TasFoods Limited Annual Report 2020

Plain-text annual report

2020 ANNUAL REPORT TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 1 CORPORATE DIRECTORY BOARD OF DIRECTORS Craig Treasure - Non-Executive Chair Jane Bennett - Managing Director and CEO Roger McBain - Non-Executive Director Ben Swain - Non-Executive Director COMPANY SECRETARY Janelle O’Reilly REGISTERED OFFICE 52-54 Tamar Street Launceston Tasmania 7250 Australia Telephone: Facsimile: Website: + 61 3 6331 6983 + 61 3 6256 9251 www.tasfoods.com.au POSTAL ADDRESS Po Box 425 Launceston Tasmania 7250 Australia SHARE REGISTRY Link Market Services Level 12, 680 George Street Sydney New South Wales 2000 Australia Telephone: + 61 2 8280 7100 + 61 2 9287 0303 Facsimile: TasFoods Limited ACN 084 800 902 AUDITOR PricewaterhouseCoopers 2 Riverside Quay Southbank Boulevard Southbank Victoria 3006 Australia SOLICITORS HWL Ebsworth Level 26, 530 Collins Street Melbourne Victoria 3000 Australia Groom Kennedy Lawyers and Advisers Level 1, 47 Sandy Bay Road Hobart Tasmania 7000 Australia BANKERS Australia and New Zealand Banking Group Bendigo Bank STOCK EXCHANGE LISTING TasFoods Limited shares are listed on the Australian Securities Exchange, code TFL TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 2 tasfoods.com.au CONTENT Corporate Directory Who We Are Chairman’s Report Managing Director & CEO Report Operating & Financial Review • Poultry Division • Dairy Division • Corporate Division • 2021 Outlook • Risk Board of Directors Executive Team Directors’ Report 02 04 08 10 14 15 18 21 23 25 28 29 30 50 Financial Report • Consolidated Statement of Profit & Loss and Other Comprehensive Income 51 • Consolidated Statement of Financial Position 52 • Consolidated Statement of Changes In Equity 53 • Consolidated Statement of Cash Flows 54 • Notes to Financial Statements • Directors’ Declaration • Independent Auditor’s Report Shareholder Information 101 94 93 55 TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 3 TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 3 We believe life is better accompanied by great tasting food sourced with authentic provenance TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 4 We are building a portfolio of leading food and beverage brands that leverage the natural advantages of Tasmania and its reputation for fine food TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 5 We deliver the essence of Tasmania to the table TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 6 Our diverse customer base enables us to deliver the essence of Tasmania to where our consumers choose to shop and eat TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 7 CHAIRMAN’S REPORT On behalf of the Board of Directors and Management of TasFoods Ltd, I am pleased to present to you the Annual Report for the financial year ended 31 December 2020. Despite a very challenging year for TasFoods, we ended the year with a strong cash balance and achieved earnings growth since August. This mid-year turn-around reflected the rapid response of our team to dramatically changing production, sales and distribution conditions, and provides the momentum required to successfully implement our new strategic plan in 2021. The COVID pandemic created a difficult trading environment, particularly from April until July, with significant volatility in market demand that negatively impacted poultry gross margins, cheese and wasabi sales. Poultry sales stabilised and gross margins returned to pre-COVID levels from August, contributing to an overall sales growth of more than 10 per cent in the second half of the year compared to the same period in 2019. The economic uncertainty experienced in the first half of 2020 led the company to recognise an impairment expense of $3.5 million, comprising goodwill impairment of $2 million in the poultry division and $1.5 million in the dairy division. Due to market uncertainty at the time, we adopted a conservative approach to the underlying impairment calculations. The write-down was a statutory accounting adjustment only and does not impact the company’s future trading potential, nor its cashflow position. “Despite a very challenging year for TasFoods, we ended the year with a strong cash balance and achieved earnings growth since August.” CRAIG TREASURE NON-EXECUTIVE CHAIRMAN TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 8 CHAIRMAN’S REPORT CONT. During the first half of the year, we also recorded a decrease of $1.18 million in the fair value of the wasabi crop. This write-down was due to the COVID-induced closure of premium restaurants and the corporate event catering sector of the food service market, directly impacting the sale of fresh wasabi products, which made up 73% of total wasabi sales. The write-down did not impact the company’s cash position, nor did it impact the biomass of the crop available for future sales. The Board of Directors was renewed in 2020, with two new directors appointed on 4 June - Ben Swain as Non-Executive Director and me in the position of Chair. Previous Executive Chairman Shane Noble resigned from the Board in July and Non-Executive Director Alexander (Sandy) Beard resigned in October. I would like to thank both Shane and Sandy for their contribution to TasFoods during the years of their directorships. With a refreshed Board in place, and with our management team, we developed a new strategic plan for the company, which was released in December. We remain committed to our strategic vision – to build a portfolio of leading food and beverage brands that leverage the natural advantages of Tasmania and its reputation for fine food. Our focus for growth in 2021 is to accelerate sales growth of our Super Premium and Luxury Everyday brands, particularly through distribution expansion into interstate markets and new product development. In August 2020 we announced an equity raising which raised $4.1 million, before costs, from the issue of 48.6 million fully paid ordinary shares, through a combination of a Placement and Entitlement Offer. The equity raising was completed in October 2020. Proceeds from the equity raising will be used to support initiatives identified in the new strategic plan, including strategic acquisitions. A further equity injection of $3.0 million to support the company’s strategic growth objectives for its poultry and dairy operations was received in November 2020 through the issue of 30 million new shares to AgFood Opportunities Fund, a fund managed by AgFood Fund Pty Ltd. I would like to thank the management team for its rapid response to the pandemic outbreak and for implementing COVID-safe practices across the business operations that supported full operational activity within our two largest poultry and dairy processing operations during the four-week hard lockdown of North West Tasmania in April/May. Our business operations have rebounded from the initial challenges of the COVID-influenced market volatility. Monthly operating EBITDA has been positive for every month since August and we expect this positive trading position to continue into 2021. The equity injections of 2020 will support the company in implementing initiatives identified in the new strategic plan, adopted in December, which will support sales revenue growth and improvements to gross margins in 2021. Craig Treasure. Non-Executive Chair TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 9 MANAGING DIRECTOR & CEO REPORT 2020 was a challenging year for the business and for our people as the COVID pandemic impacted both the economy and the physical movement of people and products. TasFoods experienced significant disruption in the second quarter of the year with the COVID-influenced closure of the Pyengana Dairy Café, a significant reduction in wasabi and cheese sales as a result of the closure of food service markets, and volatility in market demand for chicken products. I am very proud of the way our team responded to the many challenges of 2020 and particularly their implementation of a COVID-safe work environment. Our two largest processing operations, Nichols Poultry and Betta Milk, are located in North West Tasmania, which entered Australia’s first community Stage 4 lockdown on 12 April for four weeks. Our teams rapidly developed an extensive range of safe work practices and reporting processes that enabled our sites to remain fully operational, delivering perishable, short shelf-life food to all our customers, in full and on time. We have maintained our COVID-safe work environment, which has created some additional costs for operations as a result of new daily cleaning and sanitation processes, the purchase of personal protective clothing, and rental costs associated with hiring demountable buildings to provide additional lunch rooms and portable toilet facilities that have supported the segregation of work groups on our largest sites. “Our brands embody the pyramid of consumer needs and reflect a relevant essence of Tasmania at each level.” JANE BENNETT MANAGING DIRECTOR & CEO TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 1 0 MANAGING DIRECTOR & CEO REPORT CONT. FINANCIAL PERFORMANCE FY 2020 FY 2019 Dairy $’000 Poultry $’000 Corporate and Other $’000 Total $’000 Dairy $’000 Poultry $’000 Corporate and Other $’000 Total $’000 Change $’000 Change % 29,617 37,311 508 67,436 15,415 35,176 514 51,105 16,331 (28,247) (38,344) (6,105) (72,696) (14,392) (32,901) (4,969) (52,262) (20,434) 32% 39% 1,370 (1,033) (5,597) (5,260) 1,023 2,275 (4,455) (1,157) (4,102) -354% Revenue Expenditure EBITDA Less Non-operating Items: Acquisition Costs Movement in Fair Value - (38) - (15) (15) (107) ( 1,154 ) (1,300) Impairment Expense (1,500) (2,000) - (3,500) Operating EBITDA 2,908 1,074 (4,427) (445) GP Margin NPAT 35% 20% 27% (6,407) Government responses to the emerging COVID pandemic from March resulted in the closure of segments of our market during the second quarter. The business responded quickly to the changed market conditions at this time, working closely with customers to pivot sales to emerging markets. The changes made in this period helped generate a strong second-half financial performance, achieving a Group operating EBITDA of $0.677 million. This enabled the Group to report a $1.384 million, or 76%, improvement in operating EBITDA for the full year over FY 2019, lifting the result to negative $0.445 million. Positive operating EBITDA was reported for each quarter except Q2 2020, which was negatively impacted by market volatility associated with the COVID pandemic. - 37 - 986 34% - 439 - (497) 692 - (497) 1,169 - 482 97% 1,835 (4,650) (1,829) 1,384 22% 25% (3,459) 76% 2% The impairment expense of $3.5 million plus the decline of $1.2 million in the fair value of the wasabi crop, both recognised in June, contributed to the full-year financial result of a net loss of $6.41 million. The impairment of goodwill and the write-down of the wasabi biological asset value did not affect the cash position of the company, which was boosted by two equity injections, totalling $7.1 million, in the second half of the year. We ended 2020 in a strong cash position with cash holdings of $7.24 million and total available funds of $9.10 million. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 1 1 MANAGING DIRECTOR & CEO REPORT CONT. TOTAL REVENUE ($’000) REVENUE BY DIVISION $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $ 2016 2017 2018 2019 2020 Sales revenue for 2020 grew to $66.911 million, which was 32% up on the 2019 revenue of $50.69 million. This represented a 10% organic growth after adjusting for Betta Milk, which was acquired on 31 July 2019. Our two major operating divisions both achieved sales revenue growth, but the poultry division revenue was subdued by COVID- influenced market volatility in the second quarter. Poultry sales represented 55% of total sales revenue, down from 69% of total sale revenue in 2019. Dairy sales revenue grew to 44% of total sales revenue after the first full year of Betta Milk ownership, up from 30% of sales in 2019. Sales to interstate markets grew by 25% for the year through a combination of increased volume to existing customers, reflecting the introduction to market of new product ranges and the acquisition of new customers. Growth in interstate markets will remain a focus in 2021. 1% 44% 55% Poultry Dairy Wasabi & Other STRATEGY We released a new strategic plan in December, continuing our commitment to our strategic vision to build a portfolio of leading food and beverage brands that leverage the natural advantages of Tasmania and its reputation for fine food, to deliver the essence of Tasmania to the table. Our ‘house of brands’ strategy ensures that every brand we develop or acquire is able to deliver a relevant element of Tasmania’s essence to meet the expectations of a variety of consumers. In recognition of our diverse customer base, our strategy aims to enable the essence of Tasmania to be delivered to where our consumers choose to shop and eat. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 1 2 MANAGING DIRECTOR & CEO REPORT CONT. DIVERSIFIED BRAND & CHANNELS TO MARKET Our brands embody the pyramid of consumer needs and reflect a relevant essence of Tasmania at each level. Our diversified customer base enables us to deliver the essence of Tasmania to where consumers choose to shop and eat. SUPER PREMIUM EVERYDAY LUXURY CORE EVERYDAY VALUE Brands that reflect artisan provenance and Tasmanian heritage, targeted at food lovers seeking provenance behind the product. Brands that provide a piece of Tasmanian indulgence for everyday life, targeted at national retail and export markets. Brands that support loyal Tasmanian markets with local products providing profitable volume to underpin the operations. Brands that utilise waste streams or generate inputs to high value brands, targeted at value customers. TASSIE TASTE RETAIL Retail is a core channel to consumers as it remains the most convenient format to purchase food for home consumption DISTRIBUTORS Distributors are an important link in the supply chain for perishable goods, particularly for interstate markets FOOD SERVICE Direct supply to businesses preparing and selling food supports deeper understanding of products and their attributes CONSUMER DIRECT Direct engagement with consumers provides unique customer insights and builds relationships that foster brand champions MARKETING To support the growing demand for online purchasing, we redeveloped our online stores and websites to improve the shopping experience and better reflect the range of brands and products. These changes, combined with an increased digital media spend that focused on promoting special event purchasing opportunities, resulted in a growth of 308% in online sales for the second half of the year. We have redeveloped the TasFoods logo and brand identity to support our vision and purpose. The new branding is being launched with this annual report. Jane Bennett. Managing Director & CEO TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 1 3 OPERATING & FINANCIAL REVIEW TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 1 4 POULTRY DIVISION TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 1 5 POULTRY DIVISION Sales revenue for the poultry division grew by 6% in 2020 to $37.03 million. Both revenue and gross margin were impacted throughout the second quarter by a national oversupply of fresh chicken, stemming from Government restrictions that limited the operations of quick- service restaurants and closed much of the food-service sector from March to June. The unprecedented volatility in fresh chicken demand nationally during this period, combined with a significant temporary drop in pricing and higher operating costs, resulted in a decline of 2% in full-year gross margin, and in operating EBITDA for the poultry division from $1.84 million in 2019 to $1.07 million in 2020. POULTRY SALES REVENUE ($’000) NICHOLS POULTRY WAS ESTABLISHED IN THE EARLY 1980S. THE BUSINESS HAS GROWN TO BECOME ONE OF THE MOST TRUSTED AND RESPECTED MEAT BRANDS IN TASMANIA. $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $ $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $ 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 $400 To minimise exposure to COVID-influenced market volatility, our poultry division reduced field inventory in the second quarter, which reduced the volume of product processed during the second half of the year. This limited revenue growth for the second half to only 5% above revenue in the previous corresponding period, down from 7% revenue growth in the first half of 2020. A return to more stable market demand in the second half resulted in a 21% improvement in the EBITDA contribution of the poultry division over the first half and a 2% improvement in gross margin. $200 $300 $250 $350 $150 $100 $50 $ 2016 2017 2018 2019 2020 TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 1 6 POULTRY DIVISION CONT. The safety of our employees is a key priority for TasFoods. As a meat processing facility, our poultry division responded quickly to the COVID pandemic situation in March. COVID management plans were implemented across the business and these remain in place and are being improved as new information emerges. On-going measures implemented at Nichols Poultry are designed to ensure COVID-safe work practices are maintained while mitigating supply chain disruption. These include: • • • • • • • • Removal of all non-essential employees from site to work from home Non-essential visitors not permitted on site Provision of protective equipment to employees Temperature testing of employees during any period of community transmission Payment of all employees awaiting COVID test results COVID-specific daily cleaning and sanitation programs Additional staff facilities to allow for isolation of work groups Identification of social and commuting groups within the workforce to ensure employees likely to have contact outside of work remain in contained work groups. We have worked closely with customers and suppliers throughout the year to manage supply-chain risks and to implement improved procedures as new information emerges. To date, we have no employees who have tested positive to COVID-19 and our operations have been able to remain fully operational. Sales of premium chicken under the Nichols Ethical Free-Range brand continued to increase throughout 2020, achieving 14% growth over 2019. Markets for premium chicken prior to COVID were primarily premium interstate restaurants that we reached through distribution partners. Our sales team worked closely with our distribution partners to redevelop the premium product offering to suit emerging online sales platforms being developed by customers. Growth in the premium chicken offering contributed to a 45% increase in poultry sales to interstate markets in 2019. A range of new ready-to-cook products were released during the second half of 2020 to meet the growing consumer preference for convenience. The new products contributed to a 19% increase in sales value for the Nichols Kitchen ready-to-cook range in 2020. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 1 7 DAIRY DIVISION TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 1 8 DAIRY DIVISION Our dairy division established its position as a key pillar of profitability in 2020, reporting a strong financial contribution at both the revenue and EBITDA levels. Sales revenue for the dairy division grew by 92% to $29.50 million, up from $15.38 million in 2019. Organic growth, after adjusting for the acquisition of Betta Milk on 31 July 2019, was 17%, with revenue growth achieved across each of the dairy brands. $40,000 $35,000 2016 2017 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $ $400 $350 $300 $250 $200 $150 $100 $50 $ 2018 2019 2020 THE DAIRY DIVISION HAS THREE CENTRES OF EXCELLENCE; • BETTA MILK BURNIE – FRESH MILK BOTTLING • KINGS MEADOWS DAIRY – SPECIALTY CREAMS, BUTTER AND FRESH FERMENTED PRODUCTS • PYENGANA DAIRY – CHEESE AND TOURISM CAFE 2016 2017 2018 2019 2020 The dairy division achieved an EBITDA contribution of $2.91 million, which was a 195% increase on $0.99 million in 2019. The synergies delivered through the acquisition of Betta Milk and a 9% drop in farmgate milk pricing in the second half-year were the major contributors to the improved result. DAIRY SALES REVENUE ($’000) $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $ 2016 2017 2018 2019 2020 The strategy to streamline our dairy processing sites into individual Centres of Excellence was delayed by COVID-related issues until June. The Kings Meadows facility now focuses on producing premium creams, butter and fresh, cultured dairy products. The Betta Milk facility in Burnie now bottles all fresh milk across the brands. Our cheese-making site remains the Pyengana Dairy facility in North East Tasmania. Milk and cream supplies are shared across the sites as required. The concentration of milk bottling into the Betta Milk Burnie site, and growth in sales across the brands, has resulted in a 50% increase in the volume of milk being processed there. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 1 9 DAIRY DIVISION CONT. This has been achieved through a move to five day- a-week processing and a staffing increase of one processing operator. A number of small capital investments were made on the site to increase milk storage capability and improve operational efficiency. Changes made to the dairy distribution and logistics operations to accommodate the 50% increase in volume of milk being distributed through the network have resulted in improved efficiencies and reduced costs. Pyengana Dairy cheese sales were significantly impacted in the second quarter when restaurant customers were closed and home consumption of premium cheese reduced due to a lack of entertaining opportunities. We worked closely with customers to develop alternative sales options for cheese products and saw significant growth in cheese sales during the second half, reflecting sales to new outlets that included emerging online cheese stores and our own online store. Sales revenue for the Pyengana Dairy Café was 29% down from 2019 results. Government responses to the COVID outbreak in March led to the closure of the café from mid-March to July. When it reopened in July, we operated with reduced opening hours owing to lower regional visitation while the Tasmanian border remained closed. It is anticipated that the café will continue to experience lower sales revenue until national and international travel and tourism fully resumes. Cheese sales through the online store have increased dramatically, particularly since mid-year. Sales for the Meander Valley Dairy cream range grew significantly during the second half-year following the introduction of three new product lines in 150 premium Woolworths stores. Two flavoured creams were released for Christmas, available from 850 Woolworths stores and independent retail outlets nationally. These contributed to interstate sales growth of 22% during the second half of the year. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 2 0 CORPORATE DIVISION TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 2 1 CORPORATE DIVISION $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $ $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $ 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 WASABI SALES REVENUE ($’000) $400 $350 $300 $250 $200 $150 $100 $50 $ 2016 2017 2018 2019 2020 The change in market conditions since the start of COVID and the resulting change in product sales mix necessitated a review of the crop valuation at the half year in June, which resulted in a decrease in fair value of the wasabi biological assets of $1.2 million. This write-down did not impact the biomass of the wasabi crop available for future sale. A number of industrial powdered wasabi customers temporarily ceased operations during the middle of the year but resumed purchasing wasabi powder in the last few months. Strong sales through our online wasabi shop were experienced in the second half-year and have continued into 2021. Operating EBITDA for the corporate division improved by 5% to negative $4.43 million. The corporate division includes all of the corporate costs along with the shared service functions of the business such as finance, sales and marketing, HR and WHS management. Employment costs in the Corporate Division for 2020 remained consistent with 2019 levels. A strong focus on cost control throughout the year across the division contained expenditure to essential services and activities that would deliver short term outcomes. SHIMA WASABI Wasabi sales were badly impacted by the COVID pandemic. Sales for Shima Wasabi have historically comprised 73% fresh wasabi, made up of the various components of the plant, including stem, leaves and flowers. These products have been sold across Australia, predominantly to high-end restaurants and food service catering for corporate events. These markets were closed nationally during the second quarter and have remained volatile in capital cities with the occurrence of further COVID outbreaks. The corporate catering market will not return until mass gatherings are permitted. Overall, wasabi sales declined by 17% for 2020 after dropping by 28% in the first half. The business worked with customers from April to redirect sales to retail and online markets, with a strong focus on fresh stems and powdered product. A unique, new, ready-to-use wasabi paste made from real wasabi was launched into retail markets in the fourth quarter to provide a user-friendly option for customers seeking an authentic wasabi flavour. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 2 2 2021 OUTLOOK TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 2 3 2021 OUTLOOK The performance of the business in the second half of 2020 demonstrated that TasFoods has a strong foundation in the operating divisions of dairy and poultry. Expanded product-ranging achieved in the second half, and the launch of new dairy and poultry product offerings in 2021, will support ongoing sales growth that contributes to the profitability of the business. Despite COVID-influenced border closures throughout the year, the Tasmanian economy continues to show resilience, and we anticipate that Tasmanian consumers will continue to support locally owned brands that they know and trust. TasFoods’ stable of brands are known and trusted by Tasmanian consumers and we continue to see market growth from that loyalty. Our focus for the poultry division in 2021 is to continue to meet growing consumer demand for convenience through additional ready-to-cook products and the launch of a ready-to-eat range of chicken products. New product development work continues for these products, which will be presented for retail review in 2021. We are strengthening our Super Premium chicken offering by investing in the continuing expansion of capacity for our premium free-range offering. This growth is targeted at meeting interstate market demand for premium free-range poultry. We will undertake a carbon audit of our poultry operations during 2021 to identify areas of focus to work towards producing a carbon neutral chicken. Growth in demand for online sales is anticipated to continue, with dairy and wasabi sales dominating online purchases. A Digital Commerce Manager will be employed in 2021 to further expand the online offering and drive sales growth through increased gifting events. Our strategic focus for the dairy division in 2021 will be the continued growth of our Super Premium and Everyday Luxury brands through new product development and expanded distribution into interstate and export markets. New products will be presented to all retail category reviews for 2021. The Board believes that the new strategy adopted in December will support the long-term profitability of TasFoods. The company has started 2021 with a strong cash position that will support the execution of the corporate strategy over the coming years. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 2 4 RISK TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 2 5 RISK CONT. TasFoods is committed to the effective management of risk to reduce uncertainty in the Group’s business outcomes and to protect and enhance shareholder value. There are various internal and external risks that may have a material impact on the Group’s future financial performance and economic sustainability. The Company has a formalised Risk Management Policy and Framework which operates across the Group. The Policy provides high level direction, establishes key principles and allocates responsibilities to ensure TasFoods has an effective and efficient system and process that will facilitate the identification, assessment, evaluation and treatment of risks in order to achieve strategic and performance objectives. A copy of the Risk Management Policy can be located on the Company’s website at http:// www.tasfoods.com.au/document_category/ corporate_governance/#investor_nav During 2020 the Group complied with its Risk Management Policy and Framework, ensuring all risks were regularly reviewed and risk registers were updated for new risks and changes to existing risk profiles. Identified risks remain relatively stable, with no expectation of increases or decreases in the foreseeable future unless specifically noted below. The material business risks which may have an effect on the financial performance of the Group are: SUPPLY RISK Ensuring our input supply is secure, stable and reliable. TasFoods is reliant on a number of key suppliers for inputs such as hatchlings, milk, cream and chicken feed. We have strong relationships and contracts with our suppliers to ensure that quality, quantity and price are stable. Where appropriate and able, TasFoods is diversifying supply channels to reduce risk levels and dependence on key suppliers. PANDEMIC RISK Ensuring the safety of our employees, contractors and customers in a pandemic environment as well as securing input supplies and managing the impact of market volatility. TasFoods operates on a number of different sites with varying levels of pandemic impact risk. The Group has developed site-specific multi-scenario pandemic plans for each operational location that respond to updated health, Government and industry advice as well as emerging market conditions. Each site plan prioritises the health and safety of employees, site visitors and customers, follows recommended advice from Government and Health Officials relating to pandemic safety measures including; • Removal of all non-essential employees from sites to work from home; • • • • • • • Non-essential visitors not permitted on processing sites; Provision of relevant protective equipment to employees; Temperature testing of employees; Payment of standard wages to all employees awaiting COVID or other relevant test results; Pandemic/COVID-specific daily cleaning and sanitation programs; Additional staff facilities provided on large work sites to allow for isolation of work groups; Identification of social and commuting groups within the workforce to ensure employees likely to have contact outside of work remain in contained work groups. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 2 6 RISK CONT. MARKET RISK SAFETY RISK Delivering on our customer promises and growing our customer base. Ensuring our products are safe for customers and our staff are safe at work. TasFoods has a number of large key customers and the loss of one or more would have a detrimental impact on the Group. TasFoods mitigates this risk by investing in the quality of its relationships with key customers, and ensuring we manufacture product in accordance with our customer’s required specifications and standards. The company continues to grow and diversify its customer base. In addition, TasFoods responds to changing customer compliance requirements through the upgrading of its facilities and operating processes. TasFoods has also developed a point of difference in our products which reduces the risk of substitution. BIOSECURITY RISK Minimising the risk of disease and infection impacting our animals, manufacturing facilities and inputs. Careful site management, biosecurity measures and good animal husbandry and agricultural management are used to manage TasFoods’ risk of exposure to disease, infection and contamination. Significant disease outbreaks may result in mass mortality of livestock or loss of plants, having a significant impact on saleable goods. Suppliers undergo an approval process to ensure inputs comply with product specifications. These are internally and, where appropriate, externally audited and monitored for compliance. Food safety and workplace health and safety are risks that must be managed by TasFoods at all times. We have built strong quality and safety assurance systems which are externally audited against relevant standards., These systems are overseen by highly skilled staff within a culture committed to food and people safety. In addition, TasFoods holds relevant insurances to further mitigate food safety and workplace health and safety risks. CLIMATE RISK Minimising the risks to the business from a changing climate that is contributing to increased extreme weather events. TasFoods operations are geographically dispersed across Northern Tasmania which mitigates the impact of any one climatic influenced event on its production capabilities. Business continuity plans have been established for each business operation that include policies and procedures to manage biological assets in extreme weather events to minimise the risk of losses. Investment in irrigation infrastructure across the Tasmanian agricultural landscape provides certainty for crop inputs such as grain and dairy. Drought or extreme weather events in other regions of Australia may impact commodity pricing for inputs to TasFoods operations. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 2 7 BOARD OF DIRECTORS TasFoods’ Board and Management Team is responsible for the strategic direction of the company. Overseeing the company’s operations, the team works closely to ensure that TasFoods meets not only the demands of its shareholders, but provides a positive, innovative, and exciting working environment for employees. To get in touch with any of the Management Team, you can reach them via the contact page. CRAIG TREASURE NON-EXECUTIVE CHAIR Craig has had over 35 years experience in business and property development. His most recent executive role was as CEO and Managing Director of ASX listed Villa World Limited (VLW). He is an experienced ASX Director and has had many roles in private and public sectors as a business owner and director. He is a Member of the Australian Institute of Company Directors and a Fellow of the Urban Development Institute of Australia. He was appointed Non-Executive Chair on 4 June 2020. ROGER MCBAIN NON-EXECUTIVE DIRECTOR Roger led a Tasmanian based Chartered Accounting firm as a partner for 25 years, ultimately leading the successful merging of the practice into Deloitte in 2010. Continuing as a partner at Deloitte for a further five years, Roger delivered strong results to the Tasmanian practice, through his extensive experience in a broad range of businesses with particular expertise in FMCG, agribusiness and mining services. Roger currently pursues a number of private business interests including a water remediation technology company, property development, tourism, hospitality and retail investments. BEN SWAIN NON-EXECUTIVE DIRECTOR Ben is a partner of Tasmanian law firm Murdoch Clarke. His practice areas include corporate advice, transactional mergers and acquisitions, real property and private client matters. Ben is a director of various Pty Ltd companies and trusts including the Elsie Cameron Foundation which has investment in entities including TasFoods Limited. With a passion for Tasmania’s finest foods and produce and the companies that grow and produce them, Ben gets great fulfilment from assisting, in his professional capacity, various Tasmanian food and agriculture business to achieve their goals. He was appointed to the Board as a Non-Executive Director on 4 June 2020. JANE BENNETT MANAGING DIRECTOR/CEO Jane has over 20 year’s of experience as a senior executive in vertically integrated dairy businesses in Tasmania and the UK. She has extensive past experience in regional provenance branding as Chair of the Tasmanian Food Industry Council, Board Member of the Brand Tasmania Council and Nuffield Scholar studying Place of Origin Branding. Jane has previously served on the Boards of Australian Broadcasting Corporation, CSIRO, and Food Innovation Australia Ltd. She is a Fellow of the Australian Institute of Company Directors. Jane was named 2010 Tasmanian Telstra Business Woman of the Year and 1997 Australian ABC Rural Woman of the Year. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 2 8 BOARD OF DIRECTORS CONT. JANELLE O’REILLY COMPANY SECRETARY & GENERAL COUNSEL Janelle is an expert in commercial law and corporate governance. She previously held the positions of Company Secretary & General Counsel for ASX listed companies Crane Group Limited and Ruralco Holdings Limited and was the General Manager of Governance for Tasmanian State owned Aurora Energy Pty Ltd. Janelle is a Fellow of the Governance Institute of Australia and a graduate member of the Australian Institute of Company Directors. She is a Director of not for profit association Colony 47. EXECUTIVE TEAM DONNA WILSON CHIEF FINANCIAL OFFICER Donna is a qualified finance executive with over 20 years of experience working within public practice at KPMG, ASX listed companies and at an executive level in statutory government authorities. Donna holds a Masters of Business Administration in Corporate Governance and a Bachelor of Commerce. She is a member of Chartered Accountants Australia and New Zealand and a graduate member of the Australian Institute of Company Directors. Donna serves on the Finance Committee of the Scotch Oakburn College School Board. DAVID BENNETT CHIEF SALES OFFICER David has extensive experience in national sales, distribution and marketing of fast moving consumer goods, specialising in premium dairy products. David holds a Bachelor of Laws (Honours) and Bachelor of Commerce and has completed a Graduate Diploma in Legal Practice. He previously served as Inaugural Chair of the North West Tasmanian Tourism, Cradle to Coast Tasting Trail. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 2 9 DIRECTORS’ REPORT The Directors of TasFoods Limited (the Company) present the financial report on the Company and its controlled entities (the Group) for the year ended 31 December 2020. In order to comply with the provisions of the Corporations Act 2001, the Directors report as follows: DIRECTORS Craig Treasure Experience and qualifications Non-Executive Chair Craig joined the Board on 4 June 2020 and was appointed by the Board as Non-Executive Chair on this date. Craig is a member of the Audit and Risk Committee and Chair of the Nomination and Remuneration Committee. Craig has over 35 years experience in business and property development. Craig’s most recent role was as the CEO and Managing Director of ASX listed Villa World Limited. Craig is an experienced ASX Director and has had many roles in the public and private sectors as a business owner and director. He is a member of the Australian Institute of Company Directors and a Fellow of the Urban Development Institute of Australia. Other Directorships in listed entities: Eildon Capital Limited Former Directorships in listed entities in the last 3 years: Villa World Limited Interest in shares and options: 721,861 Ordinary Shares Jane Bennett Chief Executive Officer (CEO) and Managing Director Experience and qualifications Jane was promoted to the position of CEO and Director on 18 February 2016, having previously been the Company’s Head of Strategic Development and General Manager of Dairy. Jane was appointed to build TasFoods into a successful branded food business based on the unique attributes of Tasmania and its produce. Jane has extensive experience in the premium branded food industry in Tasmania, including as the former Managing Director of Ashgrove Cheese, one of Australia’s leading premium dairy brands. Jane also chaired the Tasmanian Food Industry Council for 8 years and was a board member of the Brand Tasmania Council for 10 years. Jane spent 4 years working as a non-executive director in a diverse portfolio of companies including the CSIRO, Australian Broadcasting Corporation and Tasmanian Ports Corporation. Jane is a fellow of the Australian Institute of Company Directors. Other Directorships in listed entities: Former Directorships in listed entities in the last 3 years: Nil Nil Interest in shares and options: 3,309,087 Ordinary Shares TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 3 0 DIRECTORS’ REPORT CONT. Roger McBain Non-Executive Director Experience and qualifications Roger was appointed to the Board as an Executive Director on 3 September 2015 and transitioned to a Non-Executive Director role on 1 July 2016. Roger is the Chair of the Audit and Risk Committee and is a member of the Nomination and Remuneration Committee. Roger led a Tasmanian based Chartered Accounting firm as a partner for 25 years ultimately leading the successfully merging of the practice into Deloitte in 2010 and continued as partner in Deloitte Private until June 2015. With particular expertise in FMCG, agribusiness and mining services, he delivered strong results to the Tasmanian practice. Roger currently pursues a number of private business interests including a water remediation technology company, property development, tourism, hospitality and retail investments. Other Directorships in listed entities: Former Directorships in listed entities in the last 3 years: Nil Nil Interest in shares and options: 3,271,026 Ordinary Shares Ben Swain Non-Executive Director Experience and qualifications Ben was appointed to the Board as a Non-Executive Director on 4 June 2020. Ben is a member of the Audit and Risk Committee and the Nomination and Remuneration Committee. Ben is a partner of Tasmanian law firm Murdoch Clarke. His practice areas include corporate advice, transactional mergers and acquisitions, real property and private client matters. Ben is a director of various private companies and trusts including the Elsie Cameron Foundation Pty Ltd which has an investment in entities including TasFoods Limited. Other Directorships in listed entities: Former Directorships in listed entities in the last 3 years: Nil Nil Interest in shares and options: 1,150,000 Ordinary Shares TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 3 1 DIRECTORS’ REPORT CONT. Shane Noble Experience and qualifications Executive Chair 1 January 2020 to 4 June 2020 Non-Executive Director 4 June 2020 to 8 July 2020 Shane joined the Board on 30 November 2017 and became Chair of the Board on 1 February 2018. On 4 June 2020 Shane became a Non-Executive Director until 8 July 2020 when he resigned from the Board. Shane was a member of both the Audit and Risk Committee and the Nomination and Remuneration Committee. Shane has extensive experience in the consumer foods and agribusiness industries. In his most recent prior role, Shane was the Executive Chair and Chief Executive Officer of Green’s Foods Holdings which he successfully transformed through an integrated plan of profit improvement initiatives and strategic acquisitions. Other Directorships in listed entities: Former Directorships in listed entities in the last 3 years: Nil Nil Interest in shares and options: 3,968,055 Ordinary Shares (at time of resignation) 5,000,000 Share Options exercisable at $0.1884 by 30 November 2021 Alexander (Sandy) Beard Non-Executive Director until 30 September 2020 Experience and qualifications: Other Directorships in listed entities: Former Directorships in listed entities in the last 3 years: Sandy was appointed to the Board as a Non-Executive Director on 13 March 2018 and served until his resignation on 30 September 2020. Sandy was the Chair of the Nomination and Remuneration Committee and a member of the Audit and Risk Committee. Sandy has over 20 years experience as a Director and investor in assisting the growth of public and private companies. He was previously the Managing Director and CEO of CVC Limited and has extensive experience in a broad range of businesses with particular expertise in food manufacturing. Sandy is an experienced Board Director and has played important roles in delivering value to shareholders over the past 20 years across a broad spectrum of industries and stages of company growth. Sandy is a Fellow of the Chartered Accountants Australia and New Zealand and is a Member of the Institute of Company Directors. Probiotec Limited (since 2018) Centrepoint Alliance Limited (since 2020) Pure Foods Tasmania (listed in 2020) CVC Limited (1999 – 2019) Eildon Capital Limited (1999 – 2019) US Residential Fund (2017 – 2019) Lantern Hotel Group (2018 – 2019) Interest in shares and options: 500,000 Ordinary Shares (at time of resignation) TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 3 2 DIRECTORS’ REPORT CONT. COMPANY SECRETARY Janelle O’Reilly Experience and qualifications Company Secretary and General Counsel Janelle joined TasFoods on 9 September 2016. Janelle is an expert in commercial law and corporate governance. She previously held the positions of Company Secretary & General Counsel for ASX listed companies Crane Group Limited and Ruralco Holdings Limited and was the General Manager of Governance for Tasmanian State-owned Aurora Energy Pty Ltd where she was the responsible for legal services, company secretariat, risk, compliance and information management. She is a Director of Tasmanian not for profit association Colony 47. She is a fellow of the Governance Institute of Australia and a Graduate Member of the Australian Institute of Company Directors. MEETING OF DIRECTORS The following table sets out the number of meetings of the Company’s Directors during the year ended 31 December 2020 and the number of meetings attended by each Director during that time. Board Meetings were held in addition to the Company’s Annual General Meeting held on 23 July 2020. Director# Board Meeting Audit And Risk Committee Nomination & Remuneration Committee C Treasure R McBain B Swain J Bennett * A Beard S Noble Held during time on Board Attended Held during time on Board Attended Held during time on Board Attended 10 17 10 17 12 9 10 17 10 17 12 5^ 5 9 5 9 9 4 5 9 5 9 9 4 0 5 0 5 5 5 0 5 0 5 5 4’ # Mr McBain and Ms Bennett were on the Board for the entire financial year. Mr C Treasure and Mr B Swain joined the Board on 4 June 2020 and Mr C Treasure became the Non-Executive Chair. Mr S Noble resigned from the Board effective 8 July 2020. Mr A Beard resigned from the Board effective 30 September 2020. ^ Mr Noble was on a leave of absence for two Board meetings, ill for one and unable to attend one Board meeting. ’ Mr Noble was on a leave of absence for one N&RC Meeting. * Ms Bennett is not a member of the Audit and Risk Committee or the Nomination and Remuneration Committee however attends the meetings as an invitee. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 3 3 DIRECTORS’ REPORT CONT. PRINCIPAL ACTIVITIES The principal activities of the Group are the processing, manufacture and sale of Tasmanian-made food products. OPERATING RESULTS AND FINANCIAL POSITION A comprehensive review of operations is set out in Operating and Financial Review section of this Annual Report. SIGNIFICANT CHANGE IN STATE OF AFFAIRS In August 2020, the Company announced an equity raising to raise up to $4.13 million (before costs) via a placement and an entitlement offer of 3 new fully paid ordinary shares for every 20 existing fully paid shares at $0.085 per share. The equity raising was completed in October 2020. In November 2020, the Company announced and completed an equity placement to the AgFood Opportunities Fund, a fund managed by AgFood Fund Pty Ltd through the issuing of 30 million new shares at a price of $0.10 per share to raise $3.0 million. The proceeds from both equity raisings were to support the implementation of the Company’s new strategic direction including funding investment in equipment and infrastructure to support and grow new products, market support for new product launches, reducing the Company’s overdraft facility and general working capital support. There were no other significant changes in the state of affairs of the Group during the financial year, other than those outlined in the Operating and Financial Review. AFTER BALANCE DATE EVENTS There are no matters or circumstances that have arisen since 31 December 2020, which have significantly affected the Group’s operations, results or state of affairs, or may do so in future years. REMUNERATION REPORT (AUDITED) The Directors of TasFoods Limited present the Remuneration Report for the Company and its controlled entities for the financial year ended 31 December 2020, prepared in accordance with the requirements of the Corporations Act 2001 and its regulations. This report outlines the remuneration arrangements in place for the Key Management Personnel (KMP) of the Group, which comprises all Directors (executive and non-executive) and those other members of the TasFoods Executive who have authority and responsibility for planning, directing and controlling the activities of the Group. In 2020 the Company’s main activity related to developing Tasmanian branded food businesses (including Nichols Poultry, Betta Milk, Meander Valley Dairy, Pyengana Dairy and Shima Wasabi), therefore, the details of KMP remuneration for 2020 relate to those activities and the current remuneration structure. This report has been prepared in accordance with section 300A of the Corporations Act 2001. The Report has been set out as follows: 1. Key management personnel 2. Role of the Nomination and Remuneration Committee 3. Engagement of remuneration consultants TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 3 4 DIRECTORS’ REPORT CONT. 4. Remuneration strategy and framework 4.1. Executive remuneration schedule 4.2. Remuneration mix and linking pay to performance 4.3. 2020 fixed remuneration 4.4. 2020 short-term incentive arrangements 4.5. 2020 long-term incentive arrangements 4.6. KMPs 2020 short-term incentive arrangement results 4.7. Company financial performance 5. Executive contracts 6. Non-executive directors’ remuneration structure 6.1. Current fee levels and fee pool 7. Restrictions on long-term incentive plan shares prior to vesting 8. Remuneration tables – Directors and KMP executives 1. KEY MANAGEMENT PERSONNEL The term Key Management Personnel refers to those persons having the authority and responsibility for planning, directing and controlling the activities of the Consolidated entity, directly or indirectly, and includes any director of the Group (whether executive or otherwise). The KMP of TasFoods for the year ended 31 December 2020 were: Current Non-Executive Directors Role Appointment Date Non-Executive Chair 4 June 2020 Non-Executive Director 3 September 2015 Non-Executive Director 4 June 2020 End Date Former Executive and Non-Executive Directors Role Shane Noble 1 Alexander Beard Executive Chair & Non-Executive Director 8 July 2020 Non-Executive Director 30 September 2020 Current KMP Executives Role Chief Executive Officer Chief Financial Officer 27 June 2016 Appointment Date 3 September 2015 Craig Treasure Roger McBain Ben Swain Jane Bennett Donna Wilson 1 Shane Noble was Chair of the Board for the period 1 January 2020 until 4 June 2020 and a Non-Executive Director during the period 4 June 2020 to 8 July 2020. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 3 5 DIRECTORS’ REPORT CONT. 2. ROLE OF THE NOMINATION AND REMUNERATION COMMITTEE The Committee has the responsibility for proposing candidates for consideration by the Board to fill casual vacancies or additions to the Board and for devising criteria for Board membership and for reviewing membership of the Board, including: • Assessment of necessary and desirable competencies of Board members; • Review of Board succession plans to maintain an appropriate balance of skills, experience and expertise; • As requested by the Board, evaluation of the Board’s performance and, as appropriate, developing and implementing a plan for identifying, assessing and enhancing Director competencies; and • Recommendations for the appointment or replacement of Directors. Additional responsibilities of the Committee include reviewing and reporting to the Board on: • Remuneration arrangements for the directors and senior executives of the Company (including, without limitation, incentive, equity and other benefit plans and service contracts) to ensure remuneration suitably motivates executives to pursue the success of the Company through the identification and profitable integration of growth opportunities; • The review of the Audited Remuneration Report to be included in the annual report; • Remuneration policies and practices for the Company generally; • Superannuation arrangements; • Board remuneration; and • Such other matters as the Board may refer to the Committee from time to time. 3. ENGAGEMENT OF REMUNERATION CONSULTANTS The Nomination and Remuneration Committee periodically engages independent external consultants to advise and assess KMP remuneration arrangements. No advice was sought or provided by external advisors regarding the remuneration structure during the year ended 31 December 2020. 4. REMUNERATION STRATEGY AND FRAMEWORK The remuneration strategy sets the direction for the remuneration framework and drives the design and application of remuneration policies for executives of TasFoods (including KMP). TasFoods remuneration strategy and framework aims to attract and retain the best available people to run and manage TasFoods and align their interests with our shareholders. The Board is committed to having a remuneration strategy and framework that rewards, motivates, and retains executives, to achieve our business objectives and deliver shareholder returns. TasFoods seeks to create alignment between the interests of its executives and shareholders. In the case of executives, by providing a fixed remuneration component together with specific short-term and long-term incentives based on key performance areas affecting TasFoods financial results. In the case of non-executive directors, their remuneration does not contain performance-based or ‘at risk’ components. Non-executive directors are paid fees and are encouraged to hold shares in TasFoods. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 3 6 DIRECTORS’ REPORT CONT. 4.1. Executive remuneration structure The performance of the Company depends upon the quality of its executives. To prosper, the Company must attract, motivate and retain highly skilled executives. To that end, the Company embodies the following principles in its remuneration framework: • Provide competitive rewards to attract high calibre executives; • Focus on creating sustained shareholder value; • Place a portion of executive remuneration at risk by linking reward with the strategic goals and performance of the Company; • Differentiate individual rewards commensurate with contribution to overall results and according to individual accountability, performance and potential; and • Ensure total remuneration is competitive by market standards. Executives’ total remuneration package may be comprised of the following elements: • Total Fixed Remuneration (base salary and superannuation) • At-Risk Remuneration: - Short-Term Incentive (STI) - Long-Term Incentive (LTI) Performance Condition Remuneration Strategy/ Performance Link Total Fixed Remuneration (TFR) • salary • statutory superannuation Executive remuneration levels are market-aligned by comparison to similar roles in ASX-listed companies that have comparable market capitalisation, revenues, and financial metrics relevant to the executive’s role, executive’s knowledge, skills and experience, and individual performance Fixed remuneration is set to attract, motivate and retain executives to ensure they can deliver on TasFoods business strategy and contribute to the TasFoods ongoing financial performance. Short Term Incentive (STI) Annual incentive opportunity delivered in cash Performance is measured against: • Financial Group performance (i.e. sales revenue, gross profit margin and EBITDA); and • Non-Financial KPIs (i.e. WH&S (LTIFR)). The STI plan applies more broadly beyond the KMP and KPI’s vary depending on the executive’s level and role. The STI plan is designed to encourage and reward high performance and for this reason it places a significant proportion of the executives’ remuneration at-risk against targets linked to the Company’s annual performance objectives and therefore supports the alignment between the interests of the executive, TasFoods and our shareholders. Non-Financial KPIs also vary and depend on the executive’s individual role and responsibilities. Details of the specific measures and results for 2020 can be found in section 4.6. A combination of financial and non-financial KPIs are used because the Board believes that there should be a balance between short term financial measures and more strategic non- financial measures which in the medium to longer term will support the growth of TasFoods. The Board believes the STI provides the right measures and appropriately challenging targets for participants. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 3 7 DIRECTORS’ REPORT CONT. Performance Condition Remuneration Strategy/ Performance Link Long Term Incentive (LTI) LTI awards for grants are provided under the LTIP approved by shareholders at the 2017 AGM. An award of rights with performance assessed over 3 years A three-year performance period provides a reasonable period to align reward with shareholder return and also acts as a vehicle to help retain the KMP, align the business planning cycle, and provide sufficient time for the longer-term performance to be achieved. Due to the importance that the Board places on an improvement in share price a single measure based on share price growth share price growth is chosen for rights granted. 4.2. Remuneration mix and linking pay to performance The purpose of the LTI is to focus the executives’ efforts on the achievement of sustainable long-term shareholder value creation and the long-term financial success of TasFoods. The provision of LTIP awards via performance rights for ordinary shares in TasFoods encourages long-term share exposure for the executives and, therefore, aligns the long-term interests of executives and shareholders. The Board recognises that each executive needs a significant portion of their remuneration to be at-risk and be linked to TasFoods annual business objectives and actual performance. Remuneration is linked to performance by: • Requiring a proportion of the executives’ remuneration to vary with the short-term and long-term performance of TasFoods; • Setting clear expectations on target and stretch performance objectives required for STI payments to ensure quality results; and • Assessment of long-term performance through multiple measures to provide a complete picture of TasFoods performance and the increase in shareholder value. In addition, STI and LTI outcomes are not driven by a purely formulaic approach. The Nomination and Remuneration Committee holds discretion to determine that awards are not to be provided or vested in circumstances where it would be inappropriate or would provide unintended outcomes. The relative weighting of fixed and variable components for target performance is set according to the scope of the executive’s role. For the KMP the ‘at risk’ components for 2020 were as follows: TFR Short Term Incentive (At-Target)1 Short Term Incentive (Stretch)2 Long Term Incentive (Target Opportunity)3 Long Term Incentive (Maximum Opportunity) Current KMP Executives Jane Bennett Donna Wilson $262,800 $219,000 30.0% 25.0% 37.5% 31.3% 20.0% 17.5% 40.0% 35.0% 1. The short-term incentive is the total payment at-target as a % of TFR 2. KMP executives’ STIs have a stretch component that is designed to encourage above at-target performance as a % of TFR. 3. The long-term incentive refers to the value, of any grant as a % of TFR. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 3 8 DIRECTORS’ REPORT CONT. 14% 20% 66% 11% 18% 71% TFR STI LTI TFR STI LTI Jane Bennett Donna Wilson 4.3. 2020 fixed remuneration TasFoods uses a total fixed remuneration (base salary and superannuation) for the purposes of calculating STI and/or LTI amounts. Details of KMP executives’ total fixed remuneration for the year ended 31 December 2020 (and 31 December 2019) can be found in the ‘Remuneration Tables’ section of this report. 4.4. 2020 short-term incentive arrangements The TasFoods Short Term Incentive Plan (STIP) rewards the CEO and those executives reporting to the CEO (including the KMP executives) for performance against a pre-determined scorecard of measures linked to TasFoods short-term business performance (12 months) and individual performance. The specific performance measures may vary from year to year depending on the business’s objectives but are chosen on the basis that they will increase financial performance, market share and shareholder returns. The relative weighting of fixed and variable components for target performance is set according to the scope of the executive’s role. The key performance indicators and other targets against which performance can be measured for determining the proportion of ‘at-risk’ remuneration, are generally as follows: • Financial – actual results compared to budgeted results for items including EBITDA, Sales Revenue, and Gross Profit Margin. • Business growth – NPAT, earnings per share, price earnings ratio, new order value, acquisitions and new customers. • Business management – cash generation, capital management, number of days sales outstanding in debtors, inventory turnover, cost/revenue ratios, and staff utilisation. • Strategy – development, approval, implementation, and achievement. • People – Workplace Health and Safety (LTIFR). Performance for each measure is assessed on a range from Target to Stretch. Stretch is set by the Board for each measure at a level that ensures maximum STI is payable only where performance has truly and substantially exceeded expectations. Details of the STI performance measures and targets for 2020 are set out in section 4.6. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 3 9 DIRECTORS’ REPORT CONT. 4.5. 2020 long-term incentive arrangements Executive remuneration is determined by the Board, having consideration to relevant market practices and the circumstances of the Company on an annual basis. It is the view of the Board that it is in the interests of Shareholders for selected Executives (the Participants) to receive part of their total remuneration package (TRP) in the form of at-risk equity that will vest based on performance against indicators that are linked to Shareholder benefit (refer to details in respect of the Vesting Conditions following) during a defined Measurement Period. This is also considered best practice with regards to evident market practices. It should therefore be considered appropriate to provide some equity-based remuneration to Executives of the Company instead of cash only. The TasFoods Limited Rights Plan (TFLRP) was designed to form a significant component of at-risk remuneration and to create alignment between Shareholder value creation and the remuneration of selected Executives. Grants under the TFLRP will facilitate the Company providing appropriate, competitive and performance-linked remuneration to its Executives. The Board seeks to ensure that grants to Executives are made at a level that will appropriately position their TRPs in the market, in accordance with the Company’s remuneration policies. The key elements of the LTI plan are: Participants: the CEO, executive KMP, and provision for additional participants but noting that the terms of their grants may be varied as considered appropriate by the Board. Instrument: The TFLRP uses Rights which are an entitlement to the value of a Share which may be settled either in the form of cash or a Share/ Restricted Share (a Share which is subject to disposal restrictions). Generally, it is expected that vested Rights will be satisfied in Restricted Shares. Maximum number of Performance Rights: The maximum number of Performance Rights is calculated by multiplying the total fixed remuneration (TFR) of the Participant at the beginning of the financial year by the maximum LTI % and then dividing that figure by a 10-day volume weighted average share price (VWAP) related to the time of calculation. Measurement Period: The Measurement Period is the three financial years from 1 January. Vesting Conditions: In order for Performance Rights to vest, the Participant must remain employed by the Company during the Measurement Period (except in the case of a “Good Leaver”) and the performance conditions must be satisfied. Retesting: Retesting is not permitted under the proposed terms of the Invitations. Exercise Price: No amount will be payable by the Participant to exercise a Performance Right that has vested. Cessation of Employment: Unless the Board determines otherwise, if a TFLRP Participant ceases employment and is classified as a “Bad Leaver” (dismissal for cause, termination for poor performance or otherwise as determined by the Board), all unvested Performance Rights held by the Participant will lapse. Unless the Board determines otherwise, if a Participant ceases employment for any other reason, including by reason of death, disability, redundancy or retirement (“Good Leaver”), Performance Rights that were granted to the Participant during the financial year in which the termination occurred will be forfeited in the same proportion as the remainder of the financial year bears to the full year. All remaining Performance Rights for which Vesting Conditions have not been satisfied as at the date of cessation of employment will then remain “on foot”, subject to the original Vesting Conditions. In the circumstances of any termination, any Restricted Shares that flow from the exercising of the Rights would cease to be subject to disposal restrictions unless otherwise specified in the Invitation. 4.6. KMPs 2020 short-term incentive arrangement results The measures and targets for the 2020 STI were set by the Board in March 2020 and were based on the priorities for 2020. The key performance indicators were based upon stretch targets, with operating EBITDA set as a hurdle requirement for payment of the 2020 STI. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 4 0 DIRECTORS’ REPORT CONT. The following table shows the Company’s 2020 STI performance measures and weightings as applied to KMP. Performance Measure Description Weighting Comment Sales Revenue Statutory gross sales revenue Gross Profit Margin Statutory gross profit margin excluding biological asset movements Operating EBITDA WHS - Lost time injury frequency rate (LTIFR) Statutory EBITDA adjusted for acquisition costs, capital raising costs and incentive payments LTIFR are the number of lost time injuries within a given year relative to the total number of hours worked in the same period multiplied by 1 million 20% 20% 40% 20% Growth in sales revenue is key to improved performance and sustainability of the Group The gross profit margin is seen as a key outcome of sales effectiveness and operational efficiency EBITDA is seen as a key factor of trading performance and operational sustainability. Operating EBITDA is a hurdle requirement for STI payments Employees are a key asset to TasFoods and their safety is paramount. A reduction in the LTIFR is a key outcome of the WHS program As a part of the COVID-19 budget review completed in April 2020, Management elected to forfeit any STI which may become payable with respect to the 2020 financial year. Management’s decision to forfeit any STI payable in respect of 2020 was approved by the Board in April 2020. 4.7. Company financial performance The following table shows the relationship between KMP executives’ at-risk remuneration and TasFoods overall financial performance: Financial Year Ended 31 December Revenue ($000) Net (loss)/profit before tax ($'000) Net (loss)/profit after tax ($'000) Share price at start of year Share price at end of year Share price growth Dividends Basic (loss)/earnings per share (cents) Diluted (loss)/earnings per share (cents) Average STI payout as a % at-target for eligible KMP executives 2020 $67,436 ($7,709) ($6,407) $0.120 $0.120 0.00% $0.00 (2.21) (2.21) N/A 2019 $51,105 ($3,202) ($3,459) $0.135 $0.120 -11.11% $0.00 (1.48) (1.48) 0% 2018 $38,920 ($2,273) ($1,358) $0.190 $0.135 -28.95% $0.00 (0.67) (0.67) 0% 2017 $31,112 ($6,639) ($6,808) $0.180 $0.190 5.56% $0.00 (4.14) (4.14) 20% 2016 $16,139 ($2,611) ($2,577) $0.410 $0.180 -56.10% $0.00 (2.33) (2.33) 0% The average STI payout as a % of the at-target for eligible KMP executives is not applicable for the 2020 financial year as in April 2020 Management elected to forfeit any STI which may become payable with respect to the 2020 financial year. Managements decision to forfeit any STI payable in respect of 2020 was approved by the Board in April 2020. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 4 1 DIRECTORS’ REPORT CONT. 5. EXECUTIVE CONTRACTS The remuneration and other terms of employment for the executives are covered in formal employment contracts that have no fixed terms. TasFoods may terminate an executive immediately for cause, in which case the executive is not entitled to any payment other than the value of total fixed remuneration (and accrued entitlements) up to the termination date. Name KMP - Executive Director Notice Period by TasFoods Notice Period by Executive Termination / Redundancy Payment Jane Bennett 6 months 6 months KMP Executives Donna Wilson 6 months 6 months The Company has discretion to make a payment in lieu of all or part of the notice period. If the CEO’s employment is terminated in circumstances where there has been a fundamental change to her role, or if she is made redundant then she is entitled to a severance payment equivalent to 12 months’ salary. The Company has discretion to make a payment in lieu of all or part of the notice period. If the CFO’s employment is terminated in circumstances where there has been a fundamental change to her role, or if she is made redundant then she is entitled to a severance payment equivalent to 12 months’ salary. 6. NON-EXECUTIVE DIRECTORS’ REMUNERATION STRUCTURE TasFoods’ remuneration policy for executive and non-executive directors aims to ensure that TasFoods can attract and retain suitably qualified and experienced directors having regard to: • the level of fees paid to executive and non-executive directors of other comparable Australian listed companies; • the growing size and complexity of TasFoods operations; • the responsibilities and work requirements of Board members; and • the skills and diversity of Board members. 6.1. Current fee levels and pool Within the aggregate amount of $400,000, non-executive director and the former Executive Chair’s directors’ fees are reviewed periodically and determined by the Nomination and Remuneration Committee and the Board with reference to other ASX-listed companies that have comparable market capitalisation. A review of NED fees was undertaken in November 2017, based on the benchmark data of a market capitalisation comparator group. During the 2020 financial year non-executive and the former Executive Chair’s directors’ fees (inclusive of superannuation) were: Director Craig Treasure Roger McBain Ben Swain Former Directors Shane Noble Alexander (Sandy) Beard Base Fee Committee Chair Fee Total 70,000 45,000 45,000 250,000 45,000 - - - - - 70,000 45,000 45,000 250,000 45,000 TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 4 2 DIRECTORS’ REPORT CONT. As a result of the macroeconomic conditions affecting the Company’s businesses from COVID-19, the Directors resolved to reduce director fee payments for the period 1 April 2020 to 30 June 2020 to 75% of the Base Fee. Shane Noble’s Base Fee included an amount for working on acquisitions. Directors may also be reimbursed for travel and other expenses incurred in attending to TasFoods affairs. A non-executive director may be paid such additional or special remuneration as the Board decides is appropriate where a director performs extra work or services. During 2020 Roger McBain was paid additional remuneration for performing the duties of Acting Chair while the Executive Chair was taking a leave of absence. During this time Director McBain’s base fee increased from $45,000 per annum to $75,000 per annum reflective of the additional Chair responsibilities undertaken during the period. There are no retirement benefit schemes for directors other than statutory superannuation contributions, and executive chair and non-executive directors’ remuneration must not include a commission on, or a percentage of, the profits or income of TasFoods. 7. RESTRICTIONS ON LTIP SHARES PRIOR TO VESTING The Company prohibits executives from entering into arrangements to protect the value of unvested Long-Term Incentive awards. This includes entering into contracts to hedge their exposure to performance rights over shares granted as part of their remuneration package. Adherence to this policy is monitored informally on an annual basis where such awards exist by the Nomination and Remuneration Committee requesting confirmation from each of the executives that no such activity has occurred. The Company treats compliance with this policy as a serious issue and takes appropriate measures to ensure policy adherence. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 4 3 DIRECTORS’ REPORT CONT. s t n e m y a P d e s a B e r a h S s t fi e n e B t n e m y o p m e - t s o P l l s t fi e n e B e e y o p m E m r e T t r o h S 0 2 0 2 r e b m e c e D 1 3 d e d n e r a e y e h t r o f P M K r o f n o i t a r e n u m e R : l A e b a T . l s e b a t g n w o i l l o f e h t n i t u o t e s e r a y t i t n e d e t a d i l o s n o c e h t f o P M K e h t f l i o s g n d o h e r a h s d n a n o i t a r e n u m e r e h t f o t n e m e e h c a e f l o t n u o m a d n a e r u t a n e h t f o s l i a t e D I S E V T U C E X E P M K D N A S R O T C E R D – S E L B A T N O T A R E N U M E R I I . 8 % $ % 0 7 2 0 9 3 , e c n a m r o f r e P % d e t a e R l l a t o T e c n a m r o f r e P / s t h g R i s n o i t p O % 0 % 0 % 0 % % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 6 4 8 7, 4 0 0 0 5 4 , 9 8 0 5 2 , $ $ - - - - $ 8 2 4 9 7 1 , 0 5 2 , 1 8 0 5 2 , 1 3 3 3 5 8 0 3 , 1 4 0 5 , 1 0 5 2 , 1 8 - - , 2 5 6 6 8 2 5 4 9 9 , 2 7 1 , 0 0 3 8 3 6 5 2 , 4 8 9 8 3 2 , 8 0 6 6 , 8 4 9 0 4 2 , 6 2 2 3 , 1 s e r a h S t n e m y o p m e l n o i t a u n n a r e p u S l e e y o p m E n i s t fi e n e b s t n e m e l t i t n E $ - - - - $ - - - - - - - - $ - - - - $ - - - - - - - - l e b a c i l p p a t o N $ 6 8 3 3 , 1 5 1 , 4 4 0 9 3 , 7 7 1 , 2 l e b a c i l p p a t o N $ 8 1 5 8 , 9 8 6 , 1 2 7 7 6 2 , 5 0 3 , 1 $ - - - - $ - - - - 5 7 9 2 2 , 0 9 5 2 2 , 0 5 1 , 4 1 5 9 8 , 1 1 6 4 1 , 9 1 1 9 1 , 2 1 3 9 3 8 , 1 1 3 2 5 , 1 y r a t e n o m s t fi e n e b $ - - - - $ - - - - - - - - m r e t g n o L t n e m e v o M - n o N I T S t n e m y a P / y r a a S l s e e F r a e Y $ - - - - $ - - - - - - - - 6 9 0 , 1 4 1 9 0 2 1 9 0 2 $ e v i t u c e x E - n o N s r o t c e r i D t n e r r u C 1 4 6 5 3 , 0 2 0 2 e r u s a e r T g a r C i 5 9 6 3 4 , 0 2 0 2 i n a B c M r e g o R 6 3 7 3 , 1 1 9 0 2 1 9 0 2 2 1 9 2 2 , 0 2 0 2 i n a w S n e B $ e v i t u c e x e - n o N d n a r i a h C e v i t u c e x E s r o t c e r i D r e m r o F 0 6 6 9 8 , 0 2 0 2 l e b o N e n a h S 1 1 , 3 8 2 2 1 9 0 2 6 7 1 , 8 2 0 2 0 2 d r a e B r e d n a x e A l 0 5 0 0 4 2 , 1 9 0 2 , 1 8 5 9 3 2 0 2 0 2 t t e n n e B e n a J P M K t n e r r u C s e v i t u c e x E 9 3 0 , 1 0 2 5 1 1 , 4 9 1 0 2 0 2 1 9 0 2 n o s l i W a n n o D TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 4 4 DIRECTORS’ REPORT CONT. 8. REMUNERATION TABLES – DIRECTORS AND KMP EXECUTIVES, CONT. Table B: Shareholdings Current Non-Executive Directors Craig Treasure Roger McBain Ben Swain Former Executive Chair and Non-Executive Directors Shane Noble^ Alexander Beard^ Current KMP Executives Jane Bennett Donna Wilson Year 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Shares held at Start of Year No. - 2,844,370 2,199,000 - 3,968,055 3,000,000 - - 2,877,466 2,175,472 - - Issued as Remuneration Share Buyback Net other changes Shares held at End of Year No. 721,861 721,861 No. - Not applicable - - - 426,656 3,271,026 645,370 2,844,370 1,150,000 1,150,000 Not applicable - - - - - - - - - 3,968,055 968,055 3,968,055 500,000 500,000 - - 431,621 3,309,087 701,994 2,877,466 - - - - - - - - - - - - - - - - ^ number of shares disclosed as being held at end of year is reflective of the number of shares held at the time of resignation. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 4 5 DIRECTORS’ REPORT CONT. 8. REMUNERATION TABLES – DIRECTORS AND KMP EXECUTIVES, CONT. Table C: Movements during 2020 in performance rights or options over shares in the Company held, directly, indirectly or beneficially, by each KMP, including their related parties. Granted as remuneration Vested and exercisable Exercised during the reporting period Forfeited Performance Rights or Options held at End of Year Current Non- Executive Directors Craig Treasure Roger McBain Ben Swain Former Executive Chair and Non- Executive Directors Shane Noble Alexander Beard Current KMP Executives Jane Bennett Donna Wilson Year 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Performance Rights or Options held at Start of Year No. - - 2,500,000 - - 5,000,000 - - - - - - - - 2,775,913 - 4,502,972 772,941 1,509,718 - 967,250 542,468 No. - No. - Not Applicable - - - - - - Not Applicable No. - - (2,500,000) - No. - - - - - - - - - - - - - - - - - - - - - - 5,000,000 - (2,002,972) 772,941 (2,500,000) 2,775,913 (967,250) 542,468 - 1,509,718 As a part of the COVID-19 budget review completed in April 2020, Management elected to forfeit the right to have performance rights granted under the LTI plan in 2020. Management’s decision to forfeit performance rights to be granted under the LTI plan in 2020 was approved by the Board in April 2020. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 4 6 DIRECTORS’ REPORT CONT. 8. REMUNERATION TABLES – DIRECTORS AND KMP EXECUTIVES, CONT. Table D: Share-based payments granted as remuneration to KMP. Year Grant Date Number Granted Value of Performance Rights or Options Granted Number Vested Percentage of Grant Forfeited Current KMP Executives Jane Bennett Donna Wilson 2020 2019 2020 2019 Not Applicable 24-Oct-19 772,941 32,464 24-Oct-19 542,468 22,784 Not Applicable - - 0% 0% As a part of the COVID-19 budget review completed in April 2020, Management elected to forfeit the right to any performance rights to be granted under the LTI plan in 2020. Management’s decision to forfeit performance rights to be granted under the LTI plan in 2020 was approved by the Board in April 2020. INDEMNITY AND INSURANCE OF OFFICERS The Company has indemnified the directors and executives of the Company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Company paid a premium in respect of a contract to insure the directors and officers of the Company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of liability and the amount of the premium. INDEMNITY AND INSURANCE OF AUDITOR The Company has not, during or since the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity. ENVIRONMENTAL REGULATIONS The Company is subject to usual Federal and State environmental regulations. TasFoods manufacturing sites are licenced with Council and State authorities. The licences stipulate performance standards for all emissions (noise, air, odour, waste water etc), from the sites as well as the frequency and method of assessment of emissions. The Company’s activities are in full compliance with all prescribed environmental regulations. SHARES OPTIONS AND PERFORMANCE RIGHTS No share options or performance rights were granted during the financial year. Further details regarding performance rights and options granted are contained within the Remuneration Report and in note 30. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied for leave of the Court under Section 237 of the Corporations Act 2001 to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any proceedings during the year. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 4 7 DIRECTORS’ REPORT CONT. NON-AUDIT SERVICES The Group may decide to engage its auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Group are important. Where auditors are engaged to perform non-audit services, the Directors are satisfied that the provision of these non-audit services by the auditor (or by another person or firm on the auditor’s behalf ) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. Details of amounts paid or payable to the Group’s auditor for audit and non-audit services provided during the year are set out below. Auditors of the parent entity: Auditing the financial report Other assurance services 2020 $ 178,900 - 178,900 2019 $ 168,175 - 168,175 AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is included at page 49 of the Annual Report. AUDITOR PricewaterhouseCoopers continues in accordance with section 327 of the Corporations Act 2001. There are no officers of the Company who are former audit partners of PricewaterhouseCoopers. CORPORATE GOVERNANCE In recognising the need for the highest standards of corporate behaviour and accountability, the Directors support the principles of good corporate governance. The Group continued to follow best practice recommendations as set out by the ASX Corporate Governance Council. Where the Group has not followed best practice for any recommendation, explanation is given in the Corporate Governance Statement which is available on the Company’s website at http://www.tasfoods.com.au/document_category/corporate_governance/#investor_nav ROUNDING OF AMOUNTS The amounts contained in this report and in the financial report have been rounded to the nearest thousand (where rounding is applicable) under the option available to the company under ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. The company is an entity to which the Class Order applies. Amounts in the directors’ report have been rounded off in accordance with the Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar. Signed in accordance with a resolution of the Directors made pursuant to section 298(2) of the Corporations Act 2001. On behalf of the Directors Craig Treasure Non-Executive Chair 26 February 2021 TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 4 8 Auditor’s Independence Declaration As lead auditor for the audit of TasFoods Limited for the year ended 31 December 2020, I declare that to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of TasFoods Limited and the entities it controlled during the period. Alison Tait Partner PricewaterhouseCoopers Melbourne 26 February 2021 PricewaterhouseCoopers, ABN 52 780 433 757 2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2020 50 Financial Report • Consolidated Statement of Profit & Loss and Other Comprehensive Income 51 • Consolidated Statement of Financial Position 52 • Consolidated Statement of Changes In Equity 53 • Consolidated Statement of Cash Flows 54 • Notes to Financial Statements • Directors’ Declaration • Independent Auditor’s Report Shareholder Information 101 94 93 55 TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 5 0 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2020 Revenue from operations Other income Fair value adjustment of biological assets Impairment of goodwill Raw materials used Employment and contractor expense Freight Occupancy costs Depreciation and amortisation Finance costs Travel and accommodation Legal and professional fees Marketing and event expenses Repairs and maintenance Research and development Investment expenses Other expenses Loss before income tax Income tax benefit/(expense) Net Loss after tax for the year from continuing operations Net profit after tax for the year from discontinued operations Net Loss after tax for the year Other comprehensive income Items that may be reclassified to profit or loss in the future: Other comprehensive loss net of tax Total comprehensive income Net profit for the period attributable to: Non-controlling interest Owners of TasFoods Limited Total comprehensive income for the year is attributable to: Non-controlling interest Owners of TasFoods Limited Basic loss per share (cents per share) Diluted loss per share (cents per share) Basic loss per share from continuing operations (cents per share) Diluted loss per share from continuing operations (cents per share) The above statement should be read in conjunction with the accompanying notes Note 6 6 10 8 4 4 4 4 2020 $’000 66,911 526 (1,300) (3,500) (39,193) (17,487) (4,516) (1,446) (2,107) (346) (71) (472) (514) (889) (25) (15) (3,265) (7,709) 1,302 (6,407) - (6,407) 2019 $’000 50,690 416 1,169 - (29,224) (15,264) (3,385) (971) (1,839) (261) (147) (292) (396) (638) (29) (497) (2,533) (3,202) (256) (3,459) - (3,459) - (6,407) - (3,459) - (6,407) (6,407) - (6,407) (6,407) (2.21) (2.21) (2.21) (2.21) - (3,459) (3,459) - (3,459) (3,459) (1.48) (1.48) (1.48) (1.48) TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 5 1 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2020 Current Assets Cash and cash equivalents Trade and other receivables Biological assets Inventory Prepayments Total Current Assets Non-Current Assets Property, plant and equipment Right of use assets Intangible assets Biological assets Deferred tax assets Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Borrowings Lease Liabilities Provisions Total Current Liabilities Non-Current Liabilities Borrowings Lease Liabilities Provisions Deferred tax liabilities Total Non-Current Liabilities Total Liabilities Net Assets Equity Contributed Equity Reserves Accumulated Losses Total Equity The above statement should be read in conjunction with the accompanying notes Note 2020 $’000 2019 $’000 19 9 10 11 12a 12b 13 10 8 14 15 12b 16 15 12b 16 8 17 18 7,635 4,493 2,338 4,504 905 19,877 25,308 968 10,953 38 - 37,267 57,144 9,175 539 327 1,172 11,214 5,278 1,258 153 - 6,688 17,903 2,209 4,394 2,729 4,123 699 14,155 25,048 1,081 14,013 1,170 - 41,313 55,466 8,628 765 423 976 10,793 4,500 1,477 220 - 6,197 16,990 39,241 38,477 61,053 594 (22,407) 39,241 53,982 493 (15,998) 38,477 TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 5 2 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2020 Contributed Equity $’000 Reserves $’000 Accumulated Losses $’000 At 1 January 2019 Loss for the year Other comprehensive income Total comprehensive income for the year Issue of shares Share issue costs Share-based payment expense Adoption of AASB 16 Leases As at 31 December 2019 At 1 January 2020 Loss for the year Other comprehensive income Total comprehensive income for the year Issue of shares Share issue costs Share-based payment expense As at 31 December 2020 46,354 - - - 8,000 (372) - - 53,982 53,982 - - - 7,134 (64) - 61,054 390 - - - - - 103 - 493 493 - - - - - 101 594 Total $’000 34,267 (3,459) - (3,459) 8,000 (372) 103 (63) (12,477) (3,459) - (3,459) - - - (63) (15,998) 38,476 (15,998) (6,407) - (6,407) - - - 38,476 (6,407) - (6,407) 7,134 (64) 101 (22,406) 39,241 The above statement should be read in conjunction with the accompanying notes TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 5 3 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2020 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Interest paid Expenditure incurred in the pursuit of acquisitions and investment opportunities Income taxes received Other Net cash used in operating activities Cash flows from investing activities Payments for property, plant and equipment Payments for other non-current assets Proceeds from disposal of property, plant, and equipment Net cash used in business combination Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Cost of issuing shares Proceeds from borrowings and leases Principal elements of lease payments Transaction costs related to borrowings Net cash provided by financing activities Net (decrease)/increase in cash held Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Note 2020 $’000 2019 $’000 19 67,342 (68,225) 2 (339) (15) - 712 (523) (1,082) (16) 23 - (1,075) 7,134 (125) 1,123 (732) (1) 7,399 49,533 (50,030) 60 (252) (498) - 282 (904) (3,357) (28) 20 (11,423) (14,788) 8,000 (531) 4,645 (954) (1) 11,159 5,801 (4,533) 19 1,444 7,245 5,977 1,444 The above statement should be read in conjunction with the accompanying notes TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 5 4 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 1. GENERAL INFORMATION The consolidated financial statements and notes represent those of TasFoods Limited and its Controlled Entities. TasFoods Limited is a company incorporated in Australia, and whose shares are publicly traded on the Australian Securities Exchange (ASX). The financial statements were authorised for issue on 26 February 2021 by the Directors of the Company. All press releases and other information are available on our website www.tasfoods.com.au. 2. SIGNIFICANT CHANGES IN THE CURRENT REPORTING PERIOD In August 2020, the Company announced an equity raising to raise up to $4.13 million (before costs) via a placement and an entitlement offer of 3 new fully paid ordinary shares for every 20 existing fully paid shares at $0.085 per share. The equity raising was completed in October 2020. In November 2020, the Company announced and completed an equity placement to the AgFood Opportunities Fund, a fund managed by AgFood Fund Pty Ltd through the issuing of 30 million new shares at a price of $0.10 per share to raise $3.0 million. The proceeds from both equity raisings were to support the implementation of the Company’s new strategic direction including funding investment in equipment and infrastructure to support and grow new products, market support for new product launches, reducing the Company’s overdraft facility and general working capital support. There were no other significant changes in the state of affairs of the Group during the financial year. A detailed discussion of the Group’s financial performance and position is included in the Operating and Financial Review on pages 14 to 27 at the start of this Annual Report. There have been no changes in accounting policies since the previous financial report at 31 December 2020. 3. SEGMENT INFORMATION The operating segments are based upon the units identified in the operating reports reviewed by the Board and executive management, and that are used to make strategic decisions, in conjunction with the quantitative thresholds established by AASB 8 Operating Segments. As such, there are three identifiable and reportable segments each of which are outlined below: • The Dairy segment incorporates the Meander Valley Dairy, Pyengana Dairy and Betta Milk (Van Diemen’s Land Dairy) businesses, the assets of which were acquired in September 2015, October 2017 and July 2019, respectively. In addition, the Dairy segment includes goat farming operations which were acquired in June 2016. The Dairy segment primarily derives revenue from dairy processing activities including the manufacture of premium fresh milk, cheese, cream and butter products. These products are sold under the Meander Valley Dairy, Pyengana Dairy, Real Milk, Robur Farm Dairy, Betta Milk and Tassie Taste brands. • The Poultry segment incorporates the net assets and business operations of Nichols Poultry Pty Ltd, which was acquired in June 2016. Revenue is primarily derived by the poultry segment from the sale of poultry meat products sold under the Nichols Poultry, Nichols Ethical Free Range and Nichols Kitchen brands. • The Corporate and Other segment, which comprise: - Corporate costs that are not directly attributable to operational business units, including Shared Service teams, which provide administrative support to the operational production units in the areas of financial management, human resources, sales, marketing, brand management, route to market, quality assurance and food safety, and work health and safety; and - The net assets and business operations of Shima Wasabi Pty Ltd, which were acquired in June 2016. Management measures the performance of the segments identified at the ‘net profit before tax’ level. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 5 5 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 3. SEGMENT INFORMATION, CONT. Consolidated - 2020 Revenue Total segment sales revenue Other income Segment profit/(loss) Profit after tax from discontinued operation Loss before income tax expense Income tax (expense)/benefit Loss after income tax expense Assets Segment assets Unallocated assets from continuing operations: Total Assets Total assets include: Goodwill on acquisition of net assets Liabilities Segment liabilities Deferred tax liability/(asset) Total liabilities Dairy $’000 Poultry $’000 Corporate and Other $’000 29,502 115 29,617 37,030 281 37,311 378 130 508 379 (2,272) (5,816) 24,116 25,098 7,931 Total $’000 66,911 526 67,436 (7,709) - (7,709) 1,302 (6,407) 57,145 - 57,145 2,770 1,137 - 3,907 5,109 11,061 1,732 17,903 - 17,903 TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 5 6 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 3. SEGMENT INFORMATION, CONT. Consolidated - 2019 Revenue Total segment sales revenue Other income Segment profit/(loss) Loss before income tax expense Income tax (expense)/benefit Loss after income tax expense Assets Segment assets Unallocated assets from continuing operations: Total Assets Total assets include: Goodwill on acquisition of net assets Liabilities Segment liabilities Deferred tax liability/(asset) Total liabilities Dairy $’000 Poultry $’000 Corporate and Other $’000 15,375 40 15,415 34,942 234 35,176 373 141 514 227 1,211 (4,640) 24,488 25,622 5,358 Total $’000 50,690 416 51,105 (3,202) (3,202) (256) (3,459) 55,467 - 55,467 3,820 3,137 - 6,957 5,370 10,130 1,490 16,990 - 16,990 Refer to note 13 and 24 for further detail regarding movement in goodwill on acquisition of net assets between 2019 and 2020 financial years. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 5 7 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. SHAREHOLDER RETURNS 4. EARNINGS PER SHARE Basic loss per share Diluted loss per share Net (loss)/profit from continuing operations attributable to the shareholders of TasFoods Limited used in calculation of basic and diluted earnings per share for: All operations Basic Weighted average number of ordinary shares outstanding during the period used in the calculation of basic earnings per share 2020 Cents (2.21) (2.21) 2020 $’000 2019 Cents (1.48) (1.48) 2019 $’000 (6,407) (3,459) 2020 Number 2019 Number 290,119,774 233,882,763 Diluted Weighted average number of ordinary shares and convertible redeemable preference shares outstanding and performance rights during the period used in the calculation of basic earnings per share 290,119,774 233,882,763 INFORMATION CONCERNING THE CLASSIFICATION OF SECURITIES Potential ordinary shares: (a) There were no options (other than those referred to in note 30) or other forms of potential shares on issue at 31 December 2020 (31 December 2019: Nil). (b) Options granted (as referred to in note 30) are not included in the calculation of diluted earnings per share as the share price as at 31 December 2020 was lower than the exercise price. If the share price were to increase above the exercise price, any options exercised would have a dilutive impact on the earnings per share. RECOGNITION AND MEASUREMENT Basic earnings per share is calculated as net profit attributable to shareholders, adjusted to exclude any costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted earnings per share is calculated as net profit attributable shareholders, adjusted for: • Costs of servicing equity (other than dividends) and preference share dividends; • The after-tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and • Other non-discretionary changes in revenues or expenses during the year that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. 5. DIVIDENDS TO SHAREHOLDERS No dividends have been paid or declared during the year ended 31 December 2020 (31 December 2019: Nil). TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 5 8 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. PROFIT AND LOSS INFORMATION 6. REVENUE Revenue from continuing operations Sales revenue Other income Interest received Sundry income RECOGNITION AND MEASUREMENT Sales revenue Accounting for wholesale sales of dairy, poultry and wasabi goods 2020 $’000 2019 $’000 66,911 50,690 2 524 526 53 363 416 The sale of dairy, poultry and wasabi goods is measured at the fair value of consideration received net of any trade discounts and volume rebates allowed. The sale of dairy, poultry and wasabi goods represents a single performance obligation and accordingly, revenue is recognised in respect of the sale of these goods at the point in time when control over the corresponding goods and services is transferred to the customer (i.e. at a point in time for sale of goods when the goods are delivered to the customer or transferred to the freight forwarder). Revenue is recognised when control of the goods transfer to the customer i.e when the goods have been delivered to a customer pursuant to a sales order. Delivery occurs when the products have been shipped to the customer, the risks of obsolescence and loss have been transferred to the customer, and either the customer has accepted the products, the acceptance provisions have lapsed, or the group has objective evidence that all criteria for acceptance have been satisfied. While such arrangements are rare, if an arrangement with a wholesale customer includes multiple performance obligations, the total revenues are allocated to the separate elements of the contract, at the appropriate transaction price. In such cases, revenue will be recognised once each performance obligation is met. Interest revenue Interest revenue is recognised on a proportional basis using the effective interest rate method. 7. EXPENSES Profit before income tax expenses includes the following specific expenses: Employee benefits expense: Salaries and wages Temporary employees Share based payments Superannuation expenses (defined contribution) Total employee benefits Investment expense 2020 $’000 2019 $’000 15,510 595 101 1,281 17,487 15 13,845 280 103 1,036 15,264 497 Investment expense arises from costs relating to the identification of, and pursuit of investment and acquisition opportunities. This includes non-refundable contractual payments to secure rights to exclusive periods of negotiation with third parties and associated costs. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 5 9 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 8. INCOME TAX (a) Income tax recognised in profit or loss: Tax expense/(benefit) comprises: Current tax (benefit)/expense Deferred tax movements Deferred income tax (benefit)/expense included in income tax expense comprises: (Increase)/decrease in deferred tax assets Increase/(decrease) in deferred tax liabilities 2020 $’000 2019 $’000 - (1,302) (1,302) (981) (321) (1,302) - 256 256 (179) 436 256 Reconciliation of income tax expense to proforma facie tax on accounting profit: Loss before income tax expense (7,709) (3,202) Tax benefit at Australian tax rate of 30% (2019: 30%) Tax effect of amounts which are not deductible in calculating taxable income Derecognition/(recognition) of prior year tax losses Deferred taxes not recognised Income tax (benefit)/expense for the period (b) Income tax benefit recognised directly in equity during the period Deferred tax arising from share issue costs - (2,313) 1,069 (58) (1,302) - (1,302) (38) (38) (961) 36 1,181 256 256 (159) (159) TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 6 0 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 8. INCOME TAX, CONT. (c) Deferred tax balances Taxable and deductible temporary differences arise from the following: Gross deferred tax assets: Provisions Trade and other payables Share issue expenses Trade and other receivables Property, plant and equipment Intangibles Tax Losses Interest bearing liabilities Acquisition costs Lease liability Gross deferred tax liabilities: Biological assets Inventory Property, plant and equipment Intangibles Other Net deferred tax asset/(liability) Adjustment Opening recognised for prior period Balance $000 $000 Charged to Income $000 Charged to Equity $000 Closing Balance $000 375 41 370 6 (311) 22 1,345 351 - - 2,200 (995) (313) - (873) (18) 17 - - - - - 24 - - - 41 - - (214) (1,167) - 23 (6) (254) (2) 27 (2) 1,129 (37) 96 7 981 465 21 (167) - 2 - - 38 - - - - - - - 38 - - - - - 416 35 153 4 (284) 20 2,498 314 96 7 3,260 (531) (292) (381) (2,040) (16) (2,200) - (1,381) (1,339) 320 1,302 - 38 (3,260) - (d) Tax losses Unused tax losses for which no deferred tax asset has been recognised: Capital losses Revenue losses Potential tax benefit at 30% 2020 $’000 - 27,622 27,622 2019 $’000 - 27,173 27,173 8,287 8,152 TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 6 1 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. UNUSED TAX LOSSES The Group has recognised tax losses in the year ended 31 December 2020 only to the extent of the Group’s taxable temporary differences. After recognition of these losses the Group had a further $27.622 million of carry forward tax losses for which no deferred tax asset has been recognised (31 December 2019: $27.173 million). The losses relate to both Group’s current operations and losses incurred by the loyalty, rewards and payments business previously operated by the Group. Prior to recognising the carry forward tax losses transferred into and incurred by the loyalty, rewards and payments business, the Group will finalise the application of the continuity of ownership and continuity of business tests. RECOGNITION AND MEASUREMENT Current income tax expense or revenue is the tax payable on the current year’s taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities. A balance sheet approach is adopted, under which deferred tax assets and liabilities are recognised for temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred tax asset or liability is recognised if it arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting or taxable profit or loss. Deferred tax assets are recognised for temporary differences and unused tax losses only when it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. TAX CONSOLIDATION The Company and its wholly owned Australian controlled entities have formed an income tax consolidated group effective 1 July 2010 under tax consolidation legislation. Each entity in the Group recognises its own deferred tax assets and liabilities arising from temporary differences. Such taxes are measured using the ‘stand-alone taxpayer’ approach. Current tax liabilities or assets and deferred tax assets arising from unused tax losses and tax credits in the controlled entities are immediately transferred to the head entity which is the Parent entity. No tax sharing or funding arrangements are presently in place. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 6 2 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. CURRENT ASSETS 9. TRADE AND OTHER RECEIVABLES Trade Receivables Loss allowance Other receivables Loss Allowance Movements in the loss allowance were as follows: Carrying value at the beginning of the year Increase/(decrease) in loss allowance recognised Receivables written off as uncollectable Unused amount reversed Carrying value at the end of the year Trade receivables past due but not impaired Under one month One to three months Over three months RECOGNITION AND MEASUREMENT 2020 $’000 3,610 (13) 897 4,493 19 (7) - - 13 224 14 25 264 2019 $’000 3,907 (20) 508 4,394 26 (7) - - 19 462 38 36 536 Trade receivables include amounts due from customers for goods sold and services performed in the ordinary course of business. Receivables expected to be collected within 12 months of the end of the reporting period are classified as current assets. All other receivables are classified as non-current assets. Trade receivables are initially recognised at fair value and subsequently recognised less any expected loss allowance. The Group applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the number of days outstanding. The expected loss rates applied are based upon the payment sales profiles over a 12-month period and the historical credit losses experienced in this period. Historical loss rates are adjusted to reflect current and forward-looking information including macroeconomic factors affecting the ability of the customers to settle the receivables. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 6 3 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 9. TRADE AND OTHER RECEIVABLES, CONT. The loss allowance is determined as follows for trade receivables: 31 December 2020 Expected Loss Rate Trade Receivables Gross Carrying Amount ($’000) Loss Allowance ($’000) 31 December 2019 Expected Loss Rate Trade Receivables Gross Carrying Amount ($’000) Loss Allowance ($’000) Current 30 days 60 days 90+ days Total 0% 3,347 - 0% 3,369 - 0% 224 - 0% 462 - 0% 14 - 0% 38 - 51% 25 13 51% 38 19 3,610 13 3,907 19 The amount of the impairment loss is recognised in the consolidated statement of profit and loss within other expenses. When a trade receivable for which an impairment allowance has been recognised becomes uncollectable in a subsequent period, it is written off against the provision account. Subsequent recoveries of amounts previously written off are credited against other expenses. FAIR VALUES OF TRADE AND OTHER RECEIVABLES Due to the short-term nature of the current receivables, their carrying amount is approximated to fair value. CREDIT RISK The Group has no significant concentration of credit risk with respect to any single counterparty or group of counterparties other than those receivables specifically provided for within the loss allowance. The main source of credit risk to the Group is considered to relate to the class of assets described as ‘trade and other receivables’. The above table details the Group’s trade and other receivables exposed to credit risk (prior to collateral and other credit enhancements) with ageing analysis and impairment provided thereon. Amounts are considered as ‘past due’ when the debt has not been settled within the terms and conditions agreed between the Group and the customer or counterparty to the transaction. Receivables that are past due are assessed for impairment by ascertaining the solvency of the debtors and are provided for where there are specific circumstances that the debt may not be fully repaid to the Group. The balances of receivables that remain within initial trading terms are considered to be of low credit risk. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 6 4 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 10. BIOLOGICAL ASSETS Balance as at 1 January 2019 Increases due to purchases and production Decreases due to sales/processing/mortality (i) Movement in fair value as a result of physical and/or price changes (ii) Balance as at 31 December 2019 Current Non-current Balance as at 1 January 2020 Increases due to purchases and production Decreases due to sales/processing/mortality (i) Movement in fair value as a result of physical and/or price changes (ii) Balance as at 31 December 2020 Current Non-current Poultry $000 Goats $000 Wasabi Plants $000 1,446 1,724 (1,446) 512 2,235 2,235 - 2,235 2,235 2,144 (2,235) (107) 2,037 2,037 - 2,037 284 - (68) 37 253 - 253 253 253 - (48) (38) 167 167 - 167 977 9 (267) 692 1,412 494 918 1,412 1,412 13 (99) (1,154) 172 134 38 172 Total $000 2,708 1,733 (1,781) 1,241 3,900 2,729 1,170 3,900 3,900 2,157 (2,382) (1,300) 2,376 2,338 38 2,376 (i) includes biological assets reclassified as inventory at the point of harvest and/or processing. (ii) includes physical changes as a result of biological transformation such as growth, degeneration and procreation. RECOGNITION AND MEASUREMENT Biological assets of the Group include poultry, goats and wasabi plants and are measured at fair value less costs to sell in accordance with AASB 141 Agriculture. Where fair value cannot be reliably measured or little or no biological transformation has taken place biological assets are measured at cost less impairment losses. Market prices are derived from observable market prices and achieved sales prices and are reduced for costs associated with bringing the finished product to market including incremental selling costs and harvesting and production costs to process the biological asset into a saleable form. The change in estimated fair value is charged to the income statement on a separate line item as fair value adjustment of biological assets. This line item includes movements in fair value as a result of both physical and price changes. Biological assets are reclassified as inventory at the point of harvesting or processing. As at 31 December 2020, the Group held 557,537 live poultry (2019: 531,280), 575 goats (2019: 585) and 3,780 mature wasabi plants (2019: 6,576) and 4,923 immature wasabi plants (2019: 549) that are less than 12 months of age and not suitable for harvest. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 6 5 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 10. BIOLOGICAL ASSETS, CONT. POULTRY For live poultry with an estimated dressed weight of below 1kg (which is consistent with independent poultry performance guidelines for meat chicken) the carrying amount is a reasonable approximation of fair value. Live poultry with an estimated dressed weight of greater than 1kg are measured at fair value less costs to sell and the measurement is categorised into Level 2 in the fair value hierarchy. The valuation is completed at the whole dressed bird stage for each batch of live poultry as there is no effective market for live poultry produced by the Group. The valuation methodology takes into consideration estimated growth rates, feed intake and carcass yield per independent performance guidelines. Based on market prices and weights utilised at 31 December 2020, with all other variables held constant, the Group’s net profit/(loss) for the period would have been impacted by $84,346 (2019: $103,334) by a pricing or dressed weight increase/decrease of 5%. GOATS Goats are measured at fair value less costs to sell, based on market prices of similar age, breed and genetic merit. As these prices are observable, they are deemed to be Level 2 in the fair value hierarchy. The value of goats, comprised of mature does, weaned doelings and breeding bucks, is determined by independent valuation with reference to prices received from sales of milking goat stock similar to the Group’s herd with direct references made to recent sales evidence in relevant dairy goat markets. Prices of the Group’s goats are reflective of current market conditions. WASABI PLANTS Wasabi plants which are greater than twelve months of age are considered mature and ready for harvest, as such plants which are greater than twelve months of age are disclosed as a current asset. On 31 December 2020 the Group’s wasabi plants were an average of 20 months of age (31 December 2019: 24 months) and at various stages of growth post-harvest, as such wasabi plants are valued at fair value less estimated point of sale costs. The valuation methodology is deemed to be Level 3 in the fair value hierarchy as it contains unobservable inputs due to the rare nature of the crop. The fair value of the wasabi plants is determined using the estimated yield per plant in kilograms which has been determined through collection of historical growth rate and harvest data for mature wasabi plants within the crop. Notable variations and fluctuations in the fair value of wasabi plants may occur as a result of factors including plant variety, the timing of cultivation, plant maturity, timing of harvest, seasonal growth patterns and weather conditions. AASB 141 Agriculture applies to all biological assets (excluding bearer plants) and agricultural produce at the point of sale and is applied to the valuation of the wasabi crop (the biological asset) as well as harvested material. Changes in market conditions due to COVID-19 and the resulting change in product sales mix necessitated a review of the crop valuation focused on fair value less costs to sell in June 2020. This review resulted in a reduction in fair value of biological assets of $1.179 million (recorded in 30 June 2020), primarily driven by a reduction in the selling price per kilogram as the Company transitions from high value fresh wasabi sales towards industrial and ingredient powder commodity markets. The write-down was non-cash in nature and did not impact the biomass of the wasabi crop available for future use. Based on market prices and estimated yields utilised within the valuation methodology at 31 December 2020, with all other variables held constant, the Group’s net profit/(loss) for the period would have been impacted by $8,272 (31 December 2019: $93,585) by a price increase/ decrease of 5%. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 6 6 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 10. BIOLOGICAL ASSETS, CONT. FAIR VALUE MEASUREMENT Recurring fair value measurements - Poultry - Goats - Wasabi plants Total biological assets recognised at fair value Recurring fair value measurements - Poultry - Goats - Wasabi plants Total biological assets recognised at fair value 2020 Level 1 $000 Level 2 $000 Level 3 $000 - - - - 2,037 167 - 2,204 - - 172 172 2019 Level 1 $000 Level 2 $000 Level 3 $000 Total $000 2,037 167 172 2,376 Total $000 - - - - 2,235 253 - 2,488 - - 1,412 1,412 2,235 253 1,412 3,900 Fair value measurements using significant unobservable inputs The following table summarises the quantitative information about the significant unobservable inputs used in Level 3 fair value measurements: Description Wasabi plant biological assets at fair value: Unobservable inputs Relationship to unobservable inputs to fair value Average yield per wasabi plant used in fair value measurement: 0.36 kilograms (31 December 2019: 0.46 kilograms) An increase/decrease in yield would result in a direct increase/decrease in the fair value TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 6 7 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 11. INVENTORY Finished goods Raw materials and packaging Other RECOGNITION AND MEASUREMENT 2020 $’000 1,983 1,656 865 4,504 2019 $’000 2,025 1,550 548 4,123 Inventories are measured at the lower of cost and net realisable value and are assigned on a weighted average cost basis. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and costs to sell. Inventories are accounted for in the following manner: • Finished goods: cost includes direct materials, direct labour and an appropriate proportion of manufacturing variable and fixed overheads based on normal operating capacity but excluding any borrowing costs. • Biological assets reclassified as inventory: the initial cost assigned to agricultural produce is the fair value less costs to sell at the point of harvesting or processing in accordance with AASB 141. • Raw materials and packaging: purchase cost. NON-CURRENT ASSETS 12. PROPERTY, PLANT AND EQUIPMENT (a) Property, Plant and Equipment Land and buildings - at cost Less accumulated depreciation Plant and equipment - at cost Less accumulated depreciation Office equipment - at cost Less accumulated depreciation Motor vehicles - at cost Less accumulated depreciation Capital Work in Progress - at cost Total Property, Plant and Equipment 2020 $’000 2019 $’000 14,273 (1,087) 13,186 15,484 (4,496) 10,987 233 (173) 60 810 (275) 535 539 13,334 (747) 12,586 14,751 (3,039) 11,712 221 (153) 68 787 (183) 603 78 25,308 25,048 TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 6 8 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 12. PROPERTY, PLANT AND EQUIPMENT, CONT. RECONCILIATIONS Reconciliations of the carrying amounts of each class of property, plant and equipment at the beginning and end of the financial year are set out below: Land and buildings $000 Plant and equipment $000 Office equipment $000 Motor vehicles $000 Capital work in progress $000$ 7,769 2,328 2,760 - - (264) 12,593 12,593 27 913 - - (347) 13,186 7,031 3,095 2,885 - (30) (1,272) 11,710 11,710 729 - - - (1,452) 10,987 50 4 36 - - (21) 69 69 12 - - - (21) 61 387 89 214 - - (92) 598 598 53 - - (14) (103) 535 2,220 - - (2,142) - - 78 78 461 - - - - 539 Total $000 17,458 5,517 5,894 (2,142) (30) (1,649) 25,048 25,048 1,283 913 - (14) (1,921) 25,308 Carrying value As at 1 January 2019 Additions Additions as a part of a business combination Capitalisation to asset categories Disposals Depreciation expense Balance as at 31 December 2019 As at 1 January 2020 Additions Additions as a part of a business combination Capitalisation to asset categories Disposals Depreciation expense Balance as at 31 December 2020 RECOGNITION AND MEASUREMENT Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. 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 that the cost of the item can be measured reliably. Repairs and maintenance expenditure is charged to the profit and loss during the period in which the expenditure is incurred. The average depreciation rates for each class of fixed assets are: Class of fixed asset Buildings Leasehold improvements Plant and equipment Office equipment Motor vehicles Average depreciation rates 2-5% 10-12% 8-20% 40-50% 15-20% The assets’ residual values and useful lives are reviewed and adjusted if appropriate at the end of each reporting period. 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. Assets are derecognised when sold or replaced with gains and losses on disposals determined by comparing proceeds with the carrying amount. These gains or losses are recognised in the consolidated income statement when the item is derecognised. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 6 9 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 12. PROPERTY, PLANT AND EQUIPMENT, CONT. (b) Right of Use Assets and Lease Liabilities Right of Use Assets Recognised right-of-use assets relate to the following types of assets: Right of use assets Land and buildings Motor vehicles Total right-of-use assets Set out below are the carrying amounts of the Group’s right-of-use assets and the movements during the period: 2020 $’000 968 - 968 2019 $’000 1,075 5 1,081 Balance at 1 January Additions Depreciation expense Net carrying amount at 31 December 2020 Lease Liabilities Current Non-Current Right-of-use assets Land and buildings $’000 Motor vehicles $’000 Total $’000 1,075 68 (175) 968 5 - (5) - 2020 $’000 327 1,258 1,585 1,081 68 (180) 968 2019 $’000 423 1,477 1,901 RECOGNITION AND MEASUREMENT The Group leases property. Rental contracts are typically made for periods of 24 months to 5 years but may have options to extend as described below. Contracts made contain both lease and non-lease components. The Group allocated consideration in the contract to the lease and non-lease com- ponents based on their relative stand-alone prices. However, for leases of real estate for which the Group is a lessee, it has elected not to separate lease and non-lease components, instead accounts for these as a single lease component. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 7 0 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 12. PROPERTY, PLANT AND EQUIPMENT, CONT. 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 security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes. Leases are recognised as a right-of-use asset and a corresponding lease liability at the date at which the leased asset is available for use by the Group. 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; • Variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the commencement date; • Amounts expected to be payable by the Group under residual guarantees; • The exercise price of a purchase option if the Group is reasonably certain to exercise that option; and • Payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option. Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee’s incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. Lease payments are allocated between principal and finance cost. The finance cost is charged to profit and loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability each period. Right-of-use assets are measured at cost comprising the following: • The amount of the initial measurement of the lease liability; • Any lease payments made at or before the commencement date less any lease incentives received; • Any initial indirect costs; and • Restoration costs. Right-of-use assets are generally depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s life. Payments associated with short-term leases and 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. Low-value assets comprise IT-equipment and small items of office furniture. Extension and termination options are included in a number of property leases of the Group. These are used to maximise operational flexibility in terms of managing the assets used in the Group’s operations. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 7 1 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 13. INTANGIBLE ASSETS Goodwill Brands and trademarks Other Gross carrying value At cost Accumulated impairment and amortisation Total net carrying amounts Reconciliations Carrying amount at beginning Transfers from other asset classes as a result of finalisation of accounting for business combinations Additions Business combinations during the year Impairment and amortisation during the year Carrying amount at end 2020 $’000 3,907 6,835 211 10,953 17,181 (6,228) 10,953 14,013 451 - - (3,511) 10,953 2019 $’000 6,957 6,835 222 14,013 16,731 (2,717) 14,013 8,673 - 28 5,312 - 14,013 Goodwill relates to the acquisition of the assets of Meander Valley Dairy in 2015, Pyengana Dairy in 2017 and Betta Milk in 2019. Goodwill is also attributable to the acquisition of the wholly owned controlled entities Nichols Poultry Pty Ltd and Shima Wasabi Pty Ltd acquired in the 2016 year. Brands and trademarks are predominantly associated with the Nichols Poultry brand acquired in 2016 and the Betta Milk brand acquired in 2019. Other intangible assets include water rights and intellectual property. Goodwill and intangibles assessed as having an indefinite useful life are allocated to the Group’s cash generating units (CGUs) as follows: 2020 2019 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Dairy Poultry Corporate and Other Goodwill Brands & Trademarks 2,770 1,137 - 3,925 2,910 - Total 3,907 6,835 Other Total Goodwill 6,705 4,241 7 3,820 3,137 - 10 194 7 211 10,953 6,957 6,835 Brands & Trademarks 3,925 2,910 - Other 20 194 9 222 Total 7,764 6,241 9 14,013 TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 7 2 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 13. INTANGIBLE ASSETS, CONT. RECOGNITION AND MEASUREMENT Intangible assets are initially recognised and recorded at cost where it is probable that future economic benefits attributable to the asset will flow to the Group and the cost can be measured reliably. Subsequently, intangible assets are carried at cost less any impairment losses. Indefinite life assets Assets with an indefinite useful life are not amortised but are tested annually for impairment. Assets subject to annual depreciation or amortisation are reviewed for impairment whenever events or circumstances arise that indicate that the carrying amount of the asset may be impaired. Management has determined that the brand name associated with the Poultry and Dairy CGU’s have an indefinite useful life. This assessment was based on factors including independent expert advice, historical business growth rates and performance and future strategy associated with the brands. Goodwill Goodwill is not amortised but is tested annually for impairment or more frequently if events or changes in circumstances indicate that it might be impaired. Goodwill is carried at cost less accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash generating units, or groups of cash generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or group of units. Each unit or group of units to which the goodwill is so allocated represents the lowest level within the Group at which the goodwill is monitored for internal management purposes. Impairment is determined by assessing the recoverable amount of the cash generating unit (group of cash generating units) to which the goodwill relates. When the recoverable amount of the cash generating unit (group of cash generating units) is less than the carrying amount, an impairment loss is recognised. When goodwill forms part of a cash generating unit (group of cash generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this manner is measured based on the relative values of the operation disposed of and the portion of the cash generating unit retained. Impairment losses recognised for goodwill are not subsequently reversed. Impairment testing is performed annually for goodwill and intangible assets with indefinite lives. RECOVERABLE AMOUNT OF GOODWILL AND INDEFINITE LIFE INTANGIBLES 30 June 2020 In accordance with the Company’s accounting policy, impairment testing was completed at 30 June 2020 in accordance with AASB 136 Impairment. The impact of COVID-19 on both the Company and the Australian economy, in addition to the market capitalisation deficiency of the Company were considered as indicators of impairment requiring full impairment testing to be conducted. The impairment testing process completed at 30 June 2020 identified impairment charges totalling $3.5 million, $1.5 million for the Dairy CGU and $2.0 million for the Poultry CGU which were recorded in the financial statements for the half-year ended 30 June 2020. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 7 3 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 13. INTANGIBLE ASSETS, CONT. The key assumptions used in the 30 June 2020 value-in-use calculations for the Dairy and Poultry CGUs are outlined in further detail below. 31 December 2020 In accordance with the Company’s accounting policy, impairment testing has been undertaken at 31 December 2020 in accordance with AASB 136 Impairment for all groups of cash generating units (CGUs) for goodwill and indefinite life intangibles or where there is an indication of impairment. The Company has two CGUs for which impairment testing has been completed for goodwill and indefinite life intangibles, which are as follows: Dairy CGU The recoverable amount of the Dairy CGU has been determined based on a value-in-use calculation which uses cash flow projections based on financial budgets and forecasts approved by management covering a five-year period before any fair value adjustments for biological assets. Key assumptions used in the value-in-use calculations for the dairy CGU include: Sales Growth Rate (5 year avg) Production Costs (5 year avg) Indirect Cost Growth Rate per annum Long-term Growth Rate Pre-tax Discount Rate 31 December 2020 8.1% 69.0% 5.0% 2.0% 15.4% 30 June 2020 5.2% 69.0% 5.0% 2.0% 15.4% 31 December 2019 9.2% 72.0% 5.0% 2.5% 13.5% Based on the above assumptions the recoverable amount of the CGU at 31 December 2020 is estimated to be $23.97 million, which exceeds the CGU’s carrying amount by $5.904 million. Poultry CGU The recoverable amount of the Poultry CGU has been determined based on a value-in-use calculation which uses cash flow projections based on financial budgets and forecasts approved by management covering a five-year period before any fair value adjustments for biological assets. Key assumptions used in the value-in-use calculations for the Poultry CGU include: Sales Growth Rate (5 year avg) Production Costs (5 year avg) Indirect Cost Growth Rate per annum Long-term Growth Rate Pre-tax Discount Rate 31 December 2020 8.1% 80.0% 5.0% 2.0% 15.4% 30 June 2020 6.6% 79.0% 5.0% 2.0% 15.4% 31 December 2019 9.2% 77.0% 5.0% 2.5% 13.5% Based on the above assumptions the recoverable amount of the CGU at 31 December 2020 is estimated to be $20.979 million, which exceeds the CGU’s carrying amount by $1.033 million. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 7 4 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 13. INTANGIBLE ASSETS, CONT. Changes to Key Inputs Changes to key inputs within the value-in-use calculations include: • Sales Growth Rate – Whilst the Poultry and Dairy CGUs continue to report year on year growth higher than market growth rates, future market growth rates have a higher degree of volatility. Sales growth rates were reduced at 30 June 2020 to market growth rates rather than historical CGU growth rates achieved. Due to market recovery and actual sales growth achieved in 2020 the five-year average sales growth rates as at 31 December 2020 have been increased to reflect anticipated growth in FY2021 which has provided a higher base for market growth rates to be applied to in FY2022 onwards. • Long-term Growth Rate – Was reduced to 2% which is in line with the Reserve Bank of Australia’s economic outlook. • Pre-tax Discount Rate – Was increased as a result of the inclusion of a risk premium due to the heightened risk associated with economic conditions resulting from COVID-19 and its ongoing impact on the economy. The recoverable amount of the CGUs would equal its carrying amount if the key assumptions were to change as follows: Sales Growth Rate (5 year avg) Production Costs (5 year avg) Pre-tax discount rate LIABILITIES 14. TRADE AND OTHER PAYABLES Trade and other payables RECOGNITION AND MEASUREMENT Dairy Poultry Reduction from 8.1% to 6.5% Reduction from 8.1% to 7.7% Increase from 69.2% of revenue to 75% Increase from 79.7% of revenue to 80.5% Increase from 15.4% to 19.6% Increase from 15.4% to 16.0% 2020 $’000 9,175 9,175 2019 $’000 8,628 8,628 Trade and other payables represent liabilities for goods and services received by the Group which remain unpaid at the end of the reporting period. The balance is recognised as a current liability with amounts paid in accordance with supplier trading terms. FAIR VALUE OF TRADE AND OTHER PAYABLES Due to the short-term nature of trade and other payables, the carrying value is reflective of fair value. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 75 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 15. BORROWINGS Current Bank Overdraft Bank Loans Non-Current Bank Loans Total borrowings 2020 $’000 2019 $’000 391 148 539 5,278 5,278 765 - 765 4,500 4,500 5,817 5,265 FINANCING ARRANGEMENTS Commitments in relation to financing arrangements are payable as follows: At 31 December 2020 Non-derivatives Trade payables Bank Overdraft Bank Loans At 31 December 2019 Non-derivatives Trade payables Bank Overdraft Bank Loans Less than 12 months $’000 Between 1 and 5 years $’000 Over 5 years $’000 Total contracted cash flows $’000 Carrying Amount $’000 9,175 391 148 9,715 8,628 765 - 9,394 - - 5,278 5,278 - - 4,500 4,500 - - - - - - - - 9,175 391 5,426 14,992 8,628 765 4,500 13,894 9,175 391 5,426 14,992 8,628 765 4,500 13,894 TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 7 6 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 15. BORROWINGS, CONT. Available facilities: Bank Bill Facility Bank Loan Facilities Bank Overdraft 2020 $’000 2019 $’000 Limit 2,000 3,426 2,250 7,676 Undrawn Balance - - 1,859 1,859 Limit 2,000 2,500 2,000 6,500 Undrawn Balance - - 1,235 1,235 RECOGNITION AND MEASUREMENT Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the consolidated income statement over the period of the borrowings using the effective interest method. Borrowings are removed from the balance sheet of the Group when the terms and obligations specified in the contract are 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 is recognised in the consolidated income statement as other income or finance costs. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. Borrowing costs, including transaction fees, are recognised in the consolidated income statement in the period in which they are incurred. SECURED LIABILITIES AND ASSETS PLEDGED AS SECURITY In March 2020, the Company renewed its finance facilities across the Group with Australia and New Zealand Banking Group Limited (ANZ) to include the Company and all subsidiaries. This renewal included restructuring the Nichols Poultry overdraft facility and entering into a $1.0 million variable rate business loan. The Group has a number of finance facilities with ANZ which were renewed during the reporting period. Available facilities include overdrafts, a bank bill and bank loan facilities which are secured by mortgage over the property and water rights owned by Nichols Poultry Pty Ltd and property owned by Van Diemen’s Land Dairy Pty Ltd. The facilities are also secured by a general security agreement over the property of Nichols Poultry Pty Ltd and Van Diemen’s Land Dairy Pty Ltd not otherwise secured. FINANCIAL COVENANTS The renewed financing arrangements with ANZ resulted in a change to the financial covenants applicable to the Company. Under the terms of the renewed financing arrangements the Group is required to comply with an interest cover ratio financial covenant. The first assessment date for the covenant is 30 June 2021. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 7 7 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 16. PROVISIONS Current Employee benefits Non-current Employee benefits 2020 $’000 2019 $’000 1,172 1,172 153 153 976 976 220 220 RECOGNITION AND MEASUREMENT Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the quantum of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into consideration the risks and uncertainties surrounding the obligation. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the time value of money and the risks specific to the liability. EMPLOYEE BENEFITS A provision is made for employee benefits arising at the end of the reporting period. Employee benefit obligations are presented as current liabilities in the consolidated balance sheet if the Group does not have an unconditional right to defer settlement for at least 12 months after the reporting period, regardless of when the actual settlement is expected to occur. Employee benefits that are expected to be settled within one year from the reporting date have been measured at amounts expected to be paid when the liability is settled. Employee benefits payable later than one year have been measured at present value of the estimated future cash outflows to be made for those benefits. In determining the liability, consideration is given to employee wage increments and the probability that the employee may satisfy any vesting requirements. Those cash flows are discounted using market yields on Australian corporate bond rates with terms to maturity that match the expected timing of cash flows attributable to those employees. Provision has been made in the financial statements for benefits accruing to employees up to the reporting date such as annual leave, long service leave and bonuses (where applicable). No provision is made for non-vesting sick leave as the anticipated patterns of future sick leave indicates that accumulated non-vesting sick leave will not be paid. Annual leave provisions are measured at nominal values using the remuneration rates expected to apply at the time of settlement. Long service leave provisions are measured as the present value of expected future payments to be made in respect of services provided to employees up to reporting date. Expected future payments are discounted using market yields at reporting date on Australian corporate bonds with terms to maturity that match the estimated future cash flows. On-costs, such as superannuation and payroll tax are included in the determination of employee benefits provisions. The net change in the obligation for employee benefits provisions are recognised in the consolidated income statement as a part of employee benefits expense. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 7 8 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. EQUITY 17. CONTRIBUTED EQUITY Commitments in relation to financing arrangements are payable as follows: Number of Shares Share Capital Ordinary shares - fully paid (no par value) 351,902,660 273,265,740 Total share capital 2020 2019 2020 $'000 61,053 61,053 Movements in ordinary share capital: Date Details 1/01/20 Balance at beginning of period 31/8/20 Issue of shares - accelerated rights issue and placement 2/10/20 Issue of shares - rights issue 9/10/20 Issue of shares - shortfall placement 27/11/20 Issue of shares - placement Issue costs - net of tax TERMS AND CONDITIONS OF ISSUED CAPITAL Ordinary Shares Ordinary Shares Price 273,265,740 23,751,833 19,790,929 5,094,158 30,000,000 351,902,660 $0.085 $0.085 $0.085 $0.100 2019 $'000 53,983 53,983 $’000 53,983 2,019 1,682 433 3,000 (64) 61,053 Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of shares held. On a show of hands each holder of ordinary shares present at a meeting in person or by proxy is entitled to one vote, and upon a poll each share is entitled to one vote. Share Options and Performance Rights Share options and performance rights do not entitle the holder to participate in dividends and the proceeds on winding up of the Company. The holder is not entitled to vote at General Meetings. There were 5,000,000 share options on issue and 1,653,571 performance rights granted as at 31 December 2020 (2019: 6,500,000 share options and 5,149,822 performance rights). TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 7 9 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 17. CONTRIBUTED EQUITY, CONT. RECOGNITION AND MEASUREMENT Ordinary shares are classified as equity, with ordinary share capital being recognised at the fair value of the consideration received by the Company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received. Ordinary share capital bears no special terms or conditions affecting income or capital entitlements of the shareholders. Where the Company purchases the Company’s equity instruments, for example as the result of a share buy-back or a share-based payment plan, the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from the equity attributable to the owners of TasFoods Limited as ordinary share capital until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transactions costs and the related income tax effects, is included in the equity attributable to the owners of TasFoods Limited. 18. RESERVES Employee share option reserve NATURE AND PURPOSE OF RESERVES Employee share option reserve 2020 $’000 2019 $’000 594 594 493 493 The reserve is used to record the value of equity instruments issued to employees and directors as part of their remuneration, and other parties as part of compensation for their services. Details of the employee share option payments are contained in note 30. Balance at start of year Net Movement during the year Balance at end of year OTHER NOTES 19. ADDITIONAL CASH FLOW INFORMATION Cash and cash equivalents 2020 $’000 2019 $’000 493 101 594 390 103 493 2020 $’000 2019 $’000 7,635 2,209 TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 8 0 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 19. ADDITIONAL CASH FLOW INFORMATION, CONT. RECOGNITION AND MEASUREMENT Cash and cash equivalents include cash on hand and at banks and short-term deposits with an original maturity of three months or less held at call with financial institutions. (a) Reconciliation of cash and cash equivalents to the statement of cash flows: For the purposes of the statement of cash flows, cash and cash equivalents includes cash on hand and in banks and short-term deposits at call, net of outstanding bank overdrafts. Cash and cash equivalents as at the end of the financial year as shown in the statement of cash flows is reconciled to the related items in the statement of financial position as follows: Cash and cash equivalents Bank overdraft (b) Reconciliation of operating profit after income tax to net cash flows from operating activities: Net loss after income tax Depreciation and amortisation Goodwill impairment Movement in fair value of biological assets Share based payments Interest on leased assets Other Change in operating assets and liabilities: Decrease/(increase) in trade and other receivables (Increase)/decrease in inventories (Increase)/decrease in prepayments (Increase)/decrease in deferred taxes (Decrease)/Increase in trade and other payables Increase/(decrease) in provisions Net cash (outflow)/inflow from operating activities (c) Non-cash activities There were no non-cash financing activities. 2020 $’000 2019 $’000 7,635 (391) 7,245 2,209 (765) 1,444 2020 $’000 2019 $’000 (6,407) (3,459) 2,107 3,500 1,300 101 48 141 (99) (381) (206) (1,302) 547 129 (523) 1,839 - (1,169) 103 53 267 (1,785) (974) (145) 256 4,072 37 (905) TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 8 1 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 20. FINANCIAL RISK MANAGEMENT The Group’s principal financial instruments comprise receivables, payables, cash and short-term deposits. The Group manages its exposure to key financial risks, including interest rate and currency risk in accordance with the Group’s financial risk management policy. The objective of the policy is to support the delivery of the Group’s financial targets whilst protecting future financial security. The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk, price risk, credit risk and liquidity risk. The Group uses different methods to measure and manage different types of risk to which it is exposed. These include monitoring levels of exposure to interest rate and foreign exchange risk and assessments of market forecasts for interest rate, foreign exchange and commodity prices. Ageing analyses and monitoring of specific credit allowances are undertaken to manage credit risk, liquidity risk is monitored through the development of future rolling cash flow forecasts. The Board reviews and agrees policies for managing each of these risks as summarised in the following. Primary responsibility for identification and control of financial risks rests with the Chief Financial Officer under the authority of the Board. The Board reviews and agrees policies for managing each of the risks identified below, including any hedging cover of foreign currency, interest rate risk, credit allowances, and future cash flow forecast projections. The carrying amounts of the Group’s financial assets and liabilities at balance date were equal to their fair value. RECOGNITION AND MEASUREMENT Classification The Group classifies its financial instruments in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its financial instruments at the time of initial recognition. Loans and Receivables Loan and receivables are measured at fair value at inception and subsequently at amortised cost using the effective interest rate method. Financial Liabilities Financial liabilities include trade payables, other creditors and loans from third parties including inter-company balances and loans from or other amounts due to Director-related entities. Non-derivative financial liabilities are recognised at amortised cost, comprising original debt less principal payments and amortisation. RISK EXPOSURES AND RESPONSES Interest Rate Risk The Group’s exposure to market interest rate related primarily to the Group’s cash deposits. At balance sheet date, the Group had the following mix of financial assets exposed to Australian and overseas variable interest rate risks that are not designated as cash flow hedges: Financial Assets Cash and cash equivalents 2020 $’000 2019 $’000 7,635 7,635 2,209 2,209 TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 8 2 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 20. FINANCIAL RISK MANAGEMENT, CONT The Group regularly analyses its interest rate opportunity and exposure. Within this analysis consideration is given to existing positions and alternative arrangements for its deposits. The following sensitivity analysis is based on the interest rate opportunity/risk relating to cash deposits at balance date. At 31 December 2020, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post-tax profit and equity would have been affected as follows: Judgements of reasonably possible movements + 0.5% (50 basis points) - 0.5% (50 basis points) 2020 $’000 2019 $’000 38 (38) 11 (11) The movement in profits are due to higher/lower interest received. As the Group does not have any derivative instruments the movements in equity are those of profit only. A movement of + and – 0.5% is selected because this historically is within a range of rate movements. Liquidity Risk Liquidity Risk is the risk that the Group, although balance sheet solvent, cannot meet or generate sufficient cash resources to meet its payment obligations in full as they fall due, or can only do so at materially disadvantageous terms. Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves and by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The Group has Total Liabilities of $17.903 million (2019: $16.990 million) of which $11.214 million (2019: $10.793 million) is recorded as current liabilities and Total Current Assets of $19.877 million (2019: $14.155 million) of which $7.635 million (2019: $2.209 million) consists of cash or cash equivalents providing the Board with comfort that the Group is solvent and can meet its payment obligations in full as they fall due. All current liabilities fall due within normal trade terms, which are generally 30 days. Credit Risk Credit risk arises from the financial assets of the Group, which comprise cash and cash equivalents and trade and other receivables. The Group’s exposure to credit risk arises from potential default of the counter party, with maximum exposure equal to the carrying amount of these instruments. Exposure at balance date is addressed in each applicable note. The Group does not hold any credit derivatives to offset its credit exposure. The Group trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it the Group’s policy to securitize its trade and other receivables. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures including an assessment of their independent credit rating, financial position, past experience and industry reputation. The risks are regularly monitored. The Group applies the AASB 9 simplified approach to measuring expected credit losses as disclosed in note 9. Receivables balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 8 3 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 20. FINANCIAL RISK MANAGEMENT, CONT. Fair Value The method for estimating fair value is outlined in the relevant notes to the financial statements. All financial assets held at fair value are valued based on the principles outlined in AASB 7 in relation to Level 1 of the hierarchy of fair values, being quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. 21. CAPITAL MANAGEMENT When managing capital, management’s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. Management are constantly adjusting the capital structure to take advantage of favourable costs of capital or high returns on assets. As the market is constantly changing, the Board may change the amount of dividends to be paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Borrowings Trade and other payables Total debt Less cash and cash equivalents Net (cash)/debt Total equity Total capital 2020 $’000 5,817 9,175 14,992 (7,635) 7,357 39,241 61,053 2019 $’000 5,265 8,628 13,894 (2,209) 11,685 38,477 53,982 Gearing ratio (total debt / total equity) 38.2% 36.1% The Group is not subject to any externally imposed capital requirements, other than those referred to in note 15. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 8 4 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. GROUP MANAGEMENT 22. PARENT ENTITY SUPPLEMENTARY INFORMATION Information relating to TasFoods Limited: Financial position Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Contributed equity Reserves Accumulated losses Total equity Financial performance Total revenue Loss for the period Comprehensive loss for the period Deed of Cross Guarantee 2020 $’000 2019 $’000 32,614 7,053 39,667 2,648 275 2,923 36,743 61,053 594 (24,904) 36,743 6,655 (5,075) (5,075) 28,356 12,599 40,955 2,699 386 3,085 37,869 53,983 493 (16,606) 37,869 6,028 (5,679) (5,679) The wholly owned subsidiaries disclosed in note 23 are parties to a deed of cross guarantee under which each company guarantees the debts of the others. By entering into the deed, the wholly owned entities have been relieved from any requirement to prepare a financial report and directors’ report that might otherwise apply under Instrument 2016/785 issued by the Australian Securities and Investments Commission. The closed group financial information for 2020 is identical to the financial information included in the consolidated financial statements. The wholly owned subsidiaries became a party to the deed of cross guarantee dated 23 October 2017. The companies disclosed in note 23 represent a ‘closed group’ for the purposes of the Instrument, and as there are no other parties to the deed of cross guarantee that are controlled by TasFoods Limited, they also represent the ‘extended closed group’. Capital Commitments There was no non-cancellable capital expenditure contracted for but not in the financial statements. Contingent Liabilities TasFoods Limited is not subject to any liabilities that are considered contingent upon events known at balance sheet date. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 8 5 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 23. SUBSIDIARIES Country of Incorporation Principal Activity Equity Holding Van Diemen's Land Dairy Pty Ltd Nichols Poultry Pty Ltd Shima Wasabi Pty Ltd Tasmanian Food Co Dairy Pty Ltd Australia Australia Australia Australia Dairy Poultry Wasabi Dairy 24. BUSINESS COMBINATIONS Finalisation of Prior Year Acquisition - Betta Milk 2020 % 100% 100% 100% 100% 2019 % 100% 100% 100% 100% On 31 July 2019, the Company acquired via its subsidiary Van Diemen’s Land Dairy Pty Ltd, the milk processing assets, distribution assets and brands of the Betta Milk Co-operative Society Ltd business based in Tasmania. The acquisition was completed for cash consideration of $11.423 million. In the financial statements for the year ended 31 December 2019, the net asset valuation and allocation of the purchase price to acquired assets and fair values assigned to intangible assets were preliminary. In accordance with the Company’s accounting policy, the accounting for the acquisition of the Betta Milk processing and distribution assets and brands was finalised during the current period and the preliminary balances updated accordingly. The final fair value of the assets arising from the acquisition is as follows: Land and Buildings Plant and equipment Motor vehicles Brand name Inventory on hand Deferred tax asset/(liability) Provisions Net identifiable assets acquired Add: Goodwill Consideration paid Preliminary Fair Value as presented at 31 December 2019 $’000 Final Fair Value as presented at 31 December 2020 $’000 2,762 2,920 214 3,890 498 97 (380) 10,001 1,422 11,423 3,675 2,920 214 3,890 498 (1,267) (380) 9,550 1,873 11,423 TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 8 6 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 24. BUSINESS COMBINATIONS, CONT. RECOGNITION AND MEASUREMENT Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree, and the equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are expensed as incurred. At the acquisition date, the identifiable assets acquired, and the liabilities assumed are recognised at their fair value. Goodwill is measured as the excess of the sum of the consideration transferred and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period, or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. UNRECOGNISED ITEMS 25. CONTINGENT LIABILITIES AND ASSETS There are no matters which the Group consider would result in a contingent liability as at the date of this report. 26. COMMITMENTS FOR EXPENDITURE Capital Commitments – Capital Expenditure Projects There was no non-cancellable capital expenditure contracted for but not in the financial statements. Other Commitments – Operating Expenditure Operating expenditure contracted but not included in the financial statements: Payable: - Not longer than one year - Longer than one year and not longer than five years - Longer than five years 2020 $’000 2019 $’000 33 - - 33 33 33 - 65 27. EVENTS OCCURRING AFTER REPORTING DATE The Board is not aware of any matter or circumstance not otherwise dealt with in these financial statements that has significantly or may significantly affect the operation of the Group, the results of those operations, or the state of affairs of the Group in subsequent financial years. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 8 7 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. OTHER INFORMATION 28. RELATED PARTY TRANSACTIONS Key Management Personnel Compensation The aggregate compensation of the key management personnel of the entity is set out below: Short term benefits Post-employment benefits Share based payments Termination payments 29. AUDITOR’S REMUNERATION Remuneration for audit and review of the financial reports of the parent entity or any entity in the Group: Auditors of the parent entity: Auditing the financial report Other assurance services 30. SHARE BASED PAYMENTS Performance Rights (a) Share based payment arrangements 2020 $ 2019 $ 687,056 63,030 97,803 - 847,889 951,164 86,370 90,264 - 1,127,798 2020 $ 2019 $ 178,900 - 178,900 168,175 - 168,175 TasFoods Limited offers the Chief Executive Officer and senior management the opportunity to participate in the Long-Term Incentive Plan (LTIP), which involves performance rights to receive shares in TasFoods Limited. The LTIP is designed to: • Assist in the motivation, retention and reward of employees, including the Chief Executive Officer and members of senior management; and • Align the interests of employees participating in the LTIP more closely with the interests of shareholders by providing an opportunity for those employees to receive an equity interest in the TasFoods Limited Group through the granting of performance rights. Under the LTIP, performance rights are issued to the Chief Executive Officer and managers of senior management as the LTI component of their remuneration. Performance rights granted under the LTIP have a share price growth performance vesting condition. Share Price will be determined by a ten-trading day volume weighted average share price ending on the date that is the end of the Measurement Period. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 8 8 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 30. SHARE BASED PAYMENTS, CONT. (b) Performance rights granted Below is a summary of performance rights granted under the LTIP to current KMP. 2020 Performance Period Grant Date From To Balance at start of Year Granted During Year Forfeited Vested Balance at End of Year Fair Value per Share 1/1/17 1/1/18 1/1/19 31/12/19 31/12/20 31/12/21 2,333,619 1,162,632 1,653,571 - - - (2,333,619) (1,162,632) - - - - - - 1,653,571 $0.068 $0.044 $0.042 17/7/17 26/7/18 24/10/19 2019 Performance Period Grant Date From To Balance at start of Year Granted During Year Forfeited Vested Balance at End of Year Fair Value per Share 17/7/17 26/7/18 24/10/19 1/1/17 1/1/18 1/1/19 31/12/19 31/12/20 31/12/21 3,212,083 1,613,514 - - (878,464) (450,882) - 1,653,571 - - - - 2,333,619 1,162,632 1,653,571 $0.068 $0.044 $0.042 The performance rights hold no voting or dividend rights and are not transferable. There were no performance rights granted under the LTIP during the year ended 31 December 2020. (c) Fair value of performance rights granted As a part of the COVID-19 budget review completed in April 2020, Management elected to forfeit the right to have performance rights granted under the LTI plan in 2020. Management’s decision to forfeit performance rights to be granted under the LTI plan in 2020 was approved by the Board in April 2020. With respect to prior year rights issues, the fair value of the performance rights granted under the LTIP was calculated by an independent expert using a Monte-Carlo simulation. The expense recognised in relation to the performance rights applicable to the Chief Executive Officer and senior management for the year ended 31 December 2020 is nil (31 December 2018: $59,811). SHARE OPTIONS (a) Share based payment arrangements On 30 November 2017 TasFoods Limited issued 5,000,000 share options to Shane Noble upon his appointment as a Director of the Company. The options granted were for nil cash consideration and will entitle the option holder to acquire one ordinary share in the Company at an exercise price of $0.1884 until 30 November 2021 (subject to any further adjustments to the number of underlying shares and/or exercise price due to pro rata offers and other capital reorganisations and otherwise on and subject to usual option terms). TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 8 9 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 30. SHARE BASED PAYMENTS, CONT. On 16 October 2019 TasFoods Limited issued 1,500,000 share options to Cathy Zeppieri upon her appointment as Chief Marketing Officer of the Company. The options granted were for nil cash consideration and entitled the option holder to acquire one ordinary share in the Company after meeting a three-year service requirement at an exercise price of $0.205 (subject to adjustments to the number of underlying shares and/ or exercise price due to pro rata offers and other capital reorganisations and otherwise on and subject to usual option terms). As Cathy Zeppieri did not exercise the options within one month of her employment ending, the options granted expired after her departure in 2020. (b) Share options granted Share options outstanding at 31 December 2020 are as follows: Grant Date Expiry Date Exercise Price Balance at start of Year Granted Exercised Expired/ forfeited/ other Balance at End of Year 30/11/17 16/10/19 30/11/2021 24/10/2022 $0.1884 5,000,000 $0.2050 1,500,000 6,500,000 Weighted average exercise price - - - - - - - 5,000,000 (1,500,000) - (1,500,000) 5,000,000 $0.1884 The options hold no voting or dividend rights and are not transferable. (c) Fair value of share options granted For share options granted during the 2017 and 2019 financial years, the fair value was measured at the grant date of 30 November 2017 and 16 October 2019, respectively. The fair value of the performance rights granted under the LTIP was calculated by an independent expert using the Binomial method. The expense recognised in relation to share options for the year ended 31 December 2020 is $81,250 (31 December 2019: $86,039). (d) Share Options at 31 December 2020 Details of share options held by current or former Directors outstanding as at end of year: Grant Date 30/11/17 Exercisable Date 30/11/21 Expiry Date 30/11/21 Share Price at Grant Date Exercise Price Fair Value at Grant Date Balance at End of Year $0.1650 $0.1884 $0.0650 5,000,000 There are no performance hurdles or service conditions attached to the options granted. RECOGNITION AND MEASUREMENT The Group provides benefits to the Directors, the Chief Executive Officer and certain senior management in the form of share-based payment, whereby services are rendered in exchange for rights over shares (performance rights) or options. The fair value of the performance rights and options is recognised as an employee benefits expense, with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the performance rights or options granted. The total expense is recognised over the period in which the performance and/or service conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date). TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 9 0 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 31. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of preparation These financial statements are general purpose financial statements that have been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations and the Corporations Act 2001, as appropriate for-profit oriented entities. The financial statements cover the Company and its controlled entities as a group for the financial year ended 31 December 2020. The Company is a company limited by shares, incorporated and domiciled in Australia. Separate financial statements for the Company as an individual entity are no longer presented as a consequence of a change to the Corporations Act 2001, however limited financial information for the Company as an individual entity is included in Note 22. The following is a summary of material accounting policies adopted by the Group in the preparation and presentation of the financial statements not elsewhere disclosed. The accounting policies have been consistently applied, unless otherwise stated. (b) Compliance with IFRS The financial statements comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). (c) Historical Cost Convention The financial statements have been prepared under the historical cost convention. All amounts are presented in Australian dollars unless otherwise noted. (d) Principles of Consolidation The consolidated financial statements are those of the Group, comprising the parent entity and its controlled entities as defined in Accounting Standard AASB 10 Consolidated Financial Statements. Control is achieved when the Company: • has power over the investee; • is exposed, or has rights, to variable returns from its involvement with the investee; and • has the ability to use its power to affect its returns. The Company reassess whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Details of the controlled entities are contained in note 23. Financial statements for controlled entities are prepared for the same reporting period as the parent entity. Controlled entities are fully consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Adjustments are made to bring into line any dissimilar accounting policies, which may exist. All inter-company balances and transactions, including any unrealised profits or losses have been eliminated on consolidation. Non-controlling interests in the equity and results of the entities that are controlled are shown separately in the consolidated financial statements. (e) Critical Accounting Estimates, Judgements and Errors The preparation of the financial statements of the Group requires the use of accounting estimates which, by definition, will seldom equal the actual results. Management also needs to exercise judgement in applying the Group’s accounting policies. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 9 1 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONT. 31. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONT. Areas within the financial report which contain a higher degree of judgement or complexity, and items which are more likely to be materially adjusted due to estimates and assumptions turning out to be incorrect. Detailed information about each of these estimates and judgements are included in the notes to the financial statements together with the basis of calculation. The areas involving significant estimates or judgements are: • Estimated fair value of biological assets; and • Estimated value in use calculations for the assessment of the recoverable amount of goodwill and indefinite life intangibles. Estimates and judgements are continually evaluated. They are based on historical experience, information, 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. (f ) Comparatives Where necessary, comparative information has been reclassified and repositioned for consistency with current year disclosures. (g) New Standards and interpretations not yet adopted Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2020 reporting periods and have not yet been adopted by the Group. There are no standards that are not yet effective and that would be expected to have a material impact on the Group in the current or future reporting periods and on foreseeable future transactions. (h) Rounding Amounts The company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and in accordance with that Class Order, amounts in the financial statements have been rounded off to the nearest thousand dollars, or in certain cases, to the nearest dollar. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 9 2 DIRECTORS’ DECLARATION 1. In the opinion of the Directors of TasFoods Limited (the “Company”): a. The financial report and the Remuneration Report included in the Directors’ Report, designated as audited of the Group are in accordance with the Corporations Act 2001, including: i. Giving a true and fair view of the Group’s financial position as at 31 December 2020 and of its performance for the year ended on that date; and ii. Complying with the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; b. At the date of this declaration, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; 2. The financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board, as described in the notes to the financial statements; and 3. This declaration has been made after receiving the declarations required by section 295A of the Corporations Act 2001 from the Chief Executive Officer and the Chief Financial Officer for the financial year ended 31 December 2020. Signed in accordance with a resolution of the Directors made pursuant to section 295(5) of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Directors. Craig Treasure Non-Executive Chair 26 February 2021 Launceston TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 9 3 Independent auditor’s report To the members of TasFoods Limited Report on the audit of the financial report Our opinion In our opinion: The accompanying financial report of TasFoods Limited (the Company) and its controlled entities (together the Group) is in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the Group's financial position as at 31 December 2020 and of its financial performance for the year then ended (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. What we have audited The Group financial report comprises: ● ● ● ● ● ● the consolidated statement of financial position as at 31 December 2020 the consolidated statement of profit or loss and other comprehensive income for the year then ended the consolidated statement of changes in equity for the year then ended the consolidated statement of cash flows for the year then ended the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information the directors’ declaration. 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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. PricewaterhouseCoopers, ABN 52 780 433 757 2 Riverside Quay, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. Our audit approach An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the Group, its accounting processes and controls and the industry in which it operates. Materiality Audit scope Key audit matters ● Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events. ● We performed an audit of the most significant operating business units of the Group, being Poultry and Dairy. We performed specific risk focused audit procedures over Wasabi and the corporate head office. ● Amongst other relevant topics, we communicated the following key audit matters to the Audit and Risk Committee: − Valuation of goodwill and indefinite lived intangible assets − Accounting for biological assets − Accounting for acquisition of Betta Milk ● These are further described in the Key audit matters section of our report. ● For the purpose of our audit we used overall Group materiality of $660,000, which represents approximately 1% of the Group’s total revenue. ● We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole. ● We chose Group revenue as, in our view, it is the benchmark against which the performance of the Group is most commonly measured given the Group remains in a growth and acquisition phase. ● We utilised a 1% threshold based on our professional judgement, noting it is within the range of commonly acceptable thresholds. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. The key audit 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. Further, any commentary on the outcomes of a particular audit procedure is made in that context. Key audit matter How our audit addressed the key audit matter Valuation of goodwill and indefinite lived intangible assets (Refer to note 13 in the financial report) We performed the following procedures, amongst others, in respect of the Dairy and Poultry CGUs: The Group holds indefinite lived intangible assets totalling $10.7m as at 31 December 2020, across its Dairy and Poultry Cash Generating Units (CGUs). Under Australian Accounting Standards, the Group is required to assess goodwill and indefinite life intangibles for impairment at least annually. At 30 June 2020, indicators of impairment of the intangible assets were identified and as a result the Group assessed the carrying value of the assets based on financial models using forecast future cash flows, discounted to present value. The impairment assessment resulted in impairment losses of $1.5m for the Dairy CGU and $2.0m for the Poultry CGU, as disclosed in note 13. The Group performed the annual impairment assessment on the carrying value of the Dairy and Poultry CGUs at 31 December 2020. The Group prepared financial models based on forecast future cash flows, discounted to present value. This assessment did not identify a need for further impairment for the CGUs. This was a key audit matter due to the financial significance of the goodwill and indefinite lived intangibles and the significant judgements and assumptions applied in estimating future cash flows and the discount rate. ● Assessed whether the Group’s determination of CGUs was consistent with our understanding of the nature of the Group’s operations and internal Group reporting. ● Assessed whether each CGU appropriately included all directly attributable assets and liabilities. ● Tested the mathematical accuracy of the calculations in the financial models used to assess impairment (“the models”) at 30 June 2020 and 31 December 2020. ● Considered the allocation of the impairment charge recognised during the year against the goodwill. ● Assessed whether the forecast cash flows in the impairment assessments were appropriate by performing the following procedures, amongst others: − Compared the 2021 forecasted cash flows used in the models with the forecast formally approved by the Board. − Evaluated the historical accuracy of the Group’s forecasts by comparing the forecasts used in the prior year models to the actual performance. − Assessed the forecast growth assumptions used in the models by reference to our understanding of the key drivers for future growth, with reference to third party information. − Compared the terminal growth rate used in the models to external economic forecasts. − With the assistance of PwC valuation experts, assessed whether the discount rates used in the models were appropriate by comparing them to market data, comparable companies and industry research. ● Evaluated the reasonableness of the disclosures made in note 13, including key assumptions and sensitivities to changes in such assumptions, in light of the requirements of Australian Accounting Standards. Key audit matter How our audit addressed the key audit matter Accounting for biological assets (Refer to note 10 in the financial report) We performed the following procedures, amongst others, on all biological assets: The Group holds biological assets of $2.4m at 31 December 2020. The biological assets include live poultry, wasabi plants and goats. ● Considered the appropriateness of the valuation methodologies against the relevant Australian Accounting Standard Australian Accounting Standards require biological assets to be measured at fair value less cost to sell or, in the absence of a fair value, at cost less impairment. We consider the valuation of biological assets to be a key audit matter due to the significant judgement involved in estimating: ● the weight of poultry, based on the estimated growth rates and yields ● market selling prices. ● Tested the mathematical accuracy of the calculations in the valuation models ● On a sample basis, compared the fair value recognised as at 31 December 2020 to the actual selling price once biological assets were reclassified into inventory ● Assessed the reasonableness of the disclosures in note 10, in light of the requirements of Australian Accounting Standards. To assess the valuation of the poultry biological assets, we performed the following procedures, amongst others: ● Compared the conversion rate for poultry weight used in the Group’s calculation as at 31 December 2020 to the industry valuation methodology standard and the Group’s performance for such biological assets to assess its appropriateness ● Compared the number and age of chickens recognised as at 31 December 2020 based on a sample of purchase information for chickens for the December period and physical observation of chickens as at 31 December 2020 ● Agreed the cost of feed, grower and other costs to sell used in the Group’s calculation as at 31 December 2020 using a sample of supplier invoices. To assess the valuation of the wasabi biological assets, we performed the following procedures, amongst others: ● Compared the market price used in the valuation model to external market data to assess its appropriateness. Key audit matter How our audit addressed the key audit matter Accounting for acquisition of Betta Milk (Refer to note 24 in the financial report) We performed the following procedures for the acquisition, amongst others: ● Agreed the purchase price to the sale and purchase agreement and agreed the cash paid to banking and accounting records ● Agreed the recognised fair value of the brand name, land and buildings to third party valuation reports, where available, and assessed the appropriateness of the valuation methodology used in the reports ● Testing, on a sampling basis, acquired net asset balances to supporting documentation ● Tested the mathematical accuracy of the calculation of the resultant goodwill ● Assessed the accuracy and completeness of business combination disclosures in the financial statements. In July 2019, the Group acquired the milk processing assets, distribution assets and brands of the Betta Milk Co-operative Society Ltd business, for cash consideration of $11.4m. Under Australian Accounting Standards the Group is required to identify all assets and liabilities acquired and estimate the fair value of each item. Any excess consideration that is not attributed to an asset or liability is to be recognised as goodwill. At 31 December 2020, the acquisition accounting by the Group is final. The acquisition resulted in the recognition of goodwill of $1.9m and an indefinite lived brand of $3.9m. We focused on the finalisation of accounting for the acquisition of the Betta Milk business assets due to the: ● magnitude of the business acquisition transaction ● significant judgement involved in identifying the assets and liabilities acquired and determining their fair value. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report for the year ended 31 December 2020, 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 on the other information that we obtained prior to the date of this auditor’s report, 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 have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our auditor's report. Report on the remuneration report Our opinion on the remuneration report We have audited the remuneration report included in pages 34 to 47 of the directors’ report for the year ended 31 December 2020. In our opinion, the remuneration report of TasFoods Limited for the year ended 31 December 2020 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. PricewaterhouseCoopers Alison Tait Partner Melbourne 26 February 2021 SHAREHOLDER INFORMATION The shareholder information set out below was applicable as at 11 February 2021. A. DISTRIBUTION OF EQUITY SECURITIES Analysis of numbers of equity security holders by size of holding: HOLDING DISTRIBUTION As at 11th February 2021 Range 100,001 and over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Unmarketable Parcels Securities 323,781,431 25,131,838 1,682,265 1,226,420 80,706 351,902,660 847,476 % 92.01 7.14 0.48 035 0.02 100.0 0.24 No of Holders 267 645 215 387 242 1,756 534 % 15.21 36.73 12.24 22.04 13.78 100.0 30.41 B. EQUITY SECURITY HOLDERS Twenty largest quoted equity security holders. The names of the twenty largest holders of quoted equity securities are listed below (some are grouped where the holdings are deemed to be controlled by the same entity): Rank Name Units Percentage % 1 2 3 4 5 6 7 8 9 Janet H Cameron held via: JBWere (NZ) Nominees Limited <50645 A/C> JBWere (NZ) Nominees Limited <45230 A/C> CVC Limited Tasplan Superannuation Fund Held Via National Nominees Melbourne Securities Corporation HSBC Custody Nominees (Australia) Limited HSBC Custody Nominees (Australia) Limited - A/C 2 Includes Ellerston Capital Limited And Its Associates Shares Mr Jimmy Thomas And Ms Ivy Ruth Ponniah < Thomas Super Fund A/C> Nichols Investments Pty Ltd And Trebor Slochin Pty Ltd Buduva Pty Ltd Helbern Investments Pty Ltd 10 Shane Alexander Noble 61,950,725 51,769,199 33,779,663 32,674,307 22,031,993 9,000,000 7,400,000 7,000,000 6,900,000 3,968,055 17.6 14.71 9.59 9.29 8.15 2.56 2.1 1.99 1.96 1.13 TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 1 0 1 SHAREHOLDER INFORMATION CONT. Rank Name Units Percentage % 11 12 13 14 15 16 17 18 19 Jane Bennett held via: Jane Frances Bennett Chardon Lodge Pty Ltd Ms Jane Frances Bennett Roger McBain held via: Vermilion 21 Pty Ltd Cerulean 37 Pty Ltd Vermilion 21 Pty Ltd Vermilion 21 Pty Ltd Mr Darius Isaac Budleaf Pty Ltd Quality Life Pty Ltd Ilwella Pty Ltd J P Morgan Nominees Australia Pty Limited Elphinstone Holdings Pty Ltd Custodial Services Limited (various private holders) 20 Bob Wilson Totals: Top 20 holders of TFL ORDINARY FULLY PAID Total Remaining Holders Balance Total Holders Balance 3,309,087 3,271,026 3,065,316 2,100,000 2,541,070 2,394,475 1,900,807 2,000,000 1,767,281 1,600,000 260,423,004 91,479,656 351,902,660 As at 11 February 2021, the 20 largest shareholders held ordinary shares representing 74 % of the issued share capital. SUBSTANTIAL SHAREHOLDERS Substantial holders in the Company are set out below: Name Janet H Cameron CVC Limited. Tasplan Superannuation Fund Melbourne Securities Corporation C. VOTING RIGHTS Number Of Shares Held 61,950,725 51,769,199 33,779,663 32,674,307 0.94 0.93 0.87 0.60 0.72 0.68 0.54 0.57 0.50 0.45 % 17.6% 14.71 9.59% 9.29 % The voting rights attached to ordinary shares are set out below: On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. D. USE OF CASH Cash and assets readily convertible to cash held by the Company for the reporting period were used in a way consistent with its business strategy and objectives. TA S F O O D S A N N U A L R E P O R T 2 0 2 0 | 1 0 2 tasfoods.com.au 2020 ANNUAL REPORT

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