Annual
Report
Freedom Foods Group Limited
Contents
30 June 2020
Directors' report
Auditor's independence declaration
Statement of profit or loss and other comprehensive income
Statement of financial position
Statement of cash flows
Statement of changes in equity
Notes to the financial statements
Directors' declaration
Independent auditor's report to the members of Freedom Foods Group Limited
Shareholder information
Corporate directory
2
45
46
47
48
49
50
115
116
126
129
1
Freedom Foods Group Limited
Directors' report
30 June 2020
Letter from the Chair
Dear Shareholders and other stakeholders,
There is no disputing that this has been a difficult year for Freedom Foods Group (‘Freedom Foods’ or the ‘Group’).
We have faced genuine challenges – some external beyond our control and others internal that have required urgent and intensive
intervention by the Board and the new executive team.
The impact of those challenges is reflected in our deeply disappointing financial performance, most particularly the approximately $590
million in restatements and writedowns brought to account as set out below.
As we have responded to these challenges there have been – and will be – major changes at Freedom Foods. These changes will affect
our performance, our business structure, and our product portfolio, all with the intention of creating long-term sustainable returns to
shareholders.
What will not change is our commitment to building a major global food and beverage business.
Since its establishment, Freedom Foods has focused on long-term trends it identified in the food and beverage sectors – such as the
growth in plant-based beverages and protein-based nutritionals – and delivered market-leading positions in these key categories and
fast-growing domestic and export markets.
Over the past five years, our revenue has grown each and every year and was up 26 per cent to $580.2 million in the year ended 30
June 2020.
What has become clear, however, is that the growth obtained by the Group was not profitable growth in a number of its businesses.
What has also become clear is that some aspects of the culture within the business were not aligned to the best interests of all
stakeholders.
Following the Board identifying matters regarding the operation and administration of the Group’s equity incentive plan (EIP), the Board
initiated an investigation with the assistance of external advisers.
The implementation of our warehouse consolidation program led to the identification in May 2020 of out-of-date, unsaleable and
obsolete inventory and other inventory accounting matters. These matters were reported in the ASX announcements of 29 May 2020
and 25 June 2020. The Board commissioned a further investigation of the Group’s financial position in June 2020, with the assistance
of external advisors including PwC, Ashurst, Arnold Bloch Leibler and Moelis Australia. Those investigations identified a significant
number of accounting matters, some of which contributed to selling products at prices insufficient to recover production and operating
costs.
The Company is cooperating with the Australian Securities and Investments Commission in relation to these investigations. The
matters identified by these investigations that have a material financial and/or operational impact on the Group are detailed in this
Annual Report. The Annual Report also outlines the difficult trading environment experienced in H2 FY20 as a result of the COVID-19
pandemic.
Like the majority of companies, Freedom Foods’ operations were disrupted by the impact of COVID-19 on its markets – as well as its
individual customers, suppliers and employees – and it has taken steps to adjust its operations to manage this once-in-a-generation
challenge.
While the Group experienced severe disruption to some markets, such as the out-of-home, export and industrial channels, this was
partially offset by a solid sales performance in the Australian retail grocery channel as pantry-stocking drove strong demand for
products such as cereals and UHT milk. It is clear that Freedom Foods’ focus on food staples, product diversification, long-term
contracts and brands have helped shield the business from the worst of the COVID-19-related disruptions.
Freedom Foods Group’s shareholders and employees have a right to feel angry and frustrated and they deserve to know that the
Board and new management team have been relentlessly focused on addressing historical matters and are instigating longer-term
financial, operational and cultural improvements across the Group.
2
Freedom Foods Group Limited
Directors' report
30 June 2020
The Group has sought and agreed a standstill agreement with its major lenders in relation to its debt facilities, giving it the ability to
undertake a material capital raising that will underpin our long-term recovery plan.
The capital raising, which we expect to announce before the end of the calendar year, and our transformation plan, have the support
of our majority shareholder, the Perich family, and potential for other significant investors who share a belief in the Group’s long-
term success.
The rebuilding of Freedom Foods Group will not be a quick or easy process.
There are the immediate priorities to stabilise the business, its finances and its critical relationships with customers and suppliers, and
medium-term structural changes that will simplify the Group and sharpen its focus.
In parallel, the Board and management are rebuilding the senior team, reinforcing internal systems and protocols and focusing on
cultural issues via a redesign of employee behaviour, remuneration and associated governance frameworks to promote the optimal
employee behaviours and reinforce the corporate values. The letter from Jane McKellar, the new Chair of the People and Culture
Committee, set out in the Directors’ Report, provides more detail of initiatives in this area. Governance frameworks more broadly are
also receiving significant attention. Some examples of this work include but are not limited to the following:
•
•
•
•
revised remuneration policies and structure – considerable work has been undertaken by management and the People
and Culture Committee to create a concept of four pillars of accountability which will be rolled out across the Group;
a substantial enhancement to the risk management framework, policies and procedures is under way involving external
consulting advice and strong input from our own team and the Risk and Compliance Committee;
clear responsibilities and delegations have been created for our CEO; and
Updated standard costs, accounting policies and practices.
The recovery will be overseen by a new management team, led by Interim Chief Executive Officer Michael Perich, and a Board bolstered
by our two new, independent Non-Executive Directors, Ms Gregor and Ms McKellar. There are more changes to come. Michael outlines
the key improvements he has instigated in his CEO Letter.
All the ingredients for recovery and success exist within the business.
What will emerge will be a substantially simplified business, with a core portfolio of world-leading brands and a clear sales and earnings
growth trajectory.
That trajectory will be underpinned by the right capital structure and improved systems, processes and governance structures and, of
course, people.
It will be delivered by a refreshed Board and management leading a Group whose culture is built on transparency and openness, doing
the right thing by all our stakeholders and striving for excellence.
On behalf of the Board, I would like to thank all employees for their hard work and dedication. A number of employees, particularly the
finance and accounting team and the Group’s advisors, have spent significant time to prepare the information contained in this Annual
Report. The Board is very thankful for their time and effort. This will be my last Annual Report as Chairman and it has been my privilege
to have worked with the Freedom team and fellow board members. I look forward to seeing the Group achieve its full potential in
future years.
The AGM is scheduled to be held on 29 January 2021 with details available on the Group’s website. There will be no final dividend
declared for FY20.
I’d encourage you to read the CEO report as it will provide more insight into the operations and future direction of the business.
Perry Gunner
Chairman
3
Freedom Foods Group Limited
Directors' report
30 June 2020
Chief Executive Officer's Letter
Dear Shareholders and other stakeholders,
In my first letter to you as the Interim CEO of Freedom Foods Group, I will use the opportunity to highlight the sharpened focus of the
business since I assumed the role in August 2020 and what I see as the priorities for our Group in the coming year and beyond.
The business of Freedom Foods has always been about “making food better”. That has underpinned our success in creating a leading
food and beverages business with recognised brands and that focus will not change.
However, the challenges of the past year have shown us that if we are going to succeed, we also need to make the business better.
We need to continue to apply the values of our brands to the Group itself – quality, honesty, trust and innovation.
To do this, we are focusing on three key areas of improvement: People and Culture; Business Discipline and Brands and Marketing.
People and Culture
Freedom Foods Group is a major Australian manufacturer and, with its six manufacturing sites in NSW and Victoria, is a significant
employer in regional Australia. Our more than 700 people are the key to our success, and the role of the executive leadership team is
to provide them with the environment, systems and the support they need to succeed. In that respect, there are important changes
underway.
Freedom Foods has gone through considerable growth over the last few years, both in revenue and assets. Its systems and processes
did not move at the same rate. The capacity of our people to make their most effective contributions were held back, not just by
systems and processes but also by culture. It is a tribute to the commitment of our employees that the Group has been able to overcome
many of these matters to build successful brands.
As with any business, leadership starts at the top. As a new leadership group, together with new Board members, we are embarking on
a program to restructure the organisation to ensure silos cannot stifle collaboration and innovation, to ensure policies and procedures
are applied uniformly across the business, to ensure all employees are treated with respect, and to unite our workforce behind one
clear, coherent and consistent vision.
That vision is built around our commitment to safety and quality. That commitment is essential to building and maintaining consumer
confidence, trust and loyalty in our products. And it is equally essential to the way we operate as a business.
Specifically, we have implemented:
•
•
•
•
clearer reporting lines that are designed around business outcomes;
senior leadership initiatives focussed on building the culture within the team;
an improved governance, compliance and risk framework to ensure that risks are identified and escalated, and that
accountability flows through the business; and
a new internal audit function.
In addition, the Board is conducting a cultural review of the business and has endorsed a new remuneration framework that ensures
employee incentives are aligned with sustainable, long-term profit growth and encourages the right behaviours.
Together with the Board, we want a transparent organisation where everyone knows what we stand for and where we are recognised
amongst employees, suppliers, customers for doing what we say we will do.
Business Discipline
Drawing on the lessons of the past few years, the Group must be able to read and respond to markets and to prioritise and invest capital
effectively. To be successful we need to better understand the revenue and profit levers in the business and the individual impact of
each component of the costs of goods sold.
Only when everyone genuinely is accountable for their contribution to the business can we deliver the sustainable, profitable growth
our shareholders expect and deserve.
4
Freedom Foods Group Limited
Directors' report
30 June 2020
Across the business, we are reviewing the economics of every product line, every site, every sales channel and every market segment
to ensure we are focused on those with the greatest potential. We are removing products that are not delivering value and investing
in the ones that are.
Freedom Foods needs to become a simpler business, and we are identifying and removing unnecessary layers of complexity in
manufacturing, marketing and the product suite which add costs, waste and risks to the business. This review process may result in the
divestment or closure of non-core assets and/or businesses.
We are working with our valued suppliers and customers to ensure our key contracts work for both parties. Like our employees, we
want relationships built on trust and mutual benefits.
We are looking at all options to maximise the value and utilisation of our existing facilities, particularly the Shepparton plant. We are
finishing the installation of remaining capital projects to enhance efficiencies across the sites.
Marketing and Brands
Central to our strategy to simplify the Freedom Foods Group business, is the ongoing review of our entire product portfolio. The
consequence of launching too many products for immaterial market gains is the introduction of costs, risks and waste into our
manufacturing processes, the dilution of the effectiveness of our marketing budgets and reduced margins.
We need to remove complexity and focus on core brands and on core products within those brands. Where we have market leadership,
we need to defend and grow it, not dilute it.
The first phase of the product review has already identified products that need to be removed or re-priced and there will be further
changes in our portfolio in the coming 12 months.
Our marketing budgets will be as focused as our product portfolio, ensuring every activity is consumer-led and every dollar is spent
effectively to drive sales.
Environment and Sustainability
As we move into a new era, sustainability will continue to be a key focus of Freedom and the team. We are continuing to work
through initiatives that are already in place, such as the solar energy project at Shepparton that is already delivering more than 20 per
cent of our energy needs. Our simplification program has the potential for a meaningful reduction in waste - something that makes
sense from both a cost and environmental perspective. The Group is developing a comprehensive environmental, social and
governance (ESG) framework to improve its ESG performance strategy and profile.
Looking ahead
There is enormous potential within Freedom Foods. Our key production facilities are best-in-class and we have significant growth
opportunities, particularly in our plant-based beverages, nutritionals businesses and the export channel. We have enviable customer
loyalty, a committed workforce and an engaged community of farmer suppliers and customers.
Realising our full potential will involve genuine changes across the business, but it will not happen overnight. This is a substantial
undertaking.
With the right culture, people, capital structure, systems and discipline across all components of the business – from manufacturing
to marketing – I am confident we can reclaim our standing as one of Australia’s most promising food and beverages businesses.
Yours sincerely,
Michael Perich
Interim Chief Executive Officer
5
Freedom Foods Group Limited
Directors' report
30 June 2020
The Directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as
'Freedom' or the 'Group') consisting of Freedom Foods Group Limited (referred to hereafter as the 'Company' or 'parent entity') and
the entities it controlled at the end of, or during, the year ended 30 June 2020.
1. Principal activities
Freedom is a leading consumer branded food and beverage group with over 700 staff operating in six locations across Australia and
two locations in Asia (Singapore and Shanghai).
The principal activities of the Group during the financial year were:
•
developing, sourcing, manufacturing, selling, marketing and distribution of plant-based and dairy beverages, dairy and
nutritional products to wholesale and consumer markets;
developing, sourcing, manufacturing, selling, marketing and distribution of specialty cereal and snacks to wholesale and
consumer markets;
selling, marketing and distribution of canned specialty seafood to consumer markets; and
an investment in dairy farming operations.
•
•
•
The Group operates marketing, sales and distribution activities in Australia, China and South East Asia and sells products to retailers
and distributors in New Zealand, South Africa and the Middle East.
There were no significant changes in the nature of the principal activities during the financial year, with the exception that the Group
has commenced the withdrawal from operating activities in North America.
The Company is of the kind referred to in the ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191, issued
by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the Directors’ Report. Amounts
in the Directors’ Report have been rounded off in accordance with that instrument to the nearest thousand dollars or in certain cases
to the nearest dollar.
The financial statements are presented in Australian dollars.
Going concern
The Group has prepared the financial statements for the year ended 30 June 2020 on the going concern basis, which assumes
continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business.
The Group made a loss after tax for the 2020 financial year of $174.5m (FY19- a restated loss of $145.8m) and net cash outflows from
operating activities of $93.9m (FY19 $132.7m). At 30 June 2020, the total borrowings of the Group were $292.3m which have been
classified within current liabilities. As a result, the Group had net current liabilities of $280.4m at 30 June 2020 (FY19: net current assets
of $20.9m).
In response to the financial issues affecting the Group, the directors and management have taken a number of significant measures to
stabilise the business and improve its future performance.
The Group obtained a waiver from its financiers in respect of non-compliance with lending covenants at 30 June 2020 and subsequently
entered a standstill agreement in September 2020 which remains in effect to 29 January 2021. Subsequent to the balance date, a
related party of the majority shareholder has guaranteed additional general-purpose funding in the form of a $45m Subordinated
Secured Facility, subject to various obligations including compliance with the terms of the standstill agreement. While Note 20 to the
financial statements sets out the additional undrawn facilities that the Group had at its disposal at 30 June 2020, these undrawn
amounts were cancelled as part of the standstill arrangements and replaced by the $45m subordinated facility.
The standstill agreement has given the Group the opportunity to investigate and remedy a number of operating and financial
matters. The Directors and management have identified opportunities to improve the operating and financial performance of the
business. A critical element of this is the recapitalisation of the Group to provide the necessary funding for the business to meet its
short and long-term financial requirements.
6
Freedom Foods Group Limited
Directors' report
30 June 2020
The Group needs to refinance its existing debt with more flexible capital that provides the Company the necessary runway to turn the
business around and return to profitability and future growth. The Group explored a number of alternative recapitalisation options
with a focus on seeking a solution that provides capital and operational expertise in implementing the turnaround. The Group is
currently in exclusivity with a counterparty on a recapitalisation by way of a listed secured subordinated convertible note, noting the
intent to allow for shareholder participation. The purpose of the fund raising is to allow the Group to reduce its existing senior finance
facilities and to provide additional working capital. The Group is working with that counterparty to finalise its due diligence, the
respective terms and offer document and is targeting to announce a fund raising by mid December 2020 with closing by 29 January
2021. The Group’s major shareholder and lenders are supportive of the transaction. The Group is working with its existing lenders on
negotiating revised terms for continuing facilities after the proposed secured subordinated convertible note is issued.
Whilst the proposed fund raising is at an advanced stage, there remains a risk that this will not complete. Key risks to the proposed
fund raising include satisfactory completion of the counterparty’s due diligence, regulatory approvals, and other conditions precedent
typical for a transaction of this nature. The on-going support of the Group’s major shareholders and lenders both in the period prior to,
and subsequent to, the proposed fund raising is critical to the ability of the Group to continue as a going concern. The business requires
improvement in its operating and financial performance, this is also critical to ensuring support for the transaction and continuing to
operate subsequent to any fund raising.
In the absence of the fund raising being completed, the Directors in consultation with their advisers will reassess the options available
at that point in time, including requesting a further extension of the standstill agreement, and/or commencing a process to sell non-
core businesses and or assets.
In addition, the Group’s current cashflow forecasts indicate that a further injection of short-term working capital is likely to be required
in January 2021. The Directors are confident that should a temporary deficiency in working capital arise it can be bridged in a number
of ways including improved working capital management, outperformance of forecasts, and/or additional support from the Group’s
lenders or its majority shareholder.
The Directors believe they will be successful in one or more of the above plans and accordingly, the financial report has been prepared
on a going concern basis.
Should any of the above matters not occur, a material uncertainty would exist which would cast significant doubt on the Group’s ability
to continue as a going concern and therefore whether it would be able to realise its assets and discharge its liabilities in the normal
course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded
asset amounts or to the amounts and classification of liabilities that may be necessary should the Group be unable to continue as a
going concern.
3. Operating and financial review
The Group recorded a loss after income tax benefit for the year ended 30 June 2020 attributable to the owners of Freedom Foods
Group Limited of $174.5m (FY19 restated: loss of $145.8m).
The Group recorded an EBITDA loss of $96.7m (FY19 restated: loss of $118.6m). Adjusted EBITDA is a non-IFRS measure and is
reconciled to the reported loss after income tax benefit in section 3.3 below.
3.1 Overview of material matters during the year and subsequent to year end
This section describes:
•
•
the significant events that have occurred in the FY20 year; and
the material matters, events and decisions taken by the Group following the initial voluntary suspension announced in June
2020 until the publication of this report.
Voluntary suspension
On 24 June 2020, the Group requested a trading halt and then on 25 June 2020 a voluntary suspension until 8 July 2020. The Group
extended its voluntary suspension until 31 October 2020. The Group subsequently extended the voluntary suspension to 30
November 2020 and has requested a further extension to 15 December 2020 to enable sufficient time to finalise its financial position,
resolve discussions with its lenders and prepare for a recapitalisation.
7
Freedom Foods Group Limited
Directors' report
30 June 2020
Key Executive changes
Rory J.F. Macleod ceased to be CEO & Managing Director, effective 30 June 2020. Campbell Nicholas ceased to be Company Secretary
and CFO, effective 23 June 2020. Amine Haddad ceased to be CEO Group Commercial, effective 9 June 2020. The Board appointed
Brendan Radford as Acting CEO, Stephanie Graham as Acting CFO and Perry Gunner as Executive Chair on 24 June 2020. On 6 August
2020, the Board appointed Michael Perich as Interim CEO, Perry Gunner ceased as Executive Chair and reverted to Non-Executive
Chair and Brendan Radford returned to his previous role as CEO Commercial Operations. Brendan Radford ceased to be CEO
Commercial Operations on 25 September 2020. The Company announced the appointment of Josée Lemoine as Group CFO on 1
October 2020. The Company appointed a General Manager of Internal Audit, Tim Phoon commencing on 23 November 2020. The
Company announced the appointment of Justin Coss as Group General Counsel and Company Secretary, commencing on 23
November 2020. Interim Company Secretary Scott Standen will oversee an orderly transition of company secretarial matters.
Board changes
During the year, two new independent Non-Executive Directors were appointed to the Board, Genevieve Gregor and Jane
McKellar. Genevieve Gregor is Chair of the Board Risk and Compliance Committee and Jane McKellar is Chair of the Board People and
Culture Committee.
Timothy Bryan was appointed as Alternate Director for Anthony M. Perich and Ronald Perich. Concurrent with the appointment of
Michael Perich as Interim CEO on 6 August 2020, Michael Perich resigned as an Alternate Director for Ronald Perich.
The Non-Executive Chairman Perry Gunner is not seeking re-election at the next AGM and Non-Executive Director Trevor Allen
intends to retire from the Board at the next AGM. The Board renewal process will continue.
Impacts of COVID-19
The COVID-19 pandemic and associated government responses have affected the Group’s businesses in a number of ways:
•
•
•
Operations: The Group implemented or enhanced employee health and safety measures, shift protocols, well-being
programs and flexible and remote work practices. These measures kept employees safe and ensured no major interruptions
to operations, including at the Group’s operations in Victoria. The Group benefitted from the support of strategic partners in
managing supply chain continuity, in particular during increases in demand. The Group did not access JobKeeper wage
subsidies or other government support programs.
Consumer response: COVID-19 and government-imposed lockdowns temporarily changed consumer behaviours, with a fall
in the out-of-home channel offset by an increase in the grocery channel due to panic buying, particularly UHT products.
Demand in the domestic out-of-home channel has since recovered to pre-COVID levels, although demand has shifted to
suburban rather than CBD outlets. Demand for cream remains lower than pre-COVID levels. Consumer nutritionals sales
were impacted by gym and specialty store closures, with Group demand down in the H2 FY20. The re-opening of these
facilities has been reflected in an improvement in demand.
Financial impact: COVID-19 adversely affected revenue and profitability. Margins in the grocery channel are materially lower
than out-of-home and the decline in out-of-home sales affected EBITDA in the second half of FY20. Cream pricing was
adversely affected during the peak COVID-19 period as customers closed facilities, leading to an oversupply in the market
and pricing remains below long-term trends. There was a significant decline in exports to China and South East Asia in the H2
FY20 and export sales continue to trend below pre-COVID expectations. As part of cost-management initiatives, the Group
initiated a warehouse rationalisation program and implemented a redundancy program, with 62 roles being made redundant
in May and June 2020. The Group has also restricted capital expenditure.
8
Freedom Foods Group Limited
Directors' report
30 June 2020
Operations
The Group’s operating and statutory financial performance in FY20 has been affected by the following matters:
•
•
•
•
•
Site operations: The Group experienced delays in the commissioning of new capacity at its Shepparton plant, resulting in
higher wastage, under-recovery of protein and lower-than-anticipated yields of lactoferrin. The Group is now achieving more
consistent operational performance at Shepparton, with the lactoferrin plant producing materially higher volumes in line
with design expectations. Cereal and Snacks operating facilities at Leeton, Dandenong and Darlington Point have been
underutilised. The Group has commenced a full strategic review of the Cereal and Snacks segment.
Costs: Unrealistic operational costing budgets have resulted in prices being set too low for some products, resulting in
unprofitable sales. The Group has commenced a full review of all product lines.
Milk supply: Delays in plant commissioning and planning decisions resulted in surplus milk supply being traded at a loss. The
Group has implemented thorough planning processes to ensure that supply is better matched with demand.
Trade spend: Some trade spending in the retail channel, particularly in the Cereal and Snacks segment, was ineffective,
which adversely affected profitability. Trade spending policies have been reviewed, with funding reduced and re-focused.
New product development: New product development expenditure, particularly in the Cereal and Snacks segment, did not
achieve anticipated returns. In line with its full review of all product lines, the Group has adopted a more focused approach
to new product development decisions.
Board investigations
Following the Board identifying matters regarding the operation and administration of the Group’s equity incentive plan (EIP), the
Board initiated an investigation with the assistance of external advisers.
The implementation of a warehouse consolidation program led to the identification in May 2020 of out-of-date, unsaleable, and
obsolete inventory and other inventory accounting matters. These matters were reported in the ASX announcements of 29 May 2020
and 25 June 2020. The Board commissioned a further investigation of the Group’s financial position in June 2020, with the assistance
of external advisors including PwC, Moelis Australia, Arnold Bloch Leibler and Ashurst. A range of additional matters were identified,
which are outlined below in the prior periods’ restatement.
The Company is cooperating with ASIC in relation to these investigations.
Prior periods restatement and current year impacts
As referred to in Note 3 of the Financial Statements, the Group has made the following adjustments which impact the opening
position in its financial statements as at 1 July 2018, the performance and position reported at 30 June 2019 and the current year
results:
1.
2.
3.
a reduction in the value of property, plant and equipment in respect of costs previously capitalised during the commissioning
phase of the Group’s capital investment program which is now drawing to completion. The Group has determined that a
proportion of these costs are more appropriately treated as expenses or have not been sufficiently able to be identified as
directly attributable costs of bringing the asset to the location and condition necessary for it to be capable of operating in the
manner intended by management. Revenues generated from products produced during the commissioning phase have been
deducted from the cost of property, plant and equipment. Changes have been made to the expected useful lives of property,
plant and equipment at the time of their transfer from capitalised work in progress to depreciable plant and equipment.
Previously unrecognised land and building revaluations have been recognised in the relevant periods. Associated adjustments
to capitalised interest and depreciation have also been recognised as well as current year impairment of unused assets
($5.5m);
impairment of intangible assets (goodwill) and property, plant and equipment in prior periods in the Dairy and Nutritionals
CGU ($31.6m goodwill) and the Cereal and Snacks CGU ($23.0m goodwill, $4.9m brands and $42.5m property, plant and
equipment) given the restated loss making performance of these businesses. Current year impairments of right of use assets
($4.1m) and Specialty Seafood ($5.1m goodwill and $10.6m trademark)) have also been recognised;
Inventory write-downs and write-offs occurred, relating to out of date, obsolete, unsaleable, unable to be located and
overvalued stock relative to net realisable value, much of which was produced during the commissioning phase of new
equipment;
9
Freedom Foods Group Limited
Directors' report
30 June 2020
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
a reduction in the value of capitalised new product development costs as a result of a review of the nature of the costs
capitalised and associated changes to amortisation;
a reduction in revenues and receivables for items which were not deemed to have met the revenue recognition criteria in prior
periods, arising from a review of year end cut off deadlines;
writing off various aged receivable or other assets balances which were not recoverable;
increase in prior period accruals for trade marketing and trade promotional expenditure;
restatement of the carrying value of equity accounted investments to reflect the proportion of earnings derived in each year;
an increase in prior periods’ share based payments expense arising from written invitations made to employees in September
2014 accepted by those employees which were not authorised by the Board. AASB 2 requires the Group to account for the
obligation and expectations created by the correspondence as if the issue had been authorised by the Board. This requires
calculation of share based payments expense in respect of the September 2014 invitations for the period from September
2014 until the expiry of the invitation in September 2019;
recognition of lease payments under operating leases as expense on a straight-line basis over the lease term as required by
AASB 117 (previous accounting standard on Leases);
recognition of a make good provision to meet the Group's obligations at the time of returning leased property;
recognition of onerous property contracts;
derecognition of duplicate accruals;
reclassification of related party loan;
translation of foreign currency dominated loan;
restatement of the prior periods’ tax balances to reflect the impact of the above.
A summary of the effect of the above matters in FY20, FY19 (restated) and FY18 and prior (restated) is set out below:
Consolidated adjustments
Ref
2020
$'000
2019
$'000
2018 and
prior
$'000
Property, plant and equipment (increase) / decrease
Goodwill and brand names (increase) / decrease
Inventories (increase) / decrease
Capitalised New product development (increase) / decrease
Trade and other payables increase / (decrease)
Trade and other receivables (increase) / decrease
Provisions and other increase / (decrease)
Right of use assets (increase) / decrease
Share Based payments increase / (decrease)
Equity accounted investments increase / (decrease)
Deferred tax increase / (decrease)
1, 2
2
3, 5
4
3, 7, 10,13
5, 6
11, 12, 14, 15
2
9
8
16
102,046
16,395
19,364
-
839
4,262
-
4,151
-
-
(2,445)
144,611
108,254
-
26,363
19,286
6,663
7,220
(1,755)
-
469
246
(15,874)
151,320
162,512
59,481
14,376
19,570
15,284
10,620
6,134
-
5,078
487
2,053
295,594
Total
$'000
372,812
75,876
60,103
38,856
22,786
22,102
4,379
4,151
5,547
733
(16,266)
591,526
FY20 adjustments have been determined considering the impact of the above matters on a basis consistent with that in FY19 and FY18
and prior in the restated accounts.
As a result of the adjustments referred to above, the interim financial report issued for the half year ended 31 December 2019 will also
need to be restated and therefore should not be relied upon. The December 2019 accounts will be restated as part of the process of
reporting the Group’s results for the half year to 31 December 2020.
Bank facility amendments (subsequent event)
On 11 September 2020, the Group entered into a standstill agreement with its primary lenders, National Australia Bank Limited and
HSBC Bank Australia Limited (Banks), pursuant to which the Banks have agreed until 29 January 2021, not to take any action against
the Group in respect of any amounts owing to the Banks under the Group’s financing agreements with the Banks, unless the Group
commits a breach of the standstill agreement. As the standstill agreement is expiring in January 2021, it is considered appropriate to
classify all borrowings as current.
Refer to Note 20 for further information on assets pledged as security and financing arrangements.
10
Freedom Foods Group Limited
Directors' report
30 June 2020
Recall (subsequent event)
The Group conducted a recall in September 2020 of certain batches of plant-based beverages. The recall applied only to the specific
batches. The issues that resulted in this recall have been fully resolved. The Company has insurance to cover the costs of the recall,
subject to an excess of $500,000.
Blue Diamond Proceedings (subsequent event)
Legal proceedings have commenced in both Australia and the United States between Blue Diamond Growers (Blue Diamond) and
certain Group subsidiaries including Freedom Foods Pty Ltd (FFPL). Further details can be found in the ASX release dated 30 September
2020.
Blue Diamond Claim seeks:
•
compensatory and general damages for breach of the Licence Agreement, which Blue Diamond asserts to be at least
US$16 million;
compensatory and general damages for breach of an alleged oral agreement; and
specific performance of the Licence Agreement.
•
•
The Group disputes Blue Diamond’s claims and is defending its position. No contingent liabilities or contingent assets are recognised
in the financial statements in respect of these proceedings.
Recapitalisation
Further detail with regard to capital raising can be found in the results presentation dated 30 November 2020.
Except as disclosed, no matter or circumstance has arisen since 30 June 2020 that has significantly affected, or may significantly
affect, the Group's operations, the results of those operations, or the Group's state of affairs in future financial years.
3.2 Business strategy
Freedom Foods Group’s mission is to make food better.
The Group’s core strategy is to execute on an organisational transformation program that will position the business for profitable
growth. Comprehensive strategic and operational reviews are underway and operational efficiency programs are being undertaken at
all sites.
This transformation program will result in an increased focus on costs and individual product profitability, rationalised product portfolio,
plant efficiency initiatives and focus on the Company’s core high-growth and high-margin businesses, particularly plant-based
beverages and protein-based nutritionals.
The Group is reviewing its portfolio of businesses. The review may result in the future divestment or closure of non-core assets and/or
businesses.
3.3 Group operating and financial review (all comparatives refer to restated FY19)
Set out below is a summary statement of profit and loss for the year ended 30 June 2020 together with a restated summary statement
of profit and loss for the year ended 30 June 2019. The restated summary statement of profit and loss for the year ended 30 June 2019
reflects the accounting changes required to incorporate the effect of the matters discussed above on the profit and loss of the group
for that period.
11
Freedom Foods Group Limited
Directors' report
30 June 2020
Net sales
EBITDA
Share of associates profit/(loss)
Depreciation and amortisation
Impairment
Net finance costs
Net loss before tax
Income tax benefit
Net loss after tax
Adjusted EBITDA*
The following table adjusts EBITDA for various non-trading and non-recurring items:
EBITDA
Additional inventory provision
Restructuring expenses
Additional debtor provisioning
Acquisition costs
Discount charge - limited recourse facility
Unrealised foreign exchange loss
Share based payments
Other non-trading expenses
Adjusted EBITDA (post AASB 16)
Adjusted EBITDA (pre AASB 16)
Consolidated
2020
$'000
2019
restated
$'000
580,191
461,768
(96,675)
586
(30,626)
(26,082)
(21,812)
(174,609)
101
(174,508)
(118,586)
(253)
(18,120)
-
(9,719)
(146,678)
851
(145,827)
Consolidated Consolidated
2020
$'000
2019
restated
$'000
(96,675)
(118,586)
18,264
194
1,800
1,336
1,150
1,589
6,247
-
18,027
1,443
3,572
861
1,471
(8)
(417)
(35)
(71,761)
(86,537)
(88,006)
* Adjusted EBITDA (Earnings before interest, tax, depreciation and amortisation) is a non-IFRS measure as contemplated in ASIC
Regulatory Guide 230 Disclosing non-IFRS financial information (RG230). Adjusted EBITDA is used by management and the directors as
the primary measures of assessing the financial performance of the Group and individual segments. Adjusted EBITDA excludes abnormal
items including the additional inventory provisions above a normalised level and other abnormal expenses including acquisition costs,
restructuring costs and other non-trading expenses.
3.3.1 Commentary on specific items in the profit and loss account
Net sales increased by 26% to $580m, split between net sales increases of 24.7% to $470.2m for domestic sales and 28.7% to $109.8m
for export sales. Sales of Dairy and Nutritionals products for industrial and retail use rose 37% to $363.0m, reflecting increasing
utilisation of our expanded production facilities, albeit less than expectations. Increasing market acceptance of plant-based milks
provided in UHT format for use in the home and in out-of-home trade contributed to a rise in net sales of Plant-based Beverages of
35% to $132.3m. Export sales to South East Asian markets, rose by 261% to $34.4m, reflecting increasing market acceptance of our
Australia’s Own and MILKLAB dairy brands. Export sales of UHT dairy milk products to China rose by 7.7% to $60.1m notwithstanding
COVID-19 impacts, led by increased sales to strategic contract packing customers. Cereal and Snacks sales were disappointing in both
Australia and Asia in many product lines, with total sales of $69.9m, a fall of 13.6%.
12
Freedom Foods Group Limited
Directors' report
30 June 2020
Adjusted EBITDA (pre AASB 16) losses decreased by 1.7%, from $88.0m to $86.5m. While higher profitability was obtained from our
plant-based products and from the commencement of bulk nutritional sales of lactoferrin and similar products, the contributions from
these areas were outweighed by selling many products at prices insufficient to recover production and operating costs, and the level
of discounts and trade support needed to support revenue growth. Contributing factors included operating well below capacity at the
Leeton and Dandenong plants, with reduced levels of operating efficiency during the Shepparton production facility expansion (this
was reflected in high milk wastage levels). There was a 23% increase in selling and distribution costs – including excess transport and
logistic costs as a result of holding high levels of inventory. A 14% increase in marketing costs also contributed to EBITDA losses.
Depreciation charges increased by 69% from $17.5m in FY19 to $29.5m in FY20. The increase in depreciation reflected a transfer of
most of the capital work in progress of the Shepparton expansion project to fixed assets and the introduction of AASB 16, the new lease
accounting standard. The split in depreciation charges between traditional plant and equipment depreciation and AASB 16-related
depreciation is as follows:
Depreciation – buildings, plant and equipment: $19.5m
Depreciation – AASB 16 related: $9.9m
Net finance costs increased by 124% from $9.7m to $21.8m, largely as a result of the adoption of the AASB 16 lease accounting standard
from 1 July 2019. The standard changed the accounting treatment of lease payments substantially by requiring entities to record a lease
liability on balance sheet at the present value of future rental payments, which increases through an interest expense through the profit
and loss account over the lease term. The split of finance costs between interest paid and the AASB 16-related finance charge was as
follows:
Interest – based on debt facilities $9.9m:
Interest – AASB 16 related: $11.9m
Impairments of brands, goodwill and right of use assets amounted to $20.5m in FY20 (nil in FY19) resulting from a reduction in the
carrying value of right of use assets and intangible assets in the consumer nutritionals and Specialty Seafood cash generating units.
Inventory provisions of $18.5m (FY19 26.7m) were recognised during the year and included in costs of sales. An amount of $18.0m
(FY19 $18.3m) was in excess of a normal level of provisioning due to commissioning the Shepparton dairy manufacturing site and
unsuccessful product development in the Cereal and Snacks division
Income tax expense is nil in FY20 given the Company’s loss-making position.
3.3.2 Segment performance
The Group measures its financial and operating performance by reference to the following segments:
Dairy and Nutritionals
A range of UHT (long life) dairy milk beverage, nutritional products and performance and adult
nutritional powders. These products are manufactured in Australia and sold in Australia and
overseas.
Plant Based Beverages
A range of UHT (long life) food and beverage products including liquid stocks, soy, rice and almond
beverages. These products are manufactured in Australia and sold in Australia and overseas.
Cereal and Snacks
A range of products for consumers including allergen free, nutritional oat based, low sugar or salt,
highly fortified or functional. The product range covers breakfast cereals, snack bars and other
complementary products. These products are manufactured and sold in Australia and overseas.
Specialty Seafood
A range of canned seafood covering sardines, salmon and specialty seafood. These products are
imported into Australia and sold in Australia and New Zealand.
13
Freedom Foods Group Limited
Directors' report
30 June 2020
Set out below is the segment performance for the Group for the year ended 30 June 2020, together with a restated segment
performance table for the year ended 30 June 2019.
Consolidated 2020
Dairy and
Nutritional
Plant Based
Cereal and
Specialty
Ingredients
$'000
Beverages
$'000
Snacks
$'000
Seafood
$'000
Unallocated
Shared
Services
$'000
Total
$'000
Revenue
362,922
132,319
69,905
15,045
-
580,191
EBITDA
Additional inventory
provisioning
Restructuring
Additional debtor provisioning
Acquisition costs
Discounting charge - limited
recourse facility
Unrealised foreign exchange
loss
Share based compensation
Other non-trading expenses
Adjusted EBITDA (post AASB 16)
Adjustment for rental expense
Adjusted EBITDA (pre AASB 16)
(52,446)
17,013
(34,270)
203
(27,175)
(96,675)
10,902
403
-
-
3,856
129
3,013
-
3,269
133
559
-
-
-
-
-
-
(572)
(41,713)
(4,343)
(46,056)
-
-
306
24,317
(7,086)
17,231
-
-
(40)
(30,349)
(1,756)
(32,105)
-
19
-
-
-
-
-
-
222
-
222
-
759
-
861
18,027
1,443
3,572
861
1,471
1,471
(8)
(417)
271
(24,238)
(1,591)
(25,829)
(8)
(417)
(35)
(71,759)
(14,776)
(86,535)
Consolidated 2019 restated
Dairy and
Nutritional
Plant Based
Cereal and
Specialty
Ingredients
$'000
Beverages
$'000
Snacks
$'000
Seafood
$'000
Unallocated
Shared
Services
$'000
Total
$'000
Revenue
264,780
101,523
80,938
14,527
-
461,768
EBITDA
Additional inventory provisioning
Restructuring
Additional debtor provisioning
Acquisition costs
Discounting charge - limited
recourse facility
Unrealised foreign exchange loss
Share based compensation
Adjusted EBITDA (pre AASB 16)
(49,282)
11,734
101
1,800
-
-
-
-
(35,647)
(6,475)
3,239
47
-
-
-
-
-
(3,189)
(34,175)
2,569
38
-
-
-
-
-
(31,568)
(3,593)
722
7
-
-
-
-
-
(2,864)
(25,061)
-
-
-
1,336
1,150
1,589
6,248
(14,738)
(118,586)
18,264
194
1,800
1,336
1,150
1,589
6,248
(88,006)
The 'Unallocated Shared Services' group consists of the Group's shared service functions that are not separately reportable and provide
support services to other reportable operating segments.
14
Freedom Foods Group Limited
Directors' report
30 June 2020
3.3.3 Segment performance (FY20 adjusted EBITDA is pre AASB 16 and all comparatives refer to restated FY19)
Dairy and Nutritionals
The Group experienced increased revenues through the grocery channel as a result of price increases in January 2020, panic buying in
March 2020, a net increase in exports to Asia (despite the impacts of COVID-19) and increased industrial nutritionals sales. The adjusted
EBITDA for the segment was a loss of $46.1m, an increase of 29.5% over the FY19 loss of $35.6m. Performance was adversely impacted
by selling prices not fully recovering costs of production in a number of products, the delayed commissioning of the lactoferrin plant,
delayed commissioning of the UHT expansion and losses from the sale of excess milk. Inventory write-downs and write-offs occurred,
relating to out of date, obsolete, unsaleable, unable to be located and overvalued stock relative to net realisable value. Given the under-
utilisation of plant and equipment, overheads were not fully recovered. The segment is now consistently producing and delivering high
specification lactoferrin. Utilisation of the plant is improving, focused controls around yield and recovery have been implemented and
a review of product lines is underway. The Group is focused on returning this segment to profitability in FY21. Demand for consumer
nutritionals was negatively impacted by COVID-19 but performance has now stabilised and is expected to improve through expanding
the product range for distribution into pharmacies and specialty stores.
Plant-based Beverages
The plant-based beverages segment experienced strong growth across all channels and all brands during the year. The adjusted EBITDA
for the segment was a profit of $17.2m compared to a loss of $3.2m in FY19. This result was obtained notwithstanding the impact of
COVID-19 when out-of-home and export demand was disrupted during the peak lockdown periods in the third and fourth quarter of
FY20. Volumes are recovering and profitability continues to improve in the out-of-home channel. The Group anticipates improvements
across the various channels as manufacturing and distribution economies of scale are realised. MILKLAB enjoys strong brand loyalty in
a segment experiencing a shift to consumption of plant-based beverages. This is a profitable channel for the Group’s owned brands
with further opportunities for growth through new product development and geographic expansion.
Cereal and Snacks
Revenues have declined in this segment due to the exit from some contract manufacturing and reduced sales into Asia, partially offset
by increased grocery sales that benefited from panic buying during COVID-19 in H2 FY20. The adjusted EBITDA for the segment was a
loss of $32.1m, compared to a loss of $31.6m in FY19. The Group’s key brands of Messy Monkeys, Heritage Mill and Crankt all grew
sales during the year, however Arnold’s Farm was affected by reduced demand from China. Selling prices for a number of products did
not fully recover the costs of production. Dependence on grocery channels, which are generally lower margin, leaves little flexibility to
grow profitability and places an over-reliance on trade marketing to grow volumes and introduce new brands. The Group is reviewing
this segment. The review may result in the future divestment or closure of non-core assets and/or businesses.
Specialty Seafood
Revenue was relatively flat in this segment despite a fall in volumes following price increases caused by higher seafood input prices
and adverse exchange rate movements. Profitability in FY20 improved as a result of the price increases plus rationalisation of trade
marketing spend. The adjusted EBITDA for the segment was a profit of $0.2m compared to a loss of $2.9m in FY19. The segment’s
intangible assets were impaired during FY20. The Group is reviewing this segment. The review may result in the future divestment or
closure of non-core assets and/or businesses.
3.4 Statement of financial position (all comparatives refer to restated FY19)
Set out below is a summary balance sheet as at 30 June 2020 together with a restated summary balance sheet as at 30 June 2019. The
restated summary balance sheet as at 30 June 2019 reflects the matters discussed above on the financial position of the Group as at
that date.
15
Freedom Foods Group Limited
Directors' report
30 June 2020
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Share capital
Reserves
Accumulated losses
Total equity
Consolidated
2020
$'000
146,536
535,366
681,902
(426,921)
(193,982)
(620,903)
2019
restated
$'000
208,227
347,280
555,507
(187,344)
(133,506)
(320,850)
60,999
234,657
Consolidated
2020
$'000
2019
restated
$'000
598,712
(55,851)
(481,862)
589,123
(44,750)
(309,716)
60,999
234,657
Trade and other receivables decreased by 8.2% from $69.9m to $64.2m, reflecting increased usage of the debtor sale facility. Debtors
days decreased from 72 days to 60 days.
Inventories decreased by 25% from $79.5m to $59.8m, reflecting the writedown of inventory. Inventory turnover days decreased from
33 days to 29 days.
Trade and other payables decreased by 4.6% from $129.4m to $123.4m, reflecting the completion of substantially all of the capital
expenditure programs. Since the end of FY20, significant effort has gone into reducing the level of aged creditors.
Property, plant and equipment increased by 10.2% from $270.7m to $298.4m, reflecting the finalisation of the major capital
expenditure program at Shepparton. There is no significant capital expenditure currently under consideration by the Group, with the
focus on maximising efficiencies from the existing asset base.
Intangibles decreased by 30.6% from $53.0m to $36.8m reflecting impairments to the carrying value of brands and goodwill across the
Specialty Seafood segment and consumer nutritionals CGU. The goodwill and the carrying value of the Specialty Seafood brands have
been impaired reflecting a deterioration in the outlook for this segment
Deferred tax liabilities remain at $nil. The full extent of the potential tax benefit has not been recognised due to the number of years
that it will take for tax losses to be utilised. This position will be reassessed on an annual basis.
Net borrowings increased by 125% from $122m to $275.2m due to operating losses and the finalisation of the major capital expenditure
program. Further detail on cashflow and funding is discussed below.
Shareholders equity decreased by 74% from $234.7m to $61.0m, reflecting primarily the loss incurred by the Group in FY20, which
includes the impact of all operating and accounting matters discussed above.
16
Freedom Foods Group Limited
Directors' report
30 June 2020
3.5 Commentary on cashflow and funding
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Cash and cash equivalents at the end of the financial year
Consolidated
2020
$'000
2019 restated
$'000
(94,245)
(28,446)
84,473
(38,218)
(129,909)
(78,420)
165,608
(42,721)
55,385
98,106
17,167
55,385
The Group had an operating cash outflow for the last two years, as a result of selling many of its products at prices insufficient to recover
production and operating costs, and the level of discounts and trade support needed to support revenue growth. Contributing factors
included operating below capacity at Leeton and Dandenong and with reduced levels of operating efficiency during the Shepparton
production facility expansion.
Expenditure on investing activities decreased in FY20, as the major Shepparton expansion project was largely completed.
Cash obtained from financing activities decreased in FY20, as both operating and investing cashflow demands were reduced. In FY20,
funds were obtained primarily from the Group’s finance facilities, whereas in FY19 additional funds were obtained from the equity
raising completed in May 2019.
4. Dividends
On 27 February 2020, the directors declared an unfranked interim dividend of 2.25 cents per share to the holders of fully paid ordinary
shares in respect of the half year ended 31 December 2019. On 29 May 2020, the Company announced that it was cancelling the
dividend declared on 27 February 2020. There will be no final dividend declared for FY20.
Dividends paid during the financial year were as follows:
Final unfranked dividend of 3.25 cents per ordinary share for the year ended 30 June 2019 paid in
cash during the year ended 30 June 2020 (2019: 2.75 cents 50% franked)
Dividends reinvested: unfranked at 30% tax rate (2019: 50% franked)
Interim 50% franked dividend of 2.25 cents per ordinary share paid in cash during the year ended 30
June 2019
Final unfranked dividend of 1.35 cents per convertible redeemable preference share paid in cash
during the year ended 30 June 2020 (2019: 1.35 cents 50% franked)
Interim 50% franked dividend of 1.35 cents per convertible redeemable preference share paid in
cash during the year ended 30 June 2019
Consolidated
2020
$'000
2019 restated
$'000
2,658
6,211
-
1
-
2,445
7,869
1,906
1
1
8,870
12,222
17
Freedom Foods Group Limited
Directors' report
30 June 2020
5. Environment, sustainability, quality and safety
5.1 Environmental regulation
The Group’s operations are subject to environmental regulation under the laws and regulations of the Commonwealth of Australia, and
various Australian State and local regulatory bodies. There were no material breaches of environmental laws, regulations or permits
during the year.
5.2 Environment and Sustainability Statement
The Group is committed to making a distinctive and positive contribution to its communities and its operating environments.
Sustainability is a business method that ensures safety, efficiency and responsibility in a manner that protects the Group’s employees,
communities, shareholders, and the environment, now and in the future. Our daily operations align business performance with a
commitment to environmental, social and community stewardship.
Set out below are examples of work undertaken by the Group:
•
•
•
•
•
Work was completed in February 2020 on a solar power upgrade at our Shepparton plant to optimise energy efficiency. Solar
energy has contributed more than 20% of the overall power use at Shepparton since commissioning (equivalent to 5.5
MWh).
The Group has focused on waste minimisation to landfill. It is working with farmers and biodegradable waste processors to
repurpose liquid waste into fertilisers or animal foods. A significant amount of waste product has been diverted from landfill
by partnering with a fertiliser manufacturer.
The Group installed and commissioned a reverse osmosis water treatment plant in April 2020 to improve the water quality at
Shepparton. The reverse osmosis water treatment plant produces brine water, which is used in the site’s cooling towers,
reducing use of town water supply by 60,000 – 70,000 litres per day.
Shepparton Warehouse lights upgraded to LED. Energy savings are over 400,000 kwh a year.
The Group supports the Australian Dairy Sustainability Framework, which sets out environmental targets such as reducing
greenhouse gas emissions by 30% by 2030. The initiative includes a whole-of-chain approach, including the reduction of
greenhouse gas emissions by dairy manufacturers.
Continuous Improvement and Environmental, Social and Governance
The Group is developing a comprehensive Environmental, Social & Governance (ESG) strategy to improve its ESG performance,
reporting and profile. The Group will provide updates on ESG reporting metrics and targets in due course.
5.3 Quality and food safety
Quality and food safety is an important foundation for the ongoing success of the Group. The Group strives to achieve quality across
the business through its products, services and people. Quality and food safety is intrinsic to the business philosophy and culture. The
quality and safety of the products, as well as meeting the requirements of our customers, are high priorities of the Group.
The Group has a range of certification and regulatory bodies independently auditing our sites based on standards including:
•
•
•
•
•
State-based Food Authority audits and Export Registered Facilities audit via the Department of Agriculture, Water, and the
Environment;
Global Food Safety Initiative (GFSI) Standards such as Safe Quality Food (SQF) and British Retail Consortium (BRC);
HACCP Certification;
Retailer and customer standards; and
Product-specific standards, such as Australian Certified Organics and Gluten-Free Certification program.
We continue to review our certification requirements specifically for export markets requirements.
18
Freedom Foods Group Limited
Directors' report
30 June 2020
5.4 Safety
Statement of commitment
The Group is committed to providing a workplace that enables all work activities to be carried out safely.
The Group will take all reasonably practicable measures to eliminate or minimise risks to the health, safety and welfare of workers,
contractors, visitors and anyone else who may be affected by our operations.
The Group is committed to ensuring it complies with the Work Health and Safety Act 2011 (the Act) and any other relevant legislation
and required codes and standards that are applicable to the Group.
The WHS Management Plan and WHS Policies and Procedures set out the safety arrangements and principles which are to be observed
by the Group and its workers to ensure compliance with the WHS Act and to provide appropriate mechanisms for continuing
consultation and management of WHS matters.
6. Risks
The Group considers risk management integral to the achievement of its mission, vision and values.
The Risk and Compliance Committee has, during FY20 and subsequent to the year end, undertaken a comprehensive review of the
Group’s risk appetite, its risk management framework and its key risks and how they are being managed.
Key initiatives arising from the review that have been completed include:
•
•
•
•
•
•
approval of a new, revised risk management framework;
approval of a new compliance policies management framework;
establishment of a dedicated risk management function within the Group;
implementation of a new technology-based approach to the management of risk across the Group;
a comprehensive re-assessment of the Group’s risk profile; and
appointment of a GM Internal Audit.
There are a number of material business risks that have the potential to impact the Group’s ability to achieve its objectives. Some of
the key risks to which the Group is exposed and Group's approach to managing these risks are summarised below:
19
Freedom Foods Group Limited
Directors' report
30 June 2020
Risk Type
Description of the risks
How we manage the risks
Access to financial
resources
The Group’s business activities require access to
equity and debt markets to finance its day-to-day
working capital and invest in long-term income-
producing assets. Access to these markets can
change from time to time based on economic and
financial markets conditions, geopolitical issues in
the markets in which the Group operates in, the risk
appetite of banks and other credit providers, the
investment appetite of equity investors, and the
view of the Group as a suitable party to extend
credit to or invest in.
Changing consumer
preferences in
competitive markets
Consumer tastes and buying preferences in relation
to the Group’s products are constantly changing.
These preference changes can be in response to a
range of factors, including new products entering
the market, environmental factors, health and
nutritional advices, regulation, sales and marketing
initiatives by the Group’s competitors, and product
price changes by the Group and its competitors.
This financial year, and subsequent to the financial
year end, the Group’s board and management have
devoted significant time and resources to improving
the financial management of the Group to allow it to
obtain ongoing access to equity and debt markets to
assist financing the Group’s activities and to meet
future needs. The Board has sought additional input
from external advisors including PwC and Moelis.
The Finance & Audit Committee is focused on
continuing
financial
improve
management of the Group in future periods.
the overall
to
The Group focuses on being a leading innovator in its
chosen product and channel segments. This focus
has, in recent years, seen the launch of numerous
products in existing and new segments. The Group
seeks to maintain market share by having consistently
high-quality and consumer-relevant products.
the
trends at
The Group strives to be at the forefront of changes in
market
level and
understanding the response from competitors to
these changes. It uses consumer insights, research
and data in its development of new products and
improving the existing portfolio.
consumer
A rigorous new product development process has
been implemented.
The capacity of the Group’s competitors to introduce
competing products with those of the Group is high.
The Group can be at risk of its products being
replaced in key channels by products produced by its
competitors. Any reduction in the Group’s product
sales and market shares in each segment may
impact its financial performance in the short,
medium and long term.
20
Freedom Foods Group Limited
Directors' report
30 June 2020
Risk Type
Cultural
Pandemic Risks
Description of the risks
How we manage the risks
Among other things, poor corporate culture can
lead to unethical practices, lack of trust, poor
decision-making, increased employee turnover
and reduced motivation.
The COVID-19 pandemic that emerged in March
2020 in Australia has impacted most businesses.
The Group has been impacted by the COVID-19
pandemic including the loss of revenue, mainly in
the sale of cream and out-of-home products.
The length and duration of the current pandemic
and the economic impact remain uncertain. The
pandemic will continue to have an ongoing and
unknown impact on the Group.
Any further virus outbreaks
in Australia or
overseas may adversely affect the Group’s
business operations and financial performance.
The Group’s Board and management are laying the
groundwork for a positive and inclusive culture.
A refresh of key senior executive appointments and
board renewal are being undertaken.
A new remuneration structure has been established
to align with business strategy and desired
behaviours. The People and Culture Committee has
refreshed
including a
its policy documentation,
revised Committee Charter.
The Group put in place measures in early 2020 to
protect its key sites and employees. The Group has
detailed protocols in place for any virus outbreaks in
the states and regions in which it operates. As a result
of the measures put in place, production at all the
Group’s manufacturing sites has not been impacted
in any material way by COVID-19.
The Group also closely monitors the markets and
geographic regions in which it distributes its products
to assess the impact of COVID-19.
Doing Business in Export
Markets
The Group is exposed to a range of risks doing
business in international markets, particularly in
China and South East Asian markets. Business
practices and local laws and regulations differ
greatly from country to country.
There are also personal risks to the Group’s
employees operating in or travelling to these
countries that can include arbitrary detention,
criminal or civil charges, or fines for alleged illegal
business practices.
The Group seeks to manage these risks in a number
or ways:
- Employing experienced local personnel and working
with
long-established business partners and
customers to assist, understand and navigate the
local business environment in each market;
- Ongoing monitoring for any adverse geopolitical,
business and regulatory developments
in each
market; and
- Ensuring business decisions, business partnerships
and other contractual arrangements do not place
employees or the Group at risk.
21
Freedom Foods Group Limited
Directors' report
30 June 2020
Risk Type
Description of the risks
How we manage the risks
Quality and Food Safety
Legal action
The Group supplies a range of food products for
human consumption. As a result, the Group is
in the entire
inherently exposed to risks
production chain from receipt of ingredients
through to dispatch to the end consumer. Risks
can include food safety, product or packaging
quality and/or food integrity issues (including
interference by third parties) that may result in
injury or harm to consumers.
In addition, any food quality or safety incidents
may cause disruption to business activities, result
in increased costs, lead to potential litigation and
damage the Group’s reputation.
Legal action arises from time to time in the normal
business activities of the Group. Litigation can
arise from commercial disputes between the
it business partners, suppliers,
Group and
employees and other
third parties, and
government bodies for alleged or actual failures
to adhere to government regulations.
Litigation is costly and time consuming and
consumes board and management time and
resources. It creates reputational risk, brand
damage and potential liabilities for the Group, its
Directors and Officers, and employees.
Manufacturing disruption Production and sale of the Group’s products
relies on the continued operation of the Group’s
manufacturing facilities and consistent delivery
of product volumes to meet the Group’s
contractual requirements and demand growth.
Any material disruption to key parts of the
manufacturing process may result in a failure to
meet contractual sales volumes, loss of sales and
revenue, termination of contracts and business
partnership agreements, litigation and
reputation damage.
Regulatory investigations
and other action
The Group may be the subject of regulatory
investigations that may result in an adverse
impact on the Company and stakeholders.
The outcomes of any such investigations can be
litigation, civil or criminal prosecution and/or
lead to fines, compensation, remediation
expense and/or restrictions on the Group’s
ability to operate its businesses.
22
The Group has measures in place to manage and
minimise food quality, packaging and safety risks
using the latest technologies, including:
- rigorous food safety and quality management
systems, using the latest technologies, which are the
subject of continuous review;
- staff training and communication;
- reputable third-party suppliers and partners;
- compliance with food safety and standard laws and
accreditation processes; and
- established food safety incident and product recall
policies and procedures (including trial runs).
The Group is conscious of the reputational and
financial impacts that can arise from litigation and
takes all practical measures to manage potential or
actual legal disputes. This includes endeavouring to
prevent disputes from escalating, ensuring advice is
taken on matters to address a dispute, seeking to
avoid the use of court processes and, where
appropriate, having insurance in place to limit the
financial impact.
The Group seeks to manage these risks in a number
or ways:
- Employing experienced personnel;
- Well-designed manufacturing plant and
-
equipment; and
Industry best practice in relation to
maintenance and business continuity
planning.
Property and business interruption insurance is in
place for our operations.
The Group seeks to manage all its risks in order to
avoid adverse events that may lead to regulatory
investigations and other actions. The Group’s
organisation structure includes specific operational
teams focused on financial, quality, workplace
health and safety and people and culture matters.
The overall management of risk is governed by the
Group’s Risk Management Framework. The Risk and
Compliance Committee has oversight of operation of
the Risk Management Framework and the
management of risk across the Group.
Freedom Foods Group Limited
Directors' report
30 June 2020
7. Information on Directors
Name:
Title:
Qualifications:
Experience and expertise:
Other current directorships:
Former directorships (last 3 years):
Special responsibilities:
Interests in shares:
Name:
Title:
Experience and expertise:
Other current directorships:
Former directorships (last 3 years):
Special responsibilities:
Interests in shares:
Name:
Title:
Experience and expertise:
Other current directorships:
Former directorships (last 3 years):
Special responsibilities:
Interests in shares:
Mr Perry R. Gunner
Chairman and Non-Executive Director (Non-independent)
B.Ag.Sc, Grad Business Administration
Perry is former Chairman and CEO of Orlando Wyndham Wine Group and was appointed
Chairman in July 2006
None
Non-Executive Director of Australian Vintage Ltd
Member (and former Chair) of the Remuneration and Nomination Committee (now People
and Culture Committee), Finance and Audit Committee and Risk and Compliance Committee
1,288,099
Mr Anthony M. Perich AM
Deputy Chairman and Non-Executive Director
Anthony is a Member of the Order of Australia. He is joint Managing Director of Arrovest Pty
Limited, Leppington Pastoral Co Pty Ltd, 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, Anthony holds a number of
other directorships which
include Greenfields Narellan Holdings, Breeders Choice
Woodshavings Pty Limited, and Ingham Institute for Applied Medical Research. 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. He was appointed as a Director
in July 2006
None
None
Deputy Chairman of the Board, Member of the Finance and Audit Committee and Member of
the Risk and Compliance Committee
145,556,000
Mr Ronald Perich
Non-Executive Director
Ronald is joint Managing Director of Arrovest Pty Limited, Leppington Pastoral Co Pty Ltd, one
of Australia's largest dairy producers, and various other entities associated with Perich
Enterprises Pty Limited. He is also a business entrepreneur and former Director of United
Dairies Limited. He was appointed as a Director in April 2005
None
None
Member of the Risk and Compliance Committee and former member of the Remuneration and
Nomination Committee (now People and Culture Committee)
145,556,000
23
Freedom Foods Group Limited
Directors' report
30 June 2020
Name:
Title:
Qualifications:
Experience and expertise:
Other current directorships:
Former directorships (last 3 years):
Special responsibilities:
Interests in shares:
Name:
Title:
Qualifications:
Experience and expertise:
Other current directorships:
Former directorships (last 3 years):
Special responsibilities:
Interests in shares:
Name:
Title:
Qualifications:
Experience and expertise:
Other current directorships:
Former directorships (last 3 years):
Special responsibilities:
Interests in shares:
Mr Trevor J. Allen
Non-Executive Director (Non-independent)
B Comm (Hons), CA, FAICD
Trevor has over 40 years' experience in the corporate and commercial sectors, primarily as a
corporate and financial adviser to Australian and international public and privately owned
companies. Trevor is an independent Non-Executive Director of Peet Limited and an
independent Non-Executive Director of Eclipx Group Limited. Trevor is also a Non-Executive
Director of the holding company of Real Pet Food Company. He has recently been appointed
as the Freedom Foods Group Limited representative on the Board of Australian Fresh Milk
Holdings (AFMH), in which Freedom has a 10% shareholding. Prior to Trevor's Non-Executive
roles, he had senior executive positions in the investment banking and corporate advisory
sector, at SBC Warburg (now UBS), Baring Brothers Australia and KPMG. He was appointed as
a Director in July 2013
Peet Limited and Eclipx Group Limited
Yowie Group Limited
Chairman of the Finance and Audit Committee and a member of the Risk and Compliance
Committee and Remuneration and Nomination Committee (now People and Culture
Committee).
139,925.
Mr Michael R. Perich
Alternate Non-Executive Director, until 6 August 2020.
B App Sci (Sys Ag), GAICD
Michael has enjoyed a 25-year career in the agribusiness sector, most recently as director of
dairy farm operations at Leppington Pastoral Company, one of Australia's largest dairy
producers, and as a former joint managing director of AFMH. He is a Director of Arrovest Pty
Ltd and a Director of AFMH and other entities associated with Perich Enterprises Pty Limited.
He was appointed as an Alternate Director in March 2009 and resigned on 6 August 2020 when
he was appointed Interim Chief Executive Officer.
None
None
None
145,556,000
Mr Timothy Bryan
Alternate Non-Executive Director (Non-independent)
BCom; CA, GAICD
Tim is the Chief Executive Officer of the Perich Group. He was formerly managing partner of
the chartered accounting firm Kelly & Partners South West Sydney. Outside of the Perich
Group, Timothy holds a number of other directorships, which include Kids of Macarthur Health
Foundation and Ingham Institute for Applied Medical Research, where he also chairs the
finance and audit committee.
None
None
None
54,126
24
Freedom Foods Group Limited
Directors' report
30 June 2020
Name:
Title:
Qualifications:
Experience and expertise:
Other current directorships:
Former directorships (last 3 years):
Special responsibilities:
Interests in shares:
Name:
Title:
Qualifications:
Experience and expertise:
Other current directorships:
Former directorships (last 3 years):
Special responsibilities:
Interests in shares:
Name:
Title:
Qualifications:
Experience and expertise:
Other current directorships:
Former directorships (last 3 years):
Special responsibilities:
Interests in shares:
Interests in options:
Ms Genevieve Gregor (from 4 March 2020)
Non-Executive Director (Independent)
B. Economics (UQ), Graduate Diploma Applied Finance & Investment (SIA), Honorary
Doctorate of Letters (WSU), GAICD
Genevieve is a Founding Partner of Colinton Capital Partners, a mid-market private equity firm
investing in Australian growth companies. Prior to this, Genevieve was the co-head and
Managing Director of the Asia Special Situations Group in Australia for Goldman Sachs for eight
years. Genevieve has had over 25 years’ experience working in banking and finance. She has
completed numerous major financing transactions for the Australian corporate market over
her career and been involved in a number of high-profile mergers and acquisitions. Prior to
joining Goldman Sachs, Genevieve was head of the Australian loan capital markets business at
Citigroup. Prior to Citigroup, she worked at MIM Holdings, now Xstrata Australia Limited.
Genevieve was until recently the Deputy Chancellor of Western Sydney University, Chair of the
Finance and Investment Committee and Trustee at WSU for over 10 years.
None
None
Chair of the Risk and Compliance Committee and Member of the Finance and Audit Committee
23,500
Ms Jane McKellar (from 8 May 2020)
Non-Executive Director (Independent)
MA (Hons) University of Aberdeen, GAICD
Jane is an experienced non-executive director in both public and private companies in Australia
and the US, bringing deep international consumer, digital, brand and marketing experiences
to bear. Jane’s executive experience as both a CEO and Chief Marketing Officer spans the
consumer-focused FMCG, luxury and retail industries and she is one of the original ‘digital
natives’ in Australia. She has held senior roles in Unilever, Microsoft, Elizabeth Arden and Stila
Corporation. Jane has extensive global experience, particularly in Asia, Europe and North
America and she has built a strong reputation over the years for leading teams and
transforming businesses in difficulty back to profitability and growth. Her key contributions are
in customer and consumer-focused business transformation, harnessing digital, technology,
brand and marketing to enhance business performance.
GWA Group Limited and McPhersons Limited
Automotive Holdings Group
Chair of the People and Culture Committee (formerly Remuneration Committee).
1,605
Mr Rory J.F. Macleod
Former Managing Director and Chief Executive Officer (until 29 June 2020)
B.Econ (Hons)
Rory is no longer a Director or executive of the Company. Rory was with the group for 17 years.
He was appointed as an Executive Director in 2008 and appointed Managing Director and CEO
in August 2012. He is a former Senior Director, corporate finance for SBC Warburg (now UBS)
in Australasia and Europe.
None
None
None
1,699,681
Nil
'Other current directorships' quoted above are current directorships for listed entities only and excludes directorships of all other types
of entities, unless otherwise stated.
'Former directorships (last three years)' quoted above are directorships held in the last three years for listed entities only and excludes
directorships of all other types of entities, unless otherwise stated.
25
Freedom Foods Group Limited
Directors' report
30 June 2020
8. Company secretary
Mr Campbell Nicholas was Company Secretary and Chief Financial Officer from 12 September 2016 until 23 June 2020. Ms Amber
Stanley was joint Company Secretary from 31 October 2019 to 9 March 2020. Mr Trevor Allen accepted the role of Company Secretary
in an acting capacity from 23 June 2020 to 13 July 2020. Mr Scott Standen was appointed Interim Company Secretary from 13 July 2020.
Mr Justin Coss was appointed Group General Counsel and Company Secretary on 23 November 2020. Mr Scott Standen will oversee an
orderly transition.
9. Meetings of Directors
The number of meetings of the Company's Board of Directors ('the Board') and of each Board committee held during the year ended
30 June 2020, and the number of meetings attended by each Director were:
Perry R. Gunner
Rory J.F. Macleod (i)
Anthony M. Perich
Ronald Perich
Trevor J. Allen
Genevieve Gregor
Jane McKellar
Michael R. Perich (Alternate)
Timothy Bryan (Alternate)
Perry R. Gunner
Rory J.F. Macleod
Ronald Perich
Trevor J. Allen
Michael R. Perich (Alternate)
Anthony M. Perich
Timothy Bryan (Alternate)
Full Board
Finance and Audit Committee
Risk and Compliance
Committee (ii)
Attended
Held
Attended
Held
Attended
Held
15
15
15
15
15
8
4
14
10
15
15
15
15
15
8
4
15
10
5
5
4
4
5
-
-
4
1
5
5
5
5
5
-
-
5
1
3
3
-
-
3
1
-
3
-
3
3
-
-
3
1
-
3
-
Remuneration and Nomination
Committee (iii)
Attended
Held
3
3
3
3
2
2
2
3
3
3
3
3
3
3
Held: represents the number of meetings held during the time the Director held office or was a member of the relevant committee.
(i) Rory J.F. Macleod attended the Finance and Audit Committee meetings in his capacity as MD and CEO.
(ii) On 6 June 2019, the Risk and Compliance Committee was established (separating from the Audit, Risk and Compliance Committee)
to monitor and review key risk areas within the Group.
(iii) Remuneration and Nomination Committee (formerly Remuneration Committee) was renamed the People and Culture Committee
in July 2020.
In addition to the above-mentioned meetings, the Board met more frequently on an informal basis as required.
26
Freedom Foods Group Limited
Directors’ Report
30 June 2020
Letter from People and Culture Committee Chair
Dear Shareholders and other Stakeholders,
On behalf of the Board and as the new Chair of the People & Culture Committee, I am pleased to introduce the Group FY20
Remuneration Report. The Group’s Remuneration Report provides information about the remuneration of its most senior
executives and explains how performance has been linked to reward outcomes at the Group for FY20.
A strong future
We recognise that our success depends on the quality, commitment, and contribution of our people. As such, several decisions have
been made since the last report with a clear objective to create an environment that fosters employee engagement by attracting,
developing and retaining talented employees and executives, promoting an inclusive culture and linking rewards to the creation of
sustainable value for shareholders. The team has pulled together strongly during these challenging times and has successfully
navigated the impact on employees of COVID-19.
People and culture initiatives
The Board has been focused on its people and the culture of the Group. Under the Board’s stewardship, key initiatives include:
●
●
●
●
●
●
●
●
●
●
●
Refreshing the executive leadership team;
Appointment of two independent, female, non-executive directors to the Board;
Appointment of an experienced Chief People and Culture Officer reporting directly to the CEO;
Renaming and refocusing the Remuneration Committee, now the People and Culture Committee;
Appointment of a new Chair of the People and Culture Committee;
Appointment of a General Manager Internal Audit – a newly created role;
The Directors voluntarily reduced their fees by 20% for FY21;
Interim CEO electing to forgo participation in the Short-Term and Long-Term Incentives plans for FY21;
Adopting a revised People and Culture Charter and a Statement of Values;
Adopting a new Board, Executive and Employee Remuneration Framework to be effective in FY21; and
Introducing malus forfeiture (claw back) guidelines to LTIP, addressing financial and non-financial matters.
As at 30 June 2020, women represent 27% of the Group’s workforce (FY19: 30%). The Company continues to build initiatives that
increase gender diversity and the representation of women across our workforce, resulting in an increase of 2 percentage points of
women in senior management positions to 50% (FY19: 48%). The Company also appointed two female independent non-executive
directors to the Board in FY20 and announced the appointment of a female CFO.
We will continue to work closely with the executive team and external advisors to ensure that the Group maintains a strong and
effective talent pool. Our objectives will be to focus on and drive results and provide remuneration systems that fairly reward and
motivate employees for their successful execution of our business strategies.
Jane McKellar
People and Culture Committee Chair
27
Freedom Foods Group Limited
Directors’ Report
30 June 2020
Remuneration Report (audited)
The remuneration report details the key management personnel remuneration arrangements for the Group, in accordance with the
requirements of the Corporations Act 2001 and its Regulations.
The remuneration report is set out under the following main headings:
●
●
●
●
●
●
●
●
●
Key management personnel covered in this report
Role of the Board and the People and Culture Committee
Remuneration Governance
People and Culture Committee Members
Use of Remuneration Consultants
Previous and New Executive Remuneration Strategy
The link between performance and Executive KMP remuneration
Executive KMP Remuneration and LTIP outcomes
Non-executive Director Remuneration
Key management personnel covered in this report
Key management personnel (“KMP”) is defined by AASB 124 Related Party disclosures. Only Directors, the Chief Executive Officer and
executives that have the authority and responsibility for planning, directing and controlling the activities of the Group, directly or
indirectly and are responsible for the entity’s governance are classified as KMP.
The following persons acted as Directors and KMP of the Group during or since the end of FY20:
Name
Position
Period as KMP
Executive KMP
Rory J. F. Macleod
Amine Haddad
Campbell Nicholas
Timothy Moses
Brendan Radford
Michael Perich
Stephanie Graham
Trevor J. Allen
Non-executive Directors
Perry R. Gunner
Anthony M. Perich
Ronald Perich
Trevor J. Allen
Genevieve Gregor
Jane McKellar
Michael Perich
Timothy Bryan
Managing Director and Chief Executive Officer From 1 July 2019 to 29 June 2020
CEO – Commercial Operations Australasia
Chief Financial Officer and Company Secretary From 1 July 2019 to 23 June 2020
Head of Operations
Acting Chief Executive Officer
Interim Chief Executive Officer
From 1 July 2019 to 9 June 2020
Full Year
From 24 June 2020 to 5 August 2020
From 6 August 2020
From 24 June 2020
From 23 June 2020 to 13 July 2020
Acting Chief Financial Officer
Company Secretary/Executive Director
Chair and Non-executive Director
Deputy Chair and Non-executive Director
Non-executive Director
Non-executive Director
Full Year
Full Year
Full Year
From 1 July 2019 to 23 June 2020/13 July
Non-executive Director
Non-executive Director
Alternate Non-executive Director (R. Perich)
Alternate Non-executive Director (A. Perich)
2020 to present
From 4 March 2020*
From 8 May 2020**
Full Year (resigned 6 August 2020)
From 4 December 2019
*Genevieve Gregor's appointment was announced on 2 March 2020 and was ratified by the Board on 4 March 2020.
**Jane McKellar appointment was announced on 12 May 2020 and was ratified by the Board on 2 April 2020.
In making an assessment of the KMP, a review of the roles performed by various senior management is undertaken. This review takes
into consideration senior management members' ability to plan, direct and control the principal activities of the Group.
28
Freedom Foods Group Limited
Directors’ Report
30 June 2020
Role of the Board and the People and Culture Committee
The Board is responsible for the Group’s executive remuneration strategy and framework. Consistent with this responsibility, the
Board delegates certain responsibilities to the People and Culture Committee (the “Committee”) – formerly named the Remuneration
and Nominations Committee – which in turn has developed a new People and Culture Committee Charter that has been adopted by
the Board.
In summary, the role of the Committee includes:
●
●
●
●
●
●
●
●
advising on the composition of the Board and its Committees;
leading the Board review processes and associated functions for Board continuous improvement and effectiveness;
recommending the appointment of Board members, Board Committee members, KMP and key senior leadership roles;
sponsoring and making recommendations to the Board regarding the remuneration policies and practices for the Board, the
Chief Executive Officer, the other Executive KMP, senior executives and other persons;
advising the Board on remuneration practices, frameworks and policies by recognising the correlation between performance
targets and reward;
endorsing the Company values and sponsoring their adoption across the business via the leadership team;
endorsing the people and culture strategy of the business; and
sponsoring workplace practices and policies that foster a culture of fairness, equity, inclusion and diversity via such policies as
the Equal Opportunity and Diversity Policy and the Code of Conduct.
Remuneration Governance
The Committee’s governance role can be illustrated as follows:
29
Freedom Foods Group Limited
Directors’ Report
30 June 2020
People and Culture Committee Members
Further information on the Committee’s role, responsibilities and membership is contained in the Group’s Corporate Governance
Statement and People and Culture Committee Charter, available on the Company’s website.
The People and Culture Committee comprises the following Non-executive Directors:
●
●
●
●
Jane McKellar (Chair) - appointed as a Director 8 May 2020, appointed to Committee 29 July 2020
Perry Gunner - resigned from chair 29 July 2020
Trevor Allen
Ronald Perich - resigned 6 August 2020
The skills, experience and expertise of Committee members and the number of meetings held and attended is set out in the Directors’
Report.
Use of remuneration consultants
The Board directly engages external advisors to provide input to the process of reviewing Executive KMP and Non-executive Director
remuneration.
During FY20, Crichton + Associates Pty Limited (Crichton + Associates) was engaged by the Board to provide recommendations in
relation to selected remuneration consulting services. Crichton + Associates was paid $21,766 for services specifically related to KMP
remuneration and employee equity recommendations.
Crichton + Associates also provided services relating to other aspects of remuneration of the Group’s employees, including the
provision of valuation services, FFGL Equity Incentive Plan (EIP) award offer documentation and other advisory services related to the
EIP. For these services Crichton + Associates was paid $30,839 in FY20 and $11,408 in FY21 until the date of this report.
The following arrangements were made with the objectives of ensuring that any advice or recommendations have been made free
from undue influence:
●
●
●
Crichton + Associates takes instructions from the Chair of the People and Culture Committee, who is an independent Non-
executive Director, and is accountable to the Board for all work completed;
During the course of any assignment, Crichton + Associates may seek input from management, however deliverables are
provided directly to the Committee and considered by the Board; and
Professional fee arrangements are agreed directly with the Chair of the Committee.
As a consequence, the Board is satisfied that the remuneration recommendations were made free from undue influence from any
member of the KMP to whom the recommendations related. Separately, the Board is satisfied that Crichton + Associates’
recommendations on the new remuneration framework as adopted by the People and Culture Committee and the Board (in
November 2020) were made free from undue influence from any member of the KMP to whom the recommendations related.
Previous Executive Remuneration Strategy
Until a detailed review undertaken in the fourth quarter of FY20, the Group’s executives were remunerated via fixed salary,
including remuneration and superannuation, plus long-term incentives delivered by way of market-priced options, subject to service
and EBITDA performance. No short-term incentives were provided.
30
Freedom Foods Group Limited
Directors’ Report
30 June 2020
Approval was given at the Annual General Meeting in November 2016 for the adoption and establishment of the Freedom Foods’
Equity Incentive Plan (EIP) to replace the Group’s then existing Employee Share Option Plan (ESOP) for any new issue of securities
under the LTIP. The ESOP will be terminated in the year ending 30 June 2021.
The current EIP allows the Company to grant a range of different share scheme interests to permanent full time or part time
employees of a company in the Group, whom the Board determines to be eligible to participate. The Board believes that share
scheme interest grants are appropriate to aligning key executive performance with long-term performance and growth of the
Company. These share scheme interests include options, performance rights, service rights, deferred shares, exempt shares, cash
rights and stock appreciation rights.
Historically, the Company's provided long-term incentives to senior employees for the year ended 30 June 2020 and prior years via
the issuance of equity options and service rights. It did not provide a short-term incentive arrangement to executives and senior
employees in FY20 or prior years.
Two executive KMP who resigned during FY20 forfeited equity entitlements available to them under the Group’s option plan. Details
of these forfeitures are as follows:
Executive KMP who terminated
employment during the year and
forfeited equity benefits
Equity benefits forfeited on termination
Rory J. F. Macleod
Campbell Nicholas
All
All
Previous Remuneration Framework
Position
Fixed Remuneration (FR)
Short Term
Incentive Plan
(STIP)
Chief Executive
Officer
Fixed Remuneration set at about
the market median
No STIP was
awarded
Other Executives
Fixed Remuneration set at about
the market median
No STIP was
awarded
Long Term Incentive Plan
(LTIP)
Total Targeted Remuneration
(TTR)
Ad hoc option grants
based on service and
EBITDA performance
Ad hoc option grants
based on service and
EBITDA performance
Intended to provide TTR in the
order of 75th percentile plus if
LTIP targets were met
Intended to provide TTR in the
order of 75th percentile plus if
LTIP targets were met
New Executive Remuneration Strategy
For FY21, the Board is adopting a new Board, Executive and Employee Remuneration Framework that aims to set employee and
executive remuneration that is competitive and appropriate for the markets in which it operates, mindful of external and internal
relativities. This approach is in line with generally accepted market practice standards and consistent with ASX Corporate Governance
Guidelines.
The principles of the Group’s revised remuneration strategy include:
•
•
Providing a market competitive fixed annual remuneration for all positions under a transparent framework
and review procedures;
Providing market competitive remuneration opportunities for intra-year performance if financial, customer
and employee key performance indicators (KPI) are met;
31
Freedom Foods Group Limited
Directors’ Report
30 June 2020
●
●
●
●
●
●
Linking executive rewards to shareholder value accretion by providing appropriate equity (or equivalent) incentives
to selected senior executives and employees linked to long-term company performance and core values;
Providing competitive total rewards to attract and retain appropriately skilled employees and executives;
Having a meaningful portion of remuneration ‘at risk’, dependent upon meeting pre-determined benchmarks, both
short (annual) and long term (3+ years);
Establishing appropriate, demanding performance hurdles for any executive equity incentive remuneration;
Driving the right senior leadership behaviours and outcomes to build a constructive culture through balanced
scorecard measures; and
Introducing malus forfeiture (claw back) guidelines to LTIP, addressing financial and non-financial matters.
The strategy has been drafted in such a way as to enable the Group to navigate the complexity of managing remuneration across
varying job roles and geographies. Executive KMP remuneration strategy and objectives are summarised in the following table:
32
Freedom Foods Group Limited
Directors’ Report
30 June 2020
Variable remuneration will only be available to individual employees if the Company performance gateways and individual KPIs are
achieved, as follows:
•
•
•
Company Performance Gateways: Target earnings per share (EPS) annual and compound annual growth rate (CAGR): as
approved by the Board, or other alternatives at its discretion;
Individual KPIs based on Balanced Scorecard will form the annual performance plan for each employee. The balanced
scorecard approach will comprise appropriate KPIs covering: financial; customer and consumer; culture, learning and growth;
and business processes; and
The Equity Incentive Plan prohibits Hedging of unvested Awards issued under the Plan
Salary reviews for Board approval will be undertaken each year. Salary increases are at the discretion of the Board.
The following new remuneration mix is recommended by level:
Fixed
Position
Remuneration
(FR)
Short Term Incentive Plan
(STIP)
Long Term
Incentive Plan
(LTIP)
Total Targeted
Remuneration (TTR)
Chief Executive Officer Up to 50%
Up to 60%
Other KMP / Company
Executive Officers
Executive Leadership
roles
All other salaried
employees
Up to 70%
100%
Up to 25%
Up to 20%
Up to 15%
Discretionary bonuses may be
considered for exceptional
performance following Board
approval
Up to 25%
Up to 20%
100%
100%
Up to 15%
100%
General employee
equity awards may
be provided
100%
The Board approved after the FY20 year end an executive remuneration malus and claw back provision in relation to performance-
based remuneration. The Committee will review this framework and associated guiding principles once per annum, or more
frequently if required for a specific purpose.
The link between performance and Executive KMP remuneration
For the period up to 30 June 2020, executives KMPs received fixed annual remuneration and performance-based remuneration in
the form of options and service rights that were linked to EBITDA targets.
The earnings of the Group for the five years to 30 June 2020 are summarised below:
Net sales revenue
Operating EBITDA*
2020
$'000
580,191
(86,535)
2019 restated
$'000
2018**
$'000
461,768
(88,482)
Not
restated
2017**
$'000
Not
restated
2016**
$'000
Not
restated
*Operating EBITDA (earnings before depreciation, interest, tax and amortisation) is a non-IFRS measure as contemplated in ASIC
Regulatory Guide 230 Disclosing non-IFRS financial information (RG230). Operating EBITDA is a term defined in the offer letters to
employees which is used by management and directors as the primary measure of assessing the financial performance of the Group
and individual segments. The Operating EBITDA is equivalent to the Adjusted EBITDA as set out in the directors’ report excluding
AASB16 adjustments (i.e. Adjusted EBITDA (pre AASB16).
**Restatement of the FY19 revenue and operating EBITDA has consequently resulted in the prior year announced results being non-
comparable. These amounts have therefore not been restated.
33
Freedom Foods Group Limited
Directors’ Report
30 June 2020
The reconciliation of EBITDA to statutory net profit is disclosed in the following table:
EBITDA
Additional inventory provision
Restructuring expenses
Additional debtor provisioning
Acquisition costs
Discount charge - limited recourse facility
Unrealised foreign exchange loss
Share based payments
Other non-trading expenses
Adjusted EBITDA (post AASB 16)
Adjusted EBITDA (pre AASB 16)
Consolidated Consolidated
2020
$'000
2019
restated
$'000
(96,675)
(118,586)
18,264
194
1,800
1,336
1,150
1,589
6,247
-
18,027
1,443
3,572
861
1,471
(8)
(417)
(35)
(71,761)
(86,537)
(88,006)
2020
2019 restated 2018*
2017 *
2016 *
Share price at financial year end ($)
Total dividends declared (cents per share)
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
3.01
0.00
(63.59)
(63.59)
5.08
5.50
(59.07)
(59.07)
6.73
5.00
4.80
4.25
4.06
3.25
*Not restated
Details of remuneration
The key management personnel of the Group consisted of the following Directors and Executive Officers of Freedom Foods Group
Limited:
Directors
●
●
●
●
●
●
●
●
●
Perry R. Gunner - Chairman and Non-Executive Director
Rory J.F. Macleod - Managing Director and Chief Executive Officer (until 29 June 2020)
Anthony M. Perich - Deputy Chairman and Non-Executive Director
Ronald Perich - Non-Executive Director
Trevor J. Allen - Non-Executive Director (until 23 June 2020 and from 13 July 2020 to present)
Genevieve Gregor - Non-Executive Director (from 4 March 2020)
Jane McKellar - Non-Executive Director (from 8 May 2020)
Michael Perich - Alternate Non-Executive Director for Ronald Perich (until 5 August 2020)
Timothy Bryan - Alternate Non-Executive Director for Anthony M. Perich
34
Freedom Foods Group Limited
Directors' report
30 June 2020
Executive Officers
● Amine Haddad - CEO - Commercial Operations Australasia (until 9 June 2020)
● Campbell Nicholas - Chief Financial Officer and Company Secretary (until 23 June 2020)
● Timothy Moses - Head of Operations
● Brendan Radford - Acting Chief Executive Officer (from 24 June 2020 to 5 August 2020)
● Michael Perich - Interim Chief Executive Officer (from 6 August 2020)
● Stephanie Graham - Acting Chief Financial Officer (from 24 June 2020)
Executive KMP Remuneration and LTIP outcomes
In making an assessment of the KMP, a review of the roles performed by various senior management is undertaken each year. This
review takes into consideration senior management members' ability to plan, direct and control the principle activities of the Group.
Details of the statutory and non-statutory (cash value) remuneration of each member of the KMP of the Group are set out in the tables
below.
The statutory disclosures required by the Corporations Act 2001 (Cth), as amended, and its regulations are set out below. The Company
believes that the additional information provided in the cash value tables below are useful to investors. The tables below sets out the
total cash value of remuneration realised for the KMP and provides shareholders with details of the “take-home” pay
received/receivable during the year. These earnings include cash salary, and where applicable, other benefits, directors fees, bonus,
superannuation and the value of shares issued to, or acquired on behalf of KMP following the vesting and exercise of options during
the financial year. The tables do not include the accounting value of share-based payments consisting of options granted in the current
and prior years required for statutory purposes. This is because those share-based payments are dependent on the achievement of
performance hurdles and so may or may not be realised.
Non-statutory disclosures are as follows:
Executive KMP 2020
Executive Director:
Rory J.F. Macleod
Other Key Management Personnel:
Amine Haddad
Campbell Nicholas
Timothy Moses
Brendan Radford*
Stephanie Graham*
Michael Perich**
Trevor Allen***
Salary
(a)
$
Other benefits
(b)
$
Bonus
(c)
$
Superannuation
$
Value of
exercised
options
(d)
$
Total
$
21,003
-
-
19,252
21,003
21,003
404
404
-
-
-
-
-
568,400
-
-
945,000 1,484,063
380,625
1,216,800 1,582,200
8,461
5,394
-
-
-
-
-
-
-
83,069
2,161,800 4,029,143
547,397
-
-
519,811
359,622
344,397
8,057
4,990
-
-
1,784,274
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
35
Freedom Foods Group Limited
Directors' report
30 June 2020
*Brendan Radford and Stephanie Graham were KMPs effective 23rd June 2020, therefore no prior year comparison is shown and
amounts reflect time in KMP role.
**Michael Perich was an executive KMP effective 6 August 2020, therefore no current year and prior year comparison are shown.
***Trevor Allen was appointed as company secretary on 23 June 2020 and retired from that role on 13 July 2020. He remained a director
of the company during this period, returning to non-executive duties from 13 July 2020. No additional remuneration was paid in respect
of the services provided over the period.
(a) Cash salary.
(b) Other benefits include employment entitlements paid.
(c) There were no cash bonuses earned or paid.
(d) Value of exercised share options.
Executive KMP 2019
Executive Director:
Rory J.F. Macleod
Other Key Management Personnel:
Amine Haddad
Campbell Nicholas
Timothy Moses
Brendan Radford
Stephanie Graham
Salary (a)
$
Other benefits
(b)
$
Bonus (c)
$
Superannuation
$
Value of
exercised
options (d)
$
530,759
-
-
422,009
348,259
337,009
-
-
1,638,036
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
20,531
-
-
20,531
20,531
20,531
-
-
82,124
Total
$
551,290
-
-
442,540
368,790
357,540
-
-
-
-
-
-
-
-
-
-
- 1,720,160
(a) Cash salary.
(b) Other benefits include employment entitlements paid.
(c) There were no cash bonuses earned or paid.
(d) There were no shares issued following the exercise of vested options.
The tables below are calculated in accordance with statutory obligations and Australian Accounting Standards. The amounts in the
“Share-based payments” column relate to the component of the fair value of awards from the current year and prior year made under
the various incentive plans attributable to the year measured in accordance with AASB 2 Share-based payments.
36
Freedom Foods Group Limited
Freedom Foods Group Limited
Freedom Foods Group Limited
Directors' report
Directors' report
Directors' report
Freedom Foods Group Limited
30 June 2020
30 June 2020
30 June 2020
Directors' report
Freedom Foods Group Limited
30 June 2020
Directors' report
Statutory disclosures are as follows:
Statutory disclosures are as follows:
Statutory disclosures are as follows:
30 June 2020
Statutory disclosures are as follows:
Statutory disclosures are as follows:
Executive KMP 2020
Executive KMP 2020
Executive KMP 2020
Executive KMP 2020
Executive KMP 2020
Executive Director:
Executive Director:
Executive Director:
Rory J. F. Macleod
Rory J. F. Macleod
Rory J. F. Macleod
Executive Director:
Rory J. F. Macleod
Executive Director:
Other Key Management
Other Key Management
Other Key Management
Rory J. F. Macleod
Personnel:
Personnel:
Personnel:
Other Key Management
Amine Haddad
Amine Haddad
Amine Haddad
Personnel:
Other Key Management
Campbell Nicholas
Campbell Nicholas
Campbell Nicholas
Amine Haddad
Personnel:
Timothy Moses
Timothy Moses
Timothy Moses
Campbell Nicholas
Amine Haddad
Brendan Radford
Brendan Radford
Brendan Radford
Timothy Moses
Campbell Nicholas
Stephanie Graham
Stephanie Graham
Stephanie Graham
Brendan Radford
Timothy Moses
Michael Perich
Michael Perich
Michael Perich
Stephanie Graham
Brendan Radford
Trevor Allen
Trevor Allen
Trevor Allen
Michael Perich
Stephanie Graham
Trevor Allen
Michael Perich
Trevor Allen
Executive KMP 2019
Executive KMP 2019
Executive KMP 2019
Executive KMP 2019
Executive KMP 2019
Executive Director:
Executive Director:
Executive Director:
Rory J. F. Macleod
Rory J. F. Macleod
Rory J. F. Macleod
Executive Director:
Rory J. F. Macleod
Executive Director:
Other Key Management
Other Key Management
Other Key Management
Rory J. F. Macleod
Personnel:
Personnel:
Personnel:
Other Key Management
Amine Haddad
Amine Haddad
Amine Haddad
Personnel:
Other Key Management
Campbell Nicholas
Campbell Nicholas
Campbell Nicholas
Amine Haddad
Personnel:
Timothy Moses
Timothy Moses
Timothy Moses
Campbell Nicholas
Amine Haddad
Timothy Moses
Campbell Nicholas
Timothy Moses
Post-
Post-
Post-
employment
employment
employment
Post-
benefits
benefits
benefits
employment
Post-
Superannuat
Superannuat
Superannuat
benefits
employment
ion
ion
ion
Superannuat
benefits
$
$
$
ion
Superannuat
$
ion
$
21,003
21,003
21,003
21,003
21,003
Long Term
Long Term
Long Term
Benefits
Benefits
Benefits
Long Term
Long Service
Long Service
Long Service
Benefits
Long Term
Leave
Leave
Leave
Long Service
Benefits
$
$
$
Leave
Long Service
$
Leave
$
64,193
64,193
64,193
64,193
64,193
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19,252
19,252
19,252
21,003
21,003
21,003
19,252
21,003
21,003
21,003
21,003
19,252
404
404
404
21,003
21,003
404
404
404
404
21,003
-
-
-
404
404
-
-
-
-
404
-
-
83,069
83,069
83,069
-
83,069
83,069
86,679
86,679
86,679
-
-
-
86,679
57,525
57,525
57,525
-
86,679
-
-
-
57,525
-
-
-
-
-
57,525
-
-
-
-
-
-
-
-
-
-
-
-
208,397
208,397
208,397
-
208,397
208,397
Share-based
Share-based
Share-based
payments/
payments/
payments/
Share-based
Service
Service
Service
payments/
Share-based
rights*
rights*
rights*
Service
payments/
rights*
Service
Options
Options
Options
rights*
$
$
$
Options
$
Options
$
Total
Total
Total
$
$
$
Total
$
Total
$
(905,597)
(905,597)
(905,597)
(905,597)
(905,597)
(273,004)
(273,004)
(273,004)
(273,004)
(273,004)
(543,358)
(543,358)
(543,358)
(4,762)
(4,762)
(4,762)
(543,358)
188,555
188,555
188,555
(4,762)
(543,358)
-
-
-
188,555
(4,762)
-
-
-
-
188,555
-
-
-
-
-
-
-
-
-
-
-
-
(1,265,162)
(1,265,162)
(1,265,162)
-
(1,265,162)
(1,265,162)
82,384
82,384
82,384
375,863
375,863
375,863
82,384
611,480
611,480
611,480
375,863
82,384
8,461
8,461
8,461
611,480
375,863
5,394
5,394
5,394
8,461
611,480
-
-
-
5,394
8,461
-
-
-
-
5,394
-
-
810,578
810,578
810,578
-
810,578
810,578
Post
Post
Post
Employment
Employment
Employment
Post
Benefits
Benefits
Benefits
Employment
Post
Superannuat
Superannuat
Superannuat
Benefits
Employment
Superannuat
ion
ion
ion
Benefits
$
$
$
Superannuat
ion
$
ion
$
20,531
20,531
20,531
20,531
20,531
-
-
-
20,531
20,531
20,531
-
20,531
20,531
20,531
20,531
-
20,531
20,531
20,531
20,531
20,531
20,531
20,531
82,124
82,124
82,124
20,531
82,124
82,124
Long Term
Long Term
Long Term
Benefits
Benefits
Benefits
Long Term
Long Service
Long Service
Long Service
Benefits
Long Term
Long Service
Leave
Leave
Leave
Benefits
$
$
$
Long Service
Leave
$
Leave
$
58,439
58,439
58,439
58,439
58,439
-
-
-
78,428
78,428
78,428
-
-
-
-
78,428
-
41,345
41,345
41,345
-
78,428
41,345
-
178,212
178,212
178,212
41,345
178,212
178,212
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Share-based
Share-based
Share-based
payments*
payments*
payments*
Share-based
payments*
Share-based
Options
Options
Options
payments*
$
$
$
Options
$
Options
$
1,860,445
1,860,445
1,860,445
1,860,445
1,860,445
-
-
-
1,116,267
1,116,267
1,116,267
-
293,170
293,170
293,170
1,116,267
-
136,277
136,277
136,277
293,170
1,116,267
136,277
293,170
3,406,159
3,406,159
3,406,159
136,277
3,406,159
3,406,159
Total
Total
Total
$
$
$
Total
$
Total
$
2,470,174
2,470,174
2,470,174
2,470,174
2,470,174
-
-
-
1,637,235
1,637,235
1,637,235
-
661,960
661,960
661,960
1,637,235
-
535,162
535,162
535,162
661,960
1,637,235
535,162
661,960
5,304,531
5,304,531
5,304,531
535,162
5,304,531
5,304,531
Short Term benefits
Short Term benefits
Short Term benefits
Short Term benefits
Other
Other
Other
Short Term benefits
benefits
benefits
benefits
Other
$
$
$
benefits
Other
$
benefits
$
Short Term
Short Term
Short Term
Incentives
Incentives
Incentives
Short Term
$
$
$
Incentives
Short Term
$
Incentives
$
Salary
Salary
Salary
$
$
$
Salary
$
Salary
$
547,397
547,397
547,397
547,397
547,397
519,811
519,811
519,811
359,622
359,622
359,622
519,811
344,397
344,397
344,397
359,622
519,811
8,057
8,057
8,057
344,397
359,622
4,990
4,990
4,990
8,057
344,397
-
-
-
4,990
8,057
-
-
-
-
4,990
-
-
1,784,274
1,784,274
1,784,274
-
1,784,274
1,784,274
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Short Term Benefits
Short Term Benefits
Short Term Benefits
Short Term Benefits
Other
Other
Other
Short Term Benefits
Benefits
Benefits
Benefits
Other
$
$
$
Benefits
Other
$
Benefits
$
Short Term
Short Term
Short Term
Short Term
Incentives
Incentives
Incentives
$
$
$
Short Term
Incentives
$
Incentives
$
Salary
Salary
Salary
$
$
$
Salary
$
Salary
$
530,759
530,759
530,759
530,759
530,759
-
-
-
422,009
422,009
422,009
-
348,259
348,259
348,259
422,009
-
337,009
337,009
337,009
348,259
422,009
337,009
348,259
1,638,036
1,638,036
1,638,036
337,009
1,638,036
1,638,036
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
37
37
37
37
37
Freedom Foods Group Limited
Freedom Foods Group Limited
Directors' report
Directors' report
Freedom Foods Group Limited
30 June 2020
30 June 2020
Directors' report
30 June 2020
Executive KMP LTI outcomes
Executive KMP LTI outcomes
The number of options over ordinary shares in the Company held during the financial year by each Executive KMP of the Group,
The number of options over ordinary shares in the Company held during the financial year by each Executive KMP of the Group,
Executive KMP LTI outcomes
including their personally related parties, is set out below:
including their personally related parties, is set out below:
The number of options over ordinary shares in the Company held during the financial year by each Executive KMP of the Group,
including their personally related parties, is set out below:
Balance at
Balance at
the start of
the start of
Balance at
the year
the year
the start of
the year
Granted
Granted
Granted
Exercised
Exercised
Exercised
Expired/
Expired/
forfeited/
forfeited/
Expired/
forfeited/
lapsed
lapsed
lapsed
Balance at the
Balance at the
end of the year
end of the year
Balance at the
end of the year
Number of options over ordinary shares
Number of options over ordinary shares
Rory J.F. Macleod (resigned 29 June 2020)
Rory J.F. Macleod (resigned 29 June 2020)
Number of options over ordinary shares
Amine Haddad (resigned 9 June 2020)
Amine Haddad (resigned 9 June 2020)
Rory J.F. Macleod (resigned 29 June 2020)
Campbell Nicholas (resigned 23 June 2020)
Campbell Nicholas (resigned 23 June 2020)
Amine Haddad (resigned 9 June 2020)
Timothy Moses*
Timothy Moses*
Campbell Nicholas (resigned 23 June 2020)
Brendan Radford (appointed 23 June 2020)
Brendan Radford (appointed 23 June 2020)
Timothy Moses*
Stephanie Graham** (appointed 23 June 2020)
Stephanie Graham** (appointed 23 June 2020)
Brendan Radford (appointed 23 June 2020)
Michael Perich (appointed 6 August 2020)
Michael Perich (appointed 6 August 2020)
Stephanie Graham** (appointed 23 June 2020)
Michael Perich (appointed 6 August 2020)
2,500,000
2,500,000
1,500,000
1,500,000
2,500,000
800,000
800,000
1,500,000
600,000
600,000
800,000
-
-
600,000
200,000
200,000
-
-
-
200,000
-
5,600,000
5,600,000
5,600,000
-
-
-
-
-
-
-
-
260,000
260,000
-
-
-
260,000
-
-
-
-
-
-
-
260,000
260,000
260,000
-
-
(900,000)
(900,000)
-
-
-
(900,000)
(260,000)
(260,000)
-
-
-
(260,000)
-
-
-
-
-
-
-
(1,160,000)
(1,160,000)
(1,160,000)
(2,500,000)
(2,500,000)
(600,000)
(600,000)
(2,500,000)
(800,000)
(800,000)
(600,000)
-
-
(800,000)
-
-
-
-
-
-
-
-
-
-
(3,900,000)
(3,900,000)
(3,900,000)
-
-
-
-
-
-
-
-
600,000
600,000
-
-
-
600,000
200,000
200,000
-
-
-
200,000
-
800,000
800,000
800,000
*Service rights exercised during the year were exercised in full. Balance of options consists of 200,000 Series 8 (160,000 vested but not
*Service rights exercised during the year were exercised in full. Balance of options consists of 200,000 Series 8 (160,000 vested but not
exercised) and 400,000 Series 9.
exercised) and 400,000 Series 9.
*Service rights exercised during the year were exercised in full. Balance of options consists of 200,000 Series 8 (160,000 vested but not
**Balance of options consists of 200,000 Series 8 (160,000 vested but not exercised).
**Balance of options consists of 200,000 Series 8 (160,000 vested but not exercised).
exercised) and 400,000 Series 9.
**Balance of options consists of 200,000 Series 8 (160,000 vested but not exercised).
No KMP of the Group appointed during the year received a payment as part of his or her consideration for agreeing to hold the position.
No KMP of the Group appointed during the year received a payment as part of his or her consideration for agreeing to hold the position.
No KMP of the Group appointed during the year received a payment as part of his or her consideration for agreeing to hold the position.
Executive KMP shareholdings
Executive KMP shareholdings
The number of shares in the Company held during the financial year by each Executive KMP of the Group, including their related parties,
The number of shares in the Company held during the financial year by each Executive KMP of the Group, including their related parties,
Executive KMP shareholdings
is set out below:
is set out below:
The number of shares in the Company held during the financial year by each Executive KMP of the Group, including their related parties,
is set out below:
Balance at the
Balance at the
start of the
start of the
Balance at the
year
year
start of the
year
Received on
Received on
exercise of
exercise of
Received on
options
options
exercise of
options
Dividend
Dividend
reinvestment
reinvestment
Dividend
plan
plan
reinvestment
plan
Other changes
Other changes
during the year
during the year
Other changes
during the year
Balance at
Balance at
the end of
the end of
Balance at
the year
the year
the end of
the year
Number of ordinary shares
Number of ordinary shares
Rory J.F. Macleod
Rory J.F. Macleod
Number of ordinary shares
Amine Haddad
Amine Haddad
Rory J.F. Macleod
Campbell Nicholas
Campbell Nicholas
Amine Haddad
Timothy Moses
Timothy Moses
Campbell Nicholas
Brendan Radford
Brendan Radford
Timothy Moses
Stephanie Graham
Stephanie Graham
Brendan Radford
Michael Perich*
Michael Perich*
Stephanie Graham
Trevor Allen
Trevor Allen
Michael Perich*
Trevor Allen
1,699,681
1,699,681
2,139,913
2,139,913
1,699,681
-
-
2,139,913
321,032
321,032
-
-
-
321,032
-
-
-
145,556,000
145,556,000
-
139,925
139,925
145,556,000
139,925
149,856,551
149,856,551
149,856,551
*Anthony M. Perich, Ronald Perich and Michael Perich (as Interim Chief Executive Officer from 6 August 2020) are Directors of Arrovest
*Anthony M. Perich, Ronald Perich and Michael Perich (as Interim Chief Executive Officer from 6 August 2020) are Directors of Arrovest
Pty Limited, an entity holding a direct interest in the Group.
Pty Limited, an entity holding a direct interest in the Group.
*Anthony M. Perich, Ronald Perich and Michael Perich (as Interim Chief Executive Officer from 6 August 2020) are Directors of Arrovest
Pty Limited, an entity holding a direct interest in the Group.
1,686,669
1,686,669
1,239,913
1,239,913
1,686,669
-
-
1,239,913
174,320
174,320
-
-
-
174,320
-
-
-
143,136,915
143,136,915
-
124,925
124,925
143,136,915
124,925
146,362,742
146,362,742
146,362,742
-
-
900,000
900,000
-
-
-
900,000
260,000
260,000
-
-
-
260,000
-
-
-
-
-
-
-
-
-
-
1,160,000
1,160,000
1,160,000
2,462
2,462
-
-
2,462
-
-
-
(113,350)
(113,350)
-
-
-
(113,350)
-
-
-
1,520,938
1,520,938
-
15,000
15,000
1,520,938
15,000
1,425,050
1,425,050
1,425,050
10,550
10,550
-
-
10,550
-
-
-
62
62
-
-
-
62
-
-
-
898,147
898,147
-
-
-
898,147
-
908,759
908,759
908,759
38
38
38
Freedom Foods Group Limited
Directors' report
30 June 2020
Non-executive Director Remuneration
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 November 2019, was
not to exceed $1,050,000 in total. Total fees paid to Non-executive Directors for FY20 was $702,172 (2019: $574,999). To align director
interests with shareholder interests, the Directors are encouraged to hold shares in the Company. The EIP allows the Company to grant
a range of different salary sacrifice share scheme interests to all directors (excluding Ronald Perich and Anthony M. Perich and their
alternates), although no arrangements have been put in place to date.
Non-executive Directors do not receive performance-related remuneration. Directors' fees cover all main Board activities including
Committee Fees. Other than contributions towards superannuation funds, there are no termination or retirement benefits for Non-
executive Directors. From time to time, the Board may deem it appropriate for Non-executive Directors to receive Company securities
as consideration for work performed over-and-above the typical duties of a Director. From time to time, the Board may deem it be
acceptable for past Directors to be engaged and paid as consultants to assist the Company.
The Directors volunteered to reduce their fees by 20% for FY21.
Non-Executive Directors FY20
Perry R. Gunner
Anthony M. Perich
Ronald Perich
Trevor J. Allen
Genevieve Gregor*
Jane McKellar**
Michael Perich (alternate)***
Timothy Bryan (alternate)
Short Term
Benefits
Director's
Fees
$
Short Term
Benefits
Other
Benefits
$
Short Term
Benefits
Short Term
Incentives
$
Post
Employment
Benefits
Superannua
tion
$
Long Term
Benefits
Long Service
Leave
$
Share-based
payments
Options
$
Total
$
143,836
134,703
125,571
125,571
41,798
18,522
32,443
18,809
641,253
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
13,664
12,797
11,929
11,929
3,971
1,760
3,082
1,787
60,919
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
157,500
147,500
137,500
137,500
45,769
20,282
35,525
20,596
702,172
*Genevieve Gregor was appointed as independent non-executive Director effective 4 March 2020 and her remuneration reflects time in
the role.
**Jane McKellar was appointed as independent non-executive Director effective 8 May 2020 and her remuneration reflects time in the
role.
***Michael Perich was appointed as Interim Chief Executive Officer from 6 August 2020 and is not an Alternate Director from that date.
Non-Executive Directors FY19
Perry R. Gunner
Anthony M. Perich
Ronald Perich
Trevor J. Allen
Michael Perich (alternate)
Short Term
Benefits
Director's
Fees
$
Short Term
Benefits
Other
Benefits
$
Short Term
Benefits
Short Term
Incentives
$
Post
Employment
Benefits
Superannuat
ion
$
Long Term
Benefits
Long Service
Leave
$
Share-based
payments
Options
$
Total
$
-
-
-
-
-
-
12,797
11,929
11,062
11,062
3,036
49,886
-
-
-
-
-
-
-
-
-
-
-
-
147,500
137,500
127,500
127,500
34,999
574,999
134,703
125,571
116,438
116,438
31,963
525,113
-
-
-
-
-
-
39
Freedom Foods Group Limited
Directors' report
30 June 2020
Non-Executive Director shareholdings
The number of shares in the Company held during the financial year by each Non-executive Director of the Group, including their
personally related parties, is set out below:
Number of ordinary shares
Perry R. Gunner
Anthony M. Perich*
Ronald Perich*
Trevor Allen
Genevieve Gregor
Jane McKellar
Timothy Bryan
Balance at the
start of the
year
Received on
exercise of
options
Dividend
reinvestment
plan
Other changes
during the year
Balance at the
end of the year
1,189,031
143,139,193
143,136,915
124,925
-
-
-
287,590,064
-
-
-
-
-
-
-
-
-
898,164
898,147
-
-
-
-
99,068
1,523,438
1,520,938
15,000
23,500
1,605
54,126
1,288,099
145,560,795
145,556,000
139,925
23,500
1,605
54,126
1,796,311
3,237,675
292,624,050
*Anthony M. Perich, Ronald Perich and Michael Perich (as Interim Chief Executive Officer from 6 August 2020) are Directors of Arrovest
Pty Limited, an entity holding a direct interest in the Group.
Service agreements
Neither the CEO nor 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 period is 3 months for the Interim CEO. Other notice periods for other executives are between 1 and 3
months.
Share-based compensation
Employee Share Options
Grant date
1 July 2013
1 July 2015
1 October 2017
1 October 2017
1 October 2017
1 October 2017
18 April 2019
Number of shares initially
under option
Expiry date
Fair value
per option
Exercise price at grant date
561,666
4,000,000
675,000
1,575,000
675,000
1,575,000
2,850,000*
1 September 2019
30 June 2020
1 October 2019
1 October 2019
1 October 2020
1 October 2020
30 November 2020
$1.65
$2.92
$4.50
$4.50
$4.50
$4.50
$5.75
$0.181
$1.195
$0.618
$0.735
$0.748
$0.951
$0.729
*
The number of shares under option could increase by 570,000 options if certain targets are exceeded.
40
Freedom Foods Group Limited
Freedom Foods Group Limited
Freedom Foods Group Limited
Directors' report
Directors' report
Directors' report
30 June 2020
30 June 2020
30 June 2020
1 July 2013 Options (Series 4)
1 July 2013 Options (Series 4)
1 July 2013 Options (Series 4)
There are no performance criteria that needed to be met in relation to 1 July 2013 series options. These options vested over a period
There are no performance criteria that needed to be met in relation to 1 July 2013 series options. These options vested over a period
There are no performance criteria that needed to be met in relation to 1 July 2013 series options. These options vested over a period
of 3 years and relate to an employee's service period only. The terms of issue of the options provided for an expiry date of 30 June 2018
of 3 years and relate to an employee's service period only. The terms of issue of the options provided for an expiry date of 30 June 2018
of 3 years and relate to an employee's service period only. The terms of issue of the options provided for an expiry date of 30 June 2018
which was later extended without authorisation of the Board. The 2018 and 2019 remuneration report and consolidated financial
which was later extended without authorisation of the Board. The 2018 and 2019 remuneration report and consolidated financial
which was later extended without authorisation of the Board. The 2018 and 2019 remuneration report and consolidated financial
statements of the Group indicated an expiry date for these options of 1 September 2019. 561,666 Shares were issued on 5 November
statements of the Group indicated an expiry date for these options of 1 September 2019. 561,666 Shares were issued on 5 November
statements of the Group indicated an expiry date for these options of 1 September 2019. 561,666 Shares were issued on 5 November
2019 on claimed exercise of these options based on an exercise price of $1.65 per Share.
2019 on claimed exercise of these options based on an exercise price of $1.65 per Share.
2019 on claimed exercise of these options based on an exercise price of $1.65 per Share.
1 July 2015 Options (Series 6)
1 July 2015 Options (Series 6)
1 July 2015 Options (Series 6)
These options had a 5 year exercise period, with vesting criteria as per the below:
These options had a 5 year exercise period, with vesting criteria as per the below:
These options had a 5 year exercise period, with vesting criteria as per the below:
1,200,000 of options on achievement of audited Group operating EBITDA of A$44.5 million;
1,200,000 of options on achievement of audited Group operating EBITDA of A$44.5 million;
1,200,000 of options on achievement of audited Group operating EBITDA of A$44.5 million;
1,200,000 of options on achievement of audited Group operating EBITDA of A$51.5 million; and
1,200,000 of options on achievement of audited Group operating EBITDA of A$51.5 million; and
1,200,000 of options on achievement of audited Group operating EBITDA of A$51.5 million; and
1,600,000 of options on achievement of audited Group operating EBITDA of A$63.5 million.
1,600,000 of options on achievement of audited Group operating EBITDA of A$63.5 million.
1,600,000 of options on achievement of audited Group operating EBITDA of A$63.5 million.
These options were issued to the former Managing Director and the former CEO - Commercial Operations Australasia, both of whom
These options were issued to the former Managing Director and the former CEO - Commercial Operations Australasia, both of whom
These options were issued to the former Managing Director and the former CEO - Commercial Operations Australasia, both of whom
resigned during the year ended 30 June 2020. 1.6 million options did not vest and the former Managing Director forfeited 1.5 million
resigned during the year ended 30 June 2020. 1.6 million options did not vest and the former Managing Director forfeited 1.5 million
resigned during the year ended 30 June 2020. 1.6 million options did not vest and the former Managing Director forfeited 1.5 million
options which had vested. During the year, the former CEO - Commercial Operations Australasia exercised 900,000 options which had
options which had vested. During the year, the former CEO - Commercial Operations Australasia exercised 900,000 options which had
options which had vested. During the year, the former CEO - Commercial Operations Australasia exercised 900,000 options which had
vested based on reported results. All options in this series have now either expired or been exercised during the year.
vested based on reported results. All options in this series have now either expired or been exercised during the year.
vested based on reported results. All options in this series have now either expired or been exercised during the year.
1 October 2017 Options (Series 7 & 8)
1 October 2017 Options (Series 7 & 8)
1 October 2017 Options (Series 7 & 8)
On 1 October 2017, two series of options were awarded to senior managers under the EIP, with a key condition for issuance that senior
On 1 October 2017, two series of options were awarded to senior managers under the EIP, with a key condition for issuance that senior
On 1 October 2017, two series of options were awarded to senior managers under the EIP, with a key condition for issuance that senior
managers serve a minimum employment threshold up to 30 June 2018. Based on the minimum employment threshold having been
managers serve a minimum employment threshold up to 30 June 2018. Based on the minimum employment threshold having been
managers serve a minimum employment threshold up to 30 June 2018. Based on the minimum employment threshold having been
achieved, the option series for those senior managers employed by the Company as at 30 June 2018 were issued on 30 August 2018.
achieved, the option series for those senior managers employed by the Company as at 30 June 2018 were issued on 30 August 2018.
achieved, the option series for those senior managers employed by the Company as at 30 June 2018 were issued on 30 August 2018.
The exercise price of the option series reflected the market price of the shares in the Company at the time of the award.
The exercise price of the option series reflected the market price of the shares in the Company at the time of the award.
The exercise price of the option series reflected the market price of the shares in the Company at the time of the award.
There were two sets of vesting criteria to be satisfied concurrently. The first test is that a minimum return on funds employed (ROFE)
There were two sets of vesting criteria to be satisfied concurrently. The first test is that a minimum return on funds employed (ROFE)
There were two sets of vesting criteria to be satisfied concurrently. The first test is that a minimum return on funds employed (ROFE)
(defined as Group operating EBITDA to funds employed, excluding capital work in progress and net debt) of 12% must be achieved for
(defined as Group operating EBITDA to funds employed, excluding capital work in progress and net debt) of 12% must be achieved for
(defined as Group operating EBITDA to funds employed, excluding capital work in progress and net debt) of 12% must be achieved for
the vesting to be approved. The second test involves the achievement of certain Group operating EBITDA targets, which vary between
the vesting to be approved. The second test involves the achievement of certain Group operating EBITDA targets, which vary between
the vesting to be approved. The second test involves the achievement of certain Group operating EBITDA targets, which vary between
the series of options awarded.
the series of options awarded.
the series of options awarded.
Audited Group operating EBITDA has been adjusted for any impact as a result of the new AASB 16 Leases standard from 1 July 2019 in
Audited Group operating EBITDA has been adjusted for any impact as a result of the new AASB 16 Leases standard from 1 July 2019 in
Audited Group operating EBITDA has been adjusted for any impact as a result of the new AASB 16 Leases standard from 1 July 2019 in
determining the achievement of performance targets.
determining the achievement of performance targets.
determining the achievement of performance targets.
The first series of 2,250,000 options (series 7 options), with an expiry date of 1 October 2019, were entitled to vest, assuming
The first series of 2,250,000 options (series 7 options), with an expiry date of 1 October 2019, were entitled to vest, assuming
The first series of 2,250,000 options (series 7 options), with an expiry date of 1 October 2019, were entitled to vest, assuming
achievement of the ROFE test, based on the achievement of Group Company operating EBITDA performance within the exercise period
achievement of the ROFE test, based on the achievement of Group Company operating EBITDA performance within the exercise period
achievement of the ROFE test, based on the achievement of Group Company operating EBITDA performance within the exercise period
as follows:
as follows:
as follows:
30% of the options on achievement of audited Group operating EBITDA of A$34.5 million;
30% of the options on achievement of audited Group operating EBITDA of A$34.5 million;
30% of the options on achievement of audited Group operating EBITDA of A$34.5 million;
30% of the options on achievement of audited Group operating EBITDA of A$38.5 million;
30% of the options on achievement of audited Group operating EBITDA of A$38.5 million;
30% of the options on achievement of audited Group operating EBITDA of A$38.5 million;
20% of the options on achievement of audited Group operating EBITDA of A$47.5 million; and
20% of the options on achievement of audited Group operating EBITDA of A$47.5 million; and
20% of the options on achievement of audited Group operating EBITDA of A$47.5 million; and
20% of the options on achievement of audited Group operating EBITDA of A$52.5 million.
20% of the options on achievement of audited Group operating EBITDA of A$52.5 million.
20% of the options on achievement of audited Group operating EBITDA of A$52.5 million.
Of the series 7 options, 60% vested in FY 2018 and the balance vested in FY 2019 based on reported results. While the options had
Of the series 7 options, 60% vested in FY 2018 and the balance vested in FY 2019 based on reported results. While the options had
Of the series 7 options, 60% vested in FY 2018 and the balance vested in FY 2019 based on reported results. While the options had
vested in part in FY 2018, they had been unable to be exercised due to trading blackout periods. The series expired on 1 October 2019
vested in part in FY 2018, they had been unable to be exercised due to trading blackout periods. The series expired on 1 October 2019
vested in part in FY 2018, they had been unable to be exercised due to trading blackout periods. The series expired on 1 October 2019
without any options being exercised.
without any options being exercised.
without any options being exercised.
To rectify the impact on employees of the restricted capacity to exercise their options, the Board decided that the Company issue
To rectify the impact on employees of the restricted capacity to exercise their options, the Board decided that the Company issue
To rectify the impact on employees of the restricted capacity to exercise their options, the Board decided that the Company issue
160,000 service rights in lieu of Series 7 options to those affected employees. All of the service rights were exercised and 160,000 shares
160,000 service rights in lieu of Series 7 options to those affected employees. All of the service rights were exercised and 160,000 shares
160,000 service rights in lieu of Series 7 options to those affected employees. All of the service rights were exercised and 160,000 shares
were issued on 20 April 2020.
were issued on 20 April 2020.
were issued on 20 April 2020.
41
41
41
Freedom Foods Group Limited
Directors' report
Freedom Foods Group Limited
Freedom Foods Group Limited
30 June 2020
Directors' report
Directors' report
30 June 2020
30 June 2020
The second series of 2,250,000 options (series 8), with an expiry date of 1 October 2020, will be entitled to vest, assuming achievement
of the ROFE test, based on the achievement of Group Company operating EBITDA performance within the exercise period as follows:
The second series of 2,250,000 options (series 8), with an expiry date of 1 October 2020, will be entitled to vest, assuming achievement
The second series of 2,250,000 options (series 8), with an expiry date of 1 October 2020, will be entitled to vest, assuming achievement
of the ROFE test, based on the achievement of Group Company operating EBITDA performance within the exercise period as follows:
of the ROFE test, based on the achievement of Group Company operating EBITDA performance within the exercise period as follows:
30% of the options on achievement of audited Group operating EBITDA of $40.0 million;
30% of the options on achievement of audited Group operating EBITDA of $50.0 million;
30% of the options on achievement of audited Group operating EBITDA of $40.0 million;
30% of the options on achievement of audited Group operating EBITDA of $40.0 million;
20% of the options on achievement of audited Group operating EBITDA of $55.0 million; and
30% of the options on achievement of audited Group operating EBITDA of $50.0 million;
30% of the options on achievement of audited Group operating EBITDA of $50.0 million;
20% of the options on achievement of audited Group operating EBITDA of $60.0 million.
20% of the options on achievement of audited Group operating EBITDA of $55.0 million; and
20% of the options on achievement of audited Group operating EBITDA of $55.0 million; and
20% of the options on achievement of audited Group operating EBITDA of $60.0 million.
20% of the options on achievement of audited Group operating EBITDA of $60.0 million.
Based on reported results, 80% of the series 8 options vested in FY19. None of the vested options were exercised before the expiry
date of 1 October 2020. The remaining 20% did not vest before the expiry date.
Based on reported results, 80% of the series 8 options vested in FY19. None of the vested options were exercised before the expiry
Based on reported results, 80% of the series 8 options vested in FY19. None of the vested options were exercised before the expiry
date of 1 October 2020. The remaining 20% did not vest before the expiry date.
date of 1 October 2020. The remaining 20% did not vest before the expiry date.
The vesting achievement is subject to annual approval by the People and Culture Committee.
The vesting achievement is subject to annual approval by the People and Culture Committee.
The vesting achievement is subject to annual approval by the People and Culture Committee.
18 April 2019 options (series 9)
On 18 April 2019, 2,850,000 options were awarded to senior managers under the EIP, with a key condition for issuance that senior
18 April 2019 options (series 9)
18 April 2019 options (series 9)
managers serve a minimum employment threshold up to 30 November 2020. The exercise price of the option series reflected the
On 18 April 2019, 2,850,000 options were awarded to senior managers under the EIP, with a key condition for issuance that senior
On 18 April 2019, 2,850,000 options were awarded to senior managers under the EIP, with a key condition for issuance that senior
market price of the shares in the Company at the time of the award. Up to 570,000 additional options will be awarded if targets are
managers serve a minimum employment threshold up to 30 November 2020. The exercise price of the option series reflected the
managers serve a minimum employment threshold up to 30 November 2020. The exercise price of the option series reflected the
exceeded. This series, with an expiry date of 30 November 2020, will vest based on the achievement of a Group operating EBITDA target
market price of the shares in the Company at the time of the award. Up to 570,000 additional options will be awarded if targets are
market price of the shares in the Company at the time of the award. Up to 570,000 additional options will be awarded if targets are
of an aggregate of $160 million over the two performance periods of FY19 and FY20 as follows:
exceeded. This series, with an expiry date of 30 November 2020, will vest based on the achievement of a Group operating EBITDA target
exceeded. This series, with an expiry date of 30 November 2020, will vest based on the achievement of a Group operating EBITDA target
of an aggregate of $160 million over the two performance periods of FY19 and FY20 as follows:
of an aggregate of $160 million over the two performance periods of FY19 and FY20 as follows:
20% of the options on achievement of audited Group aggregate operating EBITDA of $144 million i.e. 90% of the target;
65% of the options on achievement of audited Group aggregate operating EBITDA of $152 million i.e. 95% of the target;
20% of the options on achievement of audited Group aggregate operating EBITDA of $144 million i.e. 90% of the target;
20% of the options on achievement of audited Group aggregate operating EBITDA of $144 million i.e. 90% of the target;
75% of the options on achievement of audited Group aggregate operating EBITDA of $160 million i.e. 100% of the target;
65% of the options on achievement of audited Group aggregate operating EBITDA of $152 million i.e. 95% of the target;
65% of the options on achievement of audited Group aggregate operating EBITDA of $152 million i.e. 95% of the target;
100% of the options on achievement of audited Group aggregate operating EBITDA of $168 million i.e. 105% of the target;
75% of the options on achievement of audited Group aggregate operating EBITDA of $160 million i.e. 100% of the target;
75% of the options on achievement of audited Group aggregate operating EBITDA of $160 million i.e. 100% of the target;
110% of the options on achievement of audited Group aggregate operating EBITDA of $176 million i.e. 110% of the target; and
100% of the options on achievement of audited Group aggregate operating EBITDA of $168 million i.e. 105% of the target;
100% of the options on achievement of audited Group aggregate operating EBITDA of $168 million i.e. 105% of the target;
120% of the options on achievement of audited Group aggregate operating EBITDA of $192 million i.e. 120% of the target.
110% of the options on achievement of audited Group aggregate operating EBITDA of $176 million i.e. 110% of the target; and
110% of the options on achievement of audited Group aggregate operating EBITDA of $176 million i.e. 110% of the target; and
120% of the options on achievement of audited Group aggregate operating EBITDA of $192 million i.e. 120% of the target.
120% of the options on achievement of audited Group aggregate operating EBITDA of $192 million i.e. 120% of the target.
Additional vesting criteria applies to this series. Subject to the achievement of the Group aggregate operating EBITDA performance, the
employee must also achieve 75% of their individual key performance indicators and the Company must also achieve 95% of its health,
Additional vesting criteria applies to this series. Subject to the achievement of the Group aggregate operating EBITDA performance, the
Additional vesting criteria applies to this series. Subject to the achievement of the Group aggregate operating EBITDA performance, the
safety and environmental targets.
employee must also achieve 75% of their individual key performance indicators and the Company must also achieve 95% of its health,
employee must also achieve 75% of their individual key performance indicators and the Company must also achieve 95% of its health,
safety and environmental targets.
safety and environmental targets.
This series will not vest given the performance of the two relevant financial years FY19 (as restated) and FY20.
This series will not vest given the performance of the two relevant financial years FY19 (as restated) and FY20.
This series will not vest given the performance of the two relevant financial years FY19 (as restated) and FY20.
Other issues of rights to acquire shares
On 23 March 2020, the Group issued service rights to employees who had been issued letters of offer of options in 2014 by the former
Other issues of rights to acquire shares
Other issues of rights to acquire shares
Managing Director. The 2014 offer of options by the then Managing Director were not authorised by the Board. Following the Board
On 23 March 2020, the Group issued service rights to employees who had been issued letters of offer of options in 2014 by the former
On 23 March 2020, the Group issued service rights to employees who had been issued letters of offer of options in 2014 by the former
becoming aware of the 2014 offer of options, it decided to honour the commitment and offered 1,385,000 service rights to affected
Managing Director. The 2014 offer of options by the then Managing Director were not authorised by the Board. Following the Board
Managing Director. The 2014 offer of options by the then Managing Director were not authorised by the Board. Following the Board
employees, the terms of which related only to continuing employment during the period of the service rights. The service rights were
becoming aware of the 2014 offer of options, it decided to honour the commitment and offered 1,385,000 service rights to affected
becoming aware of the 2014 offer of options, it decided to honour the commitment and offered 1,385,000 service rights to affected
exercised in full prior to their expiry on 31 March 2020.
employees, the terms of which related only to continuing employment during the period of the service rights. The service rights were
employees, the terms of which related only to continuing employment during the period of the service rights. The service rights were
exercised in full prior to their expiry on 31 March 2020.
exercised in full prior to their expiry on 31 March 2020.
End of audited remuneration report
End of audited remuneration report
End of audited remuneration report
42
42
42
Freedom Foods Group Limited
Directors' report
30 June 2020
10. Indemnity and insurance of officers
Under the Company’s Constitution, to the maximum extent permitted by law, the Company indemnifies the officers and former officers
of the Company against all losses, liabilities, costs, charges and expenses incurred by the officer in the execution of the officer’s duties
as an officer of the Company.
The Company has entered a Deed of Access and Indemnity with each of its Directors and officers (each an Officer). This Deed:
●
●
●
indemnifies the Officer to the maximum extent permitted by law against liabilities incurred by the Officer arising from the person’s
position as an Officer of the Company;
requires the Company to maintain, and pay the premium for, a D&O insurance policy in respect of the Officer; and
provides the Officer access to books of the Company for a purpose permitted by the Deed.
During the financial year, the Group paid premiums to insure each of the Officers 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 Group. The contract
of insurance prohibits disclosure of the nature of the liability and the amount of the premium.
The Company has not, during the financial year, in respect of any person who is or has been an officer of the Company, indemnified or
agreed to indemnify that person in respect of any liability described in section 199A(2) or (3) of the Corporations Act 2001 (Cth).
11. Indemnity and insurance of auditor
The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company or
any related entity against a liability incurred by the auditor.
During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any
related entity.
12. Proceedings on behalf of the Company
No person has applied to the Court under Section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the
Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the
Company for all or part of those proceedings.
13. Non-audit services
Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are
outlined in Note 40 to the consolidated financial statements.
The Directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or
firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act
2001.
The directors are of the opinion that the services as disclosed in Note 40 to the consolidated financial statements do not compromise
the external auditor's independence requirements of the Corporations 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
and approved to ensure that 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.
●
14. Rounding of amounts
The Company is of a kind referred to in Australian Securities and Investments Commission (ASIC) Corporations Rounding in
Financial/Directors' Reports) Instrument 2016/191, dated 24 March 2016, and in accordance with that Corporations Instrument
amounts in the directors' report are rounded off to the nearest thousand dollars, unless otherwise indicated.
43
Freedom Foods Group Limited
Auditor's independence declaration
15. Auditor's independence declaration
A copy of the auditor's independence declaration as required under Section 307C of the Corporations Act 2001 is set out immediately
after this directors' report.
This report is made in accordance with a resolution of Directors, pursuant to section 298(2)(a) of the Corporations Act 2001.
On behalf of the Directors
___________________________
Perry R. Gunner
Chairman
30 November 2020
Sydney
44
Freedom Foods Group Limited
Auditor's independence declaration
The Board of Directors
Freedom Foods Group Limited
80 Box Road
Taren Point NSW 2229
30 November 2020
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
DX: 10307SSE
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
[This page has intentionally been left blank for the insertion of the auditor's independence declaration]
Dear Board Members,
Auditor’s Independence Declaration to 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 2020, 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 faithfully
DELOITTE TOUCHE TOHMATSU
David White
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte organisation.
45
45
Freedom Foods Group Limited
Statement of profit or loss and other comprehensive income
For the year ended 30 June 2020
Revenue
Revenue from sale of goods
Cost of sales
Gross profit/(loss)
Other (expense)/income
Other gains/(losses)
Expenses
Marketing expenses
Selling and distribution expenses
Expected credit losses
Administrative expenses
Impairment of right of use assets
Impairment of non-financial assets
Net finance costs
Share of profits/(losses) of associates accounted for using the equity method
Loss before income tax benefit
Income tax benefit
Loss after income tax benefit for the year attributable to the owners of Freedom Foods
Group Limited
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Gain on the revaluation of land and buildings, net of tax
Items that may be reclassified subsequently to profit or loss
Foreign currency translation
Other comprehensive income for the year, net of tax
Note
Consolidated
2020
$'000
2019 restated
$'000
5
6
10
15
7
7
13
23
29
29
580,191
(577,961)
461,768
(491,029)
2,230
(29,261)
(352)
161
3,364
(1,589)
(25,236)
(68,555)
(3,639)
(31,909)
(4,151)
(21,930)
(21,814)
586
(22,169)
(55,698)
(1,800)
(29,552)
-
-
(9,719)
(254)
(174,609)
(146,678)
101
851
(174,508)
(145,827)
411
522
137
548
(67)
455
Total comprehensive loss for the year attributable to the owners of Freedom Foods Group
Limited
(173,960)
(145,372)
Basic earnings per share
Diluted earnings per share
Refer to Note 3 for detailed information on restatement of comparatives.
Cents
Cents
8
8
(63.59)
(63.59)
(59.07)
(59.07)
The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes
46
Freedom Foods Group Limited
Statement of financial position
As at 30 June 2020
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
Prepayments
Total current assets
Non-current assets
Investments accounted for using the equity method
Property, plant and equipment
Right-of-use assets
Intangibles
Loans due from other parties
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Payable to related parties
Borrowings
Lease liabilities
Derivative financial instruments
Income tax
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Lease liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued Capital
Reserves
Accumulated losses
Total equity
Note
2020
$'000
2019 restated 2018 restated
$'000
$'000
Consolidated
9
10
11
12
13
14
15
16
17
17
19
18
22
25
20
21
26
27
29
17,167
64,253
59,808
2,504
2,804
146,536
27,934
298,375
172,304
36,753
-
535,366
55,385
69,905
79,472
287
3,178
208,227
23,515
270,745
-
53,020
-
347,280
98,106
52,229
66,725
293
2,825
220,178
16,941
220,440
-
47,164
1,182
285,727
681,902
555,507
505,905
123,407
-
292,324
2,304
2,329
-
6,557
426,921
-
192,341
1,641
193,982
129,446
1,053
49,022
-
1,111
-
6,712
187,344
128,395
-
5,111
133,506
103,353
1,293
9,730
-
548
4,893
4,811
124,628
124,461
-
6,547
131,008
620,903
320,850
255,636
60,999
234,657
250,269
598,712
(55,851)
(481,862)
589,123
(44,750)
(309,716)
453,388
(51,453)
(151,666)
60,999
234,657
250,269
Refer to Note 3 for detailed information on restatement of comparatives.
The above statement of financial position should be read in conjunction with the accompanying notes
47
Freedom Foods Group Limited
Statement of cash flows
For the year ended 30 June 2020
Cash flows from operating activities
Receipts from customers (inclusive of GST)
Payments to suppliers and employees (inclusive of GST)
Cash flows from operations
Interest received
Interest on lease liabilities paid
Other interest and finance costs paid
Income taxes paid
Net cash used in operating activities
Cash flows from investing activities
Payment for purchase of business, net of cash acquired
Payments for property, plant and equipment
Payments for intangibles
Proceeds from disposal of assets
Investment in associates and joint ventures
Net cash 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 leases
Net cash from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Note
Consolidated
2020
$'000
2019 restated
$'000
574,782
(644,795)
455,815
(573,299)
(70,013)
(117,484)
672
(11,932)
(12,629)
-
236
-
(10,566)
(4,850)
2
38
(93,902)
(132,664)
39
16
13
39
27
28
2
39
-
(22,809)
(1,224)
-
(4,413)
(1,765)
(66,899)
(627)
170
(6,535)
(28,446)
(75,656)
3,555
(252)
(2,659)
86,330
(2,844)
130,532
(3,806)
(4,353)
43,226
-
84,130
165,599
(38,218)
55,385
(42,721)
98,106
Cash and cash equivalents at the end of the financial year
9
17,167
55,385
Refer to Note 39 for non-cash investing and financing activities.
The above statement of cash flows should be read in conjunction with the accompanying notes
48
Freedom Foods Group Limited
Statement of changes in equity
For the year ended 30 June 2020
Consolidated
Balance at 1 July 2018
Issued capital
$'000
Reserves
$'000
Retained
profits/
(accumulated
losses)
$'000
Total equity
$'000
453,388
(55,019)
131,531
529,900
Prior year restatement (Note 3)
-
3,566
(283,198)
(279,632)
Balance at 1 July 2018 - restated
453,388
(51,453)
(151,667)
250,268
Loss after income tax benefit for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Issue of ordinary shares in accordance with the dividend
reinvestment plan (Note 27)
Issue of ordinary shares from an entitlement offer (Note 27)
Share issue costs (Note 27)
Related income tax
Share based payments (Note 29)
Dividends paid (Note 28)
-
-
-
7,869
130,532
(3,806)
1,140
-
-
-
455
455
-
-
-
-
6,248
-
(145,827)
(145,827)
-
455
(145,827)
(145,372)
-
-
-
-
-
(12,222)
7,869
130,532
(3,806)
1,140
6,248
(12,222)
Balance at 30 June 2019 restated
589,123
(44,750)
(309,716)
234,657
Consolidated
Issued capital
$'000
Reserves
$'000
Retained
profits/
(accumulated
losses)
$'000
Total equity
$'000
Balance at 1 July 2019 restated
589,123
(44,750)
(309,716)
234,657
Loss after income tax benefit for the year
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Issue of ordinary shares under employee share option plan (Note
27)
Issue of ordinary shares in accordance with the dividend
reinvestment plan (Note 27)
Share issue costs (Note 27)
Related income tax
Share based payments (Note 29)
Dividends paid (Note 28)
-
-
-
3,555
6,211
(252)
75
-
-
-
548
548
(174,508)
(174,508)
-
548
(174,508)
(173,960)
-
-
3,555
-
-
-
(11,649)
-
-
-
-
11,232
(8,870)
6,211
(252)
75
(416)
(8,870)
Balance at 30 June 2020
598,712
(55,851)
(481,862)
60,999
Refer to Note 3 for detailed information on restatement of comparatives.
The above statement of changes in equity should be read in conjunction with the accompanying notes
49
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 1. General information
The financial statements of Freedom Foods Group Limited ("Group" or "Company") for the year ended 30 June 2020 were authorised
for issue in accordance with resolution of Directors on 30 November 2020. The Directors have the power to amend, restate and reissue
the financial statements.
Freedom Foods Group Limited is a Company incorporated in Australia whose shares are publicly traded on the Australian Securities
Exchange (ASX). The Company is trading under the symbol 'FNP'.
The nature of the operations and principal activities of the Group are described in Note 4.
Note 2. Significant accounting policies
The principal accounting policies adopted in the preparation of the financial statements are set out either in the respective notes or
below. These policies have been consistently applied to all the years presented in the consolidated financial statements, unless
otherwise stated.
The following accounting policies have been adopted in the preparation and presentation of the financial statements.
(a) Statement of compliance
These financial statements are general purpose financial statements which have been prepared in accordance with the Corporations
Act 2001, 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’).
(b) Basis of preparation
The financial statements have 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 Company is of the kind referred to in the ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191, issued
by the Australian Securities and Investments Commission, relating to the "rounding off" of amounts in the financial statements.
Amounts in the financial statements have been rounded off in accordance with that instrument to the nearest thousand dollars or in
certain cases to the nearest dollar.
The financial statements are presented in Australian dollars.
50
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 2. Significant accounting policies (continued)
Going concern
The Group has prepared the financial statements for the year ended 30 June 2020 on the going concern basis, which assumes
continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business.
The Group made a loss after tax for the 2020 financial year of $174.5m (FY19- a restated loss of $145.8m) and net cash outflows from
operating activities of $93.9m (FY19 $132.7m). At 30 June 2020, the total borrowings of the Group were $292.3m which have been
classified within current liabilities. As a result, the Group had net current liabilities of $280.4m at 30 June 2020 (FY19: net current assets
of $20.9m).
In response to the financial issues affecting the Group, the directors and management have taken a number of significant measures to
stabilise the business and improve its future performance.
The Group obtained a waiver from its financiers in respect of non-compliance with lending covenants at 30 June 2020 and subsequently
entered a standstill agreement in September 2020 which remains in effect to 29 January 2021. Subsequent to the balance date, a
related party of the majority shareholder has guaranteed additional general-purpose funding in the form of a $45m Subordinated
Secured Facility, subject to various obligations including compliance with the terms of the standstill agreement. While Note 20 to the
financial statements sets out the additional undrawn facilities that the Group had at its disposal at 30 June 2020, these undrawn
amounts were cancelled as part of the standstill arrangements and replaced by the $45m subordinated facility.
The standstill agreement has given the Group the opportunity to investigate and remedy a number of operating and financial
matters. The Directors and management have identified opportunities to improve the operating and financial performance of the
business. A critical element of this is the recapitalisation of the Group to provide the necessary funding for the business to meet its
short and long-term financial requirements.
The Group needs to refinance its existing debt with more flexible capital that provides the Company the necessary runway to turn the
business around and return to profitability and future growth. The Group explored a number of alternative recapitalisation options
with a focus on seeking a solution that provides capital and operational expertise in implementing the turnaround. The Group is
currently in exclusivity with a counterparty on a recapitalisation by way of a listed secured subordinated convertible note, noting the
intent to allow for shareholder participation. The purpose of the fund raising is to allow the Group to reduce its existing senior finance
facilities and to provide additional working capital. The Group is working with that counterparty to finalise its due diligence, the
respective terms and offer document and is targeting to announce a fund raising by mid December 2020 with closing by 29 January
2021. The Group’s major shareholder and lenders are supportive of the transaction. The Group is working with its existing lenders on
negotiating revised terms for continuing facilities after the proposed secured subordinated convertible note is issued.
Whilst the proposed fund raising is at an advanced stage, there remains a risk that this will not complete. Key risks to the proposed
fund raising include satisfactory completion of the counterparty’s due diligence, regulatory approvals, and other conditions precedent
typical for a transaction of this nature. The on-going support of the Group’s major shareholders and lenders both in the period prior to,
and subsequent to, the proposed fund raising is critical to the ability of the Group to continue as a going concern. The business requires
improvement in its operating and financial performance, this is also critical to ensuring support for the transaction and continuing to
operate subsequent to any fund raising.
In the absence of the fund raising being completed, the Directors in consultation with their advisers will reassess the options available
at that point in time, including requesting a further extension of the standstill agreement, and/or commencing a process to sell non-
core businesses and or assets.
In addition, the Group’s current cashflow forecasts indicate that a further injection of short-term working capital is likely to be required
in January 2021. The Directors are confident that should a temporary deficiency in working capital arise it can be bridged in a number
of ways including improved working capital management, outperformance of forecasts, and/or additional support from the Group’s
lenders or its majority shareholder.
The Directors believe they will be successful in one or more of the above plans and accordingly, the financial report has been prepared
on a going concern basis.
51
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 2. Significant accounting policies (continued)
Should any of the above matters not occur, a material uncertainty would exist which would cast significant doubt on the Group’s
ability to continue as a going concern and therefore whether it would be able to realise its assets and discharge its liabilities in the
normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of
recorded asset amounts or to the amounts and classification of liabilities that may be necessary should the Group be unable to
continue as a going concern.
New and amended standards adopted by the Group
During the year, the Group has applied a number of new and revised accounting standards issued by the Australian Accounting
Standards Board (AASB) that are effective for an accounting period that begins on or after 1 July 2019, as follows:
●
●
●
●
●
●
AASB 16 Leases
AASB 2017-4 Amendments to Australian Accounting Standards – Uncertainty Over Income Tax Treatments
AASB 2017-6 Amendments to Australian Accounting Standards – Prepayment Features with Negative Compensation
AASB 2017-7 Amendments to Australian Accounting Standards – Long Term Interest in Associates and Joint Ventures
AASB 2018-1 Annual Improvements 2015-2017 Cycle
Interpretation 23 Uncertainty Over Income Tax Treatments
The impact of the adoption of AASB 16 Leases (AASB 16) is discussed in detail below. The other amendments listed above did not have
an impact on the amounts recognised in the current or prior periods and are not expected to significantly impact future periods.
The Group has adopted AASB 16 using the “modified retrospective (simplified) approach” from 1 July 2019, and therefore the
comparative information has not been restated as permitted under the specific transition provisions in the standard.
The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on
1 July 2019. The Group accounting policies that apply to AASB 16 are set out in Note 15.
Impact of the new definition of a lease
AASB 16 replaces previous lease accounting guidance and contains significant changes to the accounting treatment applied to leases.
It requires a single accounting model to be applied to all types of leases, with the primary change being a requirement for lessees to
recognise assets and liabilities for all leases, with the exception of short-term leases (with a duration of less than 12 months) and leases
of low-value assets.
The change in definition of a lease mainly relates to the concept of control. AASB 16 distinguishes between leases and service contracts
on the basis of whether the use of an identified asset is controlled by the lessee.
Control is considered to exist if the lessee has:
a) the right to obtain substantially all of the economic benefits from the use of an identified asset; and
b) the right to direct the use of that asset.
The Group has elected to use the exemption not to recognise right-of-use assets and lease liabilities for short-term leases that have a
lease term of 12 months or less. The payments associated with these leases are recognised as administrative expenses on a straight-
line basis over the lease term.
Impact of the adoption of AASB 16 Leases
On adoption of AASB 16, the Group recognised lease liabilities in relation to leases which had previously been classified as ‘operating
leases’ under AASB 117, which were off-balance sheet. These liabilities were measured at the present value of the remaining lease
payments, discounted using the lessee’s incremental borrowing rate as at 1 July 2019. The Group adopted the simplified transition
approach at the date of initial application of AASB 16 and accordingly recognised a right of use asset equal to the amount of lease
liabilities adjusted by accrued lease payments relating to the leases brought on balance sheet.
52
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 2. Significant accounting policies (continued)
This resulted in the following:
●
recognition of right-of-use assets of $184.1m and lease liabilities of $195.2m in the consolidated statement of financial position,
as at 1 July 2019;
recognition of depreciation on right-of-use assets and interest on lease liabilities of $26.0m in the consolidated statement of profit
or loss and comprehensive income for the year ended 30 June 2020; and
separation of the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented
within operating activities) in the consolidated cash flow statement.
●
●
In applying AASB 16 for the first time, the Group has used the following practical expedients permitted by the standard:
●
●
●
●
●
applying a single discount rate to a portfolio of leases with reasonably similar characteristics;
relying on previous assessments of whether leases are onerous as an alternative to performing an impairment review;
accounting for operating leases with a remaining lease term of less than 12 months as at 1 July 2019 as short-term leases;
excluding initial direct costs for the measurement of the right-of-use assets at the date of initial application; and
using hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
The reconciliation of non-cancellable operating lease commitments to the lease liability recognised on adoption is as follows:
Operating lease commitments at 30 June 2019
Short-term leases and low-value assets
Adjustment as a result of different treatment of extension options*
Discounted using the incremental borrowing rate at 1 July 2019
Lease obligations recognised at 1 July 2019
Consolidated
1 July 2019
$'000
206,223
(1,006)
226,432
(236,415)
195,234
*The Group leases land and buildings for its offices, warehouses and manufacturing plant under agreements of between 2 to 20 years
with, in some cases, options to extend to 30 years. The leases have various rental escalation clauses. On renewal or option extension,
the rent can be renegotiated. The Group considers that it is reasonably certain to exercise the extension options related to certain land
and building leases given the importance of the underlying assets to Group's operations.
The transition date value of right of use assets and lease liabilities is different from the preliminary impact assessment of $130.5m. The
difference mainly arose from a change in the incremental borrowing rate estimate and the adjustment of provisions under AASB 117
which were not part of the preliminary assessment.
A reconciliation of previously reported values and the final transition date numbers are presented below:
1 July 2019
Right of use
assets
$'000
Lease liabilities
$'000
130,544
66,660
(7,396)
(3,759)
(1,971)
(130,544)
(66,661)
-
-
1,971
184,078
(195,234)
Previously reported transition date impact
Discount rate revision
Provisions under AASB 117
Onerous lease provision under AASB 137
Change in treatment of extension option
53
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 2. Significant accounting policies (continued)
The Group has used a weighted average incremental borrowing rate of 6.2% with discount rates varying by reference to the nature of
the asset and the period of the lease. Lease terms are negotiated on an individual basis and contain a wide range of different terms and
conditions. The lease terms vary between 2 and 30 years depending on the nature of the underlying asset. Most extension options in
property leases have been considered in the determination of lease liability due to significant business disruption and costs associated
with replacement.
The table below shows the movement for each financial statement line item affected by the application of AASB 16 during the year.
Impact on assets and liabilities
Initial
Application
(1 July 2019)
$'000
Additions
$'000
Consolidated
Lease
payments
$'000
Depreciation
and
impairment*
$'000
Interest
$'000
30 June 2020
$'000
Right-of-use assets
Lease liabilities
184,078
(195,234)
2,255
(2,255)
-
14,776
(14,029)
-
-
(11,932)
172,304
(194,645)
*Depreciation and impairment includes an impairment of $4.2m recorded on right of use assets arising from certain onerous lease
arrangements, including head office and Cereal and Snacks manufacturing sites.
The table below shows the impact of adopting AASB 16 on the Group's consolidated statement of financial position as at 30 June 2020
and its consolidated statement of profit or loss and other comprehensive income and consolidated statement of cash flows for the year
ended 30 June 2020.
Impact on statement of financial position
30 June 2019
restated
Pre - AASB 16*
$'000
AASB 16
impact
$'000
1 July 2019
restated
Post-AASB 16
$'000
208,227
-
-
347,280
347,280
-
208,227
-
184,078
-
184,078
-
184,078
347,280
531,358
555,507
184,078
739,585
-
-
(187,344)
(187,344)
-
-
(133,506)
(133,506)
-
(2,730)
7,396
4,666
-
(192,503)
3,759
(188,744)
-
(2,730)
(179,948)
(182,678)
-
(192,503)
(129,747)
(322,250)
(320,850)
(184,078)
(504,928)
234,657
-
234,657
Current assets
Non-current assets
Right-of-use assets
Other non-current assets
Total assets
Current liabilities
Lease liabilities - current
Other current liabilities
Total current liabilities
Non-current liabilities
Lease liabilities - non-current
Other non-current liabilities
Total non-current liabilities
Total liabilities
Net assets
*This is pre - AASB 16 adjustment but after all restatements as detailed in Note 3.
54
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 2. Significant accounting policies (continued)
Impact on profit/(loss)
Increase in depreciation
Increase in net finance costs
Decrease in straight line expense
Impact for the year
Impact on statement of cash flows
Increase in cash flows from operating activities
Decrease in cash flows from financing activities
Consolidated Consolidated
2020
$'000
2019
$'000
(9,878)
(11,932)
16,760
(5,050)
-
-
-
-
Consolidated Consolidated
2020
$000
2019
$000
2,844
(2,844)
-
-
-
-
The following table presents the contractual undiscounted cash flows for lease obligations as at 30 June 2020:
Within in one year*
One to five years*
More than five years **
More than five years - extension options assumed to be exercised***
Consolidated Consolidated
30 June 2020 1 July 2019
$'000
$'000
14,186
53,467
124,997
226,432
14,790
54,516
139,135
226,432
419,082
434,873
* Non-cancellable lease payments.
** Non-cancellable lease payments, subject to market review.
*** Cancellable lease but extension options are considered reasonably certain to be exercised, subject to market review.
(c) Basis of consolidation
The consolidated financial statements incorporate the financial statements of Freedom Foods Group Limited and entities controlled by
the Company and its subsidiaries ('the Group'). The Company controls an entity when:
●
●
●
it has power over the investee;
is exposed, or has rights, to variable returns from its involvement with the investee; and
has the ability to use its power to affect its returns.
The results of subsidiaries acquired or disposed of during the year are included in the Consolidated Statement of profit or loss and
comprehensive income from the date on which the Company obtains control and until such time at the Company ceases to control
such entity.
55
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 2. Significant accounting policies (continued)
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.
The amounts attributable to the non-controlling interests are not separately disclosed as the financial statements are rounded to the
nearest thousand dollars under Australian Securities and Investments Commission Corporations Instrument 2016/191.
Associates are all entities over which the Group has significant influence but not control or joint control. Significant influence is the
power to participate in the financial and operating policy decisions of the Company and usually exists where the Group holds between
20% and 50% of the voting rights or representation on the Board of Directors. Investments in associates are accounted for using the
equity method of accounting after initially being recognised at cost.
Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the group’s
share of the post-acquisition profits or losses of the investee in profit or loss, and the group’s share of movements in other
comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates and joint
ventures are recognised as a reduction in the carrying amount of the investment.
Unrealised gains on transactions between the group and its associates and joint ventures are eliminated to the extent of the group’s
interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset
transferred. Accounting policies of equity-accounted investees have been changed where necessary to ensure consistency with the
policies adopted by the group.
(d) Business combinations
The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or
other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the:
●
●
●
●
●
fair values of the assets transferred
liabilities incurred to the former owners of the acquired business
equity interests issued by the group
fair value of any asset or liability resulting from a contingent consideration arrangement, and
fair value of any pre-existing equity interest in the subsidiary.
The excess of the:
●
●
●
consideration transferred
amount of any non-controlling interest in the acquired entity, and
acquisition-date fair value of any previous equity interest in the acquired entity
over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the
net identifiable assets of the business acquired, the difference is recognised directly in profit or loss as a bargain purchase.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value
as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing
could be obtained from an independent financier under comparable terms and conditions.
Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently
remeasured to fair value with changes in fair value recognised in profit or loss.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in
the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are recognised in
profit or loss.
The interest of minority shareholders in the acquiree is initially measured at the minority's proportion of the net fair value of the assets,
liabilities and contingent liabilities recognised.
56
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 2. Significant accounting policies (continued)
(e) Foreign currency
Transactions, assets and liabilities denominated in foreign currencies are translated into Australian dollars at reporting date
using the following applicable exchange rates:
Foreign currency amount
Transactions
Monetary assets and liabilities
Non-monetary assets and liabilities carried at fair value
Applicable exchange rate
Date of the transaction
Reporting date
Date fair value is determined
Foreign exchange gains and losses resulting from translation are recognised in profit or loss in the statement of profit or loss and other
comprehensive income, except for qualifying cash flow hedges which are deferred to equity.
On consolidation the assets, liabilities, income and expenses of foreign operations are translated into Australian dollars using the
following applicable exchange rates:
Foreign currency amount
Income and expenses
Assets and liabilities
Equity
Applicable exchange rate
Average exchange rate
Reporting date
Historical date
Foreign exchange differences resulting from translation are initially recognised in the foreign currency translation reserve and
subsequently transferred to the profit or loss on disposal of the foreign operation.
(f) Investments and other financial assets
Classification
The Group classifies its financial assets in the following measurement categories:
●
●
those to be measured subsequently at fair value (either through Other Comprehensive Income "OCI" or through profit or loss),
and
those to be measured at amortised cost.
The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows.
For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For investments in equity instruments
that are not held for trading, this will depend on whether the group has made an irrevocable election at the time of initial recognition
to account for the equity investment at fair value through other comprehensive income ("FVOCI").
The Group reclassifies debt investments when and only when its business model for managing those assets changes.
Recognition and derecognition
Purchases and sales of financial assets are recognised on trade date, being the date on which the group commits to purchase or sell the
asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been
transferred and the group has transferred substantially all the risks and rewards of ownership.
Measurement
At initial recognition, the group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through
profit or loss ("FVTPL"), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of
financial assets carried at FVTPL are expensed in profit or loss.
57
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 2. Significant accounting policies (continued)
Debt instruments
The measurement of debt instruments depends on the group’s business model for managing the asset and the cash flow characteristics
of the asset. There are three measurement categories into which the group classifies its debt instruments:
●
●
●
Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of
principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income
using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and
presented in other gains/(losses) together with foreign exchange gains and losses. Impairment losses are presented as a separate
line item in the statement of profit or loss.
FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows
represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through
OCI, except for the recognition of impairment gains or losses, interest income and foreign exchange gains and losses which are
recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is
reclassified from equity to profit or loss and recognised in other gains/(losses). Interest income from these financial assets is
included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in other
gains/(losses) and impairment expenses are presented as separate line item in the statement of profit or loss.
FVTPL: Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVTPL. A gain or loss on a debt investment
that is subsequently measured at FVTPL is recognised in profit or loss and presented net within other gains/(losses) in the period
in which it arises.
Equity instruments
The Group measures all investments in equity instruments at fair value. Where the Group’s management has elected to present fair
value gains and losses on equity instruments in OCI, there is no subsequent reclassification of fair value gains and losses to profit or loss
following the derecognition of the instrument. Dividends from such instruments continue to be recognised in profit or loss as other
income when the group’s right to receive payments is established.
Changes in the fair value of financial assets at FVTPL are recognised in other gains/(losses) in the statement of profit or loss as applicable.
Impairment losses (and reversal of impairment losses) on equity instruments measured at FVOCI are not reported separately from
other changes in fair value.
Impairment of financial assets
The Group assesses on a forward-looking basis the expected credit losses associated with its debt instruments carried at amortised cost
and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk.
For trade receivables, the Group applies the simplified approach permitted by AASB 9, which requires expected lifetime losses to be
recognised from initial recognition of the receivables, see Note 10 for further details.
(g) Impairment of non-financial assets including investments accounted for using the equity method
Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment,
or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets, including investments
accounted for using the equity method, are tested for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount
exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash
inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units or CGU’s). Non-
financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of
each reporting period.
58
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 2. Significant accounting policies (continued)
(h) Critical accounting estimates and judgements
In applying the Group’s accounting policies, the Directors are required to make estimates, judgements and assumptions that affect the
amounts reported in the financial report.
The estimates, judgements and assumptions are based on historical experience, adjusted for current conditions and other factors that
are believed to be reasonable under the circumstances and reviewed on a regular basis.
The actual results may differ from these estimates. Revisions to accounting estimates are recognised in the period in which the estimate
is revised.
The estimate and judgements which involve a higher degree of complexity or that have a higher likelihood of causing adjustment to the
carrying amounts of assets and liabilities are included in the following notes:
● Note 10: Estimation of expected credit losses
The allowance for expected credit losses assessment requires a degree of estimation and judgement. It is based on the lifetime expected
credit loss, grouped based on days overdue, and makes assumptions to allocate an overall expected credit loss rate for each group.
These assumptions include recent sales experience, historical collection rates, the impact of the Coronavirus (COVID-19) pandemic and
forward-looking information that is available. The allowance for expected credit losses, as disclosed in Note 12, is calculated based on
the information available at the time of preparation. The actual credit losses in future years may be higher or lower.
● Note 11: Estimation of net realisable value of inventories
The Group reviews net realisable value (NRV) of inventories regularly to determine that it is stated at the lower of cost and NRV. Factors
that could affect NRV and hence future realisation of inventories include competitor actions and market trends. Changes in the NRV of
inventory could affect profit in the future period.
● Note 13: Judgement in determining significant influence and whether to apply equity accounting to certain investments
The Group has a 10% ownership interest in Shenzen Jialile Co. Limited (JLL) and Australian Fresh Milk Holdings Pty Limited (AFMH).
During FY20, although the Group held less than 20% of the equity shares of JLL, the Group exercised significant influence by virtue of
holding a Board seat where the Board member holds certain veto rights on Board voting.
Although the Group holds less than 20% of the equity shares of AFMH, the Group has joint control of AFMH (under accounting
standards). It has a Board seat, as well as having a related party (LPI) holding a 37% shareholding in AFMH.
● Note 14: Estimates of useful lives of assets
The Group determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and
equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other
event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or
technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down.
● Note 14: Estimates of cost of assets included in capital work in progress and the timing of transfer of capital work in progress to
property, plant and equipment
The Group applies AASB 116 in the determination of costs that may be capitalised as part of capital work in progress, as reflected in its
fixed assets accounting policy. Judgement is required in determining the extent to which the costs are eligible for capitalisation including
employee and borrowing costs, the period over which they should be capitalised and when those assets are ready for their intended
use. Depreciation commences from the point when such assets are ready and available for their intended use.
59
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 2. Significant accounting policies (continued)
● Note 15: Judgement in assessing which arrangement contains a lease and estimating the useful lives of right-of-use assets
The lease term is a significant component in the measurement of both the right-of-use asset and lease liability. Judgement is exercised
in determining whether there is reasonable certainty that an option to extend the lease or purchase the underlying asset will be
exercised, or an option to terminate the lease will not be exercised, when ascertaining the periods to be included in the lease term. In
determining the lease term, all facts and circumstances that create an economic incentive to exercise an extension option, or not to
exercise a termination option, are considered at the lease commencement date. Factors considered may include the importance of the
asset to the Group's operations; comparison of terms and conditions to prevailing market rates; incurrence of significant penalties;
existence of significant leasehold improvements; and the costs and disruption to replace the asset. The consolidated entity reassesses
whether it is reasonably certain to exercise an extension option, or not exercise a termination option, if there is a significant event or
significant change in circumstances.
● Note 16: Determining the recoverable amounts of the cash generating units (CGUs)
The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other
indefinite life intangible assets have suffered any impairment, in accordance with the accounting policy stated in Note 1. The
recoverable amounts of CGU’s have been determined based on value-in-use and fair value less cost to dispose calculations. These
calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates
of the estimated future cash flows. Property, plant and equipment is tested when there is an indicator of impairment.
● Note 24: Recognition of deferred tax asset
The Group estimates future taxable profits based on approved budgets and forecasts. Future taxable profits are influenced by a variety
of general economic and business conditions, which are outside the control of the Group. A change in any of these assumptions could
have an impact on the future profitability of the Group and may affect the recognition and/or recovery of deferred tax assets. The
potential business impacts of COVID-19 have been reflected in the Group’s internal forecasts. The recognition of deferred tax assets
including those arising from tax losses has been determined with reference to the Group’s internal forecasts.
● Note 37: Share based payment transactions
The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at
the date at which they are granted. The fair value is determined by using either the Binomial or Black-Scholes model taking into account
the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-
settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting
period but may impact profit or loss and equity.
Coronavirus (COVID-19) pandemic
The World Health Organization declared a global pandemic in March 2020 as a result of the novel coronavirus (COVID-19). The effects
of this health crisis are continuing to unfold and the ultimate extent of the social, medical and economic impacts worldwide are
unknown. The Group has considered the impact of COVID-19 in preparing its financial report for the year.
Judgement has been exercised in considering the impacts that the COVID-19 pandemic has had, or may have, on the Group based on
known information. This consideration extends to the nature of the products and services offered, customers, supply chain, staffing
and geographic regions in which the Group operates. Key impacts are summarised below:
●
●
●
●
The COVID-19 pandemic and associated lockdowns affected revenue, particularly in the 'out of home' (OOH) channel and sales of
cream, through the period from March to May. While there was a shift to sales in the grocery channel, the profitability of these
sales was materially lower than the expected sales via the OOH channel and sales of cream.
Exports to China in H2 FY20 were impacted.
Some of the Group’s customers have experienced cash flow and financial difficulties due to mandatory closures, employment
instability and the general economic downturn. As a result, the Expected Credit Loss (ECL), which recognises a provision of
uncollectable debts, is also impacted as at 30 June 2020.
The uncertainty surrounding the trading environment for the Group has impacted the approach to forecasting and modelling cash
flows supporting the impairment assessment of non-financial assets. Uncertainty remains as to the timing and extent of the
economic recovery generally and the impact of possible future outbreaks of COVID-19. Any adverse changes could lead to further
impairments. The Group continues to closely monitor and respond to the situation.
60
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 2. Significant accounting policies (continued)
New accounting standards and interpretations not yet adopted
The following standards, amendments to standards and interpretations are relevant to current operations. They are available for early
adoption but have not been applied by the Group in this Financial Report.
The following new or amended standards are not expected to have a significant impact on the Group’s consolidated financial
statements:
●
●
●
Amendments to References to Conceptual Framework in IFRS Standards
Definition of Business (Amendments to AASB 3)
Definition of Material (Amendments to AASB 101 and AASB 8)
Note 3. Restatement of comparatives
Prior period restatement
The Group has made the following adjustments which impact both the opening position in its financial statements as at 1 July 2018 and
the performance and position reported at 30 June 2019:
1.
a reduction in the value of property, plant and equipment in respect of costs previously capitalised during the commissioning
phase of the Group’s capital investment program which is now drawing to completion. The Group has determined that a
proportion of these costs are more appropriately treated as expenses or have not been sufficiently able to be identified as directly
attributable costs of bringing the asset to the location and condition necessary for it to be capable of operating in the manner
intended by management. Revenues generated from products produced during the commissioning phase have been deducted
from the cost of property, plant and equipment. Changes have been made to the expected useful lives of property, plant and
equipment at the time of their transfer from capitalised work in progress to depreciable plant and equipment. Previously
unrecognised land and building revaluations have been recognised in the relevant periods. Associated adjustments to capitalised
interest and depreciation have also been recognised;
impairment of intangible assets (goodwill) and property, plant and equipment in prior periods in the Dairy and Nutritionals CGU
($31.6m goodwill) and the Cereal and Snacks CGU ($23.0m goodwill, $4.9m brands and $42.5m property, plant and equipment)
given the restated loss making performance of these businesses.
inventory write-downs and write-offs occurred, relating to out of date, obsolete, unsaleable, unable to be located and overvalued
stock relative to net realisable value, much of which was produced during the commissioning phase of new equipment;
2.
3.
4. a reduction in the value of capitalised new product development costs as a result of a review of the nature of the costs capitalised
and associated changes to amortisation;
5. a reduction in revenues and receivables for items which were not deemed to have met the revenue recognition criteria in prior
periods, arising from a review of year end cut off deadlines;
6. writing off various aged receivable or other assets balances;
7.
increase in prior period accruals for trade marketing and trade promotional expenditure not previously recognised;
8.
restatement of the carrying value of equity accounted investments to reflect the proportion of earnings derived in each year;
9. an increase in prior periods’ share based payments expense arising from written invitations made to employees in September
2014 accepted by those employees which were not authorised by the Board. AASB 2 requires the Group to account for the
obligation and expectations created by the correspondence as if the issue had been authorised by the Board. This requires
calculation of share based payments expense in respect of the September 2014 invitations for the period from September 2014
until the expiry of the invitation in September 2019;
recognition of lease payments under operating leases as expense on a straight-line basis over the lease term as required by
AASB 117 (previous accounting standard on Leases);
recognition of a make good provision to meet the Group's obligations at the time of returning leased property;
recognition of onerous property contracts; and
10.
11.
12.
13. derecognition of duplicate accruals;
14.
15.
16.
reclassification of related party loans;
translation of foreign currency dominated loan;
restatement of the prior periods’ tax balances to reflect the impact of the above.
61
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 3. Restatement of comparatives (continued)
Financial impact 30 June 2019
Financial impact 30 June 2018
Nature of
restatements
Ref
Asset
(decrease)
/increase
Liability
(increase)
/decrease
Other
Equity
(increase)
/decrease
Profit
decrease
/(increase
)
Asset
(decrease)
/increase
Liability
(increase)
/decrease
Other
equity
(increase)
/decrease
Accumulat
ed losses
increase/
(decrease)
1
4
2
2
3
5
6
7
8
9
10
11
12
2
15
13
14
Capitalisation
of
commissioning
costs
Capitalised
New Product
Development
Impairment of
intangibles
Impairment of
Property Plant
and Equipment
Inventory
Provisions
Revenue
Recognition
Receivables
expected credit
loss/write off
Increase in
trade accruals
Equity
accounted
investments
Share-based
payments
Lease
accounting
adjustment
(pre AASB16)
Recognition of
deferred tax on
intangibles
Revaluation of
land and
buildings
Foreign
translation
reserve on loan
Derecognition
of accruals
Reclassification
of related party
loans
Restatement of
tax balances
$'000
(110,092)
(19,286)
-
1,288
(27,100)
(565)
(6,699)
$'000
$'000
-
-
-
-
-
-
-
$'000
110,092
$'000
(120,709)
19,286
(19,570)
-
(59,481)
(1,288)
(42,145)
27,100
(18,614)
565
(1,429)
6,699
(4,953)
$'000
$'000
-
-
-
-
-
-
-
2,874
-
(9,026)
-
-
-
-
-
-
-
-
-
(2,874)
(509)
-
-
-
-
(1,551)
(293)
802
(487)
(469)
469
1,551
-
-
(10,662)
-
-
$'000
120,709
19,570
59,481
42,145
18,614
1,429
4,953
9,026
487
-
-
-
-
-
-
-
-
-
(3,367)
3,367
-
-
10,662
-
-
-
-
-
-
-
-
(7,583)
15
(9,551)
9,551
-
9,551
(9,551)
966
(224)
(522)
(220)
(85)
(53)
(199)
337
-
-
448
(448)
(725)
4,329
778
(849)
(3,604)
71
-
-
-
-
-
-
16
2,054
4,493
(6,547)
(2,053)
9,636
(169,441)
12,873
(836)
157,404
(259,945)
(19,686)
(3,566)
283,197
62
-
-
-
-
-
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 3. Restatement of comparatives (continued)
These adjustments have been adopted by restating each of the affected financial statement line items for the prior periods as follows:
Statement of profit or loss and other comprehensive income
Revenue
Revenue from sale of goods
Cost of sales
Other (expense)/income
Other gains/(losses)
Expenses
Marketing expenses
Selling and distribution expenses
Expected credit losses
Administrative expenses
Other expenses
Net finance costs
Share of profits/(losses) of associates accounted for using the equity method
2019
$'000
Reported
Consolidated
$'000
Adjustment
2019
$'000
Restated
476,214
(14,446)
461,768
(376,840)
(114,189)
(491,029)
5,217
(2,037)
(1,853)
448
3,364
(1,589)
(10,396)
(44,130)
-
(23,268)
(2,213)
(3,986)
480
(11,773)
(11,568)
(1,800)
(6,284)
2,213
(5,733)
(734)
(22,169)
(55,698)
(1,800)
(29,552)
-
(9,719)
(254)
Profit/(loss) before income tax (expense)/benefit
19,041
(165,719)
(146,678)
Income tax (expense)/benefit
(7,464)
8,315
851
Profit/(loss) after income tax benefit for the year attributable to the owners of
Freedom Foods Group Limited
11,577
(157,404)
(145,827)
Other comprehensive income
Gain on the revaluation of land and buildings, net of tax
Foreign currency translation
Other comprehensive income for the year, net of tax
-
88
88
522
(155)
367
522
(67)
455
Total comprehensive income for the year attributable to the owners of Freedom
Foods Group Limited
11,665
(157,037)
(145,372)
Basic earnings per share
Diluted earnings per share
Cents
Reported
4.69
6.90
Cents
Restated
(59.07)
(59.07)
63
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 3. Restatement of comparatives (continued)
Statement of financial position at the beginning of the comparative period (30 June 2018).
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
Prepayments
Total current assets
Non-current assets
Investments accounted for using the equity method
Property, Plant and Equipment
Intangibles
Deferred tax
Loans due from other parties
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Payable to related parties
Borrowings
Derivative financial instruments
Income tax
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued Capital
Reserves
Retained profits/(accumulated losses)
Total equity
2018
$'000
Reported
Consolidated
$'000
Adjustment
2018
$'000
Restated
98,106
62,849
81,101
293
2,825
245,174
17,428
388,883
111,130
2,053
1,182
520,676
-
(10,620)
(14,376)
-
-
(24,996)
(487)
(168,443)
(63,966)
(2,053)
-
(234,949)
98,106
52,229
66,725
293
2,825
220,178
16,941
220,440
47,164
-
1,182
285,727
765,850
(259,945)
505,905
88,069
1,293
9,730
548
4,893
6,543
111,076
124,461
413
124,874
15,284
-
-
-
-
(1,732)
13,552
-
6,134
6,134
103,353
1,293
9,730
548
4,893
4,811
124,628
124,461
6,547
131,008
235,950
19,686
255,636
529,900
(279,631)
250,269
453,388
(55,019)
131,531
-
3,566
(283,197)
453,388
(51,453)
(151,666)
529,900
(279,631)
250,269
The restatement adjustment of $279.6m in FY18 represents the cumulative impact of restatements relating to FY18 and prior years.
64
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 3. Restatement of comparatives (continued)
Statement of financial position at the end of the comparative period (30 June 2019).
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
Prepayments
Total current assets
Non-current assets
Investments accounted for using the equity method
Property, plant and equipment
Intangibles
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Payable to related parties
Borrowings
Derivative financial instruments
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Deferred tax
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued Capital
Reserves
Retained profits/(accumulated losses)
Total equity
2019
$'000
Reported
Consolidated
$'000
Adjustment
2019
$'000
Restated
55,385
87,745
120,211
287
3,179
266,807
23,777
548,400
145,910
718,087
-
(17,840)
(40,739)
-
(1)
(58,580)
(262)
(277,655)
(92,890)
(370,807)
55,385
69,905
79,472
287
3,178
208,227
23,515
270,745
53,020
347,280
984,894
(429,387)
555,507
111,881
275
49,022
1,111
9,248
171,537
128,395
13,821
284
142,500
17,565
778
-
-
(2,536)
15,807
-
(13,821)
4,827
(8,994)
129,446
1,053
49,022
1,111
6,712
187,344
128,395
-
5,111
133,506
314,037
6,813
320,850
670,857
(436,200)
234,657
589,123
(49,152)
130,886
-
4,402
(440,602)
589,123
(44,750)
(309,716)
670,857
(436,200)
234,657
The restatement adjustment of $436.2m in FY19 represents the cumulative impact of restatements relating to FY19 and prior years.
65
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 3. Restatement of comparatives (continued)
As a result of the adjustments referred to above, the interim financial report issued for the half year ended 31 December 2019 will also
need to be restated and therefore should not be relied upon. The December 2019 interim financial report will be restated as part of
the process of reporting the Group’s results for the half year to 31 December 2020.
Note 4. Operating segments
The Group is organised into four core business segments which is the basis on which the Group reports. During the period, Dairy and
Nutritionals were combined as a single segment, whereas previously they were reported as individual segments. Similarly, the
comparative amounts in the segments have been restated to reflect this change. The principal products and services of each of these
operating segments are as follows:
Dairy and Nutritionals
A range of UHT (long life) dairy milk beverage, nutritional products and performance and adult
nutritional powders. These products are manufactured in Australia and sold in Australia and
overseas.
Plant Based Beverages
A range of UHT (long life) food and beverage products including liquid stocks, soy, rice and almond
beverages. These products are manufactured in Australia and sold in Australia and overseas.
Cereal and Snacks
A range of products for consumers including allergen free, nutritional oat based, low sugar or salt,
highly fortified or functional. The product range covers breakfast cereals, snack bars and other
complementary products. These products are manufactured and sold in Australia and overseas.
Specialty Seafood
A range of canned seafood covering sardines, salmon and specialty seafood. These products are
imported into Australia and sold in Australia and New Zealand.
The 'Unallocated Shared Services' group consists of the Group's shared service functions that are not separately reportable and provide
support services to other reportable operating segments.
Operating segments are identified on the basis of internal reports that are regularly reviewed by the Board of Directors, CEO and senior
leadership team in their capacity as the chief operating decision maker of the Group in order to allocate resources to the segments and
assess their performance.
66
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 4. Operating segments (continued)
Set out below is an analysis of the Group's revenue and results by reportable operating segment for the periods under review, together
with prior year comparatives:
During the financial year, the Group changed the structure of its operating segments with Consumer Nutritionals now forming part of
Dairy & Nutritionals. Accordingly, the comparative segment results, assets and liabilities set out below are restated to take into effect
not only this change but also to incorporate the impact of restatement as detailed in Note 3.
Dairy &
Nutritionals
$'000
Plant Based
Beverages
$'000
Cereal &
Snacks
$'000
Specialty
Seafood
$'000
Unallocated
Shared
Services
$'000
Total
$'000
-
-
580,191
580,191
362,922
362,922
132,319
132,319
(52,446)
-
(14,500)
-
-
(2,170)
(2,122)
(71,238)
17,013
-
(11,000)
-
-
(4,065)
(8,701)
(6,753)
69,905
69,905
(34,270)
-
(1,947)
-
(358)
-
(219)
(36,794)
15,045
15,045
203
-
-
-
-
(15,695)
-
(15,492)
(27,175)
586
(2,083)
(1,096)
(3,794)
-
(10,770)
(44,332)
Consolidated - 2020
Revenue
Sales to external customers
Total revenue
EBITDA
Share of associates profits
Depreciation
Amortisation
Impairment of right of use assets
Impairment of non-financial assets
Net finance costs
Loss before income tax benefit
Income tax benefit
Loss after income tax benefit
Assets
Segment assets
Investment in associates
Total assets
Liabilities
Segment liabilities
Total liabilities
(96,675)
586
(29,530)
(1,096)
(4,152)
(21,930)
(21,812)
(174,609)
101
(174,508)
653,968
27,934
681,902
620,903
620,903
311,450
253,631
41,389
5,678
41,820
96,786
173,191
25,224
2,475
323,227
67
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 4. Operating segments (continued)
Consolidated - 2019 restated
Revenue
Sales to external customers
Total revenue
EBITDA
Share of associates losses
Depreciation
Amortisation
Net finance costs
Loss before income tax benefit
Income tax benefit
Loss after income tax benefit
Assets
Segment assets
Unallocated assets:
Investment in associates and joint
venture
Total assets
Liabilities
Segment liabilities
Total liabilities
Dairy &
Nutritionals
$'000
Plant Based
Beverages
$'000
Cereal &
Snacks
$'000
Specialty
Seafood
$'000
Unallocated
Shared
Services
$'000
Total
$'000
264,780
264,780
101,523
101,523
(49,282)
-
(6,263)
-
-
(55,545)
(6,475)
-
(5,189)
-
-
(11,664)
80,938
80,938
(34,175)
-
(7,252)
-
-
(41,427)
14,527
14,527
(3,593)
-
-
-
-
(3,593)
-
-
461,768
461,768
(25,061)
(253)
1,238
(654)
(9,719)
(34,449)
(118,586)
(253)
(17,466)
(654)
(9,719)
(146,678)
851
(145,827)
241,878
137,223
52,479
22,525
77,887
531,992
42,851
47,769
29,547
5,014
195,669
23,515
555,507
320,850
320,850
*
The segment liabilities exclude equipment finance, debtor finance facilities and multi advance facilities relevant to the appropriate
operating segment.
All operations are conducted in Australia, with the exception of Cereal and Snacks (Freedom Foods North America) and Dairy and
Nutritionals (Freedom Foods Shanghai and Freedom Foods Singapore). Freedom Foods Shanghai was established in May 2019 and
Freedom Foods Singapore was incorporated in November 2017. The operations of Freedom Foods North America commenced winding
down in April 2020.
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 arrangement 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 associates.
79% of total external sales of the Group are generated in Australia (FY19: 80%) with 11% generated from China (FY19: 14%) and 10%
generated from other overseas countries (FY19: 6%).
Information about major customers
Included in revenues arising from external sales of $580.2m (FY19: $461.7m) (see segment revenue above) are revenues of
approximately $251.5m (FY19: $205.6m), generated from the top three retail customers 43% (FY19: 45%) of total revenue.
68
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 5. Revenue
Revenue
Revenue from sale of goods
Consolidated
2020
$'000
2019 restated
$'000
580,191
461,768
Significant accounting policies
The Group applies AASB 15 Revenue from Contracts with Customers for revenue recognition. Revenue is recognised when control of
the product has transferred and there is no unfulfilled obligation that could affect the customer’s acceptance of the product. For
domestic sales, the control is transferred when the product is delivered to the customer. Delivery occurs when the product has been
shipped to the location specified by the customer and the customer accepts the product. For international sales, the transfer of control
varies from order to order depending on the nature of the sales contract and the revenue is recognised when the goods are delivered
and the customer takes ownership either when they are picked up from the Group's warehouse, delivered to the departure port or
shipped to the destination port.
Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for trading terms, rebates and
other similar allowances.
For segment information, refer to Note 4.
Note 6. Other gains/(losses)
Net foreign exchange losses
Net gain/(losses) on financial assets held at fair value through profit or loss
Other gains/(losses)
Consolidated
2020
$'000
2019 restated
$'000
(838)
999
(1,019)
(570)
161
(1,589)
69
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 7. Expenses
Loss before income tax includes the following specific expenses:
Other expenses
Depreciation
Amortisation
Restructuring expenses
Acquisition costs
Employee benefits
Superannuation expenses
Share-based (benefit)/expense*
Employee benefits expense excluding superannuation and share-based payment expense
Consolidated
2020
$'000
2019 restated
$'000
29,531
1,096
1,443
861
4,540
(417)
56,122
17,465
654
194
1,336
3,768
6,248
44,505
Total employee benefits
60,245
54,521
Impairment
Goodwill (Note 16)
Brand names and trademarks (Note 16)
Property, plant and equipment (Note 14)
Investments accounted for using the equity method (Note 13)
Total impairment of non-financial assets
Total impairment of right of use assets (Note 15)
Total impairment
Net finance costs
Interest (income)/expense
Interest on lease liabilities
Financing costs
Total net finance costs
5,846
10,549
4,800
735
21,930
4,152
26,082
9,343
11,932
539
-
-
-
-
9,036
-
683
21,814
9,719
*The share based expense for FY20 is negative due to the inclusion of the reversal of previously recognised expense arising for
forfeiture of share options granted to employees.
70
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 7. Expenses (continued)
Significant items affecting the result for the financial year ended 30 June 2020 include the following impacts:
Impairment of intangible assets
Impairment of property, plant and equipment assets
Impairment of right of use (ROU) assets
Inventory provisions
Receivable writeoffs
Additional expected credit loss allowance from COVID-19 related impacts
Share-based payment expenses
Consolidated
Year ended 30
June 2020
$'000
Ref.
1.
2.
3.
4.
5.
6.
7.
16,395
5,535
4,196
22,011
9,809
523
1,100
Ref.
1.
2.
3.
4.
5.
6.
7.
Impairment of intangible assets (goodwill and brands) in the Dairy and Nutritionals CGU ($0.7m goodwill) and the Specialty
Seafood CGU ($5.1m goodwill, $10.5m brands, refer to Note 16 for further detail.
Impairment of unused property, plant and equipment.
A reduction in value of the ROU asset recognised on adoption of IFRS16, identified during the impairment testing of non-
current assets.
Additional provisions and write offs for out-of-date, unsaleable, and obsolete inventory, much of which was produced
during the commissioning phase of new equipment, and other inventory accounting matters.
Additional provisions and write offs for various aged receivable or other rebate accruals and adjustments for contractual
costs incorrectly accounted for as receivables.
A reduction in value of the receivables balance arising from an increased likelihood of uncollectability due pressures from
COVID-19.
An increase in share-based payment expenses arising from written offers made to employees in September 2014 accepted
by those employees which were not authorized by the Board for the period from September 2014 until the expiry of the
invitation in September 2019.
Note 8. Earnings per share
Consolidated
2020
$'000
2019 restated
$'000
Loss after income tax attributable to the owners of Freedom Foods Group Limited
(174,508)
(145,827)
Weighted average number of ordinary shares used in calculating basic earnings per share
274,406,504
246,860,296
Weighted average number of ordinary shares used in calculating diluted earnings per share
274,406,504
246,860,296
Number
Number
Basic earnings per share
Diluted earnings per share
Cents
Cents
(63.59)
(63.59)
(59.07)
(59.07)
At 30 June 2020, there were 277,109,319 ordinary shares (FY19: 272,903,282) on issue and 101,130 convertible redeemable preference
shares (FY19: 101,627).
71
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 8. Earnings per share (continued)
There were 5,100,000 employee share options outstanding (FY19: 11,911,666), 2,250,000 at $4.50 per share (FY19: 2,250,000) and
2,850,000 at $5.75 per share (FY19: 2,850,000). The employee share options have either expired since 30 June 2020 or are unlikely to
vest because they have not met the vesting hurdles and have been excluded from diluted earnings per share calculation.
Basic earnings per share
Basic earnings per share is calculated by dividing the profit or loss attributable to the owners of Freedom Foods Group Limited, excluding
any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the
financial year, adjusted for bonus issues.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after
income tax effect of interest and other financing costs associated with dilutive potential ordinary shares.
Note 9. Current assets - Cash and cash equivalents
Cash
Note 10. Current assets - Trade and other receivables
Trade receivables
Less: expected credit loss allowance
Other receivables
Consolidated
2020
$'000
2019 restated
$'000
17,167
55,385
Consolidated
2020
$'000
2019 restated
$'000
65,608
(5,555)
60,053
64,866
(2,496)
62,370
4,200
7,535
64,253
69,905
The credit period on sales of goods ranges from 30 to 70 days for domestic sales and up to 120 days for international sales. 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 expected credit losses. The expected loss rates are based on the payment profiles of sales over a period
and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current
and forward looking information on macroeconomic factors affecting the ability of the customers to settle the receivables as well as
customers identified to have known issues which might affect recoverability. The Group does not hold any collateral over these
balances. The loss allowance for trade receivables as at 30 June 2020 and 30 June 2019 was determined as follows:
72
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 10. Current assets - Trade and other receivables (continued)
Consolidated
Not overdue
0 to 3 months overdue
3 to 6 months overdue
Over 6 months overdue
Expected credit loss rate
Carrying amount
Allowance for expected credit
losses
2020
%
2019 restated
%
2020
$'000
2019 restated
$'000
2020
$'000
2019 restated
$'000
2.8%
0.8%
0.8%
64.1%
1.1%
1.1%
1.1%
58.5%
50,649
7,457
1,128
6,374
49,281
11,726
725
3,134
1,403
60
9
4,083
65,608
64,866
5,555
530
125
8
1,833
2,496
Some of the Group’s customers have experienced cash flow and financial difficulties due to mandatory COVID-19 closures and the
general economic downturn caused by the COVID-19 pandemic. As a result, the provision of uncollectable debts is also impacted as at
30 June 2020 and an additional credit loss allowance has been made for customers in areas where the economic downturn has been
particularly severe.
49% of year end receivables are concentrated to the top five customers (FY19: 59%).
The Group holds letters of credit over export receivables of $1.5m (FY19: $0.9m). The letters of credit held equals the carrying amount
of the relevant receivables. Refer to Note 30 for further details on the Group’s exposure to, and management of, credit risk.
Movements in the allowance for expected credit losses are as follows:
Opening balance
Additional provisions recognised
Receivables written off during the year as uncollectable
Closing balance
Consolidated
2020
$'000
2019 restated
$'000
2,496
3,639
(580)
1,228
1,800
(532)
5,555
2,496
Significant accounting policies
Trade receivables are recognised initially at the amount of consideration that is unconditional.
The Group applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance
for all trade receivables. This approach also considers the qualitative factors surrounding the debtors and the risks that they may have
or will be facing as a result of the impact of unusual situations (such as COVID-19) on their business operations and financial position.
To measure the expected credit losses, trade receivables are grouped based on shared credit risk characteristics and the days past due.
73
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 11. Current assets - Inventories
Raw materials - at cost
Finished goods - at net realisable value
Consolidated
2020
$'000
2019 restated
$'000
10,409
49,399
37,383
42,089
59,808
79,472
The cost of sales recognised as an expense during the year in respect of continuing operations was $578.0m (FY19: $491.0m).
During the year, write-downs of inventories amounting to $18.5m (FY19: $26.7m), were recognised as an expense and included in
cost of sales in the statement of profit or loss. This write-down mainly arose as a result of out of date, obsolete, unsaleable, unable to
be located and overvalued stock relative to net realisable value, much of which was produced during the commissioning phase of new
equipment.
Significant accounting policies
Inventories are measured at the lower of cost and net realisable value ('NRV').
Costs incurred in bringing each product to its present location and condition are accounted for as follows:
●
●
●
●
Raw materials: purchase cost on a weighted average cost basis.
Manufactured finished goods: cost of direct materials, direct labour and an appropriate proportion of manufacturing variable and
fixed overheads based on normal operating capacity but excluding borrowing costs.
Purchased finished goods: purchase cost on a weighted average cost basis.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the
estimated costs necessary to make the sale.
Note 12. Current assets - Derivative financial instruments
Foreign exchange option contracts
Forward foreign exchange contracts
Consolidated
2020
$'000
2019 restated
$'000
777
1,727
2,504
-
287
287
Significant accounting policies
Derivatives are initially recognised at fair value on the date a derivative contract is entered into, and they are subsequently
remeasured to their fair value at the end of each reporting period.
Refer to Note 30 for further information on financial instruments.
74
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 13. Investments accounted for using the equity method
Interests in joint arrangements are accounted for using the equity method of accounting. Information relating to the investments that
are material to the Group are set out below:
Name
Principal place of business /
Country of incorporation
Australian Fresh Milk Holdings Pty Limited (AFMH)
Shenzhen JiaLiLe Co. Limited (JLL)
Goulburn Valley Nutritionals Pty Limited (GVN)
Australia
China
Australia
Investment- AFMH
Investment- JLL
Investment- GVN
Less: accumulated impairment*
*GVN has been impaired in FY20.
Ownership interest
2020
%
2019
%
10.0%
10.0%
49.0%
10.0%
10.0%
49.0%
Consolidated
2020
$'000
2019 restated
$'000
22,077
5,857
735
28,669
17,741
5,039
735
23,515
(735)
-
27,934
23,515
The Group exercises significant influence over its investments which have been measured by applying the equity method of accounting.
Under the equity method of accounting the carrying amounts of investments are increased or decreased to recognise the Group's share
of the post-acquisition profits or losses and other changes in net assets.
Australian Fresh Milk Holdings Pty Limited (AFMH)
The shareholders of AFMH comprises Leppington Pastoral Investments Pty Limited (LPI), NewAustralia Holdings Pty Limited (NA), Paul
Moxey Family Trust, Quentin Moxey Family Trust and Freedom Foods Group Operations Limited. The Group acquired its 10% interest
in AFMH in 2015 for $5.7 million. The Group has made additional investments over the last few years to maintain its 10% shareholding,
including an investment of $5.8 million during FY19 and $4.0 million during FY20. The Group ownership remained at 10%.
Although the Group holds less than 20% of the equity shares of AFMH, the Group has joint control of AFMH (under accounting
standards). It has a Board seat, as well as having a related party (LPI) holding a 37% shareholding in AFMH.
Shenzhen JiaLiLe Co. Limited (JLL)
In FY18, the Group entered into a Subscription and Shareholders Deed with JLL to subscribe for an initial investment of 10% of the
Group for a cash consideration of RMB 22 million (AUD $4.7 million), before associated costs. The Group also had an option to subscribe
for up to 30% of JLL's registered capital within 3 years from the date of the initial subscription. This option period expired in October
2020 and the Group did not exercise its right to subscribe to the additional equity interest. The other shareholder in JLL is Guangzhou
Langfeng Investment Co. Limited, a privately held Chinese enterprise. On 6 May 2019, the shareholders of JLL agreed to invest RMB 20
million as a shareholder loan to JLL. The Group's contribution was RMB 2 million.
Although the Group holds less than 20% of the equity shares of JLL, the Group exercises significant influence by virtue of having a Board
seat. The Group ownership remains at 10%. On 4 July, the Group lost its capacity to exercise veto rights due to not exercising its option.
This change in rights may impact the Group’s capacity to exercise significant influence in JLL in FY21 and subsequent years.
75
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 13. Investments accounted for using the equity method (continued)
Goulburn Valley Nutritionals Pty Limited (GVN)
The shareholders of GVN comprises NewAustralia Holdings Pty Limited (NA) and Freedom Foods Group Nutritionals Pty Limited. The
Group acquired its 49% interest in GVN in 2019 for $0.7 million.
Although the Group held 49% of the equity shares of GVN, the Group exercised joint control by virtue of a joint venture agreement that
requires unanimous consent of both the venturers to all key decisions of GVN. The commercial operations of GVN did not commence
and it remained dormant during FY19 and FY20. This investment is unlikely to have an ongoing business value and has been impaired.
Summarised financial information
Summarised statement of financial position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
AFMH
2020
$'000
2019
$'000
JLL
2020
$'000
2019
$'000
50,693
359,987
45,672
282,991
12,209
420
12,901
516
410,680
328,663
12,629
13,417
28,211
169,999
142,545
16,974
7,834
-
11,566
-
198,210
159,519
7,834
11,566
212,470
169,144
4,795
1,851
Summarised statement of profit or loss and other comprehensive
income
Revenue
Expenses
107,415
(102,619)
71,595
(71,577)
68,195
(65,237)
Profit/(loss) before income tax
Income tax expense
Profit/(loss) after income tax
Other comprehensive income
Total comprehensive income
Reconciliation of the Group's carrying amount
Opening carrying amount restated
Share of profit/(loss) after income tax
Equity investment
Exchange difference
4,796
(1,439)
3,357
-
3,357
18
(4)
14
-
14
55,365
(57,906)
(2,541)
-
2,958
-
2,958
(2,541)
-
-
2,958
(2,541)
2020
$'000
2019 restated
$'000
2020
$'000
2019 restated
$'000
17,741
335
4,001
-
11,940
1
5,800
-
5,039
251
412
155
5,001
(255)
-
293
Closing carrying amount
22,077
17,741
5,857
5,039
The Group has also conducted an impairment assessment of the investments accounted for using the equity method and determined
that the recoverable amount is greater than the carrying amount and hence no impairment loss should be recognised.
76
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 14. Non-current assets - Property, Plant and Equipment
Freehold land - at independent valuation
Buildings - at independent valuation
Less: accumulated depreciation
Make good asset - at cost
Less: accumulated depreciation
Less: accumulated impairment
Plant and equipment - at cost
Less: accumulated depreciation
Less: accumulated impairment
Capital work in progress
Less: accumulated impairment
Consolidated
2020
$'000
2019 restated
$'000
4,871
4,722
14,020
(3,124)
10,896
1,080
(772)
(308)
-
387,270
(87,803)
(42,145)
257,322
30,086
(4,800)
25,286
13,471
(2,744)
10,727
1,080
(772)
(308)
-
331,365
(68,532)
(42,145)
220,688
34,608
-
34,608
298,375
270,745
Movements in the carrying amounts of each class of property, plant and equipment between the beginning and the end of the current
financial year:
Consolidated
Balance at 1 July 2018
Prior year restatement (Note 3)
Additions*
Transfers at completion of projects
Disposals
Revaluation
Depreciation expense
Balance at 30 June 2019 restated
Additions*
Transfers at completion of projects
Impairment of assets
Revaluation
Depreciation expense
Freehold Land
$'000
Buildings
$'000
Plant and
equipment**
$'000
Capital work in
progress
$'000
Total
$'000
5,296
(720)
-
-
(74)
220
-
4,722
-
-
-
149
-
9,856
661
4
-
-
745
(539)
10,727
3
-
-
546
(380)
130,457
25,956
8,106
73,115
(20)
-
(16,926)
220,688
1,998
53,907
-
-
(19,271)
243,274
(194,340)
58,789
(73,115)
-
-
-
34,608
49,385
(53,907)
(4,800)
-
-
388,883
(168,443)
66,899
-
(94)
965
(17,465)
270,745
51,386
-
(4,800)
695
(19,651)
Balance at 30 June 2020
4,871
10,896
257,322
25,286
298,375
*
**
Included in additions is $0.5m (FY19: $1.7m) of capitalised interest from borrowings related to AASB 123.
Included in plant and equipment is an amount of $96.9m (FY19: $67.4m) related to equipment obtained under equipment finance
facilities as disclosed in Note 20.
77
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 14. Non-current assets - Property, Plant and Equipment (continued)
Revaluation of land and building
The Group obtains independent valuations for its freehold land and buildings related to certain manufacturing sites at least annually.
At the end of each reporting period, the Group updates its assessment of the fair value of such property, taking into account the most
recent independent valuations.
As at 30 June 2020, the fair values of the land and building have been determined by Herron Todd White (MIA) Pty Ltd. and Opteon
(Goulburn North East Vic) Pty Ltd. All resulting fair value estimates for properties are treated as level 2 fair values. Level 2 fair value is
estimated using inputs other than quoted prices that are observable for the asset, either directly (as prices) or indirectly (derived from
prices). As at 30 June 2020, the level 2 fair value for the Group has been derived using the sales comparison and capitalisation of market
income approach. The key inputs under this approach are the rental per square metre and capitalisation rate. The current year rentals
of comparable properties in the area (location and size) form the basis for rental per square metre and the associated market yields of
such properties are used to determine the capitalisation rate. Refer to Note 3 which includes the detail of land and buildings
revaluations recognised at 1 July 2018 and 1 July 2019 as a prior period restatement.
Impairment of plant and equipment
The Group carried out a review of the plant and equipment assets within the CGUs as detailed in Note 16. The review led to the
recognition of impairment of plant and equipment which is not currently in operation amounting to $4.8m based on the fair value of
the relevant assets, as determined by management's estimate.
As at 30 June 2020, the fair values of the plant and equipment of the Cereal and Snacks CGU have been determined by Slattery Asset
Advisory. The resulting fair value estimates for plant and equipment are treated as level 3 fair values and estimated using depreciable
replacement cost (DRC) method. No impairment was recognised during the year. Refer to Note 3 which includes the detail of plant and
equipment impairment recognised at 1 July 2018 as a prior period restatement. Key assumptions used by Slattery Asset Advisory include
a residual value of 10% per asset applied against normal useful lives ranging from 5-25 years to estimate current DRC and DRC was then
depreciated by 60% to allow for economic obsolescence of the lines to arrive at a fair value.
Significant accounting policies
Land and buildings are recognised at fair value, less any subsequent accumulated depreciation and impairment. A revaluation surplus
is credited to reserves in shareholders’ equity.
Plant and equipment including CWIP, motor vehicles and equipment obtained under equipment finance facilities are stated at cost less
accumulated depreciation and impairment.
CWIP includes all expenditure directly attributable to bringing the asset to its working condition for its intended use which are
incremental and unavoidable as a result of the construction of the asset.
Costs include installation costs, delivery costs, consultancy costs incurred to install the asset, fit out costs, interest on associated
borrowings, project labour costs and commissioning costs. Start-up costs and similar pre-production costs do not form part of the cost
of an asset unless they are necessary to bring the asset to its working condition. Initial operating losses incurred prior to an asset
achieving planned performance must be recognised as an expense. Included in this expenditure are the estimate cost of dismantling
and removing the asset and restoring the site (where applicable).
The costs will be initially recognised as CWIP from the time that it satisfies the general recognition criteria for assets under the
accounting standards.
The Group formally assesses whether project costs are to be reclassified from CWIP to Plant and Equipment. An asset is considered to
be capable of operating in the manner intended by management when it is consistently capable of producing saleable product. This
assessment is done periodically taking into consideration when the commissioning phase of each asset has been completed i.e. when
the asset is in the location and condition necessary for it to be capable of operating in the manner intended by management. At this
point, it is classified as property, plant and equipment, to be depreciated from the date of reclassification over the useful life of the
asset.
78
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 14. Non-current assets - Property, Plant and Equipment (continued)
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 financing facilities 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 item of property, plant and equipment is determined as the difference between
the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.
Accounting estimates
The following depreciation rates are used in the calculation of depreciation:
Buildings
Plant and equipment
Leased plant and equipment
Freehold land is not depreciated.
2.5-5.0%
5.0-20.0%
5.0-20.0%
Note 15. Non-current assets - Right-of-use assets
Right-of-use asset - land and buildings
Less: accumulated depreciation ROU
Less: accumulated impairment
Right-of-use asset - other
Less: accumulated depreciation ROU
Less: accumulated impairment
Consolidated
2020
$'000
2019 restated
$'000
184,172
(9,096)
(3,793)
171,283
2,161
(782)
(358)
1,021
172,304
-
-
-
-
-
-
-
-
-
The Group leases land and buildings for its offices, warehouses and manufacturing plant under agreements of between 2 to 20 years
with, in some cases, options to extend to 30 years. The leases have various rental escalation clauses. On renewal or option extension,
the rent can be renegotiated. The Group also leases plant and equipment, motor vehicles and office equipment under other right of
use agreements (previously described as operating leases) of between 2 to 5 years.
Significant accounting policies
A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is initially measured at cost, which
comprises:
●
●
●
The amount of the initial measurement of the lease liability;
Any lease payments made at or before the commencement date, less any lease incentives and any initial direct costs incurred by
the lessee; and
An estimate of the costs to dismantle and remove underlying asset or to restore the underlying asset.
79
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 15. Non-current assets - Right-of-use assets (continued)
Subsequently the right-of-use asset is measured at cost less any accumulated depreciation and impairment losses and adjusted for
certain remeasurements of the lease liability.
The right-of-use asset is depreciated over the shorter period of the lease term and the economic useful life of the underlying asset. If a
lease transfers ownership of the underlying asset or the costs of the right-of-use asset reflects that the Group will exercise a purchase
option, the asset will be depreciated from the commencement date to the end of the useful life of the underlying asset. The depreciation
starts at the commencement date of the lease.
If the recoverable amount of a right-of-use asset is less than its carrying value, an impairment charge is recognised in the profit or loss
account, and the carry value of asset written-down to its recoverable amount. Should the recoverable amount increase in future periods
the carrying value may be adjusted to the lower of the recoverable value or the amortised cost of the asset had it not been impaired.
The Group has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12
months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred.
Note 16. Non-current assets - Intangibles
Goodwill
Less: accumulated impairment
Brand names and trademarks
Less: accumulated impairment
Software acquisition and development
Less: accumulated amortisation
Consolidated
Balance at 1 July 2018
Prior year restatement (Note 3)
Additions through business combinations
Additions
Amortisation expense
Balance at 30 June 2019
Additions
Impairment of assets
Amortisation expense
Balance at 30 June 2020
Consolidated
2020
$'000
2019 restated
$'000
68,755
(60,436)
8,319
37,720
(15,440)
22,280
8,378
(2,224)
6,154
68,755
(54,590)
14,165
37,720
(4,891)
32,829
7,154
(1,128)
6,026
36,753
53,020
Capitalised
development
$'000
Brand names
and
trademarks
$'000
Goodwill
$'000
Software
$'000
Total
$'000
19,570
(19,570)
-
-
-
-
-
-
-
-
31,837
(4,891)
5,883
-
-
32,829
-
(10,549)
-
519
5,534
-
627
(654)
6,026
1,224
-
(1,096)
111,130
(63,966)
5,883
627
(654)
53,020
1,224
(16,395)
(1,096)
22,280
6,154
36,753
59,204
(45,039)
-
-
-
14,165
-
(5,846)
-
8,319
80
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 16. Non-current assets - Intangibles (continued)
The carrying amount of goodwill, brand names and trademark is allocated to cash generating units as follows:
Consolidated
Cereal and Snacks
Consumer Nutritionals
Specialty Seafood
Brand names
and
trademarks
2020
$'000
Brand names
and
trademarks
Goodwill
2019 restated 2019 restated
$'000
$'000
Goodwill
2020
$'000
-
8,319
-
6,717
15,563
-
-
9,019
5,146
6,717
15,563
10,549
8,319
22,280
14,165
32,829
Capitalised new product development
Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally generated intangible
asset arising from new product development is recognised only if certain criteria are met. Subsequent to initial recognition, internally
generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis
as intangible assets that are acquired separately.
Refer to Note 3 Restatement of comparatives for recognition of prior years capitalised new product development expenditure in the
profit and loss account.
Brand names and trademarks
The Group carries $22.3m (FY19 restated: $32.8m) of brand names with indefinite useful lives allocated between the Cereal and Snacks
and Consumer Nutritionals cash generating units. The brand names relate to established major brands purchased as part of business
combinations. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment
losses.
Impairment of goodwill and other intangible assets
Determining whether goodwill or other intangible assets are impaired requires an estimation of the recoverable amount of the cash
generating units (CGU) to which the goodwill or other intangible assets have been allocated. The recoverable amount is determined
using a value in use or fair value less cost to sell method. The cash generating units are subject to annual impairment testing as they
hold indefinite life intangible assets amongst their assets.
Impairment testing requires a high degree of judgement in assessing whether the carrying value of assets is supported by their
recoverable amount. The Group uses the relief from royalty method to determine the fair value of the brand names and trademarks
and considers this to be a Level 3 treatment of the fair value hierarchy.
81
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 16. Non-current assets - Intangibles (continued)
Assessment of the carrying value of each cash generating unit
Dairy and Nutritionals
The Dairy and Nutritionals CGU produces branded dairy UHT products under Group owned and third party owned brands. It also
produces nutritional products such as lactoferrin for sale to domestic and international customers. The Dairy and Nutritionals CGU
forms part of the Dairy and Nutritionals segment.
The recoverable amount of the Dairy and Nutritionals CGU has been determined using the following methodology:
● Discounted cash flow forecast to determine the value-in-use of the CGU as a whole utilising forecast cash flows for the period July
2020 to June 2025 and a terminal cashflow.
As part of the restatement of the financial statements the Group determined that it was appropriate to recognise an impairment of the
goodwill of the Dairy and Nutritionals CGU, based on the revised assessment of expected future cashflows which indicated future losses.
Refer to Note 3 for further details.
Sensitivities
If the long term growth rate used in the value-in-use calculation for the Dairy and Nutritionals CGU had been 0.25% lower than
management’s estimates at 30 June 2020 (2.25% instead of 2.50%), the Group would have had to recognise an impairment of $8.7m
against property, plant and equipment.
If the post tax discount rate applied to the cash flow projections of this CGU had been 0.25% higher than management’s estimates
(8.5% instead of 8.25%), the Group would have had to recognise an impairment of $10.6m against property, plant and equipment.
If the 3 year forecast CAGR of revenue from FY20-23 was 10% lower than managements estimates the Group would have had to
recognise an impairment of $5.5m against property, plant and equipment.
The recoverable amount of these assets as at 30 June 2020 exceed the carrying amount by $3.0m.
Consumer Nutritionals
The Consumer Nutritionals CGU produces branded protein powders for sale mainly to domestic customers, predominantly through
the pharmacy and grocery channels and includes Vital Strength brands. This CGU forms part of the Dairy & Nutritionals operating
segment.
The recoverable amount of the Consumer Nutritionals CGU has been determined using the following methodologies:
● Brands have been valued using a relief from royalty method to determine the fair value;
● Discounted cash flow forecast to determine the value-in-use of the CGU, utilising forecast cash flows for the period July 2020 to
June 2025 and a terminal cash flow.
In calculating the value-in-use, the recoverable amount was below the carrying value due to lower than expected sales, in part due to
the impacts of COVID-19. As a result an impairment of $0.7m was recognised in the Consumer Nutritionals.
82
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 16. Non-current assets - Intangibles (continued)
Sensitivities
If the long term growth rate used in the fair value calculation for the Consumer Nutritionals CGU had been 0.25% lower than
management’s estimates at 30 June 2020 (2.25% instead of 2.50%), the Group would have had to recognise a further impairment of
$0.8m.
If the post tax discount rate applied to the cash flow projections of this CGU had been 0.25% higher than management’s estimates
(9.5% instead of 9.25%), the Group would have had to recognise a further impairment of $1.0m.
If the 3 year forecast CAGR of revenue from FY20-23 was 10% lower than managements estimates the Group would have had to
recognise a further impairment of $1.2m ($0.5m brand and $0.7m goodwill).
If the owned brand relief from royalty rate used in the fair value calculation for the Consumer Nutritionals CGU had been 0.50% lower
than management’s estimates at 30 June 2020, the Group would have had to recognise an impairment of $0.3m.
The recoverable amount of these assets as at 30 June 2020 exceed the carrying amount by $0.1m.
Cereal and Snacks
The Cereal and Snacks CGU produces branded grocery products for sale to domestic and international customers.
The recoverable amount of the Cereal and Snacks CGU has been determined using the following methodologies:
● Brands have been valued using a relief from royalty method to determine the fair value;
● Property, plant and equipment has been valued with reference to independent valuations to determine the fair value;
As part of the restatement of the financial statements the Group determined that it was appropriate to recognise an impairment of the
goodwill, brands and property, plant and equipment of the Cereal and Snacks CGU, based on the revised assessment of expected future
cashflows which indicated future losses. Refer to Note 3 for further details. An onerous contract provision was raised at the same time.
The remaining carrying value of intangible assets in the CGU relate to the Crankt and Norganics brands. The recoverable amount of
these assets as at 30 June 2020 exceed the carrying amount $11.3m.
Sensitivities
If the owned brand relief from royalty rate used in the fair value calculation for the Cereal and Snacks CGU had been 0.50% lower than
management’s estimates at 30 June 2020, the Group would have had to recognise an impairment of $0.1m (Norganics).
Specialty Seafood
The Specialty Seafood CGU produces branded seafood for sale to domestic and international customers and includes Paramount and
Brunswick brands.
The recoverable amount of the Speciality Seafood CGU has been determined using the following methodologies:
● Brands have been valued using a relief from royalty method; and
● Discounted cash flow forecast to determine the fair value of the CGU, utilising forecast cash flows for the period July 2020 to June
2025 and a terminal cash flow.
The Group has recognised impairment of the Speciality Seafood brands of $10.5m and impairment of goodwill of $5.1m as at 30 June
2020 as a result of the decline in profitability and forecast cash flows which do not support the carrying value of the intangible assets
in this CGU. There are no material assets remaining in this CGU subject to impairment testing under AASB 136 Impairment of Assets.
Key assumptions
In calculating the recoverable amount of each CGU a discounted cash flow model was utilised forecasting cash flows for the period FY21
to FY25. The following key assumptions were made:
83
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 16. Non-current assets - Intangibles (continued)
Key assumptions used for goodwill
impairment
Long term growth rate (terminal value)
Post tax discount rate
Revenue growth rate*
Dairy and
Nutritionals
%
Consumer
Nutritionals
%
Specialty
Seafood
%
2.50%
8.25%
8.20%
2.50%
9.25%
15.50%
2.50%
8.00%
2.10%
The Dairy and Nutritionals CGU was loss making in FY20. The forecast assumes an EBITDA margin improvement of 5% from FY21-23.
The Consumer Nutritionals CGU forecast assumes a 3 year EBITDA CAGR of 28.4%.
The Specialty Seafood CGU had a breakeven EBITDA in FY20 and the forecast assumes minimal change.
*Compounded annual growth rate over 3 years from FY20-23.
Key assumptions used for brand
impairment
Long term growth rate (Terminal rate)
Post tax discount rate
Owned brand - relief from royalty rate
Revenue growth rate*
Consumer
Nutritionals
%
Cereal and
Snacks
%
Speciality
Seafood
%
2.50%
9.25%
5.85%
13.80%
2.50%
8.25%
5.85%
44.40%
2.50%
8.00%
1.00%
2.30%
*Compounded annual growth rate over 3 years from FY20-23.
The recoverability of the assets is dependent on the Group’s ability to improve their margins.
Software
Intangible assets with finite lives that are acquired separately are carried at cost less accumulated amortisation and accumulated
impairment losses. Amortisation is recognised on a straight-line basis over the asset’s estimated useful life of ten years. The
estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in
estimate being accounted for on a prospective basis.
Note 17. Current liabilities - Trade and other payables
Trade payables
Other payables and accruals
Payable to related parties (Note 35)
Consolidated
2020
$'000
2019 restated
$'000
81,277
42,130
93,206
36,240
123,407
129,446
Consolidated
2020
$'000
2019 restated
$'000
-
1,053
Trade payables, including amounts payable for capital expenditure, are paid on average within 60 days of invoice date (FY19: 72 days).
84
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 17. Current liabilities - Trade and other payables (continued)
Significant accounting policies
These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid.
The amounts are unsecured and are usually paid within 60 days of recognition. Trade and other payables are presented as current
liabilities unless payment is not due within 12 months after the reporting period. They are recognised initially at their fair value and
subsequently measured at amortised cost using the effective interest method.
Note 18. Current liabilities - Lease liabilities
Lease liabilities
Note 19. Current liabilities - Borrowings
Term loan facilities
Recourse debtor financing facilities
Revolver financing facilities
Equipment financing facilities
Consolidated
2020
$'000
2019 restated
$'000
2,304
-
Consolidated
2020
$'000
2019 restated
$'000
141,174
15,466
36,176
99,508
5,250
20,926
-
22,846
292,324
49,022
Assets pledged as security
The Group's primary bank facilities are arranged with HSBC Bank Australia Limited (HSBC) and National Australia Bank (NAB). They
include syndicated facilities (from HSBC and NAB), equipment financing facilities (from NAB) and debtor financing facilities (from
HSBC).
The Group has other bi-lateral facilities from a range of financiers including equipment finance and other general transactional
banking facilities as required for the operations of the Group's business.
The syndicated facilities are secured over all the assets and undertaking of the Group (other than low value subsidiaries), as well as
mortgages over real property owned by the Group and key property leases.
The equipment financing facilities relate to specific equipment operating at the Company's Leeton, Shepparton, Dandenong and
Ingleburn operating sites. The equipment finance facilities are secured over the assets financed under the relevant facility. These
facilities are over a period of 2 to 7 years and the final residuals on the current arrangements are due between 2020 and 2027.
85
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 19. Current liabilities - Borrowings (continued)
Banking facilities
Syndicated Facilities
In December 2019, the Group entered into syndicated banking facilities for term loan and revolving facilities totalling $141.2m. The
syndicated facilities were subsequently amended in April 2020 and increased to $241.2m, inclusive of a revolving facility with a $50m
limit. Under the original terms for the syndicated facilities, the facilities matured in December 2022, with the exception of the term
loan of $50.0m described as Facility C, which matured in April 2022. The change in the Group's banking facility structure is considered
a debt modification under AASB 9.
Debtor Finance Facilities
HSBC has provided the Group with a limited recourse debtor finance facility of $113.5m (FY19: $60.0m), which is being utilised as a
source of working capital. Under this facility, the Group sells receivables of its major grocery retail customers to HSBC in exchange for
cash. These receivables are de-recognised as an asset, as the significant risk associated with the collection of the receivables is
transferred to HSBC at the time of sale. The amount funded under this facility is not recognised as a liability by the Group. The funded
amount under this facility as at 30 June 2020 was $41.1m (FY19: $46.8m).
The Group also has a full recourse debtor finance facility with total limit of $22.0m (FY19: $32.0m). Under this facility, the Group sells
receivables from its out-of-home channel. The receivables are recognised as an asset since the risk has not fully transferred to HSBC at
the time of sale. The Group is responsible for the collection of the receivables. HSBC has recourse to the Group if the debt is
unrecoverable. As at the balance sheet date, the Group utilised an amount of $15.5m (FY19: $20.9m) from the full recourse debtor
finance facility.
Standstill
The Group obtained a waiver from its financiers in respect of non-compliance with lending covenants at 30 June 2020 and subsequently
entered a standstill agreement on 11 September 2020. The Group entered into a standstill agreement with its primary lenders, National
Australia Bank Limited and HSBC Bank Australia Limited (Banks), pursuant to which the Banks have agreed, until 29 January 2021, not
to take any action against the Group in respect of any amounts owing to the Banks under the Group’s financing agreements with the
Banks, unless the Company commits a breach of the standstill agreement. Given that the standstill agreement is expiring in January
2021, it is considered appropriate to classify all borrowings as current.
Refer to Note 20 for further information on assets pledged as security and financing arrangements.
Note 20. Non-current liabilities - Borrowings
Term loan facilities
Equipment financing facilities
Refer to Note 30 for further information on financial instruments.
Consolidated
2020
$'000
2019 restated
$'000
-
-
-
87,100
41,295
128,395
86
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 20. Non-current liabilities - Borrowings (continued)
Total secured liabilities
The total secured liabilities (current and non-current) are as follows:
Term loan facilities
Recourse debtor financing facilities
Revolver financing facilities
Equipment financing facilities
Consolidated
2020
$'000
2019 restated
$'000
141,174
15,466
36,176
99,508
92,350
20,926
-
64,141
292,324
177,417
In the statement of cash flows, the funds received from the bank under the limited recourse debtor facility are included in cash flows
from operations as receipts from customers. Funding received from the full recourse debtor facility is included in the consolidated
statement of cash flows under financing activities as proceeds from borrowings.
Financing arrangements
The total banking facilities as at 30 June 2020 are shown below:
Total facilities
Term loan facilities
Recourse debtor financing facilities
Revolver financing facilities
Equipment financing facilities
Used at the reporting date
Term loan facilities
Recourse debtor financing facilities
Revolver financing facilities
Equipment financing facilities
Unused at the reporting date
Term loan facilities
Recourse debtor financing facilities
Revolver financing facilities
Equipment financing facilities
Consolidated
2020
$'000
2019 restated
$'000
141,174
22,000
100,000
115,000
378,174
141,174
15,466
36,176
99,508
292,324
-
6,534
63,824
15,492
92,350
32,000
30,000
69,753
224,103
92,350
20,926
-
64,141
177,417
-
11,074
30,000
5,612
85,850
46,686
Unused financing facilities
The Group had unused banking facilities relating to recourse debtor, revolver and equipment financing amounting to $85.9m (FY19:
$46.7m) as at 30 June 2020. The Group had a total non-recourse debtor financing facilities of $113.5m (FY19: $60.0m).
The undrawn revolver amounts were subsequently cancelled as part of the standstill arrangements signed in September 2020 and
replaced by the $45.0m subordinated facility provided in connection with the standstill. As part of the standstill the Group’s total non-
recourse debtor financing facility limit was reduced to $65.0m.
87
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 21. Non-current liabilities - Lease liabilities
AASB 16 lease liability
Refer to Note 30 for further information on financial instruments.
Consolidated
2020
$'000
2019 restated
$'000
192,341
-
Significant accounting policies
A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the
lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be
readily determined, the Group's incremental borrowing rate.
Variable lease payments not included in the initial measurement of the lease liability are recognised directly in profit or loss.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective
interest method) and by reducing the carrying amount to reflect the lease payments made.
The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
●
●
●
the lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of
exercise of purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a
revised discount rate;
the lease payments change due to changes in an index of rate or a change in the amount expected to be payable under a residual
value guarantee; or
a lease contract is modified, and the lease modification is not accounted for as a separate lease, in which case the lease liability is
remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount
rate at the effective date of the modification.
Note 22. Current liabilities - Derivative financial instruments
Forward foreign exchange contracts
Interest rate swap contracts
Refer to Note 30 for further information on financial instruments.
Consolidated
2020
$'000
2019 restated
$'000
127
2,202
2,329
48
1,063
1,111
88
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 23. Income tax benefit
Income tax benefit
Adjustments recognised in the current year in relation to the current tax of prior years
Deferred tax (income)/expense relating to the origination and reversal of temporary differences
Aggregate income tax benefit
Numerical reconciliation of income tax benefit and tax at the statutory rate
Loss before income tax benefit
Tax at the statutory tax rate of 30%
Tax effect amounts which are not deductible/(taxable) in calculating taxable income:
Effect of expenses that are not deductible in determining taxable profit
Over-provision in respect of prior years
Non-assessable income
Current year tax losses not recognised
Current year temporary differences not recognised
Effect of overseas tax rates
Income tax benefit
Amounts recognised in OCI and statement of changes in equity and other income tax restatement
Revaluation surplus on land and building
Tax on share issue costs
Tax reclassification arising from prior year acquisition
Consolidated
2020
$'000
2019 restated
$'000
(18)
(83)
189
(1,040)
(101)
(851)
(174,609)
(146,678)
(52,383)
(44,003)
140
(18)
(176)
(52,437)
45,764
6,274
298
1,980
189
(578)
(42,412)
25,914
15,386
261
(101)
(851)
176
(75)
-
101
224
(1,140)
1,767
851
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.
Significant accounting policies
Current tax
Current tax is calculated as the expected 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 end of the reporting date.
89
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 23. Income tax benefit (continued)
Deferred tax
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts 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. No deferred tax will be recognised from the initial recognition of an asset
or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled.
Deferred tax is credited in the statement of profit or loss and other comprehensive income except where it relates to items that may
be credited directly to equity, in which case the deferred tax is adjusted directly against equity.
Deferred income tax assets are recognised to the extent that is probable that future taxable profits will be available against which
deductible temporary differences can be utilised.
The amount of the benefits brought to account or which may be realised in the future is based on the assumption that no adverse
change will occur in income taxation legislation and the anticipation that the consolidated entity will derive sufficient future assessable
income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the 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 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 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.
Uncertain tax position
If the Group concludes that it is not probable the tax authorities will accept a tax position, it uses the “most likely amount” or “expected
value” in determining its tax balances. Any subsequent variation between the “most likely amount/expected value” and the amount
recorded in the consolidated financial statements are adjusted in the period in which such variation occurs.
Note 24. Non-current assets - Deferred tax
Deferred tax comprises temporary differences attributable to the following:
Deferred tax asset
Provisions
Lease liabilities
Finance facilities
Deferred tax asset
Deferred tax liability
Property, plant and equipment
Right of use asset
Intangibles
Other
Deferred tax liability
Consolidated
2020
$'000
2019 restated
$'000
-
6,753
58,385
29,852
94,990
-
(19,994)
(51,683)
(6,437)
(16,876)
(94,990)
-
4,865
-
29,835
34,700
-
(19,941)
-
(9,602)
(5,157)
(34,700)
-
-
Carry forward tax losses of $392m (FY19 restated: $239m), have not been recognised in deferred tax. In addition, $23m of deferred
tax assets have been de-recognised in the current year (FY19 restated: $15m).
90
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 24. Non-current assets - Deferred tax (continued)
Deferred tax movements are as follows:
Deferred tax (liability)/asset
Movements:
Opening balance
Provisions
Property, plant and equipment
Intangibles
Lease Liabilities
Right of Use Asset
Finance facilities
Other
Closing balance
Note 25. Current liabilities - Provisions
Annual leave
Long service leave
Consolidated
2020
$'000
2019 restated
$'000
-
-
-
2,919
(546)
2,946
58,574
(51,692)
(2,378)
(9,823)
-
613
(14,073)
(1,769)
-
-
21,043
(5,815)
-
-
Consolidated
2020
$'000
2019 restated
$'000
5,843
714
6,557
5,441
1,271
6,712
Significant accounting policies
Short-term employee benefits
Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave that are expected to be
settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in
respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the
liabilities are settled. The liabilities are presented as current employee benefit obligations in the balance sheet.
Note 26. Non-current liabilities - Provisions
Long service leave
Lease make good
Onerous lease
Consolidated
2020
$'000
2019 restated
$'000
525
1,116
-
1,641
284
1,068
3,759
5,111
91
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 26. Non-current liabilities - Provisions (continued)
Significant accounting policies
Lease make good provisions
Lease make good provision represents the present value of the estimated costs to make good the premises leased by the Group at the
end of the respective lease terms.
Long service leave
The liability for long service leave not expected to be settled within 12 months of the reporting date are measured at the present value
of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit
credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of
service. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds with terms
to maturity and currency that match, as closely as possible, the estimated future cash outflows.
Note 27. Equity - Issued Capital
Consolidated
2020
Shares
2019 restated
Shares
2020
$'000
2019 restated
$'000
Ordinary shares - fully paid
Convertible redeemable preference shares - fully paid
277,109,319
101,130
272,903,282
101,627
598,698
14
589,109
14
277,210,449
273,004,909
598,712
589,123
Movements in ordinary share capital
Details
Balance
Dividend reinvestment plan ('DRP') shares
Dividend reinvestment plan ('DRP') shares
Shares issued under the entitlement offer
Transaction costs - net of tax
Balance
Employee share options exercised
Employee share options exercised
Employee service rights exercised
Convertible redeemable preference shares ('CRPS')
conversions
Dividend reinvestment plan ('DRP') shares
Transaction costs - net of tax
Date
1 July 2018
30 June 2019
Shares
Issue price
$'000
243,983,810
889,640
836,368
27,193,464
-
272,903,282
561,666
900,000
1,545,000
497
1,198,874
-
$4.79
$4.31
$4.80
$0.00
$1.65
$2.92
$0.00
$0.30
$5.18
$0.00
453,374
4,265
3,604
130,532
(2,666)
589,109
927
2,628
-
-
6,211
(177)
598,698
Balance
30 June 2020
277,109,319
92
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 27. Equity - Issued Capital (continued)
Movements in convertible redeemable preference shares
Details
Balance
Conversion to ordinary shares
Balance
Conversion to ordinary shares
Balance
Date
1 July 2019
30 June 2019
30 June 2020
Shares
Issue price
$'000
101,627
-
101,627
(497)
101,130
$0.30
$0.30
14
-
14
-
14
Ordinary shares
Fully paid ordinary shares carry one vote per share and carry the right to dividends. The Company does not have a limited amount of
authorised capital and issued shares do not have a par value.
The DRP 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.
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the
proceeds.
Convertible redeemable preference shares (CRPS)
The CRPS are perpetual with no maturity, but redeemable after 3 years at the option of the Company. The CRPS are transferable and
are convertible at the option of the CRPS holder. 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 November 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 the 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.
The Company may redeem the CRPS, 3 years from the date of issue of the CRPS, being 16 December 2013, 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.
The Company at this time has no plans to redeem the remaining CRPS still on issue.
Share options granted under the Employee Share Option Plan (ESOP) and Equity Incentive Plan (EIP)
For information relating to the Freedom Foods Group Limited ESOP and EIP, including details of options issued, exercised and lapsed
during the financial year and the options outstanding at year end, refer to Note 37.
93
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 28. Equity - Dividends
Dividends
On 27 February 2020, the directors declared an unfranked interim dividend of 2.25 cents per share to the holders of fully paid ordinary
shares in respect of the half year financial results ending 31 December 2019. On 29 May 2020, the Company announced that it was
cancelling the dividend declared on 27 February 2020. There will be no final dividend declared for FY20.
Dividends paid during the financial year were as follows:
Final unfranked dividend of 3.25 cents per ordinary share paid in cash during the year ended 30 June
2020 (FY19: 2.75 cents 50% franked)
Dividends reinvested: unfranked at 30% tax rate (FY19: 50% franked)
Interim 50% franked dividend of 2.25 cents per ordinary share paid in cash during the year ended 30
June 2019
Final unfranked dividend of 1.35 cents per convertible redeemable preference share paid in cash
during the year ended 30 June 2020 (FY19: 1.35 cents 50% franked)
Interim 50% franked dividend of 1.35 cents per convertible redeemable preference share paid in
cash during the year ended 30 June 2019
The Dividend Reinvestment Plan (DRP) is no longer open.
Franking credits
Franking credits available at the reporting date based on a tax rate of 30%
Net franking credits available
Note 29. Equity - Reserves
Land and buildings revaluation reserve
Common control reserve
Foreign currency translation reserve
Equity-settled employee benefits reserve
Consolidated
2020
$'000
2019 restated
$'000
2,658
6,211
-
1
-
2,445
7,869
1,906
1
1
8,870
12,222
Consolidated
2020
$'000
2019 restated
$'000
812
812
812
812
Consolidated
2020
$'000
2019 restated
$'000
3,548
(60,878)
(123)
1,602
3,137
(60,878)
(260)
13,251
(55,851)
(44,750)
Land and buildings revaluation reserve
The land and buildings 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.
94
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 29. Equity - Reserves (continued)
Foreign currency translation reserve
The foreign currency translation reserve is used to recognise exchange differences arising from the translation of the financial
statements of foreign operations to Australian dollars. It is also used to recognise gains and losses on hedges of the net investments in
foreign operations.
Equity-settled employee benefits reserve
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 37 to the financial statements.
Common control reserve
The common control reserve is used to account for the acquisition of Pactum Australia and Pactum Dairy Group by the Group. The
difference between the fair value of the consideration paid and the existing book values of the assets & liabilities of Pactum Australia
has been debited to a common control reserve ($5.4m). On 31 January 2017, the reserve was increased due to the additional interest
acquired in Pactum Dairy Group. The difference between the fair value of the consideration paid and the non-controlling interest
balance on that date has been debited to a common control reserve ($55.4m). Upon disposal of all interests in Pactum Australia or
Pactum Dairy Group by the Group, the applicable reserve would be transferred to retained earnings.
Movements in reserves
Movements in each class of reserve during the current and previous financial year are set out below:
Consolidated
Balance at 1 July 2018
Prior year restatement (Note 3)
Land and building revaluation
Foreign currency translation
Share-based payments
Balance at 30 June 2019 restated
Land and building revaluation - net of tax
Foreign currency translation
Share based payment
Transfer of share based payments to accumulated
losses
Land and
buildings
revaluation
reserve
$'000
Foreign
currency
translation
reserve
$'000
Equity-settled
employee
benefits
reserve
$'000
Common
control reserve
$'000
Total
$'000
2,416
199
522
-
-
3,137
411
-
-
-
(193)
-
-
(67)
-
(260)
-
137
-
3,636
3,367
-
-
6,248
13,251
-
-
(418)
(60,878)
-
-
-
-
(60,878)
-
-
-
(55,019)
3,566
522
(67)
6,248
(44,750)
411
137
(418)
-
(11,231)
-
(11,231)
Balance at 30 June 2020
3,548
(123)
1,602
(60,878)
(55,851)
Note 30. Financial instruments
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 capital structure of the Group consists of debt, which includes borrowings, cash and cash equivalents and equity attributable to
equity holders of the parent comprising issued capital, reserves and retained earnings as disclosed in their respective notes.
95
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 30. Financial instruments (continued)
Operating cash flows are used to maintain and expand the Group's manufacturing and distribution assets, as well as to make routine
payments for tax, dividends and repayment of debt. The Group's policy is to borrow centrally; using a variety of capital market issues
and borrowing facilities, to meet anticipated funding requirements.
Market risk
The Group's activities expose it primarily to the financial risk of changes in foreign currency exchange rates and interest rates. The
Group adopts a natural hedge approach and enters into forward exchange and option contracts to manage net foreign currency risk on
its imports and exports.
Significant accounting polices
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 2 to the financial statements.
Forward foreign exchange contracts
The Group enters into forward foreign exchange contracts to hedge 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 and sales undertaken in foreign currencies.
The Group had entered into contracts (for terms not exceeding 12 months) to purchase finished goods and raw materials from suppliers
in the United States, Europe and Canada, equipment from Europe and receives sales receipts denominated in United States
dollars Chinese Yuan and Singapore dollars from export customers. The contracts relate to highly probable forecasted transactions for
the purchase of inventory for the Specialty Seafood business (Salmon - USD and Sardines - CAD and Euro), the plant based beverages
business (Almond paste - USD), capital equipment purchases (Euro) and sales receipts from export customers with the purchase
consideration being either settled in the above currencies or applied against sales receipts from export customers. In financial year
2020-21, the Group has forecasted that it will be a net receiver of USD. The Group has entered into a combination of foreign exchange
forward and option contracts. The Group had USD 44,700,000 (Sell) and EUR 215,207 (Buy) outstanding foreign exchange contracts as
at 30 June 2020.
The Group does not currently adopt hedge accounting.
The following table details the forward foreign exchange contracts outstanding as at reporting date in Australian dollars:
Buy US dollars
Maturity:
0 - 3 months
Buy EUR
Maturity:
0 - 3 months
Sell Australian dollars
2020
$'000
2019 restated
$'000
Average exchange rates
2020
2019 restated
-
17,638
-
0.7090
216
-
0.6011
-
96
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 30. Financial instruments (continued)
Buy Australian dollars
Maturity:
0 - 3 months
3 - 6 months
6 - 12 months
Sell US dollars
2020
$'000
2019 restated
$'000
Average exchange rates
2020
2019 restated
14,150
15,050
15,500
10,236
-
-
0.6677
0.6671
0.6557
0.7093
-
-
The following table details the forward foreign exchange and foreign exchange option contracts at fair value as at reporting date in
Australian dollars:
Buy US dollars - less than 3 months
Buy EUR - less than 3 months
Sell US dollars - less than 3 months
Sell US dollars - 3-6 months
Sell US dollars - 6-12 months
Net fair value
Consolidated
2020
$'000
2019 restated
$'000
(122)
(6)
610
663
1,231
2,376
200
-
38
-
-
238
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.
Consolidated
US Dollar
Canadian Dollar
Euro
Thai Baht
New Zealand Dollar
Chinese Yuan
Singapore Dollar
Assets
2020
$'000
Assets
2019
$'000
Liabilities
2020
$'000
Liabilities
2019
$'000
20,983
6
-
-
-
17,888
-
24,179
5
-
-
-
32
-
7,449
-
588
-
579
1,098
233
10
61
1,518
293
10
266
62
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 5% (USD), 3% (EUR), 4% (CNY) and 3% (SGD) 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 Australia Dollar strengthens against the respective currency. For a
weakening of the Australia Dollar against the respective currency there would be an equal and opposite impact on the profit and the
balances below would be negative.
The foreign currency sensitivity analysis sets out the sensitivity to variations in exchange rate on foreign currency receivables, payables
and cash and cash equivalents at year end in the Group.
97
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 30. Financial instruments (continued)
Consolidated - 2020
% change
AUD strengthened
Effect on profit
before tax
Effect on
equity
AUD weakened
Effect on profit
before tax
Effect on
equity
% change
US dollar
Euro
Chinese Yuan
Singapore dollars
5%
3%
4%
3%
(1,094)
29
(129)
(8)
(1,094)
29
(129)
(8)
5%
3%
4%
3%
1,207
(31)
140
8
1,207
(31)
140
8
(1,202)
(1,202)
1,324
1,324
Consolidated - 2019 restated
% change
AUD strengthened
Effect on profit
before tax
Effect on
equity
AUD weakened
Effect on profit
before tax
Effect on
equity
% change
US dollar
Euro
Chinese Yuan
Singapore dollars
3%
2%
3%
2%
(951)
(53)
(2)
(1)
(951)
(53)
(2)
(1)
3%
2%
3%
2%
(1,007)
(1,007)
902
50
2
1
955
902
50
2
1
955
Interest rate risk management
The Group is exposed to interest rate risk as it borrows funds using both fixed and floating interest rates. The Group manages this risk
by maintaining an appropriate mix between fixed and floating rate borrowings and by interest rate swaps.
Exposures to interest rate risk, which is the risk that a financial instrument's value, its borrowing costs or 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:
Consolidated
Cash and cash equivalents
Term loan facilities (variable interest rate)
Recourse debtor financing facilities (variable interest rate)
Revolver financing facilities (variable interest rate)
Equipment financing facilities (fixed interest rate)
2020
2019 restated
Weighted
average
effective
interest rate
%
Weighted
average
effective
interest rate
%
Balance
$'000
-
5.10%
3.35%
4.95%
4.71%
17,167
(141,174)
(15,466)
(36,176)
(99,508)
(275,157)
-
5.61%
4.41%
-
5.26%
Balance
$'000
55,385
(92,350)
(20,926)
-
(64,141)
(122,032)
The Group has entered into interest rate swaps to manage up to 50% of the variable interest rate exposure on the term loans. The
following table details the interest rate swap contracts at fair value as at reporting date in Australian dollars:
98
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 30. Financial instruments (continued)
Less than 1 year
More than 1 year
Consolidated Consolidated
2020
$'000
2019
$'000
(522)
(1,680)
(276)
(787)
(2,202)
(1,063)
Interest rate sensitivity analysis
The sensitivity analysis below has been determined based on the impact of 25 basis point increase in interest rates on exposure to
interest rates as detailed in the above table.
The impact of a 25 basis point (FY19: 25 basis point) interest rate movement during the year with all other variables being held
constant would be an increase/(decrease) on the Group's net loss of $141,276 (FY19: $294,565). This is attributable to the Group's
exposure to interest rates on its variable borrowings.
A 25 basis point movement represents management's assessment of the possible change in interest rates.
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 creditworthy 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 values of
transactions concluded are spread amongst approved counterparties. The impact of COVID-19 on the trading position of some of the
Group’s smaller OOH customers has resulted in the need to provide for possible losses.
For trade receivables, the Group has applied the simplified approach in AASB 9 to measure the loss allowance at lifetime ECL. The Group
determines the expected credit losses on these items by using a provision matrix, estimated based on historical credit loss experience
based on the past due status of the debtors, adjusted as appropriate to reflect current conditions and estimates of future economic
conditions. Accordingly, the credit risk profile of these assets is presented based on their past due status in terms of the provision
matrix.
Note 10 includes further details on the loss allowance for these assets.
The credit risk on liquid funds is limited because the Group only deposits monies with Australian banking counterparties 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.
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 and executive management. 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.
Included in Note 20 is detail of the current status of funding facilities.
99
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 30. Financial instruments (continued)
Consolidated 2020
Contractual cash flow
Carrying
amount
Weighted
average
effective
interest rate
%
Less than 1
year
Between 1 and
5 years
Total
Non-interest bearing
Trade and other payables
Interest bearing - variable
Term loan facilities
Recourse debtor financing facilities
Revolver financing facilities
Interest bearing - fixed
Equipment financing facilities
123,407
-
123,407
141,174
15,466
36,176
5.10%
3.35%
4.95%
163,465
15,478
41,905
99,508
4.71%
99,516
415,731
443,771
-
-
-
-
-
-
123,407
163,465
15,478
41,905
99,516
443,771
Consolidated 2019
Contractual cash flows
Carrying
amount
Weighted
average
effective
interest rate
%
Less than 1
year
$'000
Between 1 and
5 years
$'000
Total
$'000
Non-interest bearing
Trade and other payables
Payable to related parties
Interest bearing - variable
Term loan facilities
Recourse debtor financing facilities
Interest bearing - fixed
Equipment financing facilities
129,446
1,053
-
-
129,446
1,053
-
-
129,446
1,053
92,350
20,926
5.61%
4.41%
5,492
21,849
91,984
-
97,476
21,849
64,141
5.26%
25,496
49,473
74,969
307,916
183,336
141,457
324,793
Fair value of financial instruments
The carrying amount of financial assets and financial liabilities recorded in the financial statements approximates their fair values.
For financial instruments measured and carried at fair value, the Group uses the following to categorise the methods used:
●
●
●
Level 1: fair value is calculated using quoted prices in active markets for identical assets or liabilities.
Level 2: fair value is estimated using inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly (as prices) or indirectly (derived from prices).
Level 3: fair value is estimated using inputs for the asset or liability that are not based on observable market data.
100
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 30. Financial instruments (continued)
The Group enters into a variety of derivative financial instruments to manage its exposure to foreign exchange rate risk, including
forward foreign exchange contracts and options. Derivative financial instruments are classified as Level 2, as the fair values are
calculated based on observable market interest rates and foreign exchange rates. The fair values of interest rate derivatives are
calculated as the present value of the estimated future cash flows based on observable yield curves. The fair value of the foreign
currency forwards are calculated as the difference between the forward rate and the spot exchange rate at the balance sheet date.
The Group has not adopted hedge accounting during the financial year or previous corresponding period.
During the year there were no transfers between Level 1, Level 2 and Level 3 fair value hierarchies.
Financial risk management objectives
The Group's financial management team provides services to each of the group businesses, and co-ordinates access to domestic and
international financial markets, for the purpose of monitoring and managing the financial risks relating to the operations of the Group.
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 and interest rate hedging risk. The Group does not enter into or trade financial instruments, including derivative
financial instruments, for speculative purposes.
Debt*
AASB 16 lease liabilities
Cash and cash equivalents
Net debt
Equity**
Consolidated Consolidated
2019 restated
$,000
2020
$'000
292,324
194,645
(17,167)
469,802
60,999
177,417
-
(55,385)
122,032
234,657
* Debt is defined as long and short-term borrowings, as detailed in the notes to the financial statements.
** Equity includes all capital and reserves.
Note 31. Capital commitments and contingent liabilities
Capital commitments
Committed at the reporting date but not recognised as liabilities:
Plant and equipment
Contingent liabilities
Contingencies at the reporting date but not recognised as liabilities:
Bank guarantees provided in the normal course of business for certain property leases
Consolidated
2020
$'000
2019 restated
$'000
5,782
10,111
Consolidated Consolidated
2020
$000
2019
$000
1,036
1,036
At 30 June 2020, Blue Diamond Growers and certain Group subsidiaries including Freedom Foods Pty Limited, had some ongoing
commercial disputes, which could if not resolved, result in litigation and future provisions. Please refer to Note 42 for further
information.
101
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 32. Interests in subsidiaries
The Consolidated Statement of profit or loss and other comprehensive income and Statement of financial position of the entities party
to the deed of cross guarantee is the Consolidated Statement of profit or loss and other comprehensive income and Statement of
financial position included in the 2020 financial statements.
Name
Principal place of business /
Country of incorporation
Ownership interest
2020
%
2019 restated
%
Paramount Seafoods Pty Limited*
Freedom Foods Group Operations Pty Limited*
Freedom Foods Group Financing Pty Limited*
Freedom Foods Pty Limited*
Pactum Australia Pty Limited*
Pactum Dairy Group Pty Limited*
Freedom Foods Group IP Pty Limited*
Thorpedo Foods Group Pty Limited*
Thorpedo Foods Pty Limited
Thorpedo Seafoods Pty Limited
Freedom Foods North America Inc
Freedom Foods Group Dandenong Pty Limited (formerly
Popina (Vic) Pty Limited)*
Freedom Foods Group Ingleburn Pty Limited*
Freedom Foods Group Nutritionals Pty Limited*
Freedom Foods Group Trading Pty Limited*
Crankt Protein International Pty Limited
Freedom Foods Shanghai Co. Limited
Freedom Foods Singapore Pte Limited
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
North America
Australia
Australia
Australia
Australia
Australia
China
Singapore
Note 33. Deed of cross guarantee
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
75.00%
75.00%
80.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
75.00%
75.00%
80.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
The following companies in the Group have entered into a deed of cross guarantee as a condition to obtaining relief under Corporations
(Wholly owned companies) Instrument 2016/785 from the Corporations Act 2001 requirements to prepare and lodge audited financial
statements and a directors' report.
Freedom Foods Group Limited
Paramount Seafoods Pty Limited
Freedom Foods Group Operations Pty Limited
Freedom Foods Group Financing Pty Limited
Freedom Foods Pty Limited
Pactum Australia Pty Limited
Thorpedo Foods Group Pty Limited
Freedom Foods Group Dandenong Pty Limited (formerly Popina (Vic) Pty Limited)
Pactum Dairy Group Pty Limited
Freedom Foods Group Trading Pty Limited
The above companies represent a 'Closed Group' for the purposes of the Corporations Instrument, and as there are no other parties to
the deed of cross guarantee that are controlled by Freedom Foods Group Limited, they also represent the 'Extended Closed Group'.
Set out below is a consolidated statement of profit or loss, a consolidated statement of comprehensive income and a summary of
movements in consolidated retained earnings for the year ended 30 June 2020 of the Closed Group.
102
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 33. Deed of cross guarantee (continued)
Consolidated statement of comprehensive income
Revenue from sale of goods
Cost of sales
Gross profit
Other (expenses)/income
Foreign exchange gain/(loss)
Expenses
Marketing expenses
Selling and distribution expenses
Administrative expenses
Provision for doubtful debts
Impairment of non-financial assets
Net finance costs
Share of profits/(losses) of associates accounted for using the equity method
Loss before income tax
Income tax benefit
Loss after income tax
Consolidated statement of financial position
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Receivables from related parties
Loan due from a related party
Inventories
Derivative financial instruments
Prepayments
Total current assets
Non-current assets
Investment in subsidiaries - at cost
Investments accounted for using the equity method
Property, plant and equipment
Right-of-use assets
Intangibles
Total non-current assets
Consolidated
2020
$'000
2019 restated
$'000
567,190
(536,646)
30,544
449,039
(469,401)
(20,362)
(352)
2,339
2,548
(124)
(24,533)
(68,555)
(31,494)
(3,639)
(64,096)
(15,409)
586
(21,481)
(55,698)
(29,425)
(1,800)
(10,378)
(9,704)
(254)
(174,609)
(146,678)
101
851
(174,508)
(145,827)
Consolidated
2020
$'000
2019 restated
$'000
16,517
61,830
106,963
14,464
53,938
2,504
1,891
258,107
904
22,077
161,360
42,664
12,170
239,175
55,383
65,740
69,873
-
62,488
287
3,123
256,894
595
18,476
192,290
-
28,038
239,399
Total assets
497,282
496,293
103
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 33. Deed of cross guarantee (continued)
Liabilities
Current liabilities
Trade and other payables
Payable to related parties
Borrowings
Lease liabilities
Derivative financial instruments
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Lease liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued Capital
Reserves
Accumulated losses
Total equity
Note 34. Parent entity information
Set out below is the supplementary information about the parent entity.
Statement of profit or loss and other comprehensive income
Loss after income tax
Other comprehensive income for the year, net of tax
Total comprehensive income
104
Consolidated
2020
$'000
2019 restated
$'000
83,111
-
292,324
524
2,507
4,635
383,101
-
51,642
1,540
53,182
71,894
1,053
49,022
-
1,111
5,064
128,144
128,395
-
5,097
133,492
436,283
261,636
60,999
234,657
598,712
(55,851)
(481,862)
589,123
(44,750)
(309,716)
60,999
234,657
Parent
2020
$'000
Parent
2019 restated
$'000
(158,622)
-
(159,328)
-
(158,622)
(159,328)
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 34. Parent entity information (continued)
Statement of financial position
Total current assets
Total non-current assets
Total current liabilities
Net assets
Equity
Issued capital
Reserves
Accumulated losses
Parent
2020
$'000
Parent
2019 restated
$'000
-
61,048
-
221,738
(49)
(57)
60,999
221,681
598,712
1,602
(539,315)
589,123
13,251
(380,693)
60,999
221,681
Certain items in the table set out above related to the 2019 comparative have been restated. For details on the restatement of
comparatives, refer Note 3.
Freedom Foods Group Limited on 30 November 2020, provided a letter of support stating it will provide financial support to certain
controlled entities, at their request, to ensure that those subsidiaries are at all times able to pay all debts and liabilities owed by them,
as they become due and payable in the normal course of business.
Note 35. Related party transactions
Subsidiaries
Interests in subsidiaries are set out in Note 32.
Associates
Interests in associates are set out in Note 13.
Joint ventures
Interests in joint ventures are set out in Note 13.
Key management personnel
Disclosures relating to key management personnel are set out in Note 36 and the remuneration report included in the Directors' report.
105
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 35. Related party transactions (continued)
Transactions with 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; and
• other related parties.
The following transactions occurred with related parties:
Sale of goods and services during the year:
Sale of goods to JLL
Purchase of goods and services during the year:
Milk purchases from Leppington Pastoral Company
Milk purchases from Fresh Dairy One Pty Limited (wholly owned subsidiary of AFMH)
Milk purchases from Fresh Dairy Four Pty Limited (wholly owned subsidiary of AFMH)
Recycling services from Direct Group Industries (50% owned by Arrovest Pty Limited)*
Payment for rent and interest during the year:
Payment of rent and outgoings under a lease commitment with Perich Property Holdings at
Shepparton and Head Office (related entity through common Directors)
Payment of rent and outgoings under a lease commitment with Perich Property Unit Trust at
Ingleburn (related entity through common Directors)
Payment of principal and interest to Arrovest Pty Limited against short term loan facility
Consolidated
2020
$
2019 restated
$
21,699,884
23,648,802
-
-
12,308,452
11,048
1,076,995
3,684,844
-
25,261
4,874,354
3,959,047
8,574,354
848,892
9,283,120
1,125,737
Amount payable at the end of the year:
AASB 16 Lease liability with Perich Property Holdings at Shepparton and Head Office (related entity
through common Directors)
AASB 16 Lease liability with Perich Property Unit Trust at Ingleburn (related entity through common
Directors)
Payable for rent and outgoings under a lease commitment with Perich Property Holdings
Payable to Arrovest Pty Limited
Interest payable to Arrovest Pty Limited
49,368,532
-
138,696,637
-
-
-
273,956
778,300
70,592
Reimbursement for capital costs deemed to be landlord costs during the year:
Reimbursement of capital costs incurred by the Group that were deemed to be landlord costs of
Perich Property Holdings at Shepparton (related entity through common Directors)
1,687,970
-
*
Direct Group Industries was sold during FY20.
Terms and conditions
All related party transactions were made on normal commercial terms and conditions and at market rates.
106
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 36. Key management personnel disclosures
Compensation
The aggregate compensation made to directors and other members of key management personnel of the Group is set out below:
Short-term employee benefits
Post-employment benefits (superannuation contribution)
Long-term benefits (long service lease expense)
Share-based benefits*
Consolidated
2020
$
2019 restated
$
2,425,527
143,988
208,397
(1,265,162)
2,163,149
132,010
178,212
3,406,159
1,512,750
5,879,530
*The share based benefits for the year is negative due to the reversal of previously recognised share based expense arising from
forfeiture of share options granted to key management personnel.
Note 37. Share-based payments
In the year ended 30 June 2020, senior employees were eligible to participate in the employee share scheme under which executives
are issued options or service rights to acquire shares in the Parent. Each employee share option or service rights converts into one
ordinary share of the Parent on exercise. No amounts are paid or payable by the recipient on receipt of the option or service rights. The
options or service rights carry neither rights to dividends nor voting rights. Options or service rights may be exercised at any time from
the date of vesting to the date of their expiry. Some of the option series have performance-based conditions attached to them (1 July
2015, 1 October 2017 and 18 April 2019 options). The non-performance based options or service rights have no condition other than
continuing employment.
The outstanding options vest as follows:
1 July 2013 Options (Series 4)
There are no performance criteria that needed to be met in relation to 1 July 2013 series options. These options vested over a period
of 3 years and relate to an employee's service period only. The terms of issue of the options provided for an expiry date of 30 June 2018
which was later extended without authorisation of the Board. The 2018 and 2019 remuneration report and consolidated financial
statements of the Group indicated an expiry date for these options of 1 September 2019. 561,666 Shares were issued on 5 November
2019 on claimed exercise of these options based on an exercise price of $1.65 per Share.
1 July 2015 Options (Series 6)
These options had a 5 year exercise period, with vesting criteria as per the below:
1,200,000 of options on achievement of audited Group operating EBITDA of A$44.5 million;
1,200,000 of options on achievement of audited Group operating EBITDA of A$51.5 million; and
1,600,000 of options on achievement of audited Group operating EBITDA of A$63.5 million.
These options were issued to the former Managing Director and the former CEO - Commercial Operations Australasia, both of whom
resigned during the year ended 30 June 2020. 1.6 million options did not vest and the former Managing Director forfeited 1.5 million
options which had vested. During the year, the former CEO - Commercial Operations Australasia exercised 900,000 options which had
vested based on reported results. All options in this series have now either expired or been exercised during the year.
107
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 37. Share-based payments (continued)
1 October 2017 Options (Series 7 and 8)
Of the first series of 2,250,000 options (Series 7), 60% vested in FY18 and the balance vested in FY19 based on reported results. While
the options had vested in part in FY18, they had been unable to be exercised due to trading blackout periods. The series expired on 1
October 2019 without any options being exercised, however assurances had been provided to employees prior to that date that the
terms would be altered to enable them to benefit from the scheme.
To rectify the impact on employees of the restricted capacity to exercise their options, the Board decided that the Company issue
160,000 service rights in lieu of Series 7 options to those affected employees. All of the service rights were exercised and 160,000 shares
were issued on 20 April 2020. The service rights were valued by reference to the market price of the Company’s shares on the date of
issue. The service rights have been accounted for as a modification to the original options issued with a true up of the difference
between the fair value of the service rights issued and the original options issued, reflected in FY20.
Based on reported results, 80% of the second series of 2,250,000 options (Series 8) vested in FY19. None of the vested options were
exercised before the expiry date of 1 October 2020. The remaining 20% did not vest before the expiry date.
18 April 2019 Options (Series 9)
This series, with an expiry date of 30 November 2020, have not vested given the performance of the two related financial years FY19
(as restated) and FY20.
Other issues of rights to acquire shares
On 23 March 2020, the Group issued service rights to employees who had been issued letters of offer of options in 2014 by the former
Managing Director. The 2014 offer of options by the then Managing Director were not authorised by the Board. Following the Board
becoming aware of the 2014 offer of options, it decided to honour the commitment and offered 1,385,000 service rights to affected
employees, the terms of which related only to continuing employment during the period of the service rights. The service rights have
been accounted for assuming the original offer was valid and have been expensed over the vesting period (refer to Note 3 for details
of the associated restatement) with a true up in FY20 to the final fair value of the service rights issued reflected in FY20. The service
rights were exercised in full prior to their expiry on 31 March 2020.
2020
Grant Date Expiry Date
Series
Balance at
the
start of the
year
Exercise
price
Expired/
Forfeited/
Lapsed
Balance at
the
end of the
year
Vested and
exercisable
Granted
Exercised
01/07/2013 01/09/2019
01/07/2015 30/06/2020
01/10/2017 01/10/2019
01/10/2017 01/10/2020
18/04/2019 30/11/2020
23/03/2020 31/03/2020
01/04/2020 30/04/2020
Series 4 $1.65
Series 6 $2.92
Series 7 $4.50
Series 8 $4.50
Series 9 $5.75
$0.00
Service
rights
Service
rights
$0.00
561,666
4,000,000
2,250,000
2,250,000
2,850,000
-
-
-
-
-
(561,666)
(900,000)
-
-
-
-
(3,100,000)
(2,250,000)
-
-
-
-
-
2,250,000
2,850,000
-
-
-
1,800,000
-
-
-
1,385,000
(1,385,000)
160,000
(160,000)
-
-
-
-
-
-
11,911,666
1,545,000
(3,006,666)
(5,350,000) 5,100,000
1,800,000
Weighted average exercise price
$4.13
$0.00
$1.18
$3.58
$5.20
$0.00
108
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 37. Share-based payments (continued)
2019
Grant Date Expiry Date
Series
Balance at
the start of
the year
Exercise
price
Granted
Exercised
Expired/
Forfeited/
Lapsed
Balance at
the end of
the year
Vested and
exercisable
01/01/2013 01/09/2019
01/07/2015 30/06/2020
01/10/2017 01/10/2019
01/10/2017 01/10/2020
18/04/2019 30/11/2020
Series 4
Series 6
Series 7
Series 8
Series 9
$1.65
$2.92
$4.50
$4.50
$5.75
561,666
4,000,000
2,250,000
2,250,000
-
-
-
-
-
2,850,000
9,061,666
2,850,000
-
-
-
-
-
-
-
-
-
-
-
561,666
4,000,000
2,250,000
2,250,000
2,850,000
561,666
2,400,000
2,250,000
1,800,000
-
- 11,911,666
7,011,666
Weighted average exercise price
$3.63
$5.75
$0.00
$0.00
$4.13
$0.00
The fair value at grant date of the options issued by the company which expired or remained outstanding during the year ended 30
June 2020 are shown below:
Grant date Expiry date
Series
Share price
at grant date price
Exercise
Expected
volatility
Dividend
yield
Risk-free
Fair value
interest rate at grant date
01/07/2013 01/09/2019
01/07/2015 30/06/2020
01/10/2017 01/10/2019
01/10/2017 01/10/2019
01/10/2017 01/10/2020
01/10/2017 01/10/2020
18/04/2019 30/11/2020
Series 4
Series 6
Series 7
Series 7
Series 8
Series 8
Series 9
$1.80
$2.94
$4.04
$4.04
$4.04
$4.04
$5.18
$1.65
$2.92
$4.50
$4.50
$4.50
$4.50
$5.75
5.00%
50.00%
37.57%
37.57%
37.57%
37.57%
37.01%
2.50%
0.49%
0.47%
0.47%
0.47%
0.47%
0.50%
5.00%
2.25%
2.03%
2.03%
2.12%
2.12%
1.50%
$0.181
$1.195
$0.618
$0.735
$0.748
$0.951
$0.729
Expected volatility is based on historical share price volatility over the past two years. It is expected that options will be exercised only
in the event of the market price exceeding the exercise price.
The options have been valued using an independent valuation from Crichton + Associates Pty Limited. Using this valuation the annual
expense has been reflected in the Statement of profit or loss and comprehensive income.
In relation to service rights issued during the year, the fair value of such service rights was equal to that of the original share options
which they replaced. Any minor difference in fair value was recorded in FY20 profit and loss.
Significant accounting policies
Equity-settled share-based payments with employees and others providing similar services are measured at the fair value of the equity
instrument at the grant date.
The fair value of options and service rights granted is recognised as an employee benefits expense with a corresponding increase in
equity. The total amount to be expensed is determined by reference to the fair value of the options and service rights granted:
●
●
including any market performance conditions (eg. the entity’s share price); and
excluding the impact of any service and non-market performance vesting conditions (eg. profitability and remaining an employee
of the entity over a specified time period).
The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be
satisfied. At the end of each period, the entity revises its estimates of the number of options that are expected to vest based on the
non-market vesting and service conditions. It recognises the impact of the revision to original estimates, if any, in profit or loss, with a
corresponding adjustment to equity.
109
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 37. Share-based payments (continued)
Where shares are forfeited due to a failure by the employee to satisfy the service conditions, any expenses previously recognised in
relation to such shares are reversed effective from the date of the forfeiture.
Note 38. Reconciliation of loss after income tax to net cash used in operating activities
Loss after income tax benefit for the year
Adjustments for:
Depreciation and amortisation
Impairment of non-current assets
Financial derivative losses/(gains)
Gain on purchase
Impairment of financial assets
Share based payments
Deferred tax movement
Share of loss/(profit) of associates
Unrealised exchange loss
Gain from sale of assets
Movements in working capital:
Decrease/(increase) in trade and other receivables
Decrease/(increase) in inventories
Decrease in loan due from other parties
Decrease/(increase) in other operating assets
Increase/(decrease) in trade and other payables
Decrease in provision for income tax
Increase in provision
Increase/(decrease) in other operating liabilities
Consolidated
2020
$'000
2019 restated
$'000
(174,508)
(145,827)
30,627
26,081
(999)
-
3,639
(418)
(83)
(586)
1,298
-
2,011
19,664
-
374
(82)
-
134
(1,054)
18,119
-
569
(2,062)
1,800
6,247
(1,040)
254
795
(96)
(19,475)
(12,746)
1,182
(351)
24,636
(4,893)
464
(240)
Net cash used in operating activities
(93,902)
(132,664)
110
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 39. Reconciliation of assets and liabilities arising from investing and financing activities
The table below details changes in the Group's assets and liabilities arising from investing and financing activities, including both cash
and non-cash changes. Liabilities arising from investing and financing activities are those for which cash flows were, or future cash flows
will be, classified in the Group's statement of cash flows as cash flows from financing activities.
Movements in financing activities:
Consolidated 2020
Non-cash changes
Balance
30 June 2019
restated
$'000
Financing cash
flows
$'000
DRP
$'000
Related
income tax
$'000
Other non-
cash
$'000
Balance
30 June 2020
$'000
AASB 16 lease liabilities (Note
18,21)
Term loan facilities (Note 20)
Recourse debtor financing facilities
(Note 20)
Revolver financing facilities (Note
20)
Equipment financing facilities
(Note 20)
Share capital (Note 27)
Dividends paid (Note 28)
-
(92,350)
2,844
(48,824)
(20,926)
5,460
-
(36,176)
-
-
-
-
(64,141)
(589,123)
-
(6,790)
(3,303)
2,659
-
(6,211)
6,211
(766,540)
(84,130)
-
-
-
-
-
-
(75)
-
(75)
(197,489)
-
(194,645)
(141,174)
-
-
(28,577)
-
-
(15,466)
(36,176)
(99,508)
(598,712)
8,870
(226,066)
(1,076,811)
Consolidated 2019
Non-cash changes
Balance
30 June 2018
restated
$'000
Financing cash
flows
$'000
DRP
$'000
Related
income tax
$'000
Other non-
cash
$'000
Term loan facilities (Note 20)
Recourse debtor financing facilities
(Note 20)
Equipment financing facilities
(Note 20)
Share capital (Note 27)
Dividend paid (Note 28)
(96,900)
4,550
-
(20,926)
-
-
-
-
(37,291)
(453,388)
-
(26,850)
(126,726)
4,353
-
(7,869)
7,869
-
(1,140)
-
(587,579)
(165,599)
-
(1,140)
Balance
30 June 2019
restated
$'000
-
-
-
-
-
-
(92,350)
(20,926)
(64,141)
(589,123)
12,222
(754,318)
111
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 39. Reconciliation of assets and liabilities arising from investing and financing activities (continued)
Movements in investing activities:
Consolidated 2020
Balance
30 June 2019
restated
$'000
Investing
cash flows
$'000
Non-cash changes
Depreciation,
amortisation
and
impairment
$'000
Equipment
finance
$'000
Share of
profits using
equity
method
$'000
Non-cash
changes
Other non-
cash changes
$'000
Balance
30 June 2020
$'000
Property, plant and equipment
(Note 14)
Right of use asset (Note 15)
Intangibles (Note 16)
Investment accounted for using
the equity method (Note 13)
270,745
-
53,020
22,809
-
1,224
(24,451)
(14,030)
(17,491)
28,577
-
-
-
-
-
695
186,334
-
298,375
172,304
36,753
23,515
4,413
(735)
-
586
155
27,934
347,280
28,446
(56,707)
28,577
586
187,184
535,366
Consolidated 2019 restated
Non-cash changes
Balance
30 June 2018
restated
$'000
Investing
cash flows
$'000
Depreciation,
amortisation
and
impairment
$'000
Acquisitions
through
business
combination
$'000
Share of loss
using equity
method
$'000
Other non-
cash changes
$'000
Balance
30 June 2019
restated
$'000
Property, plant and equipment
(Note 14)
Intangibles (Note 16)
Investment accounted for using
the equity method (Note 13)
Purchase of business
220,440
47,164
16,941
-
66,729
627
6,535
1,765
(17,465)
(654)
-
5,883
-
-
-
-
-
-
(253)
-
1,041
-
270,745
53,020
292
-
23,515
1,765
284,545
75,656
(18,119)
5,883
(253)
1,333
349,045
112
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 40. Remuneration of auditors
During the financial year the following fees were paid or payable for services provided by Deloitte Touche Tohmatsu, the auditor of the
Company:
Audit or review of financial reports:
-
-
Group
Subsidiaries and joint operations
Consolidated
2020
$
2019
$
640,300
44,339
415,950
-
684,639
415,950
Other assurance and agreed-upon procedures under other legislation or contractual arrangements
10,000
10,000
Other services:
Assistance with research and development claims
Tax compliance services
133,000
54,325
31,500
100,800
187,325
132,300
881,964
558,250
After year end the Group has paid $171k relating to 30 June 20 that will be expensed in FY21. Additional fees in respect of the audit
for the financial year ended 30 June 2020 are yet to be agreed.
Note 41. Events after the reporting period
Bank facility amendments
On 11 September 2020, the Group entered into a standstill agreement with its primary lenders, National Australia Bank Limited and
HSBC Bank Australia Limited (Banks), pursuant to which the Banks have agreed until 29 January 2021, not to take any action against
the Group in respect of any amounts owing to the Banks under the Group’s financing agreements with the Banks, unless the Company
commits a breach of the standstill agreement. Given that the standstill agreement is expiring in January 2021, it is considered
appropriate to classify all borrowings as current.
Refer to Note 20 for further information on assets pledged as security and financing arrangements.
Recall
The Group conducted a recall in September 2020 of certain batches of plant-based beverages. The recall applied only to the specific
batches. The issues that resulted in this recall have been fully resolved. The Company has insurance to cover the costs of the recall,
subject to an excess of $500,000.
113
Freedom Foods Group Limited
Notes to the financial statements
30 June 2020
Note 41. Events after the reporting period (continued)
Blue Diamond Proceedings
Legal proceedings have commenced in both Australia and the United States between Blue Diamond Growers (Blue Diamond) and
certain Group subsidiaries including Freedom Foods Pty Ltd (FFPL). Further details can be found in the ASX release dated 30 September
2020.
Blue Diamond claim seeks:
●
compensatory and general damages for breach of the Licence Agreement, which Blue Diamond asserts to be at least US$16
million;
compensatory and general damages for breach of an alleged oral agreement; and
specific performance of the Licence Agreement.
●
●
The Group disputes Blue Diamond’s claims and is defending its position. No contingent liabilities are recognised in the financial
statements in respect of these proceedings.
Except as disclosed, no matter or circumstance has arisen since 30 June 2020 that has significantly affected, or may significantly
affect, the Group's operations, the results of those operations, or the Group's state of affairs in future financial years.
114
Freedom Foods Group Limited
Directors' declaration
30 June 2020
In the Directors' opinion:
●
●
●
●
●
the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations
Regulations 2001 and other mandatory professional reporting requirements;
the attached financial statements and notes comply with International Financial Reporting Standards as issued by the
International Accounting Standards Board as described in Note 2 to the financial statements;
the attached financial statements and notes give a true and fair view of the Group's financial position as at 30 June 2020 and of
its performance for the financial year ended on that date;
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable;
and
at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group will be
able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee
described in Note 32 to the financial statements.
The Directors have been given the declarations required by section 295A of the Corporations Act 2001.
Signed in accordance with a resolution of Directors made pursuant to section 295(5)(a) of the Corporations Act 2001.
On behalf of the Directors
___________________________
Perry R. Gunner
Chairman
30 November 2020
Sydney
115
Freedom Foods Group Limited
Independent auditor's report to the members of Freedom Foods Group Limited
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
Independent Auditor’s Report to the Members
of Freedom Foods Group Limited
Report on the Audit of the Financial Report
Qualified Opinion
We have audited the financial report of Freedom Foods Group Limited (the “Company”) and its
subsidiaries (the “Group”) which comprises the consolidated statement of financial position as at 30
June 2020, the consolidated statement of profit or loss and other comprehensive income, the
consolidated statement of changes in equity and the consolidated statement of cash flows for the
year then ended, and notes to the financial statements, including a summary of significant accounting
policies and the directors’ declaration.
In our opinion, except for the matters set out in the basis for qualified opinion section of our report,
the accompanying financial report of the Group is in accordance with the Corporations Act 2001,
including:
(i)
giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its
financial performance for the year then ended; and
(ii)
[This page has intentionally been left blank for the insertion of page one of the independent auditor's report]
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Qualified Opinion
As disclosed in note 3, the Group’s 30 June 2019 comparative information and the 30 June 2018
consolidated statement of financial position have been restated. We have been unable to obtain
sufficient appropriate audit evidence to determine whether the restatements to the consolidated
statement of financial position as at 30 June 2018, the consolidated statement of profit or loss and
other comprehensive income, the consolidated statement of changes in equity and the consolidated
statement of cash flows for the year ended 30 June 2019 and related notes to the financial report
are appropriate. As a result, no reliance should be placed on the above-mentioned comparative
information.
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional & Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (including Independence Standards) (the Code) that are relevant to our audit of the
financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with
the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has
been given to the directors of the Company, would be in the same terms if given to the directors as
at the time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our qualified opinion.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte organisation.
116
116
FFoorr ppeerrssoonnaall uussee oonnllyy
Freedom Foods Group Limited
Independent auditor's report to the members of Freedom Foods Group Limited
Material Uncertainty Related to Going Concern
We draw attention to note 2 in the financial report, which indicates that the Group incurred a net
loss after tax of $174.5m during the year ended 30 June 2020 and had net cash outflows from
operating activities of $93.9m. At 30 June 2020, the total borrowings of the Group were $292.3m
which have been classified within current liabilities. As a result, the Group had net current liabilities
of $280.4m. The Group’s financiers waived the obligation to comply with its banking covenants at
30 June 2020. The Group entered into a standstill agreement with its financiers in September 2020,
and subsequent extensions thereto, which expire on 29 January 2021. Current forecasts project that
the Group will need additional funding in January 2021 prior to the expiry of the standstill agreement
to fund working capital. Further, the Group is in the advanced stages of a recapitalisation plan and
has received a non-binding indicative offer to underwrite this fundraising.
These events or conditions, along with other matters as set forth in note 2, indicate that a material
uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going
concern. Our opinion is not modified in respect of this matter.
Our procedures in relation to going concern included, but were not limited to:
(cid:120) Reviewing management’s assessment in relation to going concern and inquiring of management,
directors, the Group’s advisors and financiers in relation to events and conditions that may impact
the assessment on the Group’s ability to pay its debts as and when they fall due
(cid:120) Challenging the assumptions contained in management’s cash flow forecast for the period ending
31 December 2021, including the timing of expected cash flows, uncertainties arising due to
operational and restructuring initiatives, proposed fundraising and refinancing activities being
undertaken
(cid:120) Reviewing the available year to date trading results and comparison to forecasts
(cid:120) Obtaining from management, directors and the Group’s advisors an understanding of the status
of the proposed fundraising including the underwriting by a global investor, the draft terms and
conditions and proposed timetable
(cid:120) Considering the risks associated with the fundraising including the uncertainty caused by the legal
dispute on the supplier arrangement with Blue Diamond Growers, assessment of the required
[This page has intentionally been left blank for the insertion of page two of the independent auditor's report]
regulatory approvals and other conditions required for completion within the proposed timetable
(cid:120) Obtaining an understanding of the current status of the Group’s financing facilities, including the
extension to the standstill period to 29 January 2021, compliance and expected compliance, with
undertakings during the standstill agreement period as well as review of the draft terms for
continuing facilities after the fundraising
(cid:120) Obtaining an understanding of the ongoing support from the Group’s major shareholder or its
related entities
(cid:120) Assessing the impact of events occurring after balance date on the financial statements; and
(cid:120) Assessing the adequacy of the disclosures related to going concern in note 2.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance
in our audit of the financial report for the current period. These matters were addressed in the
context of our audit of the financial report as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters. In addition to the matter described in the Basis
for Qualified Opinion section we have determined the matters described below to be the key audit
matters to be communicated in our report.
117
117
FFoorr ppeerrssoonnaall uussee oonnllyy
Freedom Foods Group Limited
Independent auditor's report to the members of Freedom Foods Group Limited
The Investigations
Key Audit Matter description
As disclosed, during the year the Board identified matters regarding the operation and administration
of the Group’s equity incentive plan (EIP) and initiated an investigation. The implementation of the
warehouse consolidation program led to the identification of issues in relation to inventory. The
Board commissioned a further investigation in late June 2020 to take a broader look at the Group’s
financial position which was undertaken with the support of external advisors. Those investigations
resulted in management, with the support of external advisors, undertaking further investigations
and analysis (“the investigations”).
As disclosed in note 3, a number of significant accounting errors have been identified, which have
resulted in a reduction of the Group’s previously reported net assets as at 30 June 2019 of $436.2m.
The matters set out below should be read in this context.
We obtained an understanding, assessed the design and tested the implementation of the relevant
controls for each of the key audit matters below. As a result of significant control deficiencies, we
determined that a wholly substantive approach was appropriate in our testing of the account
balances set out below.
a) Property, Plant and Equipment including Capital Work in Progress
The investigations included the Group re-assessing the Property, Plant and Equipment (including
capital work in progress (“CWIP”)) in respect of costs previously capitalised during the
commissioning phase of the Group’s capital investment program. As a result, material amounts of
costs capitalised were identified which did not meet the recognition criteria of AASB 116 Property,
Plant and Equipment (“AASB 116”). This has resulted in the write off of costs capitalised in prior
periods, as well as corrections to depreciation expensed on the amounts capitalised.
The determination of identifiable costs attributable to the construction of assets requires significant
judgement. This includes evaluating:
(cid:131) Whether internal labour costs were directly attributable to the construction of the Group’s
production and processing assets and can be accurately quantified
(cid:131) Whether costs, including manufacturing variances, related to the commissioning phase of new
production lines and processing facilities were directly attributable to the construction of the
assets, and whether they could be accurately quantified; and
The period in which to commence and cease capitalising directly attributable internal costs to
CWIP.
(cid:131)
Audit Response
Our audit procedures included, amongst others:
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
Testing, on a sample basis, management’s re-evaluation of the costs capitalised, by tracing to
supporting documentation and assessing whether the costs met the recognition and
measurement criteria set out in AASB 116, and that they have been recognised in the financial
period in which they arise
Challenging the determination of the date at which the relevant assets were in the location and
condition necessary to be capable of operating as intended, and capitalisation of costs ceased,
including testing of commissioning dates, productivity levels, engineers’ reports and final invoices
received from equipment suppliers
Challenging the adjustments that management have identified for costs previously capitalised
post commissioning and evaluating that the write off of these costs have been recognised in the
financial period in which they arise
Challenging the re-assessment of the expected useful lives of property, plant and equipment; and
Assessing the adequacy of the disclosures in notes 2, 3 and 14.
118
118
FFoorr ppeerrssoonnaall uussee oonnllyy
Freedom Foods Group Limited
Independent auditor's report to the members of Freedom Foods Group Limited
b) Inventory
The investigations identified a number of issues regarding inventory. These issues impacted both
the current year and prior periods and related to whether inventory was excess, out-of-date,
unsaleable, obsolete or unable to be located, and the determination of the cost of inventory.
The investigations resulted in material adjustments to the quantities, the cost and the net realisable
value (“NRV”) of inventory. The determination of the quantum of these adjustments and the period
in which they should be recognised, are subject to considerable judgements and estimates.
Audit Response
Our audit procedures included, amongst others:
(cid:131)
(cid:131)
(cid:131)
(cid:131)
Senior members of the audit team, including the engagement partner, attending and observing
the 30 June 2020 inventory counts performed by management at the Group’s major production
facilities and warehouses given the material nature of the inventory issues identified
Testing, on a sample basis, the existence of inventory at 30 June 2020, by tracing items recorded
in the inventory system to their warehouse physical location or from the physical location to the
inventory system
For those inventories which could not be located in the warehouses, we made additional inquires
and confirmed that these inventories no longer existed
Agreeing the stock sheets from the year-end inventory counts to the year-end inventory
valuation reports
(cid:131) Obtaining an understanding of, and assessing the Group’s methodology for identifying and
calculating impairment for inventory
(cid:131) Using the results of our stocktake count samples, testing the appropriateness of the inventory
categorisation in the inventory system
Testing the 30 June 2020 inventory costings and the recalculated inventory costings as at 30
June 2019 including challenging whether the costings were appropriate and testing that the
revised inventory costs had been correctly applied
For inventory on hand at 30 June 2020 assessing whether it was recorded at the lower of cost
and NRV by testing a sample of inventory items to the most recent sales price and or sales
contracts, and for inventories close to expiration date challenging the basis of the assessment of
the NRV of those inventories
Evaluating whether the inventories on hand as at 30 June 2019 were recorded at the lower of
cost and NRV by comparing the inventory cost at the relevant balance date to the sales price
inclusive of costs to sell achieved in that period. For inventories close to expiration date
challenging the basis of the Group’s assessment of the NRV of those inventories
Testing whether inventory write-downs identified have been appropriately recognised in the
financial period in which they arose; and
Assessing the adequacy of the disclosures in notes 3 and 11.
(cid:131)
(cid:131)
(cid:131)
(cid:131)
(cid:131)
119
119
FFoorr ppeerrssoonnaall uussee oonnllyy
Freedom Foods Group Limited
Independent auditor's report to the members of Freedom Foods Group Limited
c) Capitalisation of New Product Development Costs
The investigations included a review of the New Product Development (“NPD”) costs that had been
capitalised. The investigations identified material amounts of internal salary costs as well as external
marketing, research and sales costs capitalised which did not meet the recognition criteria of AASB
138 Intangible Assets (“AASB 138”). This has resulted in the write-off of the NPD costs that had
been recognised as at 30 June 2019.
Audit Response
Our audit procedures included, amongst others:
(cid:131)
(cid:131)
(cid:131)
Testing, on a sample basis, management’s re-evaluation of the NPD costs previously capitalised,
by tracing to supporting documentation and assessing whether the costs met the recognition
and measurement criteria set out in AASB 138
For those costs that management determined had been incorrectly capitalised evaluating that
management’s determination and resulting write-off of those costs was appropriate; and
Assessing the adequacy of the disclosures in notes 3 and 16.
d) Equity Incentive Plan
During the year ended 30 June 2020, the Board identified matters regarding the operation and
administration of the Group’s equity incentive plan (EIP). The matters included the granting of
previously undisclosed employee share options and/or extension of the expiry date of share options
by management between September 2014 and September 2019. Certain of these employee share
options granted and/or extensions were not authorised (“unauthorised employee share options”) by
the Board.
As disclosed in note 3, the prior years have been restated in respect of the financial effect of the
unauthorised employee share options.
Audit Response
Our audit procedures included, amongst others:
(cid:131) Understanding the process the Board undertook to investigate the issuance of the unauthorised
employee share options. This included evaluating how they determined the completeness of
share options issued to employees
(cid:131)
Reviewing correspondence in respect to the share options which had been issued to employees
(cid:131) Holding discussions with the Group’s external legal advisors on the matter and the obligations
arising from commitments made by management to employees in prior financial periods
Interviewing a sample of employees to independently confirm the completeness, accuracy and
the terms and conditions of the share options that had been issued to those employees, if any.
Where share options had been issued to the employee we tested that those share options had
been included in the calculations that formed the basis for the amounts recognised and disclosed
in the financial statements in the relevant financial period, and if not that they were included in
the restatement
Evaluating the Group’s accounting treatment of the unauthorised employee share options
Testing management’s calculation of the share-based payment expense arising in respect of the
unauthorised employee share options; and
Assessing the adequacy of the disclosures in notes 3 and 37.
(cid:131)
(cid:131)
(cid:131)
(cid:131)
120
120
FFoorr ppeerrssoonnaall uussee oonnllyy
Freedom Foods Group Limited
Independent auditor's report to the members of Freedom Foods Group Limited
e) Correction of other prior year errors
As disclosed in note 3, as a result of the investigations, there were a number of material errors,
other than those which have been referred to in a) to d) above, which have resulted in the
restatements of prior periods. Given the nature and extent of these errors, including the number of
account balances impacted, the identification, quantification and correction of prior year errors was
an area of focus.
Audit response
Our audit procedures included, amongst others:
(cid:131) Obtaining an understanding of the outcome of the investigations
(cid:131) Making inquiries of the Board and management on their response to their investigations
(cid:131)
(cid:131)
Assessing the results of the investigations
Consulting with our forensics specialists on the findings in the investigations and our response
thereto
Tailoring the nature and extent of our work on those account balances with increased risk of
material misstatement
Evaluating the errors identified to determine the financial period in which they arose; and
Assessing the accounting treatment of the relevant items and the adequacy of the related
disclosures.
(cid:131)
(cid:131)
(cid:131)
Impairment of goodwill, intangible assets and tangible assets
Key Audit Matter description
The Group’s financial position resulting from losses arising from operational and financial matters
complicates the Group’s evaluation of the carrying amount of goodwill, intangible assets and tangible
assets and any resulting impairment and as a result was a key audit matter.
The Group performed the impairment assessments required by AASB 136 Impairment of Assets and
identified impairments of its tangible and intangible assets in the Cereals & Snacks, Specialty
Seafood and Dairy & Nutritionals Cash Generating Units (“CGUs”) resulting in an impairment of the
carrying value of those assets.
The 2021 fiscal year forecast
Sales and gross margin growth rates
As disclosed in notes 2 and 16 there are a number of key estimates and judgements in the
determination of the recoverable amount of goodwill, intangible and tangible assets which require
the application of significant judgement. These include:
(cid:131)
(cid:131)
(cid:131) Discount rates applied to the projected cash flows
(cid:131)
(cid:131)
(cid:131)
Royalty rates (used in the relief from royalty brand valuation models)
Terminal growth rates; and
Fair valuations of property, plant and equipment.
In addition, to the impairments that arose during the year ended 30 June 2020, the Group has
determined that certain of the goodwill, intangible assets and tangible assets, should have been
impaired in prior financial periods.
121
121
FFoorr ppeerrssoonnaall uussee oonnllyy
Freedom Foods Group Limited
Independent auditor's report to the members of Freedom Foods Group Limited
How the scope of our audit responded to the key audit matter
Our audit procedures included but were not limited to:
(cid:131) Obtaining an understanding of management’s assumptions and judgements used in the
(cid:131)
(cid:131)
(cid:131)
(cid:131)
impairment assessments
Challenging the Group’s identification of CGUs
Evaluating the methodology, principles and integrity of the models used to determine the
relevant recoverable amounts
Challenging the 2021 fiscal year forecast by:
(cid:131) assessing the reasonableness of forecast sales based on individual product performance
and customer demand, including the ability to renegotiate existing contract prices, and
contracts secured for new products in the market
(cid:131) evaluating the forecast cost of production to determine whether the inputs included
appropriate consideration of the cost structure in the business including the cost of
production
Assessing the reasonableness of the longer-term assumptions for sales and margin growth based
on historical performance, the Group’s three-year strategic plan, supply agreements, industry
benchmarks and industry trading conditions
(cid:131) Using valuation specialists in evaluating the reasonableness of other key inputs and assumptions
in the models including:
(cid:131)
(cid:131)
(cid:131)
the royalty rates used by comparison to the market data on similar brand’s royalty rates
the discount rates used by assessing the Group’s weighted average cost of capital; and
the appropriateness of terminal growth rates applied
(cid:131)
Performing sensitivity analysis on the key model inputs and assumptions
(cid:131)
Assessing the objectivity and competence of the external valuers appointed by the Group
(cid:131) Using valuation specialists in evaluating the reasonableness of the external valuations obtained
by the Group to support the carrying value of land, property, plant and equipment, where
relevant
Evaluating the assessment as to the financial period in which the impairments of tangible and
intangible assets should be recognised; and
Assessing the adequacy of the disclosures in notes 3, 14 and 16.
(cid:131)
(cid:131)
Management override of controls
Key Audit Matter description
Australian Standards on Auditing 240 (ASA 240), The Auditor’s Responsibility to Consider Fraud in
an Audit of Financial Statements, highlights the risk of management override of controls as a
presumed audit risk area. As a result of the findings from the investigations and the significant control
deficiencies identified during our work there was an increased risk of management override of
controls and therefore was a key audit matter.
How the scope of our audit responded to the key audit matter
Our audit procedures included, amongst others:
(cid:131) Obtaining an understanding of the financial reporting process and assessing the design and
testing the implementation of the relevant controls therein in the context of the findings from
the investigations. As a result of this work, we identified significant control deficiencies and
determined that a substantive approach was appropriate
(cid:131) Making inquiries of the Board on their assessment and response to the risk of management
(cid:131)
(cid:131)
(cid:131)
override of controls
Refining the criteria used in our selection of journal entries processed during the current period
for testing
Extending the procedures performed on accounts receivable, related party transactions and
unrecorded liabilities; and
Reviewing accounting estimates and judgements for bias including the estimated useful life of
property, plant and equipment, the date on which assets moved from CWIP to property, plant
and equipment, inventory costings and net realisable value, the expected credit losses, lease
liabilities, make good provisions and the treatment of tax losses.
122
122
FFoorr ppeerrssoonnaall uussee oonnllyy
Freedom Foods Group Limited
Independent auditor's report to the members of Freedom Foods Group Limited
Other Information
The directors are responsible for the other information. The other information comprises the
information included in the Group’s annual report for the year ended 30 June 2020, but does not
include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. Due to the matters described in the Basis for
Qualified Opinion section above except for references to the financial results for the year ended 30
June 2019 and earlier periods we have nothing to report in this regard.
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due
to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group
to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to liquidate the Group or to
cease operations, or has no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
(cid:131)
Identify and assess the risks of material misstatement of the financial report, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as
intentional omissions,
involve collusion,
fraud may
misrepresentations, or the override of internal control.
forgery,
(cid:131) Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.
(cid:131)
Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by the directors.
123
123
FFoorr ppeerrssoonnaall uussee oonnllyy
Freedom Foods Group Limited
Independent auditor's report to the members of Freedom Foods Group Limited
(cid:131)
(cid:131)
Conclude on the appropriateness of the directors’ use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Group’s ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in the financial
report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and
events in a manner that achieves fair presentation.
(cid:131) Obtain sufficient appropriate audit evidence regarding the financial information of the entities
or business activities within the Group to express an opinion on the financial report. We are
responsible for the direction, supervision and performance of the Group’s audit. We remain
solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing
of the audit and significant audit findings, including any significant deficiencies in internal control that
we identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, actions
taken to eliminate threats or safeguards applied.
From the matters communicated with the directors, we determine those matters that were of most
significance in the audit of the financial report of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
Except for the impact of the matters referred to in the key audit matters section of this report, the
Group has complied with the requirement of sections 296 and 297 of the Corporations Act 2001.
124
124
FFoorr ppeerrssoonnaall uussee oonnllyy
Freedom Foods Group Limited
Independent auditor's report to the members of Freedom Foods Group Limited
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 28 to 42 of the Directors’ Report for
the year ended 30 June 2020.
In our opinion, the Remuneration Report of Freedom Foods Group Limited, for the year ended 30
June 2020, complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
DELOITTE TOUCHE TOHMATSU
David White
Partner
Chartered Accountants
Sydney, 30 November 2020
125
125
FFoorr ppeerrssoonnaall uussee oonnllyy
Freedom Foods Group Limited
Shareholder information
30 June 2020
The shareholder information set out below was applicable as at 23 November 2020.
Corporate Governance Statement
The URL at which the Company’s Corporate Governance Statement can be located is:
https://ffgl.com.au/our-business/corporate-governance/
Number of holders / Classes of equity securities
There are:
●
●
8,381 holders of ordinary shares; and
20 holders of convertible redeemable preference shares.
Substantial holders
The substantial holders of the Company are:
Name
Arrovest Pty Limited
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
Distribution schedule
Ordinary shares
Range
100,001 and over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Convertible redeemable preference shares
Range
100,001 and over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Number of
ordinary
shares
145,556,000
26,966,651
19,362,896
Securities
%
Number of
holders
247,285,148
14,634,771
5,729,010
7,830,509
1,595,965
277,076,403
89.25%
5.28%
2.07%
2.83%
0.58%
74
626
780
3,166
3,735
8,381
Securities
%
Number of
holders
-
69.32%
7.91%
18.88%
3.89%
-
70,102
8,000
19,090
3,938
101,130
-
3
1
7
9
20
%
52.53%
9.73%
6.99%
%
0.88%
7.47%
9.31%
37.78%
44.57%
%
-
15.00%
5.00%
35.00%
45.00%
Unmarketable parcels
There are 903 shareholders holding an unmarketable parcel of the Company’s ordinary shares.
126
Freedom Foods Group Limited
Shareholder information
30 June 2020
Escrow
The Company has the following securities on issue subject to escrow:
Number of escrow ordinary shares
32,916
Unquoted securities
The Company has the following unquoted securities:
Class of unquoted securities
Convertible redeemable preference shares
Options
20 largest shareholders
The 20 largest shareholders of ordinary shares are as follows:
Name
1. Arrovest Pty Limited
2. HSBC Custody Nominees (Australia) Limited
3. J P Morgan Nominees Australia Limited
4. National Nominees Limited
5. UBS Nominees Pty Limited
6. Citicorp Nominees Pty Limited
7. Argo Investments Limited
8. BNP Paribas Nominees Pty Limited
9. Medich Capital Pty Limited
10. BPC Custody Pty Limited
11. HSBC Custody Nominees (Australia) Limited - A/C 2
12. CS Third Nominees Pty Limited
13. Netwealth Investments Limited
14. Mutual Trust Pty Limited
15. BNP Paribas Noms Pty Limited
16. Mr Perry Richard Gunner & Mrs Felicity Jane Gunner
17. Goldacre Investments Pty Limited
18. HSBC Custody Nominees (Australia) Limited
19. Custodial Services Limited
20. Mr Lawrence Lip & Mrs Sabina Lip
127
Expiry date
6 November
2020
Number
101,130
5,100,000
Number held
% Issued
Capital
145,556,000
26,900,840
19,440,798
8,335,823
7,735,968
5,283,204
4,225,897
4,130,645
2,810,477
1,566,374
1,556,544
1,452,972
1,447,835
1,409,315
1,032,438
800,493
702,569
550,434
487,494
456,964
235,923,084
52.53
9.71
7.02
3.02
2.79
1.91
1.53
1.49
1.01
0.57
0.56
0.52
0.52
0.51
0.37
0.29
0.25
0.20
0.18
0.16
85.15
Freedom Foods Group Limited
Shareholder information
30 June 2020
The 20 largest holders of the convertible redeemable preference shares is as follow:
Name
1. R & M Gugliotta Pty Limited
2. Lewis Little River Pty Limited
3. Mr Hugh Middendorp & Mr Peter Charles Nicholas Middendorp
4. Alan Ong Enterprises Pty Limited
5. Mrs Enid May Hartigan
6. Mr Craig Sargent
7. GWG Investments Pty Limited
8. Lokit Investments Pty Limited
9. Mr Robert William Russell
10. Mr Robert David Napier Nicholls
11. Palatine Holdings Pty Limited
12. Mr Gerald Millman
13. Mr Tjeerd Veenstra & Mrs Susan Lesley Veenstra
14. Mrs Michelle Louise Farrell
15. Mr Andrew Jonathon Achilles
16. Mr Neville Thiele
17. Mrs Dianne Joan Thiele
18. Mr Andrew Macfarlane
19. Mr Kim Wigram Jones
20. Mrs Bronwyn Itchins
Number
% Issued
Capital
30,000
23,438
16,664
8,000
5,000
3,394
3,125
2,214
1,924
1,736
1,697
1,000
963
640
500
273
219
200
133
10
29.66%
23.18%
16.48%
7.91%
4.94%
3.36%
3.09%
2.19%
1.90%
1.72%
1.68%
0.99%
0.95%
0.63%
0.49%
0.27%
0.22%
0.20%
0.13%
0.01%
101,130
100.00
128
Freedom Foods Group Limited
Corporate directory
30 June 2020
Directors
Alternate Director
Perry R. Gunner - Chairman (Non-Executive)
Rory J.F. Macleod - Managing Director and Chief Executive Officer (Executive) (until 29 June
2020)
Anthony M. Perich - Deputy Chairman and Director (Non-Executive)
Ronald Perich - Director (Non-Executive)
Trevor J. Allen - Director (Non-Executive)
Genevieve Gregor – Director (Non-Executive) (appointed 4 March 2020)
Jane McKellar – Director (Non-Executive) (appointed 12 May 2020)
Michael R. Perich (Alternate Director for Anthony M. Perich until 4 December 2019 and
Ronald Perich until 6 August 2020)
Timothy Bryan (Alternate for Anthony M. Perich - appointed 4 December 2019 and Ronald
Perich appointed 6 August 2020)
Interim Company secretary
Scott Standen (appointed on 13 July 2020). Scott Standen will oversee an orderly transition
to Justin Coss
Group General Counsel and Company
Secretary
Justin Coss (appointed 23 November 2020)
Notice of annual general meeting
The details of the Annual General Meeting of Freedom Foods Group Limited are:
29 January 2021
22 January 2021
Registered office
Principal place of business
Share register
Auditor
Solicitors
Bankers
80 Box Road
Taren Point
NSW 2229
Tel: +61 2 9526 2555
80 Box Road
Taren Point
NSW 2229
Tel: +61 2 9526 2555
Link Market Services Limited
Level 12, 680 George Street
Sydney NSW 2000
Tel: +61 2 8280 7111
Fax: +61 2 9287 0303
Deloitte Touche Tohmatsu
Grosvenor Place, 225 George Street
Sydney NSW 2000
Tel: +61 2 9322 7000
Ashurst
Level 11, 5 Martin Pl
Sydney NSW 2000
Arnold Bloch Leibler
Chifley Tower, Level 24, 2 Chifley Square
Sydney NSW 2000
HSBC Australia Limited
Level 27, 100 Barangaroo Ave
Sydney NSW 2000
129
Freedom Foods Group Limited
Corporate directory
30 June 2020
National Australia Bank Limited
Level 3, 255 George Street
Sydney NSW 2000
Stock exchange listing
Freedom Foods Group Limited shares are listed on the Australian Securities Exchange (ASX
code: FNP)
Website
ABN
www.ffgl.com.au
41 002 814 235
130
131
132
Australian Business Number (ABN) 41 002 814 235
ffgl.com.au 1800 646 231