Happy Valley
Nutrition Limited
Annual
Report
Company Number: 5952532
NZBN:9429042287346
For The Year Ended 30 June 2021
Annual Report 2021 a
CONTENTS
Directors’ Declaration
Consolidated statement of comprehensive income
Consolidated statement of changes in equity
Consolidated statement of financial position
Consolidated statement of cash flows
Notes to the consolidated financial statements
Independent Auditor’s Report
Corporate Governance Report
b Happy Valley Nutrition Limited
10
11
12
13
14
15
33
39
Our Vision
Happy Valley Nutrition Limited’s (ASX:HVM) vision is to become a preferred
business-to-business supplier of specialty nutritional products and formu-
laic products, derived from A2 and other milk types (“Specialty Products”).
Annual Report 2021
1
The Business
The Facility
The Group is planning to develop a
nutritional grade milk spray drying and AMF
processing plant for specialty nutritional
products and formulaic products.
The Group’s site is strategically located in
the heart of the Waikato region. The largest
milk producing region in New Zealand, with
proximity to major logics hubs, ports and
New Zealand’s largest city and main com-
mercial centre Auckland.
The Group has successfully
obtained Resource Consents, which include:
land use, air discharge, stormwater dis-
charge, waste water discharge and water
take for the proposed Facility.
Progress
Most project milestones outlined in the IPO
prospectus have now been delivered, including,
•
•
•
•
•
•
finalizing the design and tender process for
plant construction,
building internal capability,
acquisition of all remaining land and farm
properties required to operate the facility, bringing
total land owned by the Company to 315 hectares,
commencement of site and civil earthworks
signing two binding conditional supply global custom-
ers to supply specialty dairy powder ingredients
successfully completed a further
funding round for NZD 20,000,000
2 Happy Valley Nutrition Limited
We are Happy Valley Nutrition Limited,
a proudly independent, dairy and nutrition
company located in the Waikato region.
Strategy
The Group’s growth strategy can be summarized under four pillars:
1) Partners / Customers and
2) Milk Pool
3) Construction
Products
Happy Valley Nutrition
Limited is pursuing a B2B
strategy focused on a range
of nutritional ingredient
products, strategic partners,
and customers. The facility
design enables a flexible
product mix capability to
deliver high-quality, specialty
dairy powder ingredients
including differentiated milk
products to meet customised
dairy nutritional needs.
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 envi-
ronmental practices and
being situated in a large
milk catchment.
The spray dryer for the Facil-
ity is anticipated to have a
capacity of 35,000 metric
tonnes per annum, which will
include state-of-the-art tech-
nology that has capability to
produce a wide range of nu-
tritional powders efficiently.
The Facility design includes
a pathway to zero fossil
fuel and water use, through
employing technologies for
the manufacturing process
via the use of solar arrays
to produce electricity, and
reverse osmosis for water
recycling.
4) Quality
Quality and regulatory re-
quirements 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, production flexibility
and efficiency. The facil-
ity will be compliant with
stringent regulatory require-
ments to meet IMF exports
standards globally and in
particular, China.
Annual Report 2021 3
Directors’ Report
For the year ended 30 June 2021
The board of directors of Happy Valley Nutrition Limited (HVM) and its subsidiary (together, the Group) present their report, together with
the financial statements, on the Group for the year ended 30 June 2021.
Directors
The following persons held office as directors of HVM during the year ended 30 June 2021.
Ivan Hammerschlag
Chairman
David McCann
Randolph van der Burgh
Anthony Kahn
Gregory Wood
Review of operations
Director
Director
Director
Director and Chief Executive Officer
Following significant progress on critical project development initiatives from the last financial year, it is pleasing to report the Group has
achieved most project milestones in the year to 30 June 2021; including, signing binding conditional supply contracts with global strategic
customers, commencement of earthworks, raising additional funds and completion of all remaining property acquisitions. These milestones
satisfy the key pillars of the Group’s growth plan, allowing the Group to focus on the main capital raise to construct and commission its
state-of-the-art nutritional grade spray drying facility in Otorohanga.
Some key highlights for the year include:
•
New Zealand Overseas Investment Office (OIO) approval received in October 2020 for the purchase of farmland and investment in
business assets of over NZD 100 million;
•
commencement of the earthworks in December 2020 and significant development progress achieved;
• NZD20 million of debt funding and convertible note package secured, enabling the Group to progress site development and earthworks,
and settle all outstanding farmland property purchases;
• purchase of the remaining target properties, including 297 hectares of farmland for the purposes of irrigation;
• consenting process progressed, including the land use consent for wastewater treatment on the newly acquired farms for irrigation
purposes; the Group has now acquired all consents required for operation of the first dryer;
• GEA New Zealand Limited selected as our preferred supplier in June 2021, after receiving tenders from two global dairy equipment
suppliers in March 2021;
• two binding, conditional contracts with global nutrition companies executed for the supply of nutritional powders manufactured at the
Group’s facility under development; representing up to 28% of the facility’s capacity and demonstrating an important vote of confidence
from our customers;
• continued positive engagement with dairy farmers in the King Country and Waikato region; the Group is well supported by the farming
community and supplier base; positive feedback regarding key components of the milk supply strategy and offerings has been received,
and this will strongly support our offtake agreement specifications once commercial operations commence.
In delivering the above milestones in the year to 30 June 2021, significant progress has been made towards each of the pillars of the
Group’s strategy, comprising customer certainty, milk supply, facility design and quality. While the Board believes these milestones build
confidence for the Group’s main capital raise, the current Covid-19 environment and related travel restrictions, has resulted in a decision to
delay the project while the Group seeks to secure capital. The achievements during the past 12 months bring the Group a significant step
closer to realisation of its vision of HVM as a trusted business-to-business supplier of high-quality nutritional dairy products, and the delay
to the programme is a prudent financial measure.
Ivan Hammerschlag
Chairman
23 September 2021
Greg Wood
CEO
23 September 2021
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 syndi-
cator based in Sydney that invests across Australia. He is based in Sydney.
Committees:
Chair, Remuneration and Nomination Committee
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, special-
ising 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
Member, Audit and Risk Management Committee
Greg Wood
Director and CEO
Greg has 20 years’ experience in the dairy industry across New Zealand and Australia. Greg joined the Com-
pany 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:
• Nutritional powder plants (IMF Stage 1, 2 and 3)
• Commodity milk powder plants;
• Consumer ready packaging plants (dry-blending, canning and sachet);
• Dairy product distribution centres (including rail distribution);
• 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.
Annual Report 2021 5
Directors’ Report continued
For the year ended 30 June 2021
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:
•
•
Audit and Risk Management Committee; and
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 2021 and the number of
meetings attended by each of the directors is set out in Table 1.
Table 1
Director
Ivan Hammerschlag
David McCann
Randolph van der Burgh
Anthony Kahn
Greg Wood
HAPPY VALLEY NUTRITION LIMITED BOARD MEETING ATTENDANCE 2020-2021
# Meetings Eligible to Attend
# Meetings Attended
Total
17
17
17
17
17
17
17
17
17
17
HAPPY VALLEY NUTRITION LIMITED REMUNERATION & NOMINATION COMMITTEE MEETING ATTENDANCE 2020-2021
Member
Ivan Hammerschlag
Anthony Kahn
# Meetings Eligible to Attend
# Meetings Attended
Total
2
2
2
2
HAPPY VALLEY NUTRITION LIMITED AUDIT AND RISK MANAGEMENT COMMITTEE MEETING ATTENDANCE 2020-2021
Member
Randolph van der Burgh
Anthony Kahn
Greg Wood
Director Shareholdings
Director
Mr Ivan Hammerschlag
Mr David McCann
Mr Randolph van der Burgh
Mr Anthony Kahn
Mr Greg Wood
6 Happy Valley Nutrition Limited
# Meetings Eligible to Attend
# Meetings Attended
Total
5
5
5
5
5
5
Number of Securities Currently Held
5,347,025 Ordinary Shares
21,428,571 Options
6,696,429 Milestone Options
8,778,031 Ordinary Shares
727,485 Options
16,104,306 Milestone Options
9,133,555 Ordinary Shares
500,000 Ordinary Shares
727,485 Options
16,104,306 Milestone Options
1,625,000 Ordinary Shares
5,000,000 Options
250,000 Options
2,000,000 Milestone Options
Our Management Team
Greg Wood
CEO
See details on page 5
Gareth Jones
CFO
Gareth has spent the last 10 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 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 re-
sponsibility 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 suc-
cessful 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.
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 2021 7
Directors’ Report continued
Directors’ Report continued
Directors’ Report continued
For the year ended 30 June 2021
For year ended 30 June 2020
For year ended 30 June 2020
within recognised quality frameworks.
within recognised quality frameworks.
within recognised quality frameworks.
Core Values
Core Values
Core Values
At Happy Valley Nutrition Limited we manage our business within the following core values.
At Happy Valley Nutrition Limited we manage our business with the following core values.
At Happy Valley Nutrition Limited we manage our business with the following core values.
• Capability & Innovation – We believe in manufacturing flexibility, using the latest technology, science, and innovation, and operating
l Capability and Innovation – We believe in manufacturing flexibility, using the latest technology, science, and innovation, and operating
l Capability and Innovation – We believe in manufacturing flexibility, using the latest technology, science, and innovation, and operating
• Community – We place people at the centre of our business. This includes our employees, suppliers, business partners, neighbours and
l Community – We place people at the centre of our business. This includes our employees, suppliers, business partners, neighbours
l Community – We place people at the centre of our business. This includes our employees, suppliers, business partners, neighbours
• Care – World leading animal care and sustainable farming practices are integral to us building our reputation and protecting resources
l Care – World leading animal care and sustainable farming practices are integral to us building our reputation and protecting resources
l Care – World leading animal care and sustainable farming practices are integral to us building our reputation and protecting resources
• Consumer Trust – We recognise the value and trust consumers place on the source of the products they, and their dependents, consume.
l Consumer Trust – We recognise the value and trust consumers place on the source of the products they, and their dependants, consume.
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
We will build trust through taking a staged approach to our product offerings, demonstrating our values along the journey to realise
We will build trust through taking a staged approach to our product offerings, demonstrating our values along the journey to realise
vision.
our vision.
our vision.
for future generations.
for future generations.
for future generations.
customers.
and customers.
and customers.
Health, Safety, Wellbeing and Environmental Sustainability
Health, Safety, Wellbeing and Environmental Sustainability
Health, Safety, Wellbeing and Environmental Sustainability
HEALTH, SAFETY AND WELLBEING OF OUR PEOPLE
Health, Safety and Wellbeing of Our People
Health, Safety and Wellbeing of Our People
ARRIVE WELL
ARRIVE WELL
ACT SAFE
ACT SAFE
HOME HAPPY EVERYDAY
HOME HAPPY EVERYDAY
Happy Valley Nutrition Limited place our people at the centre of our business. To deliver on this commitment we:
Happy Valley Nutrition Limited place our people at the centre of our business. To deliver on this commitment we:
Happy Valley Nutrition Limited place our people at the centre of our business. To deliver on this commitment we:
• Set objectives, SMART goals and strategies to provide easily understood direction for our health, safety and wellness performance.
l Set objectives, SMART goals and strategies to provide easily understood direction for our health, safety and wellness performance.
l Set objectives, SMART goals and strategies to provide easily understood direction for our health, safety and wellness performance.
• Promote a fair and positive culture that recognises the work undertaken across our business.
l Promote a fair and positive culture that recognises the work undertaken across our business.
l Promote a fair and positive culture that recognises the work undertaken across our business.
• Review and maintain an active health, safety and wellness management system.
l Review and maintain an active health, safety and wellness management system.
l Review and maintain an active health, safety and wellness management system.
• Comply with all relevant health and safety legislation, compliance obligations and voluntary standards.
l Comply with all relevant health and safety legislation, compliance obligations and voluntary standards.
l Comply with all relevant health and safety legislation, compliance obligations and voluntary standards.
OUR COMMITMENT TO THE ENVIRONMENT
Our commitment to the Environment
Our commitment to the Environment
ZERO-WASTE
ZERO-WASTE
CLEAN SITE
CLEAN SITE
OUR FUTURE
OUR FUTURE
To deliver on our environmental commitment we will meet, or exceed, current regulatory and compliance standards by;
To deliver on our environmental commitment we will meet, or exceed, current regulatory and compliance standards by:
To deliver on our environmental commitment we will meet, or exceed, current regulatory and compliance standards by:
• Acting responsibly to implement international best practice environmental standards throughout our supply chain, which includes a
l Acting responsibly to implement international best practice environmental standards throughout our supply chain, which includes a focus
l Acting responsibly to implement international best practice environmental standards throughout our supply chain, which includes a focus
focus on minimising our environmental footprint.
on minimising our environmental footprint.
on minimising our environmental footprint.
• Aiming for zero-waste through strategy, design, and living our core values.
l Aiming for zero-waste through strategy, design, and applying our core values.
l Aiming for zero-waste through strategy, design, and applying our core values.
• Supporting best practice dairy farming through assisting our suppliers with sustainable farming practices.
l Supporting best practice dairy farming through assisting our suppliers with sustainable farming practices.
l Supporting best practice dairy farming through assisting our suppliers with sustainable farming practices.
8 Happy Valley Nutrition Limited
8 Happy Valley Nutrition Limited
8 Happy Valley Nutrition Limited
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
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Equity
Consolidated Statement of Financial Position
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
1. Reporting entity
2. Basis of preparation
2.1 Statement of compliance
2.2 Basis of measurement
2.3 Foreign exchange transactions and translation
2.4 Basis of consolidation
3.1 Key sources of estimation (valuation)
3.2 Capitalisation and recoverability of development costs and land
3. Significant judgements
and estimates
4. Significant accounting policies and new accounting standard
5. Going concern
6. Group performance
6.1 Other income
7. Assets
8. Debt
9. Capital and financial
risk management
6.2 Expenses
6.3 Earnings per share
6.4 Segment reporting
7.1 Other current assets
7.2 Property, plant & equipment
8.1 Borrowings
8.2 Lease liabilities
8.3 Convertible debt
8.4 Share capital
8.5 Share-based payments
9.1 Foreign exchange risk
9.2 Interest rate risk
9.3 Credit risk management
9.4 Liquidity risk
9.5 Capital risk management
9.6 Financial Instruments
9.7 Fair value measurement
10. Other information
10.1 Related party transactions
10.2 Commitments
10.3 Contingent liabilities
10.4 Events after reporting date
10.5 Taxation
10.6 Goods and services tax
10
11
12
13
14
15
15
15
15
15
15
16
16
16
16
17
18
18
19
19
19
20
21
21
21
22
26
26
26
26
27
27
27
28
30
31
31
31
32
General information
The Annual Consolidated Financial Statements of Happy Valley Nutrition Limited are for the year ended 30 June 2021.
The Annual Consolidated 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 2021 9
Directors’ Declaration
For the year ended 30 June 2021
In the opinion of the Directors of Happy Valley Nutrition Limited, the consolidated financial statements and notes, on pages 11 to 32:
• Comply with New Zealand generally accepted accounting practice and give a true and fair view of the financial position of Happy
Valley Nutrition Limited and its subsidiary as at 30 June 2021, the results of its operations and cash flows for the year ended on that
date; and
• Have been prepared using appropriate accounting policies, which have been consistently applied and supported by reasonable judge-
ments 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 consolidated financial statements with the Financial Reporting Act 2013.
For and on behalf of the Board of Directors:
Ivan Hammerschlag
Chairman
23 September 2021
10 Happy Valley Nutrition Limited
Consolidated statement of comprehensive income
For the year ended 30 June 2021
Other income
Indirect expenses
Depreciation expenses
Share-based transactions
Net finance cost
Loss before income tax expense
Income tax expense
Net loss for the year after tax
Notes
6.1
6.2
6.2
8.5
6.2
Year ended
30-Jun-21
NZD
Year ended
30-Jun-20
NZD
38,333
—
(3,158,520)
(4,364,804)
(10,758)
(6,074)
(2,213,975)
(9,577,393)
(474,687)
(690,325)
(5,819,607)
(14,638,596)
10.5
—
—
(5,819,607)
(14,638,596)
Other comprehensive income
—
—
Total comprehensive loss after tax attributable to owners of the Group
(5,819,607)
(14,638,596)
Earnings per share
Basic (NZD per share)
Diluted (NZD per share)
6.3
(0.03)
(0.03)
(0.10)
(0.10)
Annual Report 2021
11
Consolidated statement of changes in equity
For the year ended 30 June 2021
Notes
Share capital
NZD
Share option
reserve NZD
Accumulated
losses
NZD
Total
NZD
24,956,998
7,719,213
(15,741,396)
16,934,815
Balance at 1 July 2020
Loss for the period
Total comprehensive loss for the period
Transactions with owners in their capacity as owners
Share options reserve
8.5.1 & 6.2
Total contributions by and distributions to owners
—
—
—
—
—
—
(5,819,607)
(5,819,607)
(5,819,607)
(5,819,607)
2,213,975
2,213,975
—
—
2,213,975
2,213,975
As at 30 June 2021
24,956,998
9,933,188
(21,561,004)
13,329,181
Share capital
NZD
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
2,384,000
—
—
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
(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
30,292,211
As at 30 June 2020
24,956,998
7,719,213
(15,741,396)
16,934,815
12 Happy Valley Nutrition Limited
Consolidated statement of financial position
As at 30 June 2021
Current assets
Cash and cash equivalents
Receivables
Other current assets
Total current assets
Non-current assets
Property, plant and equipment
Total non-current assets
TOTAL ASSETS
Current liabilities
Trade and other payables
Borrowings
Total current liabilities
Non-current liabilities
Convertible note
Embedded derivative liability
Borrowings
Total non-current liabilities
TOTAL LIABILITIES
NET ASSETS
Equity
Share capital
Share options reserve
Accumulated losses
TOTAL EQUITY
Notes
As at
30-Jun-21
NZD
As at
30-Jun-20
NZD
6,137,562
9,280,325
13,298
—
7.1
594,591
277,067
6,745,451
9,557,392
7.2
23,738,546
7,865,120
9.4
8.1
8.1, 8.3
8.1, 8.3
8.1, 8.1
8.4
8.5.1
23,738,546
7,865,120
30,483,998
17,422,512
(1,032,058)
(487,697)
(7,792,973)
—
(8,825,030)
(487,697)
(5,472,872)
(1,971,704)
(885,210)
(8,329,786)
—
—
—
—
(17,154,816)
(487,697)
13,329,182
16,934,815
24,956,999
24,956,999
9,933,188
7,719,213
(21,561,004)
(15,741,396)
13,329,182
16,934,815
Annual Report 2021
13
Consolidated statement of cash flows
For the year ended 30 June 2021
Cash flows from operating activities
Notes
Loss before tax
Tax paid
Net cashflows from operating activities
Add / (less) non-cash items
Depreciation expense
Share based payment expenses
Convertible note novation
Convertible note issue costs
Gain on fair value of financial liability and embedded derivatives
Development costs disposed / written off
Derecognition of financial liability and embedded derivatives
Foreign exchange movements
Finance costs
Changes in working capital
(lncrease) / decrease in debtors / receivables
Increase in other current assets
Increase in accounts payable
Net cash flows from operating activities
Cash flows from investing activities
Year ended
30-Jun-21
NZD
Year ended
30-Jun-20
NZD
(5,819,607)
(14,638,596)
—
—
(5,819,607)
(14,638,596)
10,758
6,074
2,213,975
9,577,393
—
534,600
96,270
(605,605)
139,407
—
—
—
—
1,001,997
(12,839)
54,470
502,815
769,769
(13,298)
—
(317,524)
(235,515)
24,760
58,691
(3,780,889)
(2,871,117)
Payment for property, plant and equipment
7.2
(15,482,474)
(2,240,360)
Net cash flows from investing activities
Cash flows from financing activities
Proceeds from share issue
Share issue costs
Direct costs paid on borrowings
Interest paid
Proceeds from convertible notes
Proceeds from borrowings
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
14 Happy Valley Nutrition Limited
(15,482,474)
(2,240,360)
—
—
13,016,764
(808,111)
(639,083)
(112,551)
—
—
7,681,241
801,900
8
9,190,993
—
16,120,600
13,010,553
—
—
(3,142,763)
7,899,077
—
19,086
(3,142,763)
7,918,163
9,280,325
1,362,162
6,137,562
9,280,325
Notes to the consolidated financial statements
For the year ended 30 June 2021
1. Reporting entity
The financial statements for the year ended 30 June 2021 are for the consolidated group being Happy Valley Nutrition Limited (HVM or the
Company) and its 100% owned subsidiary Five Redland Road Limited (FRRL) (together, the Group).
The Group is an ASX listed public company limited by shares, incorporated and domiciled in New Zealand. The Group’s purpose is the
development of a vertically integrated, formulaic milk processing, blending and packaging facility to produce infant milk formula and other
nutritional products for sale in the global export markets.
The Group is a for profit entity and is registered in New Zealand under the Companies Act 1993.
The financial statements were authorised by the Board of Directors on 23 September 2021.
The comparative period is the year ended 30 June 2020. The comparative period was audited by another auditor who expressed an
unmodified opinion.
2. Basis of preparation
2.1 Statement of compliance
The financial statements for the year ended 30 June 2021 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 appropriate for Tier 1 for-profit 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 reclassifications
have no effect on the reported operating results. The new presentation better reflects the financial performance of the Group.
2.2 Basis of measurement
These financial statements have been prepared on the historical cost basis, except for certain items as identified in specific accounting
policies.
2.3 Foreign exchange transactions and translation
These financial statements are presented in New Zealand dollars (NZD), which is the Company’s functional currency and are rounded to the
nearest dollar, unless otherwise indicated.
In the course of normal activities, the Group undertakes transactions in currencies other than the entity’s functional currency (foreign cur-
rencies). Foreign currency transactions are recognised at the rate of exchange prevailing on the date of the transactions. At each reporting
date, monetary assets and liabilities denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary
items carried at fair value denominated in foreign currencies are translated at the rates prevailing at the date the fair value was determined.
Non-monetary items measured at historical cost in a foreign currency are not retranslated.
Exchange differences are recognised in profit or loss in the period they arise.
2.4 Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and its wholly owned subsidiary as at 30 June
2021.
Consolidation of a subsidiary commences on the Group obtaining control over that subsidiary and ceases when the Group loses control of
the subsidiary.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability
to affect those returns through its power over the investee.
The financial statements of the subsidiary is prepared for the same reporting period as the Company, using consistent accounting policies
for the income and expenses of the subsidiary. In preparing the consolidated financial statements, all inter-company balances and transac-
tions, income and expenses and profit and losses resulting from intra-group transactions have been eliminated in full.
Annual Report 2021
15
Notes to the consolidated financial statements continued
For the year ended 30 June 2021
3. Significant judgements and estimates
The Group makes estimates and assumptions concerning the future in establishing the value of assets and liabilities. The resulting account-
ing estimates will, by definition, seldom equal the related actual results. Some of the estimates and assumptions that may have a significant
risk of causing a material adjustment to the carrying value of assets and liabilities within the next financial year are detailed below.
The Group has also made judgements regarding accounting policies and treatments with a significant impact on the amounts recognised in
the consolidated financial statements.
3.1 Key sources of estimation (valuation)
Embedded derivatives
The fair value of the embedded derivative liabilities was determined using assumptions and inputs to a binomial option pricing valuation
model, including, estimated time to expiry of convertible debt instruments, the exercise price of AUD 0.20 based on the expected capital
raise price at the time of recognition, risk free interest rate of 0.34% and assuming a 66.3% volatility. This volatility was based on similar
companies within the industry at the same stage in their life cycle given HVM currently does not have trading history. Some of the inputs
used, such as expected volatility are not market observable. Using different input estimates or models could produce different valuations,
which would result in the recognition of a higher or lower fair value movement.
Share-based payments
Equity-settled share awards are recognised as an expense based on the fair value at grant date. The fair value of equity-settled shares and
options is expensed over the vesting period and is estimated using the Black Scholes valuation model which require inputs such as the
risk-free interest rate, expected dividends, expected volatility and the expected option life.
Some of the inputs used, such as the expected volatility and expected option life, 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 note
7.5 for further details).
3.2 Capitalisation and recoverability of development costs and land
Management exercises judgement in determining whether costs, such as professional and consulting fees, meet the criteria to be capitalised
as development costs, (refer note 7.1).
Property, Plant and Equipment are also reviewed annually for indicators of impairment. All items of Property, Plant & Equipment relating to
the plant are considered collectively as a single cash generating unit for impairment considerations.
4. Significant accounting policies and new accounting standard
The significant accounting policies adopted in the preparation of these consolidated financial statements are disclosed within each of ap-
plicable note. The accounting policies have been consistently applied to all years presented. All mandatory amendments and interpretations
have been adopted in the current year; none had a material impact on these financial statements.
A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 30 June 2021. These
have been assessed for applicability to the Group and Directors have concluded that they will not have a significant impact on future con-
solidated financial statements.
5. Going concern
The financial statements have been prepared based on a going concern basis which assumes the Group will have sufficient cash to continue
its operations and meet its obligations for at least 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 they consider reasonably likely to
affect the Group during the period of at least one year from the date the financial statements are approved.Because this view is dependent
on the achievement of certain future milestones, there does however exist a material uncertainty in respect of going concern as outlined
below.
16 Happy Valley Nutrition Limited
Notes to the consolidated financial statements continued
For the year ended 30 June 2021
Future milestones to be achieved before the first production
Milestones still to be achieved by the Group:
• Secure funding from the main capital raise, sufficient to fund working capital and complete construction of the facility;
• Secure agreements for milk supply on favourable commercial terms;
• Complete remaining earthworks and construction of the main process plant, followed by commissioning of the Facility within
estimated timeframes and budgets;
• Continue to meet the requirements of OIO approvals and regional consents, or if necessary, gain any required amendments or
extensions.
The Group completed validation of the business case financial model during the past year, this included alignment of sales revenue and
product formulations with signed customer offtake agreements, and production costs, capacity and project CAPEX aligned with guaranteed
performance metrics obtained from the plant construction tender process. An independent multinational advisory firm was engaged to
review the model’s mechanical accuracy, and the Group’s strategic advisor has evaluated the potential investment returns to be favourable
to potential cornerstone investors.
Given the current Covid-19 environment and related travel restrictions, the Company is now unlikely to secure the necessary equity
financing by the second half of CY2021. Discussions on the debt funding are well advanced.
As a result, the Company has decided to delay the next phase of the project until sufficient capital has been raised, this also impacts the
first-product delivery date of August 2023.
The Company is conducting a strategic review of the optimal structure and timing for raising capital which may include a sale of an interest
in the underlying project. Advisors have been appointed to assist the Company in this regard.
HVM has the full support of its senior debt provider Merrick Capital, who, we are pleased to confirm, extended its debt facility to the
Company from 31 March 2022 to 15 December 2022. The facility limit has also been revised to NZD10.3M, including capitalised interest and
other fees.
There is no impact as a result of the above decisions on the convertible notes or related covenants, which have a three-year maturity from
the date of issue in March 2021.
As a result of the revised terms of the senior loan facility, combined with existing equity, and based on its cash flow modelling, with
appropriate cost minimisation strategies and sensitivity considerations, the Group continues to be able to fund project operations for
at least 12 months from the signing of the 30 June 2021 financial statements.
As the construction of the facility and associated business development activities necessary for the Group to operate as intended are de-
pendent on a successful capital raise in 2022, there exists a material uncertainty that may cast significant doubt on the ability of the Group
to continue as a going concern in its current configuration, and its ability to realise its assets and discharge its liabilities in the normal course
of business. This situation may possibly impact 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 Group be unable to continue as a going concern.
6. Group performance
6.1 Other income
Other operating income
Year Ended
30-Jun-21
NZD
Year ended
30-Jun-20
NZD
38,333
—
The Group did not receive revenue from contracts with customers during the year ended 30 June 2021; it earns rental income by leasing out
properties acquired during the year 30 June 2021. Rental income from the lease of the Group’s farm land is recognised as other income on a
straight-line basis over the term of the lease. Group retains substantially all the risks and rewards of ownership and accordingly, the leases of
these properties are classified as operating lease.
Annual Report 2021
17
Notes to the consolidated financial statements continued
For the year ended 30 June 2021
6.2 Expenses
Consultancy
Convertible notes issue expenses
Directors fees
Employee costs
IPO costs
Other operating costs
Development costs disposed / written off
Gain/(loss) on fair value of financial liability and embedded derivatives
Remuneration of auditor
Statutory audit fee
Half year account review
Year Ended
30-Jun-21
NZD
Year Ended
30-Jun-20
NZD
(623,083)
(89,306)
(96,270)
(5,135)
(438,560)
(468,555)
(1,139,505)
(770,833)
—
(1,370,925)
(1,233,666)
(548,053)
(139,407)
—
605,605
(1,001,997)
(59,850)
(50,000)
(33,784)
(60,000)
Fees paid to previous auditor including full and half year review – (NZD 110,000) in the prior year.
There are no non-audit services paid in 2021 (2020: nil)
Indirect expenses
(3,158,520)
(4,364,804)
Indirect expenses are not directly attributable to revenue, primarily indirect labour and costs to support the business to set up operations.
Depreciation expenses
Finance income and costs
Interest income
Finance costs
Net finance cost
(10,758)
(6,074)
28,128
79,444
(502,815)
(769,769)
(474,687)
(690,324)
Finance costs relate to Merricks Capital and are accounted for on an effective interest rate basis. Costs directly relating to debt raising are
deducted from the gross proceeds.
6.3 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 Group
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)
There is no difference between the basic and diluted EPS because potential ordinary shares are anti-diluted
18 Happy Valley Nutrition Limited
Year Ended
30-Jun-21
NZD
Year Ended
30-Jun-20
NZD
(5,819,607)
(14,638,596)
212,529,546
145,224,710
212,529,546
145,224,710
(0.03)
(0.03)
(0.10)
(0.10)
Notes to the consolidated financial statements continued
For the year ended 30 June 2021
6.4 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. Accordingly, no specific operating or geographical segment reporting presented.
The Group’s Chief Executive Officer (CEO) is the chief operating decision maker. The information monitored by CODM is consistent with that
presented in these consolidated financial statements.
7. Assets
7.1 Other current assets
Accrued interest
GST receivable
Income tax receivable
Prepayments
Withholding tax paid
Total
Year ended
30-Jun-21
NZD
Year ended
30-Jun-20
NZD
—
10,057
144,497
131,788
26,196
421,866
2,031
18,346
115,129
1,746
594,591
277,067
7.2 Property, plant & equipment
Freehold land is stated at cost and is not depreciated. The Group’s interest in farmland has been leased for a maximum term of 100 years.
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. These include costs incurred 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, including professional fees. Development costs
include consents & permits which comprises expenditure incurred to obtain the required consents and permits to both construct and
operate the facility.
In accordance with IAS 23, borrowing costs directly attribute to the acquisition, construction, or production of a qualifying asset are
capitalised as part of the cost of that asset. When the Group suspends the activities necessary to prepare an asset for its intended use, the
capitalisation of borrowing costs is suspended during that period.
Feasibility costs, such as those relating whether to construct an asset, are expensed, as are those where there has been a significant modifi-
cation or change to costs previously 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 to amortise the cost of assets (other than freehold land and development costs) less their residual values over
their useful lives, using the diminishing value method.
The estimated useful lives used for each class of depreciable asset are shown below:
Class of asset
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.
Annual Report 2021
19
Notes to the consolidated financial statements continued
For the year ended 30 June 2021
Balance at 30 June 2019
Additions
Disposals
Depreciation
Balance at 30 June 2020
Additions
Disposals / write offs
Depreciation
Land
NZD
897,137
456,900
—
—
1,354,037
11,586,488
—
—
Computer &
office equipment
NZD
Facility
development
costs NZD
TOTAL
NZD
5,266
17,499
—
(6,074)
4,728,431
5,630,834
1,765,961
2,240,360
—
—
—
(6,074)
16,691
6,494,393
7,865,120
7,801
4,429,302
16,023,591
—
(139,407)
(139,407)
(10,758)
—
(10,758)
Balance at 30 June 2021
12,940,525
13,734
10,784,287
23,738,546
The additions to Facility development costs includes an amount of NZD 157k capitalised as borrowing costs, calculated using a capitalisation
rate of 16.9%. Out of the total land of NZD 12.9m, 8.6m of land has been leased out for a period of 100 years.
8. Debt
8.1 Borrowings
Current borrowings
Merricks Capital
Vendor loan
Total current borrowings
Non-current borrowings
Vendor loan
Embedded derivative liability
Convertible note
Total non-current borrowings
Notes
8.1.2
8.1.1
8.1.1
8.3
8.3
Year Ended
30-Jun-21
NZD
Year Ended
30-Jun-20
NZD
(7,565,183)
(227,610)
(7,792,973)
(885,210)
(1,971,704)
(5,472,872)
(8,329,786)
—
—
—
—
—
—
—
For the reconciliation of movement of all liabilities to cash flows arising from financing activities, refer to the consolidated statement of cash
flows.
8.1.1 Vendor loan
As part of the settlement of Waipa Meadows (dry stock farm), the remaining NZD1,500,000 of the purchase price paid in cash by the
Group as purchaser on the settlement date via a loan from the vendor, is repayable in six equal instalments of NZD250,000 on each
successive anniversary of the actual settlement date and otherwise on the terms and security set out below. It is intended the loan shall be
advanced by the vendor to the Group on the settlement date to be secured by no less than a second-ranking fixed sum mortgage ADLS
form ref. 8004 and memorandum no. 2015/4327.
Principal sum:
NZD1,500,000
Lower (ordinary) interest rate
fixed at 0% per annum
Higher (penalty) interest rate:
fixed at 10% per annum
Term expiry date:
the date falling 6 years after the actual settlement date
(a)
(b)
(c)
(d)
(e)
Repayment of principal sum:
(f)
Fair value measurement
in six equal instalments of NZD250,000 on each successive annual anniversary of the actual
settlement date
an adjustment to measure the loan at its fair value at initial recognition has been made using
a rate at interest considered to reflect a market rate of interest for a similar instrument with a
similar credit rating
(g)
Extent of security
principal sum plus interest
20 Happy Valley Nutrition Limited
Notes to the consolidated financial statements continued
For the year ended 30 June 2021
8.1.2 Secured loan from Merricks Capital
NZD12,700,000 including capitalised finance costs of up to NZD700,000, split into two tranches of NZD9,000,000 (including capitalised
finance costs of up to NZD700,000), and NZD3,700,000. The drawdown of the second tranche is dependent on: the senior secured lender
obtaining an updated “as if complete” valuation of the assets of the Group and its subsidiary, FRRL, that is acceptable to the senior secured
lender following completion of earthworks during late summer/autumn of CY2021; and approval by the senior secured lender’s credit com-
mittee. Required insurances to comply with its covenant have been maintained by the Group in relation to the secured property and for its
business and assets with insurance companies approved by the financier against the risks and labilities.
(a)
(b)
(c)
(d)
(e)
(f)
Principal sum:
Interest rate:
Default rate:
Line Fee rate:
Term:
Security:
tranche one, NZD9,000,000 & tranche two, NZD3,700,000
9.75% per annum on funds drawn down
the rate equal to the aggregate of the interest rate and 5% per annum
2.50% per annum plus 2.50% establishment costs
12 months
first ranking general security deed and registered mortgage over the assets,
including land of the Group and its wholly owned subsidiary, FRRL
Refer to the Note 4: Going Concern and Note 10.4: Subsequent Events for amendments to this loan after reporting date.
8.2 Lease liabilities
NZ IFRS 16 introduces a single lessee accounting model for all lessees recognising 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 Group has a short-term sub-lease for its premises. The initial term ended 31 March 2021 and was rolled over into a new month by month
tenancy agreement from April 2021. The Group has applied the short-term lease exemption and has recognised neither a right to use asset
nor a lease liability under IFRS 16. The annual expense was NZD120,000
8.3 Convertible debt
On 18 March 2021, the Group issued 35,000,000 convertible notes at AUD0.20 each, with a total value of AUD7,000,000. The convertible
notes are secured under a subordinated general security deed, a second ranking security over all the non-land assets of the Group and its
subsidiary, FRRL, subject to a security trust deed with a security trustee (being Gleneagle Securities Nominees Pty Limited). Further specific
details of the convertible notes are provided below.
As the convertible notes are issued in a currency (AUD) other than the Group’s functional currency and the conversion into share capital is
contingent, the notes are deemed to be a hybrid financial instrument under NZ IFRS 9. The embedded derivative element is separated from
the host debt component for reporting purposes. The Group has elected, as an accounting policy choice, to recognise the embedded derivative
as a separate financial instrument measured at fair value. The debt, host component is measured at amortised cost. Both elements are also re-
measured into NZD from its AUD denominated amounts at reporting date, with resulting exchange gains or losses recognised in profit or loss.
At initiation, the Group recognised a debt host liability component of NZD5,321,689 and an embedded derivative component of NZD2,201,840.
At 30 June 2021, the carrying amount of the host debt liability was NZD5,472,872 and the embedded derivative was NZD1,971,704.
The Group also has adopted an accounting policy to allocate the transaction cost to the non-derivative host contract and embedded deriva-
tive components of the instrument in proportion to the allocation of the total transaction price. The amount of transaction costs allocated to
the embedded derivative liability is charged immediately to profit or loss.
During the reporting period the Group held the following
Instrument: Terms of the secured convertible notes
The secured convertible loan notes were originally issued on 18 March 2021 with the following terms:
• 35,000,000 convertible notes denominated in AUD at AUD0.20/note, or AUD7,000,000 total value
• Maturity date 18 March 2024
• Fixed interest rate of 11.00% p.a., capitalised on a six monthly basis
• Mandatory redemption on maturity
• Conversion anticipated to be through main capital raise (MCR) event, where the number of shares = ((AUD 7,000,000 + capitalised
interest)/0.20 or x), where x = issue price of shares on the MCR date discounted by 20%
• As at 30 June 2021 no convertible notes had been converted to shares or redeemed, and 35,000,000/AUD 7,000,000 remained on
issue
8.4 Share capital
Ordinary shares are classified as equity; the Group has one class of ordinary shares which carry no right to fixed income. The holders of
ordinary shares are entitled to receive dividends as declared and the Directors are also entitled to one vote per share at meetings of the
Group. All shares rank equally with respect to the Group’s residual assets
Annual Report 2021 21
Notes to the consolidated financial statements continued
For the year ended 30 June 2021
Movements in contributed equity
Ordinary shares
Note
2021 Number
of shares
Share capital
NZD
2020 Number
of shares
Share capital
NZD
Balance at beginning of the year
212,529,546
24,956,998
10,000
2,384,000
Movement 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
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
85,542,381
—
—
26,735,119
4,760,320
3,125,000
546,088
12,500,000
2,380,626
4,687,500
819,132
62,529,546
13,016,764
17,400,000
1,858,180
—
(808,111)
212,529,546
24,956,998
212,529,546
24,956,998
8.5 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 Group 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, when 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.
8.5.1 Share options
During the comparative 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.
IPO options – each director received options with vesting conditions requiring the Group to list on the ASX and expiry dates range from 3-5
years. Details of the options are included in the table below.
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 Group, 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 that period.
22 Happy Valley Nutrition Limited
Notes to the consolidated financial statements continued
For the year ended 30 June 2021
Option holder
Ivan Hammerschlag
David McCann
Anthony Kahn
Randolph van der Burgh
Total
No. options
Exercise
price AUD
Expiry
date range
Black Scholes
option price
AUD
21,428,571
727,485
5,000,000
727,485
27,883,541
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 num-
ber 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.
Tranche 1 strategic:
This tranche consists of 10,736,204 options that may 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. This vesting condition
was met by the signing of two binding conditional supply agreements, and all tranche 1 options vested during the 2021 financial year.
Tranche 2(a)
This tranche, granted to Ivan Hammerschlag, consists of 6,696,429 options that may 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 vesting condition was met during the current financial year and all tranche 2(a) options have been vested.
Tranche 2(b)
This tranche consists of 10,736,204 options that may 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 sufficient to finance the design, build and commissioning of
the production Facility. The specified vesting condition is expected to be met in 1.2 years from the grant date. Therefore, these options have
an expiry period of 4.2 years.
Tranche 3
Production: This tranche consists of 10,736,204 options that may exercised during a period of three years after the specified vesting condi-
tion 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.
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 based on the following parameters:
• 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;
• 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.
Annual Report 2021 23
Notes to the consolidated financial statements continued
For the year ended 30 June 2021
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
Tranche 1
AUD
Tranche 2a
AUD
Tranche 2b
AUD
Tranche 3
AUD
Total - AUD
Total - NZD
3.9
0.13
6.1
0.17
4.2
0.13
5.7
0.15
Risk-free rate of interest
0.68%
0.74%
0.74%
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
ended 30 June 2021
1,929,177
2,065,715
At reporting date, the vesting conditions for tranches 1 and 2a had been meet, and the share-based payment expense recognised in the
statement of comprehensive income was NZD2,065,715.
During this year, the Group granted share options to its employees (including a Key Management Personnel (KMP)) on 17 December 2020
under the Employee Share Option Plan.
New CEO options
Granted to a member of the Group’s KMP upon their acceptance of employment with the Group; these options vested immediately with no
further performance conditions to be satisfied. Once vested, the options expire after 3 years when the employee remains employed with
the Group, otherwise, the vested options expire 3 months from the date that employment ceases. Details of the options are included in the
table below.
New milestone options
Granted to 5 employees (including 1 members of the Group’s KMP) received options, provided in 3 separate tranches, vesting conditions
are based on strategic, funding and production targets for the Group and the continued employment of the employees. Once vested, the
options expire after 3 years when the employee remains employed with the Group, otherwise, the vested options expire 3 months from the
date employment ceases. Details of the options are included in the table below.
The options do not carry rights to dividends or voting rights. No options that had vested were exercised during the year (2020: nil)
New CEO options
The New CEO Options vested immediately upon grant date and can be exercised up to a maximum of three years from this date.
During the current year, NZD12,717 was recognised as a share-based payment expense in the profit or loss.
Option holder
No. options
Exercise
price AUD
Expiry
date
Black Scholes
option price
AUD
Key management personnel
250,000
0.25
3 years
0.05
Total
250,000
Total value
AUD
Total value
NZD
11,885
11,885
12,717
12,717
The fair value of these options was determined using the Black-Scholes model. The fair value determined using this model was applied to the
number of options received. In addition to the above inputs, a risk-free rate of 0.24% was used which is based on the 2-year New Zealand gov-
ernment bond yields. A volatility of 69% was also used; this was based on similar but not a bigger companies within the industry as the Group.
As at reporting date, all the vested options remain unexercised.
New Milestone Options
New Milestone options were granted with three tranches attached, as follows
Tranche 1 strategic
This tranche consists of 1,060,799 options that may be exercised up to a maximum of three years after the specified vesting condition is met.
The specified vesting condition is the Group’s entry into a legally binding agreement (or agreements) between the Group and a party or par-
ties, including a disclosed agent, which provides for the security, placement or sale of product produced at the facility. This vesting condition
was met by the signing of two binding conditional supply agreements, and all tranche 1 options vested during the 2021 financial year.
Tranche 2 funding
This tranche consists of 1,212,343 options which can be exercised up to a maximum of three years after the specified vesting condition is
met. The specified vesting condition is the Group’s entry into a legally binding agreement (or agreements) which provide for, broadly, the
raising of debt and/or equity by the Group or a subsidiary of the Group of an amount sufficient to finance the design, build and commis-
sioning of the production facility. The specified vesting condition is expected to be met in 10 months from the grant date. Therefore, these
options have an expected expiry period of 3 years and 10 months.
24 Happy Valley Nutrition Limited
Notes to the consolidated financial statements continued
For the year ended 30 June 2021
Tranche 3 production
This tranche consists of 1,515,428 options that may be exercised up to a maximum of three years after the specified vesting condition is met.
The specified vesting condition 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 years and 3 months
from the grant date. Therefore, these options have a maximum expiry period of 5 years and 3 months.
Option holder
Tranche 1
strategic
Tranche 2
financing
Tranche 3
production
Exercise
price AUD
Key Management Personnel
560,000
640,000
800,000
Other employees
Total
500,799
572,343
715,428
1,060,799
1,212,343
1,515,428
0.25
0.25
Description
Total estimated life (years)
Fair value of option on grant date
Risk - free rate of interest
Fair value of option on grant date
Tranche 1
AUD
Tranche 2
AUD
Tranche 3
AUD
Total - AUD
Total - NZD
3.3
0.05
0.24%
55,154
3.10
0.06
0.24%
72,703
5.3
0.07
0.35%
112,384
240,241
257,058
New milestone options to be accounted for period
ended 30 June
55,154
45,246
26,277
126,676
135,543
Summary
Total - AUD
Total - NZD
New CEO options amount to be accounted for period ended 30 June 2021
11,885
12,717
New milestone options amount to be accounted for period ended 30 June 2021
126,676
135,543
Existing IPO milestone options amount to be accounted for period ended 30 June 2021
1,929,177
2,065,715
Total amount to be accounted for period ended 30 June 2021
2,067,738
2,213,975
The value of these options was determined using the Black-Scholes Option Pricing Model (‘BSOPM’) based on the following parameters:
• a risk-free rate of either 0.24% or 0.35% based on the 2- or 5-year New Zealand government bond yields respectively on date of grant;
• a volatility of 70% or 73%. This was based on similar companies within the industry as the Group;
• a probability of meeting the vesting conditions.
The fair value determined using the BSOPM was applied to the number of options received by each employee. In addition, the Group has
assessed the probability of the specified vesting conditions being fulfilled in the period applicable to each tranche. At reporting date, the
vesting conditions for tranche 1 strategic had been meet, and the share-based payment expense recognised in the statement of comprehen-
sive income was NZD55,154. Vesting conditions for tranche 2 funding and tranche 3 production had not been met at 30 June 2021, and the
share-based payment expense was determined by apportioning the total across the expected vesting period.
Annual Report 2021 25
Notes to the consolidated financial statements continued
For the year ended 30 June 2021
9. Capital and financial risk management
9.1 Foreign exchange risk
The Group is listed on the ASX and raises capital such as the convertible notes of AUD7,000,000 and loan of NZD9,000,000 from Mer-
ricks Capital predominantly in Australian dollars. Most of this is converted to New Zealand dollars to cover budgeted New Zealand dollar
expenses. The Group is exposed to expenses primarily relating to Directors’ fees and listing costs denominated in Australian dollars. The
Group maintains sufficient Australian dollar deposits to cover its budgeted Australian dollar expenses.
The Group is not a party to any direct derivative arrangements; the Group’s exposure to embedded derivatives is explained in note 8.3. The
Group has a Board approved treasury policy covering foreign exchange risk exposure limits.
9.2 Interest rate risk
Interest rate risk is the risk the value of the Group’s assets and liabilities will fluctuate due to changes in market interest rates. The Group is
not exposed to interest rate risk given interest rate on its borrowings and convertible notes are fixed.
The Group has a Board approved treasury policy covering exposure limits.
9.3 Credit risk management
The Group’s exposure to credit risk for the current receivable is primarily associated with one lessee and the management considers its
default risk is very minimal based on the creditworthiness of the lessee. The Group has not made loans to any party. The Group’s cash is
invested with reputable New Zealand banks the Group has assessed as a low credit risk. The Group continuously monitors the credit quality
of its New Zealand banks and does not anticipate any non-performance in those banks.
The carrying amount of financial assets, or the cash and cash equivalent, represents the Group’s maximum credit exposure. While cash and
cash equivalents are subject to the impairment requirement of NZ IFRS 9, the identified impairment loss was immaterial.
9.4 Liquidity risk
Liquidity risk is the risk the Group will encounter difficulty in meeting its contractual obligations associated with its financial liabilities that
are settled by delivering cash or another financial asset. The Group’s objective when managing liquidity is to ensure, as far as possible, it
will have sufficient liquidity to meet its liabilities when they are due, under normal and stressed conditions, without incurring unacceptable
losses or risking damage to the Group’s reputation.
The Group aims to maintain the level of its cash and cash equivalents and other highly marketable debt investments at an amount in excess
of expected cash outflows on financial liabilities (other than trade payable). The Group also monitors the level of expected cash outflows
around expenses on trade and other payables. Also, refer to the going concern assumption under the basis of preparation note.
The following table sets out the contractual cash flows for all financial liabilities and for derivatives settled on a gross cash flow basis.
As at 30 June 2021
Financial liabilities
Trade & other payables
Merricks
Vendor loan
Carrying amount
Contractual
< 1 year
cash flows
2 years < <5 years
(1,032,058)
(1,032,058)
(7,565,183)
(8,360,796)
—
—
(1,112,820)
(250,000)
(1,250,000)
Convertible notes and embedded derivative liability
(7,444,576)
—
(7,444,576)
As at 30 June 2020
Financial liabilities
Trade & other payables
Carrying amount
< 1 year
2 years < <5 years
(487,697)
(487,697)
—
26 Happy Valley Nutrition Limited
Notes to the consolidated financial statements continued
For the year ended 30 June 2021
9.5 Capital risk management
The Group’s capital includes share capital, retained earnings and reserves.
The Group’s policy is to maintain a sound capital base to maintain investor and creditor confidence and sustain the future development of
the business. The Group’s policies in respect of capital management and allocation are reviewed by the Board.
The Group successfully raised NZD20,000,000 funding for the acquisition of strategic farmland and the completion of further earthworks in
early 2021 and have received strong interest and support from existing institutional and sophisticated investors to raise further capital. Refer
to basis of conclusion for going concern assumptions.
9.6 Financial Instruments
Accounting policy
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 Group becomes a party to the contractual provisions of
the instrument. A financial instrument is initially recognised at fair value and is adjusted, in the case of instruments not carried at FVTPL, for
transaction costs 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 right to cash flows has expired, or the Group has trans-
ferred substantially all the risks and rewards of ownership of the financial asset.
Financial liabilities are de-recognised from the statement of financial position when the Group’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 Group’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 with a duration at acquisition of less than 6 months, repayable on demand or with insignificant loss, 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 Group
prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the
purchase of these goods and services. It has been determined 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.
9.7 Fair value measurement
The Group measures the following assets and liabilities at fair value on a recurring basis:
Financial liabilities
The financial liabilities measured at amortised cost at reporting date comprise of convertible notes and vendor loan
Financial liabilities measured at fair value through profit or loss comprise the embedded derivative liability.
Embedded derivatives
Derivatives are recognised initially at fair value and are subsequently remeasured to their fair value at the reporting date.
An embedded derivative is a component of a hybrid contract that also includes a non-derivative host (e.g., convertible notes). Derivatives
embedded in hybrid contract are financial liabilities and treated as separate derivatives when they meet the definition of a derivative, the
risks and characteristics are not closely related to those of the host contract and the host contract is not measured at fair value through
profit or loss.
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 hierar-
chy as follows:
• level 1: unadjusted quoted prices in active markets for identical assets or liabilities the entity can access at the measurement date
• level 2: inputs other than quoted pries included within level 1 observable for the asset or liability, either directly or indirectly
• level 3: unobservable inputs for the asset or liability.
Annual Report 2021 27
Notes to the consolidated financial statements continued
For the year ended 30 June 2021
The following table shows a breakdown of the liabilities recognised and measured at fair value in the financial statement in respect of level
3 fair values.
Description
Date of
valuation
Total
Level 1
Level 2
Level 3
Embedded derivative liability
30 June 2021
1,971,704
—
—
1,971,704
The carrying value of cash and cash equivalents, receivables, trade, and other payables approximates their fair value, given their short term
nature. The carrying amount of convertible debt and vendor loan also approximates their fair value. The interest rates for convertible debt
and vendor loan reflects market rates.
10. Other information
10.1 Related party transactions
10.1.1 Key management personnel compensation
The remuneration of key management personnel of the Group, is set out below in aggregate for each of the categories specified:
Short term employee benefits
Director and service fees
Share-based payments
Key management personnel do not receive post-employment or termination benefit (2020: nil)
Key management personnel include the following
Chairman
CEO & directors
Non–executive directors
10.1.2 Director services agreements
Year ended
30-Jun-21
NZD
Year ended
30-Jun-20
NZD
360,545
362,353
438,696
573,555
2,213,975
7,719,213
Each director has entered into a director services agreement with the Company through an associated entity. The key terms of those agree-
ments are set out in table 10.1.2 below.
Table 10.1.2 Summary of key terms of directors’ services agreements
Parties
Role
Remuneration
Ivan Hammerschlag
Honeystone Pty Limited
Non-executive chairman
AUD100,000pa NZD(107,000) base director/chairman fees
from 1 July 2020 to 31 December 2020. This reduces to
AUD80,000pa base director/chairman fees from 1 Jan 2021
David McCann
Olwyn Ventures Limited
Non-executive director
AUD80,000 pa base director fees and AUD80,000 pa
additional base fees to reflect the non director services they
provide from 1 July 2020, then terminates from 1 Jan 2021
Randolph van der Burgh
VCFO Group Limited
Non-executive director
AUD80,000 pa base director fees and AUD80,000 pa
additional base fees to reflect the non director services they
provide from 1 July 2020, then terminates from 1 Jan 2021
Anthony Kahn
Partnership Investors Pty Limited
Independent non-executive director
AUD80,000 pa base director fees
28 Happy Valley Nutrition Limited
Notes to the consolidated financial statements continued
For the year ended 30 June 2021
10.1.3 Summary of payments to other related parties
Ivan Hammerschlag
Honeystone Pty Limited - expenses
Honeystone Pty Limited - director fees
David McCann
D McCann – expenses
Olwyn Ventures Limited - director and services fees
Randolph van der Burgh
Randolph van der Burgh - expenses
VCFO Group Limited - director and services fees
VCFO Group Limited - professional services
Anthony Kahn
Partnership Investor Pty Ltd - expenses
Partnership Investor Pty Ltd - director fees
Partnership Investor Pty Ltd - consultancy
Partnership Investor Pty Ltd - IPO success fee
Year ended
30-Jun-21
NZD
Year ended
30-Jun-20
NZD
4,078
96,331
11,587
102,928
1,628
21,200
128,759
192,608
1,089
1,298
127,600
192,837
160,194
203,602
150
85,870
—
—
1,323
42,019
43,163
20,844
10.1.4 Summary of payments to other related parties
VCFO Group Limited
The Group has a 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 Group.
The key terms of those agreements are set out in Table 10.1.4 below.
Table 10.1.4 Summary of key terms of agreement with VCFO Group Limited
Services
Fees
Accounting and taxation services
Fixed monthly fee of NZD2,250 then terminates from August 2021
Other services
Premises (furnished)
Hourly fees for additional services on a time engaged basis
Monthly renewable sub-lease of ground floor of NZD9,208 per month rent and
NZD792 per month car park rent
10.1.5 Related party outstanding payable as at 30 June 2021
VCFO Group Limited
Total
Year ended
30-Jun-21
NZD
Year ended
30-Jun-20
NZD
640
640
2,803
2,803
Annual Report 2021 29
Notes to the consolidated financial statements continued
For the year ended 30 June 2021
10.1.6 Directors’ interests in shares and options held
Director – (including via related companies)
Ordinary
shares
number
2021 %
Options
number
Ordinary
shares
number
2020 %
Options
number
Ivan Hammerschlag
5,347,025
2.5
28,125,000
5,347,024
2.5
28,125,000
David McCann
Randolph van der Burgh
Anthony Kahn
Greg Wood
Total
8,778,031
9,633,555
4.1
4.5
16,831,791
8,778,031
16,831,791
9,633,555
1,625,000
0.8
5,000,000
1,625,000
—
—
2,250,000
—
4.1
4.5
0.8
—
16,831,791
16,831,791
5,000,000
—
25,383,610
11.9 69,038,582
25,383,610
11.9
66,788,582
10.1.7 Directors’ interest in convertible notes
Director
Ivan Hammerschlag
Randolph van der Burgh
Please refer to note 8.3 for a more detailed disclosure on the convertible notes.
750,000 convertible notes
500,000 convertible notes
10.1.8 Directors’ interest in companies who have shares in HVM
Director
Ivan Hammerschlag
David McCann
Company
Tidereef Pty Ltd (Shareholder and Director)
Olwyn International Limited (Shareholder and Director)
Randolph van der Burgh
Rockburgh Nominees Limited (Shareholder and Director)
Anthony Kahn
K.F. Superannuation Pty Ltd (Shareholder and Director)
10.2 Commitments
10.2.1 Capital commitments
As at 30 June 2021, the Group has entered into contractual commitments for the acquisition of property, plant and equipment amounting to
NZD730,000.
Earthworks & facility design
Description
Total NZD
1< Year
Schick
Babbage/Beca
Total
Main earthworks
600,000
600,000
Project management and design
Site amenities
120,000
10,000
120,000
10,000
730,000
730,000
10.2.2 Short-term lease commitments
The Group entered a sub-lease agreement with VCFO Group Limited providing the Group with exclusive occupation rights in their ground
floor premises, including all furniture and fittings. The initial term ended 31 March 2021 and was rolled over into a new month by month
tenancy agreement from April 2021.
10.2.3 Group as a lessor
The Group’s interest in farmland has been leased for a maximum term of 100 years. however, the lease can be cancelled at any time by
giving a six months’ notice to the lessee.
30 Happy Valley Nutrition Limited
Notes to the consolidated financial statements continued
For the year ended 30 June 2021
10.2.4 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:
• 1,000m3 per day water take licence, using Wairakei Pastoral Limited consent from the Waipa river;
• Commencement date is the later of 1 November 2019 and the date on which construction of the plant commences;
• Annual maximum volume of water is 365,000m3; and
• Maximum daily volume of water is 1,000m3.
10.3 Contingent liabilities
There are no known contingent liabilities as at 30 June 2021.
10.4 Events after reporting date
The Group has singed a third supply agreement to supply nutritional milk powders to a respected European multi-national distributor of
dairy products.
The Group announced to the ASX on 31 August 2021, it now considers it is unlikely it will secure the combined equity and debt financing by
the second half of CY2021 due to the impact of Covid-19. Accordingly, the Group has decided to:
• delay the next phase of the project until sufficient capital has been raised, this also impacts the first-product delivery date of August
2023
• conduct a strategic review of the optimal structure and timing for raising capital which may include a sale of an interest in the under-
lying project. Advisors have been appointed to assist the Group in this regard.
The Group has the full support of its senior debt provider Merrick Capital, who have extended its debt facility to the Group from 31 March
2022 to 15 December 2022.
10.5 Taxation
The tax expense charged against earnings for the period is the estimated total liability including both the current period’s provision and de-
ferred tax. The current period’s tax payable to Inland Revenue is recorded in income tax payable and any amounts due from Inland Revenue
are 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%
Tax losses not recognised
Tax losses forfeited on IPO
Prior period adjustment
Deferred tax asset not recognised
Income tax expense
Year ended
30-Jun-21
NZD
Year ended
30-Jun-20
NZD
(5,819,607)
(14,638,596)
(1,629,490)
(4,098,807)
576,600
3,365,796
983,680
506,209
—
199,619
(1,038)
70,248
—
—
27,184
—
Deferred tax is recognised on the basis there is probable realisation through future profits. The Group is expected to move into tax profits
earlier than previously anticipated but not within the next 12 months. The future income tax benefit of tax losses and other deferred tax as-
sets, net of deferred tax liabilities, have therefore not been recognised at 30 June 2021.
Annual Report 2021 31
Notes to the consolidated financial statements continued
For the year ended 30 June 2021
Year ended
30-Jun-21
NZD
Year ended
30-Jun-20
NZD
Deferred tax asset not recognised in relation to short-term timing differences
97,432
27,184
Deferred tax asset not recognised in relation to the future benefit of income taxes
1,489,889
506,209
Total
1,587,321
533,393
Imputation credits available for use in subsequent periods are NZD28,228 (2020: NZD20,092).
10.6 Goods and services tax
All amounts are shown exclusive of goods and services tax (GST), except Australian GST incurred and not recoverable by the Group. Re-
ceivables and Payables are stated inclusive of GST.
32 Happy Valley Nutrition Limited
Independent Auditor’s Report
Independent Auditor’s Report
To the shareholders of Happy Valley Nutrition Limited
Report on the audit of the consolidated financial statements
Opinion
In our opinion, the accompanying consolidated financial statements of Happy Valley
Nutrition Limited (the ’company’) and its subsidiary (the ‘group’) on pages 11 to 32:
Basis for opinion
i. present fairly in all material respects the group’s financial position as at 30 June
2021 and its financial performance and cash flows for the year ended on that date;
and
ii. comply with New Zealand Equivalents to International Financial Reporting Stand-
ards and International Financial Reporting Standards.
We have audited the accompanying consolidated financial statements which comprise:
— the consolidated statement of financial position as at 30 June 2021;
— the consolidated statements of comprehensive income, changes in equity, and
cash flows for the year then ended; and
— notes, including a summary of significant accounting policies and other explana-
tory information.
We conducted our audit in accordance with International Standards on Auditing (New
Zealand) (‘ISAs (NZ)’). We believe that the audit evidence we have obtained is suf-
ficient and appropriate to provide a basis for our opinion.
We are independent of the group in accordance with Professional and Ethical Stand-
ard 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 Account-
ants’ International Code of Ethics for Professional Accountants (including International
Independence Standards) (‘IESBA Code’), and we have fulfilled our other ethical
responsibilities in accordance with these requirements and the IESBA Code.
Our responsibilities under ISAs (NZ) are further described in the auditor’s responsibili-
ties for the audit of the consolidated financial statements section of our report.
Other than in our capacity as auditor we have no relationship with, or interests in, the
group.
Material uncertainty related We draw attention to Note 5 in the consolidated financial statements, which indicates
that the group is dependent on successfully raising capital to fund construction of the
to going concern
processing facility and associated working capital requirements. In addition, the group
also needs to secure milk supply contracts and continue to comply with the conditions
attached to the OIO approval and resource consents or, if it becomes necessary, obtain
any required amendments or extensions.
These events or conditions, along with other matters as set forth in Note 5, 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.
Materiality
The scope of our audit was influenced by our application of materiality. Materiality
helped us to determine the nature, timing and extent of our audit procedures and to
evaluate the effect of misstatements, both individually and on the consolidated finan-
cial statements as a whole. The materiality for the consolidated financial statements
as a whole was set at $302,000 determined with reference to a benchmark of group
total assets. We chose the benchmark because, in our view, this is a key measure of the
group’s performance.
Annual Report 2021 33
Independent Auditor’s Report continued
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most
significance in our audit of the consolidated financial statements in the current period.
Except for the matter described in the material uncertainty related to going concern,
we summarise below those matters and our key audit procedures to address those
matters in order that the shareholders as a body may better understand the process
by which we arrived at our audit opinion. Our procedures were undertaken in the con-
text of and solely for the purpose of our statutory audit opinion on the consolidated
financial statements as a whole and we do not express discrete opinions on separate
elements of the consolidated financial statements.
The key audit matter
How the matter was addressed in our audit
Share options
Refer to Note 8.5 to the consolidated financial
statements.
Following the Initial Public Offering in 2020, share op-
tions were granted to the Directors of the group.
These were issued in two tranches being:
— IPO options: vested on the successful IPO completed
in January 2020; and
— Milestone options: further options that would vest
upon satisfactory achievement of certain pre-defined
“milestones” relating to financing and strategic objec-
tives.
During the year-ended 30 June 2021, certain milestone
options criteria were achieved, resulting in the related
options vesting. For remaining milestone options, as-
sumptions are required in respect of the anticipated vest-
ing dates, and the probability of vesting criteria being
achieved.
Our audit procedures included, amongst others:
— Reading the terms of the respective share options
agreements and evaluating the appropriateness of
the accounting treatment in accordance with NZ
IFRS 2 Share Based Payments;
— Assessing the assumptions applied in the group’s
valuation of the share options schemes including
the expected volatility. We engaged our internal
valuation specialists to assess appropriateness of the
methodology applied, and assess the reasonableness
of key inputs and assumptions used;
— Evaluating the non-market performance conditions
attached to the milestone options for consistency
with the group’s performance and management’s
reassessment of the number of options expected to
vest, probability of vesting and the expected timing
of vesting;
— Recalculating the share-based payments expense;
Additional share options were also issued to certain sen-
ior employees in the current financial year, also linked to
the achievement of certain future milestones.
— Involving our technical accounting specialists to
assist in evaluating the appropriateness of the
adopted accounting treatment; and
The accounting for share-based payments is complex be-
cause it requires consideration of each option scheme’s
specific features to identify whether the resulting shares
are settled in cash or equity. The group’s options are
equity settled.
— Assessing the adequacy of the related disclosures in
the consolidated financial statements.
34 Happy Valley Nutrition Limited
Independent Auditor’s Report continued
The key audit matter
How the matter was addressed in our audit
Following classification, the options are measured at
their grant date fair value using a recognised valuation
method. In the case of the group, a Black-Scholes model
was applied, which requires certain assumptions to be
made that are based on management’s judgment. This
valuation, and subsequent re-measurement for the esti-
mated vesting date and probability, results in estimation
uncertainty which can have a significant impact on the
amounts recognised in the financial statements.
For these reasons, we consider the recognition and
measurement of share-based payments to be a key audit
matter.
Issuance of convertible notes
Refer to Note 8.3 to the consolidated financial
statements.
On 18 March 2021, the group completed the issuance
of 35,000,000 secured convertible notes for a notional
A$7.0 million ($7.4 million).
The convertible notes issued contain certain conversion
features which provide holders with the option to convert
the notes into equity at a fixed price before maturity,
into equity at a variable price at the Main Capital Raise
(MCR) event or, if not converted into equity prior to the
MCR, to require the notes to be repaid in cash at maturity
or a 10% premium if not already converted into equity at
the MCR.
These conversion features, and the fact that the notes
were issued in Australian dollars (which differs from the
group’s New Zealand dollar functional currency) mean
that the notes are a hybrid financial instrument with
embedded derivatives which must be separated from the
underlying debt component of the issue and accounted
for on an individual basis.
Accounting for embedded derivatives is complex
and requires the use of valuation methodologies that
rely upon observable and unobservable inputs and
assumptions. This creates estimation uncertainty for
the amounts recognised in the financial statements.
For these reasons, we consider the initial recognition
and measurement for the convertible notes to be a key
audit matter.
Our audit procedures included, amongst others:
— Reviewing the convertible notes agreements to
identify key terms and features of the issuance;
— Assessing the requirements of NZ IFRS 9 Financial
Instruments to consider whether the convertible debt
was appropriately recognised as a hybrid contract;
— Utilising an internal valuation specialist to assist
with assessing the reasonableness of the valuation
method and binomial option pricing model used to
determine the value of the embedded derivatives,
the key inputs into the model, and the resulting
valuation amounts recognised by management;
— Involving our technical accounting specialists to
assist in evaluating the appropriateness of the
adopted accounting treatment; and
— Considering the adequacy of the related disclosures
in the consolidated financial statements.
Annual Report 2021 35
Independent Auditor’s Report continued
The key audit matter
How the matter was addressed in our audit
Capitalisation and recoverability of development costs and land acquired
The group is in the process of developing a nutritional
grade processing facility with the objective of supplying
a range of nutritional products to customers in the food
and beverage sector.
Our audit procedures included, amongst others:
— Assessing the appropriateness of management’s
capitalisation methodology for compliance with NZ
IAS 16 Property, Plant and Equipment;
As part of the development, significant amounts $10.8
million has been capitalised within property, plant,
and equipment, with $12.9 million also recognised for
acquired land. Refer to Note 7.2 to the consolidated
financial statements.
— 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;
The capitalisation of development costs requires
judgment because management must appropriately
assess:
— Reviewing management procedures around
identification of impairment indicators; and
— Whether the costs capitalised are directly
net assets as at 30 June 2021.
— Comparing the group’s market capitalisation with its
attributable to bringing the nutritional processing
facility to its location and condition necessary to be
capable of operating in the manner intended;
— Whether, as the development of the facility
progresses, changes to the design and / or other
features, result in previously capitalised amounts
no longer relating to the modified design and ought
to be expensed; and
— Whether there exist any objective indicators of
impairment relating to the amounts capitalised.
The assessment of objective indicators of impairment
also applies to land acquired, the majority of which was
acquired in the current financial year.
Given the significance of the amounts capitalised, the
duration of the development project and the associated
project refinements, and the level of judgment exercised,
we consider the capitalisation and recoverability of devel-
opment costs to be a key audit matter.
Other information
The Directors, on behalf of the group, are responsible for the other information
included in the entity’s Annual Report. Other information includes the Directors’
Report, Corporate Governance Report, Corporate Directory, and the other information
included in the Annual Report. Our opinion on the consolidated financial statements
does not cover any other information and we do not express any form of assurance
conclusion thereon.
36 Happy Valley Nutrition Limited
Independent Auditor’s Report continued
In connection with our audit of the consolidated financial statements our responsibility
is to read the other information and, in doing so, consider whether the other information
is materially inconsistent with the consolidated financial statements or our knowledge
obtained in the audit or otherwise appears materially misstated. If, based on the work we
have performed, we conclude that there is a material misstatement of this other informa-
tion, we are required to report that fact. We have nothing to report in this regard.
Other matter
The consolidated financial statements of the group for the year ended 30 June 2020
was audited by another auditor who expressed an unmodified opinion on those state-
ments on 23 September 2020.
Use of this independent
auditor’s report
Responsibilities of the
Directors for the
consolidated financial
statements
Auditor’s responsibilities
for the audit of the
consolidated financial
statements
This independent auditor’s report is made solely to the shareholders as a body. Our
audit work has been undertaken so that we might state to the shareholders those
matters we are required to state to them in the independent 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 shareholders as a body for our audit work, this
independent auditor’s report, or any of the opinions we have formed.
The Directors, on behalf of the company, are responsible for:
— the preparation and fair presentation of the consolidated financial statements
in accordance with generally accepted accounting practice in New Zealand
(being New Zealand Equivalents to International Financial Reporting Standards)
and International Financial Reporting Standards;
— implementing necessary internal control to enable the preparation of a consolidated
set of financial statements that is fairly presented and free from material misstate-
ment, whether due to fraud or error; and
— assessing the ability to continue as a going concern. This includes disclosing, as
applicable, matters related to going concern and using the going concern basis of
accounting unless they either intend to liquidate or to cease operations, or have no
realistic alternative but to do so.
Our objective is:
— to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or
error; and
— to issue an independent 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 NZ will always detect a material misstatement
when it exists.
Misstatements can arise from fraud or error. They are considered material if, individu-
ally or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated financial statements.
Annual Report 2021 37
Independent Auditor’s Report continued
A further description of our responsibilities for the audit of these consolidated financial
statements is located at the External Reporting Board (XRB) website at:
http://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/
audit-report-1/
This description forms part of our independent auditor’s report.
The engagement partner on the audit resulting in this independent auditor’s report is
Matt Kinraid.
For and on behalf of
KPMG
Christchurch
23 September 2021
38 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 Group 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 avail-
able on the Group 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 2021 was as follows:
Director
Position
Director fees
NZD
Non-director
services fees
NZD
Total
Remuneration
NZD
Ivan Hammerschlag
Non-Executive Chairman
$96,331.00
–
$96,331.00
David McCann
Non-Executive Director
$85,159.04
$43,599.96
$128,759.00
Randolph van der Burgh
Non-Executive Director
$84,000.04
$43,599.96
$127,600.00
Anthony Kahn
Non-Executive Director
$85,870.00
–
$85,870.00
Employee Remuneration
The Group 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 Commit-
tee reviews and makes recommendations to the Board on the remuneration of the CFO and other senior managers, including:
•
•
•
Short and long-term remuneration, including both fixed remuneration and performance-based remuneration;
Any termination payments; and
Appropriate grants of securities under the Employee Incentive Plan.
In making its recommendations the Remuneration and Nomination Committee ensures that:
•
Remuneration is set with reference to prevailing market rates for similar positions, adjusted to account for experience, productivity and
ability;
•
•
Remuneration packages are designed to motivate senior management to pursue the long-term growth and success of the Group Struc-
ture, and not reward conduct that is contrary to the Group values or risk appetite; and
A clear relationship exists between performance and remuneration.
During the year ended 30 June 2021, 5 current 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
Number of
employees
FY2021
Remuneration range
NZD
From
To
$125,000
$150,000
$100,000
– $124,999
– $149,999
– $174,999
– $199,999
$200,000 – $224,999
– $249,999
$225,000
$175,000
$275,000
$250,000 – $274,999
– $299,999
$300,000 – $324,999
– $349,999
$350,000 – $374,999
– $399,999
$325,000
$375,000
3
1
Number of
employees
FY2021
1
Annual Report 2021 39
Corporate Governance Report continued
For the year ended 30 June 2021
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 27 August 2021.
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 Optionholders
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
159
193,419,408
449
15,870,537
251
316
2,220,071
825,140
1,475
194,390
91.01
7.47
1.04
0.39
0.09
2,650
212,529,546
100.00
Number of
Optionholders
Unlisted
Options
% of Total
Options
9
0
0
0
0
9
70,827,152
100.00
0
0
0
0
0.00
0.00
0.00
0.00
70,827,152
100.00
Less than marketable parcels of ordinary shares
There are 1,726 shareholders with unmarketable parcels totalling 723,845 shares as at 27 August 2021.
40 Happy Valley Nutrition Limited
Corporate Governance Report continued
For the year ended 30 June 2021
20 Largest Shareholders of Quoted Securities
The names of the twenty largest shareholders of quoted equity securities are as follows:
Number of
fully paid
Ordinary Shares
% of Issued
Capital
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
ROCKBURGH NOMINEES LIMITED
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