Seafarms Group
Annual Report 2018

Plain-text annual report

Seafarms Group Limited ABN 50 009 317 846 Annual Report for the year ended 30 June 2018 Seafarms Group Limited ABN 50 009 317 846 Financial Report - 30 June 2018 Lodged with the ASX under Listing Rule 4.3A. This information should be read in conjunction with the Financial Report Contents Results for Announcement to the Market Financial statements Page 3 21 Seafarms Group Limited Appendix 4E Financial Report Year ended 30 June 2018 Name of entity Seafarms Group Limited ABN or equivalent company reference ABN 50 009 317 846 Results for announcement to the market Seafarms Group Limited Appendix 4E 30 June 2018 12 months ended 30 June 2018 (Previous corresponding period: 12 months ended 30 June 2017) $ Revenue from ordinary activities Earnings before interest and taxation (EBIT) Net loss after tax (from ordinary activities) for the period attributable to members Down Down 1.9% 51.0% Up .9% to to to 35,051,906 (18,866,541) (19,947,283) Distributions Interim dividend (per share) Final dividend (per share) Franking Amount per security Franked amount per security - - - - - - 30 June 2018 $ 30 June 2017 $ Net tangible asset backing (per share) 0.01 0.02 Seafarms Group Limited Appendix 4E 30 June 2018 (continued) Explanation of results For commentary on the results please refer to the announcement relating to the release of Seafarms Group Limited results in conjunction with the accompanying financial statements, which forms part of the Appendix 4E. Audit This report is based on accounts that have been audited. Harley Ronald Whitcombe Director & Company Secretary Perth 31 August 2018 Seafarms Group Limited ABN 50 009 317 846 Annual Report - 30 June 2018 Contents Corporate directory Directors' report Auditor's Independence Declaration Corporate governance statement Financial statements Directors' declaration Independent auditor's report to the members Shareholder information Page 1 2 19 20 21 78 79 84 Directors Secretary Principal registered office in Australia Share registry Auditor Bankers Stock exchange listing Website Seafarms Group Limited Corporate directory Ian Norman Trahar B.Ec, MBA Executive Chairman Harley Ronald Whitcombe B.Bus, CPA Executive Director Dr Christopher David Mitchell PhD, BSc (Hons), GAICD Executive Director Paul John Favretto LL.B. Independent Non-executive Director Hisami Sakai (appointed 7 August 2018) Non-executive Director Harley Ronald Whitcombe B.Bus, CPA Level 11, 225 St Georges Terrace Perth, Western Australia 6000 Telephone No: (08) 9216 5200 Facsimile No: (08) 9216 5199 Computershare Investor Services Pty Limited GPO Box D182 Perth, Western Australia 6000 Telephone No: (08) 9323 2000 Facsimile No: (08) 9323 2033 Deloitte Touche Tohmatsu Chartered Accountants 123 St Georges Terrace Perth WA 6000 HSBC Bank Australia Limited 190 St Georges Terrace Perth, Western Australia 6000 Australia and New Zealand Banking Group Limited 77 St Georges Terrace Perth WA 6000 Seafarms Group Limited shares are listed on the Australian Securities Exchange. Home Exchange - Perth. ASX Code - SFG www.seafarms.com.au 1 Seafarms Group Limited Directors' report 30 June 2018 Directors' report The Directors present their report together with the financial statements of Seafarms Group Limited (referred to hereafter as Seafarms or the Group) consisting of Seafarms Group Limited and the entities it controlled at the end of or during the year ended 30 June 2018. Directors The following persons were Directors of Seafarms Group Limited during the whole of the financial period and up to the date of this report: Ian Norman Trahar Harley Ronald Whitcombe Dr Christopher David Mitchell Paul John Favretto On 7 August 2018 Mr Hisami Sakai was appointed as a Non-Executive Director of Seafarms Group Limited as Nippon Suisan Kaisha Limited's representative. Principal activities The Group's principal continuing activities during the year consisted of aquaculture project development, aquaculture operations, carbon project management (Australia and Vietnam), the provision of environmental services (advisory in ecosystem offsets and carbon farming projects), and trading environmental credits. Review of operations The Group has reported a loss for the year after taxation of $19,947,283 (2017: loss $19,775,463). A summary of consolidated revenues and results for the year by significant industry segments is set out below: Consolidated Aquaculture Carbon services Other Total segment revenue/result Segment revenues 2017 2018 $ $ Segment results 2018 $ 2017 $ 26,973,529 6,593,791 1,484,586 35,051,906 29,296,388 5,379,148 1,063,715 35,739,251 (14,262,502) (1,338,530) 566,308 (15,034,724) (10,937,644) (277,238) 294,594 (10,920,288) 2 Seafarms Group Limited Directors' report 30 June 2018 (continued) Review of operations (continued) Comments on the operations and the results of those operations are set out below: Aquaculture Production at Seafarms' operations in North Queensland was lower than expected due to the previously reported YHV7 outbreak, which negatively affected the Christmas crop. As a result a number of additional biosecurity measures have been implemented along with a number of changes to pond production systems. These changes have provided a positive impact with second half results showing significant improvement on a year on year basis. As a result of the research and development into stocking rates and scheduling that was reported last year, the company continues to be self-sufficient for Post-Larvae for pond-stocking. Seafarms' high QA/QC standards for its Post-Larvae also contributed to improved performance in grow-out in the second half of the year. Seafarms continues to produce both Black Tiger and Banana prawns which are sold through supermarkets, seafood markets and wholesalers. The company’s unique Crystal Bay® brand strengthened its presence in supermarkets and restaurants. The in-store sales were supported through social media and web expansion. The Queensland operations are primarily intended to demonstrate the fundamental operating concepts for Project Sea Dragon and provide the platform for the core of the workforce required for the much larger greenfield project. Project Sea Dragon, Seafarms’ world-class integrated aquaculture initiative achieved a series of major milestones in its development during the year. In order to assist the development of Project Sea Dragon, Seafarms secured a material investment in the Project via an equity placement in Seafarms Group Ltd. The investor is Nippon Suisan Kaisha (Nissui) one of the world’s leading seafood companies. Nissui, which is listed on the Tokyo Stock Exchange and a member of the Nikkei 225 Index, is one of the world’s largest producers of seafood and has expertise in fisheries, aquaculture, marine research and development, processing, logistics and marketing. This investment which represents a 14.99% shareholding interest to distribute Seafarms existing product as well as produce from Project Sea Dragon, through its half-owned business Sealord. Nissui’s investment in Seafarms followed an exhaustive due diligence process that examined all facets of Project Sea Dragon and Queensland operations. in the company, also includes off-take agreements and an agreement A Project Development Agreement with the Northern Territory Government was signed in September 2017. This Agreement provides the strategic pathway for the full 10,000 Ha development and commits both Parties to fully realise the economic opportunities arising from the Project. The Territory Government will support the project through investments in public infrastructure and will ensure robust land tenure for all Northern Territory project sites. At its Exmouth Founder Stock Centre, Project Sea Dragon produced its first generations of specific pathogen free Black Tiger Prawns. Development of a domesticated population of specific pathogen free animals is a core strategy to reduce biosecurity risk in Project Sea Dragon. Major approvals for the breeding facility site at Bynoe Harbour and for the Grow-out Centre at Legune were obtained. At Bynoe Harbour the approvals that were obtained include the development approval with approval to clear vegetation, a waste discharge licence, an Aboriginal Areas Protection Authority Certificate and the aquaculture licence. The company successfully negotiated an Indigenous Land Use Agreement (ILUA) for Legune Station. The ILUA was formally authorised on 31 August 2017 and all parties signed the Agreement on 1 November 2017. An Aboriginal Areas Protection Authority Certificate accompanied this ILUA. The use of the land for aquaculture was granted through a Non-Pastoral Use Permit together with a Vegetation Clearing Permit which under the relevant Act is also the development permit. 3 Seafarms Group Limited Directors' report 30 June 2018 (continued) Review of operations (continued) Aquaculture (continued) Seafarms extended its option to purchase Legune Station in order to finalise and then complete formal agreements between itself and the proposed purchaser of Legune which is AAM Investment Group. Securing a land partner is an important part of the strategy for Project Sea Dragon as it establishes a sound management base for the complementary pastoral enterprise that will co-exist with Project Sea Dragon’s aquaculture operations. The ability for Seafarms to sub-lease the required parts of the property significantly reduces the initial capital costs of the project. The company also identified a suitable site for a commercial hatchery at Gunn Point near Darwin. Development consent for the hatchery was obtained in February 2018. The Northern Territory Government committed to upgrading road infrastructure to Gunn Point. The technical work for the Feasibility Study underwent an exhaustive vendor due diligence process that confirmed all technical assumptions associated with the project. The company refined the construction approach in order to bring forward the stocking and production of prawns. The construction strategy is designed to enable production upon completion of the first farm at Legune. Seafarms support of the Australian Research Council’s Industrial Transformation Research Hub for Advanced Prawn Breeding has yielded a unique set of data from which to launch advanced breeding programs. The Centre published the transcriptome of the black tiger prawn which is the ‘library’ of active genes making proteins in the prawn. This is the most comprehensive transcriptome for any crustacean and includes 9 different types of tissue from the adult and 8 larval stages. Scientists and staff working on the project have sampled 67,237 prawns and made 447,000 phenotypic measurements. More than 25,000 genetic markers have been identified. Environmental / Carbon services CO2 Australia continued to deliver advisory, land management and carbon services. Performance was as expected during the year with earnings from the company contributing positively to the group. CO2 Australia successfully bid into the Emissions Reduction Fund (ERF) securing long-term Carbon Abatement Contracts (CACs) with the Australian Government in relation to a a series of eligible ERF projects from a diverse range of emissions management activities. This builds on an existing set of CACs, as well as multi-decade carbon service contracts with large clients, providing long-term revenue certainty for the company. CO2 Australia continued to secure clients in the land management sector, with multi-year contracts secured through the Australian Government’s 20 million trees program and with the NSW Office of Environment and Heritage. impact assessments and The company led the advisory component of Project Sea Dragon’s environmental successfully brought Impact Statements to achieve environmental approval under the Environmental Protection and Biodiversity Conservation Act. This has significantly strengthened CO2 Australia’s capabilities and is generating valuable IP that can be applied in other projects. the work required for two Environmental together Other CO2 Australia’s team of environmental professionals continues to extend its range of service offerings, with a substantive expansion in the variety of engagements secured within the environmental services sector. The company continues to secure repeat business from its blue-chip client base and to attract new customers for its service offering. Significant changes in the state of affairs Significant changes in the state of affairs of the Group during the financial period were as follows. Contributed equity increased by $2,161,705 (2017: $22,491,474) as the result of a debt equity swap with Avatar Finance Pty Ltd to assist with the continuing development of Project Sea Dragon as disclosed in note 26 to the financial statements. 4 Seafarms Group Limited Directors' report 30 June 2018 (continued) Matters subsequent to the end of the financial year On 23 May 2018 the Group announced an agreement with Nippon Suisan Kaisha (Nissui) that included a $24.99 million equity investment in Seafarms. This investment will assist with the development of the Company's world class Project Sea Dragon. One of the conditions of this agreement was that the Group would divest its existing carbon sequestration, trading and environmental services business. On 15 June 2018, the Group sent out a Notice of Extraordinary General Meeting of shareholders to be held on 16 July 2018. This meeting was primarily being held to seek approval for the demerger of the CO2 Australia Group from the Seafarms Group. On 16 July 2018, at demerger, which was completed on 23 July 2018. the extraordinary general meeting, the Group received shareholder approval for the On 7 August 2018 Nippon Suisan Kaisha Limited’s equity investment in Seafarms shares at 10 cents per share was completed. This resulted in an equity raising of $24.99 million. No matter or circumstance has occurred subsequent to 30 June 2018 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 or economic entity in subsequent financial periods. Likely developments and expected results of operations Project Sea Dragon continues to be the major focus of development activities. With the achievement of major milestones, as outlined in this report or nearing completion, the next period will see more attention paid to financing and to the final design of Stage 1 of the Project. Construction for Stage 1 is planned to take place across two Dry Seasons as previously outlined. Queensland operations continue to be de-risked through initiatives to improve operational practices that include water treatment prior to use in grow-out ponds, changes in husbandry such as the use of nursery ponds and continued trials of feed. 5 Seafarms Group Limited Directors' report 30 June 2018 (continued) Information on directors Ian Norman Trahar B.Ec, MBA. Executive Chairman (since 13 November 2001) Experience and expertise Mr Trahar has a resource and finance background. He is a director and significant shareholder of Avatar Industries Pty Ltd, an unlisted private company. Ian is a member of the Australian Institute of Company Directors. Other current directorships None. Former directorships in last 3 years None. Special responsibilities Chair of the board. Member of the audit committee. Member of remuneration committee. Interests in shares and options 453,391,227 shares in Seafarms Group Limited. Harley Ronald Whitcombe B.Bus, CPA. Executive Director. (since 13 November 2001) Experience and expertise Mr Whitcombe has had many years’ commercial and finance experience, providing company secretarial services to publicly listed companies. Other current directorships None. Former directorships in last 3 years None. Special responsibilities Chief Financial Officer & Company Secretary of Seafarms Group Limited. Interests in shares and options 18,048,259 ordinary shares in Seafarms Group Limited. 6 Seafarms Group Limited Directors' report 30 June 2018 (continued) Information on directors (continued) Dr Christopher David Mitchell PhD, BSc (Hons), GAICD. Executive Director. (since 27 July 2005) Experience and expertise Dr Mitchell has a PhD in biology from the University of Melbourne, is a graduate of the Australian Institute of Company Directors and has a 20 year involvement in Australian and international climate change research. He is an Adjunct Professor at the Community and Industry Advisory Board of the University of Melbourne's Office of Environmental Programs. Prior to joining the Group full time Dr Mitchell was Foundation Director of the Centre for Australian Weather and the Climate Research, a partnership between CSIRO and the Bureau of Meteorology, and was CEO of Cooperative Research Centre for Greenhouse Accounting. He chaired the Victorian Climate Change Minister’s Reference Council on Climate Change Adaptation and was on the CSIRO’s Environment and Natural Resources Sector Advisory Committee. the School of Environmental Science Murdoch University and a member of Other current directorships None. Former directorships in last 3 years None. Special responsibilities Member of the audit committee. Member of remuneration committee. Interests in shares and options 10,993,936 ordinary shares in Seafarms Group Limited. Paul John Favretto LL.B. Independent Non-executive Director. (since 18 December 2007) Experience and expertise Mr Favretto was previously Managing Director of Avatar Industries Limited. Before that Mr Favretto worked for 20 years in the financial services industry holding senior management positions with Citibank Limited (1976 to 1985) and Bankers Trust Australia Limited (1986 to 1994). Other current directorships None. Former directorships in last 3 years None. Special responsibilities Chairman of remuneration committee. Chairman of audit committee. Interests in shares and options 37,750,000 ordinary shares in Seafarms Group Limited. 7 Seafarms Group Limited Directors' report 30 June 2018 (continued) Information on directors (continued) Hisami Sakai Non-executive Director (since 7 August 2018) Experience and expertise Mr Sakai has had nearly 40 years commercial experience with Nippon Suisan Kaisha Limited (Nissui), one of the biggest global seafood companies in Japan. He is currently an Executive Officer of Nissui. His responsibilities include Business Supervisor in Europe and Oceania, in charge of the Supply Chain Management and Marine Business Strategy Departments. Other current directorships None. Former directorships in last 3 years None. Special responsibilities None Interests in shares and options None Company secretary The Company secretary is Mr Harley Ronald Whitcombe B.Bus, CPA. Mr Whitcombe was appointed to the position of Company secretary on 13 November 2001. 8 Seafarms Group Limited Directors' report 30 June 2018 (continued) Meetings of directors The numbers of meetings of the Company's board of Directors and of each board committee held during the 12 months ended 30 June 2018, and the numbers of meetings attended by each Director were: Ian Norman Trahar Harley Ronald Whitcombe Dr Christopher David Mitchell Paul John Favretto Hisami Sakai Full meetings of directors Meetings of committees Audit Remuneration A 11 14 14 14 - B 12 14 14 14 - A 2 - 2 2 - B 2 - 2 2 - A 3 - 3 3 - B 3 - 3 3 - A = Number of meetings attended B = Number of meetings held during the time the Director held office, was invited to attend or was a member of the committee during the 12 months Remuneration report (audited) The Directors are pleased to present your Company's 2018 remuneration report which sets out remuneration information for Seafarms Group Limited's non-executive Directors, executive Directors and other key management personnel. Non-executive director remuneration policy The shareholders of Seafarms Group Limited on 24 February 2012 approved, for the purposes of the ASX Listing Rules and the Group’s Constitution, an increase in the maximum aggregate directors’ fees to $400,000, with such fees to be allocated to the directors as the board of directors may determine. The Remuneration Committee determines the remuneration of all non-executive directors, none of whom have service contracts with the company. Executive remuneration policy and framework The objective of the Group’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders, and conforms with market practice for delivery of reward. The board ensures that executive reward satisfies the following key criteria for good reward governance practices: • • • • • competitive and reasonable, enabling the company to attract and retain key talent; aligned to the company’s strategic and business objectives and the creation of shareholder value; performance linkage / alignment of executive compensation; transparent; and acceptable to shareholders. Alignment to shareholders' interests: • attracts and retains high calibre executives. Alignment to program participants' interests: • • rewards capability and experience; and provides recognition for contribution. The board has established a remuneration committee which makes recommendations to the board on remuneration and incentive policies and practices and specific recommendations on remuneration packages and other terms of employment for executive directors, other senior executives and non executive directors. The Corporate Governance Statement provides further information on the role of this committee. 9 Seafarms Group Limited Directors' report 30 June 2018 (continued) Remuneration report (audited) (continued) Executive remuneration policy and framework (continued) The executive remuneration and reward framework has several components: • • • base pay and benefits, including superannuation; short-term performance incentives; and long-term incentives through participation in the "Seafarms Group's Employee Incentive Plan" as approved by the shareholders at the AGMs held on 1 February 2016 and 25 November 2016. The combination of these comprises an executive's total remuneration. The Group intends to conduct a review of the incentive plans during the year ending 30 June 2019 to ensure continued alignment with financial and strategic objectives. (a) Elements of remuneration Base pay and benefits Executives receive their base pay and benefits structured as a total employment cost (TEC) package which may be delivered as a combination of cash and prescribed non-financial benefits at the executives' discretion. Executives are offered a competitive base pay that comprises the fixed component of pay and rewards. Base pay for executives is reviewed annually to ensure the executive's pay is competitive with the market. An executive's pay is also reviewed on promotion. There are guaranteed base pay increases included in all of the executives' contracts. Short-term incentives If the Group achieves a pre-determined profit target set by the remuneration committee, a short-term incentive (STI) pool is available to executives and other eligible participants. Cash incentives (bonuses) were payable on 15 November each year, with the change of accounting date to 30 June this will be 15 August in future years. Using a profit target ensures variable reward is only available when value has been created for shareholders and when profit is consistent with the business plan. The distribution of the STI pool is at the discretion of the Executive Chairman. Long-term incentives Long-term incentives may be provided to directors and staff via the Seafarms Group Employee Incentive Plan as approved by shareholders at the AGMs held on 1 February 2016 and 25 November 2016. The Seafarms Group Employee Incentive Plan is designed to provide long-term incentives ("LTI") for directors and staff to deliver long-term shareholder returns. Under the plan, participants may be granted unlisted Share Options and/or Performance Rights which only vest if certain performance conditions are met and the directors and staff are still employed by the Group at the end of the vesting period. Participation in the plan is at the board's discretion and no individual has a contractual right to participate in the plan or to receive any guaranteed benefits. (b) Details of remuneration Amounts of remuneration Details of the remuneration of the directors, the key management personnel of the Group (as defined in AASB 124 Related Party Disclosures) of Seafarms Group Limited and the Group are set out in the following tables. The key management personnel of Seafarms Group Limited includes the directors as listed below: Ian Norman Trahar (Chairman and Executive Director) • • Harley Ronald Whitcombe (Executive Director and Company Secretary) • Dr Christopher David Mitchell (Executive Director) Paul John Favretto (Non-executive Director) • 10 Seafarms Group Limited Directors' report 30 June 2018 (continued) Remuneration report (audited) (continued) (b) Details of remuneration (continued) Amounts of remuneration (continued) In addition to the directors the following executives that report directly to the Board are key management personnel: • Dallas Donovan (Chief Operating Officer, Seafarms Operations Limited) • Rodney Dyer (Project Director, Seafarms Group Limited, appointed 31 October 2017) • Aaron Soanes (Director and General Manager of Operations, CO2 Australia Limited) • Dr James Bulinski (Director, CO2 Australia Limited) The following table shows details of the remuneration expense recognised for the Group's directors and executive key management personnel for the current and previous financial year measured in accordance with the requirements of the accounting standards. 11 Seafarms Group Limited Directors' report 30 June 2018 (continued) Remuneration report (audited) (continued) (b) Details of remuneration (continued) Year ended 30 June 2018 Name Short-term employee benefits Post-em ployment benefits Long- term benefits Cash salary and fees $ Cash bonus $ Non- monetary benefits $ Super- annuation $ Long service leave $ Share-based payments Performance rights / Share options** $ Termi- nation benefits $ Total $ Non-executive Directors P Favretto Sub-total non-executive directors Executive Directors I Trahar H Whitcombe C Mitchell Other key management personnel (Group) D Donovan R Dyer (from 31 October 2017) A Soanes J Bulinski Total key management personnel compensation (Group) 35,200 35,200 240,450 270,811 294,398 266,539 185,503 189,895 216,500 1,699,296 - - - - - - - - - - - - 23,144 23,144 - - - - - - 58,344 58,344 - - 17,817 38,128 35,727 37,968 - - 32,373 16,462 37,321 17,623 18,040 24,068 4,378 4,931 5,360 4,565 565 3,458 4,006 - - - 324,000 - 486,000 282,956 635,469 841,543 - - - - 42,476 12,636 - - 350,901 216,327 243,766 261,036 66,652 232,019 27,263 - 865,112 2,890,342 ** The estimation of the fair value of share-based payment awards requires judgement concerning the appropriate valuation methodology. The choice of valuation methodology is determined by the structure of the awards, particularly the vesting conditions. A Black scholes valuation methodology was used to determine the value. Further details on the valuation assumptions and individual scheme awards are provided in note 38 of the financial statements. Year ended 30 June 2017 Short-term employee benefits Cash salary and fees $ Cash bonus* $ Non- monetary benefits $ Post-em ployment benefits Super- annuation $ Long- term benefits Long service leave $ Share-based payments Termi- nation benefits $ Performance rights $ Total $ - - 25,025 25,025 - - 35,200 35,200 240,450 270,811 286,065 - - - - - - - 24,944 42,050 38,227 39,676 241,846 185,804 184,000 20,000 - - - 26,387 12,886 37,635 17,651 23,480 1,444,176 20,000 64,217 223,744 24,562 4,378 4,931 5,360 3,043 3,390 3,460 - - - - - - - - - - - - - - - - - - 60,225 60,225 286,878 313,969 356,045 302,524 233,232 223,826 1,776,699 Name Non-executive Directors P Favretto Sub-total non-executive directors Executive Directors I Trahar H Whitcombe C Mitchell Other key management personnel (Group) D Donovan A Soanes J Bulinski Total key management personnel compensation (Group) * The cash bonus to D Donovan was paid on 15 March 2017 as recognition of the improved performance of the Cardwell operations. 12 Seafarms Group Limited Directors' report 30 June 2018 (continued) Remuneration report (audited) (continued) Details of the awards for each scheme, the status of those awards and share based payment expense for KMP’s is provided in the table below. Name / Scheme H Whitcombe Performance rights C Mitchell Performance rights D Donovan Unlisted options 1 R Dyer Unlisted options 2 TOTAL Allocation date Vesting date 22 August 2017 22 August 2017 22 August 2017 22 August 2017 22 August 2017 22 August 2017 19 January 2018 19 January 2018 Balance of unvested equity awards as at 1 July 2017 Number of rights Granted Vested / Exercised in FY18 Number of rights Number of rights Balance of unvested equity awards as at 30 June 2018 Number of rights Fair value per security Fair value at grant date Share based payments expenses FY18 Cents $ $ - - - - - 5,400,000 (5,400,000) 8,100,000 (8,100,000) - - 10,000,000 - 10,000,000 5,000,000 28,500,000 - (13,500,000) 5,000,000 15,000,000 6.0 6.0 6.0 6.6 324,000 291,600 486,000 437,400 600,000 47,591 330,000 1,740,000 12,987 789,578 Details in relation to the KMP long term incentives are set out in note 38 to the financial statements. 13 Seafarms Group Limited Directors' report 30 June 2018 (continued) Remuneration report (audited) (continued) (c) Service agreements Remuneration has been determined after the Remuneration Committee, for executive directors, and the Board, for group executives, has investigated current market terms and conditions. The Remuneration Committee will continue to revise the remuneration practices and develop policy for future appointments and determine performance-based salary increases and bonuses, bearing in mind the size of the Group and the need to ensure quality staff are employed and retained. I Trahar, H Whitcombe, Executive Directors: • • • • Term of agreement - no fixed term; Base salary which includes superannuation is reviewed annually (minimum increase of CPI); Employer may terminate employment on giving twelve months notice and in the event of early termination at the option of the employer, by payment of a termination benefit equal to 100% of base salary for the unexpired period of notice. The employee may terminate on giving three months notice. Eligible to participate in the "Seafarms Group Employee Incentive Plan" as approved by the shareholders at the AGMs held on 1 February 2016 and 25 November 2016. C Mitchell, Managing Director, Project Sea Dragon: • • • • • • Term of agreement - no fixed term; Base salary which includes superannuation is reviewed annually (minimum increase of CPI); Employer may terminate employment on giving six months notice and in the event of early termination at the option of the employer, by payment of a termination benefit equal to six months of base salary for the unexpired period of notice; In the event of redundancy, six months base salary is to be paid plus payment equivalent to three weeks of base salary for each completed year of service; Salary-packaged motor vehicle is included. Eligible to participate in the "Seafarms Group Employee Incentive Plan" as approved by the shareholders at the AGMs held on 1 February 2016 and 25 November 2016. D Donovan Chief Operating Officer, Seafarms Operations Limited • • • • Term of agreement - no fixed term; Base salary which includes superannuation is reviewed annually (minimum increase of CPI); Employer or employee may terminate employment on giving one months notice; Eligible to participate in the "Seafarms Group Employee Incentive Plan" as approved by the shareholders at the AGMs held on 1 February 2016and 25 November 2016. R Dyer Project Director, Seafarms Group Limited (appointed 31 October 2017) • • • • Term of agreement - no fixed term; Base salary which includes superannuation is reviewed annually (any adjustment will be at the Company's discretion); Employer or employee may terminate employment on giving one months notice; Eligible to participate in the "Seafarms Group Employee Incentive Plan" as approved by the shareholders at the AGMs held on 1 February 2016 and 25 November 2016. A Soanes Director and General Manager of Operations, CO2 Australia Limited: • • • • Term of agreement - no fixed term; Base salary which includes superannuation is reviewed annually (minimum increase of CPI); Employer or employee may terminate employment on giving one months notice; In the event of redundancy, three months base salary is to be paid plus payment equivalent to two weeks of base salary for each completed year of service; 14 Seafarms Group Limited Directors' report 30 June 2018 (continued) Remuneration report (audited) (continued) (c) Service agreements (continued) J Bulinski Managing Director, CO2 Australia Limited • • • Term of agreement - no fixed term; Base salary which includes superannuation is reviewed annually (minimum increase of CPI); Employer or employee may terminate employment on giving one months notice; (d) Additional statutory information (i) Remuneration breakdown The following table shows the relative proportions of remuneration that are linked to performance and those that are fixed, based on the amounts disclosed as statutory remuneration expense on page 10 above: Consolidated Name Executive Directors of Seafarms Group Limited I Trahar H Whitcombe C Mitchell Other key management personnel of the group A Soanes J Bulinski R Dyer (from 31 October 2017) D Donovan Fixed remuneration At risk - STI At risk - LTI 2018 % 2017 % 2018 % 2017 % 2018 % 2017 % 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% -% 100% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% Cash bonuses are at the discretion of the remuneration committee and do not form part of the remuneration breakdown shown above. (ii) Share-based compensation On 22 August 2017, 13,500,000 performance rights (exercise price $0.00, expiry date 22 August 2019) and 30,000,000 unlisted options (exercise price $0.10 per option, expiry date 22 August 2021) were issued to directors and staff. In addition on 18 January 2018, 5,000,000 unlisted options (exercise price $0.10 per option, expiry date 31 October 2021) were issued to staff. All of these rights and options were issued pursuant to the "Seafarms Group Employee Incentive Plan" as approved by the shareholders at the AGMs held on 1 February 2016 and 25 November 2016 (2017: Nil). Shares provided on exercise of options On 23 May 2018, Seafarms Group announced that the performance criteria for the Performance Rights issued to directors, on 22 August 2017, had been achieved and consequently fully paid ordinary shares were issued to Dr Mitchell (8,100,000) and Mr Whitcombe (5,400,000). The shares issued rank equally with those currently on issue and will have the same dividend entitlements as existing shares on issue (2017: Nil). All of the unlisted options issued during the year (35,000,000) remained unexercised as at 30 June 2018. 15 Seafarms Group Limited Directors' report 30 June 2018 (continued) Remuneration report (audited) (continued) (d) Additional statutory information (continued) (ii) Share-based compensation (continued) Shares provided on exercise of options (continued) The table below sets out summary information about the Group's earnings and movements in shareholder wealth for the last five financial periods: Revenue Net (loss) before tax Net (loss) after tax . Year ended Year ended 9 months ended 30 June 2018 30 June 2017 30 June 2016 Year ended 30 September 2015 Year ended 30 September 2014 $ 35,051,906 (19,943,707) (19,947,283) $ 35,739,152 (13,506,165) (19,775,464) $ 23,529,287 (18,735,523) (18,360,319) $ 26,215,415 (16,334,712) (15,959,969) $ 23,477,385 (8,045,199) (6,649,227) 30 June 2018 30 June 2017 30 June 2016 30 September 2015 30 September 2014 Share price at start of year Share price at end of year Dividend Basic (loss) per share Diluted (loss) per share . On 31 August 2011, shareholders approved the Seafarms Group Limited Employee Incentive Plan. Under the Plan, eligible participants were granted Performance Rights to acquire ordinary shares in Seafarms Group Limited, subject to satisfying any vesting conditions. The Plan commenced on 30 September 2011, and terminated 1 February 2014. 6c 8c - (1.42)c (1.42)c 6c 6c - (2.31)c (2.31)c 6c 6c - (1.75)c (1.75)c 6c 7c - (2.03)c (2.03)c 6c 6c - (1.36)c (1.36)c At the 2015 Annual General Meeting of Seafarms Group Limited, held on 1 February 2016, and again at the 2016 Annual General meeting of shareholders of Seafarms Group Limited, held on 25 November 2016, shareholders approved the “Seafarms Group Employee Incentive Plan” under which the Board may grant equity securities (including performance rights and options) to eligible participants under the plan, which may, subject to the discretion of the Board, include executive directors or key management personnel. No equity securities have been granted to date by the Group pursuant to this plan. (iii) Voting and comments made at the company's Annual General Meeting Seafarms Group Limited received more than 98% of “yes” votes on its remuneration report for the 2017 financial period. The company did not receive any specific feedback at the period on its remuneration practices. the AGM or throughout (e) Equity instrument disclosures relating to key management personnel (i) Share holdings The numbers of shares in the Company held during the financial period by each Director of Seafarms Group Limited and other key management personnel of the Group, including their personally related parties, are set out below. 16 Seafarms Group Limited Directors' report 30 June 2018 (continued) Remuneration report (audited) (continued) (e) Equity instrument disclosures relating to key management personnel (continued) (i) Share holdings (continued) Consolidated 2018 Name Balance at the start of the period Received during the year on the exercise of options Received on vesting of rights to deferred shares Other changes during the period Balance at end of the period 411,724,561 12,648,259 2,893,936 37,750,000 Directors of Seafarms Group Limited Ordinary shares I N Trahar H R Whitcombe C D Mitchell P J Favretto Other key management personnel of the Group Ordinary shares A Soanes J Bulinski R Dyer D Donovan 1,672,841 931,525 - - - - - - - - - - - - - - - - - - 41,666,666 453,391,227 18,048,259 10,993,936 37,500,000 5,400,000 8,100,000 - - - - - 1,672,841 931,525 - - Consolidated 2017 Name Balance at the start of the year Received during the year on the exercise of options Received on vesting of rights to deferred shares Other changes during the year Balance at end of the year 405,974,561 12,013,259 2,393,936 36,666,666 Directors of Seafarms Group Limited Ordinary shares I N Trahar H R Whitcombe C D Mitchell P J Favretto Other key management personnel of the Group Ordinary shares A Soanes J Bulinski R Dyer D Donovan 1,672,841 931,525 - - - - - - - - - - - - - - - - - - 5,750,000 411,724,561 12,648,259 2,893,936 37,750,000 635,000 500,000 1,083,334 - - - - 1,672,841 931,525 - - Loans to key management personnel There are no loans made to directors of Seafarms Group Limited and other key management personnel. Shares under option There are no unissued ordinary shares of Seafarms Group Limited under option at the date of this report. The company has in issue 30,150,190 convertible preference shares that have not been exercised. For further information relating to the convertible preference shares, please refer to note 26(a). 17 Seafarms Group Limited Directors' report 30 June 2018 (continued) Insurance of officers (a) Insurance of officers During the financial year, the Group paid a premium in respect of a contract insuring the directors of the company (as named above), the company secretary, Mr H R Whitcombe, and all executive officers of the company and of any related body corporate against a liability incurred as 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. to the extent permitted by law, The Group has not otherwise, during or since the financial year, except 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. Non-audit services The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor's expertise and experience with the Company and/or the Group are important. Details of amounts paid or payable to the auditor for non-audit services provided during the year are outlined at note 29 to the financial statements. Dividends - Seafarms Group Limited The Directors of Seafarms Group Limited do not recommend the payment of a dividend for the year ending 30 June 2018 (2017: Nil). Auditor's independence declaration A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 19. Auditor Deloitte Touche Tohmatsu continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of Directors, pursuant to section 298(2) of the Corporations Act 2001. Harley Ronald Whitcombe Perth 31 August 2018 18 Deloitte Touche Tohmatsu ABN 74 490 121 060 Tower 2 Brookfield Place 123 St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia Tel: +61 8 9365 7000 Fax: +61 8 9365 7001 www.deloitte.com.au The Board of Directors Seafarms Group Limited Level 11, 225 St Georges Terrace Perth, WA 6000 31 August 2018 Dear Board Members Auditor’s Independence Declaration to Seafarms Group Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Seafarms Group Limited. As lead audit partner for the audit of the financial statements of Seafarms Group Limited for the financial year ended 30 June 2018, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely, DELOITTE TOUCHE TOHMATSU Peter Rupp Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited Seafarms Group Limited Corporate governance statement 30 June 2018 Corporate governance statement Seafarms Group Limited (Company) and its controlled entities (together, the Group) are committed to achieving and demonstrating the highest standards of corporate governance. The Group has reviewed its corporate governance practices against the ASX Corporate Governance Principles and Recommendations (3rd Edition) as published by ASX Corporate Governance Council. The Group’s Corporate Governance Statement for the year ended 30 June 2018 was approved by the Board on 28 June 2018. A description of the Group’s current corporate governance practices is set out in the Group’s current Corporate Governance Statement and the corporate governance policies adopted by the Board which can be viewed on the Company’s website: (http://seafarmsgroup.com.au/corporate-governance/). 20 Seafarms Group Limited ABN 50 009 317 846 Financial statements - 30 June 2018 Contents Financial statements Consolidated statement of profit or loss Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Directors' declaration Independent auditor's report to the members Page 22 23 24 25 26 27 78 79 These financial statements are the consolidated financial statements of the consolidated entity consisting of Seafarms Group Limited and its subsidiaries. The financial statements are presented in the Australian currency. Registered postal address is: PO Box 7312 Cloisters Square WA 6850 Seafarms Group Limited is a Company limited by shares, incorporated and domiciled in Australia. Its registered office is: Level 11, 225 St Georges Terrace Perth, Western Australia 6000 Its principal place of business is: Seafarms Group Limited Level 11, 225 St Georges Terrace Perth Western Australia 6000 A description of the nature of the consolidated entity's operations and its principal activities is included in the directors' report on page 2, which is not part of these financial statements. The financial statements were authorised for issue by the Directors on 31 August 2018. For queries in relation to our reporting please call 08 9216 5200 or e-mail questions@seafarms.com.au. All press releases, financial reports and other information are available at our Shareholders' Centre on our website: www.seafarms.com.au 21 Seafarms Group Limited Consolidated statement of profit or loss For the year ended 30 June 2018 Consolidated 30 June 2018 $ 30 June 2017 $ Notes Revenue from continuing operations Other gains/(losses) Finance costs Fair value adjustment of biological assets Fair value adjustment of finished goods Cost of Goods Sold Plantation costs Employee benefits expense Consulting expense Travel Rent Legal fees Depreciation and amortisation expense Marketing Insurance Impairment of intangible assets Research and development Other expenses Share of profit/(loss) from associates Loss before income tax Income tax expense Loss for the year Loss per share for loss attributable to the ordinary equity holders of the Company: Basic loss per share Diluted loss per share 5 6 7 7 7 19 7 34 8 37 37 35,051,906 35,739,152 318,115 (1,077,166) 593,507 (842,994) (26,503,732) (2,469,798) (7,523,661) (2,343,888) (2,338,788) (430,673) (2,188,895) (1,948,524) (201,548) (256,170) (1,016,448) (4,919,002) (1,906,508) 60,560 (19,943,707) (368,179) (1,010,193) 944,497 430,617 (26,681,625) (2,246,329) (6,111,125) (2,066,813) (1,943,848) (433,658) (234,612) (1,816,029) (134,755) (256,875) - (5,485,259) (1,719,257) (111,875) (13,506,166) (3,576) (19,947,283) (6,269,297) (19,775,463) Cents Cents (1.42) (1.42) (1.75) (1.75) The above consolidated statement of profit or loss should be read in conjunction with the accompanying notes. 22 Seafarms Group Limited Consolidated statement of comprehensive income For the year ended 30 June 2018 Consolidated 30 June 2018 $ 30 June 2017 $ (19,947,283) (19,775,463) (19,947,283) (19,775,463) Loss for the year Other comprehensive income Blank Total comprehensive loss for the year is attributable to: Owners of Seafarms Group Limited The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. 23 Seafarms Group Limited Consolidated statement of financial position As at 30 June 2018 Consolidated 30 June 2018 $ 30 June 2017 $ Notes 9 10 11 12 13 14 15 16 34 17 19 20 21 22 23 4,139,603 3,962,346 7,294,677 - 1,049,691 939,061 5,781,325 23,166,703 184,923 409,268 20,130,079 2,419,027 23,143,297 11,874,838 1,597,295 7,708,673 15,786 1,003,078 912,701 4,530,997 27,643,368 184,923 348,708 19,302,139 3,520,929 23,356,699 46,310,000 51,000,067 8,890,367 2,958,701 1,520,318 1,807,140 15,176,526 6,026,605 447,186 1,433,910 1,848,392 9,756,093 8,223,763 301,591 8,525,354 24, 21 25 15,047,233 243,438 15,290,671 30,467,197 18,281,447 15,842,803 32,718,620 26 27(a) 103,674,332 6,162,534 (93,994,063) 15,842,803 101,512,627 5,252,773 (74,046,780) 32,718,620 ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Current tax receivables Other current assets Accrued income Biological assets Total current assets Non-current assets Inventories Investments accounted for using the equity method Property, plant and equipment Intangible assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Borrowings Provisions Deferred revenue Total current liabilities Non-current liabilities Borrowings Provisions Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Other reserves Retained earnings Total equity The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 24 Seafarms Group Limited Consolidated statement of changes in equity For the year ended 30 June 2018 Options premium reserve $ Financial assets revaluation reserve $ Share- based payments reserve $ Issued capital $ Accumulated losses $ Total equity $ 79,021,152 1,670,705 (24,740) 3,606,808 (54,271,317) 30,002,608 - - - - - - - (19,775,463) (19,775,463) - (19,775,463) (19,775,463) Consolidated Notes Balance at 1 July 2016 Loss for the year as reported in the 2017 financial statements Total comprehensive loss for the period Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs and tax Balance at 30 June 2017 26 22,491,475 - 101,512,627 1,670,705 - - 22,491,475 (24,740) 3,606,808 (74,046,780) 32,718,620 - Balance at 1 July 2017 Loss for the period as reported in the 2018 financial statements Total comprehensive loss for the period Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs and tax Performance rights issued to employees Recognition of share-based payments Lapsed options in share based payments reserve 101,512,627 1,670,705 (24,740) 3,606,808 (74,046,780) 32,718,620 - - 2,161,705 - - - 2,161,705 - - - - - - - - - - - - - - - (19,947,283)(19,947,283) - (19,947,283)(19,947,283) - 729,000 155,761 25,000 909,761 - - - - - 2,161,705 729,000 155,761 25,000 3,071,466 Balance at 30 June 2018 103,674,332 1,670,705 (24,740) 4,516,569 (93,994,063) 15,842,803 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 25 Seafarms Group Limited Consolidated statement of cash flows For the year ended 30 June 2018 Consolidated 30 June 2018 $ 30 June 2017 $ Notes 32,602,213 36,679,784 (47,995,748) (15,393,535) (1,077,166) (16,470,701) (50,481,890) (13,802,106) (1,010,193) (14,812,299) 36 (2,794,033) - 32,809 (2,761,224) (2,817,666) 313,190 62,754 (2,441,722) 2,161,705 9,334,985 11,496,690 22,491,475 (1,646,148) 20,845,327 Cash flows from operating activities Receipts from customers (inclusive of goods and services tax) Payments to suppliers and employees (inclusive of goods and services tax) Interest paid Net cash outflow from operating activities Cash flows from investing activities Payments for property, plant and equipment Proceeds from other financial assets Interest received Net cash outflow from investing activities Cash flows from financing activities Proceeds from issues of shares and other equity securities Proceeds/(Repayment) of borrowings Net cash inflow from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at end of period (7,735,235) 11,874,838 4,139,603 3,591,306 8,283,532 11,874,838 9 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 26 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 Contents of the notes to the consolidated financial statements 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Summary of significant accounting policies Financial risk management Critical accounting estimates and judgements Segment information Revenue Other gains/(losses) Expenses Income tax expense Current assets - Cash and cash equivalents Current assets - Trade and other receivables Current assets - Inventories Current assets - Current tax receivables Current assets - Other current assets Current assets - Accrued income Current assets - Biological assets Non-current assets - Inventories Non-current assets - Property, plant and equipment Non-current assets - Deferred tax assets Non-current assets - Intangible assets Current liabilities - Trade and other payables Current liabilities - Borrowings Current liabilities - Provisions Current liabilities - Deferred revenue Non-current liabilities - Borrowings Non-current liabilities - Provisions Issued capital Reserves Key management personnel disclosures Remuneration of auditors Commitments Related party transactions Subsidiaries and transactions with non-controlling interests Deed of cross guarantee Interests in joint ventures Events occurring after the reporting period Reconciliation of loss for the year to net cash flows from operating activities Earnings per share Share-based payments Parent entity financial information Page 28 42 45 46 49 49 50 51 52 53 53 54 54 54 54 55 56 58 59 62 62 63 63 64 64 65 66 67 68 68 68 70 70 73 73 74 74 75 76 27 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 1 Summary of significant accounting policies (a) Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards. (b) Basis of preparation The consolidated financial statements have been prepared on the historical cost basis except for certain properties, biological assets and financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into the measurement date. Fair value for measurement and/or account when pricing the asset or liability at for disclosure purposes in these consolidated financial statements is determined on such a basis, except share-based payment transactions that are within the scope of AASB 2, leasing transactions that are within the scope of AASB 16, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in AASB 102 or value in use in AASB 136. In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: • • • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and Level 3 inputs are unobservable inputs for the asset or liability. The principal accounting policies are set out below. Application of new and revised accounting standards The Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to their operations and effective for the current financial year. New and revised Standards and amendments thereof and Interpretations effective for the current year that are relevant to the Group include: • • AASB 107 Amendments to AASB 107 - Disclosure initiative AASB 112 Amendments to AASB 112 - Recognition of Deferred Tax Assets for Unrealised Losses Amendments at AASB 107 Disclosure Initiative The Group has applied these amendments for the first time in the current year. The amendments require an entity to provide disclosures that enable users of the financial statements to evaluate changes in liabilities arising from financing activities, including both cash and non-cash changes. The Group's liabilities arising from financing activities consist of borrowings (notes 21 & 24). A reconciliation between the opening and closing balances of these items is provided in note 21. Consistent with the transition provisions of the amendments, the Group has not disclosed comparative information for the prior period. Apart from the additional disclosure in note 21, the application of these amendments has had no impact on the Group's consolidated financial statements. 28 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 1 Summary of significant accounting policies (continued) New and amended standards adopted by the group (continued) Amendments AASB 112 Recognition of Deferred Tax Assets for Unrealised Losses The amendments clarify how an entity should evaluate whether there will be sufficient future taxable profits against which it can utilise a deductible temporary difference. The application of these amendments has had no impact on the Group's consolidated financial statements as the Group already assesses the sufficiency of future taxable profits in a way that is consistent with these amendments. Standards and Interpretations in issue not yet adopted The following new or amended accounting standards issued by the AASB are relevant to current operations and may impact the Group in the period of initial application. They are available for early adoption but have not been applied in preparing this Financial Report. Standard/Interpretation AASB 9 Financial Instruments and the relevant amending standards AASB 15 Revenue from Contracts with Customers, AASB 2014-5 Amendments to Australian Accounting Standards arising from AASB 15 AASB 16 Leases Amendments to IFRS 2 Classification and Measurement of Share-based Payments Transactions Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending 1 January 2018 30 June 2019 1 January 2018 30 June 2019 1 January 2019 30 June 2020 1 January 2018 30 June 2019 Date to be determined Date to be determined Impact of changes to Australian Accounting Standards and Interpretations (i) AASB 9 ‘Financial Instruments’, and the relevant amending standards AASB 9 applies to annual periods beginning on or after 1 January 2018. AASB 9 Financial Instruments (revised December 2014) and AASB 2014-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2014). This standard replaces AASB 139 Financial Instruments: Recognition and Measurement. AASB 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculation of impairment on financial assets, and new general hedge accounting requirements. financial instruments from AASB 139. The Group does not intend to early adopt the standard. It also carries forward guidance on recognition and derecognition of Retrospective application is required with some exceptions. Restatement of comparatives is not required, however, the comparative period can be restated if it can be done so without the use of hindsight. The Group has undertaken an assessment of the classification, measurement and disclosure impacts and has determined that the new standard will have no significant or material impacts on the information otherwise presented in this Annual Report upon application of AASB 9. 29 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 1 Summary of significant accounting policies (continued) Standards and Interpretations in issue not yet adopted (continued) Impact of changes to Australian Accounting Standards and Interpretations (continued) (ii) AASB 15 ‘Revenue from Contracts with Customers’ AASB 15 is effective for annual reporting periods commencing on or after 1 January 2018, which means that it will be effective for the Group’s financial year ending 30 June 2019. AASB 15 establishes a single comprehensive model for entities to use to account for revenue arising from contracts with customers. AASB 15 will supersede the current revenue guidance including AASB 118 ‘Revenue’, and AASB 111 ‘Construction Contracts’ and the related interpretations when it becomes effective. The core principle of AASB 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers at an amount that reflects the consideration, which the entity expects to be entitled in exchange for those goods, or services. The Group has performed an assessment of the impact of AASB 15, and does not expect the standard to give rise to a material impact with regard to the timing of revenue recognition or the overall financial performance of the Group. As part of the assessment management identified that certain payments to customers (relating to promotional expenditure), which are classified as expenses under the existing standard, will be offset against revenue based on the requirements relating to distinct goods and services prescribed by AASB 15 regarding these types of transactions. The effect of the change is not considered to be material to sales revenue. (iii) AASB 16 ‘Leases’ AASB 16 applies to annual reporting periods beginning on or after 1 January 2019 and replaces AASB 117 Leases and the related interpretations. AASB 16 Leases specifies how to recognise, measure and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise right-of-use assets and lease liabilities for almost all leases. As at the reporting date, the Group has non-cancellable operating lease commitments of $1 million, refer to note 30: Commitments. Some of the operating leases currently held expire prior to the implementation of the standard and decisions on future leases will be made on a case-case basis. Consequently, the Group continues to monitor and quantify the effect of the new standard with each change to the leasing portfolio and any subsequent lease modifications. The following effects to the Group’s financial statements and disclosures are expected: • • Total assets and liabilities on the balance sheet will be grossed-up, due to the recognition of the right-to-use assets (non-current assets) and the corresponding fair value of lease liabilities. Current liabilities will also show an increase due to a portion of the lease liability being classified as a current liability; Straight-line operating lease rental expense will be replaced with a depreciation charge for the right-of-use assets and interest expense charged at the implicit rates on the lease liabilities; • Compared to the current net earnings profile, interest expense will be greater earlier in a leases life due to the higher principal value, causing profit variability over the course of a leases life. This effect may be partially mitigated due to a mix of different leases held in the Group at different stages of their term; and • Cash flows from financing activities will increase for repayment of principal portion of all lease liabilities. Based on the assessment to date, the impact is expected to be minimal for the Group. (iv) Other new accounting standards The following new or amended standards are not expected to have a significant consolidated financial statements: impact on the Group’s • AASB 2014-10 Amendments to Australian Accounting Standards: Sale or Contribution of Assets Between an Investor and its Associate or Joint Venture; 30 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 1 Summary of significant accounting policies (continued) Standards and Interpretations in issue not yet adopted (continued) Impact of changes to Australian Accounting Standards and Interpretations (continued) (iv) Other new accounting standards (continued) • • • AASB 2017-1 Amendments to Australian Accounting Standards - Transfers of Investment Property, Annual Improvements 2014-2016 Cycle and Other Amendments; AASB Interpretation 22 Foreign Currency Transactions and Advance Consideration; and AASB Interpretation 23 Uncertainty Over Income Tax Treatments, AASB 2017-4 Amendments to Australian Accounting Standards - Uncertainty over Income Tax Treatments. (c) Basis of consolidation (i) Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Seafarms Group Limited ('Company' or 'Parent entity') as at 30 June 2018 and the results of all subsidiaries for the year then ended. Seafarms Group Limited and its subsidiaries together are referred to in this financial report as the Group or the consolidated entity. Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control de-consolidated from the date that control ceases. is transferred to the Group. They are The acquisition method of accounting is used to account for business combinations by the Group (refer to note 1(h)). Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Investments in subsidiaries are accounted for at cost in the separate financial statements of Seafarms Group Limited. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of profit or loss, statement of comprehensive income, statement of changes in equity and balance sheet respectively. When the Group loses control of a subsidiary, a gain or loss is recognised in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable AASBs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under AASB 139, when applicable, the cost on initial recognition of an investment in an associate or a joint venture. (ii) Associates Associates are all entities over which the Group has significant influence but not control or joint control. This is generally the case where the Group holds of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting (see (iii) below), after initially being recognised at cost. 31 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 1 Summary of significant accounting policies (continued) (ii) Associates (continued) The Group's share of its associates' post-acquisition profits or losses is recognised in profit or loss, and its share of post-acquisition other comprehensive income is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised as reduction in the carrying amount of the investment. (iii) Equity method Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the Group's share of the post-acquisition profits or losses of the investee in profit or loss, and the Group's share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying amount of the investment. When the Group's share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity. Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group's interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity accounted investees have been changed where necessary to ensure consistency with the policies adopted by the Group. (iv) Changes in ownership interests The Group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the Group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in a separate reserve within equity attributable to owners of Seafarms Group Limited. When the Group ceases to consolidate or equity account for an investment because of a loss of control, joint control or significant influence, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognised in profit or loss. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. If the ownership interest in a jointly-controlled entity or an associate is reduced but joint control or significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate. (v) Joint ventures Jointly controlled assets The proportionate interests in the assets, liabilities and expenses of a joint venture activity have been incorporated in the financial statements under the appropriate headings. Details of the joint venture are set out in note 34. Joint venture entities The interest in a joint venture partnership is accounted for using the equity method after initially being recognised at cost. Under the equity method, the share of the profits or losses of the partnership is recognised in profit or loss, and the share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. Details relating to the partnership are set out in note 34. Profits or losses on transactions establishing the joint venture partnership and transactions with the joint venture are eliminated to the extent of the Group's ownership interest until such time as they are realised by the joint venture partnership on consumption or sale. However, a loss on the transaction is recognised immediately if the loss provides evidence of a reduction in the net realisable value of current assets, or an impairment loss. 32 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 1 Summary of significant accounting policies (continued) (d) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances, rebates and amounts collected on behalf of third parties. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group's activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. (i) Project development fees and carbon sink project management fees Carbon sink project revenue is recognised in proportion to the work performed in relation to the product development and the various stages of completion of the carbon sinks. Work performed that has not been invoiced is recognised as revenue with a corresponding asset recorded on the balance sheet as accrued income. If payment has been received in excess of the stage of completion of the project, the liability is recognised in deferred income. Management related income is recognised on an accrual basis in accordance with the substance of the relevant contract. (ii) Sale of environmental credits Revenue from the sale of environmental credits is recognised when the Group has transferred to the buyer the significant risks and rewards of the ownership of the environmental credits. (iii) Fee for services Revenue from a contract to provide services is recognised by reference to the stage of completion of the contract. The stage of completion of the contract is determined as follows: • • • Installation fees are recognised by reference to the stage of completion of the installation, determined as the proportion of the total time expected to install that has elapsed at the end of the reporting period; servicing fees included in the price of products sold are recognised by reference to the proportion of the total cost of providing the servicing for the product sold; and revenue from time and material contracts is recognised at the contractual rates as labour hours are delivered and direct expenses are incurred. (iv) Sale of Goods Revenue Revenue from the sale of prawns is recognised when the Group has transferred to the buyer the significant risks and rewards of the ownership of the prawns. (e) Government grants Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to costs are deferred and recognised in profit or loss over the period necessary to match them with the costs that they are intended to compensate. Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to profit or loss on a straight-line basis over the expected lives of the related assets. (f) Income tax The income tax expense or benefit for the period is the tax payable or recoverable on the current period’s taxable income based on the income tax rate that has been enacted or substantially enacted by the balance sheet date adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. 33 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 1 Summary of significant accounting policies (continued) Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in foreign operations where the Company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. (i) Tax consolidation legislation Seafarms Group Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. The head entity, Seafarms Group Limited, and the controlled entities in the tax consolidated group account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand alone taxpayer in its own right. In addition to its own current and deferred tax amounts, Seafarms Group Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. Details about the tax funding agreement are disclosed in note 8. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly owned tax consolidated entities. (g) Leases the leased asset or, Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases (note 17). Finance leases are capitalised at the lease’s inception at the fair value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short-term and long-term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the asset’s useful life and the lease term. the present value of lower, if Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases (note 30). Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. 34 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 1 Summary of significant accounting policies (continued) (h) Business combinations The acquisition method of accounting is used to account for all business combinations, including business combinations involving entities or businesses under common control, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Company. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the Company recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest's proportionate share of the acquiree’s net identifiable assets. the acquisition date. On an acquisition by acquisition basis, in the subsidiary. The excess of the consideration transferred and the amount of any non-controlling interest in the acquiree over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Transaction costs associated with business combinations (excluding the costs of issuing equity instruments or raising new borrowings) are expensed as incurred. (i) Impairment of assets Intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash generating units). Non-financial assets that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. (j) Cash and cash equivalents For the purpose of presentation in the consolidated statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the consolidated balance sheet. (k) Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less allowance for impairment. Trade receivables are generally due for settlement within 30 days. 35 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 1 Summary of significant accounting policies (continued) Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly. An allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the impairment allowance is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. The amount of the impairment loss is recognised in the income statement within ‘other expenses’. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against 'other expenses' in the income statement. (l) Inventories Agricultural produce harvested from the Group's biological assets is measured at its fair value less costs to sell at the point of harvest. Such measurement is the cost at that date when applying AASB 102 Inventories. Inventory is stated at the lower of cost and net realisable value. Costs are assigned to individual items of inventory on basis of weighted average costs. Costs of purchased inventory are determined after deducting rebates and discounts. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The Group's asset development activities involve the development and management of carbon sinks under contract to third parties. It also involves the acquisition of forestry rights and other assets which are held to offer for resale to third parties. (m) Biological assets Prawn livestock is carried at fair value. Fair value is the amount which could be expected to be received from the disposal of the livestock in an active and liquid market less the costs expected to be incurred in realising the proceeds of that disposal. In the absence of an active and liquid market fair value is determined in accordance with a Directors’ valuation using the present value of expected net cash flows from the prawn livestock discounted at a current market-determined rate. The expected net cash flows take into account a number of assumptions including the survival rate, harvest average body weight, average market price, discount rate and average production cost per kilogram. The net cash flows include harvesting costs and freight costs to market. The change in estimated fair value of prawn livestock is recognised in the income statement in the reporting period and is classified separately. The prawn livestock with a weight of less than 1 gram (including all hatchery stock), is carried at historic cost as an estimate of fair value given that little or no biological transformation has taken place. Cost includes all of the costs associated with the production of the livestock. (n) Investments and other financial assets Classification The Group classifies its investments in the following categories: environmental credits at FVTPL, loans and receivables and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at each reporting date. (i) Environmental credits at fair value through profit or loss Environmental credits at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term. Assets in this category are classified as other current assets. 36 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 1 Summary of significant accounting policies (continued) Classification (continued) (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the reporting period which are classified as non-current assets. Loans and receivables are included in trade and other receivables (note 10) and receivables in the balance sheet. (iii) Available-for-sale financial assets Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of the investment within 12 months of the end of the reporting period. Investments are designated as available-for-sale if they do not have fixed maturities and fixed or determinable payments and management intends to hold them for the medium to long-term. Recognition and derecognition Regular purchases and sales of financial assets are recognised on trade date - the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. Reclassifications are made at fair value as of the reclassification date. Fair value becomes the new cost or amortised cost as applicable, and no reversals of fair value gains or losses recorded before reclassification date are subsequently made. Effective interest rates for financial assets reclassified to loans and receivables and held to maturity categories are determined at the reclassification date. Further increases in estimates of cash flows adjust effective interest rates prospectively. Loans and receivables are carried at amortised cost using the effective interest method. When securities classified as available-for-sale are sold, the accumulated fair value adjustments recognised in other comprehensive income are reclassified to profit or loss as gains and losses from investment securities. Subsequent measurement Available-for-sale financial assets are subsequently carried at fair value. Gains or losses arising from changes in the fair value of available for sale assets are recorded through equity, unless there is an impairment. Environmental credits at fair value through profit or loss are subsequently carried at fair value. Gains or losses arising from changes in the fair value of the 'Environmental credits at FVTPL' category are presented in profit or loss within other income or other expenses in the period in which they arise. Details on how the fair value of financial instruments is determined are disclosed in note 2. Fair value The fair values of environmental credits are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models making maximum use of market inputs and relying as little as possible on entity specific inputs. 37 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 1 Summary of significant accounting policies (continued) Impairment The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or Group of financial assets is impaired. A financial asset or a Group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a 'loss event') and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or Group of financial assets that can be reliably estimated. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered an indicator that the assets are impaired. If there is objective evidence of impairment for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss - is removed from equity and recognised in profit or loss. (o) Property, plant and equipment Property, plant and equipment Historical cost includes expenditure that is directly attributable to the acquisition of the items. is stated at historical cost less accumulated depreciation and impairment. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred. Land is not depreciated. For carbon sinks held by the Group the economic benefits from the asset are consumed in a pattern which is linked to the production level of carbon credits. Such assets are depreciated on a unit of production basis. Depreciation on other assets is calculated using the straight line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives, as follows: Freehold buildings Ponds Plant and equipment Leasehold improvements Vehicles Furniture, fittings and equipment - - - - - - - Carbon sinks . The assets' residual values and useful reporting period. 10 - 50 years 10 - 50 years 2 - 15 years Length of lease 3 - 30 years 5 years 30 - 50 years lives are reviewed, and adjusted if appropriate, at the end of each An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount (note 1(i)). Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement. 38 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 1 Summary of significant accounting policies (continued) (p) Intangible assets (i) Research and development Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will, after considering its commercial and technical feasibility, be completed and generate future economic benefits and its costs can be measured reliably. The expenditure capitalised comprises all directly labour and an appropriate proportion of attributable costs, overheads. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use on a straight line basis over its useful life. including costs of materials, services, direct (ii) Other intangible assets Intangible assets acquired separately are recorded at cost less accumulated amortisation and impairment. Amortisation is charged on a straight line basis over their estimated useful lives. The estimated useful life and amortisation method is reviewed at the end of each annual reporting period, with any changes in these accounting estimates being accounted for on a prospective basis. (iii) Intangible assets acquired in a business combination Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair values can be measured reliably. Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets acquired separately. (iv) Goodwill Goodwill is measured as described in note 1(h). Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units (CGUs) for the purpose of impairment testing. The allocation is made to those CGUs or groups of CGUs that are expected to benefit from the business combination in which the goodwill arose, identified according to operating segments (note 4). CGUs (or groups of CGUs) to which goodwill has been allocated are tested for impairment annually, or more frequently if events or changes in circumstances indicate that goodwill might be impaired. If the recoverable amount of the CGU (or group of CGUs) is less than the carrying amount of the CGU (or Group of CGUs), the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU (or Group of CGUs) and then to the other assets in the CGU (or groups of CGUs). An impairment loss recognised for goodwill is recognised immediately in profit or loss and is not reversed in a subsequent period. On disposal of an operation within a CGU, the attributable amount of goodwill is included in the determination of the profit or loss on disposal of the operation. (v) NGAC Accreditation The accreditation under the New South Wales Greenhouse Gas Abatement Scheme (NSWGGAS) allows the Group to generate revenues from any single project and is transferrable between projects at no significant additional cost. During 2011 the Carbon Farming Initiative (CFI) received Royal Assent and the Clean Energy Bill passed through the House of Representatives. As at the 30 June 2018 the Group determined that the NGAC asset was no longer generating revenues therefore was no longer classified as a viable asset so the carrying value ($170,249) was written off. 39 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 1 Summary of significant accounting policies (continued) (q) Trade and other payables These amounts represent liabilities for goods and services measured initially at fair value provided to the Group prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. (r) Borrowings Borrowings are measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities, which are not an incremental cost relating to the actual draw down of the facility, are recognised as prepayments and amortised on a straight line basis over the term of the facility. Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs. Where the terms of a financial liability are renegotiated and the entity issues equity instruments to a creditor to extinguish all or part of the liability (debt for equity swap), a gain or loss is recognised in profit or loss, which is measured as the difference between the carrying amount of the financial liability and the fair value of the equity instruments issued. (s) Provisions Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. (t) Employee benefits (i) Short-term obligations Liabilities for wages and salaries, including non-monetary benefits and accumulating sick leave that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as current employee benefit obligations in the balance sheet. (ii) Other long-term employee benefit obligations The liability for long service leave and annual leave which is not expected to be settled within 12 months after the end of the period in which the employees render the related service is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period on national corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. (iii) Share-based payments The fair value of options granted to employees is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised on a straight line basis over the period during which the employees become unconditionally entitled to the options. The fair value at grant date of unlisted options is independently determined using a Black Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. 40 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 1 Summary of significant accounting policies (continued) (iii) Share-based payments (continued) Performance rights issued to directors and staff for no cash consideration vest once all performance obligations are met. On the grant date, the market value of the shares issued is recognised as an employee benefits expense with a corresponding increase in equity. (u) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows. (v) Parent entity financial information The financial information for the Parent entity, Seafarms Group Limited has been prepared on the same basis as the consolidated financial statements, except as set out below. Investments in subsidiaries, associates and joint venture entities (i) Investments in subsidiaries, associates and joint venture entities are accounted for at cost in the financial statements of Seafarms Group Limited. Dividends received from associates are recognised in the Parent entity's profit or loss when its right to receive the dividend is established. (ii) Tax consolidation legislation Seafarms Group Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. The head entity, Seafarms Group Limited, and the controlled entities in the tax consolidated group account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand alone taxpayer in its own right. In addition to its own current and deferred tax amounts, Seafarms Group Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate Seafarms Group Limited for any current tax payable assumed and are compensated by Seafarms Group Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Seafarms Group Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities' financial statements. The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial period. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as current amounts receivable from or payable to other entities in the Group. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly owned tax consolidated entities. 41 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 1 Summary of significant accounting policies (continued) (iii) Financial guarantees Where the Parent entity has provided financial guarantees in relation to loans and payables of subsidiaries for no compensation, the fair values of these guarantees are accounted for as contributions and recognised as part of the cost of the investment. 2 Financial risk management The Group's activities may expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. The Group's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group does not use derivative financial instruments such as foreign exchange contracts and interest rate swaps to hedge certain risk exposures, as management considers this unnecessary given the nature and size of the Group's operations. Financial assets Cash and cash equivalents Loans and receivables Fair value through profit or loss Financial liabilities Amortised cost (a) Market risk Consolidated 30 June 2018 $ 30 June 2017 $ 4,139,603 3,980,284 192,475 8,312,362 11,874,838 1,634,471 186,504 13,695,813 26,896,301 26,896,301 14,697,554 14,697,554 (i) Price risk Exposure The Group is exposed to equity securities price risk. This arises from investments held by the Group and classified in Other financial assets - investments as available-for-sale investments. The Group is not exposed to commodity price risk. (ii) Cash flow and fair value interest rate risk As at the end of the reporting period, the Group had the following variable rate deposits: Consolidated 30 June 2018 30 June 2017 Weighted average interest rate % Balance $ Weighted average interest rate % Balance $ Deposits at call Net exposure to cash flow interest rate risk 1.6% 328,851 328,851 1.8% 307,987 307,987 Sensitivity Management has assessed that the sensitivity of the profit or loss to higher/lower interest rates applied to cash and cash equivalents as being immaterial. 42 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 2 Financial risk management (continued) (b) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, a means of mitigating the risk of financial loss from defaults. The Group's exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded are spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the audit committee annually. The Group measures credit risk on a fair value basis. (i) Risk management Wholesale customers of prawns and related products are subject to trade credit insurance. Credit limits are set by the insurer and are not exceeded. There have been no bad debts or claims on the insurance policy during the year. In the carbon segment, trade accounts receivable consist mainly of a small number of large enterprises which have individual contracts for the management of carbon sinks, and the government for re-vegetation projects (eg the 20 million trees project). With very few customers, of which all have significant financial standing, the Group is able to maintain low levels of credit risk. Apart from the above, the Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The credit risk on liquid funds is limited because the counterparties 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 account of the value of any collateral obtained. The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates: Trade receivables Counterparties without external credit rating * Group 1 Group 2 Group 3 Consolidated 30 June 2018 $ 30 June 2017 $ - 3,669,000 - 3,669,000 - 1,231,526 - 1,231,526 * Group 1 - new customers (less than 6 months) Group 2 - existing customers (more than 6 months) with no defaults in the past Group 3 - existing customers (more than 6 months) with some defaults in the past. All defaults were fully recovered. (c) Liquidity risk The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecasts and actual cash flows and matching the maturity profiles of financial assets and liabilities. (i) Financing arrangements The Group has access to undrawn borrowing facilities of $700,000 at the end of the reporting period (2017: $500,000). 43 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 2 Financial risk management (continued) (i) Financing arrangements (continued) (ii) Maturities of financial liabilities The tables below analyse the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Contractual maturities of financial liabilities At 30 June 2018 Non-derivatives Trade payables Bank Loan Lease liabilities Borrowings - Fixed rate 7.5% Borrowings - variable rate (weighted average 2018: 5.95%, 2017: 5.68%) Total non-derivatives At 30 June 2017 Non-derivatives Trade payables Lease liabilities Borrowings - Fixed rate 7.5% Borrowings - variable rate (weighted average 2018: 5.95%, 2017: 5.68%) Total non-derivatives Less than 6 months $ 6 - 12 months $ Between 1 and 2 years $ Between 2 and 5 years $ Over 5 years $ Total contrac- tual cash flows $ Carrying amount (assets)/ liabilities $ 8,890,367 2,825,680 56,350 23,417 - - 53,254 - - - 154,246 - - - 392,988 - - 11,795,814 - 53,254 - 14,500,000 154,246 14,892,988 6,026,605 20,212 326,665 - 20,888 79,420 - 43,892 - - 179,871 - - 6,373,482 - 100,308 - 43,892 - 179,871 - - - - - - - - - - - - - - - - - 656,837 - - 14,500,000 - 15,156,837 - - - - - - 264,863 - 8,000,000 8,264,863 (d) Fair value measurements The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. Disclosure of fair value measurements is performed by level of the following fair value measurement hierarchy: (a) (b) (c) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (level 2), and inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3). 44 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 2 Financial risk management (continued) The following table presents the Group's assets and liabilities measured and recognised at fair value at 30 June 2018: Consolidated - at 30 June 2018 Level 1 $ Level 2 $ Level 3 $ Total $ Assets Biological assets Total assets Consolidated - at 30 June 2017 Level 1 $ Assets Biological assets Total assets - - - - Level 2 $ - - - - 5,781,325 5,781,325 5,781,325 5,781,325 Level 3 $ Total $ 4,530,997 4,530,997 4,530,997 4,530,997 There have been no transfers between Level 1 and Level 2 in the period. The carrying value of other financial assets and financial liabilities approximates their fair value. For a reconciliation of the movement of level 3 disclosures, refer to note15. 3 Critical accounting estimates and judgements Estimates and judgements are continually evaluated. They are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. (a) Critical accounting estimates The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period are discussed below. (i) Biological assets As referred to in the accounting policy above the fair value of biological assets is estimated using a discounted cash flow model which incorporates a number of assumptions. Management is required to exercise significant judgement in estimating the underlying cash flows where those assumptions are not based on observable market data (‘Level 3’ inputs). The most significant assumptions requiring management judgement are in respect of the survival rate, harvest average body weight, average market price, discount rate and average production cost per kilogram until harvest-ready. (ii) Estimated impairment of goodwill and other non-current assets Determining whether goodwill and other non-current assets are impaired requires an estimation of the value in use of the cash generating units to which the assets have been allocated. The value in use calculation requires the directors to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Where the actual future cash flows are less than expected, a material impairment loss may arise. The carrying amount of goodwill at 30 June 2018 was $1,207,187 (30 June 2017: $1,207,187). No impairment losses were assessed in 2018 or 2017. 45 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 3 Critical accounting estimates and judgements (continued) (b) Critical judgements in applying the entity's accounting policies (i) Revenue recognition The Group's policy for recognising revenue from project development is based on management's estimation of the stage of completion for these projects by reference to costs incurred compared to total estimated costs at completion. As at 30 June 2018, the group has recognised $939,061 (2017: $912,701)as accrued income and $1,807,140 (2017: $1,848,392) as deferred income as a result if the application of this policy. (ii) Development costs Management continually evaluates the commercial and technical feasibility of projects, together with the ability to complete the project and generate revenues. As at 30 June 2018, the Group has capitalised $1,211,840 (2017: $2,124,534) as development costs and recognised an impairment loss of $846,199 during the year (2017: -) as a result of following this policy. 4 Segment information (a) Description of segments Business Segments The Group operates wholly within three reportable segments, all located within Australia. Aquaculture Development of a large scale land-based aquaculture project in Northern Australia by Project Sea Dragon Pty Ltd, and prawn aquaculture operations in North Queensland. Carbon services The establishment and management of carbon sinks and re-vegetation projects throughout Australia including the provision of abatement certificates generated from accredited forest carbon sinks owned by the Group and its customers, and trading in environmental credits. Other 'Other' is the aggregation of the Group's other operating segments that are not separately reportable. (b) Segments The segment information provided to the strategic steering committee for the reportable segments for the year ended 30 June 2018 is as follows: 46 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 4 Segment information (continued) (b) Segments (continued) Year to 30 June 2018 Segment revenue Sales and external customers Total sales revenue Other revenue Total segment revenue Consolidated revenue Segment loss Segment (loss)/profit Central administration and directors' salaries Loss before income tax Income tax expense Loss for the year Segment assets Segment assets/(liabilities) Unallocated assets Total assets Aquaculture Carbon services Other Consolidated $ $ $ $ 26,940,720 26,940,720 32,809 26,973,529 6,593,791 6,593,791 - 6,593,791 1,427,604 1,427,604 56,982 1,484,586 (14,262,502) (1,338,530) 566,308 36,991,450 4,622,371 (16,277) 34,962,115 34,962,115 89,791 35,051,906 35,051,906 (15,034,724) (4,908,983) (19,943,707) (3,576) (19,947,283) 41,597,544 4,712,456 46,310,000 The segment information provided to the strategic steering committee for the reportable segments for the year ended 30 June 2017 is as follows: year ended 30 June 2017 Segment revenue Sales and external customers Total sales revenue Other revenue Total segment revenue Consolidated revenue Segment loss Segment (loss) / profit Central administration and directors' salaries Loss before income tax Income tax expense Loss for the year Segment assets Segment assets / (liabilities) Unallocated assets Total assets Aquaculture Carbon services Other Consolidated $ $ $ $ 29,285,798 29,285,798 10,590 29,296,388 5,379,148 5,379,148 - 5,379,148 1,008,000 1,008,000 55,715 1,063,715 (10,937,644) (277,238) 294,594 32,177,597 6,653,800 (4,490) 35,672,946 35,672,946 66,305 35,739,251 35,739,251 (10,920,288) (2,585,878) (13,506,166) (6,269,297) (19,775,463) 38,826,907 12,173,161 51,000,068 47 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 4 Segment information (continued) (b) Segments (continued) Segment revenues, expenses, and assets are those that are directly attributable to a segment and the relevant portion that can be allocated to the segment on a reasonable basis. Segment assets include all assets used by a segment and consist primarily of forest carbon sinks, receivables, inventories, property, plant and equipment and goodwill and other intangible assets, net of related provisions. While most of these assets can be directly attributed to individual segments, the carrying amounts of certain assets used jointly by segments are allocated based on reasonable estimates of usage. Segment assets do not include income taxes. Segment profit represents the profit earned by each segment without allocation of central administration costs and directors' salaries, share of profit of associates, investment revenue, income tax expense, and gains or losses on disposal of associates and discontinued operations. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance. (c) Other profit and loss disclosures 2018 Carbon Services Aquaculture Other Total 2017 Carbon Services Aquaculture Other Total Individually significant items Depreciation and amortisation $ $ (1,016,448) - - (1,016,448) (378,848) (1,557,321) (12,355) (1,948,524) Individually significant items Depreciation and amortisation $ $ - - - - (298,214) (1,505,473) (12,342) (1,816,029) The individually significant items for 2018 includes an impairment charge of $846,199 in the carbon services segment relating to capitalised development costs on projects and a write off of NGAC accreditation asset ($170,249) that management has assessed to no longer be viable in 2018. 48 5 Revenue From continuing operations Sales revenue Project development fees Carbon sink project management fees Fee for services Sale of Goods Revenue Other revenue Interest on financial assets held as investments Office services Crop share and agistment 6 Other gains/(losses) Net (loss)/gain on disposal of property, plant and equipment Net (losses)/gains on financial assets Net foreign exchange gains/(losses) Gain/(loss) on environmental credits fair value through P&L Contract termination fee Loss on disposal of subsidiary - Refer to note 35 (b) Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) Consolidated 30 June 2018 $ 30 June 2017 $ 3,715,701 2,878,090 1,427,604 26,940,720 34,962,115 2,749,336 2,590,177 1,008,000 29,285,798 35,633,311 32,809 3,225 53,757 89,791 62,754 1,133 41,954 105,841 35,051,906 35,739,152 Consolidated 30 June 2018 $ 30 June 2017 $ (120,314) (19,800) 22,521 - 435,708 - 318,115 2,000 95,097 (27,520) 31,263 158,472 (627,491) (368,179) 49 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 7 Expenses Profit before income tax includes the following specific expenses: Depreciation Buildings Plant and equipment Ponds Plant and equipment under finance leases Carbon sinks Leasehold improvements Total depreciation Amortisation Research and development projects NGAC Software Total amortisation Consolidated 30 June 2018 $ 30 June 2017 $ 70,538 1,153,280 339,088 80,384 191,016 18,135 1,852,441 77,795 1,119,019 339,089 7,891 223,804 16,229 1,783,827 77,124 17,700 1,259 96,083 7,163 22,124 2,914 32,201 Total depreciation and amortisation 1,948,524 1,816,028 Research and development Carbon projects Project Sea Dragon Research and development costs paid and expensed Employee benefits expense Equity settled share based payments Superannuation Other employee benefits Total employee benefits expense Cost of goods sold Variable Selling Expenses Cost of environmental credits sold Cost of goods sold - prawns Total cost of goods sold 1,498,168 3,420,834 4,919,002 578,584 4,906,675 5,485,259 884,761 277,743 6,361,157 7,523,661 - 237,822 5,873,303 6,111,125 3,161,143 1,157,975 22,184,614 26,503,732 3,329,984 349,493 23,002,148 26,681,625 50 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 8 Income tax expense (a) Income tax expense/(benefit) Current tax on profits for the year Deferred tax (benefit) Adjustments for deferred tax of prior periods Write off current and prior year deferred tax assets (b) Numerical reconciliation of income tax expense to prima facie tax payable Loss from continuing operations before income tax expense Tax at the Australian tax rate of 30.0% (2017 - 30.0%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Non-deductible expenses Sundry items Difference in overseas tax rates (Over)/under provision of income tax in previous year Write off current and prior year deferred tax assets Current year tax losses not recognised Income tax expense/(benefit) (c) Tax consolidation legislation Consolidated 30 June 2018 $ 30 June 2017 $ 3,576 (235,024) (109,172) 344,196 3,576 - - - 6,269,297 6,269,297 Consolidated 30 June 2018 $ 30 June 2017 $ (19,947,283) (5,984,185) (13,506,166) (4,051,850) 1,965,029 (1,056,515) (5,075,671) 18,139 (109,172) 344,196 4,826,084 3,576 2,004,267 (793,515) (2,841,098) 21,847 (190) 5,713,662 3,375,076 6,269,297 Seafarms Group Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. The accounting policy in relation to this legislation is set out in note 1(f). On adoption of the tax consolidation legislation, the entities in the tax consolidated group entered into a tax sharing agreement which, in the opinion of the directors, limits the joint and several liability of the wholly-owned entities in the case of a default by the head entity, Seafarms Group Limited. The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate Seafarms Group Limited for any current tax payable assumed and are compensated by Seafarms Group Limited for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Seafarms Group Limited under the tax consolidation legislation. The funding financial amounts are determined by reference to the amounts recognised in the wholly-owned entities' statements. The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. The funding amounts are recognised as current inter-company receivables or payables. 51 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 8 Income tax expense (continued) (d) Franking account Franking account balance (tax paid basis) Impact on franking account balance of dividends not recognised 9 Current assets - Cash and cash equivalents Cash at bank and in hand Deposits at call Other cash and cash equivalents (a) Risk exposure Consolidated 30 June 2018 $ 30 June 2017 $ - - - 741,264 - 741,264 Consolidated 30 June 2018 $ 3,809,431 328,851 1,321 4,139,603 30 June 2017 $ 11,565,530 307,987 1,321 11,874,838 The Group's exposure to interest rate risk is discussed in note 2. (b) Cash at bank and on hand Of the cash at bank and on hand, $1,963,372 (2017: $313,240) is non-interest bearing, and $2,176,231 (2017: $11,561,598) is in accounts that earn interest. (c) Cash not available for use $328,851 (2017: $307,987) is held as security for bank facilities and lease guarantees (note 24). (d) Deposits at call Deposits at call are interest bearing. 52 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) Consolidated 30 June 2018 $ 30 June 2017 $ 3,669,000 77,629 215,717 3,962,346 1,231,526 77,603 288,166 1,597,295 10 Current assets - Trade and other receivables Trade receivables Loans to employees Goods and services tax (GST) receivable (a) Past due but not impaired As of 30 June 2018, trade receivables of $3,115,739 (2017: $777,261) were past due but not impaired. Up to 3 months 3 to 6 months (b) Interest rate risk Consolidated 30 June 2018 $ 30 June 2017 $ 3,003,058 112,681 3,115,739 166,280 610,981 777,261 Information about the Group’s exposure to interest rate risk in relation to trade and other receivables is provided in note 2. (iii) Fair value and credit risk Due to the short-term nature of these receivables, their carrying amount is assumed to approximate their fair value. The average credit period on rendering of invoices is 30 days. Refer to note 2 for more information on the risk management policy of the Group and the credit quality of the entity's trade receivables. 11 Current assets - Inventories Finished goods Feed and consumables Consolidated 30 June 2018 $ 30 June 2017 $ 6,166,915 1,127,762 7,294,677 5,901,303 1,807,370 7,708,673 Finished goods are harvested prawns from the Group's aquaculture operations in North Queensland. Feed and consumables relate wholly to the Group's aquaculture operations. 53 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 12 Current assets - Current tax receivables Current tax receivables Consolidated 30 June 2018 $ 30 June 2017 $ - - 15,786 15,786 Current tax receivables relates to overseas income tax refundable to CO2 Asia Pte Ltd. 13 Current assets - Other current assets Prepayments Deposits paid Environmental credits at FVTPL Other aquaculture assets Consolidated 30 June 2018 $ 687,718 17,938 192,475 151,560 1,049,691 30 June 2017 $ 599,539 21,390 186,504 195,645 1,003,078 Environmental credits have been purchased on the spot market. They do not represent carbon credits produced by the Group's carbon sinks. All credits generated from the Group's plantations were sold during the financial year. 14 Current assets - Accrued income Carbon sink development Accrued income from carbon sink management 15 Current assets - Biological assets Livestock at fair Value Opening Balance Gain or Loss arising from changes in fair value less estimated point of sale costs Increases due to purchases Transferred to inventories Closing Balance 54 Consolidated 30 June 2018 $ 30 June 2017 $ 112,404 826,657 939,061 62,058 850,643 912,701 30 June 2018 $ 30 June 2017 $ 4,530,997 3,325,639 593,507 5,187,819 (4,530,997) 5,781,325 944,497 3,586,500 (3,325,639) 4,530,997 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 15 Current assets - Biological assets (continued) The group has classified live prawn as level 3 in the fair value hierarchy (refer note 1 (a) for explanation of levels), since one or more of the significant inputs is not based on observable market data. Valuation processes The group’s finance team performs the valuations of the group’s biological assets for financial reporting purposes, including level 3 fair values. This team reports directly to the chief financial officer (CFO) and the audit and risk committee (ARC). Discussions of valuation processes and results are held between the CFO and the ARC at least once every six months, in line with the group’s half-yearly reporting requirements. The main level 3 inputs used by the group are derived and evaluated as follows: • • • Survival rate, harvest average body weight and average production cost per kilogram is determined based on actual rates achieved over the last 6-12 months. Prawn market prices are based on active liquid market prices achieved over the last 3 months. Discount rate is determined using a capital asset pricing model to calculate a post-tax rate that reflects current market assessments of the time value of money and the risk specific to the asset. Changes in level 3 inputs and fair values are analysed at the end of each reporting period during the half-yearly valuation discussion between the CFO, and ARC. As part of this discussion the team presents a report that explains the reason for the fair value movements. Financial risk management strategies for biological assets The group is exposed to risks arising from environmental and climatic changes and market prices. The group has strong operating procedures to prevent and mitigate the impact of disease and environmental risks. The group is exposed to some risks arising from fluctuations in the price and demand of prawn. To mitigate those risks the group continues to focus on producing a high quality product that is well sought after in the market. Where appropriate the group will also enter into supply contracts. 16 Non-current assets - Inventories Other inventories Consolidated 30 June 2018 $ 30 June 2017 $ 184,923 184,923 184,923 184,923 55 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 17 Non-current assets - Property, plant and equipment Consolidated At 1 July 2016 Cost or fair value Accumulated depreciation Net book amount Year ended 30 June 2017 Opening net book amount Additions Depreciation charge Closing net book amount At 30 June 2017 Cost or fair value Accumulated depreciation Net book amount Freehold land $ Freehold buildings $ Ponds $ Plant and equipment $ Leasehold improvements $ Leased plant and equipment $ Carbon sinks $ Total $ 2,719,799 - 2,719,799 2,719,799 - - 2,719,799 2,719,799 - 2,719,799 1,581,830 (133,096) 1,448,734 6,781,774 (733,278) 6,048,496 9,523,175 (2,926,127) 6,597,048 412,562 (347,569) 64,993 60,181 (60,181) - 4,201,540 (2,814,416) 1,387,124 25,280,861 (7,014,667) 18,266,194 1,448,734 - (77,795) 1,370,939 6,048,496 - (339,089) 5,709,407 6,597,048 2,478,633 (1,119,019) 7,956,662 64,993 22,147 (16,229) 70,911 - 318,992 (7,891) 311,101 1,387,124 - (223,804) 1,163,320 18,266,194 2,819,772 (1,783,827) 19,302,139 1,581,830 (210,891) 1,370,939 6,781,774 (1,072,367) 5,709,407 12,000,323 (4,043,661) 7,956,662 426,459 (355,548) 70,911 379,173 (68,072) 311,101 4,201,540 (3,038,220) 1,163,320 28,090,898 (8,788,759) 19,302,139 56 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 17 Non-current assets - Property, plant and equipment (continued) Consolidated At 1 July 2017 Cost or fair value Accumulated depreciation Net book amount Year ended 30 June 2018 Opening net book amount Additions Disposals Depreciation charge Closing net book amount At 30 June 2018 Cost or fair value Accumulated depreciation Net book amount Freehold land $ Freehold buildings $ Ponds $ Plant and equipment $ Leasehold improvements $ Leased plant and equipment $ Carbon sinks $ Total $ 2,719,799 - 2,719,799 1,581,830 (210,891) 1,370,939 6,781,774 (1,072,367) 5,709,407 12,000,323 (4,043,661) 7,956,662 426,459 (355,548) 70,911 379,173 (68,072) 311,101 4,201,540 (3,038,220) 1,163,320 28,090,898 (8,788,759) 19,302,139 2,719,799 - (709,799) - 2,010,000 1,370,939 - - (70,538) 1,300,401 5,709,407 - - (339,088) 5,370,319 7,956,662 2,972,609 (10,954) (1,153,280) 9,765,037 70,911 2,260 - (18,135) 55,036 311,101 426,265 - (80,384) 656,982 1,163,320 - - (191,016) 972,304 19,302,139 3,401,134 (720,753) (1,852,441) 20,130,079 2,010,000 - 2,010,000 1,581,830 (281,429) 1,300,401 6,781,774 (1,411,455) 5,370,319 14,509,981 (4,744,944) 9,765,037 428,719 (373,683) 55,036 805,438 (148,456) 656,982 4,201,540 (3,229,236) 972,304 30,319,282 (10,189,203) 20,130,079 57 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 18 Non-current assets - Deferred tax assets The balance comprises temporary differences attributable to: Tax losses Provisions Accruals Intangible assets Depreciable assets Accrued interest Research & development Net deferred tax assets Movements: Opening balance at 1 July Charged/credited: - to profit or loss Write off of Deferred Tax Asset Realisation of prior year deferred tax assets Under/(over) provision of deferred tax in previous year Closing balance at 30 June Consolidated 30 June 2018 $ 30 June 2017 $ 11,655 456,095 81,031 111,403 (57,414) (239,218) (363,552) - 237,172 430,173 135,605 111,403 30,305 (314,064) (630,594) - - 6,269,297 235,024 (246,310) (97,886) 109,172 - (6,269,297) - - - - Unrecognised deferred tax balances Deductible temporary differences, unused tax losses and unused tax credits for which no deferred tax assets have been recognised are attributable to the following: Tax losses (revenue in nature) 13,142,144 8,302,570 58 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 19 Non-current assets - Intangible assets Consolidated At 1 July 2016 Cost Accumulated amortisation and impairment Net book amount Year ended 30 June 2017 Opening net book amount Additions Other charge Amortisation charge Closing net book amount Cost Accumulated amortisation and impairment Net book amount Development costs $ Goodwill $ Patents, trademarks and other rights $ Computer software $ Other intangible assets $ NGAC accreditation $ Total $ 2,948,482 (969,000) 1,979,482 1,207,187 - 1,207,187 3,072 (3,072) - 192,754 (188,477) 4,277 790,166 (790,166) - 408,380 (198,307) 210,073 5,550,041 (2,149,022) 3,401,019 1,979,482 152,215 - (7,163) 2,124,534 3,100,697 (976,163) 2,124,534 1,207,187 - - - 1,207,187 1,207,187 - 1,207,187 - - - - - 4,277 - (104) (2,914) 1,259 - - - - - 3,072 (3,072) - 192,754 (191,495) 1,259 790,166 (790,166) - 210,073 - - (22,124) 187,949 408,380 (220,431) 187,949 3,401,019 152,215 (104) (32,201) 3,520,929 5,702,256 (2,181,327) 3,520,929 59 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 19 Non-current assets - Intangible assets (continued) Consolidated At 30 June 2017 Cost Accumulated amortisation and impairment Net book amount Year ended 30 June 2018 Opening net book amount Additions Amortisation charge Impairment charge Closing net book amount At 30 June 2018 Cost Accumulated amortisation and impairment Net book amount Development costs $ Goodwill $ Patents, trademarks and other rights $ Computer software $ Other intangible assets $ NGAC accreditation $ Total $ 3,100,697 (976,163) 2,124,534 2,124,534 10,629 (77,124) (846,199) 1,211,840 1,207,187 - 1,207,187 1,207,187 - - - 1,207,187 3,072 (3,072) - 192,754 (191,495) 1,259 790,166 (790,166) - - - - - - 1,259 - (1,259) - - - - - - - 408,380 (220,431) 187,949 187,949 - (17,700) (170,249) - 5,702,256 (2,181,327) 3,520,929 3,520,929 10,629 (96,083) (1,016,448) 2,419,027 3,111,325 (1,899,485) 1,211,840 1,207,187 - 1,207,187 3,072 (3,072) - 151,706 (151,706) - 790,166 (790,166) - 238,131 (238,131) - 5,501,587 (3,082,560) 2,419,027 60 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 19 Non-current assets - Intangible assets (continued) (a) Impairment tests for goodwill Goodwill is allocated to the Group's cash generating units (CGUs) identified according to operating segment. Goodwill is monitored by management at the level of the three operating segments (see note 4 for details). A segment-level summary of the goodwill allocation is presented below. Consolidated 2018 Consolidated 2017 Carbon services Aquaculture Other $ Total $ - 1,207,187 - 1,207,187 - 1,207,187 - 1,207,187 (b) Significant estimates: key assumptions used for value-in-use calculations The Group tests whether goodwill has suffered any impairment on an annual basis. The recoverable amount of a cash generating unit (CGU) is determined based on value-in-use calculations which require the use of assumptions. The calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below. These growth rates are consistent with forecasts included in industry reports specific to the industry in which each CGU operates. The following table sets out the key assumptions for those CGUs that have significant goodwill allocated to them: Budget period Growth rate beyond budget period ** Discount rate CGU Gross margin * 2017 2018 % % Growth rate 2018 % 2017 % 2018 % 2017 % 2018 % 2017 % Aquaculture * Budgeted gross margin 22.0 22.0 2.0 6.0 2.0 2.0 12.0 12.0 ** Weighted average growth rate used to extrapolate cash flows beyond the budget period 61 20 Current liabilities - Trade and other payables Trade payables Amounts due to associates Accrued expenses PAYG payable Goods and service tax (GST) payable Other payables Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) Consolidated 30 June 2018 $ 30 June 2017 $ 6,854,495 581,797 429,506 374,131 28,782 621,656 8,890,367 4,138,172 298,018 820,445 230,596 - 539,374 6,026,605 The Group has financial risk management policies in place to ensure that all payables are paid within the credit time frame. 21 Current liabilities - Borrowings Secured Bank loans Lease liabilities Total secured current borrowings Unsecured Vendor finance Total unsecured current borrowings Total current borrowings (a) Lease liabilities Consolidated 30 June 2018 $ 30 June 2017 $ 2,825,680 109,604 2,935,284 - 41,100 41,100 23,417 23,417 406,086 406,086 2,958,701 447,186 The Group leased 8 vehicles under finance leases during the period (2017: 6 vehicles leased). The average lease term is 5 years. The Group has options to purchase the vehicles for a nominal amount at the end of the lease terms. The Group's obligations under finance leases are secured by the lessors' title to the leased assets. (b) Risk exposures Details of the Group's exposure to risks arising from current and non-current borrowings are set out in note 2. 62 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 21 Current liabilities - Borrowings (continued) (c) Reconciliation of liabilities arising from financing activities The table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group's consolidated statement of cash flows as cash flows from Financing activities. Current borrowings Bank loans Lease liabilities Vendor finance Total current borrowings Non-current borrowings Lease liabilities Loans from related parties Total non-current borrowings Total Borrowings 22 Current liabilities - Provisions Employee benefits 23 Current liabilities - Deferred revenue Deferred income from project development Deferred income on carbon sink management Deferred advisory income Consolidated Opening balance Cash 1 July 2017 movement $ $ Non-cash movement $ Closing Balance 30 June 2018 $ - 41,100 406,086 447,186 2,825,680 68,504 (382,669) 2,511,515 223,763 8,000,000 8,223,763 323,470 6,500,000 6,823,470 8,670,949 9,334,985 - - - - - - - - 2,825,680 109,604 23,417 2,958,701 547,233 14,500,000 15,047,233 18,005,934 Consolidated 30 June 2018 $ 30 June 2017 $ 1,520,318 1,520,318 1,433,910 1,433,910 Consolidated 30 June 2018 $ 30 June 2017 $ 1,251,597 545,456 10,087 1,807,140 1,786,651 58,356 3,385 1,848,392 63 24 Non-current liabilities - Borrowings Secured Lease liabilities Unsecured Loans from related parties Total non-current borrowings Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) Consolidated 30 June 2018 $ 30 June 2017 $ Notes 547,233 223,763 31(c) 14,500,000 15,047,233 8,000,000 8,223,763 Refer to note 36, $2,500,000 was converted to equity on 5 July 2017. (i) Secured liabilities and assets pledged as security The Group has a $120,865 (2017: $115,000) facility on its company credit cards and has been required to provide guarantee facilities of $207,987 (2017: $192,987) in respect of office leases. The Group maintains a term deposit with the bank to secure these facilities. The carrying amounts of assets pledged as security for current and non-current borrowings are: Current Deposits at call Total current assets pledged as security blank (ii) Risk exposures Consolidated 30 June 2018 $ 30 June 2017 $ 328,851 328,851 307,987 307,987 Notes 9 Information about the Group's exposure to interest rate and foreign exchange risk is provided in note 2. 25 Non-current liabilities - Provisions Employee benefits - long service leave Other provisions Consolidated 30 June 2018 $ 30 June 2017 $ 68,230 175,208 243,438 49,014 252,577 301,591 64 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 25 Non-current liabilities - Provisions (continued) (a) Other provisions Opening balance 1 July Additional provisions recognised Payments made Closing balance 30 June Consolidated 30 June 2018 $ 30 June 2017 $ 252,577 - (77,369) 175,208 153,777 115,331 (16,531) 252,577 The other provision represents the lease liability for the Perth office. The increase in the carrying amount of the provision for the prior year results from the end of the initial 21 month rent free period negotiated on the lease on 1 July 2015. The lease is due to expire on 30 June 2020. 26 Issued capital (a) Share capital 30 June 2018 Shares Notes 30 June 2017 Shares 30 June 2018 $ 30 June 2017 $ Ordinary shares Fully paid Convertible preference shares 26(c) 1,417,084,698 30,150,190 1,447,234,888 1,361,868,033 30,150,190 1,392,018,223 103,674,031 301 103,674,332 101,512,326 301 101,512,627 (b) Movements in ordinary share capital Details Number of shares $ Opening balance 1 July 2016 Placement Less: Transaction costs arising on share issues Balance 30 June 2017 Opening balance 1 July 2017 Performance Rights issue Debt conversion Exercise of listed options - proceeds received Less: Transaction costs arising on share issues Balance 30 June 2018 1,028,967,449 332,900,584 - 1,361,868,033 79,020,851 23,656,443 (1,164,667) 101,512,627 1,361,868,033 13,500,000 41,666,666 49,999 1,417,084,698 - 1,417,084,698 101,512,627 - 2,500,000 5,000 104,017,627 (343,295) 103,674,332 (c) Movements in convertible preference share capital Details Number of shares $ Opening balance 1 July 2016 Balance 30 June 2017 30,150,190 30,150,190 301 301 65 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 30,150,190 30,150,190 301 301 26 Issued capital (continued) Opening balance 1 July 2017 Balance 30 June 2018 (d) Convertible preference shares The convertible preference shares were issued at $0.00001. To convert to fully paid ordinary shares each holder is required to pay $0.06499. Conversion can occur at any time at the election of the holders. The convertible preference shares have limited voting rights as described in ASX Listing Rule 6.3 and are entitled to the payment of a dividend equal to one hundred thousandth of any dividends declared. (e) Options Unlisted options Information relating to the Group's Employee Option Plan and options issued to employees and executives of the Group, including details of options issued, exercised and lapsed during the financial period and options outstanding at the end of the financial period, is set out in note 38. Listed options On 17 July 2017, the Group issued 126,092,585 listed options pursuant to the Option Offers made to those participants in the June 2017 Share Placement. Shareholders who subscribed for shares in the June 2017 Share Participation Plan were eligible to participate in the June 2017 Share Placement. The listed options were issued free of charge and have an exercise price of 10 cents per share and expire on 17 July 2021. As at 30 June 2018, 49,999 listed options have been exercised leaving 126,042,586 listed options unexercised. 27 Reserves (a) Other reserves Financial assets revaluation reserve Share-based payments Option premium reserve (b) Nature and purpose of other reserves (I) Share-based payments The share-based payments reserve is used to recognise: Consolidated 30 June 2018 $ 30 June 2017 $ (24,740) 4,516,569 1,670,705 6,162,534 (24,740) 3,606,808 1,670,705 5,252,773 • • • • the grant date fair value of options issued to employees but not exercised the grant date fair value of shares issued to employees the issue of shares held by the Seafarms Employee Share Trust to employees in the parent entity the fair value of shares and options issued to employees of subsidiaries. 66 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 27 Reserves (continued) (I) Share-based payments (continued) (ii) Option premium The option premium represents the fair value of 47,734,412 Seafarms Group Limited options issued as part consideration for the Ranger takeover bid. (iii) Financial assets revaluation reserve Changes in the fair value of assets classified as available for sale financial assets are taken to the financial assets revaluation reserve. Amounts are recognised in profit and loss when the associated assets are sold or impaired. 28 Key management personnel disclosures (a) Directors The following persons were directors of Seafarms Group Limited during the financial year: (i) Chairman - executive I N Trahar (ii) Executive directors H R Whitcombe Dr C D Mitchell (iii) Non-executive directors P Favretto (b) Other key management personnel The following persons also had authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, during the financial year: Name D Donovan R Dyer A J Soanes Dr J Bulinski Position Chief Operating Officer Project Director (31 October 2017) Director and General Manager Operations CO2 Australia Limited CO2 Australia Limited Director Employer Seafarms Operations Limited Seafarms Group Limited (c) Key management personnel compensation Short-term employee benefits Post-employment benefits Long-term benefits Share-based payments Consolidated 30 June 2018 $ 30 June 2017 $ 1,765,948 232,019 27,263 789,578 2,814,808 1,528,393 223,744 24,562 - 1,776,699 67 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 29 Remuneration of auditors During the year the following fees were agreed for services provided by the auditor of the Parent entity, its related practices and non-related audit firms: (a) Audit services (i) Deloitte Touche Tohmatsu Audit and review of financial reports Additional fees in respect to the prior period Other fees paid to auditors Total auditors' remuneration 30 Commitments (a) Capital commitments Consolidated 30 June 2018 $ 30 June 2017 $ 143,500 - 25,500 169,000 125,000 20,000 25,000 170,000 The Group has no material capital commitments as at 30 June 2018. (b) Lease commitments: Group as lessee (i) Non-cancellable operating leases Operating leases relate to four office facilities, each with different terms: 3 years with an option to renew for a further 3 years; 1 year with no option to renew; 8 years with 2 options for a further 4 years, and a fixed term to June 2020 with no option for any further extension. The operating lease contracts contain market review clauses in the event that the Group exercises its option to renew. There are also fixed increase dates annually. The Group does not have an option to purchase the leased asset at the expiry of the lease period. The Group leases 8 motor vehicles under operating leases with a term of three years, with no option to purchase the vehicle at the expiry of the lease period. Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Within one year Later than one year but not later than five years Consolidated 30 June 2018 $ 30 June 2017 $ 530,317 472,826 1,003,143 423,103 1,001,210 1,424,313 31 Related party transactions (a) Parent entities Detailed remuneration disclosures are provided in the remuneration report on pages 9 to 17. The parent entity within the Group and the ultimate Australian parent entity is Seafarms Group Limited. 68 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 31 Related party transactions (continued) (b) Subsidiaries Interests in subsidiaries are set out in note 32. (c) Loans to/from related parties The Group has an $15.2 million a credit facility with Avatar Finance Pty Ltd, a company owned by Mr Ian Trahar, Chairman of the Group. The amounts advanced and interest charged are disclosed in the following table: Loan from Avatar Finance Pty Ltd Beginning of the year Loans advanced Debt equity swap Loan repayments made Interest charged Interest paid End of period Loans to other related parties Beginning of the year Loans written off End of period (d) Terms and conditions Consolidated 30 June 2018 $ 30 June 2017 $ 8,000,000 9,000,000 (2,500,000) - 499,419 (499,419) 14,500,000 8,500,000 - - (500,000) 480,467 (480,467) 8,000,000 - - - 151,789 (151,789) - The facility from Avatar Finance Pty Ltd is provided on normal commercial terms and conditions and at market rates, and is to be repaid on 15 March 2021. The average interest rate on the loan during the year was 5.95% (2017: 5.68%). 69 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 32 Subsidiaries and transactions with non-controlling interests The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries. Name of entity incorporation Class of shares Equity holding Country of 2018 % 2017 % CO2 Australia Limited * Carbon Banc Limited * Carbon Estate Pty Ltd * CO2 New Zealand Limited * Mallee Land Company Pty Ltd * Mallee Carbon Limited * Carbon Sinks Services Pty Ltd * The Oil Mallee Company of Australia Limited * Yonderr Pty Ltd * Seafarms Operations Pty Limited (formerly Seafarms Operations Limited) * CO2 Group Financial Services Pty Ltd Marine Harvest Australia Pty Ltd * Seafarms Hinchinbrook Pty Ltd * Project Sea Dragon Pty Ltd * Marine Farms Pty Ltd* Seafarm Queensland Pty Ltd* PSD Construction Employment Pty Ltd* Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - * These subsidiaries have been granted relief from the necessity to prepare financial reports in accordance with Class Order 98/1418 issued by the Australian Securities and Investments Commission. For further information refer to note 33. 33 Deed of cross guarantee All companies in the Group except CO2 Group Financial Services Pty Ltd ("CO2GFS") are parties to a deed of cross-guarantee under which each company guarantees the debts of the others. By entering into the deed, the wholly-owned entities have been relieved from the requirement to prepare a financial report and directors’ report under Class Order 98/1418 (as amended) issued by the Australian Securities and Investments Commission. The balance sheet and income statement of the closed group is the same as that of the consolidated entity except that they do not include CO2GFS. Set out below is a consolidated income statement for the 12 months ended 30 June 2018 of the Closed Group consisting of Seafarms Group Limited, CO2 Australia Limited, Carbon Banc Limited, Carbon Estate Pty Ltd, CO2 New Zealand Limited, Mallee Land Company Pty Ltd, Mallee Carbon Limited, Carbon Sinks Services Pty Ltd, The Oil Mallee Company of Australia Limited, Yonderr Pty Ltd, Seafarms Operations Limited, Marine Farms Pty Ltd, Marine Harvest Australia Pty Ltd, Seafarm Queensland Pty Ltd, Seafarm Hinchinbrook Pty Ltd, PSD Construction Employment Pty Ltd and Project Sea Dragon Pty Ltd. 70 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 33 Deed of cross guarantee (continued) (a) Consolidated income statement, statement of comprehensive income and summary of movements in consolidated retained earnings Consolidated statement of profit or loss Revenue from continuing operations Other (losses) / income Fair value adjustment of biological assets Fair value adjustment of finished goods Consulting expense Legal fees Travel Insurance Rent Research & development Marketing Plantation costs Finance costs Cost of goods sold Other expenses Employee benefits expense Depreciation and amortisation expense Share of net loss of associates and joint venture partnership accounted for using the equity method Loss before income tax Income tax (expense) benefit Loss for the period Consolidated statement of comprehensive income Loss for the period Total comprehensive loss for the period (b) Consolidated statement of financial position 30 June 2018 $ 30 June 2017 $ 34,037,797 277,303 593,507 (842,994) (2,326,014) (2,188,895) (2,424,270) (256,170) (488,366) (4,797,607) (201,548) (2,469,798) (1,077,026) (25,422,788) (2,758,778) (7,555,080) (1,936,687) 35,739,152 (368,179) 944,497 430,617 (2,066,813) (234,612) (1,877,310) (256,875) (433,658) (5,485,259) (134,755) (2,246,329) (1,010,193) (26,681,625) (1,664,011) (6,111,125) (1,804,087) 60,560 (111,875) (19,776,854) (39,823) (19,816,677) (13,372,440) (6,299,623) (19,672,063) 30 June 2018 $ 30 June 2017 $ (19,816,677) (19,816,677) (19,672,063) (19,672,063) Set out below is a consolidated balance sheet as at 30 June 2018 of the Closed Group consisting of Seafarms Group Limited, CO2 Australia Limited, Carbon Banc Limited, Carbon Estate Pty Ltd, CO2 New Zealand Limited, Mallee Land Company Pty Ltd, Mallee Carbon Limited, Carbon Sinks Services Pty Ltd, The Oil Mallee Company of Australia Limited, Yonderr Pty Ltd, Seafarms Operations Limited, Marine Farms Pty Ltd, Marine Harvest Australia Pty Ltd, Seafarm Queensland Pty Ltd, Seafarm Hinchinbrook Pty Ltd, PSD Construction Employment Pty Ltd and Project Sea Dragon Pty Ltd. 71 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 30 June 2018 $ 30 June 2017 $ 4,041,848 3,667,814 7,479,600 855,150 939,061 5,781,325 22,764,798 11,815,357 1,238,679 7,893,597 1,045,286 912,701 4,530,997 27,436,617 409,268 20,117,126 2,419,028 22,945,422 348,708 19,227,347 3,520,929 23,096,984 45,710,220 50,533,601 8,269,221 1,520,318 7,395 1,807,140 2,975,076 14,579,150 5,644,289 1,433,910 7,495 1,848,392 1,392,188 10,326,274 14,967,856 68,230 238,222 15,274,308 7,054,998 49,014 476,340 7,580,352 29,853,458 17,906,626 15,856,762 32,626,975 99,872,633 6,137,534 (90,153,405) 15,856,762 97,710,928 5,252,773 (70,336,726) 32,626,975 33 Deed of cross guarantee (continued) Current assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Accrued income Biological assets Total current assets Non-current assets Investments in associates and joint ventures Property, plant and equipment Intangible assets Total-non-current assets Total assets Current liabilities Trade and other payables Provisions Other current liabilities Deferred income Borrowings Total current liabilities Non-current liabilities Borrowings Provisions Other provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity 72 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 34 Interests in joint ventures (a) Joint venture partnership Blue-Leafed Mallee Pty Ltd (BLM) was a wholly owned subsidiary of the Parent Entity, conducting carbon projects through a 60% interest in a joint operation. In relation to its interest in the joint operation, BLM recognised its 60% share of the assets, liabilities, revenues and expenses in/resulting from the joint operation in the P&L and statement of financial position of the Group. The Group has accounted for the retained 60% interest as an equity accounted investment - refer to Note 1(b)(iii) for the accounting policy. (b) Disposal of subsidiary On 14 December 2016, the Group entered into a sale agreement with Motupipi Offshore Investments Limited to sell its 49% share in Callisto Quantitative Pte Limited for $49. This transaction resulted in the recognition of a loss on disposal of subsidiary as follows: Loss on disposal of subsidiary 30 June 2018 $ 30 June 2017 $ - 627,491 This loss has been recognised within ‘loss on disposal of subsidiaries’ on the face of the statement of profit and loss. (c) Equity accounted investment At 30 June 2018, the carrying value of the investment in the statement of financial position is $409,268 (2017: $348,708). During the current period an equity accounted profit of $60,560 has been recognised in profit or loss (2017: $111,875 loss). 35 Events occurring after the reporting period On 23 May 2018 the Group announced an agreement with Nippon Suisan Kaisha (Nissui) that included a $24.99 million equity investment in Seafarms. This investment will assist with the development of the Company's world class Project Sea Dragon. One of the conditions of this agreement was that the Group would divest its existing carbon sequestration, trading and environmental services business. On 15 June 2018, the Group sent out a Notice of Extraordinary General Meeting of shareholders to be held on 16 July 2018. This meeting was primarily being held to seek approval for the demerger of the CO2 Australia Group from the Seafarms Group. On 16 July 2018, at demerger, which was completed on 23 July 2018. the extraordinary general meeting, the Group received shareholder approval for the On 7 August 2018 Nippon Suisan Kaisha Limited's equity investment in Seafarms shares at 10 cents per share was completed. This resulted in an equity raising of $24.99 million. No other matter or circumstance has occurred subsequent to period end 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 or economic entity in subsequent financial periods. 73 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 36 Reconciliation of loss for the year to net cash flows from operating activities Loss for the year Depreciation and amortisation Impairment of intangibles Non-cash loss on exercised options Non-cash employee benefits expense - share-based payments Net losses on sale of non-current assets Net gain on sale of financial assets Fair value (gains)/losses on financial assets at fair value through profit or loss Share of (profits)/loss of joint venture Interest income received Change in operating assets and liabilities: (Increase)/decrease in trade debtors and receivables Decrease/(increase) in inventories (Increase)/decrease in other current assets Decrease/(Increase) in current tax receivables (Increase)/decrease in biological assets Decrease/(increase) in deferred tax assets Increase in other operating assets Increase/(decrease) in trade creditors (Decrease)/increase in other operating liabilities Increase in other provisions Net cash outflow from operating activities 37 Earnings per share (a) Basic earnings per share Consolidated 30 June 2018 $ 30 June 2017 $ (19,947,283) 1,948,524 1,016,448 19,800 884,761 128,517 - (20,294) (60,560) (32,809) (2,365,051) 413,996 (46,613) 15,786 (1,250,328) - (26,360) 2,863,762 (41,252) 28,255 (16,470,701) (19,775,463) 1,816,029 - - - - 12,973 (31,263) 111,875 (62,754) (38,922) (1,342,156) (462,363) - (1,205,358) 6,269,297 (120,811) (957,901) 775,480 199,038 (14,812,299) Consolidated 30 June 2018 Cents 30 June 2017 Cents Basic earnings per share Total basic earnings per share attributable to the ordinary owners of the Company (1.42) (1.42) (1.75) (1.75) (b) Diluted earnings per share Consolidated 30 June 2018 Cents 30 June 2017 Cents Diluted earnings per share Total basic earnings per share attributable to the ordinary owners of the Company (1.42) (1.42) (1.75) (1.75) 74 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 37 Earnings per share (continued) (c) Reconciliation of earnings used in calculating earnings per share Basic earnings per share Loss from continuing operations Diluted earnings per share Loss from continuing operations Loss from continuing operations attributable to the ordinary equity holders of the Company Consolidated 30 June 2018 $ 30 June 2017 $ (19,947,283) (19,947,283) (19,775,463) (19,775,463) (19,947,283) (19,775,463) (19,947,283) (19,775,463) Due to the net loss position of the Group, any conversion to shares would be anti-dilutive. (d) Weighted average number of shares used as denominator Consolidated 30 June 2018 Number 30 June 2017 Number Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share 1,404,415,725 1,132,472,278 38 Share-based payments Share based compensation payments are provided to employees in accordance to the "Seafarms Group's Employee Incentive Plan" as detailed in the remuneration report. Share based compensation payments are measured at the fair value of the equity instruments at the grant date. The fair value at grant date is independently determined using the valuation methods detailed in the remuneration report. The fair value of the equity instruments granted is adjusted to reflect market Vesting Conditions, but excludes the impact of any non-market Vesting Conditions. The fair value determined at the grant date of the equity-settled share based payments is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of equity instruments that will eventually vest. At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve. Upon the exercise of performance rights, the balance of the share based payments reserve relating to those performance rights is transferred to issued capital and the proceeds received, net of any directly attributable transaction costs, are credited to issued capital. The Group measures the cost of equity settled transactions with key management personnel at the fair value of the equity instruments at the date at which they are granted. Fair value is determined using valuation methods detailed in the remuneration report. The variables in the valuation model are the share price on the date of the award, the duration of the award, the risk free interest rate, share price volatility and dividend yield. The inputs used for each of the current schemes is provided below. 75 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 38 Share-based payments (continued) Scheme Performance rights Unlisted options 1 Unlisted options 2 Risk free interest rate - 2.42% 2.42% Share price volatility Dividend yield Value (cents per share) - 85.60% 80.11% - - - 6.0 1.2 2.2 For all awards, the volatility assumption is representative of the level of uncertainty expected in the movements of the Group’s share price over the life of the award. The assessment of the volatility includes the historic volatility of the market price of the Group’s share and the mean reversion tendency of volatilities. The expected volatility of each company in the peer group is determined based on the historic volatility of the companies’ share prices. In making this assumption, two years of historic volatility was used. 39 Parent entity financial information (a) Summary financial information The individual financial statements for the Parent entity show the following aggregate amounts: Balance sheet Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Shareholders' equity Issued capital Reserves Reserves Retained earnings Loss for the period Total comprehensive loss 30 June 2018 $ 30 June 2017 $ 68,131,136 3,676,556 71,807,692 76,507,070 3,622,002 80,129,072 2,650,752 14,679,281 17,330,033 762,872 8,253,762 9,016,634 54,477,659 (163,432,977) 71,112,438 (213,337,314) 103,663,698 101,501,993 (6,187,274) (42,998,765) 5,302,513 (35,692,069) 54,477,659 71,112,437 (7,306,696) (11,086,453) (7,306,696) (11,086,453) (b) Guarantees entered into by the parent entity There are cross guarantees given by Seafarms Group Limited and all its subsidiaries as described in note 33. No deficiencies of assets exist in any of these companies. The parent company has given no other guarantees. (c) Contingent liabilities of the parent entity The Parent entity did not have any contingent liabilities as at 30 June 2018 or 30 June 2017. For information about guarantees given by the Parent entity, please see above. 76 Seafarms Group Limited Notes to the consolidated financial statements 30 June 2018 (continued) 39 Parent entity financial information (continued) (d) Contractual commitments for the acquisition of property, plant or equipment As at 30 June 2018, the parent entity had no contractual commitments for the acquisition of property, plant or equipment. 77 Seafarms Group Limited Directors' declaration 30 June 2018 In the Directors' opinion: (a) (b) (c) (d) the financial statements and notes set out on pages 21 to 77 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and (ii) giving a true and fair view of the consolidated entity's financial position as at 30 June 2018 and of its performance for the financial period ended on that date, and the financial statements and notes set out on pages 21 to 77 are also in accordance with the international financial reporting standards issued by the International Accounting Standards Board there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable, and at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed Group identified in note 33 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 33. The Directors have been given the declarations by the executive chairman and chief financial officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of Directors. Harley Ronald Whitcombe Perth 31 August 2018 78 Deloitte Touche Tohmatsu ABN 74 490 121 060 Tower 2 Brookfield Place 123 St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia Tel: +61 8 9365 7000 Fax: +61 8 9365 7001 www.deloitte.com.au Independent Auditor’s Report to the Members of Seafarms Group Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Seafarms Group Limited (the “Company”), and its subsidiaries (the “Group”) which comprises the consolidated statement of financial position as at 30 June 2018, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited Key Audit Matter Valuation of Biological assets How the scope of our audit responded to the Key Audit Matter Refer to Note 3 ‘Critical accounting estimates and judgements’ and Note 15 ‘Biological assets’ As at 30 June 2018 the Group held $5.8 million of biological assets. This balance comprises the hatchery live crop of $1.6 million, carried at cost, and live prawns of $4.2 million carried at fair value less estimated sale costs. In order to determine the fair value, management prepare a discounted cash flow model which requires them to exercise significant judgement in respect of:     survival rates; harvest average body weight; average production cost per kilogram; and sales price per type and category of prawn. In conjunction with our valuation specialists, our procedures included, but were not limited to:  obtaining an understanding of the processes and related controls over the key inputs and assumptions used by management to determine fair value;  assessing the appropriateness of the valuation methodology;  assessing and challenging the key assumptions in the model as follows:  survival rates by comparing to historical trends;  harvest average body weight by .      comparing to historical trends and to the Board approved FY18 budget; average production cost per kilogram by comparing to historical trends and to the Board approved FY18 budget, and testing a sample of recent costs to external supporting evidence; and sales price per type and category of prawn by comparing to recent historical sales prices and industry data. challenging the appropriateness of the discount rate used in the discounted cash flow model; performing sensitivity analysis on the key assumptions outlined above; and assessing the appropriateness of the disclosure in the financial statements. Other Information The directors are responsible for the other information. The other information comprises the information included in the annual report, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information; we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:  Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.  Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.  Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation.  Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 9 to 17 of the Director’s Report for the year ended 30 June 2018. In our opinion, the Remuneration Report of Seafarms Group Limited, for the year ended 30 June 2018, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. DELOITTE TOUCHE TOHMATSU Peter Rupp Partner Chartered Accountants Perth, 31 August 2018 The Shareholder information set out below was applicable as at 30 June 2018. A. Distribution of equity securities Analysis of numbers of equity security holders by size of holding: Holding 1 - 1000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over B. Equity security holders Twenty largest quoted equity security holders The names of the twenty largest holders of quoted equity securities are listed below: Seafarms Group Limited Shareholder information 30 June 2018 Ordinary shares 56,007 1,396,553 5,018,185 79,498,012 1,331,115,941 1,417,084,698 Name Gabor Holdings Pty Ltd (The Tricorp A/C) Avatar Industries Pty Ltd (SRN) JB Were (NZ) Nominees Limited (56871 A/C) Avatar Industries Pty Ltd Alocasia Pty Limited Pinnacle Superannuation P/L UBS Nominees Pty Ltd Avatar Industries Pty Ltd (HIN) Gabor Holdings Pty Ltd Peta Pty Ltd Fifty Second Celebration Pty Ltd Crestpark Investments Pty Ltd Narrow Lane Pty Ltd Thirty Fifth Celebration Pty Ltd CO2 T'EE Employee Share Plan Pty Ltd Piama Pty Ltd City Lane Pty Ltd (Whitcombe Family A/C) BNP Paribas Nominees Pty Ltd Wilbow Group Equities Pty Ltd Precious Dental Alloys Australia Pty LTd C. Substantial holders Substantial holders in the Company are set out below: Ordinary shares Number held Percentage of issued shares 196,518,602 158,818,303 65,793,651 48,916,666 44,666,265 37,750,000 26,454,504 24,477,715 20,849,806 19,163,731 16,968,094 15,248,799 13,980,846 13,688,888 13,500,000 13,392,857 9,850,462 9,212,458 8,146,803 6,836,687 764,235,137 13.87 11.21 4.64 3.45 3.15 2.66 1.87 1.73 1.47 1.35 1.20 1.08 0.99 0.97 0.95 0.95 0.70 0.65 0.57 0.48 53.94 Number held Percentage Gabor Holdings Pty Ltd (and associates) 453,391,227 32.30% 84 

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