Pental Limited
Annual Report 2022

Plain-text annual report

AUSTRALIAN MADE ANNUAL REPORT 2022 PENTAL ANNUAL REPORT 2022 1 PENTAL ANNUAL REPORT 2022 CONTENTS 07 Chairman's Report 12 Directors' Report 33 Remuneration Report 46 Corporate Governance Statement 63 Directors' Declaration 64 65 66 67 Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows 58 Independent Auditors' Report 68 Notes to the Financial Statements 59 Auditor's Independent Report 108 ASX Additional Information 2 3 OUR VISION To be a leading supplier of shelf stable products to its chosen channels and markets, built around a reputation of delivering quality, innovation, and sustainability to the satisfaction of customer needs whilst enhancing shareholder value. "We are active in developing new products to grow market share and building strong, ongoing relationships with our customers and suppliers.” 4 INNOVATION Embracing new ideas, creating new opportunities We dare to be different We challenge the status quo and take calculated risks We encourage and seek new ideas and opportunities We use consumer insights to create new thinking and innovative solutions PENTAL ANNUAL REPORT 2022 CORE VALUES CUSTOMERS Customers are at the centre of what we do We build recognisable, strong and trusted brands We develop lasting customer relationships We respond quickly and effectively to our customers' needs We take pride in delivering quality products on time We create value for our loyal customers 5 PENTAL ANNUAL REPORT 2022 PEOPLE We trust, develop, and care for our people We act with compassion, honesty, and consistency We empower, trust, and support each other We listen attentively and communicate openly We demonstrate positive “can-do” attitudes every day We work as one team – Team Pental We provide opportunities for personal growth & development We recognise and celebrate our successes 6 SAFETY Safety comes first We keep our people and visitors safe We aim for Zero harm - no injuries or incidents We model and reinforce safe behaviour - at work and home We proactively identify hazards We main clean and safe workplaces and equipment QUALITY Focused on quality and continuous improvement We pride ourselves on quality We continuously improve everything we do We take responsibility for achieving our business objectives We are agile, flexible, and respond rapidly to change We plan for the long-term and a sustainable future PENTAL ANNUAL REPORT 2022 CHAIRMAN'S REPORT On behalf of the board and the Pental team, I am pleased to present Pental's Annual Report for the year ended 26 June 2022 (FY22). FY22 was a year of significant growth for our business, corner-stoned by our transformational acquisition of Hampers With Bite. Our ability to implement initiatives to improve both revenue and costs allowed us to weather the amendments to our Duracell distribution agreement and significant shifts overall in the macro-economic environment, both nationally and internationally. Against the backdrop of tougher economic conditions, it is very pleasing to be reporting our strong FY22 results which demonstrate the resilience of our business and the power of our brands in a challenging operating environment. Our transformational acquisition has boosted the continuous growth Pental achieved over the previous three years, by adding a fourth successful year of profit growth. Our underlying profit after tax for FY22 increased by 32.2% from last year, and we also grew our statutory profit for FY22 by 18.72% to $6.4 million from $5.4 million in FY21. 7 We grew our underlying profit after tax by 32.2% to $7.4 million Refer to table on page 22 for a reconciliation of underlying profit to statutory profit. PENTAL ANNUAL REPORT 2022 PENTAL ANNUAL REPORT 2022 After reporting a tough first half for the traditional branded business impacted by significant inflationary pressures on raw materials, the Group was successful in executing multiple cost recovery projects in the second half of FY22. Coupled with strong promotional plans and a clear communication strategy, we ensured our brands continued to enjoy a strong position in the marketplace. Over the course of the financial year, Pental’s owned brands revenue grew by 5.2%, marking a strongly improved growth trajectory. The growth was led by our powerhouse cleaning brand White King which grew 11.1% compared to prior year. Pleasingly, White King toilet gels maintained 2 rankings (number 2 and 4) in the top 5 selling SKUs in the grocery market. For our leading personal care brand, Country Life, revenue also grew by 9.3% compared to previous financial year. Revenue from the New Zealand operations (owned brands) for FY22 was up 7.0% in New Zealand Dollars (7.8% in Australian Dollars after conversion) compared to the prior period despite repeated disruptions to the supply chain, predominantly due to the COVID-19 driven disruptions at the port of Auckland. Little Lucifer branded firelighters registered a significant growth of 70.4% in the firelighter category in New Zealand market while both key household brands – Sunlight and Janola – enjoyed a healthy year-on-year growth of 6.5% and 5.0% respectively. Pental’s export market growth was impacted during FY22 through disruptions caused by supply chain restrictions. A tense political environment between Australia and China has impacted trade, and distributors in China generally remained cautious of importing Australian manufactured goods. As a result, our exports (excluding New Zealand) revenue fell $0.5 million to $1.3 million. We remain optimistic about the export segment as international relations steadily improve. As expected, following changes to the Duracell distributorship agreement effective May 2021, contracted brands revenue decreased by 57.6% to $30.81 million. As previously indicated, impact of lost Duracell business was approximately $3 million on our FY22 earnings before interest and tax (EBIT) result compared to the prior year. Working capital released from reduced Duracell distributorship business enabled the Group to replace this low margin business with no ownership rights, to purchase a high profit margin business, which has become an integral part of the group. We faced challenges with increased raw material costs impacted by various global events which significantly impacted private label and contract manufacturing profitability. The company absorbed an estimated $2 million in increased input costs. 8 PENTAL ANNUAL REPORT 2022 PENTAL ANNUAL REPORT 2022 CHAIRMAN'S REPORT (CONT) HWB Acquisition and Capital Raise In line with Pental’s growth strategy outlined in previous annual reports, and announced to the market on 20th August 2021, the Group entered an agreement to acquire the Hampers with Bite business on 20 August 2021 and completed the acquisition on 1 September 2021. The Group raised a total of $10.046 million (net of costs) through a placement and a share purchase plan (SPP) to facilitate its acquisition of Hampers with Bite. Hampers With Bite Pty Ltd (HWB) is a Melbourne- based online hamper and gifting specialist. Its range of premium hampers and gifts are targeted at affordable prices focusing on corporate clients and gifts to family and friends. HWB provides customers with the option of creating their own hamper or simply purchasing one of HWB’s pre-designed hampers online. Prior to acquisition by the Group, HWB grew from an approximately $10 million revenue with an EBIT of $1 million EBIT business in FY19 to an approximately $24 million revenue business in FY21 with an EBIT of approximately $5 million. HWB continued its strong growth trajectory into FY22, recording revenue of $37.885 million for the financial year compared with $23.811 million in FY21, an increase of 59.1%. Under Pental’s ownership, from 1 September 2021 to 26 June 2022, the business delivered strong revenue of $31.649 million with an EBIT contribution of $6.509 million, underpinned by a strong Christmas season across both B2B and B2C channels. 9 Dividend The Group has built a consistent history of strong dividend returns as demonstrated by below chart. Dividend (cents per share) paid over last 5 years 3 2 1 0 FY18 FY19 FY20* FY21 FY22 *includes special dividend of 0.7 cents per share The board has continued this trend and declared a fully franked final dividend of 1.7 cents per share payable to shareholders on 23 September 2022, with a record date of 5 September 2022. This takes total dividends for the year to 3.0 cents per share. This represents a 15.38% increase on the prior year’s dividend of 2.6 cents, with a payout ratio of 69% of underlying net profit after tax excluding significant items. PENTAL ANNUAL REPORT 2022 Looking Forward Pental is very excited about its future, as the Company is well positioned to reap rewards with its strong retail brands like White King reinforced by its ability to leverage new markets and direct reach to consumers through the HWB e-commerce channel. Strengthening our manufacturing capabilities to maintain and improve our position as a leading low-cost producer through process improvements, capital investment and product innovation our growth strategy also includes pursuing new markets in Asia, new sales channels, and product categories. We will continue to invest to grow our capabilities and we will continue to pursue any value-creating acquisition or distributorship opportunities that may arise in expanding markets with strong growth potential. The Board and management remain of the firm belief that strong brand management supported by innovation, a continued focus on driving manufacturing costs down and tight cost controls provides the foundations that will improve shareholder returns over the long term. Leveraging its production strength and available capacity, Pental continues to explore and expand its offering of contract manufactured products for leading retailers and distributors. Pental continues to explore and investigate distribution opportunities in other offshore markets. We will continue to focus on our strategic priorities: 1. Driving sales growth through our Number One Brand White King. 2. Developing new hamper and gifting products for the Hampers with Bite business. 3. Developing a full year calendar of events in the e-commerce sales channel. 4. Continue to explore additional acquisition opportunities. 5. Grow the new sales channels we developed in FY22. 6. Continuous operational improvements at both the Shepparton and Maidstone operations sites. I acknowledge the efforts of Pental management team and my fellow Directors over the past year. On behalf of the Board, I sincerely thank our people for their committed efforts during the year. We again thank our shareholders, suppliers and customers for their ongoing loyalty and support. Mark Hardgrave Chairman 10 PENTAL ANNUAL REPORT 2022 SALES ACHIEVEMENTS FY22 HIGHLIGHTS Dollar Growth up (in Australia) 22% White King 11% Growth in Net Sales compared to previous year Strong Double-Digit Growth in Commercial, Online, Pharmacy & Retail Discounters channels Little Lucifer in New Zealand experienced exceptional 70% growth over previous year White King is the #1 Brand in Bathroom Cleaners Pental Brands Net Sales growth 5.2% compared to previous year Launched 13 New Household Cleaning Products within multiple grocery and pharmacy chains Extended our range of White King Toilet Gels in Woolworths 11 PENTAL ANNUAL REPORT 2022 DIRECTORS' REPORT The directors of Pental Limited submit herewith the annual financial report of the company for the year (52 weeks) ended 26 June 2022. In order to comply with the provisions of the Corporations Act 2001, the directors report as follows: INFORMATION ABOUT THE DIRECTORS The names and particulars of the directors of the company during or since the end of the financial year are: Mr Mark Hardgrave Bachelor of Commerce, ACA, GAICD Non-Executive Independent Chairman Mark has over 35 years’ experience having held previous positions in corporate finance, funds management and various C-suite roles. He is currently a non- Executive Director of ASX listed company Traffic Technologies Limited (ASX: TTI). Previously, Mark held a directorship in Wingara AG Ltd (ASX: WNR) from March 2018 to June 2020 and Forbidden Foods Limited (ASX: FFF) from August 2020 to July 2022. He is a co-founder and former joint Managing Director of M&A Partners, a Melbourne based boutique corporate advisory group. Prior to that, Mark was involved in funds management, equity capital markets, and mergers & acquisitions in various roles at firms such as Bennelong Group, Thorney Investment Group, Merrill Lynch and Taverners Group. Appointed Director 1 May 2019 Appointed Chairman on 31 December 2019 Member of Audit & Risk Committee and Remuneration Committee Mr Charlie McLeish Bachelor of Business, Managing Director & CEO Before his appointment at Pental, Charlie McLeish spent over 30 years in the Fast- Moving Consumer Goods (FMCG) industry including 20 years managing major bakeries within Bunge Australia (Goodman Fielder) focusing on Business Turnaround. After Goodman Fielder, Charlie spent 15 years at George Weston Foods in the position of General Manager of Tip Top Bakeries Victoria where he managed a major turnaround to profitability. Charlie then transitioned to National Sales Director of Don Smallgoods. Charlie has vast sales, marketing, manufacturing and logistics experience with proven turnaround capabilities.. Appointed CEO 1 January 2014 Appointed Managing Director 6 April 2020 IRI MarketEdge, 26/06/22 12 PENTAL ANNUAL REPORT 2022 Ms Kerrie Parker B.Bus, FCPA, GAICD Non-Executive Independent Director Kerrie Parker is currently the Executive Vice President Resources at Deakin University and during her career has worked in CFO roles with Golden Circle Limited, GM Finance Amcor Fibre Packaging also CFO and Managing Director of Sara Lee Household & Body Care Australia. Kerrie has significant whole of business experience gained in CEO, CFO and General Management leadership roles in fast moving consumer goods (FMCG), agriculture, manufacturing, and government roles. She is experienced in publicly listed ASX/NSX organisations, multinationals, private equity, government and higher education, and has a deep understanding of the demands and expectations of many business environments. Kerrie has a Bachelor of Business, Graduate Certificate in Information Technology, is a Fellow Certified Practising Accountant and a Graduate of the Australian Institute of Company Directors. Appointed Director 1 February 2021 Chairperson of Audit & Risk Committee and member of Remuneration Committee. Mr Jeff Miciulis Non-Executive Independent Director Jeff brings 35 years’ experience in Sales, Marketing, Country Leadership, and Regional Leadership at Energizer in both Household Batteries, and Personal Care Shaving Products. He commenced his career as a Sales Trainee with Eveready Australia and rose to become National Sales Manager before taking his career overseas for the next 20 years. During that time he held numerous leadership roles of increasing responsibility across multiple international markets. Overseas roles included International Marketing, General Manager South Africa, Managing Director Malaysia, Regional Vice President Middle East, and Africa, and Regional Vice President South Asia, and China Appointed 5 March 2019. Chairman of Remuneration Committee and member of the Audit & Risk Committee Mr Fred Harrison Non-Executive Independent Director Fred is the CEO of Ritchies Stores Pty Ltd. He began his career as a casual with Ritchies in 1975, whilst still at Frankston High School, and worked his way up to management before being appointed as General Manager in 1987 and then as Chief Executive Officer in 1994. Ritchies operates 78 supermarkets and liquor stores making Ritchies the largest Independent in Australia, with annual sales greater than $1.15 billion. Appointed Director 28 August 2019 Member of Remuneration Committee 13 PENTAL ANNUAL REPORT 2022 Director's Shareholdings The following table sets out each director’s relevant interest in shares, and options over shares of the company as at the date of this report. Director's Shareholdings Fully Paid Ordinary Shares Number Share Number Options Unvested Performance Rights Number Mark Hardgrave Charlie McLeish Kerrie Parker Jeff Miciulis Fred Harrison 363,158 84,595 77,000 1,000,000 447,368 - - - - - - 1,588,000 - - - Share Options Granted To Directors and Senior Management Principal Activities During and since the end of the financial year no share options were granted to Non-Executive Directors or senior management, however, the Group’s Executive Director (Charlie McLeish) and senior management were issued performance rights pursuant to the Executive Variable Incentive Plan (EVIP) as detailed in the Remuneration Report. The Group consists of two fully owned subsidiaries that conduct all trading operations for the Group. The first subsidiary, Pental Products Pty Ltd, is an Australia-based leading manufacturer, wholesaler and distributor of personal care and home products. This subsidiary offers its product range to consumers across Australia, New Zealand and Asia through well- known heritage brands including White King, Country Life, Janola, Softly, Jiffy and more. The Group acquired a second subsidiary, Hampers with Bite Pty Ltd, during the reporting period. The principal activities of the acquired subsidiary are to market, assemble and distribute affordable premium gift hampers across consumers and businesses Australia wide. Mr Oliver Carton B Juris LL.B Company Secretary Oliver is a qualified lawyer with over 30 years’ experience in a variety of corporate roles. He currently runs his own consulting business and was previously a Director of the Chartered Accounting firm KPMG where he managed its Corporate Secretarial Group. Prior to that, he was a senior legal officer with ASIC. Oliver is an experienced company secretary and is currently company secretary of a number of listed and unlisted companies, ranging from Pental Limited to the not-for-profit Melbourne Symphony Orchestra Pty Ltd. 14 PENTAL ANNUAL REPORT 2022 Group Overview - Trusted Brands That Get The Job Done Pental Limited has been a long-standing trusted manufacturer and distributor of personal, household, and commercial products across Australia, New Zealand, and Asia. Pental products has 2 main business units – Consumer products and Hampers with Bite. During the 2022 financial year, the Group welcomed the Hampers with Bite business which was acquired on 1 September 2021. Hampers With Bite Pty Ltd (HWB) is a Melbourne-based online hamper and gifting specialist. Its range of premium hampers and gifts are targeted at affordable prices towards gifts to friends & family and corporate clients. HWB provides customers with the option of creating their own hamper or simply purchasing one of HWB’s pre-designed hampers online. HWB operates from its main operations site at Maidstone in the state of Victoria, Australia. The Group is based in Australia and has 156 full-time equivalent employees at reporting date. Consumer products business unit manages a portfolio of leading consumer brands, which are household names in Australia and New Zealand - it is a branded market leader and one of the largest local manufacturers of bar soaps, liquid bleach, and firelighter cubes. The consumer products business unit also provides distributorship services to brands and products that are non-perishable and have a long shelf life. Pental has grown through dedication to customer service, efficiency, and quality. For more than 60 years we have worked hard to stay true to our Australian heritage, investing in our manufacturing plant in Shepparton, Victoria. The production plant at Shepparton facilities comprise: Household Cleaning Liquids plant; Bar Soap plant; Laundry and Dishwashing Liquids plant; Firelighters plant. Across Australia and New Zealand, Pental’s products are stocked in all major grocery retailers and convenience stores that sell personal care and household cleaning products. We continue to expand into commercial and industrial channels. 15 PENTAL ANNUAL REPORT 2022 Pental's Core Brands Pental’s core brands are household names: White King in Australia Softly in Australia and New Zealand Janola and Sunlight in New Zealand Little Lucifer in Australia and New Zealand Country Life and Velvet in Australia Hampers With Bite Jiffy in Australia Household Cleaning Personal Care Laundry Fire Needs Kitchen Gifting & E-commerce Pental is expanding distribution throughout Asia, by developing products and pack sizes that are suitable for these new markets. The Company currently exports to China, Vietnam, and Thailand. This has been achieved mainly through creating partnerships with strategically aligned distributors. We are also exploring various opportunities to maximise the recently acquired e-commerce platform of HWB to expand our business. 16 PENTAL ANNUAL REPORT 2022 MARKET SHARE RECAP White King’s Toilet Gel grew at double (Dollars) and triple (Units) that of the Segment This has resulted in Market Share gains of for FY22 +2.2% points* White King’s Bathroom portfolio enjoyed sustainable, 7% growth. This has resulted in Market Share gains of for FY22 +2.2% points* #2 sku in market #4 sku in market #1 sku in market #6 sku in market IRI MarketEdge, 26/06/22 17 PENTAL ANNUAL REPORT 2022 DIRECTORS' REPORT (CONT) Review Of Operations Net Sales Revenue Underlying EBITDA EBITDA Margin on Set Sales Depreciation & Amortisation Underlying EBIT EBIT Margin on Set Sales Finance Costs Underlying Profit Before Tax Income Tax Expense Underlying Profit After Tax Underlying Basic EPS (cents) HWB Acquisition Related Costs Reported Net Profit After Tax Reported Basic EPS (cents) Dividend (cents per share) Working Capital (ii) Cash Borrowings Gearing (iii) (i) Unaudited non-IFRS financial table (ii) Receivables plus inventory less trade and other payables (iii) Net debt to equity (i) FY22 $'000 (i) FY21 $'000 Change $'000 % 117,432 124,940 (7,508) (6.0%) 14,682 12.5% (3,899) 10,783 9.2% (189) 10,594 (3,180) 7,414 4.53 (1,047) 6,367 3.89 3.00 18,906 8,132 (3,825) 5% 11,998 9.6% 2,684 22.4% 2.9% 1.3% (3,849) (50) 8,149 6.5% (121) 8,028 (2,421) 5,607 4.12 - 5,607 3.94 2.60 17,858 12,702 Nil Nil 2,634 32.3% 2.7% (68) (56.2%) 2,566 (759) 1,807 0.41 32.0% (31.4%) 32.2% 10.1% (1,047) (100.0%) 760 (0.05) 0.40 13.6% (1.3%) 15.4% 1,048 5.9% (4,570) (36.0%) (3,825) (100.0%) 18 PENTAL ANNUAL REPORT 2022 Financial Performance Total Group sales revenue was down by 6.0% compared to prior period, which was in line with expectations as announced to the market in the half year report. The decrease was predominantly driven by decreases in the Duracell distributorship following changes to the agreement effective May 2021. Owned Brands Segment Owned Brands segment revenue was $54.973 million which was up on prior year ($52.268 million) by 5.2%. Pleasingly, the growth was driven by a strong performance in both the Australia (up 5.9%) and New Zealand (up 7.8%) markets offset marginally by decline in exports to Asia and other territories. In Australia, key drivers of growth were the White King (up 11.3%) and Country Life (up 22.0%) brands. Pental maintains a strong hold in market share across many segments including White King in the liquid bleach segment, Jiffy in the firelighters, and Softly in the wool wash segments, all maintaining their number one position. The Group was successful in securing ranging of various innovative new products launched during the financial year: A new variant of toilet gels was launched in Woolworths along with a new detergent bleach and bleach spray under the White King brand. The Group also grew its strong partnership with Bunnings where it launched 5 new products in the second half of the financial year under the White King and Country Life brands. The Group was also able to secure new product ranging with Costco with its White King bleach and mould and soap scum remover bulk packs A new bleach-free multipurpose cleaner was launched in Chemist Warehouse along with Country Life hand wash. Net sales revenue in New Zealand was up $0.959 million compared to prior year (an increase of 7.8%) driven by strong growth in Little Lucifer firelighters (up 70.4%), Janola (up 5.0%) and Sunlight (up 6.5%) dishwash ranges. New Zealand ports faced unprecedented challenges posed by COVID-19 related disruptions leading to significant shipping delays. Pental mitigated these delays by increased its stock holding in New Zealand on key lines to avoid such outcomes in the short term. Pental’s share in the New Zealand market in several key categories such as Toilet, Household Cleaning, and Dish Wash remains strong. Exports to Asia were down by $0.523 million or 29.0% compared to prior year. China comprises a significant portion of Asian territory sales for Pental. Political relations between Australia and China have been tense in the last 24 months with the introduction of tariffs on various Australian exports. Whilst no tariffs have been introduced on Pental’s product range, these conditions have forced China based distributors and sub distributors to take a cautious approach to any imports from Australia, resulting in subdued sales through this channel. 19 PENTAL ANNUAL REPORT 2022 Contracted Brands Segment Hampers with Bite Segment As expected, and as announced to the market in the 2021 annual report, contracted brands revenue fell sharply by $41.862 million or 57.6% in FY22 predominantly due to amendments to Duracell distributorship agreement effective May 2022. For the remaining distribution channels, Duracell performed in line with prior year despite the commercial channels being impacted by multiple lockdowns and disruptions caused by COVID-19. Duracell remains a key part of Pental’s portfolio of product offerings. Private label contract manufacturing business revenue was $17.469 million, marginally down by 1.2% compared to prior year. The contracted nature of these products allowed limited ability to pass on significant and sharp cost increases that the Group incurred during the financial year. The Group estimates it absorbed approximately $2 million in cost increases relating to private label contracts that was not recovered during the financial year. However, as these contracts phase out (typically 1-year contracts), the Group is working closely with its key clients to strategically price new contracts based on its manufacturing capabilities, hedging of raw materials (where possible), competition and potential disruptions. The Group entered an agreement to acquire the Hampers with Bite (HWB) business on 20 August 2021 and completed the acquisition on 1 September 2021. Under Pental’s ownership, from 1 September 2021 to 26 June 2022, HWB delivered strong revenue of $31.649 million with an EBIT contribution of $6.509 million, underpinned by a strong Christmas season across both business-to-business (B2B) and business-to-consumer (B2C) channels. On a full financial year basis, including the July and August 2021 trading periods, Hampers with Bite continued its strong revenue growth trajectory into FY22 recording revenue of $37.885 million for the financial year compared with $23.811 million during FY211, a significant increase of 59.1%. The Group was successful in commencing a range of personal care products manufactured at its Shepparton facilities under Vitale brand that were included in new hamper offerings in 2022. With the initial encouraging success of Vitale brand, the group will continue to develop more products targeted at hampers consumers. The Group continues to target key events outside of the Christmas season in order to pursue growth in other months of the year. Underlying EBIT of $10.783 million was $2.634 million (or 32.3%) higher compared to last year after adjusting reported EBIT for $1.047 million in costs relating to the acquisition of HWB. 20 PENTAL ANNUAL REPORT 2022 Financial Performance Cont. FY21 EBIT of $8.149 million excludes non-cash impairment charge of $0.348 million ($0.244 million net of tax) on brand names. On a reported basis, EBIT grew by 24.8% compared to prior year (FY22: $9.736 million vs FY21: $7.801 million). On an underlying basis, after adjusting reported FY22 profit before tax for $1.047 million in costs relating to the acquisition of HWB, profit before tax was $10.594 million, an increase of 32.0% compared to prior year. On a statutory basis, Pental achieved net profit after tax (NPAT) of $6.367 million, which was 18.7% higher compared to reported NPAT for FY21. The Group believes that presenting underlying results provides a better understanding of its financial performance by facilitating a more representative comparison of financial performance between financial periods. Underlying results exclude the effect of non-operating items that are unrelated to the underlying performance of the business. Underlying results have been presented with reference to the Australian Securities and Investment Commission Regulatory Guide 230 “Disclosing non- IFRS financial information”. Please refer to the following reconciliation for statutory profit comparison to prior period: Underlying Profit After Tax One Off/Significant Expenses After Tax) (ii) Reported Profit After Tax Income Tax Expense Finance And Borrowings Cost Reported EBIT (ii) One Off/Significant Expenses Before Tax Underlying EBIT Depreciation And Amortisation Underlying EBITDA (i) FY22 $'000 (i) FY21 $'000 % Change 7,414 (1,047) 6,367 3,180 189 9,736 1,047 10,783 3,899 14,682 5,607 (244) 5,363 2,317 121 7,801 348 8,149 3,849 11,998 32.23% 18.7% 24.8% 32.3% 22.4% (i) Unaudited non-IFRS financial table (ii) Costs relating to acquisition of HWB have been deemed non-deductible for tax purposes (iii) Refer to consolidated statement of profit or loss and other comprehensive income 21 PENTAL ANNUAL REPORT 2022 In FY22, the Group experienced significant price increases in various input costs predominantly driven by commoditised raw materials such as tallow (bar soaps), vegetable noodles (bar soaps), paraffin (firelighters), surfactants (bleach and laundry liquids) and resin (impacting bottle prices). The Group was able to pass on these cost increases to its customers effective in the second half of the financial year. Due to international events like low availability of shipping capacity driven by China’s COVID -19 restrictions and invasion of Ukraine by Russia driving fuel prices to historically high levels, both international and local freight remained challenging. The Group was able to negotiate through these operational challenges with a robust structure and reliance on multiple service partners. However, these negotiations came at a cost – Pental’s outgoing freight, excluding the HWB segment, increased by $0.591 million despite the reduced Duracell distributorship. Excluding the impact of reduced Duracell volume and new HWB business, outbound freight costs increased by $1.204 million. Pental continued its focus on labour efficiencies and utilisation improvements to drive production costs down. As a result, labour recovery was increased and net labour costs (differential between labour costs and labour recovered through production) was reduced by 14.1%. Shareholder metrics The total dividend for the 2022 financial year is 3.0 cents per ordinary share (2021: 2.6 cents), representing a payout ratio of 69.0% of the full-year underlying NPAT1 (2021: 63.2% of the underlying NPAT) and consists of: Interim fully franked dividend of 1.3 cents per ordinary share, which was paid on 23 March 2022; Proposed final fully franked dividend of 1.70 cents per ordinary share, payable to shareholders on 23 September 2021, with a record date of 5 September 2022. Cash generation and capital management Net cash provided by operating activities was $9.924 million (2021: Net cash provided by operating activities $16.045 million) representing a strong cash conversion of EBITDA at 72.8% (2021: 137.7%, however 2021 net cash provided by operating activities includes approximately $8.07 million freed up in working capital due to changes in the Duracell distribution agreement). Net working capital (receivables, inventories less trade and other payables) of $18.906 million was higher than last year by $1.048 million, predominantly due to addition of recently acquired Hampers with bite business. The Group maintained a healthy level of inventory as at reporting date despite ongoing disruptions to supply chains. Pental’s debtors’ position and cash collection continue to be strong, with minimal overdues as at the reporting date. As outlined in its FY21 Annual Report, Pental has invested approximately $1.6 million across FY21 and FY22 towards enhancing its fire protection systems at its Shepparton facilities. These enhancements include installation of an automated sprinkler system at the manufacturing facilities and upgrade of the hydrant system to meet and exceed insurers’ standards. This investment will not only ensure a high standard of safety for Pental’s workforce but will also assist with sourcing Insurance in a very challenging insurance market. The Insurance market in Australia has deteriorated significantly in the last 24 months, following multiple global risk events including Victorian bushfires, Californian bushfires and COVID-19, all of which drove significant losses for insurers. Pental experienced a steep increase in insurance premiums at the December 2020 renewal, as the pool of insurers shrunk due to more insurers seeking to de-risk their portfolios away from high-fire risk businesses. The Group is pleased to report a significant annual reduction of approximately $0.5 million in its insurance premiums effective as of 1 December 2021 upon renewal The Company’s closing net cash position of $8.132 million with a debt of $3.825 million was effectively cash positive. Please refer to Note 29 (a) to the financial statements for details. 22 PENTAL ANNUAL REPORT 2022 DIRECTORS' REPORT (CONT) Financial Performance Cont. Impact of COVID 19 The Group experienced a few disruptions to its operations driven by COVID-19 mainly in the areas of international shipping and general increase in freight costs. The Group however navigated through these disruptions with ample alternatives. The Directors believe COVID-19 will not have a material impact on the Group’s ability to continue as an ongoing concern. The Group is effectively debt free (or in a net positive cash position) as at the reporting date with a healthy cash balance of $8.1 million supported by a banking facility of $8 million. Whilst there are risks associated with the Group’s raw material supply chain from other countries, as demonstrated thus far, the Directors and management assess this risk as manageable due to the Group’s reliance on local sources for a majority of its raw materials. The Group has been stringently following government issued guidelines to mitigate risks associated with spread of novel coronavirus in the workplace. 23 PENTAL ANNUAL REPORT 2022 Strategic Objectives: The Five Key Pillars Pental’s core brands are recognisable by consumers when conducting their daily shopping in supermarkets and convenience stores across both Australia and New Zealand. Pental’s strategy supports its vision to be a leading supplier of shelf stable (non-food) products to its chosen markets through delivering quality, innovation and sustainability to the satisfaction of customer needs while enhancing shareholder value. Our strategy has five pillars as detailed below. These five pillars support growth and are matched by our strategy to establish new partnerships and distributorships that will complement our product range, expertise, and leverage our infrastructure while expanding into new channels. This year saw promising progress across the five strategic pillars as outlined here. 1. Driving sales growth through key brands 2. Developing new products and channels Pental prides itself on investing in product innovation, supporting its brands with advertising, and field support to grow our share of shelf space, our market share and brand equity in key categories. We constantly review the effectiveness of promotions in driving sales and margins, and the contribution made by products to overall sales. This enables us to identify early opportunities for innovation and product development which support sales growth and differentiate us from the competition. A key part of our product offering is to tender for private label opportunities to complement revenues from our branded portfolio by manufacturing these products where it makes commercial and strategic sense. Securing third party accreditation for our manufacturing and supply chain through ISO9002 and HACCP makes Pental an attractive manufacturing partner with established credentials. Pental has been successful in growing its owned branded portfolio revenue by 5.2% over the course of 2022 financial year. The growth was pleasingly driven by expansion of White King and Country Life brands. White King’s Bathroom cleaning portfolio delivered strong dollar (+7.0%) and unit (+ 4.8%) growth in FY22 resulting is the Brand being the top brand in the Segment. Country Life Bar Soap continues to outpace the Segment experiencing 19% dollar and 5.2% unit growth. Pental enjoys a niche rank in the categories it participates due to its agility to develop new products and speed to market. Pental constantly reviews the sales performance of each product ensuring we are supplying our consumers high quality and value-for-spend products. We now manufacture 99% of our consumer product range in Australia and New Zealand. For the gifting and hamper business, we carefully select and source most high-quality products locally. Pental continues to assess opportunities in the Australian market in order to find new avenues to reach consumers. As such, we started supplying a range of five products through a major hardware channel. The early performance of our products through this channel are very encouraging. Pental is developing more products for this channel in order to maximise its offering of efficient, affordable and well recognised branded products to consumers. We also launched a range of new products in existing channels including a bleach free multipurpose cleaner in pharmacy channel, a new variant of toilet gels in grocery channel and a new softly liquid for delicates in major grocery channels. The acquisition of HWB provides Pental with a strong avenue to reach consumers. We were successful in commencing a range of personal care products manufactured at its Shepparton facilities under Vitale brand that were included in new hamper offerings in 2022. Encouraged by the initial success of Vitale brand, we will continue to develop more products targeted at hampers consumers. We continue to target key events outside of the Christmas season in order to pursue growth in other months of the year. 24 PENTAL ANNUAL REPORT 2022 3. Expand export markets The combination of Pental’s strong presence in New Zealand market and close geographical proximity means we can reap rewards from fast product launches under our strong brands compared to international competitors. We continue our strong partnership with our Auckland- based sales and distribution agent. NZ revenue grew by 7.8% during the reported period. This growth was achieved through both product innovation and increased field support at store level. Both our power brands Janola and Sunlight performed strongly in the New Zealand market and enjoy a significant share of their respective categories. Revenue from firelighters under Little Lucifer brands was up 70.4% in the financial year compared to the previous financial year. Asia remains a key part of our growth ambitions despite the disappointing sales performance in the last 2 financial years disrupted by COVID-19 related issues and a tense political environment with China. Pental is making progress to form strong alliances with distributors outside of China, mainly in Thailand, South Korea, and Indonesia. 4. New Projects and acquisitions 5. Continuous manufacturing improvement As communicated on a number of occasions previously, Pental is targeting growth through strategically suitable acquisitions to complement its organic growth. As such, Pental acquired Hampers with Bite business on 1 September 2021. Hampers With Bite Pty Ltd (HWB) is a Melbourne-based online hamper and gifting specialist. Its range of premium hampers and gifts are targeted at affordable prices focusing on corporate clients and gifts to family and friends. HWB provides customers with the option of creating their own hamper or simply purchasing one of HWB’s pre-designed hampers online. Prior to its acquisition by the Group, HWB grew from an approximately $10 million revenue with an EBIT of $1 million EBIT business in FY19 to an approximately $24 million revenue business in FY21 with an EBIT of approximately $5 million. HWB continued its strong growth trajectory into FY22. Under Pental’s ownership, from 1 September 2021 to 26 June 2022, HWB business delivered strong revenue of $31.649 million with an EBIT contribution of $6.509 million, underpinned by a strong Christmas season across both B2B and B2C channels. Pental continues to search for additional strategically suitable acquisitions that complement its strength and consumer base. Pental’s final strategic pillar is continuous manufacturing improvement to support profitable growth through capital investment, along with cost savings and delivering high-quality, trusted products. At the Shepparton plant we continue to focus on improving productivity and line efficiency through labour reduction initiatives and CAPEX strategies to reduce changeover times, increased line availability, and ongoing preventative maintenance programs. The installation of a new filling line at Pental’s Shepparton manufacturing site last year has enabled the production and development of products that are more earth- friendly and sustainable for the market. This investment has also enabled Pental to participate in tendering of contract manufacturing opportunities that were previously not possible. Pental has made a significant investment over the last two financial years in upgrading the infrastructure at its Shepparton plant, mainly through the upgrade of its fire protection systems and traffic management improvement initiatives with the safety of our team being our primary focus. 25 PENTAL ANNUAL REPORT 2022 MARKET SHARE WINS #1 SKU in market #6 SKU in market Jiffy outpaced the category average growth rate in FY22 resulting in Market Share gains of +1.1% points vs prior year* Country Life achieved outstanding dollar (+19%) and unit (+5.2%) growth resulting in a +0.5 market share percentage point gain for the full year*. 26 PENTAL ANNUAL REPORT 2022 DIRECTORS' REPORT (CONT) Operational Risks Product sourcing: Supply chain: Pental relies on a range of parties for its product- sourcing strategy. Any change in existing relationships (including the termination of any key supply arrangements) or any change in terms or conditions of overseas/local suppliers and any change in the political or economic environment may impact performance. Pental is continually refining its sourcing arrangements, including operating dual sourcing arrangements to mitigate risk. Pental has an extensive and reliable supply chain that enables it to efficiently procure and deliver products to customers. Disruption to a material aspect of this supply chain could have a material adverse impact on Pental’s operational and financial performance. Pental’s ongoing review of supply chain costs and the corresponding change of supply chain arrangements with minimal disruption especially through the COVID-19 pandemic period, has demonstrated that Pental can effectively manage this risk. IRI MarketEdge, 26/06/22 27 PENTAL ANNUAL REPORT 2022 Operational Risks Cont. Pental faces specific and general operational risks which may impact the future operating and financial performance of the Group. There can be no guarantee that Pental will achieve its objectives or that forward- looking statements will be realised. The operating and financial performance is influenced by a variety of general economic and business conditions including levels of consumer spending, inflation, interest and exchange rates, and certain raw material prices. New entrants into Pental’s market segment have the potential to cause market disruption across Pental’s and competitors’ brands as they bid to secure shelf space. This disruption has the potential to erode revenues and margins. Across the supermarket sector in both countries, operators are competing for shoppers’ share of wallet through discounting and private label diversification. The competitive environment is challenging, coupled with need to recover rising input costs through prices rises which due to long lead times (typically between 13 weeks and 26 weeks) can lead to shrinkage in margins. Following is a summary of the most significant risks facing continuing business operations, as identified and assessed by a risk management process carried out by the Audit and Risk Committee and Pental’s risk mitigation approaches: Pental believes it can continue to successfully operate in the fast-moving consumer goods market through strong product innovation and managing its product sourcing and manufacturing costs. Competition and demand: Workplace Health and safety: The majority of Pental’s branded products are sold in supermarkets in Australia and New Zealand. In both countries competition between retailchains is intense, leading to aggressive reviews of product mixes as well as increased moves towards own or private label products to improve retail margins. This situation is not unique to Pental and affects suppliers of most products stocked across supermarket chains. Being a leading manufacturer and the physical nature of its operations, Pental considers workplace health and safety of paramount importance. Pental has invested heavily into its hazard reporting, compliance and training systems including a dedicated health and safety officer to ensure the Group strives towards a zero-incident mindset. 28 PENTAL ANNUAL REPORT 2022 DIRECTORS' REPORT (CONT) Operational Risks Cont. Raw material price fluctuation: Cyber security: A vast majority of Pental’s products contain raw materials that are considered commoditised. These raw materials such as tallow, paraffin, caustic soda, coconut oil etc. are subject to market and price movements including exposure to foreign exchange rates. Factors outside of the Group’s control such as weather impacting cattle numbers which in turn impacts tallow supply, international demand and supply of crude oil impacting paraffin supply etc. can impact these raw material prices significantly without a possible recovery through price increases. Pental manages this risk through its hedging policy and wherever commercially viable, through securing contracts against price movements. Loss of key personnel: Pental’s future success depends to a significant extent on the retention of key personnel, particularly in senior management, who have extensive market and business knowledge. The loss of key personnel and the time taken to recruit suitable replacements or additional personnel could adversely affect the Company’s future financial performance. The Board reviews the organisational structure of the business to ensure the best people are retained, whilst investing in developing other key people in the business. Damage to Pental's brands: The reputation and value associated with Pental’s brand names could be adversely impacted by various factors including quality failures, disputes with third parties such as suppliers or customers or adverse media coverage. Significant erosion in the reputation of, or value associated with, Pental's brands could have an adverse effect on Pental’s future financial performance. Pental believes that its quality processes and systems, and proactive tracking and management of any disputes, minimises this risk. Pental relies heavily on its Information Technologies (IT) to operate on a daily basis in transacting with its customers as well as to continue manufacturing its quality products at its facilities. In today’s hyperconnected age, all businesses are exposed to threats posed by internet connectivity such as ransomware attacks (malicious software), phishing scams attempting to gain access or credentials, or suffering data breaches or network security etc. Such attacks, if successful, can result in prolonged period of IT outages affecting the Group’s ability to transact with its customers as well as its ability to manufacture thus impacting its profitability. Pental puts a high importance on this risk and proactively manages it through strong IT controls and software systems including firewall monitoring, anti-virus software, multi-factor authentication systems, virtual private network systems (VPN) etc. Outlook The outlook for the Group is contained in the Chairman’s report. Changes In The State Of Affairs During the financial year, there were no significant changes in the state of affairs of the Group, other than as referred to in this Annual Report. Future Developements Information regarding likely developments in the operations of the Group in future financial years is set out in the Review of operations and elsewhere in the Annual Report. Subsequent Events There has not been any matter or circumstance occurring subsequent to the end of financial year that has significantly affected, or may affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. 29 Dividends In respect of the year (52 weeks) ended 26 June 2022 an interim fully franked dividend of 1.3 cent per ordinary share was paid on 23 March 2022. The directors have declared the payment of a final fully franked dividend of 1.7 cents per ordinary share, payable to shareholders on 23 September 2022, with a record date of 5 September 2022. The total dividend for the FY22 financial year of 3.0 cents per share represents a payout ratio of 69.0% of net profit after tax (excluding HWB acquisition related costs). In the prior year ended 27 June 2021, the total dividend paid was 2.6 cents per ordinary share, representing a payout ratio of 63.2% of net profit after tax (i.e. before significant non cash items). Environmental Regulations The Shepparton manufacturing site is subject to the Environmental Protection Act 1970, although due to current practices Pental is not required to have an EPA license. Pental has a Trade Waste Agreement with Goulburn Valley Water which stipulates limits on volume and content of our Trade Waste emissions. Pental proactively monitors the trade waste discharged from site as part of that Trade Waste Agreement. Continuous Improvement initiatives focussing on Trade waste system dilution capital improvements, internal hard waste segregation management and compliance cleaning programs are in progress. Annual Reporting Calendar REPORTING REQUIREMENT Lodgement of Appendix 4E - FY22 FY22 Annual Financial Report Deadline for nomination as Director Annual Report and Notice of Annual General Meeting Annual General Meeting PENTAL ANNUAL REPORT 2022 Pental continues to be focussed on working with authorities and waste service providers to implement sustainable solutions. Environmental performance is reported monthly to the Site Management Group and the Board. Shares Under Option or Issued on Exercise of Options There were no unissued shares under exercisable options as at the date of this report. The Group’s Executive Director (Charlie McLeish), Chief Financial Officer (Neil Godara) and senior management were issued performance rights pursuant to the Executive Variable Incentive Plan (EVIP) as detailed in the Remuneration Report. These performance rights remain unvested as at the date of this report. Indemnification of Officers and Auditors During the financial year, the company paid a premium in respect of a contract insuring the directors of the company (as named above), the company secretary, Oliver Carton, and all executive officers of the company and of any related body corporate against a liability incurred by such a director, secretary or executive officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the company or of any related body corporate against a liability incurred as such an officer or auditor. DATE 18 August 2022 18 August 2022 30 September 2022 18 October 2022 17 November 2022 30 PENTAL ANNUAL REPORT 2022 DIRECTORS' REPORT (CONT) Directors' Meetings The following table sets out the number of directors’ meetings (including meetings of committees of directors) held during the financial year and the number of meetings attended by each director (while they were a director or committee member). During the financial year, 13 Board, 4 Audit Committee and 2 Remuneration Committee meetings were held. Board of Directors Audit and Risk Committee Remuneration Commitee Eligible to Attend Attended $'000 Eligible to Attend Attended Eligible to Attend Attended 13 13 13 13 13 13 13 13 13 13 4 4 4 - - 3 4 4 - - 2 2 2 2 - 2 2 2 2 - Directors Mark Hardgrave Kerrie Parker Jeff Miciulis Fred Harrison Charlie McLeish Non-audit services None of the services undermine the general principles relating to auditor independence as set out in Code of Conduct APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risks and rewards. Auditor’s independence declaration The auditor’s independence declaration is included on page 58 of the annual report. Rounding off of amounts The Company is a company of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 dated 24 March 2016, and in accordance with that Corporations Instrument, amounts in the Directors’ Report and financial report are rounded off to the nearest hundred thousand dollars, unless otherwise indicated. Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in Note 32 to the financial statements. The directors are satisfied that the provision of non- audit services during the year, by the auditor (or by another person or firm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in Note 32 to the financial statements do not compromise the external auditor’s independence, based on advice received from the Audit Committee, for the following reasons: All non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor, and 31 PENTAL ANNUAL REPORT 2022 SUSTAINABILITY Our goal is to create a more sustainable packaging that still protects our amazing hampers but also protects the environment. Comprehensive trials of new paper packaging in collaboration with Ranpak (the first global producer of 100% sustainable, paper-based packaging) have been completed in June & July 2022. View to roll out new packaging from early 2023 with the goal of reducing the usage of packaging landfill waste by a minimum of 90%. Plastic Version New Eco-Friendly Material Flat inner bubble Square packaging bubble Flat filling Plastic Version Flat Inner Bubble Square Packaging Bubble New Eco-Friendly Verison Flat Filling Flat Filling 32 PENTAL ANNUAL REPORT 2022 REMUNERATION REPORT - AUDITED This remuneration report details the nature and amount of remuneration for each director and senior management personnel of Pental Limited. Key Management Personnel The directors and other members of key management personnel of the Group during the year were: Mark Hardgrave Charlie McLeish Jeff Miciulis Fred Harrison Kerrie Parker Neil Godara Non-executive Independent Chairman Managing Director and Chief Executive Officer Non-executive Independent Director Non-executive Independent Director Non-executive Independent Director Chief Financial Officer There have been no changes in key management personnel since the end of the reporting period. 33 PENTAL ANNUAL REPORT 2022 Remuneration Policy The remuneration policy of Pental Limited has been designed to align executive objectives with shareholder and business objectives by providing a fixed remuneration component and offering variable cash and equity incentives based on key performance areas affecting the Group’s financial results. The Board of Pental Limited believes the remuneration policy to be appropriate and effective in its ability to attract and retain the best executives to run and manage the Group, as well as create goal congruence between executives and shareholders. The Board’s policy for determining the nature and amount of remuneration for executives and board members of the Group is as follows: Executives The remuneration policy, setting the terms and conditions for the Managing Director and other senior executives (Executives), was developed and approved by the Board. Executive packages are reviewed annually by reference to the Group’s performance, executive performance and comparable information from industry sectors and other listed companies in similar industries and of comparable size. The performance of executives is measured regularly against agreed key performance indicators (KPIs) and is based predominantly on the forecast growth of the Group’s profits and shareholders’ value. All bonuses and incentives are linked to predetermined operational and financial KPIs. Executives are also entitled to participate in an Executive Variable Incentive Plan (EVIP). The executives receive a superannuation guarantee contribution required by the law, and do not receive any other retirement benefits. Some individuals, however, may choose to sacrifice part of their salary to increase payments towards superannuation. The various elements of the executive remuneration structure serve various purposes as listed below: Element Purpose $'000 Performance Metrics Potential Value Fixed remuneration To attract and retain high performing talent by providing a market competitive salary Nil Market rate which is reviewed annually to ensure it remains competitive. Not guaranteed to increase in executives’ contracts EVIP - cash component EVIP - equity component Reward for current year performance when value has been created for shareholders by achieving or outperforming profitability targets Group earnings before interest and tax (EBIT) targets together with pre-determined key performance indicators within the executive’s area of responsibility 20% of total fixed remuneration for the Chief Financial Officer 35% of total fixed remuneration for the Managing Director and Chief Executive Officer. Alignment to long term shareholder return by achieving or outperforming current year profitability targets and ensuring long term share price preservation. Share price as at vesting date to remain above the share price on grant date 30% of total fixed remuneration (at face value) for the Chief Financial Officer Group earnings before interest and tax (EBIT) targets together with pre-determined key performance indicators within the executive’s area of specialisation 40% of total fixed remuneration (at face value) for the Managing Director and Chief Executive Officer. Maximum possible remuneration for the executives has been structured as per below to strike a balance between the short-term and long-term objectives of the remuneration policy. 34 PENTAL ANNUAL REPORT 2022 REMUNERATION REPORT - AUDITED (CONT) Non-executive members of the board The Board policy is to remunerate non-executive directors at market rates for comparable companies for time, commitment and responsibilities. The Board determines payments to the non-executive directors and reviews their remuneration annually, based on market practice, duties and accountability. The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting. The maximum aggregate amount of fees that can be paid to non-executive directors as per last approval is $0.750 million. Fees for non-executive directors are not linked to the performance of the Group. No shares or options have been issued to non-executive directors, under the EVIP or an option scheme, within the last five years. Key terms of executive employment contracts The executives and the Group are bound by formal employment contracts which contain key terms of their employment including fixed remuneration inclusive of superannuation and where eligible, ability to participate in EVIP. The agreements do not reflect a fixed term of employment or nominate a specified amount to be paid on termination of employment. The agreements normally provide that the termination notice period may be paid out by the Group. The major provisions of the employment agreements are as per below: Executive Name Term of Agreement Total fixed remuneration including superannuation Eligibility to participate in EVIP Notice of termination Charlie McLeish On-going $550,000 Eligible Neil Godara On-going $280,000 Eligible The period of notice required by the Group to terminate the employment is twelve months without cause and the notice required by Mr McLeish is four months. The period of notice required by either the Group or Mr Godara to terminate the employment without cause is one month. 35 PENTAL ANNUAL REPORT 2022 Relationship between the remuneration policy and company performance The remuneration policy has been tailored to increase goal congruence between shareholders and executives. To improve transparency, this has been achieved through structuring executive remuneration with a combination of total fixed remuneration and a performance-based incentive system controlled through EVIP. Details of EVIP are provided within the remuneration report. Fees for non-executive directors are not linked to the performance of the Group. The following tables set out summary information about the Group’s earnings and movements in shareholder wealth for the five years to June 2022. It has been the focus of the Board of Directors to retain management personnel essential to the profitable operations of the Group, and to attract suitable executives. 26 June 2022 1 27 June 1 2021 28 June 2020 30 June 1 2019 1 July 2018 1 Sales revenue 117,432 124,940 126,460 100,446 75,667 Net profit/(loss) before tax Net profit/(loss) after tax Underlying net profit after tax 9,547 6,367 7,414 7,680 5,363 5,607 7,221 5,019 5,019 2,756 (26,824) 1,921 3,451 (27,839) 2,602 1. Underlying net profit after tax has been adjusted to exclude costs relating to the HWB acquisition for FY22: $1,047 thousand, brand impairment for FY21: $348 thousand, FY19: $2,185 thousand, goodwill impairment for FY18: $29,446 thousand, ACCC penalty for FY18: $700 thousand, ACCC legal costs for FY18: $421 thousand (FY21: $104 thousand, FY19: $655 thousand, FY18: $126 thousand). 26 June 2022 27 June 2021 28 June 2020 30 June 2019 1 July 2018 Share price at start of year $0.415 $0.34 $0.288 $0.280 $0.595 Share price at end of year $0.415 $0.415 $0.34 $0.288 $0.280 Interim dividend (cents) per share 1 Special dividend (cents) per share 1, 2 Final dividend (cents) per share 1, 2 Basic earnings/(loss) cents per share 1.30 1.00 0.70 0.70 0.60 - - 0.70 - - 1.70 1.60 3.89 3.94 1.50 3.68 3.64 1.30 0.90 1.41 (20.43) 1.41 (20.43) Diluted earnings/(loss) cents per share 3.80 3.85 1. 2. Franked to 100% at 30% corporate income tax rate. Declared after the balance date and not reflected in the financial statements of that year. 36 PENTAL ANNUAL REPORT 2022 DRIVING OUT WASTE Increasing Measurements to Improve Efficiencies Working with Industry Experts Reducing Production Waste Staff Education and Training Programs Increased Manufacturing Performance Reporting Questioning and Benchmarking All Costs Ongoing Focus on Continuous Improvement Projects 37 PENTAL ANNUAL REPORT 2022 REMUNERATION REPORT - AUDITED (CONT) The compensation of each member of the key management personnel of the Group for the current year is set out below: Short-term employee benefits Long-term employee benefits Post- employment benefits Share–based payments 2022 Salary (i) & fees $ Bonus $ Non- Monetary $ (ii) Long service (iii) leave $ Superannuation $ Rights $ Total $ Non Executive Directors Mark Hardgrave 109,091 Jeff Miciulis Fred Harrison Kerrie Parker 72,727 76,364 78,182 Total Directors 336,364 Executives - - - - - - - - - - - - - - - 10,909 7,273 3,636 1,818 23,636 - - - - - 120,000 80,000 80,000 80,000 360,000 Charlie McLeish 531,822 70,000 7,231 Neil Godara 266,242 28,000 6,407 8,278 8,327 27,500 73,553 718,384 23,249 22,226 354,451 Total Executives 798,064 98,000 13,638 16,605 50,749 95,779 1,072,835 Total Remuneration 1,134,428 98,000 13,638 16,605 74,385 95,779 1,432,835 (i) Salary & fees includes movements in the annual leave provision relating to the executives. (ii) Non-monetary benefits include car parking & motor vehicle toll tags (iii) Long service leave benefit represents movements in the long service leave provision relating to the executives. 38 PENTAL ANNUAL REPORT 2022 The compensation of each member of the key management personnel of the Group for the prior year is set out below: Short-term employee benefits Long-term employee benefits Post- employment benefits Share–based payments 2022 Salary (i) & fees $ Bonus $ Non- Monetary $ (ii) Long service (iii) leave $ Superannuation $ Rights $ Total $ Non Executive Directors Mark Hardgrave 109,589 Jeff Miciulis Fred Harrison Kerrie Parker (iv) John Etherington (v) 73,059 73,059 78,182 78,182 Total Directors 336,364 Executives - - - - - - - - - - - - - - - - - - 10,411 6,941 6,941 2,892 5,205 32,390 - - - - - - 120,000 80,000 80,000 33,333 60,000 373,333 Charlie McLeish 568,747 192,500 6,600 Neil Godara 235,336 50,000 3,436 16,382 3,802 24,996 60,937 870,162 21,690 17,381 331,645 Total Executives 804,083 242,500 10,036 20,184 46,686 78,318 1,201,807 Total Remuneration 1,145,026 242,500 10,036 20,184 79,076 78,318 1,575,140 (i) Salary & fees includes movements in the annual leave provision relating to the executives. (ii) Non-monetary benefits include car parking & motor vehicle toll tags (iii) Long service leave benefit represents movements in the long service leave provision relating to the executives. (iv) Kerrie Parker was appointed non-executive director on 1 February 2021. (v) John Etherington resigned as non-executive director on 31 March 2021. Transactions with key management personnel As disclosed in information about the Directors, Mr Fred Harrison is the CEO of Ritchies. Mr Harrison’s employer, Ritchies Stores Pty Ltd invoiced the Group a total of $129,799.66 inclusive of GST (2021: $266,239.93 inclusive of GST) relating to the Group’s participation in various promotional activities and supplier trading terms during the financial year. All transactions were conducted at arm’s length. As at the reporting date, the Group owed Ritchies Stores Pty Ltd $18,022.90 (2021: $106,288.84) in relation to above mentioned promotional activities and supplier trading terms. 39 PENTAL ANNUAL REPORT 2022 REMUNERATION REPORT - AUDITED (CONT) Executive Variable Incentive Plan (EVIP) The vesting of the Rights is conditional on: a) The executive satisfying Group level and personal performance criteria, b) The executive being employed by the Group on the vesting date; and c) Pental’s VWAP share price for the last ten business days preceding the vesting date being equal to or greater than the VWAP for the preceding ten business days from the grant date. In total, the Rights are held for four years from the grant date. The value to the executive therefore is not at the grant date, rather at the vesting date which is three years from the end of financial year of the grant date. Dividends are not payable on the Rights. Dividends are payable on ordinary shares after conversion of the Rights to ordinary shares. Under the EVIP, the executives can receive the following annualised remuneration from the vesting of the Rights Percentage of total fixed remuneration: Charlie McLeish Neil Godara Up to 40% Up to 30% In the event the Group fails to meet its annual financial performance criteria, the Board retains the discretion to award up to 50 percent of EVIP entitlements to recognise and reward executives for extraordinary efforts and achievements during the financial year. Under Pental’s EVIP, executives and selected senior management employees are eligible for both a cash and equity incentive upon the achievement of certain Group level KPI’s and personal KPIs set at the commencement of each financial year, weighted as follows: Fifty percent of both the cash and equity incentive KPIs relate to the achievement of a target EBIT for the financial year. The remaining fifty percent are based on specific KPIs relevant to the participant’s particular responsibilities. Variable Incentive – cash Variable cash incentive under EVIP is paid shortly after the release of audited full year results. The maximum amount of remuneration under the variable cash incentive plan ranges from 20 to 35 percent of the individual executive / senior management employee’s total fixed remuneration. Variable Incentive – equity The variable equity incentive is designed to reward achievement of annual KPIs, assist the retention of key high performing executives and align the rewards to the company’s share price. The maximum amount of remuneration under the variable equity incentive plan varies from 30 to 40 percent of the individual executive/senior management employee’s total fixed remuneration. The variable equity incentive is delivered as Performance Rights (Rights), which are granted under the Executive Performance Rights Plan (Rights Plan) to enable the subsequent acquisition of the share component. The Rights will convert to ordinary shares after three years from the end of financial year of the grant date. Rights will be granted on a face value basis using the last ten business days of the previous financial year Volume Weighted Average Price (VWAP). The variable equity incentive is based upon an assessment of performance against respective KPIs in the year in which it is granted. If the performance criteria are not met within the financial year, the Rights are forfeited at the end of the same financial year. 40 PENTAL ANNUAL REPORT 2022 REMUNERATION REPORT - AUDITED (CONT) EVIP - FY22 Performance The following table contains details of EVIP entitlements achieved by the executive team during the year: 2022 Executives Charlie McLeish Neil Godara % of EVIP achieved EVIP – cash component $ (iii) EVIP – Equity component at face value $ (i) VWAP used to calculate number of Rights $ Number of Rights issued (ii), (iii) 50% 50% 70,000 28,000 98,000 110,000 42,000 152,000 0.4120 267,000 0.4120 102,000 369,000 (i) Volume Weighted Average Price (VWAP) based on closing share price of last 10 business days of financial year 2021 and volume traded on each day in that period. Source – Commonwealth Securities Limited. (ii) Number of Rights have been issued after rounding to nearest thousand. (iii) The executives have been issued partial entitlements for 2022 financial year due to not meeting financial performance conditions. The fair value of the Rights granted is measured using Monte Carlo method. The following table contains relevant inputs to measure the fair value of the Rights as at grant date: Grant Date No. of Rights granted Share price at grant date (i) Exercise price Expected volatility Risk free rate Expected dividend yield Fair value per Right at grant date Fair value of Rights at grant date Executives (i) Charlie McLeish 18/11/2021 534,000 $0.4150 Neil Godara 1/7/2021 204,000 $0.4000 Nil Nil 40% 1.38% 5% $0.189 $100,926 40% 0.72% 5% $0.190 $38,760 (i) Rights granted to Mr McLeish were voted and approved by the shareholders at the last Annual General Meeting through an ordinary resolution. (ii) Volume Weighted Average Price (VWAP) based on closing share price of last 10 business days of financial year 2021 and volume traded on each day in that period. Source – Commonwealth Securities Limited. The following tables contains details of EVIP entitlements achieved by the executive team during the previous financial year: 41 PENTAL ANNUAL REPORT 2022 The following tables contains details of EVIP entitlements achieved by the executive team during the previous financial year: 2022 % of EVIP achieved EVIP – cash component $ EVIP – Equity component at face value $ (i) VWAP used to calculate number of Rights $ Number of Rights issued Executives Charlie McLeish Neil Godara 100% 100% 192,500 50,000 242,500 220,000 75,000 295,000 0.3458 0.3458 636,000 217,000 853,000 (i) Volume Weighted Average Price (VWAP) based on closing share price of last 10 business days of financial year 2020 and volume traded on each day in that period. Source – Commonwealth Securities Limited. (ii) Number of Rights have been issued after rounding to nearest thousand. The fair value of the Rights granted were measured using Monte Carlo method. The following table contains relevant inputs to measure the fair value of the Rights granted during previous financial year Grant Date No. of Rights granted Share price at grant (i) date Exercise price Expected volatility Risk free rate Expected dividend yield Fair value per Right at grant date Fair value of Rights at grant date Executives (i) Charlie McLeish 19/11/2020 636,000 $0.4100 Neil Godara 1/7/2020 217,000 $0.3458 Nil Nil 51% 0.30% 7% $0.212 $134,832 51% 0.40% 7% $0.157 $34,069 (i) Rights granted to Mr McLeish were voted and approved by the shareholders at the last Annual General Meeting through an ordinary resolution. (ii) Volume Weighted Average Price (VWAP) based on closing share price of last 10 business days of financial year 2021 and volume traded on each day in that period. Source – Commonwealth Securities Limited. (iii) 42 PENTAL ANNUAL REPORT 2022 SHORT TO MEDIUM TERM OBJECTIVES Continuous IMPROVEMENT PROJECTS Focusing on EMPLOYEE RETENTION Ongoing PACKAGING REVIEWS White King MASTER BRAND STRATEGY INCREASED AUTOMATION with packing of Hampers Pental Shepparton producing products for the HAMPER BUSINESS GROWTH through both range diversification and range rationalisation R&D team to focus on new SUSTAINABLE PRODUCTS AND PACKAGING Always progressing with NEW TECHNOLOGY 43 PENTAL ANNUAL REPORT 2022 REMUNERATION REPORT - AUDITED (CONT) Share-Based Payments (Right Plan) All performance rights under the EVIP are issued pursuant to the Executive Performance Rights Plan (Rights Plan). Under the conditions of Rights Plan, performance Rights are convertible to ordinary shares (with no exercise price) as at the vesting date which is 4 years from the grant date (or 3 from the end of the financial year) All Rights issued are convertible to ordinary shares at no consideration, subject to achieving performance or vesting conditions. The following table discloses changes in the performance rights holdings of management personnel: Grant Date Vesting Date Balance at 27/6/2021 No. Rights granted No. Rights vested No. Rights forfeited No. Rights lapsed No. Charlie McLeish 1/7/2019 1/7/2023 685,000 Neil Godara 1/7/2019 1/7/2023 223,000 Charlie McLeish 19/11/2020 1/7/2024 636,000 Neil Godara 1/7/2020 1/7/2024 217,000 - - - - Charlie McLeish 18/11/2021 1/7/2025 Neil Godara 1/7/2021 1/7/2025 - - 534,000 204,000 - - - - - - - - - - 267,000 102,000 Balance at 26/6/2022 No. 685,000 223,000 636,000 217,000 267,000 102,000 - - - - - - 44 PENTAL ANNUAL REPORT 2022 Key Management Personnel Equity Holdings Fully paid ordinary shares of Pental Limited held by key management personnel including a close member of family or entity that is controlled or significantly influenced are as per below: Balance at 26/6/2020 Net change other (i) Balance at 27/6/2021 Net change other (i) Balance at 26/6/2022 (iv) (ii), (iii) Non Executive Directors Mark Hardgrave Fred Harrison Kerrie Parker 100,000 250,000 - Jeff Miciulis 800,000 - - - - 100,000 250,000 - 263,158 197,368 77,000 363,158 447,368 77,000 800,000 200,000 1,000,000 John Etherington (ii) 160,000 (160,000) Executives Charlie McLeish (iii) 14,500 (14,500) Neil Godara (iii) - - - - - - - 84,595 84,595 - - (i) Net change other includes shares traded during the financial year. (ii) Mr Etherington retired as director during the previous financial year. (iii) Both Mr Leish and Mr Godara have been issued performance rights under the Executive Variable Incentive Plan (EVIP) (iv) There has been no change in shareholding from the end of the financial year to the date of this report. Key Management Personnel Share Option Holdings Other than the performance rights holding disclosed previously, no share options are on issue as at the date of this report. This directors' report is signed in accordance with a resolution of directors made pursuant to s.298 (2) of the Corporations Act 2001. On behalf of the Directors Mark Hardgrave Chairman Melbourne, 18 August 2022 45 PENTAL ANNUAL REPORT 2022 CORPORATE GOVERNANCE STATEMENT This Corporate Governance Statement sets out the Company's current compliance with the ASX Corporate Governance Council's Principles of Good Corporate Governance and Best Practice Recommendations (Best Practice Recommendations). The Company's website contains an Investor Section, which details the Company's Corporate Governance policies and procedures. This provides public access to all the information relevant to the Company meetings its corporate governance obligations. 46 PENTAL ANNUAL REPORT 2022 Best Practice Recommendation Comment 1. 1.1 Lay solid foundations for management and oversight A listed entity should disclose: (a) the respective roles and responsibilities of its board and management: and (b) those matters expressly reserved to the board and those delegated to management 1.2 A listed entity should disclose: (a) undertake appropriate checks before appointing a person, or putting forward to security holders a candidate for election, as a director; and (b) provide security holders with all material information in its possession relevant to a decision on whether or not to elect or re-elect a director. The Corporate Governance Policies include a Board Charter which discloses the specific responsibilities of the Board and provides that the Board shall delegate responsibility for the day-to-day operations and administration of the Company to the Managing Director and Chief Executive Officer. The responsibilities of the Board, which are reserved for the Board and not delegated to management, include: Oversight of the business and affairs of the Company; Establishment of control and accountability systems; Establishment with management of strategic directions, supporting strategies and operating performance objectives; Appointing the Managing Director and any other Executive Director; and Reviewing and ratifying systems of risk management and internal compliance and control, code of conduct and legal compliance. The Board Charter is available on the Company's website. The Board has not established a Nominations Committee given the size of the Board and the Company's operations. The Board as a whole performs the role of selecting of potential new directors, and appropriate checks are made before an appointment occurs. The Company provides security holders with all material information in its possession concerning the appointment or re- appointment of a director in the Notice of Shareholder Meeting concerning that appointment or re-appointment. A recommendation of the Directors concerning that appointment or re-appointment is also given. 47 PENTAL ANNUAL REPORT 2022 Best Practice Recommendation Comment Lay solid foundations for management and oversight A listed entity should have a written agreement with each director and senior executive setting out the terms of their appointment. The Company has a written agreement with each director and senior executive setting out the terms of their appointment. 1. 1.3 1.4 The company secretary of a listed entity should be accountable directly to the board, through the proper functioning of the board. 1.5 A listed entity should: (a) have a diversity policy that includes requirements of the board or a relevant committee of the board to set measurable objectives for achieving gender diversity and to assess annually both the objectives and the entity's progress in achieving them; (b) disclose that policy or a summary of it: and (c) disclose as at the end of each reporting period the measurable objectives for achieving gender diversity set by the board or a relevant committee of the board in accordance with the entity's diversity policy and its progress towards achieving them and either: 1. 2. the respective proportions of men and women on the board, in senior executive positions and across the whole organisation (including how the entity has defined "senior executive" for these purposes); or if the entity is a "relevant employer" under the Workplace Gender Equality Act, the entity's most recent "Gender Equality Indicators", as defined in and published under the Act. The company secretary is accountable directly to the board, through the chair, on all matters to do with the proper functioning of the board. The current company secretary is a long- standing appointee and has direct contact with all directors as and when required. The Company does not have a specific policy or measurable objectives for achieving gender diversity. The Board believes the existing Code of Conduct anti-discrimination provisions provide for this. The Company does not believe it is appropriate to establish a quota system for measuring gender diversity, and indeed such a quota system could itself lead to discrimination. As a "relevant employer" under the Workplace Gender Equality Act, the company is compliant with the minimum requirements of the act and intends to take appropriate action should it be of the view that there is insufficient gender diversity within the business. As at 26 June 2022, there were 55 (27 June 2022, 29) women employed representing 35.26% (27 June 2021, 22.66%) of total employees. There were no female senior executives as at the reporting date (27 June 2021: None). There was one female on the Board of Directors (27 June 2021, one). The Company's Corporate Governance Section on its website includes the Company's 2022 Workplace Gender Equality public report and the corresponding compliance notice issued to the company on the 22nd July 2020. 48 PENTAL ANNUAL REPORT 2022 Best Practice Recommendation Comment 1. Lay solid foundations for management and oversight 1.6 A listed entity should: (a) have and disclose the process of periodically evaluating the performance of the board, its committees and individual directors; and (b) disclose, in relation to each reporting period, whether a performance evaluation was undertaken in the reporting period in accordance with that process. 1.7 A listed entity should: (a) have and disclose process of periodically evaluating the performance of its senior executives; and (b) disclose, in relation to each reporting period, whether a performance evaluation was undertaken in the reporting period in accordance with that process. The Company does not have a formal policy for the periodic evaluation of its Board. The Board does not consider that a formal policy is necessary given the size of the Board and operations of the Company. The Company intends carried out an internal process of evaluation during the current period. The Board is responsible for assessing the performance of the Managing Director. The Managing Director is responsible for assessing the performance of all executives within the Company, in conjunction with the Board. Key performance indicators are set annually, and appraisals are conducted at least biannually for all Pental employees. A performance evaluation for the Managing Director and all executives has taken place during the year under the process disclosed. 49 PENTAL ANNUAL REPORT 2022 Best Practice Recommendation Comment 2. 2.1 Structure the board to add value The board of a listed entity should: (a) have a nomination committee which: 1. 2. 3. 4. 5. has at least three members, a majority of whom are independent directors; and is chaired by an independent director, and disclose the charter of the committee; the members of the committee; and as the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have a nomination committee disclose that fact and the processes it employs to address board succession issues and to ensure that the board has the appropriate balance of skills, knowledge, experience, independence and diversity to enable it to discharge its duties and responsibilities effectively. 2.2 A listed entity should have and disclosed a board skills matrix setting out the mix of skills and diversity that the board currently has or is looking to achieve in its membership. 2.3 A listed entity should disclose: (a) the names of the directors considered by the board to be independent directors; (b) if a director has an interest, position, association or relationship of the type described in Box 2.3 but the board is of the opinion that it does not compromise the independence of the director, the nature of the interest position, association or relationship in question and an explanation of why the board is of that opinion; and (c) the length of service of each director. The Board has not established a Nominations Committee. The Board as a whole carries out the function of a Nominations Committee, and Pental believes this is appropriate for a Company of its size and business. The Board seeks to ensure that it has an appropriate mix of skills and necessary to fulfil its obligations. Pental does not have a board skills matrix. The names and details of Directors in office at the date of this Annual Report, including skills, experience, term of office and expertise, are included in the Directors' Report Section of this Annual Report. The Board considers that it has directors with appropriate skills, experience and expertise for a business such as Pental's. Directors of Pental are considered to be independent when they are independent of management and free from any business or other relationship that could materially interfere with the exercise of their independent judgement. The following Directors are considered to be independent; Mr Mark Hardgrave, Ms Kerrie Parker, Mr Jeff Miciulis and Mr Fred Harrison. Mr Charlie McLeish is Managing Director and not considered independent. Mr Harrison is considered to be independent despite the fact that his employer Richies Stores Pty Ltd invoiced the Group a total of 50 PENTAL ANNUAL REPORT 2022 Best Practice Recommendation Comment 2. Structure the board to add value $129.799.66 (including GST) relating to the Group's participation in various promotions, rebates, and trading terms during the financial year. All transactions were conducted at arm's length. The value of the above mentioned promotions, rebates and trading terms are not material to Mr Harrison as an employee of Richies Stores Pty Ltd, or Pental. The date of appointment and resignation of each Director is set out in the Directors' Report Section of this Annual Report. 2.4 2.5 2.6 A majority of the board of a listed entity should be independent directors. At the date of this report and during the period a majority of directors were independent directors. The chair of the board of a listed entity should be an independent director and, in particular, should not be the same person as the CEO of the entity. The Chairman is an independent director. The Managing Director is not the Chairman. A listed entity should have a program for inducting new directors and provide appropriate professional development opportunities for directors to develop and maintain the skills and knowledge needed to perform their role as directors effectively. The Company has an induction program for new directors. The company does not provide professional development opportunities for Directors. Given the current skill sets of each Director the Board considers that this is unnecessary. 51 PENTAL ANNUAL REPORT 2022 Best Practice Recommendation Comment 3. 3.1 Instil a culture of acting lawfully, ethically and responsibly A listed entity should articulate and disclose its values 3.2 A listed entity should: (a) have a code of conduct for its directors, senior executives and employees; and (b) disclose that code or a summary of it. 3.3 A listed entity should: (a) have and disclose a whistleblower policy; and (b) ensure that the board or a committee of the board is informed of any material incidents reported under that policy. 3.4 A listed entity should: (a) have and disclose an anti-bribery and corruption policy; and (b) ensure that the board or a committee of the board is informed of any material breaches of that policy. Pental is dedicated to delivering quality, expertise and value in everything we make. Our products are designed to help families live better. Ours are trusted and loved brands that have been a part of Australians' lives for generations. We always act with dignity and respect. The Company has a formal Code of Conduct, which applies to all Pental directors, employees, and contractors. A summary of this policy is available on the Company website within the Corporate Governance Section. The Company's Corporate Governance Section includes the Securities Trading Policy, which regulates dealings by directors, officers and employees in securities issued by the Company. The Company has a Whistleblower Policy. The Policy, which encourages reporting of unethical, corrupt and illegal practices, and any breach of Pental's Code of Conduct, particularly concerning compliance concerns around the Competition and Consumer Act; the Australian Consumer Law, is also available on the company website within the Corporate Governance Section. The Company's Corporate Governance Section on its website includes a whistleblower policy. Any material incidents are encouraged to be reported to the company secretary who reports to the board in a timely manner. The Company's Corporate Governance Section on its website includes an anti-bribery and corruption policy. Any material incidents are encouraged to be reported to the company secretary who report to the board in a timely manner. 52 PENTAL ANNUAL REPORT 2022 Best Practice Recommendation Comment 4. Safeguard integrity in financial reporting 4.1 The board of a listed entity should: (a) have an audit committee which: 1. 2. 3. 4. 5. has at least three members, all of whom are executive directors and a majority of whom are independent directors; and is chaired by an independent director, who is not the chair of the board, and disclose the charter of the committee; the relevant qualifications and experience of the members of the committee; and in relation to each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have an audit committee, disclose that fact and the processes it employs that independently verify and safeguard the integrity of its corporate reporting, including the processes for the appointment and removal of the external auditor and the rotation of the audit engagement partner. 4.2 The board of a listed entity should, before it approves the entity's financial statements for a financial period, receive from its CEO and CFO a declaration that in their opinion, the financial records of the entity have been properly maintained and that financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. The Board has an Audit and Risk Committee. The Audit and Risk Committee consisted of three members, all of whom are independent directors. The Chair of the Committee was and is not the Chair of the Board during the period. The names of the members of the Committee, details of their qualifications and experience and details of the number of meetings held during the period, are contained in the Directors' Report section of this Annual Report. The audit and Risk Committee operates under a Charter that is available on the Company website within the Corporate Governance Section. The Board has obtained the relevant assurances and declarations from the management. 4.3 A listed entity should disclose its process to verify the integrity of any periodic corporate report it releases to the market that is not audited or reviewed by an external auditor The Company currently does not release any periodic corporate report that is not audited or reviewed by an external auditor. 53 PENTAL ANNUAL REPORT 2022 5. 5.1 5.2 5.3 Best Practice Recommendation Comment Make timely and balanced disclosure A listed entity should: (a) have written policy for complying with its continuous disclosure obligations under the Listing Rules; and (b) disclose that policy or a summary of it The Company has in place a Continuous Disclosure Policy, which has been implemented across the Company. The Policy is available on the Corporate Governance section of the Company website. A listed entity should ensure that its board receives copies of all material market announcements promptly after they have been made. The Directors are notified of all material announcements promptly. A listed entity that gives a new and substantive investor or analyst presentation should release a copy of the presentation materials on the ASX Market Announcements Platform ahead of the presentation. The Company is compliant with this recommendation. 54 PENTAL ANNUAL REPORT 2022 6. 6.1 6.2 6.3 6.4 6.5 Best Practice Recommendation Comment Respect the rights of shareholders A listed entity should provide information about itself and its governance to investors via its website. The Company provides information about itself and its governance on its website. All policies and charters concerning governance issues are located within a dedicated section headed Corporate Governance. A listed entity should design and implement an investor relations program to facilitate effective two-way communication with investors. The Company has in place a Shareholder Communication Policy, which promotes effective communication with shareholders. The policy is available on the Corporate Governance section of the Company website. A listed entity should disclose the policies and processes it has in place to facilitate and encourage participation at meetings of security holders. The Company has in place a Shareholder Communication Policy, which promotes effective communication with shareholders. The Policy is available on the Corporate Governance section of the Company website. A listed entity should ensure that all substantive resolutions at a meeting of security holders are decided by a poll rather than by a show of hands. The Company is compliant with this recommendation. A listed entity should give security holders the option to receive communication from, and send communications to, the entity and its security registry electronically. The Company gives security holders the option to receive communications from, and send communications to, the entity and its security registry electronically. 7. Recognise and manage risk 7.1 The board of a listed entity should: (a) have a committee or committees to oversee risk, each of which: 1. 2. 3. 4. has at least three members, a majority of whom are independent directors; and is chaired by an independent director, and disclose: the charter of the committee; the members of the committee; The Audit and Risk Committee referred to in section 4 also oversees risk as part of its Charter. 55 PENTAL ANNUAL REPORT 2022 Best Practice Recommendation Comment 7. Recognise and manage risk 5. as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) of it does not have a risk committee or committees that satisfy (a) above, disclose that fact and the processes it employs for overseeing the entity's risk management framework. 7.2 The board or a committee of the board should: (a) review the entity's risk management framework at least annually to satisfy itself that it continues to be sound; and (b) disclose, in relation to each reporting period, whether such a review has taken place. The Audit and Risk Committee reviews the Company's risk management framework annually and specific risks at each meeting. Key risks are referred to the Board periodically, and management reports on whether risk is being effectively managed. 7.3 A listed entity should disclose: (a) if it has an internal audit function, how the function is structured and what role it performs; or (b) if it does not have an internal audit function, that fact and the processes it employs for evaluating and continually improving the effectiveness of its risk management and internal control processes. The Company does not have an internal audit function. The Board considers this unnecessary given the size of the Company's operations. The Audit and Risk Committee reviews the Company's risk management framework and risks generally. Where necessary the Company has requested external advisors to review particular operations to ensure internal controls are effective. 7.4 A listed entity should disclose whether it has any material exposure to economic, environmental and social sustainability risks and , if does, how it manages or intends to manage those risks. The Company does not have any economic, environmental and social sustainability risks over and above those of every commercial organisation, and not already disclosed to security holders. 56 PENTAL ANNUAL REPORT 2022 Best Practice Recommendation Comment 8. Remunerate fairly and responsibly 8.1 The board of a listed entity should: (a) have a remuneration committee which: 1. 2. 3. 4. 5. has at least three members, a majority of whom are independent directors; and is chaired by an independent director, and disclose: the charter of the committee the members of the committee; and as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have a remuneration committee, disclose that fact and the processes it employs for setting the level and composition of remuneration for directors and senior executives and ensuring that such remuneration is appropriate and not excessive. 8.2 A listed entity should separately disclose its policies and practices regarding the remuneration of non-executive directors and the remuneration of executive directors and other senior executives. 8.3 A listed entity which has an equity-based remuneration scheme should: (a) have a policy on whether participants are permitted to enter into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating in this scheme; and (b) disclose that policy or a summary of it The Board has established a Remuneration Committee. The Remuneration Committee operates under a Charter, which is available on the Company's website. Membership of the Committee, and details of meetings held during the period, are contained in the Directors' Report section. The Remuneration Committee consisted of four members, all of whom are independent directors. Remuneration policies are set out in the Remuneration Report section of this Annual Report. When thought desirable the Board utilises specialist third parties to benchmark executive and non-executive director remuneration. The Company has established an Executive Variable Incentive Plan that may result in the issue of securities to executives. As those securities will be ordinary shares there is no policy on permitting participants to enter into transactions limiting the risks of participation scheme. 57 58 59 w 60 61 62 PENTAL ANNUAL REPORT 2022 DIRECTORS' DECLARATION The Directors declare that: (a) in the Directors' opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; (b) in the Directors' opinion, the attached financial statements and notes there to are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the Group; (c) in the Director's opinion the financial statement and notes there to are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board as stated in note 2 to the financial statements; and (d) the Directors have been given the declarations required by s.295A of the Corporations Act 2001. At the date of this declaration, the company is within the class of companies affected by ASIC Class Order 98/1418. The nature of the deed of cross guarantee is such that each company which is party to the deed guarantees to each creditor payment in full of any debt in accordance with the deed of cross guarantee. In the Directors' opinion, there are reasonable grounds to believe that the company and the companies to which the ASIC Class Order applies, as detailed in note 13 to the financial statements will, as a group, be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee. Signed in accordance with a resolution of the directors made pursuant to s.295 (5) of the Corporations Act 2001. On behalf of the Directors Mark Hardgrave Chairman Melbourne, 18 August 2022 63 PENTAL ANNUAL REPORT 2022 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the year (52 weeks) ended 26 June 2022 Note 2022 $'000 2021 $'000 Continuing Operations Revenue from the sale of goods Other revenue and income Other gains and losses Changes in inventory of finished goods and work in progress Raw materials, consumables used and ultilities Employee benefits expense Freight out and distribution expense Marketing expenses Occupancy expenses Selling expenses Repairs and maintenance expense Other expenses Acquisition related expense Impairment of brand names Profit before finance costs, income tax, depreciation and amortisation (EBITDA) Depreciation and amortisation expense Profit before finance costs and income tax (EBIT) Finance costs Profit before tax Income tax expense Net Profit for the year Profit Attributable to Members of the Parent Entity Other comprehensive income Items that may be classified subsequently to profit or loss: Loss on cash flow hedges taken to equity Income tax relating to components of other comprehensive income Other comprehensive income for the year (net of tax) Total comprehensive income for the year Profit attributable to equity holders of the parent Total comprehensive income attributable to equity holders of the parent Earnings per share Attributable to the Members of the Parent Entity Basic (cents per share) Diluted (cents per share) Notes to the financial statements are included on pages 68 to 107. 4 7 8 17 7 5 6 9 9 117,432 124,940 151 19 (853) (59,120) (18,728) (12,074) (5,273) (1,539) (1,092) (1,010) (3,231) (1,047) - 13,635 (3,899) 9,736 (189) 9,547 (3,180) 6,367 6,367 (44) 13 (31) 6,336 6,367 6,336 3.89 3.80 201 275 7,368 (90,243) (14,500) (7,222) (2,259) (1,535) (1,050) (1,149) (2,828) - (348) 11,650 (3,849) 7,801 (121) 7,680 (2,317) 5,363 5,363 (273) 82 (191) 5,172 5,363 5,172 3.94 3.85 64 PENTAL ANNUAL REPORT 2022 CONSOLIDATED STATEMENT OF PROFIT OF FINANCIAL POSITION As at 26 June 2022 Note 26 June 2022 $'000 27 June 2021 $'000 Current assets Cash and cash equivalents Trade and other receivables Inventories Other financial assets Other assets Total currents assets Non current assets Right-of-use assets Property, plant and equipment Goodwill Intangible assets Total non-current assets Total assets Current liabilities Trade and other payables Borrowings Other financial liabilities Current tax payables Lease liabilities Contingent consideration Provisions Total non-current liabilities Non-current liabilities Borrowings Deferred tax liabilities Lease liabilities Provisions Total currents assets Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity Notes to the financial statements are included on pages 68 to 107. 65 29 (a) 10 11 12 18 15 14 16 17 19 20 6 15 8 22 6 15 22 23 8,132 17,395 17,817 23 646 44,013 1,013 18,888 18,903 22,463 61,267 12,702 14,096 16,053 66 267 43,184 928 19,301 - 12,181 32,410 105,280 75,594 16,306 1,700 89 342 667 3,537 2,977 25,618 2,125 5,340 305 80 7,850 33,468 71,812 103,830 390 (32,408) 71,812 12,291 - 81 449 532 - 2,613 15,966 - 2,363 446 72 2,881 18,847 56,747 90,658 248 (34,159) 56,747 PENTAL ANNUAL REPORT 2022 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year (52 weeks) ended 26 June 2022 Note Issued captial $'000 Hedging reserve $'000 Equity settled employee benefits reserve $'000 Retaining earnings $'000 Total $'000 Balance at 28 June 2020 90,658 238 65 (35,162) 55,799 Profit for the year Loss on cash flow hedges Deferred tax arising on hedges 6 Total comprehensive income for the year Transactions with shareholders Dividend Payment 24(a) Recognition of share-based payments Total transactions with shareholders - - - - - - - - (238) 82 (191) - - - Balance at 27 June 2021 23 90,658 47 Balance at 27 June 2021 90,658 Profit for the year Loss on cash flow hedges Deferred tax arising on hedges 6 Total comprehensive income for the year Transactions with shareholders Shared issued as consideration Placement of shares Share issue cost Income tax benefit on share issue costs Dividend Payment 24(a) Recognition of share-based payments Total transactions with shareholders - - - - 3,000 10,466 (420) 126 - - 13,172 47 - (44) 13 (31) - - - - - - - - - - - - 136 136 201 5,363 - - 5,363 5,363 (273) 82 5,172 (4,360) (4,360) - 136 (4,360) (4,224) (34,159) 56,747 201 (34,159) 56,747 - - - - - - - - - 6,367 6,367 - - (44) 13 6,367 6,336 - - - - 3,000 10,466 (420) 126 (4,616) (4,616) 173 173 - 173 (4,616) 8,729 Balance at 26 June 2022 23 103,830 16 374 (32,408) 71,812 Notes to the financial statements are included on pages 68 to 107. 66 PENTAL ANNUAL REPORT 2022 CONSOLIDATED STATEMENT OF CASH FLOWS For the year (52 weeks) ended 26 June 2022 Note 26 June 2022 $'000 27 June 2021 $'000 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest on lease liabilities 15 Interest and other costs of finance paid Income tax paid Income tax refunds recieved Net cash provided by/ (used in) operation activities 29(b) Cash flows from investing activities Acquisition Costs - Expensed Payments for plant and equipment Payment for acquisitions (net of cash acquired) Payments for intangible assets Net cash used in investing activities Cash flows from financing activities Proceeds from issue of share Payment for share issue costs Proceeds from Borrowings Repayment of borrowings Repayment of lease liabilities Utilisation/(repayment) of supplier payment facility Dividends paid Net cash used in financing activities 14 8 17 23 23 15 24 Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year 29(a) Notes to the financial statements are included on pages 68 to 107. 67 128,419 146,573 (113,943) (126,787) (34) (155) (44) (77) (4,497) (3,620) 135 9,925 (1,047) (2,085) (19,607) (157) - - 16,045 % - - (1,837) - - (118) (22,896) (1,955) 10,466 (420) 8,500 (4,675) (862) 8 (4,616) 8,401 (4,570) 12,702 8,132 % - - - - - (565) (131) (4,360) (5,056) 9,034 3,668 12,702 PENTAL ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS 1. General Information Pental Limited, incorporated and domiciled in Australia, is a publicly listed company on the Australia Stock Exchange, limited by shares. Company Secretary Mr Oliver Carton Principal Registered Office Share Registry Pental Limited Level 6, 390 St.Kilda Road Melbourne Victoria 3004 Telephone: (03) 9251 2311 Facsimile: (03) 9645 3001 www.pental.com.au Boardroom Pty Limited Grosvenor Place, Level 12, 225 George Street, Sydney NSW 200 Telephone within Australia: 1300 737 760 Telephone outside Australia: +61 2 9290 9600 Facsimile: +61 2 9279 0664 www.boardroomlimited.com.au 2. Significant Accounting Policies - - Critical accounting judgements and key sources of estimation uncertainty In the application of the Group's accounting policies, management is required to make judgements estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year: Statement of compliance These financial statements are general purpose financial statement which have been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and comply with other requirements of the law. The financial statements comprise consolidated financial statements, the Company is for a for-profit entity. Accounting Standards include International Financial Reporting Standards as adopted in Australia ('A- IFRS'). Compliance with A-IFRS ensures that the financial statements and notes of the Group comply with International Financial Reporting Standards ('IFRS'). The financial statements were authorised for issue by the directors on 18 August 2022. Basis of preparation The financial statements have been prepared on the basis of historical cost, except for the revaluation of certain financial instruments . Cost is based on fair values of the consideration given in exchange for assets. All amounts are presented in Australia dollars, unless otherwise noted. The Company is a company of a kind referred to in ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191 dated 24 March 2016, and in accordance with that Corporations Instrument, amounts in the Directors' Report and financial report are rounded off to the nearest hundred thousand dollars, unless otherwise indicated. 68 PENTAL ANNUAL REPORT 2022 Impairment of brand names Determining whether brand names are impaired requires an estimation of recoverable amount, representing the higher of the fair value less costs to sell and the relief royalty method estimate of reasonable future cash flows. The estimation of the recoverable amount requires the entity to estimate the future cash flows expected to arise from the cash- generating unit and a suitable discount rate in order to calculate present value. The carrying amount of brand names at 26 June 2022 was $22.246 million (27 June 2021: $12.006 million). Details of movements and impairment testing are set out in Note 17. Trade spend accounting judgement Trade receivables are disclosed net of rebates payable. The Group has the legal right to offset such balances as they are with the same customers and it is the Group's intention to net settle any outstanding items. The main judgement related to accruals for customer rebates is the timing and extent to which temporary promotional activity has occurred prior to year-end. Customer rebates consist primarily of customer pricing allowances and promotional allowances, which are governed by agreements with our trade customers (retailers and distributors). Accruals are recognised under the terms of these agreements, to reflect the expected promotional activity and The Group's historical experience. Share-based payment transactions The consolidated entity measures the cost of equity- settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using the Binomial model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. Refer to note 26 for further information. Provision for impairment of inventories The provision for impairment of inventories assessment requires a degree of estimation and judgement. The level of the provision is assessed by taking into account the recent sales experience, the ageing of inventories, and other factors that affect inventory obsolescence Coronavirus (COVID-19) Pandemic Goodwill Judgement has been exercised in considering the impacts that the Coronavirus (COVID-19) pandemic has had, or may have, on the consolidated entity based on known information. This consideration extends to the nature of the products and services offered, customers, supply chain, staffing and geographic regions in which the consolidated entity operates. Other than as addressed in specific notes, there does not currently appear to be either any significant impact upon the financial statements or any significant uncertainties with respect to events or conditions which may impact the consolidated entity unfavourably as at the reporting date or subsequently as a result of the Coronavirus (COVID-19) pandemic. The consolidated entity tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 2. The recoverable amounts of cash-generating units have been determined based on value-in-use calculators. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. The carrying amount of Goodwill at 26 June 2022 was $18.903 million (27 June 2021: Nil). Details of movements and impairment testing are set in Note 16. Business combinations As discussed in note 2, business combinations are initially accounted for on a provisional basis. The fair value of assets acquired, liabilities, and contingent liabilities assumed are initially estimated by the consolidated entity taking into consideration all available information at the reporting date. Fair value adjustments on the finalisation of the business combination accounting is retrospective, where applicable, to the period the combination occurred and may have an impact on the assets and liabilities, depreciation and amortisation reported. Refer to note 8 for further information. 69 PENTAL ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS (CONT) 2. Significant Accounting Policies Cont. - - Adoption of new and revised Accounting Standards costs are expensed as incurred to profit or loss. In the current year, the Group has not adopted any new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) as in the Group's judgement they are not relevant to its operations. Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been adopted by the Group for the annual reporting period ended 26 June 2022. The Group has not yet assessed the impact of these new or amended Accounting Standards and Interpretations. Accounting policies The following significant accounting policies have been adopted in the preparation and presentation of the financial statements: (a) Basis of consolidation The consolidated financial statement are prepared by combining the financial statements of all the entities that comprise the consolidated, being the Company (the parent entity) and its subsidiaries (referred to as "the Group" in these financial statements) as defined in Accounting Standard AASB 10 'Consolidated Financial Statements'. A list of subsidiaries appears in consolidated financial statements. In preparing the consolidated financial statements, all inter-company balances and transactions, and unrealised profits arising within the Group are eliminated in full. (b) Business combinations The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree's identifiable net assets. All acquisition On the acquisition of a business, the consolidated entity the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the consolidated entity's operating or accounting policies and other pertinent conditions in existence at the acquisition-date. Where the business combination is achieved in stages, the consolidated entity remeasures its previously held equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the pervious carrying amount is recognised in profit or loss. - Contingent consideration to be transferred by the acquirer is recognised at the acqusition-date fair value. Subsequent changes in the fair value of the contingent consideration classified as an assets or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. The difference between the acquisition-date fair value of assets acquired, liabilities assumed and non- controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-exisiting investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and measurement of the net assets required, the non- controlling interest in the acquiree, if any, the consideration transferred and the acquirer's previously held equity interest in the acquirer. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value. 70 PENTAL ANNUAL REPORT 2022 2. Significant Accounting Policies Cont. (c) Foreign currency (e) Revenue Revenues are recognised at fair value of the consideration received net of the amount of goods and services tax (GST) payable to the taxation authority. Refer to Note 4 for further details on the accounting policy for revenue from the sale of goods. (f) Share based payment transactions The Executive Variable Incentive Plan (EVIP) grants performance rights over shares in the Company to certain employees. The fair value of the performance rights granted under the EVIP is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and is spread recognised from grant date to vesting date. The fair value of the performance rights granted is measured using the binomial method, taking into account the terms and conditions upon which the performance rights were granted. The presentation and functional currency of the Group is Australian dollars Foreign currency transactions All foreign currency transactions during the financial year are brought to account using the exchange rate in effect at the end of the transaction. Foreign currency monetary items at reporting date are translated at the exchange rate existing at reporting date. Exchange differences are recognised in profit or loss in the period in which they arise except that: exchange differences on transactions entered into in order to hedge certain foreign currency risks (refer Note 25); and exchanges differences on monetary items receivables from or payable to a foreign operation for which settlement is neither planned or likely to occur, which form part of the net investment in a foreign operation, are recognised in the foreign currency translations reserve and recognised in profit or loss on disposal of the net investment. (d) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST) except: i) where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or ii) for receivables and payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. Cash flows are included in the cash flow statement on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified within operating cash flows. 71 PENTAL ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS (CONT) 2. Significant Accounting Policies Cont. (g) Income tax Current tax Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by reporting date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable). Deferred tax Deferred tax is accounted for using the comprehensive balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those items. In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business combination) which affects neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from goodwill. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with these investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company/Group intends to settle its current tax assets and liabilities on a net basis. Current and deferred tax for the period Current and deferred tax is recognised as an expense or income in profit or loss, except when it relates to items credited or debited directly to equity, in which case the deferred tax is also recognised directly in equity, or where it arises from the initial accounting for a business combination, in which case it is taken into account in the determination of goodwill or excess. Tax consolidation The Company and all its wholly-owned Australian resident entities are part of a tax consolidated group under Australian taxation law. Pental Limited is the head entity in the tax-consolidated group. Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the ‘separate taxpayer within group’ approach. Current tax liabilities and assets and deferred tax assets arising from unused tax losses and tax credits of the members of the tax-consolidated group are recognised by the company (as head entity in the tax-consolidated group). Due to the existence of a tax funding arrangement between the entities in the tax consolidated group, amounts are recognised as payable to or receivable by the company and each member of the group in relation to the tax contribution amounts paid or payable between the parent entity and the other members of the tax-consolidated group in accordance with the arrangement. Where the tax contribution amount recognised by each member of the tax-consolidated group for a particular period is different to the aggregate of the current tax liability or asset and any deferred tax asset arising from unused tax losses and tax credits in respect of that period, the difference is recognised as a contribution from (or distribution to) equity participants. 72 PENTAL ANNUAL REPORT 2022 2. Significant Accounting Policies Cont. (h) Cash and cash equivalents Cash and cash equivalents comprise cash on hand, cash in banks and investments in money market instruments, net of outstanding bank overdrafts. (i) Financial assets Trade receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any expected credit losses. Trade receivables are disclosed net of rebates payable where the Group has the legal right to offset such balances as they are with the same customers and it is the Group's intention to net settle. Provision for Expected Credit Loss The Group applies the simplified approach to the measurement of expected credit losses, using the lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables are grouped based on credit risk characteristics and the days past due. A provision matrix is then determined based on historical credit loss rate for each group, adjusted for any material expected changes to the future credit risk for that group. Other financial assets For the accounting policy on derivatives – refer Note 2(r) and Note 25. (j) Inventories Inventories are carried at a lower of cost and net realisable value. Cost includes direct materials, direct labour, other direct variable costs and allocated production overheads necessary to bring inventories to their present location and condition, based on normal operating capacity of the production facilities. Manufacturing activities The cost of manufacturing inventories and work-in- progress are assigned on a first-in first-out basis. Costs arising from exceptional wastage are expensed as incurred. Net realisable value Net realisable value represents the estimated selling price for inventories less estimated costs of completion and costs (k) Property, plant and equipment The carrying amount of property, plant and equipment is valued on a cost basis. Depreciation is calculated on a straight-line basis so as to write off the net cost of each asset over its expected useful life to its estimated residual value. Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever is shorter, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period. Plant and equipment estimated useful life used in the calculation of depreciation is 3 to 20 years. Buildings are depreciated over a period of 30 years on a straight-line basis. Land is not depreciated. (l) Borrowing costs Borrowing costs include interest, amortisation of discounts or premiums relating to borrowings, amortisation of ancillary costs incurred in connection with arrangement of borrowings, foreign exchange differences net of hedged amounts on borrowings, including trade creditors and lease finance charges. Ancillary costs incurred in connection with the arrangement of borrowings are capitalised and amortised over the life of the borrowings. Borrowing costs are expensed as incurred. (m) Intangible assets Brand names Brand names are not amortised as the Directors believe the brands have an indefinite useful life. Brand names with indefinite useful lives are tested for impairment annually and whenever there is an indication that the asset may be impaired. Brand names are recorded at fair value at the time of acquisition, less any impairment subsequently recorded. Goodwill Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. Computer Software All costs directly incurred in the purchase or development of major computer software or subsequent upgrades and material enhancements, which can be reliably measured and are not integral to a related asset, are capitalised as intangible assets. Costs capitalised include external direct costs of materials, services and travel. Costs incurred on computer maintenance or during the planning phase are expensed as incurred. Computer software is amortised over the period of time during which the benefits are expected to arise being 3 to 5 years. 73 PENTAL ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS (CONT) 2. Significant Accounting Policies Cont. (n) Impairment of assets (p) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. Dividends A provision for dividends payable is recognised in the reporting period in which the dividends are declared, for the entire undistributed amount, regardless of the extent to which they will be paid in cash. (q) Financial instruments issued by the company Debt and equity instruments Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement. Transaction costs on the issue of equity instruments Transaction costs arising on the issue of equity instruments are recognised directly in equity as a reduction of the proceeds of the equity instruments to which the costs relate. Transaction costs are the costs that are incurred directly in connection with the issue of those equity instruments and which would not have been incurred had those instruments not been issued. Interest and dividends At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Intangible assets with indefinite useful lives are tested for impairment at least annually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash- generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in the profit or loss immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profit or loss immediately. (o) Employee benefits Short-term and long-term employee benefits Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave, long service leave, and sick leave when it is probable that settlement will be required and they are capable of being measured reliably. Provisions made in respect of employee benefits are measured as the present value of estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date. 74 PENTAL ANNUAL REPORT 2022 2. Significant Accounting Policies Cont. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity in the hedging reserve and transferred to profit or loss when the hedged item affects profit or loss. The gain or loss relating to the ineffective portion is recognised immediately in the profit or loss. However, when the cash flow hedge relates to a forward foreign exchange contract to hedge a highly probable forecast transaction or firm commitment that results in a non- financial asset (e.g. inventory) or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the initial cost or carrying amount of the asset or liability. Hedge accounting is discontinued when the hedging instrument expires, or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that point in time, any cumulative gains or losses on the hedging instrument recognised in equity is kept in equity until the forecast transaction occurs. If the forecast transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to profit or loss for the year. (s) Financial year As allowed under Section 323D (2) of the Corporations Act 2001, the Directors have determined the financial year to be a fixed period of 52 calendar or 53 calendar weeks. For the period to 26 June 2022, the Group is reporting on the 52 week period that began 28 June 2021 and ended 26 June 2022. For the period to 27 June 2021, the Group is reporting on the 52 week period that began 29 June 2020 and ended 27 June 2021. Interest and dividends Interest and dividends re classified as expenses or as distributions of profit consistent with the statement of financial position classification of the related debt or equity instruments or component parts of compound instruments. (r) Derivative financial instruments The Group is exposed to changes in interest rates and foreign exchange rates from its activities. The Group uses forward foreign exchange contracts to hedge these risks. Derivative financial instruments are not held for speculative purposes. The Group uses derivative financial instruments, being forward foreign currency contracts to hedge the risk associated with foreign currency fluctuations. Such derivatives are stated at fair value. The fair value of forward exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to profit or loss for the year. For derivatives that qualify for hedge accounting, the method for recognising gains and losses on changes in fair value depends on whether the derivative is classified as a fair value hedge or a cash flow hedge. Derivatives are classified as fair value hedges when they hedge the exposure to changes in the fair value of a recognised asset or liability and as cash flow hedges when they hedge exposure to variability in cash flows that are attributable to either a particular risk associated with a recognised asset or liability or to a forecast transaction. The Group documents at inception of the hedge the relationship between the hedging instruments (derivatives) and the hedged items, as well as the risk management objective and strategy for undertaking the hedge transaction. The Group also documents, both at inception of the hedge and on an ongoing basis whether the derivatives that are used in the hedging transactions have been, and will continue to be, highly effective in offsetting changes in fair values or cash flows of hedged items. Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the profit or loss for the year, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. 75 NOTES TO THE FINANCIAL STATEMENTS PENTAL ANNUAL REPORT 2022 (CONT) 3. Segment Information AASB 8 Operating Segments requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. Information reported to the Group’s chief operating decision maker for the purposes of resource allocation and assessment of performance is more specifically focused on the Group’s three operating divisions The Group is organised into three operating segments, consistent with management reporting provided to the Group’s Managing Director (the chief operating decision maker), which is used to manage the business and allocate resources. The consolidated entity is organised on an international basis into the following reporting segments: Owned Brands: The Group owns and manages a range of brands in the Australian and New Zealand markets including its flagship brands White King, Country Life, Jiffy, Janola and Sunlight. This segment’s operations contain manufacturing, wholesale and management of these brands. The Group promotes these brands through advertising, social media, outdoor media and in-store activities. Contracted Brands: The Group provides contract services including manufacturing and distribution to external brand owners. This includes manufacturing of private label products for retailers, contractually manufactured products to specification for external FMCG companies and distribution of products for Duracell batteries. The Group does not manage or promote these brands as it does not own them. Hampers with Bite: The Group acquired an online gifting business Hampers with Bite Pty Ltd (HWB) effective as at 1 September 2021. HWB specialises in sourcing, assembling, and delivering gift hampers directly to consumers on behalf of both businesses and individual customers. The chief operating decision maker views this recently acquired business as a new segment given the nature of HWB operations is significantly different to the Group’s existing business segments. 76 PENTAL ANNUAL REPORT 2022 3. Segment Information Cont. The Group’s segment financial information is as per below: Owned Brands Contracted Brands Hampers With Bite Total 26 Jun 2022 $'000 27 Jun 2021 $'000 26 Jun 2022 $'000 27 Jun 2021 $'000 26 Jun 2022 $'000 27 Jun 2021 $'000 26 Jun 2022 $'000 27 Jun 2021 $'000 Segment Revenue Sales revenue 54,973 52,268 30,810 72,672 31,649 - 117,432 124,940 Segment Results Underlying Profit before finance costs and income tax (EBIT) Costs relating to acquisition of Hampers with Bite 6,181 5,493 (1,907) 2,656 6,509 Impairment of brandnames - (348) (1,047) - - - - - - - 5,134 5,145 (1,907) 2,656 6,509 Profit before finance costs and income tax (EBIT) Finance costs Profit before income tax Income tax expense Net profit for the period - - - - 10,783 8,149 (1,047) - - (348) 9,736 7,801 (189) (121) 9,547 7,801 (3,180) (2,317) 6,367 5,363 Due to the similar and shared nature of products, customers, suppliers and facilities, a significant overlap exists between the assets and liabilities utilised by the reported segments. Segment assets and liabilities are, therefore, unable to be allocated to individual segments on a reasonable basis. Geographical analysis Summarised below is a geographical analysis of revenue based on the geographical location of the Group’s customers: Geographical sales Australia New Zealand Asia Total geographical sales 77 2022 $'000 2021 $'000 102,649 109,726 13,505 13,413 1,278 1,801 117,432 124,940 NOTES TO THE FINANCIAL STATEMENTS PENTAL ANNUAL REPORT 2022 (CONT) 4. Revenue The Group generates revenue from the sale of goods on a point in time basis as follows: 2022 $'000 2021 $'000 Revenue from the sale of goods 117,432 124,940 The Group’s Top 2 customers – Customer A and Customer B, contributed $20,700,500 (17.62% of total revenue) and $17,057,039 (14.52% of total revenue) respectively to the Group’s revenue for the year ended 26 June 2022. No other customer contributed more than 10% of the revenue for the year ending 26 June 2022. Accounting policy for revenue from the sale of goods: The Group manufactures, markets and distributes a range of products targeted at the household essential market in Australia, New Zealand and Asia. Revenue from the sale of goods is recognised when control of the goods has transferred, being when the goods are delivered to the customer, the customer has full discretion over the channel and price to sell the goods, and there is no unfulfilled obligation that could affect the customer’s acceptance of the good. Delivery occurs when the goods have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the customer, and either the customer has accepted the goods in accordance with the terms of the sale or the Group has objective evidence that all criteria for acceptance has been satisfied. A receivable is recognised when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due. Goods are often sold with rebates and discounts related to trading terms and promotional activities (“Trade Spend”). Revenue from these sales is recognised net of the estimated value of Trade Spend. Accumulated experience is used to estimate and provide for Trade Spend, using the expected value method, and revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur. An accrual for Trade Spend is recognised in relation to sales made up to the end of the reporting period. No element of financing is deemed present as the sales are made with typical credit terms of 30 to 60 days from invoice month end, consistent with market practice. 5. Finance Costs Interest on borrowings Other borrowing costs Interest on leases Total interest expense 2022 $'000 2021 $'000 101 54 34 189 21 56 44 121 78 PENTAL ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS (CONT) 6. Income Taxes Income tax recognised in profit or loss 2022 $'000 2021 $'000 Tax expense comprises: Current tax expense 3,072 2,735 Deferred tax expense 121 (420) The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law. There has been no change in the corporate tax rate when compared with the previous reporting period. Income tax recognised in other comprehensive income 2022 $'000 2021 $'000 Adjustments recognised in relation to the current tax of prior years (13) 2 Deferred tax Total tax expense 3,180 2,317 Arising on amounts recognised in other comprehensive income: The prima facie income tax expense on pre-tax accounting profit reconciles to the income tax expense in the financial statements as follows: Changes in the fair value of cash flow hedges 13 13 82 82 2022 $'000 2021 $'000 Profit from operations 9,547 7,680 Tax at the Australia tax rate of 30% 2,864 2,304 Non Deductible items Adjustments recognised in relation to the current tax of prior years 329 (13) 11 2 Total tax expense 3,180 2,317 79 PENTAL ANNUAL REPORT 2022 6. Income Taxes Cont. Deferred tax balances Deferred tax assets/ (liabilities) arise from the following: 2022 Opening balance $'000 Charged to income $'000 Recognised in other comprehensive income $'000 Additions through business combinations $'000 (ii), (iii) Charged to equity $'000 Closing Balance $'000 Deferred tax assets Provision for expected credit losses Provisions Share based payments Lease Liabilities Inventory obsolescence Accruals Costs relating to issuance of shares Other Deferred tax liabilities Property, planet and equipment Leased Assets Foreign currency items Brandnames Other Net deferred tax asset/ (liability) 67 851 60 302 373 58 - - 1,711 5 (79) 52 23 1 3 (25) 5 (15) (82) (199) (278) (108) (3,602) (4) (4) 98 - (1) (4,074) (106) (2,363) (121) - - - - - - - - - - - 13 - - 13 13 - 137 - - - - - - 137 (60) - - (3,072) - (3,132) (2,995) - - - - - - 126 - 126 - - - - - - 72 909 112 325 374 61 101 5 1,959 (341) (282) 3 (6,674) (5) (7,299) 126 (5,340) 80 PENTAL ANNUAL REPORT 2022 6. Income Taxes Cont. 2021 Opening balance $'000 Charged to income $'000 Recognised in other comprehensive income $'000 (ii), (iii) Charged to equity $'000 Closing Balance $'000 Deferred tax assets Provision for expected credit losses Provisions Share based payments Lease Liabilities Inventory obsolescence Accruals Deferred tax liabilities Property, planet and equipment Leased Assets Foreign currency items Brandnames Other Net deferred tax asset/ (liability) 35 751 - 369 222 60 1,437 (151) (351) (91) (3,706) (3) (4,302) (2,865) 32 100 60 (67) 151 (2) 274 69 73 (99) 104 (1) 146 420 - - - - - - - - - 82 - - 82 82 - - - - - - - - - - - - - - 67 851 60 302 373 58 1,711 (82) (278) (108) (3,602) (4) (4,074) (2,363) 81 PENTAL ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS (CONT) 6. Income Taxes Cont. Current tax liabilities Unrecognised taxable temporary differences associated with investments and interests In accordance with AASB112.81, there are no taxable temporary differences in relation to investments in subsidiaries for which deferred tax assets or liabilities have not been recognised. 2022 $'000 2021 $'000 7. Profit for the year Income tax payable 342 449 342 449 Expenses 2022 $'000 2021 $'000 Tax consolidation The company and its wholly-owned Australian resident entities have formed a tax-consolidated group, and are therefore taxed as a single entity. The head entity within the tax-consolidated group is Pental Limited. The members of the tax-consolidated group are identified at Note 13. Nature of tax funding arrangements and tax sharing agreements Entities within the tax-consolidated group have entered into a tax funding arrangement and a tax-sharing agreement with the head entity. Under the terms of the tax funding arrangement, Pental Limited and each of the entities in the tax-consolidated group has agreed to pay a tax equivalent payment to or from the head entity, based on the current tax liability or current tax asset of the entity. Such amounts are reflected in amounts receivable from or payable to other entities in the tax- consolidated group. The tax sharing agreement entered into between members of the tax-consolidated group provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations or if an entity should leave the tax-consolidated group. The effect of the tax sharing agreement is that each member’s liability for tax payable by the tax-consolidated group is limited to the amount payable to the head entity under the tax funding arrangement. Cost of goods sold 73,662 95,517 Depreciation: Property plant and equipment 2,888 3,169 Depreciation: Right-of-use assets 888 583 Amortisation: Software 123 97 Total depreciation and amortisation 3,899 3,849 Employee benefits expense: Post-employment benefits - defined contribution plans 1,471 1,125 Share based payments expense 173 137 Other employee benefits 17,084 13,238 18,728 14,500 Cost of goods sold includes cost of products or raw materials, including inbound freight, direct labour costs for production and factory overhead expenses where applicable. 82 PENTAL ANNUAL REPORT 2022 8. Business Combinations Summary of Acquisition On 1 September 2021, the Group acquired 100% shares on issue of Hampers with Bite Pty Ltd, a leading provider of premium gift hampers directly to the consumers on behalf of businesses and individuals, for a total purchase consideration of $27,658,164. HWB was established in 2004 in Melbourne by 2 brothers – Nick and Rory Boyle. The business has since then seen significant growth, particularly in the previous 3 financial years after it emerged as one of the leading providers of gift hampers in the Australian market. HWB represents a transformational and strategically compelling acquisition with significant growth potential that can advance Pental’s online channel which is a key strategy of Pental. Details of the purchase consideration, net identifiable assets acquired, and goodwill on a provisional basis are as follows: Contingent consideration is payable to vendors subject to HWB achieving an agreed EBIT performance target range structured as per below: (a) Maximum amount of $4.0 million will be payable upon HWB achieving EBIT of $6.3 million or more for the 2022 financial year; (b) No consideration will be payable if HWB achieved an EBIT result below $5.4 million for the 2022 financial year; (c) If HWB achieved an EBIT result above $5.4 million but below $6.3 million, the contingent consideration will be calculated by multiplying EBIT portion above $5.4 million by a factor of 4.5. Equity consideration is payable in form of 6,666,667 fully paid ordinary shares calculated by dividing $3,000,000 by volume weighted average price of 5 days prior to acquisition which was $0.45. Shares issued as a part of equity consideration will be subject to voluntary escrow until the conclusion of 2022 financial year. Purchase consideration Cash paid Add: contingent consideration Add: equity consideration Less: completion working capital adjustment (receivable) $'000 The Group and vendors have agreed to offset completion working capital adjustment amount against contingent consideration payable to the Vendors. 21,121 4,000 3,000 (463) Total purchase consideration 27,658 83 NOTES TO THE FINANCIAL STATEMENTS (CONT) PENTAL ANNUAL REPORT 2022 8. Business Combinations Cont. The acquired identifiable assets and assumed liabilities recognised as a result of the acquisition are as follows: Acquired assets & assumed liabilities Trade and other receivables Cash and cash equivalents Inventories Plant & equipment Right-of-use assets Deferred tax assets associated with provisions Intangibles – software Prepayments Intangibles – brandnames Trade and other payables Income tax liabilities Provisions Lease liabilities Deferred tax liabilities associated with brandnames and plant & equipment Fair Value $'000 1,751 1,515 2,624 390 844 137 8 36 10,240 (3,301) (1,202) (456) (699) (3132) Net identifiable assets acquired 8,755 Goodwill Net assets acquired 18,903 27,658 (i) Acquired trade receivables The fair value of acquired trade receivables is $1,751,000. The gross contractual amount for trade receivables due is $1,751,000, with no provision for doubtful debts recognised on acquisition. (ii) Revenue and profit contribution The acquired business contributed revenues of $31,649,000 and Earnings before interest and tax of $6,509,000 to the Group for the period from 1 September 2021 to 26 June 2022. If the acquisition had occurred on 28 June 2021, consolidated pro-forma revenue and underlying earnings before interest and tax (excluding costs incurred associated with the acquisition) for the financial year ended 26 June 2022 would have been $123,668,0001 and $11,975,0001 respectively based on the actual results of the acquired business of the financial year ended 26 June 2022. (iii) Acquisition-related costs Acquisition-related costs of $1,047,000 were disclosed as a significant item in profit or loss and in cash flows from investing activities in the statement of cash flows. 9. Earnings per share 2022 Cents Per Share 2021 Cents Per Share Basic earnings per share 3.89 3.94 Diluted earnings per share 3.80 3.85 The earnings and weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share are as follows: 2022 $'000 2021 $'000 Net profit 6,367 5,363 Earnings used in the calculation of basic EPS Earnings used in the calculation of diluted EPS 6,367 5,363 6,367 5,363 84 PENTAL ANNUAL REPORT 2022 9. Earnings per share Cont. 10. Trade and other receivables 2022 No. 2021 No. 163,673,347 136,250,633 Current 2022 No. $'000 2021 No. $'000 Weighted average number of ordinary shares for the purposes of basic earnings per share Trade receivables (i) 16,677 14,046 (ii) Other 958 274 Allowance for expected credit loss (240) (224) 17,395 14,096 (i) The average credit period on sales of goods is approximately 60 days. No interest is charged on trade receivables. An allowance has been made for expected credit losses using a provision matrix based on historical credit loss rates. Trade receivables are recognised at amortised cost less provision for credit losses. Before accepting any new customers, the Group will perform a credit check to assess the potential customer’s credit quality and defines credit limits by customer. Limits are reviewed as necessary. Of the trade receivables balance at the end of the year $13.895 million is due from top six customers (2021: $10.202 million from top six customers) and these six customers account for 56.1% of total sales revenue for the year (2021: 77.1% from top six customers). There are no other customers who represent more than 5% of the total balance of trade receivables or total sales revenues from continuing operations for the year. The Group does not hold any collateral over these balances. (ii) Other receivables generally arise from transactions outside the usual operating activities of the Group. These amounts are predominantly reimbursements sought from suppliers for rebates and payments made in advance to suppliers for goods subsequently reclassified as receivables. Collateral is generally not obtained. The weighted average number of ordinary shares for the purposes of diluted earnings per share reconciles to the weighted average number of ordinary shares used in the calculation of basic earnings per share as follows. 2022 No. 2021 No. 163,673,347 136,250,633 3,887,060 2,988,143 167,560,407 139,238,776 Weighted average number of ordinary shares for the purposes of basic earnings per share Shares deemed to be issued for no consideration in respect of: performance rights over ordinary shares Weighted average number of ordinary shares for the purposes of diluted earnings per share Classification of securities as potential ordinary shares Performance rights over ordinary shares in the Company granted under Executive Variable Incentive Plan (EVIP) during the reported and prior periods are deemed to be eligible to vest and treated as dilutive. 85 NOTES TO THE FINANCIAL STATEMENTS (CONT) PENTAL ANNUAL REPORT 2022 10. Trade and other receivables Cont. 11. Inventories Ageing of past due 2022 $'000 2021 $'000 Overdue 31 to 60 days 283 144 Overdue 61 to 90 days Overdue 91 days and beyond Total 84 251 30 231 618 405 2022 $'000 2021 $'000 Raw materials 7,227 4,071 Goods in transit 1,425 1,283 Finished goods 9,165 10,699 17,817 16,053 Movement in the allowance for expected credit losses 12. Other financial assets Current Foreign currency forward contracts 2022 $'000 2021 $'000 23 23 66 66 Balance at the beginning of the year Re-measurement of loss allowance Balance at the end of the year 2022 $'000 2021 $'000 224 116 16 108 240 224 Under the expected credit loss methodology, the provision for impairment of receivables is the carrying value of maximum exposure to credit risk at the reporting date. At 26 June 2022, the amount of provision for expected credit losses was $240 thousand (2021: $224 thousand). The amount of the expected credit losses is recognised in profit or loss within other expenses. Subsequent recoveries of amounts previously written off are credited against the same line item. 86 PENTAL ANNUAL REPORT 2022 13. Subsidiaries Name of subsidiary Parent Entity Pental Limited (i) Controlled Entities Pental Products Pty Ltd (ii) (iii) Hampers with Bite Pty Ltd (ii) (iii) (iv) HWB Pty Ltd. (ii) (iii) (iv) (v) Country of incorporation Ownership interest 2022 % 2021 % Australia Australia Australia Australia 100% 100% - 100% - 100% (i) Pental Limited is the head entity within the tax-consolidated group. (ii) These companies are members of the tax-consolidated group. (iii) The wholly-owned subsidiary has entered into a deed of cross guarantee with Pental Limited pursuant to ASIC Class Order 98/1418 and it is relieved from the requirement to prepare and lodge an audited financial report. (iv) Hampers with Bite Pty Ltd. joined the Group on 1 September 2021 as a result of business combinations disclosed in note 8. (v) HWB Pty Ltd was registered in prior financial year as a potential vehicle corporation to acquire HWB assets in the event of an asset acquisition. This entity was deregistered during the reporting period as Hampers with Bite Pty Ltd was acquired through acquisition of its shares on issue. The parent entity and all the controlled entities are party to the deed of cross guarantee therefore the consolidated statement of profit or loss and other comprehensive income and statement of financial position reflect the statement of profit or loss and other comprehensive income and statement of financial position of the parties to the deed of cross guarantee. 87 PENTAL ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS (CONT) 14. Property, plant and equipment Land $'000 Building at costs $'000 Plant equipment at cost $'000 (ii), (iii) Construction in progress at cost $'000 Total $'000 Gross carrying amount Balance at 28 June 2020 1,732 5,628 36,057 544 43,961 Balance at 26 June 2022 1,732 5,628 37,580 Accumulated depreciation Additions Disposals Transfer from captial works - - - - - - Balance at 27 June 2021 1,732 5,628 Additions Additions through business combinations Transfer from capital works - - - - - - Balance at 28 June 2020 Depreciation expense Disposals Balance at 27 June 2021 Depreciation expense Balance at 26 June 2022 Net book value as at 27 June 2021 Net book value as at 26 June 2022 - - - - - - 1,732 1,732 (552) (192) - (744) (192) (926) 4,884 4,692 947 890 1,837 (1,546) 544 36,002 298 390 890 (22,775) (2,978) 1,546 (24,207) (2,696) (26,903) - (1,546) (544) 890 1,787 - (890) 1,787 - - - - - - - 44,252 2,085 390 - 46,727 (23,327) (3,170) 1,546 (24,951) (2,888) (27,839) 11,795 890 19,301 10,677 1,787 18,888 88 PENTAL ANNUAL REPORT 2022 15. Right-of-use assets and lease liabilities (a) Right-of-use Assets The movements in the right-of-use assets for the reported period are as per below table: Balance as at 28 June 2020 Additions Add: Lease term extension Add: Lease term extension Depreciation charge for the year Balance as at 27 June 2021 Additions through business combinations Add: Lease term extension Depreciation charge for the year Balance as at 26 June 2022 Property $'000 Plant & Equipment $'000 Total $'000 780 193 115 - (401) 687 844 129 (722) 938 390 33 - (12) (170) 241 - - (166) 75 1,170 226 115 (12) (571) 928 844 129 (888) 1,013 89 NOTES TO THE FINANCIAL STATEMENTS (CONT) PENTAL ANNUAL REPORT 2022 15. Right-of-use assets and lease liabilities Cont. (b) Lease liabilities The movements in the lease liabilities for the reported period and prior period are as per below table: 2022 $'000 2021 $'000 Balance as start of the period Additions through business combinations Additions Lease term extension Interest incurred Payments on lease liabilities Balance as at the end of the period Current lease liabilities Non-current lease liabiltiies Balance as at the end of the period 978 699 - 123 34 (862) 972 667 305 972 (ii), (iii) 1,202 - 226 116 44 (610) 978 532 446 978 (c) Maturity Analysis (d) Amount recognised in profit and loss Depreciation expense on right-of-use assets (Includes lease contracts terminated) Interest expense on lease liabilities Total $'000 888 34 Within One Year One to two years Two to three years Three to four years Total Contractual Undiscounted Cash Flows Discounting using the lessees incremental borrowing rate Balance as at 26 June 2022 Total $'000 667 196 122 - 985 (13) 972 90 PENTAL ANNUAL REPORT 2022 16. Goodwill 2022 $'000 2021 $'000 Cost 93,681 74,778 Accumulated impairment losses (74,778) (74,778) Gross carrying amount Balance at beginning of financial year Additions through business combinations Balance at the end of financial year Accumulated impairment losses Balance at beginning of financial year Balance at the end of financial year 18,903 - 74,778 74,778 18,903 - 93,681 74,778 74,778 74,778 74,778 74,778 Allocation of goodwill to cash-generating units and key assumptions Management has concluded that the Hampers with bite (HWB) business forms a new cash generating unit on the basis that the decision making and monitoring of the operations of the business unit are performed by the HWB senior leadership team; and the core assets will be operated separately to consumer products unit to generate the revenue of the acquired HWB business. (ii) Goodwill acquired during the reported period has been fully allocated for impairment testing over the Hampers with bite cash generating unit. The recoverable amount of the HWB cash generating unit is determined based on a value in use calculation, which uses cash flow projections based on a financial budget approved by the Board, covering a five-year period and a discount rate (post-tax) of 10.0%. The cash flow has been extrapolated using a 3% growth rate including an inflation rate of 2.5%. The Group has assessed the sensitivity of carrying amount of goodwill and determined that a 10% change in key assumptions of cash flow, growth rate, inflation rate and discount rate collectively or individually will not result in impairment to Goodwill. 91 NOTES TO THE FINANCIAL STATEMENTS (CONT) PENTAL ANNUAL REPORT 2022 17. Other intangible assets Gross carrying amount Balance at 28 June 2020 Additions Disposals Balance at 27 June 2021 Additions Additions through business combinations Balance at 26 June 2022 Accumulated Impairment/Amortisation Balance at 28 June 2020 Amortisation expense Disposals Impairment Balance at 27 June 2021 Amortisation expense Balance at 26 June 2022 Net book value as at 27 June 2021 Net book value as at 26 June 2022 Brand names - Useful life assessment Brand Names at cost Software at cost $'000 Total $'000 19,000 - - 19,000 - 10,240 29,240 2,095 118 (843) 1,370 157 8 1,535 (ii), (iii) 21,095 118 (843) 20,370 157 10,248 30,775 (6,646) (1,941) (8,587) - - (348) (6,994) - (6,994) 12,006 22,246 (97) 843 - (1,195) (123) (1,318) 175 217 (97) 843 (348) (8,189) (123) (8,312) 12,181 22,463 The Group assesses its brand names as having indefinite useful lives. This assessment has reflected management’s intention to continue to utilise the brand names within its portfolio for the foreseeable future. Each period, the useful lives of the Group’s brand names are reviewed to determine whether events and circumstances continue to support an indefinite useful life assessment for the assets. The Group continues to believe that its remaining brand names have indefinite useful lives, as there is no foreseeable limit to the period over which they intend to utilise the brand names. 92 PENTAL ANNUAL REPORT 2022 17. Other intangible assets Cont. Allocation of brandnames to cash generating units Gross carrying amount of brandnames Allocated to consumer products CGU Allocated to Hampers With Bite CGU Balance at the end of financial year Accumulated Impairment on brandnames Allocated to consumer products CGU Allocated to Hampers With Bite CGU Balance at the end of financial year Carrying value of brandnames at end of financial year Allocated to consumer products CGU Allocated to Hampers With Bite CGU Balance at the end of financial year Impairment testing - Indefinite life brand names 2022 $'000 2021 $'000 19,000 19,000 10,240 - 29,240 19,000 (6,994) (6,994) - - (6,994) (6,994) 12,006 12,006 10,240 - 22,246 12,006 Indefinite life brand names are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's value in use and fair value less costs to sell. Brand names that have incurred an impairment in previous periods are reviewed for possible reversal of the impairment at the end of each reporting period. The Group used ‘relief from royalty’ method for the purposes of impairment testing as at 26 June 2022. The key assumptions used were as follows: Royalty rates ranging between 2% - 4.5% (2021: 2% - 4.5%) Discount rate of 9.5% post-tax (2021: 9%) Long-term growth rates of between 0% - 3% (2021: 0% - 3%) An estimate of costs to sell equivalent to 2% of the estimated recoverable amount for each brand name. The Group believes that the assumptions adopted in the ‘relief from royalty’ calculations reflect an appropriate balance between the Group's experience to date, the uncertainty associated with the COVID-19 pandemic, and expected future performance for each brand, as discussed in the Directors Report. An estimate of maintainable revenue with reference to the FY22 budget and historic financial performance, with due consideration given to the economic uncertainty associated with COVID-19. In the prior period, following a strategic review of its laundry brand portfolio, the Group recognised an impairment loss for full book value of “Huggie” brand of $0.348 million (after tax $0.244 million). 93 PENTAL ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS (CONT) 18. Other Assets 21. Banking facilities 2022 $'000 2021 $'000 Prepayments 646 267 19. Trade and other Payables Summary of financing arrangements Facilities utilised at reporting date: 2022 $'000 2021 $'000 Multi option load facility Bank guarantee 326 177 Market rate loan facility 3,825 - 2022 $'000 2021 $'000 4,151 177 Trade payables 11,221 7,660 Trade spend liabilities 119 299 Facilities not utilised at reporting date: 2022 $'000 2021 $'000 Sundry payables and accruals 4,966 4,332 16,306 12,291 The average credit period on the purchases of goods ranges from 7 to 60 days. No interest is charged on the trade payables. The Group has financial risk management policies in place to ensure that, as often as possible, all payables are paid within a reasonable timeframe. Multi option load facility Bank overdraft 1,820 1,820 Trade finance 5,854 6,000 Bank guarantee - 3 7,674 7,823 20. Other financial liabilities Multi option loan facility limit 11,625 8,000 Current Supplier payment facility 2022 $'000 2021 $'000 89 89 81 81 The Group utilised an American Express supplier payment facility during the reported period. As at the reporting date, the facility had a maximum limit of $2.035 million of which $0.089 million was utilised. 94 PENTAL ANNUAL REPORT 2022 Market rate loan facility Prior to the acquisition of Hampers with Bite Pty Ltd on 1 September 2021, the Group also secured a new 3- year market rate loan facility (limit of $8,500,000) with CBA on 19 August 2021 to facilitate the acquisition of Hampers with Bite. As at the reporting date, $3,825,000 remains utilised under the market rate loan facility after the Group made early repayments of $3,400,000 during the period along with scheduled repayments of $1,275,000. Any unutilised limit under this facility is unable to be drawn upon. This facility attracts a usage fee of 2.50% per annum (only on utilised portion) and interest rate is charged quarterly in line and with reference to Bank Bill Swap Yield rate (1.7910% as at 26 June 2022). Unsecured supplier payment facility As at the reporting date, The Group also has alternative unsecured financing facilities with a limit of $2.035 million to draw upon through American Express, if and when required. There are no restrictions of use associated with the supplier finance facility. 21. Banking facilities Cont. Trade finance facility The Group secured a new trade finance facility with the Commonwealth Bank of Australia (CBA) on 19 August 2021 that allows the Group to choose an appropriate type of funding facility to suit its business needs. The trade facility can be used as a bank overdraft, variable rate fully drawn advance, market rate loan, and/or contingent liability facility. The limit for this trade finance facility is $8,000,000 (2021: $8,000,000) of which $7,674,000 (2021: $7,823,000) remains unutilised as of 26 June 2022. The trade finance facility attracts a line fee of 0.48% (2021: 0.49%) per annum calculated on facility limit regardless of being utilised. The trade finance facility bears various interest rates for various facilities as utilised in addition to line fee. The interest rates on utilisation range from minimum 2.271% usage fee on trade advance facility (reference rate of Bank Bill Swap Yield rate of 1.7910% as at 26 June 2022 plus margin of 0.48%) to maximum 4.41% on overdraft facility (reference rate of CBA Variable Corporate Overdraft Reference Rate of 7.83% as at 26 June 2022 minus a margin of 3.42%). The financing arrangement is secured by the Group's assets through the first registered mortgage over its Shepparton property and first ranking fixed and floating charges over the Company and its subsidiaries (with corresponding cross guarantee). The facility expires on 30 June 2024. 95 PENTAL ANNUAL REPORT 2022 Total Provisions The provision for employee benefits represents annual leave, rostered days off and vested long service leave entitlements accrued by employees. The increase in the carrying amount of the provision for the current year results from more benefits being accrued than paid in the current year. The provision is discounted using high quality Australian corporate bond rates. 22. Provisions Current 2022 $'000 2021 $'000 Employee benefits 2,800 2,584 Make good provision on leases 177 29 Non-current Employee benefits Make good provision on leases 2,977 2,613 80 80 72 72 3,057 2,685 23. Issued capital (a) Fully paid ordinary shares Date Share Capital Number of shares Share issue price $'000 29 Jun 2020 Opening balance of ordinary shares, fully paid 136,250,633 27 Jun 2021 Balance at end of reporting period 136,250,633 28 Jun 2021 Opening balance of ordinary shares, fully paid 136,250,633 27 Aug 2021 Placement of shares - Tranche 1 01 Sep 2021 Ordinary shares issued as consideration for purchase of Hampers With Bite 22 Sep 2021 Share purchase plan 05 Oct 2021 Placement of shares - Tranche 2 13,770,928 6,666,666 11,752,726 2,018,547 $0.38 $0.45 $0.38 $0.38 Transactions costs associated with shares issued Tax effect of share issue transaction costs recognised directly in equity 90,658 90,658 90,658 5,233 3,000 4,466 767 (420) 126 26 Jun 2022 Balance at the end of reporting period 170,459,500 103,830 Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’ meetings. In the event of winding up of the Company, ordinary shareholders rank after all creditors and are fully entitled to any proceeds of liquidation. Changes to the then Corporations Law abolished the authorised capital and par value concept in relation to share capital from 1 July 1998. Therefore, the company does not have a limited amount of authorised capital and issued shares do not have a par value. 96 PENTAL ANNUAL REPORT 2022 24. Dividends (a) Recognised Amounts Fully paid ordinary shares Final dividend: Fully franked at 30% tax rate Interim dividend: Fully franked at 30% tax rate Special dividend: Fully franked at 30% tax rate (b) Unrecognised Amounts Final dividend 2022 2021 Cents per share Total $'000 Cents per share Total $'000 - 1.60 1.30 - 2.90 2,400 2,216 - 4,616 1.50 1.00 0.70 3.20 2,044 1,363 954 4,361 2022 2021 Cents per share Total $'000 Cents per share 1.70 1.70 2,898 2,898 Total $'000 - 1.60 1.60 2,180 2,180 In respect of the year (52 weeks) ended 26 June 2022, the Directors declared a full year fully franked final dividend of 1.7 cents per ordinary share, payable on 23 September 2022, with a record date of 5 September 2022 (2021: 1.60 cents per ordinary share). Adjusted franking account balance Impact on franking account balance of dividends not recognised 2022 $'000 2021 $'000 22,727 20,249 1,242 934 97 PENTAL ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS (CONT) 25. Financial Instruments Fully paid ordinary shares Cash and cash equivalents Trade and other receivables (amortised cost) Derivative instruments in designated hedge accounting relationships Financial liabilities Trade and other payable (amortised cost) Supplier payment facility 2022 $'000 2021 $'000 8,132 17,395 23 16,306 89 (ii), (iii) 12,702 14,096 66 12,291 81 The carrying amount reflected in the statement of financial position represents the Group’s maximum exposure to credit risk for financial assets. The Group has significant credit risk exposure with the Woolworths Limited, Coles Group Ltd, Metcash Ltd, Costco, Foodstuffs (Auckland) Ltd and ALDI which represent 78.7% of trade receivables. (c) Financial risk management objectives (e) Foreign currency risk management The Group undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise. Where appropriate, exchange rate exposures are managed within approved policy parameters utilising forward exchange contracts or by offsetting import and export currency exposures. The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period are as follows: Assets Liabilities 2022 $'000 2021 $'000 2022 $'000 2021 $'000 Currency of USA - - 1,119 306 Currency of New Zealand 3,114 2,600 776 805 Currency of Europe - - - - The Group’s finance function provides services to the business by monitoring and managing the financial risks relating to the operations through internal risk reports which analyse exposures by degree and magnitude of risk. The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates. The Group enters into forward foreign currency contracts to manage its exposure to foreign currency exchange rate fluctuations where it has entered into fixed price contracts. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. The use of financial instruments is governed by the Group’s policies approved by the Board of Directors. The Chief Financial Officer is responsible for managing the Group’s treasury requirements in accordance with this policy. (d) Market risk The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates. The Group enters into derivative financial instruments to manage its exposure to foreign currency risk, including forward foreign currency contracts to manage its exposure to foreign currency exchange rate fluctuations (refer notes 25(c) and 25(e)). 98 PENTAL ANNUAL REPORT 2022 25. Financial Instruments Cont. Forward foreign exchange contracts The Group enters into forward foreign exchange contracts to hedge a proportion of anticipated sales and purchase commitments denominated in foreign currencies (principally US Dollars and New Zealand Dollars) expected in each month. The amount of anticipated future sales is forecast in light of current conditions in foreign markets, commitments from customers and experience. The following table sets out the gross contract value to be received/paid under forward foreign currency contracts, the weighted average contracted exchange rates and settlement periods of outstanding contracts for the Group. Weighted average exchange rate Foreign currency FC'000 Contract value $'000 Fair value gain/(loss) $'000 2022 2021 2022 2021 2022 2021 2022 2021 Buy USD - less than one year Buy USD - less than one year - 0.7711 - 2,761 - 3,581 1.0624 1.0820 600 3,450 565 3,189 - 23 23 88 (22) 66 As at reporting date, the aggregate amount of unrealised gains/(losses) under forward foreign currency contracts relating to anticipated future contracts is $0.023 million gain (2021: $0.066 million gain). In the current year, these unrealised gains and losses have been deferred in the hedging reserve to the extent the hedge is effective. Foreign currency sensitivity analysis The Group is mainly exposed to USD and NZD currencies. The following table details the Group’s sensitivity to a 5 cent increase and decrease in the Australian dollar against the relevant foreign currencies. The analysis includes derivative instruments in designated hedge accounting relationships, all trade receivables and trade payables outstanding at year end. Profit Equity USD Impact NZD Impact 2022 2021 2022 2021 118 - 28 248 99 7 83 102 99 PENTAL ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS (CONT) 25. Financial Instruments Cont. (f) Interest rate risk management The Group has been exposed to interest rate risk during the period as it invests cash on call at floating interest rates and cash in short term deposits at fixed interest rates. The Directors consider that the Group’s sensitivity to a reasonably possible change in interest rates would not have a material impact on profit or equity. The following table details the Group’s exposure to interest rate and liquidity risk. The table includes both interest and principal cash flows. 2022 Financial assets Variable interest rate instruments Non-interest bearing Financial liabilities Weighted average interest rate Less than 1 month $'000 1-3 months $'000 3 months to 1 year $'000 1-5 years $'000 5+ years $'000 Total $'000 - - 8,132 - 6,298 11,097 14,430 11,097 - - - - - - (i) Variable interest rate instruments 4.19% 514 - 1,275 2,125 Non-interest bearing - 8,137 11,706 - - 8,651 11,706 1,275 2,125 2021 Financial assets Variable interest rate instruments Non-interest bearing Financial liabilities (i) Variable interest rate instruments Non-interest bearing Weighted average interest rate Less than 1 month $'000 1-3 months $'000 3 months to 1 year $'000 1-5 years $'000 5+ years $'000 - - - - 12,702 - 7,781 6,315 20,483 6,315 81 - 6,161 6,130 6,242 6,130 - - - - - - - - - - - - - - - - - - - - - - - - 8,132 17,395 25,527 3,914 16,306 23,757 Total $'000 8,132 17,395 25,527 81 12,291 12,372 (i) Includes American Express supplier payment facility which, if applicable, charges interest at the time of utilisation and bears no interest charges for repayments made within agreed time frame. The Group intends to repay the facility within agreed time frame. 100 PENTAL ANNUAL REPORT 2022 25. Financial Instruments Cont. (g) Credit risk management Credit risk management refers to the risk that a counter-party will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counter-parties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group’s exposure and the credit ratings of its counter-parties are continuously monitored and the aggregate values of transactions concluded are spread amongst approved counter-parties. The Group measures credit risk on a fair value basis. Trade accounts receivable consist of a number of customers supplying the retail sector in Australia, New Zealand and Asia. Ongoing credit evaluation is performed on the financial condition of accounts receivable and, where appropriate, credit guarantees are obtained. The Group has significant credit risk exposure with the Woolworths Limited, Coles Group Ltd, Metcash Ltd, Foodstuffs (Auckland) Ltd and ALDI which represent 80.9% of trade receivables. The credit risk on liquid funds and derivative financial instruments is limited because the counter-parties are banks with high credit-ratings assigned by international credit-rating agencies. The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the Group’s maximum exposure to credit risk without taking accounts of the value of any collateral obtained. (h) Liquidity risk management The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The Group has a multi option loan facility with the Commonwealth Bank of Australia that allows the Group to choose the appropriate type of funding facility to suit its business needs under one interest rate. The facility expires 30 June 2024. As highlighted in Note 21, the Group also has alternative financing facilities to draw upon, if and when required. There are no restrictions of use associated with the supplier finance facility. The Group also has the option to early settle its outstanding receivables from its major customers (Coles, Woolworths and Costco) at a discounted value prior to the due date of such receivables. The discount varies depending on the maturity date of receivables, market interest rates and willingness of the customer to accept an early settlement. (i) Fair value of financial instruments The directors consider that the carrying amounts of financial assets and liabilities recorded in the financial statements approximate their fair values. The fair values and net fair values of financial assets and liabilities are determined as follows: The fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices; The fair value of other financial assets and liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis; and The fair value of derivative instruments, included in hedging assets and liabilities, are calculated using quoted prices, which is a Level 2 fair value measurement. Where such prices are not available use is made of discounted cash flow analysis using the applicable yield curve for the duration of the instruments. 101 NOTES TO THE FINANCIAL STATEMENTS (CONT) PENTAL ANNUAL REPORT 2022 26. Share-Based Payments. Executive Variable Incentive Plan (EVIP) Under Pental’s EVIP, executives and selected senior management employees are eligible for both a cash and equity incentive upon the achievement of certain Group level KPI’s and personal KPIs set at the commencement of each financial year, weighted as follows: Fifty percent of both the cash and equity incentive KPIs relate to the achievement of a target EBIT for the financial year. The remaining fifty percent are based on specific KPIs relevant to the participants particular specialisation. In the event the Group fails to meet its annual financial performance criteria, the Board retains the discretion to award up to 50 percent of EVIP entitlements to recognise and reward executives for extraordinary efforts and achievements during the financial year. Variable Incentive – cash Variable cash incentive under EVIP is paid shortly after the release of audited full year results. The maximum amount of remuneration under the variable cash incentive plan ranges from 20 to 35 percent of the individual executive / senior management employee’s total fixed remuneration. (i) Variable Incentive – equity executives and align the rewards to the company’s share price. The maximum amount of remuneration under the variable equity incentive plan varies from 30 to 40 percent of the individual executive / senior management employee’s total fixed remuneration. The variable equity incentive is delivered as Performance Rights (Rights), which are granted under the existing Executive Performance Rights Plan (Rights Plan) to enable the subsequent acquisition of the share component. The Rights will convert to ordinary shares after three years from the end of financial year of the grant date. Rights will be granted on a face value basis using the last ten business days of the previous financial year Volume Weighted Average Price (VWAP). The variable equity incentive is based upon an assessment of performance against respective KPIs in the The variable equity incentive is designed to reward achievement of annual KPIs, assist the retention of key high performing year in which it is granted. If the performance criteria is not met within the financial year, the Rights are forfeited at the end of the same financial year. The vesting of the Rights is conditional on: a). The executive satisfying Group level and personal performance criteria, b). The executive being employed by the Group on the vesting date; and c). Pental’s VWAP share price for the last ten business days preceding the vesting date being equal to or greater than the VWAP for the preceding ten business days from the grant date. In total, the Rights are held for four years from the grant date. The value to the executive / senior manager therefore is not at the grant date, rather at the vesting date which is three years from the end of financial year of the grant date. Dividends are not payable on the Rights. Dividends are payable on ordinary shares after conversion of the Rights to ordinary shares. In the event the Group fails to meet its annual financial performance criteria, the Board retains the discretion to award up to 50 percent of EVIP entitlements to recognise and reward executives for extraordinary efforts and achievements during the financial year. EVIP – FY22 Performance The following table contains details of total EVIP equity entitlements achieved by the executives and senior managers during the year: Grant Date No. of Rights granted (i) Share price at grant date Exercise price Expected volatility Performance period Risk free rate Expected dividend yield Fair value at grant date Charlie McLeish 18/11/2021 267,000 $0.4000 Neil Godara Senior Managers 1/07/2021 102,000 $0.4050 1/07/2021 389,000 $0.4050 Nil Nil Nil 40%% 40% 40% 4 years 1.38% 4 years 0.72% 4 years 0.72% 5% 5% 5% $0.189 $0.190 $0.190 (i) The executives & senior managers have been issued partial entitlements for 2022 financial year due to not meeting financial performance conditions. As per Note 7, The vesting period expense recognised during the period was $173 thousand (2021: $136 thousand) The following table contains details of total EVIP equity entitlements achieved by the executives and senior managers during the previous reporting period: Grant Date No. of Rights granted Share price at grant date Exercise price Expected volatility Performance period Risk free rate Expected dividend yield Fair value at grant date Charlie McLeish 19/11/2020 636,000 $0.410 Neil Godara 1/07/2020 217,000 $0.345 Senior Managers 1/07/2020 760,000 $0.345 Nil Nil Nil 51% 51% 51% 4 years 0.30% 4 years 0.40% 4 years 0.40% 7% 7% 7% $0.212 $0.157 $0.157 102 PENTAL ANNUAL REPORT 2022 NOTES TO THE FINANCIAL STATEMENTS (CONT) 26. Share-Based Payments Cont. Share-based payments (Rights Plan) All performance rights under the EVIP are issued pursuant to the Executive Performance Rights Plan (Rights Plan). Under the conditions of Rights Plan, Performance Rights are convertible to ordinary shares (with no exercise price) as at the vesting date which is 4 years from the grant date (or 3 years from the end of the financial year) All Rights issued are convertible to ordinary shares at no consideration, subject to achieving any performance or other vesting conditions. The following table discloses changes in the Rights holdings of management personnel: Vesting Date Balance at 27/6/2021 Rights granted No. Rights vested No. Rights forfeited No. Rights lapsed No. Balance at 26/6/2022 (i) EVIP 2020 1/7/2023 1,625,000 EVIP 2021 1/7/2024 1,613,000 - - EVIP 2022 1/7/2025 - 1,516,000 - - - - - 758,000 - - - 1,625,000 1,613,000 758,000 3,996,000 27. Key Management Personnel Compensation 28. Related Party Transactions The aggregate compensation of the key management personnel of the Group is set out below Short-term employee benefits Long-term employee benefits 2022 $'000 2021 $'000 1,246,066 1,397,562 16,605 20,184 Share based payments 95,779 78,318 Termination benefits 0 - Post-employment benefits 74,385 79,076 1,432,835 1,575,140 Mr Fred Harrison is the CEO of Ritchies. Mr Harrison’s employer, Ritchies Stores Pty Ltd invoiced the Group a total of $129,799.66 inclusive of GST (2021: $266,239.93 inclusive of GST) relating to the Group’s participation in various promotional activities and supplier trading terms during the financial year. All transactions were conducted at arm’s length. As at the reporting date, the Group owed Ritchies Stores Pty Ltd $18,022.90 (2021: $106,288.84) in relation to above mentioned promotional activities and supplier trading terms. Equity interests in subsidiaries Details of interests in subsidiaries are set out in note 13. Sales to and purchases from related parties in the normal course of business are made in arm’s length transactions on normal terms and conditions. 103 PENTAL ANNUAL REPORT 2022 29. Cash and Cash Equivalents (a) Reconciliation of cash and cash equivalents Cash and cash equivalents at the end of the financial year as shown in the cash flow statement is reconciled to the related items in the statement of financial position as follows: Cash on hand and at bank Cash and cash equivalents 2022 $'000 2021 $'000 8,183 8,183 12,702 12,702 (b) Reconciliation of Profit for the year to net cash flows from operating activities Cash and cash equivalents at the end of the financial year as shown in the cash flow statement is reconciled to the related items in the statement of financial position as follows: 2022 $'000 2021 $'000 Profit/(Loss) for the year Depreciation and amortisation expense Impairment of brand name Equity settled employee benefits expense Acquisition related expenses (not operating in nature) Changes in net assets and liabilities, net of effects from acquisition of business: (Increase)/decrease Trade and other receivables Inventories Other assets Increase/(decrease) in liabilities Trade and other payables Provisions and hedging reserve Current and deferred tax liabilities Other liabilities Net cash from operating activities 6,367 3,899 348 173 1,047 (1,548) 860 (299) 619 (20) (1,328) 154 9,924 5,363 3,849 348 136 - 6,037 7,366 308 (6,049) 102 (1,415) - 16,045 104 PENTAL ANNUAL REPORT 2022 30. Capital Expenditure Commitment 32. Remuneration of Auditors 2022 $'000 2021 $'000 Summary of financing arrangements Plant and equipment 4 404 The Group entered into various contracts to purchase equipment for the upgrade and modernisation of Shepparton manufacturing facility. Auditor of the parent entity Audit or review of the financial report Other services 2022 $'000 2021 $'000 177,000 141,000 31. Contingent Liabilities Tax consulting 7,800 - Due diligence services 2022 $'000 2021 $'000 Other services - - 46,187 10,000 184,800 197,187 The auditor of Pental Limited is Grant Thornton in the reported period and the prior period. Bank guarantees to third parties in respect of property lease obligations. The bank guarantees are held by the parent entity, Pental Limited. 325 117 To the best knowledge of the Directors aside from the Bank Guarantees disclosed, no other contingent liabilities exist for the reporting period ending 26 June 2022. 105 107 NOTES TO THE FINANCIAL STATEMENTS (CONT) PENTAL ANNUAL REPORT 2022 33. Parent Entity Information The accounting policies of the parent entity, which have been applied in determining the financial information shown below, are the same as those applied in the consolidated financial statements. Refer to Note 2 for a summary of the significant accounting policies relating to the Group. Financial Position Assets Current assets Non current assets Total assets Liabilities Current liabilities Non current liabilities Total liabilities Net Assets Equity Issued captial Accumulated losses Total equity Financial performance Profit/(loss) for the year Other comprehensive income Total comprehensive income/(loss) 2022 $'000 2021 $'000 2 73,310 74,312 5,524 2,125 7,649 1 53,964 53,965 469 - 469 66,663 53,496 103,830 90,658 (37,167) (37,162) 66,663 53,496 4,613 - 4,613 4,360 - 4,360 106 PENTAL ANNUAL REPORT 2022 34. Subsequent events Dividends In respect of the year (52 weeks) ended 26 June 2022 the Company will pay final fully franked dividend of 1.7 cents per ordinary share, payable to shareholders on 23 September 2022, with a record date of 5 September 2022. Other than the above disclosures, there has not been any matter or circumstance occurring after the end of the financial period that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in subsequent financial periods. 107 PENTAL ANNUAL REPORT 2022 ADDITIONAL STOCK EXCHANGE INFORMATION AS AT 16TH AUGUST 2022 Additional information required by the Australian Stock Exchange Limited Listing Rules and not disclosed elsewhere in this report is set out below. Ordinary share capital 170,459,499 fully paid ordinary shares are held by 2,024 individual shareholders. The voting rights attaching to the fully paid ordinary share, set out in clause 43 of the Company’s Constitution are: “Subject to any rights or restrictions attaching to any class of shares: (a) every member may vote; (b) on a show of hands every member has one vote; (c). on a poll every member has: (i). for each fully paid share held by the member, one vote; and (ii). for each partly paid share held by the member, a fraction of a vote equivalent to the proportion which the amount paid (not credited) is of the total amounts paid and payable (excluding amounts credited to) on the share.” Distribution of holders of equity securities Fully paid ordinary shares 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Holding less than a marketable parcel 247 608 272 744 153 2,024 290 Performance rights Substantial shareholders There are no voting rights attached to performance rights. Fully paid ordinary shares On-market buy-back There is no current on-market buy-back. Ordinary Shareholders Number of share for voting power Percentage (i) Alan Johnstone 35,330,769 20.73% John Rostyn Homewood 26,920,000 15.79% 62,250,769 36.52% (i) Alan Johnstone has a relevant interest in Pental shares held by western park holdings Pty Ltd and PMSF company Pty Ltd 108 PENTAL ANNUAL REPORT 2022 TWENTY LARGEST HOLDERS OF QUOTES EQUITY SECURITIES Ordinary Shareholders Number Percentage Fully paid ordinary share Fully paid ordinary shares JOHNOS HOLDINGS PTY LTD MR JOHN ROSTYN HOMEWOOD MR GARRY GEORGE JOHNSON NATIONAL NOMINEES LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED RATHVALE PTY LIMITED NICHOLAS PATRICK BOYLE RORY JOSEPH BOYLE BNP PARIBAS NOMS (NZ) LTD 31,603,617 26,920,000 6,670,739 3,989,320 3,782,830 3,406,557 3,333,333 3,333,333 3,250,001 P M S F COMPANY PTY LIMITED 3,197,431 DALLMOUNT PTY LTD W A PEATT PTY LTD DALLMOUNT CUSTODIANS PTY LTD BUDUVA PTY LTD DALLMOUNT PTY LTD MR JAMES GORDON MOFFATT BARKING DOG PTY LTD BNP PARIBAS NOMS PTY LTD SPORRAN LEAN PTY LTD TERRY CLANCY SUPERANNUATION PTY LTD 2,666,668 2,510,617 2,500,000 1,650,000 1,504,761 1,268,498 1,262,478 1,118,072 1,110,000 959,307 18.54% 15.79% 3.91% 2.34% 2.22% 2.00% 1.96% 1.96% 1.91% 1.88% 1.56% 1.47% 1.47% 0.97% 0.88% 0.74% 0.74% 0.66% 0.65% 0.56% 106,037,562 62.21% 109 DIRECTORS Mark Hardgrave Charlie McLeish Kerrie Parker Jeff Miciulis Fred Harrison COMPANY SECRETARY Oliver Carton REGISTERED OFFICE Level 6, 390 St Kilda Road Melbourne VIC 2004 Telephone: +613 9251 2311 SHAREHOLDER ENQUIRIES: SHARE REGISTER Boardroom Pty Limited Grosvenor Place, Level 12, 225 George Street Sydney NSW 2000 Telephone within Australia: 1300 737 760 Telephone outside Australia: +61 2 9290 9600 Facsimile: +61 2 9279 0664 www.boardroomlimited.com.au AUDITORS Grant Thornton Collins Square, Tower 5, 727 Collins St Melbourne VIC 3008 Australia Telephone: +61 3 8320 2222 MANUFACTURING AND DISTRIBUTION 1-22 Drummond Road Shepparton VIC 3630 Telephone: +61 3 5820 5200 SECURITIES EXCHANGE LISTING Pental Limited (PTL) shares are listed on the Australia Securities Exchange (ASX) WEBSITE www.pental.com.au ABN 29 091 035 353 

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