NOUMI LIMITED — Annual Report 2012

Aug 30, 2012

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ASX Announcement

Freedom Foods Group Limited (ASX: FNP)

Full Year FY 2012 Financial Results

Freedom Foods Group Limited (FNP) has today released the Company’s preliminary final results for the full year ended 30[th] June 2012.

Key Highlights

• Group Operating EBDITA of $5.4 million, a 35% increase on the previous corresponding period.

• Operating Pre-tax Profit was $3.5 million for the 12 months ended 30[th] June 2012, reflecting a 36% increase on the previous corresponding 12 month period.

• Sales growth in Freedom Cereals of 19%, compared to the previous corresponding period, with business unit EBDITA in line with FY 2011 given increased marketing investment.

• Dairy alternative beverage sales continued their trend from the half year with sales growth of 35% compared to the previous corresponding period.

• Speciality Seafood business unit maintained its share of the Salmon and Sardine categories, with the Paramount brand growing its share to the No 1 branded position in Pink Salmon segment.

• Pactum Australia contributed a strong sales and business contribution and provides a significant growth platform for the Company:

• In April 2012, the Company completed the acquisition of the 50% of the shares in Pactum not owned by the Company for $6 million; and

• Pactum is nearing completion of an approximate $7 million capital program to expand its packaging capability to provide portion pack UHT (250-330ml configuration) for value added beverages, with production to commence in November 2012.

• A2 Corporation (25.8% FNP shareholding) reported continued strong growth in the Australian fresh milk business with market share by value in grocery increasing above 5%. A2C current market capitalisation implies a value for the Company’s 25.8% investment of approximately A$55 million ($0.71 cents per FNP ordinary share), materially above book value and in excess of the Company’s current market capitalisation.

• Net Debt / Equity at 82% from 36% at June 2012, reflecting the financing of A2C share option subscription in July 2011, acquisition of 50% of Pactum Australia and assumption of Pactum Australia financing. On the basis that a planned exercise of outstanding share options by Perich Group for $6.3m had been affected at year end, Net Debt / Equity would have materially reduced to 60%.

• Net assets per share at $0.49 and net tangible assets of $0.26 per share, with A2C investment recorded at book value of $12.3m.

• The Company is to pay a final dividend for FY 2012 commensurate with the total dividend of $0.01 per ordinary share paid in the FY 2011 financial year. A fully franked converting preference share dividend to be paid in October 2012.

Group Summary Result

The company achieved an Operating EBDITA of $5.4 million, reflecting consolidation of Pactum Australia for 3 months, improving sales in the Freedom Foods business, and a contribution from Specialty Seafood in line with prior year.

Operating Pre-tax Profit was $3.5 million for the 12 months ended 30[th] June 2012, reflecting a 36% increase on the previous corresponding 12 month period.

The Reported Net Profit of $3.0 million included non-operating expenses relating to non-recurring acquisition costs for Pactum acquisition ($120k pre-tax) and employee share option expense ($106k pre-tax). The previous corresponding 12 month period included non-operating items that contributed $1.78 million to Net Profit, comprising primarily the profit on sale of the Company’s 50% interest in A2 Dairy Products Australia Pty Ltd (A2DPA), and write-down in the carrying value of Thorpedo Foods.

Equity Associates contributions of $1.2m reflected profitability from the Pactum Australia (JV basis) for 9 months and increased share of estimated year end profits from A2 Corporation.

Net assets impacted at 30 June 2012 by impact of accounting for Pactum acquisition under common control accounting principles. No goodwill is recognised ongoing in the Company’s balance sheet for the Pactum acquisition. The excess of cost over net assets acquired is treated as a debit to reserves.

Summary Financials

12 months to 30 June	2012	2011	% Change
	$’000	$’000
Gross Sales Revenues (1)	72,556	57,664	+25.8%
Net Sales Revenues	58,134	45,353	+28.2%
EBDITA (Operating) (2)	5,447	4,041	+34.7%
EBITA (Operating) (2)	4,075	2,949	+38.1%
Equity Associates Share of Profit	1,214	1,136	+6.8%
Pre Tax Profit (Operating)	3,476	2,556	+36.0%
Pre Tax Profit (Reported)	3,250	4,249	-23.5%
Net Profit (Operating)	3,305	3,735	-11.5%
Net Profit (Reported)	3,012	4,387	-31.3%
Interim Ordinary Dividend (cps)	-	$0.005
Final Ordinary Dividend (cps)	$0.010	$0.005
Interim CRPS Dividend (cps)	$0.014	-
Final CRPS Dividend (cps) (3)	$0.014	$0.020*
EPS (cents per share)( Fully Diluted for CRPS)	3.03	4.90	-38.1%
Net Debt / Equity	82%	36%	+125%
Net Assets per Share	$0.49	$0.52	-5.7%
Net Tangible Assets per Share	$0.26	$0.29	-10.3%

Notes:

(1) Gross Sales Revenues excludes Royalty income received from Yakult and does not include revenues from group associate entities, a2 Dairy Products, A2 Corporation. Includes Pactum for 3 months April to June 2012.

(2)Operating EBDITA and EBITA, excludes abnormal or non-operating charges with an add back of non cash employee share option expense of $106k and Pactum acquisition costs expense of $120k.

(3) CRPS dividend in 2011 of $0.02 included 6 month period and catch up period for 4 months based on issue date of CRPS of Dec 2010.

Business Units – Wholly Owned

Freedom Foods

The Freedom Foods business unit continued to build momentum from the prior financial year, delivering overall gross sales growth of 21% compared to the previous corresponding period.

The business invested significantly during the year in driving the Freedom branded portfolio through a focus on effective promotional price points, new product innovation and a marketing campaign comprising national radio and selected state based television campaign.

As a result, the business recorded volume growth in its core Cereals category of 22% and gross sales growth of 19%, compared to the previous corresponding period. Overall the impact of this increased investment during the year resulted in business unit EBDITA in line with FY 2011.

A key contributor to Freedom’s growth during the year was the ongoing benefits of the dedicated gluten, wheat and nut free manufacturing facility near Leeton NSW, a facility which the Company believes is the only integrated scale manufacturing capability in Australia and overseas for cereals and snacks “free from” key allergens such as gluten, nuts and dairy.

In the later part of the 2012 year, Freedom completed the commissioning of its snack bar line, consistent with the strategy to leverage its Cereal base into breakfast snack alternatives, as well as meeting demand for “nut free” snacks. New product innovation and reformulation of existing snack bar lines is expected to deliver sales growth and efficiencies in the near term.

Dairy alternative beverage sales (soy, rice and almond) continued the trend from FY 2011 with volume growth of 27% and sales growth of 35% compared to the previous corresponding period reflected increased market share of the Australia’s Own Organic brand from marketing investment and improved distribution.

As part of a focus on developing its range of beverages, the business launched an Australia’s Own Organic branded Almond Milk reflecting increasing consumer awareness of health benefits of Almond based products.

In addition, in conjunction with Pactum Australia and Blue Diamond Growers of California, the business launched under licence the Blue Diamond Almond Breeze Milk range into the mainstream market in Australia. This product range has become the fastest growing Almond milk product in the Australian market.

In late June, the business secured ranging for 3 cereal products in Whole Food’s Stores in USA, reflecting Freedom’s unique point of differentiation in offering a Cereal range free of all common allergens to lowest detectable standards globally.

The focus for the business remains on increasing sales through growth in distribution channels and increased awareness of the brand and products across a broader consumer market. The business will continue to drive category leadership of the health channel and support private label development that is complimentary to this both in Australia and internationally.

Aligned with the increasing sales base is a strong focus on improving sales margins and operational efficiencies at the Leeton site with the business progressing to meeting our benchmark 15% return on funds employed in the medium term.

Specialty Seafood

The Speciality Seafood business performed in line compared to the previous corresponding period, notwithstanding an inventory shortfall in Salmon in the 1[st] quarter, lower sales in New Zealand and increased competitor activity.

In Salmon, Paramount as the No 2 proprietary brand in the category, increased its share to the No 1 branded position in Pink Salmon segment ahead of John West and Own Brand labels.

Brunswick sardines maintained its No 1 brand leadership position in Australia and New Zealand.

While the business has seen the benefit of higher exchange rates on inventories purchased in $USD and $CAD, this has continued to assist in managing cost increases in salmon and sardine procurement, while facilitating increased trade investment.

The business continued to utilise the procurement power of Bumble Bee Foods of North America, with Bumble Bee securing inventory requirements through priority access to Salmon catch volumes. The business is focussed on driving category leadership of the speciality seafood channel through introducing new product opportunities from the Bumble Bee Foods procurement base and supporting private label supply in Specialty Seafood.

Pactum Australia

Pactum Australia which provides contract manufacture of long life (UHT) beverages for private label and proprietary customers delivered a strong sales and business EBDITA contribution.

Pactum Australia production volumes increased during the year to support the growth of the Freedom dairy alternative beverage range. The business continued to focus on increasing its mix of value added UHT products to a range of private label and proprietary customers.

As part of its growth strategy, Pactum is nearing completion of an approximate $7 million capital program to expand its packaging capability at its southern Sydney site to provide portion pack UHT (200-330ml configuration) for value added beverages, with initial customer production to commence in November 2012.

The expansion positions Pactum as the only independent low cost contract manufacturer of a broad range of UHT products on the east coast of Australia, with capability to meet the increasing demands from its private label and proprietary customer base.

As foreshadowed in April, Pactum is investigating establishment of a new state-of-the-art UHT processing plant in South East Australia.

The primary focus of the new capacity will be on supply of high quality UHT dairy milk for export markets to proprietary and private label customers in South East Asia, including China. The new production capacity would enable the business to meet growing demand for UHT dairy milk, while providing additional capacity for value added beverages at its Sydney facility. Pactum expects final feasibility to be completed by November 2012.

As a significant strategic growth platform going forward, the Company completed in April 2012 the acquisition of the 50% of the shares in Pactum, held by the Perich Group for $6 million.

The business currently delivers financial returns above the Company’s benchmark 15% return on funds employed.

FNP equity accounted 50% of the NPAT of Pactum for the nine months of 2012 for $564K ($841K 2010) and consolidated Pactum’s EBDITA for three months.

Strategic Equity Associates

A2 Corporation Limited (A2C), 25.8% Equity Interest

The Company is the largest single shareholder in A2 Corporation (A2C). A2C owns and commercialises unique and comprehensive intellectual property rights relating to a2™ brand milk and related dairy products in international markets.

a2™ brand milk is the fastest growing milk brand in the Australian market and the major driver of category growth nationally, accounting for in excess of 5.0% of grocery channel market share by value.

A2C recently took important steps towards the marketing of its products in the UK and Ireland by forming a partnership with Robert Wiseman Dairies, Britain’s largest fresh milk company. A launch of a2™ brand milk in the UK is scheduled for September 2012.

A2C is separately advancing plans to launch an a2™ infant formula product into the Chinese market, in conjunction with a strong local marketing partner.

In March, A2C successfully raised NZ$5.2m in capital at an issue price of NZ$0.37 cents per share to provide additional flexibility for growth.

A2C announced in April that it is undertaking a strategic review of its options to accelerate growth and maximise shareholder value. This review is being carried out in light of the Company’s strong growth options as well as approaches received from parties potentially interested in partnering with A2C.

In July 2011, FNP announced that under the terms of an option agreement between A2C and FNP, FNP subscribed for 18.7million fully paid ordinary shares in A2C at a price of NZ$0.13 (A$0.11) for a total consideration of A$2.06 million, which resulted in FNP increasing its shareholding in A2C to become the largest single shareholder in A2C.

A2C is listed on the alternative market (NZAX) of the New Zealand Stock Exchange (NZX: ATM), with a current market capitalisation of approximately NZ$272 million (A$212 million) implying a value for FNP’s 25.8% investment of around A$55 million ($0.71 cents per FNP ordinary share), materially above the book value of approximately A$12.3 million and in excess of FNP’s current market capitalisation of A$51m.

The Company equity accounted 25.8% of the estimated NPAT of A2C for the twelve months of $650K ($295K 2011).

Capital Management

The Company’s Net Debt / Equity at year end was 82% from 36% at June 2012, reflecting the financing of A2C share option subscription in July 2011, acquisition of 50% of Pactum Australia and assumption of Pactum’s finance facilities including financing for new processing and packaging capacity coming on line in FY13.

The Company has received notification from the Perich Group that they intend to exercise 15.9m ordinary share options with an exercise price of $0.40 cents for a total consideration of $6.3m. The consideration will be applied to reduction of the outstanding short term loans with the Perich Group.

The Perich Group is expected to exercise its options on or before 31[st] October 2012.

On the basis that the Company was in receipt of the option exercise funds at 30[th] June 2012, the net debt / equity ratio at 30[th] June would have materially reduced from 82% to 60%. The Company continues to repay debt through amortisation of bank facilities of approximately $3.5 million per annum.

The Company had $10.7 million of debtor finance facilities classified under accounting standards as current debt. The debtor finance facilities form part of the Company’s medium term financing facilities not due until December 2013.

Dividends

As foreshadowed at the half year, with the continued improvement in group business units’ performance, the Company will pay a final fully franked dividend for FY 2012 of $0.01 per ordinary share, consistent with the total dividend of (comprising interim and final) paid for the FY 2011 financial year. The dividend will be paid in November 2012.

Ordinary share dividend growth will be in line with the improving financial returns of the Company.

The Company will pay a fully franked converting preference share dividend to be paid in accordance with the terms of the converting preference shares in early November 2012.

Outlook

The Company continues to make good progress in the development of its unique business platforms in specialised areas of the food market, with two key growth opportunities in Freedom Foods and Pactum Australia, a stable business base in Specialty Seafood and a strategic opportunity in A2C.

The expansion of packaging capabilities in Pactum provides opportunity to increase sales and profitability through meeting the increasing demands of its private label and proprietary customer base. Additional opportunities are being explored to increase exposure to value added beverages for growing export markets in China and SE Asia. The consolidation of Pactum will assist in building more critical mass in earnings and cashflow of the group.

The strategic investment in A2C provides the Company and its shareholders a potentially significant value creation opportunity through A2C’s growth in Australia and international markets.

Overall the Company anticipates improved sales, operating profitability and return on funds employed in the FY 13 financial year.

For further information, contact:

Rory J F Macleod Managing Director

Freedom Foods Group Limited +612 9526 2555