Seafarms Group
Annual Report 2023

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Seafarms Group Limited ABN 50 009 317 846 Annual Report for the year ended 30 June 2023 Seafarms Group Limited ABN 50 009 317 846 Final Report - 30 June 2023 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 Consolidated financial statements Page 2 23 Seafarms Group Limited Appendix 4E Final Report Year ended 30 June 2023 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 2023 12 months ended 30 June 2023 (Previous corresponding period: 12 months ended 30 June 2022) $ Revenue from ordinary activities Earnings before interest and taxation (EBIT) Net loss after tax (from ordinary activities) for the period attributable to members Up Up Up 33.0% 81.5% 82.2% to to to 25,918,210 (15,558,265) (15,355,902) Distributions Interim dividend (per share) Final dividend (per share) Franking Amount per security Franked amount per security - - - - - - 30 June 2023 Cents 30 June 2022 Cents Net tangible asset backing (per share) 0.70 1.02 2 Seafarms Group Limited Appendix 4E 30 June 2023 (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 Company Secretary Perth 30 August 2023 3 Seafarms Group Limited ABN 50 009 317 846 Annual Report - 30 June 2023 Corporate directory Directors' report Remuneration Report Auditor's Independence Declaration Corporate governance statement Financial statements Directors' declaration Independent auditor's report to the members Shareholder information 5 6 11 21 22 23 69 70 75 4 Directors Seafarms Group Limited Corporate directory Ian Norman Trahar, B.Ec, MBA Non-executive Chairman (Director since 13 November 2001) Harley Ronald Whitcombe, B.Bus, CPA Executive Director (since 20 May 2022) Rodney John Dyer B.E, (Mech) Executive Director (since 20 May 2022) Secretary Harley Ronald Whitcombe B.Bus, CPA Principal registered office in Australia Share registry Auditor Bankers Stock exchange listing Website 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 Pitcher Partners Chartered Accountants Level 38, 345 Queen Street Brisbane QLD 4000 HSBC Bank Australia Limited 190 St Georges Terrace Perth WA 6000 Commonwealth Bank of Australia Level 21, 180 Ann Street Brisbane QLD 4000 Australia and New Zealand Banking Group Limited 77 St Georges Terrace Perth WA 6000 Seafarms Group Limited shares are listed on the Australian Securities Exchange. Home Exchange - Perth. ASX Code - SFG www.seafarms.com.au 5 Seafarms Group Limited Directors' report 30 June 2023 Directors' report Directors The following persons held office as Directors of Seafarms Group Limited during the financial period: Ian Norman Trahar Harley Ronald Whitcombe Hisami Sakai (resigned 12 April 2023) Rodney John Dyer Terutaka Kuraishi (resigned 12 April 2023) 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 2023 financial year continues to reflect the investment being made by the Group in pursuing its expansion in aquaculture operations. Review of operations The year has seen a thorough assessment of Project Sea Dragon (PSD) with the results providing pleasing outcomes. However, the positive work on the assessment was overlaid by the unwanted distraction of a construction dispute leading to the PSD Board placing PSD into a voluntary administration process that was then followed by the construction contractor, Canstruct litigating in the Federal Court. At the Queensland operations the Group experienced a good first half performance led by the Banana prawn crop. However the full year was negatively impacted by below average performance at Farm 3 due to extended wet weather in the area and the unusually high volumes of wild catch which depressed market prices. Global inflationary pressures increased our costs and further impacted the Company’s financial result. The Group has reported a loss for the year after taxation of $15,355,902 (2022: loss $86,272,763 (restated)). A summary of consolidated revenues and results for the year by significant industry segments is set out below: Segment revenues 2022 $ (Restated) 2023 $ Segment results 2023 $ 2022 $ (Restated) Aquaculture Group administration and corporate costs Total segment revenue/result 25,917,825 385 25,918,210 19,459,914 17,659 19,477,573 (9,043,427) (6,312,475) (15,355,902) (71,928,960) (14,343,803) (86,272,763) 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). Production: In 2023, the Group produced a total of 1,260 metric tonnes (tonnes) of prawns (compared to 864 tonnes in 2022). This included 367 tonnes of Black Tiger prawns from Farm 3 and 893 tonnes of Banana prawns from Farms 1 and 2. The increase in production was mainly due to a focus on Banana prawns to manage risk and boost volumes, along with improvements to water systems in Farms 1 & 2. 6 Seafarms Group Limited Directors' report 30 June 2023 (continued) Review of operations (continued) Queensland Operations (continued) Market conditions: The prawn market in Australia during the 2022/2023 financial year was challenging. The combination of higher aquaculture prawn production and a strong wild catch year in the northern prawn fishery led to decreased prices. This was happening alongside rising costs for inputs like feed, power, and labor. Banana prawns: In the 2022 full year report we noted that “for the 2023 financial year at these farms the Group has switched to banana prawns which have historically not been affected by the PIR A/B bacterial issues”. Pleasingly there were no disease events at Farms 1 and 2 and farm performance resulted in a positive outcome for the first half of the year. With the water systems progressively improved to provide for a lower risk facility the company will re-introduce the generally higher margin Black Tiger Prawns to parts of these farms in FY2024. Black Tiger prawns: Black Tiger prawn production was limited to Farm 3 that produced 367 tonnes from 33 Ha of ponds. Sizes were large, averaging over 50 grams to align with the requirement to send 70 tonnes to Europe to which is a key part of developing the export market for Project Sea Dragon. New Grading Machine: The installation of a new grading machine at the Cardwell processing plant was successful and it significantly improved the throughput of the more tightly specified export product. Farm 3 performance: Farm 3 had lower-than-usual performance due to extended wet weather reducing water salinity, which increased operating costs. Additionally, high volumes of wild-caught prawns depressed market prices while inflation raised input costs, impacting Farm 3 negatively. It is important to note that Farm 3's yield and biomass performance aligned with the Project Sea Dragon project assumptions. Breeding program: The Group stocked all Queensland ponds with healthy prawn larvae from domesticated broodstock, eliminating the need for wild-caught broodstock. Several ponds in Farm 3 were stocked with animals produced from a cross of the Project Sea Dragon SPF generation 4, and the Queensland generation 6 broodstock. While the sample size is too small to be statistically significant it was encouraging to observe that production from these ponds outperformed the remainder of the ponds across most metrics. The Group draws comfort from these results that the Exmouth facility will improve performance of grow out over time, as well as obviating the need to source broodstock from the wild after we generate sufficient genetic diversity. Wild caught broodstock has been the source of significant disease outbreaks at several competitors farms over the year. Occupational, Health, Safety & Environment: 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 14.7 injuries per million man hours. The Group continues to implement its program of reducing risk to improve OH&S performance noting that one lost time incident will result in a 5.2 to 7.0 increase to the LTIFR dependent upon the work hours performed. We continue to work to improve our performance. Environmental performance proceeded at the Queensland operations without issue during the year. Market development The Group continues to build a high quality, premium branded offer both domestically and for export. The Domestic market growth has been driven by the development of the fresh prawn category, demonstrated by Banana production which grew from 144 tonnes in FY 2022 to 893 tonnes in FY 2023 and with over 60% of the crop sold fresh. Over the year production capacity was leveraged at key times to match events such as Australia Day which delivered strong fresh prawn sales and increased Christmas volumes driven by the availability of larger sized prawns. Overall, the month of December delivered a fresh volume increase of 60% vs last financial year. 7 Seafarms Group Limited Directors' report 30 June 2023 (continued) Review of operations (continued) Market development (continued) The company built further on the Crystal Bay Prawns® brand best-in-class credentials, with the introduction of the new “Go-to Freshness” communication message, strengthening the brand’s quality sentiments at point-of-purchase. Raw Crystal Bay Prawns® were introduced and allowed for a balance of production and profitability. The development of export markets for Project Sea Dragon was supported with the production of 70 tonnes of Black Tiger Prawns to European export specifications. Project Sea Dragon Project Sea Dragon completed its review and continues to fund and maintain all its licences and obligations to ensure approvals, real estate and key personnel are in place to develop the project. The construction and development of the Exmouth facility continued and FSC 2/3 were successfully put into operation providing a high quality broodstock maturation facility. FSC 1 and the old facilities continue to operate well and produce high quality broodstock that show good results. The Company previously 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, some generation 4 stock was transferred to the Company’s Queensland hatchery to improve the diversity of genetics of the domesticated broodstock for existing operations with the encouraging results shown in internal analysis and the in pond performance described in the Queensland Operations section above. More generally, on 14 June 2023 Seafarms provided the CEO Project Sea Dragon Shareholder update that described the outcomes of the Company’s re-assessment of Project Sea Dragon at that time. In it we advised that we have carefully considered the key risks of the March 2022 Project Review, particularly regarding the use of 10ha ponds and that we have re-evaluated all aspects of the Project. We also advised that our CEO travelled extensively through Central America (Colombia, Ecuador, Honduras, and Mexico) accompanied by an international expert. The visits included inspections of very successful 10ha and larger pond operations; as well as discussions with producers, processors, and equipment suppliers to gather valuable information on operations and yields. The conclusion of this research clearly supported the feasibility of 10ha ponds in Australia as part of Project Sea Dragon. It was also pleasing to verify that there is over 15,000 Ha of large ponds mostly larger than 10 Ha operating at similar or higher intensities than we have incorporated in our plans. Throughout the process, we engaged both international and local professionals, ensuring a thorough examination of each step. We also confirmed customer commitment and negotiated improved pricing. The updated business case incorporates the findings from the re-assessment including updated production and marketing assumptions, the knowledge and insights gained from our research, consultations, and on-site visits. In the 14 June 2023 update we advised that we intended to re-engage with potential funders and we are pleased to advise that the first of those meetings occurred on 21 June 2023. Arrangements for meetings with other funders are well advanced. The litigation arising from the construction dispute was heard in the Federal Court at Brisbane on 14 and 15 of August 2023 with judgement reserved. We continue to progress with potential funding options and pending the receipt of judgement, a final investment decision. Material Business Risks The Company has in place a risk register and management processes to identify risks and mitigation actions for those risks. There is management oversight to ensure risk mitigations actions are in place and being undertaken. With mitigation in place those risks are reduced to an acceptable level. The material business risk of the Company are as follows: 8 Seafarms Group Limited Directors' report 30 June 2023 (continued) Review of operations (continued) Material Business Risks (continued) The Company has in place a risk register and management processes to identify risks and mitigation actions for those risks. There is management oversight to ensure risk mitigations actions are in place and being undertaken. With mitigation in place those risks are reduced to an acceptable level. The material business risk of the Company are as follows: Health & safety: The Group faces specific risks from operating on construction sites and in an agricultural environment in Northern Australia. The Group has comprehensive processes and procedures for identifying and managing risks and processes for ensuring procedures are complied with. Project financing: Seafarms has stated that it will not commence the development of Project Sea Dragon unless full funding for the project has been secured. Securing this financing is uncertain. To mitigate the risk the Company has addressed previous concerns with the project and reworked the initial scope of the Project. Seafarms has commenced re-engaging with potential funders are reported above. Animal health: Seafarms has faced a number of animal health issues over many years particularly in relation to Black Tiger prawns on specific farms. Risk mitigation includes continuous health screening and bacterial monitoring through the production process, stocking of banana prawns on certain sites and stocking in lower risk periods of the year. Market risk: The supply of prawns is competitive with a number of competing species, formats and origins. Higher than average supply can depress prices across the industry. To mitigate this risk the Company focuses on high value niche areas of fresh product (never frozen) and large tiger prawns which are largely sold through retail channels. 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. Matters subsequent to the end of the financial year No matter or circumstance has arisen since 30 June 2023 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 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 date of this report 1,411,603,263 shares in Seafarms Group Limited. 411,599,998 options in Seafarms Group Limited. 9 Seafarms Group Limited Directors' report 30 June 2023 (continued) Information on directors (continued) 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 date of this report 19,680,984 ordinary shares in Seafarms Group Limited. 403,635 options in Seafarms Group Limited. Rodney John Dyer B.E. (Mech) Executive Director. (since 20 May 2022) Experience and expertise Mr Dyer has extensive experience with 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, Resigned 12 April 2023) 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 10 Seafarms Group Limited Directors' report 30 June 2023 (continued) Information on directors (continued) Terutaka Kuraishi MBA Alternate Director for Hisami Sakai (since 20 May 2022), Resigned 12 April 2023) 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. 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 2023, and the numbers of meetings attended by each Director were: Ian Norman Trahar Rodney John Dyer Harley Ronald Whitcombe Hisami Sakai Terutaka Kuraishi Full meetings of directors Meetings of committees Audit Nomination & Remuneration A 15 15 15 10 11 B 15 15 15 11 11 A 3 3 3 - - B 3 3 3 - - 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 2023 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, 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. 11 Seafarms Group Limited Directors' report 30 June 2023 (continued) Remuneration report (continued) 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. 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. The Group's remuneration strategy considers the following in setting executive remuneration to align with shareholders interests: • • • rewards capability and experience; provides recognition for contribution; attracts and retains high calibre executives. (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 KPI set by the remuneration committee, a short-term incentive (STI) pool is available to executives and other eligible participants. Using a KPI 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. For FY23 the remuneration committee elected not to incorporate STIs into the remuneration arrangements for any executives. 12 Seafarms Group Limited Directors' report 30 June 2023 (continued) Remuneration report (continued) (a) Elements of remuneration (continued) 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. For FY23 the remuneration committee elected not to incorporate LTIs into the remuneration arrangements for any executives. (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) (Director resigned on 12 April 2023) Terutaka Kuraishi (Alternative Director) (Director resigned on 12 April 2023) • In addition to the directors the following executives that report directly to the Board are key management personnel: • 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. 13 Remuneration report (continued) (b) Details of remuneration (continued) Year ended 30 June 2023 Name Directors Non-executive H Sakai I Trahar Sub-total non-executive directors Executive H Whitcombe R Dyer Sub-total executive directors Alternative Directors N Sato T Kuraishi Sub-total alternative directors Other key management personnel I Leijer Total key management personnel compensation (Group) Seafarms Group Limited Directors' report 30 June 2023 (continued) 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 $ Share-based payments Performance rights / Share options $ - - - - - - - - - - - - - - - - - - - - - - - 5,775 5,775 25,292 25,292 50,584 - - - - 1,008 1,008 995 2,500 3,495 - - - 25,292 81,651 1,667 6,170 - - - - - - - - - - - - - - - - - - - - - - - 24,816 24,816 276,656 783,772 1,060,428 - - - 494,485 1,579,729 14 Total $ - 31,599 31,599 302,943 811,564 1,114,507 - - - 521,444 1,667,550 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 C Mitchell M McMahon Sub-total executive directors Alternative Directors N Sato T Kuraishi Sub-total alternative directors Seafarms Group Limited Directors' report 30 June 2023 (continued) Short-term employee benefits Post-em ployment benefits Cash salary and fees Cash bonus Non- monetary benefits* Super- annuation Long- term benefits Long service leave $ $ $ $ $ Share-based payments Performance rights / Share options $ Termi- nation benefits $ (restated^) Total $ (restated^) 32,083 - 135,680 167,763 305,389 281,716 457,243 291,437 649,673 1,985,458 - - - - - - - - - - - - - - - - - - - - - - - 7,936 - 7,936 - - - 3,208 - 13,568 16,776 20,554 20,581 27,437 19,854 40,199 128,625 - - - - - 4,408 4,408 500 1,250 - - - 1,750 - - - - - - - - - - - 35,291 - 153,656 188,947 45,135 - 1,109,891 73,600 1,891,682 3,120,308 - - 844,586 - 1,970,702 2,815,288 371,578 303,547 2,439,157 392,827 4,552,256 8,059,365 - - - - - - - - - - - 3,120,308 - - 2,815,288 385,063 52,115 8,685,490 Other key management personnel (Group) D Donovan I Leijer Total key management personnel compensation (Group) *This relates to a benefit for motor vehicles. ^Refer section (f) below for details of the restatement of comparative termination benefits and the total remuneration as a result of the correction of a prior period error. 352,100 46,620 2,551,941 27,499 4,662 177,562 - - 7,936 - - - 5,464 833 12,455 15 Seafarms Group Limited Directors' report 30 June 2023 (continued) Remuneration report (continued) Details in relation to the KMP long term incentives are set out in note 35 to the financial statements. (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); • • • Group 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); • • • Group 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. • R Dyer, Chief Executive 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. 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. 16 Seafarms Group Limited Directors' report 30 June 2023 (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 2023 % 2022 % 2023 % 2022 % 2023 % 2022 % Directors of Seafarms Group Limited I Trahar H Whitcombe R Dyer Other key management I Leijer (ii) Share-based compensation 100% 100% 100% 100% 100% 100% 100% 100% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% -% There were no shares provided on the exercise of options during the year ended 30 June 2023. The table below sets out summary information about the Group's earnings and movements in shareholder wealth for the last five financial periods: Year ended Year ended Year ended 30 June 2023 30 June 2022 30 June 2021 30 June 2020 30 June 2019 Year ended Year ended 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 . $ 25,918,210 (15,355,902) (15,355,902) (restated) $ 19,477,573 (86,272,763) (86,272,763) $ 20,826,823 (25,755,545) (25,755,545) $ 28,382,012 (25,542,665) (25,542,665) $ 23,394,803 (30,944,301) (30,944,301) 1c 0.4c - (0.32)c (0.32)c 6c 1c - (1.88)c (1.88)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 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 2023 financial period. The company did not receive any specific feedback at the AGM or throughout the period on its remuneration practices. 17 Seafarms Group Limited Directors' report 30 June 2023 (continued) Remuneration report (continued) (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. 2023 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 R Dyer Hisami Sakai (resigned 12 April 2023) Terutaka Kuraishi (resigned 12 April 2023) Other key management personnel of the Group Ordinary shares I Leijer 1,366,148,718 19,680,984 - - - 45,454,545 1,411,603,263 19,680,984 - - - - - - - 14,561,503 - 14,561,503 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 (appointed 20 May 2022) R Dyer (appointed 20 May 2022) C D Mitchell (Resigned 30 November 2021) P J Favretto (Resigned 28 January 2022) I Brannan (Resigned 20 May 2022) M McMahon (Resigned 6 May 2022) Hisami Sakai Terutaka Kuraishi Other key management personnel of the Group Ordinary shares D Donovan (Resigned 1 July 2022) I Leijer (commenced 22 May 2022) 675,871,221 18,298,258 - 11,327,268 37,916,666 - - - - 690,277,497 1,366,148,718 19,680,984 - 1,382,726 - - 2,545,454 9,090,909 36,363,636 - - 11,327,268 ^ 40,462,120 ^ 9,090,909 ^ 36,363,636 ^ - - - ^ 14,561,503 - - - 14,561,503 *Shares purchased during the year to June 2022 was incorrectly stated in last year's annual report based on the submission 731 made to the ASX under Appendix 3Y Change in Directors Interests. ^Balance at date of resignation for those KMP who resigned during the year. 18 Seafarms Group Limited Directors' report 30 June 2023 (continued) Remuneration report (continued) (e) Equity instrument disclosures relating to key management personnel (continued) (ii) Option holdings 2023 Name Directors of Seafarms Group Limited I N Trahar H R Whitcombe 2022 Name Directors of Seafarms Group Limited I N Trahar H R Whitcombe (appointed 20 May 2022) Loans to key management personnel Balance at start of the period Purchase of options during the year Balance at end of the period 384,327,272 403,635 Balance at start of the period 384,327,272 - 27,272,726 - 411,599,998 403,635 Balance upon appointment Balance at end of the period - 403,635 384,327,272 403,635 There are no loans made to directors of Seafarms Group Limited and other key management personnel. (f) Correction of prior period error During the year, the Group identified that termination benefits as reported in the Remuneration Report for the comparative year ended 30 June 2022 were understated by $848,164. Refer to Note 2 of the financial report for further details. The remuneration tables in section (b) have been restated for the correction of this error. End of Remuneration Report 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 30,000,000 (*) 1,447,581,216 (*) Ordinary Ordinary (*) Refer to note 25(d) for further details. Exercise price of option Expiry date 0.0970 0.0975 12 December 2023 13 August 2024 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. There were no options issued during the current year or up until the date of this report. (b) Shares issued on the exercise options There were no shares of Seafarms Group Limited issued during the year ended 30 June 2023 or up until the date of this report on the exercise of options granted. 19 Seafarms Group Limited Directors' report 30 June 2023 (continued) 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. The Group has not otherwise, during or since the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the company or of any related body corporate against a liability incurred as such an officer or auditor. 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 28 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 2023 (2022: 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 21. Auditor Pitcher Partners 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 Company Secretary Perth 30 August 2023 20 The Directors Seafarms Group Limited Level 10, 490 Upper Edward Street SPRING HILL QLD 4004 Auditor’s Independence Declaration In relation to the independent audit for the year ended 30 June 2023, to the best of my knowledge and belief there have been: (i) (ii) No contraventions of the auditor independence requirements of the Corporations Act 2001; and No contraventions of APES 110 Code of Ethics for Professional Accountants (including Independence Standards). This declaration is in respect of Seafarms Group Limited and the entities it controlled during the year. PITCHER PARTNERS DAN COLWELL Partner Brisbane, Queensland 30 August 2023 Brisbane Sydney Newcastle Melbourne Adelaide Perth Pitcher Partners is an association of independent firms. An Independent Queensland Partnership ABN 84 797 724 539. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. pitcher.com.au NIGEL FISCHER MARK NICHOLSON PETER CAMENZULI JASON EVANS KYLIE LAMPRECHT NORMAN THURECHT BRETT HEADRICK WARWICK FACE COLE WILKINSON SIMON CHUN JEREMY JONES TOM SPLATT JAMES FIELD DANIEL COLWELL ROBYN COOPER FELICITY CRIMSTON CHERYL MASON KIERAN WALLIS MURRAY GRAHAM ANDREW ROBIN KAREN LEVINE EDWARD FLETCHER ROBERT HUGHES Seafarms Group Limited Corporate governance statement 30 June 2023 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 2023 was approved by the Board on 30 August 2023. 22 Seafarms Group Limited ABN 50 009 317 846 Financial Report - 30 June 2023 Consolidated financial statements 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 24 25 26 28 29 69 70 These consolidated financial statements are the consolidated financial statements of the consolidated entity consisting of Seafarms Group Limited and its subsidiaries. The consolidated 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: Seafarms Group Limited 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 6, which is not part of these consolidated financial statements. The consolidated financial statements were authorised for issue by the Directors on 30 August 2023. 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. 23 Seafarms Group Limited Consolidated statement of comprehensive income For the year ended 30 June 2023 Notes 2023 $ 2022 (*Restated) $ 6 7 8 14 16 9 20 9 9, 17, 18 10 9 25,918,210 19,477,573 - (202,363) (600,065) 1,617,854 (12,027,265) (3,538,977) (12,505,056) - (2,062,361) (2,100,509) 3,538,183 (13,393,553) (15,355,902) 587,139 (2,372,741) (3,121,031) 230,326 (6,798,310) (2,724,240) (16,675,215) (5,000,000) (3,964,347) (18,443,140) (34,339,531) (13,129,246) (86,272,763) 11 - (15,355,902) - (86,272,763) Revenue and other income Other (losses)/gains Finance costs Change in finished goods inventory Change in biological assets Feed and consumables Energy costs Employee benefits expense Expected loss on non-current loan Depreciation and amortisation expense Impairment losses Construction (costs)/reversal Other expenses Loss before income tax Income tax benefit Loss for the year Other comprehensive loss for the year net of tax - - Total comprehensive loss for the year is attributable to: Owners of Seafarms Group Limited (15,355,902) (86,272,763) Cents Cents (*Restated) Loss per share from continuing operations attributable to the ordinary equity holders of the Company: Basic loss per share Diluted loss per share 34 34 (0.32) (0.32) (1.88) (1.88) *The comparative financial information has been restated as a result of the correction of errors (refer note 2 for details) The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. 24 Seafarms Group Limited Consolidated statement of financial position As at 30 June 2023 Notes 2023 $ 2022 (*Restated) $ 12 13 14 15 16 17 18 20 21 22 23 24 22 23 24 8,453,527 5,468,207 7,680,854 1,460,119 4,072,025 27,134,732 36,195,529 1,367,472 8,206,053 1,319,245 2,454,171 49,542,470 17,682,481 381,690 331,999 18,396,170 16,940,032 94,700 - 17,034,732 45,530,902 66,577,202 4,695,821 3,005,826 1,000,000 1,121,223 9,822,870 1,142,892 83,631 366,264 1,592,787 3,919,126 1,902,251 8,740,403 1,349,694 15,911,474 1,034,272 124,591 35,718 1,194,581 11,415,657 17,106,055 34,115,245 49,471,147 25 26(a) 300,316,736 14,832,725 (281,034,216) 34,115,245 300,316,736 14,832,725 (265,678,314) 49,471,147 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 financial assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables 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 *The comparative financial information has been restated as a result of the correction of prior period errors (refer note 2 for details) The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 25 Seafarms Group Limited Consolidated statement of changes in equity For the year ended 30 June 2023 Issued capital $ Reserves $ Accumulated losses $ Total equity $ Notes Balance at 1 July 2021 Loss for the year (restated*) Total comprehensive loss for the year 172,421,944 - - 12,017,437 (179,405,551) (86,272,763) (86,272,763) - - 5,033,830 (86,272,763) (86,272,763) Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs and tax Employee share scheme 25 26 127,894,792 - 127,894,792 - 2,815,288 2,815,288 - 127,894,792 - 2,815,288 - 130,710,080 Balance at 30 June 2022 (restated*) 300,316,736 14,832,725 (265,678,314) 49,471,147 * The comparative financial information has been restated as a result of the correction of prior period errors (refer note 2 for details). The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 26 Seafarms Group Limited Consolidated statement of changes in equity For the year ended 30 June 2023 (continued) Issued capital $ Reserves $ Accumulated losses $ Total equity $ Notes Balance at 1 July 2022 (restated*) Loss for the year Total comprehensive loss for the year 300,316,736 - - 14,832,725 (265,678,314) (15,355,902) (15,355,902) - - 49,471,147 (15,355,902) (15,355,902) Transactions with owners in their capacity as owners: - - - - Balance at 30 June 2023 300,316,736 14,832,725 (281,034,216) 34,115,245 * The comparative financial information has been restated as a result of the correction of prior period errors (refer note 2 for details). The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 27 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) Payment to administrator for DOCA 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 Payments for deposits 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 Net cash (outflow)/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 Seafarms Group Limited Consolidated statement of cash flows For the year ended 30 June 2023 Notes 2023 $ 2022 $ 25,523,543 22,765,061 (45,251,068) (3,500,000) - (23,227,525) 48,440 (250,803) (23,429,888) (41,761,246) - (28,329,458) (47,325,643) 6,530 (1,103,896) (48,423,009) (2,463,985) - - (331,999) (2,795,984) (625,568) (12,028,622) 784 - (12,653,406) - - - (1,516,130) - (1,516,130) 105,962,429 743,589 (5,000,000) (3,884,234) (1,046,952) 96,774,832 (27,742,002) 36,195,529 8,453,527 35,698,417 497,112 36,195,529 33 17 22 12 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 28 Seafarms Group Limited Notes to the financial statements 30 June 2023 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 37 Summary of significant accounting policies Correction of prior period errors 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 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 30 39 39 42 45 46 46 47 47 48 49 50 50 51 51 51 53 56 57 57 58 58 59 61 61 62 63 63 63 63 64 64 65 65 66 67 68 29 Seafarms Group Limited Notes to the financial statements 30 June 2023 (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. (a) (b) (c) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (level 2), and inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3). 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 2020-3 Amendments to Australian Accounting Standards -Annual Improvements 2018-2020 and Other Amendments 30 Seafarms Group Limited Notes to the financial statements 30 June 2023 (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 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 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 a 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 2023, the Group incurred an operating cash outflow of $23,429,888 (2022: $48,423,009) and a net loss for the year of $15,355,902 (2022: loss of $86,272,763 (restated)). As at 30 June 2023, the Group had net current assets of $17,311,862 (2022 $33,630,996), including $8,453,527 cash and cash equivalents. Given the ongoing use of cash resources to develop and secure financing for Project Sea Dragon the group continues to have an operating cash out flow. Accordingly, the ability of the Company and the Group to continue as a going concern is dependent on its ability to raise further finance, reduce discretionary cash expenditure and mitigate operating risks. In particular it depends on the Group's ability to undertake one or more of the following: (i) (ii) (iii) (iv) (v) (vi) (vii) raise project finance (equity and/or debt) for Project Sea Dragon Pty Ltd; successfully defend the legal case brought by Canstruct to overturn the Deed of Company Arrangement; continue improving the profitability and cashflow from the Queensland operations to generate cash to fund corporate activities; obtain working capital financing for Seafarms Queensland in FY2024 to manage the working capital cycle; reduce discretionary cash outflow including expenditure on Project Sea Dragon and corporate activities; raise equity capital; generate finance through asset sales. There are uncertainties in achieving these and as a result, 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. However in light of the cash available at 30 June 2023, the forecast cash flow and potential funding and expense reduction alternatives the Directors are of the opinion that the Company and the Group will continue to operate as a going concern and therefore the accounts have been prepared on a going concern basis. No adjustments have been made to the financial statements relating to the recoverability and classification of assets carrying amounts or the amounts and classification that might be necessary should the Company and the Group not continue as a going concern. 31 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 1 Summary of significant accounting policies (continued) Should the Group be unable to continue operating as a going concern, it may be required to realise its assets and extinguish its liabilities other than in the ordinary course of business, and at amounts that differ from those stated in the financial statements. (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 2023 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. Inter-company 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. 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 consolidated 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. 32 Seafarms Group Limited Notes to the financial statements 30 June 2023 (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. 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) 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. 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' consolidated 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. 33 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 1 Summary of significant accounting policies (continued) (i) Tax consolidation legislation (continued) 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. (h) 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. Right-of-use assets are measured at cost comprising the following: • • • • the amount of the initial measurement at commencement date at present value using the interest rate implicit in the lease where available or where this rate cannot be determined readily, the incremental borrowing rate; any lease payments made at or before the commencement date less any lease incentives received; any initial direct costs; and restoration costs. 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 variable lease payments that depend on an index or rate, initially measured using the index or rate as at the commencement date; 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. 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. (i) Cash and cash equivalents For the purpose of presentation in the consolidated statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (j) 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. 34 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 1 Summary of significant accounting policies (continued) 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. 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. 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 Group applies the simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk characteristics and the days past due. The contract assets relate to unbilled work in progress and have substantially the same risk characteristics as the trade receivables for the same types of contracts. The Group has therefore concluded that the expected loss rates for trade receivables are a reasonable approximation of the loss rates for the contract assets. The expected loss rates are based on the payment profiles of sales over a period of 36 months before 30 June 2023 or 30 June 2022 respectively and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. (k) 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. (l) 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 profit or loss 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. Domesticated broodstock is carried at replacement cost. Replacement cost is the expected cost to replace the number of broodstock required to produce sufficient post larvae to meet stocking requirements. (m) Investments and other financial assets (i) Classification The Group classifies its financial assets in the following measurement categories: 35 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 1 Summary of significant accounting policies (continued) (i) Classification (continued) • • 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 other financial instruments carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. (n) 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: Freehold buildings Ponds Plant and equipment Leasehold improvements Vehicles Furniture, fittings and equipment - - - - - - . The assets' residual values and useful reporting period. 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. The Group further considers the funding required to bring the assets to an economically viable state. 36 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 1 Summary of significant accounting policies (continued) (o) 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. (p) 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. (q) Borrowings Borrowings are measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the profit or loss 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 taken into account in the fair value of the borrowing on day 1 and are taken into account when applying the effective interest rate method. The initial 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. 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. (r) Borrowing costs Borrowing costs are expensed in the period in which they are incurred. (s) Provisions Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. (t) 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. 37 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 1 Summary of significant accounting policies (continued) 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. (u) 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 consolidated financial statements. Amounts in the consolidated financial statements have been rounded off in accordance with the instrument to the nearest dollar. (v) Parent entity financial information The financial information for the Parent entity, Seafarms Group Limited, disclosed in note 37 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 consolidated 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. (w) 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. 38 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 1 Summary of significant accounting policies (continued) (x) 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. (y) Comparatives Where necessary, comparative information has been reclassified and repositioned for consistency with current year disclosures. 2 Correction of prior period errors During the year, the Group identified that employee benefits expenses of $838,164 were not accrued as at 30 June 2022. The comparative Consolidated Statement of Comprehensive Income and Consolidated Statement of Financial Position have therefore been amended for the correction of this prior period error. 30 June 2022 $ (Previously reported) Increase (decrease) 30 June 2022 $ (Restated) Statement of comprehensive income (extract) space Employee benefits expense Loss for the year (15,837,051) (85,434,599) (838,164) (838,164) (16,675,215) (86,272,763) Earnings per share (cents) (1.87) (0.01) (1.88) Statement of financial position (extract) Statement of financial position (extract) LIABILITIES Current liabilities Trade and other payables Total current liabilities space Total liabilities space Net Assets space EQUITY Retained earnings Total equity 3,080,962 15,073,310 838,164 838,164 3,919,126 15,911,474 16,267,891 838,164 17,106,055 50,309,311 (838,164) 49,471,147 (264,840,150) 50,309,311 (838,164) (838,164) (265,678,314) 49,471,147 3 Critical accounting estimates and judgements Estimates and judgements are continually evaluated. They are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. (a) Critical accounting estimates The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period are discussed below. 39 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 3 Critical accounting estimates and judgements (continued) (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) (refer note 16). 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 (refer note 17). 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) Make good provision The make good provision (note 23) relies on an estimate of the cost of rehabilitating the Project Sea Dragon sites. The Group uses judgment in (i) assessing the extent of work required to be agreed with relevant stakeholders; (ii) developing a detailed scope of work to be undertaken to achieve the agreed work; and (iii) estimating the costs of performing that work. In estimating the cost of undertaking the work the Group will take into consideration quoted costs for undertaking similar work. (iv) Useful lives of property, plant & equipment The determination of the useful lives of items of property plant & equipment, refer note 1(n), is subjective and requires the Group to exercise judgment. The Group takes into consideration the operating environment, the maintenance program for those assets, past operating experience and the useful lives used for income tax purposes. (v) Expected credit losses on trade & other receivables The determination of the expected credit loss on trade and other receivable relies on the Group to exercise judgment. In respect of trade receivables the Group takes out debtors insurance and has assessed the residual risk of credit loss not covered by insurance to be negligible. In respect of other receivables, where the amount to be received is subject to certain conditions the Group assesses the likelihood of those conditions being met. Where those conditions are unlikely to be met the Group will create a provision for expected loss. Refer notes 4(b), 13 and 20 for details of trade and other receivables. (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 the inception of the lease, of the items outlined below require significant management judgement: • • 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; 40 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 3 Critical accounting estimates and judgements (continued) • • The depreciation period / method; and The incremental borrowing rate and the impact of this rate on the discounted amount of the lease liability as well as the right to use asset. Due to the significant review of Project Sea Dragon the management reassessed the lease term for the Legune Station lease at 30 June 2022. At that time termination of the lease was possible from December 2023, provided written notice of intention to terminate was provided to the landlord at least 6 months prior to the anniversary date of the lease (which falls in December). Management assessed that it was 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 June 2022. As publicly stated, Project Sea Dragon will not proceed until adequate project financing has been obtained. However the Company continues to meet its obligations under the Legune Station lease. As at 30 June 2023, the Group had not elected to exercise its termination right under the lease and consequently, at balance date the earliest possible termination date was December 2024. Accordingly, the lease term has been reassessed to approximately 18 months from 30 June 2023. The attaching right of use asset was fully impaired given the funding has not yet been obtained. Unlisted options In determining the fair value of share based payments granted during the 2022 financial year, key estimates requiring management judgement are the volatility and expected life input assumed within the option pricing the Company to determine an appropriate level of volatility model. The Group uses historical volatility of expected, commensurate with the expected option life. Refer note 35 for more information. 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 17 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 2023 and 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. 41 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 3 Critical accounting estimates and judgements (continued) Canstruct Legal Claim The Group’s wholly owned subsidiary, Project Sea Dragon Pty Limited (PSD), entered into a Deed of Company Agreement (DOCA) with Shaun McKinnon, Andrew Fielding (as the deed Administrators) and Seafarms Group Limited as the Proponent. The DOCA was executed on 23 March 2023 and a Deed of Rectification was executed shortly after on the 24 March 2023. Under the terms of the DOCA, SFG paid an amount to the Administrator (DOCA Funds) to settle payments to creditors of PSD and reimburse SFG for certain post administration payments made on behalf of PSD. Before the Administrator was able to disburse the DOCA Funds Canstruct (who is a creditor to PSD) sought to have the DOCA terminated and was granted an injunction by the court preventing the Administrator disbursing those funds until the case was determined. At the date of these accounts that case has yet to be determined and notwithstanding that decision each party has a right of appeal. The final determination of the case could take many months. The Company has taken the view, that it will win the case and has prepared the accounts on that basis If the Company loses the case then PSD will go into liquidation and the DOCA Funds returned to SFG. This would lead to an increase in the net assets of the Group as certain amounts payable including amounts payable to Canstruct will be extinguished. However it would also create considerable uncertainty regarding the Group’s ability to continue the development Project Sea Dragon. 4 Financial risk management The Group's activities may expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. The Group's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group does not use derivative financial instruments such as foreign exchange contracts and interest rate swaps to hedge certain risk exposures, as management considers this unnecessary given the nature and size of the Group's operations. 2023 $ 2022 $ 8,453,527 5,468,207 331,999 14,253,733 36,195,529 1,367,472 - 37,563,001 2023 $ 2022 $ (Restated) 4,695,821 4,148,718 8,844,539 3,919,126 2,936,523 6,855,649 Financial assets Financial assets at amortised cost Cash and cash equivalents Trade and other receivables Other financial assets Financial liabilities Financial liabilities at amortised cost Trade and other payables Lease liabilities 42 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 4 Financial risk management (continued) (a) Market risk (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. As at the end of the reporting period, the Group had the following variable rate deposits: 30 June 2023 30 June 2022 Weighted average interest rate % .09% .01% -% Weighted average interest rate % .04% .01% -% Balance $ 412,898 8,040,000 629 8,453,527 Balance $ 412,897 35,780,882 1,750 36,195,529 Deposits at call Bank accounts Cash on hand Net exposure to cash flow interest rate risk (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. 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 or credit enhancement, 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. The Group has Trade Credit Insurance in place until 31 May 2024, which has insured indemnity of 90% with a maximum insured amount of $1.54 million. 43 4 Financial risk management (continued) Trade receivables Counterparties without external credit rating * Group 1 Group 2 Group 3 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 2023 $ 2022 $ - 1,373,693 - 1,373,693 - 994,855 - 994,855 * Group 1 - new customers (less than 6 months) Group 2 - existing customers (more than 6 months) with no defaults in the past Group 3 - existing customers (more than 6 months) with some defaults in the past. All defaults were fully recovered. (c) Liquidity risk The Group manages liquidity risk by maintaining 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 (2022: $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. Contractual maturities of financial liabilities At 30 June 2023 Non-derivatives Less than 6 months $ 6 - 12 months $ Between 1 and 2 years $ Between 2 and 5 years $ Over 5 years $ Trade and other payables Lease liabilities Total non-derivatives 4,695,821 1,982,259 6,678,080 - 1,310,038 1,310,038 - 889,433 889,433 - 304,100 304,100 At 30 June 2022 (Restated) Non-derivatives Trade and other payables Lease liabilities Total non-derivatives 3,919,126 854,993 4,774,119 - 1,234,919 1,234,919 - 983,838 983,838 - 48,723 48,723 Total contrac- tual cash flows $ Carrying amount (assets)/ liabilities $ 4,695,821 4,485,830 9,181,651 4,695,821 4,148,718 8,844,539 3,919,126 3,122,473 7,041,599 3,919,126 2,936,523 6,855,649 - - - - - - 44 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 5 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. (b) Segments the Group, including the cash balances not currently The segment information for the reportable segments for the year ended 30 June 2023 is as follows: Year ended 30 June 2023 Aquaculture Other Consolidated Segment revenue Sales to external customers Other income Total segment revenue Consolidated revenue Impairment Losses Segment Loss space Segment Assets space Segment Liabilities space Segment Net Assets $ $ $ 25,862,497 55,328 25,917,825 - 385 385 25,862,497 55,713 25,918,210 (2,100,509) - (2,100,509) (9,043,427) (6,312,475) (15,355,902) 34,413,765 11,117,137 45,530,902 (9,501,310) (1,914,347) (11,415,657) 24,912,455 9,202,790 34,115,245 Year ended 30 June 2022 Aquaculture Other Consolidated Segment revenue Sales to external customers Other income Total segment revenue Consolidated revenue Impairment Losses Segment Loss (restated) space Segment Assets space Segment Liabilities space Segment Net Assets $ $ $ 19,301,445 158,469 19,459,914 - 17,659 17,659 19,301,445 176,128 19,477,573 (18,443,140 - (18,443,140) (71,928,960) (14,343,803) (86,272,763) 31,432,560 35,144,642 66,577,202 (15,241,465) (1,864,590) (17,106,055) 16,191,095 33,280,052 49,471,147 45 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 5 Segment information (continued) (b) Segments (continued) Segment profit represents the profit earned by each segment. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance. For the year ending 30 June 2023, aquaculture segment sales to customers included $17,613,603 (2022: $11,478,883) to a national retailer. Segment revenues, liabilities, 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 receivables, inventories, biological assets, property, plant and equipment and goodwill and other intangible assets. Segment liabilities include primarily of payables, lease liabilities, employee benefit obligations and related provisions. While most of these assets and liabilities can be directly attributed to individual segments, the carrying amounts of certain assets and liabilities used jointly by segments are allocated based on reasonable estimates of usage. Segment assets do not include income taxes. (c) Other profit and loss disclosures Depreciation and amortisation Aquaculture 6 Revenue and other income From continuing operations Revenue from Contracts with Customers Sales Fresh Sales Frozen Other sales revenue Other income Other income 2023 $ 2022 $ (2,062,361) (3,964,347) 2023 $ 2022 $ 14,546,320 11,315,404 773 25,862,497 8,549,594 10,749,827 2,024 19,301,445 55,713 25,918,210 176,128 19,477,573 The Group derives all revenue from the transfer of goods and services at a point in time. 7 Other (losses)/gains Conversion of debt to equity Other income 2023 $ 2022 $ - - - 549,311 37,828 587,139 46 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 2023 $ 2022 $ (48,440) (48,440) (6,530) (6,530) 8,411 242,392 250,803 300,942 2,078,329 2,379,271 202,363 2,372,741 2023 $ 2022 (Restated) $ 338,241 395,987 986,792 516 - 214,533 126,292 2,062,361 1,756,896 1,553,533 1,592,691 1,296,290 73,708 551,297 309,008 1,357,218 - 549,775 109,036 733,850 2,934,100 576,151 13,393,553 214,536 395,976 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 8 Finance costs Finance income Interest income Finance income Finance costs Interest and finance charges Interest on lease liabilities Finance costs expensed Net finance costs 9 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 Voluntary administration costs 47 9 Expenses (continued) 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 10 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 Provision for construction liabilities Reversal of liability exposure Rehabilitation provision (b) Capitalised costs Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 2023 $ 2022 (Restated) $ - 2,100,509 - 2,100,509 1,461,464 3,480,847 13,500,829 18,443,140 940,482 11,564,574 12,505,056 747,006 15,928,209 16,675,215 Notes 2023 $ 2022 $ 23,198 - 34,215 765,373 79,625 - 1,049,486 107,726 525,205 4,257,310 (11,380,321) 1,000,000 (3,538,183) 9,434,313 2,179,791 1,005,879 4,911,479 5,312,044 786,151 375,881 329,173 1,274,726 8,730,094 - - 34,339,531 23 23 2023 $ 2022 $ Assets under construction (impaired) (see note 17) - 12,060,217 Total PSD Construction Costs (3,538,183) 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. 48 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 10 PSD Construction costs (continued) 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 comprehensive income. 11 Income tax expense (a) 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% Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Entertainment Employee option plan Debt waiver - employee SGC - recharged from PSDCE Other Movement of deferred tax assets not recognised Tax losses not recognised Income tax expense/(benefit) (b) Franking account Franking account balance (tax paid basis) Impact on franking account balance of dividends not recognised 2023 $ 2022 (Restated) $ (15,355,902) (3,838,976) (86,272,763) (21,568,191) 2,318 - - - - (3,836,658) (3,617,671) 7,454,329 - 1,385 703,823 126 237 (138,816) (21,001,436) 16,308,941 4,692,495 - 2023 $ 2022 $ - - - - - - 49 12 Current assets - Cash and cash equivalents Cash at bank and in hand Deposits at call (a) Risk exposure Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 2023 $ 2022 $ 8,040,630 412,897 8,453,527 35,782,632 412,897 36,195,529 The Group's exposure to interest rate risk is discussed in note 4. (b) Cash at bank and on hand Of the cash at bank and on hand, $630 (2022: $2,250) is non-interest bearing, and $8,040,000 (2022: $82,862) is in accounts that earn interest. (c) Deposits at call Deposits at call are interest bearing. 13 Current assets - Trade and other receivables Trade receivables Loss allowance Other receivables Loans to employees Goods and services tax (GST) receivable 2023 $ 2022 $ 1,373,693 - 1,373,693 3,689,800 30,878 373,836 4,094,514 994,855 - 994,855 3,406 22,570 346,641 372,617 5,468,207 1,367,472 Other receivables includes $3,500,000 relating to the DOCA which is held in trust by the administrators (note 23(a)). (a) Trade receivables As of 30 June 2023, trade receivables of $374,332 (2022: $364,237) were past due but not impaired. Up to 3 months 3 to 6 months 2023 $ 2022 $ 276,206 98,126 374,332 80,531 283,706 364,237 50 14 Current assets - Inventories Finished goods Feed and consumables at cost Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 2023 $ 5,502,362 2,178,492 7,680,854 2022 $ 6,102,427 2,103,626 8,206,053 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. 15 Current assets - Other current assets Prepayments Deposits paid 16 Current assets - Biological assets Livestock Opening Balance Gain arising from changes in fair value less estimated costs to sell Transferred to inventories Closing Balance 2023 $ 1,370,205 89,914 1,460,119 2022 $ 1,270,531 48,714 1,319,245 2023 $ 2022 $ 2,454,171 20,738,586 (19,120,732) 4,072,025 2,223,845 11,407,888 (11,177,562) 2,454,171 The balance of $4,072,025 (2022:$2,454,171) comprises the hatchery live crop of $500,000 (2022: $502,457), carried at current replacement cost, and live prawns of $3,572,025 (2022: $2,042,714) 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(b) for explanation of levels), since one or more of the significant inputs is not based on observable market data. Valuation processes the Group’s biological assets for financial reporting The Group's finance team performs the valuations of 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 3-6 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. 51 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 16 Current assets - Biological assets (continued) 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. Sensitivity Analysis - Biological Assets Based on the market prices and weights used at 30 June 2023, with all other variables held constant, the consolidated group’s profit for the period would change as follows: • • • A pricing increase/decrease of 1% would have been a change of $93,690 higher/lower; A feed price increase/decrease of 1% would have been a change of $20,420 lower/higher; A weight increase/decrease of 1% would have been a change of $44,218 higher/lower. 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. 52 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 17 Non-current assets - Property, plant and equipment At 1 July 2021 Cost or fair value Accumulated depreciation Net book amount Year ended 30 June 2022 Opening net book amount Additions Disposals Depreciation charge Transfers Impairment loss Closing net book amount At 30 June 2022 Cost or fair value Accumulated depreciation Net book amount Freehold land $ Freehold buildings $ Ponds $ Plant and equipment $ Leasehold improvements $ Assets under construction $ 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) (1,885,099) (31,595) (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 53 17 Non-current assets - Property, plant and equipment (continued) Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) Cost Impairment Subtotal Accumulated depreciation Net book amount Year ended 30 June 2023 Opening WDV Additions Depreciation charge Impairment loss Closing WDV At 30 June 2023 Cost Impairment Subtotal Accumulated depreciation Net book amount Freehold land $ Freehold buildings $ Ponds $ Plant and equipment $ Leasehold improvements $ Assets under construction $ Total $ 2,010,000 - 2,010,000 - 2,010,000 2,010,000 - - - 2,010,000 2,010,000 - 2,010,000 - 2,010,000 5,000,198 - 5,000,198 (998,020) 4,002,178 7,919,543 - 7,919,543 (2,910,028) 5,009,515 18,628,173 (1,448,480) 17,179,693 (11,261,870) 5,917,823 32,997 (12,984) 20,013 (19,497) 516 13,500,829 (13,500,829) - - - 47,091,740 (14,962,293) 32,129,447 (15,189,415) 16,940,032 4,002,178 1,237,097 (338,241) - 4,901,034 5,009,515 - (395,987) - 4,613,528 5,917,823 1,226,888 (986,792) - 6,157,919 516 - (516) - - - - - - - 16,940,032 2,463,985 (1,721,536) - 4,181,652 6,237,295 - 6,237,295 (1,336,261) 4,901,034 7,919,543 - 7,919,543 (3,306,015) 4,613,528 19,855,061 (1,448,480) 18,406,581 (12,248,662) 6,157,919 32,997 (12,984) 20,013 (20,013) - 13,500,829 (13,500,829) - - - 49,555,725 (14,962,293) 34,593,432 (16,910,951) 17,682,481 54 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 17 Non-current assets - Property, plant and equipment (continued) Queensland aquaculture CGU ('QLDAQ') As at 30 June 2023 the carrying value of property, plant and equipment for the Queensland Aquaculture cash-generating-unit ("CGU") was $16,749,492 (2022: $16,940,032). Management’s approach and the key assumptions used to determine the CGU’s FVLCOD in FY2023 were as follows: CGU Unobservable inputs 2023 2022 QLDAQ Cost of disposal Sales price per hectare 5% $62,000 to $91,000 5% $59,000 to $85,000 No impairment was necessary for QLDAQ in either 2023 or 2022. Approach in determining key assumptions Estimated based on the company's experience with disposal of assets and on industry benchmarks Based on an independent valuation of the properties. 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 lease 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. As a result of this assessment, a total impairment charge of $14,962,293 was recognised as at 30 June 2022. All subsequent expenditure on Project Sea Dragon has been expensed as incurred. 55 18 Non-current assets - Right-of-use assets Seafarms Group Limited Notes to the financial statements 30 June 2023 (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 Depreciation charge Impairment loss Remeasurement Closing net book amount At 30 June 2022 Cost or fair value Accumulated depreciation Net book amount At 1 July 2022 Cost Impairment Subtotal Accumulated depreciation Net book value Year ended 30 June 2023 Opening WDV Additions Depreciation charge Impairment loss Closing WDV At 30 June 2023 Cost Impairment Subtotal Accumulated depreciation Net Book Value 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 Leasehold land $ Leased Buildings $ Leased Plant and equipment $ Total $ 21,624,847 (19,048,840) 2,576,007 (2,576,007) - 1,987,408 (681,694) 1,305,714 (1,305,714) - 1,212,282 (28,134) 1,184,148 (1,089,448) 94,700 24,824,537 (19,758,668) 5,065,869 (4,971,169) 94,700 - 2,100,509 - (2,100,509) - - 487,650 (214,533) - 273,117 94,700 140,165 (126,292) - 108,573 94,700 2,728,324 (340,825) (2,100,509) 381,690 23,725,356 (21,149,349) 2,576,007 (2,576,007) - 2,475,058 (681,694) 1,793,364 (1,520,247) 273,117 1,352,447 (28,134) 1,324,313 (1,215,740) 108,573 27,552,861 (21,859,177) 5,693,684 (5,311,994) 381,690 Lease - Legune station As stated in Note 3, a modification of the term of the Legune Station lease was required as a result of a change in the non-cancellable period of the lease. This resulted in an increase in the lease liabilities by $2,100,510 and an addition to the right of use assets by the same amount. The right of use asset has been fully impaired given that project financing for Project Sea Dragon has not yet been obtained. 56 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 18 Non-current assets - Right-of-use assets (continued) Depreciation methods and useful lives The leased land is depreciated using the minimum lease term of 18 months. 19 Non-current assets - Deferred tax assets The balance comprises temporary differences attributable to: Fair value Work in progress Provisions Accruals Borrowings Other deductible expenses Depreciable assets Accrued interest Lease assets and liabilities Prepayments Unpaid super Net deferred tax assets Deferred tax balances not recognised Movements: Total for the year Amount of deferred tax assets not recognisable Closing balance at 30 June 2023 $ 2022 $ 154,868 11,457,572 404,585 622,921 1,250,000 2,327,969 691,445 253,425 965,911 (227,928) 15,166 17,915,934 (17,915,934) - 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 21,533,605 (21,533,605) - 3,617,671 (3,617,671) - (16,308,941) 16,308,941 - Unrecognised tax losses As at balance date, the Group has not recognised the following deferred tax assets in respect of unused tax losses: Tax losses (revenue in nature) 41,069,326 33,614,997 20 Other non-current assets Loan to AAM Licensees Pty Ltd Expected loss on non-current loan Secured assets pledged as security 2023 $ 2022 $ 5,000,000 (5,000,000) 331,999 331,999 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 3(b), the receivable forms part of the series of arrangements in relation to Legune, as at 30 June 2023, 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. 57 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 20 Other non-current assets (continued) (a) Cash not available for use $331,999 (2022: $nil) is held as security for bank facilities and office lease guarantees. 21 Current liabilities - Trade and other payables Trade payables Accrued expenses PAYG payable Other payables 2023 $ 3,252,700 1,089,249 109,822 244,050 4,695,821 2022 $ (Restated) 1,249,236 2,197,734 229,352 242,804 3,919,126 * Trade payables includes $1,900,000 relating to the DOCA which is due to be paid by the administrators on execution of the DOCA (note 23(a)). The Group has financial risk management policies in place to ensure that all payables are paid within the credit time frame. 22 Liabilities - Borrowings Leases The group leases various offices, equipment and vehicles. Rental contracts are typically made for fixed periods of 12 months to 5 years. Extension and termination options, and residual value guarantees are included in a number of property and equipment leases of the group. The majority of extension and termination options held are exercisable only by the group and not by the respective lessor. Some property and equipment lease payments contain variable lease payments that are linked to consumer price index and are included in the calculations of right-of-use assets and lease liabilities in relation to these leases. 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 other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes. Contracts may contain both lease and non-lease components. The group allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices. Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less without a purchase option. Low-value assets comprise IT equipment and small items of office furniture. See note 1(i) for the other accounting policies relevant to lease accounting. 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. 58 22 Liabilities - Borrowings (continued) Current borrowings Lease liabilities Total current borrowings Non-current borrowings Lease liabilities Total non-current borrowings Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) Opening balance Cash 1 July 2022 movement $ $ Non-cash movement $ Closing Balance 30 June 2023 $ 1,902,251 (1,516,130) 2,619,705 3,005,826 1,902,251 (1,516,130) 2,619,705 3,005,826 1,034,272 1,034,272 108,620 108,620 1,142,892 1,142,892 - Total Borrowings 2,936,523 (1,516,130) 2,728,325 4,148,718 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 29,897,396 18,382,047 18,382,047 (303,363) - (5,000,000) (3,884,234) (9,187,597) - (14,759,571) (7,000,000) 2,952,023 (18,807,548) - - - 1,902,251 1,902,251 - - (17,347,775) (17,347,775) 1,034,272 1,034,272 Total Borrowings 48,279,443 (9,187,597) (36,155,323) 2,936,523 23 Provisions Make good provision Provision for contractual liabilities Current $ 1,000,000 - 1,000,000 2023 Non- current $ Total $ Current $ 83,631 1,083,631 10,309 - 8,730,094 83,631 1,083,631 8,740,403 - 2022 Non- current $ Total $ 124,591 134,900 - 8,730,094 124,591 8,864,994 (a) Information about individual provisions and significant estimates Make good provision The balance of construction liabilities as at 30 June 2023 of $1,000,000 is an estimate of the cost of rehabilitating Project Sea Dragon project sites. This liability would only become payable in the event that the Company no longer proceeded to develop Project Sea Dragon on those sites. 59 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 23 Provisions (continued) Make good provision (continued) The Group is required to restore the leased premises 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 construction liabilities In the prior year the Company provisioned the sum of $8,730,094 for the claims against Project Sea Dragon Pty Limited (PSD) by Canstruct with respect to construction work for Project Sea Dragon. The directors expressly noted that the provision was not an acknowledgement of debt. After completion of the 2022 Annual Report the directors received independent advice that the entire claim by Canstruct could be validly disputed by PSD. The directors formed the view that the provision in the 2022 Annual Report was incorrect and should have been noted as a contingent claim. The Company continues to dispute the claims by Canstruct in their entirety. On 13 February 2023, PSD was placed into voluntary administration and on 23 March 2023 a Deed of Company Arrangement (DOCA) was executed. The DOCA has the effect of extinguishing all amounts owing to creditors as at the date of the appointment of the administrators including the amount claimed by Canstruct (which was disputed as to the entire amount of the claim). The accounts of PSD and the Group have been prepared on this basis and a provision for contract liabilities as it relates to the construction contract is no longer required. Subsequently Canstruct has undertaken legal proceedings seeking to have the DOCA terminated. In the event Canstruct are successful then PSD would be placed into liquidation which would have the same effect of extinguishing all amounts currently recognised as payable to creditors of PSD. It would also have the effect of extinguishing all claims against PSD including the disputed claim by Canstruct. (b) Movements in provisions Movements in each class of provision during the financial period, other than employee benefits, are set out below: 2023 Carrying amount at start of year - additional provisions recognised - recognised in current liabilities - provisions no longer required Carrying amount at end of period 2022 Carrying amount at start of year - additional provisions recognised Carrying amount at end of period Make good provision $ Provision for construction liabilities $ Total $ 134,900 1,000,000 - (51,269) 1,083,631 8,730,094 4,257,310 (1,607,083) (11,380,321) - 8,864,994 5,257,310 (1,607,083) (11,431,590) 1,083,631 Make good provision $ Provision for construction liabilities $ Total $ 134,109 791 134,900 - 8,730,094 8,730,094 134,109 8,730,885 8,864,994 60 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 24 Employee benefit obligations 2023 Non- current $ Current $ Total $ Current $ 2022 Non- current $ Total $ Leave obligations 1,121,223 366,264 1,487,487 1,349,694 35,718 1,385,412 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(w). 25 Issued capital (a) Share capital Ordinary shares Fully paid space Convertible preference shares Notes 2023 Shares 2022 Shares 2023 $ 2022 $ 4,836,599,179 4,836,599,179 300,316,435 300,316,435 30,150,190 4,866,749,369 30,150,190 4,866,749,369 301 300,316,736 301 300,316,736 (b) Movements in ordinary share capital Details Number of shares $ 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 Opening balance 1 July 2022 Balance 30 June 2023 (c) Convertible preference shares 2,422,641,490 1,954,234,964 45,454,545 413,818,183 449,997 - 4,836,599,179 172,421,643 107,482,943 2,500,000 21,932,364 43,762 (4,064,277) 300,316,435 Number of shares $ 4,836,599,179 4,836,599,179 300,316,435 300,316,435 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 at a conversion ratio of 1 convertible preference share to 1 fully paid ordinary share. There is no debt component linked to the convertible preference shares and no maturity date. 61 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 25 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 35. On 12 December 2018, the Group issued 30,000,000 unlisted share options to AAM Investment Partners as part of the Legune lease transaction. The options have an exercise period of 5 years from 12 December 2018 to 12 December 2023 at an exercise price of $0.097 per unlisted option. At the 30 June 2023, these unlisted options remain unexercised. On 24 August 2021, the Group issued 1,447,806,216 unlisted options. Of these options, 225,000 have been converted to shares in FY22. 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 expire 13 August 2024. The exercise price of the options are $0.0975. Listed options The Company had no listed options at year end (2022: nil). 26 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 2023 $ 2022 $ (24,740) 13,186,760 1,670,705 14,832,725 (24,740) 13,186,760 1,670,705 14,832,725 13,186,760 - 13,186,760 10,371,472 2,815,288 13,186,760 (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 62 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 26 Reserves (continued) (I) Share-based payments (continued) • 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. 27 Key management personnel disclosures (a) Key management personnel compensation Short-term employee benefits Post-employment benefits Long-term benefits Termination benefits Share-based payments 28 Remuneration of auditors 2023 $ 1,579,729 81,651 6,170 - - 1,667,550 2022 (Restated) $ 2,559,877 177,562 12,455 3,120,308 2,815,288 8,685,490 During the year the following fees were agreed for services provided by the auditor of the Seafarms Group Limited: Audit services Pitcher Partners Audit and review of financial reports space Deloitte Touche Tohmatsu Audit and review of financial reports Total auditors' remuneration 29 Commitments Capital commitments 2023 $ 2022 $ 180,000 - - 180,000 275,000 275,000 The Group has no material capital commitments as at 30 June 2023 (30 June 2022: Nil). 30 Related party transactions (a) Subsidiaries Interests in subsidiaries are set out in note 31. 63 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 30 Related party transactions (continued) (b) Loans to/from related parties There were no loans to or from related parties in the current year. During the 2022 financial 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 Interest charged Interest paid End of period (c) Terms and conditions 2023 $ 2022 $ - - - - - - 14,759,571 (14,647,273) (274,402) 248,469 (86,365) - 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% (2022: 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. 31 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 2023 % 2022 % 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 PSD Construction Employment Pty Ltd Seafarm Queensland 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 32 Events occurring after the reporting period At the date of this report no other matter or circumstance has occurred subsequent to 30 June 2023 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. 64 33 Reconciliation of loss for the year to net cash flows from operating activities Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 2023 $ 2022 (Restated) $ (15,355,902) 2,062,361 2,100,509 - - - - - - - - (4,100,735) (140,874) 525,199 (1,617,854) 776,695 (7,740,402) (228,471) 330,546 (40,960) (23,429,888) (86,272,763) 3,964,347 3,480,847 13,500,829 1,461,464 2,815,288 162,104 192,250 (549,311) 1,684,901 5,000,000 673,110 (257,573) 2,115,810 (230,326) (4,894,080) 8,730,094 - - - (48,423,009) 2023 Cents 2022 Cents (Restated) (0.32) (0.32) (1.88) (1.88) 2023 Cents 2022 Cents (Restated) (0.32) (0.32) (1.88) (1.88) Loss for the year Depreciation and amortisation Impairment of right-of-use assets Impairment of PSD Pre-Development costs Impairment of plant and equipment and leasehold improvements Non-cash employee benefits expense Accrued interest Net losses on sale of non-current assets Gain on issue of debt equity Accrued interest for Legune land Expected loss on non-current loan Change in operating assets and liabilities: (Increase)/decrease in trade debtors and receivables Increase/(decrease) in other current assets Increase/(decrease) in inventories Increase/(decrease) in biological assets Increase/(decrease) in trade creditors Increase/(decrease) in provisions Increase/(decrease) in current employee obligation Increase/(decrease) in non current employee obligations Increase/(decrease) in non current provisions Net cash outflow from operating activities 34 Earnings per share (a) Basic earnings per share Basic earnings per share from continuing operations Total basic earnings per share attributable to the ordinary owners of the Company (b) Diluted earnings per share Diluted earnings per share from continuing operations Total basic earnings per share attributable to the ordinary owners of the Company 65 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 34 Earnings per share (continued) (c) Reconciliation of earnings used in calculating earnings per share Basic earnings per share Loss from continuing operations Diluted earnings per share Loss from continuing operations Loss from continuing operations attributable to the ordinary equity holders of the Company 2023 $ 2022 $ (Restated) (15,355,902) (15,355,902) (86,272,763) (86,272,763) (15,355,902) (86,272,763) (15,355,902) (86,272,763) 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 2023 Number 30 June 2022 Number Weighted average number of ordinary and diluted shares used as the denominator in calculating basic earnings per share 4,836,599,179 4,577,241,006 35 Share-based payments Share based compensation payments are provided to employees in accordance with the "Seafarms Group Employee Incentive Plan" as detailed in the remuneration report. The fair value of the equity instruments granted is adjusted to reflect market Vesting Conditions, but excludes the impact of any non-market Vesting Conditions. The fair value determined at the grant date of the equity-settled share based payments is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of equity instruments that will eventually vest. At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve. 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 66 35 Share-based payments (continued) 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 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 2023 2022 Weighted average exercise price (cents per unit) Number of shares options Weighted average exercise price (cents per unit) Number of shares options 7.15 - 100,000,000 - 7.15 (100,000,000) - - - - 35,000,000 9.70 7.15 220,000,000 7.00 (120,000,000) 10.00 (35,000,000) 7.15 100,000,000 *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 terms and conditions relating to these options are contained in the Seafarms Group Employee Incentive Plan as approved by shareholders at the AGMs held on 15 December 2020. The options outstanding at 30 June 2022 had a weighted average exercise price of 7.15 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% 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. 36 Contingent liabilities The Group has possible obligations relating to the suspension and termination of contracts relating to Project Sea Dragon. Refer to note 23 for further information. Secured liabilities and assets pledged as security The Group has a $80,000 (2022: $80,000) facility on its company credit cards and has been required to provide guarantee facilities of $397,956 (2022: $273,205) in respect of office leases and a guarantee of $267,840 (2022: $133,920) in favour of Great Barrier Reef Marine Parks. The Group maintains term deposits with the bank to secure these facilities. Due to a change in bankers, some deposits have been temporarily duplicated in the year ending June 2023. 67 Seafarms Group Limited Notes to the financial statements 30 June 2023 (continued) 37 Parent entity financial information (a) Summary financial information The individual consolidated 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 Accumulated losses Total equity Loss for the period Total comprehensive loss (b) Guarantees of the Parent entity 2023 $ 2022 $ (Restated) 10,639,718 25,389,931 36,029,649 35,113,456 19,068,040 54,181,496 (1,306,162) (608,242) (1,914,404) (1,335,197) (529,395) (1,864,592) 34,115,245 (34,115,245) 52,316,904 (52,316,904) 300,306,107 14,857,465 (281,048,327) 300,306,107 14,857,465 (262,846,668) 34,115,245 52,316,904 (18,201,659) (83,136,353) (18,201,659) (83,136,353) The Parent entity has guaranteed the obligations of Project Sea Dragon Pty Limited under the agreement for the lease of the Legune property. (c) Contractual commitments for the acquisition of property, plant or equipment As at 30 June 2023 and 30 June 2022, the Parent entity had no contractual commitments for the acquisition of property, plant or equipment. 68 Seafarms Group Limited Directors' declaration 30 June 2023 In the Directors' opinion: (a) (b) (c) the consolidated financial statements and notes set out on pages 23 to 68 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 2023 and of its performance for the financial period ended on that date, and the financial statements and notes set out on pages 23 to 68 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 chief executive officer 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 Company Secretary Perth 30 August 2023 69 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 controlled entities (“the Group”), which comprises the consolidated statement of financial position as at 30 June 2023, 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, notes to the financial statements including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (a) (b) giving a true and fair view of the Group’s financial position as at 30 June 2023 and of its financial performance for the year then ended; and complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (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 financial report, which indicates that the Group incurred an operating cash outflow of $23,429,888 and a net loss of $15,355,902 for the year ended 30 June 2023. As at 30 June 2023, the Group had net current assets of $17,311,862, including cash and cash equivalents of $8,453,527. As stated in Note 1(c), these events and conditions, along with other matters as set forth in Note 1(c), indicate that a material uncertainty exists that may cast significant doubt about the Group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. Emphasis of Matter – Restatement of comparatives We draw attention to Note 2 of the financial report which describes the restatement of comparative figures due to a prior period error. Our opinion is not modified in respect of this matter. Brisbane Sydney Newcastle Melbourne Adelaide Perth Pitcher Partners is an association of independent firms. An Independent Queensland Partnership ABN 84 797 724 539. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. pitcher.com.au NIGEL FISCHER MARK NICHOLSON PETER CAMENZULI JASON EVANS KYLIE LAMPRECHT NORMAN THURECHT BRETT HEADRICK WARWICK FACE COLE WILKINSON SIMON CHUN JEREMY JONES TOM SPLATT JAMES FIELD DANIEL COLWELL ROBYN COOPER FELICITY CRIMSTON CHERYL MASON KIERAN WALLIS MURRAY GRAHAM ANDREW ROBIN KAREN LEVINE EDWARD FLETCHER ROBERT HUGHES Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matter Accounting for Project Sea Dragon contractual dispute, voluntary administration, and legal case Refer to notes 10, 13, 21 and 23 During the 2023 financial year, the following events occurred with respect to a significant capital project being undertaken by the Group, known as Project Sea Dragon (the Project): • Significant final claims were submitted by the • Obtaining correspondence from, and holding discussions with the Group’s legal advisors to assess: - How our audit addressed the key audit matter Our audit procedures included, amongst others: The financial reporting consequences if the legal claim by the Contractor is successful; The basis for the Group’s reported assessment of the probability of the claim being successful; - • Agreeing the amounts of liabilities and assets recognised to the amounts prescribed in the DOCA; • Recalculating amounts recognised in profit and loss as a result of the accounting for the DOCA; and • Assessing the adequacy of financial statement disclosures. principal construction contractor (the Contractor) on the project. The contract was initially terminated by the Group in the 2022 financial year. A provision of $8,730,094 was recognised at 30 June 2022 in respect of these claims. • The amount of the final progress claims was disputed by the Group, with no amount being paid towards settlement of those claims. • During the year an adjudication decision was handed down under the security of payments legislation in the Northern Territory, assessing a liability of $12,769,145 in respect of the claims. • The Project entity, Project Sea Dragon Pty Ltd (PSD), was placed into voluntary administration by its directors following withdrawal of funding support by its parent entity, Seafarms Group Limited. • Creditors of PSD agreed to a Deed of Company Arrangement (DOCA) which prescribed settlement terms of creditor claims against PSD, and for control of PSD to be returned to its Directors. • The Contractor subsequently sought, and was granted, an injunction with respect to the execution of the terms of the DOCA, and has submitted a claim disputing the validity of the DOCA and the administration process. The dispute remains before the courts as at the date of the financial statements. • The financial statements of the Group recognise the liabilities of PSD at 30 June 2023 to the extent prescribed by the DOCA ($1,900,000 – refer Note 21) and include a receivable for amounts contributed by Seafarms Group Limited to the Administrator of PSD as prescribed under the DOCA ($3,500,000 - refer Note 13). This has been assessed as a key audit matter due to the complex nature of these events and their pervasiveness to the financial statements, as well as the significant judgements made by management in applying the requirements of Australian Accounting Standards to account for the effects of these events in the financial statements. Pitcher Partners is an association of independent firms. An Independent Queensland Partnership ABN 84 797 724 539. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. 2 Key Audit Matter Valuation of biological assets Refer to note 3(a)(i) and 16 As at 30 June 2023 the Group held $4,072,025 of biological assets. This balance comprises live prawn crops of $3,572,025 carried at fair value less estimated costs to sell, and prawn broodstock of $500,000 carried at current replacement cost. Live prawn crops are valued using a model which requires management 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; and Costs to sell Prawn broodstock is valued using a model which estimates the costs to replace existing broodstock (which are internally produced domesticated animals) with wild caught broodstock, including trawler and shipping costs. This was assessed as a key audit matter due to the significant judgements and assumptions required for inputs used in the valuation of these assets under a level 3 fair value methodology. How our audit addressed the key audit matter Our audit procedures included, amongst others: • Obtaining an understanding and evaluating the design and implementation of the relevant controls associated with the valuation of biological assets; • Assessing and concluding on the appropriateness of the valuation methodologies adopted; • Assessing and challenging the key assumptions in the valuation models, through: - Comparison of survival rate and harvest average body rate to historical actual results achieved in previous harvests - Comparison of average production costs against actual historical costs - Comparison of sales and cost to sell assumptions against recent historical, forecast, and actual post balance date sales prices net of actual and forecast costs to sell. - Examining support for replacement cost assumptions applied by management; • Undertaking sensitivity analysis on the valuation outcome by applying reasonably possible alternative assumptions; and • Assessing the adequacy of the disclosures in the financial statements. Valuation of non-current assets – Queensland Aquaculture Refer to Note 17 As at 30 June 2023 the carrying value of property, plant and equipment for the Queensland Aquaculture cash-generating unit (CGU) was $16,749,492 as disclosed in Note 17. Management has identified an indicator of impairment relating to the Queensland Aquaculture CGU as at 30 June 2023. In response, management assessed the recoverable amount of the CGU using the Fair Value Less Cost of Disposal (FVLCD) of the CGU. In order to determine the FVLCD of the CGU, management obtained independent valuations which subsequently required the exercise of significant judgement in respect of: • Identification of the assets included within the scope of the valuations; and • 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. The recoverable amount was compared against the carrying value of the CGU in assessing whether the CGU assets were impaired. This was assessed as a key audit matter due to the significant judgements and assumptions required in measuring the recoverable amount of the CGU. Our audit procedures included, amongst others: • Obtaining an understanding and evaluating the design and implementation of the relevant controls associated with assessing non- current assets for impairment, and the impairment assessment itself (including the determination of recoverable amount); • Evaluating whether management’s identification of impairment indicators was adequately supported; • Assessing whether management’s impairment assessment was performed in accordance with the prescribed requirements of AASB 136 Impairment of Assets; • Obtaining an understanding of the work of the expert engaged by management to provide the independent valuations, including: - Evaluating the independence, competence, capabilities and objectives of the expert; - Evaluating the data (comparable sales information) relied on by the expert in deriving the valuations and confirming the expert’s position was supported by this data. - Evaluating and concluding on the appropriateness of the expert’s work for the purpose intended by management; • Reperforming the impairment calculation; and • Assessing the adequacy of the disclosures in the financial statements. Pitcher Partners is an association of independent firms. An Independent Queensland Partnership ABN 84 797 724 539. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. 3 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 2023, 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 accordingly 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 audit. We remain solely responsible for our audit opinion. Pitcher Partners is an association of independent firms. An Independent Queensland Partnership ABN 84 797 724 539. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. 4 We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included on pages 11 to 19 of the directors’ report for the year ended 30 June 2023. In our opinion, the Remuneration Report of Seafarms Group Limited for the year ended 30 June 2023 complies with section 300A of the Corporations Act 2001. Emphasis of Matter – Restatement of comparatives We draw attention to Section (f) of the remuneration report which describes the restatement of comparative figures due to a prior period error. Our opinion is not modified in respect of this matter. 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. PITCHER PARTNERS DAN COLWELL Partner Brisbane, Queensland 30 August 2023 Pitcher Partners is an association of independent firms. An Independent Queensland Partnership ABN 84 797 724 539. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. 5 The Shareholder information set out below was applicable as at 31 July 2023. A. Distribution of equity securities Analysis of the number of equity security holders by size of holding and the total percentage of securities in that class held by the holders in each category: Seafarms Group Limited Shareholder information Holding 1 - 1000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Ordinary Shares No. of Holders No. of Shares % 59,543 259 1,522,761 466 6,174,383 767 2,735 117,876,940 1,873 4,710,965,552 6,100 4,836,599,179 -% 0.03% 0.13% 2.44% 97.40% 100.00% The number of shareholders holding less than a marketable parcel of shares are 3,863 90,462,190 1.87% B. Equity security holders Twenty largest quoted equity security holders The names of the twenty largest holders of quoted equity securities are listed below: Name Mutual Trust Pty Ltd Avatar Industries Pty Ltd (HIN) Avatar Finance Pty Ltd Nippon Suisan Kaisha Ltd Avatar Industries Pty Ltd Gabor Holdings Pty Ltd (The Tricorp A/C) USB Nominees Pty Ltd Rubi Holdings Pty Ltd Perpetual Corporate Trust Limited Fifty Second Celebration Pty Ltd Pinnacle Superannuation P/L Thirty Fifth Celebration Pty Ltd Narrow Lane Pty Ltd Ace Property Holdings Pty Ltd Mr Robert Scott Wynd Wilbow Group Pty Ltd Mr Xi Yu Zhang Wilbow Group Pty Ltd Gabor Holdings Pty Ltd C. Substantial holders Substantial holders in the Company are set out below: Gabor Holdings Pty Ltd Janet Heather Cameron 75 Ordinary shares Number held Percentage of issued shares 952,347,727 630,160,950 312,727,273 283,230,208 245,791,047 197,230,722 162,681,098 114,546,091 90,909,091 81,048,296 40,462,120 40,000,000 32,045,683 24,600,000 24,411,036 23,636,364 23,094,553 22,798,226 21,718,368 21,016,472 3,344,455,325 19.69 13.03 6.47 5.86 5.08 4.08 3.36 2.37 1.88 1.68 0.84 0.83 0.66 0.51 0.50 0.49 0.48 0.47 0.45 0.43 69.16 Number held Percentage 1,411,603,263 952,347,727 29.19% 19.69%

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