director) 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 Remuneration and Nomination Committee is responsible for ensuring that the Board is of a size and composition that allows for: (1) decisions to be made expediently; (2) a range of different perspectives to be put forward regarding issues before the Board; (3) a range of different skills to be brought to Board deliberations; and (4) Board decisions to be made in the best interests of the Company 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 Managing Director, Senior Executives 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. The Remuneration and Nomination Committee responsible for the: is (1) evaluation and review of the performance of the Board (excluding the Chairman); (2) evaluation and review of the performance of individual Directors; Corporate Governance Statement (continued...) (3) (4) review of and making of recommendations on the size and structure of the Board; and review of the effectiveness and programme of Board meetings. A review of the performance of the individual Directors occurs each year. The Board undertook an evaluation of itself and its committees in June 2013, with all Directors providing input as to the effectiveness of the board processes, meetings, composition and reporting with Directors having an opportunity to discuss and comment on such matters with the Chairman. The Board reviews its performance and composition on an annual basis to ensure that it has the appropriate mix of expertise and experience. The Board also reviews the performance and composition of its committees on an annual basis. The Remuneration and Nomination 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. Subject to normal privacy requirements, each Director has the right of access to all of the Company’s records, information and senior Executives. They receive regular detailed reports on financial and operational aspects of the Company’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 Company’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 P.R. Gunner G.H. Babidge (up until resignation in June 2013) A.M. Perich R. Perich M. Miles R.J.F. Macleod T.J. Allen (from appointment in July 2013) Remuneration and Nomination Committee 3 Audit Risk and Compliance Committee - 3 - 3 - - 3 3 - 3 3 - 3 25 Freedom Foods Group LimitedFor personal use onlyCorporate Governance Statement (continued...) 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 its ethical standards, the employees. Company will: In maintaining (1) behave with integrity in all its dealings with Executives to deal in the Company’s securities other than the following: a. from 1 month prior to the release of the annual or half yearly accounts; b. within the period of 1 month prior to the issue of a prospectus; c. where there is price sensitive information that has not been disclosed because of an ASX Listing Rule exemption; and customers, shareholders, employees, suppliers, business partners and the community; d. (2) ensure its actions comply with applicable laws and regulations; (3) not engage in any activity that could be construed to involve an improper inducement; (4) achieve a working environment where: any additional period arising from time to time that the Board imposes a prohibition on trading by Key Management Personnel as an ‘ad-hoc’ prohibition on trading of Securities. Further details of the policies are available by contacting the Company on +612 9526 2555 whilst the corporate website is under construction. (i) equal opportunity is rigorously practised; Diversity Policy (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 Company are committed to implementing this Code of Ethics and each is accountable for such compliance. A copy of the Code is made available to Directors, employees, contractors and relevant personnel and is available by contacting the Company on +612 9526 2555 whilst the corporate website is under construction. individual implementing for Senior Executive management establishing, 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. responsible reviewing is and The Board has implemented a range of procedures designed to oversee that the Company 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 Company’s Securities Trading Policies for Directors and Senior Executives generally allow Directors and Senior 26 In accordance with the ASX Corporate Governance Recommendations on diversity, the Board established a Diversity Policy in the 2012 financial year which includes: a. b. a requirement that the Board establish measurable objectives for achieving gender diversity; and a requirement for the Board to assess annually both the gender objectives and the progress in achieving them. This policy once adopted will be available by contacting the Company on +612 9526 2555 whilst the corporate website is under construction and assessments will be reported in the annual report. The Company acknowledges the positive outcome that can be achieved through a diverse workforce and is committed to actively managing diversity as a means of enhancing the Company’s performance. The Board will establish measurable objectives for achieving gender diversity in the upcoming financial year and will report on the progress in achieving them in the following year’s annual report. As at 30 June 2013, the proportion of women employed by the Company was as follows: - - - Board of Directors: 0% Senior Executive positions: 0% Total Company workforce: 36% Workplace Gender Equality The Workplace Gender Equality Act 2012 (WGE Act) puts a focus on promoting and improving gender equality and outcomes for both women and men in the workplace. All non-public sector employers with 100 or more employees are required to report annually under the WGE Act. Annual Report 2013For personal use onlyThe Company has submitted its 2013 report to the Workplace Gender Equality Agency. A copy of this report is available by contacting the Company on +612 9526 2555 whilst the corporate website is under construction. 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 T Allen (Chairman), Mr R Perich and Mr M Miles. Mr G H Babidge resigned from the Committee in June 2013 when he was replaced on the committee by Mr T Allen. Up until June 2013, one out of the three Committee members were independent. The Chairman of the Committee is an independent Director and is not Chairman of the Board. The Managing Director, other senior management and the 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. The Audit, Risk and Compliance Committee is responsible for: (1) reviewing and reporting to the Board on the half yearly and annual reports and financial statements of the Company and consolidated entities; (2) nominating the external auditor and reviewing the adequacy, scope and quality of the annual statutory audit and half yearly statutory review; (3) reviewing the effectiveness of the Company’s internal control systems; (4) monitoring and reviewing the reliability of financial reporting; (5) monitoring and reviewing the compliance of the Company with applicable laws and regulations; (6) monitoring the Australian Accounting Standards and Interpretations; (7) monitoring financial risks and exposure of the Company’s assets; (8) monitoring the risk management policy and plans; (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 Corporate Governance Statement (continued...) (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 available by contacting the Company on +612 9526 2555 whilst the corporate website is under construction. 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 Company and an ability to maintain independence throughout the engagement period. The external auditors have advised, after consultation with the Company, 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 Company such as experience in the industry in which the Company operates, references, costs, and any other matters deemed relevant by the Board. Principle 5 Make timely and balanced disclosure The purpose of the Continuous Disclosure Policy is to ensure that there are mechanisms in place to provide all investors with equal and timely access to material information concerning the Company. 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 Company meets its continuous disclosure obligations under the ASX Listing Rules and is available by contacting the Company on +612 9526 2555 whilst the corporate website is under construction. 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 Company securities must be disclosed. Examples of such information include a change in revenue, asset values or significant transactions. Directors receive copies of all announcements immediately after notification to the ASX. All announcements are posted to the Company’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. 27 Freedom Foods Group LimitedFor personal use onlyCorporate Governance Statement (continued...) Disclosure Officer Principle 7 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 Managing Director and Chairman (as required) decides what information must be disclosed. The Disclosure Officer holds the primary responsibility for ensuring that the Company 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 Company’s performance, financial results are accompanied by commentary. Principle 6 Respect the rights of shareholders The Company aims to keep shareholders informed of the Company’s performance in an ongoing manner. Apart from information provided pursuant to the Company’s legal and ASX Listing Rules obligations regarding continuous disclosure of information, the Company also communicates with shareholders through the: (1) Annual Report which is available to all shareholders. The Annual Report includes relevant information about the Company’s operations and performance; (2) invitation to the annual general meeting and all accompanying papers; (3) by contacting the Company on +612 9526 2555 whilst the corporate website is under construction; (4) reports to the ASX and the press; (5) half year and full year 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 Company 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. In accordance with Principle 6 of the ASX Principles, the Company will establish a Communications with Shareholder Policy, incorporating matters disclosed above. The policy once adopted will be available by contacting the Company on +612 9526 2555 whilst the corporate website is under construction. 28 Recognise and manage risk Risk oversight and management policies The Company’s Risk Management Policy is available by contacting the Company on +612 9526 2555 whilst the corporate website is under construction. 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 Company’s: (i) risk management system; and (ii) risk profile that describes the material risks (including financial and non-financial risks) (2) reviewing the effectiveness of the Company’s implementation of the risk management system at least once a year; (3) regularly reviewing and updating the Company’s risk profile; and (4) 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 Company’s internal compliance and control systems. Executive management provide the Committee and Board with regular reports on operational, financial, regulatory and commercial matters within their business divisions. This ensures Management accountability. Executive management is responsible for designing and implementing a risk management and internal control system to manage the Company’s material business risks. Executive 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, Executive 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 Company, there is no separate internal audit function. Annual Report 2013For personal use onlyExecutive Management Assurances As part of the structure of financial review and authorisation, the Managing Director and Senior Executive management are required to provide written assurances that the financial reports present a true and fair view of the Company’s and consolidated entity’s 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 Managing Director and Senior Executive management assurances to the Board. The Board received the written assurances with respect to the 2012 financial year. 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 Executives of the Company. 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; the Company’s recruitment, retention and termination policies and procedures for executives; incentive schemes; superannuation arrangements; and the remuneration framework for Directors. (2) (3) (4) (5) 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 Executive management group including Executive and Employee Share Option Plan participation; the remuneration packages and other terms and conditions of appointment and continuing employment of senior Executives; and reviewing Non-Executive Directors’ remuneration within the maximum amount approved by shareholders. (2) (3) Corporate Governance Statement (continued...) 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) conditions of service and remuneration of Executive management and their direct reports; (2) performance of the Executive management; (3) ensure that the remuneration policy achieves both a level and composition of remuneration that is both competitive and reasonable. Remuneration policies are designed to attract and maintain talented and motivated Directors and employees as well as raising the level of performance of the Company; and (4) recommendation to the Board, which has the discretion to reward eligible employees with the payment of bonuses, share options and other incentive payments. These incentive payments are designed to link reward to performance and are determined by both financial and non-financial imperatives. Executive management attend meetings of the Remuneration and Nomination Committee by invitation report on, and discuss, senior when management performance, remuneration matters, etc. required to 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 the Managing Director is different. As explained in the Remuneration Report, the Managing Director 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 Company, but to the personnel’s employment. The Securities Trading Policy for Directors and Senior 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 Company. 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. In accordance with the securities trading policy, Senior Executives and Directors are prohibited from entering into limit the transactions economic risk of participating in unvested entitlements under any equity based remuneration schemes offered by the Company. in associated products which 29 Freedom Foods Group LimitedFor personal use onlyConsolidated Statement of Profit and Loss and Other Comprehensive Income n Consolidated Statement of Profit and Loss and Other Comprehensive Income For the financial year ended 30 June 2013 Notes Consolidated $000 5 5 6 35 7 9 9 2013 88,922 (60,522) 28,400 108 (2,433) (10,157) (5,072) (2,628) (2,356) 11,843 - 819 18,524 (4,802) 13,722 - 13,722 13,722 - 13,722 13,722 - 13,722 14.73 11.96 1.00 1.40 1.00 1.35 2012 58,137 (40,549) 17,588 468 (2,419) (6,746) (3,670) (1,372) (1,813) - 564 650 3,250 (238) 3,012 - 3,012 3,012 - 3,012 3,012 - 3,012 3.88 3.11 0.50 2.00 - 1.40 Revenue from sale of goods Cost of sales Gross profit Other income Marketing expenses Selling and distribution expenses Administrative expenses Depreciation Finance costs Profit on sale of A2C shares Share of profit of joint ventures accounted for using the equity method Share of profit of associates accounted for using the equity method Profit before tax Income tax expense Profit for the year Other comprehensive income Total comprehensive income for the year Profit attributable to: Owners of the company Non-controlling interests Total comprehensive income attributable to: Owners of the company Non-controlling interests Earnings per share From continuing operations: Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Ordinary Dividends per share paid - Final 2012 (cents per share) CRPS Dividends per share paid - Final 2012 (cents per share) Ordinary Dividends per share paid - Interim 2013 (cents per share) CRPS Dividends per share paid - Interim 2013 (cents per share) Notes to the financial statements are included on pages 34 to 78. 30 Annual Report 2013For personal use onlyConsolidated Statement of Financial Position n Consolidated Statement of Financial Position For the financial year ended 30 June 2013 ASSETS Current assets Cash and cash equivalents Trade and other receivables Other financial assets Inventories Prepayments Total Current Assets Non-current assets Investments in associates 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 Loans payable to related parties Other liabilities Provisions Total current liabilities Non-current liabilities Trade and other payables Borrowings Provisions Total non-current liabilities TOTAl lIABIlITIES NET ASSETS EquITY Capital and Reserves Equity attributable to owners of the company Issued capital Reserves Retained earnings TOTAl EquITY Notes to the financial statements are included on pages 34 to 78. Notes 22(a) 10 11 12 11 7 14 13 13 15 16 7 16 15 17 15 16 17 18 19 20 Consolidated $000 2013 2012 14,106 19,076 148 14,886 918 49,134 9,909 1,146 45,162 5,214 16,274 77,705 126,839 15,847 14,282 4,375 - 472 1,217 36,193 63 8,066 122 8,251 44,444 82,395 62,978 (3,549) 22,966 82,395 767 17,746 81 13,144 644 32,382 12,357 2,035 35,619 5,214 16,274 71,499 103,881 14,773 19,001 816 8,064 423 902 43,979 73 12,395 164 12,632 56,611 47,270 39,508 (3,901) 11,663 47,270 31 Freedom Foods Group LimitedFor personal use onlyConsolidated Statement of Cash Flows n Consolidated Statement of Cash Flows For the financial year ended 30 June 2013 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Cash generated from operations Interest paid Income tax paid Receipt of government grants Net cash generated by operating activities Cash flows from investing activities Proceeds from disposal of property, plant and equipment Payment for property, plant and equipment Purchase of shares in associated entity Proceeds from sale of shares in associated entity Net cash inflow on acquisition of subsidiary Advance to Joint Venture Net cash provided by/(used in) investing activities Cash flows from financing activities Proceeds from issue of equity instruments of the company Payment of share issue costs Dividends paid Proceeds from borrowings Repayment of borrowings Repayment of related party loan Proceeds from related parties Net cash provided by financing activities Cash and cash equivalents at beginning of financial year Net increase in cash and cash equivalents Cash and cash equivalents at end of financial year Notes to the financial statements are included on pages 34 to 78. 32 Notes Consolidated $000 2013 2012 87,480 (81,605) 5,875 (1,979) (353) 115 3,658 - (10,193) (20) 15,277 - - 5,064 24,109 (722) (2,327) 4,201 (12,257) (8,387) - 4,617 767 13,339 14,106 55,926 (50,495) 5,431 (1,808) (119) 182 3,686 18 (5,144) (2,064) - 168 (1,438) (8,460) 211 (6) (1,020) 7,511 (3,401) - 2,064 5,359 585 182 767 22(b) 22(a) Annual Report 2013For personal use onlyConsolidated Statement of Changes in Equity n Consolidated Statement of Changes in Equity For the financial year ended 30 June 2013 ATTRIBuTABlE TO EquITY hOlDERS OF ThE PARENT Notes Fully paid ordinary shares $’000 CRPS Shares Retained earnings $’000 $’000 Equity - settled employee benefits reserve $’000 Other Reserve $’000 Asset revaluation reserve $’000 Total $’000 Non controlling interest $’000 Total Equity $’000 CONSOlIDATED Balance as at 30 June 2011 33,655 5,633 9,689 533 Equity issues Share issue costs Acquisition of subsidiary under common control Profit for the year Other comprehensive income for the year Total comprehensive income for the year Recognition of share-based payments Dividends paid Balance as at 30 June 2012 Equity issues Share issue costs Related income tax Profit for the year Other comprehensive income for the year Total comprehensive income for the year Recognition of share-based payments Dividend paid 18 18 19 19 21 18 18 19 21 229 (9) - - - - - - 33,875 24,851 (1,026) 308 - - - - - - - - - - - - - 3,012 - - 3,012 - - 5,633 (659) (4) - - - - (1,038) 11,663 - - - 13,722 - - 13,722 - - - (2,419) 22,966 0 - - (5,013) - - - - - - - - - - - 106 - 639 (5,013) - - - - - - 352 - - - - - - - - - 473 49,983 - - - - 229 (9) (5,013) 3,012 - - - - - - 49,983 229 (9) (5,013) 3,012 - - 3,012 - 3,012 - - 473 - - - - - 106 (1,038) 47,270 24,192 (1,030) 308 13,722 - - - 106 (1,038) - 47,270 - - - - - 24,192 (1,030) 308 13,722 - - 13,722 - 13,722 - - 352 (2,419) Balance as at 30 June 2013 58,008 4,970 991 (5,013) 473 82,395 Notes to the financial statements are included on pages 34 to 78. - - 352 (2,419) - 82,395 33 Freedom Foods Group LimitedFor personal use only Notes to the Financial Statements (For the financial year ended 30 June 2013) n Notes to the Financial Statements For the financial year ended 30 June 2013 1. General Information The financial report of Freedom Foods Group Limited (“Group” or “Company”) for the year ended 30 June 2013 was authorised for issue in accordance with resolution of Directors on 30th September 2013. Freedom Foods Group 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 2.1 Standards and Interpretations affecting amounts reported in the current period (and/or prior periods) The following new and revised Standards and Interpretations have been adopted in the current year and have affected the amounts reported in these financial statements. Amendments to AASB 101 ‘Presentation of Financial Statements’ part of AASB 2011-9 ‘Amendments to Australian Accounting Standards - Presentation of Items of Other Comprehensive Income’ Amendments to AASB 101 ‘Presentation of Financial Statements’ part of AASB 2012-5 ‘Further Amendments to Australian Accounting Standards arising from Annual Improvements 2009-2011 Cycle 2.2 Standards and Interpretations in issue not yet adopted At the date of authorisation of the financial statements, the Standards and Interpretations listed below were in issue but not yet effective. The reported results and position of the Group will not change on adoption of these pronouncements as currently there are no transactions that will be materially impacted by these pronouncements. Adoption of these pronouncements will however, result in changes to information currently disclosed in the financial statement. The Group does not intend to adopt any of these pronouncements before their effective dates. Standard/Interpretation AASB 10 Consolidated Financial Statements AASB 11 Joint arrangements AASB 12 Disclosure of Involvement with Other Entities AASB 13 Fair Value Measurement and related AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13 Note: the requirements of AASB 13 are to be applied prospectively, with comparatives for prior years not required on initial adoption AASB 119 Employee Benefits (2011), AASB 2011-10 Amendments to Australian Accounting Standards arising from AASB 119 (2011) and AASB 2011-11 Amendments to AASB 119 (2011) arising from Reduced Disclosure Requirements Effective Date 30 June 2014 30 June 2014 30 June 2014 30 June 2014 30 June 2014 34 Annual Report 2013For personal use only Notes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 3. Significant Accounting Policies Key sources of estimation uncertainty: The following significant accounting policies have been adopted in the preparation and presentation of the financial report: (a) Statement of compliance These financial statements are general purpose financial statements which have been prepared in the Corporations Act 2001, accordance with Accounting Standards and Interpretations, and comply with other requirements of the law. The financial statements comprise the consolidated financial statements of the Group. For the purposes of preparing the consolidated financial statements, the Company is a for-profit entity. Accounting Standards include Australian Accounting Standards. Compliance with Australian Accounting Standards ensures that the financial statements and notes of the company and the Group comply with International Financial Reporting Standards (‘IFRS’). The financial statements were authorised for issue by the directors on 30th September 2013. Impairment of goodwill and other intangible assets Determining whether goodwill or other intangible assets are impaired requires an estimation of the value in use of the cash generating units to which the goodwill or other intangible assets have been allocated. The value in use calculation requires the directors to estimate the future cash flows expected to arise from the cash generating unit and a suitable discount rate in order to calculate the present value. The value of the goodwill as at the end of the financial year was $5,214,000. The value of other intangible assets as at the end of the financial year was $16,274,000, with no impairment loss charged against the other intangible assets. Further details in relation to the goodwill and other intangible assets of the consolidated entity are set out in note 13. (b) Basis of preparation (d) Basis of consolidation The financial report has been prepared on the historical cost basis, except for the revaluation of certain non-current assets and financial instruments. Cost is based on the fair values of the consideration given in exchange for assets. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Parent under ASIC Class Order 98/0100, dated 28 June 2013. The Parent is an entity to which the class order applies. (c) Critical accounting judgments and key sources of estimation uncertainty is required to make In the application of the Group’s accounting policies, management 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 Foods Group 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 statement of profit and loss and other comprehensive income 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. (e) Business combinations Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The cost of the business combination is measured as the aggregate of the fair values (at the date of exchange) of assets incurred or assumed, and equity given, liabilities 35 Freedom Foods Group LimitedFor personal use only Notes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 3. Significant Accounting Policies (f) Interests in joint ventures (continued...) instruments issued by the Group in exchange for control of the acquiree. Acquisition related costs are recognised in the profit and loss as incurred. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under AASB 3 ‘Business Combinations’ are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with AASB 5 ‘Non-current Assets Held for Sale and Discontinued Operations’, which are recognised and measured at fair value less costs to sell. Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the 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. Acquisition of Pactum Australia Pty Limited The acquisition of Pactum Australia Pty Limited (“Pactum”) in April 2012 was accounted for as a common control transaction as at the time of this transaction both Freedom Foods Group Limited and Pactum Australia Pty Limited were controlled by the same shareholder group. As a common control transaction, the acquisition does not reflect the fair value of assets and liabilities acquired or any recording of additional goodwill at the time of the acquisition of Pactum. The acquisition balance sheet of Pactum reflects the values for assets and liabilities acquired from Pactum’s accounting records. The difference between the fair value of the consideration given and the carrying value of the assets and liabilities acquired is recognised as a common control reserve in the consolidated financial statements. 36 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. (g) Foreign currency translation Both the functional and presentation currency of Freedom Foods Group Limited and its Australian subsidiaries is Australian dollars (AUD). Transactions in foreign currencies are recorded initially 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 end of each reporting period. Exchange differences are recognised in the profit or loss in the period in which they arise. (h) Property, plant and equipment Plant and equipment, motor vehicles and equipment under finance less accumulated depreciation and impairment. lease are stated at cost less any fair value, Land and Buildings held for use in the production of goods, are carried in the statement of financial position at subsequent accumulated depreciation. Fair value is determined on the basis of an independent valuation prepared by external valuation experts, based on discounted cash flows 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 end of each reporting period. 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 profit or loss to the extent of the decrease previously charged. A decrease in carrying amount arising on Annual Report 2013For personal use onlyNotes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 3. Significant Accounting Policies (continued...) 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. including Depreciation is provided on property, plant and equipment, 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 assets or, where shorter, the term of the relevant lease. The gain or loss arising on disposal or retirement of an is item of property, plant and equipment determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the profit or loss. The following depreciation rates are used in the calculation of depreciation: Class of Fixed Assets Depreciation Rate Buildings Plant and equipment Leased plant and equipment Motor vehicles 2-6% 4-20% 4-20% 15-33% (i) 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 in the from the date of classification, except circumstances where sale is delayed by events or circumstances outside the Group’s control and the Group remains committed to a sale. (j) Borrowing costst to Borrowing costs directly attributable 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. (k) 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 37 Freedom Foods Group LimitedFor personal use onlyNotes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 3. Significant Accounting Policies (continued...) 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 the 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. (l) Intangible assets Brand names Brand names recognised by the group 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 life assessment for the asset. Such assets are tested for impairment in accordance with the policy in note 3(m). indefinite useful to support an Intangible assets acquired in a business combination Intangible assets acquired in a business combination are from identified and recognised separately goodwill where they satisfy the definition of an intangible asset. 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. (m) 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 38 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. that the asset may be 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 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 post-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 is recognised in profit or loss immediately. impairment loss 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 recognised reversal of an immediately in the profit or loss. impairment loss is (n) 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; Annual Report 2013For personal use onlyNotes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 3. Significant Accounting Policies (continued...) 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. the obligation. Where a provision is measured using the cash flow estimated to settle the present obligation, its carrying amount is the present value of those cash flows. 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. (o) Cash and cash equivalents (r) Employee benefits Cash and short-term deposits in the statement of financial position 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 Statement of Cash Flows, 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 statement of financial position. (p) 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. interest method The effective 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. (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 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 short term employee benefits are the measured at remuneration rate expected to apply at the time of settlement. Liabilities recognised in respect of long term employee benefits 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. their nominal values using 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 share-based the transactions has been determined can be found in note 30. fair value of equity-settled 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. 39 Freedom Foods Group LimitedFor personal use onlyNotes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 3. Significant Accounting Policies (continued...) 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 the profit or loss over the remaining vesting period, with corresponding adjustment to the equity-settled employee benefits reserve. (t) Leased Assets Group as lessee leases are initially Assets held under finance 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 statement of financial position 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(j). Contingent rentals are recognised as expenses in the periods in which they are incurred. Finance leased assets are amortised on a straight line basis over the estimated useful life of the asset. Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. Lease incentives In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefits of incentives are recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. (u) Revenue is measured at the fair value of the Revenue consideration received or receivable. Revenue is reduced rebates and other similar allowances. for terms, Sale of goods Revenue from the sale of goods is recognised when all the following conditions are satisfied: • • • • • the Group has transferred to the buyer the significant risks and rewards of ownership of the goods; the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the entity; and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Interest revenue Interest is accrued on a time basis, by reference to the principal outstanding and at the effective interest is the rate that exactly rate applicable, which discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. (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 include government entity. Government grants 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. 40 Annual Report 2013For personal use onlyNotes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 3. Significant Accounting Policies (continued...) Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and the grants will be received. Government grants whose primary is that the Group should purchase, condition construct or otherwise acquire long-term assets are recognised as deferred income in the statement of financial position 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. are receivable Government grants as that 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. (w) Income tax Current tax Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by the 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 on the basis of temporary differences between the tax base of an asset or liability and its carrying amount in the statement of financial position. 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 temporary differences arising from the initial recognition of goodwill. relation taxable to in Deferred tax liabilities are recognised for taxable temporary differences associated with investments in branches and associates and interests in joint ventures except where the Group is able to control the reversal of the temporary differences and its probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets arising 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. from deductible 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 profit or loss, except when it relates to items credited or debited directly to equity, in which case the deferred tax is also recognised directly 41 Freedom Foods Group LimitedFor personal use only Notes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 3. Significant Accounting Policies (continued...) 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. (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 statement of financial position. Cash flows are included in the Statement of Cash Flows 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 the 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 Financial Instruments: and Measurement. Derivatives are also categorised as held for trading unless they are designated as hedges. Realised and Recognition 42 unrealised gains and losses arising from changes in their fair value of these assets are included in the consolidated statement of profit and loss and other comprehensive income in the period in which they arise. Effective interest method interest method The effective 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 Interest less income is recognised by applying the effective interest rate. impairment. 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 Annual Report 2013For personal use onlyNotes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 3. Significant Accounting Policies Embedded derivatives (continued...) 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 the end of each reporting period. 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 are is entered statements. Derivatives 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 initially recognised at fair value at the date a derivative contract 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. 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. 4. Operating Segments The Group is organised into four segments which is the basis on which the Group reports. The principal products and services of these segments are as follows: Freedom Brands Freedom Foods: A range of products for consumers requiring a solution to specific dietary or medical conditions including allergen free (ie gluten free, wheat free, nut free) low sugar or salt or highly fortified. The product range covers breakfast cereals, biscuits, snack bars, soy, almond and rice beverages and other complimentary products. These products are produced and sold in Australia and overseas. Seafood: A range of canned seafood covering sardines, salmon and specialty seafood. These products are produced overseas and sold in Australia and overseas. Pactum Australia: A range of UHT (long life) food and beverage products including liquid stocks, soy, rice, almond and dairy milk beverages . 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. Operating segments are identified on the basis of internal reports about components of the Group that are regularly reviewed by the Board of Directors in their capacity as the chief operating decision maker of the group in order to allocate resources to the segments and assess their performance. 43 Freedom Foods Group LimitedFor personal use onlyNotes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 4. Operating Segments (continued...) Information regarding these segments is presented below. The following is an analysis of the Group’s revenue and results by reportable operating segment for the periods under review: Segment revenue Continuing operations Freedom Foods Seafood Pactum Thorpedo Foods Other Total revenue of the consolidated group External sales 2013 $’000 40,070 15,787 32,943 31 - 88,831 2012 $’000 31,085 17,958 9,030 59 - 58,132 Total 2013 $’000 40,070 15,787 32,943 31 199 89,030 2012 $’000 31,085 17,958 9,030 59 473 58,605 Revenue generated by equity accounted associates from external sales is not consolidated, instead under the equity method of accounting, the carrying amounts of interest in joint venture entities are increased or decreased to recognise the Group’s share of post acquisition profits or losses and other changes in net assets of the joint venture/minority interest. 96% of total external sales of the consolidated group and equity accounted associates are generated in Australia (2012: 95%) and 72% of total external sales (2012: 84%) are through major Australian retailers. Segment result Continuing operations Freedom Foods Seafood Pactum Thorpedo Foods FNPL share of equity accounted associates Shared services Finance costs Depreciation Profit on sale of A2C shares Write off of non recurring legal expense and unrecoverable amounts Income tax expense Profit for the year from continuing operations 2013 $’000 2012 $’000 6,124 2,717 6,427 (12) 15,256 819 (3,917) (2,356) (2,628) 11,843 (493) (4,802) 13,722 3,237 3,953 1,452 (13) 8,629 1,214 (3,288) (1,813) (1,372) - (120) (238) 3,012 Total profit from equity accounted associates for the period totalled $3,482,000 (2012: $4,553,000). The consolidated entities share of these profits was $819,000 (2012: $1,214,000). 44 Annual Report 2013For personal use only Notes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 4. Operating Segments (continued...) Segment assets Freedom Foods Seafood Pactum Thorpedo Foods Unallocated (Shared Services) Total assets of the Group Segment liabilities Freedom Foods Seafood Pactum Thorpedo Foods Unallocated (Shared Services) Total liabilities of the Group Other segment information Freedom Foods Seafood Pactum Thorpedo Foods Unallocated (Shared Services) 2013 $’000 2012 $’000 48,858 19,905 33,236 885 102,884 23,955 126,839 13,462 4,463 24,780 4 42,709 1,735 44,444 44,857 21,644 22,284 1,162 89,947 13,934 103,881 14,068 10,028 20,117 5 44,218 12,393 56,611 Depreciation and Amortisation 2012 $’000 1,170 - 280 - 1,450 (78) 1,372 2013 $’000 1,793 - 829 - 2,622 6 2,628 Additions to non-current assets 2012 $’000 1,941 - 10,939 - 12,880 94 12,974 2013 $’000 1,522 - 10,538 - 12,060 105 12,165 The add back of depreciation for the prior year in the unallocated line relates to motor vehicles which were fully depreciated and disposed of during the year. Information about major customers Included in revenues arising from external sales of $88.8 million (2012: $58.1 million) (see segment revenue above) are revenues of approximately $69.1 million (2012: $60.6 million) which arose from sales to the Group’s two largest customers. No other single customers contributed 10% or more to the Group’s revenue for both 2013 and 2012. 45 Freedom Foods Group LimitedFor personal use onlyNotes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 5. Revenue Segment revenue Continuing operations Sale of goods Interest received • Loans and receivables • Cash and Cash equivalents Other income • Government/State grants - refer below • Gain on disposal of fixed assets • Payroll Tax Refund • Management fee received Total Revenue Consolidated $000 2013 2012 88,831 58,132 - 91 88,922 33 - 75 - 108 89,030 - 5 58,137 120 21 75 252 468 58,605 The above grants are the Export Market Development Grant received or receivable for 2013 and 2012 (2013: $23,000, 2012: $20,000), State Training Grant (2013: $5,000, 2012: $6,000) and Department of Education, Employment and Workplace Relations Grant (2013: $5,000, 2012: $63,500). 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 related party loan • Interest capitalised as addition to the cost of qualifying assets • Interest on obligations under finance leases Total borrowing costs Depreciation on property, motor vehicles, 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 Other employee benefits Total employee benefit costs Consolidated $000 2013 1,485 360 - 511 2,356 2,628 329 623 375 29 1,029 352 8,162 9,543 2012 1,397 261 (360) 515 1,813 1,372 221 159 330 (14) 1,349 106 6,692 8,147 The Group uses derivative financial instruments to hedge its exposure to foreign exchange risks arising from operational, financing and investment activities. Refer to Note 26. 46 Annual Report 2013For personal use only Notes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 6. Profit for the year before tax (continued...) In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes. During the financial year the Group utilised foreign exchange contracts for the purchase of inventory and capital equipment. The foreign exchange contracts were denominated in USD, CAD and NZD. As at 30 June 2013 the Group held foreign exchange contracts totalling USD 168,480, CAD 677,771 and NZD 967,290. The contracts related to highly probable forecasted transactions for the purchase of inventory for the Specialty Seafood business (Salmon and Sardines) and the Freedom Foods business (Spreads and Almond paste) 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 cash flow implications for the designated foreign currency purchase, relating to purchase of inventory. As the Group does not adopt 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. 7. Income Taxes Income tax recognised in profit or loss Tax expense comprises: Current tax expense in respect of the current year Adjustments recognised in the current year in relation to the current tax of prior years Tax on sale of shares in investment Deferred tax expense/(income) relating to the origination and reversal of temporary differences Total expense/(income) tax recognised in the current year relating to continuing operations Consolidated $000 2013 4,384 (858) 387 889 4,802 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 before tax 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) Adjustments recognised in the current year in relation to the current tax of prior years Prior year R&D claim 18,524 5,557 253 (150) - (858) 4,802 2012 497 (293) - 34 238 3,250 975 (345) (99) - (293) 238 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 An amount of $308,000 was credited to equity in relation to share issue costs during the year (2012: $Nil). 47 Freedom Foods Group LimitedFor personal use onlyNotes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 7. Income Taxes (continued...) Income tax recognised in other comprehensive income No current or deferred tax amounts were charged/(credited) directly to other comprehensive income during the year. Current tax assets/(liabilities) Income tax receivable/payable attributable to: • Entities in the tax-consolidated group Deferred tax balances Deferred tax assets/(liabilities) arise from the following: Consolidated 2013 Temporary differences: Provisions Doubtful debts Property plant & equipment Other unused tax losses and credits: Tax losses (i) Withholding tax paid Consolidated $000 2013 (4,375) (4,375) 2012 (816) (816) Opening Balance $’000 Recognised on acquisition of common controlled entity $’000 Charged to income $’000 Closing balance $’000 348 - (347) (10) (9) 2,006 38 2,044 2,035 - - - - - - - - - 95 9 (51) 68 121 (1,010) - (1,010) (889) 443 9 (398) 58 112 996 38 1,034 1,146 (i) Current year earnings together with forecast future earnings support the recognition of carried forward losses as deferred tax assets 48 Annual Report 2013For personal use onlyNotes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 7. Income Taxes (continued...) Consolidated 2012 Temporary differences: Provisions Doubtful debts Property plant & equipment Other unused tax losses and credits: Tax losses (i) Withholding tax paid Opening Balance $’000 Recognised on acquisition of common controlled entity $’000 Charged to income $’000 Closing balance $’000 329 4 (9) (1,031) (707) 2,503 344 2,847 2,140 7 - (197) 118 (72) - - (72) 12 (4) (141) 903 770 (497) (306) (803) (34) 348 - (347) (10) (9) 2,006 38 2,044 2,035 The company and its wholly-owned Australian subsidiaries have formed a tax-consolidated group and are therefore taxed as a single entity. The head entity within the tax consolidated group is Freedom Foods Group Limited. 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 taxpayer 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). Entities within the tax-consolidated group have entered into a tax funding arrangement and a taxsharing agreement with the head entity. Under the terms of the tax funding arrangement, Freedom Foods Group 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. 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 Remuneration of the auditors of the Group for: • audit or review of the financial report • taxation advice and preparation of tax returns • research and development advice and preparation of the return The auditor of the consolidated entity is Deloitte Touche Tohmatsu. Consolidated $’000 2013 220 125 60 405 2012 209 73 34 316 49 Freedom Foods Group LimitedFor personal use onlyNotes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 9. Earnings per share Basic earnings per share from continuing operations Diluted earnings per share from continuing operations 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 (c) Weighted average number of ordinary shares outstanding during the year used in the calculation of basic EPS Shares deemed to be issued for no consideration in respect of: - CRPS - ESOP - unlisted options (d) Weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted EPS including CRPS 17,219,015 Convertible Redeemable Preference Shares were in issue. Consolidated Cents per share 2013 14.73 11.96 $000 13,722 14,074 Number ‘000 93,155 18,741 4,345 1,433 117,674 2012 3.88 3.03 3,012 3,012 77,599 19,415 - 2,504 99,518 At 30 June 2013, 2,492,384 (2012: 19,222,791) ordinary share options and 8,450,000 (2012: 6,250,000) employee share options were outstanding (6,250,000 Exercisable at 40 cents per share and 2,200,000 Exercisable at 60 cents per share) 10. Trade and other receivables Current Trade receivables Allowance for doubtful debts Other receivables Consolidated $000 2013 18,750 (29) 18,721 355 19,076 2012 16,738 - 16,738 1,008 17,746 The average credit period on sales of goods is 32 days (2012: 34 days). No interest is charged on trade receivables. An allowance has been made for estimated irrecoverable trade receivable amounts arising from past sale of goods, determined by reference to past default experience. During the current financial year, the allowance for doubtful debts increased by $29,000 (2012: decreased by $14,000) in the Group. The allowance for doubtful debts/impaired trade receivables as at 30 June 2013 is $29,000 (2012: $Nil). The Group does not hold any collateral over these balances. Current (i) Past due but not impaired (ii) 50 Consolidated $000 2013 17,853 868 2012 15,779 959 Annual Report 2013For personal use onlyNotes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 10. Trade and other receivables (continued...) (i) The current receivables for the Group are with a weighted average of 26 days (2012: 29 days). Management considers that there are no indications as of the reporting date that the debtors will not meet their payment obligations. (ii) The past due but not impaired receivables for the Group are with a weighted average of 69 days (2012: 69 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 72% (2012: 84%) of sales and 63% (2012: 81%) of year end receivables are concentrated in major supermarkets throughout Australia. Movement in the allowance for doubtful debts Balance at the beginning of the year Impairment losses recognised on receivables Amounts written off as uncollectable Impairment losses reversed Balance at the end of the year Consolidated $000 2013 - 322 (293) - 29 2012 14 - - (14) - Other receivables These amounts generally arise from transactions outside the usual operating activities of the Group. Management has assessed that these are all recoverable and no impairment has been taken. 11. Other financial assets Current Receivables from related parties - refer Note 29 Related party transactions Non-current Investment in associates - refer Note 35 Related party transactions 12. Inventories Current Raw materials Finished goods Provision for stock obsolescence Consolidated $000 2013 148 9,909 Consolidated $000 2013 5,662 9,361 (137) 14,886 2012 81 12,357 2012 4,029 9,191 (76) 13,144 All inventories of the Group are expected to be recovered within a 12 month period. The cost of inventories recognised as an expense during the year in respect of continuing operations was $60,522,000 (2012: $40,549,000). 51 Freedom Foods Group LimitedFor personal use onlyNotes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 13. Intangibles 2013 Balance at 1 July 2012 Balance at 30 June 2013 2012 Balance at 1 July 2011 Balance at 30 June 2012 Goodwill $’000 Brand Names $’000 Total $’000 5,214 5,214 5,214 5,214 16,274 16,274 16,274 16,274 21,488 21,488 21,488 21,488 Allocation of goodwill to cash-generating units Goodwill has been allocated for impairment testing purposes to the following cash-generating units: Seafood Freedom 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. There wasn’t any goodwill associated to the Group’s acquisition of Pactum Australia Pty Limited. The carrying amount of goodwill has been allocated to the identified cash-generating units as follows: Seafood Freedom Foods Consolidated $000 2013 1,982 3,232 5,214 2012 1,982 3,232 5,214 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 five-year period, and a discount rate of 10.1% pa post tax and 13.1% pa pre tax (2012: 10.5% pa post tax and 13.7% pa pre tax). 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 Cash-generating units Budgeted market share 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. Budgeted gross margin Average gross margins achieved in the period immediately before the budget period is consistent with that used by management. 52 Annual Report 2013For personal use onlyNotes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 14. Property, plant and equipment Non current Freehold land (at fair value) 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 Motor Vehicles (under finance leases) Accumulated depreciation Total Motor Vehicles Total property, plant and equipment Consolidated $000 2013 254 254 4,850 (626) 4,224 4,478 Consolidated $000 2013 45,644 (13,204) 32,440 8,235 40,675 21 (12) 9 45,162 2012 254 254 4,850 (505) 4,345 4,599 2012 21,215 (4,326) 16,889 14,122 31,011 30 (21) 9 35,619 Movements in the carrying amounts of each class of property, plant and equipment between the beginning and the end of the current financial year: Group 2013 Balance at 1 July 2012 Additions Disposals Depreciation expense Balance at 30 June 2013 Group 2012 Balance at 1 July 2011 Additions Additions through acquisition of subsidiary Disposals Depreciation expense Balance at 30 June 2012 Freehold land $000 Buildings $000 Plant & Equipment $000 Motor Vehicles $000 254 - - - 254 160 94 - - - 254 4,345 - - (121) 4,224 4,466 - - - (121) 4,345 31,011 12,165 - (2,501) 40,675 19,460 5,417 7,463 - (1,329) 31,011 9 - 6 (6) 9 9 - - (78) 78 9 Total $000 35,619 12,165 6 (2,628) 45,162 24,095 5,511 7,463 (78) (1,372) 35,619 53 Freedom Foods Group LimitedFor personal use only Notes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 14. Property, plant and equipment (continued...) Aggregate depreciation allocated, whether recognised as an expense or capitalised as part of the carrying amount of other assets during the year: Freehold land and buildings Plant and equipment Motor vehicles 15. Trade and other payables Current Trade payables (i) Other payables and accruals (ii) Payables from joint ventures and related parties - refer Note 29 Related party transactions Non-current Other payables and accruals (ii) Consolidated $000 2013 121 2,501 6 2,628 Consolidated $000 2013 9,238 6,609 15,847 472 63 63 2012 121 1,329 (78) 1,372 2012 11,330 3,443 14,773 423 73 73 (i) Trade payables are paid on average within 60 days of invoice date. No interest is charged on trade payables. (ii) Included in other payables and accruals for 2012 was an amount due to the vendor of $562,000 for the purchase of the Leeton property. This has now been fully paid. 54 Annual Report 2013For personal use only Notes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 16. Borrowings and loans from related parties Borrowings Secured - at amortised cost Current Loan payable (i) Finance leases (ii) (iii) Finance Facility (i) Non-current Loan payable (i) Finance leases (ii) (iii) Disclosed in the financial statements as: Current borrowings Non-current borrowings Consolidated $000 2013 1,741 4,079 8,462 - 8,066 22,348 14,282 8,066 22,348 2012 5,578 2,761 10,662 7,532 4,863 31,396 19,001 12,395 31,396 (i) Secured by assets as detailed in note 36. (ii) Secured by leased assets as detailed in note 24. (iii) Included as part of the finance leases is the Equipment Financing utilised to purchase equipment for Leeton and Taren Point 3rd Line. loans from related parties Loans from Leppington Pastoral Company - refer Note 29 Related party transactions During the prior year the above loan attracted interest payable at 10% per annum. 17. Provisions Current Employee benefits (i) Non-current Employee benefits Employee benefits movement Balance at 1 July 2012 Additional provision recognised Amounts used Balance at 30 June 2013 Consolidated $000 2013 - 2012 8,064 Consolidated $000 2013 1,217 122 1,339 1,066 821 (548) 1,339 2012 902 164 1,066 985 671 (590) 1,066 (i) The current Group provision for employee benefits includes $122,000 of annual leave and vested long service leave entitlements accrued but not expected to be taken within 12 months (2012: $87,000). 55 Freedom Foods Group LimitedFor personal use only Notes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 18. Issued capital Fully paid ordinary shares 113,754,106 (2012:77,995,731) ordinary shares fully paid Balance at 1 July 2012 Issue of shares (i)(ii) Balance at 30 June 2013 Consolidated $000 2013 58,008 33,875 24,133 58,008 2012 33,878 33,655 220 33,875 (i) During the year there were a total of 35,758,375 ordinary shares issued as a result of exercise of options, CRPS converted to ordinary shares, new ordinary shares issued as part of a capital raising, a buy back of unmarketable parcels and the dividend reinvestment plan (DRP); 16,730,407 ordinary shares at $0.40 per share, 2,195,785 ordinary shares at $0.30 per share, 16,788,190 ordinary shares at $1.04 per share, (42,930) ordinary shares at $0.95 per share, 59,749 at $0.722 per share under the DRP and 27,174 at $1.418 per share under the DRP. Costs incurred totalled $721,000 after tax. (ii) During the prior year there were a total of 499,129 ordinary shares issued as a result of exercise of options and the dividend reinvestment plan (DRP); 153,571 ordinary shares at $0.40 per share, 300,000 ordinary shares at $0.50 per share and 45,558 at $0.389 per share under the DRP. Costs incurred totalled $6,000 after tax. 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 the time of issue. Convertible Redeemable Preference Shares The CRPS are perpetual with no maturity, but redeemable after 3 years at the option of the Company. The CRPS are transferable. The dividend rate is 9.0% p.a. on the issue price of $0.30. It is a preferred, discretionary and non cumulative dividend and CRPS holders have no claim or entitlement in respect of a non payment. Dividends are to be payable half-yearly in arrears. CRPS holders who convert their CRPS prior to a dividend payment date will not be entitled to any dividend for that part period in respect of that CRPS. However upon conversion to ordinary shares a holder who is on the register on the record date for a dividend payable in respect of ordinary shares will be entitled to the full ordinary dividend for that period. Dividends on the CRPS will be payable in April and October each year until converted or redeemed. CRPS holders are entitled to receive dividends in priority to holders of ordinary shares and equally with the holders of other CRPS that may be issued by Company on these terms. CRPS are convertible into fully paid ordinary shares in Company on the basis that each CRPS is convertible at the election of the CRPS holder into one ordinary share, subject to any restrictions imposed by the Corporations Act and ASX Listing Rules. There is no time limit within which CRPS must be converted. No additional consideration is payable on conversion. Notwithstanding the right of holders of CRPS to convert at any time, all CRPS will convert into ordinary shares automatically on the occurrence of certain trigger events including certain transactions involving a change in control of Company, such as a takeover of Company or a scheme or merger between Company and another body. From the date that is 3 years from the date of issue of the CRPS, the Company may redeem the CRPS at its option for the payment per CRPS of the higher of: the issue price of $0.30; and an amount determined by the Board of the Company with reference to the value of a CRPS as determined by an independent expert appointed by the Board. • • 56 Annual Report 2013For personal use onlyNotes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 18. Issued capital (continued...) Convertible Redeemable Preference Shares 17,219,015 (2012: 19,414,800) convertible redeemable preference shares Balance at 1 July 2012 Conversion to ordinary shares (i) Balance at 30 June 2013 Consolidated $000 2013 4,970 5,633 (663) 4,970 2012 5,633 5,633 - 5,633 (i) During the year there were a total of 2,198,785 CRPS converted to ordinary shares at $0.30 cents per share. Costs incurred totalled $4,000. Share options granted under the employee share option plan For information relating to the Freedom Foods Group 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 30. 19. Reserves Equity-settled employee benefits Asset revaluation Other reserves Equity-settled employee benefits Balance at 1 July 2012 Share based payment Balance at 30 June 2013 Consolidated $000 2013 991 473 (5,013) (3,549) 639 352 991 2012 639 473 (5,013) (3,901) 533 106 639 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 30 to the financial statements. Asset revaluation Balance at 1 July 2012 Revaluation increment Balance at 30 June 2013 Consolidated $000 2013 473 - 473 2012 473 - 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. 57 Freedom Foods Group LimitedFor personal use only Notes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 19. Reserves (continued...) Other reserve Balance at 1 July 2012 Acquisition of subsidiary under common control Balance at 30 June 2013 Consolidated $000 2013 (5,013) - (5,013) 2012 - (5,013) (5,013) As described in Note 3(e), the acquisition of Pactum by the Company is accounted for as a common control transaction. As a consequence, the difference between the fair value of the consideration paid and the existing book values of assets & liabilities of Pactum has been debited to a common control reserve ($5,013,000). Upon disposal of all interests in Pactum by the Group this reserve would be transferred to retained earnings. 20. Retained earnings Balance at 1 July 2012 Profit attributable to owners of the company Dividends paid Balance at 30 June 2013 21. Dividends Recognised amounts Fully paid ordinary shares Final dividend: fully franked at 30% tax rate Dividends reinvested: fully franked at 30% tax rate Interim dividend: fully franked at 30% tax rate Dividends reinvested: fully franked at 30% tax rate Convertible Redeemable Preference Shares Final dividend: fully franked at 30% tax rate Interim dividend: fully franked at 30% tax rate Consolidated $000 2013 11,663 13,722 (2,419) 22,966 2012 9,689 3,012 (1,038) 11,663 2013 Cents per share 2012 Total $’000 Cents per share 1.00 72.00 1.00 142.00 1.40 1.35 898 43 931 39 272 236 2,419 0.50 - - 39.00 2.00 1.00 Total $’000 370 - - 18 388 262 1,038 On 31 August 2013, the directors declared a fully franked final dividend of 1.00 cents per share to the holders of fully paid ordinary shares in respect of the financial year ending 30 June 2013 to be paid to shareholders (registered as at 1st October 2013) on 1st November 2013 and dividends for the converting preference shareholders (registered on 1st October 2013) on 1st November 2013. The total estimated dividend to be paid is $1,148k for ordinary dividend and $241k for the CRPS dividend. 58 Annual Report 2013For personal use only Notes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 21. Dividends (continued...) Adjusted franking account balance Impact on franking account balance of dividends not recognised 22. Notes to the statement of cash flows (a) Reconciliation of cash and cash equivalents Parent ($000) 2013 373 (592) 2012 230 (451) For the purposes of the statement of Cash Flows, 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 statement of cash flows is reconciled to the related items in the statement of financial position as follows: Cash Consolidated $000 2013 14,106 14,106 (b) Reconciliation of profit for the period to net cash flows from operating activities Profit for the year Depreciation of non current assets Movement in provision for employee entitlements Gain on disposal of assets Profit on Sale of A2C shares Interest recognised regarding Leeton facility using amortised cost method Share based payments Interest received Interest capitalised Gain in associates Gain in jointly controlled entity Movements in Working Capital Increase in trade and other receivables Increase in inventory Decrease in other assets Decrease/(Increase) in deferred tax assets (Decrease)/Increase in trade and other payables (Decrease)/Increase in provision for income tax Net cash from operating activities 13,722 2,628 (273) - (11,843) 288 352 (91) - (819) - (1,474) (3,429) 1,412 5,525 (1,352) (988) 3,658 2012 767 767 3,012 1,372 (81) (21) - 299 106 (5) (360) (650) (564) (830) (3,157) 266 (192) 4,434 57 3,686 Details of credit stand-by arrangements available and unused loan facilities are shown in note 23 to the financial statements. 59 Freedom Foods Group LimitedFor personal use only Notes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 22. Notes to the statement of cash flows (continued...) (c) Non-cash financing and investing activities Acquisition of common controlled entity, Pactum Consolidated $000 2013 - 2012 6,000 During the prior year the Group acquired 50% of interest in Pactum for $6,000,000 (refer note 38). This was a non cash transaction which resulted in a recognition of a loan payable to the related party (refer note 16). 23. Standby arrangements and unused credit facilities Financing Facility Secured loan facilities - amount used - amount unused Secured finance facilities - amount used - amount unused Unused financing facilities Consolidated $000 2013 1,741 7,959 9,700 20,607 5,238 25,845 13,197 2012 13,110 822 13,932 18,286 2,038 20,324 2,860 The bank facilities are arranged with HSBC Bank Australia Limited with general terms and conditions and certain facility components that are subject to annual review. The bank facilities of the Group are secured by a first equitable mortgage over the whole of the Group’s assets and undertakings (including uncalled capital), (except items specifically discharged under the Freedom Foods and Pactum Australia equipment finance arrangements), and a first registered mortgage over the Group’s Leeton property. The equipment finance facilities relate to specific equipment operating at the Freedom Foods Leeton facility and Pactum Taren Point facility, arranged with National Australia Bank and Westpac. These facilities are 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. 60 Annual Report 2013For personal use only Notes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 24. Capital and leasing commitments (continued...) 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 Minimum future lease payments Present value of minimum future lease payments Consolidated $000 2013 4,700 9,142 13,842 (1,697) 12,145 Total $000 2012 2,818 5,465 8,283 (659) 7,624 Consolidated $000 2013 4,079 8,066 12,145 - 12,145 4,079 8,066 12,145 Total $000 2012 2,761 4,863 7,624 - 7,624 2,761 4,863 7,624 (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 Group does not have an option to purchase the leased asset at the expiry of the lease period. Non-cancellable operating lease commitments - Not longer than 1 year (i) - Longer than 1 year but not longer than 5 years Group's share of jointly controlled entities capital commitments - Not longer than 1 year Consolidated $000 2013 526 16 542 - 2012 340 30 370 - (i) Operating leases not longer than 1 year include rental payments to Leppington Pastoral Company (a related party) as a result of the acquisition of Pactum Australia Pty Limited. 25. Personnel note The entity employs casual and full time staff numbering Consolidated $000 2013 178 2012 143 61 Freedom Foods Group LimitedFor personal use only Notes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 26. Financial instruments (a) Capital risk management 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 2012. 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 financial management team reviews the capital structure on a regular basis. As a part of this review management considers the cost of capital and the risks associated with each class of capital. Financial liabilities Debt (i) Cash and cash equivalents Net debt Equity (ii) Net debt to equity ratio Consolidated $000 2013 22,348 (14,106) 8,242 82,395 10% 2012 39,460 (767) 38,693 47,270 82% (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 financial management team provides services to each of the group businesses, co-ordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Group through internal risk reports which analyse exposures by degree and 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. (c) Market Risk 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. 62 Annual Report 2013For personal use only Notes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 26. Financial instruments (continued...) (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. 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) New Zealand dollars (NZD) Financial assets $000 Financial liabilities $000 2013 481 389 - 2012 7 374 - 2013 228 272 388 2012 1,218 835 - 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 had entered into contracts (for terms not exceeding 12 months) to purchase finished goods from suppliers in the United States and Canada and equipment from New Zealand. The contracts related to highly probable forecasted transactions for the purchase of inventory for the Specialty Seafood business (Salmon and Sardines) and the Freedom Foods business (Spreads and Almond paste) 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 cash flow implications for the designated foreign currency purchase, relating to purchase of inventory or other capital assets. The Group had USD 168,480, CAD 677,771 and NZD 967,290 outstanding foreign exchange contracts as at 30 June 2013. 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 2013 2012 2013 2012 Contract value 2013 2012 Fair value 2013 2012 FC'000 $’000 $’000 Outstanding contracts Consolidated Buy US Dollars Less than 3 months Consolidated Buy CA Dollars Less than 3 months Consolidated Buy NZ Dollars Less than 3 months 1.024 0.959 168 1,502 165 1,566 0.982 0.998 678 652 690 653 1.190 - 967 - 813 - 17 10 2 (89) (26) - 63 Freedom Foods Group LimitedFor personal use only Notes to the Financial Statements (For the financial year ended 30 June 2013) (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. Sensitivity rates of 14% (USD), 17% (CAD) and 15% (NZD) have been used as these represent management’s assessment of a likely maximum change in foreign exchange rates. A positive number indicates an increase in profit where the Australian Dollar strengthens against the respective currency. For a weakening of the Australian 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 14% AUD depreciates by 14% Canadian dollars (CAD) impact AUD appreciates by 17% AUD depreciates by 17% New Zealand dollars (NZD) impact AUD appreciates by 15% AUD depreciates by 15% Profit or loss $000 2013 (33) 44 (20) 28 44 (60) 2012 112 (138) 105 (137) - - This is mainly attributable to the exposure outstanding on foreign currency receivables and payables at year end in the consolidated entity and the parent. Interest rate risk management (f) The Group is exposed to interest rate risk as it borrows 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: Group Financial Instrument Financial Assets Cash and cash equivalents Total Financial Assets Financial liabilities Due to related parties Finance facilities Loan payable Total Financial Liabilities Note Weighted average effective interest rate % 22 16 16 16 0% 10% 5% 6% Amount 2013 $ ‘000 14,106 14,106 - 8,463 1,741 10,204 2012 $ ‘000 767 767 8,064 10,662 13,110 31,836 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. 64 Annual Report 2013For personal use only Notes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 26. Financial instruments (continued...) 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 on the consolidated entity’s net profit of $29,000 (2012: decrease of $173,000). This is mainly attributable to the 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. 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. The maximum exposure to credit risk, excluding the value of any collateral or other security, at statement of financial position date, to recognised financial assets of the Group which have been recognised on the statement of financial position is the carrying amount, net of any allowance for doubtful debts. (h) Liquidity risk management Liquidity risk arises from the possibility that the Group 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 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 details the consolidated entity’s remaining contractual maturity for its financial liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the consolidated entity can be required to pay. The table includes both interest and principal cash flows. 65 Freedom Foods Group LimitedFor personal use onlyNotes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 26. Financial instruments (continued...) Consolidated Financial liabilities Trade payables Other payables and accruals Other payables Due to related parties Finance leases Finance facilities Loan payable Total Financial liabilities Weighted average effective interest rate % less than 1 year 2013 $ ‘000 2012 $ ‘000 1 to 5 years 2013 $ ‘000 2012 $ ‘000 More than 5 years 2013 $ ‘000 2012 $ ‘000 - - 0% 10% 8% 5% 6% 9,238 6,609 288 - 4,700 8,463 1,741 31,039 11,330 2,881 928 8,605 2,818 11,334 5,935 43,831 - 63 - - 9,142 - - 9,205 - - - - 5,465 - 8,014 13,479 - - - - - - - - - - - - - - - - (i) Fair value of financial instruments The carrying amount of financial assets and financial liabilities recorded in the financial statements approximates their fair values. The fair values of financial assets and financial liabilities are determined as follows: • • • the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices; 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. 27. Subsequent Events On the 17th July 2013 the group incorporated a subsidiary in North America, Freedom Foods North America Inc, to distribute allergen free cereals and cereal snack bars. On 16th September the group completed a capital raising through a placement. The placement resulted in 12,857,143 new ordinary shares being placed to institutional and sophisticated investors. The group intends to proceed with an entitlements issue to existing shareholders to raise $3 million. The entitlements issue is expected to close in mid October 2013. 28. Key management personnel compensation Remuneration policy Remuneration arrangements for Directors and executives of the company 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. 66 Annual Report 2013For personal use onlyNotes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 28. Key management personnel compensation (continued...) Managing Director and Executives Fixed remuneration consists of base remuneration (which is calculated on a total cost basis and includes any FBT charges related to employee benefits including motor vehicles), as well as employer contributions to superannuation funds. The Managing 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. These can take the form of share options or cash bonuses. During the year, cash bonuses were paid to A Haddad (Pactum Australia) and M Gauci (Pactum Australia) relating to FY 2012 performance and 600,000 options at 60 cents per option exercise price were granted to RJF Macleod, M Bracka and A Haddad under the Company’s Employee Share Option Plan (ESOP). The ESOP allows the Company to grant options over shares to all directors (excluding Ron and Tony Perich) and permanent full time or part time employees, or their respective nominees, of a company in the group (Group Companies), which includes related bodies corporate of the Company and a body corporate in which the Company has voting power of 20% or more, whom the Board determines to be eligible to participate. The Board believes that Options granted are appropriate to aligning key executive performance with long term performance and growth of the Company. Options are valued using the binomial method. Non-Executive Directors The maximum aggregate amount of fees that can be paid to Non-Executive Directors is subject to approval by shareholders at an Annual or Extraordinary General Meeting. Total fees for all Non-Executive Directors (last voted upon by shareholders in June 2013), is not to exceed $500,000 in total. Total fees paid to Non-Executive Directors for 2013 were $223,179 (2012: $195,343). To align director interests with shareholder interests, the Directors are encouraged to hold shares in the Company. The Chairman receives approximately twice the base fee of Non-Executive Directors. Non-Executive Directors do not receive performance related remuneration. Directors’ fees cover all main Board activities including Committee Fees. There are no termination or retirement benefits for Non-Executive Directors. Service agreements Neither the Managing Director or any other Executive has a fixed term contract. All senior executive management are employed under contract. The agreements outline the components of the remuneration paid to executives including annual review. The agreements do not obligate the business to increase fixed remuneration, pay a short term incentive, make termination benefits or offer a long term incentive in any given year. The Company may terminate the contract at any time without notice if serious misconduct has occurred. Where termination with cause occurs, the executive is only entitled to that portion of remuneration that is fixed, and only up to the date of termination. The agreements may be terminated by written notice from either party or by the employing entity within the Group making a payment in lieu of notice. The notice periods are 9 months for the Managing Director, 6 months for CEO Pactum Australia and 12 months for CEO Freedom Foods North America. Other notice periods for other executives are between 1 and 2 months. Parent performance, shareholder wealth and directors and senior management remuneration The remuneration policy of the company and group through short term (cash bonuses) and long term incentive structures (employee share options) aligns the remuneration of the Managing Director and senior Executives to long term performance and growth of the Company and development of shareholder wealth. 67 Freedom Foods Group LimitedFor personal use onlyNotes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 28. Key management personnel compensation (continued...) 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) Ordinary Dividends per share paid - Interim and Final (cents) CRPS Dividends per share paid ( cents) Basic Earnings per Share (cents) 2013 88,831 13,722 2.00 2.75 14.73 2012 58,132 3,012 0.50 3.40 3.88 2011 45,256 4,387 0.50 1.00 5.67 2010 44,071 3,357 - - 5.00 2009 48,596 1,320 1.00 - 2.40 The Remuneration and Nomination Committee considers that the Parents 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: Consolidated $000 2013 1,621,971 115,919 382,372 87,000 2,207,262 2012 1,167,142 82,562 190,219 90,200 1,530,123 Short-term employee benefits Post-employment benefits Share-based payment Bonus payment (paid in FY13) Details of key management personnel P.R. Gunner - Chairman and Non-Executive Director R.J.F. Macleod - Managing Director G.H. Babidge - Non-Executive Director A.M. Perich - Non-Executive Director. R. Perich - Non-Executive Director. M. Miles - Non-Executive Director M. Bracka - CEO, Freedom Foods North America A. Haddad - CEO, Pactum Australia M. Gauci - Operations Manager, Pactum Australia P. Brown - General Manager, Sales, Freedom Brands T. Moses - General Manager, Leeton Operations 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 Managing Director 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 have been granted to the Managing Director to acquire ordinary shares in Freedom Foods Group Limited. 68 Annual Report 2013For personal use only Notes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 28. Key management personnel compensation (continued...) The compensation of each member of the key management personnel of the Group is set out below: 2013 Short term benefits Salaries and fees Bonus Non monetary Other Post employment benefits Superannuation Equity compensation Options Total Short term benefits Salaries and Fees Bonus Non monetary Other Post employment benefits Superannuation Equity compensation Options Total P. R. Gunner R.J.F. Macleod(i) $ $ G.h. Babidge $ A. M. Perich $ R. Perich $ M. Miles $ 68,250 - - - 350,460 - - - 34,667 - - - 35,425 - - - 36,779 - - - 34,667 - - - 6,143 15,674 3,120 - 1,008 3,120 - 74,393 151,605 517,739 - 37,787 M. Bracka $ A. haddad $ P. Brown $ 317,493 - - - 276,226 62,000 - - 173,570 - - - - 35,425 T. Moses $ 145,414 - - - - 37,787 M. Gauci $ 149,020 25,000 - - - 37,787 Total $ 1,621,971 87,000 - - 17,046 25,106 15,124 15,242 14,336 115,919 122,628 475,167 108,139 471,471 - 188,694 - 160,656 - 188,356 382,372 2,207,262 Notes (i) RJF Macleod remuneration included pay out of accrued leave during the financial year. 2012 Short term benefits Salaries and fees Bonus Non monetary Other Post employment benefits Superannuation Equity compensation Options Total P. R. Gunner $ R.J.F. Macleod $ G.h. Babidge $ A. M. Perich $ R. Perich $ M. Miles $ 63,000 - - - 259,800 - - - 21,333 - - - 32,700 - - - 32,000 - - - 32,000 - - - 5,670 15,775 2,880 - 2,880 2,880 - 68,670 76,088 351,663 - 24,213 - 32,700 - 34,880 - 34,880 69 Freedom Foods Group LimitedFor personal use onlyNotes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 28. Key management personnel compensation (continued...) Short term benefits Salaries and Fees Bonus Non monetary Other Post employment benefits Superannuation Equity compensation Options Total M. Bracka $ A. haddad (i) $ P. Brown $ T. Moses (ii) $ M. Gauci (iii) $ 309,800 - - - 59,150 59,000 - - 164,220 - - - 43,366 - - - 33,935 31,200 - - Total $ 1,051,304 90,200 - - 15,775 5,066 14,780 4,681 3,800 74,187 60,870 386,445 53,261 176,477 - 179,000 - 48,047 - 68,935 190,219 1,405,910 (i) Salary is for the period from 1 April 2012 to 30 June 2012 during which Pactum was a subsidiary of the Group. Other is a bonus relating to FY2011. (ii) Commenced 12 March 2012. (iii) Salary is for the period from 1 April 2012 to 30 June 2012 during which Pactum was a subsidiary of the Group. Other is a bonus relating to FY2011. 29. 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 32 to the financial statements. (ii) Equity interest in associates Details of interests in associates is disclosed in note 35 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 28 to the financial statements. (ii) Key management personnel equity holdings Fully paid ordinary shares of the Group 70 Annual Report 2013For personal use only Notes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 29. Related party transactions (continued...) 2013 P. R. Gunner R.J.F Macleod G.H Babidge A. M. Perich (1) R. Perich (1) M. Miles M.Perich (1) M Bracka A. Haddad M. Gauci T. Moses P. Brown 2012 P. R. Gunner R.J.F Macleod G.H Babidge A. M. Perich (1) R. Perich (1) M. Miles M.Perich (1) M Bracka A. Haddad M. Gauci T. Moses P. Brown Balance at 1 July 2012 No. 510,732 182,775 98,057 51,620,094 51,620,094 212,812 51,620,094 327,602 80,384 - - - Balance at 1 July 2011 No. 510,732 182,775 98,057 51,465,265 51,465,265 210,110 51,465,265 220,436 - - - - Granted as compensation No. Received on exercise of options No. Net other change (2) No. Balance at 30 June 2013 No. - - - - - - - - - - - - Granted as compensation No. - - - 15,995,142 15,995,142 - 15,995,142 50,391 - - - - Received on exercise of options No. - - - - - - - - - - - - - - - - - - - - - - - 15,277 11,017 2,334 1,609,886 1,609,886 9,601 1,609,886 80,088 3,627 - - 60,643 Net other change (2) No. 526,009 193,792 100,391 69,225,122 69,225,122 222,413 69,225,122 458,081 84,011 - - 60,643 Balance at 30 June 2012 No. - - - 154,829 154,829 2,702 154,829 107,166 80,384 - - - 510,732 182,775 98,057 51,620,094 51,620,094 212,812 51,620,094 327,602 80,384 - - - (1) Mr A.M. Perich, Mr R. Perich and Mr M. Perich (as their alternate) are Joint Managing Directors of Arrovest Pty Limited, the entity holding a direct interest in the Group. (2) Subscribed to during the year. 71 Freedom Foods Group LimitedFor personal use onlyNotes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 29. Related party transactions (continued...) Convertible Redeemable Preference shares of the Group (Issued in FY 2011) 2013 P. R. Gunner R.J.F. Macleod G.H. Babidge A. M. Perich (1) R. Perich (1) M. Miles M. Perich (1) M. Bracka A. Haddad M. Gauci T. Moses P. Brown Balance at 1 July 2012 No. Granted as compensation No. Received on exercise of options No. Net other change (2) No. Balance at 30 June 2013 No. 159,604 6,666 30,643 15,995,142 15,995,142 64,584 15,995,142 50,391 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (6,666) - - - - - - - - - - 159,604 - 30,643 15,995,142 15,995,142 64,584 15,995,142 50,391 - - - - (1) Mr A.M. Perich, Mr R. Perich and Mr M. Perich (as their alternate) are Joint Managing Directors of Arrovest Pty Limited, the entity holding a direct interest in the Group. (2) Converted to Ordinary shares during the year. Option over ordinary shares of the Group (exercisable at $0.40 cents ) (Issued in FY 2011) Balance at 1 July 2011 No. Granted as compensation No. Received on exercise of options No. 2013 P. R. Gunner R.J.F. Macleod G.H. Babidge A. M. Perich (1) R. Perich (1) M. Miles M. Perich (1) M. Bracka A. Haddad M. Gauci T. Moses P. Brown 159,604 6,666 30,643 15,995,142 15,995,142 64,584 15,995,142 50,391 - - - - - - - - - - - - - - - - - - - - - - - - - - - - Net other change No. - - - (15,995,142) (15,995,142) - (15,995,142) (50,391) - - - - Balance at 30 June 2012 No. 159,604 6,666 30,643 - - 64,584 - - - - - - (1) Mr A.M Perich, Mr R. Perich and Mr M. Perich (as their alternate) are Joint Managing Directors of Arrovest Pty Limited, the entity holding a direct interest in the Group. (2) Options exercised during the year 72 Annual Report 2013For personal use onlyNotes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 29. Related party transactions (continued...) Employee Share Options in the Group Balance at 1 July No. lapsed No. 2,500,000 - 1,750,000 2,000,000 - - - - - - 1,700,000 1,700,000 - - 300,000 (1,700,000) (1,700,000) - - - 2013 R. J. F. Macleod G.H. Babidge A. Haddad M. Bracka Senior Employees 2012 R. J. F. Macleod G.H. Babidge A. Haddad M. Bracka P. Nathan Granted as compen- sation No. 200,000 - 200,000 200,000 1,600,000 2,500,000 - 1,750,000 2,000,000 - Exercised No. Net other change No. Balance at 30 June No. Balance vested at 30 June No. Vested but not exercisable No. Vested and exercisable No. Options vested during year No. - - - - - - - - - 300,000 - - - - - - - - - - 2,700,000 - 1,950,000 2,200,000 1,600,000 2,500,000 - 1,750,000 2,000,000 - 833,333 - 583,333 666,666 - - - - - - - - - - - - - - - - 833,333 - 583,333 666,666 - - - - - - - - - - - - - - - - (i) All share options issued to key management personnel were made in accordance with the provisions of the Employee Share Option Plan. Further details of the Employee Share Option Plan are contained in note 30 to the financial statements. For further transactions with key personnel of the Group, refer to transactions between Group Company and its related parties below. (c) Transactions with other related parties Other related parties include: • • • • entities with joint control or significant influence over the Group joint ventures in which the entity was a venturer subsidiaries other related parties (i) Transactions between the Group and its related parties During the financial year, the following transactions occurred between the Group and its other related parties: • • • Pactum Australia Pty Limited is now a 100% owned subsidiary and as such has related party transactions with the Group. In the 12 months to 30 June 2013 goods totalling $9,886,000 (2012: $7,323,000) were sold to the Group at cost and have been excluded from revenues. The Group entered into a lease commitment with Leppington Pastoral Company on 1 April 2012. The Group made payments of $340,000 in the current financial year and $85,000 in the last 3 months of the prior financial year. The Group was reimbursed by A2DP $19,000 (2012: $43,000) for labour and other administrative services provided. These services are provided under normal terms and conditions. 73 Freedom Foods Group LimitedFor personal use only Notes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 29. Related party transactions (continued...) (ii) Transactions between other related parties of the Group During the financial year, the following transactions occurred between the Group and other related parties: • Leppington Pastoral Company sold goods and services totalling $6,071,000 in the current financial year (2012: $4,576,000) to Pactum at cost. These services are provided under normal terms and conditions. (d) Parent entities The Parent entity of the Group is Freedom Foods Group Limited and the ultimate parent entity is Arrovest Pty Ltd which is incorporated in Australia. 30. 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 the options issued, the options vest in three equal tranches over a period of 3 years. The following share-based payment arrangements were in existence during the current and comparative reporting periods: Option series Senior Executive Grant Senior Executive and Management Grant 6,250,000 2,200,000 2/02/12 30/08/12 2/02/17 30/08/17 Number Grant date Expiry date Exercise price $ 0.40 0.60 Fair value at grant $ 0.122 0.066 The weighted average fair value of the share options granted during the financial year is $0.066 (2012: $0.122). 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. Executive Options 2 February 2012 0.46 0.40 20% 5 years 2.5% 5% Executive and Management Options 30 August 2012 0.65 0.60 5% 5 years 2.5% 5% Inputs into the model Grant date share price Exercise price Expected volatility Option life Dividend yield Risk-free interest rate 74 Annual Report 2013For personal use only Notes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 30. Share based payments - Employee Share Option Plan (continued...) 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 Exercised during financial year Lapsed during financial year Exercisable at end of financial year 2013 Number of options 6,250,000 2,200,000 - - 8,450,000 2,083,332 Weighted average exercise price $ 0.40 0.60 - - 0.45 2012 Number of options 3,700,000 6,250,000 (300,000) (3,400,000) 6,250,000 Weighted average exercise price $ 0.50 0.40 0.50 0.50 0.40 0.40 - 0.40 Balance at end of the financial year The share options outstanding at the end of the financial year had an average exercise price of $0.45 (2012: $0.40), and a weighted average remaining contractual life of 1,522 days (2012: 1,648 days). No options were exercised during the financial year. 31. Contingent liabilities Bank guarantee arising from rental of office premises. No liability is expected to accrue. Consolidated $000 2013 14 32. 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) Pactum Australia Pty Limited (i) Pactum Dairy Group Pty Limited Australian Natural Foods Holdings Pty Limited (i) Thorpedo Foods Group Pty Limited (i) Thorpedo Foods Pty Limited Thorpedo Seafoods Pty Limited Country of Incorporation Ownership interest Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 2013 100% 100% 100% 100% 100% 100% 100% 100% 75% 75% 2012 14 2012 100% 100% 100% 100% 100% 100% 100% 100% 75% 75% The consolidated statement of comprehensive income and statement of financial position of the entities party to the deed of cross guarantee is the consolidated statement of comprehensive income and statement of financial position included in the 2013 financial report. (i) These companies are members of the tax consolidated group. 75 Freedom Foods Group LimitedFor personal use onlyNotes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 33. 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 Foods Group Limited Paramount Seafoods Pty Limited Nutrition Ventures Pty Limited Nutrition Ventures Financing Pty Limited • • • • Freedom Foods Pty Limited Australian Natural Foods Holdings Pty Limited Thorpedo Foods Group Pty Limited Pactum Australia 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. 34. Parent entity disclosures (a) Financial position Assets Current assets Non-current assets Total assets liabilities Current liabilities Non-current liabilities Total liabilities Net Assets Equity Issued capital Reserves Retained earnings Total equity (b) Financial performance Profit for the year Other comprehensive income Total comprehensive income 76 Parent $000 2013 15 85,360 85,375 3,027 669 3,696 81,679 63,022 965 17,692 81,679 Parent $000 2013 8,387 - 8,387 $000 2012 2,117 59,657 61,774 8,595 1,309 9,904 51,870 39,508 638 11,724 51,870 $000 2012 640 - 640 Annual Report 2013For personal use onlyNotes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 34. Parent entity disclosures (continued...) (c) Contingent liabilities of the parent entity Bank guarantee $000 2013 14 (d) Commitments for the acquisition of property, plant and equipment by the parent entity Plant and equipment, PV of minimum future lease payments Not longer than 1 year Longer than 1 year and not longer than 5 years Longer than 5 years 35. Share in associate entity $000 2013 26 - - $000 2012 14 $000 2012 8 27 - Name of associate A2C Country of incorporation New Zealand Principal activity Sale of a2 milk in Australia 2013 18.0 2012 25.8 The group holds 110,535,140 ordinary shares and 6,000,989 partly paid shares in A2C at 30 June 2013. There are two common directors on the A2C board, Mr Melvyn Miles and Mr Perry Gunner. Reconciliation of movement in investment accounted for using the equity method: Output interest (fully diluted) (%) Balance at 1 July Share of profits for the year (i) Dividends Costs of shares sold Equity investment Costs associated with investment Balance at 30 June (i) Included in the share of profits is $245,000 that related to a post year end adjustment for 2012 A2C $’000 2013 12,357 819 13,176 - (3,303) 20 16 9,909 2012 9,558 650 10,208 - - 2,064 85 12,357 77 Freedom Foods Group LimitedFor personal use onlyNotes to the Financial Statements (For the financial year ended 30 June 2013) (continued...) 35. Share in associate entity (continued...) Summarised financial information in respect of Freedom Foods Group Limited’s share in the associate 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 A2C $’000 2013 7,273 3,766 11,039 1,890 12 1,901 9,138 9,138 14,378 628 2012 5,064 5,032 10,096 2,497 7 2,503 7,593 7,593 12,694 895 36. 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, 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 2009, 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 Foods Group Limited. In June 2013, Pactum Australia Pty Limited entered into an equipment lease with National Australia Bank to assist in financing equipment requirements for it’s 3rd line at the Taren Point site. The lease term is 5 years with a 35% residual. The facility is secured by the financed equipment and Pactum Australia’s obligations under the lease are guaranteed by Freedom Foods Group Limited. The Group now also holds equipment leases with Westpac relating to its acquisition of Pactum Australia Pty Limited. These leases have a maximum lease term of 5 years with residual payments of between 20% and 50%. The facility is secured by the financed equipment at our Taren Point site. 78 Annual Report 2013For personal use onlyDirectors’ Declaration (For the financial year ended 30 June 2013) n Directors’ Declaration FREEDOM FOODS GROUP LIMITED DIRECTORS’ DECLARATION FOR THE YEAR ENDED 30 JUNE 2013 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) the attached financial statements are in compliance with International Financial Reporting Standards, as stated in note 3 to the financial statements. (c) 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 consolidated entity; and (d) the directors have been given the declarations required by s.295A of the Corporations Act 2001. At the date of this declaration, the company is within the class of companies 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 33 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 Rory J F Macleod Managing Director Sydney, 30 September 2013 79 Freedom Foods Group LimitedFor personal use only Independent Audit Report n Independent Audit Report Deloitte Touche Tohmatsu ABN 74 490 121 060 Eclipse Tower 60 Station 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 Foods Group Limited Report on the Financial Report We have audited the accompanying financial report of Freedom Foods Group Limited, which comprises the consolidated statement of financial position as at 30 June 2013, the consolidated statement of profit and loss and other comprehensive income, the consolidated statement of cash flows and the consolidated statement of changes in equity for the year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, 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 34 to 78. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 3a, 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited 80 Annual Report 2013For personal use onlyIndependent Audit Report (continued...) Auditor’s Independence Declaration In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, provided to the directors of Freedom Foods Group Limited on 30 September 2013 would be in the same terms if provided to the directors as at the date of this auditor’s report. Opinion In our opinion: (a) the financial report of Freedom Foods Group Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2013 and of their performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 3a. Report on the Remuneration Report We have audited the Remuneration Report included in pages 15 to 20 of the directors’ report for the year ended 30 June 2013. 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 Foods Group Limited for the year ended 30 June 2013, complies with section 300A of the Corporations Act 2001. DELOITTE TOUCHE TOHMATSU Catherine Hill Partner Chartered Accountants Parramatta, 30 September 2013 81 Freedom Foods Group LimitedFor personal use only Shareholder Statistics n Shareholding Class of shares and voting rights At 31 August 2013, there were: Substantial shareholders 114,797,363 ordinary shares of the Parent on issue. 17,219,015 convertible redeemable preference shares of the Parent on issue. The number of shares held substantial shareholders as listed in the Parent’s register as at 31 August 2013 are: Ordinary Shares Arrovest Pty Ltd RBC Investor Services Australia Nominees Pty Limited Citicorp Nominees Pty Limited UBS Nominees Pty Ltd Convertible Redeemable Preference Shares Arrovest Pty Limited Number 69,225,122 6,860,798 6,700,354 5,770,000 15,995,142 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 ordinary shareholders as at 31 August 2013 1-1,000 1,001-5,000 5,001-10,000 10,001-100,000 100,001 and over Ordinary 211 431 143 209 39 1,033 Non marketable securities which are holdings of less than 500 ordinary shares are held by 80 shareholders. This statistic is based on the share register as at 31 August 2013. 82 Annual Report 2013For personal use only Substantial shareholders (continued...) 20 largest ordinary shareholders as at 31 August 2013 Name 1 Arrovest Pty Ltd 2 RBC Investor Services Australia Nominees Pty Limited 3 Citicorp Nominees Pty Limited 4 UBS Nominees Pty Ltd 5 National Nominees Limited 6 Mirrabooka Investments Limited 7 BNP Paribas Noms Pty Ltd 8 Telunapa Pty Ltd 9 UBS Wealth Management Australia Nominees Pty Ltd 10 Mr Stephen Francis Higgs & Mrs Rosemary Jean Higgs 11 East Coast Rural Holdings Pty Limited 12 J P Morgan Nominees Australia Limited 13 Aust Executor Trustees Sa Ltd 14 Mr Perry Richard Gunner & Mrs Felicity Jane Gunner 15 Sea Change Consulting Pty Ltd 16 Mr Lawrence Lip & Mrs Sabina Lip 17 Mr Lawrence Lip 18 Connaught Consultants (Finance) Pty Ltd 19 Moorebank Property Management Pty Ltd 20 Mr Lawrence Rose & Mrs Jennifer Rose Shareholder Statistics (continued...) Number of Ordinary Shares held 69,225,122 6,860,798 6,700,354 5,770,000 4,251,132 1,850,000 1,479,723 1,225,000 937,652 823,714 682,007 642,868 606,278 526,009 458,081 327,002 304,486 300,000 296,247 266,937 103,533,410 % held of Ordinary Capital 60.30% 5.98% 5.84% 5.03% 3.70% 1.61% 1.29% 1.07% 0.82% 0.72% 0.59% 0.56% 0.53% 0.46% 0.40% 0.28% 0.27% 0.26% 0.26% 0.23% 90.19% The proportion of ordinary shares held by the 20 largest shareholders is 90.19% Stock exchanges that have granted quotation to the securities of the Parent quoted in Australia: All Member Exchanges. Distribution of convertible redeemable preference shareholders as at 31 August 2013 1-1,000 1,001-5,000 5,001-10,000 10,001-100,000 100,001 and over Ordinary 24 20 11 27 2 84 83 Freedom Foods Group LimitedFor personal use onlyShareholder Statistics (continued...) Substantial shareholders (continued...) 20 largest convertible redeemable preference shareholders as at 31 August 2013 Name 1 Arrovest Pty Ltd 2 Mr Perry Richard Gunner & Mrs Felicity Jane Gunner 3 Donwood Pty Ltd 4 Mr Lawrence Rose & Mrs Jennifer Rose 5 Mr Melvyn Miles & Mrs Joanna Miles 6 Mr Robert John Perry & Mrs Jennifer Joy Perry 7 Sea Change Consulting Pty Ltd 8 Mr Legh Davis & Mrs Helen Davis 9 Mr Richard James Wishart & Mrs Jillian Rosemary Wishart 10 Mr Mathew John 11 Mrs Kathleen Alice O'Shea 12 Mr Robert William Owen & Mrs Yvonne Owen 13 Mr Kenneth Francis Smith & Mrs Margaret Lorraine Smith 14 Mr John Wien-Smith 15 Mr Geoffrey Howard Babidge & Mrs Catherine Mary Babidge 16 R & M Gugliotta Pty Ltd 17 Mr Roger Leo Henry & Mrs Patricia Margaret Henry 18 Mr Benjamin Gerst 19 Borlas Pty Limited 20 Lewis Little River Pty Ltd Number of Ordinary Shares held 15,995,142 159,604 100,000 80,995 64,584 62,500 50,391 40,869 40,625 34,720 33,300 31,559 31,250 31,250 30,643 30,000 25,000 25,000 24,039 23,438 16,914,909 % held of Ordinary Capital 92.89% 0.93% 0.58% 0.47% 0.38% 0.36% 0.29% 0.24% 0.24% 0.20% 0.19% 0.18% 0.18% 0.18% 0.18% 0.17% 0.15% 0.15% 0.14% 0.14% 98.23% The proportion of convertible redeemable preference shares held by the 20 largest shareholders is 98.23% 84 Annual Report 2013For personal use onlyn Corporate Directory Company Secretary Rory J F Macleod Assistant Company Secretary Sharon Maguire Principal Registered Office 80 Box Road Taren Point NSW 2229 Tel: (02) 9526 2555 Fax: (02) 9525 5406 Share Registry Link Market Services Limited Level 12, 680 George Street Sydney NSW 2000 Tel: (02) 8280 7111 Fax: (02) 9287 0303 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 2000 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 Bankers HSBC Australia Limited Level 32, 580 George Street Sydney NSW 2000 Tel: 1300 308 188 (toll free) Fax: (02) 9255 2647 National Australia Bank Ltd. Level 3, 255 George Street Sydney NSW 2000 Tel: (02) 9237 1171 Fax: (02) 9237 1400 Westpac Banking Corporation Level 20, 275 Kent Street Sydney NSW 2000 Tel: (02) 6760 0000 Fax: (02) 6766 7215 Auditor Deloitte Touche Tohmatsu Chartered Accountants Eclipse Tower, 60 Station Street Parramatta NSW 2150 Tel: (02) 9840 7000 Fax: 02) 9840 7001 Management Rory J F Macleod Managing Director Amine Haddad Michael Bracka Peter Brown Timothy Moses Mark Gauci CEO, Pactum Australia CEO, Freedom Foods North America General Manager, Sales, Freedom Brands General Manager, Leeton Operations Operations Manager, Pactum Australia Corporate Directory 85 Freedom Foods Group LimitedFor personal use only Freedom Foods Group Limited ABN 41 002 814 235 | Ph: 02 9526 2555 | Fax: 02 9525 5406 80 Box Road Taren Point NSW 2229 | PO Box 2531 Taren Point NSW 2229 For personal use only

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