Seafarms Group
Annual Report 2022

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Seafarms Group Limited ABN 50 009 317 846 Annual Report for the year ended 30 June 2022 Seafarms Group Limited ABN 50 009 317 846 Final Report - 30 June 2022 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 2 25 Seafarms Group Limited Appendix 4E Final Report Year ended 30 June 2022 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 2022 12 months ended 30 June 2022 (Previous corresponding period: 12 months ended 30 June 2021) $ 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 6.0% 289.0% Down 224.0% to to to 19,477,573 (83,061,858) (85,434,599) Distributions Interim dividend (per share) Final dividend (per share) Franking Amount per security Franked amount per security - - - - - - 30 June 2022 Cents 30 June 2021 Cents Net tangible asset backing (per share) 1.10 0.21 2 Seafarms Group Limited Appendix 4E 30 June 2022 (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 The report is based on accounts that have been audited. Harley Ronald Whitcombe Darwin 31 October 2022 3 Seafarms Group Limited ABN 50 009 317 846 Annual Report - 30 June 2022 Corporate directory Directors' report Non-executive director remuneration policy Executive remuneration policy and framework Elements of remuneration Service agreements Share-based compensation Voting and comments made at the company's Annual General Meeting Auditor's Independence Declaration Corporate governance statement Financial statements Directors' declaration Independent auditor's report to the members Shareholder information 5 7 13 13 14 18 19 20 23 24 25 77 78 84 Directors Seafarms Group Limited Corporate directory Michael Peter McMahon (appointed 29 October 2021, resigned 6 May 2022) Executive Chairman Ian Brannan (appointed 29 October 2021, resigned 20 May 2022) Executive Director Harley Ronald Whitcombe B.Bus, CPA (appointed 20 May 2022) Executive Director Dr Christopher David Mitchell PhD, BSc (Hons), GAICD (resigned 30 November 2021) Executive Director Paul John Favretto LL.B. (resigned 28 January 2022) Independent Non-executive Director Rodney John Dyer (appointed 20 May 2022) Executive Director Terutaka Kuraishi (appointed 20 May 2022) Alternative Director Ian Norman Trahar, B.Ec, MBA Non-executive Chairman (director since 13 November 2001 Hisami Sakai Non-executive Director Naoto Sato (resigned 20 May 2022) Alternate Director Secretary Harley Ronald Whitcombe B.Bus, CPA Principal registered office in Australia Share registry Auditor Bankers Level 6, 66 Smith Street Darwin, NT 0800 Telephone No: (08) 9216 5200 Computershare Investor Services Pty Limited GPO Box D182 Perth, WA 6000 Telephone No: (08) 9323 2000 Facsimile No: (08) 9323 2033 Deloitte Touche Tohmatsu Chartered Accountants Level 11, 24 Mitchell Street Darwin NT 0800 HSBC Bank Australia Limited 190 St Georges Terrace Perth, WA 6000 Australia and New Zealand Banking Group Limited 77 St Georges Terrace Perth WA 6000 5 Stock exchange listing Website Seafarms Group Limited Corporate directory (continued) Seafarms Group Limited shares are listed on the Australian Securities Exchange. Home Exchange - Perth. ASX Code - SFG www.seafarms.com.au 6 Seafarms Group Limited Directors' report 30 June 2022 Directors' report The Directors present their report together with the financial statements of Seafarms Group Limited consisting of Seafarms Group Limited and the entities it controlled at the end of or during the year ended 30 June 2022 (referred to hereafter as "Seafarms" or the "Group"). Directors The following persons held office as Directors of Seafarms Group Limited during the financial period: Michael Peter McMahon (appointed 29 October 2021, resigned 6 May 2022) Ian Brannan (appointed 29 October 2021, resigned 20 May 2022) Ian Norman Trahar (appointed 13 November 2001) Harley Ronald Whitcombe (appointed 20 May 2022) Dr Christopher David Mitchell (resigned 30 November 2021) Paul John Favretto (resigned 28 January 2022) Hisami Sakai (appointed 7 August 2018) Naoto Sato (appointed 7 August 2018 (resigned 20 May 2022) Rodney John Dyer (appointed 20 May 2022) Terutaka Kuraishi (appointed 20 May 2022) Principal activities The Group is developing the world-class Project Sea Dragon project and operating a black tiger and banana prawn aquaculture business located in North Queensland. Company financial performance The overall financial performance over the 2022 financial year continues to reflect the investment being made by the Group in pursuing its expansion in aquaculture operations. Review of operations It’s been a turbulent year for Seafarms since the successful capital raise late in the previous financial year in June 2021. Construction of Project Sea Dragon commenced early in the year and the board appointed a new CEO and CFO to take Seafarms Group Limited (Seafarms or the Company) to the next phase. A renewal of the board in the first half of the resignation of Messrs Whitcombe, Mitchell and Favretto, and a change in board chairmanship from Mr Trahar to Mr McMahon who became Executive Chairman. the year included the appointment of Messrs McMahon and Brannan, In November the new board announced a review of Project Sea Dragon. Decisions taken during this time included the curtailment of all debt funding activity, and the termination of Project Sea Dragon contracts and most of the Project Sea Dragon construction team. This effectively placed the majority of Project Sea Dragon on hold which was announced to the market in March 2022. This significant change in direction for the Company prompted a move by a major shareholder to have Mr McMahon removed. This resulted in the resignation of Mr McMahon from the board and as CEO, and the resignation of Mr Brannan from the board and as Company Secretary. In late May 2022 the board appointed Mr Dyer as CEO, Mr Leijer as CFO and Mr Whitcombe as Company Secretary, and the appointment of Messrs Dyer and Whitcombe to the Board as Executive Directors. Mr Trahar was appointed as Non-Executive Chairman. In June 2022 Seafarms announced it was conducting a thorough assessment of the key challenges, development path and opportunities for Project Sea Dragon. The assessment is re-examining a number of matters raised about the viability of Project Sea Dragon announced by previous management in March 2022. 7 Seafarms Group Limited Directors' report 30 June 2022 (continued) Review of operations (continued) At the Queensland operations the Company experienced good performance of Black Tiger production from Farm 3 (Ingham). However the early harvests of Farm 1 and Farm 2 (Cardwell) significantly impacted output and was due to the emergence of disease in Cardwell in January 2022 that became severe over the following two months. This has subsequently been addressed. The Group has reported a loss for the year after taxation of $85,434,599 (2021: loss $25,755,546) that is primarily a result of the cash outgoings associated with the Project Sea Dragon construction and development activities. A summary of consolidated revenues and results for the year by significant industry segments is set out below: Segment revenues 2021 2022 $ $ Segment results 2022 $ 2021 $ Aquaculture Group administration and corporate costs Total segment revenue/result 19,299,422 178,151 19,477,573 21,320,320 50,036 21,370,356 (77,328,319) (8,106,280) (85,434,599) (24,452,525) (1,303,021) (25,755,546) Comments on the operations and the results of those operations are set out below: Queensland Operations The Queensland operations are undertaken at three sites: Flying Fish Point (commercial hatchery), Cardwell (Farms 1 & 2 and Processing Plant) and Ingham (Farm 3). Total production for the year was 720 tonnes of Black Tiger production and 144 tonnes of Banana production totalling 864 tonnes of production (2021: 1,068 tonnes). The lower production was the result of a decision to reduce stocking to lessen market risk exposure from the COVID-19 pandemic, and a significant disease event in Farms 1 and 2. The disease event at Farms 1 and 2 related to PIR A/B bacterial issues that started in January and was exacerbated by record high water temperatures that increased in intensity throughout February and March. This impacted the performance of Black Tiger prawn crops. For the 2023 financial year at these farms the Company has switched to banana prawns which have historically not been affected by the PIR A/B bacterial issues. Black Tiger prawn production at Farm 3 performed well and the biological metrics of demonstrated the feasibility of achieving key assumptions for Project Sea Dragon. the Farm 3 again This year all Queensland ponds were stocked with high health prawn larvae from domesticated broodstock without needing to augment the program with wild caught broodstock. Last year the Company reported that a statistical analysis of the performance of ponds stocked with domesticated animals compared with those originating from wild broodstock showed a significant difference between the two, with the domesticated animals out performing those from the wild. Seafarms programs of Occupational Health and Safety management at its operations resulted in two Lost Time Injuries for the year and a Total Reportable Injury Frequency Rate (TRIFR) of 11.1 injuries per million man hours. The Company continues to implement its program of reducing risk to improve OH&S performance. Environmental performance proceeded at the Queensland operations without issue during the year. Market development Market development supports the Company’s objective to build a high value, high quality and premium branded offer for both domestic and export markets. 8 Seafarms Group Limited Directors' report 30 June 2022 (continued) Review of operations (continued) Market development (continued) There is clear domestic demand for high quality, fresh Australian prawns, available 52 weeks per year. Capturing this opportunity, Crystal Bay Prawns® (Banana Prawn) production was increased to meet existing customer requirements, with 100% of the crop successfully sold fresh and the number of fresh availability weeks increased compared with last financial year. The Company will continue to build on the weekly, fresh sales opportunity, with a greater focus on Banana prawns in FY2023 to lift total volume and profitability. Domestically, the Company continued to develop share in the frozen self-serve category, with the launch of 550g Crystal Bay Tiger Prawns® cooked, frozen offer, complimenting the 1kg frozen boxes available through Woolworths nationwide. Seafarms frozen packaging supports the high-quality, sustainable Australian prawns brand message at point of purchase, and underpins the strategy to expand the availability of the Crystal Bay Tiger Prawns® brand. High brand engagement was achieved during the fresh Crystal Bay Tiger Prawns® season, with the “100% Aussie Freshness” message driven at point of purchase in key wholesalers and retailers/fishmongers. There was a focus on building brand awareness at key events, such as Easter, and lifting fresh sales at peak consumer purchasing times. Brand development continued with social media promotion sharing the Australian Crystal Bay Prawns® journey from pond to plate, reaching over 250,000 people during the last 12 months. Project Sea Dragon Significant progress in construction at Project Sea Dragon sites was made during the year up until the March 2022 review point announced by previous management. Following the successful equity placement in June 2021 (funds received in July) and the appointment of Canstruct Pty Ltd as managing contractor, construction work commenced at Legune Station in July, and the procurement of long lead items for Legune, Exmouth and Bynoe were progressed. At Legune Station, seventy six beds were commissioned by late September allowing work on roads and earthworks to commence in earnest on site. An additional 20 beds were added shortly thereafter, and mobilisation of construction equipment was completed in November. Prior to the wet season shutdown in late December the contractors had worked on almost 50 km of access roads, placed over 200,000 m3 of fill in embankments for nursery ponds and seawater intake, produced 38 pre-cast concrete structures for nursery ponds and grow-out ponds, as well as crushing and grading almost 100,000 tonnes of material in Forsyth Creek Quarry. The contractors to the Northern Territory Government completed the construction of the bitumised all-weather road from the NT/WA border to Legune Station in 2021 and the WA Government completed construction of the Moonamang Road that connects the existing bitumised road from Kununurra to the upgraded Keep River Road in 2022. All weather, all year access to Legune Station is now complete. Project Sea Dragon is responsible for upgrading the on-Station roads to all year, all weather condition. Following the statements made by the Company in March of 2022 the Company terminated contracts with most vendors, and the construction contracts with Canstruct were terminated for convenience in late April 2022. By the end of September 2022 the demobilisation of construction plant & equipment had largely been completed. The Company also placed further work on hold at Bynoe and Kununurra while progressing a reduced scope of work at the Exmouth facility. The Company continues to undertake works to maintain all permits and approvals. 9 Seafarms Group Limited Directors' report 30 June 2022 (continued) Review of operations (continued) Project Sea Dragon (continued) Despite capacity constraints, the program to develop Specific Pathogen Free domesticated broodstock at the Exmouth Founder Stock Centre continued to progress albeit at a slower rate. The Company announced that it successfully produced the fourth generation (G4) of Black Tiger Prawns that continue to test negative to specific pathogens. In the absence of facilities at the Project Sea Dragon Bynoe site, the animals were transferred to the Company’s Queensland hatchery to improve the diversity of genetics of the domesticated broodstock for existing operations. Healthy G2 animals at Exmouth continue to grow with G3 animals being generated late this calendar year. Debt and Equity funders have re-approached the Company and interest in funding Project Sea Dragon is strong. The Indigenous Land Use Agreement with the Native Title Holders continues to be implemented. At the request of the Northern Land Council, Seafarms agreed to bring forward the planning of the Caring for Country (Ranger) Program. The NLC has appointed a ranger coordinator who commenced planning consultations with various groups. In February 2022 the project’s Community Planning and Development Officer relocated to Kununurra. Formal ILUA Committee Meetings were interrupted due to the inability of all participants to attend in person, where possible meetings were held by video-conference, with one Committee Meeting held in person during the last week of October 2021. Financial reporting process The Group relocated its finance function and twice replaced its chief financial officer (CFO) during the financial year. The current CFO assumed the position shortly before the year-end. The Group faced many other significant events and challenges that required complex financial reporting estimation and judgement. A review of the financial statements by the external auditor also identified several restatements of previously audited amounts that have been processed and are disclosed. These events contributed to delays in the year-end closing and financial reporting process. Due to internal capacity and capability constraints, the finance team involved a reputable external firm of accounting and auditing specialists to assist in the consideration of complex matters, the drafting of several memoranda that was presented to the Board Audit Committee (BAC) and the external auditors, and in the preparation of the financial statements. The BAC considered the commitment, expertise, resources and experience of the CFO and the finance function as a whole and obtained feedback from the external auditor. The Group does not have an internal audit function and the BAC currently does not believe the size of the Group justifies the employment of a full-time internal auditor. The BAC believes that the current CFO is capable and committed to accurate financial reporting and to establish the required financial reporting controls, to prevent a recurrence of the current year experience. The BAC and CFO acknowledge that there are shortcomings in the expertise and resources of the finance function and weaknesses in the financial reporting environment, that are being addressed. The CFO, with the full and committed support of the management team and the BAC, will initiate and implement various projects to formalise policies and to improve our financial reporting internal control environment and related governance processes to ensure the integrity, accuracy and timeliness of the information we disclose and publish. The BAC expects these improvement projects to take some time and will closely monitor the progress. The BAC reported these concerns, its assessment, and the planned actions to the Board of Directors. Going concern The Directors note there are material uncertainties that may cast doubt on the Group’s ability to continue as a going concern and its ability to realise its assets and discharge its liabilities in the ordinary course of business and at the amounts stated in the financial statements. These uncertainties relate primarily to the quantum of the settlement of the contractual liabilities and the biological risk associated with aquaculture operations. The nature of the risks and mitigations are set out in more detail in note 1(c) to the financial statements. The Directors are of the opinion that the Company and Group will continue to operate as going concern and therefore these financial statements have been prepared on a going concern basis. Significant changes in the state of affairs The significant changes to the state of affairs of the Company are set out in the Review of Operations above. 10 Seafarms Group Limited Directors' report 30 June 2022 (continued) Matters subsequent to the end of the financial year No matter or circumstance has arisen since 30 June 2022 that has significantly affected the Group's operations, results or state of affairs, or may do so in future years. Likely developments and expected results of operations There has been no change in the strategic direction of the company, which is to develop Project Sea Dragon as a scalable integrated prawn aquaculture project. Information on directors Ian Norman Trahar, B.Ec, MBA. Non-executive Chairman (director since 13 November 2001) Experience and expertise Mr Trahar has a resource and finance background. He is a director and significant shareholder of Avatar Finance 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. Chair of the audit committee. Chair of remuneration committee. Interests in shares and options as at 30 June 2022 1,316,616,676 shares in Seafarms Group Limited. 387,327,272 options 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 Company Secretary of Seafarms Group Limited. Interests in shares and options as at 30 June 2022 19,680,984 ordinary shares in Seafarms Group Limited. 406,635 options in Seafarms Group Limited. 11 Seafarms Group Limited Directors' report 30 June 2022 (continued) Information on directors (continued) Rodney John Dyer B.E. (Mech) Executive Director. (since 20 May 2022) Experience and expertise Mr Dyer has extensive experience with the Project Sea Dragon both in design and in the financial aspects of the project. Other current directorships None. Former directorships in last 3 years None. Special responsibilities Managing director Interests in shares and options None 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 Managing Executive Officer of Nissui. His responsibilities include being in charge of European business, Business Supervisor in Oceania and Asia and in charge of International Sales and Business Development Department. Other current directorships None. Former directorships in last 3 years None. Special responsibilities None Interests in shares and options None Terutaka Kuraishi MBA Alternate Director for Hisami Sakai (since 20 May 2022) Experience and expertise Mr Kuraishi has extensive commercial experience and is currently the Commissioned Deputy International Business Operating Officer and Commissioned General Manager of Business Supervisor in Oceania at Nissui. Other current directorships None. Former directorships in last 3 years None. Interests in shares and options None Company secretary The Company secretary is Mr Harley Ronald Whitcombe B.Bus, CPA. Mr Whitcombe was re-appointed to the position of Company secretary on 20 May 2022, having previously held the position from 13 November 2001 to 29 October 2021. 12 Seafarms Group Limited Directors' report 30 June 2022 (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 2022, 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 Michael Peter McMahon Ian Brannan Naoto Sato Rodney John Dyer Terutaka Kuraishi Full meetings of directors Meetings of committees Audit Nomination & Remuneration A 15 8 9 10 15 11 12 13 2 2 B 15 8 9 10 15 11 12 11 2 2 A 2 - 1 1 1 1 1 1 - - B 2 - 1 1 1 1 1 1 - - A 1 - 1 1 - - - - - B 1 - 1 1 - - - - - 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 The Directors are pleased to present your Company's 2022 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; performance linkage / alignment of executive compensation; acceptable to shareholders. transparent; and aligned to the company’s strategic and business objectives and the creation of shareholder value; 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. 13 Seafarms Group Limited Directors' report 30 June 2022 (continued) Remuneration report (continued) Executive remuneration policy and framework (continued) 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. Alignment to shareholders' interests: • • • rewards capability and experience; and provides recognition for contribution. attracts and retains high calibre executives. Alignment to program participants' interests: (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. There are guaranteed base pay increases included in all of the executives' contracts. 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. 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) are payable on 15 August each year. 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, 25 November 2016 and 15 December 2020. 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. 14 Seafarms Group Limited Directors' report 30 June 2022 (continued) Remuneration report (continued) (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 Trahar (Non-executive Chairman) • • Harley Ronald Whitcombe (Executive Director and Company Secretary) • Rodney Dyer (Executive Director and Chief Executive Officer) • Hisami Sakai (Non-executive Director) Terutaka Kuraishi (Alternative Director) • Ian Brannan (Executive Director and Company Secretary, resigned 20 May 2022) • • Michael McMahon (Executive Director, resigned 6 May 2022) • Dr Christopher David Mitchell (Executive Director, resigned 30 November 2021) • • Naoto Sato (Alternative director, resigned 20 May 2022) Paul John Favretto (Non-executive Director, resigned 28 January 2022) 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) resigned subsequent to year end effective 1 July 2022. Ian Leijer (Chief Financial Officer, Seafarms Group Limited, commenced 22 May 2022) • 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. 15 Remuneration report (continued) (b) Details of remuneration (continued) Year ended 30 June 2022 Name Non-executive Directors P Favretto H Sakai I Trahar Sub-total non-executive directors Executive Directors H Whitcombe R Dyer I Brannan M McMahon C Mitchell Sub-total executive directors Alternative Directors N Sato T Kuraishi Sub-total alternative directors Other key management personnel (Group) D Donovan I Leijer Total key management personnel compensation (Group) *This relates to a benefit for motor vehicles. Seafarms Group Limited Directors' report 30 June 2022 (continued) Share-based payments Performance rights / Share options $ Total $ - - - - - - - - 35,291 - 153,656 188,947 45,135 - 764,987 1,398,422 73,600 2,282,144 - - 844,586 1,970,702 - 2,815,288 371,578 303,547 2,094,253 4,058,996 392,827 7,221,201 - - - - - - - - - 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 $ Termi- nation benefits $ - - - - - - - - 7,936 7,936 - - - 3,208 - 13,568 16,776 20,554 20,581 27,437 40,199 19,854 128,625 - - - - - 4,408 4,408 500 1,250 - - - 1,750 - - - - - - - - - - - - - - - - - - - 32,083 - 135,680 167,763 305,389 281,716 457,243 649,673 291,437 1,985,458 - - - 352,100 46,620 2,551,941 16 - - 7,936 27,499 4,662 177,562 5,464 833 12,455 - - 2,282,144 - - 2,815,288 385,063 52,115 7,847,326 Remuneration report (continued) (b) Details of remuneration (continued) Year ended 30 June 2021 Name Non-executive Directors P Favretto Sub-total non-executive directors Executive Directors I Trahar H Whitcombe C Mitchell Sub-total executive directors Alternative Directors H Sakai N Sato Sub-total alternative directors 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 Performance rights / Share options $ Termi- nation benefits $ 35,200 35,200 240,450 270,811 294,398 805,659 - - - - - - - - - - - - - - 25,025 25,025 - - - - 11,937 11,937 37,843 35,727 37,968 111,538 4,388 4,942 5,373 14,703 - - - - - - - - - Seafarms Group Limited Directors' report 30 June 2022 (continued) Total $ 60,225 60,225 282,681 311,480 349,676 943,837 - - - 310,083 352,267 1,666,412 - - - - - - - - - - - - - - - - - - - - - - - - Other key management personnel (Group) D Donovan R Dyer Total key management personnel compensation (Group) 278,539 310,502 1,429,900 - 10,000 10,000 - - 11,937 26,461 29,498 192,522 5,083 2,267 22,053 Details in relation to the KMP long term incentives are set out in note 26 to the financial statements. 17 Seafarms Group Limited Directors' report 30 June 2022 (continued) Remuneration report (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, Chairman: • • • • 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. H Whitcombe, Director and Company Secretary: • • • • Term of agreement - no fixed term; Base salary which includes superannuation is reviewed annually (minimum increase of CPI); Employer may terminate employment on giving three 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. D Donovan Director and 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 six 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. R Dyer Project Director, Seafarms Group Limited • • • • 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 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. I Leijer, Chief Financial Officer, Seafarms Group Limited • • • • 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 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. 18 Seafarms Group Limited Directors' report 30 June 2022 (continued) Remuneration report (continued) (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 above: Name Fixed remuneration At risk - STI At risk - LTI 2022 % 2021 % 2022 % 2021 % 2022 % 2021 % Directors of Seafarms Group Limited I Trahar H Whitcombe M McMahon C Mitchell R Dyer I Brannan P Favretto Other key management personnel of the Group D Donovan I Leijer 100% 100% 100% 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 Shares provided on exercise of options On 22 September 2021, 100,000,000 performance rights (exercise price $0.072, expiry date 31 August 2026) were issued to previous directors. All of these rights were issued pursuant to the "Seafarms Group Employee Incentive Plan" as approved by the shareholders at the AGM held on 15 December 2020. The unlisted options issued during the 2018 financial year (15,000,000), which had no performance conditions attached, vested last financial year and were exercised on 11 August 2020. 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 . Share price at start of year Share price at end of year Dividend Basic (loss) per share Diluted (loss) per share . Year ended Year ended Year ended Year ended 30 June 2022 30 June 2021 30 June 2020 30 June 2019 30 June 2018 $ 25,901,587 (20,140,749) (19,947,283) $ 19,477,573 (85,434,599) (85,434,599) $ 28,382,012 (25,542,665) (25,542,665) $ 20,826,823 (25,755,548) (25,755,548) $ 24,394,803 (30,944,301) (30,944,301) Year ended 6c 1c - (1.87)c (1.87)c 5c 6c - (1.06)c (1.06)c 9c 5c - (1.24)c (1.24)c 8c 9c - (1.82)c (1.82)c 6c 8c - (1.42)c (1.42)c 19 Seafarms Group Limited Directors' report 30 June 2022 (continued) Remuneration report (continued) (d) Additional statutory information (continued) (ii) Share-based compensation (continued) Shares provided on exercise of options (continued) At the 2015 Annual General Meeting of Seafarms Group Limited, held on 1 February 2016, at the 2016 Annual General Meeting of shareholders of Seafarms Group Limited, held on 25 November 2016, and again at the 2020 Annual General Meeting, held on 15 December 2020 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. (iii) Voting and comments made at the company's Annual General Meeting Seafarms Group Limited received more than 97.96% of “yes” votes on its remuneration report for the 2021 financial period. The company did not receive any specific feedback at the AGM or throughout the period on its remuneration practices. (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. 2022 Name Balance at the start of the period Purchase of shares during the year Balance at end of the period Directors of Seafarms Group Limited Ordinary shares I N Trahar H R Whitcombe C D Mitchell P J Favretto I Brannan M McMahon R Dyer Other key management personnel of the Group Ordinary shares D Donovan I Leijer 675,871,221 18,298,258 11,327,268 37,916,666 - - - 690,277,497 1,366,148,718 18,970,984 11,327,268 40,462,120 9,090,909 36,363,636 - 672,726 - 2,545,454 9,090,909 36,363,636 - - - - 14,032,716 - 14,032,716 20 Seafarms Group Limited Directors' report 30 June 2022 (continued) Remuneration report (continued) (e) Equity instrument disclosures relating to key management personnel (continued) (i) Share holdings (continued) 2021 Name 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 R Dyer D Donovan Loans to key management personnel Balance at the start of the year Purchase of shares during the year Balance at end of the year 675,871,221 18,298,258 11,327,268 37,916,666 - - - - - - - - 675,871,221 18,298,258 11,327,268 37,916,666 - - There are no loans made to directors of Seafarms Group Limited and other key management personnel. Shares under option (a) Unissued ordinary shares Unissued ordinary shares of Seafarms Group Limited under option at the date of this report are as follows: Number under option Class of shares Exercise price of option Expiry date 5,320,622 (*) 30,000,000 (*) 1,447,581,216 (*) 100,000,000 (**) Ordinary Ordinary Ordinary Ordinary (*) Refer to note 24(d) for further details. (**) Refer to note 34 for further details. 0.062 0.097 0.0975 0.0715 1 June 2023 12 December 2023 13 August 2024 30 November 2022 The holders of these options do not have the right, by virtue of the option, to participate in any share issue or interest issue of the company or of any other body corporate or registered scheme. (b) Shares issued on the exercise options The following ordinary shares of Seafarms Group Limited were issued during the year ended 30 June 2022 on the exercise of options granted under the Employee Option Plan. Number of shares issued Class of shares Amount paid Amount unpaid 449,997 Ordinary $43,762.20 - End of Remuneration Report 21 Seafarms Group Limited Directors' report 30 June 2022 (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 27 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 2022 (2021: 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 23. Auditor Deloitte Touche Tohmatsu continues in office in accordance with section 327 of the Corporations Act 2001. Rounding of amounts The Company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the 'rounding off' of amounts in the directors' report. Amounts in the directors' report have been rounded off in accordance with the instrument to the nearest dollar. This report is made in accordance with a resolution of Directors, pursuant to section 298(2) of the Corporations Act 2001. Harley Ronald Whitcombe Darwin 31 October 2022 22 Deloitte Touche Tohmatsu ABN 74 490 121 060 Level 11, 24 Mitchell Street Darwin, NT, 0800 Australia Phone: +61 8 8980 3000 www.deloitte.com.au The Board of Directors Seafarms Group Limited Level 6, 66 Smith Street Darwin NT 0800 31 October 2022 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 report of Seafarms Group Limited for the year ended 30 June 2022, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours faithfully DELOITTE TOUCHE TOHMATSU Malvin Prasad Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. Seafarms Group Limited Corporate governance statement 30 June 2022 Corporate governance statement 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/). 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 (4th Edition) as published by ASX Corporate Governance Council. The Group’s Corporate Governance Statement for the year ended 30 June 2022 was approved by the Board on 31 August 2022. 24 Seafarms Group Limited ABN 50 009 317 846 Financial Report - 30 June 2022 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 financial statements Directors' declaration Independent auditor's report to the members 26 27 28 29 31 32 77 78 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 and principal place of business is: Level 6, 66 Smith Street Darwin, NT 0800 A description of the nature of the consolidated entity's operations and its principal activities is included in the directors' report on page 7, which is not part of these financial statements. The financial statements were authorised for issue by the Directors on 31 October 2022. 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. 25 Seafarms Group Limited Consolidated statement of profit or loss For the year ended 30 June 2022 Notes 2022 $ 2021 (*Restated) $ 5 6 7 13 13, 15 8 19 8 8, 16, 17 9 8 19,477,573 20,826,822 587,139 (2,372,741) (723,005) (2,678,611) (6,798,310) 510,911 (2,724,240) (15,837,051) (5,000,000) (3,964,347) (18,443,140) (34,339,531) (13,129,246) (85,434,599) 1,378,707 (4,941,041) 101,744 65,454 (7,128,352) (695,846) (2,388,587) (13,438,919) - (3,982,744) - - (15,552,785) (25,755,547) 10 - (85,434,599) - (25,755,547) Revenue from continuing operations Other (losses)/gains Finance costs Fair value adjustment of biological assets Fair value adjustment of biological assets at point of harvest Feed and consumables Change in finished goods and biological assets Energy costs Employee benefits expense Expected loss on non-current loan Depreciation and amortisation expense Impairment losses Construction costs Other expenses (Loss) before income tax Income tax benefit (Loss) for the year *The comparative financial information has been restated as a result of a reclassification of expense items in the statement of profit or loss. Refer to note 1(z) for details. The above consolidated statement of profit or loss should be read in conjunction with the accompanying notes. 26 (Loss) for the year Blank Other comprehensive (loss) for the year net of tax Total comprehensive (loss) for the year is attributable to: Owners of Seafarms Group Limited Seafarms Group Limited Consolidated statement of comprehensive income For the year ended 30 June 2022 2022 $ 2021 $ (85,434,599) (25,755,547) - - (85,434,599) (25,755,547) Cents Cents (Loss) per share from continuing operations attributable to the ordinary equity holders of the Company: Basic (loss) per share Diluted (loss) per share 33 33 (1.87) (1.87) (1.06) (1.06) The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. 27 ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Biological assets Total current assets Non-current assets Property, plant and equipment Right-of-use assets Other non-current assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Borrowings Lease liabilities Provisions Employee benefit obligations Total current liabilities Non-current liabilities Lease liabilities Provisions Employee benefit obligations Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Other reserves Retained earnings Total equity Seafarms Group Limited Consolidated statement of financial position As at 30 June 2022 Notes 2022 $ 2021 $ 11 12 13 14 15 16 17 19 20 21 22 23 22 23 36,195,529 1,367,472 8,206,053 1,319,245 2,454,171 49,542,470 497,112 2,040,581 10,321,864 1,061,672 2,223,845 16,145,074 16,940,032 94,700 - 17,034,732 21,938,951 21,122,764 5,000,000 48,061,715 66,577,202 64,206,789 3,080,962 - 1,902,251 8,740,403 1,349,694 15,073,310 9,165,278 27,062,934 2,834,462 10,256 1,548,721 40,621,651 1,034,272 124,591 35,718 1,194,581 18,382,047 123,853 45,408 18,551,308 16,267,891 59,172,959 50,309,311 5,033,830 24 25(a) 300,316,736 14,832,725 (264,840,150) 50,309,311 172,421,944 12,017,437 (179,405,551) 5,033,830 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 28 Balance at 1 July 2020 Loss for the year Total comprehensive loss for the period Transactions with owners in their capacity as owners: Options exercised Value of conversion rights on convertible loan Seafarms Group Limited Consolidated statement of changes in equity For the year ended 30 June 2022 Issued capital $ Other equity* $ Options premium reserve $ Financial assets revaluation reserve $ Share- based payments reserve $ Accumulated losses $ Total equity $ 169,793,845 2,261,000 1,670,705 - - - - - - (24,740) 10,371,472 (153,650,005) 30,422,277 (25,755,546) (25,755,546) (25,755,546) (25,755,546) - - - - 36,781 - 36,781 - 330,318 330,318 - - - - - - - - - - - - 36,781 330,318 367,099 Balance at 30 June 2021 169,830,626 2,591,318 1,670,705 (24,740) 10,371,472 (179,405,551) 5,033,830 * The amount shown for other equity is the value of the conversion rights relating to the Avatar Finance Pty Ltd convertible loan. The fair value of equity was determined using an option price model. This is recognised and included in shareholder's equity. Refer note 21 and note 29 for further detail. The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 29 Seafarms Group Limited Consolidated statement of changes in equity For the year ended 30 June 2022 (continued) Issued capital $ Other Equity $ Notes Options premium reserve $ Financial assets revaluation reserve $ Share- based payments reserve $ Accumulated losses $ Total equity $ Balance at 1 July 2021 Loss for the year Total comprehensive loss for the period 169,830,626 2,591,318 1,670,705 - - - - - - Transactions with owners in their capacity as owners: Contributions of equity & debt equity conversion net of transaction costs & tax Employee share schemes - value of employee services 24 127,894,792 - 127,894,792 - - - - - - - - - - - (24,740) 10,371,472 (179,405,551) 5,033,830 (85,434,599) (85,434,599) (85,434,599) (85,434,599) - - - 2,815,288 2,815,288 - 127,894,792 2,815,288 - - 130,710,080 Balance at 30 June 2022 297,725,418 2,591,318 1,670,705 (24,740) 13,186,760 (264,840,150) 50,309,311 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 30 Seafarms Group Limited Consolidated statement of cash flows For the year ended 30 June 2022 Notes 2022 $ 2021 (*Restated) $ 22,765,061 21,807,027 (41,761,246) (28,329,458) (47,325,643) 6,530 (1,103,896) (48,423,009) (34,463,949) - (12,656,922) 854 (2,118,842) (14,774,910) 32 (625,568) (12,028,622) 784 (12,653,406) (486,018) - - (486,018) 105,962,429 743,589 (5,000,000) (3,884,234) (1,046,952) - 96,774,832 36,781 6,670,764 - (1,692,245) - 4,276,685 9,291,985 35,698,417 497,112 36,195,529 (5,968,943) 6,466,055 497,112 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) Payments to suppliers for PSD Pre-Development expenses Interest received Interest paid Net cash outflow from operating activities Cash flows from investing activities Purchase of property, plant and equipment Purchase of property, plant and equipment related with PSD Proceeds from sale of property, plant and equipment Net cash outflow from investing activities Cash flows from financing activities Proceeds from issue of shares Proceeds from borrowings Payments of loans from third parties Lease payments Repayment of borrowings Proceeds from related parties Net cash inflow from financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at end of period Non-cash investing and financing activities 11 21(d) *The comparative financial information has been restated as a result of a reclassification of cash flow items in the Consolidated statement of cash flows. Refer to note 1(z) for details. The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 31 Seafarms Group Limited Notes to the financial statements 30 June 2022 Contents of the notes to the 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 Summary of significant accounting policies Critical accounting estimates and judgements Financial risk management Segment information Revenue Other (losses)/gains Finance costs Expenses PSD Construction costs Income tax expense Current assets - Cash and cash equivalents Current assets - Trade and other receivables Current assets - Inventories Current assets - Other current assets Current assets - Biological assets Non-current assets - Property, plant and equipment Non-current assets - Right-of-use assets Non-current assets - Deferred tax assets Other non-current assets Current liabilities - Trade and other payables Current liabilities - Borrowings Provisions Employee benefit obligations Issued capital Reserves Key management personnel disclosures Remuneration of auditors Commitments Related party transactions Subsidiaries 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 Contingent liabilities Parent entity financial information Page 33 45 47 50 53 53 53 54 55 56 56 57 58 58 59 60 63 64 65 65 65 67 68 68 70 70 71 71 72 73 73 73 74 74 76 76 32 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 1 Summary of significant accounting policies (a) Statement of compliance These financial statements are general purpose financial statements which have been prepared in accordance with the Corporations Act 2001, Accounting Standards and other authoritative pronouncements issued by the Australian Accounting Standards Board (AASB), and comply with the other requirements of the law. Compliance with Australian Accounting Standards ensures that the financial statements and notes of the Group comply with International Financial Reporting Standards ('IFRS') as issued by the International Accounting Standards Board (IASB). Consequently, this financial report has been prepared in accordance with and complies with IFRS as issued by the IASB. (b) Basis of preparation for the The consolidated financial statements have been prepared on the basis of historical cost, except revaluation of biological assets. Cost is based on the fair value of the consideration given in exchange for assets. All amounts are presented in Australian dollars, unless otherwise noted. 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 disclosure purposes in these consolidated financial statements is determined on such a basis, except for leasing share-based payment transactions that are within the scope of AASB 16 Leases, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in AASB 102 Inventories. transactions that are within the scope of AASB 2 Share-based Payment , 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, for further detail refer to note 3(d). 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: Impact of changes to Australian Accounting Standards and Interpretations (i) Other new accounting standards The following new or amended standards did not have a significant impact on the Group’s consolidated financial statements: • • AASB 2020-8 Amendments to Australian Accounting Standards - Interest Rate Benchmark Reform - Phase 2; and AASB 2021-3 Amendments to Australian Accounting Standards - COVID-19-Related Rent Concessions beyond 30 June 2021. 33 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 1 Summary of significant accounting policies (continued) Impact of changes to Australian Accounting Standards and Interpretations (continued) (ii) Application of new and revised accounting standards At the date of the authorisation of the financial statements, the Group has not applied the following new and revised Australian Accounting Standards, Interpretations and amendments that have been issued but are not yet effective: • • • • • • • AASB 17 Insurance Contracts and AASB 2020-5 Amendments to Australian Accounting Standards - Insurance Contracts; AASB 2014-10 Amendments to Australian Accounting Standards - Sale or Contribution of Assets between and Investor and its Associate or Joint Venture; AASB 2020-1 Amendments to Australian Accounting Standards - Classification of Liabilities as Current or Non-Current and AASB 2020-6 Amendments to Australian Accounting Standards - Classification of Liabilities as Current or Non-Current - Deferral of Effective Date; AASB 2020-3 Amendments to Australian Accounting Standards - Annual Improvements 2018-2020 and Other Amendments; AASB 2021-2 Amendments to Australian Accounting Standards - Disclosure of Accounting Policies and Definition of Accounting Estimates; AASB 2021-5 Amendments to Australian Accounting Standards - Deferred Tax related to Assets and Liabilities arising from a Single Transaction; and AASB 2022-1 Amendments to Australian Accounting Standards - Initial Application of AASB 17 and AASB 9 - Comparative Information. (c) Going concern These financial statements have been prepared on the going concern basis of accounting, which contemplates the continuity of normal business activity, realisation of assets and settlement of liabilities in the normal course of business. For the year ended 30 June 2022, the Group incurred an operating cash outflow of $48,423,009 (2021: $14,774,910) and a net loss for the year of $85,434,599 (2021: $25,755,547). At 30 June 2022, the Group had net current assets of $34,469,160 (2021 net current liabilities: $24,476,577), including $36,195,529 cash and cash equivalents (2021: $497,112). The Directors note the following uncertainties: Project Sea Dragon During the 2022 financial year, the Group raised equity funding and proceeded with the initial establishment phase of PSD in the Northern Territory. Subsequently the project was suspended and is currently under review by executive management and the Board of Directors with a final decision expected in quarter 4 of the 2023 financial year. After the initial suspension the Group decided to cancel the in-progress construction contract. Any continuance will be subject to obtaining adequate funding. The Group commenced construction on Project Sea Dragon in August 2021, which was suspended in December 2021 due to the wet season. In the same month, the Group terminated negotiations on debt funding, which were at an advanced stage, due to the cessation of negotiations by the previous management. In April 2022 the major construction contracts for the construction of ponds and other infrastructure at Legune Station were terminated to preserve cash as the future of the project is re-assessed. As stated in note 22, following the termination of the the Group received a number of claims from the construction company and, after construction contracts, assessment of the currently available information, recorded a provision for general contractual liabilities of $8,730,094. During the year, the Group has also reassessed its lease term for Legune Station from 30 years to 18 months (refer to note 17 for details) and impaired all non-current assets relating to the Project (refer to notes 16 and 17 for details). As referred to in note 35 the Company has an obligation to remediate and rehabilitate Legune Station in accordance with a plan to be agreed with the relevant counterparties in the future if Project Sea Dragon is discontinued. Management has assessed that a provision for remediation is not yet recognisable at 30 June 2022. 34 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 1 Summary of significant accounting policies (continued) The forecast cash flows up to 31 October 2023 of the Group includes discretionary expenditure relating Project Sea Dragon, including Exmouth facility, of approximately $5 million and net outflows relating to the provision for contractual claims. The Directors are committed to continue with the review of Project Sea Dragon but as noted in previous ASX releases, the Group will not re-commence construction of Project Sea Dragon until it has obtained the committed funding to complete the Project. If a decision is made not to continue with Project Sea Dragon, the discretionary expenditure relating to Project Sea Dragon and Exmouth facility will be ceased at that time. The Directors are confident that necessary debt funding will be obtained based on the revised Project Sea Dragon plans that is expected from the review, and are currently in discussion with potential investors and debt providers. Seafarms Queensland Operations In FY2022 the Queensland aquaculture operations made an increased loss due to animal health issues with black tiger prawns. Seafarms Queensland has experienced animal health issues over a number of years with Black Tiger prawns on specific farms. In FY2022 the Company changed its strategy such that, since March 2022, on those farms it only stocks Banana prawns which have historically not been affected by similar health issues. As a result of this change the Directors expect that Seafarms Queensland operations will be profitable and cashflow positive in FY23. Subsequent to 30 June 2022, the current crops are developing in line with the modelled growth and are on track to meet the forecast production. Notwithstanding the change in strategy to stock lower biological risk Banana prawns, animal health is a risk in all aquaculture operations and in the event of an adverse health outcome there is material uncertainty over the profitability and cashflows of the Queensland operations. Seafarms continues to pursue a number of strategies to mitigate that risk including continuous health screening and bacterial monitoring through the production process. Cash flow management actions The ability of the Company and Group to continue as a going concern is dependent upon its ability to mitigate the risks noted above via a combination of the following actions; i. Reducing discretionary cash outflows including substantially reducing expenditure on Project Sea Dragon and corporate activities; ii. continuing improvements in profitability and cashflows of the Queensland operations to generate sustainable cash to fund corporate activities; iii. obtaining crop financing for Seafarms Queensland in FY2024 to manage the working capital cycle; iv. obtaining a satisfactory settlement of construction contractual claims; v. securing short term debt financing; and vi. raising equity capital. Conclusion The Directors note material uncertainties relating to the decision to continue with Project Sea Dragon, if so whether adequate funding will be obtained to fund the continuance, if not whether the remaining Project Sea Dragon related expenses will be successfully reduced and ceased, as to the final amount payable to meet Project Sea Dragon contractual liabilities, and as to the future profitability and cash flow from improvements at Queensland Farms and the ability of these to cover reduced corporate expenditure . As a result of the uncertainties noted above, the Directors have concluded that a material uncertainty exists that may cast doubt on the Group’s ability to continue as a going concern and its ability to realise its assets and discharge its liabilities in the ordinary course of business and at the amounts stated in the financial statements. In light of the cash available as at 30 June 2022, the forecast cash flow and potential funding and expense reduction alternatives, the Directors are of the opinion that the Company and Group will continue to operate as going concerns and therefore these financial statements have been prepared on a going concern basis. No adjustments have been made to the financial statements relating to the recoverability and classification of asset carrying amounts or the amounts and classifications of liabilities that might be necessary should the Company and Group not continue as a going concern. 35 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 1 Summary of significant accounting policies (continued) (d) 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 2022 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. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an 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 less impairment in the separate financial statements of Seafarms Group Limited. 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). (e) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in Australian dollar ($), which is Seafarms Group Limited's functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognised in profit or loss (f) Revenue recognition The Group sells fresh and frozen prawns to customers. A sale is recognised when control of the product has transferred, being when the product is delivered to the customer and there is no unfulfilled obligation that could affect the customer’s acceptance of the products. Delivery occurs when the product has been shipped to the location specified by the customer and the customer accepts the product. Following delivery the customer has full discretion over the manner of distribution and price to sell the goods and bear the risk in relation to the goods. No element of financing is present in the pricing arrangement. Settlement terms range from cash-on-delivery to credit terms from 7 to 30 days. Terms reflect negotiations with customers, policies, procedures and controls as it relates to the customer credit risk. 36 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 1 Summary of significant accounting policies (continued) A receivable is recognised by the Company when the goods are delivered to the customer as this represents the point in time at which the right to consideration becomes unconditional, as only the passage of time is required before payment is due. Under the Group’s standard contract terms, customers have a right of return where the goods do not meet required specification. At the point of sale, a refund liability and a corresponding adjustment to revenue is recognised for those products expected to be returned. At the same time, the Group has a right to recover the product when customers exercise their right of return so consequently recognises a right to returned goods asset and a corresponding adjustment to cost of sales. The Group uses its accumulated historical experience to estimate the number of returns using the expected value method. It is considered highly probable that a significant reversal in the cumulative revenue recognised will not occur given the consistent level of returns over previous years. The Group provides rebate and early payment discounts to customers that they would not receive without purchasing the specified volume of product or making early payment. The provision of discounts to the customers varies the consideration receivable from the customers and consequently the revenue recognised. The Group determines the most likely amount receivable from the customer by using accumulated historical experience of volume purchased and payment history. (g) Government grants Grants from the government are recognised at their fair value where there is a reasonable likelihood 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. Deferral and presentation of government grants Government grants are deducted in calculating the carrying amount of the related grant asset. The grant is recognised in profit or loss over the life of a depreciable asset by way of a reduced depreciation expense. (h) 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. 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. 37 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 1 Summary of significant accounting policies (continued) Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and where 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. 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 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. (i) Leases The Group lease various property, equipment and motor vehicles. Rental contract are typically made for fixed term periods of 2 to 30 years but may have extension options which remain unexercised. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes. Lease are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss 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 right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight line basis. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: • • fixed payments (including in-substance fixed payments), less any lease incentives receivable; and the exercise price of a purchase option if the lease is reasonably certain to exercise the option. The lease payments are discounted using the interest implicit in the lease. If the rate can not be determined, the lessee's incremental borrowing rate is used, being the rate the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in similar economic environment with similar terms and conditions. 38 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 1 Summary of significant accounting policies (continued) Right-of-use assets are measured at cost comprising the following: • • • any lease payments made at or before the commencement date less any lease incentives received; any initial direct costs; and restoration costs. Due to the significant review of Project Sea Dragon which is still outstanding at this report, management has reassessed the lease term for the Legune Station lease as at 30 June 2022. Based on management’s assessment of its termination rights under the lease agreement, termination of the lease is possible from December 2023. In light of the project review, management has assessed that it is no longer reasonably certain to continue the lease for its originally assessed lease term of 30 years, and consequently reassessed the lease term to approximately 18 months from 30 June 2022. In making this assessment management has been required to interpret the contractual provisions relating to the termination option which, upon notification of termination, may be subject to discussion with the lessor. the date of (j) Cash and cash equivalents For the purpose of presentation in the consolidated statement of cash flows, cash and cash equivalents includes institutions, other short-term, highly liquid investments with cash on hand, deposits held at call with financial 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. (k) Trade receivables Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within 30 days and are therefore all classified as current. Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair value. The Group holds the trade receivables with the objective of collecting the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. (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. (m) Biological assets Prawn livestock is carried at fair value. Fair value is the amount which could be expected to be received from the sale of the livestock in an orderly transaction between market participants. 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. 39 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 1 Summary of significant accounting policies (continued) (n) Investments and other financial assets (i) Classification The Group classifies its financial assets in the following measurement categories: • • those to be measured subsequently at fair value (either through OCI or through profit or loss), and those to be measured at amortised cost. The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. (ii) Recognition and derecognition Regular way purchases and sales of financial assets are recognised on trade date, being the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. (iii) Measurement At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss. (iv) Impairment The Group assesses on a forward-looking basis the expected credit losses associated with its debt instruments carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. (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. Depreciation on other assets is calculated using the straight line method to allocate their cost, net of their residual values, over their estimated useful lives, as follows: Leasehold Land Freehold buildings Ponds Plant and equipment Leasehold improvements Vehicles Furniture, fittings and equipment - - - - - - - . The assets' residual values and useful reporting period. 18 months (term of the lease) 10 - 50 years 10 - 50 years 2 - 15 years Length of lease 3 - 5 years 5 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. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement. 40 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 1 Summary of significant accounting policies (continued) Project Dragon Sea The Group incurred costs associated with Project Sea Dragon (Project). The Group has identified the phases the Project may go through in determining whether costs associated with the Project are eligible for capitalisation. These phases include the pre-development, development, and operating phase. The Group uses the following approach in determining Project costs eligible for capitalisation: • Identify the total expenditure being incurred at the various stages of the Project. • Determine the nature of the underlying expenditure. Only directly attributable costs relating to the Project are eligible for capitalisation. • Development costs are distinguished from pre-development costs. Only costs incurred during the development stage of the Project are eligible for capitalisation. Pre-development costs are expensed. • Based on the extent of expected future economic benefits that will development costs that are considered recoverable are capitalised. flow to the Group, only the The Group further considers the funding required to bring the assets to an economically viable state. (p) Impairment of non-financial assets Assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. (q) Trade and other payables Trade and other payables represent the liabilities for goods and services received by the Group that remain unpaid at the end of the reporting period. The balance is recognised as a current liability with the amounts normally paid within 45 days of recognition of the liability. Due to the short-term nature of trade and other payables, their carrying amount approximates to fair value. (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. The fair value of the liability portion of a convertible bond is determined using a market interest rate for an is recorded as a liability on an amortised cost basis until equivalent non-convertible bond. This amount extinguished on conversion or maturity of the proceeds is allocated to the conversion option. This is recognised and included in Shareholders' equity, net of income tax effects. the bonds. The remainder of Borrowings are removed from the consolidated statement of financial position 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. 41 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 1 Summary of significant accounting policies (continued) 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) Borrowing costs Borrowing costs are expensed in the period in which they are incurred. (t) 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. Under the Legune Station lease and its related agreements the Group has an obligation to remediate and rehabilitation Legune Station in accordance with a plan to be agreed with the relevant counterparties in the future. As at 30 June 2022, this plan is not yet required to be drafted or approved. Because construction on Legune Station has been relatively minimal in the context of the broader Project Sea Dragon, management has assessed that a provision is not yet recognisable. A provision may become recognisable in the future. (u) Employee benefits (i) Short-term obligations Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as current employee benefit obligations in the consolidated statement of financial position. (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) Post-employment obligations The Group pays contributions to publicly or privately administered defined contribution superannuation plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. (iv) 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. 42 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 1 Summary of significant accounting policies (continued) (iv) 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. (v) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (w) 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 consolidated statement of financial position. 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. (x) Rounding of amounts The Company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the 'rounding off' of amounts in the financial statements. Amounts in the financial statements have been rounded off in accordance with the instrument to the nearest dollar. (y) Parent entity financial information The financial information for the Parent entity, Seafarms Group Limited, disclosed in note 36 has been prepared on the same basis as the consolidated financial statements, except as set out below. Investments in subsidiaries (i) Investments in subsidiaries are accounted for at cost less impairment in the financial statements of Seafarms Group Limited. Dividends received from subsidiaries are recognised in the Parent entity's profit or loss when its right to receive the dividend is established. (ii) 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. (z) Changes to presentation and restatements During the year the Group has restated certain comparative information as identified in items (i) to (viii) below. Some of these restatements have arisen from errors identified in the comparative information and were required to be corrected in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. Other restatements and reclassifications described below have been made by management to improve the comparability of prior period information. 43 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 1 Summary of significant accounting policies (continued) (i) Classification of expenses The Group has voluntarily changed the presentation of certain amounts in the statement of profit or loss, resulting in the comparative results being restated. The restatement of amounts in the statement of profit or loss is a result of the Group electing to classify expense items by their nature. The change in classification of expense items has occurred as management deem this presentation to be more relevant to the users of the Annual Report in comparison to the previous classification of these items by their relative function. The restatement of comparative amounts is not qualitatively significant to the Annual Report. (ii) Biological assets The prior year reconciliation of biological assets in note 15 has been restated to reflect the increase due to purchases during the period and the profit/(loss) arising from changes in fair value less cost to sell for biological assets that were harvested and sold during the relevant reporting period, which were previously omitted. As a result the increase due to purchases and the profit/(loss) arising from changes in fair value less costs to sell have been restated by $11,188,143 and $2,694,265 respectively, with an equal adjustment to the amount transferred to inventories ($13,882,409) in the prior year. (iii) Revenue The comparative information has been restated to reduce revenue by $154,212. This is as a result of the reclassification of $543,534 from finance expenses to revenue relating to the incorrect classification of early settlement discounts on the sale of goods and services and the reclassification of an expense of $389,322 from revenue to sales and marketing expenses to reflect sales commissions paid on a gross basis. (iv) Financial Risk Management - Contractual maturities of financial liabilities The comparative information in the Financial Risk Management - Contractual maturities of financial liabilities note has been restated to reflect $9,165,278 of trade and other payables that were previously reported as an amount of $898,776. This has been restated to reflect the correct contractual cash outflows on trade payables as of 30 June 2021. In addition, $5,000,000 of borrowings that were previously reported with a contractual maturity of between 2 and 5 years have been restated to reflect the correct contractual maturity of between 6-12 months from 30 June 2021. (v) Employee benefits expense The comparative employee benefit expense disclosed in note 8 has been restated to include employee benefits that were previously disclosed only as part of cost of sales. The impact has been an increase to superannuation expense by $534,441 and other employee benefits expense by $6,150,423. There has been no impact on total loss for the comparative period. (vi) Cash flow statement The comparative statement of cash flows has been restated to reallocate $1,452,336 of cash flows from interest paid (operating cash outflow) to lease payments (financing cash outflow). There has been no impact on total cash outflows for the comparative period. (vii) Property, plant and equipment The comparative information in the property, plant and equipment (note 16) has been restated to disclose an 'Assets under Construction' asset category that was reported as part of the 'Plant and equipment' asset category as at 30 June 2021. The impact has been the transfer of $1,440,612 to that ‘Assets under Construction’ category, but the adjustment has not impacted the total amount of 'Property, Plant and Equipment'. (viii)Parent entity The comparative parent entity financial information (note 36) has been restated to reflect a reassessment of the amounts owing to and from wholly owned subsidiaries and other errors in the compilation of information. Prior year parent entity net assets have been restated to $4,743,172 from a deficit of $23,455,434 and the prior year parent entity loss for the period has been restated to $25,994,640 from $9,200,762. 44 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 2 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 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 other non-current assets Determining whether the other non-current assets are impaired requires an estimation of fair value less cost of disposal on a cash generating unit basis. The fair value less cost of disposal calculation requires the directors to estimate the fair value less costs of disposal of the assets in an arms length transaction between willing and knowledgeable parties. If the estimated fair value less cost of disposal is lower than the carrying value of the asset an impairment loss may arise. (iii) Impairment of a financial assets The loss allowances for financial assets are based on assumptions about the risk of default and expected loss rates. The Group uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Group's past history, existing market conditions as well as forward looking estimates at the end of each reporting period. (b) Critical judgements in applying the entity's accounting policies Measurement of right-of-use asset and lease liability - Legune Station The Group and the Legune station investor entered into a series of agreements in relation to the Legune land lease arrangement. The Group considered these agreements as linked to ensure the substance of the arrangement is considered and accounted for as one transaction. The estimation, at judgement: the inception of the lease, of the items outlined below require significant management • • • • The likelihood that the purchase option will be exercised; The likelihood of extending the lease contract beyond the period of the first and second break clauses at 30 years and 60 years or exercising the ability to terminate the lease before financial close has been reached on Project Sea Dragon respectively; The depreciation period / method; and The interest rate implicit in the lease contract and the impact of this rate on the discounted amount of the lease liability as while as the right to use asset. 45 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 2 Critical accounting estimates and judgements (continued) Due to the significant review of Project Sea Dragon which is still outstanding at this report, management has reassessed the lease term for the Legune Station lease as at 30 June 2022. Based on management’s assessment of its termination rights under the lease agreement, termination of the lease is possible from December 2023. In light of the project review, management has assessed that it is no longer reasonably certain to continue the lease for its originally assessed lease term of 30 years, and consequently reassessed the lease term to approximately 18 months from 30 June 2022. Refer to note 16 for further information. the date of Unlisted options In determining the fair value of share based payments granted during the year, key estimates requiring management judgement are the volatility and expected life input assumed within the option pricing model. The Group uses historical volatility of the Company to determine an appropriate level of volatility expected, commensurate with the expected option life. Project Sea Dragon capitalisation policy The Group incurred costs associated with Project Sea Dragon (Project). The Group has identified the phases the Project may go through in determining whether costs associated with the Project are eligible for capitalisation. These phases include the pre-development, development, and operating phase. The Group uses the following approach in determining Project costs eligible for capitalisation: Identify the total expenditure being incurred at the various stages of the Project. • • Determine the nature of the underlying expenditure. Only directly attributable costs relating to the Project are eligible for capitalisation. • Development costs are distinguished from pre-development costs. Only costs incurred during the • development stage of the Project are eligible for capitalisation. Pre-development costs are expensed. Based on the extent of expected future economic benefits that will development costs that are considered recoverable are capitalised. flow to the Group, only the Impairment PSD The Group has considered whether the Project work-in-progress assets would be impaired as required by AASB 136 Impairment of Assets in light of the Project currently being incomplete and construction at Legune and Bynoe Harbour is on hold. The Group has determined that in light of these factors and that future funding for the project is uncertain that the assets should be fully impaired. Refer to note 15 for further information. Expected loss on loan receivable The loan receivable from AAM Licensees Pty Ltd forms part of the series of arrangements in relation to Legune, as at 30 June 2022, repayment of the loan is dependent on a number of factors one of which being the financial close of Stage 1 of PSD of 1,120 ha by December 2023. The Company considers it unlikely that this milestone will be achieved and therefore has recognised an expected loss on this loan in the profit and loss. Provision for contractual liabilities The Group has received claims with a total of $27,323,853 as a result of the termination in April 2022 of contracts relating to the construction of Project Sea Dragon. Almost all of the claims have been rejected by the Group, based on the current advice of both the project superintendent and an independent certifier, and taking into consideration legal advice, on the basis of the lack of supporting information provided and/or the legal basis provided. Due to ambiguity in the legal terms of the contracts and uncertainties relating to work performed, variations, and suspension and termination claims made under the contract, the Group has recognised a provision for contractual liabilities including costs incurred of $8,730,094, based on the best estimate of the probable outflow, taking into consideration the information available as at the date of this report and assuming that additional supporting information will be provided. 46 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 2 Critical accounting estimates and judgements (continued) The Directors note that, the extent to which the Group may be considered liable for the rejected aspects of the claims are a key judgement by the Board, and that quantifying the provision to be recognised involved significant estimation uncertainty. The recognition of a provision is not an acknowledgement of debt. The Group intends to continue to reject the claim until valid supporting information and convincing legal grounds are provided and it is certified as payable by the project superintendent and an independent certifier. 3 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 financial markets and seeks to minimise potential adverse effects on the financial the unpredictability of 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 Financial assets at amortised cost Cash and cash equivalents Trade and other receivables Other non-current assets Financial liabilities Financial liabilities at amortised cost Trade and other payables Borrowings Lease liabilities (a) Market risk 2022 $ 2021 $ 36,195,529 1,367,472 - 37,563,001 497,112 2,040,581 5,000,000 7,537,693 3,080,962 - 2,936,523 6,017,485 9,165,278 27,062,934 21,216,509 57,444,721 (i) Price risk Exposure Management has assessed the sensitivity of the profit or loss to price changes as being immaterial. (ii) Cash flow and fair value interest rate risk 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. 47 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 3 Financial risk management (continued) (ii) Cash flow and fair value interest rate risk (continued) As at the end of the reporting period, the Group had the following variable rate deposits: 30 June 2022 30 June 2021 Weighted average interest rate % Balance $ Weighted average interest rate % Balance $ Deposits at call Bank accounts Net exposure to cash flow interest rate risk .04% 412,897 .01% 35,780,882 36,193,779 .14% .01% 412,000 82,862 494,862 (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. 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: (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. Trade receivables Counterparties without external credit rating * Group 1 Group 2 Group 3 2022 $ 2021 $ - 994,855 - 994,855 - 1,509,622 - 1,509,622 * 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. 48 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 3 Financial risk management (continued) (c) Liquidity risk The Group manages liquidity risk by maintaining reserves, banking facilities and reserve borrowing facilities by monitoring forecasts and actual cash flows and matching the maturity profiles of financial assets and liabilities. (i) Financing arrangements The Group does not have access to undrawn borrowing facilities at the end of the reporting period (2021: $Nil). (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. 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 $ Contractual maturities of financial liabilities At 30 June 2022 Non-derivatives Trade and other payables Lease liabilities Total non-derivatives 3,080,962 854,993 3,935,955 - 1,234,919 1,234,919 - 983,838 983,838 - 48,723 48,723 - - - 3,080,962 3,122,473 6,203,435 3,080,962 2,936,523 6,017,485 At 30 June 2021 (Restated) Non-derivatives Trade and other payables Bank Loan Lease liabilities Borrowings - variable rate (weighted average 2021: 4.63%, 2020: 5.63%) Borrowings - Fixed rate 7% Borrowings - Fixed rate 8% Total non-derivatives 9,165,278 303,363 1,844,597 - - - - 1,305,116 4,571,825 - - - 11,313,238 28,505,116 4,571,825 - 15,200,000 5,000,000 - 7,000,000 - 9,165,278 303,363 4,426,268 45,530,000 57,677,806 21,216,509 9,165,278 303,363 - - - - - 15,200,000 15,200,000 5,000,000 - 7,000,000 - 4,426,268 45,530,000 94,346,447 57,885,150 5,000,000 7,000,000 - - - (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: The following table presents the Group's assets and liabilities measured and recognised at fair value at 30 June 2022: (a) (b) 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 49 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 3 Financial risk management (continued) (c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3). At 30 June 2022 Financial assets Biological assets Total assets 30 June 2021 Assets Biological assets Total assets Level 1 $ Level 2 $ Level 3 $ Total $ Level 1 $ - - - - Level 2 $ - - - - 2,454,171 2,454,171 2,454,171 2,454,171 Level 3 $ Total $ 2,223,845 2,223,845 2,223,845 2,223,845 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 note 15. 4 Segment information (a) Description of segments Business Segments 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, acquired 6 January 2014 and 31 October 2014. Other Other represents the corporate assets and costs of employed in the Aquaculture segment. the Group, including the cash balances not currently 50 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 4 Segment information (continued) (b) Segments The segment information provided to the strategic steering committee for the reportable segments for the year ended 30 June 2022 is as follows: Year ended 30 June 2022 Aquaculture Other Consolidated Segment revenue Sales and external customers Total sales revenue Other revenue Total segment revenue Consolidated revenue Segment loss Segment (loss) Central administration and directors' salaries Loss before income tax Income tax benefit Loss for the year Segment assets Segment assets Total assets $ $ $ 19,299,422 19,299,422 178,151 19,477,573 - - 6,525 6,525 (77,328,319) (7,719,110) 30,949,421 35,627,781 19,299,422 19,299,422 184,676 19,484,098 19,484,098 (85,047,429) (387,170) (85,434,599) - (85,434,599) 66,577,202 66,577,202 51 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 4 Segment information (continued) (b) Segments (continued) The segment information provided to the strategic steering committee for the reportable segments for the year ended 30 June 2021 is as follows: Year ended 30 June 2021 Aquaculture Other Consolidated Segment revenue Sales and external customers Total sales revenue Other revenue Total segment revenue Consolidated revenue Segment loss Segment (loss) Central administration and directors' salaries Loss before income tax Income tax benefit Loss for the year Segment assets Segment assets Unallocated assets Total assets $ $ $ 20,776,786 20,776,786 50,036 20,826,822 - - - 20,776,786 20,776,786 50,036 20,826,822 20,826,822 (24,452,525) (850,065) 58,214,646 5,879,483 (25,302,590) (452,956) (25,755,546) - (25,755,546) 64,094,129 112,660 64,206,789 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, 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/(loss) represents the profit earned by each segment without allocation of central administration costs and directors' salaries, share of profit of associates, investment revenue and income tax expense. 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 Depreciation and amortisation Aquaculture 2022 $ 2021 $ (3,964,347) (3,982,744) 52 5 Revenue From continuing operations Sales revenue Sales Fresh Sales Frozen Other sales revenue Other income Other income Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 2022 $ 2021 (Restated) $ 8,549,594 10,749,827 2,024 19,301,445 9,570,056 10,923,944 282,786 20,776,786 176,128 19,477,573 50,036 20,826,822 The Group derives all revenue from the transfer of goods and services at a point in time. 6 Other (losses)/gains 2022 $ 2021 $ 549,311 - 37,828 587,139 - 1,364,700 14,007 1,378,707 2022 $ 2021 (Restated) $ (6,530) (6,530) (853) (853) 300,942 2,078,329 2,379,271 2,951,643 1,990,251 4,941,894 2,372,741 4,941,041 Conversion of debt to equity JobKeeper income received Other income 7 Finance costs Finance income Interest income Finance income Finance costs Interest and finance charges Interest on lease liabilities Finance costs expensed Net finance costs 53 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 2022 $ 2021 (Restated) $ 214,536 395,976 1,885,098 2,171 725,764 447,279 293,523 3,964,347 3,684,844 1,308,436 1,328,632 849,810 44,390 276,941 181,739 1,128,722 192,250 475,074 90,619 474,774 3,093,015 13,129,246 1,461,464 3,480,847 13,500,829 18,443,140 234,342 395,152 1,978,252 2,216 725,764 342,892 304,126 3,982,744 4,636,036 2,280,254 1,360,317 1,052,374 79,123 335,330 31,679 877,224 - 627,291 59,950 553,446 3,659,761 15,552,785 - - - - 2021 (Restated) $ 2022 $ 747,006 15,090,045 15,837,051 676,757 12,762,162 13,438,919 8 Expenses Profit before income tax includes the following specific expenses: Depreciation Property, plant and equipment: Buildings Property, plant and equipment: Ponds Property, plant and equipment: Plant and equipment Property, plant and equipment: Leasehold improvements Right-use-of-assets: Leasehold land Right-use-of-assets: Leased buildings Right-use-of-assets: Leased plant and equipment Total depreciation Other expenses Consultants and professional fees Legal fees Insurance Freight Research expense Travel expenses Logistics Repairs and maintenance Loss on disposal of assets Hire equipment Rent Sales and marketing Other expenses Impairment losses Impairment of plant and equipment and leasehold improvements Impairment of right-of use assets Impairment of project costs Employee benefits expense Superannuation Other employee benefits Total employee benefits expense 54 9 PSD Construction costs (a) PSD Construction costs Mobilisation costs Construction Insurance costs Construction Consultants & Engineering costs Project Management Costs Temporary camp & accommodation costs Quarry Founder Stock Centre (Exmouth) Hatchery Site (Bynoe Harbour) Other indirect construction costs (b) Capitalised costs Assets under construction (impaired) (see note 16) Total PSD Construction Costs Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 2022 $ 2021 $ 9,434,313 2,179,791 1,005,879 13,641,573 5,312,044 786,151 375,881 329,173 1,274,726 34,339,531 2022 $ 2021 $ 12,060,217 46,399,748 - - - - - - - - - - - - Project Sea Dragon (PSD or the Project) is a proposed, large-scale, integrated, land-based prawn aquaculture project being developed in Northern Australia. PSD is designed to be a staged development of up to 10,000 hectares of prawn production ponds, supported by a series of geographically separate facilities across Northern Australia. Planned Stage 1a of the PSD includes the Legune Grow-out Facility would see land-based production ponds at Legune Station in the Northern Territory as well as the development of the necessary facilities at the other sites (Exmouth and Bynoe). There has been significant expenditure incurred on the Project and the Board has considered how to account for the capital expenditures and taking into account the principles established by the accounting standards and how these might be applied. Costs that do not meet the capitalisation criteria have been expensed and recognised in the consolidated statement of profit or loss. In the prior year all construction expenditure ($1,440,612) was capitalised into Assets Under Construction and included in the balance of property, plant & equipment. In the current year only a proportion of construction expenditure was capitalised into Assets Under Construction (refer to note 16). Subsequently the Assets under Construction balance was considered to be fully impaired. In the previous periods, all construction expenditure ($1,440,612) was capitalised into Assets under Construction and included in the balance of property, plant and equipment. In the current year, and in accordance with the Group’s capitalisation policy, $12,060,217 of the total $44,389,675 costs incurred, were capitalised into Assets under Construction (refer to note 16 for further details). Subsequently, the capitalised costs were reviewed and fully impaired. 55 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 10 Income tax expense (a) Income tax expense/(benefit) Deferred tax (benefit) Amount of deferred tax assets not recognisable (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 25% (2021 - 26.0%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Entertainment Employee option plan Debt waiver - employee SGC - recharged from PSDCE Non-deductible expenses Other Amount of deferred tax assets not recognisable Current year tax losses not recognised Impact of change in tax rate on closing deferred tax balance Income tax expense/(benefit) (c) Franking account Franking account balance (tax paid basis) Impact on franking account balance of dividends not recognised 11 Current assets - Cash and cash equivalents Cash at bank and in hand Deposits at call (a) Risk exposure The Group's exposure to interest rate risk is discussed in note 3. 56 2022 $ 2021 $ (16,022,791) 16,022,791 - (155,695) 155,695 - 2022 $ 2021 $ (85,434,599) (21,358,650) (25,755,547) (6,696,443) 1,385 703,823 126 237 - (138,816) (20,791,895) 16,022,791 4,769,104 - - - - - - 4,068 (13,000) (6,705,375) 155,695 6,340,693 208,987 - 2022 $ 2021 $ - - - - - - 2022 $ 2021 $ 35,782,632 412,897 36,195,529 85,112 412,000 497,112 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 11 Current assets - Cash and cash equivalents (continued) (b) Cash at bank and on hand Of the cash at bank and on hand, $1,750 (2021: $2,250) is non-interest bearing, and $35,780,882 (2021: $82,862) is in accounts that earn interest. (c) Cash not available for use $412,897 (2021: $412,000) is held as security for bank facilities and office lease guarantees, please refer to note 21(b). (d) Deposits at call Deposits at call are interest bearing. 12 Current assets - Trade and other receivables Trade receivables Loss allowance Other receivables Loans to employees Goods and services tax (GST) receivable 2022 $ 2021 $ 994,855 - 994,855 3,406 22,570 346,641 372,617 1,509,622 - 1,509,622 14,622 11,145 505,192 530,959 1,367,472 2,040,581 (a) Trade receivables As of 30 June 2022, trade receivables of $364,237 (2021: $65,428) were past due but not impaired. Up to 3 months 3 to 6 months 2022 $ 2021 $ 80,531 283,706 364,237 14,320 51,108 65,428 Trade receivables represent receivables in respect of which the Group’s right to consideration is unconditional subject only to the passage of time. Trade receivables are non-derivative financial assets accounted for in accordance with the Group’s accounting policy for non-derivative financial assets as set out in note 1(b)(ii) AASB 9 Financial Instruments. Trade and other receivables are measured at amortised cost. A gain or loss on trade and other financial assets that is subsequently measured at amortised cost is recognised in profit or loss when the asset is derecognised or impaired. Interest income from these financial assets is included in finance income using the effective interest rate method. 57 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 12 Current assets - Trade and other receivables (continued) (a) Trade receivables (continued) The credit period for the majority of trade receivables ranges from current to 90 days with the average being 30 days. In determining the recoverability of a trade receivable, the Group used the expected credit loss model as per AASB 9. The expected credit loss model requires the Group to account for expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. The Group has Trade Credit Insurance in place until 31 May 2023, which has insured indemnity of 90% with a maximum insured amount of $1.54 million. (b) Interest rate risk Information about the Group’s exposure to interest rate risk in relation to trade and other receivables is provided in note 3. (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 3 for more information on the risk management policy of the Group and the credit quality of the entity's trade receivables. 13 Current assets - Inventories Finished goods* Feed and consumables 2022 $ 2021 $ 6,102,427 2,103,626 8,206,053 9,223,458 1,098,406 10,321,864 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. *Includes fair value adjustment of biological assets at point of harvest ($1,295,865) 2021: $1,382,746. 14 Current assets - Other current assets Prepayments Deposits paid 2022 $ 1,270,531 48,714 1,319,245 2021 $ 1,036,852 24,820 1,061,672 58 15 Current assets - Biological assets Livestock Opening Balance (Loss)/gain arising from changes in fair value less estimated costs to sell Increases due to purchases Transferred to inventories Closing Balance Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 2022 $ 2021 (Restated) $ 2,223,845 (2,017,035) 14,298,593 (12,051,232) 2,454,171 2,683,903 2,796,009 13,310,247 (16,566,315) 2,223,845 The balance of $2,454,171 (2021: 2,223,845) comprises the hatchery live crop of $1,811,819 (2021:$1,012,004), carried at cost as an estimate of fair value, and live prawns of $642,352 (2021: $1,211,841) carried at fair value less estimated costs to sell", The Group has classified live prawn as level 3 in the fair value hierarchy (refer note 1 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. 59 16 Non-current assets - Property, plant and equipment Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) At 1 July 2020 Cost or fair value Accumulated depreciation Net book amount Year ended 30 June 2021 Opening net book amount Additions Depreciation charge Closing net book amount At 30 June 2021 Cost or fair value Accumulated depreciation Net book amount *refer to note 1(aa). Freehold land $ Buildings $ Ponds $ Plant and equipment $ Leasehold improvements $ Assets under construction (Restated)* $ Total $ 2,010,000 - 2,010,000 5,000,198 (549,141) 4,451,057 7,919,543 (2,118,900) 5,800,643 17,870,078 (7,477,577) 10,392,501 31,908 (14,022) 17,886 1,440,612 - 1,440,612 34,272,339 (10,159,640) 24,112,699 2,010,000 - - 2,010,000 4,451,057 - (234,342) 4,216,715 5,800,643 - (395,152) 5,405,491 10,392,501 486,018 (2,028,056) 8,850,463 17,886 - (2,216) 15,670 1,440,612 - - 1,440,612 24,112,699 486,018 (2,659,766) 21,938,951 2,010,000 - 2,010,000 5,000,198 (783,483) 4,216,715 7,919,543 (2,514,052) 5,405,491 18,356,096 (9,505,633) 8,850,463 31,908 (16,238) 15,670 1,440,612 - 1,440,612 34,758,357 (12,819,406) 21,938,951 60 16 Non-current assets - Property, plant and equipment (continued) Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) At 1 July 2021 Cost or fair value Accumulated depreciation Net book amount Year ended 30 June 2022 Opening net book amount Additions Disposals Transfers Depreciation charge Impairment loss Closing net book amount At 30 June 2022 Cost or fair value Accumulated depreciation Net book amount Freehold land $ Buildings $ Ponds $ Plant and equipment $ Leasehold improvements $ Assets under construction (Restated) $ Total $ 2,010,000 - 2,010,000 5,000,198 (783,483) 4,216,715 7,919,543 (2,514,052) 5,405,491 18,356,096 (9,505,633) 8,850,463 2,010,000 - - - - - 2,010,000 4,216,715 - - - (214,537) - 4,002,178 5,405,491 - - - (395,976) - 5,009,515 8,850,463 625,568 (193,034) (31,595) (1,885,099) (1,448,480) 5,917,823 2,010,000 - 2,010,000 5,000,198 (998,020) 4,002,178 7,919,543 (2,910,028) 5,009,515 17,179,693 (11,261,870) 5,917,823 31,908 (16,238) 15,670 15,670 - - - (2,170) (12,984) 516 20,013 (19,497) 516 1,440,612 - 1,440,612 34,758,357 (12,819,406) 21,938,951 1,440,612 12,028,622 - 31,595 - (13,500,829) - 21,938,951 12,654,190 (193,034) - (2,497,782) (14,962,293) 16,940,032 - - - 32,129,447 (15,189,415) 16,940,032 61 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 16 Non-current assets - Property, plant and equipment (continued) Queensland aquaculture CGU ('QLDAQ') As at 30 June 2022 the carrying value of property, plant and equipment for the Queensland Aquaculture cash-generating-unit ("CGU") was $16,940,032. Management’s approach and the key assumptions used to determine the CGU’s FVLCOD in FY2022 were as follows: CGU Unobservable inputs 2022 2021 QLDAQ Cost of disposal Sales price per hectare 5% $59,000 to $85,000 5% $55,000 to $84,000 Approach in determining key assumptions Estimated based on the company's experience with disposal of assets and on industry benchmarks Average sales price for similar properties in North Queensland Non-current assets pledged as security The Group has provided a mortgage over Lot 166 on Crown Plan CWL3563 & Lot 183 on Crown Plan CWL3484 to a third party investor when entering into the Legune sublease agreement. PSD aquaculture CGU ('PSDAQ') Impairment PSD The Group has considered whether the PSD Work-in-progress assets would be impaired as required by AASB 136 Impairment of Assets in light of the Project currently being incomplete and construction at Legune and Bynoe Harbour is on hold. The Group has determined that in light of these factors and that future funding for the project is uncertain that the assets should be fully impaired. 62 17 Non-current assets - Right-of-use assets Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) At 1 July 2020 Cost or fair value Accumulated depreciation Net book amount Year ended 30 June 2021 Opening net book amount Additions Depreciation charge Closing net book amount At 30 June 2021 Cost or fair value Accumulated depreciation Net book amount At 1 July 2021 Cost Accumulated depreciation Net book amount Year ended 30 June 2022 Opening net book amount Additions Disposals Depreciation charge Impairment loss Remeasurement Closing net book amount At 30 June 2022 Cost Accumulated depreciation Net book amount Leasehold land $ Leased buildings $ Leased plant and equipment $ Total $ 21,624,847 (1,124,479) 20,500,368 1,086,782 (534,637) 552,145 1,265,820 (507,129) 758,691 23,977,449 (2,166,245) 21,811,204 20,500,368 - (725,764) 19,774,604 552,145 684,342 (342,892) 893,595 758,691 - (304,126) 454,565 21,811,204 684,342 (1,372,782) 21,122,764 21,624,847 (1,850,243) 19,774,604 1,771,123 (877,528) 893,595 1,265,820 (811,255) 454,565 24,661,790 (3,539,026) 21,122,764 Leasehold land $ Leased Buildings $ Leased Plant and equipment $ Total $ 21,624,847 (1,850,243) 19,774,604 1,771,123 (877,528) 893,595 1,265,820 (811,255) 454,565 24,661,790 (3,539,026) 21,122,764 19,774,604 - - (725,764) (2,771,019) (16,277,821) - 893,595 267,382 (32,004) (447,279) (681,694) - - 454,565 - (38,208) (293,523) (28,134) - 94,700 21,122,764 267,382 (70,212) (1,466,566) (3,480,847) (16,277,821) 94,700 2,576,007 (2,576,007) - 1,305,714 (1,305,714) - 1,184,148 (1,089,448) 94,700 5,065,869 (4,971,169) 94,700 Lease - Legune station On 15 February 2015, the Group entered into the Legune Station Access and Option Agreement. Under the agreement, the Group had the option to acquire the leasehold interest into the Legune Station ('station'). The station comprises 178,870 ha of land, property, plant & equipment and cattle. 63 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 17 Non-current assets - Right-of-use assets (continued) Lease - Legune station (continued) The Group subsequently ceded their purchase option to a third party investor, who acquired the leasehold interest (including property, plant and equipment) on 31 October 2018. The Group and the third party investor simultaneously entered into a series of agreements whereby the Group leased 73,000 ha of the 178,870 ha of land (excluding any property, plant and equipment and cattle). As disclosed in note 2(b), due to the significant review of Project Sea Dragon which is still outstanding at the date of this report, management has reassessed the lease term for the Legune Station lease as at 30 June 2022. Based on management’s assessment of its termination rights under the lease agreement, termination of the lease is possible from December 2023. In light of the project review, management has assessed that it is no longer reasonably certain to continue the lease for its originally assessed lease term of 30 years, and consequently reassessed the lease term to approximately 18 months from 30 June 2022. the contractual provisions relating to the termination option which, upon notification of termination, may be subject to discussion with the lessor. In making this assessment management has been required to interpret Depreciation methods and useful lives The leased land is depreciated using the minimum lease term of 18 months. 18 Non-current assets - Deferred tax assets The balance comprises temporary differences attributable to: Tax losses Fair value Work in progress Provisions Accruals Borrowings Available for sale investment Other deductible expenses Depreciable assets Accrued interest Lease assets and liabilities Prepayments Unpaid super Net deferred tax assets Movements: Total for the year Amount of deferred tax assets not recognisable Closing balance at 30 June 2022 $ 2021 $ (21,533,605) 502,872 11,457,572 385,488 2,007,290 1,250,000 - 3,938,295 1,224,759 13,827 737,820 (2,049) 17,731 - (5,224,664) - - 411,518 - - 825,200 3,495,658 467,090 - 25,198 - - - (16,022,791) 16,022,791 - 155,695 (155,695) - 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)* 19,986,016 24,349,128 64 19 Other non-current assets Loan to AAM Licensees Pty Ltd Expected loss on non-current loan Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 2022 $ 2021 $ 5,000,000 (5,000,000) - 5,000,000 - 5,000,000 The loan to AAM Licensees Pty Ltd was provided on 12 December 2018, interest free. As disclosed in note 2(b), the receivable forms part of the series of arrangements in relation to Legune, as at 30 June 2022, repayment of the loan is dependent on a number of factors one of which being the financial close of Stage 1 of PSD of 1120ha by December 2023. The Company considers it unlikely that this milestone will be achieved and therefore has recognised an expected loss on this loan in the profit and loss. 20 Current liabilities - Trade and other payables Trade payables Accrued expenses PAYG payable Other payables 2022 $ 2021 $ 1,249,236 1,359,570 229,352 242,804 3,080,962 6,819,666 803,565 228,890 1,313,157 9,165,278 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 Loans from related parties Other loan Total secured current borrowings Unsecured Other loans Total unsecured current borrowings Total current borrowings 2022 $ 2021 $ - - - - - - - 303,363 14,759,571 5,000,000 20,062,934 7,000,000 7,000,000 27,062,934 65 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 21 Current liabilities - Borrowings (continued) Terms and conditions of borrowings (a) Loans from related parties The fair values of the liability portion of the Avatar Finance Pty Ltd convertible loan is determined using a market interest rate for an equivalent non-convertible loan. This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or maturity of the loan. The balance of this loan was repaid via a share issue on 16 August 2021. (b) Other loans The $5,000,000 loan from AAM licensees Pty Ltd was provided on 12 December 2018, at an interest rate of 7% per annum, and was due to be repaid in December 2021 but was subsequently extended to 15 April 2022. The full balance was repaid on 19 April 2022. A $7,000,000 loan from an unrelated party, on normal and usual terms, was repayable on the earlier of an equity raising or 30 September 2021. On 25 February 2021 it was agreed that the repayment date of this loan would be extended from the earlier of an equity raising or 30 September 2021. In August 2021, the full balance of the loan was converted to equity. Secured liabilities and assets pledged as security The Group has a $80,000 (2021: $80,000) facility on its company credit cards and has been required to provide guarantee facilities of $198,977 (2021: $273,205) in respect of office leases and a guarantee of $133,920 (2021: $133,920) in favour of Great Barrier Reef Marine Parks. The Group maintains term deposits with the bank to secure these facilities. (c) Risk exposures Details of the Group's exposure to risks arising from current and non-current borrowings are set out in note 3. (d) 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. Opening balance Cash 1 July 2021 movement $ $ Non-cash movement $ Closing Balance 30 June 2022 $ Current borrowings Bank loans Loans from related parties Other loans Lease liabilities Total current borrowings Non-current borrowings Lease liabilities Total non-current borrowings 303,363 14,759,571 12,000,000 2,834,462 (303,363) - (5,000,000) (2,199,333) - (14,759,571) (7,000,000) 1,267,122 - - - 1,902,251 29,897,396 (7,502,696) (20,492,449) 1,902,251 18,382,047 18,382,047 (17,347,775) (17,347,775) - 1,034,272 1,034,272 Total Borrowings 48,279,443 (7,502,696) (37,840,224) 2,936,523 66 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 22 Provisions 2022 Non- current $ Current $ Total $ Current $ 2021 Non- current $ Total $ Make good provision Provision for contractual liabilities 10,309 8,730,094 8,740,403 124,591 134,900 - 8,730,094 124,591 8,864,994 10,256 - 10,256 123,853 - 123,853 134,109 - 134,109 (a) Information about individual provisions and significant estimates Make good provision The Group is required to restore the leased premises of its offices to their original condition at the end of the respective lease terms. A provision has been recognised for the present value of the estimated expenditure required to remove any leasehold improvements. These costs have been capitalised as part of the cost of leasehold improvements and are amortised over the shorter of the term of the lease and the useful life of the assets. Provision for contract liabilities As disclosed in note 2(b), the Group has received claims with a total of $27,323,853 as a result of the termination in April 2022 of contracts relating to the construction of Project Sea Dragon. Almost all of the claims have been rejected by the Group, based on the current advice of both the project superintendent and an independent certifier, and taking into consideration legal advice, on the basis of the lack of supporting information provided and/or the legal basis provided. Due to ambiguity in the legal terms of the contracts and uncertainties relating to work performed, variations, and the Group has recognised a provision for suspension and termination claims made under the contract, contractual liabilities including costs incurred of $8,730,094, based on the best estimate of the probable outflow, taking into consideration the information available as at the date of this report and assuming that additional supporting information will be provided. The Directors note that, the extent to which the Group may be considered liable for the rejected aspects of the claims are a key judgement by the Board, and that quantifying the provision to be recognised involved significant estimation uncertainty. The recognition of a provision is not an acknowledgement of debt. The Group intends to continue to reject the claim until valid supporting information and convincing legal grounds are provided and it is certified as payable by the project superintendent and an independent certifier. (b) Movements in provisions Movements in each class of provision during the financial period, other than employee benefits, are set out below: 2022 Carrying amount at start of year - additional provisions recognised Carrying amount at end of period Provision for contract liabilities $ Make good provision $ Total $ - 8,730,094 8,730,094 134,109 791 134,900 134,109 8,730,885 8,864,994 67 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 23 Employee benefit obligations 2022 Non- current $ Current $ Total $ Current $ 2021 Non- current $ Total $ Leave obligations 1,349,694 35,718 1,385,412 1,548,721 45,408 1,594,129 Leave obligations The leave obligations cover the Group’s liabilities for long service leave and annual leave which are classified as either other long-term benefits or short-term benefits, as explained in note 1(u). 24 Issued capital (a) Share capital Ordinary shares Fully paid Convertible loan Notes 2022 Shares 2021 Shares 2022 $ 2021 $ 29 4,836,599,179 - 4,836,599,179 2,422,641,490 - 2,422,641,490 297,725,117 2,591,318 300,316,435 169,830,325 2,591,318 172,421,643 Convertible preference shares 30,150,190 4,866,749,369 30,150,190 2,452,791,680 301 300,316,736 301 172,421,944 (b) Movements in ordinary share capital Details Number of shares $ Opening balance 1 July 2020 Exercise of listed options - proceeds received Balance 30 June 2021 Opening balance 1 July 2021 Equity raising Subscriptions Debt conversion Exercise of listed options - proceeds received Less: Transaction costs arising on share issues Balance 30 June 2022 (c) Convertible preference shares 2,422,262,301 379,189 2,422,641,490 169,793,845 36,781 169,830,626 Number of shares $ 2,422,641,490 1,954,234,964 45,454,545 413,818,183 449,997 - 4,836,599,179 169,830,626 107,482,943 2,500,000 21,932,364 43,762 (4,064,277) 297,725,418 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. Conversion of convertible preference shares may only be made in multiples of 1,000 convertible preference shares. There is no debt component linked to the convertible preference shares and no maturity date. 68 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 24 Issued capital (continued) (c) Convertible preference shares (continued) 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 in respect of ordinary shares and such dividend will rank in priority over ordinary shares for payment. Dividends on convertible preference shares will not be cumulative. (d) 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 34. On 7 August 2018, the Group issued 5,320,622 unlisted share options to Nippon Suisan Kaisha Limited (Nissui) as consideration for the receipt of an equity raising of $24.99 million. As part of this equity raising, share options were also provided in return. The options are subject to a voluntary 3-year escrow period (i.e. from 7 August 2018 is prohibited from transferring the options (or the ordinary shares in to 7 August 2021) during which Nissui Seafarms issued subsequent to the exercise of options) without the consent of Seafarms. The options have an exercise period of 5 years from 7 August 2018 to 1 June 2023 at an exercise price of $0.062 per unlisted option. At the 30 June 2022, these 5,320,622 unlisted options remain unexercised. On 12 December 2018, the Group issued 50,000,000 and 30,000,000 unlisted share options to AAM Investment Partners as part of the Legune lease transaction. Both sets of options are subject to a 12-month escrow period from the date of the Legune Station completion (i.e. from 12 December 2018 to 12 December 2019) during which AAM Investment Partners is prohibited from transferring the options (or the ordinary shares in Seafarms issued subsequent to exercise of options) without the consent of Seafarms. The options have an exercise period of 3 years from 12 December 2018 to 12 December 2021 and 5 years from 12 December 2018 to 12 December 2023 respectively at an exercise price of $0.097 per unlisted option. During the year 50,000,000 options were not exercised and expired. At the 30 June 2022, 30,000,000 unlisted options remain unexercised. On 24 August 2021, the Group issued 1,447,806,216 unlisted options. Of these options, 225,000 converted to shares during the year. The options were issued to equity investors at nil consideration, thus no fair value has been assessed. The balance of the 1,447,581,216 options expired 13 August 2024. The exercise price of the options are $0.0975. The fair value of the unlisted share options was determined using the Black-Scholes model using the following inputs as at each grant date: Unlisted option holder Grant date Number of unlisted options issued Exercise price Annualised volatility Dividend yield Risk-free interest rate Assessed fair value per option Listed options Nissui 7 August 2018 5,320,622 $0.062 85.0% 0% 2.261% $0.0745 AAM Investment Partners 12 December 2018 30,000,000 $0.097 85.0% 0% 2.05% $0.068 The Company had no listed options at year end (2021: 126,092,085). The options on issue at the start of the financial year had an exercise price of $0.097 and expired on 17 July 2021. During the financial year and prior to expiry 224,997 options were exercised (2021: 882,557). 69 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 2022 $ 2021 $ (24,740) 13,186,760 1,670,705 14,832,725 (24,740) 10,371,472 1,670,705 12,017,437 2022 $ 2021 $ 10,371,472 2,815,288 13,186,760 10,371,472 - 10,371,472 25 Reserves (a) Other reserves Financial assets revaluation reserve Share-based payments Option premium reserve Movements: Share-based payments Opening balance Employee share plan expense Balance 30 June (b) Nature and purpose of other reserves (I) Share-based payments The share-based payments reserve is used to recognise: • • • • 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 the grant date fair value of options issued to third parties but not exercised. (ii) Option premium The option premium represents the fair value of 47,734,412 Seafarms Group Limited options issued historically. (iii) Financial assets revaluation reserve Changes in the fair value of 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. 26 Key management personnel disclosures (a) Directors The following persons were directors of Seafarms Group Limited during the financial year: (i) Chairman - executive M P McMahon (resigned 6 May 2022) (ii) Executive directors I Brannan (resigned 20 May 2022) H R Whitcombe R Dyer C D Mitchell 70 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 26 Key management personnel disclosures (continued) (a) Directors (continued) (iii) Non-executive directors I N Trahar (non-executive Chairman) (appointed 20 May 2022) P Favretto H Sakai T Kuraishi (alternative) N Sato (alternative) (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 I Leijer Position Chief Operating Officer Chief Financial Officer Employer Seafarms Operations Limited Seafarms Group Limited (c) Key management personnel compensation Short-term employee benefits Post-employment benefits Long-term benefits Termination benefits Share-based payments 27 Remuneration of auditors 2022 $ 2021 $ 3,175,961 - 12,456 1,843,621 2,815,288 7,847,326 1,451,837 192,522 22,053 - - 1,666,412 During the year the following fees were agreed for services provided by the auditor of the Seafarms Group Limited: Audit services Deloitte Touche Tohmatsu Audit and review of financial reports Total auditors' remuneration 28 Commitments Capital commitments 2022 $ 2021 $ 175,000 175,000 154,500 154,500 The Group has no material capital commitments as at 30 June 2022 (30 June 2021: Nil). 71 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 29 Related party transactions (a) Parent entities Detailed remuneration disclosures are provided in the remuneration report on pages 13 to 21. (b) Subsidiaries Interests in subsidiaries are set out in note 30. (c) Loans to/from related parties During the year, the Group had a $15.2 million a credit facility with Avatar Finance Pty Ltd, a company owned by Mr Ian Trahar who is a non- executive director of the Group. The amounts repaid and interest charged are disclosed in the following table: Loan from Avatar Finance Pty Ltd Beginning of the year Debt equity conversion Gain on equity conversion Loans advanced Equity portion of convertible loan (refer to note 24) Interest charged Interest paid End of period 2022 $ 2021 $ 14,759,571 (14,647,273) (274,402) - - 248,469 (86,365) - 9,337,490 - - 4,800,000 (330,318) 1,475,714 (523,315) 14,759,571 Interest charged is calculated by applying the effective interest rate of 15% to the loan liability component. (d) Terms and conditions The facility from Avatar Finance Pty Ltd prior to the new arrangements was provided on normal commercial terms and conditions and at market rates and is to be repaid on 15 September 2021. The average interest rate on the loan during the year was 4.47% (2021: 4.63%). On 30 November 2020 it was agreed, by Avatar Finance Pty Ltd and Seafarms, that the repayment date of this facility would be extended from 15 September 2021 to 15 March 2022 and no line fee would be payable after 15 September 2021. However the loan was converted to equity in August 2021. 72 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 30 Subsidiaries 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 2022 % 2021 % Seafarms Operations Pty Limited (formerly Seafarms Operations Limited) Seafarm Hinchinbrook Pty Ltd Project Sea Dragon Pty Ltd Marine Harvest Australia Pty Ltd Marine Farms Pty Ltd Seafarm Queensland Pty Ltd PSD Construction Employment Pty Ltd PSD Operations Employment Pty Ltd Project Sea Dragon Finance Pty Ltd PSD Infrastructure Co Pty Ltd Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 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 31 Events occurring after the reporting period At the date of this report no other matter or circumstance has occurred subsequent to 30 June 2022 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. 32 Reconciliation of loss for the year to net cash flows from operating activities 2022 $ 2021 (Restated) $ (85,434,599) 3,964,347 13,500,829 3,480,847 1,461,464 2,678,611 8,730,094 2,815,288 162,104 192,250 (549,311) 723,005 1,684,901 5,000,000 673,110 (257,573) (562,801) (953,331) (5,732,244) (48,423,009) (25,755,546) 3,982,744 - - - 65,454 - 99,306 1,914,237 - - (101,744) 1,452,336 - 593,448 232,558 370,424 561,802 1,810,071 (14,774,910) Loss for the year Depreciation and amortisation Impairment of PSD Pre-Development costs Impairment of right-of-use assets Impairment of plant and equipment and leasehold improvements Fair value adjustment of biological assets at point of harvest Provision for canstruct contracts Non-cash employee benefits expense Accrued interest Net losses on sale of non-current assets Gain on issue of debt equity Fair value adjustment of biological assets Accrued interest for Legune land Expected loss on non-current loan Change in operating assets and liabilities: Decrease in trade debtors and receivables (Increase)/decrease in other current assets (Increase)/decrease in inventories (Increase)/decrease in biological assets Increase in trade creditors Net cash outflow from operating activities 73 33 Earnings per share (a) Basic earnings per share Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 2022 Cents 2021 Cents Basic earnings per share from continuing operations Total basic earnings per share attributable to the ordinary owners of the Company (1.87) (1.87) (1.06) (1.06) (b) Diluted earnings per share 2022 Cents 2021 Cents Diluted earnings per share from continuing operations Total basic earnings per share attributable to the ordinary owners of the Company (1.87) (1.87) (1.06) (1.06) (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 2022 $ 2021 $ (85,434,599) (85,434,599) (25,755,546) (25,755,546) (85,434,599) (25,755,546) (85,434,599) (25,755,546) 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 30 June 2022 Number 30 June 2021 Number Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share 4,577,241,006 2,422,444,629 34 Share-based payments Share based compensation payments are provided to employees in accordance with 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 method detailed in the remuneration report. 74 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 34 Share-based payments (continued) 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 summary of significant accounting policies (v) (iv) Share-based payments 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. Scheme Unlisted options Risk free interest rate 0.66% - 1.28% Share price volatility 66.3% - 68.1% Dividend yield Value (cents per share) - 2.8 - 3.7 2022 2021 Weighted average exercise price (cents per unit) Number of shares options Weighted average exercise price (cents per unit) Number of shares options Outstanding at beginning of the year Granted during the year* Forfeited during the year** Expired during the year Outstanding at the end of the year 9.70 35,000,000 7.15 220,000,000 7.15 (120,000,000) 9.70 (35,000,000) 7.15 100,000,000 9.70 - - - 9.70 35,000,000 - - - 35,000,000 *Includes 100,000,000 granted and vested and 120,000,000 granted but not vested. ** These options were forfeited when the relevant employees ceased being an employee of the Company. The options outstanding at 30 June 2022 had a weighted average exercise price of 7.2 cents (2021: 9.7 cents) per option and remaining contractual life less than 1 year. The inputs into the Black Scholes model are as follows: Weighted average share price (cents per share) Weighted average exercise price (cents per share) Expected volatility Expected life (years) Risk-free interest rate Expected dividends yield 30 June 2022 5.7 7.2 66.3% 4.99-5 0.66% 0% 30 June 2021 6.4 9.7 61% to 64% 2 2.01% to 2.19% 0% 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, eighteen months of historic volatility was used. 75 Seafarms Group Limited Notes to the financial statements 30 June 2022 (continued) 35 Contingent liabilities The Group has possible obligations relating to the suspension and termination of contracts relating to Project Sea Dragon. Refer to note 22 for further information. Under the Legune Station lease and its related agreements the Group has an obligation to remediate and rehabilitate Legune Station in accordance with a plan to be agreed with the relevant counterparties in the future. As at 30 June 2022, this plan is not yet required to be drafted or approved. Because construction on Legune Station has been relatively minimal in the context of the broader plan of Project Sea Dragon, management has assessed that a provision is not yet recognisable. A provision may become recognisable in the future. 36 Parent entity financial information (a) Summary financial information The individual financial statements for the Parent entity, Seafarms Group Limited, 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 Accumulated losses Total equity Loss for the period Total comprehensive loss (b) Guarantees of the Parent entity 2022 $ 2021 (Restated) $ 117,040,652 160 117,040,812 74,536,469 5,974,149 80,510,618 64,194,514 529,394 64,723,908 54,873,370 20,894,076 75,767,446 52,316,904 (52,316,904) 4,743,172 (4,743,172) 300,306,107 172,411,310 14,857,465 (262,846,668) 12,042,177 (179,710,315) 52,316,904 4,743,172 (83,136,353) (25,994,640) (83,136,353) (25,994,640) The Parent entity has guaranteed the obligations of Project Sea Dragon Pty Limited under the agreement for the sublease of the Legune property. (c) Contractual commitments for the acquisition of property, plant or equipment As at 30 June 2022, the Parent entity had no contractual commitments for the acquisition of property, plant or equipment. 76 Seafarms Group Limited Directors' declaration 30 June 2022 In the Directors' opinion: (a) (b) (c) the financial statements and notes set out on pages 25 to 76 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 2022 and of its performance for the financial period ended on that date, and the financial statements and notes set out on pages 25 to 76 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. 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 the Directors. Harley Ronald Whitcombe Darwin 31 October 2022 77 Deloitte Touche Tohmatsu ABN 74 490 121 060 Level 11, 24 Mitchell Street Darwin, NT, 0800 Australia Phone: +61 8 8980 3000 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 2022, the consolidated statement of profit or loss, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information, 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 2022 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 & Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material Uncertainty Related to Going Concern We draw attention to Note 1(c) in the consolidated financial statements, which indicates that the Group incurred a net loss after tax of $85,434,599 (2021: Loss of $25,755,547) and a net cash outflow from operating activities of $48,423,009 (2021: $14,774,910) during the year ended 30 June 2022. At that date, the Group had net current assets of $34,469,160 (2021: net current liabilities $24,476,577) including $36,195,529 of cash and cash equivalents. As stated in Note 1(c), these events or conditions, along with other matters as set forth in Note 1(c), indicate that a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. Our procedures in relation to going concern included, but were not limited to: • • • • • • Considering the impact and the completeness of, the material uncertainties as disclosed in Note 1(c) to the consolidated financial statements; Inquiring with management and the board as to knowledge of events and conditions that may impact the assessment on the Group’s ability to pay its debts as and when they fall due; Challenging the underlying assumptions reflected in management’s cash flow forecasts, including the timing of expected cash flows; Assessing the historical accuracy of the forecasts prepared by management; Assessing the cash position and availability of financing facilities as at 30 June 2022 and up to the date of signing this audit report; and Assessing the adequacy of the disclosures in Note 1(c) to the financial statements. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material Uncertainty related to Going Concern section, we have determined the matters described below to be the key audit matters to be communicated in our report. Key Audit Matter Significant deficiencies in internal controls over financial reporting Australian Accounting Standard AASB 101: Presentation of Financial Statements, provides the requirements to be applied in preparing and presenting general purpose financial statements. A strong entity level control environment which includes risk assessment, monitoring process and internal controls over the financial reporting process are key to ensure that these financial statements are reliable, fairly presented, and reported in a timely manner within Corporations Act 2001 expected and regulated timelines. Challenges were experienced by management which limited the early identification of several highly complex matters, requiring significant estimation and judgement. Most matters were only identified after year-end. These matters required significant effort and time to obtain sufficient and appropriate audit evidence, to consider the facts, estimations and judgements and to conclude on the appropriate impacts on the consolidated financial statements. The financial reporting internal controls over complex matters, non-routine transactions, adoption and application of acceptable accounting policies, and the preparation and review of the financial statements and disclosures, were not effective, and therefore did not How the scope of our audit responded to the Key Audit Matter Our procedures to respond to the impact of the breakdown in internal controls over financial reporting included: • Extensive involvement of senior audit team members, accounting technical experts and other senior partners, in: o obtaining a comprehensive understanding of the nature, cause, magnitude and interrelation of these complex matters involving significant judgement and estimates o reassessed the nature, timing and extent of our planned and performed audit procedures to address the potential impact on the consolidated financial statements and disclosures as result of identified matters o executing focused substantive procedures on non-routine transactions, re- performing procedures on management’s calculations, challenging management’s estimates and judgements, and on financial closing procedures, and o regular meetings with executive management. • Comprehensive reviews by our quality Key Audit Matter identify and address these in a timely manner resulting in numerous current year adjustments to transactions and disclosures being recorded. The Group’s consolidated financial statements also include a number of prior year restatements as disclosed at Note 1(z). All of these in combination resulted in regulated reporting timelines being missed, the suspension of the Group’s shares on the Australian Securities Exchange, and our reporting of non-compliance with corporate reporting responsibilities to the regulator. The directors have reported to shareholders that their own consideration has indicated a severe breakdown in internal controls over financial reporting confirming our assessment. Due to the significant and pervasive impact the internal controls have on financial reporting we adopted a fully substantive audit approach in our audit of the consolidated financial statements. This impacted the overall timing, efficiency, level of expertise and effort associated with the audit. We have concluded that the breakdown in these controls over the financial reporting process is a Key Audit Matter. How the scope of our audit responded to the Key Audit Matter reviewers, auditor’s internal specialists and individuals within the accounting and audit technical team, of management and the auditor memorandums, other supporting documentation, calculations, corrections made and disclosures relating to each matter involving significant complexity, estimation and judgement. • With the involvement of an accounting technical partner performed: o a comprehensive review of all accounting policies to determine if accounting policies were relevant, appropriate and applied in compliance with Australian Accounting Standards o assessing the adequacy as it relates to required disclosures in the consolidated financial statements, and o assessing whether restatements met the criteria in terms of AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. Accounting for and disclosure of Project Sea Dragon (PSD) costs, assets, impairments, contract provisions, right of use assets, lease liabilities and contingent liabilities During the 2022 financial year, the Group raised equity funding and proceeded with the initial establishment phase of PSD in the Northern Territory. Subsequently the project was suspended and is currently under review by executive management and the Board of Directors with a final decision expected in quarter 4 of the 2023 financial year. After the initial suspension the Group decided to cancel the in-progress construction contract. Any continuance will be subject to obtaining adequate funding. Refer to disclosure in Note 1 (c) “Going concern” of the consolidated financial statements. The Group’s disclosure includes several references to the accounting and financial reporting implications of this project, referenced below. Significant management judgement was applied on several PSD matters by management. These included: Our procedures included, but were not limited to: • • • • obtaining an understanding of the processes used by management, the basis to determine their different estimates and judgements, and the relevant internal controls over the key inputs and assumptions used by management obtaining management’s detailed calculations supporting management’s estimates, testing the inputs to supporting information and documentation, and testing the mathematical accuracy of these calculations performing recalculations to develop an independent estimate (e.g. project costs, contractor claims, right of use asset and lease liability) based on our assessment of the information available, considering the independent advice obtained by management where applicable, comparing with management’s estimate, and assessing any variance obtaining and reviewing relevant documents How the scope of our audit responded to the Key Audit Matter (e.g. lease agreements, legal contracts, progress claims by the contractor, progress payment certificates and the independent legal and certifier reports) assessing management’s interpretation of the provisions within relevant documents (e.g. contractor agreement and claims, progress payment certificates, lease agreement) evaluating and challenging the reasonableness of management’s critical assessments (e.g. percentage of costs to be capitalised, status of the PSD project, revised lease term, impairment indicators, assets to be impaired, extent of impairment required, contractual and contingent liabilities to be recorded, and extent of disclosure) assessing the scope, experience, competence, independence and objectivity of the independent legal and certifier experts used by management to assess the claims received from the contractor, and assessing the adequacy of the disclosures in Notes 9, 16, 17, 22 and 35 of the consolidated financial statements. • • • • Key Audit Matter • • • • • determining the project costs that should be capitalised or expensed ($46,399,748) (refer Note 9 of the consolidated financial statements) interpretating the “reasonably certain” termination provisions in the Legune Station lease agreement, the ability to continue beyond the earliest termination date, reassessing and then changing the remaining lease term from 30 years to 18 months in accordance with AASB 16 Leases, and therefore changing the right of use asset and lease liability capitalised amounts (refer Note 17 of the consolidated financial statements) the impairment of those costs that were capitalised as Work in Progress of $13,500,829 in Property, Plant and Equipment (refer to Note 16 and a further impairment charge of $3,480,847 and downwards remeasurement of $16,277,821 in the right of use asset (refer Note 17 of the consolidated financial statements) determining the accrual of $506,762, provisions of $8,730,094 and possible contingent contractual liability to be disclosed for the construction contract termination claims received from the contractor, requiring interpretation of ambiguities in the contractual terms, uncertainties in relation to work performed, and the treatment of variations, the suspension and the later termination of the contract (refer Note 22, ‘Provisions’ of the consolidated financial statements) consideration of contingent liabilities relating to rehabilitation obligations if the PSD project is abandoned (refer Note 35 of the consolidated financial statements). Given the extent of these interrelated matters, and the significant estimation and judgement involved in the measurement and recognition of project costs and assets, impairment of assets, provision for contractual liabilities and disclosure of contingent liabilities, we concluded this is a Key Audit Matter. Carrying amount of non-current assets – Queensland aquaculture As at 30 June 2022 the carrying value of property, plant and equipment for the Queensland Aquaculture cash- generating-unit (“CGU”) was $16,940,032 as disclosed in Note 16 ‘Non-current assets - Property, Plant and • Our procedures included, but were not limited to: • evaluating the reasonableness of management’s identification of impairment indicators assessing whether management had included all appropriate assets and liabilities in the carrying value of the CGU Key Audit Matter Equipment’ of the consolidated financial statements. Management has identified an indicator of impairment relating to the Queensland Aquaculture CGU as at 30 June 2022. In response, management assessed the recoverable amount of the CGU using the Fair Value Less Cost of Disposal (“FVLCD”) method. In order to determine the FVLCD of the CGU, management obtained an independent valuation which requires them to exercise significant judgement in respect of: • • identification of the assets included within the scope of the valuation the estimated fair value per hectare of the land on which the CGU is operated, which is used as the basis for valuation of all assets integral to the aquaculture operation. Given the judgements and estimates involved in measuring the recoverable amount of the CGU, we concluded this is a Key Audit Matter. How the scope of our audit responded to the Key Audit Matter • • assessing whether management’s FVLCD assessment was performed in accordance with the relevant accounting standards, and in conjunction with our internal valuation specialists: o assessing the fair value per hectare used in the external valuation; o assessing the relevance of the comparable transactions used in developing the external valuation, and o evaluating the competence; and independence and objectivity of the third- party expert used by management. We also assessed the adequacy of the disclosures in Note 16 of the consolidated financial statements. Valuation of Biological assets Our procedures included, but were not limited to: As at 30 June 2022 the Group held $2,454,171 of biological assets. This balance comprises the hatchery live crop of $1,811,819, carried at cost as an estimate of fair value, and live prawns of $642,352 carried at fair value less estimated costs to sell. The Group’s disclosure of biological assets is included in Note 15 of the consolidated financial statements. • • • In order to determine the fair value of the live prawns, management prepare a valuation model which requires them to exercise significant judgement in respect of: • • • • • survival rates harvest average body weight average production cost per kilogram sales price per type and category of prawn costs to sell. Given the judgements and estimates involved in the valuation of biological assets we concluded this is a Key Audit Matter. obtaining an understanding of the processes and relevant 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 valuation model as follows: o survival rates by comparing to historical trends o harvest average body weight by comparing to historical trends o average production cost per kilogram and costs to sell by comparing to historical trends and testing a sample of recent costs to external supporting evidence, and o sales price per type and category of prawn by comparing to recent historical and forecast sales prices net of costs to sell. We have also assessed the adequacy of the disclosures in Note 15 of the consolidated financial statements. Other Information The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2022, 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 ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • 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’s audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 13 to 21 of the Directors’ Report for the year ended 30 June 2022. In our opinion, the Remuneration Report of Seafarms Group Limited, for the year ended 30 June 2022, 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 Malvin Prasad Partner Chartered Accountants Darwin, 31 October 2022 The Shareholder information set out below was applicable as at 30 September 2022. 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 2022 Ordinary shares 59,540 1,548,561 6,465,645 128,102,065 4,700,423,368 4,836,599,179 Name Mutual Trust Pty Ltd Avatar Industries Pty Ltd (HIN) Nippon Suisan Kaisha Ltd Avatar Finance Pty Ltd Avatar Industries Pty Ltd Gabor Holdings Pty Ltd (The Tricorp A/C) USB Nominees Pty Ltd Avatar Industries Pty Ltd (SRN) Bicheno Investments Pty Ltd Rubi Holdings Pty Ltd Perpetual Corporate Trust Limited Fifty Second Celebration Pty Ltd Darrell James Holdings Pty Ltd JP Morgan Nominees Australia Pty Limited Pinnacle Superannuation P/L Thirty Fifth Celebration Pty Ltd Narrow Lane Pty Ltd Wilbow Group Pty Ltd Permfast Pty Limited Wilbow Group Equities Pty Ltd C. Substantial holders Substantial holders in the Company are set out below: Avatar Industries Pty Ltd Mutual Trust Pty Ltd 84 Ordinary shares Number held Percentage of issued shares 831,791,819 462,085,072 283,230,208 276,363,637 245,791,047 197,230,722 162,591,273 158,984,969 120,555,908 112,546,091 90,909,091 81,048,296 50,000,000 48,297,779 40,462,120 40,000,000 32,045,683 23,636,364 23,094,553 21,718,368 3,302,383,000 17.20 9.55 5.86 5.71 5.08 4.08 3.36 3.29 2.49 2.33 1.88 1.68 1.03 1.00 0.84 0.83 0.66 0.49 0.48 0.45 68.29 Number held Percentage 866,861,088 765,998,168 17.92% 17.20%

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