Annual Report 2020 CONTENTS The Business Directors’ Report Financial Report Independent Auditor’s Report Corporate Governance Report Corporate Directory 2 4 9 33 37 IBC Our Vision Our vision is to become a trusted business-to-business (B2B) supplier of nutritional dairy products including consumer ready Infant Milk Formula (IMF), IMF base powders, and other nutritional ingredients. Annual Report 2020 1 The Business We are Happy Valley Nutrition Limited, a proudly independent, New Zealand dairy company located in the Waikato region. The Facility The Company is planning to develop a nutritional grade milk processing plant for IMF and other nutritional products (Facility). The Company’s site is strategically located in the Waikato region, the largest milk producing region in New Zealand. The Company has successfully obtained Resource Consents, which include: land use, air discharge, stormwater discharge, waste water discharge and water take for the proposed Facility. 2 Happy Valley Nutrition Limited Progress since IPO Since listing on the ASX, many pre-project milestones set out in the Prospectus have been achieved, including building our internal capability, finalising the basis of design, and conditional acquisition of the outstanding property. Despite the challenges presented by Covid-19, the Company made significant progress with several international dairy and infant formula companies, signing four non-binding Heads of Agreement for the supply of high value nutritional ingredients. This progression with our partners clearly highlights robust demand for the Company’s product offerings and manufacturing flexibility inherent in the Facility’s proposed design. These evolving market signals have strengthened our business case to firstly focus on producing dairy nutritional ingredients and then moving toward consumer ready IMF products. Growth Strategy The Company’s growth strategy can be summarised under four pillars: 1) Partners / Customers and Products Happy Valley Nutrition Limited is pursuing a B2B strategy that is focused on a range of nutritional ingredient products, strategic partners and customers. 2) Milk Pool Happy Valley Nutrition Limited recognises that the success of its business is dependent on reliable milk supply, which stems from great relationships with farmers, sustainable environmental practices and being situated in a large milk catchment. 3) Construction The spray dryer for the Facility is anticipated to have a capacity of 35,000 metric tonnes per annum, which will include state-of-the-art technology that has capability to produce a wide range of nutritional powders efficiently. The Facility will utilise low carbon and water use technologies for the manufacturing process via the use of solar arrays to produce electricity, and reverse osmosis for water recycling, respectively. 4) Quality Quality and regulatory requirements are fundamental to Happy Valley Nutrition Limited’s ability to export products and is planning to implement leading edge traceability and hygiene standards that drive product quality, product flexibility and efficiency. Annual Report 2020 3 Directors’ Report For year ended 30 June 2020 The board of directors of Happy Valley Nutrition Limited (“HVM” or “the Company”) present their report, together with the financial statements, on the Company for the year ended 30 June 2020. Directors The following persons held office as directors of Happy Valley Nutrition Limited during the year ended 30 June 2020. The names and details of the directors are: Ivan Hammerschlag David McCann Randolph van der Burgh Anthony Kahn Gregory Wood Review of Operations Chairman Director Director Director (appointed 22 January 2020) Director and CEO (appointed 10 March 2020) The Company set a series of objectives at the start of the financial year, which included raising additional capital, listing on the Australian Securities Exchange (ASX), engaging with potential strategic partners, finalising the basis of design for the major plant, expanding the network of potential milk suppliers, building an experienced leadership and operations team, securing agreements for remaining irrigation properties and seeking Overseas Investment Office (OIO) approval. The year to 30 June 2020 saw the Company complete its Initial Public Offering for NZD 13,016,764 (AUD 12,505,910) and being admitted to the official list of the ASX on 22 January 2020 (ASX Code: HVM). It is also pleasing to report the Company has made significant progress on other critical project development initiatives which enables the business to move closer to the next major milestone of securing funding for the construction of the Facility. While the COVID-19 pandemic has somewhat slowed progress, HVM is making solid, tangible progress. Some key highlights for the year include: l Ongoing discussions with large international dairy companies and multinational suppliers of Infant Milk Formula (IMF) has resulted in four non-binding Heads of Agreement being signed shortly after year end for the supply of skim milk powder ingredients and Anhydrous Milk Fat (AMF) to start in the initial years of operation. l Continued positive engagement with milk suppliers in the Waikato milk catchment region. l Babbage Consultants Limited was appointed to assist in the design and documentation to enable HVM to be prepared to tender the contract for the main plant in a timely manner and to assist in discussions to secure strategic partners. l Preparation, development, and submission of management plans to the District Council to give effect to the land use consent. l Progression on the detailed design of the road realignment for the Redlands Road and State Highway 31 intersection. l The appointments of CFO, Gareth Jones, Capital Projects Manager, Luke Reeves, and GM of Sales and Marketing, Champak Mehta. All three have considerable experience to successfully advance the Company’s project development initiatives. l Secured agreements to acquire the outstanding irrigation land and land adjacent to the proposed Facility at 5 Redlands Road, Ōtorohanga, New Zealand. Settlement is conditional upon receiving OIO approval, funding and other relevant consents. During the last six months of the 2020 financial year, HVM enhanced its development strategy which will result in more diversified revenue streams when the IMF plant commences operations. This sees an initial focus on selling high-quality skim milk powders and AMF to a broader customer base in the early years of operation, then adding IMF products over time. This path reduces the initial capital expenditure by allowing the canning plant to be added later. The site has been master-planned for two dryers and a blending and canning plant, which will be incrementally added over time without major disruptions to the site operations. Having made significant progress on all our objectives and with an enhanced strategy focusing on a broader customer base in the initial years, the Board believes execution risks are reducing. The work to date and that of the coming 12 months, places HVM in the very best position to meet its strategic vision of becoming a trusted business-to-business supplier of consumer-ready high-quality nutritional dairy products. Ivan Hammerschlag Chairman 23 September 2020 Greg Wood CEO 23 September 2020 4 Happy Valley Nutrition Limited Our Board Ivan Hammerschlag Non-Executive Chairman Mr Hammerschlag was appointed to the Board as non-executive Chairman on 4 July 2018. He has 40 years of business and finance experience including as a retail specialist. Founder and Chairman of ASX listed RCG Corporation Limited (now called Accent Group Limited). Mr Hammerschlag is also a founding shareholder and director in Centennial Property Group, a property syndicator based in Sydney that invests across Australia. He is based in Sydney. Directorships of Listed Entities held in the last 3 years: Accent Group Limited (retired 23 November 2017). Committees: Chair, Remuneration and Nomination Committee Greg Wood Director and CEO Greg has 20 years’ experience in the dairy industry across New Zealand and Australia. Greg joined the Company from Beca Limited, where he was responsible for its New Zealand and Australia dairy business. Previously Greg was a Senior Project Manager for Fonterra’s Major Capital Projects group. Across his career, Greg has had various leadership roles in managing the implementation of multiple: l Nutritional powder plants (IMF Stage 1, 2 and 3) l Commodity milk powder plants; l Consumer ready packaging plants (dry-blending, canning and sachet); l Dairy product distribution centres (including rail distribution); l Servicing infrastructure plants (utilities). Committees: Member, Audit and Risk Management Committee David McCann Non-Executive Director David is a founding shareholder in Happy Valley Nutrition Limited and brings more than 25 years’ experience in managing and operating businesses. David built infant milk formula brand A+Puro from the ground up in Hong Kong and China with operations in New Zealand. He has served on both public and private company Boards and has been involved in food and FMCG distribution businesses in the United States, Australia and Asia. David is Principal of AOP Capital Limited a Hong Kong SFC regulated Asset and Wealth Manager. Randolph van der Burgh Non-Executive Director Randolph is a founding shareholder in Happy Valley Nutrition Limited has more than 30 years’ experience in managing and advising businesses. Randolph built infant milk formula brand A+Puro from the ground up in Hong Kong and China with operations in New Zealand. Randolph is also a founding shareholder in VCFO Group and Rockburgh Fund Services and was a former partner at Ernst & Young, New Zealand and Australia, specialising in financial services and international tax. Randolph is a member of Chartered Accountants Australia and New Zealand. Committees Chair, Audit and Risk Management Committee Anthony Kahn Non-Executive Director Anthony has worked in the finance industry for over 30 years. Previously worked for Macquarie Bank Group for 18 years, including as Executive Director for 10 years. Anthony was Managing Director of ASX listed Macquarie Infrastructure Group for 6 years. Committees: Member, Audit and Risk Management Committee Member, Remuneration and Nomination Committee Annual Report 2020 5 Directors’ Report continued For year ended 30 June 2020 Board and Committee Attendance The ultimate responsibility for the oversight of the operations of the Company rests with the board. However, the board may discharge any of its responsibilities through committees of the board. The board has established the following standing committees, which assist it with the execution of its responsibilities. The composition and effectiveness of the committees are reviewed on an annual basis: l Audit and Risk Management Committee; and l Remuneration and Nomination Committee. Each of these committees operate in accordance with specific charters approved by the board which can be found on the Company’s website. The number of scheduled board and committee meetings held during the period ending 30 June 2020 and the number of meetings attended by each of the directors is set out in Table 1. Board Audit and Risk Management Committee Remuneration and Nomination Committee A 20 20 20 13 9 B 20 19 20 13 9 A — — 3 3 3 B — — 3 3 3 A 2 — — 2 — B 2 — — 2 — Number of Securities Currently Held 5,347,024 Ordinary Shares 21,428,571 Options 6,696,429 Milestone Options 8,778,031 Ordinary Shares 727,485 Options 16,104,306 Milestone Options 9,633,555 Ordinary Shares 727,485 Options 16,104,306 Milestone Options 1,625,000 Ordinary Shares 5,000,000 Options Nil Table 1 Ivan Hammerschlag David McCann Randolph van der Burgh Anthony Kahn1 Greg Wood2 A: Meetings eligible to attend. B: Meetings attended. 1. Appointed 23 January 2020. 2. Appointed 10 March 2020. Director Shareholdings (HVM) Director Mr Ivan Hammerschlag Mr David McCann Mr Randolph van der Burgh Mr Anthony Kahn Mr Greg Wood 6 Happy Valley Nutrition Limited 6 Happy Valley Nutrition Limited Our Management Team Greg Wood CEO See details on page 5. Gareth Jones CFO Gareth has spent the last 9 years working in the dairy and consumer foods industry in New Zealand. Gareth joined the Company from Goodman Fielder, where he was the Commercial Finance Manager, and previously with Fonterra New Zealand Brands as Financial Controller. Gareth also has experience working in the UK for multinationals, including Royal Bank of Scotland, Kraft Heinz and GlaxoSmithKline. Gareth is a member of Chartered Accountants Australia and New Zealand. Grant Horan Project Manager Grant is a founding shareholder in Happy Valley Nutrition Limited. Accomplished Executive with domestic and international experience in operations, P&L oversight, multi-channel product distribution. Zach Mounsey GM Milk Supply Significant experience in agri-business strategy management, finance, economics and leadership. Zach has responsibility for selecting and managing the Company’s farmer suppliers, overseeing farm management policies and practices. Zach Also partly owns a dairy farm in Ōtorohanga. Luke Reeves Capital Projects Manager Luke joined Happy Valley Nutrition Limited in March 2020 from Westland Milk Products. Experienced and successful civil infrastructure and dairy manufacturing project manager with proven delivery of multi-million dollar projects for clients. Luke will be responsible for the overall delivery, culture and implementation of the site development. Champak Mehta GM Sales and Marketing Champak joined Happy Valley Nutrition in July 2020. He has extensive experience in strategy formulation and business development with Fonterra, in NZ, Asia and the US. This is complemented by general management experience in B2B sales and marketing for the pharmaceutical raw material, dairy commodity and infant formula sectors. Leanne Ralph Company Secretary Leanne Ralph was appointed to the position of Company Secretary in September 2019. Leanne has over 15 years of experience in company secretarial roles and holds this position for a number of ASX-listed entities. Leanne is a Fellow of the Governance Institute of Australia and a Graduate Member of the Australian Institute of Company Directors. Annual Report 2020 7 Directors’ Report continued For year ended 30 June 2020 Core Values At Happy Valley Nutrition Limited we manage our business with the following core values. l Capability and Innovation – We believe in manufacturing flexibility, using the latest technology, science, and innovation, and operating within recognised quality frameworks. l Community – We place people at the centre of our business. This includes our employees, suppliers, business partners, neighbours and customers. l Care – World leading animal care and sustainable farming practices are integral to us building our reputation and protecting resources for future generations. l Consumer Trust – We recognise the value and trust consumers place on the source of the products they, and their dependants, consume. We will build trust through taking a staged approach to our product offerings, demonstrating our values along the journey to realise our vision. Health, Safety, Wellbeing and Environmental Sustainability Health, Safety and Wellbeing of Our People ARRIVE WELL ACT SAFE HOME HAPPY EVERYDAY Happy Valley Nutrition Limited place our people at the centre of our business. To deliver on this commitment we: l Set objectives, SMART goals and strategies to provide easily understood direction for our health, safety and wellness performance. l Promote a fair and positive culture that recognises the work undertaken across our business. l Review and maintain an active health, safety and wellness management system. l Comply with all relevant health and safety legislation, compliance obligations and voluntary standards. Our commitment to the Environment ZERO-WASTE CLEAN SITE OUR FUTURE To deliver on our environmental commitment we will meet, or exceed, current regulatory and compliance standards by: l Acting responsibly to implement international best practice environmental standards throughout our supply chain, which includes a focus on minimising our environmental footprint. l Aiming for zero-waste through strategy, design, and applying our core values. l Supporting best practice dairy farming through assisting our suppliers with sustainable farming practices. 8 Happy Valley Nutrition Limited 8 Happy Valley Nutrition Limited Financial Report Year Ended 30 June 2020 Happy Valley Nutrition Limited NZCN 5952532 (ARBN 636 597 101) ASX Code: HVM Contents Directors’ Declaration Statement of Comprehensive Income Statement of Changes in Equity Statement of Financial Position Statement of Cash Flows Notes to the Financial Statements Reporting entity Basis of preparation Significant Judgements and Estimates 1. Going Concern 2. Company performance 2.1 Revenue 2.2 Expenses 2.3 Reconciliation of net profit/(loss) to operating cashflows 2.4 Earnings per share 2.5 Segment Reporting 3. Assets 3.1 Property, plant and equipment 4. Debt and equity 4.1 Borrowings 4.2 Lease liabilities 4.3 Convertible debt 4.4 Share capital 4.5 Share based payments 5. Capital and financial risk management 5.1 Foreign exchange 5.2 Interest rate 5.3 Credit risk management 5.4 Liquidity risk 5.5 Capital risk management 5.6 Financial instruments 5.7 Fair value measurement 6. Other information 6.1 Related party transactions 6.2 Commitments 6.3 Contingent liabilities 6.4 Events after reporting date 6.5 Income Tax 6.6 Goods and Services Tax 10 11 12 13 14 15 15 15 15 17 18 18 19 19 19 20 21 21 21 24 25 27 27 27 27 27 27 28 28 31 31 31 32 32 General information The Annual Financial Statements of Happy Valley Nutrition Limited are for the year ended 30 June 2020. The Annual Financial Statements are presented in New Zealand dollars, which is Happy Valley Nutrition Limited’s functional currency. Happy Valley Nutrition Limited is an ASX listed public company limited by shares, incorporated and domiciled in New Zealand. Its registered office and principal place of business are 96 St Georges Bay Road, Parnell, Auckland 1052 New Zealand Happy Valley Nutrition Limited is in the process of developing a vertically integrated, formulaic milk processing, blending and packaging Facility (Facility) that produces infant milk formula (IMF) and other nutritional products for sale in the global export markets. Annual Report 2020 9 Directors’ Declaration For the year ended 30 June 2020 In the opinion of the Directors of Happy Valley Nutrition Limited, the financial statements and notes, on pages 11 to 32: l Comply with New Zealand generally accepted accounting practice and give a true and fair view of the financial position of the Happy Valley Nutrition Limited as at 30 June 2020 and the results of its operations and cash flows for the year ended on that date; and l Have been prepared using appropriate accounting policies, which have been consistently applied and supported by reasonable judgements and estimates. The Directors believe that proper accounting records have been kept which enable, with reasonable accuracy, the determination of the financial position of the Group and facilitate compliance of the financial statements with the Financial Reporting Act 2013. For and on behalf of the Board of Directors: Ivan Hammerschlag Chairman 10 Happy Valley Nutrition Limited Statement of Comprehensive Income For the year ended 30 June 2020 Interest Income – financial assets at amortised cost Other income Gross Profit Operating expenses: Directors’ fees Employee costs LGO reverse takeover costs Loss on derecognition of financial liability Fair value loss on embedded derivatives Finance costs IPO costs Share-based Transactions Depreciation Foreign exchange loss Other operating expenses Total Operating Expenses Operating income/(Loss) Net profit (loss) before taxation Income tax expense Net profit (loss) after taxation Other comprehensive income Total comprehensive income after tax Earnings per share Basic (NZD per share) Diluted (NZD per share) Year ended 30 Jun 20 NZD Year ended 30 Jun 19 NZD Notes 79,444 — 79,444 4,580 8,088 12,668 (468,555) (301,285) (770,833) (223,795) (617,575) (250,906) (751,091) (769,769) (753,351) (9,577,393) (6,074) (70,309) — — — — — — — (2,507) 4.3 4.3 4.3 4.5 2.2 (682,184) (318,613) (14,718,040) (846,200) (14,638,596) (833,532) (14,638,596) (833,532) 6.5 — (75,395) (14,638,596) (908,927) — — (14,638,596) (908,927) (0.10) (0.10) (0.01) (0.01) Annual Report 2020 11 Statement of Changes in Equity For the year ended 30 June 2020 Notes Share Capital NZD 2,384,000 Share Option Reserve NZD Accumulated Losses NZD Total NZD Balance at 1 July 2019 Loss for the period Total comprehensive loss for the period Transactions with Owners in their capacity as owners Share capital issued – IPO proceeds Share capital – IPO issue costs Share options issued Share-based payment Convertible debt converted upon IPO — — 13,016,764 (808,111) 4.5.1 4.5.2 4.3 — 7,719,213 1,858,180 8,506,165 — — — — — — — (1,102,800) 1,281,200 (14,638,596) (14,638,596) (14,638,596) (14,638,596) — — — — — 13,016,764 (808,111) 7,719,213 1,858,180 8,506,165 Total contributions by and distributions to owners 22,572,998 7,719,213 (14,638,596) 15,653,615 Equity as at 30 June 2020 4.4 24,956,998 7,719,213 (15,741,396) 16,934,815 Balance at 1 July 2018 Loss for the period Total comprehensive loss for the period Total contributions by and distributions to owners Share Capital NZD 2,384,000 — — — Equity as at 30 June 2019 2,384,000 Share Option Reserve NZD Accumulated Losses NZD Total NZD — — — — — (193,873) 2,190,127 (908,927) (908,927) (908,927) (908,927) (908,927) (908,927) (1,102,800) 1,281,200 12 Happy Valley Nutrition Limited Statement of Financial Position As at 30 June 2020 Current Assets Cash and Cash Equivalents Other Current Assets Total Current Assets Non-Current Assets Property, Plant and Equipment Other Non-Current Assets Total Non-Current Assets Total Assets Current Liabilities Trade and Other Payables Convertible Debt Total Current Liabilities Non-Current Liabilities Loan Total Current Liabilities Total Liabilities Net Assets Equity Share Capital Share Options Reserve Accumulated Losses Total Equity As at 30 Jun 20 NZD As at 30 Jun 19 NZD Notes 9,280,325 1,362,162 277,067 27,359 9,557,392 1,389,521 3.1 7,865,120 5,630,834 — 14,193 7,865,120 5,645,027 17,422,512 7,034,548 487,697 — 429,006 3,214,165 487,697 3,643,171 — — 2,110,177 2,110,177 487,697 5,753,348 16,934,815 1,281,200 4.3.1 4.3.3 4.4 4.5.1 24,956,998 2,384,000 7,719,213 — (15,741,396) (1,102,800) 16,934,815 1,281,200 Annual Report 2020 13 Statement of Cash Flows For the year ended 30 June 2020 Cash Flows from Operating Activities Payments to Suppliers and Employees Interest received Cash receipts from other operating activities Tax paid Year ended 30 Jun 20 NZD Year ended 30 Jun 19 NZD Notes (2,936,215) (1,083,294) 83,581 — (18,482) 4,533 68,472 (1,359) Net Cash Flows from Operating Activities 2.3 (2,871,116) (1,011,648) Cash Flows from Investing Activities Payment for property, plant and equipment 3.1 (2,240,360) (1,743,234) Other receipts from investing activities Net Cash Flows from Investing Activities Cash Flows from Financing Activities Proceeds from Share Issue Share Issue Costs — — (2,240,360) (1,743,234) 13,016,764 (808,111) — — Net proceeds from Convertible Notes and Loans 4.3.2 801,900 2,110,177 Net Cash Flows from Financing Activities Net (decrease)/increase in cash Foreign exchange adjustment Net (decrease)/increase in cash Cash at beginning of the period Cash at end of the period 13,010,553 2,110,177 7,899,077 (644,705) 19,086 — 7,918,163 (644,705) 1,362,162 2,006,867 9,280,325 1,362,162 14 Happy Valley Nutrition Limited Notes to the Financial Statements For the year ended 30 June 2020 Reporting Entity The Financial Statements presented are those of Happy Valley Nutrition Limited (‘HVM’ or ‘the Company’). The Company is an ASX listed public company limited by shares, incorporated and domiciled in New Zealand. The Company’s purpose is to develop a vertically integrated, formulaic milk processing, blending and packaging Facility that produces infant milk formula and other nutritional products for sale in the global export markets. The Company is a for profit entity, registered in New Zealand under the Companies Act 1993. The Financial Statements were authorised by the Board of Directors on 23 September 2020. The comparative period is for year ended 30 June 2019. The comparative period was audited by another auditor who expressed an unmodified opinion. Basis of Preparation Statement of Compliance The financial statements for the year ended 30 June 2020 have been prepared in accordance with Generally Accepted Accounting Practice. They comply with New Zealand equivalents to International Financial Reporting Standards (‘NZ IFRS’) and other applicable. Financial Reporting Standards, as applicable for profit oriented entities. The financial statements also comply with International Financial Reporting Standards (‘IFRS’). Certain comparative figures have been reclassified during the year for consistency with the current year presentation. These classifications had no effect on the reported results of operations. Basis of Measurement These financial statements have been prepared on the historical cost basis except for certain items as identified in specific accounting policies. Foreign Exchange Transactions and Translation These financial statements are presented in New Zealand dollars (NZD), which is the Company’s functional currency. In the course of normal activities, the Company undertakes transactions in currencies other than the entity’s functional currency (foreign currencies). Foreign currency transactions are recognised at the rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognised in profit or loss in the period in which they arise. Significant Judgements and Estimates The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Some of the estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are detailed below. The Company has also had to make judgements regarding accounting policies and treatments that have a significant impact on the amounts recognised in the condensed interim financial statements. Judgement on Classification as Equity Convertible Notes and Converting Loan Following receipt of the ASX confirmation that the listing conditions were met on 27 December 2019 the automatic conversion obligations of the convertible debt instruments (Note 4.3) was activated. The Company recognised the convertible debt within equity as the Company was obliged to issue a fixed number of shares at this date, the issue of these shares occurred on 10 January 2020. Key Sources of Estimation (Valuation) Embedded Derivatives The fair value of the embedded derivative liabilities associated with the Company’s convertible debt were determined utilising assumptions and inputs to a Black-Scholes valuation model including estimated time to expiry of convertible debt instruments, the Company’s share price of AUD 0.20 based on the expected IPO price at the time of recognition, risk free interest rate of 0.74% and assuming a 100% volatility. This volatility was based on similar companies within the industry at the same stage in their life cycle given HVM currently had no trading history at the date of recognition. Annual Report 2020 15 Notes to the Financial StatementsFor the year ended 30 June 2020 Notes to the Financial Statements continued For year ended 30 June 2020 Significant Judgements and Estimates continued Share-Based Payments Equity-settled share awards are recognised as an expense based on their fair value at grant date. The fair value of equity-settled shares and options is estimated through the use of the Black Scholes valuation model which require inputs such as the risk-free interest rate, expected dividends, expected volatility and the expected option life, and is expensed over the vesting period. Some of the inputs used, such as expected volatility and the expected option lives, are not market observable. Using different input estimates or models could produce different option and share values, which would result in the recognition of a higher or lower expense. Refer to Note 4.5 for further details. Capitalisation of development costs Management exercises judgement in determining whether costs, such as professional and consulting fees, meet criteria to be capitalised as development costs. Refer to note 3.1. Changes to Accounting Policies Apart from the adoption of NZ IFRS 16 Leases and NZ IFRIC 23 Uncertainty over Income Tax Treatments noted below, the principal accounting policies adopted are consistent with those of the previous financial year, unless otherwise stated. Leases NZ IFRS 16 introduces a single lessee accounting model for all lessees which recognises all leases in the statement of financial position through an asset representing a right to use the leased item during the leased term and a liability for the obligation to make lease payments. The Company has a short-term sub-lease for its premises. The Company has applied the short-term lease exemption and not recognised a right to use asset and lease liability under NZ IFRS 16. Income Tax NZ IFRIC 23 Uncertainty over Income Tax Treatments was adopted by the Company in the current reporting period. Standards Issue Not Yet Effective We are not aware of any NZ IFRS Standards or Interpretations that have recently been issued or amended that have not yet been adopted by the Company that would materially impact the Company for the period ending 30 June 2020. 16 Happy Valley Nutrition Limited 16 Happy Valley Nutrition Limited 1. Going Concern The financial statements have been prepared based on a going concern basis which assumes that the Company will have sufficient cash to continue its operations for a minimum of 12 months from the date of signing the financial statements. The Directors believe the going concern assumption is valid, reaching such a conclusion after having regard to the circumstances which they consider reasonably likely to affect the Company during the period of at least one year from the date the financial statements are approved. As at 30 June 2020, the Company has no external debt or debt-like obligations. The Company has committed to capital expenditure of NZD 0.9 million (Note 6.2.1). Based on management budgets and plans, the Company has budgeted an operating loss and budgeted certain capital expenditure for the financial year ended 30 June 2021. As at 30 June 2020, the Company had NZD 9.3 million of cash and cash equivalents in the bank which, together with the capital raise referred to below, is sufficient to fund the budgeted operating loss and budgeted capital expenditure. Land Acquisition and Earthworks Prior to settling land acquisitions of NZD 9.675 million (Note 6.2.3) and commencing earthworks, an additional capital raise is required and is planned for later this year. Future Business Development and Construction of the Facility The Company also needs to raise further funding (debt or equity) to establish the business and enable construction of the Facility. The Company still needs to: l Secure additional funding to fund construction and working capital; l Obtain Overseas Investment Office (OIO) approval for remaining land acquisitions; l Obtain additional resource consents and permits regulatory approvals, licenses and /or renewals to build and operate the Facility; l Secure long-term agreement(s) with strategic partner(s) and milk supply agreements on favourable commercial terms; and l Complete the basis of design for the Facility, followed by construction and commissioning of the Facility within estimated timeframes and budgets. In the event that the Company is not able to raise sufficient additional funding for the land acquisition and earthworks as well as the future business development and construction of the Facility, a material uncertainty would exist that may cast significant doubt on the ability of the Company to continue as a going concern in its current configuration, and therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business. This situation could possibly impact, in particular, on the carrying value of Property, Plant and Equipment currently recorded in the statement of financial position. These financial statements do not include any adjustments relating to the classification and recoverability of recorded asset amounts or to the amounts and classification of liabilities that may be necessary should the Company be unable to continue as a going concern. Annual Report 2020 17 Notes to the Financial Statements continued For year ended 30 June 2020 2. Company performance 2.1 Revenue The Company did not receive revenue from customer contracts during the year ended 30 June 2020. The Company earns interest from funds placed on deposit with banks. Interest income on financial assets at amortised cost is earned using the effective interest method. 2.2 Expenses The following items of expenditure are included within other operating expenses Convertible Note and Loan Issue Expenses Audit fees Insurance Legal expenses Rent Deloitte Limited services included in operating expenses Statutory audit fee Half year accounts review Total paid for Deloitte Limited services HLB Mann Judd services included in operating expenses Statutory audit fee Total paid for HLB Mann Judd services Year ended 30 Jun 20 NZD Year ended 30 Jun 19 NZD (5,135) (177,768) (119,855) (96,948) (136,349) (16,610) (14,750) — (39,588) (10,095) (50,000) (60,000) (110,000) — — — (9,855) (9,855) (16,610) (16,610) 18 Happy Valley Nutrition Limited 18 Happy Valley Nutrition Limited 2.3 Reconciliation of net profit/ (loss) to operating cash flows Loss for the period Add/(less) non-cash items Non-cash and non-operating items: Depreciation expense Convertible note novation Expenses recognised in respect of share based payments Loss on derecognition of financial liability and embedded derivatives Finance Costs Foreign exchange movements Deferred Tax Movements in working capital (Increase)/Decrease in other current assets Increase/(Decrease) in trade and other payables Net cash outflow from operating activities 2.4 Earnings per share The calculation of the basic and diluted earnings per share is based on the following data: Earnings Earnings for the purposes of basic earnings per share being net profit attributable to owners of the Company Weighted average number of shares Weighted average number of basic shares Weighted average number of diluted shares Earnings per share Basic (cents per share) Diluted (cents per share) Year ended 30 Jun 20 NZD Year ended 30 Jun 19 NZD (14,638,596) (908,927) 6,074 2,507 534,600 9,577,393 1,001,998 769,769 54,470 — 11,944,304 — — — — — 75,395 77,902 (235,515) 58,978 58,691 (239,601) (176,824) (180,624) (2,871,116) (1,011,648) Year ended 30 Jun 20 NZD Year ended 30 Jun 19 NZD (14,638,596) (908,927) 145,224,710 85,552,381* 145,224,710 85,552,381* (0.10) (0.10) (0.01) (0.01) * The impact of the share split that occurred prior to the Company listing on the ASX has been adjusted as if the event occurred at the beginning of the prior period. 2.5 Segment Reporting HVM is planning to operate in one industry, being the manufacture and sale of formulaic milk powder and other nutritional products. HVM operates in one geographic location, New Zealand. The Company’s Chief Executive Officer (CEO) is the chief operating decision maker. Annual Report 2020 19 Notes to the Financial Statements continued For year ended 30 June 2020 3. Assets 3.1 Property, plant and equipment Freehold land is stated at cost and is not depreciated. Computer and Office equipment is stated at cost less accumulated depreciation and accumulated impairment loss. Development costs are those costs directly attributable to the acquisition and development of property and are stated at cost, less any recognised impairment loss. These include costs incurred which are directly attributable to bringing an asset to the location and into the condition necessary for it to be capable of operating in the manner intended by management. Development costs include consents and permits which comprises expenditure incurred to obtain the required consents and permits to both construct and operate the Facility. Costs such as professional fees directly attributable to bringing an asset to the location and into the condition necessary for it to be capable of operating in the manner intended by management have also been capitalised. Depreciation of these assets, determined on the same basis as other property assets, commences when the assets are ready for their intended use. Depreciation is recognised so as to write off the cost of assets (other than freehold land and development costs) less their residual values over their useful lives, using the straight-line method. The estimated useful lives used for each class of depreciable asset are shown below: Fixed asset class Computer and office equipment Useful Life 2-5 years The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. Table 3.1 Movements in Property, plant and equipment Balance at 30 June 2018 Additions Disposals Depreciation Balance at 30 June 2019 Additions Disposals Depreciation Land NZD 698,160 198,977 — — 897,137 456,900 — — Computer and Office Equipment NZD Development Costs NZD Total NZD — 7,773 — (2,507) 5,266 17,499 — (6,074) 3,191,947 3,890,107 1,536,484 1,743,234 — — — (2,507) 4,728,431 5,630,834 1,765,961 2,240,360 — — — (6,074) Balance at 30 June 2020 1,354,037 16,691 6,494,392 7,865,120 20 Happy Valley Nutrition Limited 20 Happy Valley Nutrition Limited 4. Debt and equity 4.1 Borrowings As at the reporting date the Company does not have any debt or interest bearing liabilities. Borrowings Secured convertible loan Secured convertible note Total Borrowings 4.2 Lease liabilities Notes 4.3.3 4.3.1 As at 30 Jun 20 NZD As at 30 Jun 19 NZD — — — 2,110,177 3,214,165 5,324,342 NZ IFRS 16 introduces a single lessee accounting model for all lessees which recognises all leases in the statement of financial position through an asset representing a right to use the leased item during the leased term and a liability for the obligation to make lease payments. The Company has a short-term sub-lease for its premises. The Company has applied the short-term lease exemption and not recognised a right to use asset and lease liability under IFRS 16. 4.3 Convertible debt 4.3.1 Secured convertible notes The secured convertible loan notes were originally issued on 21 May 2018 with the following terms: l Denominated in NZD 3,214,165 l Maturity date 21 November 2019 l Interest free period until 21 November 2019 l Automatic conversion – upon exchange of HVM shares for Longreach Oil Limited shares under the Share Purchase Agreement (Note 4.5.2) l Conversion was anticipated to be through a back-door listing via Longreach Oil Limited, where the number of shares = (x/0.7619), where x = total number of shares on issue immediately prior to conversion. On 10 October 2019, an amendment to the convertible notes agreement extended the interest free period to 31 March 2020, extended the conversion and redemption period to 31 March 2020, automatically converted the notes into HVM shares upon listing on the ASX and made the notes redeemable if the Company had not listed on the ASX or before the sunset date of 31 March 2020. The amendment changing the IPO assumption from a back-door listing to a front door listing on the ASX was considered a substantial modification. The original convertible note liability was derecognised on this date, with a corresponding gain (NZD 51,218) recognised in profit or loss and a new convertible note (debt host liability) and embedded derivative recognised. Subsequently upon receiving ASX confirmation that the listing conditions were met on 27 December 2019 the automatic conversion obligation of the convertible note was activated. The Company reclassified the convertible note (NZD 2,280,512) and associated embedded derivative (NZD 2,479,761) to Equity and the issue of these shares occurred on 10 January 2020. Annual Report 2020 21 Notes to the Financial Statements continued For year ended 30 June 2020 4. Debt and equity continued Secured Convertible Note NZD New Secured Convertible Note NZD New Embedded Derivative NZD Note 4.3.1 4.3.1 4.3.1 30 June 2018 Cash inflows/(outflows) Non-cash Transactions 30 June 2019 Cash inflows/(outflows) Non-cash Transactions 3,214,165 — — 3,214,165 — Derecognition original convertible note (3,259,702) — — — — — — — — — — — — Total NZD 4.3.1 3,214,165 — — 3,214,165 — (3,259,702) Recognition of new convertible note and embedded derivative — 1,791,399 1,417,085 3,208,484 Finance Costs 45,537 489,113 — 534,650 Fair value (gain)/loss on embedded derivative Transfer to equity upon conversion 30 June 2020 — — — 1,062,676 1,062,676 (2,280,512) (2,479,761) (4,760,273) — — — Refer Note 6.1.7 Directors’ interest in convertible notes and loans. 4.3.2 Unsecured convertible notes As part of the Deed of Termination and Release with Longreach Oil Limited (refer Note 4.5.2) on 10 October 2019, the Company entered into an unsecured convertible loan note deed with the following terms: l Denominated in AUD 1,250,000 (NZD 1,336,500) l Issue date tranche 1: AUD 500,000 issued on 10-Oct-2019 (original agreement of 5 May 2019 novated and assigned to HVM, with no consideration received) l Issue date tranche 2: AUD 750,000 issued on 10-Oct-2019 l Maturity date: 5 November 2020 l Automatic conversion – upon receiving ASX confirmation l Convertible into HVM shares on listing on the ASX at a conversion price equal to 80% of the issue price of the HVM shares. A new convertible note (debt host liability) and embedded derivative was recognised on 10 October 2019. Subsequently upon receipt of the ASX confirmation that the listing conditions were met on 27 December 2019 the automatic conversion obligation of the convertible debt instrument was activated, the financial liability (NZD 1,010,283) and associated embedded derivative (NZD 354,937) were reclassified to Equity and the issue of these shares occurred on 10 January 2020. 22 Happy Valley Nutrition Limited 22 Happy Valley Nutrition Limited New Unsecured Convertible Note NZD New Embedded Derivative NZD Note 4.3.2 4.3.2 30 June 2018 Cash inflows/(outflows) Non-cash Transactions 30 June 2019 — — — — Cash inflows/(outflows) – recognition of original convertible note 801,900 Non-cash Transactions — — — — — Total NZD 4.3.2 — — — — 801,900 Recognition of original convertible note (non-cash) 144,368 390,232 534,600 Finance Costs Fair value (gain)/loss on embedded derivative 64,015 — — (35,295) 64,015 (35,295) Transfer to equity upon conversion (1,010,283) (354,937) (1,365,220) 30 June 2020 — — — Refer Note 6.1.7 Directors’ interest in convertible notes and loans. 4.3.3 Secured converting loan On 2 May 2019 the Company entered into a Secured Loan Agreement with the following key terms: l Denominated in AUD 2,000,000 (NZD 2,110,177) l Redemption amount AUD 2,400,000 l Maturity date 2 November 2020 l Interest rate of 20% On 10 October 2019, an amendment to the secured loan agreement amended the terms of the agreement such that HVM at its discretion could repay the redemption amount by issuing HVM shares on listing on the ASX based on a conversion price equal to 80% of the issue price of the HVM shares on listing. This amendment was considered a substantial modification due to the inclusion of an embedded derivative which altered the future economic risk exposure of the instrument. The original loan liability was derecognised on this date, with a corresponding loss recognised in profit or loss (NZD 302,124) and a new convertible loan (debt host liability) and embedded derivative recognised. Upon receipt of the ASX confirmation that the listing conditions were met on 27 December 2019 the conversion obligation was activated. The Company reclassified the convertible loan (NZD 2,110,915) and associated derivative (NZD 269,757) to Equity and the issue of these shares occurred on 10 January 2020. Annual Report 2020 23 Notes to the Financial Statements continued For year ended 30 June 2020 4. Debt and equity continued Secured Convertible Loan NZD New Secured Convertible Loan NZD New Embedded Derivative NZD Note 4.3.3 4.3.3 4.3.3 30 June 2018 Cash inflows/(outflows) Non-cash Transactions 30 June 2019 Cash inflows/(outflows) Non-cash Transactions 2,110,177 — — 2,110,177 — Derecognition original loan (2,260,883) — — — — — — Total NZD 4.3.3 2,110,177 — — 2,110,177 — — — — — — — (2,260,883) Recognition of new convertible loan and embedded derivative Finance Costs Foreign exchange movement Fair value (gain)/loss on embedded derivative Transfer to equity upon conversion 30 June 2020 Refer Note 6.1.7 Directors’ interest in convertible notes and loans. 4.4 Share capital — 2,016,960 546,047 2,563,007 77,149 73,557 — — — 93,955 — — — — 171,104 73,557 (276,290) (276,290) (2,110,915) (269,757) (2,380,672) — — — Ordinary shares are classified as equity. The Company has one class of ordinary shares which carry no right to fixed income. Movements in contributed equity Note Number of Shares Share Capital NZD Number of Shares Share Capital NZD 2020 2019 Ordinary shares Balance at beginning of the year 10,000 2,384,000 10,000 2,420,000 Movements in the period Impact of share splits* Convertible Note Holders LGO Convertible Note HVM Converting Loan HVM/Shaw Convertible Note IPO raising LGO Share issue costs Balance at end of year 4.3.1 4.3.2 4.3.3 4.3.2 85,542,381 — 26,735,119 4,760,273 3,125,000 546,088 12,500,000 2,380,672 4,687,500 819,132 62,529,546 13,016,764 4.5.2 17,400,000 1,858,180 — (808,111) — — — — — — — — — — — — — — — (36,000) 212,529,546 24,956,998 10,000 2,384,000 * The share splits occurred on 11 October 2019, 19 October 2019 and 7 November 2019. 24 Happy Valley Nutrition Limited 24 Happy Valley Nutrition Limited 4.5 Share-based payments Equity settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non-market based vesting conditions. The fair value of options granted as share-based payments is determined at grant date of the equity-settled share-based payments. Such fair value of is ascertained using a Black-Scholes pricing model which incorporates all market vesting conditions. This pricing model reflects the price volatility of the underlying shares and therefore the probability of the options being exercised on price considerations. At the end of each reporting period, the Company assesses the probability of the specified vesting conditions being fulfilled and the consequent accounting implications. Revisions to the prior period estimate are recognised in profit or loss and equity. Equity settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtained the good or the counterparty receives the services. 4.5.1 Share Options During the year, as part of HVM’s IPO (and as included in its prospectus dated 22 November 2019), the Directors were granted the following options on 11 October 2019. l IPO Options – each director received options with vesting conditions requiring the Company to list on the ASX and expiry dates range from 3-5 years. Details of the options are included in the table below. l Milestone Options – 3 of the directors received options, provided in 3 separate tranches with vesting conditions based on strategic, financial and production targets for the Company and an implied service condition associated with the continued involvement of the directors. Expiry dates range from 3-5 years from the date of vesting. Details of the options are included in the table below. The options do not carry rights to dividends or voting rights. IPO Options The IPO options vested upon listing on the ASX, deemed to be 27 December 2019, and were issued on 10 January 2020. NZD 4,916,182 was expensed as a share-based payment in profit or loss in the current period. Option Holder IPO Options Ivan Hammerschlag David McCann Anthony Kahn 21,428,571 727,485 5,000,000 Randolph van der Burgh 727,485 Total 27,883,541 Exercise Price AUD Expiry date range Black-Scholes Price AUD $0.06 $0.20 $0.20 $0.20 5 Years 5 Years 3 Years 5 Years $0.17 $0.15 $0.13 $0.15 Total Value AUD Total Value NZD $3,733,063 $3,996,856 $109,765 $117,521 $639,121 $684,284 $109,765 $117,521 $4,591,714 $4,916,182 The value of these options was determined using the Black-Scholes model. The price determined using this model was applied to the number of options received by each director. In addition to the above inputs a risk free rate of either 0.68% or 0.74% was used which is based on the 3 or 5 year Australian government bond yields respectively. A volatility of 100% was also used. This was based on similar companies within the industry at the same stage in their life cycle as HVM currently has no trading history. None of the IPO Options have been exercised. Milestone Options Milestone options were granted to the Directors on the 11 October 2019 in tranches as follows: a. Tranche 1 Strategic: This tranche consists of 10,736,204 options which can be exercised three years after the specified vesting condition is met The specified vesting condition is the Company’s entry into a legally binding agreement (or agreements) between the Company and a party or parties, including a disclosed agent, which provides for the security, placement or sale of product produced at the Facility. Management expects the vesting condition to be met in 0.9 years from the grant date. Therefore, these options have an expiry period of 3.9 years. b. Tranche 2(a): This tranche granted to Ivan Hammerschlag consists of 6,696,429 options which can be exercised during a period of five years after the specified vesting condition is met. The specified vesting condition for this tranche is any post-IPO debt or equity raising conducted by the Company. The specified vesting condition is expected to be fulfilled in 1.1 years from the grant date. Therefore, these options have an expiry period of 6.1 years. Annual Report 2020 25 Notes to the Financial Statements continued For year ended 30 June 2020 4. Debt and equity continued c. Tranche 2(b): This tranche consists of 10,736,204 options which can be exercised in three years after the specified vesting condition is met. The specified vesting condition is the Company’s entry into a legally binding agreement (or agreements) which provide for, broadly, the raising of debt and/or equity by the Company or a subsidiary of the Company of an amount that is sufficient to finance the design, build and commissioning of the production Facility. The specified vesting condition is expected to be met in 1.1 years from the grant date. Therefore, these options have an expiry period of 4.1 years. d. Tranche 3: Production: This tranche consists 10,736,204 options which can be exercised during a period of three years after the specified vesting condition is met. The vesting condition for this tranche is the achievement of the first commercial order by an independent customer of product produced at the Facility following or as part of the Facility’s commissioning. The specified vesting condition is expected to be met in 2.7 years from the grant date. Therefore, these options have an expiry period of 5.7 years. Number of options per tranche Option Holder Ivan Hammerschlag David McCann Tranche 1 Strategic Tranche 2 Financing Tranche 3 Production Exercise Price Expiry Date Range — 6,696,429 — 5,368,102 5,368,102 5,368,102 $0.06 $0.25 $0.25 5 Years 3 Years 3 Years Randolph van der Burgh 5,368,102 5,368,102 5,368,102 Total 10,736,204 17,432,633 10,736,204 The value of these options was determined using the Black-Scholes Option Pricing Model (‘BSOPM’) based on the following parameters: l a risk-free rate of either 0.68% or 0.74% based on the 3- or 5-year Australian government bond yields respectively on the date of granting; l a volatility of 100%. This was based on similar companies within the industry at the same stage in their life cycle as HVM do not have a trading history. The price determined using the BSOPM was applied to the number of options received by each director. In addition, the Company has assessed the probability of the specified vesting conditions being fulfilled in the period applicable to each tranche. Description Total estimated life (years) Fair value of option on grant date Risk-free rate of interest Tranche 1 Tranche 2a Tranche 2b Tranche 3 Total AUD Total NZD 3.9 $0.13 0.68% 6.1 $0.17 0.74% 4.1 $0.13 0.74% 5.7 $0.15 0.74% Fair value of option on grant date $1,382,975 $1,189,219 $1,412,837 $1,601,451 $5,586,482 $5,981,244 Amount to be accounted for period ending 30 June 2020 $813,696 $779,962 $691,948 $332,424 $2,618,030 $2,803,031 As at 30 June 2020, no condition had vested, and the share based payment expense recognised in the Statement of Comprehensive Income was determined by apportioning the total. 4.5.2 Longreach Oil Limited Termination Deed – share-based payment transaction A Deed of Termination and Release between HVM and Longreach Oil Limited (LGO) in relation to the Share Purchase Agreement (between HVM, LGO and Gleneagle Securities Nominees Pty Ltd and shareholders) dated 20 March 2018 and related documents received the necessary approvals and consents from shareholders, convertible note holders and loan note holders on 14 October 2019. Consideration for this Termination Deed was the issue of 17,400,000 HVM shares upon receiving confirmation of acceptance of its listing on the ASX. The Deed had a sunset date of 31 December 2019. The successful IPO is a non-vesting condition. The fair value of the shares was determined at grant date and NZD 1,858,180 expensed on that date, with the corresponding credit to equity. The shares were issued on 10 January 2020. 26 Happy Valley Nutrition Limited 26 Happy Valley Nutrition Limited 5. Capital and financial risk management 5.1 Foreign exchange risk The Company is listed on the ASX and raises capital predominantly in Australian dollars. Most of this is converted to New Zealand dollars to cover budgeted New Zealand dollar expenses. The Company is exposed to expenses denominated in Australian dollars. The Company maintains sufficient Australian dollar deposits to cover its budgeted Australian dollar expenses. The Company is not a party to any derivative arrangements. The Company has a Board approved treasury policy. 5.2 Interest rate risk Interest rate risk is the risk that the value of the Company’s assets and liabilities will fluctuate due to changes in market interest rates. The Company is exposed to interest rate risk primarily through its bank deposits. The Company has a Board approved treasury policy which covers exposure limits. 5.3 Credit risk management The Company does not currently have any trade receivables and therefore is not subject to credit risk in this regard. The Company has not made loans to any party. The Company’s cash is invested with reputable New Zealand banks which the Company has assessed to have low credit risk. The Company continuously monitors the credit quality of its New Zealand banks and does not anticipate any non-performance of those banks. The carrying amount of financial assets represent the Company’s maximum credit exposure, or the cash and cash equivalent. While cash and cash equivalents are subject to the impairment requirement of NZ IFRS 9, the identified impairment loss was immaterial. 5.4 Liquidity risk The following table sets out the contractual cash flows for all financial liabilities and for derivatives that are settled on a gross cash flow basis. As at 30 June 2020 Current Liabilities Non-current Liabilities As at 30 June 2019 Current Liabilities Non-current Liabilities Statement of Financial Position <12 months 12 months < 487,697 487,697 Nil Nil 3,643,171 2,110,177 3,643,171 Nil 2,110,177 Nil Nil Nil 5.5 Capital Risk Management The Company’s capital includes share capital, retained earnings and reserves. The Company’s policy is to maintain a sound capital base so as to maintain investor and creditor confidence and to sustain future development of the business. The Company’s policies in respect of capital management and allocation are reviewed by the Board. The Company listed on the ASX on 23 January 2020 and raised NZD 13,016,764 on listing. The Company intends to raise further capital in order to meet its business plan objectives. 5.6 Financial instruments Accounting policies NZ IFRS 9 applies to the classification, measurement and impairment of financial assets, liabilities and the application of hedge accounting. Classification and Measurement Financial instruments are recognised in the Statement of Financial Position when the Company becomes a party to the contractual provisions of the instrument. A financial instrument is initially recognised at fair value and is adjusted for (in the case of instruments not carried at FVTPL) transaction costs that are incremental and directly attributable to the acquisition or issuance of the financial instrument. Transaction costs relating to financial instruments carried at FVTPL are expensed in the Statement of Comprehensive Income. Financial assets are de-recognised from the Statement of Financial Position when the rights to cash flows have expired or the Company has transferred the financial asset such that it has transferred substantially all the risks and rewards of ownership of the financial asset. Annual Report 2020 27 Notes to the Financial Statements continued For year ended 30 June 2020 5. Capital and financial risk management continued Financial liabilities are de-recognised from the Statement of Financial Position when the Company’s obligation has been discharged, cancelled or has expired. Gains and losses on the derecognition of non-trading related financial assets and liabilities are recognised as other income as part of other operating income and charges. The Company’s principal financial instruments comprise cash and cash equivalents, trade payables and loans. The classification of financial instruments depends on the purpose for which the instruments were acquired. Management determines the classification of its financial instruments at initial recognition. Cash and cash equivalents Cash and cash equivalents represent short-term deposits held at banks and are recognised initially at fair value. Trade and other payables Trade creditors and other payables are recognised at amortised cost and represent liabilities for goods and services provided to the Company prior to the end of the financial year that are unpaid and arise when the Company becomes obliged to make future payments in respect of the purchase of these goods and services. It has been determined that these payables do not include a significant financing component. Loans After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by considering any issue costs, and any discount or premium on settlement. 5.7 Fair value measurement The Company measures the following assets and liabilities at fair value on a recurring basis: Financial liabilities l Convertible debt and embedded derivatives Fair value hierarchy NZ IFRS 13 Fair Value Measurement requires all assets and liabilities measured at fair value to be assigned to a level in the fair value hierarchy as follows: l Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date. l Level 2: Inputs other than quoted pries included within Level 1 that are observable for the asset or liability, either directly or indirectly. l Level 3: Unobservable inputs for the asset or liability. Convertible debt embedded derivatives are classified as level 3. The fair value of convertible debt embedded derivatives was determined using a Black-Scholes model based on time to expiry and other factors as disclosed in Note 4.3. The carrying amounts of cash and cash equivalents, trade and other payables (2019: convertible debt and loan) approximates their fair value. 6. Other information 6.1 Related party transactions 6.1.1 Key management personnel compensation The remuneration of key management personnel of the Company, is set out below in aggregate for each of the categories specified: 2020 NZD 362,353 573,555 [1] 2019 NZD 81,542 481,285 — Short-term employee benefits Director and service fees Share-based payments [1] In their capacity as initial investors Directors were awarded share options as disclosed in Note 4.5.1. Key management personnel include the following: Chairman Non-executive Directors CEO and Director 28 Happy Valley Nutrition Limited 28 Happy Valley Nutrition Limited 6.1.2 Director Services Agreements Each Director has entered into a Director Services Agreement through an associated entity. The key terms of those agreements are set out in Table 6.1.2 below. Table 6.1.2 Summary of Key Terms of Director’s Services Agreements Parties Role Remuneration up to listing Remuneration post listing Ivan Hammerschlag Honeystone Pty Limited David McCann Olwyn Ventures Limited Non-Executive Director NZD 15,000/month non-exec director fee Non-Executive Chairman AUD 6,700 (NZD 6,968) per month non-exec director fee AUD 120,000pa. (NZD 124,800) base director/ chairman fees Randolph van der Burgh VCFO Group Limited Non-Executive Director NZD 15,000/month non-exec director fee Anthony Kahn Partnership Investors Pty Limited Independent Non-Executive Director AUD 6,700 (NZD 6,968) per month non-exec director fee 6.1.3 Summary of payments to directors and related parties Description David McCann D McCann – Expenses Olwyn Ventures Limited – Director and service fees Randolph van der Burgh Randolph van der Burgh – Expenses VCFO Group Limited – Director and service fees VCFO Group Limited – Professional Services Ivan Hammerschlag Honeystone Pty Limited – Expenses Honeystone Pty Limited – Director Fees Anthony Kahn Partnership Investors Pty Ltd – Expenses Partnership Investors Pty Ltd – Director Fees Partnership Investors Pty Ltd – Consultancy Partnership Investors Pty Ltd – IPO Success Fee AUD 80,000pa. (NZD 83,200) base director fees AUD 120,000pa. (NZD 124,800) additional base fees to reflect the non director services they provide. This reduces to AUD 80,000 pa. from 1 July 2020, then terminates from 1 Jan 2021 AUD 80,000pa. (NZD 83,200) base director fees AUD 120,000pa. (NZD 124,800) additional base fees to reflect the non director services they provide. This reduces to AUD 80,000 pa. from 1 July 2020, then terminates from 1 Jan 2021 AUD 80,000pa. (NZD 83,200) base director fees Success Listing fee AUD 20,000 (NZD 20,800) Year ended 30 Jun 20 NZD Year ended 30 Jun 19 NZD 21,200 192,608 22,488 180,195 1,298 3,694 192,837 180,000 203,602 121,058 11,587 — 102,928 92,704 1,323 42,019 43,163 20,844 — — 28,776 — Annual Report 2020 29 Notes to the Financial Statements continued For year ended 30 June 2020 6. Other information continued 6.1.4 Summary of payments to other related parties VCFO Group Limited Professional Services Agreement with VCFO Group Limited for the provision of various financial, taxation and project related services. Randolph van der Burgh is a shareholder and director of VCFO Group Limited and a shareholder and director of the Company. The key terms of those agreements are set out in Table 6.1.4 below. Table 6.1.4 Summary of Key Terms of Agreements with VCFO Group Limited Services Fees (until March 2020) Fees (from April 2020) Accounting and taxation services Fixed monthly fee of NZD 1,250 Fixed monthly fee of NZD 2,250 Project modelling and valuation services Fixed monthly fee of NZD 3,250 Nil Other services Hourly fees for additional services on a time engaged basis Hourly fees for additional services on a time engaged basis Premises (furnished) NZD 1,200 per month per work desk NZD 480 per month per car park NZD 9,208 per month rent (one-year renewable sub-lease of ground floor) NZD 792 per month for two car parks Office services Additional services such as secretarial and photocopying charged per use Nil 6.1.5 Related Party Outstanding Payables as at 30 June 2020 Contact Olwyn Ventures Limited VCFO Group Limited Total Payables 2020 NZD — 2,803 2,803 6.1.6 Directors’ interests in shares and options held (including via related companies) Director Ivan Hammerschlag David McCann Randolph van der Burgh Anthony Kahn Total 2020 2019 Ordinary Shares Number 5,347,024 8,778,031 9,633,555 1,625,000 % 2.5% 4.1% 4.5% 0.8% Options Number 28,125,000 16,831,791 16,831,791 5,000,000 Ordinary Shares Number — 1,000 1,100 — % — 10.0% 11.0% — 25,383,610 11.9% 66,788,582 2,100 21.0% 2019 NZD 15,015 13,901 28,916 Options Number — — — — — 30 Happy Valley Nutrition Limited 30 Happy Valley Nutrition Limited 6.1.7 Directors’ interest in convertible notes and loans Director Ivan Hammerschlag David McCann Randolph van der Burgh Convertible Debt Note Note 4.3.1 Note 4.3.1 Note 4.3.1 Anthony Kahn Note 4.3.2 and 4.3.3 Number of shares issued on Conversion Number Value of Convertible Debt on conversion NZD 5,347,024 222,793 222,793 625,000 952,055 39,669 39,669 116,683 6.1.8 Directors’ interest in companies who have shares in HVM Director Company Ivan Hammerschlag Tidereef Pty Ltd (Shareholder and Director) Randolph van der Burgh Rockburgh Nominees Limited (Shareholder and Director) Anthony Kahn David McCann K. F. Superannuation Pty Ltd (Shareholder and Director) Olwyn International Limited (Shareholder and Director) 6.2 Commitments 6.2.1 Capital commitments As at 30 June 2020, the Company had entered into contractual commitments for the acquisition of property, plant and equipment amounting of NZD 891,424. 6.2.2 Short-term lease commitments On 13 March 2020, the Company entered a sub-lease agreement with VCFO Group Limited which provides the Company with exclusive occupation rights in their ground floor premises, including all furniture and fittings. The commencement date was 16 March 2020 and the initial term ends on 31 March 2021. 6.2.3 Conditional Sale and Purchase agreements for properties The Company entered into conditional Sale and Purchase Agreements to acquire the properties detailed below. These agreements are subject to a number of conditions including obtaining Overseas Investment Office approval and funding. Date 4 July 2019 13 March 2020 20 March 2020 Property Waipa Meadows, Ōtorohanga Woolly Farm, 117 Mangamahoe Road, Ōtorohanga Lot 2, 5 Redlands Road, Ōtorohanga 25 February 2020 6 Redlands Road, Ōtorohanga Value NZD 3,200,000 5,500,000 600,000 375,000 6.2.4 Non-cancellable water take agreement On 23 April 2019, HVM and Wairakei Pastoral Limited entered in a non-cancellable water take agreement with the following terms: l 1,000m3 per day water take licence, using Wairakei Pastoral Limited consent from the Waipa river; l Commencement date is the later of 1 November 2019 and the date on which construction of the plant commences; l Annual maximum volume of water is 365,000m3; and l Maximum daily volume of water is 1,000m3. 6.3 Contingent liabilities There were no known contingent liabilities as 30 June 2020 (June 2019: nil). 6.4 Events after reporting date During 2020 financial markets were affected by the on-going COVID-19 pandemic and so were unusually volatile. Actual economic events and conditions in the future may be materially different from those recorded at reporting date. In the event the impacts from the COVID-19 pandemic are more severe or prolonged than anticipated, this may have adverse impacts to the Company’s capital raising plans and timing of the achievement of milestones. The financial statements have been prepared based upon conditions existing at 30 June 2020. Annual Report 2020 31 Notes to the Financial Statements continued For year ended 30 June 2020 6. Other information continued 6.5 Income Tax The tax expense charged against earnings for the period is the estimated total liability including both the current period’s provision and deferred tax. The current period’s tax payable to Inland Revenue is recorded in income tax payable and any amounts due from Inland Revenue is recorded as income tax receivable. Deferred income tax is provided, using the balance sheet method, on all temporary differences at the reporting date between the tax book value of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised, or the deferred income tax liability is settled. Income tax expense Loss before tax Prima facie tax expense/(benefit) Non-deductible expenses at 28% Non-deductible capital expenses at 28% Tax losses not recognised Tax losses forfeited on IPO Deferred tax asset not recognised Income tax expense Year ended 30 Jun 20 NZD Year ended 30 Jun 19 NZD (14,638,596) (4,098,807) 102 3,365,694 506,209 199,619 27,184 — (833,265) (233,314) — — 233,314 — 75,395 75,395 The carrying amount of deferred tax is recognised on the basis there is probable realisation through future profits. Happy Valley Nutrition Limited is expected to move into taxable profits earlier than previously anticipated but not within the next 12 months. The future income tax benefit of tax losses and other deferred tax assets have therefore not been recognised as at 30 June 2020. Deferred tax asset not recognised in relation to short-term timing differences Deferred tax asset not recognised in relation to the future benefit of income taxes (NZD 1,807,888 of tax losses carried forward, 2019 NZD 1,102,533) Total deferred tax asset not recognised Imputation credit Imputation credit account Opening balance Credits Resident withholding tax Debits Refund Closing balance Year ended 30 Jun 20 NZD 27,184 506,209 Year ended 30 Jun 19 NZD — 308,709 533,393 308,709 Year ended 30 Jun 20 NZD Year ended 30 Jun 19 NZD 1,610 19,994 (1,511) 20,092 235 1,511 (136) 1,610 NZ IFRIC 23 was adopted by the Company in the current reporting period. The Company considers that there are no material uncertainties regarding the tax positions it has adopted. 6.6 Goods and Services Tax All amounts are shown exclusive of Goods and Services Tax (GST), except Australian GST incurred which is not recoverable by the Company. Receivables and Payables are stated inclusive of GST. 32 Happy Valley Nutrition Limited 32 Happy Valley Nutrition Limited Independent Auditor’s Report Independent Auditor’s Report To the Shareholders of Happy Valley Nutrition Limited Opinion Basis for opinion Emphasis of Matter – Material uncertainty related to going concern Audit materiality We have audited the financial statements of Happy Valley Nutrition Limited (the ‘Company’), which comprise the statement of financial position as at 30 June 2020, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements, on pages 11 to 32, present fairly, in all material respects, the financial position of the Company as at 30 June 2020, and its financial performance and cash flows for the year then ended in accordance with New Zealand Equivalents to International Financial Reporting Standards (‘NZ IFRS’) and International Financial Reporting Standards (‘IFRS’). We conducted our audit in accordance with International Standards on Auditing (‘ISAs’) and International Standards on Auditing (New Zealand) (‘ISAs (NZ)’). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is enough and appropriate to provide a basis for our opinion. We are independent of the Company in accordance with Professional and Ethical Standard 1 International Code of Ethics for Assurance Practitioners (including International Independence Standards) (New Zealand) issued by the New Zealand Auditing and Assurance Standards Board and the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards), and we have fulfilled our other ethical responsibilities in accordance with these requirements. Other than in our capacity as auditor, we have no relationship with or interests in the Company. We draw attention to the disclosure in Note 1 Going Concern of the financial statements, which indicates the Company is reliant on securing additional funding to finance land settlements and earthworks along with future business development and construction of the Facility. Prior to settling land acquisitions of NZD 9.675m (Note 6.2.3) and commencing earthworks, an additional capital raise is required and is planned for later this year. The Company also needs to raise further funding (debt or equity) to establish the business and enable construction of the Facility. As stated in Note 1, these matters indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. We consider materiality primarily in terms of the magnitude of misstatement in the financial statements of the Company that in our judgement would make it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced (the ‘quantitative’ materiality). In addition, we also assess whether other matters that come to our attention during the audit would in our judgement change or influence the decisions of such a person (the ‘qualitative’ materiality). We use materiality both in planning the scope of our audit work and in evaluating the results of our work. We determined materiality for the Company’s financial statements as a whole to be $300,000. 1 Annual Report 2020 33 Independent Auditor’s Report continued Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matters Key audit matter Share options Note 4.5.1 of the financial statements describes the accounting for the share options. As part of the Initial Public Offering (IPO) process, two types of share options were granted to the Directors. • IPO options which vested upon the successful completion of the listing on the ASX (completed in January 2020) • Milestone options – provided in 3 tranches which vest according to the achievement of certain strategic, financing and operational targets for the Company. The options are equity settled share based payments in accordance with NZ IFRS 2 Share Based Payments. The Company used the Black Scholes model in valuing the shared-based payment options. The valuation of and accounting for the share options is a key audit matter due to the complex and judgemental estimates used to value and record the share options. How our audit addressed the key audit matter Our procedures focused on the appropriateness of the valuation methodology and the key assumptions applied in the Black Scholes model, and included: Reading the terms of the share option agreements and evaluating the appropriateness of the accounting treatment in accordance with NZ IFRS 2 Share Based Payments; Assessing the assumptions used in the Company’s valuation of the share options including the expected volatility. We involved our internal valuation specialists in assessing the reasonableness of the assumptions; Evaluating the non-market performance conditions attached to the milestone options for consistency with the Company’s performance and management’s reassessment of the number of options expected to vest and the expected timing of vesting; Recalculating the share based payments expense; Involving our technical accounting specialists to assist in considering the appropriateness of the adopted accounting treatment; and Assessing the adequacy of the disclosure in the financial statements. Convertible debt and related derivatives Note 4.3 of the financial statements describes the financial instruments entered into by the Company before its IPO process that were convertible to equity upon listing of the Company with the Australian Securities Exchange (ASX). Our procedures focused on the appropriateness of the accounting treatment as well as the judgements made in determining the valuation methodology. Our procedures included, amongst others: The conversion features of the convertible debt instruments were accounted for as derivative financial liabilities (embedded derivatives) at fair value through profit or loss. Assessing the requirements of NZ IFRS 9 Financial Instruments to consider whether the convertible debt was appropriately recognised as a hybrid contract. As part of the Company’s listing on the ASX during the year, all convertible debt and related derivatives were converted to equity. The accounting for convertible debt and related derivatives is a key audit matter due to the complex nature, including judgemental estimates used in determining the valuation, of the convertible debt instruments at inception, upon Utilising an internal valuation specialist to assist with assessing the reasonableness of the valuation method and model used to value the embedded derivatives, the key inputs into the model and the resulting valuation amounts recognised by management; Assessing the accuracy of the calculation of the conversion expense; 2 34 Happy Valley Nutrition Limited Key audit matter How our audit addressed the key audit matter modification (if applicable) and conversion to equity. Capitalisation of development costs Note 3.1 of the financial statements includes capitalised development cost additions of $1,765,961 within property, plant and equipment. The capitalisation of development costs is material to the financial statements and is a key audit matter because of the judgements exercised by management in determining whether the costs meet the criteria to be capitalised including that they are directly attributable to bringing an asset to the location and into the condition necessary for it to be capable of operating in the manner intended by management. Share based payment transaction with Longreach Oil Limited Note 4.5.2 of the financial statements describes the accounting for the share based payment transaction with Longreach Oil Limited (LGO). The Company issued LGO with 17,400,000 shares as consideration for the Termination Deed agreed as part of the IPO process for the Company listing on the ASX during the year. The accounting for the share based payment transaction with LGO is a key audit matter due to the quantum of the balance, complex nature of the transaction and judgemental estimates used in determining the valuation of the share based payment. Involving our technical accounting specialists to assist in considering the appropriateness of the adopted accounting treatment; and Considering the adequacy of the disclosure in the financial statements. Our procedures focused on the appropriateness of capitalising the development cost including: Assessing the appropriateness of management’s capitalisation methodology; and Agreeing a sample of capitalised development costs to supporting documentation and assessing the reasonableness of the costs capitalised in accordance with NZ IAS 16 Property, Plant and Equipment. Our procedures focused on the appropriateness of the accounting treatment as well as the judgements made in determining the valuation methodology. Our procedures included, amongst others: Reviewing management’s assessment and considering this relative to the requirements of NZ IFRS 2 Share Based Payments; Considering management’s assessment of conditions in the agreement for the issue of consideration shares (predominantly the IPO listing requirement) to be non- vesting conditions; Assessing the appropriateness of the methodology and the key assumptions, and the calculation of the fair value of the share-based payment transaction; Involving our technical accounting specialists to assist in considering the appropriateness of the adopted accounting treatment; and Considering the adequacy of the disclosure in the financial statements. 3 Annual Report 2020 35 Independent Auditor’s Report continued The comparative period financial statements for the year ended 30 June 2019 were audited by another auditor who expressed an unmodified opinion. The directors are responsible on behalf of the Company for the other information. The other information comprises the information in the Annual Report that accompanies the financial statements and the audit report. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and consider whether it is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If so, we are required to report that fact. We have nothing to report in this regard. The directors are responsible on behalf of the Company for the preparation and fair presentation of the financial statements in accordance with NZ IFRS and IFRS, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible on behalf of the Company for assessing the Company’s ability 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 Company or to cease operations, or have no realistic alternative but to do so. Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are 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 ISAs and ISAs (NZ) 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 these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the External Reporting Board’s website at: https://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors- responsibilities/audit-report-2 This description forms part of our auditor’s report. This report is made solely to the Company’s shareholders, as a body. Our audit has been undertaken so that we might state to the Company’s shareholders those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company’s shareholders as a body, for our audit work, for this report, or for the opinions we have formed. 4 Other matter Other information Directors’ responsibilities for the financial statements Auditor’s responsibilities for the audit of the financial statements Restriction on use Heidi Rautjoki, Partner for Deloitte Limited Dunedin, New Zealand 23 September 2020 36 Happy Valley Nutrition Limited Corporate Governance Report The Board of Directors of Happy Valley Nutrition Limited is committed to ensuring that its Corporate Governance framework is appropriate for the Company’s operations and meets the requirements set out in the ASX Corporate Governance Council’s Principles and Recommendations 4th Edition (Governance Principles) where it is appropriate to do so. The Corporate Governance Statement, policies and practices are available on the Company’s website: https://investors.hvn.co.nz/investor-centre/?page=corporate-governance. Statutory Information Business Operations Happy Valley Nutrition Limited is in the process of developing a vertically integrated, formulaic milk processing, blending and packaging Facility that produces infant milk formula (IMF) and other nutritional products for sale in the global export markets. Non-executive Director Remuneration Non-executive Directors are remunerated by way of fees which are set with reference to the prevailing market rates. They do not participate in the schemes designed for the remuneration of executives, nor do they receive bonus payments, or any retirement benefits other than statutory superannuation. Remuneration paid to non-executive directors during the year ended 30 June 2020 was as follows: Director Position Ivan Hammerschlag Non-Executive Chairman David McCann Non-Executive Director Randolph van der Burgh Non-Executive Director Anthony Kahn Non-Executive Director Employee Remuneration Director fees NZD Non-director services fees NZD Total Remuneration NZD $102,928 $140,044 $140,136 $42,019 — $52,564 $52,701 $43,163 $102,928 $192,608 $192,837 $85,182 The Company’s remuneration policy is designed to attract, motivate and retain employees, including senior management, and ensure that the interests of the employees are aligned with those of the shareholders. In discharging its duties, the Remuneration and Nomination Committee reviews and makes recommendations to the Board on the remuneration of the CFO and other senior managers, including: l Short and long-term remuneration, including both fixed remuneration and performance-based remuneration; l Any termination payments; and l Appropriate grants of securities under the Employee Incentive Plan. In making its recommendations the Remuneration and Nomination Committee ensures that: l Remuneration is set with reference to prevailing market rates for similar positions, adjusted to account for experience, productivity and ability; l Remuneration packages are designed to motivate senior management to pursue the long-term growth and success of the Company, and not reward conduct that is contrary to the Company’s values or risk appetite; and l A clear relationship exists between performance and remuneration. During the year ended 30 June 2020, 4 current and former employees received remuneration and other benefits in their capacity of employees of Happy Valley Nutrition Limited, the value of was NZD 100,000 or more. The following table shows the remuneration and other benefits in brackets of NZD 25,000. Remuneration range NZD From To $100,000 — $124,999 $125,000 — $149,999 $150,000 — $174,999 $175,000 — $199,999 $200,000 — $224,999 $225,000 — $249,999 Number of employees FY2020 1 1 1 Number of employees FY2020 Remuneration range NZD From To $250,000 — $274,999 $275,000 — $299,999 $300,000 — $324,999 $325,000 — $349,999 $350,000 — $374,999 1 $375,000 — $399,999 Annual Report 2020 37 Corporate Governance Report continued For year ended 30 June 2020 Shareholding Information Additional information required under ASX Listing Rule 4.10 and not shown elsewhere in this Annual Report is as follows. This information is current as at 17 August 2020. In accordance with ASX Listing Rule 4.10.19, the Company confirms that it has used cash and assets in a form readily convertible to cash that it had at the time of admission in a way consistent with its business objectives. Distribution of Shareholders The distribution of issued capital is as follows: Size of Holding 100,001 and Over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Distribution of Option holders The distribution of unquoted Options on issue are: Size of Holding 100,001 and Over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Number of Shareholders Ordinary Shares % of Issued Capital 146 433 263 311 1,481 193,591,907 15,582,418 2,373,610 785,110 196,501 91.09 7.33 1.12 0.37 0.09 2,634 212,529,546 100.00 Number of Optionholders Unlisted Options % of Total Options 4 0 0 0 0 4 66,788,582 100.00 0 0 0 0 0.00 0.00 0.00 0.00 66,788,582 100.00 Less than marketable parcels of ordinary shares There were 1,678 holders of 538,463 securities with unmarketable parcels based on the closing share price as at 17 August 2020. 38 Happy Valley Nutrition Limited 38 Happy Valley Nutrition Limited 20 Largest Shareholders of Quoted Securities The names of the 20 largest shareholders of quoted equity securities are as follows: 1 2 3 4 5 6 7 8 9 Rockburgh Nominees LimitedJ.P. Morgan Nominees Australia Pty Limited BNP Paribas Nominees Pty Ltd UBS Nominees Pty Ltd HSBC Custody Nominees (Australia) Limited Citicorp Nominees Pty Limited Jasforce Pty Ltd NSK International Limited 10 JBWere (NZ) Nominees Ltd <52998 A/C> 11 12 13 14 15 16 17 18 19 Tidereef Pty Limited New Zealand Focused Fund Bay House Investments Pty Ltd Sievwright Holdings Ltd Kruger Park Pty Ltd Spinite Pty Ltd Mr James Alfred John Coren Hayden Briscoe Gleneagle Securities Nominees Pty Limited 20 Errol Bome and Melanie Bome Number of fully paid Ordinary Shares % of Issued Capital 19,249,287 12,500,000 11,860,653 9,485,035 6,000,000 5,099,098 4,381,330 3,657,341 3,208,214 3,139,302 2,994,334 2,883,115 2,775,000 2,140,226 2,000,000 1,981,577 1,847,299 1,843,498 1,820,110 1,782,341 11.22 7.29 6.91 5.53 3.50 2.97 2.55 2.13 1.87 1.83 1.75 1.68 1.62 1.25 1.17 1.16 1.08 1.07 1.06 1.04 Total Top 20 Quoted Equity Securities 100,647,760 58.68 Total Quoted Equity Securities Unquoted Equity Securities The Company had the following unquoted securities on issue as at 17 August 2020: Ordinary shares under ASX Restriction Options over ordinary shares 70,875,327 171,523,087 Number of unquoted securities on issue 41,006,459 66,788,582 Number of holders of unquoted securities 19 4 Annual Report 2020 39 Corporate Governance Report continued For year ended 30 June 2020 Holders of Unquoted Equity Securities with Holdings of 20% or more Ordinary Shares Spinite Pty Ltd Randolph van der Burgh Options Tidereef Pty Ltd Olwyn International Limited Randolph van der Burgh Substantial Shareholders 8,959,474 8,473,609 28,125,000 16,831,791 16,831,791 21.85% 20.66% 42.11% 25.20% 25.20% In accordance with ASX Listing Rule 4.10.1, the following are the names of the Substantial Shareholders listed in the Company’s Register as at 17 August 2020 as advised by notices lodged with ASX: Rockburgh Nominees Limited Spinite Pty Ltd, Gleneagle Securities (Aust) Pty Ltd, Myra Nominees Pty Ltd, Redstar Developments Pte Ltd Alceon Group No62 Pty Ltd Arwon Asia Pacific Focus Fund Restricted Securities Class Ordinary shares Voting Rights Number of fully paid Ordinary Shares % of Issued Capital 19,249,287 17,714,037 15,000,000 11,230,870 9.06 8.33 7.06 5.28 Escrow Period End Date Number of Securities 23 January 2022 41,006,459 In accordance with the Constitution each member present at a meeting whether in person, or by proxy, or by power of attorney, or in a duly authorised representative in the case of a corporate member, shall have one vote on a show of hands, and one vote for each fully paid ordinary share on a poll. This applies for quoted and unquoted ordinary shares. Options have no voting rights. On-Market Buy-Backs There is no current on-market buy-back in relation to the Company’s securities. ASX waivers Not applicable Donations Not applicable Credit rating Not applicable 40 Happy Valley Nutrition Limited 40 Happy Valley Nutrition Limited Corporate Directory Company Happy Valley Nutrition Limited Board of Directors Ivan Hammerschlag – Non-Executive Chairman Greg Wood – Managing Director and CEO David McCann – Non-Executive Director Randolph van der Burgh – Non-Executive Director Anthony Kahn – Non-Executive Director Company Secretary Leanne Ralph Registered Office New Zealand Ground Floor 96 St George Bay Road Parnell Auckland 1052 New Zealand Phone: +64 9 884 1470 Australia Level 27 25 Bligh Street Sydney NSW 2000 Australia Phone: +64 9 884 1470 Principal Bankers ASB Bank 12 Jellicoe Street Auckland 1010 New Zealand Australian Legal Adviser K&L Gates Level 31 1 O’Connell Street Sydney NSW 2000 Australia Arnold Bloch Leibler Level 24, Chifley Tower 2 Chifley Square Sydney NSW 2000 Australia New Zealand Legal Adviser DLA Piper 205 Queen Street Auckland 1010 New Zealand Share Registry Link Market Services Limited Level 12 680 George Street Sydney NSW 2000 Australia Phone: +61 1300 554 474 Auditor Deloitte Limited 481 Moray Place Dunedin 9054 New Zealand ASX Code Happy Valley Nutrition Limited shares are listed on the Australian Securities Exchange (ASX): ASX code “HVM” Website www.hvn.co.nz Annual Report 2020